<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1996
REGISTRATION NO. 333-03637
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
THORATEC LABORATORIES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-2340464
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
2023 EIGHTH STREET, BERKELEY, CALIFORNIA 94710; (510) 841-1213
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
D. KEITH GROSSMAN
2023 EIGHTH STREET, BERKELEY, CALIFORNIA 94710; (510) 841-1213
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
AUGUST J. MORETTI LAURA B. HUNTER
HELLER, EHRMAN, WHITE & MCAULIFFE BROBECK, PHLEGER & HARRISON LLP
525 UNIVERSITY AVENUE 4675 MACARTHUR COURT, SUITE 1000
PALO ALTO, CALIFORNIA 94301 NEWPORT BEACH, CA 92660
(415) 324-7000 (714) 752-7535
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, no par
value................. 2,875,000 $17.625 $50,671,875 $17,473
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</TABLE>
(1) Includes 375,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and 457(c) of the Securities Act of 1933, as
amended, based on the average of the closing bid and ask prices per share of
the Common Stock on May 7, 1996 as reported on The Boston Stock Exchange, as
adjusted for a proposed one-for-three reverse stock split of the Common
Stock.
(3) Previously paid. ------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS, DATED MAY , 1996
PROSPECTUS
2,500,000 SHARES
LOGO
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold
by Thoratec Laboratories Corporation ("Thoratec" or the "Company"). The
Company's Common Stock is currently traded on The Boston Stock Exchange under
the symbol "TLC.B." The Company has applied for approval to list the Common
Stock on the Nasdaq National Market under the symbol "THOR." On May 9, 1996, the
last reported bid price of the Common Stock on The Boston Stock Exchange was
$21.00 per share after giving effect to the proposed one-for-three reverse split
of the Common Stock. See "Prospectus Summary" and "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. 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>
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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
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Total(3)............................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $1,400,000, including the Underwriters nonaccountable expense allowance.
See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
375,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1996.
---------------------------
Vector Securities International, Inc. Cruttenden Roth
Incorporated
, 1996
<PAGE> 3
Thoratec(R), TLC-II(TM) and the Thoratec logo are trademarks of the Company.
---------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE BOSTON STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE BOSTON
STOCK EXCHANGE IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
-------------------------------------
THE THORATEC CORONARY ARTERY
BYPASS GRAFT (CABG)
This small diameter synthetic graft is
designed for use in coronary artery bypass
surgery patients who have too few or no
suitable vessels of their own.
-------------------------------------
Thoratec is utilizing its proprietary
biomaterials and polymer
fabrication expertise to develop vascular
graft products with
physical properties closely resembling
those of natural vessels
and improved biocompatibility over
currently available
synthetic materials.
-------------------------------
THE THORATEC
VASCULAR ACCESS
GRAFT (VAG)
The Thoratec VAG is
designed to provide
access to the blood-
stream in renal
hemodialysis patients
who require frequent
and regular needle
punctures to perform
the hemodialysis
procedure.
-------------------------------
<TABLE>
<S> <C>
The Thoratec VAG and PROPRIETARY FABRICATION PROCESSES
CABG vascular grafts, Thoratec has over twenty years of experience
as well as the TLC-II in biomaterials manufacturing and
Portable Driver, are not processing. The above picture shows a
currently approved for Thoratec employee fabricating a blood
sale in the United States pumping chamber for the VAD System
by the FDA. The from Thoratec's proprietary biomaterials.
Company plans to file
Investigational Device
Exemption (IDE)
applications to conduct
clinical trials in the
United States.
</TABLE>
[Drawing of human heart
with three bypass grafts]
[Drawing of human arm [Photograph of manufacturing
showing position of technician fabricating a
vascular access graft as blood pump]
it would be in hemodialysis
patient]
<PAGE> 5
BIVENTRICULAR PARACORPOREAL
SUPPORT
The Thoratec VAD System is
the only FDA approved bridge
to heart transplant device
that can support the left,
right, or both sides of the
heart. The Company estimates
that 20-40% of patients
receiving ventricular assist
require biventricular
support. Since the Thoratec
VAD System is paracorporeal
(worn on the outside of the
body instead of implanted in
the abdomen) it can support
patients of varying sizes,
including very small
patients. The VAD System has
supported patients as young
as 11 years old, and as
small as 57 pounds.
THE THORATEC DUAL DRIVE CONSOLE AND
TLC-II PORTABLE DRIVER
The VAD System, currently driven by
the Dual Drive Console (shown here on
the left), allows patients to walk
around within the hospital and even
exercise while on the VAD System. The
Thoratec TLC-II Portable Driver (shown
being worn over the shoulder) is
currently in development. Performing
the same role as the Dual Drive
Console, this small driver may
eventually enable patients to return
home while on the VAD System.
[Drawing of human torso showing
positioning of two ventricular
assist devices attached to heart]
[Photograph of man, with TLC-II
Portable Driver over his shoulder,
standing next to Thoratec Dual Drive
Console]
<PAGE> 6
THE THORATEC
VENTRICULAR ASSIST
DEVICE (VAD) SYSTEM
Recently approved by the
FDA for use as a bridge
to heart transplant, the
Thoratec VAD System
maintains the pumping
capacity of the heart
when the heart is unable
to do so due to illness or
disease. The VAD System
can provide left, right or
biventricular support.
This seventeen year old
patient, who suffered
failure of both sides of
her heart, is shown being
supported with both left
and right VAD blood pumps.
She received a successful
heart transplant after
26 weeks of support with
the VAD System.
[Photograph of 17-year old female
patient
standing in hospital with two blood
pumps]
<PAGE> 7
PROSPECTUS SUMMARY
The statements in this Prospectus that relate to future plans, events or
performance are forward-looking statements. Actual results could differ
materially due to a variety of factors, including the factors described under
"Risk Factors" and the other risks described in this Prospectus. Except as
otherwise noted (i) all information in this Prospectus relating to the shares of
Common Stock outstanding (and issuable upon exercise of options and warrants)
has been adjusted to give effect to the one-for-three reverse split of the
Common Stock to be effected prior to the Offering (and all bid prices and option
and warrant exercise prices stated herein have been proportionately adjusted)
and (ii) all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. The following summary is qualified in its
entirety by the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus, including
information under "Risk Factors."
THE COMPANY
Thoratec Laboratories Corporation ("Thoratec" or the "Company") develops,
manufactures and markets medical devices for circulatory support and vascular
graft applications. The Company's first product, the Thoratec Ventricular Assist
Device System (the "VAD System"), is being marketed in the U.S. and
internationally for use as a bridge to heart transplant and is currently the
only device approved by the U.S. Food and Drug Administration (the "FDA") that
can provide left, right or biventricular support for this indication. The
Company believes that the VAD System provides a number of significant advantages
over other ventricular assist devices. The Company is pursuing additional
indications for the VAD System and is developing other circulatory support
products for patients suffering from heart failure. The Company is also
developing vascular grafts for hemodialysis and coronary artery bypass surgery.
These products utilize the Company's proprietary biomaterials, which provide
improved thromboresistance, biocompatibility, patency and durability.
CIRCULATORY SUPPORT PRODUCTS. Cardiac failure is the leading cause of
death in the U.S. Deaths associated with cardiac failure fall into two broad
categories: chronic congestive heart failure ("CHF"), a slow degenerative
process leading to cardiac insufficiency, and acute cardiac failure resulting
from heart attacks, open heart surgery and various other disorders, such as
infections of the heart muscle. There are approximately two to three million
patients with CHF in the U.S., approximately 50% of whom die within five years
of diagnosis. Conventional drug therapy may delay the progress of CHF, but is
not curative and the only available method of treating end-stage CHF is a heart
transplant. Although heart transplants have been very successful, too few donor
hearts are available to address the 30,000 to 50,000 CHF patients requiring some
form of permanent cardiac assist in the U.S. each year. In addition,
approximately 15,000 to 18,000 patients die annually in the U.S. from heart
failure following open heart surgery when the heart, weakened by disease and the
additional trauma of surgery, fails to maintain adequate blood circulation.
The VAD System is a mechanical device used to assist cardiac function and
can be used to support one or both sides of the patient's heart until a donor
heart can be found or the patient's heart recovers its normal function. In
December 1995, the Company received FDA approval to market the VAD System as a
bridge to heart transplant. The VAD System also received a European CE mark and
is currently being marketed as both a bridge to heart transplant and for
recovery of the natural heart in major European countries, in Canada and in
certain other international markets. As of April 30, 1996, the VAD System had
been used in more than 650 patients and had been placed in 51 heart transplant
centers worldwide. Thoratec believes that the VAD System has a number of
competitive advantages which will make it available to a broader patient
population and will enable it to better serve the existing patient population
including (i) providing biventricular support, which is necessary in 20% to 40%
of patients receiving ventricular assistance, (ii) placing the pump
paracorporeally (worn on the outside of the body), enabling it to support
patients of varying sizes, including very small patients, (iii) providing the
surgeon with multiple options in positioning the cannulae and in the size and
shape of the cannulae used, potentially reducing damage to the heart and (iv)
incorporating proprietary Thoratec biomaterials in most blood contacting parts,
potentially reducing or eliminating the risks of
3
<PAGE> 8
certain adverse reactions by the body and permitting the system to be used for
potentially extended periods.
The Company recently completed clinical trials of the VAD System in
patients who were unable to regain normal heart function following open heart
surgery. The Company is planning to submit a pre-market approval ("PMA")
Supplement to the FDA for use of the VAD System for postcardiotomy recovery of
the natural heart in early 1997. The Company believes that the VAD System is
well-suited for this indication since it does not require abdominal surgery to
implant and/or remove the pump, provides options for either short-term or
long-term support and provides biventricular support which is often required by
patients in recovery. In addition, the Company is developing the TLC-II Portable
VAD Driver ("TLC-II"), a compact, lightweight portable device, which may enable
patients to return home while on the VAD System. The Company plans to submit an
Investigational Device Exemption ("IDE") application to the FDA by mid-1997 to
begin clinical trials of the TLC-II in the U.S.. The Company believes that the
TLC-II may also allow the VAD System to be used as an alternative to heart
transplant. The Company is also developing a fully-implantable version of the
current VAD System and a Muscle Powered VAD ("MVAD"), an untethered,
implantable, muscle-powered circulatory support device to serve as an
alternative to heart transplant.
VASCULAR GRAFT PRODUCTS. The Company is utilizing its proprietary
biomaterials and polymer fabrication expertise to develop vascular graft
products with properties that more closely resemble those of natural arteries
and have significant advantages over currently available synthetic grafts.
Thoratec's first graft product, the Thoratec Vascular Access Graft ("VAG"), is
currently being marketed in Canada and other countries outside of the U.S. for
hemodialysis applications. Data obtained in clinical trials in 134 patients
indicate that the use of the VAG results in reduced inflammatory response,
reduced bleeding complications due to the VAG's self-sealing properties and
improved handling and suturability. These studies have also shown that patients
implanted with the VAG can begin hemodialysis within one to three days after
implantation, in contrast to the several week delay associated with other
vascular access grafts. The Company plans to submit an IDE application to the
FDA in the first half of 1997 to commence clinical trials of the VAG in the U.S.
The Company is also developing the Thoratec Coronary Artery Bypass Graft
("CABG") designed for use in coronary artery bypass surgery patients with few or
no suitable native vessels. No synthetic graft is currently available for this
indication due to the difficulty of producing a small diameter graft that
remains patent (unobstructed). To date, 24 patients in Canada and Germany have
received Thoratec's 2.5 and 3.0 mm CABG grafts on a compassionate use basis.
While patency in the implanted grafts has not been evaluated in all patients, 19
of these patients were asymptomatic as of March 1996, with the longest term
patient implanted for approximately three years. The Company is conducting
preclinical testing of the CABG graft in the U.S.
The Company was incorporated in California in 1976. The Company's executive
offices are located at 2023 Eighth Street, Berkeley, California 94710 and its
telephone number is (510) 841-1213.
4
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered..................................... 2,500,000 shares
Common Stock to be outstanding after the Offering........ 18,075,352 shares(1)
Use of proceeds.......................................... For scale-up and validation of a
new manufacturing facility,
research and development,
expansion of sales and marketing
capabilities, working capital and
other general corporate purposes
Proposed Nasdaq National Market symbol................... THOR
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED MARCH
---------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Product sales -- net...................... $2,361 $ 3,439 $ 3,791 $ 2,764 $ 3,489 $ 939 $ 1,302
Other..................................... 427 294 142 24 59 10 38
------ ------- ------- ------- ------- ------- -------
Total revenue........................... 2,788 3,733 3,933 2,788 3,548 949 1,340
Costs and expenses:
Cost of products sold..................... 1,032 1,667 2,033 1,576 1,972 442 822
Research and development.................. 798 1,007 1,478 1,360 1,984 336 605
Selling, general and administrative....... 1,054 1,125 1,147 1,456 1,298 314 733
Other..................................... 344 394 0 43 188 46 424
------ ------- ------- ------- ------- ------- -------
Total costs and expenses................ 3,228 4,193 4,658 4,435 5,442 1,138 2,584
------ ------- ------- ------- ------- ------- -------
Net income (loss)........................... $ (440) $ 1,430(2) $ (725) $(1,647) $(1,894) $ (189) $(1,244)
====== ======= ======= ======= ======= ======= =======
Net income (loss) per share(3).............. $ (.36)(4) $ .25(2) $ (.05) $ (.12) $ (.13) $ (.01) $ (.08)
====== ======= ======= ======= ======= ======= =======
Shares used in computing net income (loss)
per share(3)(5)........................... 2,871 5,771 14,122 14,193 14,429 14,247 15,126
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1996
---------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 1,959 $ 53,059
Working capital.................................................................... 2,967 54,067
Total assets....................................................................... 4,608 55,708
Accumulated deficit................................................................ (44,661) (44,661)
Total shareholders' equity......................................................... 3,541 54,641
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 30, 1996. Excludes (i) 1,631,240
shares issuable upon exercise of options outstanding as of March 30, 1996 at
a weighted average exercise price of $5.37 per share, (ii) 666,667 shares
issuable upon exercise of warrants outstanding as of March 30, 1996 at an
exercise price of $0.003 per share and (iii) 250,000 shares issuable upon
exercise of warrants to be issued to the representatives of the Underwriters
in connection with the Offering at an exercise price equal to 120% of the
Offering price (the "Representatives' Warrants"). See "Management -- Benefit
Plans," "Description of Capital Stock," "Underwriting" and Note 9 of Notes
to Consolidated Financial Statements.
(2) Includes an approximately $1,890,000 extraordinary gain on debt
restructuring.
(3) Assumes the one-for-three reverse split of the Company's Common Stock to be
effected prior to the Offering.
(4) Includes reduction of approximately $583,000 for accrued but unpaid
Preferred Stock dividends.
(5) See Note 2 of Notes to Consolidated Financial Statements.
(6) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company at an assumed Offering price of $21.00 per share and after
deducting estimated underwriting discounts and commissions and the estimated
expenses of the Offering. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 10
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CAREFULLY CONSIDERED BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THESE FACTORS MAY CAUSE
ACTUAL RESULTS, EVENTS OR PERFORMANCE TO DIFFER MATERIALLY FROM THOSE EXPRESSED
IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY IN THIS PROSPECTUS.
CURRENT FINANCIAL CONDITION; REQUIREMENT FOR ADDITIONAL FUNDS. The
Independent Auditors' Report and Note 1 of Notes to the Consolidated Financial
Statements included elsewhere in this Prospectus indicate that there are
conditions which raise substantial doubt about the Company's ability to continue
as a going concern. The Company's continuation as a going concern is dependent
on its ability to secure additional financing as contemplated by this Offering,
improve the profitability of its product lines and develop new sources of
revenue including new products. The Company anticipates the net proceeds of this
Offering, together with its working capital, will be sufficient to meet its
present operating and capital requirements at least through the end of 1997, but
that it may need substantial additional funds to continue operations thereafter.
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the progress of clinical trials, the timing and cost
of future filings with, and obtaining approval from, the FDA and foreign
government authorities, the timing and cost of product introductions, the cost
of developing marketing and distribution capabilities assuming the required
regulatory approvals are received, and market acceptance of the Company's
products. The Company anticipates that it will seek additional funds primarily
through public or private offerings of debt or equity securities. There can be
no assurance that additional financing will be available on acceptable terms, if
at all. The unavailability of such financing could delay research and
development, regulatory approval, manufacturing or marketing of some or all of
the Company's products and would 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 -- Liquidity and Capital Resources."
LACK OF PROFITABILITY; EXPECTED FUTURE LOSSES. The Company was formed in
1976 and has reported a loss from operations in all but one year of its
existence. As of March 30, 1996, the Company's accumulated deficit was
approximately $44,700,000. Thoratec has generated limited revenues to date from
the sale of the VAD System and VAG products and expects to continue to incur
substantial additional losses until it can achieve substantial product revenues.
Furthermore, the Company expects that its expenses will increase as a result of
increased research and development, preclinical and clinical testing, and
selling, general and administrative expenses. Although sales of the VAD System
as a bridge to heart transplant have commenced in the U.S., sales of the
Company's other products in the U.S. cannot begin until the products have
received FDA approval, which may not occur for several years, if at all. There
can be no assurance that any other products of the Company will be approved, can
be successfully commercialized or that the Company will achieve significant
revenues from sales of such products. In addition, there can be no assurance
that the Company will achieve profitability in the future. Failure to achieve
significant revenues or profitability would 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 -- Liquidity and Capital Resources."
NO ASSURANCE OF MARKET ACCEPTANCE. The commercial success of the Company's
current and future products will require acceptance by cardiovascular and
vascular surgeons, and interventional cardiologists. Such acceptance will depend
on clinical results and the conclusion by these physicians that the products are
safe, cost-effective and acceptable alternative methods of treatment. There can
be no assurance that the Company's products will provide benefits considered
adequate by providers of cardiovascular and vascular treatments or that a
sufficient number of such providers will use the Company's products for
commercial success to be achieved. In addition, because the Company's products
are based on innovative technologies and, in some cases, represent new methods
of treatment, there may be greater reluctance to accept these products than
would occur with products utilizing established technologies or methods of
treatment. Even if the safety and efficacy of these products are established,
physicians may elect not to use them for a number of reasons including the
6
<PAGE> 11
high cost of equipment and training associated with the use of the Company's
products or unfavorable reimbursement from healthcare payors. Failure of the
Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
A limited number of cardiovascular and vascular surgeons, and
interventional cardiologists influence medical device selection and purchase
decisions for a large portion of the target cardiac patient population. The
Company has developed working relationships with cardiac surgeons and
cardiologists at a number of leading medical centers in connection with the
development of the VAD System. In addition, surgical teams at these medical
institutions have performed clinical trials to support the Company's
applications to be filed with the FDA. A continuing working relationship with
these and other physicians and medical centers will be important to the
commercial acceptance of the VAD System and future circulatory support and graft
products. No assurance can be given that existing relationships and arrangements
can be maintained or that new relationships will be established in support of
the Company's circulatory support and graft technology. Furthermore, economic,
psychological, ethical and other concerns may limit general acceptance of
ventricular assist devices. See "Business -- Thoratec Products and Products
Under Development" and "-- Sales and Marketing."
SUBSTANTIAL DEPENDENCE ON LIMITED PRODUCT LINE; DEPENDENCE ON DEVELOPMENT
AND INTRODUCTION OF NEW PRODUCTS. To date, substantially all of the Company's
revenues have resulted from sales of the VAD System. The Company expects sales
from the VAD System worldwide and limited sales of the VAG products in certain
international markets outside of the U.S. to account for a significant portion
of the Company's near-term revenues. As a result, factors adversely affecting
the pricing of or demand for such products such as market acceptance,
competition or technological change could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company's
future financial performance will depend, in significant part, on the successful
development, introduction and customer acceptance of the Company's products
under development. Existing preclinical and clinical data relating to the
Company's products under development are very limited. Prior to any commercial
use, the products and technologies currently under development by the Company
will require significant additional research and development efforts, extensive
preclinical and clinical testing and regulatory approval. New product
development is highly uncertain and unanticipated developments, clinical and
regulatory delays, adverse or unexpected side effects or inadequate therapeutic
efficacy could slow or prevent the successful completion of the Company's
products and technology development efforts. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, regulatory approval, introduction or market acceptance
of these products. See "Business -- Thoratec Products and Products Under
Development."
LIMITED SALES AND MARKETING EXPERIENCE; DEPENDENCE UPON
DISTRIBUTORS. Thoratec intends to market the VAD System and, if regulatory
approval is obtained, other circulatory support products and certain of its
graft products in the U.S. either through a small direct sales force or through
distribution arrangements with third parties. The Company currently has limited
sales and marketing capabilities, and expects to expend substantial resources in
1996 and 1997 to increase its sales and marketing capability in the U.S. In
order to market the Company's products effectively, such sales staff will need
to develop significant technical expertise. There can be no assurance that the
Company will be able to recruit and train adequate sales and marketing personnel
or that such sales and marketing efforts will be successful. In addition,
Thoratec competes with other companies that have extensive and well-funded sales
and marketing organizations. There can be no assurance that Thoratec's sales and
marketing staff will compete successfully against such other companies. The
Company intends to continue to rely on distributors for international sales of
the VAD System and its graft products, and for sales of the VAG in the U.S. if
regulatory approval is received. Any international sales by the Company may be
subject to certain risks, including exchange rate fluctuations, international
monetary conditions, tariffs, import licenses, trade policies, domestic and
foreign tax policies and foreign medical regulations. To the extent the Company
relies on distributors, its success will depend upon the efforts of others, over
which it may have little control. The loss of, or lack of performance by,
distributors
7
<PAGE> 12
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sales and Marketing."
COMPETITION. Competition from medical device companies and medical device
subsidiaries of healthcare and pharmaceutical companies is intense and expected
to increase. Many of the Company's competitors have substantially greater
financial, technical, distribution and marketing resources than the Company. In
addition, many of these competitors have significantly greater experience than
the Company in obtaining regulatory approvals for medical devices. Accordingly,
the Company's competitors may succeed in obtaining regulatory approval for
products more rapidly than the Company. Furthermore, many of these competitors
have superior manufacturing capabilities, and such competitors may be able to
manufacture products more efficiently and at a lower cost than the Company and,
therefore, offer comparable products at a lower cost.
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, receive regulatory approval and manufacture
and sell commercial quantities of products are expected to be important
competitive factors. The Company believes that the primary competitive factors
in the market for ventricular assist devices are impact on patient outcomes,
product performance, quality and cost-effectiveness, and that the primary
competitive factors for vascular graft products are biocompatibility, patency,
reliability, cost, suturability and ease of use. The Company also believes that
physician relationships and customer support are important competitive factors.
See "Business -- Competition."
U.S. GOVERNMENT REGULATIONS. The research and development, manufacturing,
marketing and distribution of the Company's products in the U.S. are governed by
the Federal Food, Drug, and Cosmetic Act and the regulations promulgated
thereunder (the "FDC Act and Regulations"). The FDA administers the FDC Act and
Regulations, and the Company is subject to inspection by the FDA for compliance
with such regulations and procedures. The process of obtaining FDA approval is
lengthy and uncertain. In order for the Company to market future products in the
U.S., the Company must obtain clearance from the FDA of a 510(k) premarket
notification or approval of a more extensive submission known as a PMA. The
Company is also subject to the FDA's current Good Manufacturing Practice
("cGMP") and Good Laboratory Practice ("GLP") regulations. These regulations
require that the Company manufacture its products and maintain its records in a
prescribed manner. The FDA periodically inspects the Company's facilities for
compliance with cGMP.
Under FDA requirements, if a manufacturer can establish that a newly
developed device is "substantially equivalent" to a device marketed prior to
1976, the manufacturer may seek marketing clearance by filing a 510(k) premarket
notification with the FDA. The 510(k) premarket notification must be supported
by data establishing the claim of substantial equivalence to the satisfaction of
the FDA. The process of obtaining a 510(k) clearance typically can take several
months to a year or longer. If substantial equivalence cannot be established, or
if the FDA determines that the device requires a more rigorous review, the FDA
will require that the manufacturer submit a PMA application that must be
reviewed and approved by the FDA prior to sale and marketing of the device in
the U.S. The process of obtaining approval for a PMA can be expensive, uncertain
and lengthy, frequently requiring anywhere from one to several or more years
from the date of FDA submission, but it could take longer. Both a 510(k) and a
PMA, if accepted or approved, may include significant limitations on the
indicated uses for which a product may be marketed. FDA enforcement policy
strictly prohibits the promotion of approved medical devices for unapproved
indications. In addition, product approvals can be withdrawn for failure to
comply with regulatory requirements or the occurrence of unforeseen problems
following initial marketing.
In December 1995 the Company received FDA approval to market the VAD System
in the U.S. as a bridge to heart transplant. The same system continues to be
sold in the U.S. for controlled clinical use under an IDE for recovery of the
natural heart. The Company anticipates filing a PMA Supplement with the FDA in
early 1997 for the postcardiotomy recovery indication. The Company also plans to
file an IDE application for the TLC-II in mid-1997. All of the Company's other
circulatory support products are in
8
<PAGE> 13
preclinical development. The Company anticipates filing an IDE application for
the VAG in the first half of 1997 and expects to file a 510(k) premarket
notification after the clinical data is gathered. However, there can be no
assurance that such filings will be made, or that the filings will be accepted
or products will be approved by the FDA. The Company will need to complete
extensive preclinical testing before an IDE application can be filed for the
CABG graft. The PMA application required for the CABG graft will need to include
the results of extensive clinical studies and manufacturing information.
There can be no assurance that the FDA will act favorably or quickly in its
review of the Company's 510(k) submissions or PMA applications, and significant
difficulties and costs may be encountered by the Company in its efforts to
obtain FDA clearance that could delay or preclude the Company from selling its
graft or additional circulatory support products in the U.S. Furthermore, there
can be no assurance that the FDA will not limit the intended use of the
Company's products as a condition of 510(k) acceptance or PMA approval. Further,
if the Company proposes modifications to a product after FDA clearance of a
510(k) premarket notification or approval of a PMA, including changes in
indications (as is the case with the VAD System) or other significant
modifications to labeling or manufacturing, the Company will be required to
obtain additional approvals from the FDA. Failure to receive or delays in
receipt of FDA clearances or approvals, including the need for extensive
clinical trials or additional data as a prerequisite to clearance or approval,
or any FDA limitations on the intended use of the Company's products, would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Thoratec Products and Products Under
Development" and "-- Government Regulation -- U.S. Regulations."
INTERNATIONAL REGULATIONS. A significant percentage of the Company's
product revenues are derived from sales outside the U.S., and distribution of
the Company's products outside the U.S. is subject to extensive government
regulation. These regulations, including the requirements for approvals or
clearance to market, and the time required for regulatory review and the
sanctions imposed for violations, vary from country to country. There can be no
assurance that the Company will obtain regulatory approvals in such countries or
that it will not be required to incur significant costs in obtaining or
maintaining its foreign regulatory approvals. In addition, the export by the
Company of certain of its products which have not yet been cleared for domestic
commercial distribution may be subject to FDA export restrictions. Failure to
obtain necessary regulatory approvals, the restriction, suspension or revocation
of existing approvals or any other failure to comply with regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
In order to sell its products in Europe, the Company is required to receive
a "CE" mark certification, an international symbol of quality and compliance
with applicable European medical device directives. The Company has received a
CE mark for the VAD System and is pursuing CE mark certification for the VAG and
TLC-II. Failure to receive a CE mark certification for subsequently developed
products will prohibit the Company from selling such products in Europe and
would have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be successful in meeting such certification requirements for its future
products.
To position itself for access to European and other international markets,
Thoratec also sought and obtained certification under the International
Standards Organization (the "ISO") 9000 Series of Standards. ISO 9000 is a set
of integrated requirements which, when implemented, form the foundation and
framework for an effective quality management system. Commencing in 1998, all
companies will be required to obtain ISO 9001 certification in order to market
new medical devices in Europe and such certification will be a prerequisite of
obtaining additional CE marks. There can be no assurance that the Company will
be successful in obtaining such certification. See "Business -- Government
Regulation -- Foreign Regulations."
RISK OF TECHNOLOGICAL OBSOLESCENCE. The medical device industry is
characterized by rapid and significant technological change. There can be no
assurance that third parties will not succeed in developing or marketing
technologies and products that are more effective than those developed or
marketed by the Company or that would render the Company's technology and
products obsolete or
9
<PAGE> 14
noncompetitive. Additionally, new surgical procedures and medications could be
developed that replace or reduce the importance of current procedures that use
the Company's products. Accordingly, the Company's success will depend in part
on its ability to respond quickly to medical and technological changes through
the development and introduction of new products, or modification of existing
products. There can be no assurance that the Company will be successful in these
efforts.
LIMITED MANUFACTURING CAPABILITY. The Company currently manufactures its
biomaterials and the VAD System at its Berkeley, California facility and the VAG
at its facility in Ottawa, Canada. To date, the Company's manufacturing
activities have consisted primarily of manufacturing limited quantities of the
VAD System and the VAG for international sale and clinical trials in the U.S.
Although the Company believes that it currently has the ability to produce
sufficient quantities of the VAD System and the VAG to support its current needs
and its needs for early-stage clinical trials of the TLC-II, MVAD and certain of
its graft products, it will need to acquire additional manufacturing facilities
and improve its manufacturing technology in order to meet the volume and cost
requirements for significant commercial sales of these products. In addition,
the Company does not have experience in manufacturing its products in the
commercial quantities that might be required if the Company successfully
receives FDA approval of several or all of the products currently under
development. The failure to acquire additional manufacturing facilities or to
develop the necessary manufacturing expertise would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the manufacture of the Company's products is complex and
costly, involving a number of separate processes and components. Certain
manufacturing processes of the VAD System are labor intensive, and achieving
significant cost reductions will depend in part upon reducing the time required
to complete these processes. There can be no assurance that the Company will be
able to achieve cost reductions in the manufacture of its products. In addition,
manufacturers often encounter difficulties in scaling up manufacturing of new
products, including problems involving product yields, quality control and
assurance, component and service availability, adequacy of control policies and
procedures and lack of qualified personnel. The Company has and will continue to
consider as appropriate the internal manufacture of components currently
provided by third parties, as well as the implementation of new production
processes. There can be no assurance that Thoratec will be able to obtain or
manufacture such products in a timely fashion at acceptable quality and prices,
that it or its suppliers can comply with cGMP or GLP requirements, or that it or
its suppliers will be able to manufacture an adequate supply of products. See
"Use of Proceeds" and "Business -- Manufacturing."
DEPENDENCE ON THIRD PARTIES FOR SUPPLIES. Thoratec depends on single
source suppliers for certain of the raw materials used in the manufacture of its
products. The Company also utilizes materials and component parts supplied by
third parties in its products. In the event the Company must obtain alternative
sources for key raw materials or component parts, there can be no assurance that
such materials or component parts will be available for purchase from
alternative suppliers, that alternative suppliers will agree to supply the
Company, that the Company's use of such suppliers would be approved by the FDA,
or if unavailable, that the Company would have the expertise or resources
necessary to produce such materials or component parts internally. As such, any
interruption in supply of raw materials or component parts could have a material
adverse effect on the Company's ability to manufacture its products until a new
source of supply is located and, therefore, could have a material adverse effect
on its business, financial condition and results of operations. In 1995 the
supplier of mechanical valves for the VAD System stopped production. Although
the Company purchased a supply of these valves that it believes will satisfy its
needs through 1997 and is taking steps to secure a new supplier, there can be no
assurance that a new source of supply will be available when necessary. The
Company will also need to qualify a replacement valve or a new vendor for the
current valves with the FDA, the failure of which would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Manufacturing."
