CARDIAC PATHWAYS CORP, S-1/A, 1996-06-11

CARDIAC PATHWAYS CORP
S-1/A, 1996-06-11
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

Previous: ON SITE SOURCING INC, SB-2/A, 1996-06-11

Next: EQUITY INCOME FUND CONCEPT SERIES 23 DEFINED ASSET FUNDS, S-6EL24/A, 1996-06-11

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1996

REGISTRATION NO. 333-3616
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 4

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

CARDIAC PATHWAYS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
CALIFORNIA (PRIOR TO REINCORPORATION)
DELAWARE (AFTER REINCORPORATION) 3845
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)

<CAPTION>
CALIFORNIA (PRIOR TO REINCORPORATION)
<S> <C>
DELAWARE (AFTER REINCORPORATION) 77-0278793

(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER

INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

</TABLE>

------------------------
CARDIAC PATHWAYS CORPORATION
995 BENECIA AVENUE
SUNNYVALE, CA 94086
(408) 737-0505
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

DAVID W. GRYSKA
VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER
CARDIAC PATHWAYS CORPORATION
995 BENECIA AVENUE
SUNNYVALE, CA 94086
(408) 737-0505
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES TO:

<TABLE>
<S> <C>
J. CASEY MCGLYNN, ESQ. ALAN C. MENDELSON, ESQ.
DAVID J. SEGRE, ESQ. JULIA L. DAVIDSON, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD CASTRO HUDDLESON & TATUM
PROFESSIONAL CORPORATION 5 PALO ALTO SQUARE, SUITE 400
650 PAGE MILL ROAD 3000 EL CAMINO REAL
PALO ALTO, CA 94304 PALO ALTO, CA 94306-2155
(415) 493-9300 (415) 843-5000
</TABLE>

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value............... 2,875,000 $19.00 $54,625,000 $18,836(3)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 375,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee. The estimate is made pursuant to Rule 457 of the Securities Act of
1933, as amended.

(3) A filing fee of $16,854 was previously paid.

------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

CARDIAC PATHWAYS CORPORATION

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM S-1 REGISTRATION STATEMENT LOCATION OR CAPTION IN PROSPECTUS
---------------------------------------- ------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Facing Page of Registration Statement; Cross-
Reference Sheet; Outside Front Cover Page of
Prospectus; Additional Information
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......... Outside Front Cover Page; Underwriters
6. Dilution................................ Dilution
7. Selling Security Holders................ *
8. Plan of Distribution.................... Outside and Inside Front Cover Pages of
Prospectus; Underwriters
9. Description of Securities to be
Registered............................ Prospectus Summary; Dividend Policy;
Capitalization; Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... *
11. Information with Respect to the
Registrant............................ Prospectus Summary; Risk Factors; The Company;
Use of Proceeds; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business;
Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Underwriters;
Experts; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... *
</TABLE>

- ------------
* Indicates that item is omitted from the Prospectus because it is not
applicable.
<PAGE> 3

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.

PROSPECTUS (Subject to Completion)

Issued JUNE 11, 1996

2,500,000 Shares

LOGO

COMMON STOCK

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

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY CARDIAC
PATHWAYS CORPORATION (THE "COMPANY"). PRIOR TO THIS OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER
SHARE WILL BE BETWEEN $17 AND $19. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE
FOR QUOTATION OF THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "CPWY."

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 7.
------------------------

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.
------------------------

PRICE $ A SHARE
------------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per Share..................... $ $ $
Total(3)...................... $ $ $
</TABLE>

- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses payable by the Company estimated at
$1,100,000.

(3) The Company has granted to the Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
375,000 additional Shares at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."

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

The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Cooley Godward Castro Huddleson & Tatum, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1996
at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
------------------------

MORGAN STANLEY & CO. COWEN & COMPANY
Incorporated

, 1996
<PAGE> 4

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

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

2
<PAGE> 5

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------

UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 7
The Company........................................................................... 18
Use of Proceeds....................................................................... 18
Dividend Policy....................................................................... 18
Capitalization........................................................................ 19
Dilution.............................................................................. 20
Selected Consolidated Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 27
Management............................................................................ 53
Certain Transactions.................................................................. 61
Principal Stockholders................................................................ 63
Description of Capital Stock.......................................................... 65
Shares Eligible for Future Sale....................................................... 67
Underwriters.......................................................................... 69
Legal Matters......................................................................... 70
Experts............................................................................... 70
Additional Information................................................................ 70
Index to Consolidated Financial Statements............................................ F-1
</TABLE>

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

The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by an independent public
accounting firm and quarterly reports for the first three quarters of each year
containing interim unaudited financial information.
------------------------

The Company's logo, Cardiac Pathways, Cardiac Pathways Corporation and
Radii are registered trademarks of the Company. Trio, Ensemble, Chilli, Mercator
and Nexus are trademarks of the Company. This Prospectus also includes
trademarks of companies other than the Company.

3
<PAGE> 6

[ARTWORK]
<PAGE> 7

[ARTWORK]
<PAGE> 8

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. Prospective investors should consider carefully the
information discussed under "Risk Factors." Except as set forth in the financial
statements or as otherwise indicated herein, all information in this Prospectus
(i) reflects an increase in the authorized shares of Common Stock to 30,000,000
shares effected in May 1996, (ii) reflects the two-for-three reverse split of
the Company's Common Stock and Preferred Stock effected in May 1996, (iii) gives
effect to the reincorporation of the Company from California to Delaware
effected in May 1996, (iv) assumes that an outstanding warrant to purchase 6,667
shares of Common Stock that expires upon the closing of this offering is
exercised,(v) reflects the conversion of all of the Company's outstanding shares
of Preferred Stock into shares of Common Stock, which will occur automatically
upon the closing of this offering, (vi) reflects the filing, upon the closing of
this offering, of a Restated Certificate of Incorporation authorizing 5,000,000
shares of undesignated Preferred Stock, and (vii) assumes that the Underwriters'
over-allotment option is not exercised. See "Description of Capital Stock,"
"Underwriters" and Notes 1, 4 and 14 of Notes to Consolidated Financial
Statements.

THE COMPANY

Cardiac Pathways Corporation (the "Company") designs, develops and
manufactures minimally invasive systems to diagnose and treat cardiac
tachyarrhythmias (abnormally rapid heart rhythms) which, if untreated, can cause
palpitations, fainting and sudden cardiac arrest (a fatal heart rhythm). The
Company is developing products designed to provide integrated system solutions
for the successful diagnosis and treatment of ventricular tachycardia and atrial
fibrillation, two of the most serious and prevalent types of abnormally rapid
heart rhythms. The Company's products consist of systems for diagnostic mapping,
or locating the source of the tachyarrhythmia within the heart, and for
performing ablation treatment, a nonsurgical, minimally invasive technique for
neutralizing heart tissue responsible for starting or maintaining a dangerous
heart rhythm. Current mapping and ablation procedures can take many hours to
complete. The Company believes its systems will substantially shorten mapping
and ablation procedure time and provide safe and more effective treatments of
ventricular tachycardia and atrial fibrillation than other current forms of
therapy.

Ventricular tachycardia is a life-threatening condition marked by the
ventricles beating at an abnormally rapid rate, significantly interfering with
the pumping of oxygenated blood throughout the body. The currently prescribed
therapies for ventricular tachycardia are not curative and in many instances
have undesirable side effects. For diagnostic mapping of ventricular
tachycardia, the Company has developed the Arrhythmia Mapping System, consisting
of a high density mapping catheter that assesses electrical conduction
throughout the left ventricle and a computer workstation that analyzes and
displays the data gathered by the mapping catheter. The Company believes that
the Arrhythmia Mapping System will allow the electrophysiologist to quickly
locate high rate ventricular tachycardia at multiple sites thus providing a
significant improvement over currently used single point mapping techniques. The
Company believes that this ability to locate the ventricular tachycardia will
enable a larger population of patients to receive a successful ablation
treatment using the Company's Ventricular Tachycardia Ablation System. For
ablation treatment of ventricular tachycardia, the Company has developed the
Ventricular Tachycardia Ablation System, consisting of an ablation catheter that
is cooled by the circulation of fluid during radiofrequency energy delivery and
an integrated generator and programmable fluid pump that delivers radiofrequency
energy and fluid to the ablation catheter. The circulation of fluid draws heat
away from the ablation catheter's metal electrode and from the
electrode-to-tissue interface, which the Company believes will allow the
delivery of higher radiofrequency energy levels without excessive heating. The
delivery of higher energy levels allows for the creation of wider and deeper
lesions than those created with lower energy levels, increasing the likelihood
of a successful ablation.

Atrial fibrillation is a condition in which the regular pumping function of
the atria is replaced by a disorganized, ineffective quivering caused by chaotic
conduction of electrical signals through the upper chambers of the heart.
Although not immediately life threatening, atrial fibrillation may cause up to a
30%

4
<PAGE> 9

reduction in cardiac output and can lead to more serious conditions, including
the formation of blood clots in the atria that can dislodge and travel to the
brain resulting in stroke. Currently, the only curative treatment for atrial
fibrillation is a rarely performed open heart procedure (the surgical maze
procedure) in which the surgeon makes several incisions in the right and left
atria creating scar tissue to electrically isolate portions of the atria. None
of the widely prescribed alternative therapeutic options is curative and most
have undesirable side effects. For ablation treatment of atrial fibrillation,
the Company is developing the Atrial Fibrillation Ablation System which the
Company believes will produce, in a less invasive manner, a continuous line of
block through the heart tissue with lesions similar to those created with the
surgical maze procedure. For diagnostic mapping of atrial fibrillation, the
Company is developing a variation of the Arrhythmia Mapping System designed to
assess the effectiveness of the ablation procedure in treating the patient's
atrial fibrillation. The Company believes that a mapping system for the atria
will be important in reducing the procedure time for ablation treatment of
atrial fibrillation.

The Company initiated clinical trials for the Ventricular Tachycardia
Ablation System in the United States and Europe in November 1995 under an
investigational device exemption ("IDE") approved by the United States Food and
Drug Administration ("FDA"). The clinical trials are being conducted at a
maximum of 16 clinical sites and will involve a total of approximately 200
patients randomized using the Ventricular Tachycardia Ablation System versus
antiarrhythmic drugs. As of May 20, 1996, 17 patients had been enrolled in the
clinical trial, of whom eight had received ablation treatment. Pursuant to a
compassionate use protocol, as of May 20, 1996, 15 additional patients in the
United States and Europe had received ablation treatment in procedures unrelated
to the clinical trial. At the conclusion of the clinical trials, the Company
plans to file a premarket approval ("PMA") application for approval to market
the Ventricular Tachycardia Ablation System and its component catheters and
equipment in the United States. In February 1996, the Company received FDA
approval to conduct an IDE feasibility study to evaluate the safety of the
Arrhythmia Mapping System for diagnostic mapping of ventricular tachycardia. The
feasibility study is being conducted at two clinical sites in the United States
and will involve a total of 12 patients. The Company is also testing the
Mercator Left Ventricular Mapping Basket and Arrhythmia Mapping System in
Europe. At the conclusion of the feasibility study, currently expected to occur
in early calendar 1997, the Company intends to submit an IDE to the FDA to
perform additional clinical trials for the Mercator Left Ventricular Mapping
Basket.

The Company has also developed and is currently marketing products for the
diagnosis and treatment of supraventricular tachycardia. Supraventricular
tachycardias affect ventricular rate from an origin above the ventricles. The
two most common types of supraventricular tachycardias are readily treatable
using standard radiofrequency catheter ablation techniques. The Company's
Trio/Ensemble diagnostic catheters and Radii supraventricular tachycardia
mapping and ablation catheters are used for electrophysiological diagnostic
mapping and ablation of supraventricular tachycardia. The Company believes the
Ensemble catheter is the world's smallest general purpose electrophysiology
diagnostic catheter. Arrow International, Inc. ("Arrow") received 510(k)
clearance for the Trio/Ensemble diagnostic catheters in December 1995. Arrow
distributes the product in the United States and Arrow and a limited number of
other distributors market the product in certain international markets. The
Radii mapping and ablation catheters are distributed internationally by Arrow
and other international distributors.

The Company believes that its investment in basic research of mapping and
ablation methods, its strong research team and its technological expertise have
positioned it to take advantage of the need for safe and more effective
treatments of ventricular tachycardia and atrial fibrillation. The Company's
strategy is to establish its Ventricular Tachycardia Ablation System, Arrhythmia
Mapping Systems and Atrial Fibrillation Ablation System as the preferred means
for the diagnosis and the treatment of ventricular tachycardia and atrial
fibrillation. The key elements of the Company's strategy are to demonstrate
clinical efficacy and safety of these systems, to build upon relationships with
electrophysiologists, to provide integrated system solutions for diagnosing and
treating ventricular tachycardia and atrial fibrillation, to maintain
technological leadership and achieve market leadership and to protect and
enhance its proprietary technology position.

5
<PAGE> 10

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 2,500,000 shares
Common Stock to be outstanding after the 9,086,909 shares(1)
offering...................................
Use of proceeds.............................. For funding research and development,
including clinical trials, marketing and
sales, general and administrative support,
capital expenditures and working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol....... CPWY
</TABLE>

- ------------
(1) Based on shares outstanding as of March 31, 1996. Excludes (i) 1,217,548
shares of Common Stock issuable upon exercise of options outstanding as of
March 31, 1996, with a weighted average exercise price of $1.66 per share,
(ii) 107,971 shares of Common Stock issuable upon exercise of warrants
outstanding as of March 31, 1996, with a weighted average exercise price of
$12.50 per share and (iii) 287,810 shares of Common Stock, as of March 31,
1996, issuable upon conversion of an outstanding convertible promissory note
at a conversion rate equal to $18.00 per share. Also excludes 383,735
additional shares of Common Stock reserved for future issuance under the
Company's stock plans as of March 31, 1996. See "Management -- Stock Plans,"
"Description of Capital Stock" and Notes 3, 4 and 14 of Notes to
Consolidated Financial Statements.

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

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED(2)
-------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................... $ 12,485 $ 53,293
Working capital..................................................... 11,548 52,356
Total assets........................................................ 15,820 56,628
Long-term obligations, net of current portion....................... 8,825 8,825
Accumulated deficit................................................. (28,416) (28,416)
Stockholders' equity................................................ 5,376 46,184
</TABLE>

- ------------
(1) Common equivalent shares from stock options and warrants and convertible
Preferred Stock are excluded from the computation of pro forma net loss per
share as their effect is antidilutive, except that common and common
equivalent shares issued during the twelve-month period prior to the initial
filing of the proposed public offering have been included in the calculation
as if they were outstanding for all periods presented. The computation also
gives effect to the automatic conversion of convertible Preferred Stock upon
the closing of this offering. See Notes 1 and 4 of Notes to Consolidated
Financial Statements.

(2) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $18.00 per
share and after deducting estimated underwriting discounts and commissions
and offering expenses payable by the Company and the exercise of a warrant
to purchase 6,667 shares of Common Stock at an exercise price of $8.70 per
share. See "Capitalization."

6
<PAGE> 11

RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In evaluating the Company's business, prospective investors should
carefully consider the following factors in addition to the other information
presented in this Prospectus.

Limited Operating History; History of Losses and Expectation of Future
Losses. The Company was founded in April 1991 and to date has engaged primarily
in researching, developing, testing and obtaining regulatory clearances for its
products. The Company has experienced significant operating losses since
inception. The Company's net loss in fiscal 1993, 1994 and 1995 and in the nine
months ended March 31, 1996 was $3.5 million, $7.4 million, $9.7 million and
$6.7 million, respectively. As of March 31, 1996, the Company had an accumulated
deficit of approximately $28.4 million. The Company has generated only limited
revenues from sales of supraventricular tachycardia and diagnostic catheters in
certain markets. The Company does not have any experience in manufacturing,
marketing or selling in commercial quantities its products for diagnosis and
treatment of ventricular tachycardia and atrial fibrillation. There can be no
assurance that the Company's development efforts will result in commercially
available products for diagnosis and treatment of ventricular tachycardia and
atrial fibrillation, that any such product will prove to be safe and efficacious
in clinical trials, that required regulatory approvals will be obtained in a
timely manner, or at all, or that the Company will be successful in introducing
any such product. Any commercialization of the Company's products will require
substantial development, clinical, regulatory, manufacturing, sales and
marketing and other expenditures. The Company expects its operating losses to
continue through at least the end of calendar 1998 as it continues to expend
substantial funds for clinical trials in support of regulatory approvals,
expansion of research and development activities, establishment of
commercial-scale manufacturing capabilities and expansion of sales and marketing
activities. There can be no assurance that any of the Company's potential
products for diagnosis and treatment of ventricular tachycardia and atrial
fibrillation will be successfully commercialized or that the Company will
achieve significant revenues from either international or domestic sales. In
addition, there can be no assurance that the Company will achieve or sustain
profitability in the future. The Company's results of operations may fluctuate
significantly from quarter to quarter or year to year and will depend upon
numerous factors, including actions relating to regulatory matters, progress of
clinical trials, the extent to which the Company's products gain market
acceptance, the timing of scale-up of manufacturing capabilities, the timing of
expansion of sales and marketing activities and competition. In the past, the
Company has scaled-up manufacturing in anticipation of commercialization of two
catheter products. Subsequent delays in the Company's ability to commercialize
the products resulted in fluctuations in the Company's results as it incurred
manufacturing scale-up costs without corresponding revenues. There can be no
assurance that similar events will not result in fluctuations in the Company's
operating results in future periods. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Clinical
Trials," "-- Competition," "-- Government Regulation" and "-- Third-Party
Reimbursement and Uncertainty Related to Health Care Reform."

Dependence Upon Ventricular Tachycardia Ablation System, Arrhythmia Mapping
Systems and Atrial Fibrillation Ablation System. Since inception, the Company
has been primarily engaged in researching, developing, testing and obtaining
regulatory clearances for the mapping and ablation catheters and mapping and
ablation equipment that are the components of the Company's Ventricular
Tachycardia Ablation System, Arrhythmia Mapping Systems and Atrial Fibrillation
Ablation System. The Company believes that these systems and their component
catheters and equipment are currently the Company's only significant potential
products. These systems will require additional development and clinical trials
and regulatory approvals before they can be marketed in the United States and
internationally. At the earliest, the Company does not anticipate filing a
pre-market approval ("PMA") application for any system for at least the next two
years, and does not anticipate receiving a PMA for any such system until at
least one to three years after such PMA application is accepted for filing, if
at all. The Company will not generate any significant revenue in the United
States until such time, if ever, as its Ventricular Tachycardia Ablation System,
Arrhythmia Mapping Systems or Atrial Fibrillation Ablation System obtain
clearance or approval from the United States Food and Drug

7
<PAGE> 12

Administration (the "FDA"). There can be no assurance that the Company's
development efforts will be successful or that the Ventricular Tachycardia
Ablation System, Arrhythmia Mapping Systems or Atrial Fibrillation Ablation
System or any other product developed by the Company will be safe or effective,
approved by appropriate regulatory and reimbursement authorities, capable of
being manufactured in commercial quantities at acceptable costs or successfully
marketed. Furthermore, because the Ventricular Tachycardia Ablation System,
Arrhythmia Mapping Systems and Atrial Fibrillation Ablation System represent the
Company's sole near-term product focus, the Company could be required to cease
operations if these systems are not successfully commercialized. See
"Business -- Products and Systems."

Early Stage of Clinical Testing and Lack of Clinical Data. A clinical
trial of the ablation catheter and ablation equipment that together form the
Company's Ventricular Tachycardia Ablation System began in November 1995
pursuant to an investigational device exemption ("IDE") approved by the FDA in
June 1995. As of May 20, 1996, only eight patients enrolled in the clinical
trial have received ablation treatment with the Ventricular Tachycardia Ablation
System. The ablation treatments have only recently been performed. As a result,
patient follow-up has been limited, and the results of the treatment are very
preliminary. The Company has not yet established with the FDA the length of the
required post-treatment follow-up period. In any event, the Company anticipates
that the clinical trial will not be completed prior to early calendar 1998. A
clinical trial of the mapping catheter and mapping equipment that together form
the Company's Arrhythmia Mapping System for diagnostic mapping of ventricular
tachycardia began in February 1996. As of May 20, 1996, only one patient has
been enrolled in this clinical trial. The Company is performing the clinical
trial pursuant to an IDE feasibility study, and an IDE has not yet been
submitted or approved by the FDA. In response to a complication noted in the
evaluation of a patient, the Company has made a slight modification to the
deployment system of the Mercator Left Ventricular Mapping Basket. In May 1996,
the Company submitted an IDE supplement requesting clearance of the modification
to the deployment system. Each of these systems and their component catheters
and equipment are in the early stages of clinical testing. Clinical data
obtained to date are insufficient to demonstrate the safety and efficacy of
these products under applicable FDA regulatory guidelines. There can be no
assurance that any of the Company's products will prove to be safe and effective
in clinical trials under applicable United States or international regulatory
guidelines or that additional modifications to the Company's products will not
be necessary. In addition, the clinical trials may identify significant
technical or other obstacles to be overcome prior to obtaining necessary
regulatory or reimbursement approvals. In addition, the ablation catheter and
ablation equipment that together form the Company's Atrial Fibrillation Ablation
System and the mapping catheter and mapping equipment that together form the
Company's Arrhythmia Mapping System for atrial fibrillation are still under
development. As a result, the Company has not submitted an IDE nor begun any
clinical trials for these atrial fibrillation products. There can be no
assurance that the Company will be successful in completing development of the
atrial fibrillation products and submitting the appropriate IDEs or that the FDA
will permit the Company to undertake clinical trials of the atrial fibrillation
products. If the Ventricular Tachycardia Ablation System, Arrhythmia Mapping
Systems and Atrial Fibrillation Ablation System and their component catheters
and equipment do not prove to be safe and effective in clinical trials or if the
Company is otherwise unable to commercialize these products successfully, the
Company's business, financial condition and results of operations will be
materially adversely affected. In addition, because ablation treatment of these
cardiac arrhythmias is a relatively new and to date untested treatment, the
long-term effects of radiofrequency ablation on patients are unknown. As a
result, the long-term success of ablation therapy in treating ventricular
tachycardia and atrial fibrillation will not be known for several years. See
"Business -- Products and Systems" and "-- Clinical Trials."

Lack of United States Regulatory Clearance or Approval. The design,
manufacturing, labeling, distribution and marketing of the Company's products
are subject to extensive and rigorous government regulation in the United States
and the process of obtaining required regulatory approvals is lengthy, expensive
and uncertain. In order for the Company to market the Ventricular Tachycardia
Ablation System, Arrhythmia Mapping Systems or Atrial Fibrillation Ablation
System and related catheters and equipment in the United States, the Company
must obtain clearance or approval from the FDA. Before a new device can be
introduced into the market, the manufacturer must generally obtain marketing
clearance through a premarket clearance under Section 510(k) of the Federal
Food, Drug and Cosmetic Act of 1938, as amended, and the regulations

8
<PAGE> 13

promulgated thereunder (the "FDC Act") ("510(k)") or a PMA application under
Section 515 of the FDC Act. See "Business -- Government Regulation." Based upon
industry and FDA publications, the Company believes that it generally takes from
four to twelve months from the date of submission to obtain a 510(k) clearance,
but it can take longer. There can be no assurance that the FDA will determine
that any of the Company's devices can be cleared for marketing through the
510(k) notification process, causing the Company to incur costs and delay in
seeking FDA approval of PMA applications for these devices. A PMA application
may be submitted to the FDA only after clinical trials and the required patient
follow-up for a particular system or its component catheter and equipment are
successfully completed. Upon acceptance of a PMA application for filing, the FDA
commences a review process that, based upon industry and FDA publications, the
Company believes generally takes one to three years from the date on which the
PMA application is accepted for filing, but may take significantly longer.
Before approval of the PMA application, the FDA will inspect the Company to
determine whether its manufacturing facilities and processes comply with FDA
regulations for Good Manufacturing Practice ("GMP").

The process of obtaining a PMA and other required regulatory approvals can
be expensive, uncertain, and lengthy, and there can be no assurance that the
Company will ever obtain such approvals. At the earliest, the Company does not
anticipate filing a PMA application for any system for at least the next two
years, and does not anticipate receiving a PMA for any such system until at
least one to three years after such PMA application is accepted for filing, if
at all. There can be no assurance that the FDA will act favorably or quickly on
any of the Company's submissions to the FDA, and significant difficulties and
costs may be encountered by the Company in its efforts to obtain FDA clearance
that could delay or preclude the Company from selling its products in the United
States. Furthermore, there can be no assurance that the FDA will not request
additional data, require that the Company conduct further clinical studies,
causing the Company to incur substantial cost and delay. In addition, there can
be no assurance that the FDA will not impose strict labeling requirements,
onerous operator training requirements or other requirements as a condition of
its PMA approval, any of which could limit the Company's ability to market its
systems. Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission ("FTC"). FDA
enforcement policy strictly prohibits the marketing of FDA cleared or approved
medical devices for unapproved uses. Further, if a company wishes to modify a
product after FDA approval of a PMA, including changes in indications or other
modifications that could affect safety or efficacy, additional clearances or
approvals will be required from the FDA. In this regard, the Company has made
certain modifications to the Trio/Ensemble diagnostic catheters which the
Company believes do not require submission of a new 510(k) notification. There
can be no assurance, however, that the FDA will not require the submission of a
new 510(k) notification for any of the modifications. If the FDA were to take
such action, marketing the modified device could be delayed until a new 510(k)
modification was cleared by the FDA. Failure to receive or delays in receipt of
FDA clearances or approvals, including the need for additional clinical trials
or data as a prerequisite to clearance or approval, or any FDA conditions that
limit the ability of the Company to market its systems, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Government Regulation."

Lack of International and Other Regulatory Agency Clearance or
Approval. In order for the Company to market the Ventricular Tachycardia
Ablation System, Arrhythmia Mapping Systems or Atrial Fibrillation Ablation
System and the component catheters and equipment in Europe and in certain other
foreign jurisdictions, the Company and its distributors and agents must obtain
required regulatory approvals and clearances and otherwise comply with extensive
regulations regarding safety and quality. These regulations, including the
requirements for approvals or clearance to market and the time required for
regulatory review, vary from country to country. There can be no assurance that
the Company will obtain regulatory approvals in such countries or that it will
not be required to incur significant costs in obtaining or maintaining its
foreign regulatory approvals. Delays in receipt of approvals to market the
Company's products, failure to receive these approvals, or future loss of
previously received approvals could have a material adverse effect on the
Company's business, financial condition and results of operations. The European
Union has promulgated rules requiring that medical products receive by
mid-calendar 1998 the right to affix the CE mark, an international symbol of
adherence to quality assurance standards and compliance with applicable European
medical device directives. In order to obtain the right to affix the CE mark to
the Ventricular Tachycardia Ablation System,

9
<PAGE> 14

Arrhythmia Mapping Systems or Atrial Fibrillation Ablation System or component
catheters and equipment, the Company will need to obtain certification that its
processes meet European quality standards, including certification that its
design and manufacturing facility complies with ISO 9001 standards. Failure to
receive the right to affix the CE mark will prohibit the Company from selling
the Ventricular Tachycardia Ablation System, Arrhythmia Mapping Systems or
Atrial Fibrillation Ablation System in member countries of the European Union,
and there can be no assurance that the Company will be successful in meeting
European quality standards or other certification requirements. The State of
California also requires that the Company obtain a license to manufacture
medical devices. The Company has applied for a device manufacturing license from
the California Department of Health Services ("CDHS"); however, the Company has
not yet received an inspection by the state agency, which is required before a
license can be issued. If the Company is unable to obtain such a license, it
would be unable to manufacture or ship any product, which inability would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."

Uncertainty of Market Acceptance; Training of Physicians Required. There
can be no assurance that the Company's Ventricular Tachycardia Ablation System,
Arrhythmia Mapping Systems or Atrial Fibrillation Ablation System or the
component catheters and equipment will gain any significant degree of market
acceptance among physicians, patients and health care payors, even if clinical
trials demonstrate safety and efficacy and necessary regulatory and
reimbursement approvals are obtained. The Company believes that physicians'
acceptance of procedures performed using the Company's systems will be essential
for market acceptance of its systems. Physicians will not recommend that
procedures be performed using the Company's systems until such time, if at all,
as clinical data or other factors demonstrate the efficacy of such procedures as
compared to conventional drug, surgical and other treatments. Even if the
clinical efficacy of procedures using the Company's systems is established,
electrophysiologists, cardiologists and other physicians may elect not to
recommend the procedures for any number of other reasons. The Company believes
that, as with any novel medical procedure, there will be a significant learning
process involved for physicians to become proficient. Broad use of the Company's
systems will require training of physicians, and the time required to complete
such training could adversely affect market acceptance. Failure of the Company's
products to achieve significant market acceptance would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Products and Systems" and "-- Clinical Trials."

Significant Competition; Rapid Technological Change. The Company's systems
for the diagnosis and treatment of ventricular tachycardia and atrial
fibrillation are new technologies that must compete with more established
treatments such as drugs, external electrical cardioversion and defibrillation,
implantable defibrillators, ablation accompanied by pacemaker implantation, and
open-heart surgery. In addition, several competitors are also developing new
approaches and new products for the treatment and mapping of ventricular
tachycardia and atrial fibrillation. Many of the Company's competitors have an
established presence in the field of interventional cardiology and
electrophysiology, including Boston Scientific Corporation, C.R. Bard, Inc.,
Johnson & Johnson through its Cordis Division and Medtronic, Inc. Many of these
competitors have substantially greater financial and other resources than the
Company, including larger research and development staffs and more experience
and capabilities in conducting research and development activities, testing
products in clinical trials, obtaining regulatory approvals, and manufacturing,
marketing and distributing products. There can be no assurance that the Company
will succeed in developing and marketing technologies and products that are more
clinically efficacious and cost-effective than the more established treatments
or the new approaches and products developed and marketed by its competitors.
Furthermore, there can be no assurance that the Company will succeed in
developing new technologies and products that are available prior to its
competitors' products. The failure of the Company to demonstrate the efficacy
and cost-effective advantages of its products over those of its competitors or
the failure to develop new technologies and products before its competitors
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Competition."

Dependence on Patents and Proprietary and Licensed Technology. The
Company's success will depend in part on its ability to obtain patent protection
for its products and processes, to preserve its trade secrets,

10
<PAGE> 15

trademarks and copyrights and to operate without infringing or violating the
proprietary rights of others. The patent positions of medical device companies,
including those of the Company, are uncertain and involve complex and evolving
legal and factual questions. The coverage sought in a patent application either
can be denied or significantly reduced before or after the patent is issued.
Consequently, there can be no assurance that the scope of any of the Company's
patent protection will exclude competitors or provide competitive advantages to
the Company, that any of the Company's patents will be held valid if
subsequently challenged or that others will not claim rights in or ownership of
the patents and other proprietary rights held by the Company. In addition, there
can be no assurance that competitors, many of which have substantial resources
and have made substantial investments in competing technologies, will not seek
to 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 in international markets. Further, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as do
the laws of the United States. The Company seeks to protect the software
included in its systems under trade secret and copyright laws, which afford only
limited protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or obtain and use information
that the Company regards as proprietary. In addition to patents, trademarks and
copyrights, the Company relies on trade secrets and proprietary know-how to
compete, which it seeks to protect, in part, through appropriate confidentiality
and proprietary information agreements. There can be no assurance that
proprietary information or confidentiality agreements with employees,
consultants and others will not be breached, that the Company will 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 relies
on certain technology that it licenses from others, including technology that is
integrated into the Company's mapping and ablation systems. In addition, the
Company relies on an exclusive royalty-bearing license for the use of patents
relating to a device for ablating atrial fibrillation. The Company has also
licensed a proprietary surface coating material used on certain of its
catheters. There can be no assurance that these licenses will continue to be
available to the Company. The loss of or inability to maintain any of these
licenses could result in delays in commercial shipments by the Company until
equivalent technology could be developed internally or identified, licensed and
integrated, which would have a material adverse effect on the Company's
business, financial condition and operating results. See "Business -- Patents
and Proprietary Rights."

