UROQUEST MEDICAL CORP, S-1/A, 1996-10-01

UROQUEST MEDICAL CORP
S-1/A, 1996-10-01
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

Previous: PATRIOT AMERICAN HOSPITALITY INC, S-3/A, 1996-10-01

Next: UROQUEST MEDICAL CORP, 8-A12G, 1996-10-01

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996

REGISTRATION NO. 333-07277

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2

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

UROQUEST MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3845 59-3176454
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>

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

265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ERIC B. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROQUEST MEDICAL CORPORATION
265 EAST 100 SOUTH, SUITE 220
SALT LAKE CITY, UTAH 84111-1616
(801) 322-1554
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

COPIES TO:

<TABLE>
<S> <C>
DAVID R. RUDD, ESQ. CRAIG E. DAUCHY, ESQ.
DAVID G. ANGERBAUER, ESQ. MATTHEW B. HEMINGTON, ESQ.
HOLLAND & HART LLP COOLEY GODWARD LLP
215 SOUTH STATE STREET, SUITE 500 3000 SAND HILL RD., BLDG. 3, SUITE 230
SALT LAKE CITY, UTAH 84111 MENLO PARK, CALIFORNIA 94025-7116
(801) 595-7800 (415) 843-5000
</TABLE>

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

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

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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____

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

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

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

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 SUCH SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

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

SUBJECT TO COMPLETION, DATED OCTOBER 1, 1996

3,350,000 SHARES

LOGO

Common Stock

The 3,350,000 shares of Common Stock, par value $0.001 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered by UroQuest
Medical Corporation (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price will be between $8.00 and $10.00 per share. See
"Underwriting" for the factors considered in determining the initial public
offering price.

The Company has been approved for quotation on the Nasdaq National Market
("Nasdaq") under the symbol "UROQ."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6-15.

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS* COMPANY+
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total++............................ $ $ $
</TABLE>

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

* The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

+ Before deducting expenses of this Offering payable by the Company estimated to
be $600,000.

++ The Company has granted the Underwriters a 30-day option to purchase up to
502,500 additional shares of Common Stock on the same terms per share solely
to cover over-allotments, if any. If such option is exercised in full, the
total price to public will be $ , the total underwriting discounts
and commissions will be $ and the total proceeds to the Company will
be $ . See "Underwriting."

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

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about , 1996, against payment therefor. The Underwriters
include:

DILLON, READ & CO. INC. PRUDENTIAL SECURITIES INCORPORATED

The date of this Prospectus is , 1996
<PAGE> 3
- --------------------------------------------------------------------------------

The On-Command Catheter is an investigational device and has not been cleared or
approved by the FDA for commercial sale in the United States. The process of
obtaining FDA clearance or approval may be lengthy, and there can be no
assurance that the On-Command Catheter will be cleared or approved by the FDA.

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

On-Command(R) is a registered trademark of the Company. This Prospectus also
includes trademarks of companies other than the Company.

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

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Except as
set forth in the Financial Statements or as otherwise indicated, all information
in this Prospectus (i) assumes the Underwriters' over-allotment option is not
exercised, (ii) assumes the Company's reincorporation in the State of Delaware
(the "Reincorporation"), which will be completed prior to the closing of this
Offering, (iii) assumes a 1-for-3.5 reverse stock split of the outstanding
shares of Common Stock and Preferred Stock of the Company and that the
conversion of all outstanding shares of Non-Voting Common Stock into Common
Stock will be effected in connection with the Reincorporation, (iv) assumes the
filing of the Company's Restated Certificate of Incorporation, authorizing a
class of 16,000,000 shares of undesignated Preferred Stock, which will be
effective upon the closing of this Offering, (v) gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock upon the closing
of this Offering, (vi) assumes the exercise of warrants to purchase a total of
1,428,571 shares of Common Stock by certain of the Company's stockholders upon
the closing of this Offering, and (vii) assumes consummation of the proposed
acquisition of BMT, Inc. upon the closing of this Offering. See "Description of
Capital Stock," "Capitalization," "Underwriting" and "Acquisition of BMT."

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

UroQuest Medical Corporation (the "Company") was formed to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. The Company's principal product, the On-Command
Catheter, is an endourethral (inside the urethra) catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either urinary incontinence or urinary retention to
manage their condition without the restricted mobility, medical complications,
discomfort and embarrassment generally associated with many of the existing
management alternatives, including intermittent, Foley, external and suprapubic
catheters, diapers and absorbents, and penile clamps. Clinical trials of the
On-Command Catheter have demonstrated the utility of the device in managing male
urinary outflow disorders. The results of the clinical trials showed an overall
symptomatic urinary tract infection rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. Of the patients
included in the trials, approximately 90% found the Male On-Command Catheter
maintained continence and was comfortable to wear and easy to use.

Urinary outflow dysfunction, or voiding disorders, affects at least 13
million people in the United States, including approximately three million men
and ten million women. The Company believes the incidence of urinary outflow
dysfunction in other developed countries is also significant. Urinary outflow
dysfunction is a problem that affects a large number of both institutionalized
(nursing home and hospital care) and community-dwelling individuals, and can be
characterized as either incontinence or retention. Urinary incontinence is the
inability to control one's urinary function, leading to frequent involuntary
urine leakage from the bladder. Urinary retention is the inability to
voluntarily and spontaneously empty one's bladder, preventing urine flow even
though the bladder continues to fill. More than 50% of the estimated 1.5 million
nursing home patients have voiding disorders. Additionally, in contrast to the
widely-held notion that voiding disorders are primarily a problem of the
institutionalized elderly, a 1986 National Institute on Aging study indicated
that 30% of the estimated 40 million community-dwelling population between the
ages of 60 to 84 also suffer from some form of urinary outflow dysfunction.

3
<PAGE> 5

The cost associated with the treatment and management of voiding disorders
is estimated to exceed $16 billion annually in the United States alone. Despite
the development of new treatment options, a recent survey conducted by the
National Association for Continence indicated that approximately 56% of
treatments for urinary outflow dysfunction produced no improvement or made the
patients' conditions worse. Therefore, the majority of sufferers must live with
the numerous problems associated with these disorders and seek acceptable
management modalities for their symptoms.

Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an Investigational Device Exemption
("IDE") application approved by the United States Food and Drug Administration
(the "FDA"). Through August 31, 1996, 70 patients had received a total of 223
male devices, with indwelling periods ranging from three days to 64 days, with
an average indwelling period of 25 days per device insertion. The longest trial
period on any patient was 32 months, with the patient receiving a total of 30
device insertions. The results, while promising, are preliminary and additional
clinical testing is required before any definitive conclusions can be reached
concerning the general use of the On-Command Catheter. Consequently, the Company
is preparing to conduct a controlled, randomized clinical study under an
approved IDE application at three sites that have received Institutional Review
Board ("IRB") approval. The predicate device to be used in connection with the
study is the Foley catheter. The Company expects to complete the study, which
has a targeted enrollment of 60 male patients, in the first quarter of 1997. An
IDE application for the Female On-Command Catheter was approved in March 1996
and the Company has obtained IRB approval at two investigational sites and is
conducting a non-randomized pilot evaluation prior to initiating a controlled,
randomized study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with B. Braun Biotrol S.A.
("Braun"), a Europe-based multinational medical device company. Braun plans to
conduct the evaluation and to prepare the necessary regulatory filings in 16
European countries. The clinical evaluation of the Male On-Command Catheter in
Europe is expected to begin by the end of 1996 at a total of six investigational
sites in France, Germany and Spain.

The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutional and international markets. Medical association
estimates indicate that there are approximately 9,000 urologists and uro-
gynecologists in the United States whom the Company expects to address with a
relatively small direct sales force consisting of approximately 20 individuals
by the year 1999. The Company anticipates that the On-Command Catheter will be
marketed internationally through Braun and other marketing partners and
distributors following required clinical testing and necessary regulatory
approval.

In June 1996, the Company entered into a definitive agreement to acquire
BMT, Inc. and its wholly owned subsidiary, Bivona, Inc. (collectively, "BMT").
BMT designs, develops, manufactures and markets a line of proprietary silicone
medical device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical
device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,100 Male
On-Command Catheters. The acquisition will be effected through a merger of BMT
with and into an acquisition subsidiary of the Company pursuant to which
shareholders of BMT will receive, in the aggregate, a combination of $10 million
cash and 2,500,000 newly issued shares of Common Stock. The acquisition will
enable the Company to control its own production source while providing
necessary capacity and flexibility in the manufacturing process. The product
development and production expertise of BMT is also anticipated to be utilized
by the Company to develop additional On-Command Catheter products and other new
devices related to the management and diagnosis of urological disorders.

4
<PAGE> 6

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including risks associated with the lack of regulatory approval
and limited clinical data, dependence upon the On-Command Catheter, uncertainty
of market acceptance, limited operating history, history of losses and
expectation of future losses, risks associated with the acquisition of BMT,
government regulation, lack of marketing and sales experience, manufacturing
risks and other factors. Prospective investors should refer to "Risk Factors"
set forth on pages 6 to 15.

The Company will not be able to market the On-Command Catheter in the
United States unless and until it obtains clearance or approval from the FDA.
There can be no assurance that the Company will obtain FDA clearance or approval
for the On-Command Catheter on a timely basis, if at all.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................................... 3,350,000 shares
Common Stock to be outstanding after this Offering...................... 11,818,626 shares(1)
Use of proceeds......................................................... To fund the acquisition of BMT,
clinical trials, marketing and
sales, research and development,
and for working capital and general
corporate purposes
Nasdaq National Market symbol........................................... UROQ
</TABLE>

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
---------------------------------------------------------------------------------- -------------------------
PERIOD FROM SIX MONTHS ENDED SIX MONTHS
INCEPTION YEAR ENDED DECEMBER 31, JUNE 30, YEAR ENDED ENDED JUNE
(APRIL 8, 1992) -------------------------------------- ----------------------- DEC. 31, 30,
TO DEC. 31,1992 1993 1994 1995 1995 1996 1995 1996
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $14,257,413 $ 7,483,367
Cost of sales..... -- 832 2,381 -- -- -- 7,634,708 4,156,655
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Gross profit...... -- 147 420 -- -- -- 6,622,705 3,326,712
Research and
development..... -- 120,531 431,295 1,106,631 436,879 550,535 2,092,896 1,081,120
General and
administrative... 11,234 156,647 483,399 397,523 202,835 225,016 2,050,720 1,133,131
Sales and
marketing....... -- 38,392 30,257 46,262 3,589 52,667 1,739,143 744,276
Amortization of
goodwill........ -- -- -- -- -- -- 794,600 397,300
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Operating loss.... (11,234) (315,423) (944,531) (1,550,416) (643,303) (828,218) 54,654 29,115
Other income
(expense),
net............. -- -- (260,663) 36,669 16,963 (6,848) (278,479) (143,637)
--------------- ---------- ----------- ----------- ---------- ---------- ----------- -----------
Net loss.......... $ (11,234) $ (315,423) $(1,205,194) $(1,513,747) $ (626,340) $ (835,066) $ (333,133) $ (172,752)
================= ============ ============= ============= ============ ============ ============= =============
Pro forma net loss
per share(4).... $(0.36) $(0.18) $(0.03) $(0.01)
============= ============ ============= =============
Shares used in
computing pro
forma net loss
per share(4).... 4,194,506 4,562,476 11,473,077 11,841,047
============= ============ ============= =============
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------
PRO FORMA(2) AS ADJUSTED(3)
------------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 5,268,543 $22,318,043
Working capital............................................................................ (1,260,916) 26,178,584
Total assets............................................................................... 32,442,539 49,492,039
Long-term debt, excluding current portion.................................................. 2,027,223 2,027,223
Deficit accumulated during development stage............................................... (4,663,664) (4,663,664)
Stockholders' equity....................................................................... 18,178,058 45,617,558
</TABLE>

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

(1) Excludes 20,935 shares of Common Stock reserved for issuance pursuant to
outstanding warrants and 1,055,674 shares of Common Stock reserved for
issuance pursuant to outstanding stock options as of June 30, 1996. Also
excludes a total of 482,963 shares of Common Stock reserved for future
issuance under the Company's 1994 Stock Option Plan and 1996 Employee Stock
Purchase Plan. See Note 5 of Notes to Consolidated Financial Statements of
UroQuest Medical Corporation, "Management -- Stock Plans" and "Description
of Capital Stock."

(2) Reflects the pro forma combination of the Company and BMT as if the
acquisition of BMT had occurred at the beginning of each of the periods
presented for consolidated statements of operations data and as of June 30,
1996 for consolidated balance sheet data and gives effect to each of the
events that will occur upon or prior to the closing of this Offering.

(3) Adjusted to give effect to the receipt of the net proceeds from the sale of
the 3,350,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $9.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses
payable by the Company).

(4) See Note 1 of Notes to Consolidated Financial Statements of UroQuest Medical
Corporation for information concerning the computation of pro forma net loss
per share and shares used in computing pro forma net loss per share.

5
<PAGE> 7

RISK FACTORS

The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.

LACK OF REGULATORY APPROVAL AND LIMITED CLINICAL DATA

The Company's principal product, the On-Command Catheter, is an
investigational device that has not been cleared or approved by the FDA or
foreign regulatory authorities and will not be available for commercial
distribution in the United States or internationally unless and until such
clearance or approval is obtained. The Male On-Command Catheter is currently in
clinical testing in the United States with respect to single use insertions of
up to 30 days. Clinical data obtained to date is limited. The Company is
preparing to conduct a controlled, randomized clinical study of the Male
On-Command Catheter. There can be no assurance that the FDA will determine that
the data derived from the clinical study will support the safety and efficacy of
the device. Clinical testing of the Female On-Command Catheter has only recently
been initiated. If either the Male or Female On-Command Catheter does not prove
to be safe and effective in clinical testing to the satisfaction of the FDA or
foreign regulatory authorities, the Company will not be able to market or
commercialize the On-Command Catheter in the United States or abroad.
Furthermore, clearance or approval for single use insertions of the On-Command
Catheter, if obtained, does not mean that use of successive device insertions
will be approved. There can be no assurance that either single use or successive
insertion use of the On-Command Catheter will prove to be safe and effective in
the United States or international clinical testing, or that FDA or foreign
regulatory clearance or approval will be obtained on a timely basis, if at all.
In addition, the clinical testing may identify technical, manufacturing, design
or other obstacles that can delay completion of such testing, as was experienced
in early clinical trials of the Male On-Command Catheter. If the On-Command
Catheter does not prove to be safe and effective in clinical testing or if the
Company is otherwise unable to obtain necessary regulatory approval, the
Company's business, financial condition and results of operations will be
materially adversely affected. See "Business -- The On-Command Solution for
Managing Incontinence and Retention, -- Clinical Trials, and -- Government
Regulation."

DEPENDENCE UPON THE ON-COMMAND CATHETER

The Company expects to derive a substantial majority of its future revenues
from sales of the On-Command Catheter. Although the operations of BMT are
expected to be the sole source of revenues in the short-term, the Company's
long-term revenues and future success are substantially dependent upon its
ability to market and commercialize the On-Command Catheter in the United States
and abroad. Although the Company markets a line of proprietary medical device
products through BMT, there can be no assurance that such products will receive
continued market acceptance or generate significant sales. Furthermore, even
though the Company is in the process of developing new products in addition to
the On-Command Catheter, there can be no assurance that such development efforts
will be successful or that any resulting products will achieve market
commercialization. The life cycle of the On-Command Catheter is difficult to
estimate, particularly in light of current and future technological
developments, competition and other factors. The failure of the Company to
successfully commercialize the On-Command Catheter or to realize significant
revenues therefrom would have a material adverse effect on the business,
financial condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- The On-Command Solution for Managing Incontinence and Retention,
and -- Clinical Trials."

UNCERTAINTY OF MARKET ACCEPTANCE

6
<PAGE> 8

recommendations of the On-Command Catheter by physicians will be essential for
market acceptance of the On-Command Catheter, and there can be no assurance that
any such recommendations will be obtained. Broad use of the On-Command Catheter
will require the training of numerous physicians, and the time required to
complete such training could result in a delay or dampening of market
acceptance. Moreover, health care payers' approval of reimbursement for the
On-Command Catheter will be an important factor in establishing market
acceptance. Patient acceptance of the device will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products, lifestyle
implications, available reimbursement and other considerations. Failure of the
On-Command Catheter to achieve substantial market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Marketing and Sales, and -- Third Party
Reimbursement."

LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATION OF FUTURE LOSSES

The Company has a limited history of operations. Since its inception in
April 1992, the Company has been primarily engaged in research and development
of the On-Command Catheter. The Company has experienced substantial operating
losses since inception and, as of June 30, 1996, had an accumulated deficit of
$3,880,664. The Company expects its operating losses to continue for at least
the next two years as it continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals, expansion
of marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

RISKS ASSOCIATED WITH BMT ACQUISITION

The acquisition of BMT will result in the existing shareholders of BMT
owning approximately 21.2% of the Company and constitutes the Company's first
acquisition of another business. BMT's operations are significantly different in
many respects from the Company's current operations, and the acquisition may
result in a number of unforeseen difficulties and problems that could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the anticipated benefits
of the acquisition will be realized. Moreover, the acquisition could have the
effect of disrupting the current business and operations of BMT by adversely
affecting material relationships with significant customers and others,
including principal suppliers and key employees. In particular, approximately
40% of BMT's net sales during 1995 and the first half of 1996 were derived from
its manufacture of OEM medical device products. BMT maintains no long-term OEM
customer contracts and, during 1995 and the first half of 1996, BMT derived
approximately 20% of its net sales from one such customer. Although BMT intends
to continue developing its OEM business, there can be no assurance that BMT will
be successful in its efforts or that its OEM customers will react favorably to
the acquisition. The acquisition of BMT could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Acquisition of BMT," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- BMT."

GOVERNMENT REGULATION

7
<PAGE> 9

applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or approval
for devices, withdrawal of marketing clearances or approvals, and criminal
prosecution. The FDA also has authority to request recall, repair, replacement
or refund of the cost of any device manufactured or distributed by the Company.

Companies desiring to market a new medical device generally must obtain
either a premarket notification clearance under Section 510(k) of the FDC Act
("510(k)") or a premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or efficacy of the device are also subject to
FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than a PMA, the process of obtaining a
510(k) clearance generally requires the submission of supporting data, which may
include data from clinical trials of the device. The time period required to
assemble and compile this data can be extensive and can extend the regulatory
process for a considerable length of time. The PMA process can take several
years or longer from initial filing and requires the submission of extensive
clinical data and supporting information.

The FDA has approved IDEs for both the Male On-Command Catheter and the
Female On-Command Catheter. The Company has obtained IRB approval and is
conducting non-randomized pilot evaluations of both devices prior to initiating
controlled, randomized studies. There can be no assurance that the FDA will
determine that the data derived from these studies will support the safety and
efficacy of the devices or warrant the continuation of clinical studies.

The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.

Regulatory approvals, if granted, may include significant limitations on
the indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the marketing of approved medical devices for unapproved
uses. The Company will be required to adhere to applicable FDA regulations
regarding Good Manufacturing Practices ("GMP") and similar regulations in other
countries, which include testing, control, and documentation requirements, and
with Medical Device Reporting ("MDR") requirements. Ongoing compliance with GMP
and other applicable regulatory requirements will be monitored through periodic
inspections by state and federal agencies, including the FDA, and by comparable
agencies in other countries. In addition, changes in existing regulations or
adoption of new governmental regulations or policies could prevent or delay
regulatory approval of the Company's products.

Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval

8
<PAGE> 10

will therefore be outside the Company's control. Moreover, the success of such
evaluation in Europe will be dependent, in large part, on Braun's capabilities
and performance. Some countries in which the Company intends to sell devices
through distributors (for example, France, Germany and Spain) either do not
currently regulate medical devices such as the On-Command Catheter or have
minimal registration requirements. However, these countries may develop more
extensive regulations in the future that could impact the Company's ability to
market the On-Command Catheter.

There can be no assurance that the Company will be able to obtain 510(k)
clearance or, if required, PMA approval to market the On-Command Catheter or
other products in the United States for their intended uses on a timely basis or
at all, and delays in receipt of or failure to receive such clearances or
approvals, or failure to comply with existing or future regulatory requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations.

BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is registered with the FDA and is a manufacturer, distributor, initial
importer, repackager and relabeler of medical devices. Among its activities, BMT
markets a range of proprietary and OEM products, most of which were required to
receive 510(k) clearance. BMT has made modifications to one or more of its
cleared proprietary devices that BMT believes do not require the submission of
new 510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA. See
"Business -- Clinical Trials, and -- Government Regulation."

LACK OF MARKETING AND SALES EXPERIENCE

To date, the Company has not sold any On-Command Catheter products.
Although the Company intends to market the On-Command Catheter in the United
States through a direct sales force, if and when necessary regulatory approvals
are obtained, the Company currently does not employ any marketing or sales
employees for the On-Command Catheter. In addition, the Company intends to
market the On-Command Catheter internationally through independent foreign
distribution arrangements, none of which are currently in place. There can be no
assurance that the Company can attract and retain its own qualified marketing
and sales personnel, establish acceptable international arrangements or
otherwise design and implement an effective marketing and sales strategy for the
On-Command Catheter. See "Business -- Marketing and Sales."

MANUFACTURING RISKS

Through BMT, the Company has only manufactured the On-Command Catheter in
limited quantities for clinical testing purposes. Although BMT has extensive
experience in manufacturing custom silicone products, including urological
catheters, the Company, including BMT, does not have experience in manufacturing
the On-Command Catheter in commercial quantities. The Company may encounter
difficulties, delays and significant expenses in scaling up production of the
On-Command Catheter, including potential problems involving production yields,
quality control, component supply and shortages of qualified personnel. The
Company may also experience higher than expected manufacturing costs that could
prevent the Company from selling the On-Command Catheter at a commercially
reasonable price. There can be no assurance that difficulties or unfavorable
costs will not be encountered in mass-production of the On-Command Catheter and,
in such an event, these difficulties or costs could result in a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing."

9
<PAGE> 11

RELIANCE ON PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY

The Company's ability to compete effectively will depend, in part, on its
ability to develop and maintain proprietary aspects of its technology. The
Company holds ten United States patents, eight of which relate to the On-Command
Catheter, and numerous foreign patents, and has five United States patent
applications and various foreign patent applications pending. Through BMT, the
Company holds an additional fifteen United States patents and nine foreign
patents. There can be no assurance that the Company's issued patents, or any
patents which may be issued as a result of the Company's applications, will
offer any degree of protection. Moreover, there can be no assurance that any of
the Company's patents or patent applications will not be challenged, invalidated
or circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made significant
investments in competing technologies, will not seek to apply for and obtain
patents that may prevent, limit or interfere with the Company's ability to make,
use or sell its products either in the United States or internationally.

In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with employees, certain of its consultants and other parties. The
Company's proprietary information agreements with its employees and consultants
contain provisions requiring such individuals to assign to the Company without
additional consideration any inventions conceived or reduced to practice by them
while employed or retained by the Company, subject to customary exceptions.
There can be no assurance that proprietary information agreements with
employees, consultants and others will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors. The
Company also seeks to protect its trademarks through registration. There can be
no assurance, however, that registration of such marks will provide any
significant protection. See "Business -- Patents and Proprietary Rights."

COMPETITION AND TECHNOLOGICAL ADVANCES

Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes its
principal competition will come from existing incontinence management
modalities, such as adult diapers and absorbents. The market for adult
absorbents is currently dominated by companies such as Kimberly-Clark
Corporation, Procter & Gamble Company and Johnson & Johnson Co. The Company also
expects to face significant competition from other domestic and international
companies that are developing similar and other products and technologies for
the management of incontinence. Most of the Company's competitors and potential
competitors have significantly greater financial, technical, research,
manufacturing, marketing, sales, distribution and other resources than the
Company. There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies and products that are more
effective or commercially attractive than any which may be offered by the
Company, or that such competitors will not succeed in obtaining regulatory
approval, introducing or commercializing any such products prior to the Company.
Such developments could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Competition, and -- BMT."

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT

In the United States and in foreign countries, third-party reimbursement is
generally available for medical devices such as intermittent, Foley, external
and suprapubic catheters for the management of urinary outflow dysfunction,
including incontinence and retention. Products such as diapers and absorbents
that are widely used for incontinence management generally do not receive
third-party reimbursement and are paid for by the patient. The Company believes,
based on the availability of third-party reimbursement for certain other medical
devices, that the On-Command Catheter will generally be eligible for coverage by
third-party reimbursement programs. There can be no assurance, however, that
such reimbursement will be available. The Company is unable to determine whether
the On-

10
<PAGE> 12

Command Catheter reimbursement amount, if any, will be sufficient to cover the
cost of the product. If third-party reimbursement is unavailable, consumers will
have to pay for the On-Command Catheter themselves, resulting in greater
relative out-of-pocket costs for the device as compared to surgical procedures
and other management options for which third-party reimbursement is available.
The Company does not expect that third-party reimbursement will be available, if
at all, unless and until FDA and foreign regulatory approval is received. After
such time, if ever, as applicable regulatory approval is received, third-party
reimbursement for the On-Command Catheter will be dependent upon decisions by
the Health Care Financing Administration for Medicare in the United States and
similar authorities abroad, as well as by private insurers and other payers.

Changes in the availability of third-party reimbursement for the On-Command
Catheter, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command Catheter or the relative cost to the
patient. Regardless of the type of reimbursement system, the Company believes
that physician advocacy of the On-Command Catheter will be required to obtain
reimbursement. There can be no assurance that reimbursement for the Company's
products will be available in the United States or in international markets
under either governmental or private reimbursement systems, or that physicians
will support the On-Command Catheter. Failure to obtain such reimbursement may
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Third-Party Reimbursement."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command Catheter and other products gain market
acceptance, actions relating to regulatory and reimbursement matters, progress
of clinical trials, the effect of competitive products, the cost and effect of
future marketing programs, the resources the Company devotes to manufacturing
and developing its products, the success of BMT's operations, general economic
conditions and various other factors. The timing and amount of such capital
requirements cannot adequately be predicted. Consequently, although the Company
believes that the net proceeds from this Offering, together with existing
borrowings and cash anticipated to be generated from BMT's operations, will
provide adequate funding for its capital requirements in the foreseeable future,
there can be no assurance that the Company will not require additional funding
or that such additional funding, if needed, will be available on terms
satisfactory to the Company, if at all. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
significant restrictive covenants. Failure to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

DEPENDENCE UPON KEY EMPLOYEES

The Company is dependent upon a number of key management and technical
personnel. The loss of the services of one or more key employees would have a
material adverse effect on the Company. The Company's ability to manage its
transition to commercial-scale operations, and hence its success, will depend in
large part on the efforts of these individuals. The Company's success will also
depend on its ability to attract and retain additional highly qualified
management and technical personnel. The Company faces intense competition for
qualified personnel, and there can be no assurance that the Company will be able
to attract and retain such personnel. See "Business -- Employees" and
"Management."

INTELLECTUAL PROPERTY LITIGATION RISKS

The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. The Company is aware of patents held by other
participants in the urological disorder management market, and there can be no
assurance that

11
<PAGE> 13

the Company will not in the future become subject to patent infringement claims
and litigation or interference proceedings before the United States Patent and
Trademark Office (the "PTO"). The defense and prosecution of intellectual
property suits, PTO interference proceedings and related legal and
administrative proceedings are both costly and time consuming. Litigation may be
necessary to enforce patents issued to the Company, to protect trade secrets or
know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others.

Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Patents and Proprietary Rights."

INTERNATIONAL SALES RISKS

The Company plans to sell the On-Command Catheter and other products both
in the United States and in foreign markets. Any international sales are
expected to be made through independent foreign distributors and involve a
number of inherent risks. Consequently, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command Catheter or
other products in any foreign market. International sales may be adversely
affected by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs, distributor
difficulties, communications problems, fluctuations in foreign currency rates,
foreign competition and other factors. Any one or more of these factors could
limit the Company's international sales and have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Marketing and Sales."

PRODUCT LIABILITY RISK; PRODUCT RECALL RISK; NO INSURANCE COVERAGE

The manufacture and sale of medical devices entails significant product
liability and recall risks. A recent United States Supreme Court decision held
that product liability may exist despite FDA approval and future court decisions
may also affect the Company's risk of product liability. Although the Company
intends to obtain product liability insurance covering the On-Command Catheter
prior to commercialization, it does not currently have such insurance which may
be expensive and may not be available on acceptable terms, if at all. Although
BMT maintains product liability insurance with respect to its products, the
Company does not maintain product liability insurance for products that are in
clinical trials or otherwise in the development stage. A successful product
liability claim or series of claims brought against the Company that are not
covered by insurance or are in excess of BMT's insurance coverage with respect
to BMT's products could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that product recalls, which could have a material adverse effect
on the Company's business, financial condition and results of operations, will
not occur. See "Business -- Product Liability and Insurance."

UNCERTAINTY RELATED TO HEALTH CARE REFORM

Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation to date, the Company
anticipates that Congress, state legislatures and the private sector will

12
<PAGE> 14

continue to review and assess alternative health care delivery and payment
systems. Potential approaches that have been considered include mandated basic
health care benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups, price controls and
other fundamental changes to the health care delivery system. Legislative debate
is expected to continue in the future, and market forces are expected to demand
reduced costs. The Company cannot predict what impact the adoption of any
federal or state health care reform measures, future private sector reform or
market forces may have on its business.

DEPENDENCE UPON KEY SUPPLIERS

BMT purchases certain of the components used to manufacture the On-Command
Catheter from several single source suppliers, with whom BMT has no long-term
agreements. Any interruptions or delays associated with any component shortages,
particularly as the Company scales up its manufacturing activities in support of
commercial sales of the On-Command Catheter, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing."

UNCERTAINTY OF BMT OPERATIONS

Although the business operations of BMT have continued since 1971, there
can be no assurance that BMT's revenues, cash flow or current profitability and
growth rate will continue in the future. Furthermore, BMT is subject to general
business risks associated with operations of its size and, in particular, to the
same risks faced by other companies that manufacture and market medical device
products. Because virtually all of BMT's proprietary and OEM products
incorporate silicone components, any cost increase or other negative development
associated with this material could adversely affect its business, financial
condition and results of operations. BMT has faced two labor union election
contests in the past six years and may face additional elections in the future.
In the event BMT becomes subject to a collective bargaining agreement, it may
experience increased labor and related costs that could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Employees, and -- BMT."

ENVIRONMENTAL RISKS

Through BMT, the Company utilizes many raw materials in the manufacturing
process that are subject to various environmental laws and regulations. Proper
disposal of waste including metals and chemicals used in the manufacturing
process is a major consideration for medical device manufacturers. In the event
of a violation of environmental laws, the Company could be held liable for
damages and for the costs of remedial actions and could also be subject to
revocation of permits necessary to conduct its business. Any such revocations
could require the Company to cease or limit production at its facilities, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is also subject to
environmental laws relating to the storage, use and disposal of chemicals, solid
waste and other hazardous materials, as well as air quality regulations. Changes
or restrictions on discharge limits, emissions levels, or material storage or
handling might require a high level of unplanned capital investment and/or
subsequent relocation to another location. There can be no assurance that the
Company will be able to comply with the discharge levels mandated or that the
costs of complying with such regulations will not require additional capital
expenses. Furthermore, there can be no assurance that compliance with such
regulations will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing."

13
<PAGE> 15

MANAGEMENT'S BROAD DISCRETION IN THE USE OF UNALLOCATED PORTION OF PROCEEDS

A significant portion of the net proceeds to the Company from this offering
are not allocated to any specific purpose. Accordingly, the Company's management
will retain broad discretion as to the allocation of a substantial portion of
the net proceeds from this offering. Stockholders will not have any advance
notice or opportunity to approve the Company's uses of these unallocated
proceeds.

CONTINUED CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES AFTER
OFFERING

The Company's directors, executive officers and entities affiliated with
them will, in the aggregate, beneficially own approximately 56% of the Common
Stock following the completion of this Offering. As a result, these
stockholders, if acting together, would be able to exert substantial influence
over and could possibly control all matters requiring approval by the
stockholders of the Company, including the election of directors and mergers or
other business combination transactions. In addition, each of Warburg, Pincus
Investors, L.P. ("Warburg"), the Company's principal stockholder, and Vertical
Fund Associates, L.P. ("Vertical") is entitled to designate, in certain
circumstances, three members of the Board of Directors, which may not have more
than 11 directors without consent of each such stockholder. In this event,
Warburg and Vertical, if acting together, would be able to control the
direction, management and policies of the Company. See "Certain Transactions"
and "Principal Stockholders."

NO PRIOR PUBLIC TRADING MARKET

Prior to this Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which was established by negotiations between the Company and the
Underwriters, may not be indicative of prices that will prevail in the trading
market. In particular, there can be no assurance that the market price will not
be below the initial public offering price. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. In addition, the market price of the Common
Stock is likely to be highly volatile. Factors such as fluctuations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors, FDA and international regulatory
actions, actions with respect to reimbursement matters, developments with
respect to patents or proprietary rights, public concern as to the safety of
products developed by the Company or others, changes in health care policy in
the United States and internationally, changes in stock market analyst
recommendations regarding the Company, other medical device companies or the
medical device industry generally and general market conditions may have a
significant effect on the market price of the Common Stock. In addition, it is
likely that during future quarterly periods, the Company's results of operations
may fluctuate significantly or may fail to meet the expectations of stock market
analysts and investors and, in such event, the Company's stock price could be
materially adversely affected. In the past, securities class action litigation
has often been initiated following periods of volatility in the market price of
a company's securities. Such litigation, if brought against the Company, could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

CERTAIN ANTI-TAKEOVER EFFECTS OF CHARTER, BYLAW AND OTHER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire, control of the
Company. Such provisions could discourage bids for the Common Stock at a premium
over its market price or otherwise limit the price that certain investors might
be willing to pay

14
<PAGE> 16

in the future for shares of the Common Stock. The Board of Directors may issue
Preferred Stock without any vote or further action by the stockholders, which
issuance may have the effect of preventing or delaying a change in control of
the Company and may adversely affect the rights of the holders of the Common
Stock. See "Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POTENTIAL ADVERSE EFFECT
ON MARKET PRICE

Sales of Common Stock (including shares issued upon the exercise of
outstanding options or warrants) in the public market after this Offering could
materially adversely affect the market price of the Common Stock. Such sales
also might make it more difficult for the Company to sell equity securities or
equity-related securities in the future at a time and price that the Company
deems appropriate. Upon the completion of this Offering, the Company will have
11,818,626 shares of Common Stock outstanding, assuming no exercise of options
or warrants after June 30, 1996, of which the 3,350,000 shares offered hereby
will be freely tradable without restriction under the Securities Act of 1933, as
amended (the "Securities Act") unless held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act. The remaining
8,468,626 shares of Common Stock held by existing stockholders will be
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. These
shares may be sold in the public market only if registered or pursuant to an
exemption from registration, such as Rule 144, 144(k) or Rule 701 under the
Securities Act. All executive officers, directors and certain stockholders of
the Company, holding in aggregate 8,342,465 shares of Common Stock, are subject
to lock-up agreements which provide that they will not offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, or agree to dispose
of, directly or indirectly, any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into Common Stock owned by them for a period of 180 days after the date of this
Prospectus, without the prior written consent of Dillon, Read & Co. Inc.
("Dillon Read"). Dillon Read may, in its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements after the initial 180-day period. Upon expiration of the 180-day
lock-up agreements, approximately 658,979 shares of Common Stock held by
existing stockholders will be eligible for immediate public resale without
restriction pursuant to Rule 144(k) or Rule 701, and approximately 2,938,647
shares held by existing stockholders will be eligible for sale subject to the
volume limitation and other restrictions of Rule 144. The remaining 4,871,000
shares held by existing stockholders will become eligible for public resale
pursuant to Rule 144 upon the expiration of their two-year holding periods. As
of June 30, 1996, 1,055,674 shares were subject to outstanding options and
20,935 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Upon expiration of such
lock-up agreements, 667,186 shares subject to such options will be vested. Upon
expiration of the lock-up agreements referred to above, holders of approximately
5,914,406 shares of Common Stock (including shares issuable upon exercise of
certain options and warrants) or their transferees will be entitled to certain
registration rights with respect to such shares. If such holders, by exercising
such rights, cause a large number of shares to be registered and sold in the
public market, such sales could have a material adverse effect on the market
price of the Common Stock. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this Offering will therefore incur immediate and substantial net
tangible book value dilution. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."

15
<PAGE> 17

THE COMPANY

The Company was originally incorporated in Florida in April 1992 as Trek
Medical Corporation. In June 1994, the Company changed its name to UroQuest
Corporation. Prior to the closing of this Offering, the Company intends to
reincorporate in the State of Delaware and change its name to "UroQuest Medical
Corporation."

Unless the context otherwise requires, references in this Prospectus to the
"Company" refer to UroQuest Medical Corporation and each of its wholly owned
subsidiaries, assuming the acquisition of BMT has been consummated. Unless the
context otherwise requires, (i) references to "UroQuest" refer only to UroQuest
Medical Corporation and UroCath Corporation, its wholly owned subsidiary, and
(ii) references to "BMT" refer to BMT, Inc. and Bivona, Inc., its wholly owned
subsidiary. The Company's principal executive offices are located at 265 East
100 South, Suite 220, Salt Lake City, Utah 84111-1616, and its telephone number
is (801) 322-1554.

ACQUISITION OF BMT

In June 1996, UroQuest entered into a definitive agreement and plan of
merger (the "Agreement") to acquire BMT. BMT designs, develops, manufactures and
markets a line of proprietary silicone medical device products as well as
provides engineering design, development and manufacturing services for silicone
products on an OEM basis for other medical device companies. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,100 Male On-Command Catheters. The business of BMT was commenced
in 1971 to develop tracheal and endotracheal tubes for airway management and has
expanded to include various other medical device products. The principal
facilities and executive offices of BMT are located in Gary, Indiana. See
"Business -- BMT."

In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. Consummation of the acquisition is expected to occur upon the closing of
this Offering. For the year ended December 31, 1995, BMT had revenues of
$14,257,413 and net income of $1,431,614. For the six months ended June 30,
1996, BMT had revenues of $7,483,367 and net income of $772,814. See the
Consolidated Financial Statements of BMT and pro forma financial information set
forth elsewhere in this Prospectus.

The Company believes the acquisition will provide a number of significant
benefits. BMT is one of a limited number of specialty manufacturers of silicone
catheters in the United States. The acquisition will enable the Company to
control its own production source while providing necessary capacity and
flexibility in the manufacturing process. The product development and production
expertise of BMT is also anticipated to be utilized by the Company to develop
additional On-Command Catheter products and other new devices related to the
management and diagnosis of urological disorders.

The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. Moreover, the acquisition of BMT could have the effect of disrupting
the current business and operations of BMT by adversely affecting material
relationships with significant customers and others, including principal
suppliers and key employees. The acquisition could also redirect significant
management attention and other resources that would otherwise be devoted to the
ongoing development of the On-Command Catheter. Accordingly, the acquisition
could have a material adverse effect on the Company's business, financial
condition and results of operations.

16
<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,350,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$9.00 per share, are estimated to be approximately $27,439,500 ($31,645,425 if
the Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.

The Company expects to use approximately $10 million of the net proceeds
for the cash portion of the consideration in connection with the acquisition of
BMT, $7 million for funding of clinical trials and expansion of marketing and
sales activities and approximately $2 million for investment in research and
development. The remaining $8.4 million will be used for working capital and
general corporate purposes including the repayment of approximately $900,000 of
short-term indebtedness. Although the Company may use a portion of the net
proceeds for the licensing or acquisition of new products or technologies from
third parties, the Company currently has no specific plans or commitments to do
so.

Except for the $10 million to be used in the acquisition of BMT, the
amounts set forth above are estimates, and the amounts actually expended for
each purpose may vary significantly depending upon numerous factors, including
the progress of the Company's clinical trials, actions relating to regulatory
and reimbursement matters, and the costs and timing of expansion of marketing
and sales activities. Pending such uses, the Company intends to invest the net
proceeds of this Offering in short-term, interest-bearing, investment grade
securities. See "Risk Factors -- Management's Broad Discretion in the Use of
Unallocated Portion of Proceeds," "Acquisition of BMT" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment by the Company of cash dividends, if any, on its
Common Stock in the future is subject to the discretion of the Board of
Directors and will depend on the Company's earnings, financial condition,
capital requirements and other relevant factors. See "Description of Capital
Stock."

17
<PAGE> 19

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on a pro forma basis to give effect to, upon the closing of this
Offering, the acquisition of BMT, the exercise of warrants to purchase a total
of 1,428,571 shares of Common Stock by certain of the Company's stockholders,
the filing of the Company's Restated Certificate of Incorporation, authorizing a
class of 16,000,000 shares of undesignated Preferred Stock, the Company's
reincorporation in the State of Delaware (including a 1-for-3.5 reverse stock
split of the outstanding shares of Common Stock and Preferred Stock and the
conversion of all outstanding shares of Non-Voting Common Stock into Common
Stock effected in connection therewith), and the conversion of all outstanding
shares of Preferred Sock into Common Stock, and (ii) as adjusted to reflect the
sale of the 3,350,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $9.00 per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and after application of the estimated net proceeds from this
Offering.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO FORMA AS ADJUSTED
----------- -----------
<S> <C> <C>
Long-term debt, excluding current portion................................. $ 2,027,223 $ 2,027,223
----------- -----------
Stockholders' equity:
Preferred stock: $0.001 par value; 16,000,000 shares authorized, pro
forma and as adjusted; none issued and outstanding, pro forma and as
adjusted............................................................. $ -- $ --
Common stock, $0.001 par value, 31,000,000 shares authorized, pro forma
and as adjusted; 8,468,626 shares issued and outstanding pro forma;
11,818,626 shares issued and outstanding, as adjusted(1)............. 8,469 11,819
Additional paid-in capital.............................................. 23,054,329 50,490,479
Deferred compensation................................................... (221,076) (221,076)
Retained earnings (deficit accumulated during development stage)........ (4,663,664) (4,663,664)
----------- -----------
Total stockholders' equity...................................... 18,178,058 45,617,558
----------- -----------
Total capitalization.......................................... $20,205,281 $47,644,781
=========== ===========
</TABLE>

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

18
<PAGE> 20

DILUTION

The pro forma net tangible book value of the Company as of June 30, 1996,
after giving effect to the acquisition of BMT and each of the other events that
will occur upon or prior to the closing of this Offering, was $2,189,682 or
$0.26 per share of Common Stock outstanding. Pro forma net tangible book value
per share represents the total amount of the Company's stockholders' equity,
less intangible assets, divided by 8,468,626 shares outstanding of Common Stock.

Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
this Offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this Offering. After giving effect to the
sale of 3,350,000 shares of Common Stock in this Offering at an assumed initial
public offering price of $9.00 per share and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company as
of June 30, 1996 would have been $29,629,182 or $2.51 per share. This represents
an immediate increase in net tangible book value of $2.25 per share to existing
stockholders and an immediate dilution in net tangible book value of $6.49 per
share to purchasers of Common Stock in this Offering, as illustrated in the
following table:

<TABLE>
<S> <C> <C>
Public offering price per share..................................... $9.00
Pro forma net tangible book value per share before this Offering.... $0.26
Increase per share attributable to new investors.................... 2.25
-----
Pro forma net tangible book value per share after this Offering..... 2.51
-----
Dilution per share to new investors................................. $6.49
=====
</TABLE>

The following table sets forth as of June 30, 1996, after giving effect to
each of the events that will occur upon or prior to the closing of this
Offering, the difference between the existing stockholders and the purchasers of
shares in this Offering (at an assumed initial public offering price of $9.00
per share) with respect to the number of shares purchased from the Company, the
total consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)............... 8,468,626 71.7% $31,749,678 51.3% $ 3.75
New investors............................. 3,350,000 28.3 30,150,000 48.7 9.00
---------- ----- ----------- -----
Total................................. 11,818,626 100.0% $61,899,678 100.0%
========== ===== =========== =====
</TABLE>

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

(1) Excludes 1,076,609 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of June 30, 1996, at a weighted average
price per share of $0.73.