UNCERTAINTY RELATED TO HEALTHCARE REIMBURSEMENT FOR THE VAD
SYSTEM. Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products such as the VAD System. Government and other third
party payors are increasingly attempting to contain healthcare costs by limiting
both coverage and the level of reimbursement of new therapeutic products and by
refusing in
10
<PAGE> 15
some cases to provide any coverage of uses of approved products for disease
indications other than those for which the FDA has granted marketing approval.
To date neither the Health Care Financing Administration ("HCFA"), the federal
agency responsible for determining whether, and to what extent, medical products
and procedures are reimbursable under Medicare and Medicaid, nor any private
insurer, has determined to reimburse the costs of the VAD System on a consistent
basis or as a matter of policy. The Company cannot predict whether the VAD
System will be formally approved for reimbursement and cannot predict the effect
the changes in the healthcare system may have on the reimbursability of future
products. Failure to obtain such reimbursement could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Third Party Reimbursement and Cost Containment."
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY. The Company's ability to
compete effectively with other companies will depend, in part, on its ability to
maintain the proprietary nature of its technology, products and manufacturing
processes. The Company relies on patents, trade secrets and know-how to maintain
its competitive position. The Company has been issued or has licensed a number
of U.S. and foreign patents covering its core biomaterials technology and its
graft technologies. In addition, many other U.S. and foreign patent applications
have been filed. Aside from the biomaterials patents mentioned above, which are
utilized in the VAD blood pump and cannulae, the VAD System is not protected by
any patents. The Company does not believe that this lack of patent protection
will have a material adverse effect on the Company or its ability to sell the
VAD System because of the lengthy regulatory period required to obtain approval
of a ventricular assist device. The Company is not aware of any ventricular
assist devices currently approved by the FDA or undergoing clinical trials based
on the Company's product design. There can be no assurance that any existing or
future patent applications by the Company will result in issued patents or that
any current or future issued or licensed patents, trade secrets or know-how will
afford sufficient protection against competitors with similar technologies or
processes, or that any patents issued will not be infringed upon or designed
around by others. In addition, there can be no assurance that others will not
independently develop proprietary technologies and processes which are the same
as or substantially equivalent to those of the Company. Further, there can be no
assurance that the Company will not infringe prior or future patents owned by
others, that the Company will not need to acquire licenses under patents
belonging to others for technology potentially useful or necessary to the
Company, or that such licenses will be available to the Company, if at all, on
terms acceptable to the Company. The Company could incur substantial costs in
defending itself in suits brought against it on such patents or in bringing
suits to protect the Company's patents or patents licensed by the Company
against infringement. The Company also protects its proprietary technology and
processes in part by confidentiality agreements with its licensees, employees
and consultants. 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 or independently
discovered by competitors. See "Business -- Patents and Proprietary Rights."
EXPOSURE TO CLAIMS. The Company's business exposes it to an inherent risk
of potential product liability claims related to the manufacturing, marketing
and sale of human medical devices. The Company maintains only a limited amount
of product liability insurance but will seek to obtain additional product
liability insurance as its products are commercialized. The Company also
maintains commercial general and property insurance. The Company's insurance
policies generally must be renewed on an annual basis. There can be no assurance
that the Company will be able to maintain or increase such insurance on
acceptable terms or at reasonable costs, or that such insurance will provide the
Company with adequate coverage against potential liabilities. A successful claim
brought against the Company in excess of, or outside of, its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. Claims against the Company, regardless of
their merit or potential outcome, may also have a material adverse effect on the
Company's ability to obtain physician endorsement of its products or expand its
business.
ATTRACTION AND RETENTION OF KEY EMPLOYEES. The Company's future business
and operating results will depend in significant part on the continued
contributions of principal members of its management and scientific staff, the
loss of any of whose services might adversely impact the achieve-
11
<PAGE> 16
ment of planned development and product introduction objectives. In addition,
the Company's anticipated growth and product introductions will require
additional expertise in the areas of clinical testing, government approvals,
finance, engineering and marketing, all of which will place increased demand on
the Company's resources. These demands are expected to require the addition of
new management personnel, particularly in the regulatory and finance areas, and
the development of additional expertise by existing management personnel.
Recruiting and retaining qualified personnel to perform these functions will be
critical to the Company's success. Competition for such personnel is intense and
there can be no assurance that the Company will be able to recruit and retain
such individuals on acceptable terms given the competition for experienced
personnel from numerous medical device, healthcare and pharmaceutical companies
and academic and other research institutions. The loss of key employees, the
Company's inability to attract and retain skilled employees, as needed, or the
failure to acquire or develop necessary expertise could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management -- Executive Officers and Directors."
RISK OF HEALTHCARE REFORM. There are widespread efforts to control
healthcare costs in the U.S. on the federal, state and local levels. The Company
anticipates that Congress and state legislatures will continue to review and
assess alternative healthcare delivery systems and payment methods. To date,
several of the proposals have included measures that would limit or eliminate
payments for certain medical procedures and treatments. If enacted into law, any
of these proposals could affect the amount of reimbursement payments that are
made to hospitals and physicians and, in turn, demand for the Company's
products. Due to uncertainty regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, reform proposals will be adopted, when they may be adopted or
what impact they may have on the Company. There can be no assurance that such
reforms, if enacted, or administrative responses to budgetary constraints, will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
CONTROL BY EXISTING SHAREHOLDERS. Following this Offering, the Company's
employees, executive officers, directors and their affiliates will beneficially
own or control approximately 22.0% of the Company's outstanding shares of Common
Stock (assuming exercise of shares issuable upon the exercise of options vested
or vesting within sixty days of March 30, 1996), and COBE Laboratories, Inc.
("COBE") will own approximately 20.5% of the Company's outstanding shares of
Common Stock. As a result, this group will have the ability to exert significant
influence over the Company's Board of Directors, and exert substantial influence
over the Company and its affairs and business. Such concentration of ownership
may also have the effect of delaying, deferring or preventing a change in
control of the Company. See "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE. Prior to the Offering, the Company's
Common Stock has been thinly traded and there can be no assurance that an active
trading market for the Company's Common Stock will develop. Future sales of
substantial amounts of the Company's Common Stock in the public market following
this Offering could adversely affect the market price of the Company's Common
Stock. Several of the Company's principal shareholders hold a significant
portion of the Company's outstanding Common Stock, and a decision by one or more
of these shareholders to sell their shares could adversely affect the market
price of the Common Stock. Immediately after the Offering, 16,878,067 shares of
Common Stock, including the 2,500,000 shares of Common Stock offered hereby
(plus any shares issued upon exercise of the Underwriters' over-allotment
option), will be freely tradeable without restriction (unless subject to a
"lock-up" agreement as described below). Certain shareholders of the Company,
including the officers, directors and certain employees and affiliates have
entered into contractual "lock-up" agreements with respect to an aggregate of
12,866,605 shares of Common Stock generally providing that they will not,
directly or indirectly, sell, offer to sell, solicit an offer to buy, contract
to sell, grant an option to purchase or right to acquire any option to dispose
of or otherwise transfer or dispose of the shares of Common Stock of the Company
or any securities exercisable for or convertible into the Company's Common Stock
owned by them for a period of
12
<PAGE> 17
180 days after the effective date of this Prospectus without the prior written
consent of Vector Securities International, Inc., as representative of the
Underwriters (the "Representative"). Taking into account the lock-up agreements
and assuming the Representative does not release shareholders from these
agreements, 180 days after the effective date of the Prospectus, 7,639,984
shares will be eligible for sale subject to certain volume, manner of sale and
other limitations under Rule 144. The holders of approximately 1,197,000 shares
of the Company's Common Stock are entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933. As of March 30,
1996, there were outstanding options and warrants to purchase 2,297,907 shares
of Common Stock. See "Management -- Benefit Plans," "Description of Capital
Stock -- Registration Rights" and "Shares Eligible for Future Sale."
BROAD DISCRETION IN ALLOCATION AND USE OF PROCEEDS. Although the Company
expects to use approximately $10,500,000 of the net proceeds of this Offering to
scale-up and validate a new manufacturing facility, to expand research and
development and to expand sales and marketing capabilities, the Company has not
yet identified the specific amounts and uses of approximately $36,925,000 of the
net proceeds. The Company's Board of Directors and management will, therefore,
retain broad discretion as to the allocation of a significant portion of the net
proceeds of this Offering. See "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation allow
the Company to issue up to 2,500,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of such Preferred Stock without any further vote or action by the
shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate transactions, may also 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 or other rights of
the holders of the Common Stock. The Company has no present plans to issue
shares of Preferred Stock. See "Description of Capital Stock -- Preferred Stock"
and "-- Provisions of Articles of Incorporation Affecting Shareholders."
VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock has
been, and is likely to continue to be, highly volatile. Future announcements
concerning the Company or its competitors, quarterly variations in operating
results, introduction of new products or changes in product pricing policies by
the Company or its competitors, acquisition or loss of significant customers,
partners, distributors and suppliers, changes in earnings estimates by analysts,
regulatory developments, or fluctuations in the economy or general market
conditions, among other factors, could cause the market price of the Common
Stock to fluctuate substantially. In addition, stock markets in general, and the
market for shares of healthcare stocks in particular, have experienced extreme
price and volume fluctuations in recent years which has frequently been
unrelated to the operating performance of the affected companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. There can be no assurance that the market price of the Company's
Common Stock will not decline below the Offering price or that it will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance. See "Price Range of Common Stock."
ABSENCE OF DIVIDENDS. The Company has never paid cash dividends and does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
DILUTION. The Offering price is substantially higher than the net tangible
book value per share of the Company's Common Stock. Investors purchasing shares
of Common Stock in this Offering will, therefore, incur immediate and
substantial net tangible book value dilution. Additional dilution may result
from the exercise of outstanding options or warrants. See "Dilution."
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<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $47,425,000
($54,748,750 if the Underwriters' over-allotment option is exercised in full),
based on an assumed Offering price of $21.00 per share, and after deducting
estimated underwriting discounts and commissions and the estimated expenses of
the Offering. The Company intends to use approximately $5,000,000 to scale-up
and validate a new manufacturing facility, $3,000,000 to expand research and
development on the TLC-II and graft products and $2,500,000 to expand sales and
marketing capabilities. Remaining net proceeds are expected to be used for
working capital and general corporate purposes. Proceeds may also be used to
acquire businesses, or acquire or license technologies or products that expand
or complement the business of the Company, although no such transactions are
being negotiated as of the date of this Prospectus. See "Risk Factors -- Broad
Discretion in Allocation and Use of Proceeds."
The actual amounts of the net proceeds of the Offering expended for each
purpose may vary significantly depending upon many factors, including the status
of the development of the Company's products, the time and costs involved in
obtaining regulatory approvals, and competing technological and market
developments. Pending application of the net proceeds as described above, the
Company intends to invest the net proceeds of the Offering in short-term,
interest-bearing investment grade securities or in short-term bank deposits. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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<PAGE> 19
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is currently traded over the counter and on
The Boston Stock Exchange. The Company has applied for inclusion of the Common
Stock on the Nasdaq National Market under the symbol "THOR." On May 9, 1996, the
last reported bid price of the Common Stock was $21.00. The following table sets
forth the quarterly high and low bid prices for the Common Stock. All stock
prices assume the one-for-three reverse split of the Company's Common Stock to
be effected prior to the Offering.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter $ 9.00 $ 5.44
Second Quarter 9.00 5.25
Third Quarter 8.25 6.19
Fourth Quarter 8.25 6.56
1995
First Quarter $ 6.75 $ 4.88
Second Quarter 6.75 5.25
Third Quarter 10.50 5.63
Fourth Quarter 15.75 10.50
1996
First Quarter $21.75 $14.63
Second Quarter (through May 9, 1996) 21.75 16.88
</TABLE>
On March 30, 1996, there were approximately 920 registered holders of the
Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to finance
the development and growth of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth as of March 30, 1996, (i) the actual
capitalization of the Company and (ii) such capitalization as adjusted to give
effect to the sale of 2,500,000 shares of Common Stock offered by the Company
hereby at an assumed Offering price of $21.00 per share and the receipt of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value, 2,500,000 shares authorized; no
shares issued and outstanding.............................. $ -- $ --
Common Stock, no par value, 100,000,000 shares authorized;
15,575,352 shares issued and outstanding, actual; and
18,075,352 shares issued and outstanding, as adjusted
(1)........................................................ 45,855,762 96,955,762
Additional paid-in capital...................................... 2,348,689 2,348,689
Accumulated deficit............................................. (44,660,831) (44,660,831)
Cumulative translation adjustment............................... (2,727) (2,727)
------------ ------------
Total shareholders' equity...................................... $ 3,540,893 $ 54,640,893
============ ============
</TABLE>
- ---------------
(1) Excludes as of March 30, 1996: (i) 1,631,240 shares of Common Stock issuable
upon exercise of options outstanding at a weighted average exercise price of
$5.37 per share; (ii) 548,508 shares of Common Stock reserved for issuance
upon exercise of options that may be granted in the future under the
Company's 1993 Stock Option Plan and 1996 Stock Option Plan; (iii) 150,000
shares of Common Stock reserved for issuance upon exercise of options that
may be granted under the Company's 1996 Nonemployee Directors Stock Option
Plan; and (iv) 666,667 shares of Common Stock issuable upon exercise of
outstanding warrants at an exercise price of $0.003 per share. See
"Management -- Benefit Plans" and Note 9 of Notes to Consolidated Financial
Statements.
16
<PAGE> 21
DILUTION
The net tangible book value of the Company as of March 30, 1996 was
$3,522,000, or $.23 per share. Net tangible book value per share is equal to the
Company's net tangible assets (tangible assets of the Company less total
liabilities) divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of the 2,500,000 shares of Common Stock
offered hereby at an assumed Offering price of $21.00 per share, and after
deducting estimated underwriting discounts and commissions and the estimated
expenses of the Offering, the net tangible book value of the Company as of March
30, 1996 would have been approximately $50,947,000 or $2.82 per share. This
represents an immediate increase in net tangible book value of $2.59 per share
to existing shareholders and an immediate dilution of net tangible book value of
$18.18 per share to new investors. The following table sets forth the per share
dilution to new investors in the Offering:
<TABLE>
<S> <C> <C>
Assumed Offering price per share.................................... $21.00
Net tangible book value per share as of March 30, 1996............ $ .23
Increase per share attributable to new investors.................. 2.59
-----
Net tangible book value per share after the Offering................ 2.82
-----
Dilution per share to new investors................................. $18.18
=====
</TABLE>
The foregoing computations assume no exercise of the Underwriters'
over-allotment option or the Representatives' Warrants and no exercise of
outstanding options or warrants after March 30, 1996. As of March 30, 1996,
options to purchase 1,631,240 shares of Common Stock were outstanding at a
weighted average exercise price of $5.37 per share and warrants to purchase
666,667 shares of Common Stock were outstanding at an exercise price of $0.003
per share. In addition, 548,508 shares of Common Stock are reserved for issuance
upon exercise of options that may be granted in the future under the Company's
1993 Stock Option Plan and 1996 Stock Option Plan, and 150,000 shares of Common
Stock are reserved for issuance upon exercise of options that may be granted
under the Company's 1996 Nonemployee Directors Stock Option Plan. The exercise
of such options and warrants will result in further dilution to new investors.
See "Management -- Benefit Plans," "Description of Capital Stock -- Warrants,"
"Underwriting," and Note 9 of Notes to Consolidated Financial Statements.
17
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five
fiscal years ended December 30, 1995, are derived from the financial statements
of the Company. The Company has a 52 - 53 week fiscal year that ends on the
Saturday closest to December 31. The consolidated financial statements as of the
fiscal years ended 1994 and 1995, and for each of the years in the three-year
period ended December 30, 1995, and the independent auditors' report thereon,
are included elsewhere in this Prospectus. The Consolidated Statement of
Operations data for the year ended December 1993 is also included elsewhere in
this Prospectus. The Consolidated Statements of Operations data for the years
ended December 1991 and 1992 and the Consolidated Balance Sheets data for
December 1991, 1992 and 1993 are derived from audited consolidated financial
statements not included in this Prospectus. The Consolidated Statements of
Operations data for the three months ended April 1, 1995 and March 30, 1996 and
the Consolidated Balance Sheet data as of March 30, 1996, are derived from
unaudited consolidated financial statements which are included elsewhere in this
Prospectus. The unaudited consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the three months
ended March 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 28, 1996. The data set forth below should
be read in conjunction with the Consolidated Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED MARCH
------------------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Product sales -- net................. $ 2,361 $ 3,439 $ 3,791 $ 2,764 $ 3,489 $ 939 $ 1,302
Other................................ 427 294 142 24 59 10 38
------ ------- ------- ------- ------- ------- -------
Total revenue...................... 2,788 3,733 3,933 2,788 3,548 949 1,340
Costs and expenses:
Cost of products sold................ 1,032 1,667 2,033 1,576 1,972 442 822
Research and development............. 798 1,007 1,478 1,360 1,984 336 605
Selling, general and
administrative..................... 1,054 1,125 1,147 1,456 1,298 314 733
Other................................ 344 394 0 43 188 46 424
------ ------- ------- ------- ------- ------- -------
Total costs and expenses........... 3,228 4,193 4,658 4,435 5,442 1,138 2,584
------ ------- ------- ------- ------- ------- -------
Net income (loss)...................... $ (440) $ 1,430(1) $ (725) $ (1,647) $ (1,894) $ (189) $(1,244)
====== ======= ======= ======= ======= ======= =======
Net income (loss) per share(2)......... $ (.36)(3) $ .25(1) $ (.05) $ (.12) $ (.13) $ (.01) $ (.08)
====== ======= ======= ======= ======= ======= =======
Shares used in computing net income
(loss) per share(2)(4)............... 2,871 5,771 14,122 14,193 14,429 14,247 15,126
</TABLE>
<TABLE>
<CAPTION>
YEAR END DECEMBER
------------------------------------------------------------ MARCH 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents................ $ 418 $ 2,675 $ 1,215 $ 1,026 $ 1,646 $ 1,959
Working capital.......................... 294 2,962 2,106 2,025 2,808 2,967
Total assets............................. 1,664 4,188 3,599 3,605 4,380 4,608
Long-term debt........................... 5,681 0 0 1,675 1,675 --
Accumulated deficit...................... (40,580) (39,150) (39,875) (41,522) (43,416) (44,661)
Total shareholders' equity............... (5,155) 3,309 2,637 1,057 (1,663) 3,541
</TABLE>
- ---------------
(1) Includes an approximately $1,890,000 extraordinary gain on debt
restructuring.
(2) Assumes the one-for-three reverse split of the Company's Common Stock to be
effected prior to the Offering.
(3) Includes reduction of approximately $583,000 for accrued but unpaid
Preferred Stock dividends.
(4) See Note 2 of Notes to Consolidated Financial Statements.
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
Thoratec develops, manufactures and markets medical devices for circulatory
support and vascular graft applications. The Company's first product, the VAD
System, is being marketed in the U.S. and internationally for use as a bridge to
heart transplant, and is currently the only device approved by the FDA that can
provide left, right or biventricular support for this indication. The Company is
pursuing additional indications for the VAD System and is developing other
circulatory support products for patients suffering from heart failure. The
Company is also developing vascular grafts for hemodialysis and coronary artery
bypass surgery. These products utilize the Company's proprietary biomaterials,
which provide improved thromboresistance, biocompatibility, patency and
durability.
Thoratec has experienced operating losses in all but one year since its
inception in 1976. The Company incurred a net loss of $1,244,377 in the first
quarter of 1996 and incurred net losses of $1,894,166, $1,646,898 and $725,087
for the fiscal years ended December 1995, 1994 and 1993, respectively. As of
March 30, 1996, the Company had an accumulated deficit of $44,660,831. The
Company expects to continue to incur substantial additional losses until it can
achieve substantial product revenues.
RESULTS OF OPERATIONS
FISCAL QUARTERS ENDED MARCH 30, 1996 AND APRIL 1, 1995
Product Sales. Product sales in the first quarter of 1996 were $1,301,649
compared to $939,101 in the first quarter of 1995. The $362,548, or 39%,
increase is primarily the result of increased sales of the VAD System in the
U.S. following FDA approval resulting from the efforts of a direct sales
organization in late 1995 and early 1996. Domestic sales increased $387,173, or
96%, from $405,472 in the first quarter of 1995 to $792,645 in the first quarter
of 1996.
Other. Other income in the first quarter of 1996 was $38,621 compared to
$9,770 in the first quarter of 1995. The $28,851 increase is due primarily to
$22,083 of income received through a government project grant supporting the
development of the MVAD commencing in the fourth quarter of 1995 and a $6,048
increase in interest earned on higher cash balances generated by the exercise of
warrants at the beginning of 1996.
Cost of Products Sold. Cost of products sold in the first quarter of 1996
was $821,899 compared to $442,464 in the first quarter of 1995. The $379,435, or
86%, increase was primarily due to higher sales volume in 1996 and approximately
$100,000 incurred to upgrade existing investigational center equipment.
Research and Development. Research and development expenses in the first
quarter of 1996 were $605,587 compared to $335,614 in the first quarter of 1995.
The $269,973, or 80%, increase was due to increased costs associated with the
development of the TLC-II and vascular graft products.
Selling, General and Administrative. Selling, general and administrative
expenses in the first quarter of 1996 were $733,055 compared to $313,936 in the
first quarter of 1995. The $419,119 increase is principally the result of a
$212,000 increase in marketing costs associated with establishing a domestic
sales and marketing organization, an $88,000 increase in recruiting costs for
both marketing and administrative personnel and a $120,000 increase in general
and administrative costs needed to support expected growth in 1996.
19
<PAGE> 24
Interest and Other Expense. Interest expense in the first quarter of 1996
was $45,811 compared to $45,884 in the first quarter of 1995. Interest expense
is comprised of interest accrued on $1,675,000 of convertible notes sold in a
private placement in October 1994. In the first quarter of 1995, all of the
notes were outstanding and accruing interest. In the first quarter of 1996, all
of the notes were converted into 342,537 shares of Common Stock and accrued
interest through the first quarter of 1996 was paid. In addition, the Company
recorded a $378,000 noncash debt conversion expense in the first quarter of
1996, representing the amount of value given up by the Company in order to
induce early exercise of the related warrants.
FISCAL YEARS ENDED DECEMBER 1995, 1994 AND 1993
Product Sales. Product sales in 1995 were $3,488,599, compared to
$2,763,632 in 1994 and $3,790,614 in 1993. 1995 product sales were $724,967, or
26%, higher than product sales in 1994 as a result of a 58% increase in
international sales of the VAD System which offset a concurrent 20% decrease in
sales of vascular access grafts. In 1995, domestic sales of the VAD System
increased 6% as a result of increased usage at existing IDE sites. No new
centers were started in the U.S. in 1995, pending receipt of FDA approval of the
VAD System. Product sales in 1994 were $1,026,982, or 27%, lower than product
sales in 1993. This decrease is primarily the result of a decrease in
international sales of the VAD System due to a delay in starting new centers.
The COBE affiliated distributors in Europe accounted for $877,000, or 85%, of
the total decrease as they reduced their inventory purchases in response to
slower sales. Subsequent to the 1994 year end, Thoratec signed an agreement with
Arrow International Incorporated ("Arrow") to take over distribution in most of
the COBE territories starting Spring 1995.
Other. Other income in 1995 was $59,326 compared to $24,357 in 1994 and
$142,465 in 1993. Other income in 1995 was $34,969 higher than other income in
1994 due to a $26,135 increase in interest earned on higher average cash
balances and $8,834 of income received through a government project grant
supporting the development of the MVAD commencing in the fourth quarter of 1995.
Other income in 1994 was $118,108, or 83%, lower than other income in 1993 due
to $24,781, or 50%, lower interest income as a result of lower average cash
balances in 1994 and $93,000 of income recognized in 1993 from COBE in support
of research.
Cost of Products Sold. Cost of products sold in 1995 was $1,972,467
compared to $1,575,524 in 1994 and $2,033,126 in 1993. Cost of products sold was
$396,943, or 25%, higher in 1995 than cost of products sold in 1994 due to 26%
higher sales volume in 1995. Cost of products sold in 1994 were $457,602, or
23%, lower than cost of products sold in 1993. The decrease is due to 27% lower
product sales, partially offset by a change in the mix of sales between domestic
and international. Domestic sales which generally have a higher gross margin,
were 35% of total sales in 1993 and 52% of total sales in 1994.
Research and Development. Research and development expenses in 1995 were
$1,984,101 compared to $1,360,253 in 1994 and $1,478,448 in 1993. 1995 research
and development expenses were $623,848, or 46%, higher than research and
development expenses in 1994 due principally to increased spending on the
development of the TLC-II. 1994 research and development expenses were $118,195,
or 8%, lower than research and development expenses in 1993 due to the high
costs in 1993 associated with the Company's preparation of its PMA application
for the VAD System.
Selling, General and Administrative. Selling, general and administrative
expenses in 1995 were $1,297,815 compared to $1,455,714 in 1994 and $1,146,061
in 1993. Selling, general and administrative expenses in 1995 were $157,899, or
11%, lower than in 1994. This decrease is primarily the net result of a $57,117
increase in marketing expenses in 1995 in preparation for the commercial
introduction of the VAD System and a decrease of $146,598 in spending in 1995
for outside professional services used for various corporate projects. Selling,
general and administrative expenses in 1994 were $309,653, or 27%, higher than
in 1993, due primarily to higher general and administrative expenses in 1994
related to the
20
<PAGE> 25
private placement of convertible notes and warrants, to expenses associated with
the Company's annual meeting and fund raising activities.
Interest Expense. Interest expense in 1995 was $184,886 compared to
$43,396 in 1994 and $531 in 1993. Interest expense in 1995 was $141,490 higher
than in 1994 as a result of interest accrued on the $1,675,000 of convertible
notes sold in October 1994. Interest expense in 1994 was $42,865 higher than in
1993 for the same reason.
LIQUIDITY AND CAPITAL RESOURCES
As of March 30, 1996, the Company had available working capital of
$2,967,000 compared with $2,807,000 at the end of 1995. The increase in working
capital was primarily due to proceeds received upon exercise of warrants to
purchase Common Stock partially offset by the loss from operations. Concurrent
with the warrant exercise, all $1,675,000 of convertible notes were converted
into Common Stock. Receivables and inventory were essentially unchanged from the
1995 year end. Prepaid expenses and accounts payable decreased due principally
to scheduled receipts of prepaid inventory items and reduction in related
payables. In the first quarter of 1996, the Company financed its operations with
its own cash reserves and with proceeds received from the exercise of Common
Stock warrants.
Note 1 of Notes to the Consolidated Financial Statements indicate that
there are conditions which raise substantial doubt about the Company's ability
to continue as a going concern. The Company needs substantial additional funds
to continue operations. The Company's continuation as a going concern is
dependent on its ability to secure additional financing as contemplated by this
Offering, improve the profitability of product lines, develop new sources of
revenue including new products, and ultimately attain profitable operations. The
Company believes that its working capital, together with the net proceeds of
this Offering, will be sufficient to meet its present operating and capital
requirements at least through the end of 1997. See "Risk Factors -- Current
Financial Condition; Requirement for Additional Funds."
The Company has incurred operating losses in each year since the 1981
fiscal year and has sustained its operations from cash from product sales and
various private placements of equity and debt securities. The Company expects
that its operating expenses will increase in future periods as the Company
expends increased amounts on product manufacturing and marketing, and continued
development, including preclinical and clinical testing, of its vascular graft
and circulatory support products, and incurs the expenses of scale-up and
validation of a new manufacturing facility. There can be no assurance that the
Company will achieve or sustain profitability in the future. See "Risk
Factors -- Lack of Profitability; Expected Future Losses."
The Company continually reviews its product development activities in an
effort to allocate its resources to those products the Company believes have the
greatest commercial potential. Factors considered by the Company in determining
the products to pursue include projected markets and need, potential for
regulatory approval and reimbursement under the existing healthcare system as
well as anticipated healthcare reforms, technical feasibility and estimated
costs to bring the product to market. Based on these and other factors the
Company considers relevant, the Company may from time to time reallocate its
resources among its product development activities. Additions to products under
development or changes in products being pursued can substantially and rapidly
change the Company's funding requirements.
To the extent necessary, further sources of funds may include future
strategic alliances or other joint venture arrangements which provide funding to
the Company, and additional public or private offerings of debt or equity
securities, among others. There can be no assurance, however, that any
additional funds will be available when needed or on terms favorable to the
Company, or that the Company will be successful in entering into any strategic
alliances or joint ventures.
The Company does not expect that inflation will have a material impact on
its operations.
21
<PAGE> 26
NEW ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation in fiscal year
1996. SFAS No. 123 establishes accounting and disclosure requirements using a
fair value based method of accounting for stock-based employee compensation
plans. Under SFAS No. 123 the Company may either adopt the new fair value based
accounting method or continue the intrinsic value based method and provide
proforma disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company plans to adopt only the
disclosure requirements of SFAS No. 123; therefore such adoption will have no
effect on the Company's consolidated net loss or cash flows.
The Company is also required to adopt SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of in
fiscal year 1996. SFAS No. 121 establishes the accounting and reporting
requirements for recognizing and measuring impairment of long-lived assets to be
either held and used or held for disposal. The Company does not expect SFAS No.
121 to have a material effect on its financial statements.
22
<PAGE> 27
BUSINESS
The statements in this Prospectus that relate to future plans, events or
performance are forward-looking statements. Actual results could differ
materially due to a variety of factors, including the factors described under
"Risk Factors" and the other risks described in this Prospectus.
GENERAL
Thoratec develops, manufactures and markets medical devices for circulatory
support and vascular graft applications. The Company's first product, the VAD
System, is being marketed in the U.S. and internationally for use as a bridge to
heart transplant and is currently the only device approved by the FDA that can
provide left, right or biventricular support for this indication. The Company
believes that the VAD System provides a number of significant advantages over
other ventricular assist devices. The Company is pursuing additional indications
for the VAD System and is developing other circulatory support products for
patients suffering from heart failure. The Company is also developing vascular
grafts for hemodialysis and coronary artery bypass surgery. These products
utilize the Company's proprietary biomaterials, which provide improved
thromboresistance, biocompatibility, patency and durability.
BACKGROUND
CIRCULATORY SUPPORT PRODUCTS
Cardiac failure is the leading cause of death in the U.S., accounting for
more deaths than all forms of cancer combined. Deaths associated with cardiac
failure fall into two broad categories: CHF, which is a slow degenerative
process leading to cardiac insufficiency, and acute cardiac failure resulting
from heart attacks and various infections of the heart muscle (myocarditis).
