BIOSENSE INC, S-1, 1996-09-20

BIOSENSE INC
S-1, 1996-09-20

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BIOSENSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 3845 13-3757896
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

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<TABLE>
<S> <C>
LEWIS C. PELL, CHAIRMAN
BIOSENSE, INC.
40 RAMLAND ROAD SOUTH, SUITE 10 40 RAMLAND ROAD SOUTH, SUITE 10
ORANGEBURG, NEW YORK 10962 ORANGEBURG, NEW YORK 10962
(914) 359-2250 (914) 359-2250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>

COPIES TO:

<TABLE>
<S> <C>
ROGER H. KIMMEL PHYLLIS G. KORFF
LATHAM & WATKINS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
885 THIRD AVENUE 919 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 906-1200 (212) 735-3000
</TABLE>

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

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

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the 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
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<CAPTION>
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TITLE OF EACH CLASS OF MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE FEE
<S> <C> <C>
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Common Stock, $.01 par value...... $50,000,000 $17,242
============================================================================================
</TABLE>

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

Subject to Completion, Dated September 20, 1996
PROSPECTUS

BIOSENSE, INC.

COMMON STOCK
---------------------------

All of the shares of Common Stock offered hereby are being
sold by Biosense, Inc. ("Biosense" or the "Company"). Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently expected that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made to list the Common Stock on the Nasdaq National Market
under the symbol "BSEN."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS," BEGINNING 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.
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<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
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Per Share................................................... $ $ $
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Total (3)................................................... $ $ $
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</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company,
estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to additional shares
of Common Stock on the same terms as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public will be $ , the Underwriting Discounts and
Commissions will be $ and the Proceeds to the Company will be
$ . See "Underwriting."
---------------------------

The shares of Common Stock offered by the Underwriters are subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or about
, 1996.
---------------------------

UBS SECURITIES MONTGOMERY SECURITIES

, 1996
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[Pictures]

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

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and notes thereto, included elsewhere in
this Prospectus. References herein to Biosense or the Company, unless the
context requires otherwise, refer to Biosense, Inc. and its subsidiaries.

THE COMPANY

Biosense has developed proprietary technology which enables physicians to
accurately and safely navigate medical instruments within patients' bodies
during the performance of a wide variety of minimally invasive medical
procedures. Biosense's technology consists of miniature, disposable location
sensors incorporated into catheters and other medical instruments, a reusable
"location pad" which emits non-hazardous, low-level electromagnetic energy and a
proprietary computer system that converts the raw data gathered into a user-
friendly map and location guide. The Company's products permit physicians to
continuously acquire, display, compare, store and retrieve three dimensional
("3-D") spatially correct anatomical data and corresponding physiological data,
which will provide physicians with important navigational and functional
information not currently available during the performance of many medical
procedures. The Company's products do not require fluoroscopic x-rays for
navigating, thereby significantly reducing physician and patient exposure to
dangerous ionizing radiation during the medical procedure. The Company believes
that its proprietary technology will improve the accuracy and minimize the
invasiveness of many diagnostic and therapeutic procedures, producing better
clinical results. In addition, the Company believes that its technology will
increase safety, reduce patient recovery times and lower the overall costs
associated with a wide variety of invasive medical procedures.

The initial applications of the Company's technology include the CARTO
system, used for the diagnosis and treatment of cardiac arrhythmias, the NOGA
system, used for the diagnosis of coronary artery disease and its related
effects, and the MAGELLAN system, used for the performance of minimally invasive
image-guided surgery and image-guided biopsy procedures.

CARTO. The CARTO system is designed to allow physicians to diagnose and
treat cardiac tachyarrhythmias (abnormally rapid heart beat) more quickly,
accurately and safely than currently available procedures. The CARTO system
incorporates the Company's miniature, disposable location sensors into the tip
of electrophysiological ("EP") catheters which are designed to measure the
electrical activity of the heart. By placing the catheter tip at various points
along the inside wall of the heart, the CARTO system constructs an accurate 3-D
map of the anatomy of the heart, and simultaneously records the patterns of
electrical activity in the heart ("EP mapping"). The CARTO system permits the
physician to pinpoint on this electro-anatomical map the exact location of the
abnormal heart tissue ("arrhythmogenic tissue") responsible for inducing the
dangerous heart rhythm. The CARTO system also shows, on a real time basis, the
exact 3-D location of the tip of the catheter in relation to the arrhythmogenic
tissue. This allows the physician to accurately navigate the catheter to the
site of the arrhythmogenic tissue and perform ablation therapy, which involves
the creation of scar tissue at the site of the arrhythmia in order to block the
conduction of aberrant electrical signals. The Company knows of no other
technology capable of providing physicians with real time, 3-D location
information for the performance of non-fluoroscopic EP mapping and ablation
therapy. Current mapping and ablation techniques can take many hours to
complete, involve exposure of the patient and the physician to high levels of
fluoroscopic x-rays, and do not provide the physician with the precise 3-D
location information available with the CARTO system. In December 1995, the
Company received FDA 510(k) clearance to market the CARTO system for mapping of
cardiac arrhythmias, including atrial fibrillation, ventricular tachycardia and
supraventricular tachycardia.

NOGA. The NOGA system is designed to provide an accurate, comprehensive
diagnosis of the effects of coronary artery disease in a single procedure.
Diagnosis of the effects of coronary artery disease currently requires a variety
of tests, typically conducted in separate facilities, to determine the location,
extent and functional significance of damage to the heart muscle. Current
functional diagnostic tests, including electrocardiography (which tests
electrical activity), echocardiography (which tests the movement of the heart

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muscle) and nuclear perfusion studies (which measure blood flow to heart tissue)
provide information in separate components that cannot easily be evaluated in
combination. Moreover, these tests are not performed in the catheterization
laboratory, where treatment typically is performed. The NOGA system provides a
new method of testing the effects of coronary artery disease by simultaneously
testing both cardiac mechanics (the movement of the heart muscle) and electrical
activity at specific locations within the heart, a capability known as
"electro-mechanical coupling." The Company believes that this capability will
enable the NOGA system to provide the physician with all necessary diagnostic
information in a single procedure in the catheterization laboratory. With this
information, the physician can determine the precise location of damaged tissue
and evaluate whether such tissue is dead, in which case treatment will not be
effective, or hibernating, in which case the patient is likely to benefit from
reperfusion treatment. This cardiac viability testing will permit physicians to
make better informed decisions as to whether the patient will benefit from
therapy. In April 1996, the Company received FDA 510(k) clearance to market the
NOGA system for testing of cardiac mechanics and hemodynamics. The Company
expects to commence clinical studies of cardiac viability testing using the NOGA
system in the first quarter of 1997 and to submit a 510(k) pre-market
notification to the FDA in the second quarter of 1997 to permit marketing of the
NOGA system for testing of cardiac viability.

MAGELLAN. Minimally invasive surgical techniques typically involve the use
of imaging technology in order to guide the physician during the performance of
the procedure so that it can be performed using smaller incisions than would
otherwise be required using normal "open" surgical procedures. The effectiveness
of many minimally invasive procedures has been limited, however, by the imaging
modalities available and a physician's ability to utilize these images while
performing the procedure. As a result, healthy tissue can be damaged during the
navigation of medical instruments within the patient's anatomy or during the
actual procedure of removing diseased tissue because physicians can only
estimate the location of the target from a static image. The Company's MAGELLAN
system is designed to enable physicians to determine in real time the precise
location of medical instruments relative to the patient's internal anatomy,
permitting the physician to maneuver around critical anatomical structures and
to guide the medical instrument to the exact location for diagnosis and
treatment. As a result, the Company believes that its MAGELLAN technology will
make many procedures involving the insertion of medical instruments into a body
cavity or incision safer, more accurate, less invasive and less expensive. The
Company's initial applications for the MAGELLAN system include (i) image-guided
neurosurgery and sinus surgery and (ii) image-guided biopsy.

- MAGELLAN Image-Guided Surgery. The Company believes that the
MAGELLAN system will permit physicians to safely and accurately perform a
wide variety of image-guided medical procedures, including neuro, sinus,
orthopedic, urological, gastrointestinal and pulmonary surgery. Moreover,
unlike other image-guided technologies, the Company believes that the
MAGELLAN system is the only navigation technology that will permit the
determination of the location of flexible, steerable tip medical
instruments. The Company believes that the ability to use the MAGELLAN
system to manipulate flexible medical instruments around critical
anatomical structures will permit physicians to further minimize the
invasiveness of many medical procedures. The Company submitted a 510(k)
pre-market notification to the FDA to permit marketing of the MAGELLAN
system for image-guided neurosurgery during the second quarter of 1996.

- MAGELLAN Image-Guided Biopsy Procedures. The Company believes that
its technology can be combined with ultrasound imaging technology to
dramatically improve the accuracy of biopsy procedures (the removal of a
small quantity of tissue for microscopic examination to determine an exact
diagnosis). By providing physicians with a 3-D guidance system, the
MAGELLAN system will enable the accurate free-hand positioning of the
biopsy needle in order to sample the desired tissue. The Company expects to
file a 510(k) pre-market notification with the FDA to permit marketing of
the MAGELLAN system for image-guided biopsy procedures during the first
quarter of 1997.

The Company's goal is to become the leader in minimally invasive navigation
technology allowing medical procedures to be performed in a safer, less
intrusive manner than can be achieved using alternative methods and
technologies. The Company intends to achieve its goal by: (i) establishing
strategic relationships with leading developers and manufacturers of medical
instruments, (ii) developing or acquiring medical

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instrument development and manufacturing capability, (iii) sponsoring clinical
trials to demonstrate the efficacy of the Company's products, (iv) developing a
direct marketing and sales force and (v) increasing the Company's research and
development activities.

In July 1995, the Company entered into a Product Development and Supply
Agreement (the "Cordis Agreement") with Cordis Corporation ("Cordis"), a leading
developer, manufacturer and distributor of catheters and other medical devices
which recently was acquired by Johnson & Johnson. The agreement grants to Cordis
an exclusive license to distribute the Company's CARTO system and the MAGELLAN
system for certain neurological applications which terminates, with respect to
each product, two years from the date on which Cordis consummates its first
commercial sale of such product to an end user. Thereafter, Cordis will maintain
a non-exclusive license to distribute these products.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered......................... shares
Common Stock Outstanding after this
Offering................................... shares(1)
Use of Proceeds.............................. The Company intends to use the net proceeds of
this Offering to fund research and
development, clinical studies, sales and
marketing efforts, acquisitions of capital
equipment and for working capital and other
general corporate purposes. The Company may
also use a portion of the net proceeds to
acquire complementary businesses, products or
technologies. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... BSEN
</TABLE>

- ---------------
(1) Gives effect to the conversion of the Company's Series A Preferred Stock,
which will be converted into Common Stock upon consummation of this
Offering. See "Principal Stockholders" and "Description of Capital Stock."
Excludes shares reserved for future issuance pursuant to stock
options outstanding as of June 30, 1996 and shares reserved for
future issuance under the Company's stock option plans. See
"Management -- Stock Option Plans" and Note 9 of Notes to Consolidated
Financial Statements.
------------------------

Unless otherwise indicated, all information in this Prospectus assumes the
Underwriters' over-allotment option is not exercised.

Biosense(TM), CARTO(TM), NOGA(TM), MAGELLAN(TM) and the Company's logo are
trademarks of the Company.

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SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 23, 1994) YEAR ENDED SIX MONTHS ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, -------------------------
1994(1) 1995 1995 1996
---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ -- $ 204,000 $ -- $ 2,850,150
Expenses
Cost of sales...................... -- 49,457 -- 1,817,524
Sales and marketing................ 67,000 245,250 45,000 732,022
Research and development........... 31,395,126(2) 6,708,464 1,473,655 2,351,116
General and administrative......... 422,129 1,216,700 261,864 1,461,400
------------ ----------- ----------- -----------
Operating loss........................ (31,884,255) (8,015,871 ) (1,780,519) (3,511,912)
Other income.......................... 78,148 408,093 56,139 415,582
------------ ----------- ----------- -----------
Loss before provision for income
taxes.............................. (31,806,107) (7,607,778 ) (1,724,380) (3,096,330)
Provision for income taxes............ 24,918 153,681 41,900 48,601
------------ ----------- ----------- -----------
Net loss.............................. $(31,831,025) $(7,761,459 ) $(1,766,280) $(3,144,931)
============ =========== =========== ===========
Pro forma net loss per share(3)....... $ $
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Shares used in computing pro forma net
loss per share(3)..................
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1996
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ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 12,115,863 $
Working capital................................................ 9,606,292
Total assets................................................... 15,412,711
Accumulated deficit............................................ (42,737,415)
Total stockholders' equity..................................... 11,433,198
</TABLE>

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(1) Although the founders and certain other employees of the Company were
engaged in research and development activities prior thereto, March 23, 1994
represents the date of inception of the Company for financial reporting
purposes. See Note 1 of Notes to Consolidated Financial Statements.

(2) In accordance with generally accepted accounting principles, the Company
wrote off $28.9 million of research and development costs related to all
in-process technologies acquired from the founders of the Company in return
for the issuance of 3,225,000 shares of Series A Preferred Stock of the
Company. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 1 of Notes to Consolidated Financial
Statements.

(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning calculation of pro forma net loss per share.

(4) Adjusted to give effect to the receipt of the net proceeds of the sale of
shares of Common Stock offered hereby, assuming an initial
public offering price of $ per share (the midpoint of the range
shown on the front cover of this Prospectus), after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company.

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RISK FACTORS

Prospective investors in the shares offered hereby should carefully
consider the following risk factors, in addition to the other information
contained in this Prospectus.

Limited Operating History; History of Losses and Expected Future
Losses. The Company has a limited operating history upon which an evaluation of
its prospects can be made. Such prospects must be considered in light of the
substantial risks, expenses and difficulties encountered by entrants into the
medical device industry, which is characterized by an increasing number of
participants, intense competition and a high failure rate. To date, Biosense has
engaged primarily in research, product development efforts and clinical trials.
Although the Company reported revenues beginning in the fourth quarter of 1995,
the Company has never reported any operating income and expects to continue to
experience operating losses through at least 1998. At June 30, 1996, the Company
had an accumulated deficit of $42.7 million. The Company expects to incur
substantial additional expenditures in connection with its continued
development, regulatory, manufacturing, sales and marketing efforts. There can
be no assurance that the Company's products will ever gain commercial acceptance
or that the Company will ever achieve profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Uncertain Market Acceptance and Adoption of the Company's Technology. The
Company's technology is being developed in order to enable physicians to
navigate in the body and acquire, display, compare, store and retrieve 3-D
spatially correct anatomical data and corresponding physiological data. The
Company's success is dependent upon acceptance of its technology and products by
the medical community as a reliable, safe and cost effective alternative to
existing diagnostic and therapeutic procedures. To date, the Company's products
have only been used on a limited basis by a small number of highly skilled
physicians for limited applications, and the Company's CARTO system is the only
product available for commercial sale. There can be no assurance that the
Company's technology will be successfully adapted to other procedures. In
addition, the Company is unable to predict how quickly, if at all, the Company's
technology will be accepted by the medical community and, if accepted, the
medical procedures for which it will be used. Certain of the medical procedures
that the Company's products are designed to assist are currently being performed
using other techniques. Broad-based clinical adoption of the Company's
technology will not occur unless physicians determine that procedures using the
Company's technology and products are an attractive alternative to current
procedures. The Company believes that physician endorsements will be essential
for clinical adoption of its technology, and there can be no assurance that any
such endorsements will be obtained in a timely manner, if at all. Clinical
adoption will also depend upon the Company's ability to facilitate training of
physicians to use the Company's technology and products, and the willingness of
such physicians to use the Company's products. Patient acceptance of the
technology will depend in part upon physician recommendations as well as other
factors, including the degree of invasiveness, the effectiveness of the
technology and the rate and severity of complications associated with the
technology as compared to other procedures. Even if the clinical efficacy of the
Company's technology is established, physicians may elect not to recommend use
of the Company's products unless acceptable reimbursement from health care
payors is available. Health care payor acceptance may require evidence of the
cost effectiveness of the Company's technology as compared to other currently
available procedures. Consequently, there can be no assurance that the Company's
technology and products will gain clinical adoption. Failure of the Company's
technology and products to achieve significant clinical adoption would have a
material adverse effect on the Company's financial condition and results of
operations.

Limited Sales, Marketing and Distribution Experience; Dependence on
Strategic Partners. The Company currently has only a limited sales and
marketing organization. Initially, the Company intends to sell its products
primarily through distribution agreements and strategic partnerships with other
manufacturers and marketers of medical devices. There can be no assurance that
the Company will be able to enter into agreements with strategic partners or
that such strategic partners will devote adequate resources to selling the
Company's products. In addition, to the extent that the Company enters into
distribution agreements or strategic partnerships for the sale of its products,
the Company will be dependent upon the efforts of such strategic partners, and
there can be no assurance that such efforts will be successful. The Company
believes that it will need to develop its own marketing organization to provide
marketing support to its strategic

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partners and to offer after-market support to users of its products. There can
be no assurance, however, that the Company will be able to develop a successful
marketing organization. The Company may also in the future seek to develop an
in-house sales force through which to sell its products, and there can be no
assurance that the Company will be able to build a direct sales force, that
establishing a direct sales force will be cost effective, or that the Company's
sales efforts will be successful.

In July 1995, the Company entered into a Product Development and Supply
Agreement with Cordis, a leading developer, manufacturer and distributor of
catheters and other medical devices which recently was acquired by Johnson &
Johnson. The agreement grants to Cordis an exclusive license to distribute the
Company's CARTO system and the MAGELLAN system for certain neurological
applications which terminates, with respect to each product, two years from the
date on which Cordis consummates its first commercial sale of such product to an
end user or at the option of Cordis. Thereafter, Cordis will maintain a
non-exclusive license to distribute these products. See "Business -- Sales,
Marketing and Distribution."

Dependence on Key Personnel. The Company's ability to operate successfully
depends in significant part upon the continued service of certain key
scientific, technical, managerial and finance personnel, including, in
particular, its Chief Scientist and a founder of the Company, Shlomo A.
Ben-Haim, and its continuing ability to attract and retain additional highly
qualified scientific, technical, managerial and finance 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, managerial and finance personnel in the future,
including key manufacturing, sales and marketing personnel. Although the
employment agreement of Dr. Ben-Haim restricts his ability to compete with the
Company in areas of intrabody mapping and navigation, the employment agreement
does not prohibit Dr. Ben-Haim from engaging in other research activities
unrelated to the Company. Moreover, the initial term of the employment agreement
of Dr. Ben-Haim expires in 1999 and there is no obligation to renew or extend
the employment agreement. In addition, several members of the Company's current
management team have joined the Company since June 1, 1996. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect upon the Company's financial condition and results of
operations. See "Management."

Dependence on Suppliers and Manufacturers. Certain components used in the
manufacture of the Company's products, including certain components of the
Company's location sensors, are purchased from single suppliers. In addition,
some components purchased by the Company are in short supply and require a
three- to six-month lead time in ordering. Moreover, although the Company is in
the process of qualifying another manufacturer to assemble its sensors, all of
the Company's location sensors are currently assembled by a single manufacturer.
The loss by the Company of one or more of the Company's suppliers, any delay in
the ability of the Company to obtain required components, the inability of the
Company to qualify another manufacturer to assemble its sensors or any delay in
the assembly of the Company's sensors, could have a material adverse effect on
the Company's financial condition and results of operations. See "Business --
Manufacturing."

The Company's location sensors are designed to be incorporated into
standard medical instruments, such as catheters and surgical tools. As a result,
unless the Company acquires or develops the capacity to design and manufacture
medical instruments on its own, the Company will be dependent on manufacturers
of such medical instruments to incorporate Biosense location sensors into their
instruments and to seek and obtain necessary regulatory approvals. The inability
or unwillingness of medical instrument manufacturers to incorporate Biosense
location sensors into their instruments or obtain necessary regulatory approvals
will have a material adverse effect on the Company's financial condition and
results of operations.

Stringent Government Regulation. The Company's products are regulated as
medical devices. The development, manufacture, distribution, labeling and
promotion of medical devices are subject to extensive and rigorous regulation in
the United States and in other countries. In the United States, the Federal
Food, Drug and Cosmetics Act provides that, unless exempted by regulation,
medical devices may not be marketed until they have been cleared or approved by
the FDA, a process that is time-consuming, expensive and uncertain. Although the
Company has received FDA clearance to market specified applications using
certain of its products, there can be no assurance that any other applications
or any of the Company's other products or

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proposed products will ever obtain the regulatory clearance or approval
required, or that the Company will be able to comply with any additional FDA,
state or foreign regulatory requirements. In addition, there can be no assurance
that government regulations applicable to the Company's products or the
interpretation of those regulations will not change, including those related to
the products currently cleared for marketing, and thereby prevent the Company
from marketing some or all of its products temporarily or permanently. The
Company is also subject to other federal, state and local laws. Noncompliance
with applicable requirements can result in civil penalties, injunction, the
recall or seizure of products, an inability to import products into the United
States, the refusal by the government to approve or clear product approval
applications or to allow the Company to enter into government supply contracts,
the withdrawal of previously approved product applications and criminal
prosecution. The extent of potentially adverse government regulation that might
arise from future legislation or administrative action cannot be predicted.
Failure to obtain or delays in obtaining required regulatory clearances, or
approvals or enforcement action based on failure to comply with regulatory
requirements, could have a material adverse effect on the Company's financial
condition and results of operations.

In order for the Company to market its products in European and certain
other foreign countries, the Company must obtain certain regulatory approvals
and clearances and otherwise comply with extensive regulations regarding product
safety, 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. The Company may rely in some
circumstances on its international distributors for the receipt of pre-market
approvals and compliance with clinical trial requirements in those countries
where the Company intends to use distributors, but there can be no assurance
that the Company will be able to obtain required regulatory approvals. Failure
to obtain such approvals or any enforcement action by regulatory authorities
with respect to regulatory noncompliance could have a material adverse effect on
the Company's financial condition and results of operations. See
"Business -- Government Regulation."

Uncertainty Relating to Third-Party Reimbursement. In the United States,
health care providers, such as hospitals and physicians, that purchase medical
devices, such as the Company's products, generally rely on third-party payors,
principally Medicare, Medicaid and private health insurance plans, to reimburse
all or part of the cost of the procedure in which the medical device is being
used. In addition, certain health care providers are moving toward a managed
care system in which such providers contract to provide comprehensive health
care for a fixed cost per person. The Company is unable to predict what changes
will be made in the reimbursement methods utilized by third-party health care
payors. The Company could be adversely affected by changes in reimbursement
policies of government or private health care payors, particularly to the extent
any such changes affect reimbursement for the procedure in which the Company's
products are intended to be used. Failure by physicians, hospitals and other
potential users of the Company's products to obtain sufficient reimbursement
from health care payors for the procedure in which the Company's products are
intended to be used or adverse changes in government and private third-party
payors' policies toward reimbursement for such procedures could have a material
adverse effect on the Company's financial condition and results of operations.
Market acceptance of the Company's products in international markets also will
be dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems. Reimbursement and health care payment systems in
international markets vary significantly by country, and include both government
sponsored health care and private insurance. The Company intends to seek
international reimbursement approvals, although there can be no assurance that
any such approvals will be obtained in a timely manner, if at all, and failure
to receive international reimbursement approvals could have a material adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought. See "Business -- Third-Party
Reimbursement."

Highly Competitive Market. The medical device industry is characterized by
rapidly evolving technology and intense competition. A number of competitors,
including Johnson & Johnson, Boston Scientific Corporation, Guidant Corporation,
Medtronic, Inc., St. Jude Medical, Inc. and Elekta Instruments AB, are currently
manufacturing and marketing products that may compete with those of the Company
and that are widely accepted and have a long history of safe and effective use.
Many of the Company's competitors have

9
<PAGE> 11

substantially greater resources, name recognition and expertise in research and
development, manufacturing and marketing medical devices. Competition in markets
in which the Company intends to compete, including diagnosis and treatment of
cardiac arrhythmias and cardiovascular disease and technologies for minimally
invasive procedures, is expected to be intense. Technologies and procedures
currently exist for the diagnosis and treatment of most of the medical
conditions for which the Company's products have been developed. In addition,
many of the Company's competitors have announced that they are developing and
introducing products that may compete with those of the Company. There can be no
assurance that medical procedures using the Company's products will replace any
current procedures or that the Company's competitors will not succeed in
developing alternative procedures and technologies that are more effective than
the Company's products or that render the Company's products or technologies not
competitive or obsolete.

Limited Manufacturing Experience. To date, the Company's manufacturing
activities have consisted only of building prototype devices and limited
commercial production. As a result, the Company has no experience manufacturing
its products in the volumes that would be necessary for the Company to achieve
significant commercial sales. There can be no assurance that reliable, high
volume manufacturing can be established or maintained at commercially reasonable
costs. Specifically, companies often encounter difficulties in scaling up
production, including problems involving production yield, quality control and
assurance, and shortages of qualified personnel. In addition, the Company's
manufacturing facilities are subject to FDA regulations, international quality
standards and other regulatory requirements. Difficulties encountered by the
Company in manufacturing scale-up or failure by the Company to implement and
maintain its facilities in accordance with FDA regulations, international
quality standards or other regulatory requirements could result in a delay or
termination of production, which could have a material adverse effect on the
Company's financial condition and results of operations. See
"Business -- Manufacturing."

