VENTRITEX INC, 424B4, 1996-08-19

VENTRITEX INC
424B4, 1996-08-19
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE> 1

$50,000,000

LOGO

5 3/4% Convertible Subordinated Notes due August 15, 2001

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

The Notes are convertible at any time prior to maturity, unless previously
redeemed or repurchased, into shares of Common Stock, par value $.001 per share
("Common Stock"), of Ventritex, Inc. (the "Company") at a conversion rate of
58.1818 shares per each $1,000 principal amount of Notes (equivalent to a
conversion price of approximately $17.188 per share), subject to adjustment in
certain circumstances. On August 15, 1996, the last reported bid price of the
Common Stock, which is traded under the symbol "VNTX" on the Nasdaq National
Market, was $13 3/4 per share.

Interest on the Notes is payable on February 15 and August 15 of each year,
commencing February 15, 1997. The Notes are redeemable in whole or in part at
the Company's option at any time on or after August 16, 1999 at the redemption
prices set forth herein, plus accrued interest to the date of redemption. See
"Description of Notes -- Optional Redemption." The Notes are not entitled to any
sinking fund. The Notes will mature on August 15, 2001.

In the event of a Change of Control (as defined herein), each holder of
Notes may require the Company to repurchase its Notes, in whole or in part, for
cash or, at the Company's option, Common Stock (valued at 95% of the average
closing prices for the five trading days immediately preceding and including the
third trading day prior to the repurchase date) at a repurchase price of 100% of
the principal amount of Notes to be repurchased, plus accrued interest to the
repurchase date. See "Description of Notes -- Repurchase at Option of Holders
Upon a Change of Control."

The Notes are unsecured obligations subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company and
effectively subordinated in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of June 30, 1996, the Company had
no outstanding indebtedness that would have constituted Senior Indebtedness. As
of the same date, the Company's subsidiaries had no outstanding indebtedness for
money borrowed. See "Description of Notes -- Subordination."

The Notes will be represented by a Global Note registered in the name of the
nominee of The Depository Trust Company ("DTC"), which will act as depositary.
Beneficial interests in the Global Note will be shown on, and transfers thereof
will be effected only through, records maintained by DTC and its direct and
indirect participants. Except as described herein, Notes in definitive form will
not be issued. The Notes will be issued in registered form in denominations of
$1,000 and integral multiples thereof. See "Description of the Notes --
Book-Entry."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
---------------------

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

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
------------------------------------------------------
<S> <C> <C> <C>
Per Note..................................... 100.0% 3.0% 97.0%
Total(4)..................................... $50,000,000 $1,500,000 $48,500,000
</TABLE>

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

(1) Plus accrued interest, if any, from August 21, 1996.

(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.

(3) Before deducting estimated expenses of $400,000 payable by the Company.

(4) The Company has granted the Underwriter an option for 30 days to purchase up
to an additional $7,500,000 principal amount of Notes at the initial public
offering price shown above, less the underwriting discount, solely to cover
over-allotments, if any. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to the
Company will be $57,500,000, $1,725,000 and $55,775,000, respectively. See
"Underwriting."

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

The Notes offered hereby are offered by Goldman, Sachs & Co., as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Notes will be
ready for delivery in book-entry form only through the facilities of DTC in New
York, New York, on or about August 21, 1996 against payment therefor in
immediately available funds.

GOLDMAN, SACHS & CO.
---------------------

The date of this Prospectus is August 15, 1996.

<PAGE> 2

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

FOR CALIFORNIA RESIDENTS

WITH RESPECT TO SALES OF THE SECURITIES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, AS OF THE DATE OF THIS PROSPECTUS, SUCH SECURITIES MAY BE SOLD ONLY
TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE
SECURITIES ACT OF 1933, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST
COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS
OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S
AFFILIATES WHICH ARE UNDER COMMON CONTROL, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY AUDITED, BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE FOREGOING OR
(3) ANY PERSON (OTHER THAN A PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING
THE SECURITIES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE
AMOUNT OF THE SECURITIES OFFERED HEREBY. EACH CALIFORNIA RESIDENT PURCHASING
SECURITIES OFFERED HEREBY WILL BE DEEMED TO REPRESENT BY SUCH PURCHASE THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL NOT SELL OR
OTHERWISE TRANSFER ANY OF SUCH SECURITIES TO A CALIFORNIA RESIDENT UNLESS THE
TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL
ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL
BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.

Cadence(R), Cadet(R), HVS(R), TVL(R) and Ventritex(R) are registered
trademarks of the Company and Contour(TM)and SPL(TM) are trademarks of the
Company. This Prospectus also includes trademarks of companies other than the
Company.

<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and related notes appearing
elsewhere in this Prospectus, including information incorporated by reference
herein. Unless otherwise indicated, all information in this Prospectus assumes
that the Underwriter's over-allotment option is not exercised. As used in this
Prospectus, unless otherwise indicated, references to the "Company" and
"Ventritex" are to Ventritex, Inc. and its consolidated subsidiaries.

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

THE COMPANY

Ventritex, Inc. ("Ventritex" or the "Company") designs, develops,
manufactures and sells implantable defibrillators and related products for the
treatment of ventricular tachycardia and ventricular fibrillation. Ventricular
tachycardia and ventricular fibrillation are the most serious and
life-threatening forms of abnormal heart rhythms ("arrhythmias"). The Company's
principal product, the Cadet V-115 implantable defibrillator, is an electronic
device that is implanted in the patient's pectoral (chest) or abdominal region
and is connected to the patient's heart with defibrillation leads, which are
typically implanted transvenously. The Cadet V-115 is the successor to the
Company's Cadence V-100 and V-110 implantable defibrillators, which are
considerably larger than the V-115 and are implanted in the patient's abdominal
region. The Cadet has the same functional and performance characteristics as
larger Ventritex implantable defibrillators and offers features, including high
defibrillation energy output and extended electrogram ("EGM") storage, superior
to competing defibrillators that can be implanted pectorally. As of June 30,
1996, approximately 1,000 Cadet and 17,250 Cadence implants had been performed
at over 550 sites. The Company's defibrillators monitor the heartbeat and
deliver electrical pulses or shocks to the heart to terminate ventricular
tachycardia and ventricular fibrillation in patients. In ventricular
tachycardia, the heart's ventricles contract at an abnormally rapid rate and
typically deliver less blood to the body's tissues and organs. Episodes of
ventricular tachycardia occur unpredictably and can progress to ventricular
fibrillation. In ventricular fibrillation, the heart's normal electrical
impulses become disorganized and erratic and the heart ceases to pump blood. If
ventricular fibrillation is not terminated quickly, the individual will
experience a sudden cardiac death ("SCD") episode during which the individual
will become unconscious and, without prompt medical intervention, typically will
die.

The Company believes that the most effective therapy for the treatment of
individuals who are at high risk of experiencing an SCD episode is generally an
implantable defibrillator. The annual mortality rate from SCD for patients
receiving an implantable defibrillator is between 1% and 3%, which is
substantially less than the annual mortality for high risk SCD patients who
receive drug therapy but do not receive an implantable defibrillator. Since the
first defibrillator implant in 1981, the Company estimates that, through 1995,
over 90,000 defibrillators had been implanted in patients in the United States,
including approximately 22,000 in 1995.

The Company was incorporated in California in January 1985, and changed its
state of incorporation from California to Delaware in December 1994. The Company
maintains its principal executive offices at 701 East Evelyn Avenue, Sunnyvale,
CA 94086, and its telephone number is (408) 738-4883.

RECENT DEVELOPMENTS

In May 1996, the Company received approval from the United States Food and
Drug Administration ("FDA") to expand the labeling of the Cadet V-115
defibrillator, for which the Company received FDA approval of a pre-market
approval ("PMA") supplement in December 1995, to include pectoral implantation
of the defibrillator unit. In addition, in May 1996, the Company's PMA
application for its TVL transvenous defibrillation lead system was approved by
the FDA. The combination of the Cadet V-115 defibrillator and the TVL lead
system enables the Company to offer a pectorally implantable defibrillator

3
<PAGE> 4

together with a transvenous lead system, which is the preferred system
configuration for implantable defibrillators. Beginning with the quarter ended
June 30, 1995, the Company's sales and market share were adversely affected by
the introduction of pectorally implantable defibrillators by competitors, and
the Company believes that the ability to offer the Cadet for pectoral
implantation will provide the Company with an opportunity to improve its
competitive position. In addition, the Company has developed a new, smaller
implantable defibrillator, the Contour, and is developing new transvenous lead
systems. In June 1996, the Company submitted a PMA supplement for the Contour to
the FDA. To date, a limited number of Contour defibrillators have been implanted
in patients in the United States and Europe.

THE OFFERING

SECURITIES OFFERED......... $50,000,000 aggregate principal amount of 5 3/4%
Convertible Subordinated Notes due August 15, 2001
(the "Notes"). The Company has granted the
Underwriter an option for 30 days to purchase up to
$7,500,000 additional aggregate principal amount of
Notes, solely to cover over-allotments.

INTEREST................... Interest on the Notes is payable at the rate set
forth on the cover page hereof, semi-annually on
each February 15 and August 15, commencing February
15, 1997.

CONVERSION RIGHT........... The Notes are convertible at any time prior to
maturity, unless previously redeemed or
repurchased, into shares of Common Stock at a
conversion rate of 58.1818 shares per $1,000
principal amount of Notes (equivalent to a
conversion price of approximately $17.188 per
share), subject to adjustment in certain
circumstances as described herein. See "Description
of Notes -- Conversion Rights."

SUBORDINATION.............. The Notes are subordinated in right of payment to
all existing and future Senior Indebtedness (as
defined herein) of the Company. As of June 30,
1996, the Company had no outstanding indebtedness
that would have constituted Senior Indebtedness.
The Notes are also effectively subordinated in
right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. As of
June 30, 1996, the Company's subsidiaries had no
outstanding indebtedness for money borrowed. The
Indenture will not restrict the incurrence of
Senior Indebtedness or other indebtedness by the
Company or any subsidiary. See "Description of
Notes -- Subordination."

OPTIONAL REDEMPTION........ The Notes will be redeemable at the Company's
option, in whole or in part, at any time on or
after August 16, 1999 at the redemption prices set
forth herein plus accrued interest to the date of
redemption. See "Description of Notes -- Optional
Redemption."

REPURCHASE AT OPTION
OF HOLDERS UPON
A CHANGE OF CONTROL...... In the event of a Change of Control (as defined
herein), each holder of Notes may require the
Company to repurchase its Notes, in whole or in
part, for cash or, at the Company's option, Common
Stock (valued at 95% of the average closing prices
for the five trading days immediately preceding and
including the third trading day prior to the
repurchase date) at a repurchase price of 100% of
the principal amount of Notes to be repurchased,
plus accrued interest to the repurchase date. See
"Description of Notes -- Repurchase at Option of
Holders Upon a Change of Control."

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<PAGE> 5

USE OF PROCEEDS............ The Company plans to use the net proceeds for
general corporate purposes, including research and
development and any potential acquisitions. See
"Use of Proceeds."

LISTING.................... The Notes will not be listed on any securities
exchange or quoted on the Nasdaq Stock Market. The
Underwriter has advised the Company that it intends
to make a market in the Notes. The Underwriter is
not obligated, however, to make a market in the
Notes, and any such market making may be
discontinued at any time at the sole discretion of
the Underwriter without notice.

COMMON STOCK............... The Common Stock is quoted on the Nasdaq National
Market under the symbol "VNTX."

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------
1992 1993(1) 1994 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................................. $ 9,479 $ 25,116 $ 105,616 $ 126,922 $ 54,942
Income (loss) from operations.............................. (8,446) (36,427) 7,388 6,733 (62,728)
Net income (loss).......................................... (7,041) (33,316) 8,979 9,008 (59,981)
Net income (loss) per share................................ $ (0.48) $ (1.85) $ 0.44 $ 0.43 $ (2.89)
Shares used in per share calculations...................... 14,606 17,992 20,611 20,853 20,752
Ratio of earnings to fixed charges(2)...................... NM NM 11.1x 13.5x NM
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................................... $ 30,486 $ 78,586
Total assets....................................................................... 73,461 123,461
Convertible subordinated notes..................................................... -- 50,000
Stockholders' equity............................................................... 53,960 53,960
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................... $ 28,983 $36,556 $ 42,061 $19,322 $ 14,225 $ 10,635 $ 12,801 $ 17,281
Income (loss) from
operations................. 2,210 5,400 6,099 (6,976 ) (17,224 ) (20,124) (14,208 ) (11,172)
Net income (loss)............ $ 2,515 $ 5,493 $ 6,304 $(5,304 ) $(16,232 ) $ (19,303) $(13,639 ) $(10,807)
Net income (loss) per
share...................... $ 0.12 $ 0.26 $ 0.30 $ (0.26 ) $ (0.79 ) $ (0.93) $ (0.66 ) $ (0.52)
Shares used in per share
calculations............... 20,784 20,974 20,940 20,639 20,671 20,719 20,767 20,850
</TABLE>

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(1) Year ended June 30, 1993 includes a charge of approximately $18.6 million
relating to intellectual property settlements.
(2) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred,
including capitalized leases and the portion of rental expense under leases
deemed by the Company to be representative of the interest factor. For the
years ended June 30, 1992, 1993 and 1996, earnings were insufficient to
cover fixed charges by $7.0 million, $33.3 million and $60.0 million,
respectively.
(3) Adjusted to reflect the issuance and sale of the $50.0 million principal
amount of Convertible Subordinated Notes offered hereby.

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RISK FACTORS

In evaluating an investment in the Notes, prospective investors should
carefully consider the following risk factors in addition to the other
information appearing in this Prospectus.

FLUCTUATIONS IN OPERATING RESULTS; PROFITABILITY UNCERTAIN

The Company incurred net losses from its inception in January 1985 through
the year ended June 30, 1993, incurred net losses from the fourth quarter of
fiscal 1995 through fiscal 1996, currently expects to incur a net loss for the
first quarter of fiscal 1997 and may incur a net loss for the first half of
fiscal 1997. If regulatory approval to market the Contour in the United States
is not obtained on a timely basis or at all, the Company's results of operations
will be adversely affected. Results of operations have varied and may continue
to fluctuate significantly from quarter to quarter and will depend upon numerous
factors including timing of regulatory approvals, market acceptance of the
Company's products, introductions of new products with advanced features by the
Company or its competitors, technological advances in the treatment of
arrhythmias, the outcome of intellectual property litigation and competition.
Sales have fluctuated significantly in the past, especially in fiscal 1995 and
fiscal 1996, as competitors introduced products with advanced features. In
particular, the Company's net sales declined from $126.9 million in fiscal 1995,
to $54.9 million in fiscal 1996, primarily as a result of competitors'
introductions of smaller defibrillators with advanced features. The Company's
gross margins will be dependent on production volumes, manufacturing
efficiencies, royalties under patent license agreements, warranty expense,
component price fluctuations, competitive pricing, varying product sales mix and
other factors. There can be no assurance that gross margins will improve in the
future. In addition, a significant portion of the Company's operating expenses
are relatively fixed in nature and planned expenditures are based, in part, on
anticipated orders. Any inability to adjust spending quickly enough to
compensate for revenue shortfalls may magnify the adverse impact of such revenue
shortfall on the Company's results of operations. Furthermore, there can be no
assurance that the Company will achieve profitability in the future or that
profitability, if achieved, will be sustained. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

UNCERTAINTY RELATING TO NEW PRODUCT DEVELOPMENT

The Company's strategy involves the design and development of new products
for the treatment of ventricular tachycardia and ventricular fibrillation. The
product development process is time-consuming and there can be no assurance that
product development will be successfully completed, that necessary regulatory
clearances or approvals will be granted by the FDA on a timely basis, or at all,
or that the potential products will achieve market acceptance. The Company
expects defibrillators with advanced new features, such as dual chamber and
rate-responsive pacing capabilities, will be developed by its competitors.
Failure by the Company to develop, obtain necessary regulatory clearances or
approvals for, or successfully market potential new products with these and
other features could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Products" and
"-- Research and Development."

SIGNIFICANT COMPETITION

Competition in the market for implantable defibrillator systems is intense.
Although patients susceptible to ventricular tachycardia and ventricular
fibrillation may be treated with antiarrhythmic drugs or cardiac ablation
therapies, the Company believes that manufacturers of implantable defibrillators
are its primary competitors. The Company's principal competitors are Cardiac
Pacemakers, Inc. ("CPI"), a subsidiary of Guidant Corporation, and Medtronic,
Inc. ("Medtronic"). Both CPI and Medtronic are large, diversified cardiology and
medical device companies and each has invested substantial amounts in
implantable defibrillator research and development. Other competitors in the
implantable defibrillator market include Telectronics Pacing Systems, Inc., a
subsidiary of Pacific Dunlop Limited ("Telectronics"), Intermedics, Inc., a
subsidiary of Sulzer Brothers Ltd. ("Intermedics") and Angeion Corporation.

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<PAGE> 7

in suitable patients. Until receipt of regulatory approval relating to the Cadet
in May 1996, the Company could not offer an implantable defibrillator labeled
for pectoral implantation in patients in the United States. Commercial release
of pectorally implantable defibrillators significantly increased competition in
the implantable defibrillator market and resulted in a significant decline in
the Company's market share and sales of the Company's products. The Company now
has products, the Cadet and the Contour, which it believes are competitive;
however, there can be no assurance that the Company's products will compete
successfully with products currently manufactured by others or future products
under development by competitors which have new features, such as dual chamber
and rate-responsive pacing capabilities. In addition, while the Contour has been
commercially released in Europe, it has not yet been approved by the FDA for
commercial release in the United States.

Medtronic and CPI have regulatory approval of and are commercially
marketing single lead transvenous lead systems. The Company currently is
marketing the TVL transvenous lead system, a dual lead system. Some physicians
prefer a single lead system due to the perceived ease of implanting such a
system as compared to a dual lead system. The Company is engaged in clinical
trials of single lead transvenous defibrillation lead systems and must receive
regulatory approval prior to commercialization. There can be no assurance as to
when or whether the Company will receive regulatory approval for these systems.
To date, a large percentage of the Company's sales of defibrillators have been
at the direction of physicians who used the Company's defibrillators in
combination with commercially available transvenous lead systems supplied by the
Company's competitors. Therefore, there can be no assurance that physicians will
purchase transvenous lead systems for which the Company obtains regulatory
approval. In particular, physicians preferring single lead systems may choose to
continue to combine competitors' transvenous leads with the Company's
defibrillators, at least until such time as the Company obtains PMA approval for
its single lead systems. Furthermore, there can be no assurance that
manufacturers of competing transvenous lead systems will not attempt to
discourage or prevent use of their leads with the Company's defibrillators
through product labeling, availability, pricing or other means. In general,
unless the FDA-approved labeling includes use with any transvenous lead system
sold by its competitors, the FDA or other government agencies may take further
actions, including restrictions on reimbursement, to restrict the combination of
the Company's defibrillators with such transvenous lead systems. Such actions
could make the Company's defibrillators, including both the Cadet and the
Contour, less attractive to physicians and could therefore have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Transvenous Lead Systems."

Many of the Company's competitors, including both CPI and Medtronic, have
substantially greater financial, manufacturing, marketing and technical
resources than those of the Company. The financial resources of certain of the
Company's competitors may enable them to use pricing pressures as a means of
competition. In addition, competitors have in the past and may in the future
employ litigation to gain a competitive advantage. There can be no assurance
that the Company's competitors will not develop or obtain regulatory approval
for implantable defibrillation systems, or for pharmaceuticals or surgical
alternatives, that may be more effective in treating ventricular tachycardia and
ventricular fibrillation than the Company's current or future products, or that
the Company's technologies and products would not be rendered less competitive
or obsolete by such developments. See "Business -- Competition."

TECHNOLOGICAL CHANGE RESULTING IN PRODUCT OBSOLESCENCE

Market acceptance and sales of the Company's products have historically
been and could in the future be adversely affected by technological changes.
Many companies with substantially greater resources than the Company are engaged
in the development of products and approaches for the treatment of ventricular
tachycardia and ventricular fibrillation. These include implantable devices as
well as pharmaceuticals and cardiac ablation therapies. Future innovations in
the treatment of ventricular tachycardia and ventricular fibrillation could
render existing technologies, and the Company's products, less competitive or
obsolete. See "Business -- Competition."

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<PAGE> 8

UNCERTAINTY OF MARKET ACCEPTANCE

Market acceptance of the Company's implantable defibrillator systems will
depend in part on the therapeutic capabilities and operating features of such
systems as compared to other implantable defibrillators, physicians' willingness
to use the Company's defibrillators with competitors' transvenous defibrillation
leads, and the Company's ability to convince the medical community of the
clinical efficacy of its systems. If regulatory approval to market the Contour
in the United States is not obtained on a timely basis or at all, the Company's
results of operations will be adversely affected. Failure of the Company's
products, including the Contour, to gain market acceptance or limited growth in
the market for implantable defibrillators would have a material adverse effect
on the Company's business, financial condition and results of operations.

PATENTS, PROPRIETARY RIGHTS AND RELATED LITIGATION

The segment of the medical device market that includes implantable
defibrillators has been characterized by extensive litigation regarding patents
and other intellectual property rights. In 1990, two of the Company's
competitors, Telectronics and Intermedics, instituted patent infringement
litigation against the Company. Medtronic and CPI also notified the Company that
they believed the Company infringed patents held by them. The Telectronics suit
and the claims of Medtronic and CPI have been resolved through cross-license
arrangements. See "Business -- Patents and Proprietary Rights."

The pending litigation with Intermedics has resulted and will continue to
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
the pending proceeding could subject the Company to significant liabilities and
could prevent the Company from manufacturing or selling its products, which
would have a material adverse effect upon the Company's business, financial
condition and results of operations and could adversely affect the Company's
ability to continue as a viable entity. Previous litigation against the Company
involving allegations of trade secret misappropriation was resolved in the
Company's favor. See "Business -- Legal Proceedings."

Although the Company believes that it has entered into license agreements
with all of the major participants in the implantable defibrillator market other
than Intermedics, there can be no assurance that other parties will not
institute litigation against the Company. In addition, the license agreements
with Medtronic, Telectronics and CPI do not include patents issued under
applications filed after certain specified dates and thus future patent disputes
with Medtronic, Telectronics and CPI are possible. Any future litigation, as
well as any future interference proceedings that may be declared by the United
States Patent and Trademark Office to determine the priority of inventions,
could result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management personnel. Additional
litigation may be necessary to enforce patents issued to or held by 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. An
adverse determination in litigation or interference proceedings to which the
Company is or may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties. There can, however, be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations and could
adversely affect the Company's ability to continue as a viable entity. See
"Business -- Patents and Proprietary Rights."