(2) Includes the issuance of 2,500,000 shares of Common Stock for the
acquisition of BMT and $5 million from the exercise of warrants to purchase
a total of 1,428,571 shares of Common Stock by certain of the Company's
stockholders upon the closing of this Offering.

19
<PAGE> 21

SELECTED FINANCIAL DATA

The following sets forth selected consolidated financial data with respect
to UroQuest and BMT on a historical basis and on a pro forma basis giving effect
to the acquisition of BMT and each of the other events that will occur prior to
or upon the closing of this Offering. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and notes
thereto, including the Pro Forma Financial Statements and notes thereto,
included elsewhere in this Prospectus.

UROQUEST -- HISTORICAL

The financial information set forth below with respect to UroQuest's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to UroQuest's consolidated
balance sheets at December 31, 1994 and 1995 are derived from consolidated
financial statements of UroQuest included elsewhere herein that have been
audited by KPMG Peat Marwick LLP, independent certified public accountants, and
is qualified by reference to such consolidated financial statements and notes
related thereto. The financial information for the six month periods ended June
30, 1995 and 1996, and for the period from inception (April 8, 1992) to June 30,
1996, and as of June 30, 1996 has been derived from UroQuest's unaudited
consolidated financial statements which, in the opinion of management, reflect
all adjustments of a normal recurring nature necessary for a fair presentation
of the financial position and results of operations for such periods. The
results for the six months ended June 30, 1996 are not necessarily indicative of
the results to be expected for the entire year. UroQuest is considered a
development stage company as described in Note 1 of Notes to Consolidated
Financial Statements of UroQuest.

<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS PERIOD FROM
INCEPTION ENDED INCEPTION
(APRIL 8, 1992) YEAR ENDED DECEMBER 31, JUNE 30, (APRIL 8, 1992)
TO DEC. 31, ----------------------------------------- ------------------------ TO JUNE 30,
1992 1993 1994 1995 1995 1996 1996
--------------- ---------- ------------ ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS DATA:
Net sales.......... $ -- $ 979 $ 2,801 $ -- $ -- $ -- $ 3,780
Cost of sales...... -- 832 2,381 -- -- -- 3,213
----------- ---------- ----------- ----------- ---------- ---------- -----------
Gross profit....... -- 147 420 -- -- -- 567
Research and
development...... -- 120,531 431,295 1,106,631 436,879 550,535 2,208,992
General and
administrative... 11,234 156,647 483,399 397,523 202,835 225,016 1,273,819
Sales and
marketing........ -- 38,392 30,257 46,262 3,589 52,667 167,578
----------- ---------- ----------- ----------- ---------- ---------- -----------
Operating loss..... (11,234) (315,423) (944,531 ) (1,550,416) (643,303) (828,218) (3,649,822)
Other income
(expense), net... -- -- (260,663 ) 36,669 16,963 (6,848) (230,842)
----------- ---------- ----------- ----------- ---------- ---------- -----------
Net loss........... $ (11,234) $ (315,423) $(1,205,194 ) $(1,513,747) $ (626,340) $ (835,066) $(3,880,664)
=========== ========== =========== =========== ========== ========== ===========
Pro forma net loss
per share(1)..... $ (0.36) $ (0.18)
=========== ==========
Shares used in
computing pro
forma net loss
per share(1)..... 4,194,506 4,562,476
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------- JUNE 30,
1993 1994 1995 1996
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 187,422 $ 564,097 $ 1,113,594 $ 262,145
Working capital............................ 33,491 325,723 463,594 (248,329)
Total assets............................... 221,581 1,205,273 1,721,027 1,151,448
Long-term debt, excluding current
portion.................................. -- 552,188 -- --
Deficit accumulated during development
stage.................................... (326,657) (1,531,851) (3,045,598) (3,880,664)
Total stockholders' equity................. 65,560 412,621 1,047,126 299,058
</TABLE>

- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements of UroQuest for
information concerning the computation of pro forma net loss per share and
shares used in computing pro forma net loss per share.

20
<PAGE> 22

BMT -- HISTORICAL

The financial information set forth below with respect to BMT's
consolidated statements of operations for each of the years in the three year
period ended December 31, 1995 and with respect to BMT's consolidated balance
sheets at December 31, 1994 and 1995 is derived from consolidated financial
statements of BMT included elsewhere herein that have been audited by Grant
Thornton LLP, independent certified public accountants, and is qualified by
reference to such consolidated financial statements and notes related thereto.
The financial information for the six month periods ended June 30, 1995 and 1996
and as of June 30, 1996 has been derived from BMT's unaudited consolidated
financial statements which, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair presentation of
the financial position and results of operations for such periods. The results
for the six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the entire year.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales..................................... $11,239,155 $11,728,409 $14,257,413 $6,706,256 $7,483,367
Cost of sales................................. 6,351,651 6,668,026 7,228,308 3,469,929 3,953,455
----------- ----------- ----------- ---------- ----------
Gross profit.................................. 4,887,504 5,060,383 7,029,105 3,236,327 3,529,912
Research and development...................... 531,395 586,319 986,265 460,778 530,585
General and administrative.................... 1,080,971 1,151,485 1,653,197 862,251 908,115
Sales and marketing........................... 1,581,302 1,607,404 1,692,881 862,851 691,609
----------- ----------- ----------- ---------- ----------
Income from operations........................ 1,693,836 1,715,175 2,696,762 1,050,447 1,399,603
Other income (expense), net................... (343,846) (289,728) (315,148) (151,382) (136,789)
----------- ----------- ----------- ---------- ----------
Income before income taxes.................... 1,349,990 1,425,447 2,381,614 899,065 1,262,814
Income taxes.................................. 540,000 572,500 950,000 352,110 490,000
----------- ----------- ----------- ---------- ----------
Net income.................................... $ 809,990 $ 852,947 $ 1,431,614 $ 546,955 $ 772,814
=========== =========== =========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................. $ 174,414 $ 21,526 $ 47,083 $ 6,398
Working capital............................... 759,893 3,028,694 3,464,491 3,987,413
Total assets.................................. 6,909,863 6,952,200 8,190,829 7,864,592
Long-term debt, excluding current portion..... 1,582,764 2,831,985 2,385,884 2,027,223
Retained earnings............................. 993,146 1,846,093 3,277,707 4,050,521
Total stockholder's equity.................... 1,789,646 2,650,393 3,682,407 4,452,501
</TABLE>

21
<PAGE> 23

PRO FORMA DATA, AS ADJUSTED

The financial information set forth below reflects the pro forma
acquisition by UroQuest of BMT as if the acquisition of BMT had occurred at the
beginning of each of the periods presented for statements of operations data and
as of June 30, 1996 for balance sheet data. The following pro forma data, as
adjusted, has not been audited. This data also gives effect to each of the
events that will occur prior to or upon the closing of this Offering, as
adjusted to reflect the receipt of the net proceeds from the sale of the
3,350,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................................ $ 14,257,413 $7,483,367
Cost of sales............................................................ 7,634,708 4,156,655
----------- ----------
Gross profit............................................................. 6,622,705 3,326,712
Research and development................................................. 2,092,896 1,081,120
General and administrative............................................... 2,050,720 1,133,131
Sales and marketing...................................................... 1,739,143 744,276
Amortization of goodwill................................................. 794,600 397,300
----------- ----------
Operating loss........................................................... (54,654) (29,115)
Other income (expense), net.............................................. (278,479) (143,637)
----------- ----------
Net loss................................................................. $ (333,133) $ (172,752)
=========== ==========
Pro forma net loss per share(1).......................................... $ (0.03) $ (0.01)
=========== ==========
Shares used in computing pro forma net loss per share(1)................. 11,473,077 11,841,047
=========== ==========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................... $22,318,043
Working capital......................................................... 26,178,584
Total assets............................................................ 49,492,039
Long-term debt excluding current portion................................ 2,027,223
Deficit accumulated during development stage............................ (4,663,664)
Stockholders' equity(2)................................................. 45,617,558
</TABLE>

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

(1) See Notes to Pro Forma Financial Statements and Note 1 of Notes to
Consolidated Financial Statements of UroQuest for information concerning the
computation of net loss per share and pro forma net loss per share.

(2) Pro forma stockholders' equity assumes the conversion of all outstanding
shares of Preferred Stock and Non-Voting Common Stock into Common Stock.

22
<PAGE> 24

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

OVERVIEW

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus. The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of certain factors
discussed under "Risk Factors" and elsewhere in this Prospectus.

UroQuest Background

The Male On-Command Catheter was originally designed and developed by
Richard C.
Davis, M.D., the principal founder and Chief Science Officer of the Company. In
December 1986, the technology underlying the Male On-Command Catheter was
licensed to Surgitek, Inc. ("Surgitek"), a urological and plastic surgery
products subsidiary of Bristol-Myers Squibb Company. Surgitek spent
approximately five years and substantial sums advancing the technology,
engineering prototype catheters, conducting clinical trials and preparing
regulatory filings for the Male On-Command Catheter. In 1992, Surgitek was
acquired by Cabot Medical Corporation, and as a result of nonperformance under
the license agreement, the technology relating to the Male On-Command Catheter
reverted back to Dr. Davis and was transferred to UroCath, a wholly owned
subsidiary of UroQuest, in February 1993.

In November 1994, UroQuest hired a new Chief Executive Officer to
facilitate the regulatory approval process, including necessary clinical trials,
commercialize the On-Command Catheter and to seek additional funding to support
UroQuest's operations. In December 1994, Uroquest secured all remaining
intellectual property rights related to the Female On-Command Catheter. UroQuest
also intensified its efforts in design and engineering refinements,
manufacturing tooling, production testing and regulatory filings in connection
with conducting clinical trials in the United States of the Male On-Command
Catheter and initiating clinical trials for the Female On-Command Catheter. In
June 1995, UroQuest raised $2.2 million pursuant to the issuance of Preferred
Stock to Warburg and Vertical, allowing UroQuest to continue its efforts to
develop and commercialize the On-Command Catheter.

The Company has a limited history of operations and has experienced
substantial operating losses since inception. Notwithstanding the acquisition of
BMT, the Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.

Acquisition of BMT

In June 1996, the Company entered into a definitive agreement to acquire
BMT, pursuant to which BMT will become a wholly owned subsidiary of the Company.
BMT develops, manufactures and markets a line of proprietary silicone medical
device products as well as provides engineering design, development and
manufacturing services for silicone products on an OEM basis for other medical

23
<PAGE> 25

device companies. BMT is one of a limited number of specialty manufacturers of
silicone catheters in the United States. BMT has been a contract manufacturer
for the Company since June 1994 and has manufactured approximately 2,100 Male
On-Command Catheters.

In the acquisition, shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. The acquisition will be accounted for under the purchase method of
accounting and will result in goodwill of approximately $15.6 million.
Consummation of the acquisition is expected to occur upon the closing of this
Offering.

The Company believes the acquisition will provide a number of significant
benefits. The acquisition will enable the Company to control its own
manufacturing source while providing necessary capacity and flexibility in the
manufacturing process. The product development and engineering expertise of BMT
is also anticipated to be utilized by the Company to develop additional
On-Command Catheter products and other new devices related to the management and
diagnosis of urological disorders.

The ongoing operations of BMT are expected to provide a source of revenues
and cash flow while the Company completes its clinical testing and prepares to
market the On-Command Catheter. There can be no assurance, however, that such
revenues and cash flow or BMT's current profitability and growth rate will
continue in the future or that the expected benefits of the acquisition will be
realized. The acquisition of BMT constitutes the Company's first acquisition of
another business. BMT's operations are significantly different in many respects
from the Company's current operations, and the acquisition may result in a
number of unforeseen difficulties and problems that could have a material
adverse effect on the Company's business, financial condition and results of
operations.

BMT Background

The business of BMT was commenced in 1971 to develop tracheal and
endotracheal tubes for airway management and has expanded to include various
other medical device products. BMT has utilized its product development
expertise and production capabilities to manufacture silicone medical device
products on an OEM basis, including components, assemblies and finished devices
for use in gastroenterology, urology, cardiopulmonary, parenteral and diagnostic
applications.

In December 1987, the business of BMT was acquired by Synthelabo, a
pharmaceutical division of L'Oreal S.A. In October 1992, the business was
acquired from Synthelabo by the existing executive officers and certain other
employees of BMT in a management buyout for approximately $7 million. These
officers and employees have continued to operate the business of BMT since the
buyout.

Over the past three years, BMT has implemented various management
strategies to increase sales and profitability. These strategies have included
elimination of low margin products, expansion of BMT's line of proprietary
products, investment in research and development, and improvements in
manufacturing facilities and capabilities. BMT operates under GMPs and is in the
process of obtaining ISO-9001 certification and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.

RESULTS OF OPERATIONS -- UROQUEST

Net sales and cost of sales. To date, UroQuest has had no material sales.

Research and development. Research and development expenses include
clinical testing and regulatory expenses. For the six months ended June 30,
1996, research and development expenses increased to $550,535 from $436,879 for
the six months ended June 30, 1995. This increase was due primarily to hiring of
clinical personnel, conducting clinical trials in the first half of 1996 and
implementing improvements in product design and the manufacturing process.
Research and development expenses increased to $1,106,631 in 1995 from $431,295
in 1994 resulting primarily from the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994 and manufacturing costs incurred to produce devices used in clinical
trials. The increase in research and development expenses in 1995, as compared
to 1994, is also attributable to costs associated with commencing clinical
trials of the Male On-Command Catheter, including legal and

24
<PAGE> 26

other fees related to regulatory matters, the increased number of research and
development employees and amortization of approximately $86,000 related to
patents purchased by UroQuest in December 1994. Research and development
expenses increased to $431,295 in 1994 from $120,531 in 1993 primarily as a
result of increased personnel costs and consultant fees related to regulatory
filings. Research and development expenses are expected to continue to increase
for the foreseeable future.

General and administrative. General and administrative expenses increased
to $225,016 for the six months ended June 30, 1996 from $202,835 for the six
months ended June 30, 1995. This increase was attributable primarily to the
establishment of the Company's headquarters in Salt Lake City, Utah in September
1995. General and administrative expenses decreased to $397,523 in 1995 from
$483,399 in 1994 due primarily to the transfer of certain personnel to research
and development functions in 1995 from general and administrative functions in
1994, as discussed above. General and administrative expenses increased to
$483,399 in 1994 from $156,647 in 1993 primarily as a result of increased
administrative personnel. General and administrative expenses are expected to
continue to increase as the Company hires additional personnel to support
anticipated expansion of the Company's business.

Sales and marketing. Sales and marketing expenses increased to $52,667 for
the six months ended June 30, 1996 from $3,589 for the six months ended June 30,
1995. This increase was attributable primarily to market research conducted by
outside consultants. Sales and marketing expenses increased to $46,262 in 1995
from $30,257 in 1994 due principally to costs associated with UroQuest retaining
a sales and marketing consultant. Sales and marketing expenses decreased to
$30,257 in 1994 from $38,392 in 1993 primarily as a result of lower costs of
market research.

Other income (expense), net. There was no material change in other income
(expense), net for the six months ended June 30, 1996 from the six months ended
June 30, 1995. Other income (expense), net increased to income of $36,669 in
1995 from an expense of $260,663 in 1994. This change resulted primarily from a
bad debt reserve in 1994 which was not incurred in 1995. In exchange for the
sale of assets unrelated to the urology business in 1994 to corporations owned
by certain stockholders of the Company, UroQuest received promissory notes
totaling $235,008 from such corporations. The notes were reserved in full as it
was probable that the Company would not collect the full amount of the notes. In
June 1996, approximately $200,000 principal amount of the notes due from Trek
Medical Corporation (a company formed in June 1994 by certain stockholders of
the Company) was converted into common stock of Trek Medical Corporation. The
balance of $35,008 remains outstanding as a promissory note from SilvaFoam
Corporation and U.S. Infusion Care, Inc. The total $35,008 of notes receivable
is reserved in full. The net change to 1995 from 1994 also resulted from an
increase of approximately $56,000 in interest income partially offset by an
increase of approximately $25,000 in interest expense. There were no items
included in other income (expense), net in 1993.

RESULTS OF OPERATIONS -- BMT

Six months ended June 30, 1996 and 1995

Net sales. Net sales increased to $7,483,367 for the six months ended June
30, 1996 from $6,706,256 for the six months ended June 30, 1995. This increase
was primarily attributable to higher sales volumes of tracheostomy tubes, one of
BMT's principal products in its proprietary product line.

Cost of sales. Cost of sales increased to $3,953,455 for the six months
ended June 30, 1996 from $3,469,929 for the six months ended June 30, 1995. This
increase was due primarily to higher sales volume and an increase in the sales
mix to higher cost products. Increased cost of sales also resulted from costs
associated with improvements in manufacturing and quality control processes.

General and administrative. General and administrative expenses increased
to $908,115 for the six months ended June 30, 1996 from $862,251 for the six
months ended June 30, 1995, primarily as a result of increased salary and
benefit costs per employee.

25
<PAGE> 27

Marketing and distribution. Marketing and distribution expenses decreased
to $691,609 for the six months ended June 30, 1996 from $862,851 for the six
months ended June 30, 1995. This decrease was due primarily to a temporary
reduction in marketing management personnel in the first half of 1996.

Research and development. Research and development expenses increased to
$530,585 for the six months ended June 30, 1996 from $460,778 for the six months
ended June 30, 1995. This increase was attributable primarily to increased
research and development personnel for various products, including the
On-Command Catheter.

Other income (expense), net. Other income (expense), net decreased to
$136,789 for the six months ended June 30, 1996 from $151,382 for the six months
ended June 30, 1995. This decrease resulted from lower borrowings and reduced
interest rates on such borrowings.

Years ended December 31, 1995, 1994 and 1993

Net sales. Net sales increased to $14,257,413 in 1995 from $11,728,409 in
1994. This income was primarily attributable to higher sales volumes of
tracheostomy tubes, new sales resulting from recently commercialized products
and new sales of products acquired by BMT in January 1995. Net sales increased
to $11,728,409 in 1994 from $11,239,155 in 1993. This increase also resulted
from increased sales volume of tracheostomy tubes and the introduction of BMT's
electrolarynx product.

Cost of sales. Cost of sales increased to $7,228,308 in 1995 from
$6,668,026 in 1994. The increase was principally due to higher net sales offset,
in part, by an increase in the sales mix of products with lower per unit costs
and reduced production costs resulting from process improvements. Cost of sales
increased to $6,668,026 in 1994 from $6,351,651 in 1993. This increase was
attributable to higher net sales and costs associated with the introduction of a
new proprietary product partially offset by a higher sales mix of lower cost
products.

General and administrative. General and administrative expenses increased
to $1,653,197 in 1995 from $1,151,485 in 1994. This increase resulted primarily
from increased personnel, costs incurred in connection with BMT's efforts to
obtain ISO-9001 certification, and litigation costs and related legal fees
associated with a contract dispute resolved in 1995 involving the distribution
of an electrolarynx product. General and administrative expenses increased to
$1,151,485 in 1994 from $1,080,971 in 1993 due primarily to increases in
employee salaries, wages and benefits.

Marketing and distribution. Marketing and distribution expenses increased
to $1,692,881 in 1995 from $1,607,404 in 1994. This increase was principally
attributable to increased direct selling and marketing efforts resulting in
higher net sales. These expenses were offset, in part, by reduced marketing
management costs. Marketing and distribution expenses increased to $1,607,404 in
1994 from $1,581,302 in 1993 due primarily to increased sales volume partially
offset by implementation of marketing cost control measures.

Research and development. Research and development expenses increased to
$986,265 in 1995 from $586,319 in 1994. This increase resulted primarily from
increased personnel to expedite the development of various new products.
Research and development expenses increased to $586,319 in 1994 from $531,395 in
1993, due to higher salaries and employee benefits costs partially offset by
BMT's cost control efforts.

Other income (expense), net. Other income (expense), net increased to
$315,148 in 1995 from $289,728 in 1994, resulting from increased borrowings
under BMT's existing line of credit. Other expense, net decreased to $289,728 in
1994 from $343,846 in 1993, attributable to decreased borrowings and a lower
interest rate on such borrowings.

INCOME TAXES

UroQuest has not generated any taxable income to date and, therefore, has
not paid any federal income taxes since its inception. The Company accounts for
income taxes under Statement of Financial

26
<PAGE> 28

Accounting Standards No. 109 ("FAS 109"). Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which are
uncertain. Accordingly, valuation allowances, in amounts equal to the net
deferred tax assets as of December 31, 1995 and 1994, have been established in
each period to reflect these uncertainties.

At December 31, 1995, UroQuest and BMT had net operating losses, for tax
purposes, of approximately $1,600,000 and $1,470,000, respectively, that can be
carried forward to reduce federal income taxes. However, utilization of net
operating losses and any tax credit carryforwards will be subject to annual
limitations due to the ownership change limitations of the Internal Revenue Code
of 1986, as amended, and similar state provisions.

LIQUIDITY AND CAPITAL RESOURCES

To date, UroQuest has financed its operations primarily through the private
sale of equity securities and, to a lesser extent, through short-term borrowings
and equipment lease financing. Since inception, UroQuest has raised $4,130,678
in net proceeds of private equity financing. BMT has financed its operations
primarily with cash generated from operations and bank provided working capital
financing.

In December 1994, UroQuest raised $390,000 pursuant to a private placement
of 12% secured promissory notes due December 31, 1996. In connection with such
placement, UroQuest agreed to issue the holders of such notes warrants
exercisable for 0.2857 of a share of Common Stock for each dollar of interest
earned, at an exercise price of $3.50 per share. The notes are secured by a
pledge of the Company's eight United States patents relating to the On-Command
Catheter. The Company's patents will be released from such pledge upon repayment
of the notes, which is expected to occur upon or shortly after the closing of
this Offering. Pursuant to the notes, the Company is also obligated to pay the
holders 5% of the net sales income received, if any, from the sale of products
covered by the patents during the period from January 1995 though December 1996.
This royalty arrangement will also be terminated upon repayment of the notes.

During the six months ended June 30, 1996 and the year ended December 31,
1995, UroQuest consumed cash in operations of $840,366 and $1,282,485,
respectively. The changes in cash used in operations from prior comparable
periods were due primarily to higher expenses associated with increased research
and development activities, and commencement and continuation of clinical
trials.

The Company's primary internal source of liquidity presently consists of
existing borrowings and cash anticipated to be generated from BMT's operations.
Since its inception, BMT has met its liquidity requirements primarily through
cash provided by operations, private stock offerings and short term bank
borrowings. During the six months ended June 30, 1996 and the year ended
December 31, 1995, BMT generated net cash from operations of $1,176,675 and
$964,745, respectively. The substantial increase in cash generation in 1996 is
primarily due to strong sales growth in higher margin product lines in the
United States, as well as focused efforts in the management of accounts
receivable, payable and inventory levels. Compared to 1994, the cash generated
from operations in 1995 decreased primarily due to a substantial growth in
certain net sales resulting in a substantial increase in accounts receivable.

Cash used by BMT in investing activities decreased to $262,850 for the six
months ended June 30, 1996 from $424,195 for the same period in 1995. The
decrease was due primarily to the acquisition in 1995 of certain tangible and
intangible assets from IMD for $325,000 in cash and substantial capital
investments in new process equipment. Cash used in investing activities
increased to $707,419 for the year ended December 31, 1995 from $350,998 in the
year ended December 31, 1994. The increase was due primarily to the
aforementioned investments.

Cash used by BMT in financing activities increased to $954,510 during the
six months ended June 30, 1996 from ($559,191) for the same period in 1995. The
increase was due primarily to the repayment of outstanding short and medium term
debt notes. Cash used in financing activities

27
<PAGE> 29

decreased to $231,769 in the year ended December 31, 1995 from $1,264,280 in the
year ended December 31, 1994. The decrease was due primarily to substantial
increases of short term line of credit draws, driven by substantial increases in
accounts receivable, the cash payment for the assets purchased from IMD, a
$407,925 cash repurchase of common shares in BMT, and substantial manufacturing
equipment purchases. As of June 30, 1996, BMT had no material capital
expenditure commitments.

As of June 30, 1996 and December 31, 1995, UroQuest had cash and cash
equivalents of $262,145 and $1,113,594, respectively. The decrease since
December 31, 1995 was due primarily to the use of cash in operations. As of June
30, 1996, UroQuest had no significant noncancelable commitments for capital
expenditures or raw material purchases, although UroQuest may enter into such
commitments in the future. The Company's primary external sources of liquidity
are public and private debt and equity financings and bank provided debt
financing.

The Company expects its operating losses to continue for at least the next
two years as it continues to expend substantial resources in funding clinical
trials in support of regulatory and reimbursement approvals, expansion of
marketing and sales activities, and research and development. In addition, the
Company's results of operations may fluctuate significantly during future
quarterly periods. The Company plans to implement an aggressive marketing and
growth strategy, and all management estimates regarding liquidity and capital
requirements are subject to the factors discussed above and those set forth
under "Risk Factors" and elsewhere in this Prospectus.

28
<PAGE> 30

BUSINESS

The Company was formed to design, develop and market advanced products for
the management and diagnosis of both male and female urological disorders. The
Company's principal product, the On-Command Catheter, is an endourethral (inside
the urethra) catheter incorporating a proprietary anchoring system and a
proprietary patient controlled, magnetically activated valve used to regulate
urine flow. The On-Command Catheter is designed to enable persons with either
urinary incontinence or urinary retention to manage their condition without the
restricted mobility, medical complications, discomfort and embarrassment
generally associated with many of the existing management alternatives,
including intermittent, Foley, external and suprapubic catheters, diapers and
absorbents, and penile clamps. Clinical trials of the On-Command Catheter have
demonstrated the utility of the device in managing male urinary outflow
disorders. The results of the clinical trials showed an overall symptomatic
urinary tract infection ("UTI") rate of less than 3% for all device insertions
during the trials. This rate is significantly lower than the rate of infection
generally associated with the use of Foley catheters. Of the patients included
in the trials, approximately 90% found the Male On-Command Catheter maintained
continence and was comfortable to wear and easy to use.

Clinical trials of the Male On-Command Catheter have been conducted at
eight sites in the United States under an IDE application approved by the FDA.
Through August 31, 1996, 70 patients had received a total of 223 male devices,
with indwelling periods ranging from three days to 64 days, with an average
indwelling period of 25 days per device insertion. The longest trial period on
any patient was 32 months, with the patient receiving a total of 30 device
insertions. The results, while promising, are preliminary and additional
clinical testing is required before any definitive conclusions can be reached
concerning the general use of the On-Command Catheter. Consequently, the Company
is preparing to conduct a controlled, randomized clinical study under an
approved IDE application at three sites that have received IRB approval. The
predicate device to be used in connection with the study is the Foley catheter.
The Company expects to complete the study, which has a targeted enrollment of 60
male patients, in the first quarter of 1997. An IDE application for the Female
On-Command Catheter was approved in March 1996 and the Company has obtained IRB
approval at two investigational sites and is conducting a non-randomized pilot
evaluation prior to initiating a controlled, randomized study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun, a European-based
multinational medical device company. Braun plans to conduct the evaluation and
to prepare the necessary regulatory filings in 16 European countries. The
clinical evaluation of the Male On-Command Catheter in Europe is expected to
begin by the end of 1996 at a total of six investigational sites in France,
Germany and Spain.

In June 1996, the Company entered into a definitive agreement to acquire
BMT. BMT designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. BMT is one of a limited number of specialty
manufacturers of silicone catheters in the United States. BMT has been a
contract manufacturer for the Company since June 1994 and has manufactured
approximately 2,100 Male On-Command Catheters. The acquisition will be effected
through a merger of BMT with and into an acquisition subsidiary of the Company
pursuant to which shareholders of BMT will receive, in the aggregate, a
combination of $10 million cash and 2,500,000 newly issued shares of Common
Stock. The acquisition will enable the Company to control its own production
source while providing necessary capacity and flexibility in the manufacturing
process. The product development and production expertise of BMT is also
anticipated to be utilized by the Company to develop additional On-Command
Catheter products and other new devices related to the management and diagnosis
of urological disorders. See "Business -- BMT."

LOWER URINARY TRACT ANATOMY AND FUNCTION

The urinary tract system aids the body in eliminating metabolic waste. The
kidneys process blood and filter waste products from the circulatory system,
thereby creating urine. The ureters drain the

29
<PAGE> 31

urine from the kidneys into the bladder, which serves as a reservoir until
urination. The storage capacity of the bladder ranges from approximately
one-quarter to one-half liter. The urinary sphincter is a muscle at the base of
the bladder which surrounds the bladder neck and urethra and aids the bladder in
maintaining continence. The urethra is the tube through which urine flows when
the bladder empties. This process is referred to as "voiding." In males, the
prostate gland surrounds the urethra and provides reproduction function.

<TABLE>
<S> <C>
MALE FEMALE
</TABLE>

LOGO

In a properly functioning lower urinary tract, the balance between urinary
continence and voiding is maintained by a complex dynamic interplay of autonomic
reflexes, neurologic functions and anatomic structures. The bladder neck and the
urinary sphincter work together to act as a valve under muscular control to keep
the urethra closed as the bladder fills with urine. During urination, the
urethra and urinary sphincter muscle reflex and open, while the bladder
contracts and the bladder neck opens, resulting in the voiding of urine. In a
properly functioning lower urinary tract, as the bladder neck opens
involuntarily in response to intra-abdominal pressure, the lower portion of the
urinary sphincter tightens in order to maintain continence. A malfunction in or
damage to any part of this system can cause urinary outflow dysfunction,
including incontinence and retention.

MARKET OVERVIEW

Introduction

More than 50% of the estimated 1.5 million nursing home patients have
voiding disorders. Additionally, in contrast to the widely-held notion that
voiding disorders are primarily a problem of the institutionalized elderly, a
1986 National Institute on Aging study indicated that 30% of the estimated 40
million community-dwelling population between the ages of 60 to 84 also suffer
from some form of

30
<PAGE> 32

urinary outflow dysfunction. Furthermore, surveys of community-dwelling younger
individuals between the ages of 15 to 64 report that between 1.5% to 5% of men,
and between 10% and 25% of women, have voiding problems. Medical experts believe
that voiding problems are significantly underreported.

Male Urinary Dysfunction

Research data indicates that over three million men in the United States
are affected by urinary outflow dysfunction. Based on an independent study
commissioned by the Company, the Company estimates that at least one million men
in the United States suffer from retention requiring management and
intervention, while at least two million men suffer from incontinence. These
problems are commonly caused by or result from the treatment of specific urinary
tract diseases, including prostate cancer and benign prostatic hyperplasia
("BPH").

The American Cancer Society estimates that approximately 320,000 new cases
of prostate cancer will be diagnosed in 1996. Industry studies also estimate
that approximately 30% of men age 50 or older may have latent prostate cancer.
Approximately 300,000 prostatectomies (the surgical removal of the prostate) are
performed each year in the United States to treat prostate cancer. Radiation is
also a common form of treatment. Damage to the external sphincter, bladder neck,
and nerves controlling urinary function following prostatectomy or radiation
therapy often leads to chronic incontinence. The same therapies can also cause
stricture and scarring, leading to obstructive voiding symptoms and retention. A
study published in the December 1993 issue of Urology reported that in a
follow-up study on men who had undergone a prostatectomy, 30% experienced daily
problems with incontinence while another 15% reported seeking treatment for
retention due to urethral strictures.

BPH is a common disease in men over age 50 that causes the prostate to
enlarge, putting pressure on the urethra and restricting urine flow. It is
estimated that approximately six million men in the United States suffer
moderate to severe symptoms of BPH. Severe cases are generally treated through
surgery requiring hospitalization followed by an extended recovery period.
Several new technologies are being developed to treat BPH in a less invasive
fashion. The initial clinical data from these therapies indicates that 10% to
15% of patients require extended catheterization following treatment due to
post-operative swelling of the prostate tissues which causes urinary retention.

Female Urinary Dysfunction

It is estimated that at least 10 million women suffer from urinary outflow
dysfunction. The most common problem is stress urinary incontinence resulting
from hypermobility of the urethra and bladder neck due to a weakening of the
musculature caused by pregnancies.

Urinary retention is less common in women than men due to anatomical
differences and the relative lack of specific contributing diseases. The Company
estimates that approximately 100,000 women have chronic urinary retention in the
United States. Bladder neck suspension surgery, which is an increasingly popular
procedure performed on women to correct incontinence, often causes temporary
retention problems for up to 90 days. Women with this condition are generally
required to wear a Foley catheter or are taught to perform intermittent
catheterization until normal voiding function returns. As the number of women
seeking treatment for incontinence increases, the Company believes the incidence
of temporary retention will correspondingly increase.

31
<PAGE> 33

URINARY INCONTINENCE

Urinary incontinence, the most common form of urinary outflow or voiding
dysfunction, is caused by a variety of factors, including vaginal childbirths,
congenital abnormalities, trauma, congestive heart failures, strokes, Multiple
Sclerosis, spinal cord injuries, drug effects, metabolic abnormalities,
infections and dementia. Urinary incontinence is generally categorized as either
stress incontinence or urge incontinence.

Stress incontinence refers to the involuntary loss of urine during
coughing, laughing, sneezing, jogging or any other physical activity which
causes an increase in intra-abdominal pressure. This condition varies in
severity from those who leak urine only as a result of certain sudden movements
or physical activities to those who leak urine simply upon standing. Stress
incontinence generally results from either hypermobility or intrinsic sphincter
deficiency. Hypermobility is a lack of anatomic stability caused primarily by
weak surrounding tissue, which results in the abnormal movement of the bladder
neck and urethra in response to sufficient intra-abdominal pressure or exertion.
Intrinsic sphincter deficiency is the inability to contract the urinary
sphincter sufficiently to maintain continence.

Urge incontinence refers to the involuntary loss of urine due to a bladder
contraction which is associated with a strong, uncontrollable desire to urinate,
often referred to as urgency. Urge incontinence may result from, among other
things, a hyperactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability. Patients can also suffer from a
combination of urge and stress symptoms, generally referred to as "mixed"
incontinence.

The additional physical effects of urinary incontinence include a
predisposition to perineal rashes, pressure ulcers, urinary tract infections,
urosepsis, falls and fractures. This condition is also associated with
depression, social withdrawal, isolation, loss of mobility, feelings of
embarrassment and inadequacy, and reduced sexual functioning, and can cause
considerable caregiver burden.

Treating Urinary Incontinence

Incontinent persons generally seek treatments such as surgery,
pharmaceuticals and behavioral therapy when the condition begins to interfere
with their lifestyle. The following table highlights the relevant gender,
clinical indication and major drawbacks associated with each of these treatment
alternatives as more fully described below.

<TABLE>
<CAPTION>
RELEVANT
TREATMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
--------------------- ---------- ------------------- ---------------
<S> <C> <C> <C>
Artificial urinary Male/ Incontinence due to Highly invasive;
sphincter surgery Female intrinsic sphincter urethral erosion and
deficiency only injury; mechanical
malfunction
Bladder neck suspension Female Stress incontinence only Temporary retention;
surgery surgical complications
Urethral bulking procedure Male/ Incontinence due to Must be repeated
Female intrinsic sphincter periodically; mixed
deficiency only results
Pharmaceuticals Male/ Urge incontinence only Seldom curative;
Female adverse side effects
Behavioral therapy Female Stress incontinence only Mixed results; can
exacerbate problem
</TABLE>

32
<PAGE> 34

Artificial urinary sphincter surgery. The implantable artificial sphincter
is an occlusive cuff that is surgically implanted around the urethra of an
incontinent patient. Although this procedure is generally effective for patients
with intrinsic sphincter deficiency, the Company believes that it is used
relatively infrequently (fewer than 6,000 procedures per year) primarily because
there are a limited number of patients for whom it would be indicated, and
because 32% of the patients have complications including infection, urethral
erosion and mechanical failure. In addition, the implantation surgery is
expensive and traumatic, involves general anesthesia and requires several weeks
or months for full recovery.

Bladder neck suspension surgery. Bladder neck suspension surgery is
primarily indicated for female stress incontinence. In this procedure, the
physician elevates and stabilizes the urethra and the bladder neck in order to
prevent hypermobility. These procedures are delicate and complicated and often
fail to redress the problem. Complications include symptomatic UTI, temporary
retention problems, obstruction symptoms, sepsis and prolonged suprapubic pain.
Bladder neck surgery is also expensive and traumatic, may involve general
anesthesia and requires several weeks or months for full recovery.

Urethral bulking procedure. Another surgical treatment for incontinence is
the use of injectable urethral bulking materials. In these procedures, Teflon,
collagen or other materials are injected into the area around the urethra with a
needle to create a mild obstruction. Injectable materials are a new and
potentially attractive treatment alternative because they are considerably less
invasive than the surgical procedures described above. Clinical experience with
injectable materials shows they are suitable primarily for treatment of
incontinence due to intrinsic sphincter deficiency, and produce mixed results in
men and women. The procedure is relatively expensive ($1,500 to $3,000 per
treatment) and must be repeated periodically because of bioabsorption.

Pharmaceuticals. In general, drugs available for the treatment of
incontinence act on the nerve receptors associated with the bladder
neurotransmitter system. Accordingly, drug treatment is appropriate for treating
urge incontinence but is not appropriate for managing stress incontinence. While
drugs can partially alleviate the symptoms of incontinence, they are seldom
curative. Also, drug use for incontinence may cause adverse side effects
including drowsiness, dryness of mouth, dizziness, constipation and urinary
retention.

Behavioral therapy. Behavioral therapy and related techniques include
bladder training and habit modification, pelvic muscle exercises, biofeedback
and electrical stimulation. While these are low-risk procedures, they typically
address only female stress incontinence and are seldom curative. These
techniques are time consuming and present patients with an uncertain outcome. In
addition, in the case of pelvic muscle training exercises, there is the
possibility of worsening the condition if the exercises are performed
incorrectly.

Managing Urinary Incontinence

A recent study indicated that less than 3% of treatments for urinary
incontinence are curative. Furthermore, most are invasive, costly, and can
actually worsen an incontinent person's symptoms or

33
<PAGE> 35

have other unintended side effects. Therefore, incontinent persons typically
turn to management alternatives, including those summarized in the following
table and more fully described below.

<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
- -------------------------- ---------- -------------------------- --------------------------
<S> <C> <C> <C>
Diapers and absorbents Male/ Stress/urge incontinence Wetness; odor; rash;
Female multiple daily changes
Foley catheters Male/ Stress/urge incontinence High infection rate;
Female urethral erosion;
external leg bag
Male external catheters Male Stress/urge incontinence Penile irritation; daily
changes; external leg
bag
Bladder neck support Female Stress incontinence only Vaginal infection,
prostheses discharge and tissue
erosion; daily
reinsertions
Urethral plugs Female Stress incontinence only Multiple daily changes
Penile clamps Male Stress/urge incontinence Penile edema and erosion;
removal every three
hours
</TABLE>

Diapers and absorbents. Adult diapers and pads, which capture urine upon
leakage, function similarly to baby diapers. Patients have the convenience and
privacy of purchasing these products without seeing a physician. While the
absorbency, size and fit of these products have improved over the last several
years, major disadvantages include lack of control over urine flow, lack of
dryness, skin irritations and rash, embarrassment about appearance and odor,
perceived social stigma, inconvenience and significant lifestyle compromise.
Based on various industry sources, the Company estimates that an incontinent
person in the United States who regularly uses adult diapers and incontinence
pads often spends up to $1,500 per year. Although third-party reimbursement is
generally not available for these products, retail sales of adult absorbents in
1995 were estimated at over $2.5 billion in the United States alone.

Foley catheters. The Foley catheter is an indwelling device used by both
men and women that provides continuous drainage of the bladder. The device
consists of a bladder balloon and a drainage conduit that extends outside the
body and is connected to an external collection bag. Because this design permits
bacteria to enter the body, symptomatic UTI is a common problem with Foley
catheterization, and is recognized as a major cause of morbidity and increased
health care costs in both hospitals and nursing homes. The Company estimates
that as many as one out of four hospital patients require short-term Foley
catheterization. Research studies have indicated that approximately 10% to 30%
of these patients develop symptomatic UTI (estimated by the Company to be
approximately 450,000 to 1,350,000 episodes per year). For patients requiring
long-term Foley catheterization, research has documented rates of symptomatic
UTI as high as 100%. In the hospital setting, symptomatic UTI prolongs stays by
an estimated two to four days, resulting in increased costs ($2,000 to $4,000
per patient), and increased risk of death. Complications associated with
symptomatic UTI include sepsis, kidney infection, urinary stones, and abscesses
in the tissue surrounding the kidney. Foley catheters also cause irritation to
the penis and urethral erosion due to catheter movement, and require a leg bag
for drainage, thereby restricting movement and lifestyle. The Company estimates
that over 60 million Foley catheters are used annually in the United States.

Male external catheters. The male external catheter is a disposable
catheter consisting of a condom-like sheath tapering into a funnel connected to
a drainage tube. The sheath is unrolled onto the penis and adheres by means of
an adhesive. Urine drains through the male external catheter into a leg bag
which must be emptied several times a day. Typically, the catheter is removed
and discarded at least daily. Skin irritation, infection, embarrassment,
inconvenience and reduced mobility are all common drawbacks to male external
catheters.

34
<PAGE> 36

Bladder neck support prostheses. Bladder neck support prostheses are used
for female stress incontinence. Roughly the size and shape of contraceptive
diaphragms, these devices are used to lift the bladder neck and urethra by
applying pressure through the neighboring vaginal cavity. It is difficult to fit
a patient properly and to apply enough pressure to eliminate the leakage of
urine without causing pain. Potential adverse side effects include vaginal
infection, discharge and tissue erosion. Prostheses are generally only worn for
short periods of time and require daily removal and reinsertion by the patient.

Urethral plugs. Urethral plugs are devices which occlude the female urethra
to manage stress incontinence. Urethral plugs are designed to maintain dryness
and may be an attractive alternative to absorbents for female patients with
stress incontinence who require management during periods of activity. They
serve only as a plug and must be removed, discarded and replaced with a new plug
each time a woman voids. This frequent changing may be expensive, inconvenient,
and may require both a high degree of patient dexterity and the use of a sterile
environment, which may potentially limit their market acceptance.

Penile clamps. Penile clamps are external compression devices which fit
around the shaft of the penis to prevent leakage of urine. The clamps operate by
constricting the urethra by mechanical, inflation or other similar means. These
devices are not widely used due to their bulk, fit and discomfort. They also
have a tendency to cause penile obstruction, edema and erosion if not removed
every three hours.

URINARY RETENTION

Unlike incontinence, the management of which primarily involves lifestyle
considerations, urinary retention is a medical condition which, if left
untreated, can lead to severe infection, kidney failure and death. Market
research commissioned by the Company indicates that over one million persons in
the United States suffer from retention. The most common causes of retention are
neurogenic bladder and urinary tract obstruction.

Neurogenic bladder refers to the inability of the bladder to contract in a
normal manner and initiate voiding. Causes of neurogenic bladder include spinal
cord injury, diabetes, Parkinson's Disease, Multiple Sclerosis and other nervous
system trauma.

Urinary tract obstruction refers to blockage of the bladder neck and/or the
urethra which prevents the normal passage of urine. This condition can be caused
by drug side effects, surgical scarring, post-operative swelling, enlarged
prostate, other surgical procedures, congenital abnormalities and other
complications. Urinary obstruction patients often suffer from a combination of
incontinence and retention.

Managing Urinary Retention

There are currently few treatment options available for retention.
Neurogenic problems are generally irreversible. Most urethral obstructions can
be removed through surgery but often return. However, patients with retention
can manage their symptoms through the use of intermittent

35
<PAGE> 37

catheterization, Foley catheters or suprapubic catheters, as summarized in the
following table and more fully described below.