CHF is a chronic disorder that occurs when the pumping power of the heart
is reduced by a weakening of the heart muscle. This results in a decreased
supply of oxygen and nutrient rich blood to various vital organs such as the
lungs, brain and kidneys. CHF tends to be progressive and is associated with
profound symptoms that limit daily activities. Long-term survival rates are low
and it is estimated that more than 50% of patients die within five years of
diagnosis. CHF is estimated to be the most common cause of hospitalization in
patients over 65 years of age. According to the National Heart, Lung and Blood
Institute and the American Heart Association, there are approximately two to
three million CHF patients in the U.S., and 400,000 to 500,000 newly diagnosed
patients each year. Most patients suffering from CHF are initially treated with
medication. Conventional drug therapy may delay the progress of CHF but is not
curative. The only available method of treating end-stage CHF is a heart
transplant.
Although heart transplants have been very successful, there are too few
donor hearts available to address adequately the problem of cardiac failure. The
United Network for Organ Sharing reported that there were only 2,340 heart
transplants performed in the U.S. in 1994, a level that has remained relatively
unchanged for the last several years. However, published government sources
estimate that the number of patients suffering from CHF who need some form of
permanent cardiac assist is 30,000 to 50,000 per year. The average wait for a
donor heart by patients on a heart transplant wait list is approximately eight
months, and many patients have to wait as long as one to two years before
receiving one of the few donor hearts available each year. In 1993,
approximately 30% of the patients died while waiting for a donor heart.
Ventricular assist devices are mechanical systems used to assist the
heart's function, and, when other therapies are unsuccessful, they can be used
to support one or both sides of the patient's heart until a donor heart can be
found. In patients awaiting heart transplants, the decision to use a ventricular
assist device is made when death appears imminent. In addition to providing a
bridge to heart transplant, ventricular assist devices have potential usefulness
for other applications. It is estimated that out of approximately 350,000 open
heart surgeries performed annually in the U.S., some 15,000 to
23
<PAGE> 28
18,000 patients die following such procedures. Many of these deaths are caused
by heart failure when the heart, weakened by disease and the additional trauma
of surgery, fails to maintain adequate blood circulation. The use of a
ventricular assist device after surgery can provide support to the heart until
it can recover. In addition, ventricular assist devices may also be useful in
assisting the recovery of the heart in a small portion of patients suffering
from acute cardiac failure that may result from myocardial infarction,
myocarditis or other acute cardiomyopathies.
While there is significant demand for effective ventricular assist devices,
most systems available today or under development have certain limitations.
Certain systems cannot be used in smaller patients because the blood pump must
be implanted in the abdomen and is too large to fit in such patients. Other
systems require large incisions at the apex of the heart muscle, making recovery
of the heart more difficult if too large an incision is made. Some systems
cannot be used for more than a few days because their blood contacting parts
cause an adverse reaction in the body, resulting in clotting which clogs the
system or can cause a stroke. In addition, much of the development work on
ventricular assist devices has historically been in the area of left ventricular
support, and most systems available today or under development only provide left
ventricular support. While many patients do well with isolated left ventricular
support, some patients supported with systems designed solely for isolated left
ventricular assist also have or can develop right ventricular failure and
require right ventricular device support with another system. Mortality and
morbidity are extremely high for this patient group. It has been reported that
20% to 40% of patients supported by a left ventricular assist device either died
of right heart failure or required the placement of a right heart ventricular
assist device. The one available system that provides biventricular assistance
for postcardiotomy recovery confines the patient to the bed and is recommended
for short term use only. There are no risk factors that allow a surgeon to
predict reliably which patients will require biventricular support.
Thoratec believes that the VAD System is able to make ventricular support
available to a broader patient population and to better serve the existing
patient population by (i) providing biventricular support, which is necessary in
20% to 40% of patients receiving ventricular assistance, (ii) placing the pump
paracorporeally (worn on the outside of the body), enabling it to support
patients of varying sizes, including very small patients, (iii) providing the
surgeon with multiple options in positioning the cannulae and in the size and
shape of the cannulae used, potentially reducing damage to the heart, and (iv)
incorporating proprietary Thoratec biomaterials in most blood contacting parts,
potentially reducing or eliminating the risks of certain adverse reactions by
the body and permitting the system to be used for potentially extended periods.
VASCULAR GRAFTS
Blood is pumped from the heart throughout the body via arteries and veins.
Because a specific region of the body is often supplied with blood by a single
main artery, the rupture, severe narrowing or occlusion of the artery supplying
blood to that region is likely to cause an undesirable or catastrophic medical
outcome. Vascular grafts are used to replace or bypass occluded, damaged,
dilated or severely diseased arteries. In many cases, surgeons remove veins from
one portion of a patient's body and implant them in the area needing vessel
repair or replacement. However, many patients do not have suitable blood vessels
available, and physicians are then required to rely on artificial vessels. In
addition, end-stage renal disease patients undergoing hemodialysis require ready
access to the circulatory system to allow sufficient blood flow to and from the
dialysis machine. This requires frequent punctures that cause serious damage to
a patient's blood vessels, and it is often necessary to implant artificial
vessels to facilitate hemodialysis.
Synthetic graft products have been marketed for approximately 35 years.
Most early products were woven Dacron grafts. Since these grafts are porous,
blood generally permeates into the graft wall structure and evokes an
inflammatory response. The inflammatory response is ameliorated by the
development of a pseudo-endothelial layer of cells on all surfaces exposed to
blood, which effectively isolates the foreign Dacron surface from the body's
immunological mechanisms. This pseudo-endothelial lining is rather thick, and
can significantly reduce the effective internal diameter of the graft.
24
<PAGE> 29
Therefore, Dacron is not considered a suitable material for small diameter
grafts, and woven Dacron grafts are used primarily for larger diameter (10 to 24
mm) applications. In addition, Dacron grafts do not seal after puncture, and are
prone to bleeding.
The next generation of synthetic grafts, introduced in the mid-1970s,
utilized a teflon material, expanded polyetrafluoroethylene ("ePTFE"). The ePTFE
grafts are also porous and behave in much the same fashion as the Dacron grafts
except that the level of incompatibility of ePTFE is less than that of Dacron,
and thus the pseudo-endothelial layer is thinner. ePTFE grafts are primarily
used in 6 to 12 mm diameter sizes, although grafts as small as 3 mm in diameter
have been sold outside of the U.S.
Although a significant amount of research has been conducted with the aim
of developing synthetic grafts that avoid the limitations of currently available
products, the ideal graft material has remained elusive. The Company believes
that its graft products, which are highly elastic, biocompatible, and
self-sealing, more closely resemble natural vessels and may provide significant
advantages as compared to currently available synthetic grafts.
VASCULAR ACCESS. The principal use of vascular access grafts is for
hemodialysis. Severe acute and chronic diseases, including kidney disease,
diabetes and hypertension, may destroy normal kidney function, resulting in
acute renal failure. End stage renal disease is irreversible and currently
approximately 60% of all patients suffering from this disease are maintained by
hemodialysis. According to the U.S. Renal Data Systems database, there were
187,000 patients in the U.S. at the end of 1995 undergoing hemodialysis. The
Company estimates that the U.S. represents less than one-half of the worldwide
hemodialysis patient population.
Hemodialysis removes blood from the body and routes it to an artificial
kidney machine where it is cleansed and returned to the patient. Patients
undergoing hemodialysis require easy, routine access to the blood stream at a
high flow rate, which generally requires the attachment of a high pressure
artery to a low pressure vein. Two different methods are typically used. The
first, called an autologous arterio-venous ("A/V") fistula, involves cutting one
of the arteries in the patient's arm and sewing the artery to an adjacent vein.
The second method uses a synthetic vascular graft, most often an ePTFE graft,
which is surgically connected between an artery and a vein. A hemodialysis
technician inserts two large needles into either the vein of the A/V fistula or
the synthetic graft. One needle removes the blood and routes it to the
artificial kidney machine and the second returns the blood to the patient. This
procedure is generally repeated three times per week.
Vascular access methods currently available for hemodialysis applications
have certain limitations. Both natural and ePTFE access grafts must mature for
three to four weeks before use and therefore patients receiving such grafts
require temporary routes of access. These temporary access procedures entail
additional cost and risk to the patient. ePTFE grafts are relatively inflexible,
which often leads to kinking and a higher risk of thrombosis. ePTFE grafts also
lose integrity after repeated punctures, which renders the patient susceptible
to bleeding and infection. If synthetic grafts bleed profusely when needles used
for hemodialysis are removed, a technician may need to apply pressure to the
graft for up to 20 minutes to permit clotting. Such problems associated with
currently available vascular grafts sometimes require them to be surgically
replaced or modified on a periodic basis. The Company estimates that
approximately 200,000 new and existing hemodialysis patients per year worldwide
undergo vascular access procedures. The Company estimates that approximately 50%
to 60% of these patients receive synthetic grafts.
CORONARY ARTERY BYPASS SURGERY. Currently, obstructed coronary arteries
are either partially cleared through the use of angioplasty or related
procedures or treated surgically through coronary artery bypass surgery.
Coronary artery bypass surgery involves connecting one or more new vessels from
the aorta to the heart to re-route blood around blockages in the coronary
arteries. Autologous grafts using saphenous veins (from the leg) or the internal
mammary artery have been successfully used in bypass procedures for a number of
years and have shown a relatively high patency with no risk of tissue rejection.
The Company estimates that in 1995 there were approximately 300,000 coronary
artery bypass surgery procedures performed in the U.S. and approximately 195,000
performed interna-
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<PAGE> 30
tionally. The Company estimates that on average at least two bypasses are
performed in each surgical procedure.
While healthy natural vessels are preferred for use in coronary artery
bypass surgery, the harvesting of vessels for autologous grafts involves
significant trauma and expense. Use of these vessels requires additional time in
surgery and results in patient morbidity associated with removal of the blood
vessel. In addition, a significant number of patients requiring coronary artery
bypass surgery have insufficient autologous vessels as a result of previous
bypass surgeries, or their vessels are of inferior quality due to trauma or
disease. No synthetic graft is currently commercially available in the U.S. for
coronary artery bypass surgery, but the Company believes a significant market
opportunity for such grafts exists. The major reason for the unavailability of a
synthetic graft for this indication has been that synthetic grafts configured in
small diameters (less than five mm) necessary for this indication generally do
not remain patent.
THORATEC TECHNOLOGIES
The Company's products and products under development employ several key
proprietary technologies, including the following:
THORATEC BIOMATERIALS
The Company has developed expertise in the design and production of
proprietary biomaterials that are highly biocompatible (i.e., they do not cause
adverse reactions within the body), strong and flexible. This technology is
critical to the successful performance of all of Thoratec's products that come
into contact with human tissue. All of the Company's current products and those
under development incorporate these proprietary biomaterials in order to
minimize clotting and inflammatory responses. In addition, these products must
maintain their strength and flexibility. A VAD System blood pump, for instance,
must contract and expand approximately 40 million times per year without a
decrease in performance or failure. The two major components of Thoratec's
biomaterials are surface modifying additives ("SMAs") and BPS-215
polyurethaneurea ("BPS-215"), a high flex life elastomer.
SMAs are proprietary multipolymers and their precursors designed to enhance
the biocompatibility of the surface of the device that comes into contact with
blood or other tissues. SMAs are added to the base polymer component of the
biomaterial in the bulk fabrication stage. A unique property of SMAs is their
ability to concentrate at the surface of any finished part, thus determining its
surface properties independent of the base polymer. This SMA-based surface layer
is not a coating but a fully integrated part of the polymer which is not soluble
in water or blood. The result is a biocompatible, thromboresistant surface.
BPS-215 is the base component that provides the bulk properties of strength and
flexibility to Thoratec's biomaterials.
The combination of bulk and surface properties provided by SMAs and BPS-215
provide Thoratec's biomaterials with the critical properties necessary for
implantable cardiovascular and other medical devices. In 1992, Thoratec granted
COBE a royalty-bearing license and sublicense to use Thoratec's biomaterials in
certain COBE medical devices.
BIOMEDICAL ENGINEERING EXPERTISE
The circulatory system is a complex biological mechanism which must respond
rapidly to changes in demand for blood flow. Long-term electro-mechanical
circulatory support therefore requires sophisticated engineering capabilities.
The Company has developed this expertise over 20 years and has successfully
utilized it in the development of the VAD System as the only system approved in
the U.S. that offers both biventricular or univentricular support as a bridge to
heart transplant. The Company intends to apply this expertise to the development
of additional circulatory support products, including an implantable muscle
powered ventricular assist device (MVAD).
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<PAGE> 31
POLYMER FABRICATION EXPERTISE
Several of the unique features of the products made from Thoratec's
biomaterials are based on proprietary fabrication and manufacturing methods
developed by the Company. These methods include procedures for achieving
uniformity, strength, flexibility and other consistent performance
characteristics in the VAD System blood pumps and cannulae, and in the vascular
grafts.
THORATEC PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table summarizes the Company's current products and products
under development. The table should be read together with the more detailed
discussion of the products and products under development that follows.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
PRODUCT APPLICATION/INDICATION STATUS(1)
---------------------------------------- ------------------------------- ----------------------------
CIRCULATORY SUPPORT PRODUCTS
VAD System (consisting of paracorporeal Bridge to heart transplant Approved by the FDA in
VAD Blood Pump, Dual Drive Console and December 1995; currently
cannulae) marketed worldwide
Recovery of the natural heart Clinical trials completed;
PMA Supplement in progress
TLC-II Alternative to Dual Drive Preclinical
Console in VAD System for
bridge to heart transplant,
recovery of the natural heart
and alternative to heart
transplant
Implantable VAD Bridge to heart transplant, Preclinical
long-term recovery of the
natural heart and alternative
to heart transplant
Muscle Powered VAD (MVAD) Implantable alternative to Research
heart transplant
VASCULAR GRAFT PRODUCTS
Vascular Access Graft (VAG) Hemodialysis Preclinical in U.S.;
approved for sale in Canada
and certain other countries
Coronary Artery Bypass Graft (CABG) Coronary artery bypass surgery Preclinical
</TABLE>
- ---------------
(1) "Clinical" denotes a human clinical trial intended to support filing of a
PMA application or 510(k) premarket notification with the FDA for approval
to market a product. "Preclinical" denotes in vitro and in vivo studies
intended to support an IDE application to the FDA for approval to commence
human clinical trials. "Research" denotes product development prior to
initiation of preclinical studies.
- --------------------------------------------------------------------------------
There can be no assurance that the Company can successfully develop any
potential products or, if successfully developed, that such products will obtain
regulatory approval or market acceptance or can be manufactured and sold on
commercially acceptable terms. See "Risk Factors -- No Assurance of Market
Acceptance," "-- Substantial Dependence on Limited Product Line; Dependence on
Development and Introduction of New Products," "-- U.S. Government Regulation"
and "-- Limited Manufacturing Capacity."
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<PAGE> 32
CIRCULATORY SUPPORT PRODUCTS
Thoratec received FDA approval in December 1995 to market the VAD System as
a bridge to heart transplant in patients suffering from heart failure, and began
marketing the VAD System in the U.S. in January 1996. The VAD System has also
received a European CE mark, and is currently marketed in major European
countries, Canada and certain other major international markets. Building on the
proprietary technologies contained in the VAD System, Thoratec is attempting to
develop a broad line of circulatory support products to meet the wide range of
needs of patients suffering from heart failure.
OVERVIEW OF THE VAD SYSTEM. The VAD System consists of three major
components: the blood pump, a type of artificial heart; the Thoratec Dual Drive
Console (the "Dual Drive Console"), which pneumatically activates the blood
pump; and cannulae which connect the blood pump to the heart and vessels. The
VAD System provides partial or total circulatory assistance when the natural
heart is unable to maintain adequate circulation to perfuse vital organs and
permits left, right, or biventricular support.
The blood pump is a prosthetic ventricle consisting of a smooth, seamless
pumping chamber enclosed in a rigid case. The blood pump is not implanted in the
patient's chest but is attached outside the patient's body on the anterior
abdominal wall. The internal chamber of the blood pump is manufactured from
Thoratec's BPS-215 and SMA-based proprietary biomaterials developed to improve
thromboresistance, flex life and strength. Two mechanical valves maintain
unidirectional flow through the blood pump.
The Dual Drive Console offers two independent and identical drive modules
for left and right ventricular support. Each module provides alternating pulses
of vacuum and pressure to fill and empty the blood pump, thereby providing
pulsatile blood flow. The Dual Drive Console provides a choice of three control
modes allowing the clinician to tailor the operation of the VAD System to the
needs of the patient.
Blood flows from the heart to the blood pump through an atrial or
ventricular cannula, and from the blood pump to the aorta or pulmonary artery
through an arterial cannula. Numerous cannulae are available for optimal
anatomical fit. All cannulae are manufactured with Thoratec's biomaterials to
improve thromboresistance, flex life and strength. Ventricular and arterial
cannulae are reinforced with wire to prevent kinking, and the reinforced portion
is covered with customized velour to encourage tissue ingrowth and reduce the
risk of infections. There have been no reported cases of ascending cannula
infections involving the chest cavity with the VAD System. The flexibility of
the VAD System offers the surgeon multiple cannulation options which can be
tailored to the individual patient's anatomy and hemodynamic needs as depicted
below.
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<PAGE> 33
LOGO
The above figure depicts some of the cannulation options available
with the VAD System: left univentricular support (Panel A) and
biventricular support (Panels B and C). Note that the blood pumps in
Panel C are turned over to accommodate a different cannulation option.
(Ao = aorta, LA = left atrial appendage, PA = pulmonary artery,
RA = right atrium, Apex = left ventricular apex, IAG = interatrial
groove).
ADVANTAGES OF THE VAD SYSTEM. Compared to other ventricular assist
devices, Thoratec believes that the VAD System has the following principal
advantages:
- BIVENTRICULAR SUPPORT. Development of ventricular assist devices
evolved from the concept that most patients could be successfully
supported with a left ventricular assist device ("LVAD"). While many
patients do well with isolated left ventricular support, some patients
supported with systems designed solely for isolated left ventricular
assist also have or can develop right ventricular failure and require
right ventricular assist device ("RVAD") support with another system.
Mortality and morbidity are extremely high for this patient group if
not adequately supported. Most systems available today provide only
left ventricular support and the only system other than the VAD System
that provides biventricular support is indicated for temporary use in
postcardiotomy recovery and post-transplant patients and severely
limits patient mobility. There are no risk factors that allow a
surgeon to predict reliably which patients will require biventricular
support.
The decision for univentricular or biventricular support is simplified
with the VAD System. In situations where there are no physiologic
markers of right heart failure, an LVAD can be used. An RVAD can be
used in addition to an LVAD if right heart failure is evident or
subsequently occurs. Biventricular support is also indicated in
patients with potentially lethal arrhythmias, or severe right
ventricular infarction that could result in death during
univentricular support. With the VAD System, RVAD support may be
employed at the time of LVAD placement, thus eliminating the need for
reoperation to insert an RVAD. Isolated RVAD support may also be
suitable for patients with right heart failure only.
- PARACORPOREAL ATTACHMENT. In the VAD System, the pump is worn
outside of the body, allowing the system to support patients of
varying sizes, including very small patients such
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<PAGE> 34
as small women and adolescents. To date, the VAD System has been used
in patients as small as 57 pounds. In contrast, other commercially
available ventricular assist devices for bridge to heart transplant
must be implanted and can only be used in patients large enough to
accommodate the device within their abdomen. The other benefit derived
from paracorporeal attachment is that it does not require invasive
abdominal surgery. This makes the VAD System more suitable for
critically ill patients who may potentially recover normal function of
the heart without this additional surgical trauma. Finally, the
attachment of the pump to the body facilitates patient movement,
allowing patients to walk, exercise and move around the hospital.
- MULTIPLE CANNULATION OPTIONS. Cannulae for the VAD System come in a
number of shapes and sizes, allowing the surgeon to fit the size of
the cannulae to the size of the patient and to place the cannulae in
different parts of the heart. Other commercially available systems
have only limited cannula shape and size. The small size of the
Thoratec cannulae, compared to other systems, could make it easier for
the heart to recover when the cannulae are removed. Variations of the
Thoratec cannulae also allow the surgeon to place the cannulae in
places other than the apex of the heart (the only place used by the
currently available left ventricular only system) when heart shape or
disease state make apex cannulation undesirable.
- THORATEC BIOMATERIALS. Thoratec's proprietary biomaterials are used
in most portions of the VAD System that contact blood or are
implanted in the body, providing biocompatibility,
thromboresistance, flex life and strength.
CURRENT AND POTENTIAL INDICATIONS. Thoratec has identified three basic
clinical needs for circulatory support products: as a bridge to heart
transplant; for recovery of the natural heart weakened or damaged by surgery or
disease; and as permanent support as an alternative to heart transplant.
Bridge to Heart Transplant
The Company commenced marketing the VAD System in the U.S. in January 1996
for use as a bridge to heart transplant in patients suffering from heart failure
following receipt of PMA approval from the FDA in December 1995. As of April 30,
1996, a total of 83 Dual Drive Consoles were placed in 29 heart transplant
centers in the U.S., 14 in Europe and eight in other parts of the world.
As of January 1996, the VAD System had been used in 656 patients worldwide.
The Company's submission to the FDA included clinical results in 375 patients
(299 males, 76 females) ranging in age from 11 to 67 years and in weight from 57
to 277 pounds. All patients were awaiting donor hearts and were in imminent risk
of dying without ventricular assistance. In spite of the extreme illness and the
zero percent survival rate expected with the use of conventional therapy alone
for these patients, the VAD System was successful in assisting 233 (62%) of the
375 patients to survive until a donor heart was available. Of the 233 patients
who received a heart transplant, 85% survived the transplant and were discharged
from the hospital, and the longest duration of VAD System support was 247 days.
Sixty-five percent of the 375 patients received biventricular ("BiVAD") support
and 34% received LVAD-only support. The large percentage of patients needing
BiVAD support reflects the greater severity of disease in patients selected for
biventricular support with the VAD System. As a result, LVAD and RVAD patients
showed correspondingly improved survival rates: 92% for LVAD and RVAD and 82%
for BiVAD post-transplant. The PMA approval was granted based on an in-depth
analysis performed in 71 of the 375 patients. Of these patients, 49 (69%)
survived to receive a heart transplant and 44 of those (90%) were discharged.
None of the control patients survived to receive a heart transplant. Based on
these clinical results, the FDA determined that the VAD System was safe and
effective in restoring hemodynamic stability to patients awaiting heart
transplant.
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<PAGE> 35
Recovery of the Natural Heart
A certain portion of patients who undergo open heart surgery have
difficulty recovering normal cardiac function, which makes it difficult to wean
the patient from the heart/lung machine. Patients can only stay on the
heart/lung machine after surgery for a limited period of time (generally less
than 12 hours), and if they are unable to regain normal heart function, they
will not survive without ventricular support. The use of a ventricular assist
device after surgery can provide support to the heart until the heart can
recover. The Company has completed clinical trials in this indication and
expects to submit a PMA Supplement to the FDA by early 1997 for approval to
market the VAD System for postcardiotomy recovery of the natural heart. In
addition, ventricular assist devices may also be useful in assisting the
recovery of hearts in patients suffering from acute heart failure, such as
myocardial infarction and myocarditis, or other acute cardiomyopathies.
Thoratec believes that since the Thoratec biomaterials used in the
blood-contacting parts of the VAD System may not cause an adverse reaction by
the body, the VAD System may be used for both short-term and long-term support.
In contrast, the one system that is currently approved for the post-cardiotomy
recovery indication can only be used for temporary circulatory support and
requires that the patient remain bed-ridden. Thoratec believes that other
ventricular assist devices currently available or under development are not
suitable for recovery of the natural heart because (i) they require surgical
implantation and removal of the blood pump from the abdomen, which adds greater
surgical trauma to critically ill patients, (ii) they cannot be used in smaller
patients due to their size, (iii) the large incision required to be made at the
apex of the heart may make recovery of the natural heart more difficult, leaving
heart transplant or chronic ventricular assist device support as the only
alternatives and (iv) they do not provide biventricular support, which is often
required by patients in recovery.
As of January 1996, the VAD System had been used in 126 patients who were
unable to regain normal heart function following coronary artery bypass surgery
and were, therefore, unable to be removed from the heart/lung machine following
surgery. Of the 126 patients who have been placed on the VAD System, 39% (49
patients) recovered sufficiently to be weaned from the heart/lung machine, and
of those patients, 57% were discharged from the hospital. Duration of patient
cardiac support ranged from one to 80 days. Although most patients were
supported less than ten days, several required support for between one and three
months before they successfully recovered cardiac function.
Alternative to Heart Transplant
Given the shortage of donor hearts for patients requiring heart transplant,
the Company believes that ventricular assist devices may become a long-term
solution for many patients who would otherwise require a heart transplant. To
address this need, the Company is currently developing the TLC-II, a compact and
lightweight portable driver to substitute for the Dual Drive Console currently
used with the VAD System. The Company believes that this product may enable
patients to eventually return home and to work and receive long-term ventricular
support without undergoing a heart transplant. See "-- Products Under
Development."
PRODUCTS UNDER DEVELOPMENT. Thoratec currently has under development the
circulatory support products described below. There can be no assurance that the
Company will successfully develop any of these products, or if successfully
developed, that these products will obtain regulatory approval or market
acceptance or can be manufactured and sold on commercially acceptable terms. See
"Risk Factors -- No Assurance of Market Acceptance," "-- Substantial Dependence
on Limited Product Line; Dependence on Development and Introduction of New
Product," "-- U.S. Government Regulations" and "-- Limited Manufacturing
Capacity."
TLC-II Portable VAD Driver
Although patients supported with the Dual Drive Console can ambulate
throughout the hospital and transfer from critical care units to general wards,
they usually cannot leave the hospital because of
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<PAGE> 36
the size of the console. Thoratec is developing the TLC-II, a compact and
lightweight (7kg), battery or line-operated biventricular pneumatic drive unit
designed to promote greater mobility and self-care. It is intended to allow the
patient to more easily exercise and move freely around the hospital grounds, and
eventually away from the medical facility. This device provides several
portability options, either by hand-carrying the driver or by using a shoulder
strap or a small custom trolley. This portable device will connect with a
central system cart, which will house a battery charger and the external
monitoring computer.
Thoratec intends to submit an IDE application to the FDA by mid-1997 to
begin a clinical trial of this device in the U.S. for use in conjunction with
the approved VAD System. Thoratec is also pursuing a CE Mark for this product.
The Company believes that the regulatory path to approval for this device will
be facilitated by the fact that it activates the same VAD System blood pumps
that have received FDA approval.
Implantable VAD
While the paracorporeal placement of the VAD System has certain advantages,
especially for small patients and patients in whom additional abdominal surgery
presents a high risk, Thoratec is developing an implantable version of its
existing VAD blood pump and cannulae to provide additional options for surgeons.
Thoratec believes that the regulatory process for this product may be
facilitated, in part, by the fact that the VAD System has already undergone
preclinical testing in the implantable configuration prior to being introduced
for clinical use in the paracorporeal configuration.
Muscle Powered VAD ("MVAD")
Thoratec is in the early stage of developing an implantable, muscle powered
circulatory support device to serve as an alternative to heart transplant. The
MVAD utilizes conventional pacemaker technology, along with a linear
mechanical-to-hydraulic energy converter, to harness the power available in a
patient's latissimus dorsi muscle to drive an implanted ventricular assist
device. This system is designed to operate without batteries, electrical power
transmission systems and other bulky hardware required with electromechanical
systems. The MVAD is undergoing laboratory testing, and the Company has received
a $100,000 Phase I grant from the Small Business Technology Transfer Program of
the National Institutes of Health to support research and development of the
energy converter. Extensive technical development and laboratory testing will be
required before clinical trials could begin, and this project could be
discontinued at any time if feasibility is not demonstrated. There can be no
assurance that this product can be successfully developed.
VASCULAR GRAFT PRODUCTS
Thoratec is developing small diameter vascular graft products intended
initially to address the vascular access and coronary artery bypass surgery
markets. Both products utilize the Company's proprietary biomaterials and are
protected by several patents covering the biomaterials as well as the graft
design and manufacturing processes. Thoratec believes that its vascular grafts
are highly compliant, have excellent handling and suturing properties and have
the "feel" of a natural vessel. The fabrication process creates a structure in
which the three different layers in the wall have different properties, which
make the graft closely resemble natural blood vessels. The inner textured layer
is designed for contact with blood and provides improved thromboresistance, the
solid middle layer gives the graft its strength and self sealing properties, and
the outer textured layer is designed to promote tissue ingrowth to promote graft
stability.
VASCULAR ACCESS GRAFT ("VAG"). Currently available vascular access grafts
are commonly made out of ePTFE, which can lose integrity after repeated
punctures and render the patient susceptible to bleeding and infection. The VAG
is designed for use as a shunt between an artery and a vein, primarily to
provide access to the bloodstream for renal hemodialysis patients requiring
frequent needle punctures during treatment. The Company believes that the VAG
may provide significant advantages over existing synthetic vascular access
grafts and may encourage its use by surgeons who are currently
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<PAGE> 37
using natural vessels for vascular access. The VAG received marketing approval
from the Canadian Ministry of Health in March 1996 and is also marketed in
Australia. Thoratec is conducting preclinical testing and expects to submit an
IDE application to the FDA in the first half of 1997 to commence clinical trials
in the U.S. The Company believes that these clinical trials will be necessary to
support the submission of a 510(k) premarket notification to the FDA.
To date, more than 1,000 patients outside of the U.S. have been implanted
with the VAG. In one retrospective study of the VAG in Australia, 134 patients
who were implanted by 31 different surgeons were evaluated. Based on data
obtained in this study as well as other clinical trials conducted outside the
U.S., the Company believes that the VAG offers the following advantages: (i)
reduced inflammatory response after implantation; (ii) the ability to begin
hemodialysis within one to three days after implantation, as opposed to several
weeks for ePTFE grafts; (iii) reduced bleeding complications during routine use
because of the VAG's self-sealing properties; and (iv) improved handling and
suturability. In the Australian study, the median hospital stay was four days
and initial use of the VAG for dialysis was performed with a median time after
implant of three days. The median follow-up period was 306 days. The patency at
both one and two years of dialysis use was comparable to or better than ePTFE
grafts, notwithstanding that 73% of the patients who received the Thoratec graft
previously demonstrated that they could not tolerate ePTFE grafts.
CORONARY ARTERY BYPASS GRAFT ("CABG"). Coronary artery bypass surgery
requires the insertion of substitute vessels to bypass one or more blocked
arteries in the heart. These substitute vessels typically require either
harvesting the patient's saphenous veins or using the internal mammary artery.