The Company files patent applications to protect technology and inventions
that are significant to the development of its business. There can be no
assurance that any of the claims in the Company's pending patent applications
will be allowed, or that any issued patents will be upheld, or not circumvented
by competitors, or that any patents or licenses will provide competitive
advantages for the Company's products. The Company also relies on trade secrets
and proprietary know-how which it seeks

8
<PAGE> 9

to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these 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 independently developed by competitors.

DEPENDENCE ON SOLE SOURCES OF SUPPLY

The Company relies on outside suppliers to manufacture certain major
components of its defibrillator systems. The Company currently has sole source
supply arrangements with its suppliers of hybrid circuits, high voltage
capacitors, integrated circuits, defibrillation lead components, batteries and
certain other components used in its products. For certain components, there are
relatively few potential sources of supply and establishment of additional or
replacement suppliers for these components cannot be accomplished quickly. The
Company has experienced shortages of certain critical components due to
manufacturing yield problems at its suppliers. The Company believes that
alternative sources of supply are available for most components and
subcontracted manufacturing services, and plans to qualify additional suppliers
as production volumes increase. However, there can be no assurance that future
production problems will not be encountered in producing the Cadet, expanding
production of the Contour and the TVL or establishing production of other new
products. In addition, because of the long lead times for some components that
are currently available from only a single source, a vendor's inability to
supply acceptable components in the quantity required could impair the Company's
ability to manufacture new or existing products on a timely and cost effective
basis, could result in substantial unanticipated expenses and delays in the
commercial availability of such products and could have a material adverse
effect on the Company's business, financial condition, and results of
operations. See "Business -- Manufacturing."

RISK OF PRODUCT RECALL

The Company's implantable defibrillator systems include a complex
electronic device and leads designed to be implanted in the human body for long
periods of time. Component failures, manufacturing errors or design defects
could result in an unsafe condition, injury or death to the patient. The
occurrence of such a problem could result in a recall of the Company's products,
explanting implanted defibrillators or leads and the implanting of new
defibrillators or leads.

Previously, the Company experienced certain component failures with the
Cadence defibrillators and with lead systems. For example, during clinical
trials, a small number of Cadence V-100 defibrillators experienced premature
battery depletion due to defective capacitors supplied by an outside vendor. In
all these instances, the devices were explanted and replaced with new
defibrillators. The Company has experienced what it believes, in light of
industry experience, to be a typical level of returns of defibrillator units
from the field for various reasons, none of which the Company believes are
systemic or would otherwise give rise to a product recall. There can, however,
be no assurance that the Company's products will not experience additional
performance difficulties. Future product problems resulting in a recall could
have a material adverse effect on the Company's business, financial condition,
and results of operations. See "Business -- Manufacturing" and "-- Product
Warranty."

PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE

The manufacture and sale of the Company's products entail the risk of
product liability claims. Although the Company maintains product liability
insurance with coverage limits of $25.0 million per occurrence and $25.0 million
in the aggregate per year, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. Product liability insurance
is expensive and may not be available in the future on acceptable terms or at
all. In addition, the Company has indemnified certain of its component suppliers
for certain potential product liability. To date, the Company has not
experienced any material product liability claims. A successful claim brought
against the Company in excess of its insurance coverage could have a material
adverse effect on the Company's business, financial condition and results of
operations and could adversely affect the Company's ability to continue as a
viable entity. Also, as a result of the June 1996 United States Supreme Court
decision in Medtronic,

9
<PAGE> 10

Inc. v. Lohr, which rejected federal pre-emption of certain state law causes of
action in relation to medical devices, the Company expects that product
liability claims relating to medical devices may be pursued more aggressively in
the future. See "Business -- Product Warranty."

GOVERNMENT REGULATION

The Company's products and manufacturing activities are subject to
extensive and rigorous government regulation. In the United States, all
Ventritex products are classified as class III devices, which are subject to the
most stringent FDA review. These devices require submission and approval of a
PMA application or PMA supplement from the FDA before commencement of commercial
marketing, sales and distribution in the United States. If a PMA is granted,
significant modifications to the device, manufacturing process or labeling will
require a supplement to the PMA or require the submission of a new PMA
application, which could require substantial additional efficacy and safety data
and FDA review. The Company is pursuing approval of PMA supplements, including a
supplement relating to the Contour. These supplements may not be accepted by the
FDA. The FDA may require clinical data in order to approve these supplements.
The Company would then be required to conduct an additional clinical trial under
an investigational device exemption ("IDE") and submit data for such trial in
order to commercialize the product. This could result in significant delays in
approval for such products, which delays could have a material adverse effect on
the Company's business, financial condition and results of operations.
Commercial distribution in certain foreign countries is also subject to
extensive government regulation.

The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive and uncertain. Moreover, regulatory approvals, if granted,
may include significant limitations on the indicated uses for which a product
may be marketed. In addition, the FDA may require testing and surveillance
programs to monitor the effect of approved products which have been
commercialized and it has the power to prevent or limit further marketing of a
product based on the results of these post-marketing programs. The FDA actively
enforces regulations prohibiting marketing of products for non-indicated uses.
In addition to FDA inspections conducted prior to the approval of a PMA
application, the FDA also conducts periodic inspections to determine compliance
with current Good Manufacturing Practice ("GMP") and Medical Device Reporting
("MDR") regulations. Failure to comply with applicable regulatory requirements
can result in, among other things, fines, suspensions or delays of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. Furthermore, changes in existing regulations or adoption of new
regulations could prevent the Company from obtaining, or affect the timing of,
future regulatory approvals. There can be no assurance that the Company will be
able to obtain necessary regulatory approvals on a timely basis or at all.
Delays in receipt of or failure to receive such approvals or loss of previously
received approvals could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Government Regulation."

LIMITATIONS ON THIRD PARTY REIMBURSEMENT

Implantable defibrillators are generally purchased by hospitals upon
recommendations of electrophysiologists. Typically, these hospitals then bill
various third party payors for the health care services provided to their
patients. These payors include Medicare, Medicaid and private insurers.
Government agencies reimburse hospitals for medical procedures at rates based
upon Diagnostic-Related Groups ("DRGs").

10
<PAGE> 11

dures is approximately $20,000. Consequently, despite the Company's receipt of
regulatory approvals for its systems, third party payors may deny full
reimbursement. There can be no assurance that the Company's implantable
defibrillator systems will be considered cost effective by third party payors,
that reimbursement will be available, or if reimbursement is available, that
third party payors' reimbursement policies will not adversely affect the
Company's ability to sell its products on a profitable basis. The failure by
hospitals and other users of the Company's products to obtain reimbursement from
third party payors could have a material adverse effect on the Company's
business, financial condition and results of operations.

In addition, legislative initiatives relating to health care reform have
been introduced in Congress and certain state legislatures. These initiatives
have been focused, in large part, on health care cost containment. Such
initiatives, if enacted, could adversely affect the availability of third party
reimbursement for the Company's products and the price levels at which the
Company is able to sell its products. The Company's business, financial
condition and results of operations could be adversely affected by changes in
government and private payors' reimbursement policies relating to procedures
using the Company's products.

Medicare and Medicaid policies currently permit reimbursement for
investigational medical devices if such devices represent evolutionary
modifications to commercially available products. Under this policy, for
example, next generation implantable defibrillators in clinical trials would be
eligible for reimbursement because these devices are derived from an existing,
approved class of products. Because the Company anticipates that it will be
required to conduct clinical trials in connection with future products, changes
in this reimbursement policy could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third Party Reimbursement."

SIGNIFICANT RESTRICTIONS ON CHANGE OF CONTROL AND CERTAIN MINORITY INVESTMENTS

The Company has adopted a number of anti-takeover measures. The Company has
adopted a Preferred Shares Rights Agreement, sometimes referred to as a poison
pill, designed to prevent hostile takeovers not approved by the Board of
Directors. In addition, the Company is authorized to issue 5,000,000 shares of
undesignated Preferred Stock. Such shares of Preferred Stock may be issued by
the Company without stockholder approval upon such terms as the Company's board
of directors may determine. The issuance of Preferred Stock may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of and the
voting and other rights of, the holders of Common Stock. At present, the Company
has no plans to issue any of the Preferred Stock.

In addition, the Company's cross-licenses with Medtronic, Telectronics and
CPI, entered into in connection with the settlement of several intellectual
property litigation matters and disputes, contain significant restrictions that
may have the effect of preventing or substantially impeding an acquisition of,
change in control of, or certain minority investments in, the Company. Such
restrictions include the termination of various licenses and the requirement
that the Company make a substantial payment to one of the licensors upon such
event. See "Risk Factors -- Limitations on Repurchase of Notes" and "Description
of Capital Stock -- Preferred Shares Rights Agreement."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon a limited number of key management and
technical personnel. In addition, the Company's future success will depend in
part upon its ability to attract and retain highly qualified personnel. The
Company competes for such personnel with other companies, academic institutions,
government entities and other organizations. There can be no assurance that the
Company will be successful in hiring or retaining qualified personnel. Loss of
key personnel or the inability to hire or retain qualified personnel could have
a material adverse effect on the Company's business, financial condition and
results of operations.

11
<PAGE> 12

FUTURE CAPITAL REQUIREMENTS

Although the Company anticipates that the net proceeds of this offering
will be sufficient to meet the Company's foreseeable capital requirements, there
can be no assurance that the Company will not require additional financing. The
Company's liquidity and capital requirements will depend upon numerous factors,
including timing of regulatory approvals, market acceptance of the Company's
products, introductions of new products with advanced features by the Company or
its competitors, technological advances in the treatment of arrhythmias, outcome
of intellectual property litigation and competition. Future financings may
result in the issuance of senior securities or in dilution to holders of the
Company's Common Stock. Any such financing, if required, may not be available on
satisfactory terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

RISKS ASSOCIATED WITH POSSIBLE BUSINESS COMBINATION TRANSACTIONS

Although the Company has no pending agreements or commitments in this
regard, the Company has from time to time in the past evaluated and considered
and expects to continue to evaluate and consider the acquisition of
complementary businesses, products and technologies as well as other possible
business combination transactions. Accordingly, the Company may undertake
acquisitions of complementary businesses, products or technologies or become
involved in other business combination transactions in the future. Acquisitions
and other business combinations entail numerous risks, including the potential
inability to successfully integrate the respective companies' businesses or to
realize anticipated synergies, economies of scale or other value, diversion of
management's attention, and loss of key employees. Should there be any such
transaction, there can be no assurance that the Company or its stockholders
would realize value from any such acquisition or business combination which
equals or exceeds the consideration paid to the other parties, or will not
suffer other adverse results from any such transaction. In addition, future
acquisitions by the Company may result in issuances of additional equity
securities, the incurrence of additional debt, large one-time write-offs and the
creation of goodwill or other intangible assets that could result in ongoing
amortization expense. These factors could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."

VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has been and is likely to
continue to be highly volatile. In addition, the stock market and the medical
technology sector in particular have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in the Company's operating
results, shortfalls in revenue or earnings from levels expected by securities
analysts, new product introductions by the Company or its competitors,
announcements of technological innovations or new products by the Company or its
competitors, governmental regulation, developments with respect to patents or
proprietary rights and litigation relating thereto, public concern as to the
safety of products developed by the Company or others and general market
conditions may have a significant adverse effect on the market price of the
Common Stock.

Substantially all of the shares of Common Stock held by current
stockholders of the Company are eligible for immediate sale in the public
market, subject in some cases to the public information, manner of sale, volume
limitation and notice of sale provisions of federal securities laws. Future
sales of such shares could lead to a decline in the market price of the Common
Stock. See "Price Range of Common Stock."

SUBORDINATION

The Notes will be unsecured and subordinated in right of payment in full to
all existing and future Senior Indebtedness of the Company. As a result of such
subordination, in the event of the Company's liquidation or insolvency, payment
default with respect to Senior Indebtedness, a covenant default with respect to
Senior Indebtedness, or upon acceleration of the Notes due to an event of
default, the assets

12
<PAGE> 13

of the Company will be available to pay obligations on the Notes only after all
Senior Indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
The Company may from time to time incur indebtedness constituting Senior
Indebtedness. The Notes are structurally subordinated to the liabilities,
including trade payables, of the Company's subsidiaries. The Indenture does not
prohibit or limit the incurrence of Senior Indebtedness or the incurrence of
other indebtedness and other liabilities by the Company or its subsidiaries. The
incurrence of additional indebtedness and other liabilities by the Company or
its subsidiaries could adversely affect the Company's ability to pay its
obligations on the Notes. In addition, the cash flow and ability of the Company
to service debt, including the Notes, may in the future become dependent in part
upon the earnings from the business conducted by the Company through
subsidiaries and distribution of those earnings, or upon loans or other payments
of funds by those subsidiaries to the Company. As of June 30, 1996, the Company
had no outstanding indebtedness that would have constituted Senior Indebtedness.
As of the same date, the Company's subsidiaries had no outstanding indebtedness
for money borrowed. See "Description of Notes -- Subordination."

LIMITATIONS ON REPURCHASE OF NOTES

Upon a Change of Control, each holder of Notes will have the right, at the
holder's option, to require the Company to repurchase all or a portion of such
holder's Notes. If a Change of Control were to occur, there can be no assurance
that the Company would have sufficient funds to pay the repurchase price for all
Notes tendered by the holders thereof. (The Company may also elect to make such
payment using shares of Common Stock.) In addition, the Company's repurchase of
Notes as a result of the occurrence of a Change of Control may be prohibited or
limited by, or create an event of default under, the terms of agreements related
to borrowings which the Company may enter into from time to time, including
agreements relating to Senior Indebtedness. See "Risk Factors -- Significant
Restrictions on Change of Control and Certain Minority Investments" and
"Description of Notes -- Repurchase at Option of Holders Upon a Change of
Control."

ABSENCE OF PUBLIC MARKET FOR THE NOTES

The Notes will be a new issue of securities with no established trading
market. The Underwriter has advised the Company that it intends to make a market
in the Notes. The Underwriter is not obligated, however, to make a market in the
Notes, and any such market making may be discontinued at any time at the sole
discretion of the Underwriter without notice. There can be no assurance that an
active market for the Notes will develop and continue upon completion of the
offering or that the market price of the Notes will not decline. Various factors
such as changes in prevailing interest rates or changes in perceptions of the
Company's creditworthiness could cause the market price of the Notes to
fluctuate significantly. The trading price of the Notes could also be
significantly affected by the market price of the Common Stock, which could be
subject to wide fluctuations in response to a variety of factors, including
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, developments in
patents or other intellectual property rights, general conditions in the
industry and general economic and market conditions. The Notes will not be
listed on any securities exchange or quoted on the Nasdaq Stock Market and will
only be traded on the over-the-counter market.

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Notes
offered hereby, after deducting underwriting discount and other expenses of the
offering, are estimated to be $48.1 million ($55.4 million if the Underwriter's
over-allotment option is exercised in full).

The Company plans to use the proceeds from the sale of the Notes for
general corporate purposes, including research and development and any potential
acquisitions. Pending such uses, the Company intends to invest such proceeds in
short-term investment grade, interest-bearing instruments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the issuance and sale by the Company
of $50,000,000 in aggregate principal amount of Notes offered hereby:

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Convertible subordinated notes................................... $ -- $ 50,000
-------- --------
Stockholders' equity:
Preferred Stock, par value $.001, 5,000,000 shares authorized;
no shares issued and outstanding............................ -- --
Common Stock, par value $.001, 35,000,000 shares authorized;
20,878,095 shares issued and outstanding(1)................. 21 21
Additional paid-in capital..................................... 158,900 158,900
Accumulated deficit............................................ (104,961) (104,961)
-------- --------
Total stockholders' equity.................................. 53,960 53,960
-------- --------
Total capitalization...................................... $ 53,960 $ 103,960
======== ========
</TABLE>

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

(1) Outstanding Common Stock does not include (i) the approximately 2,909,090
shares of Common Stock issuable upon conversion of the Notes offered
hereby; (ii) 3,326,311 shares of Common Stock reserved for issuance under
the Company's stock option plans, under which options to purchase 2,711,604
shares were outstanding as of June 30, 1996, at a weighted average exercise
price of $19.99 per share, and (iii) 118,268 shares reserved for issuance
under the Company's 1991 Employee Stock Purchase Plan.

14
<PAGE> 15

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "VNTX." The following table shows for the periods indicated the high
and low sales prices for the Common Stock as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1995
First quarter.......................................................... $26 1/2 $16 1/2
Second quarter......................................................... 29 3/4 18 1/4
Third quarter.......................................................... 31 3/4 17 1/4
Fourth quarter......................................................... 19 3/4 13
FISCAL YEAR ENDED JUNE 30, 1996
First quarter.......................................................... $24 1/4 $15 1/2
Second quarter......................................................... 24 3/8 16 7/8
Third quarter.......................................................... 20 1/8 12 7/8
Fourth quarter......................................................... 20 3/4 14 7/8
FISCAL YEAR ENDING JUNE 30, 1997
First quarter (through August 15, 1996)................................ $19 1/8 $12 1/2
</TABLE>

On August 15, 1996, the last bid price of the Common Stock as reported by
the Nasdaq National Market was $13 3/4 per share. As of July 25, 1996, there
were approximately 460 holders of record of the Company's Common Stock.

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock to date.
The Company currently anticipates that it will retain all future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.

15
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statement of operations data below for the years ended
June 30, 1994, 1995 and 1996 and the consolidated balance sheet data as of June
30, 1995 and 1996, are derived from the consolidated financial statements of the
Company audited by Ernst & Young LLP, independent auditors, that are included
elsewhere herein, and are qualified by reference to such financial statements.
The consolidated statement of operations data for the years ended June 30, 1992
and 1993, and the consolidated balance sheet data as of June 30, 1992, 1993 and
1994, are derived from audited consolidated financial statements of the Company
that are not included herein. Operating results for the fiscal year ended June
30, 1996 are not necessarily indicative of results that may be expected for
future periods. The data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein or incorporated herein by reference.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 9,479 $ 25,116 $ 105,616 $ 126,922 $ 54,942
Cost of sales............................................ 5,039 17,029 45,947 55,960 48,774
------- ------- -------- -------- --------
Gross profit (loss).................................... 4,440 8,087 59,669 70,962 6,168
Operating expenses:
Research and development............................... 8,399 12,940 23,334 27,716 30,796
Selling, general and administrative.................... 4,487 12,974 28,947 36,513 38,100
Intellectual property settlements...................... -- 18,600 -- -- --
------- ------- -------- -------- --------
Income (loss) from operations........................ (8,446) (36,427) 7,388 6,733 (62,728)
Other income, net........................................ 1,405 3,111 1,591 3,275 2,747
------- ------- -------- -------- --------
Income before provision for income taxes................. (7,041) (33,316) 8,979 10,008 (59,981)
Provision for income taxes............................... -- -- -- 1,000 --
------- ------- -------- -------- --------
Net income (loss).................................... $ (7,041) $ (33,316) $ 8,979 $ 9,008 $ (59,981)
======= ======= ======== ======== ========
Net income (loss) per share.............................. $ (0.48) $ (1.85) $ 0.44 $ 0.43 (2.89)
======= ======= ======== ======== ========
Shares used in per share calculations.................... 14,606 17,992 20,611 20,853 20,752
======= ======= ======== ======== ========
Ratio of earnings to fixed charges(1).................... NM NM 11.1x 13.5x NM
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30,
----------------------------------------------------------------
1992 1993 1994 1995 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital.......................................... $ 74,355 $33,321 $80,268 $86,207 $30,486
Total assets............................................. 84,825 75,415 116,764 130,339 73,461
Capital lease obligations................................ 221 71 -- -- --
Stockholders' equity..................................... 80,242 47,601 101,373 112,344 53,960
</TABLE>

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

(1) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income before income taxes plus fixed
charges and (ii) fixed charges consist of interest expense incurred,
including capitalized leases, and the portion of rental expense under leases
deemed by the Company to be representative of the interest factor. For the
years ended June 30, 1992, 1993 and 1996, earnings were insufficient to
cover fixed charges by $7.0 million, $33.3 million and $60.0 million,
respectively.

16
<PAGE> 17

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth the unaudited financial results for the
eight fiscal quarters ended June 30, 1996. In the opinion of management, this
information includes all adjustments, consisting only of normally recurring
accruals, necessary for a fair statement thereof. Past quarterly operating
results are not necessarily indicative of the results that may be expected for
future periods. The data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein or incorporated herein by reference.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- --------- -------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales........... $ 28,983 $36,556 $ 42,061 $19,322 $ 14,225 $ 10,635 $ 12,801 $ 17,281
Cost of sales....... 12,075 14,980 19,271 9,634 15,365 13,688 9,523 10,198
------- ------- ------- ------- -------- -------- --------
Gross profit
(loss)........ 16,908 21,576 22,790 9,688 (1,140 ) (3,053) 3,278 7,083
Operating expenses:
Research and
development..... 6,650 7,214 6,736 7,116 7,094 8,013 7,394 8,295
Selling, general
and
administrative... 8,048 8,962 9,955 9,548 8,990 9,058 10,092 9,960
------- ------- ------- ------- -------- -------- --------
Income (loss)
from
operations.... 2,210 5,400 6,099 (6,976 ) (17,224 ) (20,124) (14,208 ) (11,172)
Other income, net... 585 705 903 1,082 992 821 569 365
------- ------- ------- ------- -------- -------- --------
Income (loss) before
provision for
income taxes...... 2,795 6,105 7,002 (5,894 ) (16,232 ) (19,303) (13,639 ) (10,807)
Provision for
(benefit from)
income taxes...... 280 612 698 (590 ) -- -- -- --
------- ------- ------- ------- -------- -------- --------
Net income
(loss)........ $ 2,515 $ 5,493 $ 6,304 $(5,304 ) $(16,232 ) $ (19,303) $(13,639 ) $(10,807)
======= ======= ======= ======= ======== ======== ========
Net income (loss)
per share......... $ 0.12 $ 0.26 $ 0.30 $ (0.26 ) $ (0.79 ) $ (0.93) $ (0.66 ) $ (0.52)
======= ======= ======= ======= ======== ======== ========
Shares used in per
share
calculations...... 20,784 20,974 20,940 20,639 20,671 20,719 20,767 20,850
======= ======= ======= ======= ======== ======== ========
</TABLE>

17
<PAGE> 18

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

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

OVERVIEW

Since its inception, the Company and its subsidiaries have engaged in the
design, development, manufacture and sale of implantable defibrillators and
related products. In April 1993, the FDA approved the Company's PMA for
commercial release of the Cadence V-100 system. In July 1994, the FDA approved
the Company's PMA supplements for the Cadence V-110 system, a smaller, lighter
version of the Cadence V-100. In December 1995, the FDA approved the PMA
supplements for the Cadet V-115 defibrillator system for abdominal implantation
only. In May 1996, the FDA approved the PMA supplement to label the Cadet V-115
for pectoral implantation. Also in May 1996, the FDA approved the PMA for the
TVL transvenous lead system. The Cadet V-115 is smaller and lighter than the
Cadence V-100 and V-110 implantable defibrillators but has the same or improved
functional and performance characteristics. During June 1996, the Company
submitted a PMA supplement for the Contour V-145 defibrillator system. The
Contour V-145 is designed to be smaller and lighter than the Cadet V-115
implantable defibrillator and have the same functional and performance
characteristics.