<TABLE>
<CAPTION>
RELEVANT
MANAGEMENT ALTERNATIVE GENDER CLINICAL INDICATION MAJOR DRAWBACKS
---------------------- -------- ------------------- ---------------
<S> <C> <C> <C>
Intermittent catheterization Male/ Neurogenic bladder or High infection rates; multiple
Female urethral obstruction daily insertions; urethral
inflammation
Foley catheters Male/ Neurogenic bladder or High infection rates; external
Female urethral obstruction leg bag; urethral erosion
Suprapubic catheters Male/ Neurogenic bladder or High infection rates;
Female urethral obstruction uncontrolled leakage; skin
erosion
</TABLE>

Intermittent catheterization. Intermittent catheterization ("IC") is
currently the preferred management modality for patients with urinary retention.
IC involves the use of a straight catheter inserted through the urethra into the
bladder to achieve voiding. Patients using IC often must perform this procedure
every three to six hours. This procedure can be uncomfortable, prone to
infection, and often results in severe urethral irritation. IC techniques are
classified as either clean or sterile. Clean IC involves the re-use of catheters
cleaned between each use. While clean IC is less expensive, patients can develop
severe or chronic infections which require them to switch to sterile IC, which
involves the use of more expensive single use catheters. Costs for sterile IC
can exceed $600 each month. Of the estimated one million patients with
retention, market research commissioned by the Company indicates 55% use
intermittent catheterization or have recurring problems with urethral
strictures.

Foley catheters. In addition to their use for managing incontinence as
discussed above, Foley catheters are also used to manage retention in
conjunction with external collection bags. Market research commissioned by the
Company indicates that approximately 30% of patients with retention use Foley
catheters. Foley catheters are used primarily by patients who are unable to
perform IC or who have recurring problems with urethral strictures.

Suprapubic catheters. Suprapubic catheters are surgically inserted into the
bladder through the abdomen and sutured into place. The catheters, in
conjunction with external collection bags, function similarly to Foley
catheters. These devices are generally used for patients who are unable to use
IC or Foley catheters because of limited manual dexterity or other factors.
Suprapubic catheters can severely limit patient mobility and cause chronic
infection, strictures and other medical complications.

THE ON-COMMAND SOLUTION FOR MANAGING INCONTINENCE AND RETENTION

The On-Command Catheter is an endourethral catheter incorporating a
proprietary anchoring system and a proprietary patient controlled, magnetically
activated valve used to regulate urine flow. The On-Command Catheter is designed
to enable persons with either incontinence or retention to manage their
condition without the restricted mobility, medical complications, discomfort and
embarrassment generally associated with many of the existing management
alternatives including intermittent, Foley, external and suprapubic cathers,
diapers and absorbents, and penile clamps.

Unlike most of the widely used products for the management of incontinence,
which are designed to capture urine flow in an external container or absorbent
medium, the On-Command Catheter enables the incontinent person to remain dry
without interfering with normal lifestyle activities and without the associated
medical and psychological problems. Unlike most of the widely used products for
the management of retention which result in severe lifestyle restrictions, the
On-Command Catheter allows the patient with retention to empty the bladder
conveniently and without the potential complications associated with the use of
an external collection bag or the need for IC.

The principal features of the On-Command Catheter include:

- Patient Control. The On-Command Catheter enables persons with either
incontinence or retention to maintain control of their urinary outflow.
The On-Command Catheter prevents urine

36
<PAGE> 38

from leaving the urinary tract until the incontinent person electively
decides to void enabling such person to remain dry. The On-Command
Catheter allows the patient with retention to void when desired and
without the need for IC.

- Non-Surgical Application. The On-Command Catheter is designed to be a
relatively low-risk, non-surgical management application for urinary
outflow problems when compared to surgery or permanently implanted
devices. This is particularly important due to the uncertainty and
complications of invasive treatments, or when the longevity of the
patient is in question.

- Ease of Use. The operation of the On-Command Catheter is simple and
efficient for the patient. The device is also easy for the physician to
understand, size and insert because it shares several common design
features with other commonly used indwelling catheters, such as the Foley
catheter. There is no initial capital or inventory investment required
and a minimum of training is necessary for a physician to become
proficient in the use of the device.

- Convenience and Enhanced Lifestyle. The proprietary endourethral design
of the On-Command Catheter eliminates the need for external collection
bags and absorbents that can restrict mobility and compromise lifestyle.
Periodic replacement is also convenient when compared to products like
diapers, intermittent catheters and urethral plugs which must be changed
or replaced multiple times per day.

- Lower Incidence of Complications. The On-Command Catheter, because of its
endourethral design, is believed to result in fewer complications than
other products designed for the treatment or management of urinary
outflow problems. Incontinent persons are likely to stay dryer, reducing
the risks of rashes, skin irritations, urethral strictures and other
complications.

- Reduced Infection Rate. Male patients with either incontinence or
retention have been shown in the Company's clinical trials to have lower
symptomatic UTI rates while using the Male On-Command Catheter, when
compared with infection rates generally associated with the use of Foley
catheters.

- Cost Effectiveness. The Company believes that less frequent replacement
of the On-Command Catheter should provide a competitive cost advantage
over products that are changed daily or multiple times per day. In
addition, the Company anticipates that the overall treatment cost using
the On-Command Catheter will be lower due to a reduced incidence of
complications and side effects, as well as patient transfers into
institutionalized settings.

Urinary outflow dysfunction can result from a wide range of diseases,
surgical complications and other factors that can affect anatomic structures,
autonomic reflexes or neurologic function. As a result, it is difficult for a
single treatment or management alternative to effectively address every specific
condition. There are certain specific patients who would not be able to benefit
from the clinical and lifestyle advantages of the On-Command Catheter. First,
patients who have limited motor function or dementia may not be able to
effectively activate the magnetic valve. Second, the anatomy of patients who
have low bladder capacity or bladder instability may not be able to accommodate
an endourethral device such as the On-Command Catheter. Finally, patients with
other physical limitations such as excessive obesity or retracted penis may not
be able to use the On-Command Catheter.

Male On-Command Catheter

The Male On-Command Catheter consists of two separable units, the
endourethral catheter portion and the detachable inflator section. When the two
units are connected, prior to use, the device closely resembles a Foley
catheter. The device is inserted non-surgically through the urethra in a simple
five-minute procedure. Two balloons are inflated, one in the bladder to seal the
bladder neck and one in the urethra on the downstream side of the prostate gland
to anchor the device. The inflator portion is then detached and discarded,
allowing the device to reside completely inside the urethra with no

37
<PAGE> 39

exposed components, thereby reducing the risk of infection. The device is
designed to remain in place for up to 30 days.

LOGO

The proprietary control valve is located at the outlet end of the catheter
section and is magnetically activated. This valve can be opened by simply
placing a matchbook sized magnet externally along the underside of the penis,
allowing the urine to flow. Removing the magnet closes the valve, shutting off
the flow of urine and keeping the patient dry. Both insertion and removal
procedures are non-surgical, take only a few minutes and are easily accomplished
by medical staff or other caregivers. The Company offers a range of sizes, and
uses a proprietary sizing catheter to ensure appropriate fit. The sizing
catheter is easy for physicians to use and ensures a comfortable and customized
fit in a variety of anatomies.

Female On-Command Catheter

The Female On-Command Catheter also employs a catheter with a detachable
inflator section and a magnetically activated valve. The device is shorter than
the Male On-Command Catheter and substitutes the urethral anchoring balloon with
a small rounded external cap which anchors the device in place beneath the
labial folds of the vagina. The device is designed to remain in place for 15 to
30 days making it more convenient than many other products requiring multiple
changes per day. Because the external anchoring cap extends past the urethral
opening, symptomatic UTI rates in the Female On-Command Catheter are expected to
be higher than the Male On-Command Catheter which resides entirely inside the
urethra.

LOGO

The procedures for insertion, voiding and removal are similar to those for
the male device.

38
<PAGE> 40

CLINICAL TRIALS

Clinical trials of the Male On-Command Catheter were conducted by Surgitek,
a prior licensee of the Company's technology, from 1989 to 1992. The trials
evaluated a minimum of three successive device insertions for a period of 30 to
37 days each in male patients with either incontinence or retention. A total of
49 patients were enrolled receiving an aggregate of 201 Male On-Command Catheter
insertions. The longest trial period on any patient was 32 months, with the
patient receiving a total of 30 device insertions.

The clinical trials demonstrated the utility of the Male On-Command
Catheter in managing urinary outflow problems. The results of the clinical
trials showed an overall symptomatic UTI rate of less than 3% for all device
insertions during the trials. This rate is significantly lower than the rate of
infection generally associated with the use of Foley catheters. The Company
believes that the results are due, in part, to the entirely indwelling design of
the Male On-Command Catheter which is not subject to bacterial influx from
external tubing and collection systems typically associated with a Foley
catheter. In addition, the proprietary anchoring system caused no adverse
effects to the urethra or bladder.

In the clinical trials, the Male On-Command Catheter initially experienced
a high degree of mechanical failure; however, the device's performance improved
substantially as design changes, manufacturing procedures, testing protocols and
insertion techniques were modified and enhanced. Complications other than
symptomatic UTI primarily included migration, mis-sizing and bladder spasms.
Notwithstanding the foregoing, approximately 90% of the patients included in the
trials found the Male On-Command Catheter maintained continence and was
comfortable to wear and easy to use.

The Company submitted a 510(k) notification to the FDA in July 1994 based
on the clinical data collected by Surgitek. The Company was notified by the FDA
that the clinical trials were deficient in certain respects, particularly with
respect to the design of the trials, which had an insufficient number of
patients and was not structured as a controlled, randomized study, as required
under current FDA regulations. In response to the FDA, the Company designed a
controlled, randomized study of the Male On-Command Catheter and filed an IDE
application that was approved in July 1995.

The purpose of the study is to confirm prior clinical results and
demonstrate the safety and efficacy of the Male On-Command Catheter when
compared to a Foley catheter in managing urinary outflow dysfunction. To date,
the three participating centers have received IRB approval and enrollment is
underway. The study protocol includes the evaluation of a single device
insertion for a period of up to 30 days. The duration of the study is seven
weeks per patient, including enrollment and both pre-insertion and
post-insertion examinations. Study endpoints include comparison of symptomatic
UTI rates, physical changes to the bladder and urethra and patient assessment of
quality of life between study groups. The Company anticipates the completion of
the study, with a targeted enrollment of 60 patients, during the first quarter
of 1997. There can be no assurance that the study will be completed in this
timeframe.

The controlled, randomized study was initially started in September 1995
and then stopped in order to diagnose and correct a component assembly problem
causing migration of the device away from the bladder. The Company initiated two
non-randomized pilot studies to evaluate several assembly and manufacturing
procedures designed to correct the problem and other improvements, including a
modified magnetic valve and a new sizing catheter and procedure to enhance the
patient fit of the device. The pilot studies have involved a total of 21
patients through August 31, 1996, and the Company is currently completing the
second pilot study in preparation for recommencing the controlled, randomized
study in the near-term. There can be no assurance, however, that the Company
will not encounter additional problems associated with the Male On-Command
Catheter that could delay or prevent recommencement of such study.

The IDE for the Female On-Command Catheter was approved in March 1996 by
the FDA and the Company has obtained IRB approval at two investigational sites.
The clinical study will use a Foley catheter as the control device and will
evaluate single device insertions over a 7 to 30 day period. The

39
<PAGE> 41

study will require seven weeks per patient to complete and will include 180
patients, 90 of whom will receive the Female On-Command Catheter and 90 of whom
will receive the Foley catheter. Study endpoints include comparison of
symptomatic UTI rates, physical changes to the bladder and urethra and patient
assessment of quality of life between study groups. As part of the approved IDE,
the Company is conducting a non-randomized pilot evaluation of 20 patients to
test protocols and procedures prior to initiating the controlled, randomized
study.

The Company expects to initiate clinical evaluation of the Male On-Command
Catheter in Europe pursuant to an arrangement with Braun. Braun has agreed to
conduct the evaluation and prepare the necessary regulatory filings in 16
European countries. The clinical evaluation in Europe is expected to begin by
the end of 1996 and will evaluate the Male On-Command Catheter at a total of six
investigational sites in France, Germany and Spain. The protocol will be similar
to the IDE approved protocol used in the United States. However, the Company
will not be required to include a control group. The Company anticipates
evaluating up to three sequential device insertions for each patient.

MARKETING AND SALES

The Company intends to market the On-Command Catheter directly in the
United States to physicians and their patients while using marketing
collaborations for institutions (nursing home and hospital care) and
international markets. The Company's marketing strategy is designed to create
awareness and promote the On-Command Catheter as the preferred alternative for
the management of lower urinary tract problems in men and women. The Company's
initial marketing efforts will be directed toward urologists, uro-gynecologists
and primary care physicians whose patients are seeking relief from urinary
outflow problems.

The On-Command Catheter represents a new management modality for urinary
outflow dysfunction, and there can be no assurance that the On-Command Catheter
will gain any significant degree of market acceptance among physicians, health
care payers or patients, even if necessary domestic or international regulatory
and reimbursement approvals are obtained. Patient acceptance of the device will
depend on many factors, including physician recommendations, the degree, rate
and severity of potential complications, the cost and benefits compared to
competing products, lifestyle implications, available reimbursement and other
considerations. Failure of the On-Command Catheter to achieve substantial market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.

Domestic Sales

Medical association estimates indicate that there are approximately 9,000
urologists and uro-gynecologists in the United States. Over half of these
specialists practice in groups with patients drawn from a wide geographic area.
Because of this concentration, the Company expects that a relatively small
direct sales force of approximately 20 individuals by 1999 can effectively
address this market.

The Company intends to implement its marketing strategy through clinical
sales specialists who will educate and train physicians and patients. These
specialists will include field-based paraprofessionals, nurse practitioners and
professional sales representatives with experience demonstrating medical
products and procedures. Initially, the Company will target the sunbelt region
of the United States where there is a greater percentage of older persons in
whom the incidence of urinary dysfunction is higher. The Company then intends to
expand its sales efforts into other areas of the country.

The Company believes that many patients using currently available products
to manage incontinence and retention are dissatisfied with such products.
Patient awareness of the benefits of the On-Command Catheter will be created
through the use of selected print advertising, incontinence advocacy group
sponsorship, prostate cancer newsletters and other targeted promotions. The
objective will be to inform patients that a new management option is available
and provide them with a toll free phone number to call for more information.
Callers will be provided with the names of physicians in the

40
<PAGE> 42

patient's area who have been trained by the clinical sales specialist, have
adopted the On-Command Catheter for their patients and are prepared to evaluate
the clinical suitability of the patient. The Company's strategy is to identify
reference physicians in selected geographic areas to provide a referral network
for patients seeking management alternatives. Timing of the awareness media
campaign will be carefully orchestrated to coincide with the physician training.
The Company's direct sales activities will also be augmented through attendance
and participation in trade shows and organizational meetings specifically
related to urology and urinary dysfunction and through the publication of
scientific papers discussing the results of expanded clinical development work.

Based on market research commissioned by the Company, the Company believes
its initial target market includes men who have incontinence or retention whose
condition does not preclude them from using a medical device and who meet
certain additional criteria including age, manual dexterity and dissatisfaction
with their current management modality. This research also indicates that over
one million men are currently using a prescription medical device to manage
urinary outflow problems. The Company believes that patients currently using a
prescription medical device will be the first to recognize the benefits of the
On-Command Catheter. These male patients are accustomed to devices, see their
physician on a regular basis, and are believed to be the most receptive to
alternative management methods. Patients using absorbents who are dissatisfied
with the wetness, odor, discomfort and embarrassment associated with diapers are
also primary targets.

The Company is targeting women with moderate to severe stress incontinence
who require some form of continuous management and are dissatisfied with wearing
diapers and pads. The Company estimates that this represents a target market of
one and one-half million women in the United States. The Company intends to
introduce the Female On-Command Catheter initially through the physicians who
have had prior experience with the Male On-Command Catheter and are treating
female patients with similar profiles.

The Company expects eventually to add managed care specialists to address
the unique requirements of capitated health care systems including hospitals,
HMOs and nursing homes. The products will be sold on the basis of
pharmacoeconomic results and the overall cost effectiveness versus other
management and treatment modalities. The Company plans to analyze and use the
most appropriate distribution method to reach these institutional markets.

To date, the Company has not sold any On-Command Catheter products and does
not currently employ any marketing or sales employees for such device. There can
be no assurance that the Company can attract and retain its own qualified
marketing and sales personnel or otherwise design and implement an effective
marketing and sales strategy for the On-Command Catheter. The failure to
establish and maintain effective marketing, sales and distribution channels for
the Company's products, or to attract and retain qualified sales personnel to
support commercial sales of the Company's products, would have a material
adverse effect on the Company's business, financial condition and results of
operations.

International

International marketing efforts are initially being directed at Europe and
Japan. International sales are expected to be made through independent foreign
distribution arrangements. The Company has entered into an arrangement with
Braun to conduct clinical trials in Europe for the On-Command Catheter. Braun
has over 200 sales representatives in the major European countries who would be
responsible for selling and marketing the Company's catheter products. This
arrangement may lead to an exclusive licensing and distribution agreement in
Europe following the clinical trials. Preliminary discussions are currently
underway with other potential distributors in Japan and other Pacific Rim
countries. There can be no assurance that the Company will be successful in
establishing or maintaining effective marketing, sales and distribution channels
internationally.

41
<PAGE> 43

International sales may be adversely affected by the imposition of
government controls, export license requirements, political instability, trade
restrictions, changes in tariffs, distributor difficulties, communications
problems, fluctuations in foreign currency rates, foreign competition and other
factors. Any one or more of these factors could limit the Company's
international sales and have a material adverse effect on the Company's
business, financial condition and results of operations.

THIRD-PARTY REIMBURSEMENT

The Company believes, based on the availability of third-party
reimbursement for certain other medical devices, that the On-Command Catheter
will generally be eligible for coverage by third-party reimbursement programs.
There can be no assurance, however, that such reimbursement will be available.
The Company is unable to determine whether the On-Command Catheter reimbursement
amount, if any, will be sufficient to cover the cost of the product. The Company
currently estimates the price of the Male On-Command Catheter will be in excess
of $100 per month, based on the use of one device per month, although the exact
pricing of the Male On-Command Catheter has not yet been set. The pricing for
the Female On-Command Catheter has not yet been determined by the Company.
Medicare allowable costs for other urinary outflow dysfunction management
devices are approximately $60 for Foley catheters and approximately $85 for male
external catheters per month. Allowable reimbursement costs for sterile IC are
approximately $600 per month. The Company's long-term strategy is to obtain
separate reimbursement codes and perform outcome studies evaluating the cost
effectiveness of the On-Command Catheter compared to other device, absorbent and
treatment modalities.

If third-party reimbursement is unavailable, consumers will have to pay for
the On-Command Catheter themselves, resulting in greater relative out-of-pocket
costs for the device as compared to surgical procedures and other management
options for which third-party reimbursement is available. The Company does not
expect that third-party reimbursement will be available, if at all, unless and
until FDA and foreign regulatory approval is received. After such time, if ever,
as applicable regulatory approval is received, third-party reimbursement for the
On-Command Catheter will be dependent upon decisions by the Health Care
Financing Administration for Medicare in the United States and similar
authorities abroad, as well as by private insurers and other payers.

MANUFACTURING

UroQuest currently uses BMT to produce limited quantities of the On-Command
Catheter for use in its clinical trials. To date, BMT has manufactured
approximately 2,100 Male On-Command Catheters and only a limited number of
Female On-Command Catheters. Management anticipates that the acquisition of BMT
will provide significant manufacturing capabilities for UroQuest's products.

42
<PAGE> 44

The manufacturing facilities are currently operated in compliance with existing
GMPs and have passed inspection repeatedly by the FDA, as well as the United
Kingdom's Department of Health.

The business of BMT has been specialized in the manufacturing of medical
devices using predominantly silicone technology for 25 years. BMT currently
manufactures a broad range of silicone-based catheter-type products used in
various segments of the health care industry. BMT is in the process of obtaining
ISO-9001 certification from BSI Product Certification of the United Kingdom,
which is based on adherence to established standards in the area of quality
assurance and manufacturing process control, and CE mark status. There can be no
assurance, however, that BMT will obtain such certification or status.

BMT's manufacturing capabilities include custom compounding, where special
pigmentation, radiopacity agent, or unique ratio blending are necessary to
customize end product performance specifications. Liquid silicones and high
consistency silicones are utilized in injection, transfer, compression, insert
or blow molding processes to manufacture components in a variety of custom
configurations. BMT also has the capability to extrude single or multi-lumen
tubing, special round or compound profiles or even coextrusion with other
silicone or non-silicone substrates in a range of sizes from as small as 0.002"
inside diameter tubing to as large as 1.6" outside diameter. In some cases,
these basic processes yield a finished device. In most cases these molded or
extruded products become the components and/or subassemblies from which a broad
range of catheter-type devices are manufactured, including the On-Command
Catheter.

BMT has extensive assembly and fabrication capabilities. The molded or
extruded silicone components are combined together with any number of
non-silicone components to produce a variety of products. BMT has both Class
100,000 and Class 10,000 certified clean room assembly and packaging capability.
Other custom assembly processes include adhesiving, bonding, potting, forming,
porting, drilling, notching, cutting, printing, coating, dispensing and
reinforcing with wires or other non-silicone substrates. In addition, BMT has
developed proprietary surface enhancement technologies and processes which
provide a wide range of alternative product characteristics. Over 800,000
silicone catheter-type devices are currently manufactured annually at BMT. The
Company currently has excess manufacturing capacity available.

The On-Command Catheter has been manufactured at BMT over the past two
years involving design and process steps which have evolved over this period to
its current design. The processes and techniques required to manufacture and
assemble the On-Command Catheter are similar to those currently used by BMT to
manufacture other silicone catheter-type devices. The On-Command Catheter also
requires the procurement of several non-silicone components. The sources for
each component have been identified and a limited inventory of certain
components is currently available. In addition, BMT is seeking to develop
alternative sources for such components.

The Company may encounter difficulties, delays and significant expenses in
scaling up production of the On-Command Catheter, including potential problems
involving production yields, quality control, component supply and shortage of
qualified personnel. The Company may also experience higher than expected
manufacturing costs that could prevent the Company from selling the On-Command
Catheter at a commercially reasonable price. Notwithstanding BMT's manufacturing
expertise, there can be no assurance that difficulties or unfavorable costs will
not be encountered in mass-production of the On-Command Catheter and, in such
event, these difficulties or costs could result in a material adverse effect on
the Company's business, financial condition and results of operations.

43
<PAGE> 45

BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. In the event of a
violation of environmental laws, the Company could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
permits necessary to conduct its business. Any such revocations could require
the Company to cease or limit production at its facilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is also subject to environmental laws
relating to the storage, use and disposal of chemicals, solid waste and other
hazardous materials, as well as air quality regulations. Changes or restrictions
on discharge limits, emissions levels, or material storage or handling might
require a high level of unplanned capital investment and/or subsequent
relocation to another location. There can be no assurance that the Company will
be able to comply with the discharge levels mandated or that the costs of
complying with such regulations will not require additional capital expenses.
Furthermore, there can be no assurance that compliance with such regulations
will not have a material adverse effect on the Company's business, financial
condition and results of operations.

RESEARCH AND DEVELOPMENT

The Company's current research and development efforts are focused
primarily on broadening the number of On-Command configurations to address
additional clinical indications, as well as developing the Snap-Shot Urine
Chemistry Test System. The Company also intends to continue to build upon its
clinical knowledge and relationships to develop additional advanced, innovative
products for the management, treatment and diagnosis of other urological
problems. Accordingly, the Company intends to continue to devote significant
funds to its research and development activities. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

On-Command Convertible Catheter

The On-Command Convertible Catheter is being developed for use in patients
requiring temporary bladder management in a clinical setting where a Foley or
intermittent type catheter would normally be used to monitor urine output and
chemistry and evaluate kidney function. With the inflator portion attached, the
On-Command Convertible Catheter functions as would a Foley catheter allowing for
continuous bladder drainage. When continuous monitoring is no longer necessary
and continence has not yet returned, the inflator portion of the On-Command
Convertible Catheter can be disconnected and the device then functions in the
controlled flow mode. The patient can then move about without restriction or
without the attendant problems associated with an indwelling Foley catheter,
external tubing and collection bag. The Company estimates that over two million
Foley catheters are used annually in the United States for extended post-surgery
catheterization. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Convertible Catheter, and that the
device will be evaluated as an engineering modification to the current
On-Command Catheter.

On-Command Control Catheter

The On-Command Control Catheter is being developed for use with
semi-ambulatory or bed-ridden patients in long-term or home care environments.
An estimated $3 billion is spent annually in nursing homes to manage
incontinence alone. The On-Command Control Catheter incorporates a mechanical
valve mechanism that can be easily opened or closed by a caregiver to facilitate
patient voiding. The Company believes the device will be useful in the
management of incontinence in nursing homes and extended care settings,
replacing adult diapers, Foley catheters, male external catheters and suprapubic
catheters. The Company believes that separate clinical trials will not be
necessary for approval of the On-Command Control Catheter, and that the device
will be evaluated as an engineering modification to the current On-Command
Catheter.

44
<PAGE> 46

Snap-Shot Urine Chemistry Test System

The urine chemistry test system, to be identified under the trademark
"Snap-Shot," is a simple disposable device used for the chemical analysis of
urine samples. The product is a completely closed system in which urine can be
easily collected and tested for various chemical components. Because urine is a
body fluid that can potentially transmit dangerous diseases, OSHA has mandated
the use of precautionary measures when such fluids are being handled. The use of
gloves, gowns, face protection and special ventilation and disposal for these
supplies, as well as the specimen, raises the cost of urinalysis performed in a
physician's office.

The Snap-Shot is designed to ensure compliance with OSHA safety regulations
for the safe handling of body fluids during testing procedures. The Company is
not aware of any other manual urinalysis device which is either currently on the
market or under development and which complies with these regulations. The
Company believes that the Snap-Shot will be classified as a Class I device, and
therefore the Company will have to seek FDA marketing clearance or approval
through a 510(k) premarket notification. The Snap-Shot is in the prototype stage
of development and there can be no assurance that the Company will be able to
develop it as a product that will be accepted by the market or generate
significant sales. The Company has not sold any Snap-Shot products to date. The
Company estimates the potential annual market in the United States for the
Snap-Shot, if it proves to be feasible, to be approximately $200 million.

BMT Development Capabilities

BMT's prototype development and manufacturing expertise complement
UroQuest's basic research capabilities. BMT currently has a fully-staffed pilot
production laboratory with a range of capabilities including product molding,
extrusion, testing and assembly. BMT also has extensive experience in silicone
manufacturing and in materials selection for specific applications. BMT's
research and development staff consists of 7 engineers and 14 skilled
technicians. The Company intends to benefit from BMT's research and development
capabilities in connection with its development of the On-Command Catheter and
other urology products.

COMPETITION

Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes that the
primary competitive factors for its products will include the level of physician
and consumer awareness and acceptance of available management methods, the
degree, rate and severity of potential complications, price and related
benefits, lifestyle implications, available reimbursement and the training of
health care professionals and consumers in the use of available management
methods. The Company's ability to compete in this market will also be affected
by its product development capabilities and innovation, its ability to obtain
required regulatory approval, its ability to protect the proprietary technology,
its manufacturing and marketing capabilities and its ability to attract and
retain skilled employees.

The Company believes its principal competition will come from existing
incontinence management modalities, such as adult diapers and absorbents, with
additional competition from existing catheter and surgery products. Current
major competitors who compete in the adult absorbent market include
Kimberly-Clark Corporation, Procter & Gamble Company, Johnson & Johnson Co.,
Confab Technologies, Inc. and INBRAND Corporation. Current major competitors who
compete in the catheter/urine collection bag drainage system market include C.R.
Bard, Inc., Kendall Co., Mentor Corporation, Convatec and Baxter Technologies,
Inc. Current major competitors who compete in the market for surgical or
implantable products for incontinence include American Medical Systems, Inc.,
C.R. Bard, Inc., Mentor Corporation, Johnson & Johnson Co. and Collagen
Corporation.

The Company is aware that UroMed Corp., UroHealth, Inc., Rochester Medical
Corporation, Influence, Inc. and others are developing a number of alternative
products for the management of female stress incontinence. The Company is not
aware of any new products or technologies currently

45
<PAGE> 47

being tested that compete directly with the On-Command Catheter in the male
urinary outflow dysfunction market.

Most of the Company's competitors and potential competitors have
significantly greater financial, technical, research, manufacturing, marketing,
sales, distribution and other resources than the Company. It is possible that
other large health care and consumer product companies may also enter the
Company's markets in the future. Furthermore, academic institutions,
governmental agencies and other public and private research organizations will
continue to conduct research, seek patent protection and establish arrangements
for commercializing products that may compete with products offered by the
Company.

There can be no assurance that the Company's competitors will not succeed
in developing or marketing technologies and products that are more effective or
commercially attractive than any which may be offered by the Company, or that
such competitors will not succeed in obtaining regulatory approval, introducing
or commercializing any such products prior to the Company. Such developments
could have a material adverse effect on the Company's business, financial
condition and results of operations.

PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend, in part, on its ability to obtain and
maintain patent protection for its products, to preserve its trade secrets and
to operate without infringing the proprietary rights of third parties. The
Company's strategy regarding the protection of its proprietary rights and
innovations is to seek patents on those portions of its technology that it
believes are patentable and to protect as trade secrets other confidential
information and proprietary know-how.

UroQuest holds ten United States patents, eight of which relate to the
On-Command Catheter, and numerous foreign patents and has five United States
patent applications and various foreign patent applications pending. One United
States patent and two patent applications relate to the Snap Shot chemistry test
system. The issued United States patents include both method and device claims.
The Company's first two patents, which relate to the On-Command Catheter, expire
in 2000 and 2001 and the remainder of all other patents, including six related
to the On-Command Catheter, expire in the years from 2007 through 2014. In
addition, BMT holds fifteen Unites States patents and nine foreign patents.
BMT's issued patents cover technology related to proprietary products and,
except for two patents that expire in 1999 and 2000, have expiration dates
ranging from 2002 to 2014. The Company believes that its patents contain claims
which may provide a substantial competitive advantage to the Company. However,
there can be no assurance that the Company's issued patents, or any patents
which may be issued as a result of the Company's applications, will offer any
degree of protection. Moreover, there can be no assurance that any of the
Company's patents or patent applications will not be challenged, invalidated or
circumvented in the future. In addition, there can be no assurance that
competitors, many of whom have substantial resources and have made significant
investments in competing technologies, will not apply for and obtain patents
that will prevent, limit or interfere with the Company's ability to make, use or
sell its products either in the United States or internationally.

Some of the technology used in, and that may be important to, the Company's
products is not covered by any patent or patent application of the Company.
Therefore, the Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through proprietary information agreements
with employees, consultants and other parties. The Company's proprietary
information agreements with its employees and consultants contain provisions
requiring such individuals to assign to the Company without additional
consideration any inventions conceived or reduced to practice by them while
employed or retained by the Company, subject to customary exceptions. There can
be no assurance that proprietary information agreements with employees,
consultants and others will not be breached, that the Company would have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competi-

46
<PAGE> 48

tors. Moreover, litigation associated with the enforcement by the Company of its
trade secrets and proprietary know-how can be lengthy and costly, with no
guarantee of success.

To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.

The Company seeks to protect its trademarks through registration.
On-Command(R) is a registered trademark of UroQuest. In addition, UroQuest has
filed intent to use applications for other marks which have been approved by the
PTO. BMT holds four registered trademarks, including Bivona(R), Fome-Cuf(R),
Aire-Cuf(R) and Saf T Flo(R) and 16 trademarks for which United States and
foreign registrations are pending. There can be no assurance, however, that
registration of the Company's trademarks will provide any significant
protection.

GOVERNMENT REGULATION

The Company's products, including the On-Command Catheter, will be subject
to pervasive and continuing regulation by the FDA. Pursuant to the Federal Food,
Drug and Cosmetic Act (the "FDC Act") and regulations promulgated thereunder,
the FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices in the United States. Prior to
commercialization in the United States, a medical device generally must receive
FDA clearance or approval, which can be an expensive, lengthy and uncertain
process. Regulatory agencies in the various foreign countries in which the
Company's products may be sold may impose additional or varying regulatory
requirements. Noncompliance with applicable requirements can result in, among
other things, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the government
to grant premarket clearance or approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.

Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA has classified medical devices in commercial distribution into
one of three classes, Class I, II or III. This classification is based on the
controls deemed necessary to reasonably ensure the safety and efficacy of
medical devices. Class I devices are those whose safety and efficacy can
reasonably be ensured through general controls, such as adequate labeling,
premarket notification and adherence to FDA-mandated good manufacturing
practices ("GMPs"). Class II devices are generally those whose safety

47
<PAGE> 49

and efficacy can reasonably be ensured through the use of general and special
controls, such as performance standards, post-market surveillance, patient
registries and FDA guidelines. The Company believes that the On-Command Catheter
will be considered a Class II device. Class III devices are devices which must
receive premarket approval by the FDA to ensure their safety and efficacy,
generally life-sustaining, life-supporting or implantable devices, and also
include all new devices introduced after May 28, 1976 that are not
"substantially equivalent" to legally marketed products. Manufacturers must also
comply with MDR requirements that a firm report to the FDA any incident in which
its product may have caused or contributed to a death or serious injury, or in
which its product malfunctioned and, if the malfunction were to recur, it would
be likely to cause or contribute to a death or serious injury. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.

The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with GMP requirements, MDR requirements, and other
applicable regulations. The FDA has proposed changes to the GMP regulations
which will likely increase the cost of compliance with GMP requirements. Changes
in existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition and results of
operation. There can be no assurance that the Company will not incur significant
costs to comply with laws and regulations in the future or that laws and
regulations will not have a material adverse effect upon the Company's business,
financial condition or results of operation.

The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future or that such laws or regulations will not have a
material adverse effect upon the Company's ability to do business.

Before a new device can be introduced into the market in the United States,
the manufacturer or distributor generally must obtain FDA marketing clearance or
approval through either a 510(k) premarket notification or a PMA application. If
a manufacturer or distributor of medical products can establish that a new
device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a pre-amendment Class III medical device for which the FDA
has not required premarket approval ("PMA"), the manufacturer or distributor may
seek FDA marketing clearance for the device by submitting a 510(k) notification.
The FDA recently has been requiring more vigorous demonstration of substantial
equivalence than in the past, including in some cases requiring submission of
clinical data. The 510(k) notification and the claim of substantial equivalence
may have to be supported by various types of information indicating that the
device is as safe and effective for its intended use as a legally marketed
predicate device.

Following submission of the 510(k) notification, the manufacturer or
distributor may not place the device into commercial distribution until an order
is issued by the FDA. The FDA has no specific time limit by which it must
respond to a 510(k) notification. It generally takes from four to 12 months from
submission to obtain 510(k) premarket clearance, but may take longer. The FDA
may agree with the manufacturer or distributor that the proposed device is
"substantially equivalent" to another legally marketed device, and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional clinical data, before a
substantial equivalence determination can be made. Such determination or request
for additional information could prevent or delay the market introduction of a
new product. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.

48
<PAGE> 50

If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent to a legally marketed medical
device, the manufacturer or distributor will have to seek a PMA of the device. A
PMA, which must prove that a device is safe and effective, must be supported by
valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of preclinical testing, clinical trials
and extensive manufacturing information. The PMA process can be expensive,
uncertain and lengthy. Upon receipt of a PMA application, the FDA makes a
threshold determination as to whether the application is sufficiently complete
to permit a substantive review. If sufficiently complete, the application is
declared fileable by the FDA and the FDA will begin an in-depth review of the
PMA. The FDA review of a PMA application generally takes one to three years from
the date the PMA is accepted for filing, but may take significantly longer. A
number of devices for which FDA approval has been sought by other companies have
never been approved for marketing. Modifications to a device that is the subject
of an approved PMA, its labeling or manufacturing process may require approval
by the FDA of PMA supplements or new PMAs. Supplements to a PMA often require
the submission of the same type of information required for an initial PMA,
except that the supplement is generally limited to that information needed to
support the proposed change from the product covered by the original PMA.

If human clinical trials of a device are required, whether for a 510(k) or
a PMA, and the device presents a "significant risk," the sponsor of the trial
(usually the manufacturer or the distributor of the device) will have to file an
investigational device exemption ("IDE") application prior to commencing human
clinical trials. The IDE application must be supported by data, typically
including the results of animal and laboratory testing. If the IDE application
is approved by the FDA and one or more appropriate Institutional Review Boards
("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurances that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from
these studies will support the safety and efficacy of the device or warrant the
continuation of clinical studies. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.

The Company currently does not expect to submit a 510(k) notification for
the Male On-Command Catheter for single use insertion of up to 30 days until the
first quarter of 1997 or for the Female On-Command Catheter for single use
insertion until mid-1997, at the earliest. There can be no assurance that a
510(k) notification for either the Male On-Command Catheter or Female On-Command
Catheter will be submitted in these time frames, nor can there be any assurance
that clearance will be obtained for single use insertion, or that subsequent
clearance for successive insertion use will be obtained. Any failure to obtain,
or delay in obtaining, such clearances would have a material adverse effect on
the Company's business, financial condition and results of operations. There
also can be no assurance that the FDA will not require a PMA for either the Male
On-Command Catheter or the Female On-Command Catheter. The Company is aware of
at least one instance in which the FDA initially advised the sponsor of a female
urological device for women with incontinence that 510(k) clearance would be the
appropriate regulatory path to market but subsequently required the sponsor to
seek PMA approval.

There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals for its products on a timely basis or at all,
and delays in receipt of or failure to receive such

49
<PAGE> 51

clearances or approvals, the loss of previously received clearances or
approvals, limitations on intended use imposed as a condition of such clearances
or approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.

Sales of medical devices outside of the United States are subject to
regulatory requirements that vary widely from country to country. The time
necessary to obtain approval for sale in other countries may be longer or
shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company expects to initiate clinical evaluation of the
Male On-Command Catheter in Europe pursuant to an arrangement with Braun. Braun
will be responsible for management of the evaluation and obtaining regulatory
approval for the On-Command Catheter, and such approval will therefore be
outside the Company's control. Moreover, the success of such evaluation in
Europe will be dependent, in large part, on Braun's capabilities and
performance. Some countries in which the Company intends to sell devices through
distributors (for example, Germany, France and Spain) either do not currently
regulate medical devices such as the On-Command Catheter or have minimal
registration requirements. However, these countries may develop more extensive
regulations in the future that could impact the Company's ability to market the
On-Command Catheter. Some countries have historically permitted human studies
earlier in the product development cycle than the United States. Other
countries, such as Japan, have standards similar to those of the FDA. This
disparity in the regulation of medical devices may result in more rapid product
approvals in certain countries than in the United States, while approvals in
countries such as Japan may require longer than in the United States. The export
of medical devices is also subject to regulation in certain instances.

BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is also registered with the FDA as a distributor, initial importer,
repackager and relabeler of medical devices. Among its activities, BMT markets a
range of proprietary and OEM products, most of which were required to receive
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.

BMT is currently seeking certification of conformance to ISO-9001
Standards. BMT has contracted with a foreign certification services company to
act on its behalf for assessment of compliance with the provisions of the
Medical Device Directive ("MDD") of the European Union. BMT's products are
classified as Class IIA, and self certification and authorization for
application of the CE mark under Annex II of the MDD (full quality system in
conformance to EN29001 and EN46001) is expected to be sought in the fourth
quarter of 1996. There can be no assurance that BMT will obtain ISO-9001
certification or CE mark status.

PRODUCT LIABILITY AND INSURANCE

The business of the Company entails significant product liability and
recall risks. A recent United States Supreme Court decision held that product
liability may exist despite FDA approval and future court decisions may also
affect the Company's risk of product liability. Although the Company intends to
obtain product liability insurance covering the On-Command Catheter prior to
commercialization, it does not currently have such insurance which may be
expensive and may not be available on acceptable terms, if at all. BMT maintains
product liability insurance in the amount of $5 million and evaluates its
insurance requirements on an ongoing basis. The Company does not maintain
product liability insurance for products that are in clinical trials or
otherwise in the development stage. A successful product liability claim or
series of claims brought against the Company that are not covered by insurance
or are in excess of BMT's insurance coverage with respect to BMT's products
could have a

50
<PAGE> 52

material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that future
product recalls, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.

EMPLOYEES

As of August 31, 1996, UroQuest employed a total of 9 full-time employees,
including 3 in research and development, 4 in administration and 2 in
regulatory. As of August 31, 1996, BMT employed a total of 197 full-time
employees and 39 part-time employees, including 171 in manufacturing, 25 in
research and development, 16 in administration, 11 in regulatory and quality
assurance, and 13 in sales and marketing. The Company believes that it has been
successful in attracting experienced and capable personnel. However, there can
be no assurance that the Company will continue to do so.

None of the Company's employees is covered by collective bargaining
agreements. The Company considers relations with its employees to be good. In
the past six years, BMT has faced two union election contests at its
manufacturing facility, each of which failed. There can be no assurances that
BMT will not face additional attempts to unionize its employees. In the event
BMT becomes subject to a collective bargaining agreement, it may experience
increased labor and related costs that could have a material adverse effect on
the Company's business, financial condition and results of operations.

FACILITIES

The Company's principal facilities consist of UroQuest's headquarters in
Salt Lake City, Utah and BMT's headquarters in Gary, Indiana. The Company
believes that its facilities are adequate for its current operations.

BMT owns a 45,000 square foot manufacturing plant located on a 20 acre
parcel of land in Gary, Indiana, on which BMT's operations are headquartered.
The plant's space is allocated as follows: approximately 12,000 square feet
dedicated to equipment-intensive production, approximately 10,000 square feet
dedicated to office and support activity, and approximately 23,000 square feet
dedicated to cleanroom production and packaging. Additionally, BMT leases an
18,600 square foot warehouse and shipping facility located approximately five
miles from the manufacturing plant. The lease runs through December 1998 and the
current annual rate on the lease is approximately $60,000.

UroQuest currently leases approximately 2,300 square feet in Salt Lake
City, Utah pursuant to a lease expiring in September 2000. The current annual
rate on the lease is $37,017, with annual increases based on the percentage
increase in the prior year's average consumer price index, beginning in October
1998. Current space is dedicated to administration, sales and marketing and
regulatory activities.

LEGAL PROCEEDINGS

The Company is not currently involved in any legal proceedings, nor is the
property of the Company subject to any such proceedings. There can be no
assurance, however, that the Company will not experience material litigation
with respect to the operation of its business.

BMT

BMT manufactures and markets a series of proprietary products under the BMT
label. BMT's products consist primarily of silicone based medical devices used
in a wide variety of clinical applications, including tracheostomy and
endotracheal tubes for airway management and voice prostheses for voice
restoration. BMT also produces a range of complex catheter type products on an
OEM and private label basis for other medical device companies in areas that
include gastrointestinal feeding, esophageal management, cardiac perfusion,
hyperalimentation and dialysis.

BMT uses a small direct sales force to market its proprietary products to
medical specialists including ear, nose and throat ("ENT") surgeons, respiratory
therapists, speech pathologists and

51
<PAGE> 53

anesthesiologists. A group of specialty medical dealers is used in international
markets. Approximately 20% of BMT's net sales are currently derived from sales
in international markets.

The current proprietary product line includes over 400 different products
sold to approximately 9,000 customers in 40 different countries. The OEM product
line includes approximately 500 additional products sold to about 20 different
companies, most of which are Fortune 500 medical device companies. For the year
ended December 31, 1995 and the six months ended June 30, 1996, OEM sales
accounted for approximately 40% of BMT's net sales. During each of these
periods, sales to Abbott Laboratories accounted for approximately 20% of total
net sales. Although BMT intends to continue developing its OEM business, there
can be no assurance that BMT will be successful in its efforts or that its OEM
customers will react favorably to the acquisition of BMT by UroQuest. The loss
of Abbott Laboratories or other OEM customers could have a material adverse
effect on the Company's business, financial conditions and results of
operations.

The OEM business is serviced by a team of contract sales agents with
support from the BMT engineering staff. BMT is positioned as a value added
manufacturer providing complete product development, regulatory affairs,
manufacturing and packaging service. BMT emphasizes its broad expertise in
complex catheter manufacturing, silicone fabrication techniques and surface
enhancement technologies.