Risks Relating to International Operations. The Company's principal
operations are conducted through its subsidiary, Biosense (Israel) Ltd.
("Biosense Israel"), located in Tirat HaCarmel, Israel. In addition, the Company
markets its products in international markets. Although the Company's sales and
certain other expenditures are denominated in United States dollars, the Company
must pay a significant portion of its operating expenses in Israeli shekels and
other foreign currencies. Changes in international economic conditions, currency
exchange rates, foreign tax laws or tariffs or other trade regulations could
have a material adverse effect on the Company's financial condition and results
of operations. The anticipated international nature of the Company's business is
also expected to subject it and its representatives, agents and distributors to
laws and regulations of the jurisdictions in which they operate or in which 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 financial condition and results of operations. See
"-- Stringent Government Regulation." 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.

Location of Primary Subsidiary in Israel. The Company's primary
subsidiary, Biosense Israel, is incorporated under the laws of the State of
Israel, where its principal offices and substantially all of its manufacturing
and research and development facilities are located. Since the establishment of
the State of Israel in 1948, a state of hostility has existed, varying in degree
and intensity, between Israel and certain Arab countries. In addition, Israel
and companies doing business with Israel have been the subject of an economic
boycott by certain Arab countries since Israel's establishment. Israel has
entered into agreements with certain Arab countries and representatives of the
Palestinians, and various declarations have been signed in connection with
efforts to resolve some of these problems. However, no prediction can be made as
to whether a full resolution of these problems will be achieved or as to the
nature of any such resolution. The Company is directly affected by the
political, economic and military conditions to which Israel is subject. The
Company's products are heavily dependent upon components imported from outside
of Israel. Accordingly, the Company's financial condition and results of
operations could be materially adversely affected if major hostilities involving
Israel should occur or if trade between Israel and its present trading partners
was interrupted or curtailed.

Approved Enterprise Status and Related Tax Benefits. The Company, through
Biosense Israel, benefits from certain government programs and tax benefits,
particularly as a result of the "Approved Enterprise" status of a

10
<PAGE> 12

substantial portion of the facilities and programs of Biosense Israel. To be
eligible for these programs and tax benefits, Biosense Israel must continue to
meet certain conditions, including making certain specified investments in fixed
assets. Should Biosense Israel fail to meet such conditions in the future, it
could be required to refund tax benefits already received (together with
interest and certain inflation adjustments). There can be no assurance that such
programs and tax benefits will be continued in the future at their current
levels or otherwise. Although the Company expects that the Approved Enterprise
status of facilities and programs of Biosense Israel will continue, the
termination or reduction of certain programs and tax benefits (particularly
benefits available to Biosense Israel as a result of the Approved Enterprise
status of substantially all of the facilities and programs of Biosense Israel)
could have a material adverse effect on the Company's financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Israeli Tax Matters."

Dependence on Patents and Proprietary Technology. The Company's ability to
compete effectively will depend in part on its ability to develop and maintain
proprietary aspects of its technology. The Company owns four United States
patents relating to certain aspects of the Company's CARTO system. The Company
also has 24 pending United States patent applications, as well as five Patent
Cooperation Treaty ("PCT") patent applications and 11 foreign patent
applications, which cover various aspects of the CARTO, NOGA and MAGELLAN
systems as well as other developments. There can be no assurance that patents
will issue from any of these applications or, if patents do issue, that claims
allowed in any such patent or patents will be sufficient to protect the
Company's technology.

Legislation is pending in Congress that, if enacted in its present form,
would limit the ability of medical device manufacturers in the future to obtain
patents on surgical and medical procedures that are not performed by, or as part
of, devices or compositions which are themselves patentable. While the Company
cannot predict whether the legislation will be enacted, or precisely what
limitations will result from the law if enacted, any limitation or reduction in
the patentability of medical and surgical methods and procedures could have a
material adverse effect on the Company's ability to protect its proprietary
methods and procedures.

There can be no assurance that any issued patents or any patents which may
be issued as a result of the Company's United States and international patent
applications will not be successfully challenged, invalidated or circumvented in
the future. Moreover, 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 and sell its products
either in the United States or in international markets. There can be no
assurance that the 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. In addition, if patents that cover the Company's activities are
issued to other companies, there can be no assurance that the Company would be
able to obtain licenses to such patents at a reasonable cost, if at all, or be
able to develop or obtain alternative technologies.

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 or interference
proceedings declared by the United States Patent and Trademark Office (the
"USPTO") to determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings and related legal
and administrative proceedings are both costly and time-consuming. Litigation
may be necessary to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of others. Any litigation or
interference proceedings 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 or require the Company to seek licenses from third
parties or prevent the Company from selling its products in certain markets, or
at all. Costs associated with settlements, licensing and similar arrangements
may be substantial and could include ongoing royalties. Furthermore, there can
be no assurance that the necessary licenses would be

11
<PAGE> 13

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 financial
condition and results of operations. In addition, there can be no assurance that
the Company will have the financial resources to protect and defend its
intellectual property.

In addition to patents, the Company relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through confidentiality and
proprietary information agreements. The Company generally requires its key
employees and consultants to execute confidentiality agreements upon the
commencement of any employment or consulting relationship with the Company.
There can be no assurance that such confidentiality or proprietary information
agreements will not be breached, that the Company would have adequate remedies
for any breach, or that the Company's trade secrets will not otherwise become
known to, or be independently developed by, competitors. See
"Business -- Patents and Proprietary Rights."

Future Capital Requirements. The Company's capital requirements depend on
numerous factors, including the progress of the Company's product development
programs, the resources the Company devotes to developing, manufacturing and
marketing its products, the extent to which the Company's products generate
market acceptance and demand, and other factors. 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. The failure of the Company to obtain such funding could have
a material adverse effect on the Company's financial condition and results of
operations. Any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve restrictive covenants. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Product Liability Risk; Limited Insurance Coverage. The development,
manufacture and sale of medical products entail significant risk of product
liability claims and product recalls. The Company's current product liability
insurance coverage limits are $5 million per occurrence and $5 million in the
aggregate, and there can be no assurance that such coverage limits are adequate
to protect the Company from any liabilities it might incur in connection with
the development, manufacture and sale of its products. In addition, the Company
may require increased product liability coverage as its products are
commercialized. Product liability insurance is expensive and in the future may
not be available to the Company on acceptable terms, if at all. A successful
product liability claim or series of claims brought against the Company in
excess of its insurance coverage or a product recall could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Product Liability and Insurance."

Product Reliability and Risk of Recall. The Company's products are highly
complex. Component failures, manufacturing errors or design defects could result
in unsafe conditions for patients, additional repair requirements or product
recalls, and could significantly impair market acceptance of the Company's
products. If there were any material deficiencies or defects in the design or
manufacture of the Company's products, the Company might be required to recall
or redesign them. The costs of a product recall could be significant. Any such
product problems could have a material adverse effect on the Company's financial
condition and results of operations.

Certain U.S. Income Tax Considerations. For U.S. federal income tax
purposes, in addition to its regular corporate income tax liability, the Company
could be subject to a surtax for any year in which it is deemed to be a
"personal holding company" ("PHC"), which is defined under the Internal Revenue
Code of 1986 (the "Internal Revenue Code") as a company that (i) is more than
50% owned by five or fewer individuals and (ii) derives at least 60% of its
adjusted ordinary gross income for the taxable year from certain passive
sources, including, but not limited to, royalty fees and interest and dividend
income. A PHC is subject to a surtax of 39.6% on an amount generally equal to
its net income after deduction of its regular corporate income tax liability,
dividends paid during the taxable year and certain other adjustments. The
Company has determined that it will not be subject to the PHC surtax in 1996,
and the Company believes that it can manage its business so as to avoid the
imposition of the PHC surtax in future years. Nevertheless, because the
character and amount of certain types of income may be beyond the control of the
Company, it is possible that the

12
<PAGE> 14

Company could become subject to the PHC surtax for one or more future taxable
years. It is also possible that, in order to avoid the imposition of this
surtax, the Company may elect to make dividend distributions if cash is
available to do so, or may modify its business operations, at a time when it
otherwise might not choose to do so.

No Prior Public Trading Market; Potential Volatility of Stock Price. Prior
to this Offering, there has been no public market for the Company's Common
Stock. There can be no assurance that an active trading market will develop or,
if one does develop, that it will be sustained. The initial public offering
price, which will be determined by negotiations between the Company and
representatives of the Underwriters, may not be indicative of prices that will
prevail in the trading market. See "Underwriting." The stock market has from
time to time experienced significant price and volume fluctuations which often
have been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock. In addition, the market price of the shares of Common Stock is
likely to be highly volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, FDA and international regulatory actions,
developments with respect to patents or proprietary rights, public concern as to
the safety of products developed by the Company or others, changes in health
care policy in the United States and internationally, changes in stock market
research analyst recommendations regarding the Company, other medical device
companies or the medical device industry generally, and general market
conditions may have a significant effect on the market price of the Common
Stock.

Shares Eligible for Future Sale. Sales of a substantial number of shares
of the Company's Common Stock in the public market following this Offering, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock. Upon the completion of this Offering, the Company
will have shares of Common Stock outstanding (before giving effect
to the exercise of any outstanding options after June 30, 1996). Of these
shares, the shares sold in this Offering will be freely tradable
without restriction under the Securities Act, unless held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act,
shares of Common Stock will be available for sale in the public
market without restriction 90 days following the date of this Prospectus
pursuant to Rule 144 and Rule 701 under the Securities Act, and
shares of Common Stock (including shares subject to outstanding
vested options) will become available for sale in the public market 90 days
after the date of this Prospectus, subject in some cases to vesting provisions
and volume limitations pursuant to Rule 144. The remaining shares
held by existing stockholders will become eligible for sale in the public market
pursuant to Rule 144 at various times over a period of less than two years
following the completion of this Offering, subject in some cases to vesting
provisions and volume limitations. Stockholders of the Company who, in the
aggregate, hold approximately % of the shares of Common Stock of the Company,
and % of the options to purchase Common Stock of the Company, outstanding
immediately prior to the completion of this Offering have entered into lock-up
agreements under which such stockholders have agreed not to offer, sell or
otherwise dispose of any shares or securities exchangeable for or convertible
into shares of Common Stock owned by them for a period of 180 days after the
date of this Prospectus, without the prior written consent of UBS Securities
LLC. The Company has entered into a similar agreement, except that the Company
may grant additional options under the Company's stock option plans and issue
shares upon the exercise of outstanding options. UBS Securities LLC may,
however, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to such lock-up agreements. See "Shares
Eligible for Future Sale."

Anti-takeover Effect of Certain Certificate of Incorporation and Bylaw
Provisions. Certain provisions of the Company's Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or 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 the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, specify procedures for director
nominations by stockholders and submission of other proposals for consideration
at stockholder meetings, eliminate cumulative voting in the election of
directors and divide the Board of Directors of the Company into three classes.
Certain provisions of Delaware law applicable to the Company could also delay or
make more difficult a merger,

13
<PAGE> 15

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. The possible issuance
of Preferred Stock, 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."

Control by Directors, Executive Officers and Affiliated Entities. The
Company's directors, executive officers and persons and entities affiliated with
them will, in the aggregate, beneficially own approximately % of the Company's
outstanding shares of Common Stock following the completion of this Offering. In
addition, Shlomo A. Ben-Haim, the Chief Scientist and a Director of the Company,
and his brother will together beneficially own approximately % of the
Company's outstanding shares of Common Stock following the completion of this
Offering. These stockholders, if acting together, would be able to control 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."

Dilution. Investors purchasing shares of Common Stock in this Offering
will incur immediate and substantial dilution in net tangible book value of the
Common Stock of $ per share. To the extent that currently outstanding
options to purchase the Company's Common Stock are exercised, there will be
further dilution. See "Dilution."

Absence of Dividends. The Company has not paid any dividends and does not
anticipate paying any dividends in the foreseeable future. See "Dividend
Policy."

14
<PAGE> 16

THE COMPANY

The Company was incorporated in the State of Delaware in 1994. Its
principal operations are conducted through its wholly owned subsidiary, Biosense
Israel, located in Tirat HaCarmel, Israel. The Company's principal executive
offices are located at 40 Ramland Road South, Orangeburg, New York 10962, and
its telephone number is (914) 359-2250.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby are estimated to be approximately $
($ if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $ per share (the midpoint
of the range shown on the front cover of this Prospectus), after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company.

The Company intends to use the net proceeds to fund research and
development, clinical studies, sales and marketing efforts, acquisition of
capital equipment and for working capital and other general corporate purposes.
The Company may also use a portion of the net proceeds to acquire complementary
businesses, products or technologies, although the Company currently has no
agreements with respect to any such transactions. The actual amounts expended by
the Company for these purposes and the timing of such expenditures will depend
on a number of 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. Pending use of the
net proceeds of this Offering, the Company plans to invest the net proceeds in
interest bearing, investment grade securities. Although the Company believes
that the net proceeds from this Offering together with existing cash, cash
equivalents and securities available for sale will be sufficient to maintain its
current and planned operations for at least the next 24 months, there can be no
assurance that the Company will not require additional financing during such
period. See "Risk Factors -- Future Capital Requirements" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth at June 30, 1996 (i) the capitalization of
the Company after giving pro forma effect to the conversion of all of the
Company's Series A Preferred Stock into Common Stock and (ii) the pro forma
capitalization of the Company as adjusted to reflect the receipt of the
estimated net proceeds from the sale of the shares of Common Stock
being offered hereby, assuming an initial public offering price of $
per share (the midpoint of the range shown on the front cover of this
Prospectus), after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations................................................. $ -- $ --
Stockholders' equity
Preferred Stock, $.01 par value, 4,150,000 shares authorized, none
issued and outstanding........................................... -- --
Common Stock, $.01 par value, 8,000,000 shares authorized, 6,113,316
and shares issued and outstanding pro forma and pro
forma as adjusted, respectively(1)............................... 61
Paid-in capital..................................................... 55,182
Accumulated deficit................................................. (42,737 ) (42,737)
Deferred compensation(2)............................................ (1,073 ) (1,073)
-------- --------
Total stockholders' equity....................................... 11,433
-------- --------
Total capitalization........................................... $ 11,433 $
======== ========
</TABLE>

- ---------------
(1) Excludes shares reserved for future issuance pursuant to stock options
outstanding as of June 30, 1996 and shares reserved for future
issuance under the Company's stock option plans. See "Management -- Stock
Option Plans" and Note 9 of Notes to Consolidated Financial Statements.

(2) Represents deferred compensation recorded in connection with the grant of
certain stock options to employees of the Company. See Note 9 of Notes to
Consolidated Financial Statements.

16
<PAGE> 18

DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
June 30, 1996 was $ , or approximately $ per share. Pro forma net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving pro forma effect to the conversion of all
of the Company's Series A Preferred Stock into Common Stock. Net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of Common Stock in the Offering and the net tangible book
value per share of Common Stock immediately after completion of this Offering.
After giving effect to the sale by the Company of the shares of Common
Stock offered hereby, assuming an initial public offering price of $
per share (the maximum price in the range shown on the front cover of this
Prospectus), after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company, the pro forma net tangible
book value of the Company as of June 30, 1996 would have been $ or
$ per share. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate dilution
in net tangible book value of $ per share to new investors of Common
Stock in this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share as of June 30,
1996..................................................... $
Increase per share attributable to new investors...........
--------
Pro forma net tangible book value per share after the
offering.................................................
--------
Dilution per share to new investors........................ $
========
</TABLE>

The following table sets forth, on a pro forma basis at June 30, 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 holders of Common Stock and by the new investors, assuming an
initial public offering price of $ per share (the maximum price in the
range shown on the front cover of this Prospectus), before deducting the
underwriting discounts and commissions and estimated 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................... % $ % $
New investors...........................
------- ------ ------- ------
Total......................... % $ %
======= ====== ======= ======
</TABLE>

The foregoing table (i) assumes no exercise of the Underwriters'
over-allotment option and (ii) excludes shares reserved for future
issuance pursuant to stock options outstanding as of June 30, 1996 and
shares reserved for future issuance under the Company's stock option
plans. See "Management -- Stock Option Plans" and Note 9 of Notes to
Consolidated Financial Statements.

17
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of December 31, 1994
and 1995 and for the period March 23, 1994 (inception) to December 31, 1994 and
the year ended December 31, 1995 are derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants, whose report thereon is included elsewhere herein. The selected
consolidated financial data as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are derived from the unaudited consolidated financial
statements of the Company which, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for the
fair presentation of such information. The results for the six months ended June
30, 1996 are not necessarily indicative of the results that can be expected for
the full year. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere herein.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 23, 1994) YEAR ENDED SIX MONTHS ENDED JUNE 30,
TO DECEMBER 31, DECEMBER 31, ---------------------------
1994(1) 1995 1995 1996
---------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................... $ -- $ 204,000 $ -- $ 2,850,150
Expenses
Cost of sales.................. -- 49,457 -- 1,817,524
Sales and marketing............ 67,000 245,250 45,000 732,022
Research and development....... 31,395,126(2) 6,708,464 1,473,655 2,351,116
General and administrative..... 422,129 1,216,700 261,864 1,461,400
------------ ----------- ----------- -----------
Operating loss.................... (31,884,255) (8,015,871) (1,780,519) (3,511,912)
Other income...................... 78,148 408,093 56,139 415,582
------------ ----------- ----------- -----------
Loss before provision for income
taxes.......................... (31,806,107) (7,607,778) (1,724,380) (3,096,330)
Provision for income taxes........ 24,918 153,681 41,900 48,601
------------ ----------- ----------- -----------
Net loss.......................... $(31,831,025) $ (7,761,459) $(1,766,280) $(3,144,931)
============ =========== =========== ===========
Pro forma net loss per share(3)... $ $
=========== ===========
Shares used in computing pro forma
net loss per share(3)..........
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 3,278,674 $ 13,621,130 $ 12,115,863
Working capital................................. 3,084,517 12,824,541 9,606,292
Total assets.................................... 4,040,533 15,747,998 15,412,711
Accumulated deficit............................. (31,831,025) (39,592,484) (42,737,415)
Total stockholders' equity...................... 3,761,800 14,252,509 11,433,198
</TABLE>

- ---------------
(1) Although the founders and certain other employees of the Company were
engaged in research and development activities prior thereto, March 23, 1994
represents the date of inception of the Company for financial reporting
purposes. See Note 1 of Notes to Consolidated Financial Statements.

(3) See Note 2 of Notes to Consolidated Financial Statements for information
concerning calculation of pro forma net loss per share.

18
<PAGE> 20

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

The following discussion of the financial condition and results of
operations of Biosense should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto included elsewhere in this
Prospectus.

OVERVIEW

Biosense commenced operations in March 1994. To date, Biosense has engaged
primarily in research, product development efforts and clinical trials. As a
result, the Company does not believe that its historical results of operations
are necessarily indicative of results that may be expected in the future. In
addition, although the Company reported revenues beginning in the fourth quarter
of 1995, the Company has never reported any operating income and expects to
continue to experience operating losses through at least 1998. At June 30, 1996,
the Company had an accumulated deficit of $42.7 million. The Company expects to
incur substantial additional expenditures in connection with its continued
development, regulatory, manufacturing, sales and marketing efforts.

Currently, the CARTO system is the Company's only commercially marketable
product. There can be no assurance that demand for the CARTO system will be
sufficient to allow profitable operations. Furthermore, there can be no
assurance that the Company will be able to develop the NOGA or the MAGELLAN
systems into commercially marketable products. Failure of the CARTO system to be
successfully commercialized and failure of the Company to develop either the
NOGA or the MAGELLAN systems into marketable products would have a material
adverse effect on the Company's financial condition and results of operations.

The Company's principal operations are conducted in Israel through Biosense
Israel. In addition, the Company markets its products in international markets.
Although the Company's sales and certain expenditures are denominated in United
States dollars, the Company must pay a significant portion of its operating
expenses in Israeli shekels and other foreign currencies. Consequently, the
Company's results of operations are affected by fluctuations in the exchange
rate between United States dollars and these currencies. See Note 10 of Notes to
Consolidated Financial Statements.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.

Revenue and cost of sales for the six months ended June 30, 1996 were $2.9
million and $1.8 million, respectively, reflecting sales of location sensors and
CARTO systems to Cordis pursuant to the Cordis Agreement. The Company did not
record any revenues in the six months ended June 30, 1995.

Sales and marketing expenses were $732,022 and $45,000 for the six months
ended June 30, 1996 and 1995, respectively, reflecting marketing and
after-market support for the sales of CARTO systems in 1996 and marketing
consulting fees paid to Jessco Medical Supply Inc. See "Certain Transactions."
The Company expects that sales and marketing expenses will increase as
additional products are launched.

Research and development expenses were $2.4 million and $1.5 million for
the six months ended June 30, 1996 and 1995, respectively. The increase in
research and development expense was due to increased research and development
activities, including the addition of personnel and an increase in consulting
fees paid to HMS Ltd., in 1996. See "Certain Transactions." The Company expects
that research and development expenses will increase further as it develops new
products and pursues new technologies.

General and administrative expenses were $1.5 million and $261,864 for the
six months ended June 30, 1996 and 1995, respectively. The increase was the
result of the Company establishing its infrastructure.

19
<PAGE> 21

Other income was $415,582 and $56,139 for the six months ended June 30,
1996 and 1995, respectively. The increase in interest income was due to interest
earned on higher average cash balances in 1996 than in 1995.

Provision for income taxes was $48,601 and $41,900 for the six months ended
June 30, 1996, and 1995, respectively. The tax provisions relate to income taxes
on the income of the Company's subsidiaries in their local jurisdictions.

As a result of the foregoing, the Company's net loss was $3.1 million and
$1.8 million for the six months ended June 30, 1996 and 1995, respectively.

Year Ended December 31, 1995 Compared to Period from March 23, 1994
(inception) to December 31, 1994.

Revenues and cost of sales for the year ended December 31, 1995 ("1995")
were $204,000 and $49,457, respectively, reflecting sales of location sensors to
Cordis pursuant to the Cordis Agreement. The Company did not record any revenues
in the period from March 23, 1994 to December 31, 1994 ("1994").

Research and development expenses were $6.7 million and $31.4 million in
1995 and 1994, respectively. In accordance with generally accepted accounting
principles, in conjunction with the issuance of Series A Preferred Stock to the
founders of the Company in return for the contribution of technology, the
Company wrote off the research and development costs related to all in-process
technologies. Of the $31.4 million of research and development expenses in 1994,
approximately $28.9 million reflected this write off. Research and development
expenses in 1995 included stock option compensation of $3.0 million. See Note 9
of Notes to Consolidated Financial Statements.

General and administrative expenses were $1.2 million and $422,129 in 1995
and 1994, respectively. The increase in general and administrative expenses in
1995 was the result of the Company establishing its infrastructure.

Other income was $408,093 and $78,148 in 1995 and 1994, respectively. The
increase in other income was due to interest earned on higher average cash
balances in 1995 than in 1994.

Provision for income taxes was $153,681 and $24,918 in 1995 and 1994,
respectively. The tax provisions relate to Israeli income taxes on the income of
Biosense Israel.

As a result of the foregoing, the Company's net loss was $7.8 million and
$31.8 million in 1995 and 1994, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations through the
sale of Common and Preferred Stock. At June 30, 1996, the Company had raised
approximately $21.1 million (net of stock issuance costs) from the sale of such
stock. The Company has also received cash advances from Cordis against future
product deliveries aggregating $4.9 million. At June 30, 1996, the Company's
cash and cash equivalents totaled $12.1 million. For the year ended December 31,
1995 and the six months ended June 30, 1996, cash used in the Company's
operations was $3.4 million and $731,769, respectively, reflecting expenditures
made primarily to support research and development, clinical testing, regulatory
approval, acquisitions, marketing and the Company's administrative
infrastructure.

The Company's primary liquidity needs for the next 12 months are expected
to be to fund product introductions, to build a sales and marketing
organization, to develop and sponsor physician training programs, to continue
investing in research and development and for working capital. The Company plans
to finance its capital needs principally from the net proceeds of this Offering
and interest thereon, its existing capital resources and, to the extent
available, lines of credit. The Company currently has no commitments for any
credit facilities that could provide additional working capital. The Company
believes that the net proceeds from this Offering together with existing cash
and cash equivalents will be sufficient to maintain its current and planned
operations for at least the next 24 months. The Company's capital requirements
depend on numerous factors, including the progress of the Company's product
development programs, the resources the

20
<PAGE> 22

Company devotes to developing, manufacturing and marketing its products, the
extent to which the Company's products generate market acceptance and demand,
and other factors. 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 the Company will not require additional funding
or that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. The failure of the Company to obtain such
funding could have a material adverse effect on the Company's financial
condition and results of operations. Any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants.

At December 31, 1995, the Company had approximately $6.9 million in federal
and state net operating loss carryforwards, which expire between 2009 and 2010.
Utilization of federal income tax carryforwards is subject to certain
limitations under Section 382 of the Internal Revenue Code. These limitations
may result in the expiration of net operating loss carryforwards and research
and development credits before they can be fully utilized.

ISRAELI TAX MATTERS

The Company, through Biosense Israel, benefits from certain government
programs and tax benefits, particularly as a result of the "Approved Enterprise"
status of a substantial portion of the facilities and programs of Biosense
Israel pursuant to the Israeli Law for the Encouragement of Capital Investments,
1959 (the "Investment Law"). The Investment Law provides that capital
investments in a production facility or other eligible assets may, upon
application to the Israel Investment Center, be designated as an "Approved
Enterprise." Each certificate of approval for an Approved Enterprise relates to
a specific investment program in the Approved Enterprise, delineated both by the
financial scope of the investment and by the physical characteristics of the
facility or the asset. The tax benefits derived from any such certificate of
approval relate only to taxable profits attributable to the specific Approved
Enterprise. If only a part of a company's taxable income derives from an
Approved Enterprise, or if a company operates under more than one approval, its
effective corporate tax rate is the result of a weighted combination of the
various applicable rates.