In March 1995, the FDA approved the commercial release of new
defibrillators manufactured by CPI and Medtronic which are small enough to allow
pectoral implantation, rather than abdominal implantation, in suitable patients.
Until receipt of regulatory approval relating to the Cadet in May 1996, the
Company could not offer an implantable defibrillator labeled for pectoral
implantation in patients in the United States. Commercial release of pectorally
implantable defibrillators significantly increased competition in the
implantable defibrillator market and resulted in a significant decline in the
Company's market share and sales of the Company's products. The Company now has
products, the Cadet and Contour, which it believes are competitive; however,
there can be no assurance that the Company's products will compete successfully
with products currently manufactured by others or future products under
development by competitors which have new features, such as dual chamber and
rate-responsive pacing capabilities. In addition, while the Contour has been
commercially released in Europe, it has not yet been approved by the FDA for
commercial release in the United States.

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RESULTS OF OPERATIONS

YEARS ENDED JUNE 30, 1996, 1995 AND 1994

Net Sales

Net sales for fiscal 1996 were $54.9 million, compared to $126.9 million
during fiscal 1995 and $105.6 million in fiscal 1994. The fiscal 1996 decrease
of $72.0 million, or 57%, reflects lower unit shipments and average unit pricing
as compared to fiscal 1995 due primarily to the introduction by the Company's
principal competitors of defibrillators capable of being implanted pectorally.
Fiscal 1996 unit shipments decreased approximately 55% from fiscal 1995 levels
and average unit prices decreased approximately 3%. As compared to the third
quarter of fiscal 1996, unit shipments in the fourth quarter increased
approximately 30% and average unit prices increased approximately 4% due to
regulatory approval for pectoral implantation of the Cadet. Sales in fiscal 1995
increased compared to fiscal 1994 as a result of increased unit shipments. Sales
of defibrillators provided substantially all of the Company's revenues in these
periods. A majority of the Company's sales in each period were to hospitals at
the request of physicians who used Ventritex defibrillators in combination with
a competitor's transvenous defibrillation lead systems. Sales invoiced in
foreign currencies are less than 5% of total net sales. The Company currently
does not hedge the risk of currency exchange rate fluctuations.

Gross Profit

Gross profit was $6.2 million in fiscal 1996 compared to $71.0 million in
fiscal 1995 and $59.7 million in fiscal 1994. Gross margin (gross profit as a
percent of net sales) was approximately 11% for fiscal 1996, as compared to
approximately 56% in both fiscal 1995 and 1994. However, the gross margin was
41% for the fourth quarter of fiscal 1996, reflecting the somewhat stronger
sales in the fourth quarter. The decrease in gross profit from fiscal 1995 to
fiscal 1996 reflects substantial reductions in unit shipments, increased
provisions for excess and obsolete inventory, decreased production levels and
lower average unit pricing in fiscal 1996. Fiscal 1996 includes a provision of
$17.1 million for potentially excess inventory and cancellation of purchase
commitments for components. These provisions resulted from the rapid adoption of
competitors' defibrillators that allow pectoral, rather than abdominal,
implantation in suitable patients and the approval of additional competitive
defibrillator systems labeled for pectoral implantation. The increase in gross
profit from fiscal 1994 to fiscal 1995 was primarily due to increases in sales
volume and lower per-unit component costs, partially offset by increases in
royalty expenses, increased spending to establish leads manufacturing capability
and increased provisions for product obsolescence.

During the first half of fiscal 1996, in anticipation of regulatory
approval, the Company began production of its Cadet V-115 defibrillator system
and TVL transvenous lead system, and initially experienced shortages of certain
critical components due to manufacturing yield problems at its suppliers. As a
result, supplies of the Cadet V-115 defibrillator system were limited. There can
be no assurance that future production problems will not be encountered in
producing the Cadet, expanding production of the Contour and the TVL or
establishing production of other new products currently under development.
Failure to manufacture new or existing products on a timely and cost effective
basis could result in substantial unanticipated expenses, delays in the
commercial availability of such products, and could have a material adverse
effect on the Company's business, financial condition and results of operations.

Gross margins have fluctuated historically due to variations in production
volume, manufacturing efficiencies, product obsolescence, new product
introductions by the Company or its competitors, royalty rates, warranty
expense, component price fluctuations, competitive pricing, and other factors.
Gross profits may fluctuate in the future in both dollar amount and as a
percentage of net sales due to these and other factors, including component part
availability, regulatory actions and changes in reimbursement policies by either
government or private insurance companies.

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Operating Expenses

Operating expenses were $68.9 million in fiscal 1996 compared to $64.2
million in fiscal 1995 and $52.3 million in fiscal 1994.

Research and development expenditures increased approximately 11% to $30.8
million in fiscal 1996, compared to $27.7 million in fiscal 1995 and $23.3
million in fiscal 1994. The increase in spending during fiscal 1996 was
primarily due to costs associated with early production stages of the Cadet
defibrillator system in addition to design costs for Contour, transvenous lead
systems and future products. The Company's research and development expenses
relate to various research, product and process development, clinical trial and
quality assurance activities. Ventritex plans to continue to invest in research
and development and expects such expenses to continue to increase in dollar
amount in the future.

Selling, general and administrative expenses increased to $38.1 million in
fiscal 1996 from $36.5 million in fiscal 1995 and $28.9 million in fiscal 1994.
The increase for fiscal 1996 reflects increases in amortization costs of
external equipment to support defibrillators (which are supplied to customers on
long-term loan, typically at no charge, in accordance with industry practice)
and the expenses of a direct operating subsidiary in Germany formed in fiscal
1996. These increases were partially offset by decreases in compensation
expense, commission expenses as a result of decreased revenues as discussed
above, insurance expense, software system implementation costs and the impact of
provisions for potential doubtful accounts. Management incentive bonuses were
not accrued, and provisions for potential doubtful accounts were not booked in
fiscal 1996, while such accruals and provisions were booked in fiscal 1995.
Legal expenses decreased approximately $0.3 million from fiscal 1995 to fiscal
1996, but are expected to increase significantly in future periods as the
Intermedics litigation moves beyond jurisdictional matters. Fiscal 1995 expenses
were greater than those of fiscal 1994 due to increased staffing and associated
expenses, amortization costs of external equipment, costs associated with
implementation of a new software system, research grants and donations,
insurance expense and costs related to unit sales volume increase.

Other Income

Other income, consisting primarily of interest income, was $2.7 million in
fiscal 1996 compared to $3.3 million and $1.6 million in fiscal 1995 and fiscal
1994, respectively. Fluctuations in interest income reflect changes in invested
cash balances and interest rates.

Income Taxes

The Company has established a valuation allowance for deferred tax assets
resulting from operating losses incurred in fiscal 1996 and fiscal 1994;
accordingly no tax benefits were recorded in such years. For fiscal 1995, the
provision for income taxes was 10% of pre-tax income, reflecting the benefit
from the utilization of tax net operating loss carryforwards.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's results of operations have varied, may continue to fluctuate
significantly from quarter to quarter, and will depend upon numerous factors
including: timing of regulatory approvals, market acceptance of the Company's
products, introductions of new products with advanced features by the Company or
its competitors, technological advances in the treatment of arrhythmias, outcome
of intellectual property litigation, competition and component part
availability. The Company's gross margins will be dependent on production
volume, manufacturing efficiencies, product obsolescence, competitive pricing,
royalties under patent license agreements, component price fluctuations, varying
product sales mix, warranty expense and other factors. The Company's future
operating results may fluctuate as a result of these and other factors,
including seasonality and health care reimbursement policies.

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The Company typically manufactures to its internal sales forecast, fills
orders as received, and has no significant backlog of orders for its products.
In addition, major components of the Company's defibrillator systems require
firm purchase commitments (which may not be cancelable) well in advance of the
anticipated delivery of such components. As a result, failure to accurately
anticipate future demand may result in substantial excess inventory, significant
cancellation costs for purchase commitments, or inability to meet demand for the
Company's products and could have a material adverse effect on the Company's
business, financial condition and results of operations.

A significant portion of the Company's operating expenses are relatively
fixed, and planned expenditures are based primarily on sales forecasts and
product development programs. If sales do not meet the Company's expectations in
any given period, the adverse impact on operating results may be magnified by
the Company's inability to adjust operating expenditures quickly enough to
compensate for such a shortfall. The Company's net sales decreased significantly
in the fourth quarter of fiscal 1995 due to the commercial availability of
competitive defibrillator systems, decreased further in the first two quarters
of fiscal 1996 and did not increase significantly in the third quarter of fiscal
1996. Net sales in the fourth quarter of fiscal 1996 increased as compared to
such third quarter, but remained below the level of the fourth quarter of fiscal
1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash and equivalents and short-term investments totaled $22.6 million at
June 30, 1996, compared to $73.9 million at June 30, 1995. The decrease of $51.3
million reflects cash used in operations of $43.1 million, and investments in
capital equipment and leasehold improvements of $9.1 million partially offset by
proceeds from exercise of stock options and an employee stock purchase plan of
$1.6 million.

In view of current and anticipated capacity requirements, the Company
anticipates capital expenditures of approximately $6.0 million in fiscal 1997,
as compared with $13.4 million in fiscal 1995 and approximately $9.1 million in
fiscal 1996. Fiscal 1997 capital expenditures are expected to be made
principally in connection with the purchase of new equipment.

The Company believes that the proceeds of this offering, together with
current cash balances, will be sufficient to meet the Company's foreseeable
capital requirements. However, Ventritex may use debt or other means of
financing when deemed necessary and/or financially advantageous. The Company's
liquidity and capital requirements will depend upon numerous factors, including
the extent to which the Company's future products gain market acceptance, the
duration and magnitude of operating losses, FDA regulatory actions, changes in
health care reimbursement policies, and intellectual property litigation to
which the Company is or may become a party.

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BUSINESS

THE COMPANY

Ventritex designs, develops, manufactures and sells implantable
defibrillators and related products for the treatment of ventricular tachycardia
and ventricular fibrillation. Ventricular tachycardia and ventricular
fibrillation are the most serious and life-threatening forms of abnormal heart
rhythms ("arrhythmias"). The Company's principal product, the Cadet V-115
implantable defibrillator, is an electronic device that is implanted in the
patient's pectoral (chest) or abdominal region and is connected to the patient's
heart with defibrillation leads, which are typically implanted transvenously.
The Cadet V-115 is the successor to the Company's Cadence V-100 and V-110
implantable defibrillators, which are considerably larger than the Cadet V-115
and are implanted in the patient's abdominal region. The Cadet has the same
functional and performance characteristics as larger Ventritex defibrillators
and offers features, including high defibrillation energy output and extended
electrogram ("EGM") storage, superior to competing defibrillators that can be
implanted pectorally. As of June 30, 1996, approximately 1,000 Cadet and 17,250
Cadence implants had been performed at over 550 sites. The Company's
defibrillators monitor the heartbeat and deliver electrical pulses or shocks to
the heart to terminate ventricular tachycardia and ventricular fibrillation in
patients. In ventricular tachycardia, the heart's ventricles contract at an
abnormally rapid rate and typically deliver less blood to the body's tissues and
organs. Episodes of ventricular tachycardia occur unpredictably and can progress
to ventricular fibrillation. In ventricular fibrillation, the heart's normal
electrical impulses become disorganized and erratic and the heart ceases to pump
blood. If ventricular fibrillation is not terminated quickly, the individual
will experience a sudden cardiac death ("SCD") episode during which the
individual will become unconscious and, without prompt medical intervention,
typically will die.

BACKGROUND

The heart is divided into four chambers, two upper chambers called atria
and two lower chambers called ventricles. The heart's function is to pump blood
through the body's circulatory system. Each normal heartbeat is the result of
electrical signals generated at a precise area in the right atrium, called the
sino-atrial node, the heart's natural pacemaker. These electrical signals cause
a physical contraction of the atria, which pump blood into the ventricles. The
electrical impulses then continue to the ventricles, causing them to contract
and distribute blood throughout the body.

Arrhythmias, abnormal rhythms of the heart muscle, arise from numerous
causes, including tissue damage due to previous heart attacks, congenital
defects and certain diseases. Arrhythmias originate in either the atria, where
they are generally not life-threatening, or the ventricles, where they can
significantly interfere with the pumping of oxygenated blood and can therefore
be life-threatening. During an arrhythmia, the heart beats either too slowly or
too rapidly. An abnormally slow heart rate, generally defined as a heart rate
below 50 beats per minute, is known as bradycardia. Ventricular tachycardia, a
more serious arrhythmia, occurs when abnormal electrical signals occur in the
ventricles, causing the ventricles to beat at an abnormally rapid rate. When the
ventricles beat at an abnormally rapid rate, they do not have sufficient time to
fill with blood prior to each contraction and therefore less blood is pumped out
of the heart. As a result, less oxygen is carried to the tissues and organs of
the body. This lack of oxygen can cause dizziness, unconsciousness, cardiac
arrest and, ultimately, death.

Patients experiencing heart problems are usually treated initially by
cardiologists. Cardiologists may refer patients with ventricular
tachyarrhythmias to specialists in electrophysiology, a cardiology subspecialty
requiring extensive, advanced training in the diagnosis and treatment of
arrhythmias. Typically, an electrophysiologist will conduct extensive testing to
determine the appropriate therapy, including testing various drugs to determine
their potential for preventing future spontaneous tachyarrhythmias.
Electrophysiology testing is a costly procedure and often requires
hospitalization. If an antiarrhythmic drug is successful in these tests, the
drug will usually be prescribed for the patient. If an appropriate drug cannot
be identified, or if the patient's ventricular tachyarrhythmia is judged to be
too critical to be treated by drugs alone, the electrophysiologist will
typically elect to implant a defibrillator.

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MARKET

UNITED STATES

Since the first defibrillator implant in 1981, the Company estimates that
through 1995 over 90,000 defibrillators have been implanted in the United
States, including approximately 22,000 in 1995. Implantable defibrillators are
generally purchased by hospitals upon the recommendation of
electrophysiologists. Currently, approximately 1,200 electrophysiologists
practice at medical centers in the United States where defibrillator implants
are performed. Approximately 400,000 people experience SCD in the United States
every year, accounting for about half of all cardiac mortality. The Company
believes that referrals of individuals who are at risk of SCD to
electrophysiologists have been increasing annually as physicians have become
more aware of the benefits of electrophysiology testing. Recent studies suggest
that individuals at high risk of SCD who do not receive an implantable
defibrillator but receive drug therapy alone have a significantly higher
mortality rate from SCD.

Recently, a clinical study sponsored by a competing manufacturer of
implantable defibrillators demonstrated the clinical utility of implanting
defibrillators in additional classes of patients that are at high risk of an SCD
episode. In particular, this study demonstrated the utility of implanting
defibrillators in patients who have suffered a heart attack and are at high risk
of an SCD episode but who do not exhibit other symptoms, such as sustained
ventricular tachycardia. As a result of this study, the sponsoring manufacturer
has been permitted by the FDA to expand the labeling of its device to include
this class of patients. The Company is seeking FDA approval of a PMA supplement
to similarly expand the labeling of its implantable defibrillators. Although
there can be no assurance as to the action the FDA will take in this regard, a
broadening of the classes of patients that can receive defibrillator implants
could result in an increased market for defibrillators.

INTERNATIONAL

To date, the United States market has represented approximately 80% of the
world market for implantable defibrillators. The international market for
implantable defibrillators has been constrained by the lack of effective
emergency medical services in many developed countries. However, certain
international markets, including particularly Germany and Italy, represent
attractive markets for implantable defibrillators, and, to the extent that
emergency medical services in other countries improve, the market for
implantable defibrillators in these countries could correspondingly grow.

IMPLANTABLE DEFIBRILLATORS

An implantable defibrillator is an electronic device that is implanted in
the patient and is designed to monitor the patient's heartbeat and deliver
electric pulses or shocks to the heart to terminate ventricular
tachyarrhythmias. The limitations of first and second generation implantable
defibrillators led to the development of third-generation defibrillators capable
of providing tiered therapy. Tiered therapy defibrillators are designed to
provide three types of therapy: (i) low voltage electrical pacing pulses to
terminate ventricular tachycardia, (ii) one or more cardioversion shocks to
convert, to a normal rhythm, ventricular tachycardia that cannot be controlled
through antitachycardia pacing, and (iii) high-energy defibrillation shocks to
terminate ventricular fibrillation. Third-generation implantable defibrillators
also provide greater programmability to increase the physician's ability to
customize therapy to a patient's condition during and after implant. The
Company's Cadence V-100 defibrillator and a competitor's third-generation,
tiered therapy implantable defibrillator received PMA approval in 1993. The
Cadence V-100 was the first third-generation, tiered therapy implantable
defibrillator incorporating both electrogram ("EGM") storage and a biphasic
defibrillation waveform to receive regulatory approval. The Company's Cadence
V-110 implantable defibrillator, a smaller version of the V-100 with similar
performance characteristics, and a competitor's third-generation defibrillator
received regulatory approval in 1994.

Competition in the market for tiered therapy implantable defibrillators
increased significantly in March 1995 with FDA approval of a PMA application for
implantable defibrillators manufactured by two of the Company's competitors, CPI
and Medtronic, which allowed implantation in the pectoral area, rather than the
abdominal area, in suitable patients. The ability to implant the defibrillator
pectorally enables the

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implant procedure to be performed by an electrophysiologist alone, rather than
in conjunction with a surgeon. In May 1996, the Company received FDA approval
for pectoral implantation labeling of the Cadet V-115 implantable defibrillator.
The Cadet V-115 is comparable in size to the new defibrillators introduced by
CPI and Medtronic.

TRANSVENOUS LEAD SYSTEMS

Since the United States commercial introduction of transvenous
defibrillation leads in 1994, transvenous lead systems, in which the
defibrillation leads are implanted through a vein to connect the defibrillator
with the heart, have become the preferred type of lead system.

Defibrillation lead systems require two electrodes to deliver electrical
energy to the heart. Defibrillation lead systems can be configured with two
leads, in which case a single electrode will be placed on each lead. In
addition, two single lead configurations are possible. In one such
configuration, two electrodes are placed on a single lead. Alternatively, in a
configuration known as a "high voltage can," one or two electrodes are placed on
the lead and the housing of the defibrillator unit serves as the second or third
electrode. Certain physicians may have a preference for single lead systems
because of their belief that a single lead system is easier to implant. However,
the Company estimates that, as compared to a single lead system, a dual lead
system requires approximately five additional minutes to implant and offers
additional flexibility in electrode configuration.

In May 1996, the Company received FDA approval of a PMA application for its
TVL transvenous defibrillation lead system. The TVL is configured as a dual lead
system. The Company is currently engaged in clinical trials of two single lead
systems, one in which both electrodes are on a single lead and a second with a
single electrode on the lead and another on a high voltage can version of the
Cadet V-115 defibrillator. There can be no assurance as to when or whether the
Company will receive PMA approval for such single lead systems.

To date, a large percentage of the Company's sales of defibrillators have
been at the direction of physicians who used the Company's defibrillators in
combination with commercially available transvenous lead systems supplied by the
Company's competitors. Therefore, there can be no assurance that physicians will
purchase transvenous lead systems for which the Company obtains regulatory
approval. In particular, physicians preferring single lead systems may choose to
continue to combine competitors' transvenous leads with the Company's
defibrillators, at least until such time as the Company obtains PMA approval for
its single lead systems. Furthermore, there can be no assurance that
manufacturers of competing transvenous lead systems will not attempt to
discourage or prevent use of their leads with the Company's defibrillators
through product labeling, availability, pricing or other means. In general,
unless the FDA-approved labeling includes use with any transvenous lead system
sold by its competitors, the FDA or other government agencies may take further
actions, including restrictions on reimbursement, to restrict the combination of
the Company's defibrillators with such transvenous lead systems. Such actions
could make the Company's defibrillators, including both the Cadet and the
Contour, less attractive to physicians and could therefore have a material
adverse effect on the Company's business, financial condition and results of
operations.

PRODUCTS

The Cadet implantable defibrillator system consists of a Cadet
microprocessor-based implantable defibrillator; sensing/pacing and
defibrillation leads that connect the Cadet defibrillator to the patient's
heart; the Programmer, a customized personal computer that the
electrophysiologist uses to program the defibrillator's operating parameters
during and after the implant and to retrieve information from the device after
implant; and the High Voltage Stimulator ("HVS-02") that the electrophysiologist
may use during the implant procedure to ensure proper placement of the leads, to
determine the level of energy needed to defibrillate the patient, and to perform
testing before implanting the Cadet defibrillator.

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CADET V-115 DEFIBRILLATOR

The Company's principal product, the Cadet V-115 implantable defibrillator,
is a third-generation, tiered therapy implantable defibrillator that uses a
sophisticated sensing system to continuously monitor the patient's heart rate
and employs a complex set of algorithms to distinguish various types of
ventricular arrhythmias. The tiered therapy Cadet system may be programmed to
initially deliver low voltage antitachycardia pacing designed to control
ventricular tachycardias that can be terminated by such pacing. The Cadet can
also be programmed to deliver cardioversion shocks in an attempt to convert
ventricular tachycardia to a normal rhythm, or deliver one or more high energy
electric shocks to the heart to terminate ventricular fibrillation. Cadet
defibrillators are programmed by the physician upon implant and periodically
thereafter to respond to a patient's changing needs.