BMT competes with a number of other silicone fabricators for OEM and
private label business. The OEM business is highly competitive and the timing
and volume of orders can fluctuate significantly. BMT does not attempt to
compete with the high volume molded part producers, but specializes in complete
device assemblies of complex products. Because virtually all of BMT's
proprietary and OEM products incorporate silicone components, any cost increase
or other negative development associated with this material could adversely
affect its business, financial condition and results of operations.

BMT's proprietary silicone products compete primarily against non-silicone
counterparts produced by a number of large multinational companies including
Mallinkrodt Group Inc., Sims and Rusch Inc. In addition, there are a number of
smaller companies that compete in other BMT market areas, including InHealth in
voice restoration and Xomed Surgical Products, Inc. in ENT. Competition in the
markets for BMT's proprietary products is intense. Many of BMT's proprietary
products and OEM competitors have significantly greater financial, marketing,
distribution and other resources than BMT. Existing and future competitive
factors could have a material adverse effect on the Company's business,
financial condition and results of operations.

The discussion contained above regarding third-party reimbursement for
medical devices and the On-Command Catheter in particular is generally
applicable to BMT's proprietary line of products. Failure to obtain such
reimbursement for such products could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."

For additional information with respect to the business and operations of
BMT, see "Risk Factors," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Manufacturing, -- Research and Development, -- Patents and
Proprietary Rights, -- Government Regulation, -- Product Liability and
Insurance, -- Employees, -- Facilities, and -- Legal Proceedings."

52
<PAGE> 54

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The executive officers, key employees and directors of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Eric B. Hale 43 President, Chief Executive Officer and Director
Tom E. Brandt 43 Chief Operating Officer and Director Nominee
Richard C. Davis, M.D. 43 Chief Science Officer and Chairman of the Board
Gregory S. Ayers 35 Vice President, Chief Financial Officer and
Treasurer
Terrence L. Domin 49 Vice President, Administration and Secretary
J.J. Donohue 49 Vice President, Research and Development
Anne T. Carter 41 Director of Clinical & Regulatory Affairs
Jack W. Lasersohn 43 Director
Gary E. Nei(1)(2) 52 Director
Maynard Ramsey, III, M.D., Ph.D.(1) 52 Director
Elizabeth H. Weatherman(2) 36 Director
</TABLE>

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

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

ERIC B. HALE has served as President, Chief Executive Officer and a
Director of the Company since November 1994. Before joining the Company, Mr.
Hale was President and Chief Executive Officer of AgriDyne Technologies, Inc., a
developer and manufacturer of bio-pesticides, from October 1988 until June 1994.
Prior to joining AgriDyne Technologies, Mr. Hale was Vice President and General
Manager of the Scientific Products Division of BaxterTravenol, a medical
products company, from November 1985 until September 1988. Mr. Hale held various
marketing, sales, and general management positions with American Hospital
Supply, a medical products company, from June 1975 to November 1985. Mr. Hale
holds a B.S. in Chemistry/Psychology from Utah State University.

TOM E. BRANDT is a director nominee of the Company. Mr. Brandt has been the
President and Chief Executive Officer of BMT since June 1989. Prior to joining
BMT, Mr. Brandt held various management, marketing and engineering positions
with Dow Corning Corporation, a chemical company. Mr. Brandt holds an M.B.A.
from Central Michigan University and a B.S. in Engineering from Iowa State
University. Following the closing of this Offering, Mr. Brandt will be appointed
to the Company's Board of Directors, will serve as the Company's Chief Operating
Officer and will continue as President and Chief Executive Officer of BMT.

RICHARD C. DAVIS, M.D., founded the Company and has served as Chairman of
the Board since its inception and as Chief Science Officer since November 1994.
Dr. Davis invented the Male On-Command Catheter and is responsible for all
research and development activities of the Company. In 1989, he founded Code
Blue Medical Corporation, a marketer of medical devices ("Code Blue") and served
as Chairman until April 1992, when Code Blue was sold to Ballard Medical
Products, a medical products company. Dr. Davis is named as an inventor in over
40 United States patents. Dr. Davis holds an M.D. from the Medical College of
Virginia and a B.S. in Chemistry from Old Dominion University.

GREGORY S. AYERS has served as Vice President, Chief Financial Officer and
Treasurer of the Company since April 1994. From August 1991 until April 1994,
Mr. Ayers held various senior management positions with Tunstall Consulting,
Inc., a corporate financial planning and consulting firm. From September 1983
until May 1991, Mr. Ayers held various positions, including Manager, with KPMG
Peat Marwick in the United States, England and Australia. Mr. Ayers holds a B.S.
in Accounting from Stetson University. He is a Certified Public Accountant.

53
<PAGE> 55

TERRENCE L. DOMIN, a co-founder of the Company, has served as Vice
President, Administration and Secretary since April 1992. Previously, Mr. Domin
served as Executive Vice President and Chief Operating Officer at Code Blue.
From April 1984 until April 1987, Mr. Domin held various positions at Smith
Laboratories, a pharmaceutical company, most recently as Director, Sales and
Marketing, until its sale to The Boots Company of Nottingham, England. From June
1969 until March 1984, Mr. Domin was with Baxter Healthcare Corporation, a
medical products company, in a series of domestic and international marketing
management positions. Mr. Domin holds a B.S. in Mathematics from Loyola
University, Chicago.

J.J. DONOHUE has served as Vice President, Research and Development since
August 1996. Prior to joining the Company, Mr. Donohue was the Vice President of
Research and Development for AcroMed Corporation from May 1994 to August 1995.
From August 1992 until January 1994 he served as Vice President of Product
Development for Zimmer, Inc. and from 1984 to 1992 he was Vice President of
Research and Development for Surgitek, Inc., all of which companies are medical
device companies. Mr. Donohue holds a B.S. in Biology from Youngstown
University.

ANNE T. CARTER has served as Director of Clinical & Regulatory Affairs of
the Company since August 1995. Prior to joining the Company, Ms. Carter was the
Director of Clinical & Regulatory Affairs at Iomed, Inc., a specialty
pharmaceutical and biomechanical company, from May 1990 until August 1995. Ms.
Carter has 20 years of diverse medical experience and 16 years of experience in
the clinical development and regulatory affairs of products in the
pharmaceutical, biotechnology, and medical device industries. Ms. Carter holds a
B.S. in Nursing from Westminster College and a B.S. in Health Education from the
University of Utah.

JACK W. LASERSOHN has served as a director of the Company since June 1995.
Mr. Lasersohn has been a Managing Director of the Vertical Group, Inc., a
private venture capital and investment management firm, since its formation in
1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was
a Vice President and later a Managing Director of the venture capital division
of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of
CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a health
care information systems company, and a number of privately-held health care
companies. He holds a J.D. from Yale University and an M.A. and B.S. from Tufts
University.

GARY E. NEI has served as a director of the Company since March 1994. Mr.
Nei is currently Chairman of the Board of B&B Publishing, a publishing company,
and has served as such since May 1995. Previously, Mr. Nei served as Chief
Executive Officer of Eon Labs, a pharmaceutical company, from February 1992
until January 1995. From November 1988 until December 1991, he served as the
Chief Executive Officer of Lyphomed, a pharmaceutical company. From 1985 until
1986, he served as Executive Vice President of Baxter International, a
healthcare company. He is also a director of Difco Inc., a biological products
company, W. H. Brady Co., an adhesives and graphics technology company, and Nei
Turner Interactive, a software company. He holds an M.B.A. from Northwestern
University and a B.A. from Ripon College.

MAYNARD RAMSEY, III, M.D., PH.D. has served as a director of the Company
since March 1994. Dr. Ramsey was a founder of Applied Medical Research, Inc., a
medical products company, which was acquired by Johnson & Johnson Co. in 1979
and became the patient monitoring business of Critikon, Inc., where he served as
Vice President of Science and Technology and Vice President of Research and
Development from 1979 until March 1994. Dr. Ramsey has received numerous awards
for his scientific and research achievements, holds 16 United States patents,
has authored 12 publications and has presented 21 papers. He holds an M.D. from
Duke University, a Ph.D. from Duke University and a B.A. in Chemistry from Emory
University.

ELIZABETH H. WEATHERMAN has served as a director of the Company since June
1995. Ms. Weatherman is a Managing Director of E.M. Warburg, Pincus & Co., Inc.,
a private investment firm, and has been with the firm since June 1988. Ms.
Weatherman is a director of Cardiotronics Systems, Inc., a medical device
company, VitalCom Inc., a health care information systems company

54
<PAGE> 56

and several privately-held health care companies. Ms. Weatherman holds an M.B.A.
from Stanford University and a B.A. from Mount Holyoke College.

All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. The Board of
Directors has a Compensation Committee, which establishes compensation policies
and is responsible for determinations regarding salaries, incentive compensation
and other forms of compensation for directors, officers and other employees of
the Company. The Audit Committee of the Board of Directors is responsible for
reviewing the scope of and work performed by the Company's independent auditors.
Officers are elected by and serve at the discretion of the Board of Directors or
pursuant to individual employment agreements. All executive officers of the
Company intend, while employed by the Company, to devote substantially all of
their full working time and attention to the Company's business and affairs.
There are no family relationships among the directors or officers of the
Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In addition to the functions and responsibilities discussed above, the
Compensation Committee also administers the Company's incentive compensation
plans. The Compensation Committee consists of Gary E. Nei and Elizabeth H.
Weatherman. Mr. Hale, who is the Company's President and Chief Executive
Officer, also participates in certain discussions and decisions regarding
salaries and incentive compensation for employees of and consultants to the
Company, except that Mr. Hale is excluded from discussions regarding his own
salary and incentive compensation.

KEY EMPLOYEES OF BMT

John M. Sandie, 45, has served as Vice President of Operations of BMT since
September 1989. Prior to joining BMT, Mr. Sandie held various production
management and engineering positions with Dow Corning. Mr. Sandie holds a B.S.
in Mechanical Engineering from Lake Superior State College.

Harry M. Kaufman, 56, has served as Director of Regulatory Affairs, Quality
Assurance and Quality Control of BMT since June 1988. Before joining BMT, Mr.
Kaufman was employed in various management positions with Alcide Corporation, a
pharmaceutical company, Pfizer, a pharmaceutical company, Baxter Healthcare, a
healthcare company, and Martin-Marietta, an aerospace company. Mr. Kaufman holds
an M.B.A. from Sacred Heart University, an M.S. in Microbiology from Arizona
State University and a B.S. in Biology from Texas Western University.

Stuart J. Marcadis, 36, has served as Director of Engineering/Research and
Development of BMT since July 1991. Mr. Marcadis was previously with DLP, a
developer and manufacturer of cardiovascular medical devices, serving as
Product/Process Development Engineering Manager from March 1989 to July 1991.
Mr. Marcadis holds a B.S. in Chemical Engineering from Rose-Hulman Institute of
Technology.

Joe H. Flacke, 41, has served as Secretary/Treasurer and Director of
Administration of BMT since November of 1988. From 1983 to 1988, Mr. Flacke was
General Production Manager for Teknar, Inc., a manufacturer of medical
electronic equipment. Prior to working at Teknar, Mr. Flacke was an electronics
technician at Washington University. Mr. Flacke holds an M.B.A. from Fontbonne
College and a B.S. in Data Processing from Washington University.

MEDICAL ADVISORY BOARD

The Company has established a Medical Advisory Board (the "Advisory Board")
consisting of six members to review and comment on the scientific aspects of the
Company and to develop suggestions for new ideas and products. Members of the
Advisory Board are appointed for a two-year term, and the Advisory Board meets
two times per year.

55
<PAGE> 57

The members of the Advisory Board are set forth below. With the exception
of Dr. Rodney Appell, who has served as a member of the Advisory Board since
August 1994, each of the members of the Advisory Board was appointed in April
1996.

Anthony W. Middleton, Jr., M.D. serves as Chairman of the Advisory Board.
Dr. Middleton is currently serving as the Chairman of the Division of Urology at
LDS Hospital in Salt Lake City, Utah, and as Chairman of the Board of UROPAC
(National Urological Political Action Committee). He recently completed a term
as national President of the American Association of Clinical Urologists. In
addition to being a full-time practicing urologist, he has published over 100
articles and papers on various aspects of urology and organized medicine. Dr.
Middleton is a graduate of Cornell University Medical College.

Rodney Appell, M.D. currently serves as Chief of Urology at the Cleveland
Clinic and is a widely published and active researcher in the area of urinary
dysfunction. In addition, Dr. Appell is the Clinical Professor of Urology at the
Louisiana State University School of Medicine. Dr. Appell holds an M.D. from
Jefferson Medical College.

Fray F. Marshall, M.D. has been a Professor of Urology and Director,
Division of Adult Urology, at The Johns Hopkins Hospital, Baltimore, Maryland
since July 1990. Dr. Marshall holds an M.D. from the University of Virginia.

Joseph A. Smith, Jr., M.D. has been the William L. Bray Professor and
Chairman of the Department of Urologic Surgery and Interim Director, Section of
Surgical Sciences, at Vanderbilt University School of Medicine, Nashville,
Tennessee since July 1991. Dr. Smith holds an M.D. from the University of
Tennessee.

Peter Scardino, M.D. has headed the Department of Urology, Baylor School of
Medicine, Houston, Texas since 1987. Dr. Scardino holds an M.D. from Duke
University.

Larry Wright, M.D. has been the Director of Microbiology Laboratory at LDS
Hospital, Salt Lake City, Utah since 1989. Dr. Wright holds an M.D. from the
University of Utah.

EXECUTIVE COMPENSATION

The following table sets forth certain information for the calendar year
ended December 31, 1995, regarding the compensation of the Company's President
and Chief Executive Officer and each of the other two most highly compensated
executive officers of the Company (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
- ------------------------------------------------------ ---- ------------ ---------------
<S> <C> <C> <C>
Eric B. Hale.......................................... 1995 $190,000 $ 3,600(1)
President and Chief Executive Officer
Terrence L. Domin..................................... 1995 120,000 --
Vice President, Administration
Richard C. Davis...................................... 1995 125,385 --
Chairman of the Board and
Chief Science Officer
</TABLE>

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

(1) Consists of a $600 per month automobile allowance paid by the Company for a
six-month period.

56
<PAGE> 58

OPTION GRANTS AND EXERCISES IN THE YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES

There were no options granted to the Named Executive Officers listed in the
Summary Compensation Table above during the fiscal year ended December 31, 1995.

The following table sets forth certain information as to options exercised
during the fiscal year ended December 31, 1995 and as to unexercised options
held at the end of such fiscal year by the Named Executive Officer of the
Company:

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR END AT YEAR END(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric B. Hale............... 85,714 $103,414 68,477 216,242 $64,773 $ 110,283
Richard C. Davis........... -- -- 53,452 53,691 $27,261 $ 27,382
Terrence L. Domin.......... -- -- 132,282 187,142 $67,515 $ 95,442
</TABLE>

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

(1) Calculated on the basis of the fair market value of the Common Stock on
December 31, 1995 of $1.21 per share, as determined by the Company's Board
of Directors, minus the exercise price.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Richard C. Davis,
M.D., its Chairman of the Board and Chief Science Officer, Eric B. Hale, its
President and Chief Executive Officer, Gregory S. Ayers, its Vice President,
Chief Financial Officer and Treasurer, Terrence L. Domin, its Vice President,
Operations and Secretary and J.J. Donohue, its Vice President, Research and
Development. Dr. Davis's employment agreement provides for base pay of $130,000
per annum, plus performance bonuses based upon criteria measured by the Board of
Directors. Mr. Hale's employment agreement provides for base pay of $195,000 per
annum, performance bonuses based upon criteria measured by the Board of
Directors and severance constituting salary and benefits continuation for up to
eighteen months following termination of employment without cause. The Company's
employment agreement with Mr. Domin provides for base pay of $120,000 per annum.
The Company's employment agreement with Mr. Donohue provides for base pay of
$125,000 plus eligibility for bonuses. The Company's employment agreements with
Messrs. Davis, Domin, Ayers and Donohue provide for severance of salary and
benefits continuation for up to nine months following termination without cause.
Each of these employment agreements provides for grants of stock options. All
officers will also be entitled to acceleration of vesting of outstanding stock
and options in the event the Company is acquired. The vesting of each such
officer's options and any stock held subject to repurchase by the Company would
accelerate so that any such stock or options would be 100% vested. In addition,
in connection with the acquisition of BMT, the Company has entered into an
employment agreement with Tom E. Brandt, Chief Operating Officer, which provides
for annual base compensation of $168,000 for five years.

DIRECTOR COMPENSATION

Directors of the Company do not receive cash for services they provide as
directors. All directors of the Company, other than those designated by Warburg
and Vertical, have been granted options to purchase an aggregate of 107,143
shares of Common Stock at an exercise price of $0.70 per share. The options vest
over a five-year period, although all shares become immediately exercisable in
the event there is a change in control of the Company. See "Stock Plans -- 1994
Stock Option Plan" and "Certain Transactions." The Company does not pay
additional amounts for committee participation or special assignments of the
Board of Directors.

COMPENSATION OF MEDICAL ADVISORY BOARD MEMBERS

Pursuant to separate consulting, confidentiality and non-competition
agreements between the Company and each member of its Medical Advisory Board,
the Company has agreed to pay each such

57
<PAGE> 59

Advisory Board member $1,000 per meeting attended. In addition, in April 1996
the Company granted certain of its Advisory Board members options to purchase an
aggregate of 5,716 shares of Common Stock at a price of approximately $1.75 per
share and a cumulative exercise price of approximately $10,000.

STOCK PLANS

1994 Stock Option Plan. A total of 1,428,571 shares of Common Stock have
been reserved for issuance under the Company's 1994 Stock Option Plan (the
"Stock Plan"). As of June 30, 1996, 139,934 shares had been issued upon the
exercise of stock options granted under the Stock Plan, 1,055,674 shares were
subject to outstanding options and 232,963 shares remained available for future
grant. The Stock Plan is administered by the Compensation Committee of the Board
of Directors, which determines the terms of awards granted, including recipient,
type of award, exercise price, number of shares subject to the award and vesting
terms. Under the Stock Plan, options may be granted to employees, including
directors who are employees, and consultants. Only employees may receive
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), which are intended to qualify for
certain tax treatment; non-employees receive "nonqualified stock options," which
do not qualify for such treatment. In the event of a change in control of the
Company, including a merger or sale of substantially all of the Company's
assets, outstanding options may be assumed by any successor corporation or may
become exercisable. The exercise price of stock options under the Stock Plan
must at least equal the fair market value of the Common Stock on the date of
grant. Options granted under the Stock Plan generally vest on a cumulative
monthly basis over five years and must be exercised within ten years.

1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
July 1996. A total of 250,000 shares of Common Stock have been authorized for
issuance under the Purchase Plan. No shares have been issued under the Purchase
Plan. The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be administered by the Compensation Committee of the Board of
Directors. Under the Purchase Plan, the Company will withhold a specified
percentage (not to exceed 15%) of each salary payment to participating employees
over certain offering periods. Any employee who has been employed for at least
six months and who is currently employed for at least 20 hours per week or for
at least five consecutive months in a calendar year, either by the Company or by
a majority-owned subsidiary of the Company, will be eligible to participate in
the Purchase Plan. Unless the Compensation Committee of the Board of Directors
determines otherwise, each offering period will run for six months. The first
offering period will commence approximately 30 days after the date of this
Prospectus. New six-month offering periods will commence approximately every six
months thereafter. The price at which Common Stock will be purchased under the
Purchase Plan is equal to 85% of the fair market value of the Common Stock on
the first day of the applicable offering period or the last day of the
applicable offering period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period and may
decrease their participation in the offering at any time during the offering
period on one occasion. Participation ends automatically on termination of
employment with the Company. The number of shares that a participant may
purchase in any offering period is determined by dividing the payroll deductions
accumulated during the offering period by the purchase price. However, no person
may purchase shares under the Purchase Plan to the extent such person would own
5% or more of the total combined value or voting power of all classes of the
capital stock of the Company or of any of its subsidiaries, or to the extent
that such person's rights to purchase stock under all employee stock purchase
plans would accrue at a rate that exceeds $25,000 worth of stock for any
calendar year, determined as of the first day of the applicable offering period.
In the event of a merger of the Company with or into another corporation, or the
sale of all or substantially all of the assets of the Company, the offering
period then in progress will be shortened. The Board of Directors may amend the
Purchase Plan at any time. The Purchase Plan shall be in effect for a term of
ten years unless terminated earlier pursuant to its terms.

58
<PAGE> 60

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation provides that the Company's
directors will not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Company and its stockholders. This provision in
the Certificate of Incorporation does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under Delaware law. Each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to the best interests of the
Company or its stockholders, for any transaction from which the director derived
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its stockholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.

The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company believes
that indemnification under its Bylaws covers at least negligence and gross
negligence on the part of indemnified parties. The Company is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, the Company has entered into
indemnity agreements with each of its directors and officers.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company in which indemnification is required or
permitted, and the Company is not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.

CERTAIN TRANSACTIONS

In August 1992, UroQuest issued 1,285,714 shares of Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust, a
trust established by Richard C. Davis on behalf of his children, respectively,
for patents and trademarks nominally valued at $5,000. Dr. Davis, a founder of
the Company, is the Company's Chairman of the Board and Chief Science Officer.
In January 1994, UroQuest issued 1,285,714 shares of Voting Common Stock and
142,857 shares of Non-Voting Common Stock to Richard C. Davis and to DD Trust,
respectively, for all of the outstanding equity of UroCath Corporation, which
was transferred by Dr. Davis and DD Trust to UroQuest. All shares owned by Dr.
Davis personally have been transferred to a trust established on his behalf and
controlled by Dr. Davis.

During 1994, UroQuest was assigned patents and trademarks totaling $250,000
by Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by Dr. Davis. As the note was
non-interest bearing, UroQuest recorded the note net of a $6,840 discount
calculated at 8% over the expected term of the note. The note was paid in full
and the discount completely amortized by December 31, 1995.

In June 1994, the Board of Directors of the Company approved issuance of an
option to purchase an aggregate of 107,143 shares of Common Stock at $0.70 per
share to certain members of the Board of Directors, which shares vest over a
five-year term tied to service on the Board of Directors. All shares will be
exercisable in full in the event there is a change in control of the Company.

In June 1994, corporations were formed by certain stockholders of the
Company for the purpose of transferring non-core business assets into separate
entities. Cash and other assets totaling $235,008

59
<PAGE> 61

were exchanged with those companies for 8% promissory notes. The notes are
payable on demand. In 1994, a valuation allowance was established to account for
possible non-collection of the notes. All accrued interest on the notes
receivable is provided for monthly.

In December 1994, Maynard Ramsey, a director of the Company, purchased
$150,000 of UroQuest's 12% Secured Promissory Notes due December 1996. In
December 1994, Donald P. Sauey, then a director of the Company, purchased
$100,000 of UroQuest's 12% Secured Promissory Notes due December 1996.

In June 1995, Dr. Davis, UroQuest, Warburg and Vertical entered into a
Stock Purchase Agreement dated June 15, 1995 (the "Stock Purchase Agreement")
pursuant to which Dr. Davis sold, at $0.0035 per share, 1,080,000 shares and
120,000 shares of Common Stock to Warburg and Vertical, respectively, in
conjunction with Warburg's and Vertical's purchase from UroQuest, at $3.50 per
share, of 565,714 shares and 62,857 shares, respectively, of Series D
Convertible Preferred Stock. In conjunction with the transaction, UroQuest
issued a warrant to Warburg to purchase 1,428,571 shares of Series D Convertible
Preferred Stock at $3.50 per share. Warburg has agreed that Vertical shall be
entitled to purchase 142,857 of the shares covered by the warrant. Pursuant to a
letter agreement dated June 15, 1995 between UroQuest and Dr. Davis, and in
consideration of Dr. Davis's sale of such shares of Common Stock to Warburg and
Vertical, UroQuest agreed to indemnify Dr. Davis from and against any
liabilities arising from or related to such sale.

Pursuant to a Termination and Modification Agreement dated September 30,
1996 (the "Termination Agreement") among the Company, Dr. Davis, Warburg and
Vertical, the Stock Purchase Agreement will be terminated upon the closing of
this Offering. Upon the closing of this Offering, Warburg and Vertical have
agreed to exercise the warrant for 1,285,714 shares and 285,714 shares of Common
Stock, respectively, at $3.50 per share, and Dr. Davis has agreed to sell to
Warburg and Vertical 257,143 shares and 28,571 shares of Common Stock,
respectively, at $0.0035 per share.

Pursuant to the Termination Agreement, so long as each of Warburg and
Vertical beneficially owns 50% of the Common Stock owned as of the closing of
this Offering, it is entitled to designate three directors to the Board of
Directors. The parties to the Termination Agreement have agreed that the size of
the Board of Directors will not be increased to more than eleven members without
the prior written consent of each of Warburg and Vertical. If each of Warburg
and Vertical designated three directors, they would collectively be able to
control the direction, management and policies of the Company. In addition, the
parties agreed to amend the Right of First Refusal and Co-Sale Agreement dated
June 15, 1995 among the parties (the "Co-Sale Agreement") pursuant to which
Warburg and Vertical have a first right of refusal to purchase shares of Common
Stock owned by Dr. Davis and a right to sell their shares if Dr. Davis receives
an offer to purchase his shares in certain circumstances. Pursuant to the
Co-Sale Agreement, as amended, all but 200,000 shares owned by Dr. Davis are
subject to the Co-Sale Agreement upon the closing of this Offering. On June 15,
1997, an additional 100,000 shares will be released from the restrictions of the
Co-Sale Agreement. Every three months thereafter, an additional amount equal to
one percent of the number of outstanding shares of the Common Stock will be
released from the restrictions of the Co-Sale Agreement.

All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.

60
<PAGE> 62

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of June 30, 1996,
after giving effect to each of the events that will occur upon or prior to the
closing of this Offering, and as adjusted to reflect the sale of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$9.00 per share, for (i) each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors and its director nominee, (iii) each Named Executive Officer of the
Company and (iv) all directors and executive officers as a group.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
--------------------------------
NUMBER OF SHARES PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- -------------------------------------------------- --------------------- -------------- -------------
<S> <C> <C> <C>
Warburg, Pincus Investors, L.P.(2)................ 3,188,571 37.7% 27.0%
466 Lexington Ave., 10th Floor
New York, NY 10017
Elizabeth H. Weatherman(3)........................ 3,188,571 37.7% 27.0%
Warburg, Pincus Investors, L.P.
466 Lexington Ave., 10th Floor
New York, NY 10017
Richard C. Davis, M.D.(4)......................... 1,149,644 13.5% 9.7%
4820 Longwater Way
Tampa, FL 33615
Thomas E. Brandt(5)............................... 1,605,000 19.0% 13.6%
206 Anderson Drive,
Valparaiso, IN 46383
Eric B. Hale(6)................................... 175,810 2.1% 1.5%
Terrence L. Domin(7).............................. 186,810 2.2% 1.6%
Jack W. Lasersohn(8).............................. 354,285 4.2% 3.0%
Maynard Ramsey, III, M.D., Ph.D.(9)............... 94,288 1.1% *
Gary E. Nei(10)................................... 60,000 * *
--------- ---- ----
All directors and executive officers as a group
(9 persons)(11)................................. 6,901,511 76.9% 56.0%
========= ==== ====
</TABLE>

- ---------------
* Less than 1%.

(1) "Beneficial owner" means generally any person who, directly or indirectly,
has or shares voting power or investment power with respect to a security.
Unless otherwise indicated in these footnotes, or pursuant to applicable
state community property laws, each stockholder has sole voting and
investment power with respect to the shares beneficially owned. Percentages
are determined based upon 8,468,626 shares of Common Stock outstanding on
June 30, 1996, or issuable upon exercise of warrants and options
exercisable within 60 days of June 30, 1996.

(2) Represents 3,188,571 shares of Common Stock held by Warburg, Pincus
Investors, L.P. ("Warburg"). The sole general partner of Warburg is
Warburg, Pincus & Co., a New York general partnership ("WP"). Lionel I.
Pincus is the managing partner of WP and may be deemed to control it. E.M.
Warburg, Pincus & Company, a New York general partnership that has the same
general partners as WP ("EM Warburg"), manages Warburg. WP has a 20%
interest in the profits of Warburg and through its wholly owned subsidiary,
E.M. Warburg, Pincus & Co., Inc. ("Warburg, Pincus") owns 1.13% of the
limited partnership interests in Warburg. Elizabeth H. Weatherman, a
director of the Company, is a Managing Director of Warburg, Pincus and a
general partner of WP, and EM Warburg. As such, Ms. Weatherman may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) in an indeterminate portion of the shares beneficially owned by
Warburg, WP and Warburg, Pincus.

(3) All of the shares indicated as owned by Ms. Weatherman are owned directly
by Warburg and are included because of her affiliation with Warburg. As
such, Ms. Weatherman may be deemed to have

61
<PAGE> 63

an indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by Warburg. Ms. Weatherman disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Exchange Act.

(4) Represents 1,085,715 shares of Common Stock held by The Richard C. Davis,
Jr. 1993 Revocable Trust, of which Dr. Davis is a trustee and over which
Dr. Davis has investment and voting control. Dr. Davis disclaims beneficial
ownership of these shares. Also includes 63,929 shares of Common Stock
issuable upon exercise of stock options exercisable within 60 days of June
30, 1996.

(5) Represents 1,605,000 shares of Common Stock to be issued at the closing of
this Offering to Mr. Brandt as a stockholder of BMT in connection with the
acquisition of BMT.

(6) Includes 90,096 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(7) Includes 186,667 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(8) Represents 354,285 shares of Common Stock held by Vertical Fund Associates,
L.P. ("Vertical"). The sole general partner of Vertical is The Vertical
Group, L.P. ("Vertical Group"). Jack W. Lasersohn, a director of the
Company, is a General Partner of the Vertical Group. As such, Mr. Lasersohn
may be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Vertical Group. Mr. Lasersohn
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.

(9) Includes 62,514 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.

(10) Includes 60,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996.

(11) Includes 500,706 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of June 30, 1996. Also includes 8,918
shares of Common Stock issuable upon exercise of warrants exercisable
within 60 days of June 30, 1996.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company will consist of 31,000,000
shares of Common Stock, $.001 par value and 16,000,000 shares of Preferred
Stock, $.001 par value, after giving effect to the restatement of the Company's
Certificate of Incorporation upon the closing of this Offering. The following
summaries of certain provisions of the Common Stock and Preferred Stock do not
purport to be complete and are subject to, and qualified in their entirety by,
the provisions of the Company's Certificate of Incorporation, which is included
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and by applicable law.

COMMON STOCK

As of June 30, 1996, there were 8,468,636 shares of Common Stock
outstanding held by 106 stockholders of record.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. In the election of directors,
holders of Common Stock are not entitled to cumulative voting. As the Company's
directors, executive officers and entities affiliated with them will, in the
aggregate, beneficially own approximately 56% of the Common Stock following the
completion of this offering, they would be able, if acting together, to control
all matters requiring approval by the stockholders, including the election of
the Board of Directors. The holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available for that purpose. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, if any. The Common Stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable, and the

62
<PAGE> 64

shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and non-assessable.

Following the completion of this Offering, based on an assumed initial
public offering price of $9.00 per share, the Company will have outstanding
warrants to purchase an aggregate of 20,935 shares of Common Stock. The weighted
average exercise price of these warrants is $3.50 per share, and these warrants
expire 30 days subsequent to the closing of this Offering.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders. Upon the
closing of this Offering, all outstanding shares of Preferred Stock of the
Company will convert automatically into shares of Common Stock. The Company has
no present plans to issue any shares of Preferred Stock.

REINCORPORATION IN DELAWARE

The Company intends to reincorporate in Delaware in connection with this
Offering. The Company believes that Delaware law provides flexibility and that
Delaware courts have particular expertise with matters affecting public
companies and their stockholders. Except as otherwise noted, all information in
the Prospectus assumes the reincorporation has occurred.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Upon expiration of certain lock-up agreements referred to in "Shares
Eligible for Future Sales" below, the holders of approximately 5,914,406 shares
of Common Stock (including shares issuable upon exercise of certain options and
warrants) (the "Registrable Securities") or their transferees will be entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of a Second Amended
and Restated Stockholders Agreement dated as of May 31, 1995 (the "Stockholders
Agreement") between the Company and the holders of Registrable Securities and a
Registration Rights Agreement dated June 15, 1995 (the "Rights Agreement") among
the Company, Warburg and Vertical. Subject to certain limitations in the
agreements, Warburg and Vertical, together owning a total of 3,542,856 shares of
the Registrable Securities, may require that the Company use its best efforts to
register their shares for public resale on up to four occasions pursuant to
certain demand registration rights. If the Company registers any of its Common
Stock either for its own account or for the account of other security holders,
all holders of Registrable Securities, including Warburg and Vertical, are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. All registration expenses must be borne by the Company and all selling
expenses relating to Registrable Securities must be borne by the holders of the
securities being registered. Pursuant to the terms of the Stockholders Agreement
and the Rights Agreement, the holders of Registrable Securities have waived
their rights to include their shares in this Offering.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Under Section 203
certain "business combinations" between a Delaware corporation, whose stock
generally is publicly traded or held of record by more than 2,000 stockholders,
and an interested stockholder are prohibited for a three-year period following
the date that such stockholder became an interested stockholder, unless: (i) the
corporation has elected in its

63
<PAGE> 65

certificate of incorporation not to be governed by Section 203; (ii) the
business combination was approved by the Board of Directors of the corporation
before the other party to the business combination became an interested
stockholder; (iii) upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan); or (iv) the business
combination was approved by the Board of Directors of the corporation and
ratified by 66 2/3% of the voting stock which the interested stockholder did not
own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock. These provisions, as well as the Board of
Directors' ability to issue Preferred Stock may have the effect of deterring
hostile takeovers or delaying changes in control or management of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C. Its telephone number is (415) 954-9512.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could materially adversely affect market prices prevailing from time to
time. As described below, no shares currently outstanding will be available for
public resale immediately after this Offering due to certain contractual and
legal restrictions on resale (as described below). Sales of substantial amounts
of Common Stock of the Company in the public market after the restrictions lapse
could materially adversely affect the prevailing market price and the ability of
the Company to raise equity capital in the future.

Upon the completion of this Offering, the Company will have 11,818,626
shares of Common Stock outstanding, assuming no exercise of options or warrants
after June 30, 1996. Of these shares, the 3,350,000 shares sold in this Offering
will be freely tradable without restriction under the Securities Act, unless
held by "affiliates" of the Company, as that term is defined in Rule 144 under
the Securities Act. The remaining 8,468,626 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act, and were issued and sold by the Company in
reliance on exemptions from the registration requirements of the Securities Act.
These shares may be sold in the public market only if registered, or pursuant to
an exemption from registration such as Rule 144, 144(k) or 701 under the
Securities Act. All executive officers, directors and certain stockholders of
the Company, holding in aggregate 8,342,465 shares of Common Stock, are subject
to lock-up agreements which provide that they will not offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, or agree to dispose
of, directly or indirectly, any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into Common Stock owned by them for a period of 180 days after the date of this
Prospectus, without the prior written consent of Dillon, Read & Co. Inc. The
Company has entered into a similar agreement, except that the Company may grant
options and issue stock under its current stock option and stock purchase plans
and pursuant to other currently outstanding options.

64
<PAGE> 66

As of June 30, 1996, 1,055,674 shares were subject to outstanding options
and 20,935 shares were subject to outstanding warrants. All of these shares are
subject to the lock-up agreements described above. Approximately 30 days after
the date of this Prospectus, the Company intends to file a Registration
Statement on Form S-8 to register all shares issuable under the Company's 1994
Stock Option Plan (including shares subject to then outstanding options) and
1996 Employee Stock Purchase Plan, thus permitting the resale of such shares in
the public market, subject to Rule 144 volume limitations applicable to
affiliates, without restriction under the Securities Act upon expiration of the
applicable lock-up agreements. Upon expiration of such lock-up agreements,
667,186 shares subject to such options will be vested.

Upon expiration of the 180-day lock-up agreements, approximately 658,979
shares of Common Stock held by existing stockholders will be eligible for
immediate public resale without restriction pursuant to Rule 144(k) or Rule 701,
and approximately 2,938,647 shares held by existing stockholders will be
eligible for public resale, subject to the volume limitation and other
restrictions of Rule 144. The remaining 4,871,000 shares held by existing
stockholders will become eligible for public resale pursuant to Rule 144 upon
the expiration of their two-year holding periods. The holders of approximately
5,914,406 shares of Common Stock (including shares issuable upon exercise of
certain options and warrants and shares issuable pursuant to anti-dilution
provisions) or their transferees will be entitled to registration rights with
respect to such shares upon the release of their respective lock-up agreements.
The number of shares sold in the public market could increase if such rights are
exercised.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 111,900 shares
immediately after this Offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701 under the Securities
Act, persons who purchase shares upon exercise of options granted prior to the
effective date of this Offering are entitled to sell such shares 90 days after
the effective date of this Offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.

Any employee, officer or director or a consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after the effective date of this Offering.

The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modifications will have a material effect on the times
when shares of the Common Stock become eligible for public resale.

65
<PAGE> 67

UNDERWRITING

The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company (subject to the terms and conditions specified in the
Underwriting Agreement) are as follows:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Dillon, Read & Co. Inc. ............................................
Prudential Securities Incorporated..................................
----------------
Total..................................................... 3,350,000
</TABLE>

The Managing Underwriters are Dillon, Read & Co. Inc. and Prudential
Securities Incorporated.

If any of the shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.

The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sale to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain other dealers. The offering of
the shares of Common Stock 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 offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 502,500 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover over-allotments made of the shares in connection with this Offering.

The Company, its executive officers and directors and certain stockholders,
holding in aggregate 8,342,465 shares of Common Stock, have agreed that they
will not, without the prior written consent of Dillon, Read & Co. Inc., sell,
contract to sell, grant any option to sell, transfer or otherwise dispose of,
directly or indirectly, any shares of the Common Stock, or any securities
convertible into, or exercisable or exchangeable for, Common Stock or warrants
or other rights to purchase Common Stock, prior to the expiration of 180 days
from the date of the consummation of this Offering, except (i) shares of Common
Stock issued upon the exercise of options issued under the Company's existing
stock plans and (ii) the grant of options and other rights to purchase Common
Stock to the Company's employees, officers and directors under its existing
stock plans.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.

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
negotiation between the Company and the

66
<PAGE> 68

Managing Underwriters. Among the factors considered in determining the initial
public offering price were prevailing market and economic conditions, projected
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business, the Company's management and other factors deemed relevant.

The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Holland & Hart LLP, Salt Lake City, Utah. Certain legal matters will
be passed upon for the Underwriters by Cooley Godward LLP, Menlo Park,
California.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1994 and 1995 and for each of the years in the three-year period ended December
31, 1995, and for the period from April 8, 1992 (inception) to December 31,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The consolidated financial statements of BMT as of December 31, 1994 and
1995 and for each of the years in the three-year period ended December 31, 1995,
have been included herein and in the Registration Statement in reliance upon the
report of Grant Thornton LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Reliance on Patents and Protection of Proprietary Technology" and
"Business -- Patents and Proprietary Rights" as they relate to UroQuest have
been reviewed and approved by Griffin, Butler, Whisenhunt & Kurtossy, Arlington,
Virginia, special patent counsel to UroQuest, as experts in such matters, and as
they relate to BMT have been reviewed and approved by Emrich & Dithmar, special
patent counsel to BMT, as experts in such matters, and such statements are
included herein in reliance upon such review and approval. Griffin, Butler,
Whisenhunt & Kurtossy has represented both UroQuest and Richard C. Davis,
Chairman of the Board and Chief Science Officer of the Company, in the past in
intellectual property matters, and it is anticipated that it will continue to
represent both of these parties in the future.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
including amendments thereto, under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith. For
further information with respect to the Company and such Common Stock, reference
is made to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document referred to 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. A copy of the Registration Statement,
including the exhibits and schedules filed therewith, may be inspected by anyone
without charge at the public reference facilities maintained by the Commission,
at Room 1024, 450 Fifth Street,

67
<PAGE> 69

N.W., Judiciary Plaza, Washington, D.C. 20549, or at its regional offices
located at CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048 and copies of all or any part thereof may be obtained from such offices of
the Commission, upon payment of certain fees prescribed by the Commission.

Prior to this Offering, the Company has not been subject to the reporting
requirements of the Exchange Act. After completion of this Offering, the Company
intends to comply with such requirements, including the distribution to its
stockholders of an annual report containing audited financial statements.

68
<PAGE> 70

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED):
Pro Forma Statement of Operations for the year ended December 31, 1995
(Unaudited)..................................................................... F-3
Pro Forma Statement of Operations for the six months Ended June 30, 1996
(Unaudited)..................................................................... F-4
Pro Forma Balance Sheet as of June 30, 1996 (Unaudited)............................ F-5
Notes to Pro Forma Financial Statements (Unaudited)................................ F-6
UROQUEST MEDICAL CORPORATION:
Independent Auditors' Report....................................................... F-8
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(Unaudited)..................................................................... F-9
Consolidated Statements of Operations for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the six months ended June 30, 1995 and
1996 (Unaudited) and for the period from April 8, 1992 (date of inception) to
June 30, 1996 (Unaudited)....................................................... F-10
Consolidated Statements of Stockholders' Equity for the period from April 8, 1992
(date of inception) to December 31, 1995 and for the six months ended June 30,
1996 (Unaudited)................................................................ F-11
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1995 and for the period from April 8, 1992 (date of
inception) to December 31, 1995 and for the six months ended June 30, 1995 and
1996 (Unaudited) and for the period from April 8, 1992 (date of inception) to
June 30, 1996 (Unaudited)....................................................... F-12
Notes to Consolidated Financial Statements......................................... F-13
BMT, INC.:
Report of Independent Certified Public Accountants................................. F-20
Consolidated Balance Sheets as of December 31, 1994 and 1995,
and June 30, 1996 (Unaudited)................................................... F-21
Consolidated Statements of earnings for the years ended December 31, 1993, 1994 and
1995, and for the six months ended June 30, 1995 and 1996 (Unaudited)........... F-22
Consolidated Statement of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1996
(Unaudited)..................................................................... F-23
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995, and for the six months ended June 30, 1995 and 1996 (Unaudited)....... F-24
Notes to Consolidated Financial Statements......................................... F-25
</TABLE>

F-1
<PAGE> 71

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

UroQuest Medical Corporation was formed in April 1992 to design, develop
and market advanced products for the management and diagnosis of both male and
female urological disorders. UroQuest has entered into a definitive agreement to
acquire BMT, Inc. ("BMT"), pursuant to which BMT will merge with and into an
acquisition subsidiary of UroQuest. Pursuant to the merger, shareholders of BMT
will receive, in the aggregate, $10 million cash and 2,500,000 newly issued
shares of Common Stock. The consummation of the acquisition of BMT by UroQuest
is contingent upon the closing of this Offering. The following unaudited pro
forma financial statements give effect to the proposed acquisition, which will
be accounted for under the purchase method of accounting.

The unaudited pro forma balance sheet gives effect to the acquisition, as
if the acquisition had occurred as of June 30, 1996 and reflects as a liability
the cash consideration to be paid to the shareholders of BMT. The unaudited pro
forma balance sheet also presents, as supplemental pro forma information, the
effect of the issuance of Common Stock pursuant to this Offering. The unaudited
pro forma statements of operations present pro forma results from operations for
the year ended December 31, 1995 and for the six months ended June 30, 1996, in
each case as if the purchase had occurred as of the beginning of the respective
periods.

The total of the excess of the deemed purchase price over the book value of
the net assets of BMT acquired has been allocated and classified as described in
note (a) of the Notes to Pro Forma Financial Statements.

Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions management deems appropriate. The
unaudited pro forma financial data presented herein is not necessarily
indicative of the results UroQuest would have obtained had such events occurred
at the beginning of such periods, as assumed, or of the future results of
UroQuest. The pro forma financial statements should be read in conjunction with
the other Financial Statements and notes thereto appearing elsewhere in the
Prospectus.