Taxable income derived from an Approved Enterprise is subject to a reduced
corporate tax rate of 25% (the corporate tax rate in Israel is ordinarily 36%).
Such income is eligible for further reductions in tax rates depending on the
percentage of foreign investment in the company's share capital and of its
combined share and loan capital which is owned by non-Israeli residents. The tax
rate will be 20% if the foreign investment is 49% or more but less than 74%, 15%
if the foreign investment is 74% or more but less than 90%; and 10% if the
foreign investment is 90% or more. These tax benefits are granted for a limited
period not exceeding seven or ten years from the first year in which the
Approved Enterprise has taxable income.

A company that has Approved Enterprise status which was approved after
April 1, 1986 may elect to forgo any entitlement to the grants otherwise
available under the Investment Law and, in lieu thereof, participate in an
alternative benefits program (the "Alternative Benefits Program"), under which
the undistributed income from the Approved Enterprise is fully exempt from
corporate taxation for a defined period of time. The period of tax exemption
ranges from between two and ten years, depending upon the location within Israel
of the Approved Enterprise and the type of the Approved Enterprise. On
expiration of the exemption period, the Approved Enterprise would be eligible
for beneficial tax rates under the Investment Law for the remainder, if any, of
the otherwise applicable benefits period. Biosense Israel has elected to
participate in the Alternate Benefits Program. As a result, Biosense Israel
expects most of its operating income to be fully exempt from corporate taxation
for a period of four years, and to be eligible for beneficial tax rates under
the Investment Law for another six years. There can be no assurance, however,
that the current benefit program will continue to be available for future
operating income or that Biosense Israel will continue to qualify for benefits
under the current program.

A company, such as Biosense Israel, that has elected to participate in the
Alternative Benefits Program and that pays a dividend either during or after the
tax exemption period from the income derived from the Approved Enterprise during
the tax exemption period will be subject to corporate tax in respect of the
amount distributed (including the tax thereon) at the rate that would have been
applicable had the company not

21
<PAGE> 23

elected the Alternative Benefits Program. The dividend recipient, including
Biosense, Inc., is subject to a withholding tax at the reduced rate of 15%
applicable to dividends from Approved Enterprises if the dividend is distributed
within 12 years after the tax exemption period. In the case of a company with
over 25% foreign shareholding (as defined by law), the 12-year limitation on
reduced withholding tax on dividends does not apply. As a result, Biosense
Israel will lose the benefits of the Alternative Benefits Program if it ever
chooses to pay a dividend to the Company from the income derived during the tax
exemption period.

The benefits available to an Approved Enterprise are conditioned upon the
fulfillment of certain conditions stipulated in the Investment Law and its
regulations and the criteria set forth in the certificate of approval. In the
event that these conditions are violated, in whole or in part, Biosense Israel
could be required to refund the amount of benefits with interest. The Company
believes its Approved Enterprise operates in substantial compliance with such
conditions and criteria.

22
<PAGE> 24

BUSINESS

OVERVIEW

Biosense has developed proprietary technology which enables physicians to
accurately and safely navigate medical instruments within patients' bodies
during the performance of a wide variety of minimally invasive medical
procedures. Biosense's technology consists of miniature disposable location
sensors incorporated into catheters and other medical instruments, a reusable
"location pad" which emits non-hazardous, low-level electromagnetic energy and a
proprietary computer system that converts the raw data gathered by the sensors
into a user-friendly map and location guide. The Company's products permit
physicians to continuously acquire, display, compare, store and retrieve 3-D
spatially correct anatomical data and corresponding physiological data, which
will provide physicians with important navigational and functional information
not currently available during the performance of many medical procedures. The
Company's products do not require fluoroscopic x-rays for navigating, thereby
significantly reducing physician and patient exposure to dangerous ionizing
radiation during the medical procedure. The Company believes that its
proprietary technology will improve the accuracy and minimize the invasiveness
of many diagnostic and therapeutic procedures, producing better clinical
results. In addition, the Company believes that its technology will increase
safety, reduce patient recovery times and lower the overall costs associated
with a wide variety of invasive medical procedures.

BACKGROUND

Prior to the discovery of x-ray technology, the only means of observing
disorders of the internal anatomy was through incisions in the patient's body.
The discovery of fluoroscopic x-rays was a fundamental breakthrough in medicine,
making it possible to visualize structures within the body without making
incisions. The introduction of MRI and ultrasound imaging further enhanced a
physician's ability to visualize internal organs. More recently, digital image
processing methods have advanced diagnostic imaging by enabling the quick, high
quality reconstruction of images, often in three dimensions.

Despite these advances in imaging technology, many diagnoses and treatments
still require invasive procedures involving direct observation by the physician
of the patient's internal anatomy. These procedures often require large
incisions and significant tissue manipulation in order to provide the physician
with direct access to the targeted anatomy. The invasiveness of these procedures
leads to increased trauma to the patient and heightened risk of muscle or nerve
damage, bleeding, scarring and other complications such as infection,
debilitation and pain.

The development of specialized catheters and similar minimally invasive
medical instruments, together with advances in imaging technology, has led to
less invasive procedures. Catheters permit physicians to enter the patient's
body through natural body cavities or through much smaller incisions into which
the catheter is inserted and manipulated to the desired location where testing
is conducted or treatment is applied. As a result of the developments in imaging
techniques and catheter technology, certain invasive procedures have been
replaced by catheter-based procedures. Moreover, many patients who were not
suitable candidates for surgery because of the invasiveness of the procedure can
now be offered alternative treatments. These less invasive catheter-based
procedures also have resulted in shorter hospital stays and recovery times
compared to conventional open surgery.

Notwithstanding the significant advantages that current procedures relying
on advances in imaging techniques and catheter technology offer compared to
older and more conventional open surgery procedures, the current procedures
still have significant disadvantages. Because these procedures rely on small
incisions into which the catheter or other medical instruments are inserted,
direct, real time observation of the patient's anatomy and precise positioning
of medical instruments is not possible. Instead, physicians must rely on

23
<PAGE> 25

fluoroscopic x-ray images in order to determine the approximate positioning of
the medical instruments, which has several disadvantages. First, fluoroscopic
x-rays expose the patient and the medical team to significant amounts of
ionizing radiation which, according to the FDA, is the leading health hazard of
catheterization procedures. Moreover, images generated by fluoroscopic x-ray
equipment are only two dimensional, are often difficult to read and provide no
detail of the soft tissue of the patient. Finally, fluoroscopic x-ray equipment
is expensive, generally costing $500,000 to $1.5 million per machine.

BIOSENSE'S SOLUTION

Biosense's technology will, for the first time, allow physicians using
minimally invasive medical procedures to identify the relative location of
instruments within the patient's body on a continuous, real time basis. Using
Biosense technology, physicians will be able to precisely guide catheters and
other medical instruments to exact locations using non-hazardous low-level
electromagnetic energy. The Biosense system consists of disposable miniaturized
sensors incorporated into catheters and other medical instruments, a reusable
"location pad" which emits low-level electromagnetic energy, and a proprietary
computer system that converts the raw data gathered by the sensors into a
user-friendly map and location guide. The Company believes that medical
procedures using Biosense technology will be more reliable, more precise and
significantly safer than procedures that rely on fluoroscopic images. In
addition, the Company believes that the Biosense system will significantly
reduce per-treatment and overall costs of image-guided medical procedures
compared to procedures utilizing x-ray technology.

STRATEGY

Establish strategic relationships with leading developers and manufacturers
of medical instruments. The Company's location sensors are designed to be
incorporated into medical instruments such as catheters and surgical tools. The
Company intends to enter into strategic alliances with leading developers and
manufacturers of medical instruments for the joint research and development of
medical instruments that incorporate the Company's location sensors. The Company
will seek partners that have experienced sales forces and that are well known to
physicians. The Company will provide incentives to such partners to market and
sell the Company's systems and instruments into which Biosense location sensors
have been incorporated. The Company believes that alliances with established
strategic partners will speed the introduction and acceptance of the Company's
products. In July 1995, the Company entered into the Cordis Agreement with
Cordis, a subsidiary of Johnson & Johnson, for the distribution of the CARTO
system and for the distribution of the MAGELLAN system for use in neuroradiology
and neuroendoscopy. See "-- Sales, Marketing and Distribution."

Internally develop and manufacture medical instruments. The Company
intends to develop or acquire the capacity to develop and manufacture medical
instruments internally. The Company seeks to become a leader in the development
of medical instruments that incorporate Biosense technology. The Company
believes that, by developing its own medical instruments, it can be more
responsive to the needs of end users of the Company's systems. In addition, the
Company believes that it will be able to provide technical assistance to other
manufacturers that seek to incorporate Biosense technology into their
instruments.

Sponsor clinical trials to demonstrate the efficacy of the Company's
products. Because obtaining FDA approval does not assure the acceptance of
products by the medical community, the Company intends to sponsor extensive
clinical trials to demonstrate the efficacy of its products and the advantages
that Biosense technology offers over existing procedures and technologies. The
Company is working with leading institutions and physicians in the fields of
electrophysiology, cardiology and image-guided medical procedures to sponsor
clinical trials of its products. The Company expects that the results of these
trials will be published in leading medical journals and presented at important
scientific conferences, such as the Congress of Neurosurgeons and the annual
meetings of the American Heart Association, the American College of Cardiology
and the North

24
<PAGE> 26

American Society of Pacing and Electrophysiology, which the Company believes
will lead to quicker acceptance of its technology by the medical profession. See
"-- Sales, Marketing and Distribution."

Develop a direct marketing and sales force. In addition to marketing and
selling its products through strategic partnerships, the Company intends to
develop a direct marketing and sales force through which to sell its products.
The Company believes that a direct marketing and sales force is important to
supplement the efforts of its strategic partners to ensure that end users of the
Company's products receive adequate pre- and after-market support and to assist
in training, clinical trials and identifying new indications and applications
for the Company's products. The Company intends to market certain products
through its direct sales force in cases where strategic partners are not
licensed to distribute these products or where strategic partnerships may not
optimize the distribution of the Company's products.

Increase the Company's research and development activities. The Company
intends to continue to devote substantial resources to research and development
efforts. The Company focuses these efforts in three general areas: (i)
developing the technology and improving the Company's existing technology, (ii)
developing and improving products and applications that incorporate the
Company's technology, and (iii) providing engineering support for the Company
and its customers.

PRODUCTS

The initial applications of the Company's technology include the CARTO
system, used for the diagnosis and treatment of cardiac arrhythmias, the NOGA
system, used for the diagnosis and treatment of coronary artery disease and its
related effects, and the MAGELLAN system, used for the performance of minimally
invasive image-guided surgery and biopsy procedures.

<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- ------------------------- -------------------------------- --------------------------------
<S> <C> <C>
CARTO Mapping of cardiac arrhythmias, FDA 510(k)* clearance received.
including mapping of atrial
fibrillation, ventricular
tachycardia and supraventricular
tachycardia

Ablation therapy of ventricular IDE** for Cordis ablation
tachycardia and supraventricular catheter approved. PMA*
tachycardia supplement for Cordis ablation
catheter expected to be
submitted by Cordis during the
first quarter of 1997. Clinical
trials expected to commence in
the fourth quarter of 1996.

Ablation therapy of atrial IDE application for ablation
fibrillation catheter expected to be
submitted during the first
quarter of 1997. Clinical trials
expected to commence in the
fourth quarter of 1996.

NOGA Testing of cardiac mechanics and FDA 510(k) clearance received.
hemodynamics for diagnosis of Clinical trials to support
coronary artery disease marketing efforts in progress.
Cardiac viability testing FDA 510(k) application expected
to be submitted during the
second quarter of 1997. Clinical
trials expected to commence in
the first quarter of 1997.
</TABLE>

25
<PAGE> 27

<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS
- ------------------------- -------------------------------- --------------------------------
<S> <C> <C>
MAGELLAN
Image-Guided Surgery Neurosurgery FDA 510(k) application submitted
during the second quarter of
1996. Clinical trials to support
marketing efforts in progress.
Sinus surgery FDA 510(k) application expected
to be submitted during the first
quarter of 1997. Clinical trials
to support marketing efforts
expected to commence in the
second quarter of 1997.
Image-Guided Biopsy Ultrasound-guided biopsy FDA 510(k) application expected
to be submitted during the first
quarter of 1997. Clinical trials
to support marketing efforts
expected to commence in the
third quarter of 1997.
</TABLE>

- ---------------
* Before a new device can be introduced into the United States market, the
manufacturer must generally obtain marketing clearance through either a
510(k) pre-market notification or a pre-market approval ("PMA") application.
See "-- Government Regulation."

** If human clinical trials of a device are required in connection with either a
510(k) pre-market notification or a PMA, and the device presents a
"significant risk," the sponsor of the trial is required to file an
investigational device exemption ("IDE") application prior to commencing
human clinical trials in the United States. See "-- Government Regulation."

CARTO

The CARTO system is designed to allow physicians to diagnose and treat
cardiac tachyarrhythmias (abnormally rapid heart beat) more quickly, accurately
and safely than currently available procedures. The CARTO system incorporates
the Company's miniature disposable location sensors into the tip of
electrophysiological catheters which are designed to measure the electrical
activity of the heart. By placing the catheter tip at various points along the
inside wall of the heart, the CARTO system constructs an accurate 3-D map of the
anatomy of the heart, and simultaneously records the patterns of electrical
activity in the heart ("EP mapping"). The CARTO system permits the physician to
pinpoint on this electro-anatomical map the exact location of the abnormal heart
tissue ("arrhythmogenic tissue") responsible for inducing the dangerous heart
rhythm. The CARTO system also shows, on a real time basis, the exact 3-D
location of the tip of the catheter in relation to the arrhythmogenic tissue.
This allows the physician to accurately navigate the catheter to the site of the
arrhythmogenic tissue and perform ablation therapy, which involves the creation
of scar tissue at the site of the arrhythmia in order to block the conduction of
aberrant electrical signals. The Company knows of no other technology capable of
providing physicians with real time, 3-D location information for the
performance of non-fluoroscopic EP mapping and ablation therapy. Current mapping
and ablation techniques can take many hours to complete, involve exposure of the
patient and the physician to high levels of fluoroscopic x-rays, and do not
provide the physician with the precise 3-D location information available with
the CARTO system.

Approximately 400,000 diagnostic EP procedures and approximately 75,000
therapeutic cardiac ablation procedures for the treatment of arrhythmias were
performed in 1994, an increase of more than 225% and 350%, respectively, over
1992. In response to this rapid growth in EP procedures, hospitals are
establishing dedicated EP labs, purchasing more EP products and workstations and
replacing older equipment to improve the efficiency of their facilities and to
treat the increasing number of EP patients. The Company believes that its
technology can further expand the market for EP diagnosis and treatment.

26
<PAGE> 28

Background

The heart at rest typically beats between 50 and 100 times per minute
through the coordinated contractions of each of the heart's chambers. The heart
tissue is stimulated to contract in an organized fashion by electrical impulses
sent from the sino-atrial node located in the right atrium. If the heart tissue
does not properly conduct these electrical impulses, then abnormal rhythms,
called arrhythmias, may result. Cardiac arrhythmias are one of the leading
causes of death in the United States and the most frequent cause of sudden death
in patients with underlying coronary artery disease. Approximately 3.4 million
people in the United States suffer from cardiac arrhythmias.

Arrhythmias arise from numerous causes, including tissue damage due to
heart attacks or arteriosclerosis (fatty deposits in the arteries), congenital
defects and certain diseases. These causes accelerate, delay or redirect the
transmission of electrical impulses, thereby disrupting the normal coordinated
contractions of the heart's chambers. Arrhythmias originate either in the atria
or in the ventricles and can significantly interfere with the pumping of
oxygenated blood and can, therefore, be debilitating or life-threatening. During
an arrhythmia, the heart beats either too slowly or too rapidly. An abnormally
slow heart rate is known as a bradycardia. Bradycardia is typically treated by
implanting a pacemaker in the patient, which monitors the heart's rhythm and
delivers electrical impulses when necessary to increase the heart rate.
Arrhythmias characterized by an abnormally high heart rate are known as cardiac
tachyarrhythmias and can take several forms, including atrial fibrillation,
ventricular tachycardia, and supraventricular tachycardia.

[Diagram depicting the four chambers of the heart and typical location of
atrial fibrillation and ventricular tachycardia]

Atrial Fibrillation. Atrial fibrillation is a condition in which the
regular pumping function of the atria is replaced by disorganized quivering
caused by chaotic conduction of electrical signals throughout the upper chambers
of the heart. Atrial fibrillation is believed to affect up to 4% of the United
States population over the age of 60. Approximately 2,000,000 people in the
United States and Europe are currently afflicted with atrial fibrillation and
more than 150,000 new cases develop each year. Although not initially
life-threatening, atrial fibrillation can cause up to a 30% reduction in cardiac
output and a reduction in cerebral blood flow during the fibrillation episode
which can result in palpitations, shortness of breath, fatigue and
unconsciousness. Ventricular rates can also rise dangerously high when the
chaotic signals of the atria are conducted to the lower chambers of the heart.
Furthermore, because the heart's normal pumping function is interrupted during
atrial fibrillation, blood can pool in the atria, which can lead to the
formation of blood clots and ultimately strokes if these clots dislodge and
travel to the brain. The American Heart Association estimates that approximately
75,000, or 25%, of all strokes per year in the United States are related to
atrial fibrillation.

Ventricular Tachycardia. 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 which, in extreme cases, can result in sudden death. Most ventricular
tachycardias result from myocardial infarctions (heart attacks) caused by
coronary artery disease. Approximately 1,000,000 people in the United States and
Europe are currently afflicted with ventricular tachycardia and approximately
100,000 new cases develop each year.

Supraventricular Tachycardia. Supraventricular tachycardia affects
ventricular rate from an origin above the ventricles. The most common forms of
supraventricular tachycardia are Wolff-Parkinson-White ("WPW") syndrome and
atrioventricular nodal reentrant tachycardia ("AVNRT"). WPW syndrome involves a
congenital remnant of muscle tissue between the atria and the ventricles that
can rapidly conduct electrical signals

27
<PAGE> 29

between these chambers of the heart. These electrical signals result in an
abnormally rapid heart rhythm. AVNRT is characterized by a circuit of conductive
tissue between a part of the atrioventricular node ("AV node") and either the
atria or the ventricles. Normally, the AV node serves as a delay timer and
electrical signal conductor, allowing the atria to complete their contraction,
filling the ventricles with blood, and facilitating the organized spread of
electrical signals to the ventricles. The circuit of conductivity that is
characteristic of AVNRT disrupts the electrical signals from the AV node,
leading to an abnormally rapid heartbeat.

Current Diagnosis and Treatment

Patients suffering from arrhythmias may experience heart palpitations,
shortness of breath, dizziness or unconsciousness. Typically, these patients are
referred to a cardiologist who will attempt to diagnose the condition with
external monitoring such as an electrocardiogram ("EKG"). Only certain types of
arrhythmias, such as chronic atrial fibrillation, are readily detectable using
external monitoring. Many other arrhythmias occur only sporadically and are thus
difficult to detect using external monitoring. If EKG testing fails to indicate
the existence of an arrhythmia, the cardiologist must assess other factors, such
as the severity of the symptoms and the patient's medical history, to determine
the likelihood that a patient is suffering from an arrhythmia. If the
cardiologist believes that it is likely that a patient is suffering from an
arrhythmia, the cardiologist may refer the patient for EP mapping of the
electrical activity of the patient's heart in order to diagnose the arrhythmia
and to determine the appropriate treatment.

Most arrhythmias currently are treated with antiarrhythmic drugs or with
implantable automatic defibrillators ("IADs"). While antiarrhythmic drugs are
the most common form of treatment for arrhythmias, their effectiveness has been
questioned. In addition, toxic side effects, including pulmonary fibrosis,
corneal micro deposits and liver dysfunction, often prevent patients from
long-term use of these drugs. Moreover, use of these drugs requires attentive
and frequent patient follow-up, including monthly blood testing. IADs are
implanted into the patient to detect arrhythmias and deliver electrical impulses
to the heart to stop arrhythmias once they have started. However, IADs are
expensive (total cost, including hospitalization, averaging over $50,000) and
often result in unacceptable levels of patient discomfort and pain. Finally,
neither antiarrhythmic drugs nor IADs are curative.

In severe cases, open heart surgery is sometimes performed. During open
heart surgery, a surgeon creates scar tissue by making several carefully placed
incisions in the heart tissue. The scar tissue blocks the electrical defects of
arrhythmias by electrically isolating portions of the heart. Unlike
antiarrhythmic drugs and IADs, successful open heart surgery is curative. In
order to perform open heart surgery, however, the surgeon generally must make a
large incision in the patient's chest and cut through the patient's ribs in
order to gain access to the heart. This results in severe trauma to the patient
and is associated with high morbidity and mortality rates, significant patient
pain and discomfort and lengthy recovery times. Accordingly, open heart surgery
is performed only in extreme cases.

Recently, catheter based ablation therapy has been used to create scar
tissue in an attempt to duplicate the curative effect of open heart surgery
without the corresponding trauma and high mortality rates. Catheter based
ablation therapy has proven to be an effective treatment for various cardiac
arrhythmias and the Company believes it is developing into the preferred therapy
for the treatment of cardiac arrhythmias. Nevertheless, current catheter based
ablation therapies have several major shortcomings that limit their usefulness
in the treatment of arrhythmias. Current catheter based ablation therapy
techniques involve making a small incision in the groin area into which
catheters are inserted and guided through the femoral artery or vein and into
the heart's chambers. Because the physician cannot view the heart directly, an
EP mapping catheter is used to measure electrical activity at various points in
the heart. One or more x-rays are taken at each point where electrical readings
are taken in an attempt to determine the location of the catheter and thus the
point being measured. Each measurement is recorded by the physician and, after
taking numerous measurements, the physician can approximate a map of the
electrical activity of the heart, and thereby attempt to determine the location
of the arrhythmia and the appropriate targets for ablation.

Once the physician believes he has identified areas for treatment, he
attempts to maneuver the ablation catheter to the exact location for treatment.
Maneuvering the catheter to the region for treatment also requires

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the use of multiple x-rays. Once the physician believes that the ablation
catheter is in the correct area, the ablation catheter delivers energy to the
abnormal conduction tissue. When this 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 cardiac tissue in contact with the
catheter thereby forming a scar.

Although catheter based ablation treatments have met with some success and
theoretically provide a sound and safe method for treatment of tachyarrhythmias,
current catheter based ablation treatments have several shortcomings. First,
they rely upon numerous x-rays both to approximate a map of the electrical
pathways of the heart and to guide the ablation catheter to the location for
treatment. These x-rays repeatedly expose the patient and physician to ionizing
radiation. Moreover, the images that x-rays generate are not ideal. X-rays are
2-D and, although two x-rays can be set up to give the physician a rough
estimate of 3-D position, this interpolation is not easy, requiring the
physician to create a full 3-D picture from two 2-D slices. In addition,
determining the location of the catheter tip in relation to heart tissue is made
more difficult because heart tissue is transparent to x-ray radiation and the
heart is constantly moving as a result of its regular contractions and the
patient's normal respiration. This hinders the physician from maneuvering the
ablation catheter to the exact location discovered using the EP mapping
catheter, which, in turn, may result in the ablation of a larger area of the
heart than necessary.

Furthermore, catheter based ablation therapies for atrial fibrillation
require creating unbroken lines of scar tissue to block the conduction of
aberrant electrical signals. In order to create these unbroken lines, the
physician must keep the catheter tip in contact with the heart tissue for a
continuous period and be able to create scar tissue lines in an exact pattern,
which is very time consuming with current techniques. As a result, catheter
based ablation therapy for atrial fibrillation usually takes between six and 20
hours. The amount of time and resultant trauma of this procedure precludes its
use in many patients.

The CARTO Solution

The CARTO system is designed to permit physicians to significantly improve
the diagnosis and treatment of tachyarrhythmias, including atrial fibrillation,
ventricular tachycardia and supraventricular tachycardia. Using the CARTO
system, a physician first inserts a reference catheter that maintains a fixed
location in the heart throughout the procedure. The physician then inserts a
second catheter with a steerable, deflectable tip that is guided into the heart
chamber. Both of these catheters incorporate the Company's miniature disposable
location sensors. Once the steerable catheter is guided into the heart chamber,
the physician will place the tip of the catheter against various points along
the wall of the heart chamber. The location sensor within the catheter tip will
automatically indicate in real time its position on the CARTO mapping screen and
take measurements of electrical activity at that point. As measurements of
location and electrical activity are being taken, the CARTO system uses the
information acquired to construct a 3-D diagram of the heart chamber anatomy and
a color-coded map of the electrical activity of the heart. The physician is able
to manipulate the 3-D image to better visualize the heart's anatomy or examine
map details. Because the location of the steerable catheter is recorded
automatically without having to take x-ray images, the entire mapping procedure
can be completed more safely and usually in a fraction of the time required
using conventional mapping methods.

The CARTO system's color-coded, 3-D electro-anatomical map permits the
physician to identify the precise location of the arrhythmogenic tissue and
therefore the optimal location of targets for treatment using ablation therapy.
Because the CARTO system identifies the location of the catheter tip on a
continuous real time basis, the physician can easily navigate the catheter back
to the target for ablation, thereby permitting accurate treatment of the
arrhythmia.