These procedures, however, can involve significant trauma and expense, and are
sometimes not an option for patients who have undergone previous bypass surgery
or who have vessels of inferior quality. The CABG graft is designed for use in
coronary artery bypass surgery patients who have no suitable vessels of their
own. To date, a total of 24 patients in Canada and Germany have received
Thoratec's CABG grafts ranging in size from 2.0 to 3.5mm. All patients were
extremely ill at the time of surgery, and the grafts were implanted on a
compassionate use basis (i.e., the patients were found to have no other viable
therapeutic options). While patency in the implanted grafts has not been
evaluated in all patients, 19 of these patients were asymptomatic as of March
1996, with the longest term patient implanted for approximately three years. The
remaining five patients died from causes unrelated to the graft. However,
long-term test results on a much larger patient population are required before
the capabilities of this graft can be demonstrated. Follow-up studies in some
patients have demonstrated patent grafts several months after implantation.
The potential for improved long-term patency in small diameter grafts is
the most unique aspect of the CABG graft. The Company believes that to date no
other suitable small diameter graft has been developed which will remain patent
over long periods of time when used in this critical application. Thoratec is
currently in preclinical testing of the CABG graft in the U.S. The Company
believes this product will require submission of a PMA application to the FDA.
PERIPHERAL GRAFT APPLICATIONS. In addition to the VAG and CABG grafts,
Thoratec's graft products may potentially be used in other applications such as
peripheral vascular grafts for patients who require restoration of circulation
to their arms or legs due to blockages caused by certain disease processes.
While the Company is not currently pursuing development of these applications,
it has performed limited early stage preclinical work in this area and believes
its graft products could be developed for these applications.
SALES AND MARKETING
CIRCULATORY SUPPORT PRODUCTS
The potential customers for Thoratec's circulatory support products are
hospitals that perform open heart surgery procedures and heart transplants.
Based on published sources, the Company estimates that 130 of the approximately
800 hospitals in the U.S. that perform open heart surgery also
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<PAGE> 38
perform heart transplants. The Company is initially targeting these 130 heart
transplant hospitals, and, as of April 30, 1996, the VAD System was placed at 29
of these hospitals.
Thoratec has trained a four person direct sales force, each of whom has at
least 15 years of cardiovascular device sales experience, to sell the VAD System
in the U.S. and Canada. The sales force focuses on promoting the product line to
cardiac surgeons who perform heart transplants and to cardiologists who refer
the patients for transplantation.
Cardiovascular and vascular surgeons and interventional cardiologists
influence medical device selection and purchase decisions for a large portion of
the target cardiac patient population. The Company has developed working
relationships with a number of leading medical centers. In addition, surgical
teams at these medical institutions have performed clinical trials to support
the Company's FDA submissions. A continuing working relationship with these
physicians and medical centers will be important to the acceptance of the VAD
System. See "Risk Factors -- No Assurance of Market Acceptance."
When a hospital or other medical institution decides to acquire a VAD
System, it must acquire at least two Dual Drive Consoles so that a backup is
available. It typically takes six to 12 months from the time a surgeon is
contacted to the time a VAD System is ordered, and the Company generally ships
the VAD System within 30 days of receiving a purchase order.
The introduction of a new system requires training of the appropriate
personnel. Initial training takes place for the surgical as well as the clinical
support teams when a center purchases and takes delivery of the VAD System. As a
follow-up to the initial training, Thoratec provides clinical support at the
first implant whenever possible. The Company is also developing a 24-hour
support line. The Thoratec sales force will also assist customers with obtaining
reimbursement from third-party payors.
Additionally, the Company plans to bolster its marketing programs and
services to support sales efforts in the immediate future. These efforts may
include programs and materials for patient support and education, sales
demonstrations, equipment lease and rental, medical journal advertising,
increased tradeshow participation, clinician education, sponsorship of
scientific lectures, improved product packaging, marketing brochures and
literature, sales force training, distribution training and support, and the
sponsorship of studies which compare the Company's products to those of its
competition.
Outside the U.S. and Canada, the Company markets the VAD System through a
network of distributors. In late 1992 and 1993, Thoratec and several COBE
affiliates entered into distribution agreements whereby the COBE affiliates had
exclusive rights to distribute the VAD System in several major European markets.
In 1993, 1994 and 1995, sales to these markets represented 42%, 26% and 20% of
all sales, respectively. The Company estimates that there are approximately 110
heart transplant hospitals in Europe, and as of April 30, 1996 the VAD System
was placed at 14 European heart transplant hospitals. In early 1995, the Company
signed an agreement with Arrow to take over distribution of the VAD System in
all of the COBE territories except Belgium and Scandinavia. Arrow has a
dedicated sales team of two individuals to market the VAD System in its
territories. In 1995, sales to Arrow represented 18% of all sales. In other
international markets, the Company sells the VAD System through selected
distributors. As of April 30, 1996, the VAD System was placed in eight other
transplant centers in other international markets, including Canada and
Australia.
VASCULAR GRAFT PRODUCTS
The Company intends to market the VAG through distributors both
domestically and internationally and to market the CABG graft through a direct
sales force in the U.S. and Europe and through distributors in other
international markets. The Company envisions the market positioning of the VAG
as one which replaces an existing product used in an accepted procedure, and at
a comparable price. The Company plans to commission studies comparing its
products to ePTFE grafts. The Company believes the VAG will have significant
advantages over these existing products and will therefore offer significant
benefits to users and patients, without the need for additional clinical
training. The Com-
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<PAGE> 39
pany also believes that more clinicians using natural A/V fistulas will utilize
a synthetic option when presented with these benefits, and intends to target
these users as well.
The CABG graft will be positioned initially as a preferable clinical option
for patients who lack suitable native vessels. The Company believes that more
clinician education will be required for the CABG graft in terms of patient
indications, product use, and product capabilities. This may be accomplished
through company-sponsored educational programs, video educational tools, and
scientific lecture programs. The Company also anticipates a much larger domestic
sales force structure to effectively market the CABG graft, which may overlap or
work with the VAD System sales force. Finally, the Company recognizes the impact
of clinical thought-leaders in any surgical specialty, and will begin
cultivating these relationships during the clinical trials of the graft. See
"Risk Factors -- No Assurance of Market Acceptance" and "-- Limited Sales and
Marketing Experience; Dependence Upon Distributors."
MANUFACTURING
Thoratec manufactures specialty polymers for use in the VAD blood pumps,
cannulae and grafts, fabricates the VAD blood pumps and cannulae, and assembles
and tests the VAD System at its Berkeley, California facility. This facility is
cGMP-approved for the U.S. market and has received ISO 9002 certification and CE
certification for the European markets. The Company's graft products are
produced from the Company's biomaterials at its facility in Ottawa, Canada.
The Company's manufacturing processes for the VAD System consist of the
assembly of standard and custom component parts, including blood-contacting
components fabricated from Thoratec's proprietary biomaterials, and the testing
of completed products. The Company relies on single sources of supply for
several components of the VAD System. The Company is aware of alternative
suppliers for all single-sourced items other than the mechanical valves, and
believes the loss of any one supplier would have only a short-term impact on its
production schedule. The supplier of mechanical valves for the VAD System
stopped production in 1995. The Company negotiated a contract for supply of the
valves that it believes will satisfy its needs through 1997, during which time
it must qualify a replacement valve or qualify a new vendor for the current
valve. The Company has identified a new vendor and will begin negotiations in
1996 for additional supply. See "Risk Factors -- Dependence on Third Parties for
Supplies."
The Company devotes significant attention to quality control. Its quality
control measures begin at the manufacturing level where components are assembled
in a "clean-room" environment designed and maintained to reduce product exposure
to particulate matter. Products are tested throughout the manufacturing process
for adherence to specifications. Finished components are shipped to outside
processors for sterilization through radiation or treatment with ethylene oxide
gas. After sterilization, the products are quarantined and tested before they
are shipped to customers.
The Company believes its Berkeley facility is capable of supplying the
Company's expected sales of VAD Systems during 1996. The Company plans to
relocate to a larger facility in the San Francisco Bay Area in 1997 and plans to
use a portion of the net proceeds of this Offering to finance the expected
scale-up and validation of a new manufacturing facility and the purchase of
necessary equipment at the new facility. See "Risk Factors -- Limited
Manufacturing Capability" and "Use of Proceeds."
PATENTS AND PROPRIETARY RIGHTS
The Company has adopted a policy of seeking to patent certain aspects of
its technology. The Company holds, or has exclusive rights to, 18 U.S. patents
and has five additional submissions currently in prosecution. Aside from the
biomaterials patents mentioned below, which are utilized in the VAD blood pump
and cannulae, the VAD System is not protected by any patents. The Company does
not believe that this lack of patent protection will have a material adverse
effect on the Company or its ability to sell the VAD System because of the
lengthy regulatory period required to obtain approval of a ventricular assist
device. The Company is not aware of any ventricular assist devices currently
approved by the FDA or undergoing clinical trials based on the Company's product
design. Thoratec's proprietary biomaterials technology is covered by seven
patents. Five of these were sold to
35
<PAGE> 40
Th. Goldschmidt AG, a German chemical manufacturer, in 1989, but the Company has
retained worldwide, royalty-free, exclusive rights to these patents for most
medical applications. The Company's vascular graft products are covered by three
manufacturing process patents. The MVAD is currently covered by two patents. One
patent covers the overall design of the device, while the other applies to one
component of the energy conversion part of the system. One of these patents is
owned by Dr. Hill, Chairman of the Board of Directors of the Company, and the
Company currently has rights to use that patent. Seven of the Company's 18
patents are for products which are not commercially pertinent to Thoratec today.
International patent coverage includes the two basic biomaterial patents which
are licensed from Goldschmidt (patented in 13 countries). Also, all three of the
graft patents are filed in Canada, France and the U.K. Of Thoratec's five
currently pending patent applications, one is a design patent for the TLC-II
(filed for protection in 20 countries), one relates to the biomaterials and
three relate to the MVAD.
The validity of any patents issued to the Company may be challenged by
others, and the Company could encounter legal and financial difficulties in
enforcing its patent rights against alleged infringers. In addition, there can
be no assurance that other technologies cannot or will not be developed or that
patents will not be obtained by others which would render the Company's patents
obsolete. Although the Company does not believe the patents are the sole
determinant in the commercial success of its products, the loss of a significant
percentage of its patents or its patents relating to its graft products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company has developed significant technical knowledge which, although
nonpatentable, is considered by the Company to be significant in enabling it to
compete. However, the proprietary nature of such knowledge may be difficult to
protect. The Company has entered into an agreement with each key employee
prohibiting such employee from disclosing any confidential information or trade
secrets of the Company. In addition, these agreements also provide that any
inventions or discoveries relating to the business of the Company by these
individuals will be assigned to the Company and become the Company's sole
property. See "Risk Factors -- Patents and Protection of Proprietary
Technology."
Claims by competitors and other third parties that the Company's products
allegedly infringe the patent rights of others could have a material adverse
effect on the Company. The medical device industry is characterized by frequent
and substantial intellectual property litigation. The cardiovascular device
market is characterized by extensive patent and other intellectual property
claims. Intellectual property litigation is complex and expensive and the
outcome of this litigation is difficult to predict. Any future litigation,
regardless of outcome, could result in substantial expense to the Company and
significant diversion of the efforts of the Company's technical and management
personnel. An adverse determination in any such proceeding could subject the
Company to significant liabilities or require the Company to seek licenses from
third parties or pay royalties that may be substantial. Furthermore, there can
be no assurance that necessary licenses would be available 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 or selling certain of its products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Patents and Protection of
Proprietary Technology."
COMPETITION
Principal competitors of the VAD System include Thermo Cardiosystems, Inc.,
which manufactures and markets an implantable left ventricular assist device
approved only for bridge to heart transplant in the U.S., and ABIOMED, Inc.,
which manufactures and markets an FDA-approved biventricular assist device for
temporary circulatory support of patients in postcardiotomy shock and treatment
of cardiogenic shock following heart transplants. In addition, Novacor, a
division of Baxter International, Inc., is developing a left ventricular assist
device currently in clinical trials in the U.S.
36
<PAGE> 41
The Company believes that the principal competitive factors in the ventricular
assist device market are impact on patient outcomes, product performance,
quality, cost-effectiveness and customer service. The Company believes that its
principal competitive advantages are the fact that the VAD System can provide
left, right or biventricular support, the smaller size and paracororeal
placement of the system that allows its use with a greater range of patients
than competitive devices, the greater range of cannulation options available and
the quality of its biomaterials. Although Thoratec believes that these
attributes of the VAD System offer certain advantages over existing ventricular
assist devices, current competitors can be expected to defend their market
positions vigorously.
The principal competitors in the vascular access graft market are W.R.
Gore, Inc. and IMPRA, Inc., which manufacture and market ePTFE grafts, Corvita
Corporation and Cardiotech International, Inc. ("Cardiotech"), which are
developing polyurethene grafts, and Possis Medical, Inc. ("Possis"), which is
developing spun polyester grafts. In addition, Cardiotech and Possis are
developing coronary artery bypass grafts. There are currently no coronary artery
bypass graft products approved for use in the U.S. The Company believes that the
principal competitive factors in the graft market are biocompatibility, patency,
reliability, cost, suturability and ease of use. The Company expects that
significant competition in the synthetic vascular graft market will continue.
There are many companies focusing on the development of circulatory support
devices or vascular grafts that have substantially greater financial resources,
have substantially larger and more experienced sales and marketing organizations
and engage in substantially greater research and development efforts than the
Company. One or more of these or other companies could design and develop
products that compete directly with the Company's products, in which case the
Company would face intense competition. Moreover, certain academic institutions,
government agencies and other research organizations are conducting research in
areas in which the Company is working. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed. These institutions may
also market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel. Competition from commercial or other institutions or
organizations could have a material, adverse effect on the Company's business,
financial condition and results of operations. See "Risk
Factors -- Competition."
GOVERNMENT REGULATION
Regulation by governmental authorities in the U.S. and foreign countries is
a significant factor in the manufacture and marketing of the Company's current
and future products and in its ongoing product research and development
activities. All of the Company's proposed products will require regulatory
approval prior to commercialization. In particular, medical devices are subject
to rigorous preclinical testing as a condition of approval by the FDA and by
similar authorities in foreign countries.
U.S. REGULATIONS
In the U.S., the FDA regulates the manufacture, distribution and promotion
of medical devices pursuant to the FDC Act. The VAD System, TLC-II, MVAD and
graft products are, or will be regulated as medical devices. To obtain FDA
approval to market medical devices similar to those under development by the
Company, the FDA requires proof of safety and efficacy in human clinical trials
performed under an IDE. An IDE application must contain preclinical test data
demonstrating the safety of the product for human investigational use,
information on manufacturing processes and procedures, and proposed clinical
protocols. If the IDE application is accepted, human clinical trials may begin.
The results obtained from these trials, if satisfactory, are accumulated and
submitted to the FDA in support of either a PMA application or a 510(k)
premarket notification. Premarket approval from the FDA is required before
commercial distribution of devices similar to those under development by the
Company is permitted in the U.S.
37
<PAGE> 42
The PMA application must be supported by extensive data, including
preclinical and human clinical data, to prove the safety and efficacy of the
device. By regulation, the FDA has 180 days to review a PMA application and
during that time an advisory committee may evaluate the application and provide
recommendations to the FDA. While the FDA has responded to PMA applications
within the allotted time period, reviews more often occur over a significantly
protracted period, usually 18 to 36 months, and a number of devices have never
been cleared for marketing. This is a lengthy and expensive process and there
can be no assurance that such FDA approval will be obtained.
Under the FDA's requirements, if a manufacturer can establish that a newly
developed device is "substantially equivalent" to a legally marketed device, the
manufacturer may seek marketing clearance from the FDA to market the device by
filing a 510(k) premarket notification with the FDA. The 510(k) premarket
notification must be supported by data establishing the claim of substantial
equivalence to the satisfaction of the FDA. The process of obtaining a 510(k)
clearance typically can take several months to a year or longer. If substantial
equivalence cannot be established, or if the FDA determines that the device
requires a more rigorous review, the FDA will require that the manufacturer
submit a PMA application that must be reviewed and approved by the FDA prior to
sale and marketing of the device in the U.S. Both a 510(k) and a PMA, if
granted, may include significant limitations on the indicated uses for which a
product may be marketed. FDA enforcement policy strictly prohibits the promotion
of approved medical devices for unapproved uses. In addition, product approvals
can be withdrawn for failure to comply with regulatory requirements or the
occurrence of unforeseen problems following initial marketing. Although the
Company believes that certain products currently in development will be eligible
for the 510(k) submission process, there can be no assurance that the FDA will
agree with this view.
In December 1995 the Company received FDA approval of its PMA for the
bridge to heart transplant indication for the VAD System. The same system
continues to be sold in the U.S. for controlled clinical use under an IDE for
recovery of the natural heart. The VAD System is classified as a Class III
medical device under the FDC Act. Prior to approval by the FDA, this device was
marketed pursuant to an IDE for use in clinical trials under controlled
conditions by a limited number of qualified medical institutions. The process of
obtaining FDA approval for the VAD System required 13 years after approval of
the IDE.
The Company expects that its graft products will be classified as either
Class II or Class III medical devices. The Company does not anticipate filing an
IDE for its VAG until the first half of 1997, but believes that it will then be
able to file a 510(k) after the clinical data is gathered. The Company has
completed limited clinical trials of its CABG graft product outside the U.S.
Substantial additional preclinical testing will need to be completed in the U.S.
before commencement of clinical trials on the CABG grafts in the U.S.
The approval process for any of the Company's products is expensive and
time consuming and no assurance can be given that any regulatory agency will
grant its approval. The inability to obtain, or delays in obtaining, such
approval would adversely affect the Company's ability to commence marketing
therapeutic applications of its products. There can be no assurance that the
Company will have sufficient resources to complete the required testing and
regulatory review processes. Furthermore, the Company is unable to predict the
extent of adverse governmental regulation which might arise from future United
States or foreign legislative or administrative action.
In addition, any products distributed by the Company pursuant to the above
authorizations are subject to pervasive and continuing regulation by the FDA.
Products must be manufactured in registered establishments and must be
manufactured in accordance with cGMP and GLP regulations. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The export of devices also is
subject to regulation in certain instances. See "Risk Factors -- U.S. Government
Regulations."
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<PAGE> 43
FOREIGN REGULATIONS
The Company is also subject to regulation in each of the foreign countries
in which it sells its products with regard to product standards, packaging
requirements, labelling requirements, import restrictions, tariff regulations,
duties and tax requirements. Many of the regulations applicable to the Company's
products in such countries are similar to those of the FDA. The national health
or social security organizations of certain countries require the Company's
products to be qualified before they can be marketed in those countries.
To position itself for access to European and other international markets,
Thoratec sought and obtained certification under the ISO 9000 Series of
Standards. ISO 9000 is a set of integrated requirements, which when implemented,
form the foundation and framework for an effective quality management system.
These standards were developed and published by the ISO, a worldwide federation
of national bodies, founded in Geneva, Switzerland in 1946. ISO has over 92
member countries. ISO certification is widely regarded as essential to enter
Western European markets. The Company obtained certification and was registered
as an ISO 9002 compliant company in January 1995. Commencing in 1998, all
companies will be required to obtain ISO 9001 certification in order to market
new medical devices in Europe and obtain additional "CE" mark certifications.
ISO 9001 certification will be the most stringent standard in the ISO series and
will last for three years. The ISO 9001 standards will cover design, production,
installation and servicing of products. The Company intends to apply for ISO
9001 certification prior to its effective date. In addition, the Company is
required to receive a "CE" mark certification, an international symbol of
quality and compliance, with applicable European medical device directives. The
Company has received a CE mark for the VAD System and is pursuing a CE mark
certification for its Vascular Access Grafts. See "Risk Factors -- International
Regulations."
OTHER REGULATIONS
The Company is also subject to various federal, state and local laws and
regulations relating to such matters as safe working conditions, laboratory and
manufacturing practices and the use, handling and disposal of hazardous or
potentially hazardous substances used in connection with the Company's research
and development work. Specifically, the manufacture of the Company's
biomaterials is subject to compliance with federal environmental regulations and
by various state and local agencies. Although the Company believes it is in
compliance with these laws and regulations in all material respects, there can
be no assurance that the Company will not be required to incur significant costs
to comply with environmental laws or regulations in the future.
THIRD PARTY REIMBURSEMENT AND COST CONTAINMENT
The Company's products are purchased primarily by hospitals and other
users, which then bill various third party payors for the services provided to
the patients. These payors, which include Medicare, Medicaid, private insurance
companies and managed care organizations, reimburse part or all of the costs and
fees associated with the procedures performed with these devices.
Medicare and Medicaid reimbursement for hospitals is based on a fixed
amount for admitting a patient with a specific diagnosis. Because of this fixed
reimbursement method, hospitals have incentives to use less costly methods in
treating Medicare and Medicaid patients, and will frequently make capital
expenditures to take advantage of less costly treatment technologies.
Frequently, reimbursement is reduced to reflect the availability of a new
procedure or technique, and as a result hospitals are generally willing to
implement new cost saving technologies before these downward adjustments take
effect. Likewise, because the rate of reimbursement for certain physicians who
perform certain procedures has been and may in the future be reduced in the
event of further changes in the resource-based relative value scale method of
payment calculation, physicians may seek greater cost efficiency in treatment to
minimize any negative impact of reduced reimbursement. Third party payors are
increasingly challenging the prices charged for medical products and services
and may deny reimbursement if they determine that a device was not used in
accordance with cost-effective treatment methods as
39
<PAGE> 44
determined by the payor, was experimental or was used for an unapproved
application. Changes in reimbursement policies and practices of third party
payors could have a substantial and material impact on sales of certain of the
Company's products. The development or increased use of more cost-effective
treatment could cause such payors to decrease or deny reimbursement to favor
these treatments. To date neither HCFA nor any private insurer has determined to
reimburse the costs of the VAD System on a consistent basis, or as a matter of
policy. It is uncertain what legislative proposals will be adopted or what
actions federal, state or private payors for healthcare goods and services may
take to limit their payments for such goods and services. The Company cannot
predict whether the VAD System will be approved for reimbursement and cannot
predict the effect the changes in the healthcare system may have on its
business. As a result, no assurance can be given that any such changes will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Risk Factors -- Uncertainty Related to
Healthcare Reimbursement for VAD System."
EMPLOYEES
At March 30, 1996, the Company had 66 full-time employees, 23 of whom
worked in manufacturing, 12 in engineering, three in quality control, 11 in
marketing and sales support, nine in administration and finance and eight in
other support functions (including personnel, purchasing, facility). None of the
Company's employees are covered by a collective bargaining agreement. The
Company believes that its relations with its employees are good.
FACILITIES
Thoratec occupies a leased facility in Berkeley, California, totaling
approximately 28,000 square feet where its research and development, marketing,
engineering, and manufacturing activities are carried out. The manufacturing
areas have been inspected, approved, and licensed by the U.S. FDA and the State
of California Department of Health Services, Food and Drug Section for the
manufacture of medical devices. The lease on this building will expire in August
1999. The Company intends to use a portion of the net proceeds of this Offering
to move to a new leased facility in 1997. The Company also has small leased
facilities in Canada and the United Kingdom. See "Use of Proceeds."
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
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<PAGE> 45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning executive
officers and directors of the Company as of March 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
D. Keith Grossman.................. 36 President, Chief Executive Officer and Director
Cheryl D. Hess..................... 49 Vice President - Finance, Chief Financial Officer
and Secretary
Dan E. Nielsen..................... 56 Vice President - Operations
Ronald G. Seyffert................. 49 Vice President - Marketing and Sales
Christy W. Bell (1)(2)............. 73 Director
Howard E. Chase(2)................. 59 Director
Wendell J. Gardner................. 63 Director
Robert J. Harvey, Ph.D. ........... 64 Director
J. Donald Hill, M.D. (1)........... 59 Director and Chairman of the Board of Directors
George W. Holbrook, Jr.(1)......... 64 Director
</TABLE>
- ---------------
(1) Member, Compensation and Option Committee.
(2) Member, Audit Committee.
D. KEITH GROSSMAN joined the Company as President and Chief Executive
Officer in January 1996. He was elected to the Board of Directors in February
1996. Prior to joining Thoratec, Mr. Grossman was the president of the Northern
Division of Major Pharmaceuticals, Inc. from May 1992 to September 1995, at
which time it was sold. From July 1988 to June 1992, Mr. Grossman served as the
Vice President of Sales and Marketing for Calcitek, Inc., a manufacturer of
implantable medical devices. Prior to 1988, Mr. Grossman held various other
sales, marketing and general management positions within the medical devices and
supplies industry.
CHERYL D. HESS joined the Company as Vice President - Finance and Chief
Financial Officer in December 1983 and became Secretary in 1994. Prior to
joining Thoratec, Ms. Hess was a manager with the public accounting firm of
Deloitte & Touche LLP, where she specialized in audit and financial advisory
services for entrepreneurial, rapidly-growing, high technology companies. Ms.
Hess is responsible for the direction of all financial management, control, and
reporting activities for Thoratec, as well as certain administrative and
operational activities. Ms. Hess is a Certified Public Accountant.
DAN E. NIELSEN joined the Company as Vice President - Operations in 1977.
Prior to joining Thoratec, Mr. Nielsen was Vice President of Manufacturing with
G. D. Searle's Cardiopulmonary Division for two years, and Manager of
Manufacturing for Gould-Statham Instruments, where he worked for 11 years.
RONALD G. SEYFFERT joined the Company as Vice President - Marketing and
Sales in November 1995. From November 1993 to November 1994, Mr. Seyffert served
as Vice President of Marketing and Sales at Kontron Instruments Inc., which was
acquired by Arrow International Incorporated in 1994, after which he functioned
as International Market Development Manager until November 1995. From 1983 until
1986 Mr. Seyffert was Director and from 1987 to 1993 was Vice President of
Marketing for the Bard Europe Division of C. R. Bard, Inc. He has held positions
in sales, marketing, business development and strategic planning within the
medical devices industry since 1976.
CHRISTY W. BELL became a Director of the Company in April 1988 and is a
significant shareholder of the Company. Mr. Bell is President and CEO of
Electro-Petroleum Inc. ("EPI"), Electro-Pyrolysis Inc., and Arc Technologies
Inc. Prior to joining EPI, Mr. Bell had been Chairman and Chief Executive
Officer of Chem-Clear, located in Wayne, Pennsylvania, until February 1988, when
the Company was sold. Mr. Bell serves as a member of the Board of Directors of
Clean Harbors, Inc.
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<PAGE> 46
HOWARD E. CHASE became a Director of the Company in November 1986. Mr.
Chase has served as President and Chief Executive Officer of DeTomaso
Industries, Inc. since September 1995. From 1984 to August 1995, Mr. Chase was a
partner in the law firm of Morrison Cohen Singer & Weinstein in New York City.
He acted as an advisor and as special counsel to the Company from 1979 to 1995.
WENDELL J. GARDNER became a Director of the Company in December 1992
pursuant to an agreement with COBE. He joined COBE in 1969. Mr. Gardner is a
Senior Vice President of COBE. He held the position of President of COBE
Cardiovascular, Inc. from 1990 to 1994 and was Senior Vice President and
Cardiovascular Division Manager from 1982 to 1990. Mr. Gardner has held several
other positions with COBE, including Vice President for European Operations and
Chief Financial Officer.
ROBERT J. HARVEY, PH.D., is a founder of the Company and has served as
Director of the Company since its inception in March 1976. From 1976 through
January 1996, Dr. Harvey was the Company's Chief Executive Officer and
President. From 1976 through 1994, Dr. Harvey was Chairman of the Board of
Directors. Prior to 1976, Dr. Harvey was an independent consultant to companies
in the medical products and other high technology fields.
J. DONALD HILL, M.D., is a founder of the Company and has been a Director
of the Company since its inception in March 1976 and is a significant
shareholder of the Company. In January 1995, Dr. Hill became Chairman of the
Board of Directors. Dr. Hill is Chairman of the Department of Cardiac Surgery at
California Pacific Medical Center in San Francisco where he has been a
practicing cardiovascular surgeon since 1966.
GEORGE W. HOLBROOK, JR., became a Director of the Company in July 1995.
Since 1984, Mr. Holbrook has been the Managing Partner of Bradley Resources
Company, a private investment partnership. Mr. Holbrook is also a director of
Merrill Lynch Institutional Intermediate Fund and other associated funds, and a
director of Canyon Resources Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors (the "Board") has a Compensation and Option
Committee and an Audit Committee. The Compensation and Option Committee consists
of Mr. Bell, Dr. Hill and Mr. Holbrook, and the Audit Committee consists of Mr.
Bell and Mr. Chase. The Compensation and Option Committee provides
recommendations to the Board concerning salaries and incentive compensation for
officers and employees of the Company, including stock options. The Audit
Committee recommends the Company's independent auditors and reviews the results
and scope of audit and other accounting related services provided by such
auditors.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors receive reimbursement for travel and other expenses directly
related to their activities as directors, but no other fees or retainers.
Beginning in 1996, outside directors will be eligible to participate in the
Company's automatic option grant program. See "-- Benefit Plans -- 1996
Nonemployee Directors Stock Option Plan."
ANNUAL MEETING; ELECTION OF DIRECTORS AND EXPECTED RESIGNATION
The Company expects to hold an Annual Meeting of Shareholders in June 1996
at which the existing Board of Directors will stand for reelection. Mr. Gardner
has informed the Board that he intends to resign from the Board sometime after
the Annual Meeting after a suitable replacement is found. Mr. Gardner's intended
resignation is not the result of any disagreement with the Company relating to
the Company's operations, policies or practices.
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<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation received for services rendered to the Company during the 1993, 1994
and 1995 fiscal years by the Company's Chief Executive Officer and its three
other executive officers (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
--------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)
- --------------------------------------------- ----- -------- ------- ------------
<S> <C> <C> <C> <C>
Robert J. Harvey(2).......................... 1995 $110,308 $ -- --
President, Chief Executive Officer 1994 108,675 5,267 --
and Director 1993 106,838 31,500 50,000
Cheryl D. Hess............................... 1995 90,904 -- --
Vice President - Finance, Chief Financial 1994 89,860 4,967 --
Officer and Secretary 1993 88,341 31,500 50,000
Dan E. Nielsen............................... 1995 93,951 -- --
Vice President - Operations 1994 92,856 5,067 16,667
1993 91,905 31,500 50,000
Ronald G. Seyffert(3)........................ 1995 14,769 -- 25,000
Vice President - Marketing and Sales
</TABLE>
- ---------------
(1) In accordance with the Rules of the Securities and Exchange Commission,
other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites and
other personal benefits constituted lesser than the lesser of $50,000 or 10%
of the total annual salary and bonus for the Named Executive Officer for the
fiscal year.
(2) Dr. Harvey resigned as President and Chief Executive Officer in January
1996, at which time D. Keith Grossman was appointed President and Chief
Executive Officer. Mr. Grossman's annual base salary is $150,000, plus a
bonus potential based on achievement of performance objectives of up to 50%
of base salary. See "-- Employment Arrangements."
(3) Mr. Seyffert joined the Company in November 1995. His annual base salary is
$90,000.
OPTION GRANTS
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to Mr. Seyffert during the year ended
December 30, 1995. No stock appreciation rights were granted to any of the Named
Executive Officers in fiscal year 1995:
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZEABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME(1) GRANTED IN 1995 ($/SH) DATE 5% 10%
- ---------------------- ---------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Seyffert.... 25,000 42.9% $ 6.00 08/08/05 $ 94,500 $239,250
</TABLE>
- ---------------
(1) No other Named Executive Officer of the Company received option grants in
1995. In January 1996, Mr. Grossman was granted an option to purchase
333,333 shares of Common Stock at an exercise price of $15.00 per share.