F-2
<PAGE> 72

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................... $ -- $14,257,413 $14,257,413 $ -- $14,257,413
Cost of sales................ -- 7,228,308 7,228,308 406,400(d) 7,634,708
----------- ------------ ------------ ------------ ------------
Gross profit............ -- 7,029,105 7,029,105 406,400 6,622,705
Operating expenses:
Research and development... 1,106,631 986,265 2,092,896 (a) 2,092,896
General and
administrative.......... 397,523 1,653,197 2,050,720 2,050,720
Sales, marketing and
distribution............ 46,262 1,692,881 1,739,143 1,739,143
Amortization of goodwill... -- -- -- 794,600(d) 794,600
----------- ------------ ------------ ------------ ------------
Total operating
expenses......... 1,550,416 4,332,343 5,882,759 794,600 6,677,359
----------- ------------ ------------ ------------ ------------
Operating income (loss)...... (1,550,416) 2,696,762 1,146,346 (1,201,000) (54,654)
Other income (expense):
Interest expense........... (54,809) (315,232) (370,041) (370,041)
Interest income............ 60,688 84 60,772 60,772
Other, net................. 30,790 -- 30,790 30,790
----------- ------------ ------------ ------------ ------------
36,669 (315,148) (278,479) -- (278,479)
Provision for income taxes... -- 950,000 950,000 (950,000)(e) --
----------- ------------ ------------ ------------ ------------
Net earnings
(loss)........... $(1,513,747) $ 1,431,614 $ (82,133) $ (251,000) $ (333,133)
=========== ============ ============ ============ ============
Pro forma net loss per
share...................... $ (0.36) $ (0.03)
=========== ============
Shares used in computing pro
forma net loss per share... 4,194,506 11,473,077
=========== ============
</TABLE>

See accompanying notes to pro forma financial statements.

F-3
<PAGE> 73

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1996

(UNAUDITED)

<TABLE>
<CAPTION>
COMBINED PRO FORMA
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales....................... $ -- $7,483,367 $7,483,367 $ -- $7,483,367
Cost of sales................... -- 3,953,455 3,953,455 203,200(d) 4,156,655
---------- ---------- ---------- ---------- ----------
Gross profit............... -- 3,529,912 3,529,912 (203,200) 3,326,712
Operating expenses:
Research and development...... 550,535 530,585 1,081,120 (a) 1,864,120
General and administrative.... 225,016 908,115 1,133,131 1,133,131
Sales, marketing and
distribution............... 52,667 691,609 744,276 744,276
Amortization of goodwill...... -- -- -- 397,300(d) 397,300
---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 828,218 2,130,309 2,958,527 397,300 3,355,827
---------- ---------- ---------- ---------- ----------
Operating income (loss)......... (828,218) 1,399,603 571,385 (600,500) (29,115)
Other income (expense):
Interest expense.............. (23,400) (136,834) (160,234) (160,234)
Interest income............... 16,552 45 16,597 16,597
---------- ---------- ---------- ---------- ----------
(6,848) (136,789) (143,637) -- (143,637)
Provision for income taxes...... -- 490,000 490,000 (490,000)(e) --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)... $ (835,066) $ 772,814 $ (62,252) $ (110,500) $ (172,752)
========== ========== ========== ========== ==========
Pro forma net loss per share.... $ (0.18) $ (0.01)
========== ==========
Shares used in computing pro
forma net loss per share...... 4,562,476 11,841,047
========== ==========
</TABLE>

See accompanying notes to pro forma financial statements.

F-4
<PAGE> 74

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

PRO FORMA BALANCE SHEET

JUNE 30, 1996

(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
COMBINED PRO FORMA SUPPLEMENTAL AS
UROQUEST BIVONA COMPANIES ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ---------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 262,145 $ 6,398 $ 268,543 $ 5,000,000(c) $ 5,268,543 $ 27,439,500(f) $22,318,043
(10,000,000)(f)
(390,000)(f)
Accounts receivable...... -- 2,370,781 2,370,781 2,370,781 2,370,781
Inventories.............. 11,662 2,748,342 2,760,004 2,760,004 2,760,004
Prepaid expenses and
other current assets... 330,254 141,760 472,014 472,014 472,014
Deferred income taxes.... -- 105,000 105,000 105,000 105,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
assets........... 604,061 5,372,281 5,976,342 5,000,000 10,976,342 17,049,500 28,025,842
---------- ---------- ---------- ------------ ----------- ------------ -----------
Property and equipment,
net...................... 171,312 2,185,083 2,356,395 2,844,503(a) 5,200,898 5,200,898
Patents and trademarks,
net...................... 376,075 30,305 406,380 406,380 406,380
Deposits and other......... -- 34,923 34,923 34,923 34,923
Pro forma goodwill......... -- -- -- 16,364,996(a) 15,581,996 15,581,996
(783,000)(a)
Deferred income taxes...... -- 242,000 242,000 242,000 242,000
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total assets....... $1,151,448 $7,864,592 $9,016,040 $ 23,426,499 $32,442,539 $ 17,049,500 $49,492,039
========== ========== ========== ============ =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 348,678 $ 416,562 $ 765,240 $ $ 765,240 $ $ 765,240
Accrued expenses......... 113,712 378,671 492,383 492,383 492,383
Notes payable under line
of credit.............. -- 100,000 100,000 100,000 100,000
Secured promissory
notes.................. 390,000 -- 390,000 390,000 (390,000)(f) --
Current portion of
long-term debt......... -- 417,822 417,822 417,822 417,822
Income taxes payable..... -- 71,813 71,813 71,813 71,813
Cash consideration
payable to BMT
shareholders........... -- -- -- 10,000,000(a) 10,000,000 (10,000,000)(f) --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total current
liabilities...... 852,390 1,384,868 2,237,258 10,000,000 12,237,258 (10,390,000) 1,847,258
---------- ---------- ---------- ------------ ----------- ------------ -----------
Long-term debt............. -- 2,027,223 2,027,223 2,027,223 2,027,223
Shareholders' equity:
Preferred stock.......... 1,253 -- 1,253 (1,253)(b) -- -- --
Voting common stock...... 3,002 796,500 799,502 (791,033)(a,b,c) 8,469 3,350(f) 11,819
Non-voting common
stock.................. 286 -- 286 (286)(b) -- --
Additional paid-in
capital................ 4,396,257 7,800 4,404,057 18,650,272(a,c) 23,054,329 27,436,150(f) 50,490,479
Deferred compensation.... (221,076) -- (221,076) (221,076) (221,076)
Retained earnings
(deficit accumulated
during development
stage)................. (3,880,664) 4,050,521 169,857 (4,050,521)(a) (4,663,664) (4,663,664)
(783,000)(a)
Less common stock in
treasury at cost....... -- (402,320) (402,320) 402,320(a) -- --
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total shareholders'
equity........... 299,058 4,452,501 4,751,559 13,426,499 18,178,058 27,439,500 45,617,558
---------- ---------- ---------- ------------ ----------- ------------ -----------
Total liabilities
and shareholders'
equity........... $1,151,448 $7,864,592 $9,016,040 $ 23,426,499 $32,442,539 $ 17,049,500 $49,492,039
========== ========== ========== ============ =========== ============ ===========
</TABLE>

See accompanying notes to pro forma financial statements.

F-5
<PAGE> 75

UROQUEST MEDICAL CORPORATION

NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)

The adjustments to arrive at the unaudited pro forma financial statements
are as follows:

(a) Recognition of $10 million cash payment and issuance of 2,500,000
shares of common stock to BMT shareholders in exchange for all of BMT's
outstanding common stock. Treasury stock of BMT in the amount of $402,320
was canceled in the transaction. Goodwill in the amount of $15,581,996 was
calculated as follows:

<TABLE>
<S> <C>
Total estimated purchase price ($10 million cash and estimated
market value of equity issued in consideration).............. $32,500,000
Less:
Discount on large, non-registered, restricted stock issuance
to BMT shareholders....................................... (8,838,000)
Net assets acquired.......................................... (4,452,501)
Expensed in-process research and development................. (783,000)
Net fair market value of property, plant and equipment
acquired in excess of book value.......................... (2,844,503)
-----------
Goodwill....................................................... $15,581,996
===========
</TABLE>

Goodwill includes $102,600 assigned to non-compete agreements.

The expensed in-process research and development of $783,000 has not been
considered in the pro forma statement of operations. In-process research and
development of $783,000 will be expensed in the year ending December 31, 1996.

The acquisition has been accounted for as a purchase.

(b) Conversion of series A, B, C, and D preferred stock and non-voting
common stock into common stock of Uroquest Medical Corporation.

(c) Receipt of $5 million cash in connection with the issuance of a
total of 1,428,571 shares of common stock upon exercise of warrants by
certain of the Company's stockholders.

(d) Amortization of the goodwill recognized in the purchase of BMT as
if the amortization had commenced January 1, 1995. Goodwill will be
amortized over a twenty year period. Non-compete agreements will be
amortized over a five year period. Depreciation of the net fair market
value of property, plant and equipment acquired in excess of book value
over the remaining estimated useful life.

(e) Elimination of BMT's provision for income taxes due to offsets
from UroQuest Medical Corporation's net loss from operations assuming the
transaction had been consummated as of January 1, 1995.

(f) Receipt of the proceeds from issuance of 3,350,000 shares of
common stock (assuming an offering price of $9.00 per share) less
underwriting discounts and commissions, and estimated offering expenses.
Proceeds from the offering were used to pay the $10 million cash to BMT
stockholders as described in (a) above and to pay off $390,000 in secured
promissory notes.

F-6
<PAGE> 76

Listed below is a reconciliation of preferred stock, common stock,
additional paid in capital, retained earnings (deficit accumulated in
development stage) and treasury stock to recognize the transaction described
above:

<TABLE>
<CAPTION>
RETAINED EARNINGS
(DEFICIT
ACCUMULATED
ADDITIONAL DURING
PREFERRED COMMON PAID-IN DEVELOPMENT TREASURY
STOCK STOCK CAPITAL STAGE) STOCK
--------- -------- ---------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Combined Companies............................ $ 1,253 799,788 4,404,057 169,857 (402,320)
Adjustments:
Exercise of 1,428,571 warrants @ $0.001
par....................................... -- 1,428 4,998,572 -- --
Offering of 3,350,000 shares @ $0.001 par... -- 3,350 27,436,150 -- --
Purchase of BMT equity:
Issuance of UroQuest common stock......... -- 2,500 13,659,500 -- --
Elimination of BMT equity in
consolidation........................... -- (796,500) (7,800) (4,050,521) 402,320
Charge for in-process research and
development............................... -- -- (783,000)
Conversion of preferred stock to common..... (1,253) 1,253 -- -- --
------- -------- ---------- ---------- --------
$ -- 11,819 50,490,479 (4,663,664) --
======= ======== ========== ========== ========
</TABLE>

(g) The weighted average shares outstanding used to calculate pro
forma loss per share is based on the estimated average number of shares of
common stock outstanding during the period calculated as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- --------------
<S> <C> <C>
Weighted average shares of UroQuest......... 4,194,506 4,562,476
Shares issued to the stockholders of BMT.... 2,500,000 2,500,000
Shares issued upon exercise of warrants..... 1,428,571 1,428,571
Shares issued in the Offering............... 3,350,000 3,350,000
----------
11,473,077 11,841,047
==========
</TABLE>

Intercompany sales are immaterial and therefore have not been
eliminated on the pro forma financial statements.

On an ongoing basis, management reviews the valuation and amortization
of the excess purchase price to determine possible impairment by comparing
the carrying value to the undiscounted estimated future cash flows of the
related businesses.

F-7
<PAGE> 77

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
UroQuest Medical Corporation:

We have audited the accompanying consolidated balance sheets of UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1995, and for the period April 8, 1992 (inception) to
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 UroQuest
Medical Corporation and subsidiary (a development stage company) as of December
31, 1994 and 1995 and the results of their operations and their cash flows for
each of the years in the three year period ended December 31, 1995, and for the
period April 8, 1992 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

Salt Lake City, Utah
March 20, 1996, except as to
Note 10 which is as of

September 27, 1996

F-8
<PAGE> 78

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 564,097 $ 1,113,594 $ 262,145
Inventories.............................................. -- 9,590 11,662
Prepaid expenses and other current assets................ 2,090 14,311 330,254
----------- ----------- -----------
Total current assets.............................. 566,187 1,137,495 604,061
----------- ----------- -----------
Property and equipment, net (note 2)....................... 67,603 142,321 171,312
Patents and trademarks, net (notes 3 and 7)................ 571,483 441,211 376,075
----------- ----------- -----------
Total assets...................................... $ 1,205,273 $ 1,721,027 $ 1,151,448
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 84,125 $ 200,416 $ 348,678
Accrued expenses......................................... 54,935 83,485 113,712
Notes payable............................................ 70,000 -- --
Secured promissory notes (note 3)........................ -- 390,000 390,000
Amounts payable to related parties....................... 31,404 -- --
----------- ----------- -----------
Total current liabilities......................... 240,464 673,901 852,390
----------- ----------- -----------
Long-term liabilities:
Secured promissory notes (note 3)........................ 390,000 -- --
Note payable -- related party (note 7)................... 162,188 -- --
----------- ----------- -----------
552,188 -- --
----------- ----------- -----------
Commitments and contingencies (notes 3 and 9)
Stockholders' equity (notes 4 and 10):
Convertible preferred stock, $.001 par value:
Series D: 8,000,000 shares authorized, 628,571 shares
issued and outstanding (liquidation preference
$2,200,000).......................................... -- 629 629
Series A: 316,667 shares authorized, 90,474 shares
issued and outstanding (liquidation preference
$190,000)............................................ 90 90 90
Series B: 955,494 shares authorized; 272,996 shares
issued and outstanding (liquidation preference
$687,956)............................................ 273 273 273
Series C: 1,009,107 shares authorized; 250,569, 260,569
and 260,569 shares issued and outstanding at December
31, 1994 and 1995 and June 30, 1996 respectively
(liquidation preference $912,000).................... 251 261 261
Voting common stock, $.001 par value; 31,000,000 shares
authorized; 2,861,797, 2,947,511 and 3,001,731 shares
issued and outstanding as of December 31, 1994 and
1995 and June 30, 1996, respectively................. 2,862 2,948 3,002
Non-voting common stock, $.001 par value; 1,000,000
shares authorized; 285,714 shares issued and
outstanding.......................................... 286 286 286
Additional paid-in capital............................. 1,940,710 4,088,237 4,396,257
Deferred compensation.................................. -- -- (221,076)
Deficit accumulated during development stage........... (1,531,851) (3,045,598) (3,880,664)
----------- ----------- -----------
Total stockholders' equity........................ 412,621 1,047,126 299,058
----------- ----------- -----------
Total liabilities and stockholders' equity........ $ 1,205,273 $ 1,721,027 $ 1,151,448
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 79

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 80

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM APRIL 8, 1992 (INCEPTION) TO DECEMBER 31, 1995

AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
SERIES PREFERRED STOCK VOTING NON-VOTING ADDITIONAL DURING TOTAL
------------------------- COMMON COMMON PAID-IN DEFERRED DEVELOPMENT STOCKHOLDERS'
D A B C STOCK STOCK CAPITAL COMPENSATION STAGE EQUITY
---- --- --- --- ------ ---------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April
8, 1992
(inception)... $ -- -- -- -- -- -- -- -- -- --
Issuance of
1,428,571
shares of
Common Stock
for patents
and trademarks
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Net loss........ -- -- -- -- -- -- -- -- (11,234 ) (11,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1992.......... -- -- -- -- 1,286 143 3,571 -- (11,234 ) (6,234)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
90,474 shares
of Series A
Preferred
Stock for
cash, net of
issuance costs
of $2,784..... -- 90 -- -- -- -- 187,127 -- -- 187,217
Issuance of
285,714 shares
of Common
Stock for
cash.......... -- -- -- -- 286 -- 199,714 -- -- 200,000
Net loss........ -- -- -- -- -- -- -- -- (315,423 ) (315,423)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1993.......... -- 90 -- -- 1,571 143 390,413 -- (326,657 ) 65,560
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
1,428,571
shares of
Common Stock
for
acquisition of
subsidiary
(note 7)...... -- -- -- -- 1,286 143 3,571 -- -- 5,000
Issuance of 143
shares of
Common Stock
for cash...... -- -- -- -- -- -- 100 -- -- 100
Issuance of
272,996 shares
of Series B
Preferred
Stock for
cash, net of
issuance costs
of $3,542..... -- -- 273 -- -- -- 684,141 -- -- 684,414
Issuance of
4,511 shares
of Common
Stock for
consulting
services...... -- -- -- -- 5 -- 11,362 -- -- 11,367
Issuance of
189,429 shares
of Series C
Preferred
Stock for
cash, net of
issuance costs
of $25,626.... -- -- -- 190 -- -- 637,184 -- -- 637,374
Issuance of
61,140 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 61 -- -- 213,939 -- -- 214,000
Net loss........ -- -- -- -- -- -- -- -- (1,205,194 ) (1,205,194)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1994.......... -- 90 273 251 2,862 286 1,940,710 -- (1,531,851 ) 412,621
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
628,571 shares
of Series D
Preferred
Stock for
cash, net of
issuance costs
of $87,048.... 629 -- -- -- -- -- 2,112,323 -- -- 2,112,952
Issuance of
10,000 shares
of Series C
Preferred
Stock, in
exchange for
notes
payable....... -- -- -- 10 -- -- 34,990 -- -- 35,000
Issuance of
85,714 shares
of Common
Stock for
cash, upon
exercise of
stock
options....... -- -- -- -- 86 -- 214 -- -- 300
Net loss........ -- -- -- -- -- -- -- -- (1,513,747 ) (1,513,747)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance,
December 31,
1995.......... $629 90 273 261 2,948 286 4,088,237 -- (3,045,598 ) 1,047,126
--
---- --- --- ----- --- --------- -------- ---------- ----------
Issuance of
54,220 shares
of Common
Stock for
cash, upon
exercise of
stock options
(unaudited)... -- -- -- -- 54 -- 37,900 -- -- 37,954
Deferred
compensation
related to
grant of stock
options
(unaudited)... -- -- -- -- -- -- 270,120 (270,120) -- --
Amortization for
deferred
compensation
(unaudited)... -- -- -- -- -- -- -- 49,044 -- 49,044
Net loss
(unaudited)... -- -- -- -- -- -- -- -- (835,066 ) (835,066)
--
---- --- --- ----- --- --------- -------- ---------- ----------
Balance, June
30, 1996
(unaudited)... $629 90 273 261 3,002 286 4,396,257 (221,076) (3,880,664 ) 299,058
==== == === === ===== === ========= ======== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE> 81

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
APRIL 8, 1992 SIX MONTHS ENDED APRIL 8, 1992
YEAR ENDED DECEMBER 31, (INCEPTION) TO JUNE 30, (INCEPTION) TO
------------------------------------- DECEMBER 31, ----------------------- JUNE 30,
1993 1994 1995 1995 1995 1996 1996
--------- ----------- ----------- -------------- ---------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss...................... $(315,423) $(1,205,194) $(1,513,747) $ (3,045,598) $ (626,340) $ (835,066) $ (3,880,664)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization................ 5,269 58,244 139,022 206,373 67,932 134,226 340,599
Issuance of Common Stock in
exchange for consulting
services.................... -- 11,367 -- 11,367 -- -- 11,367
Provisions for loss on notes
receivable.................. -- 235,008 614 235,622 614 -- 235,622
Changes in operating assets
and liabilities:
Inventories................. -- -- (9,590) (9,590) -- (2,072) (11,662)
Prepaid expenses and other
current assets............ (1,590) -- (12,221) (14,311) -- (315,943) (330,254)
Accounts payable............ 58,117 26,008 116,291 200,416 187,907 148,262 348,678
Amounts payable to related
parties................... 59,104 (66,500) (31,404) -- (31,404) -- --
Accrued expenses............ -- 54,935 28,550 83,485 5,430 30,227 113,712
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in operating
activities.............. (194,523) (886,132) (1,282,485) (2,332,236) (395,861) (840,366) (3,172,602)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment................. (5,272) (159,819) (83,468) (279,463) (5,810) (49,037) (328,500)
Purchases of patents and
trademarks................ -- (400,000) -- (400,000) -- -- (400,000)
Cash
advances -- affiliates.... -- (92,290) (614) (92,904) (614) -- (92,904)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash used in investing
activities.............. (5,272) (652,109) (84,082) (772,367) (6,424) (49,037) (821,404)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of:
Stock..................... 387,217 1,321,888 2,113,252 3,822,357 2,113,252 37,954 3,860,311
Notes..................... -- 674,000 -- 674,000 -- -- 674,000
Repayment of Notes.......... -- (80,972) (197,188) (278,160) (104,155) -- (278,160)
--------- ----------- ----------- ----------- --------- ---------- -----------
Net cash provided by (used
in) financing
activities.............. 387,217 1,914,916 1,916,064 4,218,197 2,009,097 37,954 4,256,151
--------- ----------- ----------- ----------- --------- ---------- -----------
Net increase in cash and cash
equivalents................. 187,422 376,675 549,497 -- 1,606,812 (851,449) 262,145
Cash and cash equivalents at
beginning of period......... -- 187,422 564,097 1,113,594 564,097 1,113,594 --
--------- ----------- ----------- ----------- --------- ---------- -----------
Cash and cash equivalents at
end of period............... $ 187,422 $ 564,097 $ 1,113,594 $ 1,113,594 $2,170,909 $ 262,145 $ 262,145
========= =========== =========== =========== ========= ========== ===========
Supplemental disclosures of
cash flow information:
Cash paid for interest...... $ -- $ 20,899 $ 63,849 $ 84,748 $ 27,393 $ 11,700 $ 96,448
Supplemental disclosure of
non-cash investing and
financing activities:
Conversion of notes payable
to preferred stock........ -- 214,000 35,000 249,000 35,000 -- 249,000
Issuance of note payable,
net of discount, for
patents and trademarks.... -- 243,160 -- 243,160 -- -- 243,160
Common stock issued for
patents and trademarks.... -- -- -- 5,000 -- -- 5,000
Common stock issued for
common stock of
subsidiary................ -- 5,000 -- 5,000 -- -- 5,000
Notes received in exchange
for patents and
trademarks................ -- 30,000 -- 30,000 -- -- 30,000
Note received in exchange
for fixed assets.......... -- 112,718 -- 112,718 -- -- 112,718
</TABLE>

See accompanying notes to consolidated financial statements.

F-12
<PAGE> 82

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The Company was incorporated in the state of Florida on April 8, 1992, and
commenced operations for the purpose of designing, developing, and marketing
disposable urological catheters and other urological devices. The Company is
considered a development stage company under the guidelines of Statement of
Financial Accounting Standards No. 7. The Company has had limited operating
revenues as its activities have focused on product development and raising
capital. The accumulated deficit from inception through December 31, 1995, was
$3,045,598.

Principles of Consolidation

The consolidated financial statements include the assets and liabilities of
UroQuest's wholly owned subsidiary -- UroCath Corporation. All significant
intercompany transactions have been eliminated in consolidation.

Cash and Cash Equivalents

Cash equivalents of $564,097 and $1,084,375 at December 31, 1994 and 1995,
respectively, consist of liquid money market funds. For the purposes of the
statements of cash flows, the Company considers all investments with original
maturities of three months or less to be cash equivalents.

Fair Value Disclosure

At December 31, 1994 and 1995 the book value of the Company's financial
instruments approximates fair value.

Inventories

Inventories are comprised of finished goods that are stated at the lower of
cost or market, using the average cost method.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets, which range
from 3 to 10 years.

Patents and trademarks

Patents and trademarks have been recorded at historical cost. Patents and
trademarks are amortized using the straight line method over their remaining
lives, not to exceed five years. Patents include male and female urological
catheters and a urinary diagnostic test system, both acquired from the founder
of the Company. Accumulated amortization as of December 31, 1995 was $181,949.
Management evaluates the recoverability of these net assets on a periodic basis
based on the projected cash flows from estimated future sales.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and

F-13
<PAGE> 83

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

liabilities and their respective tax bases, operating loss, and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Discounts

Discounts recorded on non-interest bearing notes payable are amortized
using the effective interest method over the life of the related note.

Estimates

The preparation of financial statements in accordance 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Pro Forma Net Loss Per Share

Pro forma net loss per share amounts are based on the weighted average
number of common shares and common share equivalents (if dilutive) resulting
from options and warrants outstanding during the periods, after giving
retroactive effect to the common stock reverse stock split and the conversion of
preferred shares into common shares at their respective issuance dates as
discussed in notes 4 and 10.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock and common stock options issued for consideration below the
assumed initial public offering price of $9.00 per share during the twelve-month
period prior to the date of the filing of the Registration Statement, even when
antidilutive, have been included in the calculation of common share equivalents,
using the treasury stock method, as if they were outstanding for all periods
presented.

Interim Financial Information

The accompanying interim financial statements for the six month periods
ended June 30, 1995 and 1996 are unaudited, but in the opinion of management
reflect all adjustments necessary for a fair presentation of the results of such
periods. The results of operations for any interim period are not necessarily
indicative of results for the respective full year.

Research and Development Costs

Research and development costs are expensed as incurred.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
--------- ---------
<S> <C> <C>
Manufacturing tooling...................................... 45,174 109,370
Office furniture and equipment............................. 38,102 57,374
------- -------
Total............................................ 83,276 166,744
Less accumulated depreciation.............................. (15,673) (24,423)
------- -------
Property and equipment, net................................ 67,603 142,321
======= =======
</TABLE>

F-14
<PAGE> 84

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SECURED PROMISSORY NOTES

In December 1994, the Company issued 12% Secured Promissory Notes
("Notes"), totaling $390,000 all of which are to stockholders of the Company.
The Notes are secured by an interest in certain patents and are due December 31,
1996. Interest is payable quarterly and the Notes are callable by the Company at
any time. Note holders receive .2857 of a warrant (14,250 and 20,935 at December
31, 1995 and June 30, 1996, respectively) to purchase Series C Preferred Shares
at $3.50 per share for each dollar of interest earned and are entitled to
receive a 5% royalty on sales of UroQuest's products utilizing certain
technology through December 31, 1996.

4. CONVERTIBLE PREFERRED STOCK

During the period from June 15, 1993 to November 15, 1993 the Company
issued 90,474 shares of Series A Convertible Preferred Stock (Series A Preferred
Shares) for $2.10 per share. During the period from February 12, 1994 to April
15, 1994, the Company issued 272,996 shares of Series B Convertible Preferred
Stock (Series B Preferred Shares) for $2.52 per share. During the period from
October 7, 1994 through June 15, 1995 the Company issued 260,569 shares of
Series C Convertible Preferred Stock (Series C Preferred Shares) for $3.50 per
share. On June 15, 1995 the Company issued 628,571 shares of Series D
Convertible Preferred Stock (Series D Preferred Shares) for $3.50 per share and
1,428,571 warrants to purchase Series D Preferred Shares for $3.50 per share.

Preferred Shares are convertible into common shares at the option of the
holder. Each Preferred Share shall automatically convert into one common share
if the Company obtains a firm underwriting commitment for a public offering. The
conversion rate will be adjusted for stock dividends, stock splits, and other
dilutive events. The Preferred stockholders are entitled to one vote for each
common share equivalent. Shares automatically convert in the event of sale of
all or substantially all of the assets or stock of the Company.

Preferred stockholders are entitled to a liquidation preference over common
shareholders of $2.10, $2.52, $3.50, and $3.50 per share, for Series A, B, C and
D, respectively, together with any declared but unpaid dividends. Series D
Preferred Shares have liquidation preference over all other classes of stock. If
any assets remain after payment of the liquidation preferences to the holders of
the Preferred Stock, the holders of the Preferred Stock will share in
distribution of the remaining assets with the holders of Common Stock on a fully
diluted, as-converted basis.

5. STOCK OPTIONS AND WARRANTS

The Company has a stock option plan (the "1994 Stock Option Plan") whereby
it has reserved 1,428,571 shares of its common stock for issuance to Company
employees, directors and consultants. Options granted under this Plan may be
either incentive stock options or non-qualified stock options. The exercise
price of these options shall not be less than the fair market value at the date
of the grant. Options under this Plan must be granted by March 31, 2004. Options
granted must be exercised within ten years of the grant date. At December 31,
1995 outstanding stock options and warrants to purchase shares of the Company's
stock were as follows:

F-15
<PAGE> 85

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
EXPIRATION NUMBER AGGREGATE
DATES OF SHARES EXERCISE PRICE
------------------- --------- --------------
<S> <C> <C> <C>
Voting Common June 6, 2004 to
Stock Options............. September 26, 2005 1,115,606 $ 751,071
Series D Convertible
Preferred Stock
Warrants.................. June 15, 1997 1,428,571 5,000,000
Series C Convertible
Preferred Stock
Warrants.................. December 31, 1999 14,250 49,876
</TABLE>

No options were granted, exercised or canceled in 1993. Information
relating to stock options granted, exercised, and canceled for the years ended
December 31, 1994 and 1995 is as follows:

<TABLE>
<CAPTION>
SHARES PRICE RANGE
---------- -------------
<S> <C> <C>
Balance, December 31, 1993............. -- --
Granted.............................. 1,232,528 $ .0035 - .70
--------- ---------
Balance, December 31, 1994............. 1,232,528 .0035 - .70
--------- ---------
Granted.............................. 47,143 .70
Canceled............................. (78,351) .70
Exercised............................ (85,714) .0035
--------- ---------
Balance, December 31, 1995............. 1,115,606 $ .0035 - .70
--------- ---------
Granted.............................. 5,716 1.75
Canceled............................. (11,428) .70
Exercised............................ (54,220) .70
--------- ---------
Balance, June 30, 1996 (unaudited)..... 1,055,674 $.0035 - 1.75
========= =========
</TABLE>

Of the 1,115,606 options outstanding, 377,043 are exercisable at December
31, 1995 at a weighted average price of $.63 per share.

For financial statement presentation purposes, the Company has recorded as
deferred compensation expense the excess of the deemed value of the common stock
at the date of grant over the exercise price. The compensation expense will be
amortized ratably over the vesting period of the options and warrants and will
aggregate a maximum of $270,120. Amortization expense for the six months ended
June 30, 1996 was $49,044.

F-16
<PAGE> 86

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES

There was no Federal income tax expense in 1993, 1994, and 1995 due to net
operating losses. The difference between the expected tax benefit and actual tax
benefit is primarily attributable to the effect of these net operating losses
being offset by an increase in the Company's valuation allowance.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1993, 1994, and 1995 are
presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1994 1995
--------- -------- ----------
<S> <C> <C> <C>
Start up and organization costs....... $ 76,940 268,534 434,065
Net operating loss carryforwards...... 44,903 215,189 614,285
Allowance for bad debts............... -- 87,657 87,657
--------- -------- ----------
Total....................... 121,843 571,380 1,136,007
Less valuation allowance.............. (121,843) (571,380) (1,136,007)
--------- -------- ----------
Net deferred tax assets............... $ -- -- --
========= ======== ==========
</TABLE>

The net change in the total valuation allowance for the years ended
December 31, 1993, 1994, and 1995 was an increase of approximately $117,653,
$449,537 and $564,627, respectively. Subsequently recognized tax benefits
relating to the valuation allowance for deferred tax assets will be recognized
as an income tax benefit to be reported in the statement of operations.

At December 31, 1995 the Company had total tax net operating losses of
approximately $1,600,000 that can be carried forward to reduce federal income
taxes. If not utilized, the tax loss carryforwards expire beginning in 2007.

Under the rules of the Tax Reform Act of 1986, the Company has undergone a
greater that 50% change of ownership. Consequently, a certain amount of the
Company's net operating loss carryforward available to offset future taxable
income in any one year may be limited. The maximum amount of carryforwards
available in a given year is limited to the product of the Company's value on
the date of ownership change and the federal long-term tax-exempt rate, plus any
limited carryforwards not utilized in prior years.

7. RELATED PARTY TRANSACTIONS

Upon organization of the Company, patents and trademarks were acquired from
the founder of the Company for which 1,285,714 shares of voting common stock and
142,857 shares of non-voting common stock were issued as consideration and
nominally valued at $5,000.

In January 1994 the Company issued 1,285,714 shares of voting common stock
and 142,857 shares of non-voting common stock to the founder of the Company in
consideration for all of the outstanding equity of UroCath Corporation. The
acquisition of UroCath was accounted for as a combining of entities under common
control. Accordingly, the assets were recorded at their historical cost. Due to
the immateriality of the assets acquired and no significant previous operations,
comparative prior years' financial statements have not been retroactively
restated.

During 1994 the Company acquired patents and trademarks totaling $250,000
from Excalibur Engineering Corporation for which UroQuest issued a $250,000
non-interest bearing note. Excalibur is controlled by the founder of the
Company. As the note was non-interest bearing, the Company recorded the note net
of a $6,840 discount calculated at 8% over the expected term of the note. At
December 31,

F-17
<PAGE> 87

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1994 the unamortized portion of the discount was $4,017. As of December 31,
1995, the note was paid in full and the discount completely amortized.

In 1994, nonaffiliated corporations were formed by certain stockholders of
the Company. Cash and other non-core business assets of the Company totaling
$235,008 were transferred to those corporations in exchange for 8% promissory
notes. The notes are payable on demand. In 1994, a valuation allowance was
established to account for possible non-collection of the notes.

8. ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FASB 123). The Company is required to adopt the provisions of this
statement in 1996. This statement encourages all entities to adopt a fair value
based method of accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to account for employee
stock options or similar equity instruments in accordance with APB 25 and
provide the disclosures required by FASB 123.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of ("FASB 121"). The
Company is required to adopt the provisions of this statement for years
beginning after December 15, 1995. This statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell. The Company will adopt
FASB 121 during 1996; however, the adoption of FASB 121 is not expected to have
a material effect on the Company.

9. LEASE OBLIGATIONS AND COMMITMENTS

The Company leases office space and certain equipment under operating
leases that expire over a period of three to five years. Minimum future
obligations under noncancelable operating leases as of December 31, 1995 are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996.............................................. $ 43,402
1997.............................................. 43,402
1998.............................................. 41,273
1999.............................................. 37,017
2000.............................................. 24,678
--------
Total............................................. $189,772
========
</TABLE>

Total rent expense for operating leases in 1993, 1994, and 1995 was
approximately $10,600, $23,300 and $36,200, respectively.

F-18
<PAGE> 88

UROQUEST MEDICAL CORPORATION
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. SUBSEQUENT EVENTS AND PRO FORMA CAPITAL AMOUNTS

The following events occurred subsequent to December 31, 1995:

The Board of Directors approved a 1-for-3.5 reverse stock split of the
Company's common stock. The number of common shares and per share amounts
presented in the accompanying financial statements have been restated for
the effects of this reverse split.

The Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission permitting the
Company to sell shares of its common stock to the public.

The Company entered into a definitive agreement and plan of merger to
acquire all of the issued and outstanding common stock of BMT, Inc. which
is to occur concurrently with completion of the contemplated offering of
shares of the Company's common stock to the public. In the acquisition,
shareholders of BMT, Inc. will receive, in the aggregate, a combination of
$10 million cash and 2,500,000 newly issued shares of common stock. The
acquisition will be accounted for under the purchase method of accounting.

A significant stockholder of the Company provided a commitment to
finance the Company, if necessary, through August 1997.

Approximately $200,000 principal amount of the 8% promissory notes
described in Note 7 was converted into Common Stock of a corporation owned
by certain stockholders of the Company. After this conversion, the Company
held less than 10% of the outstanding stock of the corporation.

In September 1996 the Company issued 10% demand promissory notes
totalling $500,000. The Company expects to repay the notes with the
proceeds of the proposed initial public offering.

The Board of Directors approved a reincorporation of the Company in
the state of Delaware. In conjunction with that reincorporation and the
Company's proposed sale of shares of its common stock to the public, the
existing non-voting common stock and preferred stock of the Company will
convert into voting common stock.

F-19
<PAGE> 89

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
BMT, Inc.

We have audited the accompanying consolidated balance sheets of BMT, Inc.
and its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for the three years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BMT, Inc. and
its wholly-owned subsidiary, Bivona, Inc. as of December 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Chicago, Illinois

January 19, 1996, except for Note H

as to which the date is June 27, 1996

F-20
<PAGE> 90

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ---------- JUNE 30,
1996
----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash........................................................ $ 21,526 $ 47,083 $ 6,398
Accounts receivable, net of allowance for doubtful accounts
of $100,000, $50,000 and $50,000 for 1994, 1995, and
1996, respectively....................................... 1,766,677 2,731,709 2,370,781
Inventories................................................. 2,459,821 2,658,918 2,748,342
Prepaid expenses and other.................................. 112,492 44,319 141,760
Deferred income taxes....................................... 138,000 105,000 105,000
---------- ---------- ----------
Total current assets................................ 4,498,516 5,587,029 5,372,281
Property, plant and equipment
Land and building........................................... 941,399 1,019,544 1,065,537
Machinery and equipment..................................... 1,177,002 1,583,613 1,785,580
Office furniture and equipment.............................. 371,727 455,953 470,843
---------- ---------- ----------
2,490,128 3,059,110 3,321,960
Less accumulated depreciation............................... 583,184 925,172 1,136,877
---------- ---------- ----------
Net property, plant and equipment................... 1,906,944 2,133,938 2,185,083
Other assets
Patents, organization costs and trademarks, net of
accumulated amortization of $36,260, $54,575, and $63,695
for 1994, 1995, and 1996, respectively................... 42,740 39,425 30,305
Deposits and other.......................................... -- 123,437 34,923
Deferred income taxes....................................... 504,000 307,000 242,000
---------- ---------- ----------
546,740 469,862 307,228
---------- ---------- ----------
Total assets........................................ $6,952,200 $8,190,829 $7,864,592
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable under line of credit.......................... $ 10,000 $ 610,000 $ 100,000
Current portion of long-term debt........................... 487,019 500,951 417,822
Accounts payable............................................ 440,823 369,469 416,562
Accrued expenses............................................ 319,980 389,305 378,671
Income taxes payable........................................ 212,000 252,813 71,813
---------- ---------- ----------
Total current liabilities........................... 1,469,822 2,122,538 1,384,868
Long-term debt................................................ 2,831,985 2,385,884 2,027,223
Commitments................................................... -- -- --
Stockholders' equity
Common stock, $1 par value; 1,000,000 shares authorized;
issued 796,500 shares.................................... 796,500 796,500 796,500
Additional paid-in capital.................................. 7,800 7,800 7,800
Retained earnings........................................... 1,846,093 3,277,707 4,050,521
---------- ---------- ----------
2,650,393 4,082,007 4,854,821
Less common stock in treasury at cost, 120,000 and 120,500
shares for 1995 and 1996, respectively................... -- (399,600) (402,320)
---------- ---------- ----------
Total stockholders' equity.......................... 2,650,393 3,682,407 4,452,501
---------- ---------- ----------
Total liabilities and stockholders' equity.......... $6,952,200 $8,190,829 $7,864,592
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE> 91

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $11,239,155 $11,728,409 $14,257,413 $6,706,256 $7,483,367
Cost of sales................ 6,351,651 6,668,026 7,228,308 3,469,929 3,953,455
----------- ----------- ----------- ---------- ----------
Gross profit....... 4,887,504 5,060,383 7,029,105 3,236,327 3,529,912
Operating expenses
General and
administrative.......... 1,080,971 1,151,485 1,653,197 862,251 908,115
Marketing and
distribution............ 1,581,302 1,607,404 1,692,881 862,851 691,609
Research and development... 531,395 586,319 986,265 460,778 530,585
----------- ----------- ----------- ---------- ----------
3,193,668 3,345,208 4,332,343 2,185,880 2,130,309
----------- ----------- ----------- ---------- ----------
Earnings from
operations....... 1,693,836 1,715,175 2,696,762 1,050,447 1,399,603
Other income (expense)
Interest income............ 740 69 84 18,072 45
Interest expense........... (344,586) (289,797) (315,232) (169,454) (136,834)
----------- ----------- ----------- ---------- ----------
(343,846) (289,728) (315,148) (151,382) (136,789)
----------- ----------- ----------- ---------- ----------
Earnings before
income taxes..... 1,349,990 1,425,447 2,381,614 899,065 1,262,814
Income taxes................. 540,000 572,500 950,000 352,110 490,000
----------- ----------- ----------- ---------- ----------
Net earnings....... $ 809,990 $ 852,947 $ 1,431,614 $ 546,955 $ 772,814
=========== =========== =========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-22
<PAGE> 92

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

THREE YEARS ENDED DECEMBER 31, 1995 AND SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
ADDITIONAL COMMON TOTAL
COMMON PAID-IN RETAINED STOCK IN STOCKHOLDERS'
STOCK CAPITAL EARNINGS TREASURY EQUITY
-------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1993...................... $796,500 $ -- $ 183,156 $ -- $ 979,656
Net earnings................ -- -- 809,990 -- 809,990
-------- ------ ---------- --------- ------------
Balance at December 31,
1993...................... 796,500 -- 993,146 -- 1,789,646
Purchase of 13,000 common
shares.................... -- -- -- (16,250) (16,250)
Sale of 13,000 common shares
held in treasury.......... -- 7,800 -- 16,250 24,050
Net earnings................ -- -- 852,947 -- 852,947
-------- ------ ---------- --------- ------------
Balance at December 31,
1994...................... 796,500 7,800 1,846,093 -- 2,650,393
Purchase of 122,500 common
shares.................... -- -- -- (407,925) (407,925)
Sale of 2,500 common shares
held in treasury.......... -- -- -- 8,325 8,325
Net earnings................ -- -- 1,431,614 -- 1,431,614
-------- ------ ---------- --------- ------------
Balance at December 31,
1995...................... 796,500 7,800 3,277,707 (399,600) 3,682,407
Purchase of 500 common
shares (unaudited)........ -- -- -- (2,720) (2,720)
Net earnings (unaudited).... -- -- 772,814 -- 772,814
-------- ------ ---------- --------- ------------
Balance at June 30, 1996
(unaudited)............... $796,500 $7,800 $4,050,521 $(402,320) $ 4,452,501
======== ====== ========== ========= ============
</TABLE>

The accompanying notes are an integral part of this statement.

F-23
<PAGE> 93

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ----------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................. $ 809,990 $ 852,947 $1,431,614 $ 546,955 $ 772,814
Adjustments to reconcile net earnings to
cash flows provided by operating
activities
Reduction of bad debt provision........ -- -- (50,000) -- --
Depreciation and amortization.......... 245,704 288,830 360,303 173,122 220,825
Deferred income taxes.................. 211,000 188,000 230,000 90,000 65,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable........................ (500,474) 388,520 (915,032) (246,605) 360,928
Increase in inventories.............. (123,098) (649,573) (199,097) (122,389) (89,424)
(Increase) decrease in prepaid
expenses and other................ (19,401) (74,999) 68,173 (56,243) (8,927)
Increase in accounts payable......... (43,456) 289,798 (71,354) (264,594) 47,093
Increase (decrease) in accrued
expenses.......................... 45,127 (48,133) 69,325 15,280 (10,634)
Increase in income taxes payable..... (48,000) 227,000 40,813 (175,890) (181,000)
--------- ----------- ---------- --------- ---------
Total adjustments................. (232,598) 609,443 (466,869) (587,319) 403,861
--------- ----------- ---------- --------- ---------
Net cash provided by operating
activities...................... 577,392 1,462,390 964,745 (40,364) 1,176,675
Cash flows used in investing activities:
Capital expenditures...................... (271,174) (350,998) (568,982) (424,195) (262,850)
Machinery deposits and patents............ -- -- (138,437) -- --
--------- ----------- ---------- --------- ---------
Net cash used in investing
activities...................... (271,174) (350,998) (707,419) (424,195) (262,850)
Cash flows used in financing activities:
Principal payments on debt................ (358,638) (396,480) (432,169) (230,809) (441,790)
Net borrowings (payments) under line of
credit................................. 130,000 (890,000) 600,000 790,000 (510,000)
Purchase of common shares................. -- (14,850) (407,925) -- (2,720)
Sale of common shares..................... -- 37,050 8,325 -- --
--------- ----------- ---------- --------- ---------
Net cash used in financing
activities...................... (228,638) (1,264,280) (231,769) 559,191 (954,510)
--------- ----------- ---------- --------- ---------
Net increase (decrease) in cash... 77,580 (152,888) 25,557 94,632 (40,685)
Cash, beginning of period................... 96,834 174,414 21,526 21,526 47,083
--------- ----------- ---------- --------- ---------
Cash, end of period......................... $ 174,414 $ 21,526 $ 47,083 $ 116,158 $ 6,398
========= =========== ========== ========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................... $ 344,586 $ 289,797 $ 315,232 $ 112,732 $ 95,095
Income taxes........................... 363,185 214,756 679,187 280,000 606,000
Non-cash financing activities:
Refinancing of letter of credit balance
to term note......................... -- 430,000 -- -- --
Finance of purchase of common shares... -- 14,400 -- -- --
</TABLE>

The accompanying notes are an integral part of these statements.