Risks of Third Party Claims of Infringement. 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.
Although the Company has not received any letters from others threatening to
enforce intellectual property rights against the Company, there can be no
assurance that the Company will not become subject to patent infringement claims
or litigation in a court of law, interference proceedings declared by the United
States Patent and Trademark Office ("USPTO") to determine the priority of
inventions or an opposition to a patent grant in a foreign jurisdiction. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings, oppositions and related legal and administrative proceedings are
both costly and time-consuming. Any litigation, opposition or interference
proceedings will result in substantial expense to the Company and significant
diversion of effort by the Company's technical and management personnel. An
adverse determination in litigation, interference or opposition proceedings to
which the Company may become a party could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to cease using such technology. 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 from others would
be available to the Company on satisfactory terms, if at all. Adverse
determinations 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. The Company is aware of certain
patents owned or licensed by others and relating to cardiac catheters and
cardiac monitoring. Certain enhancements of the Company's products are still in
the design and pre-clinical testing phase. Depending on the ultimate design
specifications and results of pre-clinical testing of these enhancements there

11
<PAGE> 16

can be no assurance that the Company would be able to obtain a license to such
patents or that a court would find that such patents are either not infringed by
such enhancements or are invalid. Further, there can be no assurance that owners
or licensees of these patents will not attempt to enforce their patent rights
against the Company in a patent infringement suit or other legal proceeding,
regardless of the likely outcome of such suit or proceeding. Litigation or
regulatory proceedings, which could result in substantial cost, uncertainty and
diversion of resources to the Company, may be necessary to enforce patents
issued to the Company, to protect trade secrets, know-how or other intellectual
property rights owned by the Company or to determine the scope and validity of
other parties' proprietary rights. There can be no assurance that the Company
will have the financial resources to protect and defend its intellectual
property. See "Business -- Patents and Proprietary Rights."

Possible Future Capital Requirements. The Company plans to continue to
expend substantial funds for clinical trials in support of regulatory approvals,
expansion of research and development activities, establishment of
commercial-scale manufacturing capabilities and expansion of sales and marketing
activities. The Company may be required to expend greater-than-anticipated funds
if unforeseen difficulties arise in the course of completing required additional
development of its products, performing clinical trials of such products,
obtaining necessary regulatory and reimbursement approvals or in other aspects
of the Company's business. In addition, the Company expects its operating losses
to continue for the foreseeable future as it continues to expend substantial
resources in funding clinical trials in support of regulatory approvals,
expansion of research and development activities, establishment of
commercial-scale manufacturing capabilities and expansion of sales and marketing
activities. The Company's future liquidity and capital requirements will depend
upon numerous factors, including the progress of the Company's product
development efforts, the progress of the Company's clinical trials, actions
relating to regulatory matters, the costs and timing of expansion of product
development, manufacturing and sales and marketing activities, the extent to
which the Company's products gain market acceptance, and competitive
developments. Although the Company believes that the proceeds from this
offering, together with the Company's current cash balances and cash generated
from the future sale of products will be sufficient to meet the Company's
operating and capital requirements through calendar 1998, there can be no
assurance that the Company will not require additional financing within this
time frame. The Company's forecast of the period of time through which its
financial resources will be adequate to support its operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary. The factors described earlier in this paragraph will impact
the Company's future capital requirements and the adequacy of its available
funds. The Company may be required to raise additional funds through public or
private financing, collaborative relationships or other arrangements. There can
be no assurance that such additional funding, if needed, will be available on
terms attractive to the Company, if at all. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available, may
involve restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories. The failure of the Company
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."

Limited Manufacturing Experience; Scale-Up Risk. The Company has only
limited experience in manufacturing its catheters and systems. The Company
currently manufactures its catheters and systems in limited quantities for
laboratory testing, United States clinical trials, international clinical trials
and, in the case of its Radii supraventricular tachycardia mapping and ablation
catheters and Trio/Ensemble diagnostic catheters, limited commercial sales. The
Company has no experience manufacturing its products in the volumes that will be
necessary for the Company to achieve significant commercial sales, and there can
be no assurance that reliable, high-volume manufacturing capacity can be
established or maintained at commercially reasonable costs. If the Company
receives FDA clearance or approval for its products, it will need to expend
significant capital resources and develop manufacturing expertise to establish
large-scale manufacturing capabilities. Manufacturers often encounter
difficulties in scaling up production of new products, including problems
involving production yields, quality control and assurance, component supply
shortages, shortages of qualified personnel, compliance with FDA regulations,
and the need for further FDA approval of new

12
<PAGE> 17

manufacturing processes. In addition, the Company believes that substantial cost
reductions in its manufacturing operations will be required for it to
commercialize its catheters and systems on a profitable basis. Any inability of
the Company to establish and maintain large-scale manufacturing capabilities
would have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company's manufacturing facilities are subject to periodic inspection
by regulatory authorities, and its operations must undergo GMP compliance
inspections conducted by the FDA. To date, the Company's facilities and
manufacturing processes have not undergone any such inspections. The Company
will be required to comply with GMP requirements in order to produce products
for sale in the United States and with ISO 9001 standards in order to produce
products for sale in Europe. Any failure of the Company to comply with GMP or
ISO 9001 standards may result in the Company being required to take corrective
actions, such as modification of its policies and procedures. In addition, the
Company may be required to cease all or part of its operations for some period
of time until it can demonstrate that appropriate steps have been taken to
comply with GMP or ISO 9001 regulations. There can be no assurance that the
Company will be found in compliance with GMP or ISO 9001 standards in future
audits by regulatory authorities or that the Company will not experience
difficulties in the course of developing its manufacturing capability. A failure
to comply with GMP or ISO 9001, or to develop its manufacturing capability in
compliance with such standards, could have a material adverse effect on the
Company's business, financial condition and results of operations. The State of
California also requires that the Company obtain a license to manufacture
medical devices. The Company has applied for a device manufacturing license from
the CDHS; however, the Company has not yet received an inspection by the state
agency, which is required before a license can be issued. If the Company is
unable to obtain such a license, it would be unable to manufacture or ship any
product, which inability would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Manufacturing."

Dependence On Key Suppliers. The Company purchases certain key components
of its products, including the computer workstation, the programmable fluid
pump, certain integrated circuit components, flex circuits and biocompatible
coating from sole, single or limited source suppliers. For certain of these
components there are relatively few alternative sources of supply. Establishing
additional or replacement suppliers for any of the numerous components used in
the Company's products, if required, may not be accomplished quickly and could
involve significant additional costs. A failure of the Company to obtain
alternative vendors for any of the numerous components used to manufacture the
Company's products, if required, would limit the Company's ability to
manufacture its products and would have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
any supply interruption from vendors, or failure to establish replacement
vendors, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing."

Limited Sales, Marketing and Distribution Experience. The Company has only
limited experience marketing and selling its products, and does not have any
experience marketing and selling its products in commercial quantities. The
Company currently has a limited number of distributors that cover certain
European countries, Japan and Canada and has sold only a limited number of Radii
supraventricular tachycardia mapping and ablation catheters and Trio/Ensemble
diagnostic catheters. If FDA clearances or approvals are received, the Company
intends to market its products primarily through a direct sales force in the
United States and indirect sales channels internationally. Establishing a
marketing and sales capability sufficient to support sales in commercial
quantities will require substantial efforts and require significant management
and financial resources. There can be no assurance that the Company will be able
to build such a marketing staff or sales force, that establishing such a
marketing staff or sales force will be cost-effective or that the Company's
sales and marketing efforts will be successful. If the Company is successful in
obtaining the necessary regulatory approvals for its ventricular tachycardia and
atrial fibrillation products in international markets, it expects to establish a
sales and marketing capability in those markets primarily through distributors.
The Company has not begun discussions with all needed international
distributors. There can be no assurance that the Company will be able to enter
into agreements with desired distributors on a timely basis or at all, or that
such distributors will devote adequate resources to selling the Company's
products. Failure to

13
<PAGE> 18

establish appropriate distribution relationships could have a material adverse
effect upon the Company's business, financial condition and results of
operations. See "Business -- Marketing and Distribution."

No Assurance that the Company Can Manage Expanding Operations. In order to
complete clinical trials in progress, prepare additional products for clinical
trials, and develop future products, the Company believes that it will be
required to expand its operations, particularly in the areas of research and
development, manufacturing and sales and marketing. As the Company expands its
operations in these areas, such expansion will likely result in new and
increased responsibilities for management personnel and place significant strain
upon the Company's management, operating and financial systems and resources. To
accommodate any such growth and compete effectively, the Company will be
required to implement and improve information systems, procedures, and controls,
and to expand, train, motivate and manage its work force. The Company's future
success will depend to a significant extent on the ability of its current and
future management personnel to operate effectively, both independently and as a
group. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's future
operations. Any failure to implement and improve the Company's operational,
financial and management systems or to expand, train, motivate or manage
employees as required by future growth, if any, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Dependence Upon Key Personnel" and "Business -- Employees" and
"Management."

Risks Relating to International Operations. The Company currently sells
its Radii supraventricular tachycardia mapping and ablation catheters and
Trio/Ensemble diagnostic catheters through distributors primarily in certain
international markets. In addition, the Company plans to market its ventricular
tachycardia and atrial fibrillation products in international markets, subject
to receipt of required regulatory approvals. Changes in overseas economic
conditions, currency exchange rates, foreign tax laws, or tariffs or other trade
regulations could have a material adverse effect on the Company's ability to
market its products internationally and therefore on its business, financial
condition and results of operations. The Company's business is also expected to
subject it and its representatives, agents and distributors to laws and
regulations of the foreign jurisdictions in which they operate or the Company's
products are sold. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and
there can be no assurance that new laws or regulations will not have an adverse
effect on the Company's business, financial condition and results of operations.
In addition, the laws of certain foreign countries do not protect the Company's
intellectual property rights to the same extent as do the laws of the United
States. See "Business -- Marketing and Distribution."

Uncertainty Related to Third-Party Reimbursement. In the United States,
health care providers, including hospitals and physicians, that purchase medical
devices for treatment of their patients, generally rely on third-party payors,
principally federal Medicare, state Medicaid and private health insurance plans,
to reimburse all or a part of the costs and fees associated with the procedures
performed using these devices. The Company's success will be dependent upon,
among other things, the ability of health care providers to obtain satisfactory
reimbursement from third-party payors for medical procedures in which the
Company's ventricular tachycardia and atrial fibrillation products are used.
Third-party payors may deny reimbursement if they determine that a prescribed
device has not received appropriate regulatory clearances or approvals, is not
used in accordance with cost-effective treatment methods as determined by the
payor, or is experimental, unnecessary or inappropriate. If FDA clearance or
approval is received, third-party reimbursement would also depend upon decisions
by Health Care Financing Administration ("HCFA") for Medicare, as well as by
individual health maintenance organizations, private insurers and other payors.
Reimbursement systems in international markets vary significantly by country and
by region within some countries, and reimbursement approvals must be obtained on
a country-by-country basis. Many international markets have government managed
health care systems that control reimbursement for new devices and procedures.
In most markets, there are private insurance systems as well as government
managed systems. 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 government or private reimbursement systems, or that physicians
will support and advocate reimbursement for procedures using the Company's
products. Failure by hospitals and other users of the Company's products to
obtain reimbursement from third-party payors, or changes in government and
private

14
<PAGE> 19

third-party payors' policies toward reimbursement for procedures employing the
Company's products, would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the Company
is unable to predict what additional legislation or regulation, if any, relating
to the health care industry or third-party coverage and reimbursement may be
enacted in the future, or what effect such legislation or regulation would have
on the Company.

Limited Product Liability Insurance. The development, manufacture and sale
of medical devices entail significant risks of product liability claims and
product failure claims. The Company has conducted only limited clinical trials
and does not yet have, and will not have for a number of years, sufficient
clinical data to allow the Company to measure the risk of such claims with
respect to its products. The medical device industry has historically been
litigious, and the Company faces financial exposure to product liability claims
in the event that the use of its products results in personal injury or death.
The Company also faces the possibility that defects in the design or manufacture
of its products might necessitate a product recall. There can be no assurance
that the Company will not experience losses due to product liability claims or
recalls in the future. The Company currently maintains product liability
insurance with coverage limits of $5.0 million per occurrence and $7.0 million
annually in the aggregate, and there can be no assurance that the coverage
limits of the Company's insurance policies will be adequate. In addition, the
Company may require increased product liability coverage if any potential
ventricular tachycardia and atrial fibrillation products are successfully
commercialized. Such insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, or at all. Any claims against the
Company, regardless of their merit or eventual outcome, could have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "Business -- Product Liability and Insurance."

Dependence Upon Key Personnel. The Company's ability to operate
successfully depends in significant part upon the continued service of certain
key scientific, technical, clinical, regulatory and managerial personnel, and
its continuing ability to attract and retain additional highly qualified
scientific, technical, clinical, regulatory and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain such personnel or that it can attract or retain other
highly qualified scientific, technical, clinical, regulatory and managerial
personnel in the future, including key sales and marketing personnel. The loss
of key personnel or the inability to hire and retain qualified personnel could
have a material adverse effect upon the Company's business, financial condition
and results of operations. In addition, many employees of the Company, including
a number of its key scientific, technical, clinical, regulatory and managerial
personnel, are subject to the terms of confidentiality agreements with respect
to proprietary information of their former employers. The failure of these
employees to comply with the terms of their agreements with, or other
obligations to, such former employers could result in assertion of claims
against the Company and such employees, which, if successful, could restrict
their role with the Company and have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Patents and Proprietary Rights" and "Management."

Uncertainty Related to Health Care Reform. Political, economic and
regulatory influences are subjecting the health care industry in the United
States to fundamental change. The Company anticipates that Congress, state
legislatures and the private sector will 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. See "Business -- Third-Party Reimbursement and Uncertainty Related to
Health Care Reform."

Anti-Takeover Effect of Delaware Law and Certain Charter and Bylaws
Provisions on Price of Common Stock. 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 discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in

15
<PAGE> 20

the future for shares of the Company's Common Stock. See "Description of Capital
Stock -- Certain Provisions of Certificate of Incorporation and Bylaws." Certain
provisions of Delaware law applicable to the Company could also delay or make
more difficult a merger, tender offer or proxy contest involving the Company,
including Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions are
met. In addition, the Board of Directors of the Company may issue shares of
Preferred Stock without stockholder approval on such terms as the Board may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The possible issuance of Preferred Stock, the
existence of a classified Board of Directors, the inability of stockholders to
act by written consent without a meeting, the procedures required for director
nominations and stockholder proposals and Delaware law could have the effect of
delaying, deferring or preventing a change in control of the Company, including
without limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Company's Common Stock. These
provisions could also limit the price that investors might be willing to pay in
the future for shares of the Company's Common Stock. See "Description of Capital
Stock -- Preferred Stock," "-- Certain Provisions of the Certificate of
Incorporation and Bylaws" and "-- Certain Provisions of Delaware Law."

Significant Influence by Founders, Directors, Executive Officers and
Affiliated Entities. The Company's founders, directors and executive officers
and entities affiliated with them will, in the aggregate, beneficially own
approximately 27.5% of the Company's outstanding shares of Common Stock
following the completion of this offering. These stockholders, if acting
together, would be able to significantly influence all matters requiring
approval by the stockholders of the Company, including the election of directors
and the approval of mergers or other business combination transactions. See
"Principal Stockholders."

No Prior Trading Market for Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations between the Company and
the representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this offering. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, developments with respect to
clinical trials of the Company or its competitors, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to patents or proprietary rights,
conditions and trends in the medical device and other technology industries,
changes in financial estimates by securities analysts, regulatory developments,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stocks of early
stage companies. These types of broad market fluctuations may adversely affect
the market price of the Company's Common Stock. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been initiated against that company. 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 upon the Company's business, financial condition and
results of operations. See "Underwriters."

Shares Eligible for Future Sale; Possible Adverse Effects on Future Market
Price. Sales of a substantial number of shares of Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock prevailing from time to time. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements executed by substantially all the security holders of the Company
under which such security holders have agreed not to sell or otherwise dispose
of any of their shares for a period of 180 days after the date of this
Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. In addition to the 2,500,000 shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), there will be
6,586,909 shares of Common Stock

16
<PAGE> 21

outstanding as of the date of this Prospectus, all of which are "restricted"
shares under the Securities Act. As a result of the lock-up agreements described
above and the provisions of Rules 144(k), 144 and 701, the restricted shares
will be available for sale in the public market as follows: (i) no shares will
be eligible for immediate sale on the date of this Prospectus, (ii)
approximately 6,642,387 shares (including approximately 741,813 shares subject
to outstanding vested options) will be eligible for sale 180 days after the date
of this Prospectus upon expiration of lock-up agreements and (iii) approximately
686,335 shares will be eligible for sale at various times thereafter. In
addition, holders of warrants exercisable for an aggregate of 107,971 shares of
Common Stock have entered into lock-up agreements and all of such shares will be
eligible for sale 180 days after the date of this Prospectus upon the exercise
of such warrants. After this offering, the holders of approximately 5,456,369
shares of Common Stock, and rights to acquire 395,781 shares of Common Stock as
of March 31, 1996, will be entitled to certain demand and piggyback rights with
respect to registration of such shares under the Securities Act. If such
holders, by exercising their demand registration rights, cause a large number of
securities to be registered and sold in the public market, such sales could have
an adverse effect on the market price for the Company's Common Stock. If the
Company were to initiate a registration and include shares held by such holders
pursuant to the exercise of their piggyback registration rights, such sales may
have an adverse effect on the Company's ability to raise capital. See
"Description of Capital Stock -- Registration Rights," "Shares Eligible for
Future Sale" and "Underwriters."

Purchasers Will Suffer Dilution in Net Tangible Book Value. Investors
participating in this offering will incur immediate and substantial dilution. To
the extent outstanding options and warrants to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution."

17
<PAGE> 22

THE COMPANY

The Company was incorporated under the laws of the state of California in
April 1991. The Company anticipates that it will reincorporate in Delaware prior
to the completion of this offering. Unless the context otherwise requires,
references in this Prospectus to "Cardiac Pathways" and the "Company" refer to
Cardiac Pathways Corporation, a California corporation, and where applicable,
its Delaware successor. The Company's principal executive offices are located at
995 Benecia Avenue, Sunnyvale, California 94086, and its telephone number is
(408) 737-0505.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered by the Company hereby are estimated to be $40,750,000
($47,027,500 if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $18.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses. The Company expects to use approximately $15 to $18 million of the net
proceeds of this offering for funding research and development, including
clinical trials, approximately $4 to $6 million for marketing and sales,
approximately $3 to $4 million for general and administrative support,
approximately $3.5 million for capital expenditures and the remainder for
working capital. The foregoing represent estimates only, and the actual amounts
expended by the Company for these purposes and the timing of such expenditures
will depend on numerous factors, including the status of the Company's
development efforts, actions relating to regulatory matters, the extent to which
the Company's products gain market acceptance and competition. The Company may
also use a portion of the net proceeds for the acquisition of technologies,
businesses or products that are complementary to those of the Company, although
no such acquisitions are planned or being negotiated as of the date of this
Prospectus, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the net proceeds of this offering will
be invested in short-term, interest bearing, investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its capital stock.
The Company currently expects to retain its future earnings for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.

18
<PAGE> 23

CAPITALIZATION

The following table sets forth, as of March 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
giving effect to the conversion of all outstanding Preferred Stock into Common
Stock and the authorization of 5,000,000 shares of undesignated Preferred Stock
upon the closing of this offering and the exercise of a warrant to purchase
6,667 shares of Common Stock at an exercise price of $8.70 per share that
expires upon the closing of this offering, and (iii) the pro forma
capitalization as adjusted to give effect to the sale of 2,500,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $18.00 per share and after deduction of estimated underwriting
discounts and commissions and offering expenses).

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current obligations under capital leases(1)............... $ 604 $ 604 $ 604
======== ======== ========
Long-term obligations, net of current portion(1).......... $ 8,825 $ 8,825 $ 8,825
-------- -------- --------
Stockholders' equity:
Preferred Stock, $.001 par value; 6,122,666 shares
authorized, 5,449,702 issued and outstanding actual;
5,000,000 shares authorized, none issued and
outstanding pro forma and as adjusted................ 6 -- --
Common Stock, $.001 par value; 30,000,000 shares
authorized, 1,130,540 shares issued and outstanding
actual; 30,000,000 shares authorized, 6,586,909
shares issued and outstanding pro forma; 30,000,000
shares authorized, 9,086,909 shares issued and
outstanding as adjusted(2)........................... 1 7 9
Additional paid in capital.............................. 33,976 34,034 74,782
Receivables from stockholders........................... (21) (21) (21)
Accumulated deficit..................................... (28,416) (28,416) (28,416)
Deferred compensation................................... (170) (170) (170)
-------- -------- --------
Total stockholders' equity........................... $ 5,376 $ 5,434 $ 46,184
-------- -------- --------
Total capitalization............................ $ 14,201 $ 14,259 $ 55,009
======== ======== ========
</TABLE>

- ------------
(1) See Notes 2 and 3 of Notes to Consolidated Financial Statements.

(2) Pro forma and as adjusted includes 6,667 shares of Common Stock issuable
upon exercise of an outstanding warrant that expires upon the closing of
this offering. Excludes (i) 1,217,548 shares of Common Stock issuable upon
exercise of options outstanding as of March 31, 1996, with a weighted
average exercise price of $1.66 per share, (ii) 107,971 shares of Common
Stock issuable upon exercise of warrants outstanding as of March 31, 1996,
with a weighted average exercise price of $12.50 per share and (iii) 287,810
shares of Common Stock, as of March 31, 1996, issuable upon conversion of an
outstanding convertible promissory note at a conversion rate equal to $18.00
per share. Also excludes 383,735 additional shares of Common Stock reserved
for future issuance under the Company's stock plans as of March 31, 1996.
See "Management -- Stock Plans," "Description of Capital Stock" and Notes 3,
4 and 14 of Notes to Consolidated Financial Statements.

19
<PAGE> 24

DILUTION

The net tangible book value of the Company as of March 31, 1996 was
approximately $5,434,000, or $.83 per share of Common Stock. "Net tangible book
value" per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock then outstanding
(assuming the conversion of all then outstanding Preferred Stock into Common
Stock and the exercise of a warrant to purchase 6,667 shares of Common Stock at
an exercise price of $8.70 per share that expires upon the closing of this
offering). After giving effect to the sale by the Company of the 2,500,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $18.00 per share (and after deduction of estimated
underwriting discounts and commissions and offering expenses payable by the
Company), the Company's pro forma net tangible book value as of March 31, 1996
would have been $46,184,000, or $5.08 per share of Common Stock. This represents
an immediate increase in net tangible book value of $4.25 per share to existing
stockholders and an immediate dilution of $12.92 per share to new investors. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $18.00
Net tangible book value per share before offering................... $ .83
Increase in net tangible book value per share attributable to new
investors........................................................ 4.25
-----
Pro forma net tangible book value per share after offering............ 5.08
------
Dilution per share to new public investors............................ $12.92
======
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing stockholders and by new public investors purchasing shares in this
offering at an assumed initial public offering price of $18.00 per share (and
before deduction of estimated underwriting discounts and commissions and
offering expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 6,586,909 72.5% $34,399,000 43.3% $ 5.22
New public investors...................... 2,500,000 27.5 45,000,000 56.7 18.00
--------- ----- ----------- -----
Total........................... 9,086,909 100.0% $79,399,000 100.0%
========= ===== =========== =====
</TABLE>

The foregoing computations assume the exercise of an outstanding warrant to
purchase 6,667 shares and assume no exercise of stock options, other warrants or
a convertible promissory note after March 31, 1996. As of March 31, 1996, there
were outstanding options to purchase 1,217,548 shares of Common Stock, with a
weighted average exercise price of $1.66 per share, outstanding warrants to
purchase 107,971 shares of Common Stock, with a weighted average exercise price
of $12.50 per share, and an outstanding convertible promissory note convertible
into 287,810 shares of Common Stock, as of March 31, 1996, at a conversion rate
equal to $18.00 per share. In addition, as of March 31, 1996, 383,735 shares of
Common Stock were reserved for future issuance under the Company's stock plans.
To the extent that any shares available for issuance upon exercise of
outstanding options, warrants, the convertible promissory note or reserved for
future issuance under the Company's stock plans are issued, there will be
further dilution to new public investors. See "Management -- Stock Plans" and
"Description of Capital Stock."

20
<PAGE> 25

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The consolidated statement of
operations data for the fiscal years ended June 30, 1993, 1994 and 1995 and the
nine months ended March 31, 1996 and the consolidated balance sheet data as of
June 30, 1994 and 1995 and March 31, 1996 are derived from consolidated
financial statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this Prospectus. The
consolidated statement of operations data for the period from April 24, 1991
(inception) through June 30, 1991 and for the fiscal year ended June 30, 1992
and the consolidated balance sheet data as of June 30, 1991, 1992 and 1993 are
derived from consolidated financial statements of the Company audited by Ernst &
Young LLP that are not included herein. The consolidated statement of operations
data for the nine months ended March 31, 1995 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus. The
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's consolidated
operating results and financial position for such periods. The consolidated
operating results for the nine months ended March 31, 1996 are not necessarily
indicative of the results to be expected for any other interim period or any
future fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 24,
1991 NINE MONTHS
(INCEPTION) YEAR ENDED JUNE 30, ENDED MARCH 31,
THROUGH ------------------------------------- -----------------
JUNE 30, 1991 1992 1993 1994 1995 1995 1996
------------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $-- $ -- $ -- $ -- $ 115 $ 92 $ 1,079
Operating expenses:
Manufacturing start-up and cost of goods sold..... -- -- 202 1,432 2,520 2,016 1,698
Research and development.......................... -- 648 2,494 5,103 5,666 4,190 4,805
Selling, general and administrative............... 85 548 1,021 1,152 1,745 1,378 1,343
------- ------- ------- ------- ------- ------- -------
Total operating expenses................... 85 1,196 3,717 7,687 9,931 7,584 7,846
------- ------- ------- ------- ------- ------- -------
Loss from operations................................ (85) (1,196) (3,717) (7,687) (9,816) (7,492) (6,767)
Other income (expense), net......................... -- 172 232 257 156 152 35
------- ------- ------- ------- ------- ------- -------
Net loss............................................ $(85) $(1,024) $(3,485) $(7,430) $(9,660) $(7,340) $(6,732)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per share(1)..................... $ (1.39) $ (0.97)
======= =======
Shares used in computing pro forma net loss per
share(1).......................................... 6,959 6,975
======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments $3,810 $ 2,601 $ 5,475 $ 15,819 $ 11,652 $ 12,485
Working capital..................................... 3,655 2,529 5,099 14,861 10,632 11,548
Total assets........................................ 3,933 2,858 6,212 17,777 15,139 15,820
Long-term obligations, net of current portion....... -- -- -- 5,050 5,978 8,825
Accumulated deficit................................. (85) (1,109) (4,594) (12,024) (21,684) (28,416 )
Stockholders' equity................................ 3,727 2,778 5,826 11,483 7,440 5,376
</TABLE>

21
<PAGE> 26

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

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 these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.

OVERVIEW

The Company was founded in April 1991 and to date has engaged primarily in
researching, developing, testing and obtaining regulatory clearances for its
products. The Company has experienced significant operating losses since
inception and, as of March 31, 1996, had an accumulated deficit of approximately
$28.4 million. The Company has generated only limited revenues from sales of
Radii supraventricular tachycardia mapping and ablation catheters and
Trio/Ensemble diagnostic catheters. The Company expects its operating losses to
continue through at least the end of fiscal 1998 as it continues to expend
substantial funds for clinical trials in support of regulatory approvals,
expansion of research and development activities, establishment of
commercial-scale manufacturing capabilities and expansion of sales and marketing
activities.

The Company believes that its Ventricular Tachycardia Ablation System,
Arrhythmia Mapping Systems and Atrial Fibrillation Ablation System and their
component catheters and equipment are currently the Company's only significant
potential products. The Ventricular Tachycardia Ablation System and Arrhythmia
Mapping System for diagnostic mapping of ventricular tachycardia are in the
early stages of clinical testing, and clinical data obtained to date are
insufficient to demonstrate the safety and efficacy of these products under
applicable FDA regulatory guidelines. In addition, the ablation catheter and
ablation equipment that together form the Atrial Fibrillation Ablation System
and the mapping catheter and mapping equipment that together form the Arrhythmia
Mapping System for atrial fibrillation are still under development. The design,
manufacturing, labeling, distribution and marketing of the Company's products
are subject to extensive and rigorous government regulation in the United States
and certain other countries where the process of obtaining required regulatory
approvals is lengthy, expensive and uncertain. In order for the Company to
market the Ventricular Tachycardia Ablation System, Arrhythmia Mapping Systems
or Atrial Fibrillation Ablation System and related catheters and equipment in
the United States, the Company must obtain clearance or approval from the FDA.
At the earliest, the Company does not anticipate filing a PMA application for
any system for at least the next two years, and does not anticipate receiving a
PMA for any such system until at least one to three years after such PMA
application is accepted for filing, if at all. The Company will not generate any
significant revenue in the United States until such time, if ever, as its
Ventricular Tachycardia Ablation System, Arrhythmia Mapping Systems or Atrial
Fibrillation Ablation System obtain clearance or approval from the FDA. Even if
one or more of the Company's products obtain FDA clearance or approval, there
can be no assurance that any of the Company's products for diagnosis and
treatment of ventricular tachycardia and atrial fibrillation will be
successfully commercialized or that the Company will achieve significant
revenues from either international or domestic sales.

The Company does not have any experience in manufacturing, marketing or
selling its products for diagnosis and treatment of ventricular tachycardia and
atrial fibrillation in commercial quantities. If the Company receives FDA
clearance or approval for its products, it will need to expend significant
capital resources and develop manufacturing expertise to establish large-scale
manufacturing capabilities. Manufacturers often encounter difficulties in
scaling up production of new products, including problems involving production
yields, quality control and assurance, component supply shortages, shortages of
qualified personnel, compliance with FDA regulations, and the need for further
FDA approval of new manufacturing processes. In addition, if FDA clearances or
approvals are received, the Company intends to market its products primarily
through a direct sales force in the United States and indirect sales channels
internationally. Establishing a marketing and sales capability sufficient to
support sales in commercial quantities will require substantial efforts and
require significant management and financial resources.

22
<PAGE> 27

RESULTS OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 1996 AND 1995

Net Sales. The Company's net sales to date have resulted primarily from
limited sales of the Trio/Ensemble diagnostic catheters and Radii
supraventricular tachycardia mapping and ablation catheters. During the nine
months ended March 31, 1996, the Company also sold a limited number of the Model
8002 Radiofrequency Generator and Integrated Fluid Pump for use in clinical
trials. The Company's net sales increased from $92,000 in the nine months ended
March 31, 1995 to $1.1 million in the nine months ended March 31, 1996. The
increase in net sales was primarily attributable to increased sales of the
Trio/Ensemble and Radii catheters following the establishment of distribution
arrangements in certain European markets and Japan.

In December 1995, the Company received $3.0 million pursuant to a royalty
agreement with Arrow. This amount was recorded as deferred royalty income and
will be amortized to income for those Trio/Ensemble catheters that Arrow
manufactures and sells. The royalty rate is 5% of the Trio/Ensemble catheter's
sales price. To date no royalty income has been earned by the Company because
Arrow has not manufactured the Trio/Ensemble catheter. For the nine months ended
March 31, 1996, the Company earned revenue from sales of Trio/Ensemble catheters
to Arrow. The Company believes that Arrow will begin manufacturing the
Trio/Ensemble product by mid-calendar 1996. As a result, by the end of calendar
1996, Arrow will no longer purchase the Trio/Ensemble catheter from the Company.
At such time the Company will begin to recognize royalty income from Arrow's
sales of the Trio/Ensemble catheter. The prepaid royalty will be amortized to
income based on 5% of the selling price paid by Arrow's customers for the
Trio/Ensemble diagnostic catheters.

Manufacturing Start-Up and Cost of Goods Sold. Manufacturing start-up and
cost of goods sold primarily includes raw materials costs, catheter fabrication
costs and system assembly and test costs. The Company's manufacturing activities
include pilot manufacturing for catheters sold internationally and for catheters
and ablation and mapping equipment used in clinical trials. Manufacturing
start-up and cost of goods sold decreased 15.7% from $2.0 million in the nine
months ended March 31, 1995 to $1.7 million in the nine months ended March 31,
1996. The decrease was primarily attributable to the non-recurrence of
manufacturing start-up costs associated with the expansion of catheter and
ablation and mapping equipment production capacity, partially offset by
increased compensation and associated labor costs for assembly personnel and
increased raw materials and supply costs supporting higher production and sales
levels.

Research and Development. Research and development expenses include costs
associated with product research, clinical trials, prototype development,
obtaining regulatory approvals and costs associated with hiring regulatory,
clinical, research and engineering personnel. Research and development expenses
increased 14.7% from $4.2 million in the nine months ended March 31, 1995 to
$4.8 million in the nine months ended March 31, 1996. This increase was
primarily attributable to increased costs associated with the hiring of
additional engineering, regulatory and clinical personnel, increased prototype
development costs, increased costs related to the manufacture and placement of
Ventricular Tachycardia Ablation and Arrhythmia Mapping Systems at clinical
sites in the United States and Europe as clinical trials commenced. The Company
believes that research and development expenditures will increase in the future
as the Company invests in product and process improvements related to its
ventricular tachycardia and atrial fibrillation products, expands clinical
research activities and increases its research and development efforts related
to new products and technologies.