A Cadet defibrillator, configured for use with a Ventritex lead system, is
73 cubic centimeters in size and has been designed to be small enough to be
implanted in the pectoral region while delivering the same functional and
performance characteristics as larger tiered therapy implantable defibrillators
that must be implanted in the abdomen. Key features of the Cadet include the
following:

- High Defibrillation Energy Output. The Cadet delivers energy output up
to approximately 38 joules, which is more than other pectorally
implantable defibrillators that are commercially available or, to the
Company's knowledge, in clinical trials in the United States. Since
certain patients require a high level of energy output to terminate
ventricular fibrillation, the Cadet's high power output can expand the
range of patients who can be effectively treated as well as providing an
additional safety margin.

- Programmability. Cadet defibrillators are configured to provide the
electrophysiologist with the ability to vary the operating parameters of
implanted units using the Programmer. This programmability allows the
physician to customize therapy to the patient's condition during and
after implant. The Programmer is menu-driven and features a touch screen
interface to simplify device programming and information retrieval.

- Biphasic Defibrillation Waveform. Cadet defibrillators can deliver
electrical shocks to the patient in a monophasic or biphasic waveform.
Clinical studies suggest that biphasic waveforms achieve improved
defibrillation efficacy compared to monophasic waveforms.

- Electrogram Storage. Cadet defibrillators continuously collect data to
record information on the patient's arrhythmic events in EGM form. This
feature provides valuable information that enables the
electrophysiologist to analyze spontaneous arrhythmic events that the
patient has experienced, to evaluate the effectiveness of therapies that
were delivered in response to arrhythmic events and, if appropriate, to
adjust operating parameters of the device. The Cadet provides up to 8
minutes of EGM storage. The continuous EGM storage provided by the Cadet,
as compared to the segmented EGM data provided by certain competing
defibrillators, improves the quality of EGM data available to the
electrophysiologist for arrhythmia diagnosis.

- Continuous Sensing and Non-Committed Therapy. Cadet defibrillators
continuously sense the heart's activity while the defibrillator is
charging its high voltage capacitors to the level required for the
indicated therapy, and can abort the charging process if the patient's
heart function spontaneously returns to normal. This feature is
significant because the Cadet defibrillator does not subject the patient
to unnecessary and painful electric shocks if the patient's heart
function spontaneously returns to normal.

- Backup Bradycardia Pacing. Cadet defibrillators can provide pacing to
correct an abnormally slow heartbeat. This pacing is sometimes necessary
to restart a patient's heart following a defibrillation shock. This
feature reduces the need to implant a second device for those patients
who would otherwise require a bradycardia pacemaker.

Cadet defibrillators are constructed as one-piece, hermetically sealed
units which contain hybrid circuits, high voltage capacitors and batteries.
Hybrid circuits include custom VLSI circuits, a semi-

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custom microprocessor and memory chips. The hybrid circuits process and store
data and control the operation of the Cadet units. The capacitors accumulate an
electric charge and deliver high voltage shocks. The Cadet implantable
defibrillator is battery-powered and is designed to have a life of three to five
years, although battery life varies depending on the frequency and duration of
pacing and the number of times the capacitors are charged to high voltage. The
list price for the Cadet V-115, without leads, is approximately $20,000.

CONTOUR V-145 DEFIBRILLATOR

To date, a limited number of Contour V-145 implantable defibrillators have
been implanted in patients in the United States and Europe. At 57 cubic
centimeters, the Contour is one of the smallest third-generation implantable
defibrillators. The Contour offers the same high, approximately 38 joule energy
output provided by the Cadet and provides 16 minutes of stored EGM data. In June
1996, the Company submitted a PMA supplement for the Contour to the FDA;
however, there can be no assurance that the FDA will accept this submission as a
PMA supplement. The FDA could instead require additional testing of the Contour
and could also require clinical data in order to approve the supplement. The
Company would then be required to conduct additional clinical trials under an
IDE and submit data from such trials. This could result in significant delays in
approval for the Contour. Delays in receiving or failure to receive PMA approval
for the Contour would have a material adverse effect on the Company's business,
financial condition and results of operations.

TVL TRANSVENOUS LEAD SYSTEM

The Company's principal lead system which is labeled for use with Cadet
defibrillators is the TVL transvenous lead system. The Company received
regulatory approval for the TVL system in May 1996. The TVL system employs a
dual lead configuration. The TVL leads are designed to offer the flexibility and
maneuverability of pacemaker leads, which have been implanted transvenously for
many years, making them easy to handle and place in the patient. TVL leads
provide sensing and pacing and are used to monitor heart function and to deliver
antitachycardia or bradycardia pacing, as needed. The current list price of the
TVL system is approximately $5,500.

NEW SINGLE LEAD SYSTEMS

The Company has developed and is conducting clinical trials of two single
lead systems to provide additional flexibility for electrophysiologists in
selecting a lead system and to accommodate the preferences of many
electrophysiologists for a single lead system. The Company's SPL system is a
single lead with two defibrillation electrodes. The Company is also conducting
clinical trials of a "high voltage can" version of the Cadet V-115. In this
system, one electrode is on the lead and the housing of the Cadet, which is made
of titanium, serves as the other electrode. The Company submitted a PMA
supplement for the high voltage can versions of the Cadet and the Contour to the
FDA in July 1996 and intends to submit PMA supplements for the SPL system to the
FDA. There can, however, be no assurance that the FDA will accept these
submissions as PMA supplements. The FDA could instead require additional testing
of or modification to the SPL or the Company's high voltage can defibrillator
and could also require clinical trials under an IDE and completion of the entire
PMA approval process, as opposed to the typically shorter PMA supplement
process. Delays in receiving or failure to receive PMA approval for the SPL or
the high voltage can defibrillator could have a material adverse effect on the
Company's business, financial condition and results of operations.

PROGRAMMER

Ventritex Programmers are customized personal computers that provide
communication with the Company's defibrillators using a specialized
communication wand. This feature allows the physician to alter the operating
parameters of Cadet defibrillators, to receive and display diagnostic data and
to non-invasively induce ventricular tachycardia or fibrillation in the patient
to periodically evaluate the patient's defibrillation threshold and
defibrillator performance. The Programmer is menu driven and uses a color touch
screen to highlight programming steps and changes, which simplifies the setup
and monitoring of

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defibrillator operating parameters. The Company typically provides Programmers
without charge for each domestic site implanting the Company's defibrillators.
As a result, the Company anticipates expensing approximately $6 million during
fiscal 1997 for Programmers and HVS-02 high voltage stimulators provided to
hospitals and other sites where the Company's defibrillators are implanted.

HIGH VOLTAGE STIMULATOR

The HVS-02 high voltage stimulator is an external device that may be used
by the electrophysiologist during the implant procedure to facilitate proper
placement of the leads and to induce and terminate ventricular tachycardia or
fibrillation to determine the energy required to defibrillate the patient. It
provides an external defibrillator to determine defibrillation thresholds, a
pacing system analyzer to properly position the sensing/pacing leads, and a
programmable stimulator to induce either ventricular tachycardia or
fibrillation. Typically, one HVS-02 is used at each institution implanting the
Company's defibrillators and HVS-02 devices are typically provided by the
Company without charge. However, it is also possible to have the defibrillator
itself perform the functions of the HVS-02 during the implant procedure, and an
increasing number of implants are currently being performed without use of the
HVS-02.

RESEARCH AND DEVELOPMENT

The Company's research and development efforts include various research,
product and process development, clinical trial and quality assurance
activities. These activities are performed by the Company's staff and are
supplemented by work conducted on the Company's behalf by outside sources. The
Company is engaged in research and development projects for future defibrillator
systems, transvenous defibrillation lead systems and external equipment. Delays
in development of new products by Ventritex or developments involving
competitors, including commencement of clinical trials or commercialization of
new implantable devices, pharmaceuticals, cardiac ablation or surgical
alternatives for the treatment of ventricular tachycardia or ventricular
fibrillation, could have a material adverse effect on the Company's business,
financial condition and results of operations.

Research and development expense was $30.8 million, $27.7 million and $23.3
million for fiscal years 1996, 1995 and 1994, respectively. The Company expects
research and development expense to continue to increase in dollar amount in the
future.

Market acceptance and sales of the Company's products could be adversely
affected by technological changes. Many companies with substantially greater
resources than the Company are engaged in the development of products and
approaches for the treatment of ventricular tachycardia and ventricular
fibrillation. These include implantable devices as well as pharmaceuticals and
cardiac ablation therapies. Future innovations in the treatment of ventricular
tachycardia and ventricular fibrillation could render existing technologies,
including the Company's systems, less competitive or obsolete.

CLINICAL ENGINEERING, MARKETING AND SALES

The Company's skilled sales, marketing, clinical engineering and support
staff consult with electrophysiologists on the features and applications of the
Company's products. In addition, sales and field clinical engineering personnel
conduct ongoing training sessions and provide clinical support by attending
defibrillator implants and patient follow-up sessions.

The Company's field sales and field clinical engineering organizations
currently include approximately 60 individuals. The field organization enables
the Company to focus its marketing program on electrophysiology centers in the
United States. In addition, the Company is addressing international markets,
typically through specialty cardiovascular product distributors. During fiscal
1996, the Company established a direct sales and field clinical engineering
organization in Germany.

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<PAGE> 28

MANUFACTURING

The Company's manufacturing facility based in Sunnyvale, California
contains assembly areas where its products are assembled and tested. The
manufacturing area includes controlled environment rooms in which certain lead
systems are manufactured, and the completed defibrillators and lead systems are
packaged before being sent to an outside sterilization facility. The Company's
quality assurance group performs tests at various steps in the manufacturing
cycle to ensure compliance with the Company's specifications.

During the first half of fiscal 1996, in anticipation of regulatory
approval, the Company began production of its Cadet V-115 defibrillator system
and TVL transvenous lead system, and initially experienced shortages of certain
critical components due to manufacturing yield problems at its suppliers. There
can be no assurance that future production problems will not be encountered in
production of the Company's current or future products. Failure to manufacture
new or existing products on a timely and cost effective basis could result in
substantial unanticipated expenses, delays in the commercial availability of
such products, and could have a material adverse affect on the Company's
business, financial condition and results of operations.

PRODUCT WARRANTY

The Company's defibrillators are warranted for the earlier of three years
or 100 high voltage capacitor charges, assuming nominal pacing during the time
the unit is implanted. Previously, the Company experienced certain component
failures with the Cadence defibrillator and with lead systems. For example,
during clinical trials, a number of Cadence V-100 defibrillators experienced
premature battery depletion due to defective capacitors supplied by an outside
vendor. In all these instances, the devices were explanted and replaced with new
defibrillators. The Company has experienced what it believes, in light of
industry experience, to be a typical level of returns of defibrillator units
from the field for various reasons, none of which the Company believes are
systemic or would otherwise give rise to a product recall. There can, however,
be no assurance that the Company's products will not experience additional
performance difficulties. Future product problems resulting in a recall could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The manufacture and sale of the Company's products entails the risk of
product liability claims. Although the Company maintains product liability
insurance with coverage limits of $25.0 million per occurrence and $25.0 million
in the aggregate per year, there can be no assurance that the coverage limits of
the Company's insurance policies will be adequate. Product liability insurance
is expensive and may not be available in the future on acceptable terms or at
all. In addition, the Company has indemnified certain of its component suppliers
for certain potential product liability. To date, the Company has not
experienced any material product liability claims. A successful claim brought
against the Company in

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<PAGE> 29

excess of its insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations and could
adversely affect the Company's ability to continue as a viable entity. Also, as
a result of the June 1996 United States Supreme Court decision in Medtronic,
Inc. v. Lohr, which rejected federal pre-emption of certain state law causes of
action in relation to medical devices, the Company expects that product
liability claims relating to medical devices may be pursued more aggressively in
the future.

COMPETITION

Competition in the market for implantable defibrillator systems is intense.
Although patients susceptible to ventricular tachycardia and ventricular
fibrillation may be treated with antiarrhythmic drugs or cardiac ablation
therapies, the Company believes that manufacturers of implantable defibrillators
are its primary competitors. The Company's principal competitors are CPI and
Medtronic. Both CPI and Medtronic are large, diversified cardiology and medical
device companies and each has invested substantial amounts in implantable
defibrillator research and development. Other competitors in the implantable
defibrillator market include Telectronics, Intermedics and Angeion Corporation.

In March 1995, the FDA approved the commercial release of new
defibrillators manufactured by CPI and Medtronic which are small enough to allow
pectoral implantation, rather than abdominal implantation, in suitable patients.
Until receipt of regulatory approval relating to the Cadet in May 1996, the
Company could not offer an implantable defibrillator labeled for pectoral
implantation in patients in the United States. Commercial release of pectorally
implantable defibrillators significantly increased competition in the
implantable defibrillator market and resulted in a significant decline in the
Company's market share and sales of the Company's products. The Company now has
products which it believes are competitive; however, there can be no assurance
that the Company's products will compete successfully with products currently
manufactured by others or future products under development by competitors which
have new features, such as dual chamber and rate-responsive pacing capabilities.

Any product developed by the Company that gains regulatory approval will
have to compete for market acceptance and market share. An important factor in
such competition may be the timing of market introduction of competitive
products. Accordingly, the relative speed with which the Company can develop
products, complete clinical testing and regulatory approval processes and supply
commercial quantities of the product to the market is expected to be a critical
competitive factor. The Company expects that competition will also be based,
among other things, on the ability to safely and effectively treat ventricular
tachycardia and ventricular fibrillation, the availability of defibrillation
systems that can be implanted through less invasive surgical procedures, ease of
programmability, ability to provide improved

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<PAGE> 30

diagnostic capability, size and weight of the device, product reliability,
physician familiarity with the device, patent position, sales and marketing
capability, third-party reimbursement policies, reputation and price.

In addition, the Company is aware that competitors are developing and, in
some instances, are conducting clinical trials of implantable defibrillators
that have features not included in the Company's defibrillators. Moreover, these
competitors may obtain expedited regulatory approval from the FDA for these new
devices. Commercial release of competitors' products with features not available
in the Company's products could have a material adverse effect on the Company's
business, financial condition and results of operations.

THIRD PARTY REIMBURSEMENT

Third party payors are increasingly challenging the prices charged for
medical products and services, and current levels of reimbursement may be a
disincentive to some hospitals to perform defibrillator implants. Currently, the
sales prices of implantable defibrillators range from approximately $12,000 to
$20,000, excluding leads. According to an industry study published in January
1995, a defibrillator implant procedure, excluding electrophysiology testing,
typically costs between $30,000 and $60,000, depending on the length of hospital
stay and other variables. The same source indicated that the average Medicare
reimbursement for an initial defibrillator implant procedure is approximately
$35,000 to $40,000 and that the average Medicare reimbursement for defibrillator
replacement procedures is approximately $20,000. Consequently, despite the
Company's receipt of regulatory approvals for its systems, third party payors
may deny full reimbursement. There can be no assurance that the Company's
implantable defibrillator systems will be considered cost effective by third
party payors, that reimbursement will be available, or if reimbursement is
available, that third party payors' reimbursement policies will not adversely
affect the Company's ability to sell its products on a profitable basis. The
failure by hospitals and other users of the Company's products to obtain
reimbursement from third party payors could have a material adverse effect on
the Company's business, financial condition and results of operations.

PATENTS AND PROPRIETARY RIGHTS

The Company files patent applications to protect technology and inventions
that are significant to the development of its business. As of June 30, 1996,
the Company held 71 issued United States patents

30
<PAGE> 31

and 11 issued foreign patents and had pending 51 United States and 28
corresponding foreign patent applications that cover various aspects of its
technology. The Company's issued United States patents expire on dates ranging
from 2006 through 2014. There can be no assurance that any of the claims in the
pending patent applications will be allowed, or that any issued patents will be
upheld, or not circumvented by competitors, or that any patents or licenses will
provide competitive advantages for the Company's products. The Company also
relies on trade secrets and proprietary know-how which it seeks to protect, in
part, through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known to or independently
developed by competitors.

The segment of the medical device market that includes implantable
defibrillators has been characterized by extensive litigation regarding patents
and other intellectual property rights. The Company has resolved intellectual
property disputes to date through licensing arrangements, when appropriate and
on terms it believes to be commercially reasonable. Under certain agreements,
the Company pays royalties based on commercial sales of implantable
defibrillator systems. The Company anticipates that such royalties will continue
for future implantable defibrillator systems developed by the Company.
Additionally, the agreements do not include all patents that may be issued to
the licensors, thus future patent disputes with these companies are possible.
Intermedics has filed claims against the Company for patent infringement which
are still pending, and there can be no assurance that other parties will not
institute additional litigation against the Company.

In 1990, two of the Company's competitors, Telectronics and Intermedics,
instituted patent infringement litigation against the Company. Medtronic and CPI
also notified the Company that they believed the Company infringed patents held
by them. In May 1992, the Company and Medtronic agreed to cross-license their
respective patent portfolios relating to devices for the treatment of
tachyarrhythmias. Under the license agreement, Ventritex pays Medtronic
royalties based on a percentage of net sales of Ventritex's products covered by
Medtronic's patents. In July 1993, Ventritex entered into license agreements
with Telectronics and CPI. Under the agreement with CPI, Ventritex and CPI
cross-licensed their respective patent portfolios relating to devices for the
treatment of tachyarrhythmias. Ventritex made a one-time payment to CPI in
settlement of claims relating to past activities and pays CPI royalties based on
a percentage of net sales of Ventritex's products covered by CPI's patents.
Under the agreement with Telectronics, Ventritex and Telectronics cross-licensed
their respective patent portfolios relating to devices for the treatment of
tachyarrhythmias. Ventritex also made a one-time payment to Telectronics in
settlement of ongoing patent infringement litigation between Telectronics and
Ventritex. The Company does not have ongoing royalty obligations to
Telectronics. In connection with the license agreements with CPI and
Telectronics, Ventritex recognized a charge of $18.6 million in fiscal 1993.
This charge included the one-time payments and certain other related settlement
expenses.

The Company's licenses with Medtronic, CPI and Telectronics contain
significant restrictions that may have the effect of preventing or substantially
impeding an acquisition of, change in control of, or certain minority
investments in, the Company. Such restrictions include the possible termination
of various licenses to the Company and the requirement that the Company make a
substantial payment to one of the licensors upon such event.

As a result of the above license agreements, the Company's only pending
legal dispute in the intellectual property area consists of various claims
asserted by and against Intermedics. For more information about the Intermedics
litigation, see "-- Legal Proceedings."

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<PAGE> 32

States Patent and Trademark Office to determine the priority of inventions,
could result in substantial expense to the Company and significant diversion of
effort by the Company's technical and management personnel. Additional
litigation may be necessary to enforce patents issued to or held by 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. An
adverse determination in litigation or interference proceedings to which the
Company is or may become a party could subject the Company to significant
liabilities to third parties or require the Company to seek licenses from third
parties. There can, however, be no assurance that necessary licenses would be
available to the Company on satisfactory terms or at all. Accordingly, an
adverse determination in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent the Company from manufacturing and
selling its products, which would have a material adverse effect on the
Company's business, financial condition and results of operations and could
adversely affect the Company's ability to continue as a viable entity.

GOVERNMENT REGULATION

Clinical testing, manufacture and sale of the Company's products are
regulated by the FDA as medical devices. Under the Federal Food, Drug, and
Cosmetic Act, as amended, all medical devices are classified into three classes,
class I, II or III. Class III devices, such as implantable defibrillators, are
subject to the most stringent FDA review and require submission and approval of
a PMA application or a PMA supplement from the FDA before commencement of
marketing, sales and distribution in the United States.

In order to receive approval of a PMA application, a device must undergo
clinical evaluation under an Investigational Device Exemption ("IDE") that is
granted by the FDA to permit testing of the device in controlled human trials.
In addition to obtaining an IDE from the FDA, the sponsor of the investigational
research must also obtain approval for the research from a hospital
institutional review board or committee established for this purpose. Once an
IDE has been granted, the FDA may allow expansion of the IDE's scope to
additional patient implants or additional clinical sites, or both. The FDA or
the sponsor may suspend clinical trials at any point if either concludes that
clinical subjects are being exposed to an unacceptable health risk or for other
reasons.

Results of clinical trials are presented to the FDA in a PMA application.
In addition to the results of clinical investigation(s), the PMA applicant must
submit other information relevant to the safety and effectiveness of the device
including: the results of non-clinical tests; a full description of the device
and its components; a full description of the methods, facilities and controls
used for manufacturing; and proposed labeling. The FDA staff then reviews the
submitted application and determines whether or not to accept the application
for filing. If accepted for filing, the application is further reviewed by the
FDA and may be subsequently reviewed by an FDA scientific advisory panel
comprised of physicians and others with expertise in the relevant field. The
advisory panel holds a public meeting during which the PMA application is
reviewed and discussed. The scientific advisory panel then issues an approvable
or not approvable recommendation to the FDA or recommends approval with
conditions. Although the FDA is not bound by the opinion of the advisory panel,
the FDA tends to give considerable weight to panel recommendations. The FDA also
typically conducts an inspection to determine whether the Company conforms with
the current Good Manufacturing Practice ("GMP") regulations. If the FDA's
evaluation is favorable, the FDA will subsequently publish an order approving
the PMA for the device. Interested parties can file comments on the order and
seek further FDA review. Although the PMA review process is to be completed
within 180 days from the date the PMA is accepted for filing, this time frame is
frequently exceeded.

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<PAGE> 33

uses. In addition to FDA inspections conducted prior to the approval of a PMA
application, the FDA also conducts periodic inspections to determine compliance
with GMP and Medical Device Reporting ("MDR") regulations. Failure to comply
with applicable regulatory requirements can result in, among, other things,
fines, suspensions or delays of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could prevent the Company
from obtaining, or affect the timing of, future regulatory approvals. There can
be no assurance that the Company will be able to obtain necessary regulatory
approvals on a timely basis or at all. Delays in receipt of or failure to
receive such approvals or loss of previously received approvals could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, if a PMA is granted, significant
modifications to the device, manufacturing process or labeling will require a
supplement to the PMA or require the submission of a new PMA application, which
could require substantial additional efficacy and safety data and FDA review.