F-24
<PAGE> 94

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

NOTE A -- SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

BMT, Inc. (the Company) was formed as an Indiana corporation on September
30, 1992. On October 2, 1992, the Company acquired 100% of the capital stock of
Bivona, Inc. (Bivona). The acquisition was accounted for as a purchase
transaction. The consolidated balance sheets reflect the formation of the
Company and the acquisition, including the related financing, of Bivona. In
1995, the Company acquired manufacturing machinery and equipment, patents and
inventory of a manufacturer of emergency tracheostomy and cricothyrotomy devices
for $325,000. The acquisition was not material.

Description of Business

Bivona designs, develops, manufactures and markets a line of proprietary
silicone medical device products as well as provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. The majority of Bivona's sales are conducted in
the United States, Western Europe and Japan.

Inventories

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

Inventories consist of the following:

DECEMBER 31,
------------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods....................... $ 577,835 $ 637,357 $ 707,866
Work-in-process...................... 1,369,873 1,384,383 1,314,679
Raw materials and supplies........... 512,113 637,178 725,797
---------- ---------- ----------
$2,459,821 $2,658,918 $ 2,748,342
========== ========== ==========
</TABLE>

Property, Plant and Equipment and Related Depreciation

Property, plant and equipment are recorded at cost, including amounts
allocated to such assets obtained from the acquisition of Bivona in 1992 in
accordance with Accounting Principles Board Opinion No. 16. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives ranging from 5 to 15 years using
accelerated and straight-line methods.

Patents and Trademarks

The costs of patents and trademarks are capitalized and amortized to
operations over their estimated useful lives or statutory lives, whichever is
shorter. Amortization is computed on the straight-line method.

Revenue Recognition

Revenue is recognized by the Company upon the actual shipment of products.

F-25
<PAGE> 95

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

Research and Development Costs

The Company expenses all research and development costs as incurred.

Income Taxes

The Company and Bivona file a consolidated income tax return. Deferred
income taxes are recognized for differences between the assigned values and tax
bases of assets and liabilities resulting from the Bivona acquisition in
accordance with Statement of Financial Accounting Standards No. 109. Deferred
tax assets and liabilities have been established for temporary differences
between the financial reporting basis and the tax basis of the consolidated
company's assets and liabilities based upon currently enacted tax rates that are
expected to be in effect when such amounts are realized or settled.

Management 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company's financial instruments include cash equivalents, accounts
receivable, accounts payable, notes payable and long-term obligations. The
carrying amounts of cash equivalents, accounts receivable, and accounts payable
approximate fair value because of the short-term nature of these instruments.
The carrying value of long-term obligations is based on quoted prices at the
reporting date for those instruments and approximates fair values. The fair
value of notes payable is estimated based on rates offered for instruments with
similar characteristics and does not materially differ from their carrying
value.

Impact of Adoption of Recently Issued Accounting Standards

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires that carrying values of long-lived
assets and certain identifiable intangible assets be evaluated based on the
future (undiscounted and without interest charges) cash flows expected to be
realized from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows from an asset is less than the carrying value, an
impairment loss must be recognized. SFAS No. 121 is effective for fiscal years
commencing after December 15, 1995. The impact of adopting SFAS No. 121 upon the
Company is not expected to be material to the Company's financial position or
results of operations.

Interim Financial Information (Unaudited)

The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and include all adjustments, all
of which were normal and recurring in nature, which, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. Results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full year.

F-26
<PAGE> 96

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

NOTE B -- NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
---------- ----------
<S> <C> <C>
Notes payable under bank line of credit agreement:
Maximum borrowings are the lesser of $1,200,000
or 75% of eligible accounts receivable, plus
50% of eligible inventory as defined.
Interest at the bank's prime rate plus .5%
(at prime rate beginning January 1, 1996) is
payable monthly. The prime rate was 8.5% at
December 31, 1995. The line of credit
agreement is payable on demand and is
collateralized by substantially all of the
assets of the Company........................ $ 10,000 $ 610,000
========== ==========
Long-term debt:
Bank term note payable to bank monthly, with
interest at the bank's prime rate (8.5% at
December 31, 1995) plus .5% based upon a
seven year amortization. However, additional
principal payments are required quarterly
based on 75% of excess cash flow as defined.
The note matures in October of 1999 and is
collateralized by substantially all of the
Company's assets............................. $1,723,040 $1,443,574
Mortgage note payable with monthly principal and
interest payable at the bank's prime rate
(8.5% at December 31, 1995) plus 1.5% (at
8.5% from January 1, 1996 through September
30, 1996 and prime plus 0.5% thereafter). The
note matures in October of 2007 and is
collateralized by the factory land and
building..................................... 1,276,062 1,228,187
Note payable to Lake County, Indiana Economic
Development Commission. The note bears
interest at a rate of 5% per annum and
matures in October of 1997 and is
collateralized by the factory land and
building..................................... 306,702 215,074
Note payable relating to a stock repurchase,
with interest payable monthly, at the prime
rate. The note was paid in full during fiscal
year 1995.................................... 13,200 --
---------- ----------
3,319,004 2,886,835
Less current maturities......................... 487,019 500,951
---------- ----------
$2,831,985 $2,385,884
========== ==========
</TABLE>

The prime rate was 8.25% at June 30, 1996.

Based upon the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt at December 31, 1995 is approximately $2,378,000.

F-27
<PAGE> 97

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

The loan agreements contain certain restrictive covenants and provide for
the maintenance of certain financial requirements. The Company has satisfied all
covenants and requirements at December 31, 1995.

The two principal shareholders of the Company are currently personal
guarantors of all basic debt.

Long-term debt matures as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------
<S> <C>
1996.................................................... $ 500,951
1997.................................................... 544,273
1998.................................................... 475,621
1999.................................................... 401,732
2000.................................................... 84,619
2001 and thereafter..................................... 879,639
----------
$2,886,835
==========
</TABLE>

NOTE C -- INCOME TAXES

The components of income tax expense consist of:

<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................ $232,600 $282,000 $560,000
State.................................. 96,400 102,500 160,000
-------- -------- --------
329,000 384,500 720,000
Deferred
Federal................................ 195,000 178,000 212,000
State.................................. 16,000 10,000 18,000
-------- -------- --------
211,000 188,000 230,000
-------- -------- --------
$540,000 $572,500 $950,000
======== ======== ========
</TABLE>

F-28
<PAGE> 98

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

The tax effects of existing temporary differences that give rise to
significant portions of deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Acquired net operating loss
carryforwards......................... $ 626,000 $ 500,000
Research and development credits......... 80,000 80,000
Allowance for doubtful accounts.......... 42,000 21,000
Inventory capitalization and
allowances............................ 75,500 29,000
Other.................................... 20,500 55,000
Valuation allowance...................... (80,000) (80,000)
-------- --------
$ 764,000 $ 605,000
======== ========
DEFERRED TAX LIABILITIES
Depreciation............................. $(122,000) $(182,000)
Other.................................... -- (11,000)
-------- --------
$(122,000) $(193,000)
======== ========
</TABLE>

Net current and long-term deferred tax assets are reflected in the
financial statements as:

<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Current deferred tax asset................... $138,000 $105,000
Long-term deferred tax asset................. 504,000 307,000
-------- --------
$642,000 $412,000
======== ========
</TABLE>

Net operating loss carryforwards can be utilized to reduce Federal income
taxes payable each year at the lesser of approximately $371,000 or Federal
taxable income before net operating loss carryforwards. Total net operating loss
carryforwards available at December 31, 1995 are approximately $1,470,000
expiring as follows: $1,256,000 in 2003 and $214,000 in 2004. In addition to the
net operating loss carryforwards, the Company acquired research and development
credit carryforwards of approximately $80,000 that can be utilized after the net
operating loss carryforwards are utilized. A valuation reserve has been
established for these credits.

NOTE D -- STOCK REPURCHASE AGREEMENT

Each of the shareholders has entered into an agreement that provides the
Company, followed by other shareholders, with the right of first refusal on the
purchase of stock from a shareholder who desires to sell such stock. In
addition, the Company has agreed to acquire the stock of each shareholder upon
his or her death. The purchase price is the book value of the stock as of the
last day of the preceding year. Payment may be made 20% in cash, with the
balance paid in sixty monthly installments with interest at the prime rate at
the option of the Company. Book value per share of $5.44 and $3.33 at December
31, 1995 and 1994, respectively, is based upon the number of issued and
outstanding shares of stock at the end of the year adjusted for common shares
held in treasury.

NOTE E -- LEASE COMMITMENTS

The Company leases warehouse space under an operating lease expiring on
December 15, 1998. Future minimum rental commitments on this lease are
approximately $60,000 per year over the three year period. The lease termination
agreement provides the Company with the right to terminate the

F-29
<PAGE> 99

BMT, INC. AND ITS WHOLLY-OWNED SUBSIDIARY, BIVONA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1993, 1994 AND 1995 AND JUNE 30, 1996 (UNAUDITED)

lease any month prior to lease termination date upon paying a break lease fee
equal to three times the then current monthly rent amount.

Total rent expense approximated $55,800 and $55,800, and $92,900 for the
years ended December 31, 1993, 1994, and 1995, respectively.

NOTE F -- EMPLOYEE BENEFIT PLAN

The Company has established a defined contribution employee benefit plan
(the Plan) pursuant to Section 401(k) of the Internal Revenue Code. Employees
who have completed one year of service, and have attained the age of twenty-one,
are eligible to participate in the Plan. Participants may elect to make salary
deferral contributions of up to 15% of their compensation. The Company will
match such contributions in an amount up to 4% of each participant's
compensation. The Company made matching contributions of approximately $87,200,
$92,700 and $95,000 for the years ended December 31, 1993, 1994, and 1995,
respectively.

NOTE G -- MAJOR CUSTOMERS AND EXPORT SALES

Net sales to one customer amounted to 18%, 23% and 22% of Bivona's total
net sales for the years ended December 31, 1993, 1994 and 1995, respectively.
Outstanding receivables from this customer at December 31, 1993, 1994 and 1995
bear a similar relationship to total accounts receivable.

Export sales by major geographic area are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Western Europe....................... $1,279,000 $1,361,000 $1,831,000
Japan................................ 200,000 283,000 371,000
Other................................ 190,000 334,000 376,000
---------- ---------- ----------
Total................................ $1,669,000 $1,978,000 $2,578,000
========== ========== ==========
</TABLE>

NOTE H -- SUBSEQUENT EVENT

On June 27, 1996 the Company entered into a definitive agreement to be
acquired by UroQuest Medical Corporation ("UroQuest") for aggregate
consideration of $32,500,000, consisting of a combination of $10 million cash
and 2,500,000 newly issued shares of UroQuest common stock. The transaction is
contingent upon the completion of an initial public offering by UroQuest.

F-30
<PAGE> 100

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

No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus in connection with the offer contained herein, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, shares of
Common Stock in any jurisdiction to any person to whom it is not lawful to make
any such offer or solicitation in such jurisdiction or in which the person
making such offer or solicitation is not qualified to do so. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no change in the
affairs of the Company since the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
The Company................................ 16
Acquisition of BMT......................... 16
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 23
Business................................... 29
Management................................. 53
Certain Transactions....................... 59
Principal Stockholders..................... 61
Description of Capital Stock............... 62
Shares Eligible for Future Sale............ 64
Underwriting............................... 66
Legal Matters.............................. 67
Experts.................................... 67
Additional Information..................... 67
Index to Financial Statements.............. F-1
</TABLE>

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

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

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

LOGO

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

3,350,000 SHARES

COMMON STOCK

PROSPECTUS
, 1996

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

DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED

------------------------------------------------------------
------------------------------------------------------------
<PAGE> 101

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the Common Stock being registered. All of
the amounts listed below will be borne by the Company. All of the amounts shown
are estimates, except the SEC registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
SEC registration fee............................................. $ 17,270
NASD filing fee.................................................. 5,509
Nasdaq National Market filing fee................................ 20,479
Accounting fees and expenses..................................... 160,000
Legal fees and expenses.......................................... 265,000
Blue sky fees and expenses....................................... 17,000
Printing and engraving costs..................................... 100,000
Transfer agent and registrar fees................................ 10,000
Miscellaneous expenses........................................... 4,742
----------
Total.................................................. $ 600,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not permitted by Delaware law.

The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.

The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.

The Underwriting Agreement filed as an exhibit to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise. In addition to the foregoing, the Registrant intends to

II-1
<PAGE> 102

acquire insurance from commercial carriers against certain liabilities which may
be incurred by its directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(1) In December 1993, the Registrant issued 285,714 shares of Common Stock
to Donald P. Sauey, a then director of the Registrant at a price of $0.70 per
share for an aggregate purchase price of $200,000.

(2) In December 1993, the Registrant issued 90,476 shares of Series A
Convertible Preferred Stock to certain investors at a price of $2.10 per share
for an aggregate purchase price of $190,000.

(3) In January 1994, the Registrant issued 1,285,714 shares of Common Stock
to Richard C. Davis, Chairman and 142,857 shares of Common Stock to another
investor for all of the outstanding equity of UroCath Corporation. The assets of
UroCath acquired were recorded at their historical cost of $5,000.

(4) In January 1994, the Registrant issued a $250,000 non-interest bearing
promissory note to an affiliate of Richard C. Davis for patents and trademarks.
The Company recorded the note net of a $6,840 discount calculated at 8% over the
expected term of the note.

(5) In March 1994, the Registrant issued 143 shares of Common Stock to
Terrence L. Domin, Secretary of the Registrant, at a price of $0.70 per share
for an aggregate purchase price of $100.

(6) In July 1994, the Registrant issued 272,998 shares of Series B
Convertible Preferred Stock to certain investors at a price of $2.52 per share
for an aggregate purchase price of $687,956.

(7) In July 1994, the Registrant issued 4,511 shares of Common Stock to
certain consultants for consulting services valued at $11,367.

(8) In October 1994, the Registrant issued Convertible Subordinated
Promissory Notes totaling $284,000 to certain investors.

(9) In November 1994, the Registrant issued 189,428 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 per share
for an aggregate purchase price of $663,000.

(10) In December 1994, the Registrant issued 61,143 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 concurrent
with the conversion of Convertible Subordinated Promissory Notes totaling
$214,000.

(11) In December 1994, the Registrant issued Secured Promissory Notes
totaling $390,000 to certain existing investors (including $250,000 to directors
of the Registrant) and warrants to purchase 13,371 shares of Series C
Convertible Preferred Stock for $3.50 per share.

(12) In June 1995, the Registrant issued 628,571 shares of Series D
Convertible Preferred Stock to Warburg, Pincus Investors, L.P. and Vertical Fund
Associates, L.P., venture capital firms, at a price of $3.50 per share for an
aggregate purchase price of $2,200,000, and warrants to purchase 1,428,571
shares of Series D Convertible Preferred Stock for $3.50 per share.

(13) In June 1995, the Registrant issued 10,000 shares of Series C
Convertible Preferred Stock to certain investors at a price of $3.50 concurrent
with the conversion of Convertible Subordinated Promissory Notes totaling
$35,000.

(14) From June 1993 to June 1996, the Registrant granted stock options to
employees, directors and consultants to purchase shares of Common Stock at
exercise prices ranging from $0.0035 to $1.75, of which options to purchase an
aggregate of 1,058,531 shares of Common Stock are outstanding. From June 1993 to
June 1996, the Registrant issued 139,934 shares of Common Stock to employees,
directors and consultants upon exercise of stock options for an aggregate of
$38,254.

II-2
<PAGE> 103

The sales of securities referenced in paragraph (1) through (13) were
deemed to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance on Section 4(2) thereof or
Regulation D thereunder. The sales of securities referenced in paragraph (14)
were deemed to be exempt from registration under the Securities Act in reliance
on Rule 701 promulgated under Section 3(b) thereof, as transactions by an issuer
not involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and instruments issued in such transactions. All
recipients had adequate access, though their relationships with the Company, to
information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits to the Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
2.1 Form of Merger Agreement for Delaware reincorporation.
2.2** Agreement and Plan of Merger dated as of June 27, 1996 among the Registrant, BMT
Acquisition Co. and BMT, Inc.
3.1 Form of Certificate of Incorporation of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following reincorporation.
3.2 Form of Restated Certificate of Incorporation of UroQuest Medical Corporation, a
Delaware corporation, to be filed after the closing of this Offering made under
this Registration Statement.
3.3 Form of Bylaws of UroQuest Medical Corporation, a Delaware corporation, as in
effect immediately following reincorporation.
4.1* Specimen Common Stock Certificate.
4.2** Second Amended and Restated Stockholders Agreement dated May 31, 1995.
5.1 Opinion of Holland & Hart LLP.
10.1 Form of Indemnification Agreement between the Registrant and each of its
directors and officers.
10.2** 1994 Stock Option Plan.
10.3** Form of 1996 Employee Stock Purchase Plan and form of Subscription and
Contribution Election Form.
10.4** Letter of intent dated February 20, 1996, between B. Braun Biotrol S.A. and
Registrant.
10.5** 12% Secured Promissory Notes due December 31, 1996, in aggregate principal amount
of $390,000, including contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996.
10.6** Commercial Security Agreement (Patents) dated December 7, 1994, by UroCath
Corporation for the benefit of holders of 12% Secured Promissory Notes due
December 31, 1996.
10.7** Lease Agreement of office space dated July 6, 1995 between 265 East Associates
and the Registrant.
10.8** Lease dated December 16, 1995 between JVM Realty Corporation and Bivona, Inc.
10.9** Employment Agreement (as amended) dated November 1, 1994 for Eric B. Hale.
</TABLE>

II-3
<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<S> <C>
10.10** Employment Agreement (as amended) dated December 1, 1994 for Richard C. Davis,
Jr., M.D.
10.11** Employment Agreement effective June 1, 1995 for Terrence L. Domin.
10.12** Employment Agreement effective June 1, 1995 for Gregory S. Ayers.
10.13** Employment Agreement effective June 27, 1996 for Tom E. Brandt.
10.14 Termination and Modification Agreement dated September 30, 1996, among the
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund Associates, L.P. and
Richard C. Davis, Jr.
10.15** Right of First Refusal and Co-Sale Agreement dated June 15, 1995 among the
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund Associates, L.P. and
Richard C. Davis, Jr., M.D. (the "Co-Sale Agreement"), as amended by letter
agreement dated September 30, 1996.
10.16 Letter Agreement dated September 30, 1996, among the Registrant, Warburg, Pincus
Investors, L.P., Vertical Fund Associates, L.P. and Richard C. Davis, Jr., M.D.,
amending the Co-Sale Agreement.
10.17 Amendment to Agreement and Plan of Merger between the Registrant, BMT Acquisition
Co. and BMT, Inc. dated September 27, 1996.
11.1** Statement regarding computation of per share loss.
21.1** Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Grant Thornton LLP.
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1).
23.4 Consent of Griffin, Butler, Whisenhunt & Kurtossy.
23.5 Consent of Emrich & Dithmar.
24.1** Power of Attorney (see page II-5).
99.1** Consent of Person About to Become a Director
</TABLE>

- ---------------
* To be filed by amendment.

** Previously filed.

(b) Financial Statement Schedules.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the 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 Company of expenses
incurred or paid by a director, officer, or controlling person of the Company 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 hereunder, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-4
<PAGE> 105

The Company hereby undertakes:

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

(2) 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 Company 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.

(3) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 106

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Company has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Salt Lake
City, State of Utah, on September 30, 1996.

UROQUEST MEDICAL CORPORATION

By: /s/ ERIC B. HALE

--------------------------------------
Eric B. Hale, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities and as of the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ RICHARD C. DAVIS, M.D.* Chairman of the Board September 30, 1996
- ------------------------------------------
Richard C. Davis, M.D.
/s/ ERIC B. HALE President, Chief Executive September 30, 1996
- ------------------------------------------ Officer and Director
Eric B. Hale (principal executive
officer)
/s/ GREGORY S. AYERS* Vice President, Finance September 30, 1996
- ------------------------------------------ and Chief Financial
Gregory S. Ayers Officer
(principal accounting
and
financial officer)
/s/ JACK W. LASERSOHN* Director September 30, 1996
- ------------------------------------------
Jack W. Lasersohn
/s/ GARY E. NEI* Director September 30, 1996
- ------------------------------------------
Gary E. Nei
/s/ MAYNARD RAMSEY, III, M.D., PH.D.* Director September 30, 1996
- ------------------------------------------
Maynard Ramsey, III, M.D., Ph.D.
/s/ ELIZABETH H. WEATHERMAN* Director September 30, 1996
- ------------------------------------------
Elizabeth H. Weatherman
* By: /s/ ERIC B. HALE
---------------------------------
Eric B. Hale, Attorney-in-Fact
</TABLE>

II-6
<PAGE> 107

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
1.1** Form of Underwriting Agreement.............................
2.1 Form of Merger Agreement for Delaware reincorporation......
2.2** Agreement and Plan of Merger dated as of June 27, 1996
among the Registrant, BMT Acquisition Co. and BMT, Inc.....
3.1 Form of Certificate of Incorporation of UroQuest Medical
Corporation, a Delaware corporation, as in effect
immediately following reincorporation......................
3.2 Form of Restated Certificate of Incorporation of UroQuest
Medical Corporation, a Delaware corporation, to be filed
after the closing of this Offering made under this
Registration Statement.....................................
3.3 Form of Bylaws of UroQuest Medical Corporation, a Delaware
corporation, as in effect immediately following
reincorporation............................................
4.1* Specimen Common Stock Certificate..........................
4.2** Second Amended and Restated Stockholders Agreement dated
May 31, 1995...............................................
5.1 Opinion of Holland & Hart LLP..............................
10.1 Form of Indemnification Agreement between the Registrant
and each of its directors and officers.....................
10.2** 1994 Stock Option Plan.....................................
10.3** Form of 1996 Employee Stock Purchase Plan and form of
Subscription and Contribution Election Form................
10.4** Letter of intent dated February 20, 1996, between B. Braun
Biotrol S.A. and Registrant................................
10.5** 12% Secured Promissory Notes due December 31, 1996, in
aggregate principal amount of $390,000, including
contingent 5% royalty payments on sales of On-Command
Catheter technology through December 31, 1996..............
10.6** Commercial Security Agreement (Patents) dated December 7,
1994, by UroCath Corporation for the benefit of holders of
12% Secured Promissory Notes due December 31, 1996.........
10.7** Lease Agreement of office space dated July 6, 1995 between
265 East Associates and the Registrant.....................
10.8** Lease dated December 16, 1995 between JVM Realty
Corporation and Bivona, Inc................................
10.9** Employment Agreement (as amended) dated November 1, 1994
for Eric B. Hale...........................................
10.10** Employment Agreement (as amended) dated December 1, 1994
for Richard C. Davis, Jr., M.D.............................
10.11** Employment Agreement effective June 1, 1995 for Terrence L.
Domin......................................................
10.12** Employment Agreement effective June 1, 1995 for Gregory S.
Ayers......................................................
</TABLE>

<PAGE> 108

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------- ------------
<S> <C> <C>
10.13** Employment Agreement effective June 27, 1996 for Tom E.
Brandt.....................................................
10.14 Termination and Modification Agreement dated September 30,
1996, among the Registrant, Warburg, Pincus Investors,
L.P., Vertical Fund Associates, L.P. and Richard C. Davis,
Jr.........................................................
10.15** Right of First Refusal and Co-Sale Agreement dated June 15,
1995 among the Registrant, Warburg, Pincus Investors, L.P.,
Vertical Fund Associates, L.P. and Richard C. Davis, Jr.,
M.D. (the "Co-Sale Agreement"), as amended by letter
agreement dated September 30, 1996.........................
10.16 Letter Agreement dated September 30, 1996, among the
Registrant, Warburg, Pincus Investors, L.P., Vertical Fund
Associates, L.P. and Richard C. Davis, Jr., M.D., amending
the Co-Sale Agreement......................................
10.17 Amendment to Agreement and Plan of Merger between the
Registrant, BMT Acquisition Co. and BMT, Inc. dated
September 27, 1996.........................................
11.1** Statement regarding computation of per share loss..........
21.1** Subsidiaries of Registrant.................................
23.1 Consent of KPMG Peat Marwick LLP...........................
23.2 Consent of Grant Thornton LLP..............................
23.3 Consent of Holland & Hart LLP (included in Exhibit 5.1)....
23.4 Consent of Griffin, Butler, Whisenhunt & Kurtossy..........
23.5 Consent of Emrich & Dithmar................................
24.1** Power of Attorney (see page II-5)..........................
99.1** Consent of Person About to Become a Director...............
</TABLE>

- ---------------
* To be filed by amendment.

** Previously filed.

<PAGE> 1
Exhibit 2.1

AGREEMENT OF MERGER

THIS AGREEMENT OF MERGER (the "Merger Agreement") is made as of October
___, 1996, by and among UroQuest Corporation, a Florida corporation ("UroQuest")
and UroQuest Medical Corporation, a Delaware corporation ("UroQuest Medical").

Recitals

A. UroQuest is a corporation organized and existing under the laws of
the State of Florida.

B. UroQuest Medical is a corporation organized and existing under the
laws of the State of Delaware and is a wholly owned subsidiary of UroQuest.

C. The respective Boards of Directors of UroQuest and UroQuest Medical
deem it advisable and in the best interests of their respective shareholders
that UroQuest be merged with and into UroQuest Medical in the manner
contemplated herein.

D. The respective Boards of Directors of UroQuest and UroQuest Medical
have adopted resolutions approving this Merger Agreement and have recommended
that the merger of UroQuest with and into UroQuest Medical (the "Merger") and
this Merger Agreement be approved by the shareholders.

Agreement

In consideration of the foregoing and mutual covenants and agreements
contained herein, the parties hereby agree as follows:

ARTICLE I

1.01 The Merger. At the Effective Time (as hereinafter defined): (a)
UroQuest shall be merged with and into UroQuest Medical, which shall be the
surviving corporation of the Merger (the "Surviving Corporation") and (b) the
identity and separate existence of UroQuest shall cease and all of the rights,
privileges, powers, properties and assets of UroQuest shall be vested in the
Surviving Corporation in accordance with the provisions of the Florida Business
Corporation Law and Delaware General Corporation Law. The name of the Surviving
Corporation shall continue to be UroQuest Medical Corporation.

1.02 Certificates of Merger. As soon as practicable following the
fulfillment or waiver of the condition set forth in Section 4.01 hereof,
UroQuest and UroQuest Medical shall cause Certificates of Merger to be executed
and filed in accordance
<PAGE> 2
with the provisions of the Florida Business Corporation Act and Delaware
Business Corporation Law, with the offices of the Secretaries of State of
Florida and Delaware. For purposes hereof, the "Effective Time" shall mean the
date on which the Certificate of Merger is filed and accepted by the Delaware
Secretary of State.

ARTICLE II

2.01 Certificate of Incorporation. The Certificate of Incorporation of
UroQuest Medical as in effect immediately prior to the Effective Time of the
Merger, shall thereafter continue in full force and effect as of the Certificate
of Incorporation of the Surviving Corporation.

2.02 Bylaws. The Bylaws of UroQuest Medical, as in effect immediately
prior to the Effective Time of the Merger, shall be the Bylaws of the Surviving
Corporation.

2.03 Officers and Directors. The officers of UroQuest at the Effective
Time of the Merger shall be the officers of the Surviving Corporation, each to
hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation. The directors of UroQuest at the Effective Time of
the Merger shall be the directors of the Surviving Corporation, until their
successors have been duly elected and qualified in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation.

ARTICLE III

3.01 Merger Consideration and Conversion of Shares. At the Effective
Time, the shares of stock of UroQuest, by virtue of the Merger and without any
action on the part of the holders thereof, automatically shall be converted into
shares of UroQuest Medical as follows:

(a) Each issued and outstanding share of common stock of
UroQuest shall be converted, pursuant to a 1-for-3.5 reverse stock split, into
0.285714286 fully paid and non-assessable shares of common stock of the
Surviving Corporation.

(b) Each issued and outstanding share of UroQuest Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be converted, pursuant to a 1-for-3.5 reverse stock split,
into 0.285714286 fully paid and non-assessable shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock, respectively, of the Surviving Corporation.

2
<PAGE> 3
3.02 Fractional Shares. Notwithstanding anything herein to the
contrary, no certificate or scrip evidencing fractional shares of the Surviving
Corporation shall be issued in the Merger, and such fractional share interests
will not entitle the owner thereof to vote or to any rights as a stockholder of
the Surviving Corporation. In lieu of any such fractional shares, each holder of
shares of the Surviving Corporation shall be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (i) the fair
market value per share of the Surviving Corporation as determined by the Board
of Directors of the Surviving Corporation by (ii) the fractional interest of a
share of the Surviving Corporation to which such holder would otherwise be
entitled.

3.03 Share Certificates. As soon as practicable after the Effective
Time, each former shareholder of record of UroQuest will be sent a letter of
transmittal from the Surviving Corporation with instructions for the exchange by
holders of UroQuest stock certificates for: (i) a certificate representing the
number of shares of the Surviving Corporation stock to which such shareholder is
entitled as a result of the Merger; and (ii) any cash payment in lieu of issuing
fractional shares. No cash will be paid to any former UroQuest shareholder nor
will any certificates for shares of the Surviving Corporation be issued to such
shareholder until the letter of transmittal has been properly completed,
executed and delivered to the Surviving Corporation together with the
certificates for all shares of UroQuest stock owned by such shareholder.

3.04 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of UroQuest outstanding immediately prior to the Effective
Time held by any holder who is entitled to demand, and who properly demands,
appraisal for such shares in accordance with the provisions of the Florida
Business Corporation Law shall not be converted into the right to receive shares
of the Surviving Corporation unless such holder fails to perfect or otherwise
loses such holder's right to appraisal, if any. If, after the Effective Time,
such holder fails to perfect or loses any such right to appraisal, such shares
shall be treated as if they had been converted as of the Effective Time.

3.05 Cancellation of UroQuest Shares. At the Effective Time, all of the
shares of UroQuest Medical issued and outstanding to UroQuest shall
automatically be cancelled.

3.06 Tax Treatment. The Merger is intended to be, and shall be treated
as a tax-free reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code.

ARTICLE IV

4.01 Condition Precedent. Notwithstanding any other provision of this
Merger Agreement, the obligation of UroQuest and UroQuest Medical to consummate
the transactions contemplated hereby is conditioned upon the approval by votes
cast in person, by proxy or by written consent of the holders of UroQuest stock,
as follows:

(a) A majority of the shares of UroQuest's voting and
non-voting Common Stock, voting separately;

(b) A majority of each series of Preferred Stock, voting
separately;

(d) Two-thirds (b) of each of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, voting together.

ARTICLE V

5.01 Amendment or Waiver of Certain Terms Relating to the Preferred
Stock. Upon approval of this Merger Agreement by the holders of the outstanding
shares of UroQuest's capital stock as set forth in Section 4.01 above, the
holders of UroQuest's Preferred Stock shall be deemed to have agreed to the
amendment or waiver of the observance of certain provisions of the Articles of
Incorporation of UroQuest as follows:

(i) under Article 3, Part C, Section 2(b), the Merger shall not
be deemed a liquidation, dissolution or winding up of UroQuest within the
meaning of Article 3, Part C, Section 2;

(ii) the Merger shall not result in the automatic conversion of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock within the meaning of Article 3, Part C, Section
4(b)(i)(y); and

(iii) Article 3, Part C, Section 4(I) regarding notice of
capital changes is waived.

ARTICLE VI

6.01 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.

6.02 Governing Law. This Merger Agreement shall be governed in all
respects, including, but not limited to, validity, interpretation, effect and
performance, by the internal

3
<PAGE> 4
laws of the State of Delaware without regard to the principles of conflicts of
law thereof.

6.03 Section Headings. The section headings contained in this Merger
Agreement have been inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, the undersigned parties have executed this Merger
Agreement, as of the date first herein written.

UROQUEST CORPORATION

By:_______________________________
ATTEST: Title:____________________________

________________________
Secretary

UROQUEST MEDICAL CORPORATION

By:_______________________________
ATTEST: Title:____________________________

________________________
Secretary

<PAGE> 1

EXHIBIT 3.1

CERTIFICATE OF INCORPORATION
OF
UROQUEST MEDICAL CORPORATION

The undersigned incorporator hereby executes this Certificate of
Incorporation for the purpose of forming a corporation for profit in accordance
with the laws of the State of Delaware.

ARTICLE 1

Name

The name of the corporation shall be:

UroQuest Medical Corporation

ARTICLE 2

Registered Office and Agent

The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle,
Delaware, 19805. The name of the registered agent at such address is
Corporation Service Company.

ARTICLE 3

The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.

ARTICLE 4

CAPITAL STOCK

A. Authorized Capitalization. Subject to the provisions of
Article 4, Section C.4(b) below, the total number of shares of all classes of
stock which the Corporation shall have authority to issue is 47,000,000 shares,
$.001 par value, divided into the following: (i) 316,667 shares of Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), (ii) 955,494
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock"),
(iii) 1,009,107 shares of Series C Convertible Preferred Stock ("Series C
Preferred Stock"), (iv) 8,000,000 shares of Series D Convertible Preferred
Stock ("Series D Preferred Stock") (sometimes hereinafter the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock are collectively referred to as the "Designated Preferred
<PAGE> 2
Stock"), (v) 5,718,732 shares of undesignated Preferred Stock ("Preferred
Stock"), and (vi) 31,000,000 shares of Common Stock ("Common Stock").

B. Preferred Stock. The shares of Preferred Stock may be issued
from time to time in one or more series. The Board of Directors is hereby
vested with authority to fix by resolution or resolutions the designations and
the powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations, or restrictions thereof, including
without limitation, the dividend rate, conversion rights, redemption price and
liquidation preference, or any series of shares of Preferred Stock, and to fix
the number of shares constituting any such series, and to increase or decrease
the number of shares of any such series, and to increase or decrease the number
of shares of any such series (but not below the number of shares thereof
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.

C. Common Stock and Designated Preferred Stock. The rights,
preferences, privileges and restrictions granted to or imposed upon Common
Stock and Designated Preferred Stock are as follows:

1. Dividends. The holders of the Designated Preferred
Stock shall be entitled, when, as and if declared by the Board of
Directors of the Corporation, to dividends out of, on a pari passu
basis, the retained earnings or capital surplus of the Corporation,
provided, however, that no such dividend or distribution may be
declared or paid on any shares of Common Stock unless at the same time
an equivalent (on the basis specified below) dividend or distribution
is declared or paid on all outstanding shares of Designated Preferred
Stock of each series equally. The holders of the Designated Preferred
Stock shall be entitled to share in any dividends or distributions
paid to the holders of shares of Common Stock or any other class or
series of stock ranking junior to the Designated Preferred Stock, at
the same rate per share of Designated Preferred Stock based upon the
shares of Common Stock or other securities which the holder of such
Designated Preferred Stock would be entitled to receive upon
conversion thereof immediately prior to the record date of such
distribution. The right to such dividends on shares of Common Stock
and Designated Preferred Stock shall not be cumulative, and no right
shall accrue to holders of Common Stock or Preferred Stock, by reason
of the fact that dividends on said shares are not declared in any
prior period.

2
<PAGE> 3
Subject to the right of the holders of Designated Preferred
Stock, and any other series of Preferred Stock authorized pursuant to
the terms of Part B of this Article 3, the holders of Common Stock
shall be entitled to receive dividends out of the retained earnings or
capital surplus of the Corporation when, as, and if decided by the
Board of Directors.

2. Liquidation Preference.

a. Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either
voluntarily or involuntarily, the holders of Designated
Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus
funds of the Corporation to holders of Common Stock of the
Corporation, an amount equal to $.60 per share (with respect
to the Series A Preferred Stock), $.72 per share (with respect
to the Series B Preferred Stock), and $1.00 per share (with
respect to the Series C Preferred Stock and Series D Preferred
Stock), respectively (as adjusted for any stock splits, stock
dividends, consolidations, combinations or the like), plus a
further amount equal to any dividends declared but unpaid on
such shares (hereinafter, the above identified amounts shall
be referred to as the Series A Liquidation Value, Series B
Liquidation Value, Series C Liquidation Value and Series D
Liquidation Value, respectively).

All of the preferential amounts to be paid to the
holders of Designated Preferred Stock under this Section 2
shall be paid or set apart for payment before the payment or
setting apart for payment of any account for, or the
distribution of any assets of this Corporation to, the holders
of Common Stock in connection with such liquidation,
dissolution or winding up. If upon such liquidation,
dissolution or winding up of the Corporation, the assets of
the Corporation are insufficient to provide for the cash
payment of the full preferential amount for each share of
Designated Preferred Stock outstanding, such assets as are
available shall be distributed first in their entirety among
the holders of the Series D Preferred Stock based upon the
aggregate Series D Liquidation Value payable upon liquidation
for the number of shares of Series D Preferred Stock held by
each of them, and then, to the extent of any assets remaining
after such distribution, ratably among the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock based upon the aggregate Series A Liquidation
Value, Series B Liquidation Value, and

3
<PAGE> 4
Series C Liquidation Value payable upon liquidation for the
number of shares of Series A Preferred Stock, Series B
Preferred Stock, or Series C Preferred Stock held by each of
them.

After the payment or setting apart of payment to the
holders of Designated Preferred Stock of the full Series A
Liquidation Value, Series B Liquidation Value, Series C
Liquidation Value and Series D Liquidation Value, the holders
of Designated Preferred Stock and Common Stock shall be
entitled to share ratably in the remaining assets of the
Corporation, based upon the number of shares of Common Stock
then held by them (deeming, for the purposed of such
proration, all Designated Preferred Stock to be converted into
Common Stock at the then effective Conversion Rate applicable
thereto).

b. Consolidation or Merger. A consolidation or
merger of the Corporation with or into any other corporation
or corporations, or a sale of all or substantially all of the
assets or stock of the Corporation, or a series of related
transactions in which more than fifty (50%) of the voting
power of the Corporation is disposed of, shall be deemed to be
a liquidation, dissolution or winding up within the meaning of
this Section 2.

c. Noncash Distributions. If any of the assets
of the Corporation are to be distributed other than in cash
under this Section 2 or for any purpose, then the Board of
Directors of the Corporation shall promptly engage independent
competent appraisers to determine the value of the assets to
be distributed to the holders of Designated Preferred Stock or
Common Stock. The Corporation shall, upon receipt of such
appraiser's valuation, give prompt written notice to each
holder of shares of Designated Preferred Stock or Common Stock
of the appraiser's valuation.

3. Voting Rights.

a. General Rights - Designated Preferred Stock.
The holder of each share of Designated Preferred Stock shall
be entitled to the number of votes equal to the number of
shares of Common Stock into which each share of Designated
Preferred Stock could be converted on a record date (as
adjusted from time to time pursuant to Section 4 below) for
the vote or consent of shareholders and, except as otherwise
required by law, shall have voting rights and powers equal to
the voting rights and powers of Common Stock. The holder of
each

4
<PAGE> 5
share of Designated Preferred Stock shall be entitled to
receive notice of any shareholders' meeting in accordance with
the bylaws of the Corporation and shall vote with holders of
the Common Stock upon the election of directors and upon any
other matter submitted to a vote of the shareholders, except
those matters required by law to be submitted to a class vote.
Fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which
shares of Designated Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number
(with one-half rounded upward to one).

b. Special Rights - Designated Preferred Stock.
Notwithstanding anything herein to the contrary, the holders
of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, voting together as a single class,
shall be entitled to elect one director and the holders of
Series D Preferred Stock, voting as a separate class, shall be
entitled to elect three (3) directors, to the Board of
Directors of the Corporation at any annual or special meeting
of the shareholders of the Corporation at which directors are
elected. No such director shall be removed from office
without the consent of the holders of a majority of Designated
Preferred Stock which elected such director.

c. Voting Rights - Common Stock. The holders of
shares of Common Stock shall be entitled to one vote per share
at each meeting of the stockholders of the Corporation on all
matters coming before the stockholders of the Corporation,
except as may be specifically provided otherwise in this
Section 3.

d. General Provisions. The manner of
establishing the number of directors to constitute the Board
of Directors and the procedures for electing directors shall
be as set forth in the Bylaws of the Corporation. There shall
be no cumulative voting in the election of directors.

e. Negative Covenants. In addition to any other
rights provided by law, the Corporation shall not, without
first obtaining the affirmative vote or written consent of a
majority of the shares of Series D Preferred Stock:

(1) amend or repeal any provision of the
Corporation's Articles of Incorporation or By-Laws,
including without limitation a change in the

5
<PAGE> 6
number of members of the Board of Directors of the
Corporation:

(2) authorize or effect the payment of dividends
or the redemption or repurchase of any capital stock
of the Corporation or rights to acquire capital stock
of the Corporation (other than the repurchase of
stock from employees of the Corporation or its
subsidiaries pursuant to repurchase rights under
vesting provisions related to the length of period of
employment of such employees at purchase prices
initially paid by such employees for such shares);

(3) authorize or effect the issuance by the
Corporation of any shares of capital stock or rights
to acquire capital stock other than (x) pursuant to
options, warrants, conversion or subscription rights
in existence on the initial date of issuance of the
Series D Preferred Stock or (y) pursuant to stock
option, stock bonus or other employee stock plans for
the benefit of the employees of the Corporation or
its subsidiaries in existence as of such date or
thereafter approved with the consent of the holders
of a majority of the then outstanding shares of
Series D Preferred Stock;

(4) authorize or effect (a) any sale, lease,
transfer or other disposition of all or substantially
all the assets of the Corporation; (b) any merger or
consolidation or other reorganization of the
Corporation with or into another corporation, (c) the
acquisition by the Corporation of another corporation
by means of a purchase of all or substantially all
the assets of such corporation, or (d) a liquidation,
winding up, dissolution or adoption of any plan for
the same; or

(5) enter into any transaction, other
than employment agreements on a basis consistent with
past practice, with any officer, director or
beneficial owner of five percent (5%) or more of the
Common Stock of the Corporation or any affiliate of
any of the foregoing.

f. No Amendment. The Corporation shall not
amend, alter or repeal the preferences, special rights or
other powers of any series of Designated Preferred Stock so as
to affect adversely such Designated Preferred Stock, without
the written consent or

6
<PAGE> 7
affirmative vote of the holders of at least 66-2/3% of the
then outstanding aggregate number of shares of such adversely
affected series of Designated Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class. For this purpose, the
authorization or issuance of any series of Preferred Stock
with preference or priority over, or being on a parity with
any series of Designated Preferred Stock as to the right to
receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation
shall be deemed so to affect adversely such series of
Designated Preferred Stock.