The Company believes that the CARTO system has significant advantages over
current catheter based tachyarrhythmia mapping and treatment techniques. First,
the CARTO system does not require the use of fluoroscopic x-rays to navigate
catheters within the heart. Although other new technologies allow physicians to
map the electrical activity of the heart without the use of fluoroscopic x-rays,
these techniques do not combine mapping techniques with catheter location
technology; therefore, these technologies still require x-rays to navigate
catheters and other medical instruments within the chambers of the heart.
Second, the CARTO

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system generates a 3-D map of the heart and shows the position of the catheter
tip in relation to that image, taking into account movement due to heartbeats
and respiration. Using the CARTO system, the physician will no longer have to
approximate the location of a catheter tip against an invisible moving heart.
The precision with which the CARTO system can determine this relative position
and location will enable physicians to accurately target arrhythmogenic tissue,
avoid ablating healthy heart tissue and ablate more accurately and safely.
Third, with respect to treatment for atrial fibrillation, the CARTO system will
assist the physician in creating unbroken ablation lines because it will show
the ablation lines as they are created on the 3-D map that it generates.

Because the CARTO system is designed to make catheter based ablation
therapy safer, quicker and less costly than current techniques, the Company
believes that catheter based ablation therapy using the CARTO system will
replace alternative treatments for tachyarrhythmias. For example, atrial
fibrillation currently requires between six and 20 hours for catheter based
ablation therapy. The Company believes that with the CARTO system, catheter
based ablation therapies for atrial fibrillation can be done in only one to two
hours, allowing catheter based ablation therapies to be a viable treatment
option for atrial fibrillation for the first time.

Product Status

In December 1995, the Company received FDA 510(k) clearance to market the
CARTO system for mapping of cardiac arrhythmias, including atrial fibrillation,
ventricular tachycardia and supraventricular tachycardia. Biosense recorded its
first commercial sales of the CARTO system in the first quarter of 1996 and the
system has been used in more than 120 patients during the first half of 1996.
The CARTO system has been placed in leading academic, high volume EP
laboratories in the United States and Europe, including locations in Boston,
Chicago, Milwaukee, Indianapolis, London, Paris, Bordeaux, Hamburg, Munich and
Utrecht. Pre-clinical and clinical results have been presented at the American
Heart Association Scientific Session, the American College of Cardiology Annual
Scientific Session, the North American Society of Pacing and Electrophysiology
Annual Scientific Session and Cardiostim 96.

Cordis has developed a mapping catheter incorporating the Biosense sensor
for use with the CARTO system which received FDA 510(k) clearance in December
1995 and currently is being marketed in the United States and Europe. Cordis has
also developed an ablation catheter for use with the CARTO system, which
currently is being marketed in Europe. Cordis has received an Investigational
Device Exemption ("IDE") from the FDA to permit the use of the ablation catheter
in human clinical trials in the United States. The Company, together with
Cordis, expects to commence clinical trials to support the marketing of the
CARTO system for ablation of supraventricular tachycardia in the fourth quarter
of 1996. The Company expects that Cordis will file a PMA application supplement
with the FDA for ablation of supraventricular tachycardia in the first quarter
of 1997. In addition, the Company expects that clinical trials of ablation of
atrial fibrillation will commence in the fourth quarter of 1996, and that a PMA
application will be filed with the FDA for ablation of atrial fibrillation in
the fourth quarter of 1997. See "-- Government Regulation."

NOGA

The NOGA system is designed to provide an accurate, comprehensive diagnosis
of the effects of coronary artery disease in a single procedure. Diagnosis of
the effects of coronary artery disease currently requires a variety of tests,
typically conducted in separate facilities, to determine the location, extent
and functional significance of damage to the heart muscle. Current functional
diagnostic tests, including electrocardiography (which tests electrical
activity), echocardiography (which tests the movement of the heart muscle) and
nuclear perfusion studies (which measure blood flow to heart tissue) provide
information in separate components that cannot easily be evaluated in
combination. Moreover, these tests are not performed in the catheterization
laboratory, where treatment typically is performed. The NOGA system provides a
new method of testing the effects of coronary artery disease by simultaneously
testing both cardiac mechanics (the movement of the heart muscle) and electrical
activity at specific locations within the heart, a capability known as
"electro-mechanical coupling." The Company believes that this capability will
enable the NOGA system to provide the physician with all necessary diagnostic
information in a single procedure in the catheterization laboratory. With this

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information, the physician can determine the precise location of damaged tissue
and evaluate whether such tissue is dead, in which case treatment will not be
effective, or hibernating, in which case the patient is likely to benefit from
reperfusion treatment. This cardiac viability testing will permit physicians to
make better informed decisions as to whether the patient will benefit from
therapy.

Background

Atherosclerosis, the most common cause of coronary artery disease, is a
progressive and degenerative process in which cholesterol and other fatty
materials are deposited on the walls of arteries, forming a build-up of plaque
known as a lesion. The accumulation of plaque, in turn, narrows the interior
passage of the blood vessels and, in many cases, impairs the flow of blood
beyond the blockage.

Atherosclerosis in coronary arteries, the arteries that supply blood to the
heart, is a particularly serious condition. The heart, like every other muscle
in the human body, requires a steady flow of oxygenated blood to function
properly. In a normal heart, the coronary arteries supply enough oxygenated
blood to each section of the heart to sustain normal heart contractions. The
degenerative effects of atherosclerosis can reduce the circulation of blood to
the heart, causing coronary artery disease. In serious cases, coronary artery
disease reduces the efficiency of the heart and often results in chest pain,
known as angina, and, in more severe cases, can ultimately lead to heart attack
and death. Over 13,000,000 people suffer from coronary artery disease worldwide
(including over 6,000,000 people in the United States) and coronary artery
disease is one of the leading causes of death in the United States. Furthermore,
according to the American Heart Association, over 3,000,000 patients in the
United States suffer from angina and more than 350,000 new cases occur each
year.

Current Treatment Options

The primary treatment options for atherosclerosis are drug therapy,
coronary artery bypass grafting ("CABG") and percutaneous transluminal coronary
angioplasty ("PTCA" or "balloon angioplasty"). In addition, a variety of new
treatments have been developed to augment or replace balloon angioplasty,
including transmyocardial revascularization ("TMR"), atherectomy, laser
angioplasty and stent placement.

Drug therapy is effective for some mild to moderate cases of coronary
artery disease. Some therapeutic agents act directly to reduce the accumulation
of plaque or prevent additional plaque from forming, while others merely relieve
angina without eradicating the plaque itself. Drug therapies may alleviate some
of the symptoms of coronary artery disease, including angina, and may limit the
progression of this disease. However, drug therapies are not curative, require
chronic dosing and may cause adverse side effects.

CABG surgery involves the grafting of blood vessels taken from elsewhere in
the body to the blocked vessels so blood can bypass the blockage. Because CABG
requires open chest surgery and prolonged patient recovery, it is usually
reserved for those patients with the most severe cases of coronary heart
disease.

PTCA is a procedure in which a balloon tipped catheter is guided to the
lesion and then inflated and deflated several times to compress the plaque
against the vessel wall. The blockage is reduced by rupturing the plaque and
stretching it against the vessel wall. Coronary blockages can also be treated
with atherectomy, which uses a mechanical device at the tip of a catheter to cut
or grind away plaque, and laser angioplasty, which delivers laser energy to
break down or ablate plaque.

TMR involves the use of a laser to create between 15 and 30 channels in the
regions of the myocardium that lack sufficient oxygen flow. Proponents of TMR
believe this procedure may lead to angiogenesis, or the creation of new blood
vessels.

Stent placement involves the insertion of small metal frames, or "stents"
into the artery to the location of the lesion. Placement is performed with a
catheter and a guide wire, deployed (i.e., expanded) and permanently left in the
artery as an implant to maintain the open lumen and improve blood flow.

Each of these treatments is associated with inherent risks and, in some
cases, potentially dangerous side effects. In addition, with the exception of
drug therapy, these treatments require the physician to determine the specific
area that will require reperfusion, as well as the exact location of the
coronary artery lesion.

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Current Diagnostic Procedures

The proper treatment of coronary artery disease requires several different
diagnostic steps. First, the physician must identify and characterize lesions in
the heart's coronary arteries. Second, the physician must assess the global
functional significance of the coronary artery disease to determine the relative
risks and potential benefits of various treatment options. Third, with respect
to treatment options other than drug therapy, the physician must attempt to
determine the specific location of affected tissue within the heart in order to
decide which artery will receive treatment. Such a determination may require
further evaluation of whether the heart tissue is viable and therefore would
benefit from therapy.

Lesion Assessment. Coronary angiography is the standard lesion assessment
method used in the diagnosis of coronary artery disease and was performed in
over 1,500,000 patients in the United States in 1994. Coronary angiography
involves the injection of a radiopaque dye (which is visible under fluoroscopy)
into a coronary artery so that the relative degree of narrowing of the arteries
causing obstruction of blood flow may be observed on an x-ray monitor. Based on
visual observation of the distribution of the dye throughout the arteries, the
cardiologist is able to locate lesions and estimate the extent to which the
obstructed artery is narrowed. Angiography is a vital tool in the diagnosis of
coronary artery disease. However, it provides no information about the actual
extent to which a lesion interrupts the supply of oxygen to the heart. It is the
disruption of oxygen supply to the heart, not the presence of a lesion itself,
that leads to angina, heart attacks and potentially death.

Global Functional Testing. There are several methods of testing to assess
a patient's overall risk profile. Hemodynamic testing provides information
regarding the circulation of blood through the heart. The most common method of
hemodynamic testing is ventriculography, which involves injecting radiopaque dye
into the left ventricle to measure chamber volumes and wall movements, together
with intracavitary pressure measurements. The results can be combined to provide
an overall evaluation of the heart's performance as a pump. Information obtained
from nuclear scanning, as well as echocardiography testing, also can be used by
the physician to gauge generally the effects of coronary artery disease on the
functioning of the heart and assist the physician in making a general assessment
of the relative potential benefits and risks of treating a particular patient.

Regional Functional Testing. Localization of the particular areas of the
heart affected by coronary artery disease is critical to the determination of
which artery should receive treatment in a particular case. When a patient
suffers from multiple arterial lesions, it is important that the most severe are
treated first. During the treatment of coronary artery disease, blood flow
through the artery being treated often is temporarily interrupted. If an artery
with a less severe lesion is treated before an artery with a more severe lesion,
the added stress put on the more severe lesion increases the likelihood of
complications developing during treatment and recovery.

Physicians presently attempt to localize areas of the heart most severely
affected by coronary artery disease by performing functional tests, such as
electrocardiography, echocardiography and thallium imaging.

Electrocardiography. The most common functional test is
electrocardiography, in which the electrical impulses of the heart are
recorded, usually while the patient exercises on a stationary bike or
treadmill. The electrical activity is recorded on an electrocardiogram, or
EKG. The EKG identifies the existence of any electrical disturbances, which
are indirect evidence of impairment of blood flow to the heart. EKGs are
often unreliable, returning a large percentage of false negative test
results in patients who have lesions in only one artery. Additionally,
although EKGs can detect abnormalities in the heart as a whole, they cannot
localize the abnormality and therefore their usefulness in locating target
lesions is diminished.

Echocardiography. Echocardiography uses ultrasound to create a visual
representation of the heart. Because muscle motion is affected by
insufficient blood flow, areas with poor motion or contractility provide
indirect evidence of blood flow impairment. While the results are more
reliable than with EKGs, echocardiography results usually do not provide
the resolution necessary to determine which coronary artery contains the
most significant lesion.

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Thallium Imaging. Thallium imaging involves the use of a radioactive
substance, usually radionuclide thallium, which is injected into the
patient's blood stream. The heart is then scanned radiographically to
determine which areas of the heart the radionuclide reaches. If a
particular region of the heart shows little or no uptake of the
radionuclide, there is probably a flow limiting lesion in the artery that
supplies that region with blood.

Viability Testing. Viability testing is presently performed in certain
cases as part of the overall diagnosis of coronary artery disease. Viability
testing attempts to distinguish dead heart tissue, which cannot be revived, from
mechanically non-functional, or hibernating, heart tissue which may be revived
by increased oxygen supply. The Company believes that performing reperfusion
therapy in areas in which the heart tissue is not viable is at best an
unnecessary and expensive procedure, and may actually be detrimental to the
patient, because it siphons oxygenated blood from other areas of the heart.
Viability may be tested in connection with the thallium imaging test by taking a
subsequent measurement 24 hours after the time of the original measurement. The
presence of a new uptake of thallium to a region that previously had little or
no uptake can indicate that such region is viable. Another method of testing
viability is positron emission tomography ("PET"), which is similar to the
thallium imaging test, but provides more comprehensive diagnostic data. At
present, PET testing is performed only at a limited number of facilities.
Because viability testing currently is not performed at the catheterization
laboratory, treatment often is performed without the benefit of viability
testing.

Limitations of Current Diagnostic Methods. Although current diagnostic
methods are able, through a combination of separate anatomical and functional
tests typically conducted in separate facilities, to identify arterial lesions,
assess global effects of the disease and measure heart function deficiencies,
they are not able to link the functional deficiencies to specific lesions.
Instead, the physician must draw conclusions based on the test results as to
whether the arterial lesions were the proximate cause of the functional
abnormalities and whether, therefore, treatment is likely to be effective. In
addition, because conventional viability testing (testing to determine whether
affected heart tissue may be restored by the proposed therapy) requires further
testing in a separate setting, treatment in the catheterization laboratory is
often performed without the benefit of such tests, which may result in
ineffective and possibly detrimental treatments.

The NOGA Solution

The Company believes that the NOGA system is able to overcome each of the
limitations of current diagnostic procedures. The NOGA system is able to
simultaneously test electrical activity and movement in a particular area of the
heart. This electro-mechanical coupling provides the physician with
comprehensive information regarding the effects of coronary artery disease upon
specific regions of the heart, removing the need for assumptions and guesswork
about which lesion or lesions are causing functional abnormalities. The NOGA
system performs all of its diagnostic tests in one minimally invasive procedure
that occurs in the catheterization laboratory, thereby enabling diagnosis and
treatment by the same physician. Finally, the information provided by the NOGA
system can be used to assess myocardial viability, which will allow the
physician to make better informed decisions regarding treatment.

The NOGA system incorporates a miniature location sensor and electrode into
the tip of a catheter. This catheter is maneuvered inside the heart and the tip
of the catheter is placed on 20 to 40 different points ("test points") on the
inside wall of the left ventricle. Using the data returned by location sensor,
the NOGA system measures the position and distance of each test point in
relation to each other test point, while simultaneously measuring electrical
activity at each point. Once this data is computed for each stage of the
heartbeat, the data can be used to detect areas of the heart which are
non-functional.

In a normally functioning heart, the heart muscle surrounding a heart
chamber contracts uniformly during the beating of the heart. The contraction of
the heart shrinks the volume of the inside chamber causing all of the test
points within that chamber to move closer together when the heart contracts and
further apart when the heart subsequently relaxes. By contrast, if a region of
the heart muscle is not contracting properly, the distance between two test
points in the non-contracting region will not diminish when the heart contracts,

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and may actually increase. Conversely, when the heart relaxes after a
contraction, the distance between these two test points may shrink.

The cause of this phenomenon can best be illustrated by comparing the heart
to a balloon. If uniform pressure were placed on the balloon at all external
points, as would occur in a normal heart, the balloon would shrink uniformly and
all test points within the inner wall of the balloon would grow closer together.
On the other hand, if there is an area of the balloon where there is no pressure
to contract, that area will bulge out, increasing the distance between test
points of that area.

While NOGA is registering the location of each test point, it
simultaneously tests for electrical activity at each point. Although other test
methods, such as the EKG, also test for electrical activity, only NOGA can
perform such tests with respect to specific points on the heart wall while
simultaneously testing mechanical functioning. This capacity for
electro-mechanical coupling eliminates the need for integration by the physician
of the information provided by the two principal tests of mechanical
functioning, the EKG and the echocardiogram, providing the required information
in a significantly simpler format. Electro-mechanical coupling also enables the
physician to assess the viability of a particular heart region. The Company
believes that electrical activity is one indicator of viability; heart muscle
tissue that conducts electrical activity is viable, while tissue that does not
conduct electrical activity is not. By simultaneously testing for movement and
electrical activity at a particular location, the NOGA system can identify heart
muscle affected by coronary artery disease and distinguish dead from viable
tissue. The physician may then choose to treat only those non-functioning areas
that are viable.

Product Status. The Company intends to launch the first version of the
NOGA system, which will be directed to cardiac hemodynamic and mechanical
testing in the first quarter of 1997. Subsequently, the Company intends to
launch a software module which will enable the NOGA system to perform myocardial
viability testing. In April 1996, the Company received FDA 510(k) clearance to
market the NOGA system for testing of cardiac mechanics and hemodynamics. The
Company has commenced clinical trials for testing cardiac mechanics and
hemodynamics using the NOGA system in support of the Company's marketing
efforts. The Company expects to commence clinical studies of cardiac viability
testing using the NOGA system in the first quarter of 1997 and to submit a
510(k) pre-market notification to the FDA in the second quarter of 1997 to
permit marketing of the NOGA system for testing of cardiac viability. See
"-- Government Regulation."

MAGELLAN

In recent years, substantial efforts have been made to reduce the
invasiveness of surgery and other invasive medical procedures in order to reduce
the trauma and increase the safety of such procedures to patients. Minimally
invasive techniques typically involve the use of imaging technology in order to
guide the physician during the performance of the procedure so that it can be
performed using smaller incisions than would otherwise be required using normal
"open" surgical procedures. The effectiveness of many minimally invasive
procedures has been limited, however, by the imaging modalities available and a
physician's ability to utilize these images while performing the procedure. As a
result, healthy tissue can be damaged during the navigation of medical
instruments within the patient's anatomy or during the actual procedure of
removing diseased tissue because physicians can only estimate the location of
the target from a static image. The Company's MAGELLAN system is designed to
enable physicians to determine in real time the precise location of medical
instruments relative to the patient's internal anatomy, permitting the physician
to maneuver around critical anatomical structures and to guide the medical
instrument to the exact location for diagnosis and treatment. As a result, the
Company believes that its MAGELLAN technology will make many procedures
involving the insertion of medical instruments into a body cavity or incision
safer, more accurate, less invasive and less expensive. The Company's initial
applications for the MAGELLAN system include (i) image-guided neurosurgery and
sinus surgery and (ii) image-guided biopsy.

The MAGELLAN system combines miniature location sensors that can be
incorporated into medical instruments with 3-D mapping technology to create a
real time, intrabody navigational tool. In a typical MAGELLAN application, the
physician attaches small temporary reference stickers to the patient's anatomy

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prior to acquiring images through a selected modality, such as CT, MRI or
ultrasound. During image acquisition, these reference stickers create a
coordinate system within the actual image. Before initiating the procedure, the
physician touches the medical instrument to each of the reference stickers on
the patient's anatomy which allows the MAGELLAN system to align the real time
coordinate system of the sensor in space to the coordinate system of the
previously acquired images. In aligning these two coordinate systems, the
MAGELLAN system calculates a coordinate system translation matrix which allows
the position of the medical instrument to be superimposed onto the previously
acquired image and displayed in real time on a workstation during the
performance of the procedure. This enables physicians to perform intricate
medical procedures guided by a real time image of the medical device
superimposed onto a 3-D map of the patient's internal anatomy.

MAGELLAN Image-Guided Surgery

Until recently, minimally invasive surgical efforts typically involved
affixing a metal "stereotactic" frame to the patient's anatomy prior to imaging
and using the frame to calculate the location of the target anatomy in relation
to reference points on the frame. This technique requires the patient to wear
the frame at all times between the acquisition of x-ray, CT, MRI or other images
and the performance of the procedure. In addition, although this technique
permits the physician to plot vectors from points on the frame to the target
anatomy, it requires the physician to perform the procedure with the frame
firmly in place, which can obstruct the physician's movement and requires that
the physician penetrate the body using rigid instruments that do not permit the
physician to steer around sensitive anatomical structures.

Recently, more advanced minimally invasive surgical techniques have been
developed that permit the location of medical instruments to be tracked during
the performance of medical procedures onto previously acquired images. These
technologies do not directly determine the location of the tip of the medical
instrument inside the patient's body; rather, they generally involve calculating
the location of the tip of the instrument using the location and orientation of
the back end of the medical instrument and the length of the medical instrument.
The calculation to determine location of the tip of the medical instrument,
however, can only be accomplished if the physician uses a rigid, non-steerable
instrument. Therefore, a physician using these location techniques would be
unable to use flexible, steerable instruments to steer around sensitive
anatomical structures.

The Company believes that MAGELLAN image-guided surgery will eliminate
these shortcomings, thereby increasing the safety and accuracy of image-guided
surgical procedures. Using the MAGELLAN system, the physician will be able to
pinpoint the precise location of the medical instrument within the patient's
anatomy and guide the instrument around critical overlying structures to the
desired treatment point. In addition, unlike other image-guided surgical
techniques, the MAGELLAN system will not interfere with the physician's movement
during the performance of the procedure. The Company believes that the MAGELLAN
system can aid in the performance of a wide variety of image-guided intrabody
medical procedures, such as neuro, sinus, orthopedic, urological,
gastrointestinal and pulmonary surgery.

Neurosurgery. The Company's most advanced application for the MAGELLAN
system is in the field of neurosurgery. Neurosurgery involves the diagnosis and
treatment of lesions within the brain, such as primary tumors, metastases and
aneurysms, and the diagnosis and treatment of spinal defects and injuries. Over
2.5 million neurosurgical interventions were performed in 1995.

Two-thirds of the brain's 10 billion nerve cells are found in the cerebral
cortex, which surrounds underlying structures like a casing. A large number of
functions vital to normal functioning require an intact cortex. Often, to
alleviate disorders of the brain, it is necessary to penetrate the cortex and
deep-rooted sections of the brain. Because damaged brain cells will not heal, it
is important that surgery cause as little damage as possible. For that reason,
it is important that the surgeon is able to pinpoint a target area within the
brain with a high degree of accuracy and navigate to the target area in the most
effective way possible.

Neurosurgeons have traditionally relied upon highly invasive procedures to
access the brain, such as craniotomies. A craniotomy involves the surgical
opening of the skull to provide access to the brain's tissues and vasculature.
For certain procedures, neurosurgeons have been able to reduce the size of
craniotomies

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through the use of stereotactic headframes, which are attached to the patient's
head prior to CT or MRI imaging and allow the surgeon to more precisely locate
the lesion relative to a coordinate system on the headframe. As a result, a
surgical instrument can be inserted into a small craniotomy in the skull in
order to arrive at the targeted location. Although stereotactic headframes
permit the neurosurgeon to identify the precise vector on which the lesion is
located, there is no interactive visualization of structures between the entry
point of the skull and the targeted lesion. As a result, surgeons using
stereotactic headframes must rely on less accurate measuring techniques to
determine the depth to which the instrument should be inserted. This technique
also requires the physician to use rigid medical instruments, forcing the
physician to use a direct pathway from the opening in the skull to the targeted
location, potentially damaging overlying anatomical structures. Furthermore,
current stereotactic techniques sometimes require multiple insertions which can
damage overlying structures along multiple pathways.

The MAGELLAN system provides the neurosurgeon with the precise location of
the surgical instrument within the patient's brain without the use of a
stereotactic headframe. Unlike stereotactic headframes, which require the use of
specially designed rigid surgical instruments, the MAGELLAN system will permit
the use of ordinary rigid or deflectable surgical instruments into which the
Company's location sensors can be incorporated. This will enable the
neurosurgeon to steer around sensitive vasculature of the brain and around the
boundary of the tumor to achieve a better understanding of the margin between
the tumor and normal brain cells, which will assist in performing a more
accurate and complete resection. In addition, the Company believes that the
flexibility supported by the MAGELLAN system will allow for tumor resection
using a smaller craniotomy than currently possible, resulting in less trauma to
the patient.

The Company believes that the MAGELLAN system will also permit
neurosurgeons to perform spinal fusions and discectomies using minimally
invasive techniques. Approximately 170,000 spinal fusions and 300,000
discectomies are performed in the United States each year using invasive open
surgery. The Company believes that surgeons will be able to use the MAGELLAN
system to accurately position pedicle screws during spinal stabilization
procedures thereby enhancing the ease and safety of surgical procedures of the
spinal cord. In addition, the Company believes that MAGELLAN technology will
offer significant benefits to neurosurgeons performing many other procedures,
including ventricular shunt placements (the insertion of a drainage tube to
drain cerebrospinal fluid accumulating in the ventricles of the brain), of which
approximately 60,000 are performed each year in the United States, ablative
treatments (including resection of epileptic foci in the brain), of which
approximately 50,000 are performed each year in the United States, and
pallidotomy (RF ablation therapy for the relief of the abnormal movement
symptoms of Parkinson's disease, which affects approximately 1% of individuals
over the age of 50). In addition, the Company believes that the increased
precision and safety with which these procedures can be performed using Biosense
technology will expand the markets for these procedures.

Sinus Surgery. Endonasal surgery has become a standard procedure for
treatment of infectious diseases of the paranasal sinuses and is increasingly
used to treat benign lesions of the nose and for paranasal sinus, orbital and
optic nerve decompression surgery. Approximately 31 million people in the United
States currently suffer from these sinus abnormalities and could benefit from
endonasal surgical procedures. However, due to the proximity of the sinuses to
the optic nerve and the floor of the brain and the difficulty of safely
navigating a rigid medical instrument to a precise location in a minimally
invasive manner, these procedures carry a risk of significant post-operative
complications, including blindness and bleeding in the brain. Because of these
risks, only 170,000 surgical sinus procedures are performed each year in the
United States. The Company believes that MAGELLAN technology will enable the
surgeon to navigate surgical instruments with more precision, greatly reducing
the risks of endonasal surgery.