Such option vests in four equal annual installments commencing January 31,
1997.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
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<PAGE> 48
OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding the value of
exercised and unexercised stock options held by each of the Named Executive
Officers as of December 30, 1995.
1995 OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(2) FISCAL YEAR END(3)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Harvey.... -- -- 165,863 48,805 $2,324,991 $ 639,850
Cheryl D. Hess...... 11,865 $ 97,272 137,564 54,643 1,923,047 718,164
Dan E. Nielsen...... -- -- 59,333 64,444 788,831 678,469
Ronald G.
Seyffert.......... -- -- -- 25,000 -- 337,500
</TABLE>
- ---------------
(1) Value realized is based on the fair market value of the Company's Common
Stock on the date of exercise (the closing bid price reported on The Boston
Stock Exchange on such date) minus the exercise price, and does not
necessarily indicate that the optionee sold such stock.
(2) Options vest over periods of four to five years from the date of the grant.
(3) Represents the difference between the option exercise price and the closing
bid price of the Company's Common Stock as reported on The Boston Stock
Exchange at December 30, 1995.
BENEFIT PLANS
1993 STOCK OPTION PLAN
Thoratec currently has available for grant on a discretionary basis to
employees and consultants options to purchase 86,842 shares of Common Stock
under its 1993 Stock Option Plan ("1993 SOP"). The 1993 SOP, which was adopted
by the Board on September 3, 1993 and approved by the shareholders on May 17,
1994, terminates September 3, 2003. The Company can grant either incentive stock
options ("ISOs") or nonqualified stock options ("NQOs") under the 1993 SOP.
Options granted expire ten years after the date of grant, or earlier, in the
event of termination of the optionee's employment or consulting relationship
with the Company. The per share exercise price of ISOs may not be less than 100%
of the fair market value of the Common Stock on the date of grant. The per share
exercise price of NQOs may not be less than 85% of the fair market value of the
Common Stock on the date of grant. Options granted under the 1993 SOP become
exercisable in equal annual installments, generally over a period of four or
five years, and, in some instances, become fully exercisable in the event of a
change of control.
1996 STOCK OPTION PLAN
In the first quarter of 1996, the Board adopted the 1996 Stock Option Plan
("1996 SOP"). The 1996 SOP terminates January 10, 2006 and consists of two
parts. Part one permits the Company to grant options to purchase up to 500,000
shares of Common Stock to employees and consultants on a discretionary basis.
The Company can grant either ISOs, or NQOs under part one of the 1996 SOP.
Options granted under part one of the 1996 SOP are subject to the same terms as
the 1993 SOP described above. During the first quarter of 1996, 38,333 options
were granted at fair market value under part one of the 1996 SOP. Part one of
the 1996 SOP is subject to shareholder approval. Part two relates to the Chief
Executive Officer and permits the Company to grant non-qualified options to the
Chief Executive Officer to purchase up to 333,333 shares of Common Stock. During
the first quarter of 1996, 333,333 options were granted at fair market value
under part two of the 1996 SOP, all of which vest annually over four years. Part
two of the 1996 SOP required approval of the Board only.
44
<PAGE> 49
1996 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
In 1996, the Board adopted the Company's Nonemployee Directors Stock Option
Plan (the "Directors Option Plan"), subject to shareholder approval. A total of
150,000 shares of the Company's Common Stock have been reserved for issuance
under the Directors Option Plan, none of which has as yet been issued. The
Directors Option Plan provides for the automatic granting of NQOs to directors
of the Company who are not employees of the Company or any parent or subsidiary
of the Company and who have not been an employee of the Company or any parent or
subsidiary of the Company in the previous 12 months ("Eligible Outside
Directors"). Each person who is elected and is an Eligible Outside Director at
the annual meeting of shareholders in 1996 and each Eligible Outside Director
newly elected or appointed thereafter will be granted an option to purchase
3,333 shares of Common Stock on the effective date of such initial election or
appointment. Thereafter, each Eligible Outside Director (including the existing
outside directors) generally will be granted an option to purchase 1,667 shares
of Common Stock on the date of the first meeting of the Board following each
annual shareholders meeting. The exercise price of the options in all cases will
be equal to the fair market value of Common Stock on the grant date. Each option
granted pursuant to the Directors Option Plan expires ten years and two days
after the date of grant or earlier in the event of the termination of the
director's service on the Board. Each option granted under the Directors Option
Plan is exercisable in full six months after the date of grant. The Company has
the right to repurchase shares purchased upon exercise of options under the
plan. The repurchase right expires with respect to one-eighth of the number of
shares covered by such option six months after the date such option is granted
and one-sixteenth of the number of shares covered by such option at the end of
each three-month period thereafter. In the event of the acquisition of the
Company by a merger, consolidation, sale of all or substantially all of the
Company's assets or acquisition of the Company's shares, such right of
repurchase shall lapse with respect to twice the number of shares still subject
to the right of repurchase. The Board may waive any directors fees paid in any
given year and have the exercise price of options granted under the Directors
Option Plan reduced by the amount of the fees so waived.
CURRENTLY OUTSTANDING OPTIONS
As of March 30, 1996, the Company had outstanding options to purchase an
aggregate of 1,631,240 shares of Common Stock at a weighted average exercise
price of $5.37 per share. These options were granted under the 1993 SOP, 1996
SOP and five other employee incentive plans which have terminated or expired.
EMPLOYMENT ARRANGEMENTS
In January 1996, the Company entered into a four-year employment agreement
with D. Keith Grossman to serve as the Company's President and Chief Executive
Officer. The employment agreement provides for a base salary of $150,000 per
annum with a bonus potential of up to 50% of base salary based on achievement of
performance objectives. Mr. Grossman's base salary will be reviewed in June 1996
and annually thereafter. Mr. Grossman was also granted an option effective
January 2, 1996 to purchase 333,333 shares of Common Stock at an exercise price
of $15.00 per share. The options vest in four equal annual installments on
January 31, 1997, 1998, 1999 and 2000. These options will vest immediately upon
a change in control of Thoratec. In addition, Mr. Grossman is entitled to
severance equal to $300,000 if his employment is terminated by the Company prior
to January 2, 2000 (or within four years following a change in control) for any
reason other than cause, or twice his then current base salary if he terminates
for good reason following a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, no executive officer of the Company served on the board of
directors or compensation committee of another Company that had an executive
officer serve on the Company's Board or its Compensation and Option Committee.
45
<PAGE> 50
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the California Corporations Code, the Company has included
in its Articles of Incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, the
Company has entered into indemnification agreements with its executive officers
and directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the California Corporations
Code. The indemnification agreements require the Company, among other things, to
indemnify such executive officers and directors against certain liabilities that
may arise by reason of their status or service as directors or executive
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. The Company intends to
obtain directors' and officers' liability insurance effective with this
Offering. At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted. The Company
believes that its articles provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
46
<PAGE> 51
CERTAIN TRANSACTIONS
In September 1995 the Company sold an aggregate of 13,333 shares of Common
Stock to Bradley Resources Company for an aggregate purchase price of $52,000.
George W. Holbrook, Jr., a Director of the Company, is the Managing Partner of
Bradley Resources Company. In September 1994, the Company sold to Bradley
Resources Company a Convertible Promissory Note and a warrant to purchase of
6,379 shares of Common Stock for an aggregate purchase price of $50,000. In
March 1996, Bradley Resources Company converted its Convertible Promissory Note
into 10,225 shares of Common Stock and exercised its warrant to purchase 6,379
shares of Common Stock at an exercise price of $4.50 per share. The shares of
Common Stock acquired in these transactions are entitled to certain registration
rights. See "Description of Capital Stock -- Registration Rights."
In November 1992 the Company entered into a comprehensive agreement with
COBE pursuant to which COBE acquired approximately 26% of the Common Stock of
the Company and obtained the right to place two directors on the Board and a
right of first refusal on future sales of the Company's securities. In addition,
COBE obtained a license to use the Company's biomaterials technology in certain
of COBE's medical products and agreed to act as the Company's distributor in
certain European countries. For the fiscal years ended December 1994 and 1995,
sales to COBE represented approximately 26% and 20%, respectively, of Thoratec's
total revenue. In 1995, Thoratec modified its distributor agreement with COBE
and appointed Arrow as its distributor in most of the former COBE countries. In
March 1996, Thoratec and COBE modified their agreement to eliminate COBE's right
to two Board seats and its right of first refusal.
The Company has granted options to certain members of its Board and to its
executive officers. See "Management -- Option Grants" and "Principal
Shareholders."
47
<PAGE> 52
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 30, 1996, and as adjusted to
reflect the sale of the 2,500,000 shares offered hereby (assuming no exercise of
the Underwriters' over-allotment option), by (i) each director and Named
Executive Officer of the Company, (ii) all directors and executive officers of
the Company as a group and (iii) each person or entity who is known by the
Company to own beneficially more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(2)
---------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME(1) BENEFICIALLY OWNED(2) OFFERING OFFERING
- ---------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
COBE Laboratories, Inc.............................. 3,708,077 23.8% 20.5%
1185 Oak Street
Lakewood, CO 80215
Intermedics, Inc.................................... 2,074,074 13.3 11.5
4000 Technology Drive
Angleton, TX 77515
Paul F. Glenn(3).................................... 1,462,339 9.4 8.1
627 Lilac Drive
Montecito, CA 93108
J. Donald Hill, M.D.(4)............................. 1,373,620 8.8 7.6
Thoratec Laboratories Corporation
2023 Eighth Street
Berkeley, CA 94710
George W. Holbrook, Jr.(5).......................... 1,281,221 8.2 7.1
Bradley Resources Company
107 John Street
Southport, CT 06490
Bradley Resources Company(5)........................ 1,281,221 8.2 7.1
P. O. Box 1938
Palm City, FL 34990-6938
Christy W. Bell(6).................................. 957,042 6.1 5.3
Robert J. Harvey, Ph.D.(7).......................... 216,481 1.4 1.2
Cheryl D. Hess(8)................................... 132,882 * *
Howard E. Chase(9).................................. 64,222 * *
Dan E. Nielsen(10).................................. 65,748 * *
Ronald G. Seyffert(11).............................. -- * *
D. Keith Grossman(12)............................... -- * *
Wendell J. Gardner.................................. -- * *
All directors and executive officers as a group
(10 persons)(13).................................. 4,091,216 25.5 22.0
</TABLE>
- ---------------
* Less than one percent.
(1) Except as set forth herein, the address of the persons set forth above is
c/o the address of the Company appearing elsewhere in this Prospectus.
(2) Applicable percentage ownership for each shareholder is based on 15,575,352
shares of Common Stock outstanding as of March 30, 1996, together with
applicable options for such shareholder. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to the shares. Beneficial
ownership also includes shares of stock subject to options and warrants
exercisable or convertible within
48
<PAGE> 53
60 days of March 30, 1996. Shares of Common Stock subject to outstanding
options are deemed outstanding for purposes of computing the percentage of
ownership of the person holding such options, but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person. Except pursuant to applicable community property laws or as
indicated in the footnotes to this table, to the Company's knowledge, each
shareholder identified in the table possesses sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by such shareholder.
(3) Includes 547,190 shares of Common Stock held by the Paul F. Glenn
Foundation for Medical Research, Inc. of which Mr. Glenn is a director and
officer. Mr. Glenn disclaims beneficial ownership of these shares.
(4) Includes 62,222 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(5) George W. Holbrook, Jr., a Director of the Company, is the Managing Partner
of Bradley Resources Company and is deemed to share beneficial ownership of
the shares owned by Bradley Resources Company with Mr. James McGoogan, a
general partner of Bradley Resources Company.
(6) Includes 50,222 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(7) Includes 150,668 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(8) Includes 113,734 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(9) Includes 63,222 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(10) Includes 50,998 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of March 30, 1996.
(11) Mr. Seyffert joined the Company in November 1995 and was granted an option
to purchase 25,000 shares of Common Stock, none of which are exercisable
within 60 days of March 30, 1996.
(12) Mr. Grossman joined the Company in January 1996 and was granted an option
to purchase 333,333 shares of Common Stock, none of which are exercisable
within 60 days of March 30, 1996.
(13) Includes 491,066 shares of Common Stock issuable upon exercise of
outstanding options that are exercisable within 60 days of March 30, 1996.
See notes (4) and (6) through (12) above.
49
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 2,500,000 shares of Preferred Stock, no par
value. Upon completion of this Offering, 18,075,352 shares of Common Stock and
no shares of Preferred Stock will be outstanding. As of March 30, 1996, there
were 15,575,352 shares of Common Stock outstanding and held of record by
approximately 920 shareholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders of the Company. Subject to the preferences
that may be applicable to any outstanding shares of Preferred Stock, the holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared by the Board out of funds legally available therefor. In the event
of liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to the prior liquidation rights of any outstanding shares
of Preferred Stock. The holders of Common Stock have no preemptive, redemption,
conversion or other subscription rights. The outstanding shares of Common Stock
are, and the shares offered by the Company in the Offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
PREFERRED STOCK
The Board is authorized, without shareholder approval, to issue up to
2,500,000 shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to, or imposed upon, any
unissued shares of Preferred Stock and to fix the number of shares constituting
any series and the designations of such series. The issuance of Preferred Stock
may have the effect of delaying or preventing a change in control of the
Company. The issuance of Preferred Stock could decrease the amount of earnings
and assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. In certain circumstances, such issuance could have the
effect of decreasing the market price of the Common Stock. As of the closing of
the Offering, no shares of Preferred Stock will be outstanding and the Company
currently has no plans to issue any shares of Preferred Stock.
WARRANTS
As of March 30, 1996, Wells Fargo Bank, N.A. ("Wells Fargo") held a warrant
to purchase 666,667 shares of Common Stock at an exercise price of $0.003 per
share, expiring June 30, 1996. For a description of the Representatives'
Warrants to be issued in connection with this Offering, see "Underwriting." The
holders of the shares issuable upon exercise of the Representatives' Warrants
are entitled to certain demand and piggy-back registration rights. See
"-- Registration Rights."
REGISTRATION RIGHTS
The holders of approximately 1,197,000 shares of Common Stock issued in
private transactions in 1994 and 1995 (the "Holders") are entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933, as amended (the "Securities Act"). Under the terms of agreements
between the Company and such Holders, the Holders have the right to require the
Company, on not more than two occasions, to file a registration statement under
the Securities Act in order to register all or any part of their shares of
Common Stock. The Company may in certain circumstances defer such registrations
and the underwriters have the right, subject to certain limitations, to limit
the number of shares included in such registrations. Further, the Holders may
require the Company to register all or a portion of their shares with
registration rights on Form S-3, if such
50
<PAGE> 55
form is available to the Company, subject to certain conditions and limitations.
In the event that the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of other
security holders, the Holders are also entitled to include their shares of
Common Stock in such registration, subject to certain marketing and other
limitations. Generally, the Company is required to bear the expenses of all such
registrations.
The Company has also granted certain demand and piggyback registration
rights to the holders of the Representatives' Warrants. See "Underwriting."
PROVISIONS OF ARTICLES OF INCORPORATION AFFECTING SHAREHOLDERS
The existence of the authorized but unissued Preferred Stock could have the
effect of making it more difficult for a third party to effect a change in the
control of the Board and therefore may discourage another person or entity from
making a tender offer for the Company's Common Stock, including offers at a
premium over the market price of the Common Stock, and might result in a delay
in changes in control of management. In addition, these provisions could have
the effect of making it more difficult for proposals favored by the shareholders
to be presented for shareholder consideration.
The Company has also included in its Articles of Incorporation provisions
to eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
California Corporations Code and to indemnify its directors and officers to the
fullest extent permitted by Section 317 of the California Corporations Code. See
"Management -- Limitation of Liability and Indemnification Matters."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Securities Transfer, Inc.
51
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
18,075,352 shares of Common Stock. Of these shares, 16,878,067 shares, including
the 2,500,000 shares sold in the Offering (plus any shares issued upon exercise
of the Underwriters' over-allotment option) will be freely tradeable without
restriction under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act or subject
to a lock-up agreement as described below.
The remaining 1,197,285 shares of Common Stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act ("Restricted
Shares"). Restricted Shares may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144 and 144(k)
promulgated under the Securities Act, which are summarized below. Sales of the
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Common Stock.
The executive officers, directors and certain other shareholders of the
Company have signed contractual "lock-up" agreements with respect to an
aggregate of 12,866,605 shares of Common Stock generally providing that they
will not directly or indirectly, sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option to purchase or right to acquire any option to
dispose of or otherwise transfer or dispose of any shares of Common Stock or any
securities exercisable for or convertible into the Company's Common Stock owned
by them for a period of 180 days after the effective date of this Prospectus
without the prior written consent of the Representative. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 144(k), shares subject to lock-up
agreements will not be saleable until such agreements expire or are waived by
the Representative. Taking into account the lock-up agreements, and assuming
that the Representative does not release shareholders from these agreements,
beginning 180 days after the effective date of the Offering, approximately
7,639,984 shares will be eligible for sale pursuant to Rule 144 subject to the
limitations described below.
In general, under Rule 144, as currently in effect, commencing with the
effective date of the Offering, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of the
Company's Common Stock then outstanding (which will equal approximately 180,859
shares immediately after the Offering) or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years, is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
As of March 30, 1996, the Company had outstanding options to purchase
1,631,240 shares of Common Stock at a weighted average exercise price of $5.37
per share and warrants to purchase 666,667 shares of Common Stock at an exercise
price of $0.003 per share. The holders of options to purchase 1,110,846 shares
of Common Stock and of all outstanding warrants have agreed not to sell shares
issuable upon exercise of such options and warrants until 180 days after the
effective date of this Offering. After such time, 721,521 shares of Common Stock
issuable upon exercise of vested options and the 666,667 shares issuable upon
exercise of outstanding warrants may be freely tradeable.
Certain holders of the Restricted Shares have the right to cause the
Company to register the sale of their shares under the Securities Act. If such
registration rights are exercised, the shares can be sold without any holding
period or sales volume limitations. See "Description of Capital
Stock -- Registration Rights."
52
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities
International, Inc. and Cruttenden Roth Incorporated are acting as
representatives (the "Representatives"), have severally agreed to purchase, and
the Company has agreed to sell to the Underwriters, the following respective
number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Vector Securities International, Inc. ...................................
Cruttenden Roth Incorporated.............................................
---------
Total.......................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public Offering price set forth on the cover page of this
Prospectus, less underwriting discounts and commissions, and to certain dealers
at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the public offering of the
shares of Common Stock, the Offering price and other selling terms may be
changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 45-day period after the date of this Prospectus, to purchase up
to an additional 375,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering overallotments, if any, in connection with the Offering. To the extent
such option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
The executive officers, directors and certain other shareholders of the
Company have agreed that they will not, without the prior written consent of
Vector Securities International, Inc., offer, sell or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them for a period of 180 days after the date of this Prospectus. The Company has
agreed that it will not, without the prior written consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of any shares of Common
Stock, or issue options or warrants to acquire shares of Common Stock or
securities
53
<PAGE> 58
exchangeable for or convertible into shares of Common Stock for a period of 180
days after the date of this Prospectus, except that the Company may grant
additional options under its stock option plans, or issue shares upon the
exercise of outstanding stock options or warrants.
In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on The Boston Stock
Exchange may engage in passive market-making transactions in the Common Stock on
The Boston Stock Exchange in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 during the two business day period before commencement of
sales in this Offering. The passive market making transactions must comply with
applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Net purchases by a passive market maker on each
day are generally limited to a specified percentage of the passive market making
average daily trading volume in the Common Stock during a price period and must
be discontinued when such limit is reached. Passive market making may stabilize
the market price of the Common Stock at a level above that which might otherwise
prevail, and, if commenced, may be discontinued at any time.
The Company has agreed to issue the Representatives' Warrants to the
Representatives. The Representatives' Warrants will be exercisable for a period
of five years commencing one year from the consummation of the Offering at a per
share exercise price equal to 120% of the Offering price. The holders of the
Representatives' Warrants will have no voting, dividend or other shareholder
rights until the warrants are exercised. The Representatives' Warrants cannot be
transferred, assigned or hypothecated except that they may be assigned in whole
or in part to any officers or partners of the Representatives. The Company has
agreed to file once at its own expense a Registration Statement under the
Securities Act to permit the public sale of the Common Stock issuable upon the
exercise of the Representatives' Warrants at the request of the Representatives
or its assignees. The Company has also agreed to provide piggy-back registration
rights to the holders of the Representatives' Warrants.
The Company has also agreed to pay the Representatives a non-accountable
expense allowance of 1.5% of the total proceeds of the Offering (including
shares issuable upon exercise of the over-allotment option). In addition, for a
period of two years following completion of the Offering, the Company has
granted the Representatives a right of first refusal to participate in future
public or private financings of debt or equity securities.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Heller Ehrman White & McAuliffe, Palo Alto, California. Certain legal
matters relating to the Offering will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison LLP, Newport Beach, California.
EXPERTS
The consolidated financial statements as of December 30, 1995 and December
31, 1994 and for each of the three years in the period ended December 30, 1995,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes an explanatory paragraph referring
to the substantial doubt of the Company's ability to continue as a going
concern). Such consolidated financial statements have been included herein in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The statements in this Prospectus under the captions "Risk
Factors -- Patents and Protection of Proprietary Technology" and
"Business -- Patents and Proprietary Rights" have been reviewed by Fish &
Richardson P.C., outside intellectual property counsel for the Company, as
experts on such matters, and are included herein in reliance upon that review
and approval.
54
<PAGE> 59
ADDITIONAL INFORMATION
Thoratec is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Company has filed a registration statement on Form S-3 (herein, together with
all amendments and exhibits referred to as the "Registration Statement") with
the Commission under the Securities Act. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information,
exhibits and schedules 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 with respect to the Company and the Common
Stock, reference is hereby made to the Registration Statement, exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete and,
in each instance, if such contract or document is filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by such
reference to such exhibit. Copies of such materials may be inspected, without
charge, at the offices of the Commission, or obtained at prescribed rates from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
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 at Seven World Trade Center (13th Floor), New York,
New York 10048. The Company's Common Stock is quoted on The Boston Stock
Exchange. Reports, proxy statements and other information concerning the Company
may also be inspected at the National Association of Securities Dealers, Inc. at
1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
30, 1995, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1996 and the Company's Registration Statement on Form 8-A filed with
the Commission on May 18, 1981 are hereby incorporated by reference in this
Prospectus except as superseded or modified herein or therein.
All documents filed with the Commission by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the Offering shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in any document 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 such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus. The
Company will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon written or oral request of
such person, a copy of any and all of the documents that have been or may be
incorporated by reference herein (other than exhibits to such documents which
are not specifically incorporated by reference into such documents). Such
requests should be directed to the Chief Financial Officer at the Company's
principal executive office at 2023 Eighth Street, Berkeley, California 94710,
telephone number (510) 841-1213.
55
<PAGE> 60
THORATEC LABORATORIES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of the Fiscal Years Ended 1994 and 1995 and March 30,
1996 (unaudited).................................................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended 1993, 1994 and 1995
and for the Three Months Ended April 1, 1995 and March 30, 1996 (unaudited)......... F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended 1993, 1994
and 1995 and for the Three Months Ended March 30, 1996 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended 1993, 1994 and 1995
and for the Three Months Ended April 1, 1995 and March 30, 1996 (unaudited)......... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Thoratec Laboratories Corporation:
We have audited the accompanying consolidated balance sheets of Thoratec
Laboratories Corporation as of December 30, 1995 and December 31, 1994 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the fiscal years ended December 30, 1995, December 31, 1994 and
January 1, 1994. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Thoratec Laboratories
Corporation at December 30, 1995 and December 31, 1994, and the results of its
operations and its cash flows for the fiscal years ended December 30, 1995,
December 31, 1994 and January 1, 1994 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to such consolidated financial statements, there are matters that raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Oakland, California
March 1, 1996 (June 3, 1996 as to Note 3)
------------------------------------
The accompanying consolidated financial statements give effect to the
completion of the one-for-three reverse split of Common Stock which will take
place on or about June 3, 1996. The above opinion is in the form which will be
signed by Deloitte & Touche LLP upon completion of the stock split of the
Company's outstanding Common Stock described in Note 3 to the consolidated
financial statements and assuming that from March 1, 1996 to the date of such
completion no other material events have occurred that would affect the
accompanying consolidated financial statements or required disclosure therein.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Oakland, California
May 28, 1996
F-2
<PAGE> 62
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FISCAL YEAR END
----------------------------- MARCH 30,
1994 1995 1996
------------ ------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 1,026,229 $ 1,645,523 $ 1,959,364
Receivables (Note 11)........................... 308,183 581,298 552,672
Inventories (Note 4)............................ 1,502,999 1,374,164 1,347,126
Prepaid expenses and other (Note 6)............. 60,466 249,048 174,413
------------ ------------ ------------
Total current assets.................... 2,897,877 3,850,033 4,033,575
Equipment and improvements -- at cost:
Equipment....................................... 1,263,141 1,333,521 1,373,985
Leasehold improvements.......................... 770,616 785,564 789,469
------------ ------------ ------------
Total................................... 2,033,757 2,119,085 2,163,454
Accumulated depreciation and amortization......... (1,626,169) (1,725,726) (1,752,709)
------------ ------------ ------------
Equipment and improvements -- net................. 407,588 393,359 410,745
Other assets (Note 6)............................. 299,543 136,645 163,448
------------ ------------ ------------
Total assets............................ $ 3,605,008 $ 4,380,037 $ 4,607,768
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 594,705 $ 598,100 $ 484,070
Accrued compensation............................ 111,762 101,006 197,808
Product sales advances.......................... 38,608 217,708 190,408
Accrued warranty expense........................ 42,078 63,595 85,480
Other........................................... 85,651 61,957 109,109
------------ ------------ ------------
Total current liabilities............... 872,804 1,042,366 1,066,875
Long-term debt (Note 7)........................... 1,675,000 1,675,000
Commitments (Note 6)
Shareholders' equity:
Common shares issued and outstanding -- 14,243,610
in 1994, 14,933,136 in 1995, and 15,575,352 in
1996............................................ 40,245,803 42,746,421 45,855,762
Preferred shares -- none issued and outstanding
Additional paid-in capital........................ 2,333,689 2,333,689 2,348,689
Accumulated deficit............................... (41,522,288) (43,416,454) (44,660,831)
Cumulative translation adjustment................. (985) (2,727)
------------ ------------ ------------
Total shareholders' equity.............. 1,057,204 1,662,671 3,540,893
------------ ------------ ------------
Total liabilities and shareholders'
equity................................ $ 3,605,008 $ 4,380,037 $ 4,607,768
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 63
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEARS ENDED THREE MONTHS ENDED
-------------------------------------- ------------------------
1993 1994 1995 APRIL 1, MARCH 30,
---------- ----------- ----------- 1995 1996
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales -- net............ $3,790,614 $ 2,763,632 $ 3,488,599 $ 939,101 $ 1,301,649
Other (Note 10)................. 142,465 24,357 59,326 9,770 38,621
----------- ----------- ----------- ----------- -----------
Total revenue................ 3,933,079 2,787,989 3,547,925 948,871 1,340,270
----------- ----------- ----------- ----------- -----------
Cost and expenses:
Cost of products sold........... 2,033,126 1,575,524 1,972,467 442,464 821,899
Research and development........ 1,478,448 1,360,253 1,984,101 335,614 605,587
Selling, general and
administrative............... 1,146,061 1,455,714 1,297,815 313,936 733,055
Debt conversion expense (Note
7)........................... 378,295
Interest expense (Note 7)....... 531 43,396 184,886 45,884 45,811
Foreign currency expense........ 2,822
----------- ----------- ----------- ----------- -----------
Total costs and expenses..... 4,658,166 4,434,887 5,442,091 1,137,898 2,584,647
----------- ----------- ----------- ----------- -----------
Net loss................... $ (725,087) $(1,646,898) $(1,894,166) $ (189,027) $(1,244,377)
=========== =========== =========== =========== ===========
Primary and fully diluted loss per
common and common equivalent
share........................... $ (0.05) $ (0.12) $ (0.13) $ (0.01) $ (0.08)
=========== =========== =========== =========== ===========
Primary and fully diluted weighted
average number of common and
common equivalent shares
outstanding..................... 14,122,221 14,192,621 14,428,539 14,246,747 15,126,389
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 64
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
----------- ---------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Balance, Fiscal Year End 1992.............. $40,125,605 $2,333,689 $(39,150,303) $ 3,308,991
Exercise of 21,669 common stock options
for cash and exchange for 2,333 shares
of common stock which were canceled... 2,931 2,931
Issuance of 16,667 shares of common stock
for purchase of patent................ 50,000 50,000
Net loss................................. (725,087) (725,087)
----------- ---------- ------------ ------- -----------
Balance, Fiscal Year End 1993.............. 40,178,536 2,333,689 (39,875,390) 2,636,835
Exercise of COBE common stock option for
cash.................................. 13,120 13,120
Exercise of 91,846 common stock options
for cash and exchange for 2,065 shares
of common stock which were canceled... 54,147 54,147
Net loss................................. (1,646,898) (1,646,898)
----------- ---------- ------------ ------- -----------
Balance, Fiscal Year End 1994.............. 40,245,803 2,333,689 (41,522,288) 1,057,204
Exercise of 49,329 common stock options
for cash and exchange for 832 shares
of common stock which were canceled... 59,053 59,053
Issuance of 641,029 shares of common
stock for cash........................ 2,441,565 2,441,565
Foreign currency translation adjustments
on wholly owned subsidiary............ $ (985) (985)
Net loss................................. (1,894,166) (1,894,166)
----------- ---------- ------------ ------- -----------
Balance, Fiscal Year End 1995.............. 42,746,421 2,333,689 (43,416,454) (985) 1,662,671
Issuance of 342,537 shares of common
stock for conversion of notes payable
(unaudited)........................... 1,675,000 1,675,000
Exercise of warrants for 213,720 shares
of common stock (unaudited)........... 1,340,034 1,340,034
Exercise of 87,606 common stock options
for cash and exchange for 1,647 shares
of common stock which were canceled
(unaudited)........................... 94,307 94,307
Issuance of common stock options for
nonemployee services (unaudited)...... 15,000 15,000
Foreign currency translation adjustments
on wholly owned subsidiary
(unaudited)........................... (1,742) (1,742)
Net loss (unaudited)..................... (1,244,377) (1,244,377)
----------- ---------- ------------ ------- -----------
Balance, March 30, 1996 (unaudited)........ $45,855,762 $2,348,689 $(44,660,831) $(2,727) $ 3,540,893
=========== ========== ============ ======= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 65
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------------------- ------------------------
1993 1994 1995 APRIL 1, MARCH 30,
----------- ----------- ----------- 1995 1996
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (725,087) $(1,646,898) $(1,894,166) $ (189,027) $(1,244,377)
Adjustments to reconcile net loss to net
cash used in operating activities:
Debt conversion expense (Note 7)........ 378,295
Common stock options granted for
services (Note 9)..................... 15,000
Depreciation and amortization........... 85,441 108,247 112,755 25,945 30,109
Loss on disposal of equipment........... 3,495 440 6,645 161
Changes in assets and liabilities:
Receivables, prepaid expenses, and
other.............................. (354,030) 337,676 (461,697) (163,857) 103,261
Inventories........................... (333,344) (356,469) 128,835 39,700 27,038
Other assets.......................... 240 (239,425) 149,413 (98,000) (29,929)
Accounts payable and other
liabilities........................ 83,052 (89,291) 169,562 340,452 22,767
----------- ----------- ----------- ---------- ----------
Net cash used in operating
activities....................... (1,240,233) (1,885,720) (1,788,653) (44,626) (697,836)
----------- ----------- ----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment......... 1,500 500 500
Capital expenditures.................... (224,544) (45,365) (93,171) (32,346) (44,369)
----------- ----------- ----------- ---------- ----------
Net cash used in investing
activities....................... (223,044) (45,365) (92,671) (31,846) (44,369)
----------- ----------- ----------- ---------- ----------
Cash flows from financing activities:
Common stock issued in private
placement -- net...................... 2,441,565
Proceeds from issuance of long-term
debt.................................. 1,675,000
Common stock issued upon exercise of
options............................... 2,931 67,267 59,053 7,804 94,307
Common stock issued upon exercise of
warrants.............................. 961,739
----------- ----------- ----------- ---------- ----------
Net cash provided by financing
activities....................... 2,931 1,742,267 2,500,618 7,804 1,056,046
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................... (1,460,346) (188,818) 619,294 (68,668) 313,841
Cash and cash equivalents at beginning of
year...................................... 2,675,393 1,215,047 1,026,229 1,026,229 1,645,523
----------- ----------- ----------- ---------- ----------
Cash and cash equivalents at end of year.... $ 1,215,047 $ 1,026,229 $ 1,645,523 $ 957,561 $ 1,959,364
=========== =========== =========== ========== ==========
Noncash financing transactions:
Conversion of notes into common stock
(Note 7)................................ $ 1,675,000
==========
Other cash flow information:
Interest paid...................... $ 531 $ 43,396 $ 184,886 $ 45,884 $ 45,811
=========== =========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 66
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GOING CONCERN ACCOUNTING BASIS
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company incurred a net loss of $1,894,000 and used cash in operating activities
of $1,789,000 for the year ended December 30, 1995 and as of December 30, 1995
had an accumulated deficit of $43,416,000. The Company incurred a net loss of
$1,244,000 and used cash in operating activities of $698,000 for the three
months ended March 30, 1996 and as of March 30, 1996 had an accumulated deficit
of $44,661,000. The Company expects that it will continue to incur substantial
expenses relating to its research and development efforts and sales and
marketing and that, as a result, it will incur losses for at least the next
year. The Company's working capital plus limited revenue from product sales will
not be sufficient to meet the Company's cash needs through 1996 as presently
structured. Management recognizes that the Company must generate additional
resources or consider modifications to its research and development efforts or
other reductions in operating costs to enable it to continue operations with
available resources. These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
Management's plans include several alternatives for securing additional
funds, including public and private placement of equity which would generate
sufficient resources to assure continuation of the Company's operations and
research efforts. However, no assurances can be given that the Company will be
successful in raising additional capital. Further, there can be no assurance,
assuming the Company successfully raises additional funds, that the Company will
achieve profitability or positive cash flow. If the Company is unable to obtain
adequate additional financing, management will be required to sharply curtail
the Company's research and development efforts and to curtail certain other of
its operations.
2. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Operations -- Thoratec Laboratories Corporation and its subsidiary (the
"Company") manufactures and markets medical devices utilizing specialty polymers
and is engaged in ongoing research and development. Thoratec's products are
marketed worldwide.
The Company reports on a 52-53 week fiscal year, which ends on the Saturday
closest to December 31. The fiscal years ended January 1, 1994 (fiscal 1993),
December 31, 1994 (fiscal 1994), December 30, 1995 (fiscal 1995) include 52
weeks.
Principles of Consolidation -- The consolidated financial statements
include Thoratec Laboratories Corporation (a California corporation) and its
subsidiary company. All significant intercompany balances and transactions are
eliminated in consolidation.
Inventories are stated at the lower of first-in, first-out cost or market.
Depreciation and Amortization -- Equipment is depreciated over estimated
useful lives which range from two to eight years. Leasehold improvements are
amortized over the remaining period of the lease or over the estimated useful
life of the improvement, whichever is shorter. The straight-line method is used
for depreciation and amortization.
Foreign Currency Translation -- All assets and liabilities of the Company's
non-United States operations are translated into United States dollars at fiscal
year-end exchange rates, and the resulting
F-7
<PAGE> 67
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
translation adjustments are recorded as cumulative translation adjustments in
shareholders' equity. Income items are translated at actual or average monthly
rates of exchange. The Company's sales are substantially all denominated in U.S.
dollars.
Income Taxes -- The Company follows an asset and liability approach for
financial accounting and reporting of income taxes. Under this approach, the
Company computes its tax liability at each consolidated financial statement date
by applying provisions of current tax laws to temporary differences between
consolidated financial statement and income tax bases. Changes in tax law may
result in an adjustment to deferred tax assets.
Loss Per Share -- Loss per common and common equivalent share are computed
by dividing net loss by the weighted average number of common and common
equivalent shares outstanding during the year. Both primary and fully diluted
loss per common share for 1993, 1994, 1995 and 1996 assume no conversions
because any such conversion would be antidilutive.
Statement of Cash Flows -- Cash equivalents consist of money market funds
carried at cost which is equal to market value. Significant non-cash investing
and financing activities are discussed in Notes 6 and 9.
Revenue Recognition -- The Company recognizes product revenues upon
shipment of the related product. The Company provides a reserve for its estimate
of warranty costs at the time of shipment. The Company's sales are substantially
all denominated in U.S. dollars
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the consolidated balance sheet dates and the reported
amounts of revenues and expenses for the periods presented.
Recently Issued Accounting Standard -- The Company is required to adopt
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation in fiscal 1996. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for stock
based employee compensation plans. Under SFAS No. 123 the Company may either
adopt the new fair value based accounting method or continue the intrinsic value
based method and provide pro forma disclosures of net income and earnings per
share as if the accounting provisions of SFAS No. 123 had been adopted. The
Company plans to adopt only the disclosure requirements of SFAS No. 123;
therefore such adoption will have no effect on the Company's consolidated net
loss or cash flows.
The Company is also required to adopt SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, in
fiscal 1996. SFAS No. 121 establishes the accounting and reporting requirements
for recognizing and measuring impairment of long-lived assets to be either held
and used or held for disposal. The Company does not expect SFAS No. 121 to have
a material effect on its consolidated financial statements.
Unaudited Interim Information -- The financial information with respect to
the quarters ended April 1, 1995 and March 30, 1996 is unaudited. In the opinion
of management, such information contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of such periods. The results of operations for the quarter ended March 30, 1996
are not necessarily indicative of the results to be expected for the full year.
All information presented in the consolidated financial statements for the
quarters ended April 1, 1995 and March 30, 1996 is unaudited.
F-8
<PAGE> 68
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. REVERSE STOCK SPLIT
On April 26, 1996, the Board of Directors authorized a one-for-three
reverse split of the Company's common stock which was approved by the
shareholders on June 3, 1996. All references in the consolidated financial
statements to number of shares, per share amounts and prices of the Company's
common stock have been retroactively restated to reflect the decreased number of
common shares outstanding.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
FISCAL YEAR END
----------------------- MARCH 30,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods............................. $ 544,746 $ 397,462 $ 459,891
Work-in-process............................ 355,099 540,673 651,611
Raw materials.............................. 603,154 436,029 235,624
---------- ---------- ----------
Total $1,502,999 $1,374,164 $1,347,126
========== ========== ==========
</TABLE>
5. LEASES
The Company leases offices, laboratory and manufacturing space under
noncancelable operating leases. Future minimum lease payments as of the end of
1995 are as follows:
<TABLE>
<S> <C>
Fiscal year:
1996.......................................................... $188,192
1997.......................................................... 178,942
1998.......................................................... 160,275
1999.......................................................... 106,851
--------
Total................................................. $634,260
========
</TABLE>
Rent expense for all operating leases was $157,377 in 1993, $165,019 in
1994, $180,324 in 1995.
6. OTHER ASSETS
At the end of 1994 and 1995, the Company had a long-term purchase
commitment for mechanical valves for its VAD of $1,700,000 and $2,041,000,
respectively. The Company anticipates this supply will be sufficient to satisfy
its needs for at least the next two years. The commitment in 1994 was
accompanied by a $252,000 deposit for 1996 deliveries, included in other assets
at year end 1994. The remaining $192,000 deposit for 1996 deliveries has been
reclassified to other current assets in 1995. During 1995 an additional $98,000
deposit was made for 1997 deliveries and is included in other assets at year end
1995. In 1995 the supplier of these valves stopped production. The Company must
qualify a replacement valve or qualify a new vendor for the current valves. The
Company has identified a new vendor, Arrow International, and will begin
negotiations in 1996 for additional supply.
In October 1993, the Company acquired a patent in exchange for 16,667
shares of common stock valued at fair market value of $50,000 on the transaction
date. The patent is amortized over its remaining estimated useful life of four
years. The patent, net of accumulated amortization of $15,625 in 1994, $28,125
in 1995 and $31,250 as of March 30, 1996 is included in other assets.
F-9
<PAGE> 69
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
In the last quarter of 1994, the Company placed $1.675 million of
convertible secured debt with private lenders. The notes were convertible into
common stock at rates ranging from $4.92 to $6.38 per share, bore interest at
11% and were due in three years. The debt was secured by the royalties payable
pursuant to the Licensing Agreement with COBE Laboratories, Inc. ("COBE") (see
Note 11), all accounts receivable, equipment and inventory. Five-year warrants
to purchase 210,201 shares of Thoratec common stock at $6.38 per share were also
issued with the convertible notes.
In the first quarter of 1996, all $1.675 million of these notes were
converted into 342,539 shares of common stock, according to the terms of the
original transaction. In connection with this conversion, the Company reduced
the exercise price of the related five-year warrants to $4.50 per share for a
thirty day period. All warrants issued in connection with the above noted
convertible secured debt (representing 213,720 shares as adjusted for
antidilutive provisions) were exercised for a total of approximately $960,000.
As all warrants were exchanged and the exercise price reduced, $378,000 of
noncash debt conversion expense was recorded.
8. COMMON AND PREFERRED STOCK
The Company has authorized 100,000,000 no par common shares, and 2,500,000
shares of preferred stock, of which 540,541 shares have been designated Series A
and 500,000 shares designated Series B.
The Series A preferred stock is entitled to cumulative annual dividends of
$1.30 per share and has a liquidation preference of $9.25 plus cumulative unpaid
dividends. The Company may redeem the Series A preferred stock at any time for
its liquidation preference. Each share of preferred stock is convertible into
one-third shares of common stock, after adjusting for earned but unpaid
dividends. At the 1995 year end, no shares of Series A preferred stock were
outstanding.
Series B preferred stock is senior to Series A in all preferences. Series B
is entitled to cumulative annual dividends of $.96 per share and has a
liquidation preference of $8.00 plus cumulative unpaid dividends. The Series B
preferred stock is redeemable by the Company five years after issuance for $8.00
per share plus cumulative unpaid dividends. Each share of Series B preferred
stock is convertible at any time into three and one-third shares of common stock
and has certain anti-dilution provisions. Series B preferred votes on an
as-converted basis. At the 1995 year end and at March 30, 1996, no shares of the
Series B preferred stock were outstanding.
In September 1995, the Company placed $2.5 million ($2.44 million after
expenses) of common stock (representing 641,029 shares) with private investors.
9. OPTIONS AND WARRANTS
In September 1993, the Directors approved the 1993 Stock Option Plan ("1993
SOP"), which permits the Company to grant options to purchase up to 666,667
shares of common stock. During 1993, 1994, and 1995, 430,167, 45,000 and 66,667
shares, respectively, were granted under this plan.
Including the 1993 SOP, the Company had seven common stock option plans.
All options associated with one plan expired in 1995. Options may be granted by
the Board of Directors at fair market value at the date of grant. Options under
plans other than the Performance Plan become exercisable within four or five
years of grant and expire between five and ten years from date of grant. Options
under the Performance Plan are exercisable in increments only as the Company
achieves certain financial goals and expire ten years from the date of grant. At
the end of 1995, 133,200 common shares remain available for grant. As of March
30, 1996 698,508 common shares remain available for grant.
In the first quarter of 1996, the Directors adopted the 1996 Stock Option
Plan ("1996 SOP") and the 1996 Nonemployee Directors Stock Option Plan
("Directors Option Plan"). The 1996 SOP consists of
F-10
<PAGE> 70
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
two parts. Part One permits the Company to grant options to purchase up to
500,000 shares of common stock. During the first quarter of 1996, 38,333 options
were granted at fair market value under this Part of the Plan. Part One of the
1996 SOP is subject to Shareholder approval. Part Two relates to the Chief
Executive Officer (CEO) and permits the Company to grant non-qualified options
to the CEO to purchase up to 333,333 shares of common stock. During the first
quarter of 1996, 333,333 options were granted at fair market value under this
Part of the Plan. Part Two of the 1996 SOP required Director approval only. The
Directors Option Plan permits the Company to grant options to purchase up to
150,000 shares of common stock. The Company currently has five non-employee
directors who are eligible to participate in the Directors Option Plan and no
options have been granted as of March 30, 1996. The Directors Option Plan is
subject to Shareholder approval.
Option activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS OPTION PRICE PER SHARE
----------------- ----------------------
<S> <C> <C>
Outstanding at fiscal year end 1992
(644,041 exercisable)....................... 949,614 $ .18-2.625
Granted..................................... 438,500 2.25
Canceled.................................... (5,500) .75-1.689
Exercised(1)................................ (21,669) .18-1.41
--------- -----------
Outstanding at fiscal year end 1993
(672,306 exercisable)....................... 1,360,945 $ .18-2.625
Granted..................................... 45,000 7.125
Canceled.................................... (16,533) .18-2.25
Exercised(2)................................ (91,846) .18-2.25
--------- -----------
Outstanding at fiscal year end 1994
(721,891 exercisable)....................... 1,297,566 $ .18-7.125
Granted..................................... 66,667 6.00-6.75
Canceled.................................... (14,079) .18-2.25
Exercised(3)................................ (49,329) .18-2.25
--------- -----------
Outstanding at fiscal year end 1995
(807,468 exercisable)....................... 1,300,823 $ .18-7.125
Granted (unaudited)........................... 418,025 15.00-17.625
Exercised (4) (unaudited)..................... (87,608) .18-2.25
--------- -----------
Outstanding at quarter end March 30, 1996
(721,528 exercisable) (unaudited)........... 1,631,240 $ .18-17.625
========= ===========
</TABLE>
- ---------------
(1) Includes 5,396 options exercised for $2,931 cash and 16,273 options
exercised by exchange for 2,333 shares of common stock, which were canceled.
(2) Includes 79,032 options exercised for $54,147 cash and 12,814 options
exercised by exchange for 2,065 shares of common stock which were canceled.
(3) Includes 44,290 options exercised for $59,053 cash and 5,038 options
exercised by exchange for 832 shares of common stock, which were canceled.
(4) Includes 67,167 options exercised for $94,307 cash and 20,439 options
exercised by exchange for 1,647 shares of common stock, which were canceled.
F-11
<PAGE> 71
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the terms of the participation agreement with COBE discussed in Note
11, in 1994 COBE exercised its option to acquire 4,373 shares of common stock at
$3 per share, associated with the patent acquisition discussed in Note 6. In
February 1996 COBE waived its right to acquire any shares of common stock
resulting from any employee stock option plans, grants or exercises. Therefore,
all COBE options related to these were canceled during the first quarter of
1996.
At December 30, 1995 and March 30, 1996 there were warrants outstanding to
purchase 666,667 common shares at $.003 per share.
10. OTHER REVENUE
COBE and the Company entered into a license as part of the agreement in
1992 discussed in Note 11. The Company recognized $93,000 of other income in
1993 from COBE in support of the license. No such amounts were recognized in
1994 or 1995.
11. RELATED PARTIES
Receivables at the end of fiscal 1994 and 1995 and the quarter ended March
30, 1996 included $68,000, $92,000, and $1,000 respectively, from COBE
affiliates.
In 1992 the Company entered into an agreement to sell common stock,
representing 26% of the Company, to COBE Laboratories, Inc., which included
several provisions, including two seats on the Company's Board of Directors for
COBE designees, a standstill agreement, and a participation agreement for future
financings. The Company and COBE also finalized a licensing, manufacturing, and
distribution agreement which provides for a royalty-bearing license to the
Company's biomaterial technology for use in certain of COBE's products, the
right for the Company to manufacture these biomaterials for a period of time
before the royalty provisions become effective, a provision that COBE and the
Company negotiate for COBE to be the distributor of certain future products of
the Company, and a right of COBE to first negotiation on certain future
licensing rights. In fiscal years 1993, 1994 and 1995, and the quarter ended
March 30, 1996, COBE purchases of materials from the Company under the
manufacturing agreement totaled $17,000, $90,000, $87,000, and $3,000
respectively.
For other related party transactions, see Notes 10 and 14.
12. EMPLOYMENT AGREEMENT
In January 1996, the Company entered into a four-year employment agreement
with a key executive officer. This employment agreement provides for, among
other provisions, a minimum base salary, an annual bonus based on performance, a
severance package and the issuance of 333,333 non-qualified stock options. See
Note 9.
13. TAXES ON INCOME
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards.
F-12
<PAGE> 72
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR END
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Federal tax loss carryforward (as adjusted
for the limitation on change in
ownership).............................. $ 2,812,000 $ 3,481,000 $ 4,198,000
State tax loss carryforward................ 205,000 390,000 585,000
Other, net................................. 27,000 25,000 19,000
Total........................................ 3,044,000 3,896,000 4,802,000
----------- ----------- -----------
Less: Valuation allowance.................. (3,044,000) (3,896,000) (4,802,000)
----------- ----------- -----------
-- -- --
=========== =========== ===========
</TABLE>
At 1995 fiscal year end, the Company had net operating loss ("NOL")
carryforwards of approximately $12 million. The majority of such carryforwards
expire from 2002 through 2010. Use of the $7.4 million NOL which arose prior to
the greater than 50% change in ownership which occurred in 1992 is limited to
approximately $440,000 per year due to such change.
Due to these limitations and due to the fact that the Company has sustained
cumulative losses, the potential future benefit from these deferred assets are
fully reserved by means of a valuation allowance and will therefore produce a
financial statement benefit if and when utilized.
14. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company's sales for each period are shown in the table below for each
major geographic area:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
FISCAL YEAR APRIL 1, MARCH 30,
---------------------------------------- 1995 1996
1993 1994 1995 ----------- -----------
---------- ---------- ---------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Export sales:
Europe............. $1,651,220 $ 777,446 $1,524,080 $ 478,356 $ 420,871
All Other.......... 788,870 550,055 438,462 55,273 88,133
---------- ---------- ---------- --------- -----------
Subtotal........... 2,440,090 1,327,501 1,962,542 533,629 509,004
Domestic sales....... 1,350,524 1,436,131 1,526,057 405,472 792,645
---------- ---------- ---------- --------- -----------
Total.............. $3,790,614 $2,763,632 $3,488,599 $ 939,101 $ 1,301,649
========== ========== ========== ========= ===========
</TABLE>
Included in European sales for the fiscal years 1993, 1994 and 1995 and the
three months ended April 1, 1995 and March 30, 1996 are $1,606,576, $729,566,
$688,610, $326,401 and $4,743, respectively, of sales to COBE and its
affiliates, which began distributing the Company's Thoratec(R) VAD System in
several European markets in late 1992. In the Spring of 1995, Thoratec signed an
agreement with Arrow International ("Arrow") to take over the distribution in
most of the COBE territories. Included in European sales for the 1995 year and
the three months ended April 1, 1995 and March 30, 1996 are $632,639, $148,955
and $393,414, respectively, of sales to Arrow.
F-13
<PAGE> 73
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, sales representative or any other person is authorized in
connection with any offering made hereby to give any information or to make any
representation not contained herein and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the Common Stock offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation. 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 is correct as of
any date subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 14
Price Range of Common Stock............... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated Financial Data...... 18
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................... 19
Business.................................. 23
Management................................ 41
Certain Transactions...................... 47
Principal Shareholders.................... 48
Description of Capital Stock.............. 50
Shares Eligible for Future Sale........... 52
Underwriting.............................. 53
Legal Matters............................. 54
Experts................................... 54
Additional Information.................... 55
Incorporation of Certain Documents by
Reference............................... 55
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
Vector Securities International, Inc.
Cruttenden Roth
Incorporated
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered. All amounts are estimated
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Application Fee.
<TABLE>
<S> <C>
SEC Registration Fee..................................................... $ 17,473
NASD Filing Fee.......................................................... 5,567
Nasdaq National Market Application Fee................................... 50,000
Blue Sky Qualification Fees and Expenses................................. 10,000
Accounting Fees and Expenses............................................. 125,000
Legal Fees and Expenses (including Blue Sky)............................. 150,000
Transfer Agent and Registrar Fees........................................ 10,000
Underwriters Nonaccountable Expense Allowance............................ 905,625
Printing and Engraving................................................... 100,000
Miscellaneous............................................................ 26,335
----------
Total.......................................................... $1,400,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 204(a) and 317 of the California Corporations Code, as
amended, the registrant has included in its articles of incorporation and
by-laws provisions regarding the indemnification of officers and directors of
the registrant. Article Fourth of registrant's Restated Articles of
Incorporation, as amended, provides as follows:
"Fourth: The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. This corporation is also authorized, to the fullest extent permissible
under California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code), whether by-law, agreement or otherwise, in excess
of the indemnification expressly permitted by Section 317 and to advance defense
expenses to its agents in connection with such matters as they are incurred. If,
after the effective date of this Article, California law is amended in a manner
which permits a corporation to limit the monetary or other liability of its
directors or to authorize indemnification of, or advancement of such defense
expense to, its directors or other persons, in any such case to a greater extent
than is permitted on such effective date, the references in this Article to
'California law' shall to that extent be deemed to refer to California law as so
amended."
Section 29 of the registrant's By-Laws, as amended, provides as follows:
"29. Indemnification of Directors and Officers.
(a) Indemnification. To the fullest extent permissible under California
law, the corporation shall indemnify its directors and officers against all
expenses, judgment, fines settlement and other amounts actually and reasonably
incurred by them in connection with any proceeding, including an action by or in
the right of the corporation, by reason of the fact that such person is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, trustee, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise
(including service with respect to employee benefit plans). To the fullest
extent permissible under California law, expenses incurred by a director or
officer seeking indemnification under this By-law in defending any proceeding
shall be advanced by the corporation as they are incurred upon receipt by the
corporation of an undertaking by or on behalf of the director or officer to
repay such amount if it
II-1
<PAGE> 75
shall ultimately be determined that the director or officer is not entitled to
be indemnified by the corporation for those expenses. If, after the effective
date of this By-law, California law is amended in a manner which permits the
corporation to authorize indemnification of or advancement of expense to its
directors or officers, in any such case to a greater extent than is permitted on
such effective date, the references in this By-law to "California law" shall to
that extent be deemed to refer to California law as so amended. The rights
granted by this By-law are contractual in nature and, as such, may not be
altered with respect to any present or former director or officer without the
written consent of that person.
(b) Procedure. Upon written request to the Board of Directors by a person
seeking indemnification under this By-law, the Board shall promptly determine in
accordance with Section 317(e) of the California Corporations Code whether the
applicable standard of conduct has been met and, if so, the Board shall
authorize indemnification. If the Board cannot authorize indemnification because
the number of directors who are parties to the proceeding with respect to which
indemnification is sought prevents the formation of a quorum of directors who
are not parties to the proceeding, then, upon written request by the person
seeking indemnification, independent legal counsel (by means of a written
opinion obtained at the corporation's expense) or the corporation's shareholders
shall determine whether the applicable standard of conduct has been met and, if
so, shall authorize indemnification.
(c) Definitions. The term "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative. The term "expenses" includes, without limitation, attorney's fees
and any expenses of establishing a right to indemnification."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Representatives' Warrants
5.1 Opinion of Heller, Ehrman, White & McAuliffe
11 Statement re: Computation of Earnings
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Heller, Ehrman, White & McAuliffe (contained in opinion filed as
Exhibit 5.1)
23.3 Consent of Fish & Richardson P.C.
(1)24.1 Power of Attorney
</TABLE>
- ---------------
(1) Previously filed with this Registration Statement (see page II-4 of the
Registration Statement).
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE> 76
B. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) The Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Berkeley, State of California on May 28, 1996.
THORATEC LABORATORIES CORPORATION
By /s/ D. KEITH GROSSMAN
------------------------------------
D. Keith Grossman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ ----------------------------------- -------------
<S> <C> <C>
/s/ D. KEITH GROSSMAN Director, President and Chief May 28, 1996
- ------------------------------------------ Executive Officer (Principal
D. Keith Grossman Executive Officer)
CHERYL D. HESS* Vice President, Finance and Chief May 28, 1996
- ------------------------------------------ Financial Officer (Principal
Cheryl D. Hess Financial and Accounting Officer)
CHRISTY W. BELL* Director May 28, 1996
- ------------------------------------------
Christy W. Bell
HOWARD E. CHASE* Director May 28, 1996
- ------------------------------------------
Howard E. Chase
WENDELL GARDNER* Director May 28, 1996
- ------------------------------------------
Wendell Gardner
ROBERT J. HARVEY, PH.D* Director May 28, 1996
- ------------------------------------------
Robert J. Harvey, Ph.D.
J. DONALD HILL, M.D.* Director May 28, 1996
- ------------------------------------------
J. Donald Hill, M.D.
GEORGE W. HOLBROOK, JR.* Director May 28, 1996
- ------------------------------------------
George W. Holbrook, Jr.
/s/ D. KEITH GROSSMAN
- ------------------------------------------
*D. Keith Grossman
(Attorney-in-fact)
</TABLE>
II-4
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE NUMBER
- ------- ----------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement........................................
4.1 Form of Representatives' Warrants.....................................
5.1 Opinion of Heller, Ehrman, White & McAuliffe..........................
11 Statement re: Computation of Earnings.................................
23.1 Consent of Deloitte & Touche LLP......................................
23.2 Consent of Heller, Ehrman, White & McAuliffe (contained in opinion
filed as Exhibit 5.1).................................................
23.3 Consent of Fish & Richardson P.C......................................
24.1 Power of Attorney (previously contained in Registration Statement)....
</TABLE>
<PAGE> 1
Exhibit 1.1
Form of Underwriting Agreement
2,500,000 Shares
THORATEC LABORATORIES CORPORATION
Common Stock
UNDERWRITING AGREEMENT
June __, 1996
VECTOR SECURITIES INTERNATIONAL, INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
c/o VECTOR SECURITIES INTERNATIONAL, INC.
1751 Lake Cook Road, Suite 350
Deerfield, Illinois 60015
Dear Sirs:
Thoratec Laboratories Corporation, a California corporation (the
"Company"), proposes to issue and sell an aggregate of 2,500,000 shares of its
common stock, without par value, (the "Initial Securities") to the several
Underwriters named in Schedule I hereto (the "Underwriters") for whom Vector
Securities International, Inc., ("Vector") and Cruttenden Roth Incorporated are
acting as representatives (the "Representatives"). In addition, solely for the
purpose of covering over-allotments, the Company proposes to grant to the
several Underwriters, upon the terms and conditions set forth in Section 2
hereof, an option to purchase up to an additional 375,000 shares of common stock
of the Company (the "Option Securities"). The Initial Securities and the Option
Securities are herein collectively referred to as the "Securities." The
Company's common stock, without par value, including the Securities, is
hereinafter referred to as the "Common Stock." The Company wishes to confirm as
follows its agreements with you and the other Underwriters on whose behalf you
are acting in connection with the several purchases by the Underwriters of the
Securities:
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") a
registration statement on Form S-3 covering the registration of the Securities
under the Securities Act of 1933, as amended (the "1933 Act"), including the
related preliminary prospectus, or prospectuses, and either (A) has prepared and
filed, prior to the effective date of such registration statement, an amendment
to such registration statement, including a final prospectus or (B) if the
Company has elected to
1
<PAGE> 2
rely upon Rule 430A ("Rule 430A") of the rules and regulations of the Commission
under the 1933 Act (the "1933 Act Regulations"), will prepare and file a
prospectus, in accordance with the provisions of Rule 430A and Rule 424(b)
("Rule 424(b)") of the 1933 Act Regulations, promptly after execution and
delivery of this Agreement. Additionally, if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, the Company will prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b), promptly after execution and delivery of this Agreement.
The information, if any, included in such prospectus that was omitted from the
prospectus included in such registration statement at the time it becomes
effective but that is deemed, (i) pursuant to paragraph (b) of Rule 430A, to be
part of such registration statement at the time it becomes effective is referred
to herein as the "Rule 430A Information," and (ii) pursuant to paragraph (d) of
Rule 434, to be part of such registration statement at the time it becomes
effective is referred to herein as the "Rule 434 Information." Each prospectus
used before the time such registration statement becomes effective is herein
called a "preliminary prospectus." Such registration statement, including the
exhibits and schedules thereto, at the time it becomes effective and including,
if applicable, the Rule 430A Information or the Rule 434 Information, is herein
called the "Original Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and the Original Registration Statement
and any Rule 462(b) Registration Statement are herein referred to collectively
as the "Registration Statement." The prospectus included in the Original
Registration Statement at the time it becomes effective is herein called the
"Prospectus," except that, (i) if the final prospectus first furnished to the
Underwriters after the execution of this Agreement for use in connection with
the offering of the Securities differs from the prospectus included in the
Original Registration Statement at the time it becomes effective (whether or not
such prospectus is required to be filed pursuant to Rule 424(b)), the term
"Prospectus" shall refer to the final Prospectus first furnished to the
Underwriters for such use, and (ii) if Rule 434 is relied upon, the term
"Prospectus" shall refer to the preliminary prospectus last furnished to the
Underwriters in connection with the offering of the Securities, together with
the Term Sheet.
2. Agreements to Sell and Purchase. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein, the Company hereby agrees to issue
and sell to each Underwriter and each Underwriter agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $_____ per share
(the "purchase price per share"), the number of Initial Securities set forth in
Schedule I opposite the name of such Underwriter under the column "Number of
Initial Securities to be Purchased from the Company" (or such number of Initial
Securities increased as set forth in Section 10 hereof).
Upon the basis of the representations, warranties and
agreements contained herein and subject to all the terms and conditions set
forth herein, the Company hereby grants an option (the "over-allotment option")
to the Underwriters to purchase from the Company, at the purchase price per
share, up to an aggregate of the Option Securities. Option Securities may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Securities. Such option shall expire at 5:00 P.M.,
Chicago time, on the 45th day after the date of this Agreement (or, if such 45th
day shall be a Saturday or Sunday or a holiday, on the next
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<PAGE> 3
business day thereafter when the New York Stock Exchange is open for trading).