4. Conversion. The holders of Designated Preferred
Stock shall have conversion rights as follows (the "Conversion
Rights"):

a. Right of Conversion. Each issued and
outstanding share of Designated Preferred Stock shall be
convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the
Corporation or any transfer agent for Designated Preferred
Stock. Each such share shall be convertible into such number
of fully paid and nonassessable shares of Common Stock as is
determined by dividing $.60, in the case of Series A Preferred
Stock; $.72 in the case of Series B Preferred Stock; or $1.00,
in the case of Series C Preferred Stock and Series D Preferred
Stock, by the applicable Conversion Price as hereinafter
provided in effect at the time of conversion. The initial
Conversion Price of the Series A Preferred Stock shall be
$.60, the initial Conversion Price of the Series B Preferred
Stock shall be $.72, and the initial Conversion Price of the
Series C Preferred Stock and the Series D Preferred Stock
shall be $1.00; in each case subject to adjustment as
hereinafter provided. The number of shares of Common Stock
into which Designated Preferred Stock is convertible is
hereinafter collectively referred to as the "Conversion Rate".

b. Automatic Conversion.

(1) Each issued and outstanding share of
Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the
effective Conversion Rate for each series immediately
upon the earlier to occur of (i) the effectiveness of
a registration statement under the Securities Act of
1933, as amended, relating

7
<PAGE> 8
to a bona fide, firm commitment underwriting of the
Corporation's Common Stock ("Initial Public
Offering"), or (ii) subject to the provisions of
Section 2(b) above, a merger or consolidation of the
Corporation with or into another corporation in which
the Corporation is not a successor corporation, or a
sale of all or substantially all of the assets or
stock of the Corporation.

(2) Each issued and outstanding share of Series D
Preferred Stock shall automatically be converted into
shares of Common Stock at its then effective
Conversion Rate at any time upon the closing of an
underwritten public offering pursuant to an effective
registration statement under the Securities Act of
1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to
the public generally at a price to the public which
places upon the Corporation a value (prior to the
receipt of proceeds of such offering) of at least $60
million and in which the net proceeds to the
Corporation are not less than $20 million (herein
referred to as a "Qualified Public Offering"). In
addition, each issued and outstanding share of Series
D Preferred Stock shall automatically be converted
into shares of Common Stock at the then effective
Conversion Rate for such shares (i) upon the vote to
so convert of the holders of at least a majority of
the shares of Series D Preferred Stock then
outstanding or (ii) once at least a majority of the
shares of Series D Preferred Stock issued on the
original date of issuance of the Series D Preferred
Stock shall have been converted into Common Stock.

(3) Upon the closing of a Qualified
Public Offering: (i) the authorized shares of
Preferred Stock shall be 16,000,000 and then shall be
no authorized shares of Designated Preferred Stock
and (ii) all of the terms and conditions of Part C of
this Article 4 shall automatically terminate and be
of no further effect.

c. Mechanics of Conversion.

(1) Before any holder of Designated Preferred
Stock shall be entitled to convert the same into
shares of Common Stock pursuant to Section 4(a)
above, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent

8
<PAGE> 9
for the Designated Preferred Stock and shall give
written notice to the Corporation at such office that
he elects to convert the same. The Corporation
shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Designated
Preferred Stock a certificate or certificates for the
number of shares of Common Stock to which he shall be
entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the
close of business on the date of such surrender of
the shares of Designated Preferred Stock to be
converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the
record holder or holders of such shares of Common
Stock on such date.

(2) All holders of record of shares of Designated
Preferred Stock will be given at least 10 days' prior
written notice of the date fixed and the place
designated for mandatory conversion of all of such
shares of Designated Preferred Stock pursuant to
Section 4(b). Such notice will be sent by mail,
first class, postage prepaid, to each record holder
of shares of Designated Preferred Stock at such
holder's address appearing on the stock registrar.
On or before the date fixed for conversion, each
holder of shares of Designated Preferred Stock shall
surrender his or its certificate or certificates for
all such shares to the Corporation at the place
designated in such notice, and shall thereafter
receive certificates for the number of shares of
Common Stock to which such holder is entitled
pursuant to Section 4(b). On the date fixed for
conversion, all rights with respect to the Designated
Preferred Stock so converted will terminate, except
only the rights of the holders thereof, upon
surrender of their certificate or certificates
therefor, to receive certificates for the number of
shares of Common Stock into which such Designated
Preferred Stock has been converted and payment of any
accrued and unpaid dividends thereon. If so required
by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed
by the registered holder or by his attorneys duly
authorized in writing. All certificates evidencing
shares of Designated Preferred Stock which are
required to

9
<PAGE> 10
be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such
certificates are so required to be surrendered, be
deemed to have been retired and canceled and the
shares of Designated Preferred Stock represented
thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to
such date. As soon as practicable after the date of
such mandatory conversion and the surrender of the
certificate or certificates for Designated Preferred
Stock as aforesaid, the Corporation shall cause to be
issued and delivered to such holder, or on his or its
written order, a certificate or certificates for the
number of full shares of Common Stock issuable on
such conversion in accordance with the provisions
hereof and cash as provided in paragraph (d) of this
Section 4 in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.

d. Fractional Shares. The Corporation shall not
issue fractions of shares of Common Stock upon conversion of
Designated Preferred Stock or scrip in lieu thereof. If any
fraction of a share of Common Stock would, except for the
provisions of this Section 4(d), be issuable upon conversion
of any Designated Preferred Stock, the Corporation shall in
lieu thereof pay to the person entitled thereto an amount in
cash equal to the current value of such fraction, calculated
to the nearest one-hundredth (1/100) of a share, to be
computed (i) if the Common Stock is listed on any national
securities exchange on the basis of the last sales price of
the Common Stock on such exchange (or the quoted closing bid
price if there shall have been no sales) on the date of
conversion, or (ii) if the Common Stock shall not be listed,
on the basis of the mean between the closing bid and asked
prices for the Common Stock on the date of conversion as
reported by Nasdaq Stock Market, or its successor, and if
there are not such closing bid and asked prices, on the basis
of the fair market value per share as determined by the Board
of Directors of the Corporation.

e. Adjustment of Conversion Price. The
Conversion Price applicable to any series of Designated
Preferred Stock shall be subject to adjustment from time to
time as follows:

10
<PAGE> 11
(1) Certain Issuances of Equity Stock. If, at
any time after the issuance of shares of Series A Preferred
Stock, the Corporation shall issue any common stock, preferred
stock, or other equity that as part of a unit or otherwise
includes Common Stock or Preferred Stock or options, warrants,
rights or convertible securities which are exercisable or
convertible into Common Stock, Preferred Stock, or other
equity security (hereinafter, "Equity Stock"), other than
Excluded Stock (as defined herein) for a consideration per
share less than the Conversion Price immediately prior to such
issuance for any series of Designated Preferred Stock, the
Conversion Price for the series of Designated Preferred Stock
so affected shall immediately be reduced to a price per share
equal to the price determined by dividing (x) an amount equal
to the sum of (i) the number of shares of Equity Stock of the
Corporation outstanding immediately prior to such issue or
sale multiplied by the then-existing Conversion Price for such
series of Designated Preferred Stock and (ii) the
consideration, if any, received by the Corporation upon such
issue or sale, by (y) the total number of shares of Equity
Stock of the Corporation outstanding immediately after such
issue or sale. The number of shares of Equity Stock
outstanding at any given time for the purpose of the foregoing
computation means the shares thereof actually outstanding, the
shares thereof previously outstanding that have been
reacquired by the Corporation and constitute treasury shares,
and the shares thereof issuable in respect of outstanding
script certificates issued in lieu of fractions of shares of
Equity Stock.

The number of shares of Common Stock deliverable upon
the exercise of the conversion privilege shall be increased in
the ratio which the Conversion Price existing just prior to
the adjustment made provided above bears to the Conversion
Price existing immediately after such adjustment.

For the purpose of any adjustment of the Conversion
Price pursuant to this Section (4)(e)(1) the following
provisions shall be applicable:

(a) Cash. In the case of the issuance
of shares of Equity Stock for cash, the amount of the
consideration received by the Corporation shall be
deemed to be the amount of the cash proceeds received
by the Corporation for such shares of Equity Stock
after deducting therefrom any reasonable discounts,
commissions, taxes or other expenses allowed, paid or
incurred by the

11
<PAGE> 12
Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.

(b) Consideration Other Than Cash. In
the case of the issuance of shares of Equity Stock
(otherwise than upon the conversion of shares of
capital stock or other securities of the corporation)
for a consideration in whole or in part other than
cash, including securities acquired in exchange
therefor (other than securities by their terms so
exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as
determined by the Board of Directors of the
Corporation, irrespective of any accounting
treatment; provided, however, that such fair value as
determined by the Board of Directors shall not exceed
the aggregate Current Market Price of the shares of
Equity Stock being issued as of the date the Board of
Directors authorizes the issuance of such shares.

(c) Options and Convertible Securities.
In the case of (i) options, warrants or other rights
to purchase or acquire Common Stock (whether or not
at the time exercisable), (ii) securities by their
terms convertible into or exchangeable for Common
Stock (whether or not at the time so convertible or
exercisable) or (iii) options, warrants or rights to
purchase such convertible or exchangeable securities
(whether or not at the time exercisable):

i) the aggregate maximum number of
shares of Common Stock deliverable upon
exercise of such options, warrants or other
rights to purchase or acquire Common Stock
shall be deemed to have been issued at the
time such options, warrants or rights were
issued and for a consideration equal to the
consideration (determined in the manner
provided in Section 4(e)(1)(a) and (b) above,
if any), received by the Corporation upon the
issuance of such options, warrants or rights
plus the minimum purchase price provided in
such options, warrants or rights for the
Equity Stock covered thereby;

ii) the aggregate maximum number of
shares of Common Stock deliverable upon
conversion of or in exchange for any such
convertible or exchangeable securities,or

12
<PAGE> 13
upon the exercise of options, warrants or
other rights to purchase or acquire such
convertible or exchangeable securities and
the subsequent conversion or exchange
thereof, shall be deemed to have been issued
at the time such securities and related
options, warrants or rights were issued and
for a consideration equal to the
consideration, if any, received by the
Corporation upon the issuance of such
securities and related options, warrants or
rights (excluding any cash received on
account of accrued interest or accrued
dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange
of such securities and the exercise of any
related options, warrants or rights (the
consideration in each case to be determined
in the manner provided in Sections
(4)(e)(1)(a) and (b) above);

iii) on any change in the number of
shares of Common Stock deliverable upon
exercise of any such options, warrants or
rights or conversion of or exchange for such
convertible or exchangeable securities or any
change in consideration to be received by the
Corporation upon such exercise, conversion or
exchange, including, but not limited to, a
change resulting from the anti-dilution
provisions thereof, the Conversion Price as
then in effect for each series of Designated
Preferred Stock shall forthwith be readjusted
to such Conversion Price as would have been
obtained had an adjustment been made upon the
issuance of such options, warrants, or rights
not exercised prior to such change, on the
basis of such change;

iv) on the expiration or cancellation of
any such options, warrants or rights, or the
termination of the right to convert or
exchange such convertible or exchangeable
securities, if the Conversion Price for any
series of Designated Preferred Stock shall
have been adjusted upon the issuance thereof,
the Conversion Price as would have been
obtained had an adjustment been made upon the
issuance of such options, warrants, rights or
securities on the basis of the issuance of
only the number of shares of Common Stock

13
<PAGE> 14
actually issued upon the exercise of such
options, warrants or rights, or upon the
conversion or exchange of such securities;
and

v) if the Conversion Price for any
series of Designated Preferred Stock shall
have been adjusted upon the issuance of any
such options, warrants, rights or convertible
or exchangeable securities, no further
adjustment of the Conversion Price for such
series shall be made for the actual issuance
of Equity Stock upon the exercise, conversion
or exchange thereof;

provided, however, that no increase in the Conversion
Price for any series of Designated Preferred Stock
shall be made pursuant to Section (4) (e)(1)(c)(i),
(ii) or (iii) above.

(2) Excluded Stock. "Excluded Stock" shall mean (A)
shares of Common Stock issued or reserved for issuance by the
Corporation as a stock dividend payable in shares of Common
Stock, or upon any subdivision or split-up of the outstanding
shares of Common Stock, or upon conversion of shares of
Designated Preferred Stock; (B) shares of Common Stock to be
issued to employees, officers, consultants and directors of
the Corporation pursuant to stock options, employee benefit
plans, or otherwise, in each case as approved by the
Corporation's Board of Directors; and (C) any shares of
capital stock of the Corporation issued or to be issued upon
exercise of any stock purchase warrants or options outstanding
on the date hereof.

(3) Adjustments for Certain Events. For purposes of this
Section 4, the following provisions shall apply:

a)) Adjustments for Stock Split, Stock
Dividend, Combination, or Reclassification.

In the event the outstanding shares of Common
Stock shall be subdivided (by stock split, stock
dividend or otherwise), into a greater number of
shares of Common Stock, the Conversion Price then in
effect for each series of Designated Preferred Stock
shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the
event the outstanding shares of Comon Stock shall be
combined or consolidated, by reclassification or
otherwise, into a lesser

14
<PAGE> 15
number of shares of Common Stock, the Conversion
Price then in effect for each series of Designated
Preferred Stock shall, concurrently with the
effectiveness of such combination or consolidation,
be proportionately increased.

b)) Adjustment for Other Distributions.

In the event the Corporation at any time and
from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled
to receive, any distribution payable in securities of
the Corporation other than shares of Common Stock and
other than as otherwise adjusted in this Section 4,
then and in each such event provision shall be made
so that the holders of Designated Preferred Stock
shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable
thereupon, the amount of securities of the
Corporation which they would have received had their
shares of Designated Preferred Stock been converted
into Common Stock on the date of such event and had
they thereafter, during the period from the date of
such event to and including the date of conversion,
retained such securities receivable by them as
aforesaid during such period, subject to all other
adjustments called for during such period under this
Section 4 with respect to the rights of the holders
of the Designated Preferred Stock.

c)) Adjustment for Reclassification,
Exchange and Substitution.

If the Common Stock issuable upon conversion
of Designated Preferred Stock shall be changed into
the same or a different number of shares of any other
class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other
than a subdivision, combination or consolidation of
shares provided for above), the Conversion Price then
in effect for each series of Designated Preferred
Stock shall, concurrently with the effectiveness of
such reorganization or reclassification, be
proportionately adjusted such that Designated
Preferred Stock shall be convertible into, in lieu of
the number of shares of Common Stock which the holder
would otherwise have been entitled to receive, a
number of shares of such other class or classes of
stock equivalent to the number of shares of Common
Stock that would have been

15
<PAGE> 16
subject to receipt by the holders upon conversion of
such shares of Designated Preferred Stock immediately
before that change.

d)) Mergers; Consolidations; Sale of Assets.

In the event of the merger or consolidation
of the Corporation with or into any other corporation
or corporations or the merger of any other
corporation or corporations into the Corporation
(other than a merger or consolidation in which the
Corporation survives and its stockholders do not
receive distributions of securities or other property
(including cash) as a result of the merger or
consolidation), or the sale or conveyance of all or
substantially all of the assets of the Corporation,
the Corporation shall cause effective provision to be
made so that Designated Preferred Stock of each
series shall thereafter be convertible into the kind
and amount of shares of stock or other securities or
property (including cash) held immediately after such
merger or consolidation by a holder of the number of
shares of Common Stock which might have been acquired
by a holder of shares of Designated Preferred Stock
if such Designated Preferred Stock had been converted
immediately prior to such merger, consolidation, sale
or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments
provided for herein.

(4) Rounding of Calculations: Minimum Adjustment. All
calculations under this Section (4)(e) shall be made to the
nearest cent or to the nearest one hundredth (1/100th) of a
share, as the case may be. Any provision of this Section
(4)(e) to the contrary notwithstanding, no adjustment in the
Conversion Price for Designated Preferred Stock shall be made
in the amount of such adjustment would be less than $0.01, but
any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such
amount and any other amount of amounts so carried forward,
shall aggregate $0.01 or more.

f. No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer

16
<PAGE> 17
of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to
avoid the observance of performance of any of the terms to be
observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such
actions as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of Designated Preferred
Stock against impairment.

g. Current Market Price. The Current Market
Price at any date shall mean the price per share of Common
Stock on such date determined by the Board or Directors as
provided below. The Current Market Price shall be the average
of the daily closing prices per share of Common Stock for
twenty (20) consecutive business days ending on the day in
question (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such
twenty (20) business day period). The closing price for each
day shall be the last reported sales price regular way or, in
case no such reported sales took place on such day, the
average of the last reported bid and asked prices regular way,
in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or
if not listed or admitted to trading on any national
securities exchange, the average of the highest bid and the
lowest asked prices quoted on the Nasdaq Stock Market;
provided, however, that if the Common Stock is not traded in
such manner that the quotations referred to above are not
available for the period required hereunder, Current Market
Price per share of Common Stock shall be deemed to be the fair
value as determined by the Board of Directors of the
Corporation, irrespective of any accounting treatment.

h. Statement Regarding Adjustments. Whenever
the Conversion Price for any series of Designated Preferred
Stock shall be adjusted as provided in Section (4)(e) above,
the Corporation shall forthwith file, at the office of any
transfer agent for Designated Preferred Stock so affected and
at the principal office of the Corporation, a statement
showing in detail the facts requiring such adjustment and the
Conversion Price in effect for such series after adjustment
and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each
holder of shares of Designated Preferred Stock so affected, at
its address appearing on the Corporation's records.

17
<PAGE> 18
i. Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes
attributable to the issuance or delivery of shares of Common
Stock; provided, however, that the Corporation shall not be
required to pay any taxes which may be payable in respect of
any transfer involved of any certificate for such shares in a
name other than that of the holder of the shares of Designated
Preferred Stock in respect of such shares in a name other than
that of the holder of the shares of Designated Preferred Stock
in respect of which such shares are being issued on or any
federal or state taxes or any gain or income recognized in
such transaction, if any.

j. Reservation of Shares. The Corporation shall
reserve at all times as long as any shares of Designated
Preferred Stock remain outstanding, free from preemptive
rights, out of its treasury stock or its authorized but
unissued shares of Common Stock, or both, solely for the
purpose of effecting the conversion of the shares of
Designated Preferred Stock, sufficient shares of Common Stock
to provide for the conversion of all outstanding shares of
Designated Preferred Stock.

k. Valid Issuance. All shares of Common Stock
that may be issued upon conversion of the shares of Designated
Preferred Stock will upon issuance by the Corporation be duly
and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance
thereof and the Corporation shall take no action which will
cause a contrary result (including without limitation, any
action which would cause the Conversion Price for Designated
Preferred Stock to be less than the par value, if any, of the
Common Stock).

l. Notice of Capital Changes. If at any time
the Corporation shall offer for subscription pro rata to the
holders of shares of Designated Preferred Stock or Common
Stock any additional shares of stock of any class, other
rights or any equity security of any kind, or there shall be
any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all of substantially all of its
assets to, another company or there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the
Corporation, then, in any one or more of said cases, the
Corporation shall give the registered holders of the shares of
Designated

18
<PAGE> 19
Preferred Stock written notice, by registered or certified
mail, postage prepaid, of the date on which (i) a record shall
be taken for such subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify the date as
of which the holders of record of shares of Designated
Preferred Stock or Common Stock shall participate in such
subscription rights, or shall be entitled to exchange their
shares of Designated Preferred Stock or Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be.
Such written notice shall be given at least twenty (20) days
prior to the action in question and not less than twenty (20)
days prior to the record date in respect thereto.

m. Notice of Record Date. In the event of any
taking by the Corporation of a record of the holders of any
class of securities for the purpose or determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property or to receive any
other right, the Corporation shall mail to each holder of
Designated Preferred Stock at least twenty (20) days prior to
such record date, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend or
distribution or right, and the amount and character of such
dividend, distribution or right.

n. Notices. Any notice required by the
provisions of this Section 4 to be given to the holder of
shares of Designated Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on
the books of the Corporation.

5. Residual Rights. Subject to all the rights of
Designated Preferred Stock or any other series of Preferred Stock, and
on the conditions set forth in this Article 3 or in any resolution of
the Board of Directors providing for the issuance of any other series
of Preferred Stock, and except as provided hereinabove with respect to
the Common Stock, the holders of the Common Stock shall be entitled to
all other rights normally held by shareholders of a corporation.

19
<PAGE> 20
6. Covenants.

a. Information Rights. The Corporation shall, so long
as a total of at least 200,000 shares of Designated Preferred Stock in
the aggregate remain outstanding, mail or deliver to each person or
entity owning Designated Preferred Stock or Common Stock acquired upon
conversion of Designated Preferred Stock.

i) As soon as practicable after the end of each
fiscal year, and in no event later than 120 days after the end
of each fiscal year, consolidated balance sheets of the
Corporation and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income and
cash flow of the Corporation and its subsidiaries, if any, for
such year, prepared in accordance with generally accepted
accounting principles consistently applied during the periods
covered thereby and setting forth in each case in comparative
form the figures for the previous fiscal year, all in
reasonable detail and (if authorized by the Board of
Directors) audited by independent public accountants of
nationally recognized standing selected by the Corporation
certifying that all covenants to be complied with by the
Corporation have been complied with (or setting forth in
reasonable detail any covenants that have not been so complied
with).

b. Rights of Inspection. For so long as a holder of
shares of Designated Preferred Stock is eligible to receive reports
under Section 6(a), such holder shall also have the right, at the
holder's expense, to visit and inspect any of the properties, books
and records of the Corporation or any of its subsidiaries, to make
copies and extracts of such books and records and to discuss the
affairs, finances and accounts of the Corporation and its
subsidiaries, with their officers, all at such reasonable times and as
often as may be reasonably requested, excluding, however, any secret,
proprietary, or otherwise sensitive information (as determined by the
Company), which information may be reviewed by the holder, but only
after the execution of the appropriate non-compete/non-disclosure
agreements between the holder and the Corporation.

7. Waiver. The observance of any term relating to
Designated Preferred Stock may be amended or waived either generally
or in a particular instance (and either retroactively or
prospectively) only with the vote or written consent of holders of at
least two-thirds (2/3) of the then outstanding shares of Designated
Preferred Sock, voting together as one class, unless any such
amendment or waiver adversely affects the shares of a particular
series

20
<PAGE> 21
of Designated Preferred Stock as compared to the shares of any other
outstanding series of Designated Preferred Stock, in which event the
vote or written consent of holders of at least two-thirds (2/3) of the
then outstanding shares of the series of Designated Preferred Stock so
affected shall be required. Any amendment or waiver so effected shall
be binding upon the Corporation and any holder of Designated Preferred
Stock.

ARTICLE 5

Incorporator

The name and mailing address of the incorporator making this
Certificate of Incorporation are:

<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Eric B. Hale 265 East 100 South, Suite 220
Salt Lake City, Ut 84111-1616
</TABLE>

ARTICLE 6

Board of Directors

The Board of Directors of this corporation shall consist of a number
of directors to be fixed from time to time by the stockholders or the by-laws.
The business and affairs of this corporation shall be managed by the Board of
Directors, which may exercise all such powers of this corporation and do all
such lawful acts and things as are not by law directed or required to be
exercised or done only by the stockholders.

ARTICLE 7

Name Initial Board of Directors

The initial Board of Directors of this corporation shall consist of
two members, such members to hold office until their successors have been duly
elected and qualify. The names and mailing addresses of the initial directors
are:

<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Eric B. Hale 265 East 100 South, Suite 220
Salt Lake City, Ut 84111-1616

Gregory S. Ayers 265 East 100 South, Suite 220
Salt Lake City, Ut 84111-1616
</TABLE>

21
<PAGE> 22

ARTICLE 8

By-Laws

In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the corporation.

ARTICLE 9

Meetings of Stockholders

Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the corporation may provide. The books of the
corporation may be kept outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation. The stockholders of the corporation may not act by
written consent, unless such written consent constitutes the unanimous consent
of all stockholders.

ARTICLE 10

Amendment of Certificate of Incorporation

This corporation reserves the right to amend, alter, change, or repeal
any provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by the laws of the State of Delaware statue, and all
rights conferred upon the stockholders herein are subject to this reservation.

ARTICLE 11

Indemnification

The corporation shall indemnify, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as amended from time to
time, all persons who it may indemnify pursuant thereto. The personal
liability of a director of the corporation to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
shall be limited to the fullest extent permitted by the General Corporation Law
of the State of Delaware, as it now exists or may hereafter be amended. Any
repeal or modifications of this paragraph by the stockholders of the
corporation shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification.

22
<PAGE> 23
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, do make this certificate hereby declaring and
certifying that this is my act and deed and the facts stated herein are true,
and accordingly have hereunto set my hand on the _____ day of October, 1996.

___________________________________
ERIC B. HALE

<PAGE> 1
Exhibit 3.2

RESTATED CERTIFICATE OF INCORPORATION
OF
UROQUEST MEDICAL CORPORATION

The Certificate of Incorporation of UroQuest Medical Corporation,
originally filed October _____, 1996, is hereby restated as follows:

ARTICLE 1

Name

The name of the corporation shall be:

UroQuest Medical Corporation

ARTICLE 2

Registered Office and Agent

ARTICLE 3

ARTICLE 4

CAPITAL STOCK

A. Authorized Capitalization. The total number of shares of all
classes of stock which the Corporation shall have authority to issue is
47,000,000 shares, $.001 par value, divided into the following: (i) 16,000,000
shares of Preferred Stock ("Preferred Stock") and (ii) 31,000,000 shares of
Common Stock ("Common Stock").

B. Preferred Stock. The shares of Preferred Stock may be issued
from time to time in one or more series. The Board of Directors is hereby
vested with authority to fix by resolution or resolutions the designations and
the powers, preferences and relative, participating, optional or
<PAGE> 2
other special rights, and qualifications, limitations, or restrictions thereof,
including without limitation, the dividend rate, conversion rights, redemption
price and liquidation preference, or any series of shares of Preferred Stock,
and to fix the number of shares constituting any such series, and to increase
or decrease the number of shares of any such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof outstanding). In case the number of shares of any such series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution or resolutions
originally fixing the number of shares of such series.

ARTICLE 5

Board of Directors

ARTICLE 6

By-Laws

In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the corporation is expressly authorized to
make, alter or repeal the Bylaws of the corporation.

ARTICLE 7

Meetings of Stockholders

2
<PAGE> 3
ARTICLE 8

Amendment of Certificate of Incorporation

This corporation reserves the right to amend, alter, change, or repeal
any provisions contained in this Restated Certificate of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Delaware statue,
and all rights conferred upon the stockholders herein are subject to this
reservation.

ARTICLE 9

Indemnification

THE UNDERSIGNED, being the President of UroQuest Medical Corporation,
declares and certifies that this Restated Certificate of Incorporation has been
duly adopted in accordance with the Section 245 of the Delaware General
Corporation Law and that this is my act and deed and the facts stated herein
are true, and accordingly have hereunto set my hand on the _____ day of
____________, 1996.

___________________________________
ERIC B. HALE

<PAGE> 1

Exhibit 3.3

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

BYLAWS

UROQUEST MEDICAL CORPORATION

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

ARTICLE I.

Offices and Agent

1. Principal Office. The principal office of the
Corporation may be located within or without the State of Delaware, as
designated by the board of directors. The Corporation may have other offices
and places of business at such places within or without the State of Delaware
as shall be determined by the directors.

2. Registered Office and Agent. The Corporation shall
have and maintain at all times (a) a registered office in the State of
Delaware, which office shall be located at 1013 Centre Road, Wilmington,
Delaware 19805, and (b) a registered agent located at such address whose name
is Corporation Service Company, until changed from time to time as provided by
the General Corporation Law of the State of Delaware ("Delaware Corporation
Law").

ARTICLE II.

Stockholders Meetings

1. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly be brought before the meeting shall be held on such date and at
such time as determined by resolution of the board of directors. If, at the
place of the meeting, this date shall fall upon a legal holiday, then such
meeting shall be held on the next succeeding business day at the same hour. If
no annual meeting is held in accordance with the foregoing provisions, the
board of directors shall cause the meeting to be held as soon thereafter as
convenient. If no annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu of the annual
<PAGE> 2
meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these Bylaws to the annual meeting of stockholders shall be
deemed to refer to such special meeting.

2. Special Meetings. Special meetings of the
stockholders of the Corporation may be called for any purpose at any time by
the president, shall be called by the secretary if directed by the board of
directors and shall be called by the president upon the written request of
holders of shares entitled to cast not less than ten percent of the votes
entitled to notice of and to vote at such special meeting. Such written
request shall specify the purpose or purposes of, and a proposed date for, the
meeting and shall be delivered to the president. Upon receipt of such written
request, the president shall fix a date and time for such meeting, which such
date shall be within ten business days of the proposed date specified in the
written request.

3. Place of Meetings. All meetings of stockholders of
the Corporation shall be held within or without the State of Delaware as may be
designated by the board of directors or the president, or, if not designated,
at the registered office of the Corporation.

4. Notice of Meeting. Except as otherwise provided in
these Bylaws or the Delaware Corporation Law, written notice of any meeting of
stockholders stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose for which the meeting is called, shall be
delivered either personally or by mail to each stockholder of record entitled
to vote at such meeting not less than ten (10) nor more than sixty (60) days
before the date of the meeting, by or at the direction of the board of
directors, the president or the secretary. If mailed, such notice shall be
deemed to be delivered as to any stockholder of record when deposited in the
United States mail addressed to the stockholder at his address as it appears on
the stock transfer books of the Corporation, with postage prepaid. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.

5. Waiver of Notice. Any stockholder, either before or
after any stockholders' meeting, may waive in writing notice of the meeting,
and his waiver shall be deemed the equivalent of giving notice. Attendance at
a meeting by a stockholder shall constitute a waiver of notice, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.

6. Fixing of Record Date. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights

-2-
<PAGE> 3
in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the board of directors of the Corporation may fix, in
advance, a record date which shall be not more than sixty (60) days nor less
than ten (10) days prior to the date of such meeting, nor more than sixty (60)
days prior to any other action. If no record date is fixed, the record date
for determining the stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. The record
date for determining the stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is necessary, shall be the day on which the first written consent is
expressed. The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.

7. Stockholders List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, at a place
within the city where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.

8. Proxies. A stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. No proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period.

9. Voting Rights. Each stockholder shall have one vote
for each share of stock entitled to vote held of record by such stockholder and
a proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation.

Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.

If shares having voting power stand of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety, or otherwise, or if two or
more persons have the same fiduciary relationship respecting

-3-
<PAGE> 4
the same shares, unless the secretary of the Corporation is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect: (i) if only one
votes, his act binds all; (ii) if more than one vote, the act of the majority
so voting binds all; and (iii) if more than one vote, but the vote is evenly
split on any particular matter, each fraction may vote the securities in
question proportionately, or any person voting the shares or a beneficiary, if
any, may apply to the Court of Chancery or any court of competent jurisdiction
in the State of Delaware to appoint an additional person to act with the
persons so voting the shares. The shares shall then be voted as determined by
a majority of such persons and the person appointed by the Court. If a tenancy
is held in unequal interests, a majority or even-split for the purpose of this
subsection shall be a majority or even-split in interest.

10. Quorum and Required Vote. Except as otherwise
provided by law, the Certificate of Incorporation or these Bylaws, the holders
of a majority of the shares entitled to vote at the meeting, present in person
or by proxy, shall constitute a quorum for the transaction of business. If a
quorum is present, the affirmative vote of a majority of the shares present or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, and, if there are two or more classes of
stock entitled to vote as separate classes, then, in the case of each such
class, the affirmative vote of a majority of the shares of that class present
or represented by proxy at the meeting shall be the vote of such class unless a
different vote is required by an express provision of law, the Certificate of
Incorporation or these Bylaws.

11. Informal Action By Stockholders. Except as otherwise
provided in the Certificate of Incorporation, any action required by the
provisions of Delaware Corporation Law to be taken or any action which may be
taken at a stockholders' meeting may be taken without a meeting without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous consent shall be given to those stockholders
who have not consented in writing. Any action taken pursuant to such written
consent of the stockholders shall have the same force and effect as if taken by
the stockholders at a meeting thereof.

ARTICLE III.

Board of Directors

1. Number, Qualifications and Term of Office. Except as
otherwise provided in the Certificate of Incorporation or the Delaware
Corporation Law, the business and affairs of the Corporation shall be managed
by or under the direction of a board of directors consisting of one or more
members. Directors need not be stockholders of the Corporation. The board of

-4-
<PAGE> 5
directors, by resolution, may increase or decrease the number of directors from
time to time. Except as otherwise provided in these Bylaws, each director
shall be elected at each annual meeting of stockholders and shall hold such
office until the next annual meeting of stockholders and until his successor
shall be elected and shall qualify. No decrease in the number of directors
shall have the effect of shortening the term of any incumbent director.

2. Vacancies. Unless and until filled by the
stockholders of the Corporation, any vacancy in the board of directors, however
occurring, including a vacancy resulting from an enlargement of the board, may
be filled by vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
and a director chosen to fill a position resulting from an increase in the
number of directors shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualified, or until his
earlier death, resignation or removal.

3. Resignation. Any director may resign by delivering
his written resignation to the Corporation at its principal office addressed to
the president or secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the happening
of some other event.

4. Removal. Except as otherwise provided in the
Certificate of Incorporation or the Delaware Corporation Law, any director or
the entire board of directors may be removed with or without cause by the
holders of a majority of the shares then entitled to vote at an election of
directors.

5. Compensation. Directors may be paid such
compensation for their services and such reimbursements for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.

ARTICLE IV.

Meetings of the Board

1. Place of Meetings. The regular or special meetings
of the board of directors or any committee designated by the board shall be
held at the principal office of the Corporation or at any other place within or
without the State of Delaware that a majority of the board of directors or any
such committee, as the case may be, may designate from time to time by
resolution.

2. Regular Meetings. The board of directors shall meet
each year immediately after and at the same place as the annual meeting of the
stockholders for the purpose of electing

-5-
<PAGE> 6
officers and transacting such other business as may come before the meeting.
The board of directors or any committee designated by the board may provide, by
resolution, for the holding of additional regular meetings within or without
the State of Delaware without notice of the time and place of such meeting
other than such resolution; provided that any director who is absent when such
resolution is made shall be given notice of said resolution.

3. Special Meetings. Special meetings of the board of
directors or any committee designated by the board may be held at any time and
place, within or without the State of Delaware, designated in a call by the
chairman of the board, if any, by the president or by a majority of the members
of the board of directors or any such committee, as the case may be.

4. Notice of Special Meetings. Except as otherwise
provided by these Bylaws or the laws of the State of Delaware, written notice
of each special meeting of the board of directors or any committee thereof
setting forth the time and place of the meeting shall be given to each director
by the secretary or by the officer or director calling the meeting not less
than twenty four (24) hours prior to the time fixed for the meeting. Notice of
special meetings may be either given personally, personally by telephone, or by
sending a copy of the notice through the United States mail or by telegram,
telex or telecopy, charges prepaid, to the address of each director appearing
on the books of the Corporation. If such notice be given by mail or telegram,
such notice shall be deemed to be delivered when received by the recipient.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the board of directors need be specified in the notice or
waiver of notice of such meeting.

5. Waiver of Notice. A director may waive, in writing,
notice of any special meeting of the board of directors or any committee
thereof, either before, at, or after the meeting; and his waiver shall be
deemed the equivalent of giving notice. By attending or participating in a
regular or special meeting, a director waives any required notice of such
meeting unless the director, at the beginning of the meeting, objects to the
holding of the meeting or the transacting of business at the meeting.

6. Quorum and Action at Meeting. At meetings of the
board of directors or any committee designated by the board, a majority of the
total number of directors, or a majority of the members of any such committee,
as the case may be, shall constitute a quorum for the transaction of business.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such
director so disqualified; provided, however, that in no case shall less than
one-third (1/3) of the number so fixed constitute a quorum. If a quorum is
present, the act of the majority of directors in attendance shall be the act of
the board of directors or any committee thereof, as the case may be, unless the
act of a greater number is required by these Bylaws, the Certificate of
Incorporation or Delaware Corporation Law. If a quorum shall not be present at
any meeting of the board of directors, the directors present thereat may
adjourn that meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.

-6-
<PAGE> 7
7. Presumption of Assent. A director who is present at
a meeting of the board or a committee thereof when action is taken is deemed to
have assented to the action taken unless: (i) he objects at the beginning of
such meeting to the holding of the meeting or the transacting of business at
the meeting; (ii) he contemporaneously requests that his dissent from the
action taken be entered in the minutes of such meeting; or (iii) he gives
written notice of his dissent to the presiding officer of such meeting before
its adjournment or to the secretary of the corporation immediately after
adjournment of such meeting. The right of dissent as to a specific action
taken at a meeting of a board or a committee thereof is not available to a
director who votes in favor of such action.

8. Committees. The board of directors may, by a
resolution passed by a majority of the whole board of directors designate one
or more committees, each committee to consist of one or more of the directors
of the Corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members of the committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of the absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors
and subject to the provisions of Delaware Corporation Law, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all such papers which may require
it. Each such committee shall keep minutes and make such reports as the board
of directors may from time to time request. Except as the board of directors
may otherwise determine, any committee may make rules for the conduct of its
business, but, unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these Bylaws for the board of directors.

9. Informal Action by Directors. Except as otherwise
provided in the Certificate of Incorporation, any action required or permitted
by the Delaware Corporation Law to be taken at any meeting of the board of
directors or any committee thereof may be taken without a meeting if all
members of the board or committee, as the case may be, consent to the action in
writing, and the written consents are filed with the minutes of proceedings of
the board or committee.

10. Telephonic Meetings. Directors or any members of any
committee designated by the board may participate in a meeting of the board or
committee by means of a conference telephone or similar communications
equipment by which all persons participating in the meeting can hear each other
at the same time. Such participation shall constitute presence in person at
the meeting.

-7-
<PAGE> 8
ARTICLE V.

Officers and Agents

1. Enumeration, Election and Term. The officers of the
Corporation shall consist of a president, a secretary, a treasurer and such
other officers with such other titles as may be deemed necessary or desirable
by the board of directors, including one or more vice presidents, assistant
treasurers and assistant secretaries and a chairman of the board. Any number
of offices may be held by the same person and no officer need be a stockholder
or a resident of the State of Delaware. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, each officer shall hold
office until his successor is elected and qualified or until his earlier death,
resignation or removal. The officers of the Corporation shall be elected
annually by the board of directors at the first meeting of the board held after
each annual meeting of the stockholders.

2. General Duties. All officers and agents of the
Corporation, as between themselves and the Corporation, shall have such
authority and shall perform such duties in the management of the Corporation as
may be provided in these Bylaws or as may be determined by resolution of the
board of directors not inconsistent with these Bylaws. In all cases where the
duties of any officer, agent or employee are not prescribed by the Bylaws or by
the board of directors, such officer, agent or employee shall follow the orders
and instructions of the president.

3. Vacancies. The board of directors may fill any
vacancy occurring in any office for any reason and may, in its discretion,
leave any vacancy unfilled for such period as it may determine other than a
vacancy in the office of president or secretary. The officer so selected
shall hold office until his successor is elected and qualified or until his
earlier death, resignation or removal.

4. Compensation. The board of directors from time to
time shall fix the compensation of the officers of the Corporation. The
compensation of other agents and employees of the Corporation may be fixed by
the board of directors, or by any committee designated by the board or by an
officer to whom that function has been delegated by the board.

5. Resignation and Removal. Any officer may resign by
delivering his written resignation to the Corporation at its principal office
addressed to the president or secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any officer or agent of the Corporation may
be removed, with or without cause, by a vote of the majority of the members of
the board of directors whenever in its judgment the best interests of the
Corporation may be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or an agent shall not of itself create contract
rights.

-8-
<PAGE> 9
6. Chairman of the Board. The chairman of the board, if
any, shall preside as chairman at meetings of the stockholders and the board of
directors. He shall, in addition, have such other duties as the board may
prescribe that he perform. At the request of the president, the chairman of
the board may, in the case of the president's absence or inability to act,
temporarily act in his place. In the case of death of the president or in the
case of his absence or inability to act without having designated the chairman
of the board to act temporarily in his place, the chairman of the board shall
perform the duties of the president, unless the board of directors, by
resolution, provides otherwise. If the chairman of the board shall be unable
to act in place of the president, the vice presidents may exercise such powers
and perform such duties as provided in Section 8 below.

7. President. The president shall be the chief
executive officer of the Corporation and shall have general supervision of the
business of the Corporation. In the event the position of chairman of the
board shall not be occupied or the chairman shall be absent or otherwise unable
to act, the president shall preside at meetings of the stockholders and
directors and shall discharge the duties of the presiding officer. At each
annual meeting of the stockholders, the president shall give a report of the
business of the Corporation for the preceding fiscal year and shall perform
whatever other duties the board of directors may from time to time prescribe.

8. Vice Presidents. Each vice president shall have such
powers and perform such duties as the board of directors may from to time
prescribe or as the president may from time to time delegate to him. At the
request of the president, in the case of the president's absence or inability
to act, any vice president may temporarily act in his place. In the case of
the death of the president, or in the case of his absence or inability to act
without having designated a vice president or vice presidents to act
temporarily in his place, the board of directors, by resolution, may designate
a vice president or vice presidents to perform the duties of the president. If
no such designation shall be made, the chairman of the board of directors, if
any, shall exercise such powers and perform such duties, as provided in Section
7 above, but if the Corporation has no chairman of the board of directors, or
if the chairman is unable to act in place of the president, all of the vice
presidents may exercise such powers and perform such duties.

9. Secretary. The secretary shall keep or cause to be
kept in books provided for that purpose, the minutes of the meetings of the
stockholders, executive committee, if any, and any other committees, and of the
board of directors; shall see that all notices are duly given in accordance
with the provisions of these Bylaws and as required by law; shall be custodian
of the records and of the seal of the Corporation and see that the seal is
affixed to all documents, the execution of which on behalf of the Corporation
under its seal is duly authorized and in accordance with the provisions of
these Bylaws; and, in general, shall perform all duties incident to the office
of secretary and such other duties as may, from time to time, be assigned to
him by the board of directors or by the president. In the absence of the
secretary or his inability to act, the assistant secretaries, if any, shall act
with the same powers and shall be subject to the same restrictions as are
applicable to the secretary.

-9-
<PAGE> 10
10. Treasurer. The treasurer shall have custody of
corporate funds and securities. He shall keep full and accurate accounts of
receipts and disbursements and shall deposit all corporate monies and other
valuable effects in the name and to the credit of the Corporation in the
depository or depositories of the Corporation, and shall render an account of
his transactions as treasurer and of the financial condition of the Corporation
to the president and/or the board of directors upon request. Such power given
to the treasurer to deposit and disburse funds shall not, however, preclude any
other officer or employee of the Corporation from also depositing and
disbursing funds when authorized to do so by the board of directors. The
treasurer shall, if required by the board of directors, give the Corporation a
bond in such amount and with such surety or sureties as may be ordered by the
board of directors for the faithful performance of the duties of his office.
The treasurer shall have such other powers and perform such other duties as may
be from time to time prescribed by the board of directors or the president. In
the absence of the treasurer or his inability to act, the assistant treasurers,
if any, shall act with the same authority and shall be subject to the same
restrictions as are applicable to the treasurer.

11. Delegation of Duties. Whenever an officer is absent,
or whenever, for any reason, the board of directors may deem it desirable, the
board may delegate the powers and duties of an officer to any other officer or
officers or to any director or directors.

ARTICLE VI.

Indemnification of Officers, Directors and Others

1. Indemnification: Third Party Actions. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Corporation) by reason of the fact
that he or she is or was a director, officer, employee or agent, of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interest of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interest of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.

-10-
<PAGE> 11
2. Indemnification: Derivative Actions. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.

3. Mandatory Indemnification. To the extent that a
director or officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Sections 1 and 2 of this Article VI or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.

4. Advance Payment of Expenses. Expenses (including
attorneys' fees) incurred in defending a civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the corporation as authorized in this Article VI. Such
expenses (including attorneys' fees) incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

5. Non-exclusive. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue, unless otherwise
provided when authorized or ratified, as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

6. Insurance. The corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee

-11-
<PAGE> 12
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of this Article VI.

7. Definitions. For purposes of this Article VI, the
following terms shall have the following meanings:

(a) references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued;

(b) references to "other enterprises" shall
include employee benefit plans;

(d) references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and

(e) a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the interests of the Corporation" as referred to in this
Article VI.