Other Applications. Biosense believes that its MAGELLAN technology can
replace traditional fluoroscopic x-ray guidance in many orthopedic procedures,
thus reducing the patient's and medical staff's exposure to ionizing radiation.
By temporarily attaching the Company's miniature location sensors onto the
patient's bones, the Company believes that the MAGELLAN system will permit the
real time articulation of the 3-D computer images of the bones. As a result, the
Company believes that the MAGELLAN system will assist the surgeon in accurately
reorienting and positioning the bones and planning anchor hole angles and depths
for tendon grafts and fixation hardware. The Company also believes that its
technology will have extensive

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applications in other areas of image-guided and minimally invasive surgery,
including urological, gastrointestinal and pulmonary procedures.

Product Status. The Company submitted a 510(k) pre-market notification to
the FDA for image-guided neurosurgery using the MAGELLAN system during the
second quarter of 1996 and is currently conducting clinical trials to support
the marketing of the MAGELLAN system. The Company expects to file a 510(k) pre-
market notification to the FDA for image-guided sinus surgery using the MAGELLAN
system during the first quarter of 1997 and to commence clinical studies to
support the marketing of image-guided sinus surgery using the MAGELLAN system
during the second quarter of 1997. See "-- Government Regulation."

MAGELLAN Image-Guided Biopsy

Biopsies involve the removal of a small quantity of tissue (usually from a
tumor) for microscopic examination to determine an exact diagnosis. Biopsies
usually take place as a method of diagnosis after an initial examination or
screening process has revealed a tumor within the patient's anatomy. Over
2,000,000 biopsies are performed worldwide each year. While the most common
biopsies are for the diagnosis of breast cancer, biopsies are also used in
connection with the diagnosis of many other diseases, including lung cancer,
pancreatic cancer, leukemia, lymphoma, skin cancer, oral cancer and brain
tumors. Approximately 600,000 breast biopsies were performed in the United
States in 1992, an increase of approximately 80% over the previous four years.
Notwithstanding this dramatic increase, barely more than one-third of the women
for whom annual or semi-annual screening is recommended actually received
mammograms in 1992. As a result, the number of mammograms and resulting breast
biopsies are expected to continue to increase.

Traditionally, biopsies have been performed in open surgery under general
anesthetic. Surgical biopsies can be painful procedures and can leave visible
scarring and tissue damage as a physician removes tissue for further examination
from the patient's anatomy. More recently, stereotactic needle biopsy systems
have been introduced as an alternative to surgical biopsy. These procedures can
sometimes be performed on an outpatient basis under local anesthetic depending
upon the location of the tumor. These procedures generally remove a much smaller
tissue sample than surgical biopsies, thus resulting in less scarring and tissue
damage. The basic principle of a stereotactic needle biopsy system is that a
hollow needle is inserted into the target to sample the cells. The needle is
guided to the lesion by use of stereotactic images of the patient's anatomy.
Stereotactic images are two images of the same target taken from different
angles. The images are then used to plot the coordinates of the target in order
to aim the needle at the appropriate site. The stereotactic needle system
suffers from some significant disadvantages, however. Because stereotactic
needles remove a much smaller tissue sample than surgical biopsies, the needle
must be placed precisely in order to obtain an accurate sample. Targeting the
desired tissue can be difficult, however, due to inadequate mapping techniques.
Because of these disadvantages, the adoption of needle biopsy systems by
physicians has been limited to certain lesion types and sizes.

The Company believes that its MAGELLAN technology can significantly
increase the accuracy of needle biopsy procedures. The MAGELLAN system can be
combined with ultrasound imaging technology to dramatically improve the accuracy
of needle biopsy procedures by creating a real time, 3-D guidance system which
will enable the physician to more accurately position the biopsy needle within
the targeted tissue. Traditionally, ultrasound imaging has not been able to
accurately record the location of a biopsy needle inserted into the body. This
has made it difficult for the physician to know when the needle is correctly
positioned in the targeted tissue and has resulted in a significant number of
false negative biopsy results. By using the Company's sensor in the biopsy
needle and MAGELLAN's 3-D navigation system, the physician will be able to guide
the needle in real time on an ultrasound display to the targeted tissue and
perform the minimally invasive biopsy with increased accuracy. The Company
believes that the MAGELLAN system will significantly expand the applications of
needle biopsy systems for a wide range of lesions. Physicians will more readily
adopt needle biopsy systems for various applications because MAGELLAN enables
them to more accurately guide the needle to the targeted tissue and perform the
biopsy.

Product Status. The Company is in discussions with manufacturers of
ultrasound imaging devices in an effort to develop products that can be used
with the MAGELLAN system for image-guided biopsy procedures.

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The Company expects to file a 510(k) pre-market notification with the FDA to
permit marketing of the MAGELLAN system for image-guided biopsy procedures
during the first quarter of 1997 and to commence clinical studies to support the
Company's marketing efforts during the third quarter of 1997. See "-- Government
Regulation."

BIOSENSE TECHNOLOGY

Biosense technology involves the use of non-hazardous low-level
electromagnetic energy to determine the precise position and orientation of its
location sensors in the patient's body. The proprietary miniature Biosense
sensors can be incorporated into a variety of medical instruments used in
minimally invasive surgical procedures.

When using the CARTO, NOGA and MAGELLAN systems, an electromagnetic field
is generated by a location pad that is placed in proximity to the patient's
body. For the CARTO and NOGA systems, the location pad is placed under the
patient's bed; for the MAGELLAN system, the location pad may be placed in
another unobtrusive location, such as around the patient's shoulders. The
low-level field emitted by the location pad is detected by the location sensors
incorporated into the medical instrument. Each of the CARTO, NOGA and MAGELLAN
systems includes a PC-sized processing unit that contains the hardware circuitry
and software needed to control the location pad, to detect the signal sensed by
the location sensor and to translate such signal into the 3-D location and
orientation of the sensor in real time. The processing unit also contains other
circuitry needed to collect and process any patient functional data associated
with the procedure.

In the case of the CARTO and NOGA systems, where the catheter tip position
in the heart moves with patient respiration, a second reference catheter is used
to determine the position of the cardiac mapping catheter in relation to the
reference catheter. This allows the CARTO and NOGA systems to control for such
heart movement. In addition, the CARTO and NOGA systems are able to measure and
capture sensor position information at certain points in the cardiac cycle.

In the case of the CARTO system, the position information acquired from the
catheter tip while it is placed in contact with the endocardium (the inner heart
wall) is reported simultaneously with the intracardial electrogram collected
from the catheter's electrode tip. The position and electrical information is
reported in real time to the CARTO processing unit which contains the hardware
and software needed to process these signals and communicate data in real time
to the system workstation where the processed data is used to reconstruct the
3-D geometry of the heart chamber being mapped. The electrical information
corresponding to each position data point acquired is color coded and
superimposed on the map producing a manipulable, easy-to-read image of the heart
chamber. In the case of the NOGA system, other functional data, such as local
blood pressure and temperature, may be also be acquired simultaneously with the
position data from the tip of the mapping catheter. This data can also be color
coded and superimposed on the 3-D geometry of the heart chamber.

In the case of the MAGELLAN system, the position data is used to navigate,
tracking the position of the medical instrument on previously acquired images
(such as CT or MRI) or real-time images collected during the procedure (such as
ultrasound). The real-time coordinate system of the position sensor in space is
aligned to the coordinate system of the previously acquired images by using
small temporary reference stickers attached to the patient's anatomy prior to
acquiring images. When the procedure is to begin, the physician touches the
medical instrument to the reference stickers on the patient's anatomy and the
MAGELLAN system software then calculates the appropriate coordinate system
translation matrix. Following this registration procedure, the real-time
position of the medical instrument can be shown superimposed on the previously
acquired images displayed on the workstation.

RESEARCH AND DEVELOPMENT

The Company's research and development staff consists of 28 full-time
engineers and technicians who have substantial experience in the development of
medical devices. The Company focuses its research and development efforts in
three general areas: (i) developing new technology and improving the Company's

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existing technology; (ii) developing and improving products and applications
that incorporate the Company's technology; and (iii) providing engineering
support for the Company and its customers. The Company currently is directing
research and development efforts towards, among other things: developing
catheters and other medical instruments that incorporate the Company's miniature
location sensors; further reducing the size and the cost of the Company's
location sensors; developing products to be used with endoscopes to show the
location of an endoscope within the body, as well as the track that it has
traversed; developing location sensors that can be clipped onto medical
instruments in lieu of being incorporated into the medical instruments;
developing wireless location sensors in order to increase flexibility in
performing image-guided medical procedures; and developing implantible location
sensors for use in long-term monitoring of location and localized information
for implantible devices, such as pacemakers and IADs.

SALES, MARKETING AND DISTRIBUTION

Biosense has adopted a sales, marketing and distribution strategy that
focuses upon (i) market acceptance of the Company's products as the next
generation of minimally invasive medical tools and (ii) partnering with well
known strategic partners with extensive marketing and distribution expertise.

Market Acceptance

Biosense's goal is to generate broad based market acceptance of its
products, ultimately making the Company's technology the standard for use in
virtually all invasive medical procedures. In order to make the Company's
technology widely known, the Company has selected leading physicians in their
fields to demonstrate and test the Company's technology. The Company believes
that it is the desire of leading physicians to maintain their preeminence in
their fields by testing and using new technological developments. Based on this
strategy, the Company's CARTO system is now in use in many of the leading
academic, high volume EP laboratories in the United States and Europe, including
locations in Boston, Chicago, Milwaukee, Indianapolis, London, Paris, Bordeaux,
Hamburg, Munich and Utrecht. The Company maintains close contact with these
physicians in order to solicit feedback regarding the ease of use and
reliability of the Company's products, which the Company intends to incorporate
into product enhancements. The Company also has clinical development plans for
its NOGA and MAGELLAN products in major United States and European EP
laboratories. The Company further attempts to enhance the acceptance of its
products through Company-sponsored educational and training programs, at which
the Company is able to demonstrate the capabilities of its systems. The Company
also maintains a marketing and after-market support staff to provide prospective
purchasers and users of the Company's systems access to Biosense technical and
training personnel.

Strategic Partnerships

The Company believes that it can benefit from strategic partnerships with
well known companies in the medical devices industry who have extensive
marketing and distribution experience and expertise and whose products are
complementary with those of the Company. The Company's strategy is to license
medical instrument manufacturers to incorporate the Company's location sensors
into their instruments. In an effort to increase distribution of the CARTO, NOGA
and MAGELLAN systems, the Company will license such instrument manufacturers to
sell the systems, as well. The Company's strategy is to make the CARTO, NOGA and
MAGELLAN systems as affordable as possible in order to generate sales of the
disposable location sensors. However, there can be no assurance that the Company
will be able to enter into agreements with strategic partners or that such
strategic partners will devote adequate resources to selling the Company's
products or that any of such partners' efforts will be successful.

In July 1995, the Company entered into a Product Development and Supply
Agreement with Cordis, a leading developer, manufacturer and distributor of
catheters and other medical devices which recently was acquired by Johnson &
Johnson. The agreement grants to Cordis an exclusive license to distribute the
Company's CARTO system and the MAGELLAN system for certain neurological
applications which terminates with respect to each product two years from the
date on which Cordis consummates its first commercial sale of such product to an
end user or at the option of Cordis. Thereafter, Cordis will maintain a
non-exclusive license to distribute these products.

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MANUFACTURING

The Company assembles, inspects, tests and packages its CARTO, NOGA and
MAGELLAN systems at its facility in Tirat HaCarmel, Israel from components and
subassemblies sourced from third parties. The Company believes that it has
adequate manufacturing capacity at its Tirat HaCarmel facility to meet expected
production requirements for the foreseeable future. The Company believes,
however, that it could subcontract such assembly work to third parties, if
necessary. To date, the Company has only limited manufacturing experience, and
there can be no assurance that the Company will be able to manufacture in the
volumes necessary for the Company to achieve significant commercial sales.

The Company believes that most of the components used in the manufacture of
the CARTO, NOGA and MAGELLAN systems are readily available from a variety of
sources. Certain components of the Company's products, however, including
certain components of the Company's location sensors, are purchased from single
suppliers. In the event that the Company were to lose any such source of supply,
the Company believes that the location and start-up of a replacement supplier
could, in some cases, take from three to six months. In addition, some
components purchased by the Company are in short supply and require a three- to
six-month order lead time in ordering. In an effort to offset the effect of the
loss of any supplier or any delay in obtaining components, the Company attempts
to keep in inventory a several-month supply of long-lead-time and single sourced
components. There can be no assurance, however, that the loss of one or more of
the Company's suppliers, or any delay in the ability of the Company to obtain
required components, would not have a material adverse effect on the Company's
financial condition or results of operations.

The Company's quality systems have been certified as being in compliance
with ISO 9003 standards.

PATENTS AND PROPRIETARY RIGHTS

The Company believes that its success is dependent to a large extent on
patent protection and the proprietary nature of its technology. The Company
aggressively pursues patent protection for its developments, with the dual
objectives of obtaining patent protection for technologies which the Company
believes are relevant to the Company's products as well as of providing a
distinction between the Company's technology and any competitive technology.

The Company's ability to compete effectively will depend, in part, upon its
ability to develop and maintain proprietary aspects of its technology. The
Company owns four United States patents relating to certain aspects of the
Company's CARTO system. The Company also has 24 pending United States patent
applications, as well as five Patent Cooperation Treaty ("PCT") patent
applications and 11 foreign patent applications, which cover various aspects of
the CARTO, NOGA and MAGELLAN systems as well as other developments. With respect
to three of the Company's PCT patent applications, the corresponding national
stage applications are not yet due to be filed. Certain of the Company's foreign
patent applications have been filed in Japan, Australia, Israel, Canada, China
and the European Patent Office.

There can be no assurance that any issued patents or any patents which may
be issued as a result of the Company's United States, PCT and foreign patent
applications will provide any competitive advantages for the Company's products
or that they will not be successfully challenged, invalidated or circumvented in
the future. In addition, there can be no assurance that competitors, many of
which have substantial resources and have made 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 and sell its
products either in the United States or in international markets.

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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 or require the Company to seek
license from third parties or prevent the Company from selling its products in
certain markets, or at all. Costs associated with settlements, licensing and
similar arrangements, may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance that the necessary licenses 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 financial
condition and results of operations. The Company is not currently a party to any
patent or other litigation regarding proprietary rights and is not aware of any
challenge to its patents or proprietary rights.

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

The Company generally requires its key employees and consultants to execute
confidentiality agreements upon the commencement of any employment or consulting
relationship with the Company. These agreements generally provide that all
confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company, is
to be kept confidential and not disclosed to third parties, except in specific
circumstances. In the case of key employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to the Company and related to the Company's business shall
be the exclusive property of the Company. There can be no assurance, however,
that these agreements will provide meaningful protection or adequate remedies
for the Company in the event of unauthorized use, transfer or disclosure of such
information or inventions.

The Company has applied to register seven trademarks, four of which are the
subject of allowed applications for registration in the USPTO. The trademarks
CARTO, NOGA and MAGELLAN are the subject of pending applications for
registration in the USPTO and of community trademark registrations in Europe.

COMPETITION

The Company believes that the principal competitive factors in the markets
in which the Company competes are safety, efficacy, ease of use, reliability and
cost effectiveness. The Company believes that its products will enhance the
safety and efficacy of a wide variety of medical procedures on a cost effective
basis. The Company has also designed its products to be reliable and easy to
use. However, as with any new technology, the Company's success will depend on
physicians' willingness to learn how to use the Company's products and
physicians' acceptance of the Company's products in a clinical setting.

The medical device industry is characterized by rapidly evolving technology
and intense competition. A number of companies, including Johnson & Johnson,
Boston Scientific Corporation, Guidant Corporation, Medtronic, Inc., St. Jude
Medical, Inc. and Elekta Instruments AB, are currently manufacturing and
marketing products that may compete with those of the Company and that are
widely accepted and have a long history of safe and effective use. Many of the
Company's competitors have substantially greater resources, name recognition and
expertise in research and development, manufacturing and marketing medical
devices.

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Competition in markets in which the Company competes, including diagnosis
and treatment of cardiovascular disease and technologies for minimally invasive
procedures, is expected to be intense. Technologies and procedures currently
exist for the diagnosis and treatment of most of the medical conditions for
which the Company's products have been developed. In addition, many of the
Company's competitors have announced that they are developing and introducing
products that may compete with those of the Company. There can be no assurance
that medical procedures using the Company's products will replace any current
procedures or that the Company's competitors will not succeed in developing
alternative procedures and technologies that are more effective than the
Company's products or that render the Company's products or technologies not
competitive or obsolete.

GOVERNMENT REGULATION

The Company's products are regulated as medical devices. The development,
manufacture, distribution, labeling and promotion of medical devices are subject
to extensive and rigorous regulation in the United States and in other
countries. Failure to obtain or delays in obtaining required regulatory
clearances or approvals, or enforcement action based on failure to comply with
regulatory requirements, could have a material adverse effect on the Company's
financial condition and results of operations.

United States

In the United States, the Federal Food, Drug, and Cosmetic Act ("FDCA")
provides that, unless exempted by regulation, medical devices may not be
marketed until they have been cleared or approved by the FDA, a process that is
time-consuming, expensive and uncertain. Medical devices must be the subject of
either a pre-market notification clearance ("a 510(k)") or an approved
pre-market approval application ("PMA"). Devices eligible for the 510(k) process
may be marketed after FDA issues an order finding the product to be
substantially equivalent to a device legally marketed in the United States prior
to May 28, 1976 or to a device that has been found substantially equivalent
through the 510(k) process. A device is substantially equivalent if it has the
same intended use and technological characteristics as the device to which it is
being compared or, if its technological characteristics are different, it is as
safe and effective as, and does not raise different questions of safety and
efficacy than, the device to which it is being compared. The 510(k) submission
must be supported by adequate data to demonstrate substantial equivalence,
including, in some cases, clinical data. 510(k) submissions generally require a
substantial period for FDA review, and the FDA may require several submissions
of data before making a determination as to whether a device is substantially
equivalent.

If a submitter cannot establish to the FDA's satisfaction that a device is
substantially equivalent or if a device has been determined by the FDA to be a
device requiring pre-market approval, the device may not be marketed until the
FDA approves a PMA. A PMA application must be supported by extensive data to
demonstrate that the device is safe and effective for its labeled indications. A
PMA application is typically a complex and lengthy submission, including
clinical data, bench tests, laboratory and animal studies, labeling and
extensive manufacturing information. Once a PMA application has been submitted,
the FDA may require additional information. The FDA generally will conduct an
inspection to ensure that a manufacturer's facilities are in compliance with
applicable Good Manufacturing Practices requirements prior to approving a PMA.
PMA applications often take several years to review.

When clinical data is required to support a 510(k) or PMA submission, the
sponsor of a clinical trial in the United States generally must obtain an
Investigational Device Exemption ("IDE"), which authorizes distribution of
devices for clinical evaluation. The IDE application to the FDA must be
supported by data, typically including the results of animal and laboratory
testing, as well as the protocol for the planned clinical trial. If the FDA
disapproves an IDE application, the clinical trial may not begin. Both clinical
and non-clinical studies must comply with the FDA's good practices standards,
and clinical studies must comply with the FDA's regulations requiring
Institutional Review Board approval and patient informed consent.

The Company has received 510(k) clearance for the CARTO system for use in
EP cardiac mapping and the NOGA system for cardiac mechanical and hemodynamic
testing. The Company has made a 510(k) submission for the MAGELLAN for image
guided neurosurgery, but has not yet received 510(k) clearance.

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The Company anticipates that additional 510(k) submissions will be made for
certain applications of the Biosense technology. In addition, manufacturers of
medical instruments that incorporate Biosense sensors will require 510(k)
clearance or a PMA. Although the Company expects that many of its products are
eligible for clearance through the 510(k) process, the FDA could determine that
any or all of the Company's products require a PMA, which would be likely to
increase the amount of data required and the length of time required to review
the submission.

There can be no assurance that the FDA will grant any additional 510(k)
clearance or PMA approval or will permit clinical trials under IDEs to proceed
in a timely fashion or at all. Failure to obtain such clearances or approvals,
or to be allowed to conduct clinical trials in a timely fashion or at all could
delay or preclude the Company from marketing any products it may develop, which
could have a material adverse effect on the Company's financial condition and
results of operations.

Further, FDA clearances and approvals limit the uses for which a device may
be labeled and promoted. The FDA may also require post-market surveillance or
place other conditions on the approvals. These limitations and conditions could
limit the Company's ability to market the product, which could have a material
adverse effect on the Company's financial condition and results of operations.

Products marketed pursuant to a 510(k) or PMA are subject to pervasive and
continuing regulation by the FDA. Changes to a device that could significantly
affect safety and effectiveness including, for example, new claims or
indications for use, labeling changes or changes in design or manufacturing
methods, require an additional FDA clearance or approval. The Company is
required to register its establishments and list its devices with the FDA.
Medical devices must be manufactured in accordance with Good Manufacturing
Practices ("GMP"), which govern, among other things, testing, quality assurance
and control and documentation. The FDA has proposed changes to the GMP
regulations which are likely to increase the cost of compliance. The Company is
required to provide information to the FDA on deaths or serious injuries alleged
to have been associated with the use of its devices, as well as product
malfunctions that are likely to cause or contribute to death or serious injury.
Labeling and promotional activities are scrutinized by the FDA and, in certain
instances, by the Federal Trade Commission to ensure that claims are
substantiated and that devices are not promoted for unapproved uses. There can
be no assurance that the laws and regulatory requirements will not change in the
future, and the Company may be required to incur significant additional costs to
comply with the FDA requirements. In addition, the Company and its products may
be subject to state and local regulations.

The Company's products and facilities, including manufacturing facilities
outside the United States, are subject to periodic inspections by the FDA, which
are conducted to monitor compliance with regulatory requirements. Failure to
comply with the FDA's requirements can result in fines, injunctions, recall,
detention, or seizure of products, total or partial suspension of production,
denial or withdrawal of clearance or approval of devices, recommendations by the
FDA that the Company not be allowed to enter into government contracts, and
criminal prosecution. Enforcement action associated with failure to comply with
FDA requirements could have a material adverse effect on the Company's financial
condition and results of operations.

International

In order for the Company to market its products in most European and
certain other foreign countries, the Company must obtain certain regulatory
approvals and clearances and otherwise comply with extensive regulations
regarding product safety, 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. The
Company may rely in some circumstances on its international distributors for the
receipt of pre-market approvals and compliance with clinical trial requirements
in those countries where the Company intends to use distributors. Any
enforcement action by regulatory authorities with respect to past or future
regulatory noncompliance could have a material adverse effect on the Company's
business, financial condition or results of operations.

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The time required to obtain approval for sale in foreign countries may be
longer or shorter than that required for the FDA approval, and the requirements
may differ. In addition, there may be foreign regulatory barriers other than
pre-market approval. In order to sell its products within the European Economic
Area, consisting of the countries of the European Union and Norway and Iceland
(the "EEA") after June 14, 1998, companies must meet the requirements of the
Medical Devices Directive of the EEA ("MDD") and affix the CE marking on their
products to attest to such compliance. To comply, the products must meet the
"essential requirements," as defined under the MDD, relating to safety and
performance and the Company must successfully undergo verification of its
regulatory compliance ("conformity assessment") by a "notified body" selected by
the Company. The nature of such assessment will depend on the regulatory class
of the Company's products. In April 1996, the Company received the right to
affix the CE mark on its CARTO system from the Dutch notified body, TNO, which
was selected for its expertise in electrical medical devices. The Company will
seek extension of its CE mark certification to allow the marking of its NOGA and
MAGELLAN products.

Failure by the Company to comply with the CE marking requirements prior to
June 14, 1998 would mean that the Company would be unable to sell its products
in the European Economic Area unless and until compliance was achieved, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to achieve or maintain compliance required for CE marking on all or
any of its products or that it will be able to produce its products profitably
and in a timely manner while complying with the requirements of the MDD and
other regulatory requirements.

Failure to comply with applicable regulatory requirements can result in
fines, injunctions, civil penalties, recalls or seizures of products, total or
partial suspensions of production, refusals by foreign governments to permit
product sales and criminal prosecution. Furthermore, changes in existing
regulations or adoption of new regulations or policies could prevent the Company
from obtaining, or affect the timing of, future regulatory approvals or
clearances. There can be no assurance that the Company will be able to obtain
necessary regulatory clearances or approvals on a timely basis or at all or that
it will not be required to incur significant costs obtaining or maintaining such
foreign regulatory approvals. Delays in receipt of, or failure to receive, such
approvals or clearances, the loss of previously obtained approvals or clearances
or the failure to comply with existing or future regulatory requirements could
have a material adverse effect on the Company's business financial condition and
results of operations.

AGREEMENT WITH YOZMA VENTURE CAPITAL LTD.

In July 1994, the Company and Biosense Israel entered into an agreement
with Yozma Venture Capital Ltd. ("Yozma"), a government entity formed to
encourage investment in Israel, pursuant to which Yozma has made an equity
investment in the Company (the "Yozma Agreement"). Pursuant to the terms of the
Yozma Agreement, the Company agreed to provide Biosense Israel with exclusive
production and marketing rights for the Company's products in markets other than
North America and Japan except where such production is not economically
reasonable. In addition, pursuant to the Yozma Agreement, Biosense Israel's
Board of Directors must consist of three to five directors, one of whom may be
appointed by Yozma. Following this Offering, so long as the Company and Biosense
Israel are not in material breach of the Yozma Agreement, the Company will have
an option to repurchase the shares of Common Stock owned by Yozma for a period
of seven days at the initial public offering price. The Company does not intend
to exercise this option.