Selling, General and Administrative. Selling, general and administrative
expenses include compensation and benefits for sales, marketing, senior
management and administrative personnel, professional fees in connection with
obtaining patent protection, and costs of trade shows. Selling, general and
administrative expenses decreased 2.6% from $1.4 million in the nine months
ended March 31, 1995 to $1.3 million in the nine months ended March 31, 1996.
The decrease was primarily attributable to the non-recurrence of certain
one-time costs related to expansion of administrative and sales and marketing
functions and termination of a distributor arrangement, largely offset by
increased expenditures for administrative personnel and services to support
expanding international sales and marketing activities, increased costs
associated with expanded

23
<PAGE> 28

participation in trade shows, increased professional fees related to the filing
and registration of the Company's patents, and costs related to the Company's
internal computer network and related administrative services. The Company
anticipates that selling, general and administrative expenses will increase in
future periods as additional personnel are added to support growing business
operations in all functional areas.

Other Income (Expense), Net. Other income (expense), net decreased from
net other income of $152,000 in the nine months ended March 31, 1995 to net
other income of $35,000 in the nine months ended March 31, 1996. The decrease
resulted from lower interest earned on lower average cash, cash equivalent and
short-term investment balances and increased interest expense in connection with
increased equipment lease financing activity.

Net Loss. Due to the factors described above, the Company recognized net
losses of $7.3 million and $6.7 million in the nine months ended March 31, 1995
and 1996, respectively.

Net Operating Loss and Research Tax Credit Carry Forwards. As of March 31,
1996, the Company's reported net operating loss carryforwards were approximately
$23.0 million and $4.0 million for federal and state income tax purposes,
respectively. The Company's research tax credit carryforwards were approximately
$1.3 million. If not utilized, the net operating loss and credit carryforwards
will expire at various dates beginning in the years between 1998 through 2011.
Approximately $7.0 million of the federal net operating loss carryforward is
subject to an annual limitation on utilization of approximately $1.0 million due
to an ownership change as defined by the provisions of Internal Revenue Code
Section 382. In the event of additional ownership changes in the future as a
result of issuances or additional stock transfers, there could be further annual
limitations on the Company's ability to utilize its net operating loss and
credit carryforwards.

YEARS ENDED JUNE 30, 1993, 1994 AND 1995

Net Sales. Net sales were $115,000 in fiscal 1995. There were no sales in
fiscal 1994 and fiscal 1993. During fiscal 1995, the Company made initial
shipments of the Trio/Ensemble and Radii catheters to distributors in Japan and
Europe. These shipments, consisting of both demonstration units and units for
field use at electrophysiology centers, reflected reduced introductory pricing
arrangements.

Manufacturing Start-Up and Cost of Goods Sold. Manufacturing start-up and
cost of goods sold increased 607.7% from $202,000 in fiscal 1993 to $1.4 million
in fiscal 1994 and increased 75.9% to $2.5 million in fiscal 1995. The increases
in each period were primarily attributable to the initial establishment and
overall expansion of production capacity and quality control operations,
including the hiring of assembly personnel and technicians, and increased
expenditures for raw materials and supplies supporting early production runs. In
fiscal 1994 and 1995, the Company anticipated completing product development
efforts of its Radii and Trio/Ensemble catheters and hired manufacturing
personnel to support the anticipated United States and international
commercialization of these products. The Company was delayed in completing the
development of these products and in obtaining certain United States and
international product registrations. In addition, the Company experienced lower
than expected production yields as it increased manufacturing capacity for the
catheters. Accordingly, the Company incurred manufacturing start-up costs of
approximately $4.0 million, and had insignificant or no revenue during these
fiscal years.

Research and Development. Research and development expenses increased
104.6% from $2.5 million in fiscal 1993 to $5.1 million in fiscal 1994 and
increased 11.0% to $5.7 million in fiscal 1995. The increases in research and
development expenses in each period were primarily attributable to the
establishment and growth of the Company's clinical research operations during
fiscal 1994 and 1995 and the expansion of the Company's overall research and
development organization in fiscal 1994, reflecting costs associated with the
hiring of engineering personnel for the design, development, prototyping and
testing of the Company's products.

Selling, General and Administrative. Selling, general and administrative
expenses increased 12.8% from $1.0 million in fiscal 1993 to $1.2 million in
fiscal 1994 and increased 51.5% to $1.7 million in fiscal 1995. The increases in
selling, general and administrative expenses in each period were primarily
attributable to increased personnel costs as the Company established and
expanded the finance, accounting and human resource

24
<PAGE> 29

functions, increased costs associated with facilities and related services
supporting expanding operations, and increased professional fees in connection
with the filing and registration of the Company's patents.

Other Income (Expense), Net. Other income (expense), net increased from
net other income of $232,000 in 1993 to net other income of $257,000 in fiscal
1994 and decreased to net other income of $157,000 in fiscal 1995. The increase
from fiscal 1993 to fiscal 1994 resulted from increased interest income earned
on higher average cash, cash equivalent and short-term investment balances,
partially offset by increased interest expense in connection with increased
equipment lease financing. The decrease in net other income from fiscal 1994 to
fiscal 1995 resulted from increased interest expense in connection with the
Company's $4.5 million financing and increased equipment lease financing
activity during fiscal 1995, partially offset by increased interest income on
higher average cash, cash equivalent and short-term investment balances.

Net Loss. Due to the factors described above, the Company recognized net
losses of $3.5 million, $7.4 million and $9.7 million in fiscal 1993, 1994 and
1995, respectively.

Impact of Adoption of New Accounting Standards. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123") which
established a fair value based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. The Company will be required to adopt FAS
123 in fiscal 1997. The Company intends to continue to account for employee
stock awards in accordance with APB Opinion No. 25 and to adopt the "disclosure
only" alternative described in FAS 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" ("FAS 121") which
requires the Company to review for impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. In certain situations, an impairment loss would be recognized.
FAS 121 will become effective for the Company's year ending June 30, 1997. The
Company has studied the implications of FAS 121 and, based on its initial
evaluation, does not expect its adoption to have a material impact on the
Company's financial condition or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations through a
combination of private placements of equity securities yielding approximately
$33.5 million, a private placement of debt securities yielding approximately
$4.5 million, equipment lease financing arrangements yielding approximately $2.2
million and a prepaid royalty arrangement yielding $3.0 million. As of March 31,
1996, the Company had approximately $12.5 million in cash, cash equivalents and
investment securities.

Net cash used in operating activities was approximately $3.1 million, $6.7
million, $9.0 million and $2.9 million in fiscal 1993, 1994 and 1995 and the
nine months ended March 31, 1996, respectively. For such periods, net cash used
in operating activities resulted primarily from net losses. Net cash used in
investing activities was approximately $2.3 million, $7.7 million and $920,000
in fiscal 1993 and 1994 and the nine months ended March 31, 1996, respectively,
and net cash provided by investing activities was approximately $2.6 million in
fiscal 1995. The net cash used in investing activities was primarily
attributable to the purchase of short-term investments and the purchase of
property and equipment. Net cash provided by investing activities was primarily
attributable to maturities of short-term investments. Net cash provided by
financing activities was approximately $6.3 million, $17.5 million, $5.2 million
and $4.2 million in fiscal 1993, 1994 and 1995 and the nine months ended March
31, 1996, respectively. The net cash provided by financing activities was
primarily attributable to the sale of Preferred Stock and proceeds from
long-term borrowings.

As of March 31, 1996, the Company had capital equipment of $3.8 million
less accumulated depreciation of $1.5 million to support its clinical,
development, manufacturing and administrative activities. The Company has
financed approximately $2.2 million from capital lease obligations through March
31, 1996. The Company currently has an unused equipment lease line facility of
$1.0 million which expires on December 31, 1996, and

25
<PAGE> 30

expects to fully utilize this lease line and existing cash resources in
connection with the purchase of additional capital equipment over the next 12
months. In addition, as of March 31, 1996, the Company had approximately
$350,000 in noncancelable purchase commitments to acquire certain equipment
components from two vendors. The Company expects to use approximately $15 to $18
million of the net proceeds of this offering for funding research and
development, including clinical trials, approximately $4 to $6 million for
marketing and sales, approximately $3 to $4 million for general and
administrative support, approximately $3.5 million for capital expenditures and
the remainder for working capital. The Company expects capital expenditures to
increase over the next several years as it expands facilities and acquires
equipment to support the planned expansion of manufacturing capabilities.

The Company's future liquidity and capital requirements will depend upon
numerous factors, including the progress of the Company's product development
efforts, the progress of the Company's clinical trials, actions relating to
regulatory matters, the costs and timing of expansion of product development,
manufacturing, marketing and sales activities, the extent to which the Company's
products gain market acceptance, and competitive developments. Although the
Company believes that the proceeds from this offering together with the
Company's current cash balances and cash generated from the future sale of
products will be sufficient to meet the Company's operating and capital
requirements through calendar 1998, there can be no assurance that the Company
will not require additional financing within this time frame.

The Company's forecast of the period of time through which its financial
resources will be adequate to support its operations is a forward-looking
statement that involves risks and uncertainties, and actual results could vary.
The factors described earlier in this paragraph will impact the Company's future
capital requirements and the adequacy of its available funds. The Company may be
required to raise additional funds through public or private financing,
collaborative relationships or other arrangements. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require the Company to relinquish its rights to certain of
its technologies, products or marketing territories. The failure of the Company
to raise capital when needed could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Possible Future Capital Requirements."

26
<PAGE> 31

BUSINESS

OVERVIEW

The Company believes that its investment in basic research of mapping and
ablation methods, its strong research team and its technological expertise have
positioned it to take advantage of the need for safe and more effective
treatments of ventricular tachycardia and atrial fibrillation. The Company's
strategy is to establish its Ventricular Tachycardia Ablation System, Arrhythmia
Mapping Systems and Atrial Fibrillation Ablation System as the preferred means
for the diagnosis and treatment of ventricular tachycardia and atrial
fibrillation. The key elements of the Company's strategy are to demonstrate the
clinical efficacy and safety of these systems, to build upon relationships with
electrophysiologists, to provide integrated system solutions for diagnosing and
treating ventricular tachycardia and atrial fibrillation, to maintain
technological leadership, to achieve market leadership and to protect and
enhance its proprietary technology position.

BACKGROUND

The heart consists of four chambers: the ventricles, the lower two
chambers, and the atria, the upper two chambers. A healthy heart at rest beats
between 60 to 100 times per minute and pumps over 1,800 gallons of blood per
day. A normal heartbeat is the coordinated contraction of each of the heart's
chambers resulting from the conduction of organized electrical signals generated
by the heart's natural pacemaker, the sinoatrial node ("SA node"). The SA node,
located in the right atrium, initiates the heartbeat by generating an electrical
signal that causes the atria to contract and helps to fill the ventricles, the
heart's primary pumping chambers. Once spread throughout the atria, the
electrical activity of the SA node conducts an electrical signal to the
atrioventricular node ("AV node"). The AV node serves as a delay timer and
electrical signal conductor, allowing the atria to complete their contraction
thus filling the ventricles with blood, then facilitating the organized spread
of the electrical signal to the ventricles, causing them to contract and
distribute deoxygenated blood to the lungs from the right ventricle and freshly
oxygenated blood to the rest of the body from the left ventricle.

When defects compromise the normal conduction of this electrical activity,
the pumping rhythm of the heart can be affected, resulting in cardiac
arrhythmias (abnormal heart rhythms). Cardiac arrhythmias have numerous causes,
including congenital defects, tissue damage due to heart attacks or
arteriosclerosis (the deposition of fatty substances in the inner layer of the
arteries) and other diseases, that accelerate, delay or redirect the
transmission of electrical activity, thereby disrupting the normal coordinated
contractions of the chambers. During a cardiac arrhythmia, the heart beats
either too slowly or too rapidly. Cardiac arrhythmias characterized by an
abnormally slow heart rate, usually defined as a rate lower than 60 beats per
minute, are generally treated by implantation of a pacemaker that delivers
electrical impulses to increase the heart rate. Cardiac arrhythmias
characterized by an abnormally high rate of more than 100 beats per minute are
known as cardiac tachyarrhythmias. The following diagrams illustrate the four
chambers of the heart and a typical location of electrical signals associated
with ventricular tachycardia and atrial fibrillation in the heart's chambers.

27
<PAGE> 32

LOGO

<TABLE>
<S> <C>
THE FOUR CHAMBERS TYPICAL LOCATION OF
OF THE HEART ATRIAL FIBRILLATION AND
VENTRICULAR TACHYCARDIA
</TABLE>

VENTRICULAR TACHYCARDIA

Disease Characteristics. Ventricular tachycardia is a life-threatening
condition characterized by the ventricles beating at an abnormally rapid rate,
significantly interfering with the pumping of oxygenated blood throughout the
body. When the ventricles beat at an abnormally rapid rate, they lack sufficient
time to fill with blood prior to each contraction. As a result, less blood is
pumped out of the heart and less oxygen is carried to the tissues and organs of
the body. This lack of oxygen can cause dizziness, loss of consciousness and
sudden cardiac arrest. Individuals with ventricular tachycardia are at risk of
imminent death due to the unpredictable nature of ventricular tachycardia. Most
ventricular tachycardias result from myocardial infarctions (heart attacks)
caused by coronary artery disease. When a myocardial infarction occurs due to a
blockage in one or more coronary arteries, a portion of the heart muscle (most
often in the left ventricle) dies. After the portion of the left ventricle heart
muscle that was served by the blocked artery dies, an irregular border
consisting of intermixed healthy and scar tissue forms. Ventricular tachycardias
typically originate at this irregular border of healthy and scar tissue.

Disease Incidence. Each year more than 300,000 people in the United States
experience a sudden cardiac arrest episode. Of these, approximately 50,000
individuals survive primarily through emergency defibrillation. These survivors
are at risk for ventricular tachycardia or another sudden cardiac arrest
episode. The Company believes that over 100,000 individuals who have never had a
sudden cardiac arrest episode are diagnosed each year with symptomatic
ventricular tachycardia. In addition, the American Heart Association estimates
that approximately 1.5 million individuals suffer myocardial infarctions
annually in the United States, of which, approximately 1.0 million survive.
Approximately 30% of the survivors of a myocardial infarction are at risk of
suffering an episode of ventricular tachycardia within one year of surviving the
myocardial infarction. If safe and cost-effective diagnosis and treatment were
available, these individuals would be candidates for early diagnosis and
treatment of ventricular tachycardia.

Current Therapies. The currently prescribed therapies for ventricular
tachycardia are not curative and in many instances have undesirable side
effects. Antiarrhythmic drugs have been the most common treatment of ventricular
tachycardia. In 1989, a major multi-center randomized trial evaluating the
antiarrhythmic capabilities of several different drugs indicated that these
drugs in many instances, actually induced the

28
<PAGE> 33

ventricular tachycardias they were designed to prevent. Furthermore, toxic side
effects, including pulmonary fibrosis, corneal micro deposits and liver
dysfunction, often prevent patients from long-term usage of these drugs. The
automatic implantable cardioverter defibrillator ("ICD") has also become a
standard therapy in the treatment of ventricular tachycardia. The cost of an ICD
system averages $25,000 and total costs associated with the implant including
hospitalization average $55,000. The ICD detects and stops an arrhythmia once it
has started by pacing or by applying high energy pulses, but does not cure the
ventricular tachycardia or remove the arrhythmia-causing tissue. Significant
side effects that result from the ICD include pain associated with high energy
defibrillation pulses, physical discomfort at the implant site, adverse
psychological effects from dependence upon the device for life saving
intervention and a risk of infection. Many ICD patients also receive
antiarrhythmic drug therapy in an attempt to minimize the frequency of
ventricular tachycardia episodes. An infrequently used procedure to treat
ventricular tachycardia is open heart surgery, where a highly trained
cardiovascular surgeon removes the arrhythmia causing tissue.

While not a mainstay therapy, single point radiofrequency catheter ablation
for ventricular tachycardia is being performed throughout the United States and
Western Europe. Currently, mapping and ablation of ventricular tachycardia is a
slow and tedious process because physicians are able to evaluate only a single
point in the heart at a time. Ventricular tachycardia can best be treated when
the patient is actually experiencing an episode of arrhythmia, which must be
induced and carefully monitored by the physician. In the vast majority of
individuals suffering from ventricular tachycardia, single point mapping
techniques are not effective because of the rapid rate of the ventricular
tachycardia. A patient with rapid rate ventricular tachycardia cannot be left in
this unstable heart rhythm for a sufficient length of time to identify the
origins of the ventricular tachycardia. Another limiting factor of ventricular
tachycardia ablation has been the inability of current catheters to generate a
lesion that is deep enough to effectively ablate the thick ventricular scar
tissue that results from a previous myocardial infarction.

ATRIAL FIBRILLATION

Disease Characteristics. Atrial fibrillation is a condition in which the
regular pumping function of the atria is replaced by a disorganized, ineffective
quivering caused by chaotic conduction of electrical signals through the upper
chambers of the heart. Atrial fibrillation is often associated with other forms
of cardiovascular disease, including congestive heart failure, rheumatic heart
disease, coronary artery disease, left ventricular hypertrophy, cardiomyopathy
or hypertension. The progression of atrial fibrillation varies among
individuals. Initial episodes of atrial fibrillation are generally symptomatic,
intermittent (paroxysmal) episodes. Certain individuals suffer recurring
episodes of atrial fibrillation that progress to a chronic state. Although not
immediately life threatening, atrial fibrillation may cause up to a 30%
reduction in cardiac output and a reduction in cerebral blood flow during the
fibrillation episode, resulting in shortness of breath, fainting, fatigue and
reduced exercise capacity. Ventricular rates can also rise dangerously high when
the chaotic signals of the atria are conducted to these lower chambers of the
heart. More seriously, since the atria provide minimal pumping function during
atrial fibrillation, blood pools in the chambers, which can lead to the
formation of blood clots. Blood clots in the left atrium can dislodge and travel
to the brain resulting in stroke. Considered for years to be a benign disorder,
atrial fibrillation is now recognized as placing affected patients at a
significantly increased risk for stroke. The American Heart Association
estimates that 75,000 strokes per year in the United States (approximately 25%
of all strokes) are related to atrial fibrillation, with published reports of up
to 70% of patients dying or suffering significant neurologic deficit. The
mortality rate of patients with atrial fibrillation associated stroke is high in
relation to other causes of stroke, with a reported 23% of these patients dying
within 30 days of the stroke, compared to only 8% of stroke patients who do not
have atrial fibrillation. Moreover, based upon studies estimating the average
lifetime cost for a stroke patient, the Company estimates an annual cost to the
United States health care system for the estimated 75,000 strokes related to
atrial fibrillation of in excess of $7.4 billion.

Disease Incidence. Atrial fibrillation affects up to 4% of the United
States population over the age of 60 years. The National Center for Health
Statistics reported that atrial fibrillation was the primary diagnosis for
130,000 emergency room visits and 227,000 hospitalizations in the United States
in 1992, more hospitalizations than any other cardiac arrhythmia. In addition,
there were approximately 1.4 million hospital discharges

29
<PAGE> 34

in which atrial fibrillation was a listed diagnosis and more than 1.5 million
outpatient visits by individuals who have atrial fibrillation as a primary
diagnosis.

Current Therapies. Currently, the only curative treatment for atrial
fibrillation is a rarely performed open heart surgical procedure (the surgical
maze procedure) in which the surgeon makes several incisions in the right and
left atria creating scar tissue to electrically isolate portions of the atria.
This open heart surgical procedure is complex, costly and associated with high
morbidity and mortality and therefore only used in extreme cases. There are a
limited number of patients for whom a reversible cause for atrial fibrillation
can be readily identified (for example patients with hyperthyroidism, alcoholism
or diabetes) and in whom atrial fibrillation does not recur once the cause has
been alleviated. Goals for managing patients with atrial fibrillation are to
restore and maintain the normal atrial rhythm and pumping function, control the
ventricular rate and prevent stroke. None of the commonly prescribed alternative
therapeutic options is curative and most have undesirable side effects.
Antiarrhythmic drugs, which control the ventricular rate during atrial
fibrillation, increase the risk of the patient developing life-threatening
ventricular arrhythmias. In addition, the rate of recurrence of atrial
fibrillation in patients using antiarrhythmic drugs is high, with trials
reporting as many as 60% of the patients failing to sustain normal heart rhythm
for one year. Side effects can include nausea, diarrhea, difficulty in
urinating, thyroid dysfunction, pulmonary fibrosis and liver dysfunction.
Anticoagulation drugs are generally recommended for use in concert with
antiarrhythmic drugs to reduce the risk of stroke. Anticoagulation therapy
requires attentive and frequent patient follow-up, generally including monthly
prothrombin time testing (an indicator of the blood's ability to form clots) and
dose adjustments to prevent hemorrhage complications.

Internal electrical cardioversion, in which an implantable atrial
defibrillator automatically detects the onset of atrial fibrillation and
delivers low-energy shocks, has recently been introduced as a method to convert
atrial fibrillation to normal heart rhythm. Clinical trials of this proposed
treatment are in their early stages. A recent study indicated that initial
conversion rates are near 85%. However, reversion rates to atrial fibrillation
are high, and the automatic implantable atrial defibrillator is not a curative
therapy. In addition, the level of patient discomfort is often unacceptable.

Less invasive treatments of atrial fibrillation include permanent
destruction of the AV node by catheter ablation accompanied by implantation of a
pacemaker, a procedure generally reserved for symptomatic individuals
experiencing prolonged or chronic episodes of atrial fibrillation where control
of the ventricular rate is the primary objective. The procedure ensures a
regular, controlled ventricular rate and improved cardiac output (with enhanced
quality of life), but the risks of stroke remain, and the atrial contribution to
cardiac output is not restored since the atria continue to fibrillate. In
addition, the patient becomes dependent upon the pacemaker to maintain an
adequate heart rate, and failure of the pacemaker can result in sudden loss of
consciousness or death. Several institutions in Europe and the United States
have undertaken procedures in which conventional radiofrequency ablation
catheters are dragged along the inside surface of the right and/or left atrium,
applying radiofrequency energy to electrically isolate portions of the atria
with scar tissue. However, it has been difficult to create a continuous line of
block to electrically isolate portions of the atria using conventional
radiofrequency catheters. In addition, although results achieved for atrial
fibrillation ablation at St. Francis Hospital in Tulsa, Oklahoma have been
encouraging, the mean time of this center's ablation procedures has been
approximately 10 hours.

SUPRAVENTRICULAR TACHYCARDIA

Supraventricular tachycardias affect ventricular rate from an origin above
the ventricles. During in-utero development, incomplete separation of the top
and bottom chambers of the heart leaves small muscle bundles that can rapidly
conduct electrical signals between chambers, resulting in a rapid heart rhythm.
The most common types of supraventricular tachycardias are Wolff-Parkinson-White
("WPW") syndrome and Atrioventricular Nodal Reentrant Tachycardia ("AVNRT"). WPW
syndrome involves a congenital remnant of muscle tissue, an accessory pathway,
between the atria and ventricles that can very rapidly conduct electrical
signals between the top and bottom chambers of the heart. AVNRT, primarily a
congenital condition, is characterized by a circuit of conductive tissue between
a part of the AV node and either the atria or the

30
<PAGE> 35

ventricles. This circuit, like that of WPW syndrome, can conduct the electrical
signals from the AV node rapidly, leading to a symptomatic tachycardia.

These two common types of supraventricular tachycardias are readily
treatable using standard radiofrequency catheter ablation techniques. Since its
introduction in 1986, the success of radiofrequency catheter ablation has led to
a rapid decrease in the existing untreated population of patients with WPW
syndrome and AVNRT. While radiofrequency catheter ablation is the most common
treatment for the WPW syndrome and AVNRT types of supraventricular tachycardia,
antiarrhythmic drug therapy is also a prescribed treatment. Antiarrhythmic drugs
do not successfully control the supraventricular tachycardia in many patients
and often result in undesirable side effects. Given the low morbidity and
mortality, and high success rate associated with radiofrequency catheter
ablation, the Company believes that this curative procedure has become the
treatment of choice for WPW syndrome and AVNRT.

THE CARDIAC PATHWAYS SOLUTION

The Company is developing products to provide a comprehensive solution for
the successful diagnosis and treatment of ventricular tachycardia and atrial
fibrillation. The Company's systems are designed to allow the
electrophysiologist to perform high resolution mapping, which facilitates
location of cardiac tachyarrhythmias and assesses the effectiveness of the
minimally invasive ablation treatment. Current mapping and ablation procedures
can take many hours to complete. The Company believes its systems will
substantially shorten mapping and ablation procedure time and provide safe and
more effective treatments than other forms of therapy. The Company has also
developed and is currently marketing products for the diagnosis and treatment of
supraventricular tachycardia. The following are features and benefits of the
core technologies used in the Company's products.

High Resolution Mapping for Ventricular Tachycardia. The Company's
Arrhythmia Mapping System for ventricular tachycardia utilizes a patented,
basket-shaped, multi-site, high resolution device which is placed in the
ventricle with a minimally invasive procedure, similar to a conventional heart
catheterization. This device is designed to allow the electrophysiologist to
quickly locate high rate ventricular tachycardia at multiple sites, thus
providing a significant improvement over currently used single point mapping
techniques. The Company believes that this ability to locate the source of the
ventricular tachycardia will enable a large population of patients to receive
successful treatment using the Company's Ventricular Tachycardia Ablation
System. Currently, these patients have no reliable minimally invasive means to
locate their high rate ventricular tachycardia.

Cooled Ablation for Ventricular Tachycardia. The Company's Ventricular
Tachycardia Ablation System utilizes a patented electrode-cooling catheter that
allows the electrophysiologist to deliver greater energy levels than existing
technologies to the site that is causing the ventricular tachycardia without a
significant risk of producing charred blood particles that could lead to stroke.
The Company believes that the ability to make deeper and wider lesions enables
more effective treatment.

Linear Lesion Ablation for Atrial Fibrillation. The Company's Atrial
Fibrillation Ablation System utilizes a proprietary, non-metallic conformable
electrode device that conforms to the irregular surface in the atrium and
delivers radiofrequency energy for lesion creation through a conductive fluid
medium. With this technology, the electrophysiologist is able to create an
unbroken transmural lesion in the atrium causing disruption of the electrical
wavefronts associated with atrial fibrillation. The Company believes ablation
procedures utilizing this technology are more effective and significantly less
time consuming than other types of catheter ablation techniques and as effective
as the surgical maze procedure, which currently is the only curative treatment.

High Resolution Mapping for Atrial Fibrillation. The Company's Arrhythmia
Mapping System for atrial fibrillation utilizes a basket-shaped, multi-site,
high resolution device similar to that used in its Arrhythmia Mapping System for
ventricular tachycardia, but which has been designed to conform to the atria.
This technology provides high resolution, multi-site, simultaneous mapping and
is designed to be used to quickly locate the source of the arrhythmia and to
quickly assess the effectiveness of the ablation treatment. The Company believes
this approach will significantly shorten the length of ablation procedures.

31
<PAGE> 36

STRATEGY

The Company's strategy is to establish its Ventricular Tachycardia Ablation
System, Arrhythmia Mapping Systems and Atrial Fibrillation Ablation System as
the preferred means for the diagnosis and treatment of ventricular tachycardia
and atrial fibrillation. The following are the key elements of the Company's
strategy:

Demonstrate clinical efficacy and safety of the Company's mapping and
ablation systems leading to commercialization. The Company expects to market
its systems in the United States and internationally. Successful clinical trials
leading to regulatory approval are critical for market acceptance of the
Company's systems. The Company has established scientifically rigorous clinical
studies to assess the efficacy and safety of its Arrhythmia Mapping System for
use in the left ventricle and its Ventricular Tachycardia Ablation System. In
addition, the Company expects to apply for regulatory approval of a clinical
study of its Arrhythmia Mapping System for use in the right atria and for its
Atrial Fibrillation Ablation System. The results of these trials will be used to
seek FDA regulatory approval to market its mapping and ablation systems in the
United States. The Company also expects to seek regulatory approval to market
these products internationally. See "-- Clinical Trials."

Build upon relationships with electrophysiologists. The Company has
developed strong relationships with prominent electrophysiologists worldwide who
have been involved and will continue to be involved in the Company's clinical
and product development. The Company intends to continue to build these
substantial relationships through clinical investigator meetings, participation
in physician-run symposia and meetings to discuss clinical issues and
treatments. The Company's strategy is to leverage these relationships with
leading electrophysiologists to gain market acceptance of its products in the
United States and internationally. The Company believes there are approximately
600 board certified electrophysiologists practicing in the United States.

Provide integrated system solutions for diagnosing and treating Ventricular
Tachycardia and Atrial Fibrillation. The Company's mapping baskets and
integrated mapping computer system are designed to quickly identify the source
of an arrhythmia. The Company's catheters, including its cooled ablation and
linear lesion catheters, and integrated radiofrequency generator and
programmable fluid pump are designed to provide safe, effective ablation of the
heart tissue. The Company believes that its integrated systems approach provides
solutions for diagnosing and treating a significant portion of the patients who
suffer from ventricular tachycardia and atrial fibrillation. The Company also
believes its integrated systems solution offers advantages over other products.
All of the Company's products are designed to work together and thereby
eliminate incompatibility problems that may arise from using products from
several vendors. This makes the products easier to use, shortens procedure times
and increases the efficiency of the treatment. In addition, the Company plans to
be a single source provider of complete mapping and ablation systems, thereby
making its products more cost-effective.

Maintain technological leadership and achieve market leadership. The
Company's goal is to be a market leader in the commercialization of integrated
systems to diagnose and treat ventricular tachycardia and atrial fibrillation.
The Company believes that its technological innovations have overcome the
principal obstacles to the development of such systems. In addition, the
Company's goal is to be a leading provider of these integrated systems and the
Company intends to continue to invest significant resources to enhance its
technological position and to increase market acceptance of its products.

Protect and enhance proprietary position. The Company currently holds
issued and allowed patents covering a number of fundamental aspects of the
Company's Ventricular Tachycardia Ablation System, Arrhythmia Mapping Systems
and Atrial Fibrillation Ablation System. The Company owns 30 issued United
States patents, owns an exclusive field-of-use license on one issued United
States patent and licenses to nine United States patents and one issued foreign
patent. In addition, the Company has 24 pending United States patent
applications of which seven are licensed, five of which have been allowed by the
United States Patent and Trademark Office (including two licensed), and has
filed 34 corresponding patent applications (including two licensed) that are
currently pending in Europe, Japan, Australia and Canada. The Company intends to
continue to pursue its patent filing strategy and to vigorously defend its
intellectual property position against infringement. See "Risk
Factors -- Dependence on Patents and Proprietary and Licensed Technology."