The Company has recently filed a PMA supplement for the Contour
defibrillator and anticipates filing PMA supplements for its single lead
transvenous defibrillation lead systems. The Company is likely to be required to
file additional PMA applications or PMA supplements for new products it
develops. Supplements to a PMA require submission of the same type of
information as a PMA except that the supplement is limited to that information
needed to support the change. There can be no assurance that the FDA will accept
a PMA supplement. The FDA could instead require additional testing of the device
that is the subject of the supplement or could require clinical trials under an
IDE and completion of the entire PMA approval process. Failure to obtain FDA
approval for commercial release through a PMA supplement on a timely basis, or
at all, could have a material adverse effect on the Company's business,
financial condition and results of operations. Further, the MDR regulations
require that the Company 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 would likely cause or contribute to death or serious
injury if the malfunction were to recur.

The Company is required to register as a medical device manufacturer with
the FDA and state agencies, such as the Food and Drug Branch of the California
Department of Health Services. The Company is subject to inspection on a routine
basis by the State of California and by the FDA for compliance with the FDA's
current GMP and MDR regulations. Those regulations impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities and product reporting activities.

Additionally, the Company must comply with various FDA requirements for
design, safety, advertising, labeling and record keeping. Under FDA regulations,
the Company is required to establish a method of device tracking so that the
Company will be able to trace its implantable products from the place of
manufacture to the patient in whom such products are implanted in the United
States. The purpose of this tracking requirement is to facilitate notification
to the patient or recall of the device if such actions become necessary. The
cost of establishing and maintaining a tracking system that complies with the
FDA's regulations may be significant. Failure to establish and maintain the
required tracking system would subject the Company to FDA regulatory sanctions
and the possibility of losing current product approval.

International sales of medical devices are subject to foreign government
regulation, the requirements of which vary substantially from country to
country. The Company has obtained certain foreign governmental approvals and has
applied for additional approvals. The European Community has promulgated rules
that require that medical products receive by mid-1998 the CE mark, an
international symbol of quality and compliance with applicable European medical
device directives. Failure to receive CE mark certification will prohibit the
Company from selling its products in the European Union. International Standards
Organization ("ISO") 9001 certification is one of the CE mark certification
requirements. The Company has established the process and relationships required
to obtain the necessary approvals for the CE mark and has been granted
authorization to affix that mark to all products currently requiring the mark.

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<PAGE> 34

The FDA is studying the long-term effects of materials implanted in the
human body and may require manufacturers of implantable devices to conduct
biological testing of such materials. If required, such testing would be
expensive and time consuming and could disrupt the manufacture and sale or
result in recalls of the Company's products or denials of FDA approval for
future products. Any adverse regulatory actions could have a material adverse
effect on the Company's business, financial condition and results of operations.

EMPLOYEES

As of June 30, 1996, the Company had 548 full-time employees, including 164
in product development and process engineering, 240 in manufacturing and quality
assurance, 107 in sales, marketing and clinical engineering, and 37 in
administration. None of the Company's employees is subject to a collective
bargaining agreement. The Company believes that its relationship with its
employees is good. The Company is dependent upon a limited number of key
management and technical personnel. In addition, the Company's future success
will depend in part upon its ability to attract and retain highly qualified
personnel. The Company competes for such personnel with other companies,
academic institutions and government entities. There can be no assurance that
the Company will be successful in hiring or retaining such qualified personnel.
Loss of key personnel or inability to hire or retain qualified personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.

FACILITIES

Ventritex leases an approximately 150,000 square foot facility in
Sunnyvale, California. This facility contains approximately 60,000 square feet
of manufacturing space and approximately 90,000 square feet devoted to research
and administrative offices. The facility is leased through December 2000.
Although the Company believes that this facility is adequate to meet its
requirements at least through fiscal 1997, the Company anticipates the need to
lease additional space. The Company believes that additional space in the
Sunnyvale, California area will be available on commercially reasonable terms.
The Company also leases space in South Carolina for manufacturing activities and
in Europe for sales, clinical engineering and other activities.

LEGAL PROCEEDINGS

The Company is currently in litigation with one of its competitors,
Intermedics. In response to threats from Intermedics, the Company filed a
declaratory judgment action in the United States District Court in the Northern
District of California in January 1993, asking the court to declare that certain
patents which Intermedics had asserted were being infringed by the Company were,
in fact, invalid, unenforceable or not infringed. Intermedics then filed several
actions in the United States District Court in the Southern District of Texas
alleging infringement by the Company of nine Intermedics patents. Initially,
this litigation was focused on procedural issues relating to whether the dispute
would be tried in California or Texas. On October 12, 1994, the United States
District Court for the Northern District of California denied Intermedics motion
to transfer Ventritex's pending suits to Texas and granted Ventritex's motion to
enjoin Intermedics from further prosecution of its aforementioned suits in
Texas. The United States District Court for the Southern District of Texas
thereafter issued an order transferring to California all of the Texas cases
which Intermedics had served upon Ventritex. The Court has indicated that the
trial in connection with the above described actions will begin May 5, 1997.

The Company filed a further action in the Northern District of California
in July 1993 seeking a declaratory judgment that the patents that Intermedics
has asserted against the Company are not infringed by Ventritex, are invalid and
are unenforceable. This action, which was filed against Intermedics, its parent
and affiliate companies, SulzerMedica and Sulzer, Inc., seeks damages based upon
claims for antitrust law violations, malicious prosecution, conspiracy and
breach of contract. Intermedics, SulzerMedica and Sulzer, Inc. have moved to
stay or dismiss the Company's damage claims, and the

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<PAGE> 35

Court ordered that certain of these claims be dismissed without prejudice and
that others be stayed pending determination of other issues in the parties'
various lawsuits.

In the above actions, Intermedics seeks judgments against Ventritex for
damages, attorneys fees and injunctive relief. It is expected that Intermedics
will, during the course of the litigation, seek to obtain various types of
pretrial relief which include, but are not limited to, summary judgments,
dismissals of Ventritex's claims and preliminary injunctions. In January 1995,
Intermedics filed a motion for partial summary judgment and for issuance of a
preliminary injunction based on alleged infringement of one of its patents.
Ventritex vigorously contested these motions and requested the United States
Patent and Trademark Office to conduct a reexamination of claim 28 of
Intermedics U.S. Patent No. 4,880,005 upon which these motions are based. The
Court denied Intermedics' partial summary judgment motion, and, as a result,
Intermedics' preliminary injunction request was withdrawn. The Patent Office, on
May 28, 1996, issued a second final rejection of claim 28 of the 4,880,005
patent. Intermedics subsequently requested reconsideration of the final
rejection. As a result of this reconsideration, on August 5, 1996, the Patent
Office reissued the 4,880,005 patent with claim 28 intact. The Company believes
that Intermedics will make renewed efforts to obtain partial summary judgment
and a preliminary injunction. On June 6, 1996, Intermedics filed with the United
States Patent and Trademark Office a request for reexamination of U.S. Patent
No. 4,830,006 and on June 7, 1996, Intermedics filed a request for reexamination
of U.S. Patent No. 4,913,145. Both patents are being asserted by Intermedics
against the Company. The requests are based on references identified by
Ventritex as being pertinent to the patents in response to discovery requests by
Intermedics.

Since the Company brought a declaratory relief action against Intermedics
in January 1993, Intermedics has filed suits against the Company's two principal
competitors, Medtronic and CPI, alleging infringement of several of the same
patents which it has asserted against the Company. None of these actions has yet
been set for trial.

In addition to its patent infringement claims, Intermedics had previously
alleged trade secret misappropriation and related acts by the Company and two of
its officers, who were formerly employees of Intermedics. In this lawsuit, the
Company filed counterclaims against Intermedics for infringement of two of
Ventritex's patents. These counterclaims are still pending. Certain of the trade
secret misappropriation and related claims were tried in 1992 before a United
States District Court jury in San Francisco. The jury returned a unanimous
verdict in favor of the Company and its officers and found that Intermedics had
acted in bad faith in continuing to pursue the trade secret misappropriation
claims. The Court set aside the bad faith portion of the verdict based on
Intermedics claim of an erroneous jury instruction. A new trial on the bad faith
issue has been ordered, but no trial date has been set. The judgment dismissed
all of Intermedics trade secret claims against the Company and its officers and
was affirmed on appeal.

In addition to the above-mentioned litigation, the Company is also involved
in other litigation in the normal course of business. Although an adverse
determination in the Intermedics proceedings or in other litigation or
administrative proceedings could have a material adverse effect on the Company,
based upon the nature of the claims made and the investigation completed to
date, the Company believes the outcome of the described actions will not have a
material adverse effect on the financial position or results of operations of
the Company.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors of the Company and their ages as of
June 30, 1996, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Frank M. Fischer..................... 54 President, Chief Executive Officer, Acting
Chief Financial Officer and Director
John B. Allison...................... 39 Vice President of Quality Assurance and
Regulatory Compliance
Eric S. Fain, M.D.................... 35 Vice President, Systems Development
Robert D. Gaffney.................... 36 Vice President of Manufacturing
Kevin T. Larkin...................... 47 Vice President of Marketing and Sales
Stephen C. Masson.................... 37 Vice President of Defibrillator Development
Mark J. Meltzer...................... 46 Vice President, Patent Counsel
Sandra L. Miller..................... 54 Vice President of Leads Operations
Benjamin D. Pless.................... 37 Vice President of Research and Technology
Development
Michael B. Sweeney................... 45 Vice President of Clinical Engineering &
Regulatory Affairs
Richard L. Karrenbrock(1)(2)......... 69 Director
C. Raymond Larkin, Jr.(2)............ 48 Director
Walter J. McNerney................... 71 Director
Robert R. Momsen(1)(2)............... 49 Director
</TABLE>

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

(1) Member of Compensation Committee

(2) Member of Audit Committee

There are no family relationships between any of the directors or executive
officers of the Company.

Frank M. Fischer became President, Chief Executive Officer and a director
of the Company in July 1987. From May 1977 until joining the Company, Mr.
Fischer held various positions with Cordis Corporation ("Cordis"), a
manufacturer of medical products, including cardiac pacemakers, serving most
recently as President of the Implantable Products Division. Mr. Fischer is a
director of Heartstream, Inc. and Heartport, Inc. Mr. Fischer holds an M.S.
degree from Rensselaer Polytechnic Institute.

John B. Allison joined the Company in April 1996 as Vice President of
Quality Assurance and Regulatory Compliance. From 1992 until joining the
Company, he was Corporate Senior Director of Quality Assurance of Nellcor
Puritan Bennett Incorporated. From 1989 to 1992, he was managing consultant at
Coopers & Lybrand. Mr. Allison holds a B.S. degree from Purdue University.

Eric S. Fain, M.D., joined the Company in June 1987 as Manager of Clinical
Research and was appointed Vice President, Systems Development in July 1996. Dr.
Fain holds an M.D. degree from Stanford University School of Medicine.

Robert D. Gaffney joined the Company in October 1987 as Manager of
Manufacturing and was appointed Vice President of Manufacturing in October 1991.
From June 1983 until joining the Company, he was employed by Cordis, serving
most recently as Associate Manager of Mechanical Design and Engineering. Mr.
Gaffney holds a B.S. degree from the Georgia Institute of Technology.

Kevin T. Larkin joined the Company in February 1992 as Vice President of
Marketing and Sales. Prior to joining the Company, he was Marketing Director of
SciMed Life Systems, Inc., a manufacturer of balloon and guiding catheters for
the treatment of cardiovascular disease. From October 1986 until December 1991,
Mr. Larkin was with Medtronic, Inc. in both the pacing and interventional
catheter sales

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<PAGE> 37

and marketing groups, most recently as Director, Global Marketing for Medtronic
Interventional. Before that, he was Director of Marketing and Sales of Cordis.

Stephen C. Masson joined the Company in March 1987 as Project Engineer.
From 1989 until April 1995, when he was appointed Vice President of
Defibrillator Development, he held various engineering management positions.
From January 1979 until joining the Company, Mr. Masson was an engineer in the
Cardiac Pacemakers Instrument Design Division of Cordis. Mr. Masson holds a B.S.
degree from the University of Miami.

Mark J. Meltzer joined the Company in May 1992 as Vice President, Patent
Counsel. From 1989 until joining the Company, he was Vice President, Patent
Counsel of O'Neill, Inc., a manufacturer of products for aquatic sports. From
1983 to 1989 he was employed by Hughes Aircraft Company, a manufacturer of
aerospace electronics products, where he served as Patent Counsel. Mr. Meltzer
holds a J.D. degree from Hastings College of Law and a B.S.E.E. degree from the
University of California at Berkeley.

Sandra L. Miller joined the Company in April 1994 as Vice President of
Leads Operations. From December 1992 until joining the Company, she was Product
Development Manager for angioplasty products at Boston Scientific Corp. From
1987 through 1992, she was Manager of Manufacturing for Teletronics Pacing
Systems, a manufacturer of medical products including cardiac pacemakers and
defibrillators. Ms. Miller holds an M.S. degree from Purdue University.

Benjamin D. Pless joined the Company in July 1985 as Director of
Engineering and was appointed Vice President of Engineering in February 1986,
and Vice President of Research and Technology Development in April 1995. From
1980 to 1984 he was employed by Intermedics, where he served as a Design
Engineer and as Project Engineer for implantable antiarrhythmic devices. Mr.
Pless holds a B.S.E.E. degree from the Massachusetts Institute of Technology.

Michael B. Sweeney joined the Company in July 1985 as Vice President of
Clinical Engineering. From 1979 to 1985, he was Director of Electrophysiologic
Studies at Intermedics. From 1975 to 1979 he was employed by Rush Presbyterian
St. Luke's Medical Center in Chicago, where he served as assistant director of
the Pacemaker Surveillance Program. Mr. Sweeney holds a B.A. degree from Drake
University.

Richard L. Karrenbrock became a director of the Company in April 1985.
Since 1981, he has been an investment banker and private investor. He was
formerly a director of several medical device companies, including Advanced
Cardiovascular Systems, Inc. Mr. Karrenbrock holds an M.B.A. from Harvard
University.

C. Raymond Larkin, Jr. became a director of the Company in February 1993.
Since 1983, he has held various executive positions with Nellcor Incorporated, a
medical products company, for which he served as President from 1989 until
August 1995 when he became President of Nellcor Puritan Bennett Incorporated
upon the merger of Nellcor Incorporated with Puritan Bennett. Mr. Larkin is also
a director of Nellcor Puritan Bennett Incorporated, as well as ArthroCare
Corporation and Neuromedical Systems, Inc. He holds a B.S. degree from LaSalle
University.

Walter J. McNerney became a director of the Company in February 1993. Since
1982, he has been a Professor at the J.L. Kellogg Graduate School of Management
at Northwestern University. Mr. McNerney is also a director of American Health
Properties, Hanger Orthopedics, Inc., Medicus, Nellcor Puritan Bennett
Incorporated, Osteo Tech, Stanley Works and Value Health, Inc. He holds an
M.H.A. from the University of Minnesota. In June 1996, Mr. McNerney suffered a
stroke, and has not participated in meetings of the Company's Board of Directors
since that time. The Company does not expect to nominate Mr. McNerney for
re-election to the Board of Directors at the Company's 1996 Annual Meeting of
Stockholders.

Robert R. Momsen became a director of the Company in August 1986. Since
1982, he has been a general partner of the InterWest Partners group of venture
capital funds. Mr. Momsen is also a director of COR Therapeutics, Inc.,
ArthroCare Corporation, Integ, Inc., Innovative Devices, Inc. and Urologix, Inc.
He holds an M.B.A. from Stanford University.

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<PAGE> 38

DESCRIPTION OF NOTES

The Notes are to be issued under an Indenture, to be dated as of August 21,
1996 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to
the Registration Statement. Wherever particular defined terms of the Indenture
(including the Notes) are referred to, such defined terms are incorporated
herein by reference (the Notes and various terms relating to the Notes being
referred to in the Indenture as "Securities"). References in this section to the
"Company" are solely to Ventritex, Inc. and not to its subsidiaries. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the detailed provisions of the Notes and the Indenture, including the
definitions therein of certain terms. Section references below are references to
Sections of the Indenture.

GENERAL

The Notes will be unsecured subordinated obligations of the Company, will
be limited to $57,500,000 aggregate principal amount, and will mature on August
15, 2001. The Notes will bear interest at the rate per annum shown on the front
cover of this Prospectus from August 21, 1996, payable semiannually on February
15 and August 15 of each year, commencing on February 15, 1997. Interest payable
per $1,000 principal amount of Notes for the period from August 21, 1996 to
February 15, 1997 will be $27.7917. (sec.sec. 301 and 307)

The Notes will be convertible into Common Stock initially at the conversion
rate stated on the cover page hereof, subject to adjustment upon the occurrence
of certain events described under "-- Conversion Rights," at any time prior to
the close of business on the maturity date, unless previously redeemed or
repurchased. (sec. 1301)

The Notes are redeemable under the circumstances and at the redemption
prices set forth below under "-- Optional Redemption," plus accrued interest to
the redemption date. (sec. 203)

The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. (sec. 302) No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (sec. 305)

CONVERSION RIGHTS

The Holder of any Note will have the right, at the Holder's option, to
convert any portion of the principal amount of a Note that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to the close of
business on the maturity date, unless previously redeemed or repurchased, at a
conversion rate of 58.1818 shares of Common Stock per U.S. $1,000 principal
amount of Notes (the "Conversion Rate") (equivalent to a conversion price of
approximately $17.188 per share of Common Stock) (subject to adjustment as
described below). The right to convert a Note called for redemption will
terminate at the close of business on the Business Day prior to the Redemption
Date for such Note, while the right to convert a Note tendered for repurchase
will terminate at the close of business on the Repurchase Date for such Note.
(sec. 1301)

The right of conversion attaching to any Note may be exercised by the
Holder by delivering the Note at the specified office of the Conversion Agent,
accompanied by a duly signed and completed notice of conversion, a copy of which
may be obtained from the Trustee. The conversion date will be the date on which
the Note and the duly signed and completed notice of conversion are so
delivered. As promptly as practicable on or after the conversion date, the
Company will issue and deliver to the Trustee a certificate or certificates for
the number of full shares of Common Stock issuable upon conversion, together
with payment in lieu of any fraction of a share; such certificate will be sent
by the Trustee to the Conversion Agent (if other than the Trustee) for delivery
to the Holder. Such shares of Common Stock issuable upon conversion of the
Notes, in accordance with the provisions of the Indenture, will be fully paid
and

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<PAGE> 39

nonassessable and will rank pari passu with the other shares of Common Stock of
the Company outstanding from time to time. Any Note surrendered for conversion
during the period from the close of business on any Regular Record Date next
preceding any Interest Payment Date to the opening of business on such Interest
Payment Date (except Notes (or portions thereof) called for redemption on a
Redemption Date or which are repurchasable on a Repurchase Date occurring, in
either case, within such period (including any Notes (or portions thereof)
called for redemption on a Redemption Date that is a Record Date or Interest
Payment Date, as the case may be)) must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of Notes being surrendered for conversion. The interest so payable on
such Interest Payment Date with respect to any Note (or portion thereof, if
applicable) which has been called for redemption on a Redemption Date, or which
may be repurchased on a Repurchase Date, occurring, in either case, during the
period from the close of business on any Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (including
any Notes (or portions thereof) called for redemption on a Redemption Date that
is a Record Date or Interest Payment Date, as the case may be), which Note (or
portion thereof, if applicable) is surrendered for conversion during such period
(or on the last Business Day prior to the Record Date or Interest Payment Date
in the case of a Note (or portions thereof) called for redemption on a Record
Date or Interest Payment Date, as the case may be), shall be paid to the Holder
of such Note being converted in an amount equal to the interest that would have
been payable on such Note if such Note had been converted as of the close of
business on such Interest Payment Date. The interest so payable on such Interest
Payment Date in respect of any Note (or portion thereof, as the case may be)
which has not been called for redemption on a Redemption Date, or is not
eligible for repurchase on a Repurchase Date, occurring, in either case, during
the period from the close of business on any Record Date next preceding any
Interest Payment Date to the opening of business on such Interest Payment Date,
which Note (or portion thereof, as the case may be) is surrendered for
conversion during such period, shall be paid to the Holder of such Note as of
such Regular Record Date. Interest payable in respect of any Note surrendered
for conversion or repurchase on or after an Interest Payment Date shall be paid
to the Holder of such Note as of the next preceding Regular Record Date,
notwithstanding the exercise of the right of conversion. As a result of the
foregoing provisions, except as provided above, Holders that surrender Notes for
conversion on a date that is not an Interest Payment Date will not receive any
interest for the period from the Interest Payment Date next preceding the date
of conversion to the date of conversion or for any later period, even if the
Notes are surrendered after a notice of redemption (except for the payment of
interest on Notes called for redemption on a Redemption Date or to be
repurchased on a Repurchase Date between a Regular Record Date and the Interest
Payment Date to which it relates (including any Notes (or portions thereof)
called for redemption on a Redemption Date that is a Record Date or Interest
Payment Date, as the case may be), as provided above). No other payment or
adjustment for interest, or for any dividends in respect of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time or date before the close of business on the conversion date. No
fractional shares will be issued upon conversion but, in lieu thereof, the
Company will pay an appropriate amount in cash based on the market price of
Common Stock at the close of business on the day of conversion. (sec.sec. 101,
203, 307, 1302 and 1303)

A Holder delivering a Note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the Holder of the Note. Certificates representing
shares of Common Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the Holder have been paid. (sec.sec. 1302 and 1308)

The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of capital stock, (b) the issuance to all holders of Common
Stock of rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then Current Market Price of such Common Stock
(determined as provided in the Indenture) as of the record date for shareholders
entitled to receive such rights,

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<PAGE> 40

options or warrants, (c) subdivisions, combinations and reclassifications of
Common Stock, (d) distributions to all holders of Common Stock of evidences of
indebtedness of the Company, shares of capital stock, cash or assets (including
securities, but excluding those dividends, rights, options, warrants and
distributions referred to above, dividends and distributions paid exclusively in
cash and in mergers and consolidations to which the next succeeding paragraph
applies), (e) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in (d) above) to all holders of Common
Stock in an aggregate amount that, combined together with (i) other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made and (ii) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or any of
its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then Current Market Price per
share of the Common Stock and the number of shares of Common Stock then
outstanding) on the record date for such distribution, and (f) the successful
completion of a tender offer made by the Company or any of its subsidiaries for
Common Stock which involves an aggregate consideration that, together with (i)
any cash and other consideration payable in a tender offer by the Company or any
of its subsidiaries for Common Stock expiring within the 12 months preceding the
expiration of such tender offer in respect of which no adjustment has been made
and (ii) the aggregate amount of any such all-cash distributions referred to in
(e) above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer. With respect to Rights (as defined below) issued pursuant to
the Rights Agreement (as defined below), if Holders of the Notes exercising the
right of conversion attaching thereto after the Distribution Date (as defined in
the Rights Agreement) are not entitled to receive the Rights that would
otherwise be attributable (but for the date of conversion) to the shares of
Common Stock received upon such conversion, the Conversion Rate will be adjusted
as though the Rights were being distributed to holders of the Common Stock on
the Distribution Date. If such an adjustment is made and the Rights are later
redeemed, invalidated or terminated, then a corresponding reversing adjustment
will be made to the Conversion Rate on an equitable basis. The Company reserves
the right to make such increases in the Conversion Rate in addition to those
required in the foregoing provisions as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend or
distribution of stock or issuance of rights or warrants to purchase or subscribe
for stock will not be taxable to the recipients. No adjustment of the Conversion
Rate will be required to be made until the cumulative adjustments amount to 1.0%
or more of the Conversion Rate. (sec. 1304) The Company shall compute any
adjustments to the Conversion Rate pursuant to this paragraph and will give
notice to the Holders of the Notes of any adjustments. (sec. 1305)

In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any sale or transfer of all or
substantially all of the assets of the Company, each Note then outstanding will,
without the consent of the Holder of any Note, become convertible only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Note was convertible immediately prior thereto
(assuming such holder of Common Stock failed to exercise any rights of election
and that such Note was then convertible). (sec. 1311)

The Company from time to time may increase the Conversion Rate by any
amount for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such increase, if the Board of Directors has made a
determination that such increase would be in the best interests of the Company,
which determination shall be conclusive. No such increase shall be taken into
account for purposes of determining whether the closing price of the Common
Stock exceeds the Conversion Price by 105% in connection with an event which
otherwise would be a Change of Control. (sec. 1304)

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<PAGE> 41

If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the number of shares into which Notes
are convertible is increased, such increase may be deemed for federal income tax
purposes to be the payment of a taxable dividend to Holders of Notes. See
"Certain Federal Income Tax Considerations."