THIRD-PARTY REIMBURSEMENT

In the United States, health care providers, such as hospitals and
physicians, that purchase medical devices, such as the Company's products,
generally rely on third-party payors, principally Medicare, Medicaid and private
health insurance plans, to reimburse all or part of the cost of the procedure in
which the medical device is being used. In addition, certain health care
providers are moving toward a managed care system in which such providers
contract to provide comprehensive health care for a fixed cost per person.
Although the Company believes that the cost of procedures using the Company's
products will be reimbursable under the current diagnosis-related group ("DRG")
system, the Company is unable to predict what changes will be made in the
reimbursement methods utilized by third-party health care payors. The Company
anticipates that in a prospective payment system, such as the DRG system
utilized by Medicare, and in many managed care

44
<PAGE> 46

systems used by private health care payors, the cost of the Company's products
would be incorporated into the overall cost of the procedure and that there
would be no separate, additional reimbursement for the Company's products. 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.
Furthermore, the Company could be adversely affected by changes in reimbursement
policies of government or private health care payors, particularly to the extent
any such changes affect reimbursement for the procedure in which the Company's
products are intended to be used. Failure by physicians, hospitals and other
potential users of the Company's products to obtain sufficient reimbursement
from health care payors for the procedure in which the Company's products are
intended to be used or adverse changes in government and private third-party
payors' policies toward reimbursement for such procedures could have a material
adverse effect on the Company's financial condition and results of operations.

Market acceptance of the Company's products in international markets also
will be dependent, in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country, and include both
government sponsored health care and private insurance. The Company intends to
seek international reimbursement approvals, although there can be no assurance
that any such approvals will be obtained in a timely manner, if at all. Failure
to receive international reimbursement approvals could have a material adverse
effect on market acceptance of the Company's products in the international
markets in which such approvals are sought.

PRODUCT LIABILITY AND INSURANCE

The development, manufacture and sale of medical products entail
significant risk of product liability claims and product recalls. The Company's
current product liability limits are $5 million per occurrence and $5 million in
the aggregate, and there can be no assurance that such coverage limits are
adequate to protect the Company from any liabilities it might incur in
connection with the development, manufacture and sale of its products. In
addition, the Company may require increased product liability coverage as its
products are commercialized. Product liability insurance is expensive and in the
future may not be available to the Company on acceptable terms, if at all. A
successful product liability claim or series of claims brought against the
Company in excess of its insurance coverage or a product recall could have a
material adverse impact on the Company's financial condition and results of
operations.

EMPLOYEES

At June 30, 1996, the Company had 62 employees, including 48 at its
facility in Tirat HaCarmel, Israel, six in Europe and eight in the United
States. Of such employees, 28 are engaged in research and development, 11 in
manufacturing and quality control, 14 in administration and finance, eight in
marketing, marketing support and after-market support and one in regulatory
affairs. None of the Company's employees are covered by collective bargaining
agreements. The Company believes that its relations with its employees are good.

FACILITIES

The Company leases approximately 1,200 square meters in Tirat HaCarmel,
Israel, where the Company's principal manufacturing and research and development
operations and certain administrative functions, are located. The lease expires
in 1998, although the Company has the option to extend the term for two
additional one-year terms. The Company also leases space in East Setauket, New
York, for market support, research and development and administrative functions,
in Ghent, Belgium for sales and marketing functions, and in Miami, Florida, and
Burlingame, California, for administrative functions. In addition, an affiliate
of the Company provides the Company with space in Orangeburg, New York, for
administrative functions. See "Certain Transactions."

LEGAL PROCEEDINGS

The Company is not currently party to any material legal proceedings.

45
<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The following table sets forth certain information with respect to the
Company's executive officers, directors and certain other key employees as of
June 30, 1996:

<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
Executive Officers and Directors
Lewis C. Pell........................ 52 Chairman of the Board of Directors
Alfred J. Novak...................... 48 President, Chief Executive Officer and
Director
Shlomo A. Ben-Haim................... 39 Chief Scientist and Director; Chairman
of the Board of Directors of Biosense
Israel
Victor R. Colunga.................... 45 Vice President -- Finance, Chief
Financial Officer and Treasurer
David Ellis Acker.................... 35 Executive Vice President -- Operations,
Secretary and Director
Joel Zilberstien..................... 45 Chief Operating Officer of Biosense
Israel
Yigal Erlich......................... 56 Director
Other Key Employees
Avraham Matcovitch................... 44 Manager of Research and Development of
Biosense Israel
Susan J. Zachman..................... 31 Director of Regulatory Affairs and
Quality Assurance of Biosense Israel
Daniel Osadchy....................... 29 Chief Scientist of Biosense Israel
Uzi Fried............................ 45 Manufacturing Manager of Biosense
Israel
</TABLE>

Lewis C. Pell, a co-founder of the Company, has served as Chairman of the
Board of Directors since the Company's inception. Mr. Pell co-founded InStent,
Inc. in 1991 and served as its chairman until InStent was acquired by Medtronic
Inc. in June 1996. Mr. Pell organized the initial financing of Heart Technology,
Inc. and served as a director from April 1989 until it was acquired by Boston
Scientific Corp. in December 1995. Since May 1992, Mr. Pell has served as Vice
Chairman and a director of Vision Sciences Inc., a publicly held medical device
company. In 1984, Mr. Pell co-founded and was a director of Versaflex Delivery
Systems, Inc., which was sold to Medtronic Inc. in 1988. In 1983, Mr. Pell
co-founded American Endoscopy, Inc. and served as a director until it was sold
to C.R. Bard Inc. in 1986. In September 1979, Mr. Pell co-founded Pentax
Precision Instrument Corp. and served as Executive Vice President and a director
until December 1990, when it was sold to Asahi Optical Corp. Mr. Pell is a
founder or co-founder of a number of other privately held medical device and
biotechnology companies, including Influence, Inc., Flexicave, Inc., i Sight,
Inc. and Vitality Biotechnologies, Inc.

Alfred J. Novak has served as President, Chief Executive Officer and a
director of the Company since June 1996. Mr. Novak also served as a director of
the Company from July 1995 until February 1996. From August 1989 until July
1996, Mr. Novak was Vice President and Chief Financial Officer of Cordis
Corporation. Prior thereto, Mr. Novak served in other positions at Cordis,
including Treasurer (August 1991 to June 1994), Vice President, Administration
(February 1988 to August 1989), Vice President, Corporate Development (July 1987
to February 1988) and Manager, Affiliate Operations (April 1984 to July 1987).
Mr. Novak is a graduate of the United States Merchant Marine Academy and
received an MBA from The Wharton School of the University of Pennsylvania.

Shlomo A. Ben-Haim, a co-founder of the Company, has served as the
Company's Chief Scientist since July 1996 and a director of the Company since
its inception. From July 1995 until July 1996, Dr. Ben-Haim served as President
of the Company, and from the Company's inception until July 1996, he served as
President of Biosense Israel. Dr. Ben-Haim is the Director of the Cardiovascular
Research Lab of the Technion -- Israel

46
<PAGE> 48

Institute of Technology in Haifa, Israel. He is currently an Associate Professor
of Medicine at the Faculty of Medicine, Technion -- Israel Institute of
Technology, and a Visiting Associate Professor at Harvard School of Medicine.
Dr. Ben-Haim studied nuclear physics and computer sciences at the
Technion -- Israel Institute of Technology and received his M.D. and his D.Sc.,
Department of Physiology and Biophysics and Department of Biomedical Engineering
from the same institution. Dr. Ben-Haim received his training in internal
medicine, cardiology and cardiac electrophysiology in Israel and in the United
States.

Victor R. Colunga has served as Vice President -- Finance, Chief Financial
Officer and Treasurer of the Company since June 1996. From June 1992 until March
1996, Mr. Colunga served as Vice President -- Finance and Operations and Chief
Financial Officer of Software Ventures Corporation, a computer software
development company. From June 1991 until June 1992, Mr. Colunga served as Vice
President--Finance and Operations and Chief Financial Officer of Rarewoods,
Inc., a housewares manufacturer. Mr. Colunga received his B.S. from the
University of Santa Clara and is a certified public accountant.

David Ellis Acker, a co-founder of the Company, has served as Executive
Vice President -- Operations, Secretary and a director of the Company since its
inception. Mr. Acker founded Workstation Graphics, Inc. in 1991 and served as
its President and Chief Executive Officer until it was acquired by the Company
in March 1994. Mr. Acker also founded MediCAD Corporation in 1989 and served as
its Vice President for Product Development from 1989 until 1991. Mr. Acker also
founded ACDA Corporation in 1984 and served as its President and Chief Executive
Officer from 1984 until 1994. Mr. Acker received a B.A. from the State
University of New York at Stony Brook.

Joel Zilberstien has served as Chief Operating Officer of Biosense Israel
since July 1995. From December 1991 to October 1993, Mr. Zilberstien was Manager
of New Products Development, and from June 1993 to July 1995, Mr. Zilberstien
was a Senior Manager in the Nuclear Medicine Division of Elscint, Ltd., a
medical imaging systems company. Mr. Zilberstien holds a B.Sc. in Mechanical
Engineering from the Technion -- Israel Institute of Technology, and also
completed post graduate studies in Finance and Business Administration at the
Technion.

Yigal Erlich has served as a director of the Company since December 1994.
Mr. Erlich has been President and Chief Executive Officer of Yozma Venture
Capital Ltd., an Israeli government-owned venture capital company, since June
1992. He served as Chief Scientist of the Israel Ministry of Industry and Trade
from 1984 to 1992. He served on the Board of Directors of Israel Chemical, Ltd.,
Dead Sea Works Ltd. and Oil Refineries Ltd. Mr. Erlich holds a B.Sc. in
Chemistry and Physics from Bar Ilan University, Tel Aviv, Israel, a M.Sc. in
Organic Chemistry from Hebrew University in Jerusalem and an MBA from Hebrew
University in Jerusalem.

Avraham Matcovitch has served as Manager of Research and Development of
Biosense Israel since July 1995. From January 1991 to July 1995, Mr. Matcovitch
was Operations Manager of Automated Visual Inspection, a subsidiary of Optomic,
an Israeli opto-electronics and microwave company. Mr. Matcovitch has 13 years
of experience in research and development. He has a M.Sc. in Electrical
Engineering from the Technion -- Israel Institute of Technology.

Susan J. Zachman has served as Director of Regulatory Affairs and Quality
Assurance of Biosense Israel since its inception. Ms. Zachman holds a B.Sc. in
Electrical Engineering from the University of California, San Diego and a M.Sc.
in Electrical Engineering from the Technion -- Israel Institute of Technology.

Daniel Osadchy has served as Chief Scientist of Biosense Israel its
inception. Mr. Osadchy holds a M.Sc. in Electrical Engineering from the
Technion -- Israel Institute of Technology.

Uzi Fried has served as Manufacturing Manager of Biosense Israel since
February 1996. From November 1992 to February 1996, Mr. Fried was Vice President
of Operations for Lanoptics, Ltd., an Israeli local area network equipment
company. From July 1987 to November 1992, Mr. Fried served as Vice President of
Operations for CI, an Israeli electro-optics firm. From October 1976 to July
1987, Mr. Fried served in various capacities at Elscint, Ltd., where he oversaw
the construction of several manufacturing plants. Mr. Fried has a degree in
Industrial Engineering from the Technion -- Israel Institute of Technology.

47
<PAGE> 49

Each officer of the Company is elected and serves at the discretion of the
Board of Directors. There are no family relationships among any of the
directors, officers or key employees of the Company.

BOARD OF DIRECTORS

In accordance with the terms of the Company's Certificate of Incorporation,
effective upon the closing of this Offering, the Company's Board of Directors
will be comprised of seven directors. As of the date of the Offering, there will
be two vacancies on the Board of Directors. The terms of office of the Board of
Directors will be divided into three classes: Class I, whose term will expire at
the annual meeting of the stockholders to be held in 1997; Class II, whose term
will expire at the annual meeting of the stockholders to be held in 1998; and
Class III, whose term will expire at the annual meeting of the stockholders to
be held in 1999. The Class I directors are David Ellis Acker and Yigal Erlich,
the Class II director is Alfred J. Novak and the Class III directors are Lewis
C. Pell and Shlomo A. Ben-Haim. At each annual meeting of stockholders after the
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the Board of Directors may have the effect
of delaying or preventing changes in control or management of the Company.

The Board of Directors has currently appointed two committees. The Audit
Committee of the Board of Directors reviews the internal accounting procedures
of the Company and consults with and reviews the services provided by the
Company's independent accountants. The Compensation Committee of the Board of
Directors reviews and recommends to the Board of Directors the compensation and
benefits of all officers of the Company and establishes and reviews general
policies relating to compensation and benefits of employees of the Company.

EXECUTIVE COMPENSATION

The following table sets forth certain information for the year ended
December 31, 1995 regarding the compensation of the Chief Executive Officer of
the Company and each other executive officer of the Company who received more
than $100,000 in compensation for the year ended December 31, 1995
(collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
---------------------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Lewis C. Pell........................... $ -- $ -- $ --(1) --
Chairman
Shlomo A. Ben-Haim...................... 21,370 2,000 7,183(2) --
Chief Scientist
David Ellis Acker....................... 120,000 -- -- --
Executive Vice President and Secretary
</TABLE>

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

(1) Excludes $90,000 paid in 1995 for consulting services to Jessco Medical
Supply, Inc., which is 100% owned by Mr. Pell. See "Certain Transactions."
(2) Consists of the use of a company car. Excludes $490,000 paid in 1995 for
consulting services to HMS Ltd., which is 100% owned by Dr. Ben-Haim and his
wife. See "Certain Transactions."

48
<PAGE> 50

CERTAIN EMPLOYEE BENEFITS

The Company makes contributions on behalf of most of its Israeli employees
to a fund that provides savings, insurance and severance pay benefits to such
employees. The fund provides the employees with a lump sum payment upon
retirement and secures the severance pay upon termination of employment, if the
employee is legally entitled thereto. Each employee who agrees to participate in
the plan contributes an amount equal to 5% of such employee's salary and the
Company contributes between 13.3% and 15.8% of such employee's salary to the
fund. The Company also makes contributions on behalf of many of its Israeli
employees to a professional education fund to encourage employees to set aside
savings for further education. In general, the Company contributes up to 7.5% of
an employee's salary and the employee contributes an additional 2.5%. For the
year ended, December 31, 1995, the Company contributed $12,265 and $10,512,
respectively, to such funds on behalf of Shlomo A. Ben-Haim.

Israeli law generally requires severance pay upon the retirement or death
of an employee or termination of employment without cause. The payments, which
may be funded through the fund discussed above, amount to approximately 8.3% of
wages. Furthermore, Israeli employees and employers are required to contribute
to payments to the National Insurance Institute, which is similar to the United
States Social Security Administration, to cover retirement and national health
insurance benefits. Such payments are approximately 14.5% of each employee's
salary (up to a specified maximum) and are funded 66% by the employee and 34% by
the employer.

EMPLOYMENT AGREEMENTS

Alfred J. Novak

The Company intends to enter into an employment agreement with Alfred J.
Novak (the "Novak Employment Agreement") which will provide that Mr. Novak will
serve as President and Chief Executive Officer of the Company. Under the Novak
Employment Agreement, Mr. Novak is required to devote his entire time, energy
and skill during regular business hours to his employment by the Company, except
as may otherwise be agreed to by the Company.

The Novak Employment Agreement provides for a base salary of $200,000 in
the first year, $250,000 in the second year, and such amount as may be agreed to
by the Company and Mr. Novak thereafter. This base salary can be increased, but
not decreased, by the Board of Directors of the Company or the Compensation
Committee of the Board. Mr. Novak is also eligible to participate in all savings
and stock option plans and programs and certain medical and disability insurance
plans of the Company, and to reimbursement of up to $500 per month of expenses
relating to the use of an automobile for purposes related to his employment.

The initial term of the Novak Employment Agreement is three years, but the
Novak Employment Agreement will automatically be extended for two-year periods
unless notice is given by either party not later than six months prior to the
expiration of any such term. Mr. Novak's employment may be terminated without
cause upon written notice from the Board of Directors of the Company. In the
event of such termination or upon the occurrence of a "change of control," the
Company will be required to pay Mr. Novak's base salary and health-related
benefits for three years following the date of such termination, and any awards
granted under any employee benefit plans will vest immediately.

Under the Novak Employment Agreement, Mr. Novak is subject to certain
non-disclosure and non-competition clauses. These clauses prohibit Mr. Novak
from (i) disclosing any confidential or proprietary information of the Company
and (ii) for a period ending one year after the termination of his employment,
(A) competing with the Company, (B) soliciting any employee of the Company to be
employed by any other person, firm or corporation, and (C) soliciting any
customer of the Company to be a customer of another firm or corporation.

49
<PAGE> 51

Shlomo A. Ben-Haim

Upon consummation of the Offering, the Company intends to enter into an
employment agreement with Shlomo A. Ben-Haim (the "Ben-Haim Employment
Agreement") for Dr. Ben-Haim to serve as the Chief Scientist of the Company. In
addition to his corporate functions, Dr. Ben-Haim will perform duties involving
the creation of ideas and inventions on behalf of the Company.

The Ben-Haim Employment Agreement provides for an initial base salary of
$195,000 per year. This base salary can be increased, but not decreased, by the
Board of Directors of the Company or the Compensation Committee of the Board.
Dr. Ben-Haim will also be eligible to participate in all savings and stock
option plans and programs and certain medical and disability insurance plans of
the Company.

The initial term of the Ben-Haim Employment Agreement is three years, but
the Ben-Haim Employment Agreement will automatically be extended for two-year
periods unless notice is given by either party not later than six months prior
to the expiration of any such term. Dr. Ben-Haim's employment may be terminated
without cause upon written notice from the Board of Directors of the Company. In
the event of such termination, the Company will be required to pay Dr.
Ben-Haim's base salary and health-related benefits for three years following the
date of such termination.

Under the Ben-Haim Employment Agreement, Dr. Ben-Haim is subject to certain
non-disclosure and non-competition clauses. These clauses prohibit Dr. Ben-Haim
from (i) disclosing any confidential or proprietary information of the Company
and (ii) for a period ending one year after his employment, (A) competing with
the Company, (B) soliciting any employee of the Company to be employed by any
other person, firm or corporation and (C) soliciting any customer of the Company
to be a customer of another firm or corporation.

Biosense Israel has entered into an employment agreement with Shlomo A.
Ben-Haim (the "Ben-Haim Israel Employment Agreement") for Dr. Ben-Haim to serve
as Chairman of the Board of Directors of Biosense Israel. Pursuant to the
Ben-Haim Israel Employment Agreement, Dr. Ben-Haim is to perform such duties as
are compatible with the position of Chairman to the satisfaction of the Board of
Directors of Biosense Israel. During the term of the agreement, Dr. Ben-Haim may
only be terminated by Biosense Israel for malfeasance, misfeasance or negligence
in the conduct of his duties. In addition, the Ben-Haim Israel Employment
Agreement will provide that, during the term of Dr. Ben-Haim's employment, Dr.
Ben-Haim may not compete with the Company in the areas of intrabody mapping and
navigation. The Ben-Haim Israel Employment Agreement provides for a base salary
of 15,000 Israeli shekels (approximately $5,000) per month, subject to certain
cost-of-living adjustments. The Ben-Haim Israel Employment Agreement has an
initial term expiring on December 31, 1998, and will be extended for successive
one-year terms unless notice of termination is given by either Biosense Israel
or Dr. Ben-Haim at least three months prior to the next termination date.

David Ellis Acker

In March 1994, the Company entered into an employment agreement with David
Ellis Acker (the "Acker Employment Agreement") which provides that Mr. Acker
will serve as Executive Vice President of Operations and Secretary of the
Company.

The Acker Employment Agreement provides for an initial base salary of
$120,000 per year. This base salary can be increased, but not decreased, by the
Board of Directors of the Company or the Compensation Committee of the Board.
Mr. Acker is also eligible to participate in all savings and stock option plans
and programs and certain medical and disability insurance plans of the Company.

The initial term of the Acker Employment Agreement is three years, but the
Acker Employment Agreement will automatically be extended for two-year periods
unless notice is given by either party not later than six months prior to the
expiration of any such term. Mr. Acker's employment may be terminated without
cause upon written notice from the Board of Directors of the Company. In the
event of such termination, the Company will be required to pay Mr. Acker's base
salary and health-related benefits for one year following the date of such
termination.

50
<PAGE> 52

Under the Acker Employment Agreement, Mr. Acker is subject to certain
non-disclosure and non-competition clauses. These clauses prohibit Mr. Acker
from (i) disclosing any confidential or proprietary information of the Company,
(ii) competing with the Company during his employment and for period of three
years thereafter, (iii) soliciting any employee of the Company to be employed by
any other person, firm or corporation and (iv) soliciting any customer of the
Company to be a customer of another firm or corporation.

COMPENSATION OF DIRECTORS

Following the consummation of this Offering, the Company intends to grant
to each director who is not an employee of the Company options to purchase
10,000 shares of Common Stock on the date such director is appointed, and
options to purchase 2,500 shares of Common Stock each year thereafter, in each
case at a purchase price equal to the market price of the Common Stock at the
time of such grant. In addition, the Company intends to pay to each director who
is not an employee of the Company an annual retainer of $10,000. Members of
committees of the Board of Directors of the Company will not receive additional
compensation for their participation in such committees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors established its Compensation Committee in July 1996.
Prior to establishing the Compensation Committee, the Board of Directors as a
whole performed the functions delegated to the Compensation Committee.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. Prior to the
Offering, the Company also plans to obtain officer and director liability
insurance with respect to certain matters, including matters arising under the
Securities Act.

At present, there is no pending litigation or proceeding involving any
director or officer of the Company where 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.

STOCK OPTION PLANS

1995 Stock Option Plan

The Biosense (Israel) Limited 1995 Stock Option Plan (the "1995 Option
Plan") was approved by the Board of Directors in May 1995. The 1995 Option Plan
permits Biosense Israel to grant to its employees and certain others options
exercisable for Common Stock of Biosense, Inc. As of June 30, 1996, there were
384,000 options outstanding under the 1995 Option Plan. The Company does not
intend to grant additional options under this plan.

The 1995 Option Plan is administered by the Board of Directors of Biosense
Israel. Subject to the terms and conditions of the 1995 Option Plan, the Board
of Directors (or the Committee) has the authority to select the persons to whom
grants are to be made, to designate the number of shares to be covered by such
grants, to determine the exercise price of options and the period of
exercisability of options, and to take all other actions necessary or advisable
for the administration of the 1995 Option Plan. Upon certain specified
extraordinary corporate events, including a merger, consolidation or dissolution
of Biosense Israel, or a sale of substantially all of Biosense Israel's assets,
the Board of Directors may cause outstanding options to expire, or may cause any
such options to become immediately exercisable. In the event of a "change in
control" of the Company (as defined in the 1995 Option Plan), all options then
outstanding shall immediately become exercisable in full.

51
<PAGE> 53

Subject to certain exceptions, upon termination of employment of any
employee, unexercised options will terminate.

1996 Option Plan

On July 1, 1996, the Company adopted and the stockholders of the Company
approved the 1996 Stock Option Plan of Biosense, Inc. (the "1996 Option Plan").
The principal purposes of the 1996 Option Plan are to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
granting of options ("Options"). In addition to Options granted to officers,
employees or consultants, the 1996 Option Plan provides for the granting of
options ("Director Options") to the Company's independent non-employee directors
pursuant to a formula, as described in further detail below.

Under the 1996 Option Plan, not more than 1,000,000 shares of Common Stock
(or the equivalent in other equity securities) are authorized for issuance upon
exercise of Options. Furthermore, the maximum number of shares which may be
subject to Options granted under the 1996 Option Plan to any individual in any
calendar year cannot exceed 100,000.

The shares available under the 1996 Option Plan upon exercise of Options
may be either previously unissued shares or treasury shares, and may be equity
securities of the Company other than Common Stock. The Compensation Committee of
the Board of Directors (or the Board of Directors with respect to Director
Options) has the discretion to make appropriate adjustments in the number and
kind of securities subject to the 1996 Option Plan and to outstanding Options
thereunder to reflect dividends or other distributions, a recapitalization,
reclassification, stock split, reverse stock split, or reorganization, merger or
consolidation of the Company, the split-up, spin-off, combination, liquidation
or dissolution of the Company, or disposition of all or substantially all of the
assets of the Company or exchange of Common Stock or other securities of the
Company; or other similar corporate transaction or event (an "extraordinary
corporate event").

If any portion of an Option terminates or lapses unexercised, or is
canceled upon grant of a new Option (which may be at a higher or lower exercise
price than the Option so canceled), the shares which were subject to the
unexercised portion of such Option will continue to be available for issuance
under the 1996 Option Plan.

Administration

Prior to the Offering, the Board of Directors of the Company (the "Board")
will administer the 1996 Option Plan; following the closing of the Offering, the
Compensation Committee of the Board or a subcommittee thereof (the "Committee")
will administer the 1996 Option Plan with respect to Options granted to
employees and consultants and the full Board will administer the 1996 Option
Plan with respect to Director Options. The Committee will consist of at least
two members of the Board, each of whom is a "non-employee director" for purposes
of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule
16b-3") and an "outside director" for purposes of Section 162(m) of the Internal
Revenue Code. Subject to the terms and conditions of the 1996 Option Plan, the
Committee has the authority to select the persons to whom Options are to be
granted, to determine the number of shares to be subject thereto and the terms
and conditions thereof, and to make all other determinations and to take all
other actions necessary or advisable for the administration of the 1996 Option
Plan. Similarly, the Board has discretion to determine the terms and conditions
of Director Grants and to interpret and administer the 1996 Option Plan with
respect to Director Options, consistent with the specific formula terms
described in more detail below. The Committee (and the Board) are also
authorized to adopt, amend and rescind rules relating to the administration of
the 1996 Option Plan.