32
<PAGE> 37

PRODUCTS AND SYSTEMS

The Company's product line is designed to provide an integrated systems
solution to the mapping and ablation of cardiac arrhythmias. The Company has
focused its product development and clinical applications on systems that
diagnose and treat ventricular tachycardia and atrial fibrillation. The
following table summarizes products that have been released and those that are
currently under development:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRODUCTS DESCRIPTION STATUS(1)(2)
- ------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
VENTRICULAR TACHYCARDIA CATHETERS
Mercator Left Ventricular Mapping A high density mapping catheter and Approved IDE feasibility study in
Basket associated catheter deployment guide January 1996; currently in clinical
used to assess electrical conduction trial; Planned IDE submission in
throughout the left ventricle. early calendar 1997 for PMA approval
process.
Mercator Local Sector Mapping Basket Variation of the Mercator Left Planned IDE supplemental submission
Ventricular Mapping Basket that in calendar 1996 for PMA approval
focuses mapping electrodes in a process.
sector or region of the left
ventricle.
Transseptal Guide Catheter A set of catheter deployment tools Planned IDE supplemental submission
that uses a venous approach to deploy in calendar 1996 for 510(k) clearance
the Mercator Left Ventricular Mapping process.
Basket.
Chilli Cooled Ablation Catheter An ablation catheter that includes Approved IDE June 1995; currently in
lumens to cool the catheter tip clinical trial for PMA approval
during radiofrequency energy process.
delivery.
ATRIAL FIBRILLATION CATHETERS
Nexus Linear Lesion Catheter An ablation catheter used to make Planned IDE feasibility study
long lesions in the atria. submission for right atrium in
calendar 1996 for PMA approval
process.
Mercator Atrial Mapping Basket A high density mapping catheter used IDE submitted covering Mercator
to assess atrial arrhythmias. Atrial Mapping Basket for right
atrium in May 1996 for 510(k)
clearance process.
SUPRAVENTRICULAR TACHYCARDIA/DIAGNOSTIC CATHETERS
Radii Mapping and Ablation A family of deflectable catheters for Available in international markets.
Catheters mapping and ablation of
supraventricular tachycardia.
Trio/Ensemble Diagnostic A set of three, uniquely small multi- 510(k) submitted by Arrow and cleared
Catheters electrode catheters and a in December 1995. Available in the
triple-lumen guide catheter for use United States and international
in diagnostic electrophysiology markets.
procedures.
HIGH RESOLUTION MAPPING EQUIPMENT
Model 8100/8300 Arrhythmia An integrated mapping computer system Approved IDE feasibility study in
Mapping System Release 1 that analyzes and displays data from January 1996 with Mercator Left
high density mapping catheters; Ventricular Mapping Basket; currently
designed to be used with Mercator in clinical trials; Planned IDE
Left Ventricular Mapping Baskets and submission with Mercator Left
Mercator Atrial Mapping Baskets. Ventricular Mapping Basket in early
calendar 1997 for PMA approval
process.
Model 8100/8300 Arrhythmia Adds functionality and enhancements Planned IDE supplemental submission
Mapping System Release 2 to Release 1 for local sector with Mercator Left Ventricular
mapping, advanced mapping techniques Mapping Basket in calendar 1996 for
and basic electrophysiology lab PMA approval process.
procedures.
ABLATION EQUIPMENT
Model 8002 Radiofrequency An integrated radiofrequency Approved IDE with Chilli Ablation
Generator and Integrated Fluid generator energy source and fluid Cooled Catheter in June 1995;
Pump pump for cooled ablation currently in clinical trials for PMA
applications. approval process. Planned submission
with Nexus Linear Lesion Catheter for
IDE feasibility study.
Model 8004 Radiofrequency Adds to functionality and ease of use Planned IDE supplemental submission
Generator and Integrated Fluid of the Model 8002 for further pump for use with Chilli Cooled Ablation
Pump integration and for printing of Catheter in calendar 1996.
ablation data.
</TABLE>

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

(1) The status column includes the Company's current estimates of the planned
submission time periods of Feasibility IDEs or IDEs for certain of the
Company's products. These estimates are forward-looking statements that
involve risks and uncertainties. The actual submission times could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including the Company's success in completing any
remaining development of the products, the efficacy and safety of the
products in laboratory testing and the other factors set forth under "Risk
Factors" and elsewhere in this Prospectus.

(2) At the earliest, the Company does not anticipate filing a PMA application
for any system for at least the next two years, and does not anticipate
receiving a PMA for any such system until at least one to three years after
such PMA application is accepted for filing, if at all.
- --------------------------------------------------------------------------------

33
<PAGE> 38

The following table sets forth the Company's current and planned systems
for mapping and ablation of ventricular tachycardia and atrial fibrillation and
their component catheters and equipment.

VENTRICULAR TACHYCARDIA

ARRHYTHMIA MAPPING SYSTEM

- Mercator Left Ventricular Mapping Basket or Mercator Local Sector Mapping
Basket
- Model 8100/8300 Arrhythmia Mapping System

VENTRICULAR TACHYCARDIA ABLATION SYSTEM

- Chilli Cooled Ablation Catheter
- Models 8002 and 8004 Radiofrequency Generator and Integrated Fluid Pump

ATRIAL FIBRILLATION

ARRHYTHMIA MAPPING SYSTEM

- Mercator Atrial Mapping Basket
- Model 8100/8300 Arrhythmia Mapping System

ATRIAL FIBRILLATION ABLATION SYSTEM

- Nexus Linear Lesion Catheter
- Models 8002 and 8004 Radiofrequency Generator and Integrated Fluid Pump

VENTRICULAR TACHYCARDIA CATHETERS

The Company's ventricular tachycardia catheters, the Chilli Cooled Ablation
Catheter and Mercator Left Ventricular Mapping Basket, currently in clinical
trials, and the Mercator Local Sector Mapping Basket and Transseptal Guide
Catheters, currently under development, are designed to allow the physician to
locate the source of the ventricular tachycardia and perform an ablation
treatment that can reach wide and deep within the heart tissue to successfully
treat the patient's ventricular tachycardia.

Mercator Left Ventricular Mapping Basket. The Mercator Left Ventricular
Mapping Basket is a high density 64-electrode, three dimensional basket for use
in left ventricular electrophysiology diagnostic procedures. Based on the
Company's proprietary high-density electrode mapping technology, this basket-
shaped mapping catheter has eight highly flexible electrode-carrying arms that
allow the basket to conform to the shape of the left ventricular chamber. This
design enables mapping with electrodes in contact with the heart tissue. Various
basket sizes have been designed and are currently being evaluated in clinical
trials for optimal fit in ventricular tachycardia patients. The Company
currently anticipates that it will develop mapping baskets in several different
sizes to allow for variations in the size of the left ventricle. The Company
believes that the Mercator Left Ventricular Mapping Basket will reduce procedure
time and allow the mapping of a given ventricular tachycardia rhythm using a
single cardiac cycle (a single heartbeat). Ventricular tachycardia can best be
diagnosed while the patient is actually experiencing an episode of
tachyarrhythmia, which must be carefully monitored by the physician. Current
single point mapping techniques are often not appropriate because the patient
cannot be left in the unstable heart rhythm for a sufficient length of time to
determine the origins of the ventricular tachycardia. The Mercator Left
Ventricular Mapping Basket is designed to allow rapid mapping of a large portion
of the left ventricle. The Mercator Left Ventricular Mapping Basket captures,
within a few seconds, a large amount of electrical conduction information that
is useful in identifying appropriate sites for ablation. All ventricular mapping
baskets are intended for single use due to the inability of the catheter's
biocompatible, anti-coagulation coating to withstand resterilization.

The Mercator Left Ventricular Mapping Basket is combined with the Company's
Model 8100/8300 Arrhythmia Mapping System to form the Company's Arrhythmia
Mapping System for diagnostic mapping of

34
<PAGE> 39

ventricular tachycardia. This system captures the conduction activity in the
left ventricle and displays the information, allowing the physician to evaluate
and manipulate the data to determine the source of the ventricular tachycardia
and the appropriate location for ablation. The Company believes that the
Mercator Left Ventricular Mapping Basket will also be usable with existing
computerized electrophysiology signal display systems after appropriate
interface connections have been implemented.

Mercator Local Sector Mapping Basket. The Company is currently developing
the Mercator Local Sector Mapping Basket, a variation of the Mercator Left
Ventricular Mapping Basket, which clusters the electrode-carrying arms together,
providing a one-sided grouping of the electrodes. This product is designed to
allow the electrophysiologist to focus the electrodes of the mapping basket in
the specific region or sector of the left ventricle believed to be implicated in
the patient's ventricular tachycardia. Focusing the electrodes in a limited area
increases the amount and usefulness of the data collected for the specific
target area. Use of the Mercator Local Sector Mapping Basket allows the
electrophysiologist to concentrate on the ventricular septal wall, the location
of the heart where the vast majority of ventricular tachycardias occur. The
Mercator Local Sector Mapping Basket is designed to be used with the Model
8100/8300 Arrhythmia Mapping System for diagnostic mapping of ventricular
tachycardia. The Mercator Local Sector Mapping Basket is intended for single use
due to the inability of the catheter's biocompatible, anticoagulation coating to
withstand resterilization.

Transseptal Guide Catheter. The Company is currently developing a
Transseptal Guide Catheter designed to allow electrophysiologists to introduce
the mapping basket catheter into the left ventricle using a venous approach
rather than an arterial approach. The Company believes that some
electrophysiologists will prefer to use the venous approach in order to reduce
complications and patient risk associated with introducing the mapping basket
through an artery. In addition, introduction of the mapping basket using a
venous approach allows the electrophysiologist to simultaneously introduce an
ablation catheter into the left ventricle through an artery (a typical approach
used in WPW syndrome ablation procedures).

Chilli Cooled Ablation Catheter. The Chilli Cooled Ablation Catheter is a
minimally invasive device designed to treat ventricular tachycardia using
radiofrequency energy ablation to create lesions in the ventricle. Although
leading electrophysiologists have recently begun to use radiofrequency ablation
to treat ventricular tachycardia, excessive heating of the tissue and the
ablation electrode often limits the level of energy delivered and therefore the
success of the treatment. Incorporating a closed system of fluid circulation,
the Chilli Cooled Ablation Catheter allows circulating fluid to cool the
catheter ablation electrode during delivery of radiofrequency energy. A
programmable pump injects fluid into a catheter lumen that circulates the fluid
to the tip electrode and back to the fluid pump. The circulation of fluid draws
heat away from the metal electrode and from the electrode-to-tissue interface,
which the Company believes will allow the delivery of higher radiofrequency
energy power levels without excessive heating. Higher power levels allow for
creation of wider and deeper lesions than those created with lower power levels,
increasing the likelihood of a successful ablation. The Chilli Cooled Ablation
Catheter will be labeled for single use due to its closed system of fluid
circulation through catheter lumens.

ATRIAL FIBRILLATION CATHETERS

The Company is currently developing catheters to allow the physician to
treat atrial fibrillation. The Nexus Linear Lesion Catheter is designed to
create long lesions in the atria and the Atrial Mapping Basket is designed to
map the atria to assess the effectiveness of the ablation treatment.

Nexus Linear Lesion Catheter. Currently, the only curative treatment for
atrial fibrillation is the surgical maze procedure in which the surgeon makes
several incisions in the right and left atria creating scar tissue to
electrically isolate portions of the atria. The Company is designing the Nexus
Linear Lesion Catheter to enable a minimally invasive ablation procedure to
treat atrial fibrillation. The Company is initially designing the Nexus Linear
Lesion Catheter for use in the right atrium. The Company believes that the Nexus
Linear Lesion Catheter, through the use of a conductive fluid medium for
radiofrequency energy delivery, will produce a homogenous lesion that will
create a continuous line of block through the tissue, creating lesions similar
to those created with the surgical maze procedure. The unique design of the
Nexus Linear Lesion

35
<PAGE> 40

Catheter mounts several electrodes together and provides a highly adjustable
deployment system. This novel deployment technique provides specific directional
tissue contact for the conformable electrode and a self-stabilizing support
structure. A non-metallic electrode allows the Nexus Linear Lesion Catheter to
conform to irregular surfaces in the endocardium and efficiently deliver
radiofrequency energy for ablating heart tissue. The Company believes that these
features will substantially reduce ablation procedure time compared to other
current catheter based treatments. As a result of the non-metallic electrode
design, the Nexus Linear Lesion Catheter will be a single-use catheter.

The Nexus Linear Lesion Catheter will be used with the Company's Model 8002
Radiofrequency Generator and Integrated Fluid Pump. The Atrial Fibrillation
Ablation System will combine the unique features to be included in the Nexus
Linear Lesion Catheter with an instrument that incorporates the widely accepted
radiofrequency energy method for creating lesions in the heart tissue and a
programmable pump for fluid delivery during the ablation.

Mercator Atrial Mapping Basket. The Mercator Atrial Mapping Basket is a
high density, 64-electrode basket that the Company believes will be useful in
atrial electrophysiology studies. This mapping catheter is based on the same
technology as the Mercator Left Ventricular Mapping Basket and has similar
design characteristics. The use of the Company's proprietary technology for
constructing high density electrode arms will be leveraged in this design, and
the arm shapes will be designed specifically with consideration for the anatomy
of human atria. A range of basket sizes is being developed to account for
variations in size and shape of human atria. Initially the Company has focused
its product development efforts on a mapping basket for the right atrium. The
Company believes that a mapping system for the atria will be important in
reducing the procedure time and assessing the effectiveness of ablation
procedures for treating the patient's atrial fibrillation. The Mercator Atrial
Mapping Basket is intended for single use due to the inability of the catheter's
biocompatible, anticoagulation coating to withstand resterilization.

The Mercator Atrial Mapping Basket will be used with the Company's Model
8100/8300 Arrhythmia Mapping System. The Company believes that the mapping
catheter will also be compatible with existing computerized electrophysiology
signal display systems after appropriate interface connections have been
implemented.

SUPRAVENTRICULAR TACHYCARDIA AND DIAGNOSTIC CATHETERS

The Company's Trio/Ensemble diagnostic catheters and Radii supraventricular
tachycardia mapping and ablation Catheters, currently sold commercially, are
used for electrophysiological diagnostic mapping and ablation of
supraventricular tachycardia. These catheters employ single point mapping and
ablation techniques that are effective methods of locating the appropriate
ablation site for curing supraventricular tachycardia.

Trio/Ensemble Diagnostic Catheters. Many diagnostic electrophysiological
studies are performed with placement of multi-electrode catheters in three or
four locations of the right heart chambers. The placement of these diagnostic
catheters provides the electrophysiologist with an overall tool to assess
electrical conduction between the atria and the ventricle. The Company believes
the Ensemble catheter is the world's smallest general purpose electrophysiology
diagnostic catheter. The Ensemble is available with five curve shapes to assist
placement of the catheters in different locations within the heart. The
Trio/Ensemble diagnostic catheters allow the placement of three diagnostic
catheters through a single patient introduction site rather than a separate
introduction site for each catheter, reducing patient preparation time,
lessening patient trauma and facilitating the electrophysiology study to be
performed on an outpatient basis. The FDA granted 510(k) clearance for the
Trio/Ensemble diagnostic catheter to Arrow in December 1995. Arrow distributes
the product in the United States and Arrow and a limited number of other
distributors market the Trio/Ensemble in certain international markets. The
Trio/Ensemble diagnostic catheters currently have list prices ranging from $150
to $250, depending upon configurations and distribution territory.

Radii Mapping and Ablation Catheters. The Company's Radii family of
supraventricular tachycardia mapping and ablation catheters is similar to
catheters widely used in conjunction with ablation procedures. Each catheter has
a deflectable, steerable shaft that can be used with single-point mapping
techniques to locate potential arrhythmia sites prior to application of
radiofrequency energy to ablate the tissue. Unlike ventricular tachycardia,
single-point mapping techniques are appropriate for supraventricular tachycardia
because the arrhythmia can be induced and maintained in the patient for a
sufficient length of time to identify

36
<PAGE> 41

the origins of the supraventricular tachycardia without threatening the
patient's life. The radius of the deflectable curve may be adjusted by the
clinician. This feature allows small catheter tip movements and slight curve
changes that are necessary to reach different anatomical sites. Some Radii
models contain a temperature sensor embedded into the ablation electrode to
provide additional information about the performance of the radiofrequency
energy delivery. The Company believes that the Radii is compatible with
competing models of radiofrequency generators for use in supraventricular
tachycardia ablation procedures. The Radii supraventricular tachycardia mapping
and ablation catheters are distributed internationally by Arrow and other
international distributors. Commercialization of the Radii family of catheters
in the United States would require full PMA regulatory approval and the related
devotion of substantial financial and management resources. As a result, the
Company currently does not intend to sell these products domestically. The Radii
supraventricular tachycardia mapping and ablation catheters have list prices
ranging from $545 to $675, depending upon model and distribution territory.

HIGH RESOLUTION MAPPING EQUIPMENT

Electrophysiologists use dedicated signal amplifier systems to diagnose
information gathered during an electrophysiology study. Typical systems amplify
the signals recorded from the heart, convert these signals into digital
information and permanently store the digital information. A printer provides
paper display of signals for analysis by the electrophysiologist and medical
records storage. Currently, some electrophysiologists still rely on older analog
amplifier systems that merely display signals on a monitor and print them on a
paper strip chart recorder for medical records storage. These systems force the
electrophysiologist to perform a tedious process of manual measurement of the
signals printed on paper. More modern systems, while utilizing computerized
technology, are limited in their ability to support high resolution mapping
devices such as the Company's Mercator Left Ventricular Mapping Basket.

The Model 8100/8300 Arrhythmia Mapping System records, amplifies and
displays the unique electrical activity recorded from catheter electrodes that
have been passed into the heart. The system supports complex mapping catheters
by offering software that intuitively displays information abstracted from the
timing information in the electrical signals using a type of color display known
as an isochronal map. The isochronal maps represent those parts of the heart's
left ventricle that contract at the same time by using the same color. With this
technique, color indicates when parts of the heart contract relative to each
other. Colors provide a rapid visual indication of a segment of the heart that
could be a source of the tachycardia.

ABLATION EQUIPMENT

Radiofrequency energy is the most common energy source used in catheter
ablation procedures. When radiofrequency energy is passed through heart tissue,
the tissue resists the flow of electricity, generating heat in a process known
as resistive heating. Resistive heating destroys the cardiac tissue in contact
with the catheter. The treatment of many arrhythmias requires that ablation
produce large, deep lesions. However, when the tissue becomes too hot from
resistive heating, heat conducts back from within the tissue to the catheter
electrode tip causing the formation of charred blood particles. This inhibits
the flow of electricity to the heart tissue and the depth of the lesion that can
be produced. In addition, this overheating poses a risk as the removal of the
catheter from the heart can dislodge charred blood particles that can travel
through the arteries exiting the heart into the brain, causing a stroke.

Cooled ablation addresses these shortcomings of radiofrequency energy
ablation. By cooling the catheter tip, the Company believes heat is removed from
the electrode-to-tissue interface, allowing more energy to be delivered to the
heart without blood coagulating on the catheter tip, resulting in what the
Company believes are larger and deeper lesions created in a safer manner. The
Model 8002 Radiofrequency Generator and Integrated Fluid Pump incorporates the
widely accepted radiofrequency energy method for creating endocardial lesions
with a programmable fluid pump for fluid delivery during ablation. The Company
believes this is the only radiofrequency generator featuring an integrated fluid
pump for catheter electrode cooling. Software design limits the radiofrequency
energy output to a maximum of 50 watts, a level of energy delivery believed to
be both safe and sufficiently strong to produce an effective lesion. The Model
8004 Radiofrequency Generator and Integrated Fluid Pump adds functionality to
the Model 8002, including additional pump integration and printing of ablation
data.

37
<PAGE> 42

There can be no assurance that the Company's Ventricular Tachycardia
Ablation System, Arrhythmia Mapping Systems or Atrial Fibrillation Ablation
System or the component catheters and equipment will gain any significant degree
of market acceptance among physicians, patients and health care payors, even if
clinical trials demonstrate safety and efficacy and necessary regulatory and
reimbursement approvals are obtained. For a discussion of the risks associated
with the uncertainty of market acceptance for the Company's product, see "Risk
Factors -- Uncertainty of Market Acceptance; Training of Physicians Required."

CLINICAL TRIALS

The Company is currently conducting a clinical trial of the Chilli Cooled
Ablation Catheter and the Model 8002 Radio Frequency Generator and Integrated
Fluid Pump, the products that together form the Company's Ventricular
Tachycardia Ablation System. In addition, the Company has recently begun to
conduct clinical trials of the Mercator Left Ventricular Mapping Basket and the
Model 8100/8300 Arrhythmia Mapping System, the products that together form the
Company's Arrhythmia Mapping System for diagnostic mapping of ventricular
tachycardia. In May 1996, the Company submitted an IDE covering the Mercator
Atrial Mapping Basket for the right atrium.

Ventricular Tachycardia Ablation System. The Company initiated a clinical
trial for the Ventricular Tachycardia Ablation System in the United States and
Europe in November 1995 under an IDE approved by the FDA. The clinical trials
will be conducted at a maximum of 16 clinical sites and will involve a total of
approximately 200 patients randomized using the Ventricular Tachycardia Ablation
System versus antiarrhythmic drugs. Pursuant to the IDE, the FDA will evaluate
the safety and efficacy of Ventricular Tachycardia Ablation System. The primary
endpoint of the clinical trial is clinical recurrence of ventricular tachycardia
in patients receiving ablation treatment versus patients in the control group.
The Company has not yet established with the FDA the length of the required
post-treatment follow-up prior to submission of a PMA. However, the Company is
required to follow up with each patient for 24 months. The Company intends to
submit a PMA to the FDA for filing following a six-month patient follow-up
period. The Company anticipates that this clinical trial will not be completed
prior to early calendar 1998. At the conclusion of the clinical trials, the
Company plans to file a PMA application for approval to market the Ventricular
Tachycardia Ablation System and its component catheters and equipment in the
United States.

As of May 20, 1996, 17 patients had been enrolled in the clinical trial, of
whom eight had received ablation treatment. Although seven of the eight patients
who have received ablation treatment have not experienced a recurrence of
ventricular tachycardia, the treatments have only recently been performed. As a
result, patient follow-up has been limited (less than six months) and the
results of the treatment are very preliminary. Three of the nine patients who
received drug treatment experienced a recurrence of ventricular tachycardia. The
regulatory requirement for a randomized protocol utilizing a control population
has limited the number of enrolled patients that have received the ablation
therapy. In April 1996, the Company received from the FDA a modification of the
protocol that the Company believes will result in more rapid enrollment in the
clinical trial. The original protocol required that the patient first be treated
with an ICD prior to being enrolled in the clinical trial, a requirement that
has been removed in the modified protocol. In addition, the randomization ratio
in the modified protocol is three ablation patients for every one control group
patient, compared to one ablation patient for every one control group patient in
the original protocol. In addition, control patients that experience a
recurrence of ventricular tachycardia will be eligible to cross over into the
ablation arm of the study.

Pursuant to a compassionate use protocol, as of May 20, 1996, 15 additional
patients in the United States and Europe had received ablation treatment in
procedures unrelated to the clinical trials. Most of these patients suffered
from incessant ventricular tachycardia prior to the procedure. Compassionate use
of an experimental device is reserved for patients who have no other treatment
options and who are experiencing life threatening conditions. As of May 20,
1996, the follow-up period ranged from one month to 11 months in the 15
patients, with data indicating that only three patients had a recurrence of
ventricular tachycardia. The ablation treatment was not completed in one of the
15 patients as a result of technical problems unassociated with the Company's
device.

38
<PAGE> 43

Arrhythmia Mapping System for Ventricular Tachycardia. In January 1996,
the Company received FDA approval to conduct an IDE feasibility study to
evaluate the safety of the Arrhythmia Mapping System for diagnostic mapping of
ventricular tachycardia. The feasibility study is being conducted at two
clinical sites in the United States and will involve a total of 12 patients. The
purpose of the clinical trial is to evaluate and test the success of the
deployment of the Mercator Left Ventricular Mapping Basket into the ventricle,
the fit of the catheter and the system's ability to accurately map the
electrical signals of the left ventricle. At the conclusion of the feasibility
study, currently expected to occur in early calendar 1997, the Company intends
to submit an IDE to the FDA to perform additional clinical trials. Enrollment in
the clinical trial began in March 1996, and as of May 20, 1996 one patient had
been enrolled. Evaluation of the enrolled patient following the procedure showed
asymptomatic mild aortic value regurgitation that the Company believes resulted
from deployment difficulties. In response, the Company made a slight
modification to the deployment system of the Mercator Left Ventricular Mapping
Basket. In May 1996, the Company submitted an IDE supplement requesting
clearance of the modification to the deployment system.

The Company is also testing the Mercator Left Ventricular Mapping Basket
and Arrhythmia Mapping System in Europe. As of May 20, 1996, the ventricular
tachycardia of five patients has been mapped, and none of the patients has had
complications as a result of the Mercator Left Ventricular Mapping Basket. The
Mercator Left Ventricular Mapping Basket was safely deployed and fit properly in
the left ventricle of all five patients, and in the two patients where
independent corroboration was possible, the system accurately mapped the
location of the ventricular tachycardia.

Arrhythmia Mapping System for Atrial Fibrillation. The Company intends to
seek FDA approval of an IDE for United States clinical trials of the Mercator
Atrial Mapping Basket for the right atrium and Arrhythmia Mapping System for
atrial fibrillation. In May 1996, the Company submitted the IDE covering the
Mercator Atrial Mapping Basket for the right atrium. The purpose of this
clinical trial will be to demonstrate the equivalency of the Right Mercator
Atrial Mapping Basket and the Arrhythmia Mapping System to commercially
available mapping catheters.

Atrial Fibrillation Ablation System. The Company intends to seek FDA
approval of an IDE feasibility study to evaluate the safety of the Atrial
Fibrillation Ablation System. The purpose of the IDE feasibility study will be
to assess the safety, performance and acute result of the Atrial Fibrillation
Ablation System. The Company currently intends to submit the IDE for the
feasibility study in calendar 1996 covering the Atrial Fibrillation Ablation
System for the right atrium.

Portions of the discussion above under "Clinical Trials" include the
Company's current estimates of the planned submission dates of IDE feasibility
studies or IDEs, and other statements regarding clinical trials for certain of
the Company's products. These estimates are forward-looking statements that
involve risks and uncertainties. The actual submission dates and other events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the Company's success in
completing any remaining development of the products, the efficacy and safety of
the products in laboratory testing and the other factors set forth under "Risk
Factors" and elsewhere in this Prospectus.

The Ventricular Tachycardia Ablation System and Arrhythmia Mapping System
for diagnostic mapping of ventricular tachycardia are in the early stages of
clinical testing. Clinical data obtained to date are insufficient to demonstrate
the safety and efficacy of these products under applicable FDA regulatory
guidelines or that additional modifications to the Company's products will not
be necessary. There can be no assurance that any of the Company's products will
prove to be safe and effective in clinical trials under applicable United States
or international regulatory guidelines. In addition, the clinical trials may
identify significant technical or other obstacles to be overcome prior to
obtaining necessary regulatory or reimbursement approvals. In addition, the
ablation catheter and ablation equipment that together form the Company's Atrial
Fibrillation Ablation System and the mapping catheter and mapping equipment that
together form the Company's Arrhythmia Mapping Systems for atrial fibrillation
are still under development. There can be no assurance that the Company will be
successful in completing development of the atrial fibrillation products and
submitting the appropriate IDEs or that the FDA will permit the Company to
undertake clinical trials of the atrial fibrillation products. If the
Ventricular Tachycardia Ablation System, Arrhythmia Mapping Systems and Atrial
Fibrillation Ablation System and their component catheters and equipment do not
prove to be safe

39
<PAGE> 44

and effective in clinical trials or if the Company is otherwise unable to
commercialize these products successfully, the Company's business, financial
condition and results of operations will be materially adversely affected. In
addition, because ablation treatment of these cardiac arrhythmias is a
relatively new and to date untested treatment, the long-term effects of
radiofrequency ablation on patients are unknown. As a result, the long-term
success of ablation therapy in treating ventricular tachycardia and atrial
fibrillation will not be known for several years.

MARKETING AND DISTRIBUTION

The Company markets its Trio/Ensemble diagnostic catheters and Radii
supraventricular tachycardia mapping and ablation catheters internationally
through established distributors of specialty cardiovascular products. The
Company's agreement with Arrow provides distribution rights for the
Trio/Ensemble diagnostic catheters throughout the world except for the
territories of Japan and southern Europe. For distribution of the Company's
Radii supraventricular tachycardia mapping and ablation catheters, the Company
has agreements with distributors in Canada, Europe and Japan and with Arrow in
Germany and the rest of the world, except for the United States, Japan and
southern Europe, Scandinavia and the Benelux countries. Arrow has the right to
manufacture the Radii supraventricular tachycardia mapping and ablation
catheter. If Arrow exercises this right, its territory for the distribution of
the Radii supraventricular tachycardia mapping and ablation catheters will
expand to include the United States. Sales to Japan Lifeline Company, Ltd.
("Japan Lifeline"), the Company's distributor in Japan, and Sorin, S.p.A., the
Company's distributor in southern Europe, accounted for 15% and 57%,
respectively, of the Company's net sales in fiscal 1995. Sales to Japan Lifeline
and Arrow accounted for 55% and 37%, respectively, of the Company's net sales in
the nine months ended March 31, 1996. International sales accounted for 100% and
63% of the Company's net sales in fiscal 1995 and in the nine months ended March
31, 1996, respectively.

The Company generally operates under written distribution agreements that
grant exclusive rights to sell the Company's products within a defined
territory. These agreements generally grant the Company the right to terminate
the distributor for cause (which includes failure to satisfy specified minimum
performance obligations) or the failure of the distributor to obtain required
governmental approvals to distribute the Company's products in the territory.
These distributors also market medical products of other companies, although the
Company has obtained covenants from its distributors granting the Company rights
to terminate given distribution agreements with distributors that market medical
devices that compete directly with those of the Company. Distributors typically
purchase the Company's products at a discount to list price and resell the
products to hospitals and physicians. Sales to international distributors are
usually denominated in United States dollars. The end-user price is determined
by the distributor and varies from country to country.

The Company currently has only a limited sales and marketing organization.
The Company's Vice President, International and Technical Marketing manages
distributor relationships throughout the world. The Company has also retained an
independent consultant clinical specialist to provide support for marketing
efforts in Germany. If FDA clearances or approvals are received for the
Company's ventricular tachycardia or atrial fibrillation products, the Company
intends to market its products primarily through a direct sales force in the
United States and indirect sales channels internationally. The Company believes
that the concentrated nature of the market of practicing electrophysiologists in
the United States will allow it to address this market with a small, targeted
sales force. The Company believes that fewer than 200 of the practicing
electrophysiologists account for approximately two-thirds of the
electrophysiological procedures performed for ventricular tachycardia. The
Company's existing distributors in Japan and southern Europe for the
Trio/Ensemble diagnostic catheters and Radii supraventricular tachycardia
mapping and ablation catheters have the right to elect to become the exclusive
distributors of the ventricular tachycardia and atrial fibrillation products in
their respective territories.

The Company expects to expand its sales and marketing efforts to include
marketing managers and clinical specialists to assist in the sales and marketing
efforts. The Company's marketing and sales strategy in the United States will
involve the use of a combination of sales representatives directly employed by
the Company and field clinical engineers to provide technical expertise. The
role of the sales representative will be to demonstrate the use of the Company's
products while educating physicians as to the clinical benefits of

40
<PAGE> 45

catheter ablation for atrial fibrillation and ventricular tachycardia, using
marketing techniques similar to those commonly employed in the cardiovascular
device industry. The role of the field clinical engineer will be to provide
installations of the Company's systems and provide training to physicians and
their staff on appropriate operation of the Company's equipment. The Company
also intends to establish a resource to provide physicians with relevant
clinical information regarding the Company's products. The Company believes that
this combination of sales representatives and field clinical engineers will
provide an appropriate balance of professional selling skills while maintaining
an appropriate level of technical expertise in the field.

A key element of the Company's marketing strategy has been to develop
relationships with prominent academic physicians who have a history of research
and publications in peer reviewed literature on ablation for ventricular
tachycardia and atrial fibrillation. The Company's strategy is to leverage off
these relationships with leading electrophysiologists to gain market acceptance
of its products in the United States and internationally. The Company believes
there are approximately 600 board certified electrophysiologists practicing in
the United States. These physicians have been involved and will continue to be
involved in the Company's clinical and product development efforts. The Company
intends to continue to build these relationships through clinical investigator
meetings, participation in physician-run symposia and meetings to discuss
clinical issues and treatments. Because of the sub-specialty nature of
electrophysiology, electrophysiologists with high patient volume are found in
referral centers usually associated with major academic medical centers in large
urban population centers. These electrophysiologists have been identified by the
Company as potential prospects and will be the object of concentrated sales
efforts in the future if the Company's ventricular tachycardia or atrial
fibrillation products receive regulatory approvals.

Establishing a marketing and sales capability sufficient to support sales
in commercial quantities will require substantial efforts and require
significant management and financial resources. There can be no assurance that
the Company will be able to build such a marketing staff or sales force, that
establishing such a marketing staff or sales force will be cost-effective or
that the Company's sales and marketing efforts will be successful. In addition,
the Company has not begun discussions with all needed international
distributors. There can be no assurance that the Company will be able to enter
into agreements with desired distributors on a timely basis or at all, or that
such distributors will devote adequate resources to selling the Company's
products. See "Risk Factors -- Limited Sales, Marketing and Distribution
Experience."

The Company currently sells its Radii supraventricular tachycardia mapping
and ablation catheters and Trio/Ensemble diagnostic catheters through
distributors in certain international markets. In addition, the Company plans to
market its ventricular tachycardia and atrial fibrillation products in
international markets, subject to receipt of required regulatory approvals.
Changes in overseas economic conditions, currency exchange rates, foreign tax
laws, or tariffs or other trade regulations could have a material adverse effect
on the Company's ability to market its products internationally and therefore on
its business, financial condition and results of operations. See "Risk
Factors -- Risks Relating to International Operations."