SUBORDINATION

The payment of the principal of, premium, if any, and interest on
(including any amounts payable upon the redemption or repurchase of the Notes
permitted by the Indenture), the Notes will be subordinated in right of payment,
to the extent set forth in the Indenture, to the prior payment in full of the
principal of, premium, if any, interest and other amounts in respect of all
Senior Indebtedness of the Company. As of June 30, 1996, the Company had no
outstanding indebtedness that would have constituted Senior Indebtedness. Senior
Indebtedness is defined in the Indenture to mean the principal of (and premium,
if any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) on, and
all fees and other amounts payable in connection with, the following, whether
absolute or contingent, secured or unsecured, due or to become due, outstanding
on the date of the Indenture or thereafter created, incurred or assumed: (a)
indebtedness of the Company to banks, insurance companies and other financial
institutions evidenced by credit or loan agreements, notes or other written
obligations, (b) all other indebtedness of the Company (including indebtedness
of others guaranteed by the Company) other than the Notes, whether outstanding
on the date of the Indenture or thereafter created, incurred or assumed, which
is (i) for money borrowed or (ii) evidenced by a note, security, debenture, bond
or similar instrument, (c) obligations of the Company as lessee under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles or in respect of any lease or related document
(including a purchase agreement) which provides that the Company is
contractually obligated to purchase or cause a third party to purchase the
leased property and thereby effectively guarantees a minimum residual value of
the leased property to the landlord and the obligations of the Company under
such lease or related document to purchase or cause a third party to purchase
such leased property, (d) obligations of the Company under interest rate and
currency swaps, caps, floors, collars or similar agreements or arrangements, and
(e) renewals, extensions, modifications, restatements and refundings of, and any
amendments, modifications or supplements to, or any indebtedness or obligation
issued in exchange for, any such indebtedness or obligation described in clauses
(a) through (d) of this paragraph; provided, however, that Senior Indebtedness
shall not include any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which, it is issued) expressly provide that such indebtedness or
obligation shall not be senior in right of payment to the Notes, or expressly
provide that such indebtedness or obligation is "pari passu" with or "junior" to
the Notes. "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). (sec.sec. 101, 1201 and 1202)

Upon any acceleration of the principal due on the Notes or payment or
distribution of assets of the Company to creditors upon any dissolution, winding
up, liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other similar proceedings of the
Company, all principal, premium, if any, and interest or other amounts due on
all Senior Indebtedness must be paid in full before the Holders of the Notes are
entitled to receive any payment. (sec. 1202) The Indenture will further require
that the Company promptly notify holders of Senior Indebtedness if payment of
the Notes is accelerated because of an Event of Default. The Company also may
not make any payment upon or in

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<PAGE> 42

respect of the Notes if (i) a default in the payment of the principal of,
premium, if any, interest, rent or other obligations in respect of Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate the maturity thereof and the
Trustee receives a notice of such default (a "Payment Blockage Notice") from the
Company or other person permitted to give such notice under the Indenture.
Payments on the Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received. No new period of payment blockage may be
commenced unless and until (i) 365 days have elapsed since the effectiveness of
the immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have come due have
been paid in full in cash. No nonpayment default that existed or was continuing
on the date of delivery of any Payment Blockage Notice to the Trustee shall be,
or be made, the basis for a subsequent Payment Blockage Notice.

By reason of the foregoing subordination, in the event of insolvency,
creditors of the Company who are holders of Senior Indebtedness are likely to
recover more, ratably, than the Holders of the Notes, and such subordination may
result in a reduction or elimination of payments to the Holders of the Notes.

The Notes are obligations exclusively of the Company. To the extent the
Company were to commence conducting certain operations or increase the level of
existing operations through subsidiaries, the cash flow and the consequent
ability to service debt, including the Notes, of the Company would be partially
dependent upon the earnings of any such subsidiaries and the distribution of
those earnings to the Company. Any such subsidiaries would be separate and
distinct legal entities, and would have no obligations, contingent or otherwise,
to pay any amounts due under the Notes or to make any funds available therefor,
whether by dividends, distributions, loans or otherwise. In addition, the
payment of dividends or distributions and the making of loans and advances to
the Company by any such subsidiaries could be subject to statutory or
contractual restrictions, and could be contingent upon the earnings of those
subsidiaries and subject to various business considerations. Any right of the
Company to receive assets of subsidiaries upon their liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in these assets) would be effectively subordinated to the claims of
that subsidiary's creditors (including trade creditors), except to the extent
that the Company is itself recognized as a creditor of such subsidiary, in which
case the claims of the Company would still be subordinate to any security
interests in the assets of such subsidiary and any indebtedness of such
subsidiary senior to that held by the Company. As of June 30, 1996, the
Company's subsidiaries had no indebtedness outstanding for money borrowed.

The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness.

OPTIONAL REDEMPTION

The Notes may not be redeemed prior to August 16, 1999. Thereafter, the
Notes may be redeemed, in whole or in part, at the option of the Company, upon
not less than 20 nor more than 60 days' prior notice as provided under " --
Notices" below, at the redemption prices set forth below.

The redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month period beginning on August 16 of the following
years:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
1999 102.30%
2000 101.15
</TABLE>

42
<PAGE> 43

and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date of redemption. (sec. 203,
Article Eleven)

No sinking fund is provided for the Notes.

REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL

If a Change of Control (as defined) occurs, each Holder of Notes shall have
the right, at the Holder's option, to require the Company to repurchase all of
such Holder's Notes, or any portion of the principal amount thereof that is
equal to $1,000 or an integral multiple of $1,000 in excess thereof, on the date
(the "Repurchase Date") that is 45 days after the date of the Company Notice (as
defined), at a price equal to 100% of the principal amount of the Notes to be
repurchased, together with interest accrued to the Repurchase Date (the
"Repurchase Price"). (sec. 1401)

The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the closing prices of the Common Stock for the five consecutive Trading Days
ending on and including the third Trading Day preceding the Repurchase Date;
provided that payment may not be made in Common Stock unless the Company
satisfies certain conditions with respect to such payment as provided in the
Indenture. (sec.sec. 1401 and 1402)

Within 30 days after the occurrence of a Change of Control, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof, or, at the request of
the Company on or before the 15th day after such occurrence, the Trustee shall
give the Company Notice. The Company must also deliver a copy of the Company
Notice to the Trustee and to the office of each Paying Agent. To exercise the
repurchase right, a Holder of Notes must deliver on or before the 30th day after
the date of the Company Notice irrevocable written notice to the Trustee or
Paying Agent of the Holder's exercise of such right, together with the Notes
with respect to which the right is being exercised. (sec. 1403)

A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Notes as there shall occur:

(i) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company or any employee
benefit plan of the Company; or

(ii) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any sale or transfer of all or substantially all of the assets (other than
to a wholly-owned Subsidiary of the Company) of the Company to any other
Person (other than (a) any such transaction pursuant to which the holders
of 50% or more of the total voting power of all shares of capital stock of
the Company entitled to vote generally in elections of directors
immediately prior to such transaction have, directly or indirectly, at
least 50% or more of the total voting power of all shares of capital stock
of the continuing or surviving corporation entitled to vote generally in
elections of directors of the continuing or surviving corporation
immediately after such transaction and (b) a merger (x) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company or (y) which is effected
solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares
of Common Stock into solely shares of common stock);

provided, however, that a Change of Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
Trading Days within the period of 10

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<PAGE> 44

consecutive Trading Days ending immediately after the later of the Change of
Control or the public announcement of the Change of Control (in the case of a
Change of Control under clause (i) above) or ending immediately before the
Change of Control (in the case of a Change of Control under clause (ii) above)
shall equal or exceed 105% of the Conversion Price of the Notes in effect on
each such Trading Day or (b) all of the consideration (excluding cash payments
for fractional shares and cash payments made pursuant to dissenters' appraisal
rights) in a merger or consolidation otherwise constituting the Change of
Control described in clause (i) and/or clause (ii) above consists of shares of
common stock traded on a national securities exchange or quoted on the Nasdaq
National Market and as a result of such transaction or transactions the Notes
become convertible solely into such common stock. The "Conversion Price" is
equal to $1,000 divided by the Conversion Rate. "Beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under the
Exchange Act, as in effect on the date of original execution of the Indenture.
(sec. 1404)

The Company's ability to repurchase Notes upon the occurrence of a Change
of Control is subject to limitations. There can be no assurance that the Company
would have the financial resources, or would be able to arrange financing, to
pay the Repurchase Price for all the Notes that might be delivered by Holders of
Notes seeking to exercise the purchase right. In addition, the Company's ability
to purchase Notes may be limited or prohibited by the terms of its Senior
Indebtedness. In addition, the Company's ability to purchase Notes with cash may
also be limited by the terms of its subsidiaries' then-existing borrowing
arrangements due to dividend restrictions. Any failure by the Company to
repurchase the Notes when required following a Change of Control could result in
an Event of Default under the Indenture whether or not such repurchase is
permitted by the subordination provisions of the Indenture. Any such default
may, in turn, cause a default under Senior Indebtedness of the Company.
Moreover, the occurrence of a Change of Control may cause an event of default
under Senior Indebtedness of the Company. As a result, in any such case, any
repurchase of the Notes would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. See "-- Subordination" and "Risk Factors -- Subordination."

Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.

The foregoing provisions would not necessarily afford Holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect Holders.

MERGERS AND SALES OF ASSETS BY THE COMPANY

The Company may not consolidate with or merge into any other Person or
convey, transfer, or lease its properties and assets substantially as an
entirety to any Person (other than a conveyance, transfer or lease to a
wholly-owned subsidiary), and the Company may not permit any Person (other than
a wholly-owned subsidiary) to merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless (a) the Person formed by such consolidation or into which the Company is
merged or the Person to which the properties and assets of the Company are so
transferred or leased is a corporation, limited liability company, partnership
or trust organized and existing under the laws of the United States, any State
thereof or the District of Columbia and has expressly assumed the due and
punctual payment of the principal of, premium, if any, and interest on the Notes
and the performance of the other covenants of the Company under the Indenture,
(b) immediately after giving effect to such transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing, and (c) the Company has
provided to the Trustee an Officer's Certificate and Opinion of Counsel if
required by the Indenture. (sec. 801)

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EVENTS OF DEFAULT

The following will be Events of Default under the Indenture: (a) failure to
pay principal or Redemption Price of any Note when due, whether or not such
payment is prohibited by the subordination provisions of the Indenture; (b)
failure to pay any interest on any Note when due, continuing for 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Indenture; (c) default in the Company's obligation to provide a Company Notice
of a Change in Control; (d) failure to perform any other covenant of the Company
in the Indenture, continuing for 60 days after written notice as provided in the
Indenture; (e) any indebtedness for money borrowed by the Company in an
aggregate principal amount in excess of $10,000,000 is not paid at final
maturity or upon acceleration thereof and such default in payment or
acceleration is not cured or rescinded within 30 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. (sec. 501) Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
indemnity. (sec. 603) Subject to such provisions for the indemnification of the
Trustee, the Holders of a majority in aggregate principal amount of the
Outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (sec. 512)

If an Event of Default (other than an Event of Default specified in
subsection (f) above) occurs and is continuing, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Notes, by notice in writing to the Company, declare the principal of all the
Notes to be due and payable immediately, and upon any such declaration such
principal and any accrued interest thereon will become immediately due and
payable. If an Event of Default specified in subsection (f) occurs and is
continuing, the principal and any accrued interest on all of the then
Outstanding Notes shall ipso facto become due and payable immediately without
any declaration or other Act on the part of the Trustee or any Holder. (sec.
502)

At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of Outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than the nonpayment
of accelerated principal and interest have been cured or waived as provided in
the Indenture. (sec. 502)

No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the Holders of a majority in
aggregate principal amount of the Outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. (sec. 507) However, such limitations do not apply to a suit instituted by
a Holder of a Note for the enforcement of payment of the principal of, premium,
if any, or interest on such Note on or after the respective due dates expressed
in such Note or of the right to convert such Note in accordance with the
Indenture. (sec. 508)

The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (sec. 1004)

MODIFICATION AND WAIVER

Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, with the written consent of the Holders
of not less than a majority in aggregate principal amount of the Notes at the
time Outstanding. However, no such modification or amendment may, without the
consent of the Holder of each outstanding Note affected thereby, (a)

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change the Stated Maturity of the principal of, or any installment of interest
on, any Note, (b) reduce the principal amount of, or the premium, if any, or
rate of interest on, any Note, (c) reduce the amount payable upon redemption or
mandatory repurchase, (d) modify the provisions with respect to the repurchase
right of the Holders in a manner adverse to the Holders, (e) change the place or
currency of payment of principal of, premium, if any, or interest on, any Note,
(f) impair the right to institute suit for the enforcement of any payment on or
with respect to any Note (including any payment of the Repurchase Price in
respect of such Note), (g) modify the obligation of the Company to maintain an
office or agency in New York City, (h) except as otherwise permitted by the
Indenture or contemplated by provisions concerning consolidation, merger,
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, adversely affect the right of Holders to convert any
of the Notes or to require the Company to repurchase any Note other than as
provided in the Indenture, (i) modify the subordination provisions in a manner
adverse to the Holders of the Notes, (j) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, or (k) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults. (sec.sec. 902 and 513)

The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (sec. 1009) The Holders of a majority in aggregate principal
amount of the Outstanding Notes also may waive any past default under the
Indenture, except a default in the payment of principal, premium, if any, or
interest. (sec. 513)

TRANSFER AND EXCHANGE

The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office. The Company reserves
the right to vary or terminate the appointment of the security registrar or of
any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts. (sec.sec. 305 and 1002)

PURCHASE AND CANCELLATION

The Company or any subsidiary may at any time and from time to time
purchase Notes at any price in the open market or otherwise.

All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange or conversion shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Notes so delivered to the
Trustee shall be cancelled promptly by the Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
the Indenture. Unless otherwise requested by the Company and confirmed in
writing, the Trustee shall, from time to time but not less than once annually,
destroy all cancelled Notes and deliver to the Company a certificate of
destruction, which certificate shall specify the number, principal amount and,
in the case of Notes the form of each cancelled Note so destroyed. (sec. 309)

TITLE

The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Note as the absolute owner thereof (whether or not
such Note shall be overdue) for the purpose of making payment and for all other
purposes.

NOTICES

Notice to Holders of the Notes will be given by mail to the addresses of
such Holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of the first such publication or on the
date of such mailing, as the case may be. (sec.sec. 101 and 106)

Notice of a redemption of Notes will be given at least once not less than
20 nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.

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<PAGE> 47

REPLACEMENT OF NOTES

Notes that become mutilated, destroyed, stolen or lost will be replaced by
the Company at the expense of the Holder upon delivery to the Trustee of the
mutilated Notes or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note indemnity satisfactory to the Trustee and the Company may be
required at the expense of the Holder of such Note before a replacement Note
will be issued. (sec. 306)

SATISFACTION AND DISCHARGE

The Company may discharge its payment obligations under the Indenture while
Notes remain outstanding if (a) all outstanding Notes have become due and
payable or will become due and payable at their scheduled maturity within one
year, (b) all outstanding Notes are scheduled for redemption within one year or
(c) all outstanding Notes are delivered to the Trustee for conversion in
accordance with the Indenture and in the case of (a) or (b) above, the Company
has deposited with the Trustee an amount sufficient to pay and discharge the
entire indebtedness on all outstanding Notes on the date of their scheduled
maturity or the scheduled date of redemption (sec. 401).

GOVERNING LAW

The Indenture and the Notes will be governed by and construed in accordance
with the laws of the State of New York. (sec. 112)

THE TRUSTEE

In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity. (sec.sec. 601 and 603)

BOOK-ENTRY

The Notes will be issued in the form of a global note (the "Global Note")
deposited with, or on behalf of, DTC and registered in the name of Cede & Co. as
DTC's nominee. Owners of beneficial interests in the Notes represented by the
Global Note will hold such interests pursuant to the procedures and practices of
DTC and must exercise any rights in respect of their interests (including any
right to convert or require repurchase of their interests) in accordance with
those procedures and practices. Such beneficial owners will not be Holders, and
will not be entitled to any rights under the Global Note or the Indenture, with
respect to the Global Note, and the Company and the Trustee, and any of their
respective agents, may treat DTC as the sole Holder and owner of the Global
Note.

DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers (including Goldman,
Sachs & Co.), banks, trust companies, clearing corporations, and certain other
organizations. DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the Securities and Exchange Commission.

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<PAGE> 48

Unless and until they are exchanged in whole or in part for certificated
Notes in definitive form as set forth below, the Global Note may not be
transferred except as a whole by DTC to a nominee of DTC, or by a nominee of DTC
to DTC or another nominee of DTC.

The Notes represented by the Global Note will not be exchangeable for
certificated Notes, provided that if DTC is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Notes in
definitive form in exchange for the Global Note. In addition, the Company may at
any time and in its sole discretion determine not to have a Global Note, and, in
such event, will issue individual Notes in definitive form in exchange for the
Global Note previously representing all such Notes. In either instance, an owner
of a beneficial interest in a Global Note will be entitled to physical delivery
of Notes in definitive form equal in principal amount to such beneficial
interest and to have such Notes registered in its name. Individual Notes so
issued in definitive form will be issued in denominations of $1,000 and any
larger amount that is an integral multiple of $1,000 and will be issued in
registered form only, without coupons.

Payments of principal of and interest on the Notes will be made by the
Company through the Trustee to DTC or its nominee, as the case may be, as the
registered owner of the Global Note. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.

So long as the Notes are represented by a Global Note, DTC or its nominee
will be the only entity that can exercise a right to repayment pursuant to the
Holder's option to elect repayment of its Notes or the right of conversion of
the Notes. Notice by participants or by owners of beneficial interests in a
Global Note held through such participants of the exercise of the option to
elect repayment, or the right of conversion, of beneficial interests in Notes
represented by the Global Note must be transmitted to DTC in accordance with its
procedures on a form required by DTC and provided to participants. In order to
ensure that DTC's nominee will timely exercise a right to repayment, or the
right of conversion, with respect to a particular Note, the beneficial owner of
such Notes must instruct the broker or other participant through which it holds
an interest in such Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to DTC.
The Company will not be liable for any delay in delivery of such notice to DTC.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Ventritex, Inc. (the "Company") consists of
35,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000
shares of Preferred Stock, $.001 par value per share. As of June 30, 1996,
20,878,095 shares of Common Stock were outstanding, held of record by
approximately 460 stockholders. No shares of Preferred Stock were outstanding as
of June 30, 1996, although 35,000 shares of the Preferred Stock had been
designated Series A Participating Preferred Stock, $.001 par value. In addition,
each outstanding share of Common Stock represented the Preferred Share Purchase
Right related thereto.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders, except stockholders
may cumulate their votes in the election of directors. 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 Company's Board of Directors out of funds legally
available for that purpose. In the event of a liquidation, dissolution or
winding up of the Company, holders of 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.

PREFERRED SHARES RIGHTS AGREEMENT

Pursuant to the Preferred Shares Rights Agreement (the "Rights Agreement")
dated as of August 16, 1994, as amended, between the Company and Chemical Trust
Company of California, as Rights Agent (the "Rights Agent"), the Company's Board
of Directors declared a dividend of one right (a "Right") to purchase one
one-thousandth share of the Company's Series A Participating Preferred Stock
("Series A Preferred") for each outstanding share of Common Stock ("Common
Shares") of the Company. The dividend was payable on August 31, 1994 (the
"Record Date") to stockholders of record as of the close of business on that
date. Each Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Preferred at an exercise price of $100.00
(the "Purchase Price"), subject to adjustment.

The following summary of the principal terms of the Rights Agreement is a
general description only and is subject to the detailed terms and conditions of
the Rights Agreement. A copy of the Rights Agreement is filed as an Exhibit to
the Registration Statement of which this Prospectus is a part.

Rights Evidenced by Common Share Certificates. The Rights will not be
exercisable until the Distribution Date (defined below). Certificates for the
Rights ("Rights Certificates") will not be sent to stockholders and the Rights
will attach to and trade only together with the Common Shares. Accordingly,
Common Share certificates outstanding on the Record Date will evidence the
Rights related thereto, and Common Share certificates issued after the Record
Date will contain a notation incorporating the Rights Agreement by reference.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
the surrender or transfer of any certificates for Common Shares, outstanding as
of the Record Date, even without notation or a copy of the Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate.