Amendment and Termination

Amendments of the 1996 Option Plan to increase the number of shares as to
which Options may be granted (except for adjustments resulting from stock splits
and the like, and mergers, consolidations and other corporate transactions)
require the approval of the Company's stockholders. In all other respects, the
1996 Option Plan can be amended, modified, suspended or terminated by the
Committee or the Board, unless such

52
<PAGE> 54

action would otherwise require stockholder approval as a matter of applicable
law, regulation or rule. Amendments of the 1996 Option Plan will not, without
the consent of the participant, affect such person's rights under an award
previously awarded, unless the agreement governing such award itself otherwise
expressly so provides. Unless sooner terminated by the Board or the Committee,
the 1996 Option Plan will expire on January 1, 2006. Such termination will not
affect the validity of any Option outstanding under the 1996 Option Plan on the
date of termination.

Eligibility

Options may be granted to individuals who are then officers or other
employees of the Company or any of its present or future subsidiaries. Options
also may be granted to consultants of the Company or subsidiaries selected by
the Committee for participation in the 1996 Option Plan. More than one Option
may be granted to an employee or consultant, but the aggregate fair market value
(determined at the time of grant) of shares with respect to which an Incentive
Stock Option is first exercisable by an optionee (i.e. "vests") during any
calendar year cannot exceed $100,000.

Payment for Shares

The exercise or purchase price for all Options, together with any
applicable tax required to be withheld, must be paid in full in cash at the time
of exercise or purchase or may, with the approval of the Committee (or Board for
Director Options) be paid in whole or in part in Common Stock valued at their
fair market value on the date of exercise (which may, except with respect to
incentive stock options, include an assignment of the right to receive the cash
proceeds from the sale of Common Stock subject to an option or other right
pursuant to a "cashless exercise" procedure) or by delivery of other property,
or by a recourse promissory note payable to the Company, or by a combination of
the foregoing.

Nonqualified Stock Options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code, may be less than fair market value on the date of grant
(but not less than par value), and usually will become exercisable (in the
discretion of the Committee) in one or more installments after the grant date,
subject to the participant's continued employment with the Company and/or
subject to the satisfaction of individual or Company performance targets
established by the Committee. NQSOs may be granted for any term specified by the
Committee.

Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Internal Revenue Code and will be subject to certain
restrictions contained in the Internal Revenue Code. Among such restrictions,
ISOs must have an exercise price not less than the fair market value of a share
of Common Stock on the date of grant, may only be granted to employees, must
expire within a specified period of time following the optionee's termination of
employment, and must be exercised within the ten years after the date of grant,
but may be subsequently modified to disqualify them from treatment as ISOs. In
the case of an ISO granted to an individual who owns (or is deemed to own) at
least 10% of the total combined voting power of all classes of stock of the
Company, the 1996 Option Plan provides that the exercise price must be at least
110% of the fair market value of a share of Common Stock on the date of grant
and the ISO must expire upon the fifth anniversary of the date of its grant.

Director Options are NQSOs granted to non-employee directors of the Company
pursuant to a formula. Under the formula in the 1996 Option Plan, following the
closing of the Offering, when a director is initially elected to the Board and
is at that time a non-employee director, he or she automatically shall be
granted an NQSO to purchase 10,000 shares of Common Stock exercisable in
cumulative annual installments of one-third each on each of the first three
annual stockholders meetings at which directors are elected, subject to the
director's continued service as such. During the term of the Plan, each then
current non-employee director shall automatically be granted an NQSO to purchase
2,500 shares of Common Stock at each subsequent annual meeting exercisable in
full upon the next subsequent annual stockholder's meeting. Members of the Board
who are employees who subsequently terminate employment with the Company and
remain on the Board will not receive an initial NQSO grant as a non-employee
director, but to the extent they are otherwise

53
<PAGE> 55

eligible, will receive NQSOs as described in the preceding sentence after such
termination of employment. The exercise price of the Director Options shall be
the fair market value of a share of Common Stock on the date of grant. To the
extent permitted by Rule 16b-3, the Board may accelerate the exercisability of
Director Options upon the occurrence of certain extraordinary corporate events.
Upon the occurrence of a "change in control" of the Company (as defined in the
1996 Option Plan), all outstanding Director Options will become immediately
exercisable. No portion of a Director Option shall be exercisable after the
tenth anniversary of the date of grant and no portion of a Director Option shall
be exercisable upon the expiration of one year following the director's
termination of services as director of the Company.

CERTAIN TRANSACTIONS

In March 1994, the Company entered into an agreement with HMS Ltd., which
is 100% owned by Shlomo Ben-Haim, the Chief Scientist and a director of the
Company, and his wife, for consulting services (as amended, the "HMS
Agreement"). The HMS Agreement provides for HMS Ltd. to provide research and
development services to the Company in the areas of electrophysiological and
neurological mapping equipment and software. The HMS Agreement requires the
Company to pay HMS Ltd. $120,000 per year for the consulting services rendered
thereunder, subject to increase, but not decrease, at the discretion of the
Board of Directors of the Company, plus all reasonable out-of-pocket expenses.
For the years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, the Company paid $120,000, $490,000 and $200,000, respectively, to HMS
Ltd. pursuant to the HMS Agreement. Upon the consummation of this Offering, the
HMS Agreement will be terminated.

In April 1994, the Company entered into an agreement with Jessco Medical
Supply, Inc. ("Jessco"), which is 100% owned by Lewis C. Pell, the Company's
Chairman, for consulting services relating to the marketing of the Company's
products (the "Jessco Agreement"). Prior to January 1, 1996, the Jessco
Agreement required the Company to pay Jessco $7,500 per month for services
rendered thereunder. Effective January 1, 1996, the Jessco Agreement was amended
to increase such payments to $10,000 per month. For the years ended December 31,
1994 and 1995 and the six months ended June 30, 1996, the Company paid $67,000,
$90,000 and $60,000, respectively, to Jessco pursuant to the Jessco Agreement.

The Company's executive offices are located in Orangeburg, New York in a
facility owned by Mr. Pell. In addition, a company owned by Mr. Pell provides
certain administrative services to the Company. Neither Mr. Pell nor such
company are compensated by the Company for such office space or administrative
services.

In July 1995, the Company entered into the Cordis Agreement pursuant to
which the Company granted Cordis an exclusive license to distribute the
Company's CARTO system and the MAGELLAN system for certain applications for a
two-year period. See "Business -- Sales, Marketing and Distribution." Sales to
Cordis for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996 were $0, $204,000 and $2,850,150, respectively. Pursuant to the
Cordis Agreement, Cordis also advanced to the Company $500,000 in 1995 and $4.4
million in the six months ended June 30, 1996 against future product deliveries.
At June 30, 1996, $1.9 million remained as an advance and was included in
customer's deposit-related party. See Note 8 of Notes to Consolidated Financial
Statements.

54
<PAGE> 56

PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of June 30, 1996 on a pro forma basis
after giving effect to the conversion of the Series A Preferred Stock, and as
adjusted to reflect the sale of the Common Stock offered by the Company hereby,
for (i) each person who is known by the Company to beneficially own more than 5%
of the Company's Common Stock, (ii) each of the Company's directors, (iii) each
Named Executive Officer of the Company and (iv) all directors and executive
officers as a group.

<TABLE>
<CAPTION>
PERCENT OF TOTAL
-------------------
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Amit Ben-Haim(1)(2)............................................... 1,432,585 23.4% %
Shlomo A. Ben-Haim(2)(3).......................................... 1,213,965 19.9
David Ellis Acker(2).............................................. 657,104 10.7
Lewis C. Pell(2)(4)............................................... 637,500 10.4
The Oneda Family(5)............................................... 597,500 9.8
P.O. Box 423
33 Stone Tower Drive
Alpine, New Jersey 07620
Johnson & Johnson(6).............................................. 313,316 5.1
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Yigal Erlich(7)................................................... -- -- --
c/o Yozma Venture Capital Ltd.
7 Abba Hillel Street
Silver House
Ramat Gan 52522 Israel
All officers and directors as a group (7 persons)(7).............. 2,516,569 41.2
</TABLE>

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

(1) Consists of shares held by a corporation that is wholly owned by Amit
Ben-Haim, the brother of Shlomo A. Ben-Haim.
(2) Such person's address is c/o Biosense, Inc., 40 Ramland Road South, Suite
10, Orangeburg, New York 10962.
(3) Consists of shares held by a corporation that is wholly owned by Shlomo A.
Ben-Haim and his wife.
(4) Includes 50,000 shares which Mr. Pell owns as custodian for his wife.
(5) Consists of 387,500 shares owned by Katsumi Oneda, 100,000 shares owned by
Hidetoshi Oneda, 100,000 shares owned by Nami Oneda and 10,000 shares owned
by Oneda, Inc., a corporation that is owned by the Oneda family.
(6) Consists of shares issued to Cordis Corporation, which was acquired by
Johnson & Johnson in February 1996.
(7) Excludes 110,000 shares owned by Yozma Venture Capital Ltd., of which Mr.
Erlich is a director. Mr. Erlich disclaims beneficial ownership of such
shares.

55
<PAGE> 57

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 8,000,000 shares of
Common Stock and 4,150,000 shares of Preferred Stock. The following summaries of
certain provisions of the Common Stock and Preferred Stock do not purport to be
complete and are subject to, and qualified in their entirety by, the provisions
of the Company's Certificate of Incorporation, which is included as an exhibit
to the Registration Statement of which this Prospectus forms a part, and by
applicable law.

COMMON STOCK

As of June 30, 1996, there were 2,188,316 shares of Common Stock
outstanding that were held by 12 stockholders of record. The holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available for that purpose. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon the closing of this Offering will be
fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater that the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders.

At June 30, 1996, the Company has 4,150,000 authorized shares of Preferred
Stock, par value $.01, of which 3,925,000 shares of Series A Preferred Stock
were issued and outstanding. Immediately prior to the consummation of the
Offering, the outstanding shares of Series A Preferred Stock will be converted
into an aggregate of 3,925,000 shares of Common Stock. The shares of Series A
Preferred Stock will be canceled upon such conversion.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Pursuant to a Preferred Stock Purchase Agreement (the "Preferred Stock
Purchase Agreement"), dated July 27, 1995, by and between the Company and Cordis
Corporation, the Company issued and sold and Cordis purchased (the "Cordis Stock
Purchase") 150,000 shares of Series B Preferred Stock of the Company. Each share
of Series B Preferred Stock was convertible into 2.088773 shares of Common Stock
and all outstanding shares of Series B Preferred Stock have been converted into
313,316 shares of Common Stock (the "Cordis Common Stock").

In conjunction with the Cordis Stock Purchase, Cordis received certain
registration rights (the "Cordis Registration Rights") with respect to the
Cordis Common Stock that requires the Company, upon the occurrence of certain
events (including, but not limited to, this Offering) and at the option of
Cordis, to file a registration statement with respect to the Cordis Common
Stock. Cordis has waived its registration rights with respect to this Offering.
No other holder of the capital stock of the Company is entitled to any
registration rights.

56
<PAGE> 58

CERTAIN CHANGE OF CONTROL PROVISIONS

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business combination" or the transaction in which the
person became an interested stockholder is approved in a prescribed manner.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or, within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of Common Stock held by
stockholders.

The Company's Certificate of Incorporation divides the Board of Directors
into three classes, with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of the
Company and may maintain the incumbency of the Board of the Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the Board of Directors. In addition, neither the
Certificate of Incorporation nor the Bylaws of the Company provide for
cumulative voting of directors. Moreover, the authorization of undesignated
Preferred Stock makes it possible for the Board of Directors to issue Preferred
Stock with voting or other rights or preferences that could impede the success
of any attempt to change control of the Company. These provisions may have the
effect of delaying or preventing hostile takeover attempts or delaying changes
in control or management of the Company. The amendment of any of these
provisions requires approval of holders of at least 67% of the outstanding
Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is
. Its telephone number is ( ) - .

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market following this Offering, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock.

Upon the completion of this Offering, the Company will have shares
of Common Stock outstanding. Of these shares, the shares sold in this
Offering will be freely tradable without restriction under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. The remaining shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements under the Securities Act. These
shares may be sold in the public market only if registered, or pursuant to an
exemption from registration, such as the exemption provided by Rule 144 or Rule
701 under the Securities Act. Stockholders of the Company who, in the aggregate,
hold approximately % of the shares of Common Stock of the Company, and
% of the options to purchase Common Stock of the Company, outstanding
immediately prior to the completion of this Offering, have entered into lock-up
agreements under which such stockholders have agreed not to offer, sell or
otherwise dispose of any shares or securities exchangeable for or convertible
into shares of Common Stock owned by them for a period of 180 days after the
date of this Prospectus, without the prior written consent of UBS Securities
LLC. The Company has entered into a similar agreement, except that the Company
may grant additional options under its stock option plans and issue shares upon
the exercise of outstanding options.

57
<PAGE> 59

At June 30, 1996, shares were subject to outstanding options.
Approximately 90 days after the date of this Prospectus, the Company intends to
file a Registration Statement on Form S-8 covering shares issuable under the
Company's stock option plans (including shares subject to then outstanding
options under such plan), thus permitting the resale of such shares in the
public market without restriction under the Securities Act, subject to the
lock-up agreements.

Approximately shares of Common Stock will be available for sale in
the public market without restriction 90 days following the date of this
Prospectus pursuant to Rule 144 and Rule 701 under the Securities Act. Upon
expiration of the lock-up agreements, shares of Common Stock (including
shares subject to outstanding vested options) will become available for
sale in the public market, subject in some cases to vesting provisions and
volume limitations pursuant to Rule 144. The remaining shares held by
existing stockholders will become eligible for sale in the public market
pursuant to Rule 144 at various times over a period of less than two years
following the completion of this Offering, subject in some cases to vesting
provisions and volume limitations.

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

The Securities and Exchange Commission has proposed reducing the required
two-year holding period under Rule 144 to one year, and reducing the required
three-year holding period under Rule 144(k) to two years. The Company can make
no prediction as to when, if at all, such proposal will be adopted. If adopted,
such modifications will have a material effect on the times when shares of the
Company's Common Stock become eligible for resale in the public market.

58
<PAGE> 60

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Montgomery Securities are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock:

<TABLE>
<CAPTION>
TOTAL NUMBER
UNDERWRITERS OF SHARES
------------------------------------------------------------------------ ------------
<S> <C>
UBS Securities LLC......................................................
Montgomery Securities...................................................

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

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligation.

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

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of the Prospectus, to purchase up to
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of
shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The executive officers, directors and certain other stockholders of the
Company who beneficially own an aggregate of shares of Common Stock
outstanding prior to this Offering have agreed that they will not, without the
prior written consent of UBS Securities LLC, offer, sell or otherwise dispose of
any shares or securities exchangeable for or convertible into shares of Common
Stock owned by them for a period of 180 days after the date of this Prospectus.
The Company has agreed that it will not, without the prior written

59
<PAGE> 61

consent of UBS Securities LLC, offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus, except
that the Company may grant additional options under the Company's stock option
plans and issue shares upon the exercise of outstanding options.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.

In 1994, a managing director of UBS Securities LLC purchased 10,000 shares
of Preferred Stock in a private placement.

Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering price, in
addition to prevailing market and economic conditions, will be certain financial
information of the Company, the history of, and prospects for, the Company and
the industry in which it competes, an assessment of the Company's management,
its past and present operations, the prospects for, and timing of, future
revenues of the Company, the present stage of the Company's development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to those of the Company. The
initial public offering price set forth on the cover page of this Prospectus
should not, however, be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors. There can be no assurance that an active trading market will
develop for the Common Stock or that the Common Stock will trade in the public
market subsequent to this Offering at or above the initial offering price.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, New
York, New York.

EXPERTS

The financial statements of Biosense, Inc. as of December 31, 1994 and 1995
and for the period from inception (March 23, 1994) to December 31, 1994 and the
year ended December 31, 1995 included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of such firm as experts in
accounting and auditing in giving said report.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all 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 to the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document as filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington D.C., at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661 and through the Commission's internet site at www.sec.gov. Copies
of all or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of certain fees prescribed by the Commission.

60
<PAGE> 62

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited).......................................................................... F-3
Consolidated Statements of Operations for the period from Inception (March 23, 1994) to
December 31, 1994, for the year ended December 31, 1995 and for the six months ended
June 30, 1995 (unaudited) and June 30, 1996 (unaudited).............................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the period from
Inception (March 23, 1994) to December 31, 1994, for the year ended December 31, 1995
and for the six months ended June 30, 1995 (unaudited) and June 30, 1996
(unaudited).......................................................................... F-5
Consolidated Statements of Cash Flows for the period from Inception (March 23, 1994) to
December 31, 1994, for the year ended December 31, 1995 and for the six months ended
June 30, 1995 (unaudited) and June 30, 1996 (unaudited).............................. F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE> 63

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

After the recapitalization discussed in Note 11 to the Financial Statements
is effected, the undersigned would be able to render the following audit report.

ARTHUR ANDERSEN LLP

New York, New York
August 14, 1996

To the Stockholders of
Biosense, Inc.:

We have audited the accompanying consolidated balance sheets of Biosense,
Inc. (a Delaware corporation) and subsidiary as of December 31, 1994 and 1995,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the period from inception (March 23, 1994) to December
31, 1994 and for the year ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Biosense, Inc. and
subsidiary as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for the period from inception (March 23, 1994) to December
31, 1994, and for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.

F-2
<PAGE> 64

BIOSENSE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- JUNE 30,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 3,278,674 $ 13,621,130 $ 12,115,863
Inventories (Note 3)............................ -- 324,482 978,228
Other current assets............................ 84,576 374,418 491,714
------------ ------------ ------------
Total current assets.................... 3,363,250 14,320,030 13,585,805
FIXED ASSETS, NET (Note 4)........................ 637,351 1,378,908 1,816,636
OTHER ASSETS, NET................................. 39,932 49,060 10,270
------------ ------------ ------------
Total assets............................ $ 4,040,533 $ 15,747,998 $ 15,412,711
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 157,940 $ 848,219 $ 1,354,506
Accrued expenses................................ 43,502 280,635 706,679
Income taxes payable............................ 77,291 70,635 44,078
Customer's deposit -- related party (Note 8).... -- 296,000 1,874,250
------------ ------------ ------------
Total current liabilities............... 278,733 1,495,489 3,979,513
------------ ------------ ------------
COMMITMENTS (Note 7)
STOCKHOLDERS' EQUITY (Note 5):
Series A convertible preferred stock, $0.01 par
value, 4,000,000 shares authorized; 3,925,000
shares issued and outstanding................ 39,250 39,250 39,250
Series B convertible preferred stock, $0.01 par
value, 150,000 shares authorized, issued and
outstanding as of December 31, 1995; 0 shares
issued and outstanding as of June 30, 1996... -- 1,500 --
Common stock, $0.01 par value, 8,000,000 shares
authorized; 1,875,000 shares issued and
outstanding as of December 31, 1994 and
December 31, 1995; 2,188,316 shares issued
and outstanding as of June 30, 1996.......... 18,750 18,750 21,883
Paid-in capital................................. 35,692,150 54,675,715 55,182,359
Accumulated deficit............................. (31,831,025) (39,592,484) (42,737,415)
Deferred compensation (Note 9).................. (157,325) (890,222) (1,072,879)
------------ ------------ ------------
Total stockholders' equity.............. 3,761,800 14,252,509 11,433,198
------------ ------------ ------------
Total liabilities and stockholders'
equity................................ $ 4,040,533 $ 15,747,998 $ 15,412,711
============ ============ ============
</TABLE>

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

F-3
<PAGE> 65

BIOSENSE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS
PERIOD SIX MONTHS ENDED
FROM INCEPTION YEAR ENDED JUNE JUNE 30,
(MARCH 23, 1994) ENDED 30, 1995 1996
TO DECEMBER 31, DECEMBER 31, ----------- -----------
1994 1995
---------------- ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE.................................... $ -- $ 204,000 $ -- $ 2,850,150
------------ ----------- ----------- -----------
EXPENSES:
Cost of sales............................ -- 49,457 -- 1,817,524
Sales and marketing...................... 67,000 245,250 45,000 732,022
Research and development................. 31,395,126 6,708,464 1,473,655 2,351,116
General and administrative............... 422,129 1,216,700 261,864 1,461,400
------------ ----------- ----------- -----------
Operating loss................... (31,884,255) (8,015,871) (1,780,519) (3,511,912)
OTHER INCOME:
Interest income,......................... 78,148 408,093 56,139 415,582
------------ ----------- ----------- -----------
Loss before provision for income
taxes.......................... (31,806,107) (7,607,778) (1,724,380) (3,096,330)
PROVISION FOR INCOME TAXES
(Note 6)................................. 24,918 153,681 41,900 48,601
------------ ----------- ----------- -----------
Net loss......................... $(31,831,025) $ (7,761,459) $(1,766,280) $(3,144,931)
============ =========== =========== ===========
PRO FORMA NET LOSS PER SHARE............... $ $ $ $
============ =========== =========== ===========
PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
============ =========== =========== ===========
</TABLE>

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

F-4
<PAGE> 66

BIOSENSE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 23, 1994) TO DECEMBER 31, 1994, FOR
THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- ------------------
SHARES VALUE SHARES VALUE SHARES VALUE
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock............... 1,875,000 $18,750 -- $ -- -- $ --
Issuance of preferred
stock for technology
and fixed assets.... -- -- 3,225,000 32,250 -- --
Issuance of preferred
stock for cash...... -- -- 700,000 7,000 -- --
Deferred compensation. -- -- -- -- -- --
Amortization of deferred
compensation........ -- -- -- -- -- --
Stock options issued for
services............ -- -- -- -- -- --
Net loss.............. -- -- -- -- -- --
--------- ------- --------- ------- -------- --------
BALANCE,
December 31, 1994... 1,875,000 18,750 3,925,000 39,250 -- --
Deferred
compensation...... -- -- -- -- -- --
Issuance of preferred
stock for cash, net
of issuance costs.. -- -- -- -- 150,000 1,500
Amortization of
deferred-
compensation....... -- -- -- -- -- --
Stock options issued
for services........ -- -- -- -- -- --
Net loss............. -- -- -- -- -- --
--------- ------- --------- ------- -------- --------
BALANCE,
December 31, 1995.... 1,875,000 18,750 3,925,000 39,250 150,000 1,500
Deferred
compensation....... -- -- -- -- -- --
Conversion of
Series B preferred
stock to common
stock.............. 313,316 3,133 -- -- (150,000) (1,500)
Amortization of
deferred
compensation....... -- -- -- -- -- --
Stock options issued
for services........ -- -- -- -- -- --
Net loss............. -- -- -- -- -- --
--------- ------- --------- ------- -------- ------
BALANCE, June 30,
1996 (unaudited)..... 2,188,316 $21,883 3,925,000 $39,250 -- $ --
========= ======= ========= ======= ======== ========

ADDITIONAL
PAID-IN DEFERRED ACCUMULATED
CAPITAL COMPENSATION DEFICIT TOTAL
----------- ------------ ------------ ------------
<C> <C> <C> <C>

Issuance of common
stock.................................... $ -- $ -- $ -- $ 18,750

Issuance of preferred
stock for technology
and fixed assets......................... 28,992,750 -- -- 29,025,000
Issuance of preferred
stock for cash........................... 6,293,000 -- -- 6,300,000
Deferred compensation...................... 359,600 (359,600) -- --
Amortization of deferred
compensation............................. -- 202,275 202,275
Stock options issued for
services................................. 46,800 -- 46,800
Net loss................................... -- -- (31,831,025) (31,831,025)
----------- ----------- ------------ -----------
BALANCE,
December 31, 1994........................ 35,692,150 (157,325) (31,831,025) 3,761,800
Deferred
compensation........................... 1,099,100 (1,099,100) -- --
Issuance of preferred stock for
cash, net of issuance costs............ 14,799,382 -- -- 14,800,882
Amortization of deferred-
compensation........................... -- 366,203 -- 366,203
Stock options issued
for services........................... 3,085,083 -- -- 3,085,083
Net loss................................ -- -- (7,761,459) (7,761,459)
----------- ----------- ------------ -----------
BALANCE,
December 31, 1995........................ 54,675,715 (890,222) (39,592,484) 14,252,509
Deferred
compensation........................... 448,400 (448,400) -- --
Conversion of
Series B preferred stock
to common stock........................ (1,633) -- -- --
Amortization of
deferred
compensation........................... -- 265,743 -- 265,743
Stock options issued
for services........................... 59,877 -- -- 59,877
Net loss................................. -- -- (3,144,931) (3,144,931)
----------- ----------- ------------ -----------
BALANCE, June 30,
1996 (unaudited)......................... $55,182,359 $(1,072,879) $(42,737,415) $ 11,433,198
=========== =========== ============ ===========

</TABLE>

The accompanying notes are an integral part of these consolidated statements.
<PAGE> 67

BIOSENSE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION SIX MONTHS SIX MONTHS
(MARCH 23, 1994) ENDED JUNE ENDED JUNE
TO DECEMBER 31, YEAR ENDED 30, 1995 30, 1996
1994 DECEMBER 31, 1995 ------------- -------------
---------------- ----------------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(31,831,025) $(7,761,459) $(1,766,280) $(3,144,931)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation and amortization.................... 143,512 355,674 139,020 335,770
Write-off of acquired in-process technology...... 28,913,000 -- -- --
Amortization of deferred compensation............ 202,275 366,203 22,475 265,743
Stock options issued for services................ 46,800 3,085,083 -- 59,877
Gain on sale of fixed assets..................... -- (4,393) -- --
Changes in assets and liabilities--
(Increase) in inventories.......................... -- (324,482) -- (653,746)
(Increase) in other current assets................. (84,576) (289,842) (65,509) (117,296)
(Increase) decrease in other assets................ (39,932) (9,128) (1,984) 38,790
Increase in accounts payable....................... 157,940 690,279 143,262 506,287
Increase in accrued expenses....................... 43,502 237,133 48,731 426,044
Increase (decrease) in income taxes payable........ 77,291 (6,656) (8,638) (26,557)
Increase in customer's deposit..................... -- 296,000 1,000,000 1,578,250
------------ ----------- ----------- -----------
Net cash used in operating activities......... (2,371,213) (3,365,588) (488,923) (731,769)
------------ ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets............................. (668,863) (1,123,392) (511,270) (773,498)
Proceeds from sales of fixed assets.................. -- 30,554 -- --
------------ ----------- ----------- -----------
Net cash used in investing activities......... (668,863) (1,092,838) (511,270) (773,498)
------------ ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of capital stock.......... 6,318,750 14,800,882 -- --
------------ ----------- ----------- -----------
Net cash provided by financing activities..... 6,318,750 14,800,882 -- --
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 3,278,674 10,342,456 (1,000,193) (1,505,267)
CASH AND CASH EQUIVALENTS, beginning of period......... -- 3,278,674 3,278,674 13,621,130
------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............... $ 3,278,674 $13,621,130 $ 2,278,481 $12,115,863
============ =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid........................................ $ -- $ -- $ -- $ --
============ =========== =========== ===========
Income taxes paid.................................... $ 10,321 $ 191,118 $ 61,378 $ 32,539
============ =========== =========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock options issued for deferred compensation....... $ 359,600 $ 1,099,100 $ -- $ 448,400
============ =========== =========== ===========
</TABLE>

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

During 1994 the Company acquired technology valued at $28,913,000 and fixed
assets valued at $112,000 in exchange for 3,225,000 shares of Series A Preferred
Stock.