STRATEGIC RELATIONSHIPS

The Company intends to pursue strategic relationships with corporations and
research institutions with respect to the research, development, international
regulatory approval, manufacturing and marketing of certain of its products. In
March 1995, the Company formed a strategic relationship with Arrow, a
manufacturer of medical products for critical care medicine, interventional
cardiology and radiology. The relationship included Arrow's equity investment of
$9.1 million in the Company. The Company and Arrow entered into agreements
pursuant to which the Company granted to Arrow certain manufacturing and
distribution rights to the Trio/Ensemble diagnostic catheters and Radii
supraventricular tachycardia mapping and ablation catheters. In addition, the
Company is currently exploring an international distribution relationship with
Arrow for the Ventricular Tachycardia Ablation System and Arrhythmia Mapping
System for ventricular tachycardia. Although the Company intends to pursue
additional strategic relationships in the future, there can be no assurance that
the Company will be successful in establishing or maintaining any such
relationships or that any such relationship will be successful. See "Certain
Transactions -- Arrow International, Inc. Relationship."

41
<PAGE> 46

RESEARCH AND DEVELOPMENT

Substantially all of the Company's research and development activities are
performed internally by the Company's team of research scientists, engineers and
technicians. The Company's research and development team is generally divided
into three groups. The Systems and Software Group, consisting of 15 persons at
March 31, 1996, is responsible for all development activities related to the
Company's ablation and mapping instruments. The Catheter Development Group,
consisting of nine persons at March 31, 1996, is responsible for all development
activities related to ablation and mapping catheters. The Advanced Product
Development Group, consisting of five persons at March 31, 1996, is responsible
for all development activities related to ablation therapy catheters for atrial
fibrillation. The Company's primary research and development programs involve
completing development of the Atrial Fibrillation Ablation System and developing
improvements to the Ventricular Tachycardia Mapping System, including new
mapping and ablation catheter configurations and new versions of the mapping and
ablation equipment and related software in order to increase the efficacy of the
procedures, increase manufacturing reliability and reduce component and
manufacturing costs.

Research and development expenses for fiscal 1993, 1994, 1995 and the nine
months ended March 31, 1996 were $2.5 million, $5.1 million, $5.7 million and
$4.8 million, respectively. The Company intends to continue to make significant
investments in research and development.

MANUFACTURING

The Company has a 9,000 square feet manufacturing facility consisting of
approximately 4,000 square feet for catheter manufacturing and approximately
5,000 square feet of manufacturing support area at its facilities in Sunnyvale,
California. The Company currently manufactures its catheters and systems in
limited quantities for laboratory testing, United States clinical trials,
international clinical trials and, in the case of its Radii supraventricular
tachycardia mapping and ablation catheters and Trio/Ensemble diagnostic
catheters, limited commercial sales. The manufacture of catheters is a complex
operation involving a number of separate processes and components. Each catheter
is assembled and individually tested by the Company prior to sterilization in
accordance with FDA requirements. The manufacturing process for the mapping and
ablation equipment consists primarily of assembly of purchased components and
testing operations. The Company has no experience manufacturing its products in
the volumes that will be necessary for the Company to achieve significant
commercial sales, and there can be no assurance that reliable, high-volume
manufacturing capacity can be established or maintained at commercially
reasonable costs. If the Company receives FDA clearance or approval for its
products, it will need to expend significant capital resources and develop
manufacturing expertise to establish large-scale manufacturing capabilities.

Components and raw materials are purchased from various qualified suppliers
and subjected to stringent quality specifications. The Company conducts quality
audits of suppliers and is establishing a vendor certification program. A number
of the components such as the computer workstation, the fluid pump, integrated
circuit components, flex circuit and biocompatible coating are provided by sole
source suppliers. For certain of these components, there are relatively few
alternative sources of supply, and establishing additional or replacement
vendors for such components, particularly by flex circuits, could not be
accomplished quickly. The Company plans to qualify additional suppliers if and
as future production volumes increase. Because of the long lead time for some
components that are currently available from a single source, a vendor's
inability to supply such components in a timely manner could have a material
adverse effect on the Company's ability to manufacture the mapping basket,
mapping equipment and ablation equipment and therefore on its business,
financial condition and ability to market its products as currently
contemplated.

42
<PAGE> 47

Company obtain a license to manufacture medical devices. To date, the Company's
facilities and manufacturing processes have not undergone any such inspection.
If the Company is unable to maintain such a license, it would be unable to
manufacture or ship any product, which inability would 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 patent
and copyright protection for its products and processes, to preserve its trade
secrets and to operate without infringing or violating the proprietary rights of
third parties. The Company's strategy is to actively pursue patent protection in
the United States and foreign jurisdictions for technology that it believes to
be proprietary and that offers a potential competitive advantage for its
products. The Company holds issued and allowed patents covering a number of
fundamental aspects of the Company's Ventricular Tachycardia Ablation System,
Arrhythmia Mapping Systems and Atrial Fibrillation Ablation System. The Company
owns 30 issued United States patents and owns an exclusive field-of-use license
on one issued United States patent and licenses to nine United States patents
and one issued foreign patent. In addition, the Company has 24 pending United
States patent applications of which seven are licensed, five of which have been
allowed by the United States Patent and Trademark Office (including two
licensed), and has filed 34 corresponding patent applications (including two
licensed) that are currently pending in Europe, Japan, Australia and Canada. The
Company's patents and patent applications relate to a number of aspects of the
Company's technology, including the technology related to the Company's basket
approach to diagnostic mapping, the integration of mapping and ablation in a
single device, the cooled ablation catheters, bend location and radius
adjustment in the ablation catheters and the multiport introducer. The Company
intends to file additional patent applications to seek protection for other
proprietary aspects of its technology in the future. The patent positions of
medical device companies, including those of the Company, are uncertain and
involve complex and evolving legal and factual questions. The coverage sought in
a patent application either can be denied or significantly reduced before or
after the patent is issued. Consequently, there can be no assurance that any
patents from pending patent applications or from any future patent application
will be issued, that the scope of any patent protection will exclude competitors
or provide competitive advantages to the Company, that any of the Company's
patents will be held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other proprietary rights held by
the Company. Since patent applications are secret until patents are issued in
the United States or corresponding applications are published in international
countries, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it was the first to make the inventions covered by each of the its pending
patent applications or that it was the first to file patent applications for
such inventions. In addition, there can be no assurance that competitors, many
of which have substantial resources and have made substantial investments in
competing technologies, will not seek to 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 in international markets. Further, the
laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as do the laws of the United States.
Litigation or regulatory proceedings, which could result in substantial cost and
uncertainty to the Company, may also be necessary to enforce patent or other
intellectual property rights of the Company or to determine the scope and
validity of other parties' proprietary rights. There can be no assurance that
the Company will have the financial resources to defend its patents from
infringement or claims of invalidity.

The Company also relies on licensed technology from others for certain
components of its mapping and ablation systems. The Company relies on an
exclusive royalty-bearing license for the use of patents relating to a device
for ablating atrial fibrillation. The license will convert into a fully paid
nonexclusive license on the later of ten years from the first commercial sale of
products based on the patents or the expiration date of the last-to-expire
licensed patent.

The Company obtained the rights to its biocompatible coating material
through a nonexclusive royalty-bearing license that will terminate upon the
later of ten years from the first commercial sale of catheters treated with the
coating material or the expiration of the last-to-expire licensed patent. The
license can also be

43
<PAGE> 48

terminated if the Company does not begin commercial sales of catheters using the
biocompatible coating by July 1998.

In addition to patents, the Company relies on trade secrets and proprietary
know-how to compete, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
individuals by the Company during the course of the relationship with the
Company is to be kept confidential and not disclosed to third parties, except in
specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering service to the
Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees, consultants and others will not be breached, that the Company will
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 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. There can be no assurance that the Company will not
become subject to patent infringement claims or litigation in a court of law, or
interference proceedings declared by the USPTO to determine the priority of
inventions or an opposition to a patent grant in a foreign jurisdiction. The
defense and prosecution of intellectual property suits, USPTO interference or
opposition proceedings and related legal and administrative proceedings are both
costly and time-consuming. Any litigation, opposition or interference
proceedings will result in substantial expense to the Company and significant
diversion of effort 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, require disputed rights to be licensed from third parties or
require the Company to cease using such technology. 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 from others would
be available to the Company on satisfactory terms, if at all. Adverse
determinations 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. The Company is aware of certain
patents owned or licensed by others and relating to cardiac catheters and
cardiac monitoring. Certain enhancements of the Company's products are still in
the design and pre-clinical testing phase. Depending on the ultimate design
specifications and results of pre-clinical testing of these enhancements there
can be no assurance that the Company would be able to obtain a license to such
patents or that a court would find that such patents are either not infringed by
such enhancements or are invalid. Further, there can be no assurance that owners
or licensees of these patents will not attempt to enforce their patent rights
against the Company in a patent infringement suit or other legal proceeding,
regardless of the likely outcome of such suit or proceeding.

COMPETITION

At present, the Company considers its primary competition to be companies
involved in current, more established therapies for the treatment of ventricular
tachycardia and atrial fibrillation, including drugs, external electrical
cardioversion and defibrillation, implantable defibrillators, ablation
accompanied by pacemaker implantation, and open-heart surgery. In addition,
several competitors are also developing new approaches and new products for the
treatment and mapping of ventricular tachycardia and atrial fibrillation,
including ablation systems using ultrasound, microwave, laser and cryoablation
technologies and mapping systems using contact mapping, single-point spacial
mapping and non-contact, multisite electrical mapping technologies. Many of the
Company's competitors have an established presence in the field of
interventional cardiology and electrophysiology, including Boston Scientific
Corporation, C.R. Bard, Inc., Johnson & Johnson through its Cordis Division and
Medtronic, Inc. Many of these competitors have substantially greater financial
and other resources than the Company, including larger research and development
staffs and more experience and capabilities in conducting research and
development activities, testing products in clinical

44
<PAGE> 49

trials, obtaining regulatory approvals, and manufacturing, marketing and
distributing products. There can be no assurance that the Company will succeed
in developing and marketing technologies and products that are more clinically
efficacious and cost-effective than the more established treatments or the new
approaches and products developed and marketed by its competitors. Furthermore,
there can be no assurance that the Company will succeed in developing new
technologies and products that are available prior to its competitors' products.
The failure of the Company to demonstrate the efficacy and cost-effective
advantages of its products over those of its competitors or the failure to
develop new technologies and products before its competitors could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company believes that the primary competitive factors in the market for
cardiac ablation and mapping devices are safety, efficacy, ease of use and
price. In addition, the length of time required for products to be developed and
to receive regulatory and, in some cases, reimbursement approval is an important
competitive factor. The medical device industry is characterized by rapid and
significant technological change. Accordingly, the Company's success will depend
in part on its ability to respond quickly to medical and technological changes
through the development and introduction of new products. Product development
involves a high degree of risk and there can be no assurance that the Company's
new product development efforts will result in any commercially successful
products. The Company believes it competes favorably with respect to these
factors, although there is no assurance that it will be able to continue to do
so.

GOVERNMENT REGULATION

UNITED STATES

Clinical testing, manufacture and sale of the Company's products are
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state and foreign regulatory agencies. Pursuant to the FDC
Act, the FDA regulates the clinical testing, manufacture, labeling, distribution
and promotion of medical devices. 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 premarket approval for devices,
withdrawal of marketing approvals, a recommendation by the FDA that the Company
not be permitted to enter into government contracts and criminal prosecution.
The FDA also has the authority to request repair, replacement or refund of the
cost of any device manufactured or distributed by the Company.

In the United States, medical devices are classified into one of three
classes, Class I, II or III, on the basis of the controls deemed by the FDA to
be necessary to reasonably ensure their safety and effectiveness. Class I
devices are subject to general controls (e.g. labeling, premarket notification
and adherence to GMPs). Class II devices are subject to general controls and to
special controls (e.g., performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those that
must receive premarket approval by the FDA to assure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices,
or new devices which have not been found substantially equivalent to legally
marketed devices), and require clinical testing to assure safety and
effectiveness and FDA approval prior to marketing and distribution.

Before a new device can be introduced into the market, the manufacturer
must generally obtain marketing clearance through a premarket notification under
Section 510(k) of the FDC Act ("510(k)") or an approval of a PMA application
under Section 515 of the FDC Act. A 510(k) clearance typically will be granted
if the submitted information establishes that the proposed device is
"substantially equivalent" to a legally marketed Class I or II medical device or
to a Class III medical device for which the FDA has not called for PMAs. A
510(k) notification must contain information to support a claim of substantial
equivalence, which may include laboratory test results or the results of
clinical studies of the device in humans. Commercial distribution of a device
for which a 510(k) clearance is required can begin only after the FDA issues an
order finding the device to be "substantially equivalent" to a predicate device.
The FDA recently has been requiring a more rigorous demonstration of substantial
equivalence than in the past and is more likely to require the submission of
human clinical trial data. Based upon industry and FDA publications, the Company
believes that it generally takes from four to twelve months from the date of
submission to obtain a 510(k)

45
<PAGE> 50

clearance, but it make take longer. The FDA may determine that a proposed device
is not substantially equivalent to a legally marketed device, or that additional
information is needed before a substantial equivalence determination can be
made. A "not substantially equivalent" determination, or a request for
additional information, could delay the market introduction of new products that
fall into this category.

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. The FDA granted 510(k) clearance to Arrow in December 1995
for Trio/Ensemble diagnostic Catheters and Arrow distributes the product in the
United States and internationally. The Company has made certain modifications to
the Trio/Ensemble diagnostic catheters which the Company believes do not require
submission of a new 510(k) notification. There can be no assurance, however,
that the FDA will not require the submission of a new 510(k) notification for
any of the modifications. If the FDA were to take such action, marketing the
modified device could be delayed until a new 510(k) notification was cleared by
the FDA.

If the Company cannot establish that a proposed device is substantially
equivalent to a legally marketed predicate device, the Company must seek
premarket approval of the proposed device from the FDA through the submission of
a PMA application. A PMA application must be supported by valid scientific
evidence that typically includes extensive data, including preclinical and
clinical trial data, to demonstrate the safety and efficacy of the device. If
human clinical trials of a device are required and the device presents a
"significant risk," the sponsor of the trial (usually the manufacturer or the
distributor of the device) is required to file an IDE application with the FDA
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.
Sponsors of clinical trials are permitted to sell investigational devices
distributed in the course of the study provided such compensation does not
exceed recovery of the costs of manufacture, research, development and handling.
An IDE supplement must be submitted to and approved by the FDA before a sponsor
or an 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 initiated a clinical trial for the Ventricular Tachycardia
Ablation System in the United States and Europe in November 1995 under an IDE
approved by the FDA. Although the Company is currently conducting clinical
trials with the device, there can be no assurance that such trials will be
completed, or if completed, that such trials will provide sufficient safety and
effectiveness data and information to support a PMA application and to obtain
FDA marketing approval. In January 1996, the Company received FDA approval to
conduct an IDE feasibility study to evaluate the safety of the Arrhythmia
Mapping System for diagnostic mapping of ventricular tachycardia. In May 1996,
the Company submitted an IDE supplement to the feasibility study requesting
clearance of a slight modification to the deployment system of the Arrhythmia
Mapping System for ventricular tachycardia in response to a complication noted
in the evaluation of a patient enrolled in the feasibility study. See
"-- Clinical Trials -- Arrhythmia Mapping System for Ventricular Tachycardia"
and "Risk Factors -- Lack of Regulatory Clearance or Approval." An IDE
feasibility study is a limited investigation that is intended to provide data on
the device's form, function and feasibility for diagnosis or therapeutic use.
IDE applications for feasibility studies vary in scope, but typically will
include one investigator at one site with a limited number of subjects, usually
consisting of ten or less. Data from the IDE feasibility study will not be
considered by the FDA as pivotal evidence of safety and effectiveness, but
rather as a basis to finalize and confirm the device's design and determine its
potential for further development. There can be no assurance that any IDE
feasibility study that the Company proposes will be approved by the FDA, will be
completed or, if completed, will provide sufficient data and information to
support additional clinical investigations of the type necessary to obtain FDA
marketing clearance or approval. There can be no assurance that the Company will
be able to obtain necessary regulatory approvals on a timely basis or at all,
and delays in receipt of or failure to receive such approvals, the loss of
previously received

46
<PAGE> 51

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.

The Company submitted an IDE of its Mercator Atrial Mapping Basket for use
in the right atrium in May 1996. The Company also plans to submit a supplemental
IDE for its Transseptal Guide Catheter in calendar 1996. Failure to receive such
regulatory approval or clearance would have a material adverse effect on the
business, financial condition or results of operations. The Company's current
estimates of planned submission time periods of IDEs for certain of the
Company's products are set out above in "Business -- Products and Systems" and
involve risks and uncertainties. The actual submission times could differ
materially from those anticipated as a result of certain factors, including the
Company's success in completing any remaining development of the products, the
efficacy and safety of the products in laboratory testing and the other factors
set forth under "Risk Factors" and elsewhere in this Prospectus. See "Risk
Factors -- Lack of Regulatory Clearance or Approval." The PMA application must
contain the results of clinical trials, the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and training methods (if required).
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 the FDA determines that the PMA application is sufficiently complete to
permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA application. Based upon industry and FDA publications, the Company
believes that an FDA review of a PMA application generally takes one to three
years from the date the PMA application is accepted for filing, but may take
significantly longer. The review time is often significantly extended by the FDA
asking for more information or clarification of information already provided in
the submission. During the review period, an advisory committee, typically a
panel of clinicians, will likely be convened to review and evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. The FDA is not bound by the recommendations of the advisory
panel. Toward the end of the PMA application review process, the FDA generally
will conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with applicable GMP requirements.

If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
"approvable letter," which usually contains a number of conditions that must be
met in order to secure final approval of the PMA application. When and if those
conditions have been fulfilled to the satisfaction of the FDA, the agency will
issue a PMA, authorizing commercial marketing of the device for certain
indications. If the FDA evaluation of the PMA application or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA application
or issue a "not approvable" letter. The FDA may also determine that additional
clinical trials are necessary, in which case the PMA may be delayed for several
years while additional clinical trials are conducted and submitted in an
amendment to the PMA application. The PMA process can be expensive, uncertain
and lengthy, and 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. Although under the
FDC Act, the FDA is required to complete its review of a PMA or PMA supplement
within 180 days, the agency may take a significantly longer period of time to
complete its review.

Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by FDA
and certain state agencies, including record keeping requirements and reporting
of adverse experience with the use of the device. Labeling and promotional
activities are subject to scrutiny by FDA and, in certain circumstances, by the
Federal Trade Commission. Current FDA enforcement policy prohibits the marketing
of approved medical devices for unapproved uses.

47
<PAGE> 52

Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed GMP
requirements, which include testing, control and documentation requirements to
register their establishments with the FDA; and to submit device listing
information regarding the devices marketed in the United States. Manufacturers
must also comply with Medical Device Reporting ("MDR") requirements that a firm
report to 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.

The Company has applied for a device manufacturing license from the
California Department of Health Services ("CDHS"); however, the Company has not
yet received an inspection by the state agency, which is required before a
license can be issued. The Company is subject to routine inspection by FDA and
the CDHS for compliance with GMP requirements, MDR requirements, and other
applicable regulations. The Company has not yet been inspected by the FDA or the
CDHS. FDA has proposed changes to the GMP regulations, including design control
requirements, 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.

Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain circumstances, by the FTC. FDA enforcement policy strictly prohibits
the marketing of FDA cleared or approved medical devices for unapproved or
"off-label" uses. 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.

INTERNATIONAL

In order for the Company to market its products in Europe and certain other
foreign jurisdictions, the Company must obtain required regulatory approvals and
clearances and otherwise comply with extensive regulations regarding safety and
manufacturing processes and quality. These regulations, including the
requirements for approvals or clearance to market and the time required for
regulatory review, vary from country to country. There can be no assurance that
the Company will obtain regulatory approvals in such countries or that it will
not be required to incur significant costs in obtaining or maintaining its
foreign regulatory approvals. Delays in receipt of approvals to market the
Company's products, failure to receive these approvals or future loss of
previously received approvals could have a material adverse effect on the
Company's business, financial condition and results of operations.

The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for FDA approval, and the requirements may
differ. In addition, there may be foreign regulatory barriers other than
premarket approval, and the FDA must approve exports of devices that require a
PMA but are not yet approved domestically. The current rules provide that, in
order to obtain FDA export approval, the Company must provide the FDA with data
and information to demonstrate that the device: (1) is not contrary to public
health and safety and (2) has the approval of the country to which it is
intended for export. So that the FDA can determine that export of a device is
not contrary to public health and safety, the Company is required to submit
basic data regarding the safety of the device unless the device is the subject
of an FDA-approved IDE and it will be marketed or used for clinical trials in
the importing country for the same intended use, or at least two IRBs in the
United States have determined that the device is a nonsignificant risk device
and the device will be marketed or used for clinical trials in the importing
country for the same intended use. The Company also must submit a letter to the
FDA from the foreign country approving importation of the device. The Company is
in the process of obtaining approvals and initiating clinical trials in the
United Kingdom, Germany, France, Canada, Australia, and Asia.

48
<PAGE> 53

The European Union ("EU") has promulgated rules which require that medical
products receive by mid-calendar 1998 the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. The Company plans to
implement policies and procedures intended to allow the Company to receive ISO
9001 certification, one of the CE mark certification prerequisites for its
manufacturing facility in Sunnyvale, California. While the Company intends to
satisfy the requisite policies and procedures that will permit it to receive the
CE Mark Certification, there can be no assurance that the Company will be
successful in meeting the European certification requirements and failure to
receive the right to affix the CE mark will prohibit the Company from selling
its products in member countries of the European Union. See "-- Clinical
Trials."

THIRD-PARTY REIMBURSEMENT AND UNCERTAINTY RELATED TO HEALTH CARE REFORM

In the United States, health care providers, including hospitals and
physicians, that purchase medical products for treatment of their patients,
generally rely on third-party payors, principally federal Medicare, state
Medicaid and private health insurance plans, to reimburse all or a part of the
costs and fees associated with the procedures performed using these products.
The Company's success will be dependent upon, among other things, the ability of
health care providers to obtain satisfactory reimbursement from third-party
payors for medical procedures in which the Company's products are used.
Third-party payors may deny reimbursement if they determine that a prescribed
device has not received appropriate regulatory clearances or approvals, is not
used in accordance with cost-effective treatment methods as determined by the
payor, or is experimental, unnecessary or inappropriate. If FDA clearance or
approval is received, third-party reimbursement would also depend upon decisions
by HCFA for Medicare, as well as by individual health maintenance organizations,
private insurers and other payors. Government agencies, private insurers and
other payors determine whether to provide coverage for a particular procedure
and reimburse health care providers for medical treatment at a fixed rate based
on the diagnosis-related group ("DRG") established by the United States HCFA.
The fixed rate of reimbursement is based on the procedure performed, and is
unrelated to the specific type of number of devices used in a procedure. If a
procedure is not covered by a DRG, payors may deny reimbursement. The Company
intends to obtain an appropriate Medicare DRG assignment by HCFA for procedures
performed using its devices. As part of this process, during clinical trials the
Company will collect economic data regarding resources expended in performing
procedures with the devices. The Company will use these data to document
differences in resource use between procedures performed with the Company's
devices and procedures currently categorized under existing DRGs. The Company
intends to meet with HCFA policy staff to request and support development of
appropriate hospital payment policies for the procedures performed using the
Company's devices. In addition, the Company may also collect resource use data
regarding physician services to support establishment of appropriate fee
schedules by third-party payers. The Company believes these efforts will also
support reimbursement among private payers.

In addition, Medicare traditionally has considered items or services
involving devices that have not been approved or cleared for marketing by FDA to
be precluded from Medicare coverage. However, under a new policy which has been
in effect since November 1, 1995, Medicare coverage will not be precluded for
items and related services involving devices that have been classified by FDA as
"non-experimental/investigational" (Category B) devices and that are furnished
in accordance with the FDA-approved IDE governing clinical trials. Even with
items or services involving Category B devices, however, Medicare coverage may
be denied if any other coverage requirements are not met, for example if the
treatment is not medically needed for the specific patient. In June 1995, the
FDA assigned the IDE covering the clinical trial for the Ventricular Tachycardia
Ablation System to Category B and in January 1996, assigned the IDE covering the
clinical trial for the Arrhythmia Mapping System for ventricular tachycardia to
Category B. There can be no assurance that the Company's systems will be covered
when they are used in clinical trials and, if covered, whether the payment
amounts for their use will be considered to be adequate by hospitals and
physicians. If the devices are not covered or the payments are considered to be
inadequate, the Company may need to bear additional costs to sponsor such
trials, and such costs could have a material adverse effect on the Company's
business, financial condition and results of operation.

49
<PAGE> 54

Capital costs for medical equipment purchased by hospitals are currently
reimbursed separately from DRG payments. Recent federal legislation reduced
capital cost reimbursements under the Medicare capital cost pass-through system.
The legislation requires that the aggregate amount of reimbursements in fiscal
years 1992 through 1995 be reduced by approximately 10% per year. Such
reductions have had an adverse impact on reimbursements to hospitals for the
capital cost of equipment such as the system components of the Company's
products.

Reimbursement systems in international markets vary significantly by
country and by region within some countries, and reimbursement approvals must be
obtained on a country-by-country basis. Many international markets have
government managed health care systems that control reimbursement for new
products and procedures. In most markets, there are private insurance systems as
well as government managed systems. Market acceptance of the Company's products
will depend on the availability and level of reimbursement in international
markets targeted by the Company. There can be no assurance that the Company will
obtain reimbursement in any country within a particular time, for a particular
time, for a particular amount, or at all.

Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the Company's products will be required to obtain
reimbursement. The Company believes that less invasive procedures generally
provide less costly overall therapies as compared to conventional drug, surgery
and other treatments. In addition, the Company believes that a patient's
underlying arrhythmia will typically not recur after treatment with the
Company's procedures. The Company anticipates that hospital administrators and
physicians would justify the use of the Company's products by the attendant cost
savings and clinical benefits that the Company believes would be derived from
the use of its products. However, there can be no assurance that this will be
the case. 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 government or private reimbursement systems, or that physicians
will support and advocate reimbursement for procedures using the Company's
products. Failure by hospitals and other users of the Company's products to
obtain reimbursement from third-party payors, or changes in government and
private third-party payors' policies toward reimbursement for procedures
employing the Company's products, would have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover, the
Company is unable to predict what additional legislation or regulation, if any,
relating to the health care industry or third-party coverage and reimbursement
may be enacted in the future, or what effect such legislation or regulation
would have on the Company.

Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. The Company
anticipates that Congress, state legislatures and the private sector will
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. See "Risk Factors -- Uncertainty Related
to Third-Party Reimbursement."

PRODUCT LIABILITY AND INSURANCE

The development, manufacture and sale of medical products entail
significant risk of product liability claims and product failure claims. The
Company has conducted only limited clinical trials and does not yet have, and
will not have for a number of years, sufficient clinical data to allow the
Company to measure the risk of such claims with respect to its products. The
Company faces an inherent business risk of financial exposure to product
liability claims in the event that the use of its products results in personal
injury or death. The Company also faces the possibility that defects in the
design or manufacture of the Company's products might necessitate a product
recall. There can be no assurance that the Company will not experience losses
due to product liability claims or recalls in the future. The Company currently
maintains product liability insurance with coverage limits of $5.0 million per
occurrence and $7.0 million annually in the aggregate and there can be

50
<PAGE> 55

no assurance that the coverage limits of the Company's insurance policies will
be adequate. In addition, the Company will require increased product liability
coverage if any potential products are successfully commercialized. Such
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable terms, or at all. Any claims against the Company,
regardless of their merit or eventual outcome, could have a material adverse
effect upon the Company's business, financial condition and results of
operations.

EMPLOYEES

As of March 31, 1996, the Company had 72 employees, 40 of whom were engaged
directly in research, development, regulatory and clinical activities, 22 in
manufacturing and quality assurance and 10 in marketing, sales, and
administrative positions. No employee of the Company is covered by collective
bargaining agreements, and the Company believes that its relationship with its
employees is good.

The Company's ability to operate successfully depends in significant part
upon the continued service of certain key scientific, technical, clinical,
regulatory and managerial personnel, and its continuing ability to attract and
retain additional highly qualified scientific, technical, clinical, regulatory
and managerial personnel. Competition for such personnel is intense, and there
can be no assurance that the Company can retain such personnel or that it can
attract or retain other highly qualified scientific, technical, clinical,
regulatory and managerial personnel in the future, including key sales and
marketing personnel. The loss of key personnel or the inability to hire and
retain qualified personnel could have a material adverse effect upon the
Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence Upon Key Personnel."

FACILITIES

The Company leases approximately 36,000 square feet in Sunnyvale,
California, approximately 6,000 square feet of which is subleased to a
third-party on a month to month basis. The facility is leased through October
1998, at which time the Company has an option to extend the lease for an
additional five-year term. The Company believes that this facility will be
adequate to meet its needs through fiscal 1998.

INVESTIGATORS AND COLLABORATORS

The Company has established a group of medical investigators and
collaborators to consult with the Company's engineers and clinical research
staff and to advise the Company on the design and development of its products
and on other scientific and medical matters in the areas of the Company's
business. The Company's investigators and collaborators include the following
cardiologists:

Martin Borggrefe, M.D., Director, Electrophysiology Laboratory, University
of Munster, Munster, Germany.

William Stevenson, M.D., Associate Professor of Medicine, Co-Director,
Cardiac Arrhythmia Service and Clinical Electrophysiology Laboratory, Brigham
and Womens Hospital, Boston, Massachusetts.

J. Marcus Wharton, M.D., Associate Professor of Medicine, Director,
Clinical Cardiac Electrophysiology, Duke University Medical Center, Durham,
North Carolina.

Hugh Calkins, M.D., Associate Professor of Medicine, Director of
Electrophysiology, Johns Hopkins Hospital, Baltimore, Maryland.

Andrew Epstein, M.D., Professor of Medicine, University of
Alabama-Birmingham, Birmingham, Alabama.

Martin Schalij, M.D., Head of Clinical Electrophysiology, Director, Cardiac
Catheterization Laboratory, University of Leiden, Netherlands.

Douglas Packer, M.D., Associate Professor of Medicine, Mayo Foundation/St.
Mary's Hospital, Rochester, Minnesota.

51
<PAGE> 56

Mark Carlson, M.D., Associate Professor of Medicine, Associate Director,
Clinical Cardiac Electrophysiology, University Hospital of Cleveland, Cleveland,
Ohio.

Bernd-Dieter Gonska, M.D., Chief of Cardiology, St. Vincentius Hospital,
Karlsruhe, Germany.

David Wilber, M.D., Professor of Medicine, Director, Clinical
Electrophysiology, University of Chicago, Chicago, Illinois.

Joseph Smith, M.D., Ph.D., Assistant Professor of Medicine, Washington
University Hospital, St. Louis, Missouri.

Melvin Scheinman, M.D., Professor of Medicine, Chief, Cardiac
Electrophysiology, University of California San Francisco, San Francisco,
California.

Paul Wang, M.D., Associate Director, Cardiac Electrophysiology and Pacing,
New England Medical Center, Boston, Massachusetts.

Bruce Stambler, M.D., Director, Electrophysiology and Pacing, West Roxbury
VA, Boston, Massachusetts.

Anton Becker, M.D., Professor of Pathology, Head, Department of
Cardiovascular Pathology, University of Amsterdam, Amsterdam, The Netherlands.

Carlo Pappone, M.D., Director, Electrophysiology Laboratory, San Raffaele
Hospital, Milan, Italy.

Michel Haissaguerre, M.D., Joint Chief, Cardiology Services, Regional
Center Hospital, Bordeaux, France.

Yoshito Iesaka, M.D., Department Head, Tsuchiura Kyodo Hospital, Japan.

Hiroshi Kasanuki, M.D., Department Head, Tokyo Women's Medical College
Hospital, Tokyo, Japan.

The Company has entered into investigator agreements with most of the
listed investigators and collaborators. Each of the Company's investigators and
collaborators has entered into a confidentiality and non-disclosure agreement
with the Company. These investigators and collaborators are generally employed
by employers other than the Company and may have commitments to or consulting
advisory contracts with other entities that may limit their availability to the
Company. Although generally each investigator and collaborator agrees not to
perform services for another person or entity which would create a conflict of
interest with the individual's services for the Company, there can be no
assurance that such conflict will not arise.