Such over-allotment option may be exercised at any time or from time to time
until its expiration. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company that
proportion of the total number of Option Securities as is equal to the
percentage of Initial Securities that such Underwriter is purchasing from the
Company (or such number of Initial Securities increased as set forth in Section
10 hereof), subject to such adjustments as you may determine to avoid fractional
shares.
3. Terms of Public Offering. The Company has been advised by you that
the Underwriters propose to make a public offering of the Securities as soon
after the Registration Statement and this Agreement have become effective as in
your judgment is advisable and initially to offer the Securities upon the terms
set forth in the Prospectus.
4. Delivery of the Securities and Payment Therefor. Delivery to the
Underwriters of and payment for the Initial Securities shall be made at the
office of Heller Ehrman White & McAuliffe, 333 Bush Street, San Francisco,
California 94104, at 9:00 A.M., San Francisco time, on _______________, 1996
(the "Closing Date"). The place of closing for the Initial Securities and the
Closing Date may be varied by agreement among you and the Company.
Delivery to the Underwriters of and payment for any Option
Securities to be purchased by the Underwriters shall be made at the
aforementioned office of Heller Ehrman White & McAuliffe at such time on such
date (an "Option Closing Date"), which may be the same as the Closing Date but
shall in no event be earlier than the Closing Date nor earlier than two nor
later than ten business days after the giving of the notice hereinafter referred
to, as shall be specified in a written notice from you on behalf of the
Underwriters to the Company of the Underwriters' determination to purchase a
number, specified in such notice, of Option Securities. The place of closing for
any Option Securities and the Option Closing Date for such Option Securities may
be varied by agreement between you and the Company.
Certificates for the Initial Securities and for any Option
Securities to be purchased hereunder shall be registered in such names and in
such denominations as you shall request by written notice (it being understood
that a facsimile transmission shall be deemed written notice) prior to 9:30
A.M., Chicago time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be. Such certificates shall be made
available to you in Chicago, Illinois or New York, New York, as requested by you
in the aforesaid notice, for inspection and packaging not later than 9:30 A.M.,
Chicago time, on the business day next preceding the Closing Date or an Option
Closing Date, as the case may be. The certificates evidencing the Initial
Securities and any Option Securities to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, against payment of the purchase price therefor by certified or official bank
check or checks payable in New York Clearing House ([next] day) funds to the
order of the Company. It is understood that each Underwriter has authorized you,
for its account, to accept delivery of, acknowledge receipt of, and make payment
of the purchase price for, the Initial Securities and the Option Securities, if
any, which it has agreed to purchase. Vector, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the
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<PAGE> 4
Initial Securities or the Option Securities, if any, to be purchased by any
Underwriter whose check has not been received by the Closing Date or the Option
Closing Date, as the case may be, but such payment shall not relieve such
Underwriter from its obligations hereunder.
5. Agreements of the Company. The Company covenants and agrees
with the several Underwriters as follows:
a. The Company will notify the Underwriters immediately,
and confirm the notice in writing, (i) of the effectiveness of the Registration
Statement and any amendment thereto, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the suspension of
qualification of the Securities for offering or sale in any jurisdiction or the
initiation of any proceedings for such purpose and (v) during the period when
the Prospectus is required to be delivered under the 1933 Act or Securities
Exchange Act of 1934, as amended (the "1934 Act"), of any change, or any event
or occurrence which could result in such a change, in the Company's condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company or the happening of any event, including the filing of
any information, documents or reports pursuant to the 1934 Act, that makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
in order to state a material fact required by the 1933 Act or the 1933 Act
Regulations to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus to comply with the 1933 Act, the 1933 Act Regulations or any other
law. The Company shall use its best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption of the Securities under
any state securities or Blue Sky laws, and, if at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration Statement,
or any state securities commission or other regulatory authority shall issue an
order suspending the qualification or exemption of the Securities under any
state securities or Blue Sky laws, the Company shall use every reasonable effort
to obtain the withdrawal or lifting of such order at the earliest possible time.
b. The Company will give the Underwriters notice of its
intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment), any Rule 462(b) Registration
Statement, any Term Sheet or any amendment or supplement to the Prospectus
(including any revised prospectus or Term Sheet and preliminary prospectus which
the Company proposes for use by the Underwriters in connection with the offering
of the Securities which differs from the prospectus on file at the Commission at
the time the Registration Statement becomes effective, whether or not such
revised prospectus or Term Sheet and preliminary prospectus is required to be
filed pursuant to Rule 424(b)), whether pursuant to the 1933 Act, the 1934 Act
or otherwise, will furnish the Underwriters with copies of any Rule 462(b)
Registration Statement, Term Sheet, amendment or supplement a reasonable amount
of time prior to such proposed filing or use, as the case may be, and will not
file any such
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<PAGE> 5
Rule 462(b) Registration Statement, Term Sheet, amendment or supplement or use
any such prospectus to which the Underwriters or counsel for the Underwriters
shall object.
c. The Company will deliver to the Underwriters as many
signed and conformed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) as the Underwriters may reasonably request.
d. The Company will furnish to each Underwriter, from
time to time during the period when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request for the
purposes contemplated by the 1933 Act or the 1934 Act or the respective
applicable rules and regulations of the Commission thereunder.
e. If any event shall occur as a result of which it is
necessary, in the opinion of counsel to the Underwriters, to amend or supplement
the Prospectus in order to make the Prospectus not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, the
Company will forthwith amend or supplement the Prospectus (in form and substance
satisfactory to counsel for the Underwriters) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading, and the Company will furnish to the Underwriters
a reasonable number of copies of such amendment or supplement.
f. During the period of five years hereafter, the
Company will furnish to you (i) as soon as available, a copy of each report of
the Company mailed to shareholders or filed with the Commission or the Nasdaq
National Market, and (ii) from time to time such other information concerning
the Company as you may request.
g. The Company will endeavor, in cooperation with
counsel to the Underwriters, to qualify the Securities for offering and sale
under the applicable securities or Blue Sky laws of such states and other
jurisdictions of the United States as the Underwriters may designate; provided,
however, that the Company shall not be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement.
h. The Company will make generally available to its
security holders as soon as practicable, but not later than 45 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
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<PAGE> 6
i. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
j. If, at the time that the Registration Statement
becomes effective, any Rule 430A Information or Rule 434 Information shall have
been omitted therefrom, then immediately following the execution of this
Agreement, the Company will prepare, and file or transmit for filing with the
Commission in accordance with Rule 430A or Rule 434 and Rule 424(b), copies of a
Prospectus or Term Sheet containing such Rule 430A Information and Rule 434
Information, respectively, or, if required by Rule 430A, a post-effective
amendment to the Registration Statement (including an amended Prospectus),
containing such Rule 430A Information.
k. If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act Regulations by the earlier of (i) 10:00 P.M. Eastern
Time on the date hereof and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
l. The Company, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, will file all
documents required to be filed with the Commission pursuant to Section 13, 14 or
15 of the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission under the 1934 Act (the "1934 Act
Regulations").
m. During a period of 180 days from the date of the
Prospectus, the Company will not, without the prior written consent of Vector on
behalf of the Underwriters, directly or indirectly, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of, Common Stock or any
security convertible into Common Stock (except for Common Stock issued pursuant
to this Agreement or pursuant to reservations, agreements, conversions or
employee or director benefit plans or the exercise of convertible securities
referred to in Section 6(f) hereof).
n. The Company shall not, during the 180 days following
the effective date of the Registration Statement, except with the prior written
consent of Vector, file a registration statement covering any of its shares of
capital stock, except that one or more registration statements on Form S-8 maybe
filed at any time following the effective date of the Registration Statement
relating to issuances under its employee or director benefit plans referred to
in Section 6(f) hereof.
o. The Company has furnished or will furnish to you
"lock-up" letters, in form and substance satisfactory to you, signed by each of
its current officers and directors and each of its shareholders designated by
you.
p. The Company will supply the Underwriters with copies
of all correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Securities under the 1933
Act.
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<PAGE> 7
q. Prior to the Closing Date, the Company shall furnish
to the Underwriters, as soon as they have been prepared, copies of any unaudited
interim consolidated financial statements of the Company, for any periods
subsequent to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
r. Prior to the Closing Date, the Company will issue no
press release or other communications directly or indirectly and hold no press
conference with respect to the Company, the condition, financial or otherwise,
or the earnings, business affairs or business prospects of the Company, or the
offering of the Securities, without the prior written consent of the
Representatives unless in the judgment of the Company and its counsel, and after
notification to the Representatives, such press release or communication is
required by law.
s. The Company will comply with all provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all
regulations promulgated thereunder relating to issuers doing business with Cuba.
t. If this Agreement shall terminate or shall be
terminated after execution pursuant to any provisions hereof (otherwise than
pursuant to the second paragraph of Section 10 or pursuant to clauses (ii),
(iii), (iv) and (v) of Section 11 hereof) or if this Agreement shall be
terminated by the Underwriters because of any failure or refusal on the part of
the Company to comply, in any material respect, with the terms or fulfill, in
any material respect, any of the conditions of this Agreement, the Company
agrees to reimburse the Representatives for all reasonable out-of-pocket
expenses (including reasonable fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
u. The Company has not taken, nor will it take, directly
or indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Securities.
v. The Company will use its best efforts to maintain the
quotation of the Common Stock on the Nasdaq National Market.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
a. When the Registration Statement becomes effective,
including at the date of any post-effective amendment, at the date of the
Prospectus, if different, and at the Closing Date and the Option Closing Date,
as the case may be, the Registration Statement complied or will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any supplements
or amendments thereto will not at the date of the Prospectus, at the date of
any such supplements or amendments, and at the Closing Date and the Option
Closing Date, if any, include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the
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<PAGE> 8
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus
relating to any Underwriter made in reliance upon and in conformity with
information furnished to the Company in writing by any Underwriter, through
Vector expressly for use in the Registration Statement or Prospectus. The
Company has not distributed any offering materials in connection with the
offering or sale of the Securities other than the Registration Statement, the
preliminary prospectus, the Prospectus, the Term Sheet, if applicable, or any
other materials, if any, permitted by the 1933 Act or the 1933 Act Regulations.
b. Deloitte & Touche LLP, who have certified the
financial statements and supporting schedules included in the Registration
Statement, are independent public accountants as required by the 1933 Act and
the 1933 Act Regulations.
c. The financial statements included in the Registration
Statement and the Prospectus present fairly the consolidated financial position
of the Company and the Subsidiary (as defined below) as of the dates indicated
and the results of its operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. The
financial information and statistical data set forth in the Prospectus are
prepared on an accounting basis consistent with such financial statements.
d. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, or in the earnings, business affairs, or business
prospects of the Company and the Subsidiary, whether or not arising in the
ordinary course of business, (ii) there have been no transactions entered into
by the Company or the Subsidiary, other than those in the ordinary course of
business, which are material with respect to the Company and the Subsidiary, and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or the Subsidiary on any class of their capital stock.
Neither the Company nor the Subsidiary has material contingent obligations which
are not disclosed in the Registration Statement.
e. The Company and Thoratec Europe Ltd. (the
"Subsidiary") have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective jurisdictions
of incorporation, with corporate power and authority to own, lease and operate
their properties and to conduct their businesses as described in the Prospectus
and, in the case of the Company, to enter into and perform its obligations under
this Agreement; the Company and the Subsidiary are duly qualified as foreign
corporations to transact business and are in good standing in each jurisdiction
in which such qualification is required, whether by
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<PAGE> 9
reason of the ownership or leasing of property or the conduct of business,
except where the failure to so qualify would not, singly or in the aggregate,
have a material adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, results of operations or business prospects of the
Company or the Subsidiary, taken as a whole (a "Material Adverse Effect"). Other
than in the Subsidiary, the Company does not own, directly or indirectly, any
shares of capital stock or any other equity securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity.
f. The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under "Capitalization" (except
for subsequent issuances, if any, pursuant to this Agreement or pursuant to
reservations, agreements, employee or director benefit plans or the exercise of
convertible securities referred to in the Prospectus); the shares of issued and
outstanding capital stock of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and have not been issued in
violation of or are not otherwise subject to any preemptive or other similar
rights; the Company owns all of the outstanding capital stock of the Subsidiary;
the Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and nonassessable; the
certificates evidencing the Securities are in due and proper form under
California law; the authorized capital stock of the Company, including the
Securities, conforms to all statements relating thereto contained in the
Prospectus; and the issuance of the Securities is not subject to preemptive or
other similar rights. There are no outstanding subscriptions, options, warrants,
convertible or exchangeable securities or other rights granted to or by the
Company to purchase shares of Common Stock or other securities of the Company
and there are no commitments, plans or arrangements to issue any shares of
Common Stock or any security convertible into or exchangeable for Common Stock,
in each case other than as described in the Prospectus.
g. The Company and the Subsidiary: (i) are in material
compliance with any and all applicable foreign, United States, state and local
environmental laws, rules, regulations, treaties, statutes and codes promulgated
by any and all governmental authorities relating to the protection of human
health and safety, the environment or toxic substances or wastes, pollutants or
contaminates ("Environmental Laws"); (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their business as currently conducted; and (iii) are in compliance with all
terms and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permit
licenses or other approvals would not, individually or in the aggregate, have a
Material Adverse Effect. No action, proceeding, revocation proceeding, writ,
injunction or claim is pending or threatened against the Company or the
Subsidiary relating to the Environmental Laws or to the activities of the
Company or the Subsidiary involving Hazardous Materials. The terms "Hazardous
Materials" as used in this Agreement means any material or substance that: (i)
is prohibited or regulated by any environmental law, rule, regulation, order,
treaty, statute or code promulgated by any governmental authority, or any
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<PAGE> 10
amendment or modification thereto; or (ii) has been designated or regulated by
any governmental authority as radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment.
h. Neither the Company nor the Subsidiary is engaged in
the generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the properties of the Company or the Subsidiary or former
properties, except where such use, manufacture, transportation or storage is in
compliance with Environmental Laws. No Hazardous Materials have been treated or
disposed of on any properties of the Company or the Subsidiary or on properties
formerly owned or leased by the Company or the Subsidiary during the time of
such ownership or lease, except in compliance with Environmental Laws. No
spills, discharges, releases, deposits, emplacements, leaks or disposal of any
Hazardous Materials have occurred on or under or have emanated from any of the
Company's properties or former properties of the Company or the Subsidiary for
which the cost of remediation would materially and adversely affect the Company.
i. Neither the Company nor the Subsidiary is in
violation of their respective charters or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, deed, trust,
note, lease, sublease, voting agreement, voting trust, or other instrument or
agreement to which either the Company or the Subsidiary is a party or by which
either the Company or the Subsidiary may be bound, or to which any of the
property or assets of the Company or the Subsidiary are subject; and the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary corporate
action and will not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company or the Subsidiary pursuant to, any
contract, indenture, mortgage, loan agreement, deed, trust, note, lease,
sublease, voting agreement, voting trust or other instrument or agreement to
which the Company or the Subsidiary are a party or by which they may be bound,
or to which any of the property or assets of the Company or the Subsidiary are
subject, nor will such action result in any violation of the provisions of the
charter or bylaws of the Company or any applicable statute, law, rule,
regulation, ordinance, decision, directive or order.
j. No labor dispute with the employees of the Company or
the Subsidiary exist or, to the best knowledge of the Company, is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors which
might, singly or in the aggregate, be expected to have a Material Adverse
Effect.
k. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or,
to the knowledge of the Company, threatened, against or affecting the Company or
the Subsidiary, which is required to
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<PAGE> 11
be disclosed in the Registration Statement (other than as disclosed therein), or
which, singly or in the aggregate, might result in any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company or the Subsidiary, or which, singly or in
the aggregate, might materially and adversely affect the properties or assets
thereof or which might materially and adversely affect the consummation of this
Agreement; all pending legal or governmental proceedings to which the Company or
the Subsidiary is a party or of which any of their respective property or assets
is the subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, are, considered in the
aggregate, not material; and there are no contracts or documents of the Company
or the Subsidiary which are required to be filed as exhibits to the Registration
Statement by the 1933 Act or by the 1933 Act Regulations which have not been so
filed.
l. No relationship, direct or indirect, exists between
or among the Company and the Subsidiary on the one hand and the directors,
officers, shareholders, customers or suppliers of the Company and the Subsidiary
on the other hand, that is required by the 1933 Act or 1934 Act or the 1933 Act
Regulations or 1934 Act Regulations to be described in the Registration
Statement and the Prospectus or documents incorporated by reference therein that
is not described as so required.
m. The Company and the Subsidiary own or are licensed to
use all patents, patent applications, inventions, trademarks, tradenames,
applications for registration of trademarks, service marks, service mark
applications, copyrights, know-how, manufacturing processes, formulae, trade
secrets, licenses and rights in any thereof and any other intangible property
and assets (herein called the "Proprietary Rights") which are material to the
businesses of the Company or the Subsidiary as now conducted and as proposed to
be conducted, in each case as described in the Prospectus. The description of
the Proprietary Rights is correct in all material respects and fairly and
correctly describes the Company's rights with respect thereto. Neither the
Company nor the Subsidiary have any knowledge of, and neither the Company nor
the Subsidiary has given or received any notice of, any pending conflicts with
or infringement of the rights of others with respect to any Proprietary Rights
or with respect to any license of Proprietary Rights. No action, suit,
arbitration, or legal, administrative or other proceeding, or investigation is
pending, or, to the knowledge of the Company, threatened, which involves any
Proprietary Rights. Neither the Company nor the Subsidiary is subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, or has
entered into or is a party to any contract which restricts or impairs the use of
any such Proprietary Rights in a manner which would have a material adverse
effect on the use of any of the Proprietary Rights. To the knowledge of the
Company, no Proprietary Rights used by the Company or the Subsidiary, and no
services or products sold by the Company or the Subsidiary, conflict with or
infringe upon any proprietary rights available to any third party. The Company
has not received written notice of any pending conflict with or infringement
upon such third party proprietary rights. Neither the Company nor the
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<PAGE> 12
Subsidiary has entered into a consent, indemnification, forbearance to sue or
settlement agreement with respect to Proprietary Rights other than in the
ordinary course of business. No claims have been asserted by any person with
respect to the validity of the ownership or right to use the Proprietary Rights
of the Company or the Subsidiary and, to the knowledge of the Company, there is
no reasonable basis for any such claim to be successful. The Proprietary Rights
are valid and enforceable and no registration relating thereto has lapsed,
expired or been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefore are pending and are in
good standing. The Company and the Subsidiary have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Proprietary Rights used pursuant to licenses. To the knowledge
of the Company, no person is infringing on or violating the Proprietary Rights
owned or used by the Company.
n. No registration, authorization, approval,
qualification or consent of any court or governmental authority or agency is
necessary in connection with the offering, issuance or sale of the Securities
hereunder, except such as may be required under the 1933 Act or the 1933 Act
Regulations or state securities or Blue Sky laws (or such as may be required by
the National Association of Securities Dealers, Inc. ("NASD") or the Nasdaq
National Market).
o. Except as otherwise disclosed in the Prospectus, the
Company and the Subsidiary now hold and at the Closing Date and Option Closing
Date will hold, all licenses, certificates, approvals and permits from all
state, United States, foreign and other regulatory authorities, including but
not limited to the United States Food and Drug Administration (the "FDA") and
any foreign regulatory authorities performing functions similar to those
performed by the FDA, that are material to the conduct of the businesses of the
Company and the Subsidiary (as such business is currently conducted), except for
such licenses, certificates, approvals and permits the failure of which to hold
would not have a Material Adverse Effect, all of which are valid and in full
force and effect (and there is no proceeding pending or, to the knowledge of the
Company, threatened which may cause any such license, certificate, approval or
permit to be withdrawn, canceled, suspended or not renewed). Neither the Company
nor the Subsidiary is in violation of any law, order, rule, regulation, writ,
injunction or decree of any court or governmental agency or body, including, but
not limited to, the FDA, and neither the Company nor the Subsidiary has received
any notice of proceedings relating to the revocation or modification of any such
permit or any circumstance which would lead them to believe that such
proceedings are reasonably likely which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect. All of the descriptions in the Registration Statement and
Prospectus of the legal and governmental proceedings by or before the FDA or any
foreign, state or local governmental body exercising comparable authority are
true, complete and accurate in all material respects.
p. This Agreement has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in
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<PAGE> 13
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or the public
policy underlying such laws.
q. There are no persons with registration or other
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act, other than
those which have been waived.
r. No order preventing or suspending the use of any
preliminary prospectus has been issued and no proceedings for that purpose are
pending, threatened, or, to the knowledge of the Company, contemplated by the
Commission; and to the knowledge of the Company, no order suspending the
offering of the Securities in any jurisdiction designated by the Underwriters
pursuant to Section 5(g) of this Agreement has been issued and, to the knowledge
of the Company, no proceedings for that purpose have been instituted or
threatened or are contemplated.
s. The Company and the Subsidiary have good and
marketable title to their respective properties, free and clear of all material
security interests, mortgages, pledges, liens, charges, encumbrances, claims and
equities of record. The properties of the Company and the Subsidiary are, in the
aggregate, in good repair (reasonable wear and tear excepted), and suitable for
their respective uses. Any real properties held under lease by the Company and
the Subsidiary are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the conduct
of the business of the Company or the Subsidiary.
t. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
u. The Company and the Subsidiary have conducted and are
conducting their businesses in compliance with all applicable Federal, state,
local and foreign statutes, laws, rules, regulations, ordinances, codes,
decisions, decrees, directives and orders, except where the failure to do so
would not, singly or in the aggregate, have a Material Adverse Effect.
v. To the Company's knowledge, neither the Company nor
the Subsidiary nor any employee or agent of the Company or the Subsidiary have
made any payment of funds of the Company or the Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
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<PAGE> 14
w. The Company is not now, and after sale of the
Securities to be sold by it hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
x. All offers and sales of capital stock of the Company
prior to the date hereof were at all relevant times duly registered or exempt
from the registration requirements of the 1933 Act and were duly registered or
subject to an available exemption from the registration requirements of the
applicable state securities or Blue Sky laws.
y. The Company has complied with all provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida statutes, and all
regulations promulgated thereunder relating to issuers doing business with Cuba.
z. The Common Stock is registered pursuant to Section
12(g) of the 1934 Act. The Securities have been duly authorized for quotation on
the Nasdaq National Market. The Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the 1934 Act or delisting the Common Stock from the Nasdaq National
Market, nor has the Company received any notification that the Commission or the
Nasdaq National Market is contemplating terminating such registration or
listing.
aa. Neither the Company, nor, to its knowledge, any of
its officers, directors or affiliates has taken, and at the Closing Date and at
any later Option Closing Date, neither the Company nor, to its knowledge, any of
its officers, directors or affiliates will have taken, directly or indirectly,
any action which has constituted, or might reasonably be expected to constitute,
the stabilization or manipulation of the price of sale or resale of the
Securities.
ab. The Company maintains insurance of the types and in
amounts adequate for its and its Subsidiary's businesses and consistent with
insurance coverage maintained by similar companies in similar businesses,
including but not limited to, insurance covering clinical trial liability,
product liability and real and personal property owned or leased against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect.
ac. The Company and the Subsidiary have filed all
material U.S. and foreign tax returns required to be filed, which returns are
true and correct in all material respects, and neither the Company nor the
Subsidiary is in default in the payment of any taxes, including penalties and
interest, assessments, fees and other charges, shown thereon due or otherwise
assessed, other than those being contested in good faith and for which adequate
reserves have been provided or those currently payable without interest which
were payable pursuant to said returns or any assessments with respect thereto.
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<PAGE> 15
ad. Except as described in the Prospectus, to the
Company's knowledge, there are no rulemaking or similar proceedings before the
FDA or comparable Federal, state, local or foreign government bodies which
involve or affect the Company or the Subsidiary, which, if the subject of an
action unfavorable to the Company or the Subsidiary could involve a prospective
Material Adverse Effect.
ae. Except for the compassionate use of the graft
products as described in the Registration Statement and Prospectus, the human
clinical trials conducted by the Company or in which the Company has
participated that are described in the Registration Statement and Prospectus or
the results of which are referred to in the Registration Statement and
Prospectus, and, any studies and tests conducted on behalf of the Company, were
and, if still pending, are being conducted in accordance with experimental
protocols, procedures and controls pursuant to accepted professional scientific
standards for the clinical study of new medical devices; the descriptions of the
results of such studies, tests and trials contained in the Registration
Statement and Prospectus are accurate and complete in all material respects, and
the Company has no knowledge of any other trials, studies or tests, the results
of which reasonably call into question the results described or referred to in
the Registration Statement and Prospectus; and the Company has not received any
notices or correspondence from the FDA or any other governmental agency
requiring the termination, suspension or modification of any clinical trials
conducted by, or on behalf of, the Company in which the Company has participated
that are described in the Registration Statement and Prospectus or the results
of which are referred to in the Registration Statement or Prospectus.
af. Neither the Company nor the Subsidiary has received
any communication (whether written or oral) relating to the termination or
threatened termination or modification or threatened modification of any
material, consulting, licensing, marketing, research and development,
cooperative or any similar agreement. Any of the Company's or the Subsidiary's
collaborative and licensing agreements is in effect substantially as described
in the Prospectus.
ag. To the knowledge of the Company, if any full-time
employee identified in the Prospectus has entered into any non-competition,
non-disclosure, confidentiality or other similar agreement with any party other
than the Company or any Subsidiary, such employee is neither in violation
thereof nor is expected to be in violation thereof as a result of the business
conducted or expected to be conducted by the Company or the Subsidiary as
described in the Prospectus or such person's performance of his obligations to
the Company or any Subsidiary; neither the Company nor the Subsidiary has
received written notice that any consultant or scientific advisor of the Company
or the Subsidiary is in violation of any noncompetition, non-disclosure,
confidentiality or similar agreement.
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<PAGE> 16
7. Indemnification and Contribution.
a. The Company agrees to indemnify and hold harmless (i)
each Underwriter and (ii) each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act (any of the persons referred to
in this clause (ii) being hereinafter referred to as a "controlling person") and
(iii) the respective directors, officers, partners and employees of any of the
Underwriters or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Person") to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities and expenses whatsoever (including, without limitation, all
reasonable costs of pursuing, investigating and defending any claim, suit or
action or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to any Indemnified Person if permitted by Section 7b below), directly or
indirectly, caused by, related to, based upon or arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereto, including the
Rule 430A Information and Rule 434 Information, if applicable, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or caused by,
related to, based upon, arising out of or in connection with any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through Vector expressly for use in connection therewith; provided,
that the Company shall not be required to indemnify any Indemnified Person if
any claim is based on any untrue statement or alleged untrue statement, or
omission or alleged omission of a material fact contained in any preliminary
prospectus that had been corrected and delivered to the several Underwriters in
requisite quantity on a timely basis to permit such delivery or sending.
b. If any action, suit or proceeding shall be brought
against any Indemnified Person in respect of which indemnity may be sought
against the Company, such Indemnified Person shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties") and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Indemnified
Person shall have the right to employ separate counsel in any such action, suit
or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel or (iii) the named parties to any such action, suit,
investigation or
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<PAGE> 17
proceeding (including any impleaded parties) include both such Indemnified
Person and the indemnifying parties and representation of such Indemnified
Person and any indemnifying party by the same counsel would, in the reasonable
judgment of the Indemnified Person, be inappropriate due to actual or potential
differing interests between them (in which case the indemnifying party shall not
have the right to assume the defense of such action, suit or proceeding on
behalf of such Indemnified Person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Persons not having actual or potential differing interests
with you or among themselves, which firm shall be designated in writing by
Vector, and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any settlement of any
such action, suit or proceeding effected without their written consent, which
consent shall not be unreasonably withheld or delayed, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the indemnifying parties agree to indemnify and hold
harmless any Indemnified Person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
c. Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the 1933 Act, to the same extent as the foregoing
indemnity from the Company to each Indemnified Person, but only with respect to
information relating to such Underwriter furnished in writing by or on behalf of
such Underwriter through Vector expressly for use in the Registration Statement,
the Prospectus or any preliminary prospectus, or any amendment or supplement
thereto. If any action, suit, investigation or proceeding shall be brought
against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
preliminary prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph (c), such Underwriter shall have the rights and duties given to the
Company by paragraph (b) above, and the Company, its directors, any such officer
and any such controlling person shall have the rights and duties given to the
Indemnified Persons by paragraph (a) above.
d. If the indemnification provided for in this Section 7
is unavailable to, or insufficient to hold harmless, an indemnified party under
paragraphs (a) or (c) hereof in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted
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<PAGE> 18
by applicable law or judicial determination, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriters on the other hand, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus or, if Rule 434 is used, the corresponding
location on the Term Sheet. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or by the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The indemnity and contribution obligations of the Company set forth herein shall
be in addition to any liability or obligation the Company may otherwise have to
any Indemnified Person.
e. The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating any claim or defending
any such action, suit or proceeding. Notwithstanding the provisions of this
Section 7, no Underwriter (or any of its related Indemnified Persons) shall be
required to contribute (whether pursuant to subsection (a) or (c) or otherwise)
any amount in excess of the underwriting discounts and commissions received in
connection with the Securities underwritten by such Underwriter. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective numbers of Securities set forth opposite their names in Schedule I
hereto (or such numbers of Securities increased as set forth in Section 10
hereof) and not joint.
f. No indemnifying party shall, without the prior
written consent of the Indemnified Person, effect any settlement of any pending
or threatened action, suit or proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such action, suit or proceeding.
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<PAGE> 19
g. Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 7 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Indemnified Person, the Company, its
directors or officers or any person controlling the Company, (ii) acceptance of
any Securities and payment therefor hereunder and (iii) any termination of this
Agreement.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Initial Securities hereunder are
subject to the following conditions:
a. The Original Registration Statement shall have become
effective not later than 5:30 P.M. Chicago time on the date hereof, or with the
consent of the Representatives, at a later time and date, and if the Company has
elected to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall
have become effective not later than the earlier of (i) 9:00 P.M. Chicago time
on the date hereof and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2), or, with respect to the Rule 462(b) Registration
Statement, at such later time and date as may be approved by Vector; no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A, Rule 430A
Information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) within the prescribed time period and the Company shall
have provided evidence satisfactory to the Underwriters of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A. If the Company has elected to rely upon Rule 434, a Term Sheet shall
have been transmitted to the Commission for filing pursuant to Rule 424(b)
within the prescribed time period.
b. The Underwriters shall have received:
(i) The favorable opinion, dated as of the
Closing Date, of Heller Ehrman White & McAuliffe, counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
A. The Company and Thoratec Europe
Limited have been duly incorporated and are validly existing
as corporations in good standing under the laws of their
respective jurisdictions of incorporation.
B. The Company has corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the
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<PAGE> 20
Registration Statement and the Prospectus and to enter into
and perform its obligations under this Agreement.