During 1996 150,000 shares (par value $1,500) of Series B Preferred Stock
were converted to 313,316 shares (par value $3,133) of common stock.

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

F-6
<PAGE> 68

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. ORGANIZATION

Biosense, Inc. was formed on March 23, 1994. On that date the Company: 1)
acquired certain related technologies from Quemas Associates and Workstation
Graphics, Inc. in exchange for 3,225,000 shares of Series A Preferred Stock; 2)
acquired the outstanding shares of Biosense (Israel) Ltd. which had been owned
by Quemas Associates; 3) issued 700,000 shares of Series A Convertible Preferred
Stock for $9.00 per share; and 4) issued common stock at par. The technology
acquired on March 23, 1994 and the related 3,225,000 shares of Series A
Convertible Preferred Stock were valued at $28,913,000 (including the assumption
of $350,000 of liabilities of Workstation Graphics, Inc.) and acquired fixed
assets valued at $112,000, based on independent appraisals of the technology and
the fixed assets. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 2, the acquired technology was written off, at the date of
acquisition, as in-process technology and is included in research and
development expenses.

Biosense (Israel) Ltd. was formed in September of 1993 and commenced
limited organization and research and development activities up to March 23,
1994. Workstation Graphics was formed in March of 1990 and also carried on only
limited research activities. Their financial position and operating results
prior to March 23, 1994 are insignificant.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of Biosense,
Inc. and its wholly owned subsidiary, Biosense (Israel) Ltd. (collectively
hereinafter, the "Company"). All material intercompany transactions and accounts
have been eliminated in consolidation.

LINE OF BUSINESS

The Company has developed proprietary technology to allow physicians to
accurately navigate medical instruments within a patient's body without the use
of fluoroscopic x-rays during the performance of a wide variety of minimally
invasive medical procedures.

TRANSLATION OF FOREIGN CURRENCY

The functional currency of the subsidiary in Israel is the U.S. dollar.
Accordingly, its accounts are remeasured in dollars, and translation gains and
losses are included in the consolidated statement of operations.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments, purchased with an
original maturity of three months or less, to be cash equivalents.

REVENUE RECOGNITION

Income on the sale of products is recognized upon transfer of title. The
cost of insignificant related obligations (initial installations) are accrued
when the related revenue is recognized. As of June 30, 1996, all sales have been
to one customer. (See Note 5).

F-7
<PAGE> 69

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRODUCT WARRANTIES

The provision for product warranties is recorded on the basis of the
Company's experience and engineering estimates.

INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined,
generally, on a first-in, first-out basis.

FIXED ASSETS

Fixed assets are stated at cost, net of accumulated depreciation and are
depreciated on a straight-line basis, over their estimated useful lives, which
range from 3 to 15 years.

UTILIZATION OF ESTIMATES

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

INCOME TAXES

The Company is taxed under the relevant laws in the United States and
Israel. The subsidiary is subject to tax laws in Israel, which provide for
measurement of results for tax purposes adjusted for local inflation (adjusted
to the changes in the Israeli consumer price index).

Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between the
financial statements carrying amounts and the tax basis of existing assets and
liabilities. The Company's policy is to permanently reinvest the undistributed
earnings of its subsidiary and accordingly, no deferred taxes are provided.

STOCK OPTIONS

The Company permits the granting of stock options to both employees and
non-employees. In accordance with APB No. 25, deferred compensation results from
the difference between the exercise price and the fair market value on the date
of the option grant to employees and is included in stockholders' equity and is
amortized over the corresponding vesting period.

The expense related to the granting of stock options to non-employees is
determined based on the value of the stock option calculated using an
appropriate pricing model. In instances where stock options are granted to
non-employees for past services and where there is no risk to the non-employee
of forfeiture, the expense related to such options is recorded at the time of
the grant.

RECENT PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's 1997 financial statements. SFAS No. 123 allows companies to account
for stock-based compensation under either the new provisions of SFAS No. 123 or
the provisions of APB No. 25, but requires pro forma disclosure in the footnotes
to the financial statements as if the measurement provisions of SFAS No. 123 had
been adopted. At this time, the Company intends to continue accounting for its
stock-based compensation in accordance with the provisions of APB No. 25. As

F-8
<PAGE> 70

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

such, the implementation of SFAS No. 123 will not materially impact the
financial position or results of operations of the Company.

RESEARCH AND DEVELOPMENT

Research and development expenses are expensed as incurred. In 1994, this
includes the value of acquired in-process technology.

Software development costs are capitalized from the stage at which a
working model has been developed and technological feasibility established. As
the amount of software development costs eligible for capitalization at this
stage have been insignificant, no software development costs have been
capitalized during any of the reported periods.

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per share is determined using the weighted average
number of shares of Common Stock outstanding during the periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
the options issued during the 12 months preceding this offering at prices below
the expected initial public offering price have been included in the Company's
pro forma loss per share computation for all periods presented even though they
were antidilutive. The Series A Preferred Stock is included for all periods
presented as if the shares were converted into Common Stock at the beginning of
each period. Options issued prior to the 12 months preceding this offering are
excluded as they are antidilutive. Historical loss per share data has not been
presented as such information is not meaningful.

UNAUDITED PERIOD

The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles relating to the provision of interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.

RISK FACTORS

The Company faces a number of risks, including the fact that it has
incurred significant operating losses and the uncertainties of future product
development and market acceptance of existing and proposed products.
Additionally, other risk factors such as changes in the Company's dependence on
suppliers, the loss of key personnel, government regulation, highly competitive
markets, and dependence on patents and proprietary technology could impact the
future results of the Company.

3. INVENTORIES

Inventories consisted of the following components:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Raw materials...................................... $ -- $262,878 $553,106
Products in process................................ -- 61,604 310,126
Finished goods..................................... -- -- 51,938
Components......................................... -- -- 63,058
-------- -------- --------
$ -- $324,482 $978,228
======== ======== ========
</TABLE>

F-9
<PAGE> 71

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. FIXED ASSETS

Fixed assets consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Furniture and office equipment................... $ 21,290 $ 140,153 $ 341,676
Laboratory equipment............................. 686,024 1,603,126 2,103,941
Automobiles...................................... 73,549 129,829 200,989
-------- ---------- ----------
780,863 1,873,108 2,646,606
Less -- Accumulated depreciation................. 143,512 494,200 829,970
-------- ---------- ----------
$637,351 $1,378,908 $1,816,636
======== ========== ==========
</TABLE>

5. STOCKHOLDERS' EQUITY

SERIES A CONVERTIBLE PREFERRED STOCK

Each share of Series A preferred stock ("Series A Preferred Stock") is
convertible at the option of its holder, at any time, into one share of common
stock. Immediately prior to the consummation of an initial public offering, all
outstanding Series A preferred shares will be converted into common shares.

Upon dissolution, liquidation or winding up of the Company, the holders of
the preferred stock are entitled to receive out of the assets of the Company,
before any payment or distribution may be made on common stock, the liquidation
value of $9.00 per preferred share. If the assets of the Company are
insufficient, the assets will be distributed ratably among the holders of
preferred stock.

SERIES B CONVERTIBLE PREFERRED STOCK

The Company closed a Preferred Stock Purchase Agreement (the "Agreement")
with Cordis Corporation (a third party) on July 27, 1995. The Agreement provided
for issuance of 150,000 shares of Series B Convertible Preferred Stock (the
"Series B Preferred Stock") for $15,000,000. (See Note 11).

Pursuant to the Agreement, the Company and Cordis Corporation entered into
a Product Development and Supply Agreement, which provides for exclusive
marketing and distribution of certain products which utilize the combined
technology of both companies for the lesser of two years from the first
commercial sale to an end user or four years from the agreement date. After this
period the agreement becomes non-exclusive. The exclusive period is calculated
separately for each combined product.

6. PROVISION FOR INCOME TAXES

At December 31, 1995, the Company had net operating loss carryforwards of
approximately $6,930,000 in the United States, which will expire between 2009
and 2010. The future income tax benefit of these operating loss carryforwards,
approximately $2,360,000, has been offset by a valuation allowance for the
entire amount since ultimate realization of the tax benefit is dependent upon
earning future taxable income.

The Company's Israeli subsidiary received the approval of the Israel
Investment Center, on May 27, 1996, for an investment program qualifying for
benefits under The Law of Encouragement of Capital Investments, 1959. This
provides for an exemption from income taxes for four years, and a reduced income
tax rate of 25% for the following six years, commencing from the first year in
which there is taxable income but the benefit cannot extend beyond the lesser of
12 years from the commencement of operations or 14 years after receiving
approval. Income not derived from the approved enterprise, and certain passive
income, including interests, dividends or royalties, are subject to tax at the
regular tax rate of 36%. In the event of a distribution of cash dividends from
such tax exempt income, income taxes will be required to be paid at a rate of
15% plus interest.

F-10
<PAGE> 72

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense for the period ended December 31, 1994 and the year
ended December 31, 1995 reflects taxes on income, as defined under local
regulations, of the Israeli subsidiary. As a result of obtaining the Israel
Investment Center approval described above, no deferred taxes are provided for
temporary differences as the effective tax rate is considered to be zero.

7. COMMITMENTS

The Company is committed to a lease in Israel which expires on March 15,
1998 and has a renewal option for two additional years. The related minimum
lease payments for the years ended December 31, are as follows:

For the period ended December 31, 1994 and the year ended December 31,
1995, the Company recorded rental expense of $35,836 and $92,391, respectively.

In March 1994, the Company entered into an employment agreement with the
Executive Vice President of Operations and the Secretary of the Company which
provides for an initial base salary of $120,000 per year for a period of three
years. This agreement will automatically be extended for two-year periods unless
notice is given by either party at least six months before expiration of the
term.

See Note 8 and Note 11 for additional commitments.

8. RELATED PARTY TRANSACTIONS

On March 23, 1994, the Company contracted with HMS Ltd. for research and
development consulting services for three years with a base fee of $120,000
annually. HMS Ltd. is 100% owned by Shlomo Ben-Haim, the president of the
Company, and his wife. For the period ended December 31, 1994 and the year ended
December 31, 1995, this fee amounted to $120,000 and $490,000, respectively, and
is included in research and development expense. Upon the consummation of this
offering (Note 11), the Company intends to terminate this agreement and
compensate Shlomo Ben-Haim pursuant to the employment agreements discussed in
Note 11.

The Company paid $67,000 and $90,000 for the period ended December 31, 1994
and the year ended December 31, 1995, respectively, for marketing consulting
services to Jessco Medical Supply, Inc. which is 100% owned by the Chairman of
the Board of Directors of the Company. This fee is included in sales and
marketing expense.

The Company's corporate offices are located in Orangeburg, New York at the
office of the Chairman of the Board of Directors. The Company is provided with
general office support services and does not incur any costs related to this
facility, which are not considered to be material.

Pursuant to the Cordis Product Development and Supply Agreement (Note 5),
Cordis Corporation advanced $500,000 to the Company in 1995 against future
product deliveries. At December 31, 1995, $296,000 remains as an advance and is
included in customer's deposit-related party. The agreement calls for similar
supplemental advances in 1996.

F-11
<PAGE> 73

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. STOCK OPTION PLAN

The Company's stock option plan (the "Plan") permits the granting of
options, to purchase an aggregate of 1,000,000 shares of the Company's common
stock, to employees, consultants and directors. Options generally become
exercisable ratably over a period of three years with unexercised options
expiring shortly after employment termination. Terminated options are available
for reissuance.

During 1994, 1995, and for the six months ended June 30, 1996, the Company
granted certain stock options to employees at exercise prices below the fair
value of the underlying stock on the date of the grant. The amount of deferred
compensation of $359,600, $1,099,100 and $448,400, respectively, resulting from
the difference between the exercise price and the fair value of the underlying
common stock on the date of the grant is included in stockholders' equity and is
amortized over the corresponding vesting periods.

During 1994, 1995, and for the six months ended June 30, 1996, the Company
granted stock options to certain parties other than employees in lieu of payment
for services rendered. Such options were valued using an appropriate pricing
model and, accordingly, the Company has recorded a current expense in the
respective period for the value of those options granted. For the period ended
December 31, 1994, the year ended December 31, 1995, and for the six months
ended June 30, 1996, the Company recorded an expense of $46,800, $3,085,083 and
$59,877, respectively, related to these transactions.

As a result of the stock option grants to employees at exercise prices
below the fair market value of the underlying stock and the grants to some
non-employees in lieu of payment for services rendered, the Company recorded the
following expenses for the periods indicated:

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 23, 1994) YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
--------------------- ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Cost of sales................... $-- $ 3,625 $-- $ 10,222
Sales and marketing............. -- 155,250 -- 64,557
Research and development........ 136,700 2,991,873 22,475 173,445
General and administrative...... 112,375 300,538 -- 77,396
-------- ---------- ------- --------
$ 249,075 $3,451,286 $ 22,475 $325,620
======== ========== ======= ========
</TABLE>

Transactions under the Plan during 1994, 1995 and the six months ended June
30, 1996 were as follows:

<TABLE>
<CAPTION>
PERIOD FROM INCEPTION SIX MONTHS
(MARCH 23, 1994) YEAR ENDED ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------------- ------------ ------------
<S> <C> <C> <C>
Opening balance........................... -- 123,000 339,400
Granted................................... 123,000 216,400 44,600
Exercised................................. -- -- --
Terminated................................ -- -- --
Options outstanding, end of year.......... 123,000 339,400 384,000
================ =========== ===========
Options exercisable....................... 57,000 159,650 177,000
================ =========== ===========
Exercise price range...................... $.01-$9.00 $9.00-$38.00 $9.00-$48.00
================ =========== ===========
Weighted-average exercise price for
options
exercisable............................. $6.63 $8.65 $9.75
================ =========== ===========
</TABLE>

F-12
<PAGE> 74

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. REGIONAL OPERATIONS

Information about the Company's operations in the United States and Israel
is presented below:

<TABLE>
<CAPTION>
U.S. ISRAEL ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
PERIOD ENDED DECEMBER 31, 1994
Net loss................................... $(31,643,103) $ (187,922) $ -- $(31,831,025)
Identifiable assets........................ 3,784,755 1,820,879 (1,565,101) 4,040,533
Investment in subsidiary................... 20,000 -- (20,000) --
YEAR ENDED DECEMBER 31, 1995
Revenues................................... $ 204,000 $ -- $ -- $ 204,000
Intercompany purchases/sales............... (183,600) 183,600 -- --
Net loss................................... (6,655,548) (1,105,911) -- (7,761,459)
Identifiable assets........................ 14,423,658 2,996,762 (1,672,422) 15,747,998
Investment in subsidiary................... 1,020,000 -- (1,020,000) --
</TABLE>

11. SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING

The Company intends to file a registration statement with the Securities
and Exchange Commission to register approximately shares of common
stock, $.01 par value per share, at an expected initial public offering price of
$ to $ per share. The Company's management expects to realize
proceeds from the sale of common stock of approximately $ , net of
commissions and offering expenses of $ . In connection therewith, the
stockholders will approve an increase in authorized common shares to ,
and a for 1 stock dividend of all outstanding common shares (which includes
dividend shares issued as a result of the conversion of Series A preferred
shares in 1996). All share and per share amounts in the financial
statements will be retroactively restated to reflect the stock dividend.

CONVERSION OF SERIES B PREFERRED STOCK

On March 15, 1996, the 150,000 shares (par value $1,500) of Series B
Preferred Stock were converted to 313,316 (par value $3,133) shares of common
stock.

EMPLOYMENT AGREEMENTS

The Company intends to terminate the HMS Ltd. agreement discussed in Note 8
at the consummation of the initial public offering discussed above and intends
to compensate Shlomo Ben-Haim pursuant to the following employment agreements.

The Company intends to enter into an employment agreement with Shlomo
Ben-Haim to serve as Chief Scientist of the Company. The agreement will provide
for an initial base salary of $195,000 per year, with an initial term of three
years which will automatically be extended for two-year periods unless notice is
given by either party at least six months prior to the expiration date.

Biosense Israel intends to enter into an employment agreement with Shlomo
Ben-Haim to serve as the Chairman of the Board of Directors of Biosense Israel,
pursuant to the following terms. The agreement will have an initial term
expiring on December 31, 1998, and will be extended for one-year terms unless
notice is given by either party at least three months prior to the termination
date. The agreement will provide for a base salary of 15,000 Israeli shekels
(approximately $5,000) per month subject to cost-of-living adjustments.

The Company intends to enter into an employment agreement with Alfred J.
Novak to serve as President and Chief Executive Officer of the Company, pursuant
to the following terms. The agreement will provide for a base salary of $200,000
in the first year, $250,000 in the second year, and such amount as may be agreed
to

F-13
<PAGE> 75

BIOSENSE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by the Company and Mr. Novak thereafter. The initial term of this agreement will
be three years, but will automatically be extended for two-year periods unless
notice is given by either party at least six months prior to the expiration
date.

DISTRIBUTION SUBSIDIARY

In May 1996 Biosense Ltd. formed a distribution subsidiary in Belgium,
Biosense Europe. This entity will provide post-sales service (i.e. upgrades,
repairs) to customers in Europe.

STOCK OPTION PLAN

In July 1996, the Company adopted a stock option plan covering
shares intended to replace the existing plan.

F-14
<PAGE> 76

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

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

Table of Contents

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
The Company................................ 15
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Selected Consolidated Financial Data....... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 23
Management................................. 46
Certain Transactions....................... 54
Principal Stockholders..................... 55
Description of Capital Stock............... 56
Shares Eligible for Future Sale............ 57
Underwriting............................... 59
Legal Matters.............................. 60
Experts.................................... 60
Additional Information..................... 60
Index to Consolidated Financial
Statements............................... F-1
</TABLE>

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

BIOSENSE, INC.
COMMON STOCK

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

PROSPECTUS
, 1996
---------------------------------

UBS SECURITIES

MONTGOMERY SECURITIES
<PAGE> 77

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Common Stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing application fee, are estimates:

<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
Securities and Exchange Commission registration fee....................... $ 17,242
National Association of Securities Dealers, Inc. filing fee............... 5,500
Nasdaq National Market listing application fee............................ *
Legal fees and expenses................................................... *
Accounting fees and expenses.............................................. *
Printing and engraving fees and expenses.................................. *
Blue Sky fees and expenses................................................ *
Transfer Agent fees and expenses.......................................... *
Miscellaneous expenses.................................................... *
--------
Total........................................................... *
========
</TABLE>

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

* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.

Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.

Article of the Bylaws of the Company (filed as Exhibit 3.1) provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.

II-1
<PAGE> 78

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Upon inception of the Company, the Company (i) issued an aggregate of
1,875,000 shares of Common Stock to two individuals for an aggregate of $18,750,
(ii) issued an aggregate of 3,225,000 shares of Series A Preferred Stock to two
entities in exchange for contributions of technology and fixed assets valued at
an aggregate of $29.0 million and (iii) issued an aggregate of 700,000 shares of
Series A Preferred Stock to 21 individuals and entities for $9.00 per share.
These transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. In July 1995, the Company issued 150,000 shares of
Series B Preferred Stock to Cordis Corporation for $15.0 million. This
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. In March 1996, such Series B Preferred Stock was
converted into 313,316 shares of Common Stock in a transaction that was exempt
from registration pursuant to Section 3(a)(9) of the Securities Act of 1933.

ITEM 16. EXHIBITS.

(a) Exhibits:

The following exhibits are filed pursuant to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation of Biosense, Inc.*
3.2 -- Bylaws of Biosense, Inc.*
5.1 -- Opinion of Latham & Watkins regarding the legality of the securities being issued*
10.1 -- Agreement dated July 20, 1994 among Biosense, Inc., Biosense (Israel) Ltd. and Yozma
Venture Capital Ltd.*
10.2 -- Product Development and Supply Agreement between Biosense, Inc. and Cordis
Corporation*
10.3 -- Ben-Haim Employment Agreement*
10.4 -- Ben-Haim Israel Employment Agreement*
10.5 -- Novak Employment Agreement*
10.6 -- Acker Employment Agreement*
10.7 -- Consulting Agreement, dated as of March 23, 1994, between Biosense, Inc. and HMS
Ltd.*
10.8 -- Consulting Agreement, dated as of April 1, 1994, between Biosense, Inc. and Jessco
Medical Supply, Inc.*
10.9 -- Amendment to Consulting Agreement, dated as of January 1, 1996, between Biosense,
Inc. and Jessco Medical Supply, Inc.*
10.10 -- Biosense (Israel) Limited 1995 Stock Option Plan*
10.11 -- 1996 Stock Option Plan of Biosense, Inc.*
11.1 -- Statement regarding computation of per share earnings*
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 hereto)*
24.1 -- Powers of Attorney (included on the signature page hereto)
</TABLE>

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

* To be filed by amendment.

(b) Financial Statement Schedule:

None.

ITEM 17. UNDERTAKINGS.

(a) The undersigned 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.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise,

II-2
<PAGE> 79

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

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

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 80

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New York, State of New
York on September 20, 1996.

BIOSENSE, INC.

By: /s/ ALFRED J. NOVAK

------------------------------------
Alfred J. Novak
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Lewis C. Pell and Alfred J. Novak, as
true and lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, and any Registration
Statement filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- --------------------
<C> <S> <C>
/s/ ALFRED J. NOVAK President, Chief Executive September 20, 1996
- --------------------------------------------- Officer and Director
Alfred J. Novak (Principal Executive
Officer)

/s/ VICTOR R. COLUNGA Vice President -- Finance, September 20, 1996
- --------------------------------------------- Chief Financial Officer
Victor R. Colunga and Treasurer
(Principal Financial and
Accounting Officer)

/s/ LEWIS C. PELL Chairman of the Board of September 20, 1996
- --------------------------------------------- Directors

Lewis C. Pell
/s/ SHLOMO A. BEN-HAIM Chief Scientist and September 20, 1996
- --------------------------------------------- Director
Shlomo A. Ben-Haim
/s/ DAVID ELLIS ACKER Executive Vice President -- September 20, 1996
- --------------------------------------------- Operations, Secretary and
David Ellis Acker Director

/s/ YIGAL ERLICH Director September 20, 1996
- ---------------------------------------------
Yigal Erlich
</TABLE>

II-4
<PAGE> 81

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
- ------- ------------------------------------------------------------------------- -----------
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Certificate of Incorporation of Biosense, Inc.*
3.2 -- Bylaws of Biosense, Inc.*
5.1 -- Opinion of Latham & Watkins regarding the legality of the securities
being issued*
10.1 -- Agreement dated July 20, 1994 among Biosense, Inc., Biosense (Israel)
Ltd. and Yozma Venture Capital Ltd.*
10.2 -- Product Development and Supply Agreement between Biosense, Inc. and
Cordis Corporation*
10.3 -- Ben-Haim Employment Agreement*
10.4 -- Ben-Haim Israel Employment Agreement*
10.5 -- Novak Employment Agreement*
10.6 -- Acker Employment Agreement*
10.7 -- Consulting Agreement, dated as of March 23, 1994, between Biosense, Inc.
and HMS Ltd.*
10.8 -- Consulting Agreement, dated as of April 1, 1994, between Biosense, Inc.
and Jessco Medical Supply, Inc.*
10.9 -- Amendment to Consulting Agreement, dated as of January 1, 1996, between
Biosense, Inc. and Jessco Medical Supply, Inc.*
10.10 -- Biosense (Israel) Limited 1995 Stock Option Plan*
10.11 -- 1996 Stock Option Plan of Biosense, Inc.*
11.1 -- Statement regarding computation of per share earnings*
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1
hereto)*
24.1 -- Powers of Attorney (included on the signature page hereto)
</TABLE>

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

* To be filed by amendment.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report, which contained a captioned opinion dated August 14, 1996, and to all
references to our Firm included in or made a part of this registration
statement.

ARTHUR ANDERSEN LLP

New York, New York
September 17, 1996