52
<PAGE> 57

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY SCIENTIFIC EMPLOYEES

The following table sets forth certain information concerning the
Directors, executive officers and certain other key scientific employees of the
Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William N. Starling............... 43 President, Chief Executive Officer and Chairman of
the Board of Directors
Earle L. Canty.................... 44 Vice President, Regulatory Affairs and Quality
Assurance
Eric N. Doelling.................. 37 Vice President, Manufacturing
David W. Gryska................... 40 Vice President, Finance and Chief Financial Officer
Harold A. Heitzmann, Ph.D. ....... 48 Vice President, Catheter Development
Mark L. Pomeranz.................. 35 Vice President, Advanced Product Development
Richard E. Riley.................. 41 Vice President, Product Development
Donald J. Santel.................. 35 Vice President, International Sales and Technical
Marketing
Edward J. Sinclair................ 39 Director, Quality Assurance
Carole M. Sykes................... 40 Director, Clinical Research
Annette J. Campbell-White(1)(2)... 49 Director
Thomas J. Fogarty, M.D.(2)........ 62 Director
Joseph P. Ilvento, M.D.(1)........ 42 Director
Lawrence G. Mohr, Jr.(1)(2)....... 51 Vice Chairman of the Board of Directors
</TABLE>

- ------------
(1) Member of Audit Committee

(2) Member of Compensation Committee.

WILLIAM N. STARLING has been a Director of the Company since its inception.
Mr. Starling became President and Chief Executive Officer of the Company in
January 1992 and Chairman of the Board of Directors in January 1996. Prior to
joining the Company, Mr. Starling co-founded and was a director and a vice
president of Ventritex, Inc., a medical device company, from 1985 to 1991. From
1982 to 1985, Mr. Starling was the Director of Marketing of Advanced
Cardiovascular Systems, a division of Guidant, Inc. Mr. Starling serves on the
Board of Visitors of the University of North Carolina at Chapel Hill.

EARLE L. CANTY has been Vice President, Regulatory Affairs and Quality
Assurance of the Company since April 1996. Prior to joining the Company, Mr.
Canty was Vice President, Regulatory Affairs and Quality Assurance at Symphonix
Devices, Inc., a medical device company, from September 1995 to March 1996. From
October 1994 to September 1995, Mr. Canty was the principal of Earle L. Canty
Medical Device Regulatory Affairs and Product Assurance Consulting. From 1987 to
September 1994, Mr. Canty was the Vice President of Regulatory Affairs and
Quality Assurance at Ventritex, Inc., a medical device company.

ERIC N. DOELLING has been Vice President, Manufacturing of the Company
since April 1993. From January 1990 to March 1993, Mr. Doelling was with
Spectranetics Corporation, a medical device company, most recently as Vice
President of Operations. From 1986 to 1990, Mr. Doelling was with the USCI
Division of C.R. Bard, Inc. a medical device company, most recently as
Manufacturing Operations Manager.

DAVID W. GRYSKA has been Vice President, Finance and Chief Financial
Officer of the Company since October 1993. From 1982 to September 1993, Mr.
Gryska was with Ernst & Young, LLP, as a partner from 1989 to September 1993.

HAROLD A. HEITZMANN, PH.D. has been Vice President, Catheter Development of
the Company since September 1995. From September 1991 to April 1995, Dr.
Heitzmann was Director of Engineering at InnerSpace, Inc., a medical device
company. From 1983 to September 1991, Dr. Heitzmann held various engineering
management positions with Baxter Healthcare Corp., most recently as Director of
Advanced Cardiology Projects.

53
<PAGE> 58

MARK L. POMERANZ has been Vice President, Advanced Product Development of
the Company since May 1995. From October 1991 to May 1995, Mr. Pomeranz was
Director of Catheter Engineering of the Company. From 1989 to 1991, Mr. Pomeranz
was a Project Manager at Cardiovascular Imaging Systems, Inc., a medical device
company. From 1986 to 1989, Mr. Pomeranz held various senior engineering
positions with MCM Laboratories, Baxter Healthcare Corp. and Mallinckrodt
Interventional Products.

RICHARD E. RILEY has been Vice President, Product Development of the
Company since July 1994. From July 1992 to July 1994, Mr. Riley was Vice
President, Software Development of the Company. From 1982 to June 1992, Mr.
Riley held various engineering positions, including Project Director with
Medtronic, Inc., a medical device company.

DONALD J. SANTEL has been Vice President, International Sales and Technical
Marketing of the Company since January 1995. From January 1992 to January 1995,
Mr. Santel was Vice President, Clinical Engineering of the Company. From 1982 to
1991, Mr. Santel was with Medtronic, Inc., a medical device company, most
recently as United States Marketing Product Manager.

EDWARD J. SINCLAIR has been Director, Quality Assurance since October 1994.
From 1988 to October 1993, he was with Advanced Cardiovascular Systems, a
medical device company, most recently as Manager of Quality Control/Quality
Engineering/Metrology.

CAROLE M. SYKES has been Director, Clinical Research of the Company since
November 1994. From December 1992 to October 1994, Ms. Sykes was Manager,
Clinical Research of the Company. From February 1992 to December 1992, Ms. Sykes
was with Physiometrix, Inc., a medical device company, as Manager of Clinical
Affairs. From 1989 to February 1992, she was with Cardiovascular Imaging
Systems, Inc., a medical device company, as Manager of Clinical Affairs. From
1986 to 1989, she was with Nellcor, Inc., a medical device company, as Clinical
Research Specialist and Manager of Clinical Education Consultants.

ANNETTE J. CAMPBELL-WHITE has been a member of the Board of Directors of
the Company since May 1991. Ms. Campbell-White has been a general partner of
MedVenture Associates, a venture capital investment firm, since its formation in
1986. From September 1992 to July 1994 she was a general partner of Paragon
Venture Partners, a venture capital investment firm. From January 1990 to
January 1993, she was a special limited partner and a venture partner with
InterWest Partners IV and US Venture Partners, respectively, both venture
capital investment firms. Ms. Campbell-White serves as director of Physiometrix,
Inc., ArthroCare Corporation and several privately-held companies.

DR. THOMAS J. FOGARTY has been a member of the Board of Directors of the
Company since May 1991. Dr. Fogarty has been a cardiovascular surgeon and
Professor of Surgery at Stanford University Medical Center since July 1993. Dr.
Fogarty was a co-founder of Imagyn Medical, Incorporated, Imagyn Corporation,
Cardiovascular Imaging Systems, Inc., Aneurx, Inc., Guided Medical Systems,
Inc., Raytel Medical Corporation, and Ventritex, Inc., all medical device
companies. Dr. Fogarty serves as director of Raytel Medical Corporation,
Cardiothoracic Systems, Inc., Physiometrix, Inc. and several privately-held
companies.

DR. JOSEPH P. ILVENTO has been a member of the Board of Directors of the
Company since September 1995. Dr. Ilvento is also a Cardiac Electrophysiologist
as well as Chairman of the Santa Barbara Cottage Hospital Heart Institute,
Medical Director of Cardiac Electrophysiology at Santa Barbara Cottage Hospital,
and Director of Electrophysiology at Community Memorial Hospital in Ventura,
California.

LAWRENCE G. MOHR, JR. has been a Director of the Company since May 1991.
Mr. Mohr has been a general partner of Mohr Davidow Ventures, a venture capital
investment firm, since its formation in 1983. Prior to that Mr. Mohr was a
venture capitalist with Hambrecht & Quist Venture Partners.

Prior to the closing of this offering, the Board will be divided into three
classes, as nearly equal in number as possible, with each Director serving a
three-year term and one class being elected at each year's annual meeting of
stockholders. Ms. Campbell-White will be in the class of directors whose term
expires at the 1996 annual meeting of the Company's stockholders. Dr. Ilvento
and Dr. Fogarty will be in the class of directors whose term expires at the 1997
annual meeting of the Company's stockholders. Mr. Starling and Mr. Mohr will be
in the class of directors whose term expires at the 1998 annual meeting of the
Company's stockholders.

54
<PAGE> 59

At each annual meeting of the Company's stockholders, successors to the class of
directors whose term expires a such meeting will be elected to serve or three
year terms and until their successors are elected and qualified. Officers of the
Company serve at the discretion of the Board of Directors.

DIRECTOR COMPENSATION

Members of the Company's Board of Directors do not receive compensation for
their services as directors. The Company's 1996 Director Option Plan provides
that options may be granted to non-employee directors of the Company pursuant to
an automatic nondiscretionary grant mechanism. See "Stock Plans -- Director
Option Plan."

In April 1996, the Company entered into a consulting agreement with Dr.
Ilvento pursuant to which Dr. Ilvento will provide consulting services to the
Company in connection with this offering, including participating in the
Company's roadshow presentations to potential investors. In exchange for these
services, Dr. Ilvento will receive a lump sum payment of $35,000.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of directors Campbell-White,
Fogarty and Mohr.

EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation awarded to, earned by, or paid for services rendered to the Company
in all capacities during the fiscal year ended June 30, 1995, by (i) the
Company's Chief Executive Officer and (ii) the Company's next four most highly
compensated executive officers whose salary and bonus for such fiscal year
exceeded $100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ---------------------
ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION OPTIONS(#)(1)
- --------------------------------------- --------- -------- ------------ ---------------------
<S> <C> <C> <C> <C>
William N. Starling.................... $ 158,269 $-- $-- 116,667
President, Chief Executive Officer
and Director
Richard E. Riley....................... 130,661 -- -- 33,333
Vice President, Product Development
David W. Gryska........................ 129,231 -- -- 21,667
Vice President, Finance and Chief
Financial Officer
Eric N. Doelling....................... 132,061 -- -- 36,666
Vice President, Manufacturing
Donald J. Santel....................... 112,519 -- -- 10,000
Vice President, International and
Technical Marketing
</TABLE>

- ------------
(1) These shares are subject to exercise under stock options granted under the
Company's stock option plans.

55
<PAGE> 60

STOCK OPTION GRANTS

The following table provides information relating to stock options awarded
to each of the Named Executive Officers during fiscal 1995. All such options
were awarded under the Company's 1991 Stock Plan.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------- ANNUAL RATES OF
PERCENT OF STOCK
NUMBER OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR OPTIONS'
UNDERLYING GRANTED TO EXERCISE TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED(1) FISCAL 1995 SHARE(2)(3) DATE(4) 5%($) 10%($)
- ------------------------------ ---------- ------------ ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
William N. Starling........... 66,667 14.5% $1.32 07/05/2004 $55,343 $140,250
50,000 10.9 1.50 05/26/2005 47,167 119,531
Richard E. Riley.............. 33,333 7.2 1.32 07/05/2004 27,671 70,124
David W. Gryska............... 16,667 3.6 1.32 07/05/2004 13,836 35,063
5,000 1.1 1.32 11/01/2004 4,151 10,519
Eric N. Doelling.............. 33,333 7.2 1.32 07/05/2004 27,671 70,124
3,333 0.7 1.50 05/26/2005 3,144 7,968
Donald J. Santel.............. 10,000 2.2 1.32 07/05/2004 8,301 21,037
</TABLE>

- ------------
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten year option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.

(2) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by the Board of Directors on the
date of grant.

(3) Exercise price may be paid in cash, check, promissory note, by delivery of
already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other consideration
or method of payment to the extent permitted under applicable law.

(4) Options become exercisable as to 25% of the option shares on the first
anniversary of the date of grant and as to 1/48th of the option shares each
month thereafter, with full vesting occurring on the fourth anniversary of
the date of grant.

56
<PAGE> 61

AGGREGATE OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding the exercise
of stock options by the Named Executive Officers during fiscal 1995 and stock
options held as of June 30, 1995 by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE JUNE 30, 1995(#) JUNE 30, 1995($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William N. Starling......... -- $ -- 99,428 157,239 $ 1,535,921 $ 2,346,250
Richard E. Riley............ -- -- 54,165 45,835 842,313 692,437
David W. Gryska............. -- -- 32,429 55,905 488,557 838,186
Eric N. Doelling............ -- -- 43,818 59,515 669,236 895,093
Donald J. Santel............ -- -- 46,110 20,557 722,324 311,948
</TABLE>

- ------------
(1) Based upon an assumed initial public offering price of $16.00 per share
minus the exercise price.

STOCK PLANS

Stock Option Plan. The Company's 1991 Stock Plan (the "1991 Plan") was
adopted by the Board of Directors and approved by the stockholders in January
1992. A total of 1,887,030 shares of Common Stock has been reserved for issuance
under the 1991 Plan. As of March 31, 1996, 358,747 shares of Common Stock had
been issued upon the exercise of options granted under the 1991 Plan, options to
purchase 1,217,548 shares of Common Stock at a weighted average exercise price
of $1.66 share were outstanding and 310,735 shares remain available for future
option grants under the 1991 Plan.

The 1991 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options and
stock purchase rights to employees (including officers and employee directors)
and consultants of the Company. The purpose of the 1991 Plan is to attract and
retain the best available personnel for positions of substantial responsibility
and to provide additional incentive to employees and consultants to promote the
success of the Company's business. The 1991 Plan is administered by the Board of
Directors or a committee thereof, which determines the optionees and the terms
of options granted, including the exercise price, number of shares subject to
the option and the exercisability thereof.

The terms of options granted under the 1991 Plan are stated in the option
agreement, provided that the term of an incentive stock option may not exceed 10
years and the term of all incentive stock options and nonstatutory stock options
granted to an optionee who, at the time of grant, owns stock representing more
than 10% of the Company's outstanding capital stock, may not exceed five years.
Options granted under the 1991 Plan generally vest and become exercisable as to
25% of the option shares on the first anniversary of the date of grant and as to
1/48th of the option shares each month thereafter, with full vesting occurring
on the fourth anniversary of the date of grant. No option may be transferred by
the optionee other than by will or the laws of descent or distribution, and each
option may be exercised, during the lifetime of the optionee, only by such
optionee. An optionee whose relationship with the Company or any related
corporation ceases for any reason (other than by death or total and permanent
disability) may exercise options in the three-month period following such
cessation, unless such options terminate or expire sooner (or for nonstatutory
stock options, later), by their terms. The three-month period is extended to
twelve months for terminations due to death or total and permanent disability.
In the event of a merger of the Company with or into another corporation, all
outstanding options may either by assumed or an equivalent option may be
substituted by the surviving entity or, if such options are not assumed or
substituted, such options shall become exercisable as to all of the shares
subject to the options, including shares as to which they would not otherwise be
exercisable. In the event that options become exercisable in lieu of assumption
or substitution, the Board of Directors shall notify optionees that all options
shall be fully exercisable for a period of 15 days, after which such options
shall terminate. The Board of Directors determines the exercise price of options
granted under the 1991 Plan at the time of grant,

57
<PAGE> 62

provided that the exercise price of all incentive stock options must be at least
equal to the fair market value of the shares on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting rights
of the Company's outstanding capital stock, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date. The consideration for exercising any incentive stock option or any
nonstatutory stock option may consist of cash, check, promissory note, delivery
of already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, a reduction
in the amount of any Company liability to an optionee, or any combination of the
foregoing methods of payment or such other consideration or method of payment to
the extent permitted under applicable law. No incentive stock options may be
granted to a participant, which, when aggregated with all other incentive stock
options granted to such participant, would have an aggregate fair market value
in excess of $100,000 becoming exercisable in any calendar year. No employee may
be granted, in any fiscal year of the Company, options to purchase more than
200,000 shares (or 300,000 shares in the case of a new employee's initial
employment with the Company). The 1991 Plan will terminate in January 2002,
unless sooner terminated by the Board of Directors.

The Board of Directors may also grant stock purchase rights to employees
and consultants under the 1991 Plan. Such grants are made pursuant to a
restricted stock purchase agreement with the price to be paid for the shares
granted thereunder not being less than 50% of the fair market value per share of
the Company's Common Stock. The Company is generally granted a repurchase option
exercisable on the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
repurchase price shall be the original purchase price paid by the purchaser. The
repurchase option shall lapse at a rate determined by the Board of Directors.
Once the stock purchase right has been exercised, the purchaser shall have the
rights equivalent to those of a stockholder.

In connection with the preparation of this offering, the Company
reconsidered whether stock options granted since March 1995 contained a
compensatory element which should be recorded in the Company's accounts. Based
in part upon the proposed range of the offering price of the Common Stock in
this offering, the Company determined that for purposes of computing deferred
compensation expense relating to the stock options granted in the last 12
months, it should value the Common Stock in September and October 1995 at $2.25
per share, in December 1995 at $4.50 per share, in January 1996 at $6.38 per
share, in February 1996 at $9.90 per share and in March 1996 at $12.38 per
share. These valuations resulted in a charge to operations in the nine months
ended March 31, 1996 of $22,000 and will result in charges in future periods
aggregating a maximum of approximately $192,000 as such stock options vest.

Employee Stock Purchase Plan. The Company's 1996 Employee Stock Purchase
Plan (the "Purchase Plan") was adopted by the Board of Directors in March 1996
and approved by the stockholders in April 1996. A total of 53,000 shares of
Common Stock has been reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended, is administered by the Board of Directors or
by a committee appointed by the Board. Employees (including officers and
employee directors of the Company, but excluding 5% stockholders) are eligible
to participate if they are customarily employed for at least 20 hours per week
and for more than five months in any calendar year. The Purchase Plan permits
eligible employees to purchase Common Stock through payroll deductions, which
may not exceed 15% of an employee's compensation. The Purchase Plan will be
implemented in a series of overlapping offering periods, each to be of
approximately 24 months duration. The initial offering period under the Purchase
Plan will begin on the effective date of this offering and subsequent offering
periods will begin on the first trading day on or after May 1 and November 1 of
each year. Each participant will be granted an option on the first day of the
offering period and such option will be automatically exercised on the last date
of each semi-annual period throughout the offering period. If the fair market
value of the Common Stock on any purchase date is lower than such fair market
value on the start date of that offering period, then all participants in that
offering period will be automatically withdrawn from such offering period and
re-enrolled in the immediately following offering period. The purchase price of
the Common Stock under the Purchase Plan will be equal to 85% of the lesser of
the fair market value per share of Common Stock on the start date of the
offering period or on the date on which the option is exercised.

58
<PAGE> 63

Employees may end their participation in an offering period at any time during
that period, and participation ends automatically on termination of employment
with the Company. In the event of a proposed dissolution or liquidation of the
Company, the offering periods terminate immediately prior to the consummation of
the proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the Company's assets or the merger
of the Company with or into another corporation, then the offering period in
progress will be shortened by setting a new exercise date that is before the
sale or merger and the offering period in progress shall end on the new exercise
date. Each participant shall be notified at least ten business days prior to the
new exercise date, and unless such participant ends his or her participation,
the option will be exercised automatically on the new exercise date. The
Purchase Plan will terminate in March 2006, unless sooner terminated by the
Board of Directors.

Director Option Plan. The Company's 1996 Director Option Plan (the
"Director Plan") was adopted by the Board of Directors in March 1996 and
approved by the stockholders of the Company in April 1996. A total of 20,000
shares of Common Stock has been reserved for issuance under the Director Plan.
The option grants under the Director Plan are automatic and non-discretionary,
and the exercise price of the options is 100% of the fair market value of the
Common Stock on the grant date. The Director Plan provides for an initial grant
of options to purchase 13,000 shares of Common Stock to each new non-employee
director of the Company who is neither affiliated with or nominated by a
stockholder that owns one percent or more of the outstanding capital stock of
the Company on the later of the effective date of the Director Plan or the date
he or she first becomes a director. In addition, each non-employee director will
automatically be granted an option to purchase 700 shares of Common Stock at the
next meeting of the Board of Directors following the annual meeting of
stockholders in each year beginning with the 1996 annual meeting of
stockholders, if on such date, such director has served on the Board of
Directors for at least the preceding six months. The term of such options is ten
years, provided that such options shall terminate three months following the
termination of the optionee's status as a director (or twelve months if the
termination is due to death or disability). 13,000 share options granted to a
director vest at a rate of 25% on the first anniversary of the date of grant and
at a rate of 1/48th of the shares per month thereafter. 700 share options
granted to a director vest at a rate of 1/8th of the shares subject to the
option six months after the date of grant and at a rate of 1/48th of the shares
per month thereafter. In the event of a merger of the Company with or into
another corporation, all outstanding options may either be assumed or an
equivalent option may be substituted by the surviving entity or, if such options
are not assumed or substituted, such options shall become exercisable as to all
of the shares subject to the options, including shares as to which they would
not otherwise be exercisable. In the event that options become exercisable in
lieu of assumption or substitution, the Board of Directors shall notify
optionees that all options shall be fully exercisable for a period of 30 days,
after which such options shall terminate. The Director Plan will terminate in
March 2006, unless sooner terminated by the Board of Directors.

401(k) Plan. Substantially all full-time employees of the Company
participate in the Cardiac Pathways 401(k) Plan (the "401(k) Plan"), a plan
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended. Employees may begin to participate in the 401(k) Plan the first of the
month following their hire date provided they have reached the age of 18.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the lesser of 15% of eligible compensation or the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional matching contributions by the Company on behalf of the participants.
The Company made matching contributions to certain eligible employees of
approximately $1,800 and $4,500 in fiscal 1995 and the nine months ended March
31, 1996, respectively. Contributions by employees or by the Company to the
401(k) Plan, and income earned on plan contributions, are generally not taxable
to employees until withdrawn, and contributions by the Company, if any, should
be deductible by the Company when made. The trustee under the 401(k) Plan, at
the direction of each participant, invests the assets of the 401(k) Plan in
selected investment options.

EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

Messrs. Starling, Riley, Gryska, Canty, Pomeranz, Heitzmann and Doelling
have entered into employment agreements with the Company pursuant to which the
Company may terminate the employee's

59
<PAGE> 64

employment at any time with or without cause; provided, however, that if
employment is terminated with cause, the Company will pay the employee a
severance payment in an amount equal to one month of the employee's then-current
monthly base salary and if the employee's employment is terminated without
cause, the Company will pay the employee a severance payment of an amount equal
to six months of the employee's then-current monthly base salary. The
agreements, other than Mr. Starling's agreement, also provide that all
outstanding stock options held by the employees become immediately exercisable
in the event that the employee's employment is terminated without cause or is
constructively terminated in connection with a merger, reorganization or sale of
substantially all of the assets of the Company in which stockholders of the
Company immediately prior to the transaction possess less than fifty percent
(50%) of the voting power of the surviving entity (or its parent) immediately
after the transaction.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Certificate of Incorporation that
eliminate to the fullest extent permissible under Delaware law the liability of
its directors to the Company for monetary damages. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission. The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has entered into indemnification agreements with
its officers and directors containing provisions which may require the Company,
among other things, to indemnify the officers and directors against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.

At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.

60
<PAGE> 65

CERTAIN TRANSACTIONS

PRIVATE PLACEMENTS OF SECURITIES

Between July 1, 1992 and March 31, 1996 the Company sold the following
shares of its Preferred Stock in private placement transactions: 1,091,666
shares of Series C Preferred Stock at a price of $6.00 per share; 1,270,114
shares of Series D Preferred Stock at a price of $8.70 per share; 190,476 shares
of Series E Preferred Stock at a price of $13.125 per share and 673,001 shares
of Series F Preferred Stock at a price of $15.00 per share. In connection with
such private placement transactions, the Company issued warrants to purchase the
following shares of Preferred Stock: 6,667 shares of Series E Preferred Stock at
an exercise price of $13.125 per share; and 67,334 shares of Series F Preferred
Stock at an exercise price of $13.125 per share.

The purchasers of Preferred Stock described above included, among others,
the following officers, directors and holders of more than five percent of the
Company's voting securities:

<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK(1)(2)
-----------------------------------------------
SERIES C SERIES D SERIES E SERIES F
-------- -------- -------- --------
<S> <C> <C> <C> <C>
DIRECTORS
Thomas J. Fogarty, M.D.(3)........................... -- -- -- 667
ENTITIES AFFILIATED WITH DIRECTORS
MedVenture Associates (Annette J. Campbell-White).... 33,333 5,747 -- 4,000
Mohr Davidow Ventures II (Lawrence G. Mohr).......... 208,333 -- -- 12,000
OTHER 5% STOCKHOLDERS
Arrow International, Inc............................. -- -- -- 606,667
Delphi BioVentures, L.P. Entities(4)................. 208,334 -- -- 8,000
Institutional Venture Partners Entities(5)........... 333,333 86,206 -- 6,000
Oak Investment Partners Entities(6).................. 150,000 -- -- 6,667
</TABLE>

- ------------
(1) The purchasers of these securities are entitled to registration rights. See
"Description of Capital Stock -- Registration Rights."

(2) Does not include shares of Common Stock issuable upon the exercise of
warrants held by such entities issued in connection with the Series F
Preferred Stock Financing.

(3) Represents shares held by the Fogarty Family Revocable Trust of which Dr.
Fogarty is a trustee.

(4) Includes Delphi BioInvestment, L.P., Delphi BioInvestment II, L.P., Delphi
BioVentures, L.P. and Delphi BioVentures II, L.P.

(5) Includes Institutional Venture Management V and Institutional Venture
Partners V.

(6) Includes Oak Investment Partners IV, Limited Partnership and Oak IV
Affiliates Fund.

TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

The Company entered into a Consulting Agreement dated June 1, 1995 with Mir
A. Imran, the holder of 8.1% of the Company's outstanding capital stock before
this offering, pursuant to which Mr. Imran provides consulting services to the
Company for which he is paid a monthly fee of $4,167. Under the terms of the
Consulting Agreement, Mr. Imran has assigned to the Company his right, title and
interest in and to any discoveries for the application area of cardiac
electrophysiology (excluding cardiac pacemakers, defibrillators and leads that
are used with these devices). Mr. Imran retains the rights to such discoveries
outside the area of cardiac electrophysiology. The Company also holds Mr.
Imran's promissory note in the principal amount of $200,000 which was given to
the Company in connection with a loan advanced in December 1992. The promissory
note bears interest at the rate of 5.68% per annum. All principal and accrued
interest under the note is due and payable upon the earliest to occur of (i) May
31, 1997, (ii) the date of termination of the Consulting Agreement, (iii) the
effectiveness of an initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the Securities and Exchange
Commission, or (iv) the

61
<PAGE> 66

effectiveness of a merger or a reorganization of the Company or a sale of
substantially all the assets of the Company pursuant to which Mr. Imran receives
cash or liquid securities.

As part of the Company's employment agreement with Earle L. Canty, Vice
President, Regulatory Affairs and Quality Assurance, the Company will lend Mr.
Canty $385,000 at an annual interest rate of 5.88%. The proceeds of the loan
will be used to exercise a stock option granted to Mr. Canty in January 1996.
The loan is due upon the sale of the shares, or any portion thereof, underlying
the option up to an amount equal to fifty percent (50%) of the proceeds from
such sale. The entire outstanding balance of the note is due and payable on the
earlier of the termination or cessation of Mr. Canty's employment, or January
2001.

ARROW INTERNATIONAL, INC. RELATIONSHIP

In June 1995 and December 1995, the Company sold an aggregate of 606,667
shares of its Series F Preferred Stock to Arrow at a price of $15.00 per share
for an aggregate purchase price of approximately $9.1 million representing
approximately 9.3% of the Company's outstanding capital stock before this
offering. In the transaction Arrow also acquired warrants to purchase 7,667
shares of Series F Preferred Stock at an exercise price of $13.125, which expire
on the earlier of June 2000 or the closing date of a transaction involving a
change of control of the Company. Each share of Series F Preferred Stock will be
automatically converted into one share of Common Stock of the Company upon the
closing of this offering.

Arrow has the same right as other preferred stockholders to require the
Company to file a registration statement under the Securities Act of 1933, as
amended, with respect to any shares of the Company's Common Stock held by Arrow,
subject to certain conditions and limitations. See "Description of Capital
Stock -- Registration Rights."

Arrow also has the exclusive right to distribute the Company's
Trio/Ensemble diagnostic catheters in all territories of the world except
southern Europe and Japan and the Company's Radii supraventricular tachycardia
mapping and ablation catheters and ablation equipment in all countries in the
world except the United States, Canada, Japan and southern Europe, Scandinavia
and the Benelux countries. As part of a manufacturing agreement, Arrow has the
right to manufacture the Radii supraventricular tachycardia mapping and ablation
catheter. If Arrow elects to exercise this right, the territory for the
distribution of the Radii supraventricular tachycardia mapping and ablation
catheters and ablation equipment will expand to include the United States.

Sales to Arrow under its distributorship accounted for $399,000 for the
nine months ended March 31, 1996, representing 37% of the Company's net sales.
------------------------

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including a
majority of the independent and disinterested outside directors, and will
continue to be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.

62
<PAGE> 67

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of March 31, 1996 and as adjusted to
reflect the sale of the 2,500,000 shares of Common Stock offered hereby: (i) by
each person or entity who is known by the Company to own beneficially more than
5% of the Common Stock; (ii) by each director of the Company, (iii) by each of
the Named Executive Officers, and (iv) by all directors and executive officers
of the Company as a group. Except as otherwise noted, the stockholders named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to applicable
community property laws.

<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY OWNED(1)
BENEFICIALLY ----------------------------------
BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
Mohr, Davidow Ventures II(2).......................... 860,112 13.0% 9.5%
(Lawrence G. Mohr)
3000 Sand Hill Road
Bldg. 1, Ste. 240
Menlo Park, CA 94025
Arrow International, Inc.(3).......................... 614,334 9.3 6.8
P.O. Box 12888
3000 Bernville Road
Reading, PA 19612
Entities affiliated with Delphi BioVentures,
L.P.(4)............................................. 546,556 8.3 6.0
3000 Sand Hill Road
Bldg. 1, Ste. 135
Menlo Park, CA 94025
Mir A. Imran.......................................... 532,153 8.1 5.8
c/o Cardiac Pathways Corporation
995 Benecia Avenue
Sunnyvale, CA 94086
Entities affiliated with Oak Investment Partners(5)... 485,556 7.4 5.3
One Gorham Island
Westport, CT 06880
Entities affiliated with Institutional Venture
Partners(6)......................................... 431,539 6.5 4.7
3000 Sand Hill Road
Bldg. 2, Ste. 290
Menlo Park, CA 94025
St. Paul Venture Capital, Inc.(7)..................... 354,827 5.4 3.9
8500 Normandale Lake Blvd.
Ste. 1940
Bloomington, MN 55437
William N. Starling(8)................................ 307,499 4.6 3.3
Annette J. Campbell-White(9).......................... 293,746 4.5 3.2
Thomas J. Fogarty, M.D.(10)........................... 245,779 3.7 2.7
Joseph P. Ilvento, M.D.(11)........................... 41,665 * *
Richard E. Riley(12).................................. 79,165 1.2 *
Eric N. Doelling(13).................................. 67,499 1.0 *
David W. Gryska(14)................................... 55,450 * *
Donald J. Santel(15).................................. 57,777 * *
Executive officers and directors as a group
(12 persons)(16).................................... 2,053,268 29.5 21.7
</TABLE>

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

(1) Applicable percentage ownership is based on 6,586,909 shares of Common
Stock outstanding as of March 31, 1996, together with applicable options
for such stockholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission, based on factors

63
<PAGE> 68

including voting and investment power with respect to shares, subject to
the applicable community property laws. Shares of Common Stock subject to
options or warrants currently exercisable, or exercisable within 60 days
after March 31, 1996, are deemed outstanding for the purpose of computing
the percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage ownership of
any other person.

(2) Includes 16,667 shares held by Lawrence G. Mohr. Also includes 12,000
shares of Common Stock which may be acquired upon exercise of a warrant
exercisable within 60 days of March 31, 1996 held by Mohr, Davidow Ventures
II. Mr. Mohr is a general partner of Mohr, Davidow Ventures II and
disclaims beneficial ownership of the shares held by such entity except to
the extent of his proportionate partnership interest therein.

(3) Includes 7,667 shares of Common Stock which may be acquired upon exercise
of a warrant exercisable within 60 days of March 31, 1996.

(4) Consists of 1,369 shares of Common Stock and 9 shares of Common Stock which
may be acquired upon exercise of a warrant exercisable within 60 days of
March 31, 1996 held by Delphi BioInvestment, L.P., (ii) 848 shares of
Common Stock and 29 shares of Common Stock which may be acquired upon
exercise of a warrant exercisable within 60 days of March 31, 1996 held by
Delphi BioInvestment II, L.P., (iii) 385,753 shares of Common Stock and
2,391 shares of Common Stock which may acquired upon exercise of a warrant
exercisable within 60 days of March 31, 1996 held by Delphi BioVentures,
L.P. and (iv) 150,586 shares of Common Stock and 5,571 shares of Common
stock which may be acquired upon exercise of a warrant exercisable within
60 days of March 31, 1996 held by Delphi BioVentures II, L.P.