Distribution Date. The Rights will separate from the Common Shares, Rights
Certificates will be issued and the Rights will become exercisable upon the
earlier of: (i) 10 days (or such later date as may be determined by a majority
of the Board of Directors, excluding directors affiliated with the Acquiring
Person, as defined below (the "Continuing Directors")) following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding Common Shares, or (ii) 10 business
days (or such later date as may be determined by a majority of the Continuing
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the

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consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding Common Shares. The earlier of such dates
is referred to as the "Distribution Date."

Issuance of Rights Certificates; Expiration of Rights. As soon as
practicable following the Distribution Date, separate Rights Certificates will
be mailed to holders of record of the Common Shares as of the close of business
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights from and after the Distribution Date. All Common Shares
issued prior to the Distribution Date will be issued with Rights. Common Shares
issued after the Distribution Date may be issued with Rights if such shares are
issued (i) upon the conversion of outstanding convertible debentures or any
other convertible securities issued after adoption of the Rights Agreement or
(ii) pursuant to the exercise of stock options or under employee benefit plans
or arrangements unless such issuance would result in (or create a risk that)
such options, plans or arrangements would not qualify for otherwise available
special tax treatment. Except as otherwise determined by the Board of Directors,
no other Common Shares issued after the Distribution Date will be issued with
Rights. The Rights will expire on the earliest of (i) August 16, 2004 (the
"Final Expiration Date"), (ii) redemption or exchange of the Rights as described
below, or (iii) consummation of an acquisition of the Company satisfying certain
conditions by a person who acquired shares pursuant to a Permitted Offer as
described below.

Initial Exercise of the Rights. Following the Distribution Date, and until
one of the further events described below, holders of the Rights will be
entitled to receive, upon exercise and the payment of $100.00 per Right, one
one-thousandth share of the Series A Preferred. In the event that the Company
does not have sufficient Series A Preferred available for all Rights to be
exercised, or the Board decides that such action is necessary and not contrary
to the interests of Rights holders, the Company may instead substitute cash,
assets or other securities for the Series A Preferred for which the Rights would
have been exercisable under this provision or as described below.

Right to Buy Company Common Shares. Unless the Rights are earlier
redeemed, in the event that an Acquiring Person becomes the beneficial owner of
15% or more of the Company's Common Shares then outstanding (other than pursuant
to a Permitted Offer), then proper provision will be made so that each holder of
a Right which has not theretofore been exercised (other than Rights beneficially
owned by the Acquiring Person, which will thereafter be void) will thereafter
have the right to receive, upon exercise, Common Shares having a value equal to
two times the Purchase Price. Rights are not exercisable following the
occurrence of an event as described above until such time as the Rights are no
longer redeemable by the Company as set forth below.

Right to Buy Acquiring Company Stock. Similarly, unless the Rights are
earlier redeemed, in the event that, after the Shares Acquisition Date (as
defined below), (i) the Company is acquired in a merger or other business
combination transaction, or (ii) 50% or more of the Company's consolidated
assets or earning power are sold (other than in transactions in the ordinary
course of business), proper provision must be made so that each holder of a
Right which has not theretofore been exercised (other than Rights beneficially
owned by the Acquiring Person, which will thereafter be void) will thereafter
have the right to receive, upon exercise, shares of common stock of the
acquiring company having a value equal to two times the Purchase Price (unless
the transaction satisfies certain conditions and is consummated with a person
who acquired shares pursuant to a Permitted Offer, in which case the Rights will
expire).

Permitted Offer. A Permitted Offer means a tender offer for all
outstanding Common Shares that has been determined by a majority of the
Continuing Directors to be adequate and otherwise in the best interests of the
Company and its stockholders. Where the Board of Directors has determined that a
tender offer constitutes a Permitted Offer, the Rights will not become
exercisable to purchase Common Shares or shares of the acquiring company (as the
case may be) at the discounted price described above.

Exchange Provision. At any time after the acquisition by an Acquiring
Person of 15% or more of the Company's outstanding Common Shares and prior to
the acquisition by such Acquiring Person of 50% or more of the Company's
outstanding Common Shares, the Board of Directors of the Company may

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exchange the Rights (other than Rights owned by the Acquiring Person), in whole
or in part, at an exchange ratio of one Common Share per Right.

Redemption. At any time on or prior to the close of business on the
earlier of (i) the 10th day following the acquisition by an Acquiring Person
(the "Share Acquisition Date") or such later date as may be determined by a
majority of the Continuing Directors and publicly announced by the Company, or
(ii) the Final Expiration Date of the Rights, the Company may redeem the Rights
in whole, but not in part, at a price of $.01 per Right.

Adjustments to Prevent Dilution. The Purchase Price payable, the number of
Rights, and the number of Series A Preferred or Common Shares or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time in connection with the dilutive issuances by the
Company as set forth in the Rights Agreement. With certain exceptions, no
adjustment in the Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such Purchase Price.

Cash Paid Instead of Issuing Fractional Shares. No fractional portion less
than integral multiples of one Common Share will be issued upon exercise of a
Right and in lieu thereof, an adjustment in cash will be made based on the
market price of the Common Shares on the last trading date prior to the date of
exercise.

No Stockholders' Rights Prior to Exercise. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
(other than any rights resulting from such holder's ownership of Common Shares),
including, without limitation, the right to vote or to receive dividends.

Amendment of Rights Agreement. The provisions of the Rights Agreement may
be supplemented or amended by the Board of Directors in any manner prior to the
close of business on the Distribution Date without the approval of Rights
holders. After the Distribution Date, the provisions of the Rights Agreement may
be amended by the Board in order to cure any ambiguity, defect or inconsistency,
to make changes which do not adversely affect the interests of holders of Rights
(excluding the interests of any Acquiring Person), or to shorten or lengthen any
time period under the Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.

Rights and Preferences of the Series A Preferred. Series A Preferred
purchasable upon exercise of the Rights will not be redeemable. Each share of
Series A Preferred will be entitled to an aggregate dividend of 1,000 times the
dividend declared per Common Share. In the event of liquidation, the holders of
the Series A Preferred will be entitled to a minimum preferential liquidation
payment equal to the greater of (i) $1,000 per share or (ii) 1,000 times the per
share amount to be distributed to the holders of the Common Shares. Each share
of Series A Preferred will have 1,000 votes, voting together with the Common
Shares. In the event of any merger, consolidation or other transaction in which
the Common Shares are changed or exchanged, each share of Series A Preferred
will be entitled to receive 1,000 times the amount received per Common Share.
These rights are protected by customary anti-dilution provisions.

Because of the nature of the dividend, liquidation and voting rights of the
shares of Series A Preferred, the value of the one one-thousandth interest in a
share of Series A Preferred purchasable upon exercise of each Right should
approximate the value of one Common Share.

Certain Anti-Takeover Effects. The Rights approved by the Board are
designed to protect and maximize the value of the outstanding equity interests
in the Company in the event of an unsolicited attempt by an acquiror to take
over the Company, in a manner or on terms not approved by the Board of
Directors. Takeover attempts frequently include coercive tactics to deprive the
Company's Board of Directors and its stockholders of any real opportunity to
determine the destiny of the Company or to evaluate and protect the long-term
value of the Company. The Rights are not intended to prevent a takeover of the
Company. The Rights may be redeemed by the Company at $.01 per Right within ten
days (or such later date as may be determined by a majority of the Board of
Directors, excluding

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directors affiliated with an Acquiring Person) after the accumulation of 15% or
more of the Company's shares by a single acquiror or group. Accordingly, the
Rights should not interfere with any merger or business combination approved by
the Board of Directors.

Issuance of the Rights does not in any way weaken the financial strength of
the Company or interfere with its business plans. The issuance of the Rights
themselves has no dilutive effect, will not affect reported earnings per share,
should not be taxable to the Company or to its stockholders, and will not change
the way in which the Company's shares are presently traded. The Company's Board
of Directors believes that the Rights represent a sound and reasonable means of
addressing the complex issues of corporate policy created by the current
takeover environment.

However, the Rights may have the effect of rendering more difficult or
discouraging an acquisition of the Company deemed undesirable by the Board of
Directors. The Rights may cause substantial dilution to a person or group that
attempts to acquire the Company on terms or in a manner not approved by the
Company's Board of Directors, except pursuant to an offer conditioned upon the
negation, purchase or redemption of the Rights.

CHARTER AND OTHER PROVISIONS RELATING TO A CHANGE OF CONTROL

Certain provisions of the Certificate of Incorporation and Bylaws of the
Company may be considered to have antitakeover implications. Such provisions
could discourage certain attempts to obtain control of the Company, even though
such attempts might be beneficial to the Company and its stockholders.

Nominations of Director Candidates and Introduction of Business at
Stockholder Meetings. The Bylaws of the Company contain an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors (the "Nomination
Procedure") and with regard to certain matters to be brought before any meeting
of stockholders (the "Business Procedure"). The Nomination Procedure provides
that only persons nominated by or at the direction of the Board of Directors or
by a stockholder who has given timely written notice in proper form to the
Secretary of the Company prior to the meeting, will be eligible for election as
directors. The Business Procedure provides that at a meeting of stockholders
only such business may be conducted as has been brought before the meeting by or
at the direction of the Board of Directors or by a stockholder who has given
timely written notice in proper form to the Secretary of the Company prior to
the meeting of such stockholder's intention to bring business before the
meeting.

Authorized Stock. The Certificate of Incorporation of the Company
authorizes 5,000,000 shares of Preferred Stock, with a par value of $.001 per
share. The Certificate of Incorporation authorizes the Board of Directors to fix
without further vote or action by the stockholders the designation, powers,
preferences, and rights of the shares of each series of Preferred Stock and the
qualifications, limitations or restrictions thereof including, but not limited
to, dividend rights, conversion privileges, voting rights, terms of redemption
and liquidation preferences.

Monetary Liability of Directors. The Certificate of Incorporation of the
Company provides that to the fullest extent permitted by Delaware law, no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Certificate of Incorporation also incorporates any future amendments to
Delaware law with respect to the elimination of such liability.

Section 203 of the Delaware Corporation Law. The Company is subject to
Section 203 of the Delaware General Corporation Law (the "DGCL") which, subject
to certain exceptions, prohibits a Delaware corporation from engaging in a
business combination (as defined therein) with an "interested stockholder"
(defined generally as any person who beneficially owns 15% or more of the
outstanding voting stock of the Company or any person affiliated with such
person) for a period of three years following the time that such stockholder
became an interested stockholder, unless (i) prior to such time the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the

52
<PAGE> 53

transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation at the time the transaction commenced (excluding for purposes of
determining the number of shares outstanding those shares owned (x) by directors
who are also officers of the corporation and (y) by employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (iii) at or subsequent to such time the business combination is
approved by the Board of Directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder.

Other Restrictions. The Company's cross-licenses with Medtronic,
Teletronics and CPI also contain restrictions that may have the effect of
preventing or substantially impeding an acquisition or change of control of, or
certain minority investments in, the Company. See "Risk Factors -- Significant
Restrictions on Change of Control and Certain Minority Investments."

53
<PAGE> 54

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and of Common Stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
This summary is based on laws, regulations, rulings and decisions now in effect,
all of which are subject to change. This summary deals only with holders that
will hold Notes and Common Stock into which Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considerations
applicable to investors that may be subject to special tax rules, such as banks,
tax-exempt organizations, insurance companies, dealers in securities or
currencies, or persons that will hold Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes. This
summary discusses the tax considerations applicable to the initial purchasers of
the Notes who purchase the Notes at their "issue price" as defined in Section
1273 of the Code and does not discuss the tax considerations applicable to
subsequent purchasers of the Notes. The Company has not sought any ruling from
the Internal Revenue Service with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance that
the Internal Revenue Service will agree with such statements and conclusions.

INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.

PAYMENT OF INTEREST

Interest on a Note generally will be includable in the income of a Holder
as ordinary income at the time such interest is received or accrued, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.

SALE, EXCHANGE OR REDEMPTION OF THE NOTES

Upon the sale, exchange or redemption of a Note, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income which is taxable as
ordinary income) and (ii) such Holder's adjusted tax basis in the Note. A
Holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such Holder. Such capital gain or loss will be long-term capital gain or loss
if the Holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption.

CONVERSION OF THE NOTES

A Holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except with respect to cash received in
lieu of a fractional Share of Common Stock. A Holder's tax basis in the Common
Stock received on conversion of a Note will be the same as such Holder's
adjusted tax basis in the Note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for the Common
Stock received on conversion will generally include the holding period of the
Note converted.

Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock. Accordingly, the receipt of cash in lieu of a fractional share of Common
Stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the Holder's adjusted tax
basis in the fractional share).

54
<PAGE> 55

DIVIDENDS

Dividends paid on the Common Stock generally will be includable in the
income of a Holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.

If at any time (i) the Company makes a distribution of cash or property to
its stockholders or purchases Common Stock and such distribution or purchase
would be taxable to such stockholders as a dividend for United States federal
income tax purposes (e.g., distributions of evidences of indebtedness or assets
of the Company, but generally not stock dividends or rights to subscribe for
Common Stock) and, pursuant to the antidilution provisions of the Indenture, the
conversion rate of the Notes is increased, or (ii), the conversion rate of the
Notes is increased at the discretion of the Company, such increase in conversion
rate may be deemed to be the payment of a taxable dividend to Holders of Notes
(pursuant to Section 305 of the Code). Holders of Notes could therefore have
taxable income as a result of an event pursuant to which they received no cash
or property.

SALE OF COMMON STOCK

Upon the sale or exchange of Common Stock, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such Holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term if the Holder's holding period in Common
Stock is more than one year at the time of the sale or exchange. A Holder's
basis and holding period in Common Stock received upon conversion of a Note are
determined as discussed above under "-- Conversion of the Notes."

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain noncorporate Holders, and a 31%
backup withholding tax may apply to such payments if the Holder (i) fails to
furnish or certify his correct taxpayer identification number to the payor in
the manner required, (ii) is notified by the Internal Revenue Service (the
"IRS") that he has failed to report payments of interest and dividends properly,
or (iii) under certain circumstances, fails to certify that he has not been
notified by the IRS that he is subject to backup withholding for failure to
report interest and dividend payments. Any amounts withheld under the backup
withholding rules from a payment to a Holder will be allowed as a credit against
such Holder's United States federal income tax and may entitle the Holder to a
refund, provided that the required information is furnished to the IRS.

LEGAL MATTERS

The validity of the Notes and the Common Stock issuable on conversion
thereof will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California and for the Underwriter by
Sullivan & Cromwell, Los Angeles, California.

EXPERTS

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

55
<PAGE> 56

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can be obtained upon written request from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Company's Common Stock is traded on the Nasdaq
National Market. Reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov.

The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed with the Commission (File No. 0-19713)
pursuant to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995;

2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1995, December 31, 1995 and March 31, 1996; and

3. All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of
this offering.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company, 701
East Evelyn Avenue, Sunnyvale, California 94086, Attention: Secretary,
telephone: (408) 738-4883.

Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.

56
<PAGE> 57

VENTRITEX, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report Of Ernst & Young LLP, Independent Auditors.................................... F-2
Consolidated Statements of Operations For The Years Ended June 30, 1996, 1995 and
1994............................................................................... F-3
Consolidated Balance Sheets At June 30, 1996 and 1995................................ F-4
Consolidated Statements Of Stockholders' Equity For The Years Ended June 30, 1994,
1995 and 1996...................................................................... F-5
Consolidated Statements Of Cash Flows For The Years Ended June 30, 1996, 1995
and 1994........................................................................... F-6
Notes To Consolidated Financial Statements........................................... F-7
</TABLE>

F-1
<PAGE> 58

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Ventritex, Inc.

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

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

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

ERNST & YOUNG LLP

Palo Alto, California
July 25, 1996

F-2
<PAGE> 59

VENTRITEX, INC.

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................... $ 54,942 $ 126,922 $ 105,616
Cost of sales........................................... 48,774 55,960 45,947
-------- -------- --------
Gross profit.......................................... 6,168 70,962 59,669
Operating expenses:
Research and development.............................. 30,796 27,716 23,334
Selling, general and administrative................... 38,100 36,513 28,947
-------- -------- --------
Total operating expenses........................... 68,896 64,229 52,281
-------- -------- --------
Income (loss) from operations.................... (62,728) 6,733 7,388
Other income (expense):
Interest income....................................... 2,804 3,366 1,548
Interest expense...................................... -- (8) (42)
Other income (expense)................................ (57) (83) 85
-------- -------- --------
Other income, net................................ 2,747 3,275 1,591
-------- -------- --------
Income (loss) before provision for income taxes......... (59,981) 10,008 8,979
Provision for income taxes.............................. -- 1,000 --
-------- -------- --------
Net income (loss)....................................... $ (59,981) $ 9,008 $ 8,979
======== ======== ========
Net income (loss) per share............................. $ (2.89) $ 0.43 $ 0.44
======== ======== ========
Shares used in per share calculation.................... 20,752 20,853 20,611
======== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-3
<PAGE> 60

VENTRITEX, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
JUNE 30,
----------------------
1996 1995
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 9,299 $ 34,942
Short-term investments.......................................... 13,254 39,006
Accounts receivable, net of allowance for doubtful accounts of
$484......................................................... 10,658 11,376
Inventories..................................................... 15,427 17,103
Prepaid expenses................................................ 1,030 1,242
Other current assets............................................ 319 533
--------- --------
Total current assets......................................... 49,987 104,202
Equipment and leasehold improvements, net......................... 22,655 26,119
Other assets...................................................... 819 18
--------- --------
Total assets................................................. $ 73,461 $130,339
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 8,027 $ 3,541
Accrued employee compensation................................... 2,548 4,879
Accrued royalties............................................... 1,869 2,200
Accrued warranty................................................ 1,721 1,647
Other accrued expenses.......................................... 4,409 4,801
Deferred other income........................................... 927 927
--------- --------
Total current liabilities.................................... 19,501 17,995
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001, 5,000 shares authorized, none
issued and outstanding....................................... -- --
Common stock, par value $.001, 35,000 shares authorized, 20,878
shares and 20,643 shares issued and outstanding in 1996 and
1995, respectively........................................... 21 21
Additional paid-in capital...................................... 158,900 157,303
Accumulated deficit............................................. (104,961) (44,980)
--------- --------
Total stockholders' equity................................... 53,960 112,344
--------- --------
Total liabilities and stockholders' equity................... $ 73,461 $130,339
========= ========
</TABLE>

See Notes to Consolidated Financial Statements

F-4
<PAGE> 61

VENTRITEX, INC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- PAID IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT TOTAL
------- --------- ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993... 18,144 $ 110,580 $ -- $ (12) $ (62,967) $ 47,601
Sales of common stock...... 494 1,966 -- 12 -- 1,978
Sale of common stock in
follow-on public
offering, net of
underwriting discounts
and issuance costs of
$2,844................... 1,450 42,815 -- -- -- 42,815
Net income................. -- -- -- -- 8,979 8,979
------ -------- -------- ---- -------- --------
Balance at June 30, 1994... 20,088 155,361 -- -- (53,988) 101,373
Sales of common stock...... 555 1,963 -- -- -- 1,963
Reincorporation in
Delaware................. -- (157,303) 157,303 -- -- --
Net income................. -- -- -- -- 9,008 9,008
------ -------- -------- ---- -------- --------
Balance at June 30, 1995... 20,643 21 157,303 -- (44,980) 112,344
Sales of common stock...... 235 -- 1,597 -- -- 1,597
Net loss................... -- -- -- -- (59,981) (59,981)
------ -------- -------- ---- -------- --------
Balance at June 30, 1996... 20,878 $ 21 $ 158,900 $ -- $(104,961) $ 53,960
====== ======== ======== ==== ======== ========
</TABLE>

See Notes to Consolidated Financial Statements

F-5
<PAGE> 62

VENTRITEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Operating activities:
Net income (loss).................................................. $ (59,981) $ 9,008 $ 8,979
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization................................... 12,487 8,204 3,964
Loss from disposal of equipment................................. 48 168 --
Changes in operating assets and liabilities:
Accounts receivable........................................... 718 6,146 (10,020)
Inventories................................................... 1,676 6,043 (2,913)
Prepaid expenses and other current assets..................... 426 217 (1,188)
Accounts payable, accrued warranty, and other accrued
expenses..................................................... 4,168 3,269 1,196
Accrued employee compensation................................. (2,331) 736 2,364
Accrued royalties............................................. (331) (1,331) 2,741
Accrued intellectual property settlements..................... -- -- (18,600)
-------- -------- --------
Net cash provided by (used in) operating activities........ (43,120) 32,460 (13,477)
Investing activities:
Purchase of short-term investments.............................. (37,623) (83,293) (35,551)
Proceeds from maturities of short-term investments.............. 63,375 67,472 12,366
Acquisition of equipment and leasehold improvements............. (9,071) (13,415) (10,713)
Change in other assets.......................................... (801) 11 (5)
-------- -------- --------
Net cash provided by (used in) investing activities........ 15,880 (29,225) (33,903)
Financing activities:
Proceeds from follow-on common stock offering, net.............. -- -- 42,815
Proceeds from sales of common stock............................. 1,597 1,963 1,978
Principal payments under capital lease obligations.............. -- (70) (124)
-------- -------- --------
Net cash provided by financing activities.................. 1,597 1,893 44,669
-------- -------- --------
Increase (decrease) in cash and cash equivalents..................... (25,643) 5,128 (2,711)
Cash and cash equivalents at beginning of year....................... 34,942 29,814 32,525
-------- -------- --------
Cash and cash equivalents at end of year............................. $ 9,299 $ 34,942 $ 29,814
======== ======== ========
Supplemental cash flow information
Cash paid for:
Interest........................................................... $ -- $ 8 $ 42
Income taxes....................................................... $ 65 $ 689 $ --
</TABLE>

See Notes to Consolidated Financial Statements

F-6
<PAGE> 63

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Organization -- Ventritex, Inc., a Delaware corporation, and
its wholly-owned subsidiaries (the Company) designs, develops, manufactures and
sells implantable defibrillators and related products for the treatment of
ventricular tachycardia and ventricular fibrillation. Implantable defibrillators
are generally purchased by hospitals upon the recommendation of
electrophysiologists. The principal markets for the Company's products are the
United States and Europe.