ARTICLE VII.

Capital Stock

1. Certificates of Stock. The shares of the Corporation
shall be represented by certificates; provided that the board of directors of
the Corporation may, by resolution, provide that some or all of any or all
classes or series of its stock shall be uncertificated shares. Any such

-12-
<PAGE> 13
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the chairman or vice chairman of the board of directors, or the president or
vice president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of the Corporation representing the number
of shares registered in certificate form. Any or all the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.

2. Issuance of Stock. Unless otherwise voted by the
stockholders and subject to the provisions of the Certificate of Incorporation,
the whole or any part of any unissued balance of the authorized capital stock
of the Corporation or the whole or any part of any unissued balance of the
authorized capital stock of the Corporation held in its treasury may be issued,
sold, transferred or otherwise disposed of by resolution of the board of
directors in such manner, for such consideration and on such terms as the board
of directors may determine. Consideration for such shares of capital stock
shall be expressed in dollars, and shall not be less than the par value or
stated value therefor, as the case may be. The par value for shares, if any,
shall be stated in the Certificate of Incorporation, and the stated value for
shares, if any, shall be fixed from time to time by the board of directors.

3. Lost Certificates. The board of directors may direct
a new certificate to be issued in place of any previously issued certificate
alleged to have been destroyed or lost if the owner makes an affidavit or
affirmation of that fact and produces such evidence of loss or destruction as
the board may require. The board, in its discretion, may as a condition
precedent to the issuance of a new certificate require the owner to give the
Corporation a bond as indemnity against any claim that may be made against the
Corporation relating to the allegedly destroyed or lost certificate.

4. Transfer of Shares. Subject to applicable law,
shares of stock of the Corporation may be transferred on its books upon the
surrender to the Corporation or its transfer agent of the certificates
representing such shares, if any, duly endorsed or accompanied by a written
assignment or power of attorney duly executed and with such proof of authority
or authenticity of signature as the Corporation or its transfer agent may
reasonably require. In that event, the surrendered certificates shall be
cancelled, new certificates issued to the persons entitled to them, if any, and
the transaction recorded on the books of the Corporation.

5. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or

-13-
<PAGE> 14
interest in such share or shares on the part of the other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Delaware.

6. Stock Ledger. An appropriate stock journal and
ledger shall be kept by the secretary or such registrars or transfer agents as
the directors by resolution may appoint in which all transactions in the shares
of stock of the Corporation shall be recorded.

7. Restriction on Transfer of Shares. Notice of any
restriction on the transfer of the stock of the Corporation shall be placed on
each certificate of stock issued or in the case of uncertificated shares
contained in the notice sent to the registered owner of such shares in
accordance with the provisions of the Delaware Corporation Law.

ARTICLE VIII.

Seal and Fiscal Year

1. Seal. The Corporation shall have a seal in the form
impressed to the left of this paragraph of the Bylaws.

2. Fiscal Year. The fiscal year of the Corporation
shall be determined by the board of directors and set forth in the minutes of
the directors. Said fiscal year may be changed from time to time by the board
of directors in its discretion.

ARTICLE IX.

Dividends

Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation. Before payment
of any dividend, there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think in the best interest of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.

-14-
<PAGE> 15
ARTICLE X.

Amendments

Subject to repeal or change by action of the stockholders, the
board of directors may amend, supplement or repeal these Bylaws or adopt new
Bylaws, and all such changes shall affect and be binding upon the holders of
all shares heretofore as well as hereafter authorized, subscribed for or
offered.

ARTICLE XI

Miscellaneous

1. Gender. Whenever required by the context, the
singular shall include the plural, the plural the singular, and one gender
shall include all genders.

2. Invalid Provision. The invalidity or
unenforceability of any particular provision of these Bylaws shall not affect
the other provisions herein, and these Bylaws shall be construed in all
respects as if such invalid or unenforceable provision was omitted.

3. Governing Law. These Bylaws shall be governed by and
construed in accordance with the laws of the State of Delaware.

I, Gregory S. Ayers, as Secretary of UroQuest Medical
Corporation, hereby certify that the foregoing Bylaws were adopted by the Board
of Directors of the Corporation effective as of October ___, 1996.

____________________________
Gregory S. Ayers, Secretary

-15-

<PAGE> 1

Exhibit 5.1

September 30, 1996

Board of Directors
UroQuest Medical Corporation
Suite 220
265 East 100 South
Salt Lake City, UT 84111-1616

Ladies and Gentlemen:

As counsel to UroQuest Medical Corporation, a Delaware corporation
("Company") in connection with the proposed issuance and sale by the Company of
up to 3,852,500 shares of its Common Stock (the "Shares"), we have examined the
originals or certified, conformed or reproduced copies of its certificate of
incorporation, bylaws and all other corporate records, agreements, instruments
and documents as we have deemed necessary as a basis for the opinion expressed
herein. In all such examinations we have assumed the genuineness of all
signatures on original certified copies and the conformity to original or
certified copies of all copies submitted to us as conformed or reproduced
copies. As to various questions of fact relevant to the opinion hereinafter
expressed, we have relied upon certificates of public officials and statements
or certificates of officers or representatives of the Company and others.

A Registration Statement (the "Registration Statement") on Form S-1
(Commission File No. 333-07277) was filed with the United States Securities and
Exchange Commission on June 28, 1996 with respect to the contemplated public
offering by certain underwriters of the Shares.

For purposes of this opinion, we have assumed that the Company will be
reincorporated in Delaware prior to the effective date of the Registration
Statement as contemplated in the Registration Statement.

Based on the foregoing, we are of the opinion that the Shares, when
issued and paid for as contemplated by the Registration Statement, will be
legally issued and outstanding, fully paid and nonassessable.

We hereby consent to the reference to our firm under "Legal Matters"
in the Prospectus which constitutes a part of the Registration Statement and
the filing of this opinion as an exhibit to the Registration Statement.

Very truly yours,

/s/ Holland & Hart
-----------------------
Holland & Hart LLP

<PAGE> 1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

UROQUEST MEDICAL CORPORATION

1. EFFECTIVE DATE: October ___, 1996

2. PARTIES: UroQuest Medical Corporation
265 East 100th South c/o UroQuest Medical Corporation
Suite 220 265 East 100th South, Suite 220
Salt Lake City, UT 84111 Suite 220
(the "Company") Salt Lake City, UT 84111
(the "Indemnified Party")

3. RECITALS/AGREEMENT:

(a) At the request of the "Company", the Indemnified Party
currently serves as a director, officer or manager of the Company (as defined
below), or in a combination of these positions. As such, Indemnified Party may
be subjected to claims, suits or proceedings.

(b) The Company's By-laws and Section 145 of the Delaware General
Corporation Law contemplate that contracts may be made between the Company and
members of its Board of Directors, officers and employees with respect to
indemnification.

(c) In consideration of Indemnified Party's acceptance and
continuation of service as a director, officer or manager, or in a combination
of these positions, after the date of this Agreement, and in consideration of
the mutual covenants stated herein, the parties agree as follows.

4. DEFINITIONS: As used in this Agreement, the following terms have the
following meanings:

(a) Change in Control. A "Change in Control" shall be deemed to
have occurred if any of the following events occurs: (i) any "person" (as such
term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) becomes after the date hereof the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the
Company representing 30% or more of the total number of votes that may be cast
for the election of directors of the Company (called in this definition "voting
securities"); (ii) at least 40% of the directors of the Company constitute
persons who were not, at the time of their first election to the Board of
Directors of the Company, candidates proposed by a majority of the Company's
Board of Directors in office prior to the time of such first election; (iii)
either stockholder approval of the dissolution of the Company or the actual
dissolution of the Company; (iv) a sale

<PAGE> 2

or other disposition, or the last sale or other disposition to occur in a
series of sales and/or other dispositions within any 12-month period ("Serial
Sales"), by the Company of assets which (at the time of the sale or disposition
or, in the case of Serial Sales, as of the beginning of such 12-month period)
account for more than 75% of the total assets or 40% of the revenues of the
Company, as determined in accordance with generally accepted accounting
principles; provided, however, that no sale or disposition of assets or stock
shall be taken into account to the extent that the proceeds of such sale or
disposition (whether in cash or in-kind) are reinvested in the Company or are,
in the case of proceeds received in-kind, used in the ongoing conduct of the
Company, provided further that such a reinvestment shall not be deemed to have
occurred unless made within 12 months of such sale or disposition and provided
further that, the term reinvestment shall include, among other things, the use
of proceeds to repay debt incurred in connection with the operation of the
business in which the assets sold or disposed of were used; (v) the
stockholders shall approve any merger, consolidation, or like business
combination or reorganization of the Company, the consummation of which would
result in the voting securities of the Company outstanding immediately prior
thereto representing (by remaining outstanding or being converted into
securities of the surviving entity or otherwise) less than 70% of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger, consolidation, business combination or reorganization; or
(vi) any other event which the Company's Board of Directors determines, in its
discretion, would materially alter the structure of the Company or its
ownership.

(b) Corporation Law. The term "Corporation Law" means the
Delaware General Corporation Law as it exists on the date of this Agreement and
as it may be hereafter amended from time to time. In the case of any amendment
of the Delaware General Corporation Law after the date of this Agreement, when
used in reference to an act or omission occurring prior to effectiveness of
such amendment (unless prohibited by law), the term "Corporation Law" shall
include such amendment only to the extent that the amendment permits the
Company to provide broader indemnification rights than the Delaware General
Corporation Law permitted the Company to provide prior to the amendment.

(c) Director, Officer or Manager. As used in reference to a
position held by Indemnified Party, the term "director," "officer" or "manager"
means a director, officer or manager (as designated by the person's title in
the case of a manager) of the Company and, while a director, officer or manager
of the Company, Indemnified Party's serving at the Company's request as a
director, officer, manager, partner, trustee, employee, agent or fiduciary of
any corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan (including without limitation any service as a director,
officer, manager, employee, agent or fiduciary which imposes duties on, or
involves services by, such director, officer, manager, employee or agent with
respect to any employee benefit plan, its participants or beneficiaries). The
terms "director," "officer" and "manager" also include, unless the context
otherwise requires, the estate or personal representative of a director,
officer or manager. The terms "director" and "officer" shall also include any
such broader definition as may be provided in the Corporation Law with
amendments after the date of this Agreement.

-2-

<PAGE> 3

(d) Potential Change in Control. A "Potential Change in Control"
shall be deemed to have occurred if (i) the Company enters into an agreement,
the consummation of which would result in the occurrence of a Change in
Control, (ii) any person or entity (including the Company) publicly announces
an intention to take or to consider taking actions which, if consummated, would
constitute a Change in Control, or (iii) the Board of Directors adopts a
resolution to the effect that, for purposes of this Agreement, a potential
Change in Control has occurred.

(e) Proceeding. The term "proceeding" means any threatened,
pending or completed action, suit or proceeding, or any inquiry or
investigation, whether civil, criminal, administrative or investigative, and
whether formal or informal.

(f) Reviewing Party. "Reviewing Party" means the person or body
determined in accordance with Section 9.

5. AGREEMENT TO INDEMNIFY: The Company shall indemnify, and keep
indemnified, Indemnified Party in accordance with, and to the full extent
permitted and/or required by, the Corporation Law and any other applicable law
from and against any expenses (including but not limited to attorneys' fees,
expenses of investigation and preparation, and fees and disbursements of
Indemnified Party's accountants or other experts), judgments, fines (including
but not limited to excise taxes assessed on a person with respect to an
employee benefit plan), penalties and amounts paid in settlement (including
without limitation all interest, assessments and other charges paid or payable
in connection with any of the foregoing) actually and reasonably incurred by
Indemnified Party in connection with any proceeding in which Indemnified Party
was or is made a party or was or is involved (for example, as a witness) by
reason of the fact that Indemnified Party is or was a director, officer or
manager of the Company.

6. D&O INSURANCE: So long as Indemnified Party may be subject to any
possible proceeding by reason of the fact that Indemnified Party is or was a
director or officer of the Company, to the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnified Party shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
applicable to any then current director or officer of the Company.

7. ADVANCES: In the event of any proceeding in which Indemnified Party
is a party or is involved and which may give rise to a right of indemnification
from the Company pursuant to this Agreement, following written request to the
Company by Indemnified Party, the Company shall pay to Indemnified Party, in
accordance with and to the full extent permitted and/or required by the
Corporation Law, amounts to cover reasonable expenses incurred by Indemnified
Party in such proceeding in advance of its final disposition upon receipt of
(a) a written undertaking executed by or on behalf of Indemnified Party to
repay the advance if it shall ultimately be determined that Indemnified Party
is not entitled to be indemnified by the Company and (b) satisfactory evidence
as to the amount of such expenses.

-3-

<PAGE> 4

8. BURDEN OF PROOF: If under applicable law, the entitlement of
Indemnified Party to be indemnified or advanced expenses hereunder depends upon
whether a standard of conduct has been met, the burden of proof of establishing
that Indemnified Party did not act in accordance with such standard shall rest
with the Company. Indemnified Party shall be presumed to have acted in
accordance with such standard and to be entitled to indemnification or the
advancement of expenses (as the case may be) unless, based upon a preponderance
of the evidence, it shall be determined that Indemnified Party has not met such
standard. For purposes of this Agreement, unless otherwise expressly stated,
the termination of any proceeding by judgment, order, settlement (whether with
or without court approval), conviction, or upon a plea of nolo contendere or
its equivalent, shall not create a presumption that Indemnified Party did not
meet any particular standard of conduct or have any particular belief.

9. DETERMINATION REGARDING STANDARD OF CONDUCT; REVIEWING PARTY: Any
determination as to whether Indemnified Party has met an applicable standard of
conduct for indemnification or advancement of expenses and any evaluation as to
the reasonableness of amounts claimed by Indemnified Party shall be made by the
Reviewing Party. If there has not been a Change of Control after the date of
this Agreement, the Reviewing Party shall be the Board of Directors of the
Company or such other body or persons appointed by the Board of Directors of
the Company as permitted by the Corporation Law. If there has been a Change of
Control after the date of this Agreement and if so requested by the Indemnified
Party, the Reviewing Party shall be an independent counsel who is selected by
the Indemnified Party and approved by the Company (which approval shall not be
unreasonably withheld). For this purpose, "independent counsel" means a law
firm or a member of a law firm that neither is at the time, nor in the past
five years has been, retained to represent (i) the Company or the Indemnified
Party in any matter material to either such party or (ii) any other party to
the Proceeding giving rise to a claim for indemnification under this Agreement.
Notwithstanding the foregoing, the term "independent counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing under the law of the State of Delaware, would have a conflict of
interest in representing either the Company or the Indemnified Party in an
action to determine the Indemnified Party's rights under this Agreement. The
Company agrees to pay the reasonable fees of the independent counsel referenced
above and to indemnify fully such independent counsel against any and all
expenses (including without limitation attorneys' fees), liabilities, losses
and damages arising out of or relating to this Agreement or its engagement
pursuant to this Agreement.

10. NOTICE TO THE COMPANY: Indemnified Party shall notify the Secretary
of the Company in writing of any matter for which Indemnified Party intends to
seek indemnification hereunder as soon as reasonably practicable following the
receipt by Indemnified Party of written notice thereof; provided, however, that
delay in so notifying the Company shall not constitute a waiver or release by
Indemnified Party of rights hereunder.

11. COUNSEL FOR PROCEEDING; SETTLEMENTS: In the event of any proceeding
in which Indemnified Party is a party or is involved and which may give rise to
a right of

-4-

<PAGE> 5

indemnification hereunder, the Company shall have the right to retain counsel,
satisfactory to Indemnified Party in his or her discretion, to represent
Indemnified Party and any others the Company may designate in such proceeding.
In any such proceeding, Indemnified Party shall have the right to retain
Indemnified Party's own counsel, but the fees and expenses of such counsel
shall be at the expense of Indemnified Party unless (a) the retention of such
counsel has been specifically authorized by the Company; (b) representation of
Indemnified Party and another party by the same counsel would be inappropriate,
in the reasonable judgment of Indemnified Party, due to actual or potential
differing interests between them; (c) the counsel retained by the Company and
satisfactory to Indemnified Party has advised Indemnified Party, in writing,
that such counsel's representation of Indemnified Party would be likely to
involve such counsel in representing differing interests which could adversely
affect either the judgment or loyalty of such counsel to Indemnified Party,
whether it be a conflicting, inconsistent, diverse or other interest; or (d)
the Company shall fail to retain counsel for Indemnified Party in such
proceeding. Notwithstanding the foregoing, if an insurance carrier has
supplied directors' and officers' liability insurance covering a proceeding and
is entitled to retain counsel for the defense of such proceeding, then the
insurance carrier shall retain counsel to conduct the defense of such
proceeding unless Indemnified Party and the Company concur in writing that the
insurance carrier's doing so is undesirable. The Company shall not be liable
under this Agreement for any settlement of any proceeding effected without its
written consent. The Company shall not settle any proceeding in any manner
which would impose any penalty or limitation on Indemnified Party without
Indemnified Party's written consent. Consent to a proposed settlement of any
proceeding shall not be unreasonably withheld by either the Company or
Indemnified Party.

12. ENFORCEMENT; ACTION TO DETERMINE COMPLIANCE WITH STANDARD OF CONDUCT:
The Company acknowledges that Indemnified Party is relying upon this Agreement
in serving as a director, officer or manager of the Company. If a claim for
indemnification or advancement of expenses is not paid in full by the Company
within sixty days, or within twenty days in the case of a claim for advancement
of expenses, after a written claim has been received from Indemnified Party by
the Company, Indemnified Party may at any time bring a legal action against the
Company to recover the unpaid amount of the claim. Indemnified Party shall
also be entitled to be paid by the Company all reasonable fees and expenses
(including without limitation fees of counsel) in bringing and prosecuting such
claim, unless as a part of the legal action concerning such claim the court
having jurisdiction over the action determines that each of the material
assertions made by Indemnified Party as a basis for the action was not made in
good faith or was frivolous. Neither the failure of the Reviewing Party or the
Company (including its Board of Directors, independent counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the Indemnified Party is proper in the
circumstances nor an actual determination by the Reviewing Party or the Company
(including its Board of Directors, independent legal counsel, or its
stockholders) that the Indemnified Party is not entitled to indemnification
shall be a defense to the action, be admissible as evidence, or create a
presumption that the Indemnified Party is not so entitled. Any such action
shall be de novo, and the Indemnified Party shall not be prejudiced by reason
of any such adverse determination. If an action is brought pursuant to this
Section, a final nonappealable

-5-

<PAGE> 6

order in such action shall constitute the ultimate determination of the
Indemnified Party's right to indemnification. Whether or not Indemnified Party
has met any applicable standard of conduct, the Court in such suit may order
indemnification or the advancement of expenses as the Court deems proper
(subject to any express limitation of the Corporation Law). Further, the
Company shall indemnify Indemnified Party from and against any and all expenses
(including without limitation attorneys' fees) and, if requested by Indemnified
Party, shall (within twenty days of such request) advance such expenses to
Indemnified Party, which are incurred by Indemnified Party in connection with
any claim asserted against or legal action brought by Indemnified Party for
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnified Party is
unsuccessful in whole or in part in such claim or suit.

13. PROCEEDINGS BY INDEMNIFIED PARTY: Notwithstanding other provisions of
this Agreement to the contrary, prior to a Change in Control, the Company shall
not indemnify Indemnified Party and advance expenses to Indemnified Party in
connection with any proceeding (or part thereof) initiated by Indemnified Party
against the Company or any director, officer or manager of the Company unless
such proceeding (or part thereof) was authorized by the Board of Directors of
the Company.

14. ESTABLISHMENT OF TRUST: In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnified Party, create a
trust for the benefit of Indemnified Party (and possibly others as described
below) and from time to time upon written request of Indemnified Party shall
fund such trust in an amount sufficient to satisfy any and all expenses and
other amounts for which indemnification may be sought under this Agreement and
which at the time of each such request are reasonably anticipated to be
incurred, are proposed to be paid by Indemnified Party, have actually been paid
by Indemnified Party or have actually been claimed in a proceeding. The amount
or amounts to be deposited in the trust pursuant to the foregoing funding
obligation shall be determined by mutual agreement of the Company and
Indemnified Party or, if they are unable to reach such mutual agreement within
ten days after any such request by Indemnified Party for funding, by a
Reviewing Party who is selected in accordance with Section 9 of this Agreement
as if a Change of Control had occurred. In determining any such amounts, the
parties or the Reviewing Party (as the case may be) shall take into account the
availability of any amounts under any directors' and officers' liability
insurance. At the Company's discretion, the trust created by the Company at
the request of the Indemnified Party pursuant to the foregoing obligation may
also be for the benefit of other existing or former officers, directors or
employees of the Company with respect to indemnification and advancement of
expenses, and may be a trust previously created and existing at the time for
the benefit of any such persons. If and to the extent authorized by the
parties or Reviewing Party, as the case may be, when determining the amounts to
be deposited in the trust, the trust may commingle and combine into one or more
funds amounts held for Indemnified Person and such other persons. The terms of
the trust shall provide that upon a Change in Control (i) the trust shall not
be revoked or the principal thereof invaded, without the written consent of
Indemnified Party, (ii) the trustee shall advance within twenty days of a
request by Indemnified Party, any and all expenses to

-6-

<PAGE> 7

Indemnified Party (and Indemnified Party hereby agrees to reimburse the trust
under the circumstances under which Indemnified Party would be required to
reimburse the Company under Section 7 of this Agreement), (iii) the trust shall
continue to be funded by the Company in accordance with the funding obligation
set forth above, (iv) the trustee shall pay promptly (but in any event within
sixty days after a written claim for indemnification) to Indemnified Party all
amounts for which the Indemnified Party is entitled to indemnification pursuant
to this Agreement; and (v) all unexpended funds in such trust shall revert to
the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnified Party has been
fully indemnified under the terms of this Agreement. The trustee shall be an
individual or entity chosen by Indemnified Party and approved by the Company
(whose approval shall not be unreasonably withheld). All income earned on the
assets held in the trust shall be reported as income by the Company for
federal, state, local and foreign tax purposes. The Company shall pay all
costs of establishing and maintaining the trust and shall indemnify the trustee
against any and all expenses (including without limitation attorneys' fees),
liabilities, losses and damages arising out of or relating to this Agreement or
the establishment and maintenance of the trust. Nothing in this Section 14
shall relieve the Company of any of its obligations under this Agreement.

15. NONEXCLUSIVITY: The rights of Indemnified Party for indemnification
and advancement of expenses under this Agreement shall not be deemed exclusive
of, or in limitation of, any rights to which Indemnified Party may be entitled
under Delaware law, the Company's Certificate of Incorporation or By-laws, vote
of shareholders or otherwise.

16. MISCELLANEOUS:

(a) Effectiveness. This Agreement is effective for, and shall
apply to, (i) any claim which is asserted or threatened before, on or after the
date of this Agreement but for which no action, suit or proceeding has actually
been brought prior to the date of this Agreement and (ii) any action, suit or
proceeding which is threatened before, on or after the date of this Agreement
but which is not pending prior to the date of this Agreement. Thus, this
Agreement shall not apply to any action, suit or proceeding which has actually
been brought before the date of this Agreement. So long as the foregoing
standard of effectiveness has been satisfied, this Agreement shall be effective
for and shall be applied to acts or omissions prior to, on or after the date of
this Agreement.

(b) Survival; Continuation. The rights of Indemnified Party
hereunder shall inure to the benefit of the Indemnified Party (even after
Indemnified Party ceases to be a director, officer or manager), Indemnified
Party's personal representative, heirs, executors, administrators and
beneficiaries; and this Agreement shall be binding upon the Company, its
successors and assigns. The rights of Indemnified Party under this Agreement
shall continue so long as Indemnified Party may be subject to any possible
proceeding because of the fact that Indemnified Party was a director, officer
or manager of the Company. If the Company sells, leases, exchanges or
otherwise disposes of, in a single transaction or series of related
transactions, all or substantially

-7-

<PAGE> 8

all of its property and assets, the Company shall, as a condition precedent to
such transaction, cause effective provision to be made so that the person or
entity acquiring such property and assets shall become bound by and replace the
Company under this Agreement.

(c) Partial Indemnification. If the Indemnified Party is entitled
to indemnification by the Company for some or a portion of expenses, judgments,
fines or settlement amounts actually incurred by the Indemnified Party in a
proceeding but not, however, for the total amount thereof, the Company shall
nevertheless indemnify the Indemnified Party for the portion of such expenses,
judgments, fines or settlement amounts to which the Indemnified Party is
entitled.

(d) No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any proceeding
against the Indemnified Party to the extent the Indemnified Party has otherwise
actually received payment (under any insurance policy, bylaw or otherwise) of
the amounts otherwise subject to indemnification under this Agreement.

(e) Governing Law. This Agreement shall be governed by the laws
of the State of Delaware, without regard to the conflict of laws principles
thereof.

(f) Severability. If any provision of this Agreement shall be
held to be prohibited by or invalid under applicable law, such provision shall
be deemed amended to accomplish the objectives of the provision as originally
written to the full extent permitted by law and all other provisions shall
remain in full force and effect.

(g) Amendment. No amendment, termination or cancellation of this
Agreement shall be effective unless in writing signed by the Company and
Indemnified Party.

(h) Subrogation. In the event of payment under this Agreement the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnified Party, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.

(i) Headings. The headings in this Agreement are for convenience
only and are not to be considered in construing this Agreement.

(j) Counterparts. This Agreement may be executed in counterparts,
both of which shall be deemed an original, and together shall constitute one
document.

-8-

<PAGE> 9

The parties have executed this Agreement as of the Effective Date
first above stated.

UROQUEST MEDICAL CORPORATION Indemnified Party

By:
------------------------------- -----------------------------------
[Name]

Title:
----------------------------

-9-

<PAGE> 1
EXHIBIT 10.14

TERMINATION AGREEMENT

This Termination Agreement (the "Agreement") is made and entered into
this 27th day of June, 1996 by and among UroQuest Corporation, a Florida
corporation, including its successors and assigns (the "Company"), Richard C.
Davis, Jr., M.D. ("Davis"), Warburg, Pincus Investors, L.P., a Delaware limited
partnership ("Warburg"), and Vertical Fund Associates, L.P., a Delaware limited
partnership ("Vertical" and, together with Warburg, the "Investors"), and shall
be effective only upon the closing of the Initial Public Offering (as defined
herein) of the Company.

Recitals:

WHEREAS, the parties hereto have entered into that certain Securities
Purchase Agreement, dated as of June 15, 1995, a copy of which is attached
hereto as Exhibit A and by this reference incorporated herein (the "Purchase
Agreement"); and

WHEREAS, pursuant to the Purchase Agreement, the Company issued a
Warrant to Warburg, dated June 15, 1995, a copy of which is attached hereto as
Exhibit B and by this reference incorporated herein (the "Original Warrant");
and

WHEREAS, the Company has determined to file with the Securities and
Exchange Commission a Registration Statement on Form S-1 under the Securities
Act of 1933, as amended, with respect to a proposed initial public offering of
up to 3,350,000 shares (but in no event less than 3,000,000 shares) of its
Common Stock, not including shares covered by the over-allotment option to be
granted to Dillon, Read & Co. Inc. and Prudential Securities Incorporated, the
managing underwriters of the offering contemplated therein, with an initial
public offering price of between $11.00 and $13.00 per share (the "Initial
Public Offering"); and

WHEREAS, in connection with, and subject to the closing of, the Initial
Public Offering, the parties hereto desire to terminate their respective
interests under the Purchase Agreement and the Original Warrant, except as
specifically set forth herein.

Agreement:

Now, therefore, upon these premises and in consideration of the
respective obligations and covenants contained herein, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:

1. Confirmation of Agreements. The parties hereto hereby acknowledge,
confirm and agree that the Purchase Agreement and the Original Warrant shall
continue in full force and effect, subject to their respective terms and
conditions, until the Effective Time (as defined below).

2. Termination of Agreements. Effective as of the closing of the
Initial Public Offering (the "Effective Time"), the Purchase Agreement and the
Original Warrant (collectively, the "Agreements") are hereby terminated, and no
party thereto shall have any right, interest, duty or obligation with respect
to the Agreements.

<PAGE> 2
3. Issuance and Exercise of Warrants. As of the Effective Time, the
Company shall issue to Warburg the warrant, to be dated the day of the
Effective Time, in the form attached hereto as Exhibit C and by this reference
incorporated herein (the "Warburg Replacement Warrant"), and Warburg shall
simultaneously exercise the Warburg Replacement Warrant in full, in accordance
with its terms and conditions. As of the Effective Time, the Company shall
issue to Vertical the warrant, to be dated the day of the Effective Time, in
the form attached hereto as Exhibit D and by this reference incorporated herein
(the "Vertical Replacement Warrant"), and Vertical shall simultaneously
exercise the Vertical Replacement Warrant in full, in accordance with its terms
and conditions.

4. Sale of Common Stock by Davis. As of the Effective Time, Davis shall
sell to Warburg, and Warburg shall purchase from Davis, 128,571 (one hundred
twenty eight thousand five hundred seventy one) shares of Common Stock for an
aggregate of $450 (Four Hundred Fifty Dollars) in cash or other immediately
available funds. As of the Effective Time, Davis shall sell to Vertical, and
Vertical shall purchase from Davis, 14,285 (fourteen thousand two hundred
eighty five) shares of Common Stock for an aggregate of $50 (Fifty Dollars) in
cash or other immediately available funds.

5. Amendment to Co-Sale Agreement. The parties hereto have entered into
that certain Right of First Refusal and Co-Sale Agreement dated as of June 15,
1995, a copy of which is attached hereto as Exhibit E and by this reference
incorporated herein (the "Co-Sale Agreement"). The parties hereto acknowledge
and agree that the Co-Sale Agreement shall be amended pursuant to the terms of
the letter agreement attached hereto as Exhibit F and by the reference
incorporated herein (the "Amendment"). The parties hereto affirm that the
Co-Sale Agreement shall continue in full force and effect, subject to its terms
and conditions, as amended and modified by the Amendment.

6. Affirmation of Contracts. The parties hereto hereby affirm that
nothing contained herein shall be deemed to modify or affect the terms and
conditions of the Option Agreement, dated June 15, 1996, among Warburg, the
Company and the holders of 12% Secured Promissory Notes (the "Option
Agreement"), the Second Amended and Restated Stockholders Agreement, dated May
31, 1995 and effective as of June 15, 1995, among the Company and the
Stockholders (as defined therein) (the "Stockholders Agreement"), or the
Registration Rights Agreement, dated June 15, 1995, among the Investors and the
Company (the "Rights Agreement"), and the Option Agreement, Stockholders
Agreement and Rights Agreement shall continue in full force and effect, subject
to their respective terms and conditions.

7. Warburg Right to Designate Directors. So long as Warburg owns
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) at least fifty percent (50%) of
the stock of the Company (including shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and upon exercise of the Warburg
Replacement Warrant) owned by it on the date hereof, Warburg shall, at any
time, be entitled to designate three (3) directors to the Company's Board of
Directors.

8. Vertical Right to Designate Directors. So long as Vertical owns
beneficially (within the meaning of Rule 13d-3 under the Exchange Act) at least
fifty percent (50%) of the stock of the Company (including shares of Common
Stock issuable upon conversion of the Series D Preferred Stock and upon
exercise of the Vertical Replacement Warrant) owned by it on the date hereof,
Vertical shall, at any time, be entitled to designate three (3) directors to
the Company's Board of Directors.

<PAGE> 3
9. Change in Number of Directors. Notwithstanding anything contained
in the Articles of Incorporation or the Bylaws of the Company, each as amended
to date, the parties to this Agreement hereby agree that upon the request of
Warburg or Vertical to designate directors pursuant to the provisions set forth
in Sections 7 and 8 above, the parties hereto shall take all actions necessary,
including without limitation amending the Bylaws of the Company, to increase
the size of the Board of Directors so as to consist of not more than eleven
(11) members. Until such time as neither Warburg nor Vertical shall be entitled
to designate directors pursuant to this Agreement, the size of the Board of
Directors shall not be increased to a number greater than eleven (11) members
without the prior written consent of each of Warburg and Vertical.

10. Stock Split and Share Amounts. All share amounts contained herein
are expressed on a post-split basis assuming and giving effect to the Company's
proposed 1-for-3.5 reverse stock split (the "Reverse Split") of the outstanding
Common Stock and Preferred Stock of the Company to be effected in connection
with the Company's reincorporation in the State of Delaware. In the event the
Reverse Split is not effected prior to the Effective Time or is effected on a
basis other than as set forth above, the share amounts contained herein shall be
adjusted appropriately on an equitable basis.

11. No Cancellation. Nothing contained in this Agreement shall be
deemed to cancel or void, ab initio, any prior performance under the Purchase
Agreement that has been fully executed.

12. General Provisions

a. Notices. All communications under this Agreement shall be in
writing and shall be delivered by hand or mailed by overnight
courier or by registered mail or certified mail, postage
prepaid:

(1) if to Warburg, at 466 Lexington Avenue, New York, New York
10017, marked for attention of Elizabeth H. Weatherman, or
at such other address as Warburg may have furnished the
Company in writing,

(2) if to Vertical, at 18 Bank Street, Summit, New Jersey
07901, marked for attention of Jack Lasersohn, or at such
other address at Vertical may have furnished the Company
in writing,

(3) if to Davis, at 14280 Carlson Circle, Tampa, Florida
33626, marked for attention of Richard C. Davis, Jr.,
M.D., or at such other address as Davis may have furnished
the Company in writing, or

(4) if to the Company, at 265 East 100 South, Salt Lake City,
Utah 84111, marked for the attention of the President, or
at such other address as the Company may have furnished in
writing to the Investors.

b. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely
within such State.

c. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of
each of the parties.

<PAGE> 4

d. Entire Agreement; Amendment and Waiver. This Agreement and the
agreements or other instruments attached as Exhibits hereto constitute the
entire understanding of the parties hereto and supersede all prior agreements
or understandings with respect to the subject matter hereof among such parties.
This Agreement may be amended, and the observance of any term of this Agreement
may be waived, with (and only with) the written consent of the Company, Davis
and each of the Investors.

e. Severability. If any provision of this Agreement be determined by any
court having jurisdiction to be unlawful or unenforceable, such provision shall
be deemed separate and apart from all other provisions of this Agreement, and
all remaining provisions of this Agreement shall be fully enforceable.

f. Limitation on Enforcement of Remedies. The Company hereby agrees that
it will not assert against the limited partners of each of the Investors any
claim it may have under this Agreement by reason of any failure or alleged
failure by such Investor to meet its obligations hereunder.

g. Counterparts. This Agreement may be executed in more than one
counterpart and by facsimile, each of which shall be deemed an original and all
of which together shall constitute one and the same agreement.

UROQUEST CORPORATION

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

RICHARD C. DAVIS, JR., M.D.

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

WARBURG, PINCUS INVESTORS, L.P.

By: Warburg, Pincus & Co., General Partner

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

<PAGE> 5

VERTICAL FUND ASSOCIATES, L.P.

By: The Vertical Group, General Partner

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

<PAGE> 1

Exhibit 10.16

UroQuest Corporation
14280 Carlson Circle
Tampa, Florida 33626

September 30, 1996

Warburg, Pincus Investors, L.P.
466 Lexington Avenue
New York, New York 10017

Vertical Fund Associates, L.P.
18 Bank Street
Summit, New Jersey 07901

Richard C. Davis, Jr., M.D.
c/o UroQuest Corporation
14280 Carlson Circle
Tampa, Florida 33626

Ladies and Gentlemen:

Reference is made to the Right of First Refusal and Co-Sale
Agreement, dated as of June 15, 1995 ("Agreement"), among Warburg, Pincus
Investors, L.P. ("Warburg"), Vertical Fund Associates, L.P. ("Vertical"),
Richard C. Davis, Jr., M.D. ("Davis") and UroQuest Corporation (the "Company").
Capitalized terms used but not defined herein shall have the meaning assigned
to such terms in the Agreement.

Warburg, Vertical, Davis and the Company hereby agree that the
Agreement is hereby amended by deleting Section 1(b) of the Agreement in its
entirety and replacing it with the following:

"(b)(i) "Restricted Shares" shall mean all shares of Voting Common
Stock now owned or hereafter acquired by Davis while this Agreement
remains in effect, including without limitation, all Voting Common
Stock now owned or hereafter acquired by Davis and his spouse, if any,
as community property or as separate property, and all references
herein to the Voting Common Stock owned by Davis includes the
community interest of his spouse, if any, in such stock. Any
obligation of Davis to sell or offer to sell Restricted Shares
includes an obligation on the part of his spouse, if any, to sell or
offer to sell her community interest in such stock in the same manner.
The termination of the marital relationship of Davis and his spouse
for any reason shall not have the effect of removing any Voting Common
Stock otherwise subject to this Agreement from the coverage hereof.
Notwithstanding the foregoing, the term "Restricted Shares" shall not
be deemed to include: (a) upon the closing of the proposed initial
public offering of up to 3,350,000 shares ( but in no event less than
3,000,000 shares) of the Company's common stock, not including shares
covered by the over-allotment option, to be granted to Dillon, Read &
Co. Inc. and Prudential Securities Incorporated, the managing
underwriters of such offering, with an initial public offering price
of between $7.00 and $11.00 per share (the "Initial Public Offering"),
200,000 shares of Voting Common Stock, (b) following the closing of
the Initial Public Offering and on June 15, 1997, an amount equal to
100,000 shares of

<PAGE> 2

Voting Common Stock, and (c) on the final day of the month that is the
eighteenth (18th) month following the closing of the Initial Public
Offering, and every three months thereafter, the number of shares of
Voting Common Stock equal to one percent (1%) of the number of
outstanding shares of the Company's common stock.

(ii) The number of shares of Voting Common Stock deemed
not to be Restricted Shares pursuant to this Agreement shall be
adjusted upon any stock split or division, reverse stock split, stock
dividend, reclassification, reorganization, combination or
recapitalization."

If the foregoing is in accordance with your understanding,
please so indicate by executing a copy of this letter and returning it to the
undersigned, whereupon this letter shall become our binding agreement.

Sincerely,

UROQUEST CORPORATION

By: /s/ ERIC B. HALE
--------------------------------
Name: Eric B. Hale
Title: President

AGREED TO AND ACCEPTED BY:

WARBURG, PINCUS INVESTORS, L.P.

By: WARBURG, PINCUS & CO.,
General Partner

By: /s/ ELIZABETH M. WEATHERMAN
-------------------------------
Name: Elizabeth M. Weatherman
Title: General Partner

VERTICAL FUND ASSOCIATES, L.P.

By: THE VERTICAL GROUP, INC.
General Partner

By: /s/
--------------------------------
Name:
Title:

/s/ RICHARD C. DAVIS
- -----------------------------------
Richard C. Davis, Jr., M.D.

<PAGE> 1

Exhibit 10.17

AMENDMENT TO AGREEMENT AND PLAN OF MERGER
BETWEEN UROQUEST CORPORATION, BMT ACQUISITION CO.
AND BMT, INC.

This Amendment to Agreement and Plan of Merger (this "Amendment") is
dated as of September 27, 1996, and is an amendment to the Agreement and Plan
of Merger dated as of June 27, 1996 (the "Merger Agreement"), among UroQuest
Corporation, a Florida corporation ("UroQuest"), BMT Acquisition Co., a
Delaware corporation, and wholly-owned subsidiary of UroQuest ("Sub") and BMT,
Inc., an Indiana corporation ("BMT").

RECITALS

A. UroQuest, Sub and BMT have previously entered into the Merger
Agreement.

B. UroQuest, Sub and BMT have agreed to amend the Merger Agreement as
described herein.

AGREEMENT

In consideration of the premises and the mutual representations,
warranties, covenants and agreements herein set forth and in the Merger
Agreement, the parties to this Amendment have agreed to amend the Merger
Agreement as follows:

1. Share Consideration. Article II, Section 2.04,
subparagraphs (a) and (b) are hereby amended to read
as follows:

"2.04 Merger Consideration and Conversion of Shares.

(a) The consideration to be paid for all issued
and outstanding shares of BMT Common Stock shall consist of (i)
$10,000,000 in cash (the "Cash Consideration"), and (ii) 2,500,000
shares of UroQuest Common Stock (the "Share Consideration") after
giving effect to the planned 1 for 3.5 reverse stock split in
connection with the reincorporation of UroQuest into Delaware.

(b) At the Effective Time of the Merger, each
issued and outstanding share of BMT Common Stock, by virtue of the
Merger, and without any action on the part of the holder thereof,
automatically shall be converted into and shall become the right to
receive, without interest, the following:

(i) Cash in the amount equal to the Cash
Consideration, divided by the number of shares of BMT Common
Stock issued and outstanding as of the Effective Time of the
Merger; and

<PAGE> 2

(ii) The number of shares of UroQuest
Common Stock obtained by dividing the Share Consideration by
the number of shares of BMT Common Stock issued and
outstanding as of the Effective Time of the Merger."

2. Effective Date. This Amendment shall become
effective upon its approval by the respective Boards of Directors of UroQuest,
Sub and BMT and the stockholders of Sub and BMT.

3. Registration Statement. UroQuest has delivered to
BMT copies of the latest draft of Amendment No. 2 to the Registration Statement
for distribution to the stockholders of BMT.

4. Grant of Stock Options. BMT hereby consents to the
grant of options to J.J. Donohue to purchase 71,429 shares of UroQuest Common
Stock (after the planned 1 for 3.5 reverse stock split in connection with the
reincorporation of UroQuest into Delaware) pursuant to his employment by
UroQuest.

5. Termination. The date "October 31, 1996" in Article
X, Section 10.01(b) is hereby changed to "November 10, 1996."

6. Capital Structure of UroQuest. Approval,
authorization, execution and delivery of this Amendment is expressly
conditioned upon the authorized and outstanding shares of capital stock of
UroQuest remaining through the date of the Final Closing as described under the
caption "Capitalization" in the latest draft of Amendment No. 2 to the
Registration Statement referenced in paragraph 3 above except (a) the issuance
of an additional 502,500 shares of UroQuest Common Stock pursuant to the
exercise of the underwriters' overallotment option in the Initial Public
Offering and (b) such other changes as may be approved by BMT. This paragraph
shall have no further force and effect upon consummation of the Final Closing.

7. Merger Agreement. Except to the extent expressly
amended herein, all of the existing terms and provisions of the Merger
Agreement remain in full force and effect.

<PAGE> 3

IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be duly executed as of the date first above written.

UROQUEST CORPORATION

By: /s/ Eric Hale
--------------------------------
Eric Hale, President

BMT ACQUISITION CO.

By: /s/ Eric Hale
--------------------------------
Eric Hale, President

BMT, INC.

By: /s/ Tom Brandt
--------------------------------
Tom Brandt, President

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
UroQuest Medical Corporation:

We consent to the use of our report dated March 20, 1996, except as to note 10,
which is as of September 27, 1996, on the consolidated financial statements of
UroQuest Medical Corporation and Subsidiary as of December 31, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1995, and for the period April 8, 1992 (inception) to December 31, 1995,
included herein and to the reference to our Firm under the headings "Selected
Financial Data" and "Experts" in the Prospectus.

KPMG Peat Marwick LLP

Salt Lake City, Utah
September 30, 1996

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated January 19, 1996 (except for Note H as to which
the date is June 27, 1996) accompanying the consolidated financial statements
of BMT, Inc. contained in the Registration Statement and Prospectus of UroQuest
Medical Corporation. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus and to the use of our name as it appears
under the captions "Selected Consolidated Financial Data" and "Experts".

GRANT THORNTON LLP

Chicago, Illinois
September 30, 1996

<PAGE> 1

EXHIBIT 23.4

CONSENT

We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.

Griffin, Butler, Whisenhunt & Kurtossy

By F. Prince Butler

September 30, 1996

<PAGE> 1

EXHIBIT 23.5

CONSENT

We hereby consent to the reference to our firm under the heading "Experts"
in the Prospectus which forms a part of the Registration Statement on Form S-1
of UroQuest Corporation.

Emrich & Dithmar

By Paul L. Brown, Partner

September 30, 1996