(5) Consists of (i) 458,009 shares of Common Stock and 6,376 shares of Common
Stock which may be acquired upon exercise of a warrant exercisable within
60 days of March 31, 1996 held by Oak Investment Partners IV and (ii)
20,880 shares of Common Stock and 291 shares of Common Stock which may be
acquired upon exercise of a warrant exercisable within 60 days of March 31,
1996 held by Oak IV Affiliates Fund.

(6) Consists of (i) 6,843 shares of Common Stock and 120 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
of March 31, 1996 held by Institutional Venture Management V and (ii)
418,696 shares of Common Stock and 5,880 of Common Stock which may be
acquired upon exercise of a warrant exercisable within 60 days of March 31,
1996 held by Institutional Venture Partners V.

(7) St. Paul Venture Capital, Inc. is a wholly owned subsidiary of St. Paul
Fire and Marine Insurance Company, which is the holder of record. Includes
5,000 shares of Common Stock which may be acquired upon exercise of a
warrant exercisable within 60 days of March 31, 1996.

(8) Consists of 151,111 shares of Common Stock held by the Starling Family
Trust, 8,867 shares of Common Stock held by the Starling Irrevocable Trust
and 147,521 shares of Common Stock which may be acquired upon exercise of
stock options exercisable within 60 days of March 31, 1996. Mr. Starling
holds voting and dispositive control over all of such shares.

(9) Consists of 289,746 shares of Common Stock and 4,000 of Common Stock which
may be acquired upon exercise of a warrant exercisable within 60 days of
March 31, 1996 held by MedVenture Associates. Ms. Campbell-White is a
general partner of MedVenture Associates and disclaims beneficial ownership
of the shares held by such entity except to the extent of her proportionate
partnership interest therein.

(10) Includes 185,112 shares of Common Stock and 667 shares of Common Stock
which may be acquired upon exercise of a warrant exercisable within 60 days
of March 31, 1996 held by the Fogarty Family Revocable Trust, over which
Dr. Fogarty holds voting and dispositive control.

(11) Includes 1,388 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1996.

(12) Includes 51,665 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1996.

64
<PAGE> 69

(13) Includes 50,832 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1996.

(14) Includes 46,450 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1996.

(15) Includes 34,444 shares of Common Stock which may be acquired upon exercise
of stock options exercisable within 60 days of March 31, 1996.

(16) Includes 350,547 and 16,667 shares of Common Stock which may be acquired
upon exercise of stock options and warrants, respectively, exercisable
within 60 days of March 31, 1996.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the closing of this offering, the Company will be authorized to issue
30,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of
undesignated Preferred Stock, $.001 par value.

The following summary of certain provisions of the Company's capital stock
describes all material provisions of, but does not purport to be complete and is
subject to, and qualified in its entirety by, the Certificate of Incorporation
and the Bylaws of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law. The Certificate of Incorporation and Bylaws contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors and which may have the
effect of delaying, deferring, or preventing a future takeover or change in
control of the Company unless such takeover or change in control is approved by
the Board of Directors.

COMMON STOCK

As of March 31, 1996, there were 6,586,909 shares of Common Stock
outstanding held of record by approximately 110 stockholders.

The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company hereby will be upon payment therefor,
validly issued, fully paid and nonassessable. Subject to the prior rights of the
holders of any Preferred Stock, the holders of outstanding shares of Common
Stock are entitled to receive dividends out of assets legally available therefor
at such times and in such amounts as the Board of Directors may from time to
time determine. The shares of Common Stock are neither redeemable nor
convertible and the holders thereof have no preemptive or subscription rights to
purchase any securities of the Company. Upon liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive pro rata
the assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of any Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to one vote on all matters submitted to a vote of
stockholders and has cumulative voting rights with respect to the election of
directors.

WARRANTS

As of March 31, 1996, there were outstanding warrants to purchase an
aggregate of 19,999 shares of Common Stock at an exercise price of $8.70 per
share, an aggregate of 76,972 shares of Common Stock at an exercise price of
$13.125 per share and an aggregate of 11,000 shares of Common Stock at $15.00
per share. Such warrants expire on the date five years from the date of this
Prospectus.

CONVERTIBLE PROMISSORY NOTE

As of March 31, 1996, there was outstanding a convertible promissory note
in the amount of $4,500,000. The note bears interest at the prime rate (8.25% at
March 31, 1996) and all principal and accrued interest on the note are due upon
the earlier of (i) the closing of a follow-on public offering subsequent to this
offering in which the net proceeds to the Company exceed $5.0 million, (ii) 45
days after the end of any fiscal quarter in which the Company's positive cash
flow from operating activities exceeds $500,000, or (iii) June 27, 1999.
Accordingly, the note and accrued interest will not be payable upon the closing
of this offering. In addition, the principal and all accrued interest on the
note become immediately due and payable upon the closing of a

65
<PAGE> 70

merger, reorganization or sale of all or substantially all of the assets of the
Company. The principal and accrued interest on the note are convertible into
shares of Common Stock at a rate equal to $18.00 per share until June 23, 1996.
There are no further conversion rights related to the note and accrued interest
after June 23, 1996. As of March 31, 1996, the note was convertible into 287,810
shares of Common Stock.

PREFERRED STOCK

Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock. The Board of
Directors has the authority to issue the Preferred Stock in one or more series
and to fix the price, rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting a series or the designation of such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the market price of the
Common Stock, and the voting and other rights of the holders of Common Stock.
The Company has no current plans to issue any shares of Preferred Stock.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

The Certificate of Incorporation provides for the Board to be divided into
three classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the Board will be elected each year. See
"Management." The provision for a classified board could prevent a party who
acquires control of a majority of the outstanding voting stock from obtaining
control of the Board until the second annual stockholders meeting following the
date the acquiror obtains the controlling stock interest. The classified board
provision could have the effect of discouraging a potential acquiror from making
a tender offer or otherwise attempting to obtain control of the Company and
could increase the likelihood that incumbent directors will retain their
positions. The Certificate of Incorporation provides that directors may be
removed (i) with cause by the affirmative vote of the holders of at least a
majority of the voting power of all of the outstanding shares of voting stock or
(ii) without cause by the affirmative vote of the holders of at least 66 2/3% of
the voting power of all of the then-outstanding shares of the voting stock.

The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The Certificate of Incorporation and
the Bylaws provide that, except as otherwise required by law, special meetings
of the stockholders can only be called pursuant to a resolution adopted by a
majority of the Board of Directors, by the chief executive officer of the
Company, or by stockholders holding shares in the aggregate entitled to cast not
less than 10% of the votes at that meeting.

The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company, including
proposed nominations of persons for election to the Board. Stockholders at an
annual meeting may only consider proposals or nominations specified in the
notice of meeting or brought before the meeting by or at the direction of the
Board or by a stockholder who was a stockholder of record on the record date for
the meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the stockholder's
intention to bring that business before the meeting. Although the Bylaws do not
give the Board the power to approve or disapprove stockholder nominations of
candidates or proposals regarding other business to be conducted at a special or
annual meeting, the Bylaws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.

The Certificate of Incorporation provides that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
its provisions. This requirement of a super-majority vote to approve amendments
to the Certificate of Incorporation could enable a minority of the Company's
stockholders to exercise veto power over any such amendments.

66
<PAGE> 71

CERTAIN PROVISIONS OF DELAWARE LAW

Following the consummation of this offering, the Company will be subject to
the "Business Combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the transaction
is approved by the Board of Directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company.

REGISTRATION RIGHTS

The holders of approximately 5,456,369 shares of Common Stock and rights to
acquire 395,781 shares of Common Stock, as of March 31, 1996, and their
permitted transferees (the "Holders") are entitled to certain rights with
respect to the registration of such shares ("Registrable Securities") under the
Securities Act. Under the terms of an agreement between the Company and the
Holders, the holders of at least 33 1/3% of the Registrable Securities may
require, on two occasions after 180 days from the effective date of this
offering, that the Company use its best efforts to register the Registrable
Securities for public resale. In addition, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders exercising registration rights, the
Holders are entitled to notice of such registration and are entitled to include
shares of such Common Stock therein. The holders of Registrable Securities may
also require the Company on no more than three occasions to register all or a
portion of their Registrable Securities on Form S-3 under the Securities Act
when use of such form becomes available to the Company. All such registration
rights are subject to certain conditions and limitations, including the right of
the underwriters of an offering to limit the number of shares to be included in
such registration. If such holders, by exercising their demand registration
rights, cause a large number of securities to be registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Company's Common Stock. If the Company were to initiate a registration and
include shares held by such holders pursuant to the exercise of their piggyback
registration rights, such sales may have an adverse effect on the Company's
ability to raise capital.

TRANSFER AGENT

The transfer agent for the Common Stock is Norwest Bank Minnesota, N.A. Its
telephone number is (800) 468-9716.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of
the Company. Sales of a substantial number of shares of Common Stock in the
public market following this offering could adversely affect the market price of
the Common Stock prevailing from time to time.

67
<PAGE> 72

Upon completion of this offering, the Company will have approximately
9,086,909 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option.) Of these shares, the 2,500,000 shares sold
in this offering will be freely transferable without restriction or registration
under the Securities Act, except for any shares purchased by an existing
"affiliate" of the Company, as that term is defined by the Securities Act (an
"Affiliate"), which shares will be subject to the resale limitations of Rule 144
promulgated under the Act. The remaining 6,586,909 shares outstanding on the
date of this Prospectus will be "restricted securities" as defined in Rule 144.
All officers, directors and certain other stockholders of the Company have
agreed not to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Morgan Stanley & Co.
Incorporated. As a result of these contractual restrictions and the provisions
of Rules 144(k), 144 and 701, the restricted shares will be available for sale
in the public market as follows: (i) no shares will be eligible for immediate
sale on the date of this Prospectus, (ii) approximately 5,900,574 shares will be
eligible for sale 180 days after the date of this Prospectus upon expiration of
lock-up agreements and (iii) approximately 686,335 shares will be eligible for
sale at various times thereafter.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least two years
(including the holding period of any prior owner except for an affiliate of the
Company) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 91,000
shares immediately after this offering) or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also 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 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 (including the holding period of any prior owner
except for an Affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Subject to the contractual restrictions described above, "144(k)
shares" may therefore be sold immediately upon the completion of this offering.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, employees, directors, officers, consultants or
advisors may rely on Rule 701 with respect to the resale of securities
originally purchased from the Company prior to the date the issuer becomes
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), pursuant to written compensatory benefit plans or
written contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, may be sold by persons other than Affiliates
subject only to the manner of sale provisions of Rule 144 and by Affiliates
under Rule 144 without compliance with its two-year minimum holding period
requirements.

At March 31, 1996, options to purchase 1,217,548 shares of Common Stock
were outstanding. Shortly after this offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act covering shares of
Common Stock reserved for issuance under the Company's stock plans. See
"Management -- Stock Plans." As a result of that registration statement and the
lapse of the lock-up agreements described above, approximately 741,813 shares
issuable upon the exercise of vested stock options will be eligible for sale in
the public market, subject to Rule 144 volume limitations applicable to
Affiliates, 180 days following the date of this Prospectus, assuming all of such
options are exercised. In addition, holders of warrants exercisable for an
aggregate of 107,971 shares of Common Stock have entered into lock-up agreements
and all of such shares will be eligible for sale 180 days after the date of this
Prospectus upon the exercise of such warrants.

68
<PAGE> 73

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Company has agreed to sell 2,500,000 shares
of the Company's Common Stock and the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated and Cowen & Company are serving as Representatives,
have severally agreed to purchase, the respective number of shares of Common
Stock set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.........................................
Cowen & Company...........................................................

---------
Total........................................................... 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than the shares
covered by the over-allotment option described below) if any such shares are
taken.

The Underwriters propose to offer part of the shares directly to the public
at the public offering price set forth on the cover page hereof and part to
certain dealers at a price that represents a concession not in excess of
$ per share. Any Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share to other Underwriters or to
certain other dealers.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 375,000 additional
shares of Common Stock at the initial public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered
hereby to the Underwriters.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales in excess of five percent of the
number of shares of Common Stock offered hereby to accounts over which they
exercise discretionary authority.

The Company has agreed that, without the prior written consent of Morgan
Stanely & Co. Incorporated, it will not offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock, for a period of 180 days after
the date of this Prospectus, other than any shares of Common Stock issued upon
the exercise of an option or warrant. See "Shares Eligible for Future Sale" for
a description of certain arrangements by which all officers and directors and
substantially all stockholders of the Company have agreed not to sell or
otherwise dispose of the Common Stock or convertible securities of the Company
held by them for 180 days after the date of this Prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated.

69
<PAGE> 74

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price for the Common Stock
will be determined by negotiations between the Company and the Representatives
of the Underwriters. Among the factors to be considered in determining the
initial public offering price will be the future prospects of the Company and
its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those of
the Company. The estimated initial public offering price range set forth on the
cover page of this Preliminary Prospectus is subject to change as a result of
market conditions and other factors.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Cooley Godward Castro Huddleson & Tatum, Palo Alto,
California. As of the date of this Prospectus, certain members and investment
partnerships of Wilson Sonsini Goodrich & Rosati, P.C., beneficially own 18,889
shares of the Common Stock.

EXPERTS

The consolidated financial statements and schedule of Cardiac Pathways
Corporation at June 30, 1994 and 1995, and March 31, 1996 and for each of the
three years in the period ended June 30, 1995 and for the nine months ended
March 31, 1996, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Dependence on Patents and Proprietary and Licensed Technology" and
"Business -- Patents and Proprietary Rights" have been reviewed and approved by
Limbach & Limbach, special intellectual property counsel to the Company, as
experts in such matters, and are included herein in reliance upon such review
and approval.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act, with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and such
Common Stock, reference is made to the Registration Statement and the exhibits
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or any other document referred to are not
necessarily complete. In each instance, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, and each
such statement is qualified in all respects by such reference. Copies of the
Registration Statement, including exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

70
<PAGE> 75

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets as of June 30, 1994 and 1995 and March 31, 1996........... F-3
Consolidated Statements of Operations for the years ended June 30, 1993, 1994 and 1995
and the nine months ended March 31, 1995 (unaudited) and 1996....................... F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1993,
1994 and 1995 and the nine months ended March 31, 1996.............................. F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1993, 1994 and 1995
and the nine months ended March 31, 1995 (unaudited) and 1996....................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 76

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Cardiac Pathways Corporation

We have audited the accompanying consolidated balance sheets of Cardiac
Pathways Corporation as of June 30, 1994 and 1995 and as of March 31, 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1995 and for
the nine months ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cardiac
Pathways Corporation at June 30, 1994 and 1995 and at March 31, 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1995 and for the nine months ended March 31,
1996, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

San Jose, California
April 11, 1996,
except for the second paragraph
of Note 14 as to which
the date is June 5, 1996

F-2
<PAGE> 77

CARDIAC PATHWAYS CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------ PRO FORMA
AT
MARCH 31,
1996
------------
(NOTE 1)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 6,555,426 $ 5,372,945 $ 5,763,799 $ 5,821,799
Short-term investments............................. 9,263,803 6,279,361 6,721,101 6,721,101
Accounts receivable, net of allowance for doubtful
accounts of $9,500 at June 30, 1995 and March 31,
1996............................................. -- 50,871 188,155 188,155
Receivable from related party...................... 15,000 135,800 13,162 13,162
Inventories........................................ -- 211,693 213,299 213,299
Prepaid expenses................................... 114,743 141,073 128,114 128,114
Other current assets............................... 156,372 160,955 138,581 138,581
------------ ------------ ------------ ------------
Total current assets........................ 16,105,344 12,352,698 13,166,211 13,224,211
Property and equipment, net.......................... 1,427,199 2,508,125 2,300,589 2,300,589
Notes receivable from related parties................ 200,000 221334 216,334 216,334
Deposits and other assets............................ 44,591 56,972 136,923 136,923
------------ ------------ ------------ ------------
$ 17,777,134 $ 15,139,129 $ 15,820,057 $ 15,878,057
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 509,455 $ 579,597 $ 396,133 $ 396,133
Accrued compensation and related benefits.......... 210,619 98,655 248,944 248,944
Other accrued expenses............................. 332,424 481,355 369,595 369,595
Current obligations under capital leases........... 191,973 561,379 604,025 604,025
------------ ------------ ------------ ------------
Total current liabilities................... 1,244,471 1,720,986 1,618,697 1,618,697
Long-term obligations under capital leases........... 550,080 1,102,996 644,494 644,494
Deferred royalty income.............................. -- -- 3,000,000 3,000,000
Note payable......................................... 4,500,000 4,500,000 4,500,000 4,500,000
Interest payable..................................... -- 374,765 680,577 680,577
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; no shares
authorized, issued and outstanding at June 30,
1994 and 1995 and March 31, 1996; 5,000,000
shares authorized and none outstanding pro
forma............................................ -- -- -- --
Convertible preferred stock, $.001 par value;
issuable in series, 6,122,666 shares authorized;
aggregate liquidation preferences of $29,634,997
at June 30, 1995 and $34,135,952 at March 31,
1996; 4,776,701 shares
issued and outstanding at June 30, 1994,
5,149,702 at June 30, 1995, 5,449,702 at March
31, 1996 and none pro forma...................... 4,777 5,150 5,450 --
Common stock, $.001 par value; 30,000,000 shares
authorized; 833,571 shares issued and outstanding
at June 30, 1994, 925,185 at June 30, 1995,
1,130,540 at March 31, 1996 and 6,586,909 pro
forma............................................ 834 925 1,130 6,587
Additional paid in capital......................... 23,501,503 29,129,381 33,976,696 34,034,689
Receivables from stockholders...................... -- (11,000) (21,000) (21,000)
Accumulated deficit................................ (12,024,531) (21,684,074) (28,416,263) (28,416,263)
Deferred compensation.............................. -- -- (169,724) (169,724)
------------ ------------ ------------ ------------
Total stockholders' equity.................. $ 11,482,583 $ 7,440,382 $ 5,376,289 $ 5,434,289
------------ ------------ ------------ ------------
$ 17,777,134 $ 15,139,129 $ 15,820,057 $ 15,878,057
============ ============ ============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE> 78

CARDIAC PATHWAYS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- -------------------------
1993 1994 1995 1996
----------- ----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ -- $ -- $ 115,316 $ 92,479 $ 1,078,977
Operating expenses:
Manufacturing start-up and
cost of goods sold......... 202,393 1,432,273 2,519,785 2,015,720 1,698,478
Research and development...... 2,493,970 5,102,532 5,666,176 4,189,963 4,804,762
Selling, general and
administrative............. 1,021,209 1,152,381 1,745,556 1,378,622 1,342,614
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 3,717,572 7,687,186 9,931,517 7,584,305 7,845,854
----------- ----------- ----------- ----------- -----------
Loss from operations............ (3,717,572) (7,687,186) (9,816,201) (7,491,826) (6,766,877)
Other income (expense):
Interest income............... 232,121 296,369 543,073 437,384 466,677
Interest expense.............. -- (41,319) (495,450) (356,727) (445,617)
Other, net.................... -- 2,290 109,035 71,071 13,628
----------- ----------- ----------- ----------- -----------
Total other income
(expense)........... 232,121 257,340 156,658 151,728 34,688
----------- ----------- ----------- ----------- -----------
Net loss........................ $(3,485,451) $(7,429,846) $(9,659,543) $(7,340,098) $(6,732,189)
=========== =========== =========== =========== ===========
Pro forma net loss per share.... $ (1.39) $ (0.97)
=========== ===========
Shares used in computing pro
forma net loss per share...... 6,959,000 6,975,000
=========== ===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE> 79

CARDIAC PATHWAYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK RECEIVABLES TOTAL
----------------- ----------------- ADDITIONAL FROM ACCUMULATED DEFERRED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL STOCKHOLDERS DEFICIT COMPENSATION EQUITY
---------- ------ --------- ------ --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1992............. 2,217,778 $2,218 770,571 $ 771 $ 3,884,209 $ -- $ (1,109,234) $ -- $ 2,777,964
Issuance of Series
C convertible
preferred stock,
less $23,263
in issuance
costs........... 1,091,666 1,092 -- -- 6,525,645 -- -- -- 6,526,737
Exercise of
warrant to
purchase Series
A convertible
preferred
stock........... 6,667 7 -- -- 4,993 -- -- -- 5,000
Exercise of
options to
purchase common
stock........... -- -- 6,944 7 1,555 -- -- -- 1,562
Net loss.......... -- -- -- -- -- -- (3,485,451) -- (3,485,451)
--------- ------ --------- ------ ----------- -------- ------------ --------- ----------
Balance at June
30, 1993........ 3,316,111 3,317 777,515 778 10,416,402 -- (4,594,685) -- 5,825,812
Issuance of Series
D convertible
preferred stock,
less $455,985
in issuance
costs........... 1,270,114 1,270 -- -- 10,592,742 -- -- -- 10,594,012
Issuance of Series
E convertible
preferred stock,
less $60,236
in issuance
costs........... 190,476 190 -- -- 2,439,572 -- -- -- 2,439,762
Issuance of Series
D preferred
stock
warrants........ -- -- -- -- 34,799 -- -- -- 34,799
Exercise of
options to
purchase common
stock........... -- -- 56,056 56 17,988 -- -- -- 18,044
Net loss.......... -- -- -- -- -- -- (7,429,846) -- (7,429,846)
--------- ------ --------- ------ ----------- -------- ------------ --------- ----------
Balance at June
30, 1994........ 4,776,701 4,777 833,571 834 23,501,503 -- (12,024,531) -- 11,482,583
Issuance of Series
F convertible
preferred stock,
less $38,257
in issuance
costs........... 373,001 373 -- -- 5,556,370 -- -- -- 5,556,743
Issuance of Series
E preferred
stock
warrants........ -- -- -- -- 7,799 -- -- -- 7,799
Issuance of common
stock for
technology and
services........ -- -- 7,333 7 10,273 -- -- -- 10,280
Issuance of
nonqualified
stock options
for services.... -- -- -- -- 11,623 -- -- -- 11,623
Exercise of
options to
purchase common
stock........... -- -- 84,281 84 41,813 (11,000) -- -- 30,897
Net loss.......... -- -- -- -- -- -- (9,659,543) -- (9,659,543)
--------- ------ --------- ------ ----------- -------- ------------ --------- ----------
Balance at June
30, 1995........ 5,149,702 5,150 925,185 925 29,129,381 (11,000) (21,684,074) -- 7,440,382
Issuance of Series
F convertible
preferred stock,
less $997 in
issuance
costs........... 300,000 300 -- -- 4,498,702 -- -- -- 4,499,002
Issuance of Series
F preferred
stock
warrants........ -- -- -- -- 33,000 -- -- -- 33,000
Issuance of
nonqualified
stock options
for services.... -- -- -- -- 21,131 -- -- -- 21,131
Exercise of
options to
purchase common
stock........... -- -- 205,355 205 102,717 (10,000) -- -- 92,922
Deferred
compensation.... -- -- -- -- 191,765 -- -- (191,765) --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- 22,041 22,041
Net loss.......... -- -- -- -- -- -- (6,732,189) -- (6,732,189)
--------- ------ --------- ------ ----------- -------- ------------ --------- ----------
Balance at March
31, 1996........ 5,449,702 $5,450 1,130,540 $1,130 $33,976,696 $(21,000) $(28,416,263) $ (169,724) $ 5,376,289
========= ====== ========= ====== =========== ======== ============ ========= ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE> 80

CARDIAC PATHWAYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1996
----------- ------------ ------------ 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................ $(3,485,451) $ (7,429,846) $ (9,659,543) $(7,340,098) $(6,732,189)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 128,147 257,285 579,671 339,312 593,068
Amortization of deferred compensation......... -- -- -- -- 22,041
Loss on disposal of property and equipment.... 2,352 24,224 -- -- 12,860
Issuance of preferred stock warrants.......... -- 34,799 7,799 -- 33,000
Issuance of nonqualified stock options for
services.................................... -- -- 11,623 -- 21,131
Issuance of common stock for technology and
services.................................... -- -- 10,280 5,280 --
Changes in operating assets and liabilities:
Accounts receivable............................. -- -- (50,871) (88,434) (137,284)
Receivable from related party................... -- (15,000) (120,800) (64,284) 122,638
Inventories..................................... -- -- (211,693) (259,250) (1,606)
Prepaid expenses................................ (51,104) (114,743) (26,330) 30,180 12,959
Other current assets............................ (7,276) (89,685) (4,583) 12,116 22,374
Accounts payable................................ 27,276 423,774 70,142 (133,326) (183,464)
Accrued compensation and related benefits....... 115,722 159,677 (111,964) (12,197) 150,289
Other accrued expenses.......................... 172,747 82,983 148,931 57,251 (111,760)
Interest payable................................ -- -- 374,765 280,285 305,812
Deferred royalty income......................... -- -- -- -- 3,000,000
------- -------- -------- ------- -------
Net cash used in operating activities............. (3,097,587) (6,666,532) (8,982,573) (7,173,165) (2,870,131)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments................ (1,984,482) (21,322,869) (11,920,680) (9,222,388) (4,019,731)
Maturities of short-term investments.............. -- 14,043,548 14,905,122 11,586,951 3,577,991
Purchase of property and equipment................ (347,063) (439,927) (341,533) (125,378) (398,392)
Proceeds from sale of equipment................... -- 11,291 -- -- --
(Increase) decrease in notes receivable........... (200,000) -- (21,334) (28,574) 5,000
(Increase) decrease in deposits and other
assets.......................................... (15,173) (17,718) (12,381) 590 (79,951)
------- -------- -------- ------- -------
Net cash provided by (used in) investing
activities...................................... (2,546,718) (7,725,675) 2,609,194 2,211,201 (915,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease
obligations..................................... -- (94,620) (396,742) (243,518) (415,856)
Proceeds from sale of preferred stock............. 6,531,737 13,033,774 5,556,743 -- 4,499,002
Proceeds from note payable........................ -- 4,500,000 -- -- --
Proceeds from sale of common stock................ 1,562 18,044 41,897 18,562 102,922
Notes receivable from stockholders................ -- -- (11,000) -- (10,000)
------- -------- -------- ------- -------
Net cash provided by (used in) financing
activities...................................... 6,533,299 17,457,198 5,190,898 (224,956) 4,176,068
------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... 888,994 3,064,991 (1,182,481) (5,186,920) 390,854
Cash and cash equivalents at beginning of
period.......................................... 2,601,441 3,490,435 6,555,426 6,555,426 5,372,945
------- -------- -------- ------- -------
Cash and cash equivalents at end of period........ $ 3,490,435 $ 6,555,426 $ 5,372,945 $ 1,368,506 $ 5,763,799
======= ======== ======== ======= =======
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE> 81

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996

(INFORMATION FOR THE NINE MONTHS ENDED MARCH 31, 1995 IS UNAUDITED)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Cardiac Pathways Corporation (the Company), was incorporated on April 24,
1991. The Company designs, develops and manufactures minimally invasive systems
to diagnose and treat cardiac tachyarrhythmias.

In the course of its operations, the Company has sustained continuing
losses and expects such losses to continue. The Company plans to continue to
finance its operations with a combination of the proceeds of the initial public
offering (IPO) currently being pursued (see Note 14) and, in the longer term,
income from operations. In the event the initial public offering currently being
pursued does not occur, the Company has received commitments from certain
existing stockholders to provide sufficient additional financing to sustain the
Company's operations at least through June 1997.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Cardiac Pathways B.V. and Cardiac
Pathways S.A. All significant intercompany accounts and transactions have been
eliminated.

Use of Estimates

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

Interim Financial Information

The accompanying interim consolidated statements of operations and cash
flows for the nine months ended March 31, 1995 are unaudited but include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the operating results and cash
flows for that period. The results of operations for the nine months ended March
31, 1996 are not necessarily indicative of the results for the entire year.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash and cash
equivalents and short-term investments approximate fair value. The fair value of
short-term investments is based on quoted market prices.

The carrying amount of the Company's note payable approximates its fair
value. The fair value of the Company's note payable is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rate for similar types of borrowing arrangements.

Concentrations of Credit Risk

The Company is potentially subject to concentrations of credit risk with
respect to its cash investments and trade accounts receivable. The Company
invests its excess cash in a diversified portfolio of investment grade interest
bearing instruments. The Company is exposed to credit risk in the event of
default by the financial institutions or issuers of investments only to the
extent recorded on the balance sheet. To date, the Company has not experienced
any losses on its investments.

F-7
<PAGE> 82

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company sells its products to distributors primarily in the United
States, Japan and Europe. The Company does not require collateral and maintains
reserves for estimated credit losses. To date, such losses have been within
management's expectations and have not been significant.

Cash, Cash Equivalents and Short-term Investments

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. All other liquid
investments are classified as short-term investments and consist primarily of
U.S. government agency instruments, corporate obligations and foreign money
market instruments.

Management currently classifies the Company's investment portfolio as
held-to-maturity and available-for-sale. Available-for-sale securities are
carried at fair value with unrealized gains and losses reported as a separate
component of stockholders' equity. To date, the Company has not experienced any
significant unrealized gains or losses on available-for-sale securities, and
accordingly, no adjustments have been made to stockholders' equity.

The cost of held-to-maturity securities is adjusted for the amortization of
premiums and the accretion of discounts to maturity. Such amortization of
premiums and accretion of discounts are included in interest income. At June 30,
1995 and March 31, 1996, these securities were valued at amortized cost, which
approximates fair value.

The following is a summary of held-to-maturity and available-for-sale
securities at June 30, 1995:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DESCRIPTION COST GAINS LOSSES FAIR VALUE
------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. government agency................... $ 528,403 $1,954 $ -- $ 530,357
U.S. corporate bonds..................... 3,750,958 7,741 -- 3,758,699
Available-for-sale:
Foreign money market..................... 2,000,000 -- -- 2,000,000
---------- ------ ---- ----------
$6,279,361 $9,695 $ -- $6,289,056
========== ====== ==== ==========
</TABLE>

During the year ended June 30, 1995 the Company purchased approximately
$9,921,000 and $2,000,000 of held-to-maturity and available-for-sale securities,
respectively. Maturities of held-to-maturity securities were approximately
$14,305,000, and sales of available-for-sale securities were approximately
$600,000 during the same period. There were no realized gains or losses during
the year ended June 30, 1995. The cost of securities sold is based on the
specific identification method.

The following is a summary of held-to-maturity and available-for-sale
securities at March 31, 1996:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DESCRIPTION COST GAINS LOSSES FAIR VALUE
------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
U.S. government agency................... $1,998,587 $-- $ (777) $1,997,810
U.S. corporate bonds..................... 2,722,514 2,335 (3,222) 2,721,627
Available-for-sale:
Foreign money market..................... 2,000,000 -- -- 2,000,000
---------- ------ ---- ----------
$6,721,101 $2,335 $ (3,999) $6,719,437
========== ====== ==== ==========
</TABLE>

F-8
<PAGE> 83

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During the nine months ended March 31, 1996 the Company purchased
approximately $4,020,000 of held-to-maturity securities and no
available-for-sale securities. Maturities of held-to-maturity securities were
approximately $3,578,000, and there were no sales or maturities of
available-for-sale securities during the same period. There were no realized
gains or losses during the nine months ended March 31, 1996. Held-to-maturity
securities at March 31, 1996 mature at various dates through January 1997.

Inventory

Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market and consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
---------------
1994 1995 MARCH 31, 1996
---- -------- --------------
<S> <C> <C> <C>
Raw materials.................................. $-- $124,341 $143,723
Finished goods................................. -- 87,352 69,576
----- --------
---
$ -- $211,693 $213,299
======== ========
</TABLE>

Property and Equipment

Property and equipment, including equipment under capital leases, are
carried at cost less accumulated depreciation and amortization. Property and
equipment are depreciated using the straight-line method over estimated useful
lives of three to five years. Leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful life of the asset
or the remaining term of the lease. Depreciation expense includes amortization
of capital leases and leasehold improvements.

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................ $1,775,534 $2,464,586 $3,347,076
Leasehold improvements........................... 38,453 57,303 67,203
Equipment-in-process............................. 26,557 916,263 409,405
---------- ---------- ----------
1,840,544 3,438,152 3,823,684
Less accumulated depreciation and amortization..... 413,345 930,027 1,523,095
---------- ---------- ----------
$1,427,199 $2,508,125 $2,300,589
========== ========== ==========
</TABLE>

Revenue Recognition

Revenue from product sales is recognized at the time of shipment.

Product Warranties

The Company warrants its equipment for a period of one year. The Company
provides for estimated warranty costs concurrent with the recognition of
revenue.

F-9
<PAGE> 84

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Royalty Income

At March 31, 1996, the Company had $3,000,000 of deferred royalty income
related to one of its diagnostic catheter systems (see Note 9). Income earned
from this royalty agreement will be recorded as a component of net sales.