The implantable defibrillator market is characterized by rapid
technological change and intense competition. As a result of the commercial
release by competitors of pectorally implantable defibrillators in 1995, the
Company experienced a significant decline in market share and revenues during
fiscal 1996, resulting in a net loss of $60 million. The Company believes that
its recently approved products, and products currently awaiting regulatory
approval will lead to increased revenues and improved cash flows from
operations.

The Company believes that its existing cash, cash equivalents and
short-term investment balances, combined with cash forecasted to be generated
from operations, will be sufficient to meet capital requirements through at
least fiscal 1997. In addition, the Company intends to issue convertible debt
during the first quarter of fiscal 1997, which offering, if successfully
completed, will provide sufficient capital for the foreseeable future. Should
fiscal 1997 results of operations fall significantly short of forecasted levels
and should the convertible debt offering not be completed as anticipated, the
Company would be required to restructure its operations in order to preserve
liquidity. Such restructuring could include delaying product development
efforts, reducing or delaying capital expenditures, reducing personnel related
costs, and other similar actions. In addition, the Company may use other means
of financing, including the issuance of equity securities or debt, if necessary
or financially advantageous.

The Company has entered into licensing arrangements which require the
payment of royalties on sales of defibrillators. Certain of these licenses
contain significant restrictions that may have the effect of preventing or
substantially impeding an acquisition of, change-of-control of, or minority
investment in, the Company.

The Company's products include components that must meet strict quality
standards. The Company currently has sole source supply arrangements for a
number of critical components. Although management believes that alternative
sources of supply are available for most components and subcontracted
manufacturing services, the time required to locate and qualify other suppliers
could cause a delay in manufacturing that may be financially disruptive to the
Company.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. The market for implantable defibrillators is subject to rapid
technological change and obsolescence of inventory. Any product developed by the
Company that gains approval from the United States Food and Drug Administration
will have to compete for market acceptance and market share. An important factor
in such competition may be the timing of market introduction of competitive
products. Management has developed a sales forecast based upon the expected
timing of regulatory approval and market acceptance of its products and those of
competitors. At June 30, 1996, the Company has provided a reserve for
potentially excess or obsolete inventory and believes that no loss will be
incurred upon its disposition. There can be no assurance, however, that the
actual sales will not differ materially from the sales forecast in the near
term.

Basis of Presentation -- The accompanying consolidated financial statements
include the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been

F-7
<PAGE> 64

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

eliminated. The functional currency for the Company's foreign subsidiaries is
the U.S. dollar. The Company currently does not hedge the risk of currency
exchange rate fluctuations. Foreign currency losses were $46,000, $14,000, and
$8,000 for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.

Cash Equivalents -- The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.

Investments -- The Company invests in short-term debt securities consisting
of commercial paper with maturities of less than twelve months and overnight
deposits (including repurchase agreements for which, due to their short term
nature, the Company normally does not take possession of the underlying
securities). Due to the short duration to maturity, the cost basis of these
securities materially approximates their fair market value. By policy, all
investments have a minimum short-term investment rating of A-1 or P-1. As of
June 30, 1996, one investment represented 24% of total investments; this
investment matured in July 1996. No other issuer represented greater than 12% of
total investments.

The Company classifies all investments as "available-for-sale."
Available-for-sale securities are carried at fair value based upon quoted market
prices, with the unrealized gains and losses (if significant) reported in a
separate component of stockholders' equity.

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

Equipment and Leasehold Improvements -- Equipment, including capital
equipment leases, and leasehold improvements are carried at cost less
accumulated depreciation and amortization. Equipment is depreciated by the
straight-line method over estimated useful lives of three to seven years.
Leasehold improvements are amortized by the straight-line method over the
shorter of the life of the related asset or the term of the lease. Depreciation
expense includes amortization of capital leases and leasehold improvements. The
Company periodically reviews the useful lives of specific property and equipment
based upon changes in technology and products. In fiscal 1996, as a result of
such a review, the Company recorded additional depreciation expense of $3.0
million related to certain equipment.

Other Assets -- At June 30, 1996, other assets is comprised primarily of an
$800,000 note receivable from an officer of the Company. The note bears interest
at 5.33%, is due in April 1998 and is secured by shares of the Company's stock
held by the officer and other assets. The carrying value of the note materially
approximates its fair value based on a discounted cash flow analysis.

Warranty -- The Company warrants its implantable defibrillators for three
years or 100 high voltage capacitor charges. A provision for future warranty
costs is recorded based on management estimates.

Revenue Recognition -- Revenue from sales of the Company's products is
recognized upon receipt of a purchase order and shipment of the product.

Net Income (Loss) Per Share -- Net income (loss) per share is computed
using the weighted average number of shares of common stock outstanding and
common equivalent shares, if dilutive.

Accounting for Long-Lived Assets -- In 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which standardizes the accounting practices for the
recognition and measurement of impairment losses on certain long-lived assets.
The Company will adopt Statement No. 121 in the first quarter of fiscal 1997
and, based on current circumstances, does not believe the effect of adoption
will be material.

Stock-Based Compensation -- The Company accounts for stock options under
Accounting Principles Board Opinion No. 25. In 1995, the FASB issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Under this standard, the Company will provide expanded

F-8
<PAGE> 65

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosures reflecting the amount of compensation expense related to stock-based
compensation, including pro forma net income and earnings per share, beginning
in fiscal 1997.

NOTE 2: SHORT-TERM INVESTMENTS

Short-term investments, at amortized cost, which approximate fair value,
are comprised of the following:

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Overnight deposits................................... $ 1,639 $ 12,155
Overnight repurchase agreements...................... 5,670 13,990
U.S. government obligations.......................... 3,521 --
Commercial paper..................................... 9,733 41,470
-------- --------
Total available-for-sale investments....... 20,563 67,615
Less cash equivalent investments........... (7,309) (28,609)
-------- --------
Short-term investments............................... $ 13,254 $ 39,006
======== ========
</TABLE>

During the years ended June 30, 1996 and 1995, there were no sales prior to
maturity and therefore no realized gains or losses.

NOTE 3: CONSOLIDATED BALANCE SHEET COMPONENTS

Certain balance sheet components are as follows:

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials...................................... $ 7,895 $ 4,698
Work-in-process.................................... 3,091 8,121
Finished goods..................................... 4,441 4,284
-------- --------
$ 15,427 $ 17,103
======== ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Property, plant, and equipment:
Equipment.......................................... $ 44,347 $ 34,660
Leasehold improvements............................. 7,182 7,077
Construction in process............................ 978 2,099
-------- --------
52,507 43,836
Less: accumulated depreciation and amortization.... (29,852) (17,717)
-------- --------
$ 22,655 $ 26,119
======== ========
</TABLE>

F-9
<PAGE> 66

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4: STOCKHOLDERS' EQUITY

Stock Option Plans and Stock Purchase Plan

Under the 1995 Stock Option Plan, the Company may grant incentive stock
options and non-statutory stock options to employees and consultants. Options
may be granted to purchase common stock at exercise prices that will be no less
than the fair market value of the stock at the grant date, as determined by the
Board of Directors, and with terms of five to ten years. The options generally
become exercisable over four years from the date of grant.

Under the Director Option Plan, non-employee directors of the Company
("Outside Directors") receive nondiscretionary, automatic option grants
exercisable for 15,000 shares upon their initial election to the Board of
Directors and on July 1 of each year thereafter exercisable for 5,000 shares,
provided that the first such automatic grant on July 1, 1996 will be exercisable
for 7,500 shares. Options granted to Outside Directors have a term of ten years
from the date of grant and have an exercise price equal to the closing price of
the Company's common stock on the last trading day prior to the date of the
grant. Initial options to Outside Directors become exercisable ratably over 36
months and subsequent annual grants become exercisable ratably over twelve
months.

The following is a summary of activity during fiscal 1994, 1995 and 1996
under all of the Company's plans:

<TABLE>
<CAPTION>
SHARES SHARES AGGREGATE
AVAILABLE SUBJECT TO EXERCISE PRICE EXERCISE PRICE
FOR GRANT OPTIONS PER SHARE (IN THOUSANDS)
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993........ 37,388 1,933,409 $ 0.40 - $37.75 19,965
Authorized.................... 900,000 -- -- --
Granted....................... (445,609) 445,609 $17.25 - $43.87 11,857
Exercised..................... -- (450,354) $ 0.40 - $29.50 (1,126)
Canceled...................... 75,329 (75,329) $ 0.47 - $43.87 (1,184)
---------- ---------- --------------- ---------------
Balance at June 30, 1994........ 567,108 1,853,335 $ 0.40 - $43.87 $29,512
Authorized.................... 1,900,000 -- -- --
Granted....................... (829,077) 829,077 $14.06 - $28.75 18,054
Exercised..................... -- (491,836) $ 0.47 - $26.00 (854)
Canceled...................... 136,447 (136,447) $ 0.40 - $43.87 (3,348)
Plan shares expired........... (199,128) -- -- --
---------- ---------- --------------- ---------------
Balance at June 30, 1995........ 1,575,350 2,054,129 $1.00 - $43.87 $43,364
Authorized.................... -- -- -- --
Granted....................... (1,009,845) 1,009,845 $15.63 - $21.50 16,243
Exercised..................... -- (153,870) $ 1.00 - $17.25 (416)
Canceled...................... 198,500 (198,500) $ 1.00 - $43.87 (4,995)
Plan shares expired........... (149,298) -- -- --
---------- ---------- --------------- ---------------
Balance at June 30, 1996........ 614,707 2,711,604 $ 1.00 - $43.87 $54,196
========== ========= =============== ============
</TABLE>

At June 30, 1996, 1,093,616 of the options outstanding were exercisable. At
June 30, 1995, 796,540 of the options outstanding were exercisable.

The Company has a 1991 Employee Stock Purchase Plan for which a total of
325,000 shares of common stock have been authorized for issuance. Eligible
employees may invest up to 10% of compensation through payroll deductions and
purchase shares of the Company's stock at 85% of fair

F-10
<PAGE> 67

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

market value at specified dates. The Company has issued 206,732 shares since
inception of the plan, including 80,808 shares during the fiscal year ended June
30, 1996.

Stockholder Rights Plan

Under the Company's Stockholder Rights Plan, one preferred share purchase
right (a "Right") is attached to each share of common stock of the Company. Each
Right will entitle stockholders to purchase 1/1000 of a share of Series A
participating preferred stock of the Company, a designated series of preferred
stock for which each 1/1000 of a share has economic attributes and voting rights
equivalent to one share of the Company's common stock, at an exercise price of
$100. The Rights only become exercisable in certain limited circumstances
involving acquisitions of or tender offers for 15% or more of the Company's
capital stock. For a limited period of time after the announcement of any such
acquisition or offer, the Rights are redeemable at a price of $.01 per Right.
After becoming exercisable, in certain more limited circumstances, each Right
entitles its holder to purchase for $100 an amount of common stock of the
Company, or in certain circumstances, securities of the acquiror, having a then
current market value equal to $200. The Rights expire on August 16, 2004.

NOTE 5: LEASE AND PURCHASE COMMITMENTS

The Company leases facilities and equipment under noncancelable lease
agreements. Future minimum lease payments at June 30, 1996 were as follows:

<TABLE>
<CAPTION>
OPERATING LEASES
----------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $1,451
1998........................................................ 1,516
1999........................................................ 1,505
2000........................................................ 798
------
Total minimum lease payments................................ $5,270
======
</TABLE>

The Company leases its facilities under noncancelable lease agreements that
extend through December 2000. Rental expense totaled approximately $1,377,000,
$1,351,000 and $1,033,000 for fiscal years ended June 30, 1996, 1995 and 1994,
respectively.

At June 30, 1996, the Company had approximately $7,000,000 in noncancelable
commitments with suppliers to provide components in the normal course of
business.

NOTE 6: INCOME TAXES

The provision for income tax consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
---- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................... $ -- $ 349 $ --
State................................................. -- 651 --
--- ------ ---
$ -- $1,000 $ --
=== ====== ===
</TABLE>

F-11
<PAGE> 68

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The reconciliation of income tax provision (benefit) computed at the U.S.
federal statutory rate to the provision for income taxes is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at U.S. statutory rate..... $(20,394) $ 3,503 $ 3,053
State taxes net of federal benefit................. -- 423 --
Utilization of tax net operating loss
carryforwards.................................... -- (6,835) --
Valuation allowance for deferred tax assets........ 20,394 3,793 (3,053)
Other.............................................. -- 116 --
-------- ------- -------
$ -- $ 1,000 $ --
======== ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 33,960 $ 17,408
Tax credit carryforwards................................... 3,418 3,347
Accrued liabilities........................................ 2,612 2,666
Inventory reserves......................................... 8,168 6,247
Capitalized research and development costs................. 2,027 2,761
Other...................................................... 2,601 1,252
-------- --------
52,786 33,681
Valuation allowance........................................ (52,786) (33,681)
-------- --------
$ -- $ --
======== ========
</TABLE>

Realization of deferred tax assets is dependent on future earnings, if any,
the timing and amount of which are uncertain. Accordingly, a valuation
allowance, in an amount equal to the net deferred tax assets as of June 30, 1996
and 1995, has been established to reflect these uncertainties.

Approximately $10,238,000 of the deferred tax assets subject to the
valuation allowance at June 30, 1996 relates to the tax benefits of stock option
deductions. These benefits, when realized, will be credited directly to
stockholders' equity and will not reduce the provision for income taxes. The
change in valuation allowance was a net increase of $19,105,000 and $1,028,000
for fiscal years 1996 and 1995, respectively.

At June 30, 1996, the Company has net operating loss and research and
development tax credit carryforwards for federal tax purposes of approximately
$99,882,000 and $2,806,000, respectively, that will expire through 2011 if not
utilized. In addition, the Company has a federal minimum tax credit carryover of
$454,000 and a California investment tax credit carryforward of $240,000.

F-12
<PAGE> 69

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7: LITIGATION

The Company is currently in litigation with one of its competitors,
Intermedics, Inc. In response to threats from Intermedics, the Company filed a
declaratory judgment action in the United States District Court in the Northern
District of California in January 1993, asking the court to declare that certain
patents which Intermedics had asserted were being infringed by the Company were,
in fact, invalid, unenforceable or not infringed. Intermedics then filed several
actions in the United States District Court in the Southern District of Texas
alleging infringement by the Company of nine Intermedics patents. Initially,
this litigation was focused on procedural issues relating to whether the dispute
would be tried in California or Texas. On October 12, 1994, the United States
District Court for the Northern District of California denied Intermedics motion
to transfer Ventritex's pending suits to Texas and granted Ventritex's motion to
enjoin Intermedics from further prosecution of its aforementioned suits in
Texas. The United States District Court for the Southern District of Texas
thereafter issued an order transferring to California all of the Texas cases
which Intermedics had served upon Ventritex. The Court has indicated that the
trial in connection with the above described actions will begin May 5, 1997.

In the above actions, Intermedics seeks judgments against Ventritex for
damages, attorneys fees and injunctive relief. It is expected that Intermedics
will, during the course of the litigation, seek to obtain various types of
pretrial relief which include, but are not limited to, summary judgments,
dismissals of Ventritex's claims and preliminary injunctions. In January 1995,
Intermedics filed a motion for partial summary judgment and for issuance of a
preliminary injunction based on alleged infringement of one of its patents.
Ventritex vigorously contested these motions and requested the United States
Patent and Trademark Office to conduct a reexamination of claim 28 of
Intermedics U.S. Patent No. 4,880,005 upon which these motions are based. The
Court denied Intermedics' partial summary judgment motion, and, as a result,
Intermedics' preliminary injunction request was withdrawn. The Patent Office, on
May 28, 1996, issued a second final rejection of claim 28 of the 4,880,005
patent. Intermedics subsequently requested reconsideration of the final
rejection. As a result of the reconsideration, on August 5, 1996, the Patent
Office reissued the 4,880,005 patent with claim 28 intact. The Company believes
that Intermedics will make renewed efforts to obtain partial summary judgment
and a preliminary injunction. On June 6, 1996, Intermedics filed with the United
States Patent and Trademark Office a request for reexamination of U.S. Patent
No. 4,830,006 and on June 7, 1996, Intermedics filed a request for reexamination
of U.S. Patent No, 4,913,145. Both patents are being asserted by Intermedics
against the Company. The requests are based on references identified by
Ventritex as being pertinent to the patents in response to discovery requests by
Intermedics.

In addition to its patent infringement claims, Intermedics had previously
alleged trade secret misappropriation and related acts by the Company and two of
its officers, who were formerly employees

F-13
<PAGE> 70

VENTRITEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of Intermedics. In this lawsuit, the Company filed counterclaims against
Intermedics for infringement of two of Ventritex's patents. These counterclaims
are still pending. Certain of the trade secret misappropriation and related
claims were tried in 1992 before a United States District Court jury in San
Francisco. The jury returned a unanimous verdict in favor of the Company and its
officers and found that Intermedics had acted in bad faith in continuing to
pursue the trade secret misappropriation claims. The Court set aside the bad
faith portion of the verdict based on Intermedics claim of an erroneous jury
instruction. A new trial on the bad faith issue has been ordered, but no trial
date has been set. The judgment dismissed all of Intermedics trade secret claims
against the Company and its officers and was affirmed on appeal.

NOTE 8: EMPLOYEE BENEFIT PLAN

The Company sponsors an employee salary deferral plan that allows voluntary
contributions by employees after completion of six months of service. Eligible
employees may elect to contribute from 2% to 15% of their respective
compensation, and the Company at its discretion may elect to make matching
contributions. During fiscal 1995, the Company matched 50% of the first 6% of an
employee's contributions to a maximum of $1,000 per calendar year. In fiscal
1996, the Company continued to match an employee's contribution on the same
basis to a maximum of 50% of the annual limits on salary deferrals established
by tax regulations. The Company's fiscal 1995 and 1996 contributions under this
plan were approximately $419,000 and $659,000, respectively.

NOTE 9: CONCENTRATION OF CREDIT RISK

The Company sells primarily to hospitals. In the fiscal year ended June 30,
1996, one customer accounted for 10% of net sales. In the fiscal years ended
June 30, 1995 and 1994, no customer accounted for more than 10% of sales. The
Company performs ongoing credit evaluations of its customers, but does not
require collateral. The Company maintains reserves for potential credit losses,
and to date such losses have been within management's expectations.

F-14
<PAGE> 71

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to Goldman, Sachs & Co. ("Goldman
Sachs" or the "Underwriter"), and Goldman Sachs have agreed to purchase, the
entire principal amount of the Notes.

Under the terms and conditions of the Underwriting Agreement, Goldman Sachs
are committed to take and pay for all of the Notes, if any are taken.

Goldman Sachs propose to offer the Notes in part directly to the public at
the initial public offering price set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
1.8% of the principal amount of the Notes. Goldman Sachs may allow, and such
dealers may reallow, a concession not to exceed 1.0% of the principal amount of
the Notes to certain brokers and dealers. After the Notes are released for sale
to the public, the offering price and other selling terms may from time to time
be varied by Goldman Sachs.

The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of $7,500,000
additional principal amount of Notes solely to cover over-allotments, if any.

The Notes are a new issue of securities with no established trading market.
The Company has been advised by Goldman Sachs that they intend to make a market
in the Notes but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.

The Company has also agreed that it will not offer to sell, contract to
sell or otherwise dispose of any Common Stock (other than upon conversion of the
Notes), any securities substantially similar to the Notes or the Common Stock or
any security exchangeable or exercisable for or convertible into Common Stock or
substantially similar securities (any such security, a "Covered Security"),
without the prior consent of the Underwriter, for a period of 90 days after the
date of this Prospectus, except pursuant to the Company's stock option or
purchase plans existing as of the date of this Prospectus or other options
granted by the Company to employees. Certain directors and executive officers of
the Company have also agreed, subject to certain exceptions, that they will not
offer to sell, sell or otherwise dispose of shares of Common Stock beneficially
owned by them without the prior written consent of the Underwriter until the
earlier of (i) the 90th day after the date of this Prospectus and (ii) such time
as such individual ceases to be an employee and/or director of the Company.

The Underwriter has performed investment banking services for the Company
for which it has received customary compensation.

The Company has agreed to indemnify the Underwriter against certain
liabilities under the Securities Act.

U-1
<PAGE> 72

(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 73

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 6
Use of Proceeds.......................... 14
Capitalization........................... 14
Price Range of Common Stock.............. 15
Dividend Policy.......................... 15
Selected Consolidated Financial Data..... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 18
Business................................. 22
Management............................... 36
Description of Notes..................... 38
Description of Capital Stock............. 49
Certain Federal Income Tax
Considerations......................... 54
Legal Matters............................ 55
Experts.................................. 55
Available Information.................... 56
Incorporation of Certain Documents by
Reference.............................. 56
Index to Consolidated Financial
Statements............................. F-1
Underwriting............................. U-1
</TABLE>

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

$50,000,000

LOGO

5 3/4% CONVERTIBLE

SUBORDINATED NOTES

DUE AUGUST 15, 2001

------------------
PROSPECTUS
------------------

GOLDMAN, SACHS & CO.
---------------------------------------------------------
---------------------------------------------------------
<PAGE> 74

APPENDIX -- DESCRIPTION OF GRAPHICS

INSIDE FRONT COVER

PHOTO UPPER LEFT

[DESCRIPTION] Photograph of Cadet Tiered Therapy defibrillator and TVL dual lead
transvenous lead system

[CAPTION] THE CADET(R)

Tiered Therapy defibrillator and TVL(R) dual lead transvenous lead
system were approved for pectoral implantation in May 1996.

PHOTO UPPER RIGHT

[DESCRIPTION] Photograph of PR-1500 Programmer

[CAPTION] THE PR-1500 PROGRAMMER
sends instructions to and receives diagnostic information from any
implanted Ventritex defibrillator.

INSIDE BACK COVER

[DESCRIPTION] Photograph of Contour Tiered Therapy defibrillator with inset of
photograph of Contour Tiered Therapy defibrillator and SPL
transvenous lead system.

[CAPTION] THE CONTOUR(TM)

Tiered Therapy defibrillator PMA supplement was submitted in June
1996. Also shown is the SPL(TM) transvenous lead system which started
clinical trials in May 1996. The Contour(TM) Tiered Therapy
defibrillator and the SPL(TM) transvenous lead system have been
approved for commercial distribution in Europe (CE marked), but will
not become commercially available in the United States unless and
until regulatory approval is received.