Research and Development Costs

Research and development costs which include clinical and regulatory costs
are charged to expense as incurred.

Foreign Currency Translation

The functional currency of the Company's two foreign subsidiaries is the
U.S. dollar. Monetary assets and liabilities denominated in foreign currencies
are remeasured at the year-end exchange rate. Inventory, property, and other
nonmonetary assets and liabilities are remeasured at historical rates.
Adjustments resulting from these remeasurements are included in the results of
operations and have been immaterial to date.

Net Loss Per Share

Except as noted below, historical net loss per share is computed using the
weighted average number of shares of common stock outstanding. Common equivalent
shares from stock options and convertible preferred stock and warrants are
excluded from the computation as their effect is antidilutive, except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued during the twelve-month period prior
to the initial filing of the proposed public offering have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and the assumed public offering price for stock options
and warrants and the if-converted method for convertible preferred stock).

Historical net loss per share information is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss per share................ $(1.66) $(3.47) $(4.43) $(3.37) $(3.06)
========= ========= ========= ========= =========
Shares used in computing net loss
per share....................... 2,102,000 2,139,000 2,182,000 2,177,000 2,198,000
========= ========= ========= ========= =========
</TABLE>

Pro Forma Net Loss Per Share and Unaudited Pro Forma Balance Sheet

Pro forma net loss per share has been computed as described above, and also
gives effect to the conversion of convertible preferred shares not included
above that will automatically convert upon completion of the Company's IPO
(using the if-converted method) from the original date of issuance. Upon the
closing of the offering covered by this Prospectus, all convertible preferred
stock outstanding at March 31, 1996 will automatically be converted into an
aggregate of 5,449,702 shares of common stock. Assuming conversion of the
convertible preferred stock and exercise of the warrant to purchase Series D
preferred stock which expires upon the closing of the IPO, but without giving
effect to the offering itself, the unaudited pro forma amounts at March 31, 1996
are set forth in the accompanying balance sheet.

Reverse Stock Split

As discussed in Note 14, the Board of Directors of the Company authorized a
2-for-3 reverse split of its convertible preferred stock and common stock and
approved an increase in the number of shares of common

F-10
<PAGE> 85

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock authorized. All share and per share amounts included in the accompanying
financial statements and notes have been adjusted retroactively.

Recent Pronouncements

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (FAS 123), "Accounting for Stock-Based
Compensation" which established a fair value based method of accounting for
stock-based compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting. The Company will
be required to adopt FAS 123 in fiscal 1997. The Company's intention is to
continue to account for employee stock awards in accordance with APB Opinion No.
25 and to adopt the "disclosure only" alternative described in FAS 123.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires the Company to review for impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets whenever events
or changes in circumstances indicate that the carrying amount of an asset might
not be recoverable. In certain situations, an impairment loss would be
recognized. FAS 121 will become effective for the Company's year ending June 30,
1997. The Company has studied the implications of FAS 121 and, based on its
initial evaluation, does not expect its adoption to have a material impact on
the Company's financial condition or results of operations.

2. COMMITMENTS

The Company leases facilities and equipment under noncancelable lease
agreements. Future minimum lease payments were as follows:

<TABLE>
<CAPTION>
JUNE 30, 1995 MARCH 31, 1996
----------------------- ----------------------
CAPITAL OPERATING CAPITAL OPERATING
LEASES LEASES LEASES LEASES
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1996 (three months for March 31)......... $ 699,458 $ 371,674 $ 174,864 $ 92,328
1997..................................... 699,458 351,612 699,458 351,612
1998..................................... 468,509 351,612 468,509 351,612
1999..................................... 39,154 117,204 39,154 117,204
---------- ---------- ---------- --------
Total minimum lease payments............. 1,906,579 $1,192,102 1,381,985 $ 912,756
========== ========
Less amount representing interest........ 242,204 133,466
---------- ----------
Present value of minimum lease
payments............................... 1,664,375 1,248,519
Less current portion..................... 561,379 604,025
---------- ----------
Long-term portion........................ $1,102,996 $ 644,494
========== ==========
</TABLE>

The Company leases its facilities under noncancelable operating lease
agreements that extend through October 1998. Rental expense was approximately
$112,000 for the year ended June 30, 1993 and $350,000 for each of the years
ended June 30, 1994 and 1995. Rental expense was approximately $218,000 and
$226,000 for the nine months ended March 31, 1995 and 1996. In addition, the
Company leases certain equipment under long-term leases, the terms of which
qualify as capital leases. Capital lease obligations are collateralized with
leased equipment.

F-11
<PAGE> 86

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's equipment acquired under capital lease arrangements and
related accumulated amortization are as follows:

<TABLE>
<CAPTION>
JUNE 30,
----------------------- MARCH 31,
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Equipment at cost............................... $837,000 $2,156,000 $2,156,000
Less accumulated amortization................... 105,000 586,000 984,000
-------- ---------- ----------
$732,000 $1,570,000 $1,172,000
======== ========== ==========
</TABLE>

At March 31, 1996, the Company had an unused equipment lease line facility
of $1,000,000, which expires on December 31, 1996. In addition, the Company had
approximately $350,000 in noncancelable purchase commitments to acquire certain
equipment components from two vendors at March 31, 1996.

3. NOTE PAYABLE CONVERTIBLE TO SERIES E PREFERRED STOCK

At March 31, 1996, the Company had a $4,500,000 note payable due a European
biomedical company. The note bears interest at the prime rate (8.25% at March
31, 1996) as quoted in The Wall Street Journal, and all principal and accrued
interest are due on June 27, 1999.

The note is immediately payable in the event the Company completes a
follow-on public offering subsequent to the IPO pursuant to which the Company
realizes more than $5,000,000 or in the event the Company has positive cash flow
from operations in excess of $500,000 for any fiscal quarter. Accordingly, the
note and accrued interest will not be payable upon the closing of the IPO. In
addition, the note is immediately payable upon the close of a merger,
reorganization, or sale of substantially all of the assets of the Company.

The note and accrued interest are convertible into Series E preferred stock
at a rate equal to $18.00 per share until June 23, 1996. There are no further
conversion rights related to the note and accrued interest after June 23, 1996.

4. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

Convertible preferred stock at June 30, 1994 and 1995 and March 31, 1996 is
as follows:

<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
---------------------------------
JUNE 30,
LIQUIDATION AUTHORIZED --------------------- MARCH 31,
SERIES PREFERENCE SHARES 1994 1995 1996
---------------------------------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
A................................ $ .75 716,667 710,001 710,001 710,001
B................................ $ 2.25 1,514,445 1,514,444 1,514,444 1,514,444
C................................ $ 6.00 1,100,000 1,091,666 1,091,666 1,091,666
D................................ $ 8.70 1,296,781 1,270,114 1,270,114 1,270,114
E................................ $ 13.13 600,000 190,476 190,476 190,476
F................................ $ 15.00 776,000 -- 373,001 673,001
Undesignated..................... -- 118,773 -- -- --
---------- ---------- ---------- ----------
Total preferred stock... 6,122,666 4,776,701 5,149,702 5,449,702
========== ========== ========== ==========
</TABLE>

The preferred stock is convertible at any time into common stock on a
one-for-one share basis with the conversion ratio subject to adjustment in the
event of certain future dilutive stock issuance or other future events.
Conversion is automatic upon the closing of a firm commitment, underwritten
public offering of common stock, provided such offering is declared effective on
or before September 30, 1996. If an offering has not been declared effective by
September 30, 1996, the preferred stock shall automatically convert into common
stock upon the closing of a firm commitment, underwritten public offering in
which the aggregate proceeds are $15,000,000 or more and the initial public
offering price is not less than $18.00 per share. The preferred shareholders
have registration rights with respect to the common stock issuable upon
conversion,

F-12
<PAGE> 87

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subject to certain criteria and limitations. Each share of preferred stock is
entitled to a number of votes equal to the number of shares of common stock into
which such preferred stock can be converted.

Preferred shareholders are entitled to noncumulative dividends, when, as,
and if declared by the Board of Directors, at the rate of $.06, $.18, $.48,
$.69, $1.05, and $1.20 per share, per annum on Series A, B, C, D, E, and F
preferred stock, respectively. Such dividends are in preference to any dividends
paid to common stockholders.

In the event of liquidation, the preferred stockholders are entitled to
liquidation preference distributions as noted above, plus any declared but
unpaid dividends. In the event there are insufficient liquidation proceeds to
satisfy the aggregate liquidation preferences for all of the above series of
preferred stock, the liquidation proceeds shall be distributed ratably among the
holders of the preferred stock in proportion to the full preferential amount
each holder would otherwise be entitled to receive.

Common Stock

Common stock reserved for future issuance at March 31, 1996 is as follows:

<TABLE>
<S> <C>
Stock option plan:
Outstanding options................................................... 1,217,548
Reserved for future grants............................................ 30,735
----------
1,248,283
----------
Conversion of preferred stock warrants:
Series D.............................................................. 26,666
Series E.............................................................. 9,638
Series F.............................................................. 78,334
----------
114,638
----------
Conversion of preferred stock:
Series A.............................................................. 710,001
Series B.............................................................. 1,514,444
Series C.............................................................. 1,091,666
Series D.............................................................. 1,270,114
Series E.............................................................. 190,476
Series F.............................................................. 673,001
----------
5,449,702
----------
Note payable and accrued interest convertible to series E preferred
stock................................................................. 287,810
----------
7,100,433
==========
</TABLE>

Stock Option Plan

In July 1991, the Board of Directors of the Company approved the Company's
1991 Stock Plan (the Plan). The Plan provides for the issuance of incentive and
nonstatutory options to employees, officers, and consultants of the Company to
acquire common stock of the Company. The Plan provides for the granting of
options for up to 1,607,030 shares of common stock of the Company. The exercise
price of incentive stock options granted under the Plan may not be less than
100% (110% in the case of any options granted to a person who owns more than 10%
of the total combined voting power of all classes of stock of the Company) of
the fair market value of the common stock subject to the option on the date of
grant, as determined by the Board

F-13
<PAGE> 88

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of Director. Options granted under the Plan generally become exercisable over a
four-year period and generally expire ten years from the date of grant. Expired
options become available under the Plan.

Activity under the Plan is as follows:

<TABLE>
<CAPTION>
SHARES SHARES UNDER OUTSTANDING OPTIONS
AVAILABLE -----------------------------------------
FOR GRANT SHARES PRICE AGGREGATE
--------- --------- --------------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1993..................... 144,615 666,027 $ .22 -- $ .60 $ 257,641
Authorization of shares for issuance....... 533,333 -- $ -- --
Options granted............................ (222,333) 222,333 $ .60 -- $ 1.32 182,306
Option exercised........................... -- (56,056) $ .22 -- $ 1.32 (18,044)
Options canceled........................... 12,826 (12,826) $ .22 -- $ .87 (6,203)
------- ---------
Balance at June 30, 1994..................... 468,441 819,478 $ .22 -- $ .87 415,700
Options granted............................ (475,364) 475,364 $1.32 -- $ 1.50 662,079
Option exercised........................... -- (84,281) $ .22 -- $ 1.32 (41,897)
Options canceled........................... 116,677 (116,677) $ .22 -- $ 1.50 (104,257)
------- ---------
Balance at June 30, 1995..................... 109,754 1,093,884 $ .22 -- $ 1.50 931,625
Authorization of shares for issuance....... 250,000 -- $ -- --
Options granted............................ (346,740) 346,740 $1.50 -- $12.37 1,227,330
Option exercised........................... -- (205,355) $ .22 -- $ 3.30 (102,922)
Options canceled........................... 17,721 (17,721) $ .60 -- $ 9.90 (32,090)
------- ---------
Balance at March 31, 1996.................... 30,735 1,217,548 $ .22 -- $12.37 $2,023,943
======= =========
</TABLE>

At June 30, 1995 and March 31, 1996, options to purchase 473,079 and
506,723 shares of common stock were exercisable, respectively.

In March 1996, the Company entered into an employment agreement with an
officer of the Company pursuant to which it will lend $385,000 to the officer at
an annual interest rate of 5.88%. The proceeds of the loan will be used to
exercise a stock option granted to this officer in January 1996. The loan is due
upon the sale of the shares, or any portion thereof, underlying the option up to
an amount equal to fifty percent (50%) of the proceeds from such sale. The
outstanding balance of the note and accrued interest is due and payable on the
earlier of the termination of the officer's employment, or January 2001.

Stock Warrants

At March 31, 1996, the Company had warrants outstanding for 114,638 shares
of Series D, E and F preferred stock at exercise prices ranging from $8.70 to
$15.00 per share. The warrants were issued in connection with the Company's
building lease, equipment lease agreement, and a portion of the Series F

F-14
<PAGE> 89

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

preferred stock financing. The warrants expire at various dates from 1998
through 2005 or five years after the closing of a registered public offering of
the Company's Common Stock, except for warrants to purchase 6,667 shares of
Series D preferred stock which expire upon the closing of a registered public
offering. At March 31, 1996, warrants to purchase 114,638 shares of preferred
stock were exercisable. The fair value of warrants issued in connection with
lease transactions were expensed as incurred. The fair value of the warrants
issued has been immaterial.

5. INCOME TAXES

Due to operating losses and the inability to recognize an income tax
benefit therefrom, there is no provision for income taxes for fiscal 1993, 1994,
and 1995 and the nine months ended March 31, 1996.

Deferred income taxes reflect the net effects of tax carryforwards and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
JUNE 30,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net operating loss carryforwards........... $ 3,800,000 $ 6,900,000 $ 8,100,000
Capitalized research costs................. 500,000 900,000 900,000
Research credit carryforwards.............. 700,000 1,300,000 1,300,000
Deferred revenue........................... -- -- 1,200,000
Other...................................... 150,000 200,000 400,000
----------- ----------- ------------
Subtotal.............................. 5,150,000 9,300,000 11,900,000
Valuation allowance........................ (5,150,000) (9,300,000) (11,900,000)
----------- ----------- ------------
Total deferred tax asset................... $ -- $ -- $ --
=========== =========== ============
</TABLE>

The increase in the valuation allowance was approximately $3,000,000 and
$4,150,000 for the years ended June 30, 1994, and 1995, respectively. The
increase in the valuation allowance for the nine months ended March 31, 1996 was
$2,600,000.

As of March 31, 1996, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $23,000,000 and
$4,000,000, respectively. In addition, the Company had research credit
carryforwards of approximately $1,300,000. The net operating loss and credit
carryforwards described above will expire at various dates beginning in the
years 1998 through 2011, if not utilized. Approximately $7,000,000 of the
federal net operating loss disclosed above is subject to an annual limitation on
utilization of approximately $1,000,000 due to the Section 382 ownership change
rules of the Internal Revenue Code.

6. RISKS DUE TO CONCENTRATIONS

Dependence on Systems

The Company has been engaged primarily in researching, developing, testing
and obtaining regulatory clearances for the catheters and equipment that are
components of the Ventricular Tachycardia Ablation System, Arrhythmia Mapping
Systems and Atrial Fibrillation Ablation System. The Company believes that these
systems are currently the Company's only significant potential products and
these systems will require additional development, clinical trials and
regulatory approvals before they can be marketed in the United States and
internationally.

There can be no assurance that the Company's development efforts will be
successful or that the systems or any other product developed by the Company
will be safe or effective, approved by appropriate regulatory

F-15
<PAGE> 90

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and reimbursement authorities, capable of being manufactured in commercial
quantities at acceptable costs or successfully marketed.

Dependence on Key Suppliers

The Company purchases certain key components of its products, including the
computer workstation, the fluid pump, certain integrated circuit components,
flex circuits and biocompatible coating from sole, single or limited source
suppliers. Any significant component supply delay or interruption could require
the Company to qualify new sources of supply, if available, and could have a
material adverse effect on the Company's ability to manufacture its products.

7. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
-------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Capital lease obligations
incurred to
acquire equipment.............. $ -- $836,673 $1,319,064 $906,178 $ --
Cash paid for interest........... $ -- $ 41,319 $ 119,936 $ 91,522 $119,852
</TABLE>

8. NOTES RECEIVABLE

In fiscal 1993, the Company received a $200,000 promissory note from a
consultant and former director of the Company. The full recourse note bears
interest at 5.68% per annum, compounded annually, and is secured by
approximately 533,333 shares of the Company's common stock held by the director.
The principal and all accrued interest are payable upon the earlier of (1) May
31, 1997, (2) the date of termination of a consulting agreement between the
director and the Company, (3) the effectiveness of an initial public offering of
the Company's common stock pursuant to a registration statement filed with the
Securities and Exchange Commission, or (4) the effectiveness of a merger,
reorganization, or sale of substantially all of the Company's assets. At March
31, 1996, the $200,000 promissory note was outstanding, and the related accrued
interest was approximately $40,000.

The Company has made loans to employees in connection with their relocation
to the Company's geographic area in the aggregate amount of $32,500. At March
31, 1996, the net amount of these loans was $16,000. These full recourse notes,
which are unsecured, may be forgiven at the end of four years and are charged to
expense in some circumstances. In addition, the Company made two full recourse
unsecured loans to officers in the amount $21,000 at March 31, 1996 in
connection with the purchase of the Company's stock.

9. RELATIONSHIP WITH ARROW INTERNATIONAL, INC.

The Company entered into an agreement with Arrow International, Inc.
(Arrow) whereby the Company sold an aggregate of 606,667 shares of Series F
preferred stock at $15.00 per share in June 1995 and December 1995 for an
aggregate purchase price of approximately $9.1 million. In addition, Arrow
acquired distribution and manufacturing rights related to certain of the
Company's diagnostic catheter products and the Company received a $3.0 million
prepaid royalty from Arrow in December 1995. This amount was recorded as
deferred royalty income and will be amortized to income as the catheter products
are manufactured and sold by Arrow. The royalty rate is 5% of the sales price of
the related products. To date, no royalty income has been recognized.

F-16
<PAGE> 91

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INDUSTRY SEGMENT, CUSTOMER AND GEOGRAPHIC INFORMATION

The Company operates in a single industry segment and revenues primarily
consist of product sales to three significant distributors in the United States,
Japan and Europe. The relative percentage of net sales for these distributors is
summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, MARCH 31,
------------------- -------------
1994 1995 1995 1996
---- ---------- ---- ----
<S> <C> <C> <C> <C>
Distributor A....................... --% 15% 7% 55%
Distributor B....................... --% --% --% 37%
Distributor C....................... --% 57% 61% 7%
</TABLE>

All export and other foreign sales are denominated in U.S. dollars. Export
sales to Europe and Japan represented 85% and 15%, respectively, of the
Company's net sales for the year ended June 30, 1995. For the nine months ended
March 31, 1996, export sales to Europe and Japan represented 8% and 55% of net
sales, respectively (93% and 7% for the nine months ended March 31, 1995). Sales
to unaffiliated customers from the U.S. and the Company's European operations
were $0 and $115,000, respectively, for the year ended June 30, 1995, and
$884,000 and $195,000 for the nine months ended March 31, 1996 ($0 and $92,000
for the nine months ended March 31, 1995). Identifiable assets of the Company's
two foreign subsidiaries are not significant.

11. RELATED PARTY TRANSACTIONS

During the nine months ended March 31, 1996, the Company entered into
certain transactions (described below) with IntelliWire, Inc. (IntelliWire), a
company developing products for interventional cardiology, and a related party.
There are two members of the Board of Directors of the Company who are on the
Board of Directors of IntelliWire, and one officer of the Company is also on the
Board of Directors of IntelliWire. In addition, IntelliWire and the Company have
certain common investor groups.

The Company has a sublease agreement with IntelliWire for approximately
6,300 square feet. The sublease terminated on September 30, 1995, and
thereafter, IntelliWire has opted to continue the sublease arrangement on a
month-to-month basis. For the nine months ended March 31, 1995 and 1996, the
Company recorded rental income of approximately $46,000 and $49,000
respectively, under the sublease. In addition, the Company also has a shared
services agreement with IntelliWire whereby the Company and IntelliWire share
the services of certain employees of each company, and the Company provides
IntelliWire certain engineering, facilities, and support services. The shared
services agreement is on a month-to-month basis, and for the nine months ended
March 31, 1995 and 1996, the Company received a net amount of $24,000 and
$16,000, respectively, under the shared services agreement after taking into
consideration amounts due IntelliWire. For the nine months ended March 31, 1995
and 1996, the Company sold $6,000 and $0 in raw materials and equipment,
respectively, at cost to IntelliWire. At March 31, 1996, the Company had a
$13,000 receivable from IntelliWire.

For the years ended June 30, 1994 and 1995, the Company recorded rental
income of approximately $65,500 and $104,000, respectively, under the sublease.
For the years ended June 30, 1994 and 1995, the Company received a net amount of
$7,000 and $27,000, respectively, under the IntelliWire shared services
agreement after taking into consideration amounts due IntelliWire. For the years
ended June 30, 1994 and 1995, the Company sold $11,000 and $33,000 in raw
materials and equipment, respectively, at cost to IntelliWire.

F-17
<PAGE> 92

CARDIAC PATHWAYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. EMPLOYEE BENEFIT PLAN

The Company has an employee 401(k) salary deferral plan that allows
voluntary contributions by all full-time employees. Eligible employees may
contribute from 1% to 15% of their respective compensation, subject to statutory
limitations, and the Company may match a percentage of employee contributions at
the discretion of the Board of Directors. The Company made matching
contributions to certain eligible employees in the plan of approximately $1,800
for the year ended June 30, 1995 and $4,500 for the nine months ended March 31,
1996.

13. INCENTIVE PLAN

In fiscal 1995, the Company adopted a cash incentive plan for certain key
research and development and clinical personnel. These individuals are not
officers of the Company. The cash award will be determined by the increase in
the price of the Company's preferred stock from the last private round of
preferred stock financing to the next private round of preferred stock financing
or an initial public offering. At March 31, 1996, the Company had accrued
$100,000 related to the plan. The incentive plan has a duration of two years and
no cash awards have been paid to date under this plan.

14. SUBSEQUENT EVENTS

In March 1996, 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. If the offering is
consummated under terms presently anticipated, all of the currently outstanding
preferred stock will convert to 5,449,702 shares of common stock. Unaudited pro
forma stockholders' equity is set forth in the accompanying balance sheet as
adjusted for the matters described above and exercise of the warrant to purchase
Series D preferred stock which expires upon the closing of the IPO.

In addition, in March 1996, the Company's Board of Directors (i) authorized
a 2-for-3 reverse split of the Company's convertible preferred stock and common
stock, (ii) approved an increase in the authorized number of shares of common
stock to 30,000,000 shares (iii) authorized 5,000,000 shares of preferred stock
that is not designated in a series and with respect to which the Board of
Directors has the authority to establish the rights, preferences, privileges and
restrictions, (iv) authorized the reincorporation of the Company from California
to Delaware, (v) authorized an increase to the number of shares of common stock
reserved for issuance under the 1991 Stock Plan by 280,000, (vi) authorized the
adoption of the 1996 Employee Stock Purchase Plan pursuant to which 53,000
shares of the Company's common stock have been reserved for future issuance, and
(vii) authorized the adoption of the 1996 Director Option Plan pursuant to which
20,000 shares of the Company's common stock have been reserved for future
issuance. All of the above items will be affected prior to or concurrently with
the effective date of the Company's initial public offering.

F-18
<PAGE> 93

LOGO
<PAGE> 94
APPENDIX
- --------

Photograph of the Company's Mercator Left Ventricular Mapping Basket
(in two different sizes), the Mercator Atrial Mapping Basket and the Nexus
Linear Lesion Catheter.

Photograph of the Company's Trio/Ensemble Catheter and Radii Catheter.

Graphical illustration of the exterior of a human heart depicting the location
where atrial fibrillation and ventricular tachycardia are most likely to occur.

Graphical illustration depicting how the Nexus Linear Lesion Catheter conforms
to the interior wall of the atrium.

Photograph of the Company's Nexus Linear Lesion Catheter.

Photograph of the Company's Model 8100/8300 Arrhythmia Mapping System.

Photograph of the Company's Model 8004 Radiofrequency Generator and Integrated
Fluid Pump.

Photograph of a person holding the Company's Mercator high resolution mapping
catheter.

Graphical illustration depicting the tip of the Company's Chilli Cooled
Ablation Catheter delivering radiofrequency energy to create a lesion in the
heart tissue.

Photograph of the Company's Chilli Cooled Ablation Catheter.

A graphical illustration of the four chambers of a human heart.

A graphical illustration of a human heart depicting the typical location in the
heart where atrial fibrillation and ventricular tachycardia are likely to occur.

Photograph of a man viewing an isochromal map displayed on the Company's Model
8100/8300 Arrhythmia Mapping System.

<PAGE> 95

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee..................................................... $ 18,836
NASD Filing Fee.......................................................... 5,388
The Nasdaq Stock Market Listing Fee...................................... 40,000
Blue Sky Qualification Fees and Expenses................................. 15,000
Printing and Engraving Expenses.......................................... 125,000
Legal Fees and Expenses.................................................. 375,000
Accounting Fees and Expenses............................................. 120,000
Transfer Agent and Registrar Fees........................................ 2,500
Directors' and Officers' Insurance....................................... 350,000
Miscellaneous............................................................ 48,276
----------
TOTAL.......................................................... $1,100,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Certificate
of Incorporation provides that, pursuant to Delaware law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the Company and its stockholders. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as 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 Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Registrant has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.1 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is made to Section 7 of the Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Registrant against certain liabilities.

II-1
<PAGE> 96

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since March 31, 1993, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities.

1. From March 31, 1993 to October 13, 1994, the Registrant issued and sold
4,000 shares of Common Stock to consultants at a price of $1.32 per
share.

2. From March 31, 1993 to March 31, 1996 the Registrant issued and sold
518,531 shares of Common Stock to employees and consultants at prices
ranging from $0.225 to $1.50 per share, upon exercise of stock options
and stock purchase rights, pursuant to the Registrant's 1991 Stock
Plan.

3. On October 29, 1993, the Registrant issued and sold 1,276,781 shares of
Series D Preferred Stock to a total of 11 investors for an aggregate
purchase price of $11,049,998.

4. From October 29, 1993 to January 12, 1994, the Registrant issued
warrants to purchase an aggregate of 26,667 shares of Series D
Preferred Stock to a total of 2 investors with an exercise price of
$8.70 per share.

5. On May 16, 1994, the Registrant issued and sold 190,476 shares of
Series E Preferred Stock to one investor for an aggregate purchase
price of $2,499,998.

6. On June 23, 1994, the Registrant issued a promissory note with initial
principal of $4,500,000, which along with its accrued interest is
convertible into shares of Series E Preferred Stock at $18.00 per
share.

7. From December 23, 1994 to June 22, 1995, the Registrant issued warrants
to purchase an aggregate of 9,638 shares of Series E Preferred Stock to
a total of 2 investors with an exercise price of $13.125 per share.

8. From June 1, 1995 to December 1, 1995, the Registrant issued and sold
673,001 shares of Series F Preferred Stock to a total of 19 investors
for an aggregate purchase price of $10,095,000.

9. From June 13, 1995 to March 29, 1996, the Registrant issued warrants to
purchase an aggregate of 78,334 shares of Series F Preferred Stock to a
total of 19 investors with exercise prices ranging from $13.125 to
$15.00 per share.

The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, 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 such 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, through their relationship
with the Company or otherwise, to information about the Registrant.

II-2
<PAGE> 97

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<C> <S>
1.1++ Form of Underwriting Agreement (draft dated April 16, 1995).
3.1++ Restated Articles of Incorporation of the Registrant, as currently in effect.
3.2++ Form of Certificate of Amendment of Restated Articles of Incorporation of the
Registrant to be filed prior to the effective date of the offering made under
this Registration Statement.
3.3++ Form of Restated Certificate of Incorporation of the Registrant to be effective
upon consummation of the Registrant's reincorporation into Delaware.
3.4++ Form of Restated Certificate of Incorporation of the Registrant, to be filed
immediately following the closing of the offering made under this Registration
Statement.
3.5++ Bylaws of the Registrant.
3.6++ Bylaws of Registrant to be effective upon consummation of the Registrant's
reincorporation into Delaware.
4.1++ Specimen Common Stock Certificate.
5.1++ Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1++ Form of Indemnification Agreement between the Registrant and each of its
directors and officers.
10.2++ 1991 Stock Plan and form of Stock Option Agreement thereunder.
10.3++ 1996 Director Option Plan and form of Director Stock Option Agreement
thereunder.
10.4++ 1996 Employee Stock Purchase Plan and forms of agreement thereunder.
10.5+++ OEM Agreement between Registrant and Liebel-Flarsheim Company dated June 22,
1994.
10.6+++ License Agreement between Registrant and BSI Corporation dated October 21, 1994.
10.7++ Loan Agreement between the Registrant and Dideco S.P.A. dated June 23, 1994, as
amended by Amendment to Loan Agreement dated June 22, 1995 and Amendment No. 2
to Loan Agreement dated April 10, 1996.
10.8+++ Exclusive License Agreement dated May 24, 1995.
10.9++ Manufacturing and Supply Agreement between the Registrant and Arrow
International, Inc. dated March 8, 1995.
10.10++ Exclusive International Distributor Agreement between the Registrant and Arrow
International dated March 8, 1995.
10.11++ Lease dated June 25, 1993 between the Registrant and Brock Properties.
10.12++ Master Lease Agreement dated December 1, 1993 between the Registrant and Linc
Capital Management Services, Ltd., as amended.
10.13++ Shareholder Rights Agreement, as amended to date, dated June 13, 1995, between
the Registrant and certain holders of the Company's securities.
10.14++ Consulting Agreement dated June 1, 1995 between the Registrant and Mir Imran.
11.1++ Statement Regarding Computation of net loss per share.
22.1++ Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors. (See page II-6).
23.2++ Consent of Counsel.
23.3++ Consent of Limbach & Limbach L.L.P.
24.1++ Power of Attorney.
27.1++ Financial Data Schedule
</TABLE>

- ------------
+ Confidential treatment requested for portions of these agreements. Omitted
portions have been filed separately with the Commission.

++ Previously filed.

II-3
<PAGE> 98

(b) Financial Statement Schedules:

II -- Valuation and Qualifying Accounts

All other Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes 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.

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

The Registrant hereby undertakes that:

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

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

II-4
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California, on the 11th day of
June, 1996.

CARDIAC PATHWAYS CORPORATION

By /s/ WILLIAM N. STARLING

------------------------------------
(William N. Starling)
President, Chief Executive Officer
and
Chairman of the Board of Directors

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------- --------------
<S> <C> <C>
/s/ WILLIAM N. STARLING President, Chief Executive Officer and June 11, 1996
- ------------------------------------------ Chairman of the Board of Directors
(William N. Starling) (Principal Executive Officer)
DAVID W. GRYSKA* Vice President, Finance and Chief June 11, 1996
- ------------------------------------------ Financial Officer (Principal Financial
(David W. Gryska) and Accounting Officer)
LAWRENCE G. MOHR, JR.* Director June 11, 1996
- ------------------------------------------
(Lawrence G. Mohr, Jr.)
JOSEPH P. ILVENTO, M.D.* Director June 11, 1996
- ------------------------------------------
(Joseph P. Ilvento, M.D.)
THOMAS J. FOGARTY, M.D.* Director June 11, 1996
- ------------------------------------------
(Thomas J. Fogarty, M.D.)
ANNETTE CAMPBELL-WHITE* Director June 11, 1996
- ------------------------------------------
(Annette Campbell-White)
*By: /s/ WILLIAM N. STARLING
(Attorney-In-Fact)
</TABLE>

II-5
<PAGE> 100

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
April 11, 1996 (except for the second paragraph of Note 14 as to which the date
is June 5, 1996) in the Registration Statement (Form S-1 Amendment No. 4) and
related Prospectus of Cardiac Pathways Corporation for the registration of
2,875,000 shares of its common stock.

Our audits also included the financial statement schedule of Cardiac
Pathways Corporation listed in Item 16(b). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ ERNST & YOUNG LLP

San Jose, California

June 10, 1996

II-6
<PAGE> 101

EXHIBIT 23.3

CONSENT OF LIMBACH & LIMBACH L.L.P.

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement of Cardiac Pathways Corporation for the registration of
2,875,000 shares of its common stock, including the prospectus constituting a
part thereof, and any amendment thereof.

LIMBACH & LIMBACH L.L.P.

II-7
<PAGE> 102

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- ---------------------------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
June 30, 1994................................. $ -- $ -- $ -- $ --
June 30, 1995................................. -- 9,500 -- 9,500
March 31, 1996................................ 9,500 2,000 (2,000) 9,500
</TABLE>

S-1