C. To their knowledge and information
the Company is duly qualified as a foreign corporation to
transact business and is in good each standing in each
jurisdiction in which such qualification is required.
D. The authorized, issued and
outstanding capital stock of the Company is as set forth in
the Prospectus under "Capitalization" (except for subsequent
issuances, if any, pursuant to reservations, agreements,
employee benefit plans or the exercise of convertible
securities referred to in the Prospectus), and the shares of
issued and outstanding capital stock of the Company, including
the Common Stock, have been duly authorized and validly issued
and are fully paid and non-assessable and have not been issued
in violation of or are not otherwise subject to any preemptive
rights set forth in the Articles or Bylaws of the Company, or
to their knowledge and information, other similar rights, and
all offers and sales of the Company's capital stock since
November, 1992 were at all relevant times exempt from the
registration or qualification requirements of the 1933 Act and
were duly registered or the subject of an available exemption
from the registration or qualification requirements of the
securities or Blue Sky laws of the various states.
E. The Securities to be issued and
sold by the Company to the Underwriters pursuant to this
Agreement have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth herein, will be
validly issued and fully paid and non-assessable; and the
issuance of the Securities is not subject to preemptive or, to
their knowledge and information, other similar rights.
F. To their knowledge and information,
except as described in the Prospectus, there are no
outstanding options, warrants or other rights granted to or by
the Company to purchase shares of Common Stock or other
securities of the Company or the Subsidiary and there are no
commitments, plans or arrangements to issue any shares of
Common Stock or other securities.
G. This Agreement has been duly
authorized, executed and delivered by the Company.
H. At the time the Registration
Statement became effective and at the Closing Date, the
Registration Statement (other than the financial statements
and supporting schedules included therein, as to which no
opinion need
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<PAGE> 21
be rendered) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.
I. The form of certificate used to
evidence each of the Securities is in due and proper form and
complies with all applicable statutory requirements.
J. To their knowledge and information,
there are no legal or governmental proceedings pending or
threatened which are required to be disclosed in the
Registration Statement other than those disclosed therein, and
all pending legal or governmental proceedings to which the
Company or the Subsidiary is a party or to which any of their
respective property is subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate,
not material.
K. The information in the Prospectus
under "Risk Factors," "Certain Transactions,"
"Business--Litigation," "Management--Compensation of the Board
of Directors," "--Executive Compensation," "--Benefit Plans,"
"Limitation of Liability and Indemnification Matters,"
"Description of Capital Stock" and "Shares Eligible for Future
Sale" to the extent that it constitutes matters of law,
summaries of legal matters, documents or proceedings, or legal
conclusions, has been reviewed by them and is correct in all
material respects and fairly and correctly presents the
information called for with respect thereto.
L. To their knowledge and information,
there are no contracts, indentures, mortgages, loan
agreements, deeds, trusts, notes, leases, subleases, voting
trusts, voting agreements or other instruments or agreements
required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed as exhibits thereto,
the descriptions thereof or references thereto are correct;
and to the best of their knowledge and information, no default
exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, loan agreement, deed,
trust, note, lease, sublease, voting trust, voting agreement
or other instrument or agreement of the Company or the
Subsidiary which is filed as an exhibit under item 10 of item
601 of Regulation S-K in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
M. No authorization, approval, consent
or order of any court or governmental authority or agency is
required in connection with the offering, issuance or sale of
the Securities to the Underwriters, except such as may be
required under the 1933 Act or the 1933 Act Regulations or
state securities or Blue Sky laws or such as may be required
by the NASD; and the execution,
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<PAGE> 22
delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and
compliance by the Company with its obligations hereunder will
not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the
Subsidiary pursuant to, any contract, indenture, mortgage,
loan agreement, note, deed, trust, lease, sublease, voting
trust, voting agreement or other instrument or agreement to
which the Company or the Subsidiary is a party or by which it
or any of them may be bound, or to which any of the property
or assets of the Company or the Subsidiary is subject, nor
will such action result in any violation of the provisions of
the charter or bylaws of the Company or the Subsidiary, or any
applicable statute, law, rule, regulation, ordinance, code,
decision, directive or order.
N. To their knowledge and information,
there are no proceedings, pending or threatened before any
such regulatory body or agency, which if the subject of an
unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
O. Except as described in the
Prospectus and which have all been waived as required, to
their knowledge, there are no persons with registration or
other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered
by the Company under the 1933 Act.
P. The Company is not an "investment
company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
Q. To their knowledge and information,
the Company is in compliance with, and conducts its respective
businesses in conformity with, all applicable laws and
regulations relating to the operation of its business as
described in the Registration Statement, except to the extent
that any failure so to comply or conform would not have a
Material Adverse Effect.
R. The Registration Statement and all
post-effective amendments, if any, have become effective under
the 1933 Act; any required filing of the Prospectus, and any
supplements thereto or the Term Sheet, pursuant to Rule 424(b)
and if applicable, Rule 434, has been made in the manner and
within the time period required; and to their best knowledge
and information, no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued
and no proceedings therefor have been instituted or are
pending or contemplated under the 1933 Act.
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<PAGE> 23
(ii) The favorable opinion, dated as of the
Closing Date, of Brobeck, Phleger & Harrison LLP, counsel for the
Underwriters with respect to the issuance and sale of the Securities,
the Registration Statement and the Prospectus and such other related
matters as the Underwriters shall reasonably request.
(iii) The Underwriters shall have received from
Fish & Richardson P.C., Baker & Botts L.L.P. and Frank B. Dehn & Co.,
special intellectual property counsel to the Company, their written
opinion, dated as of the Closing Date, in form and substance
satisfactory to counsel for the Underwriters to the effect that:
A. The information in the Prospectus
contained under the headings "Risk Factors -- Patents and Protection of
Proprietary Technology" and "Business -- Patents," to the extent that
it constitutes matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been reviewed by them and is
correct in all material respects and fairly and correctly presents the
information called for with respect thereto.
B. There are no pending legal or
governmental proceedings, or allegations on the part of any person of
infringement, relating to patent rights, trade secrets, trademarks,
service marks, copyrights or other proprietary information or know-how
of the Company nor, to the best of their knowledge, are any such
proceedings threatened or contemplated.
C. To the best of their knowledge, the
Company is not infringing or otherwise violating any patents, trade
secrets, trademarks, service marks, copyrights or other proprietary
information or know-how of any persons, and no person is infringing or
otherwise violating any of the Company's patents, trade secrets,
trademarks, service marks, copyrights or other proprietary information
or know-how of the Company in a way in which could materially affect
the use thereof by the Company.
D. To the best of their knowledge, the
Company owns or possesses sufficient licenses or other rights to use
all patents, trade secrets, trademarks, service marks or other
proprietary information or know-how necessary to conduct the business
now being or proposed to be conducted by the Company as described in
the Prospectus.
E. The Company is listed in the
records of the U. S. Patent and Trademark Office ("PTO") as the sole
assignee of record of each of the patents listed on Schedule I hereto
(herein called the "Patents") and each of the Applications listed on
Schedule II hereto (herein called the "Applications"). There are no
asserted or unasserted claims of any persons relating to the scope or
ownership of the Patents or the Applications, there are no liens which
have been filed against any of the Patents or the Applications, there
are no material defects of form in the preparation or filing of the
Applications, the Applications are being diligently prosecuted, and
none of the Applications has been finally rejected or abandoned.
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<PAGE> 24
F. The Company is listed in the
records of the appropriate foreign patent offices as the sole assignee
of record of each of the foreign patents listed on Schedule III hereto
(herein called the "Foreign Patents") and each of the foreign
applications listed on Schedule IV hereto (herein called the "Foreign
Applications"). There are no asserted or unasserted claims of any
persons relating to the scope or ownership of the Foreign Patents or
the Foreign Applications, there are no liens which have been filed
against any of the Foreign Patents or the Foreign Applications, there
are no material defects of form in the preparation or filing of the
Foreign Applications, the Foreign Applications are being diligently
prosecuted, and none of the Foreign Applications has been finally
rejected or abandoned.
G. Nothing has come to their attention
that leads them to believe that the Applications and the Foreign
Applications will not eventually result in issued patents, or that any
patents issued in respect of any such Applications or Foreign
Applications will not be valid or will not afford the Company
reasonable patent protection relative to the subject matter thereof.
H. The Company is the exclusive
licensee of the United States and foreign patents and patent
applications listed on Schedule V. All such licenses are duly executed,
validly binding and enforceable in accordance with their terms and the
Company is not in default (declared or undeclared) of any material
provision of any such license.
I. To the best of their knowledge, all
pertinent prior art references known to the Company or its counsel
during the prosecution of the Patents and the Applications were
disclosed to the PTO and, to the best of their knowledge, neither such
counsel nor the Company made any misrepresentation to, or concealed any
material fact from the PTO during such prosecution.
J. To the best of their knowledge, the
Company takes security measures adequate to assert trade secret
protection in its non-patented technology.
K. The agreements executed by the
Company's employees, consultants and other advisors respecting trade
secrets, confidentiality, or intellectual property rights are valid,
binding and enforceable in accordance with their express terms.
L. Nothing has come to their attention
that leads them to believe that, with respect to licenses, patents,
trade secrets, copyrights or other proprietary information or know-how
owned or used by the Company which are the subject of the foregoing
opinions, the registration Statement, at the time it became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its
date (unless the term "Prospectus" refers to a prospectus which has
been provided to the Underwriters by the Company for use in connection
with the offering of the Securities which differs from the Prospectus
on file
24
<PAGE> 25
at the commission at the time the Registration Statement becomes
effective, in which case at the time it is first provided to the
Underwriters for such use) or at the Closing Date or the Option Closing
Date, as the case may be, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(iv) In giving their opinions required by
subsections (b)(i) and (b)(ii), respectively, of this Section 8, Heller
Ehrman White & McAuliffe and Brobeck, Phleger & Harrison LLP shall each
additionally state that nothing has come to their attention that leads
them to believe that the Registration Statement (except for financial
statements and schedules and other financial and statistical
information included therein, as to which counsel need make no
statement), at the time it became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus (except for financial
statements and schedules and other financial and statistical
information included therein, as to which counsel need make no
statement), as of its date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company
for use in connection with the offering of the Securities which differs
from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it
is first provided to the Underwriters for such use) or at the Closing
Date or the Option Closing Date, as the case may be, included or
includes an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
c. (i) There shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change
or any development involving a prospective material adverse change in
or affecting the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, (ii) the representations
and warranties of the Company in Section 6 hereof shall be true and
correct with the same force and effect as though expressly made at and
as of the Closing Date, except to the extent that any such
representation or warranty relates to a specific date, (iii) the
Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date, (iv) no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or
threatened by the Commission and (v) the Representatives shall have
received a certificate, dated the Closing Date and signed by the
President or any Vice President and the chief financial or accounting
officer of the Company to the effect set forth in clauses (i), (ii),
(iii) and (iv) above.
d. At the time of the execution of this Agreement, the
Underwriters shall have received from Deloitte & Touche LLP a letter
dated such date, in form and substance satisfactory to the
Underwriters, to the effect that (i) they are independent public
accountants
25
<PAGE> 26
with respect to the Company within the meaning of the 1933 Act and the 1933 Act
Regulations, (ii) it is their opinion that the financial statements and
supporting schedules included in the Registration Statement and covered by their
opinions therein comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act Regulations, (iii)
based upon limited procedures set forth in detail in such letter, nothing has
come to their attention which causes them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations or are not presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement or (B)
at a specified date not more than five days prior to the date of this Agreement,
there has been any change in the capital stock of the Company or any increase in
the consolidated long-term debt of the Company or any decrease in consolidated
net current assets or net assets as compared with the amounts shown in the March
30, 1996 balance sheet included in the Registration Statement or, during the
period from March 30, 1996 to a specified date not more than five days prior to
the date of this Agreement, there were any decreases, as compared with the
corresponding period in the preceding year, in consolidated revenues, net income
or net income per share of the Company, except in all instances for changes,
increases or decreases which the Registration Statement and the Prospectus
disclose have occurred or may occur and (iv) in addition to the examination
referred to in their opinions and the limited procedures referred to in clause
(iii) above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information which are included in the Registration Statement and
Prospectus and which are specified by the Underwriters, and have found such
amounts, percentages and financial information to be in agreement with the
relevant accounting, financial and other records of the Company identified in
such letter.
e. The Underwriters shall have received from Deloitte &
Touche LLP a letter, dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (d)
of this Section, except that the specified date referred to shall be a date not
more than five days prior to the Closing Date.
f. The Securities shall have been approved for quotation
on the Nasdaq National Market.
g. In the event that the Underwriters exercise their
option provided in Section 2 hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of the Option Closing Date and, at the relevant Option
Closing Date, the Underwriters shall have received:
(1) A certificate, dated such Option
Closing Date, of the President or any Vice President of the Company and
of the chief financial or accounting officer of the Company confirming
that the certificate delivered at the Closing Date pursuant to Section
8(c) hereof remains true and correct as of such Option Closing Date.
26
<PAGE> 27
(2) The favorable opinion of counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Option Closing Date, relating to the Option
Securities to be purchased on such Option Closing Date and otherwise to
the same effect as the opinion required by Sections 8(b)(i) and
8(b)(iv) hereof.
(3) The favorable opinion of Brobeck,
Phleger & Harrison LLP, counsel for the Underwriters, dated such Option
Closing Date, relating to the Option Securities to be purchased on such
Option Closing Date and otherwise to the same effect as the opinion
required by Sections 8(b) and 8(b)(iv) hereof.
(4) A letter from Deloitte & Touche LLP
in form and substance satisfactory to the Underwriters and dated such
Option Closing Date, substantially the same in form and substance as
the letter furnished to the Underwriters pursuant to Section 8(e)
hereof, except that the "specified date" in the letter furnished
pursuant to this Section 8(h)(4) shall be a date not more than five
days prior to such Option Closing Date.
(5) The favorable opinion of Fish &
Richardson P.C., Baker & Botts, L.L.P. and Frank B. Dehn & Co., special
intellectual property counsel for the Company, dated such Option
Closing Date, substantially in the same form and substance of the
opinion furnished to the Underwriters pursuant to Section 8(iii)
hereof.
h. Counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require for the purpose
of enabling them to pass upon the issuance and sale of the Securities as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations or warranties or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Underwriters and counsel for
the Underwriters.
Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the Underwriters, or to
counsel for the Underwriters, shall be deemed a representation and warranty by
the Company to each Underwriter as to the statements made therein.
i. The Company shall have delivered to Vector and
Cruttenden Roth Incorporated as Representatives of the Underwriters the
Representatives' Warrants (as defined in the Registration Statement).
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each preliminary prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
27
<PAGE> 28
reproduction) and delivery (including postage, air freight and charges for
counting and packaging) of such copies of the Registration Statement, each
preliminary prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Securities; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Securities, including any stamp
taxes in connection with the original issuance and sale of the Securities; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the original issuance
and sale of the Securities; (v) the quotation of the Securities on the Nasdaq
National Market; (vi) the registration or qualification of the Securities for
offer and sale under the securities or Blue Sky laws of the several states as
provided in Section 5(g) hereof (including the reasonable fees, expenses and
disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vii) the filing fees
and the reasonable fees and expenses of counsel for the Underwriters incident to
securing any required review by the NASD; and (viii) the fees and expenses of
the Company's accountants and the fees and expenses of counsel (including local
and special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by or on behalf of the
parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Securities
may commence, when notification of the effectiveness of the Registration
Statement or such post-effective amendment has been released by the Commission.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company, by notifying you, or by you, as Representatives of
the several Underwriters, by notifying the Company.
If one or more of the Underwriters shall fail on the Closing
Date to purchase the Initial Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the nondefaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representatives shall not have completed such arrangements within such 24-hour
period, then:
a. if the number of Defaulted Securities does not exceed
10% of the number of Initial Securities, the non-defaulting Underwriters shall
be obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
b. if the number of Defaulted Securities exceeds 10% of
the number of Initial Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
28
<PAGE> 29
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Date for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Date
or Option Closing Date, as the case may be, (i) if there has been, since the
date of this Agreement or since the respective dates as of which information is
given in the Registration Statement, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its Subsidiary considered as one
enterprise, whether or not arising in the ordinary course of business, (ii) if
there has occurred any change in the financial markets in the United States or
elsewhere or any outbreak of hostilities or escalation thereof or other calamity
or crisis the effect of which is such as to make it, in your judgment,
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, (iii) if trading in the Common Stock has been
suspended by the Commission, or if trading generally on the American Stock
Exchange, the New York Stock Exchange or in the over-the-counter markets has
been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by such exchange or
markets or by order of the Commission or any other governmental authority, or if
a banking moratorium has been declared by either Federal, New York or Illinois
authorities, (iv) the enactment, publication, decree or other promulgation of
any Federal or state statute, regulation, rule or order of any court or other
governmental authority which in your judgment materially and adversely affects
or may materially or adversely affect the business or operations of the Company
or (v) the taking of any action by any Federal, state or local government or
agency in respect of its monetary or fiscal affairs which in your judgment has a
material adverse effect on the securities markets in the United States, and
would in your judgment make it impracticable or inadvisable to market the
Securities or to enforce any contract for the sale thereof. Notice of such
termination may be given by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend and
passive market making legend on the inside front cover page, and the statements
under the caption "Underwriting" in any preliminary prospectus and in the
Prospectus constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 5(a) and
7 hereof.
29
<PAGE> 30
13. Miscellaneous. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to the Company at the office of the
Company, at 2023 Eighth Street, Berkeley, California 94710, Attention: Chief
Financial Officer; or (ii) if to you, as Representatives of the several
Underwriters, care of Vector Securities International, Inc., 1751 Lake Cook
Road, Suite 350, Deerfield, Illinois 60015, Attention: Syndicate Department.
14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and other persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
30
<PAGE> 31
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
THORATEC LABORATORIES CORPORATION
By:
------------------------------------------
D. Keith Grossman
Chief Executive Officer and President
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
VECTOR SECURITIES INTERNATIONAL, INC.
CRUTTENDEN ROTH INCORPORATED
As Representatives of the Several Underwriters
By VECTOR SECURITIES INTERNATIONAL, INC.
By:
--------------------------------------------
Vice President
31
<PAGE> 32
SCHEDULE I
THORATEC LABORATORIES CORPORATION
<TABLE>
<CAPTION>
Number of Initial
Securities Purchased
Underwriter from the Company
- ----------- ----------------
<S> <C>
Vector Securities International, Inc.......................................... [__________________]
Cruttenden Roth Incorporated.................................................. [__________________]
Total [__________________]
</TABLE>
32
<PAGE> 1
Exhibit 4.1
Form of Representatives Warrant
THORATEC LABORATORIES CORPORATION
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration,
receipt of which is hereby acknowledged, 1~ ("Holder") is entitled to purchase,
subject to the terms and conditions of this Warrant, from Thoratec Laboratories
Corporation, a California corporation (the "Company"), 2~ fully paid and
nonassessable shares of the Common Stock ("Common Stock") of the Company, in
accordance with Section 2 during the period commencing the date hereof and
ending on the earlier to occur of (i) at 5:00 p.m. California time, June __,
2001 (ii) or the date and time described in Section 16(i) hereof (the
"Expiration Date"), at which time this Warrant will expire and become void
unless earlier terminated as provided herein. The shares of Common Stock of the
Company for which this Warrant is exercisable as adjusted from time to time
pursuant to the terms hereof, are hereinafter referred to as the "Shares."
1. Exercise Price. The initial purchase price for the
Shares shall be 3~ per share. Such price shall be subject to
adjustment pursuant to the terms hereof (such price, as adjusted
from time to time, is hereinafter referred to as the "Exercise
Price").
2. Exercise and Payment.
(a) Cash Exercise. At any time after June __,
1997, this Warrant may be exercised, in whole or in part, from time to time by
the Holder, during the term hereof, by surrender of this Warrant and the Notice
of Exercise annexed hereto duly completed and executed by the Holder to the
Company at the principal executive offices of the Company, together with payment
in the amount obtained by multiplying the Exercise Price then in effect by the
number of Shares thereby purchased, as designated in the Notice of Exercise.
Payment may be in cash or by check payable to the order of the Company.
(b) Net Issuance. In lieu of payment of the
Exercise Price described in Section 2(a), the Holder may elect to receive,
without the payment by the Holder of any additional
1.
<PAGE> 2
consideration, shares equal to the value of this Warrant or any portion hereof
by the surrender of this Warrant or such portion to the Company, with the net
issue election notice annexed hereto duly executed, at the office of the
Company. Thereupon, the Company shall issue to the Holder such number of fully
paid and nonassessable shares of Common Stock as is computed using the following
formula:
where: X = Y (A-B)
-------
A
X = the number of shares to be issued to the Holder pursuant to
this Section 2.
Y = the number of shares covered by this Warrant in respect of
which the net issuance election is made pursuant to this
Section 2.
A = the fair market value of one share of Common Stock, as
determined in accordance with the provisions of this Section
2.
B = the Exercise Price in effect under this Warrant at the time
the net issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national
securities exchange or admitted to unlisted trading privileges on such
an exchange, or is listed on the National Market (the "National
Market") of the National Association of Securities Dealers Automated
Quotations System (the "Nasdaq"), the fair market value shall be the
last reported sale price of the Common Stock on such exchange or on the
Nasdaq National Market on the last business day before the effective
date of exercise of the net issuance election or if no such sale is
made on such day, the mean of the closing bid and asked prices such day
on such exchange or on the Nasdaq National Market; and
ii. If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and ask prices are not reported,
the fair market value shall be the price per share which the Company
could obtain from a willing buyer for shares sold by the Company from
authorized but unissued shares, as such price shall be determined by
mutual agreement of the Company and the Holder of this Warrant.
3. Delivery of Stock Certificates. Within a reasonable
time after exercise, in whole or in part, of this Warrant, the
Company shall issue in the name of and deliver to the Holder, a
certificate or certificates for the number of fully paid and
2.
<PAGE> 3
nonassessable shares of Common Stock which the Holder shall have requested in
the Notice of Exercise. If this Warrant is exercised in part, the Company shall
deliver to the Holder a new Warrant for the unexercised portion of this Warrant
at the time of delivery of such stock certificate or certificates.
4. No Fractional Shares. No fractional shares or scrip
representing fractional shares will be issued upon exercise of this Warrant. If
upon any exercise of this Warrant a fraction of a share results, the Company
will pay the Holder the difference between the cash value of the fractional
share and the portion of the Exercise Price allocable to the fractional share.
5. Charges, Taxes and Expenses. The Holder shall pay all
transfer taxes or other incidental charges, if any, in connection with the
transfer of the Shares purchased pursuant to the exercise hereof from the
Company to the Holder.
6. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
7. Saturdays, Sundays, Holidays, Etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
weekday which is not a legal holiday.
8. Adjustment of Exercise Price and Number of Shares. The
number of and kind of securities purchasable upon exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances.
If the Company shall at any time after the date hereof but prior to the
expiration of this Warrant subdivide its outstanding securities as to which
purchase rights under this Warrant exist, by split-up or otherwise, or combine
its outstanding securities as to which purchase rights under this Warrant exist,
the number of Shares as to which this Warrant is exercisable as of the date of
such subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the
3.
<PAGE> 4
total number of Shares purchasable under this Warrant as of such date shall
remain the same.
(b) Stock Dividend. If at any time after the date
hereof the Company declares a dividend or other distribution on Common Stock
payable in Common Stock or other securities or rights convertible into Common
Stock ("Common Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
conversion thereof), then the number of shares of Common Stock for which this
Warrant may be exercised shall be increased as of the record date (or the date
of such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividend, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase of
all the Shares issuable hereunder immediately after the record date (or on the
date of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the date
of such distribution, if applicable).
(c) Other Distributions. If at any time after the
date hereof the Company distributes to holders of its Common Stock, other than
as part of its dissolution or liquidation or the winding up of its affairs, any
shares of its capital stock, any evidence of indebtedness or any of its assets
(other than cash, Common Stock or securities convertible into Common Stock),
then the Company may, at its option, either (i) decrease the per share Exercise
Price of this Warrant by an appropriate amount based upon the value distributed
on each share of Common Stock as determined in good faith by the Company's Board
of Directors or (ii) provide by resolution of the Company's Board of Directors
that on exercise of this Warrant, the Holder hereof shall thereafter be entitled
to receive, in addition to the shares of Common Stock otherwise receivable on
exercise hereof, the number of shares or other securities or property which
would have been received had this Warrant at the time been exercised.
(d) Merger. If at any time after the date hereof
there shall be a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation then the Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the aggregate Exercise Price
then in effect, the number of shares or other securities or property of the
successor corporation resulting from such merger or consolidation, which would
have been received by Holder for the shares of stock subject to this Warrant had
this Warrant at such time been exercised.
4.
<PAGE> 5
(e) Reclassification, Etc. If at any time after
the date hereof there shall be a change or reclassification of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect,
the number of shares or other securities or property resulting from such change
or reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this Warrant at such time been exercised.
9. Notice of Adjustments; Notices. Whenever the Exercise Price
or number of Shares purchasable hereunder shall be adjusted pursuant to Section
8 hereof, the Company shall execute and deliver to the Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder.
10. Rights As Shareholder. Prior to exercise of this Warrant,
the Holder shall not be entitled to any rights as a shareholder of the Company
with respect to the Shares, including (without limitation) the right to vote
such Shares, receive dividends or other distributions thereon, or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
in the event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Holder of this Warrant, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. Restricted Securities. The Holder understands that this
Warrant and the Shares purchasable hereunder constitute "restricted securities"
under the federal securities laws inasmuch as they are, or will be, acquired
from the Company in transactions not involving a public offering and
accordingly may not, under such laws and applicable regulations, be resold or
transferred without registration under the Securities Act of 1933, as amended
(the "1933 Act") or an applicable exemption from such registration. In this
connection, the Holder acknowledges that Rule 144 of the Commission is not now,
and may not in the future be, available for resales of the Warrant and the
Shares purchasable hereunder. Unless
5.
<PAGE> 6
the Shares are subsequently registered pursuant to Section 14, the Holder
further acknowledges that the securities legend on Exhibit A to the Notice of
Exercise attached hereto shall be placed on any Shares issued to the Holder upon
exercise of this Warrant.
12. Certification of Investment Purpose. Unless a current
registration statement under the 1933 Act shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder covenants and
agrees that, at the time of exercise hereof, it will deliver to the Company a
written certification executed by the Holder that the securities acquired by him
upon exercise hereof are for the account of such Holder and acquired for
investment purposes only and that such securities are not acquired with a view
to, or for sale in connection with, any distribution thereof.
13. Disposition of Shares. Holder hereby agrees not to make
any disposition of any Shares purchased hereunder unless and until:
(a) Holder shall have notified the Company of the
proposed disposition and provided a written summary of the terms
and conditions of the proposed disposition;
(b) Holder shall have complied with all
requirements of this Warrant applicable to the disposition of the
Shares; and
(c) Holder shall have provided the Company with
written assurances, in form and substance satisfactory to legal counsel of the
Company, that (i) the proposed disposition does not require registration of the
Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act has been taken.
The Company shall not be required (i) to transfer on its books
any Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of the terms of this Warrant.
14. Registration Rights.
(a) Piggyback Registration. If at any time during
the four-year period commencing June __, 1997 and ending on June __, 2001, the
Company shall determine to register for its own account or the account of others
under the 1933 Act any of its equity securities, other than on Form S-4 or Form
S-8 or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business, or equity
securities issuable in connection with stock option or other
6.
<PAGE> 7
employee benefit plans, the Company shall send to each Holder of Warrants or
Shares, who is entitled to registration rights under this Section 14(a) written
notice of such determination and, if within twenty (20) days after receipt of
such notice, such Holder shall so request in writing (hereafter a "Selling
Holder"), the Company shall include in such Registration Statement all or any
part of the Shares issuable upon exercise of the Warrants (the "Registrable
Securities") such Selling Holder requests to be registered. The obligations of
the Company under this Section 14(a) may be waived by Holders holding a majority
in interest of the Registrable Securities (including Warrants issued on even
date herewith to Wheat, First Securities, Inc.). In the event that the managing
underwriter for said offering advises the Company in writing that the inclusion
of such securities in the offering would be materially detrimental to the
offering, such securities shall nevertheless be included in the Registration
Statement, provided that the Holder and each holder of Shares desiring to have
their Shares included in the Registration Statement agree in writing, for a
period of 90 days following such offering, not to sell or otherwise dispose of
such Shares pursuant to such Registration Statement, which Registration
Statement the Company shall keep effective for a period of at least nine months
following the expiration of such 90 day period.
(b) Demand Registration. In addition to any
Registration Statement pursuant to subparagraph (a) above, during the four-year
period beginning on June __, 1997 and ending on June __, 2001, the Company will,
as promptly as practicable (but in any event within 60 days), after written
request (the "Request") by the Holder, or by a person or persons holding (or
having the right to acquire by virtue of holding the Warrants) at least 50% of
the shares of Common Stock which have been (or may be) issued upon exercise of
the Warrants (including Warrants issued on even date herewith to 4~), prepare
and file at its own expense a Registration Statement with the Commission and
appropriate "blue sky" authorities sufficient to permit the public offering of
the Registrable Securities and will use its best efforts at its own expense
through its officers, directors, auditors and counsel, in all matters necessary
or advisable, to cause such Registration Statement to become effective as
promptly as practicable and to maintain such effectiveness so as to permit
resale of the Shares covered by the Request until the earlier of the time that
all such Shares have been sold or the expiration of 90 days from the effective
date of the Registration Statement, provided, however, that the Company shall
only be obligated to file one such Registration Statement under this Section
14(b).
(c) Obligations of the Holders. In connection with
the registration of the Registrable Securities pursuant to either Sections 14(a)
or (b), the Selling Holders shall have the following obligations:
7.
<PAGE> 8
i. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to each Selling Holder that such Selling Holder shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of the Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least fifteen (15) days prior to the
first anticipated filing date of the Registration Statement, the Company shall
notify each Selling Holder of the information the Company requires from each
such Selling Holder (the "Requested Information") in the case of a Registration
Statement being prepared pursuant to Section 14(b) or if such Selling Holder
elects to have any of such Selling Holder's Registrable Securities included in
the Registration Statement in the case of a Registration Statement being
prepared pursuant to Section 14(a).
ii. Each Selling Holder by such Selling Holder's
acceptance of the Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Selling Holder has
notified the Company in writing of such Selling Holder's election to exclude all
of such Selling Holder's Registrable Securities from the Registration Statement;
and
iii. No Selling Holder may participate in any
underwritten registration hereunder unless such Selling Holder (i) agrees to
sell such Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Selling Holders entitled hereunder to
approve such arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (iii)
agrees to pay its pro rata share of all underwriting discounts and commissions
and other fees and expenses of investment bankers and any manager or managers of
such underwriting, except as provided in Section 14(d) below.
(d) Expenses of Registration. All expenses, other
than underwriting discounts and commissions and other fees and expenses of
investment bankers and other than brokerage commissions, incurred in connection
with registrations, filings or qualifications pursuant to Section 14(a) or
14(b), including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and disbursements
of counsel for the Company and the Selling Holders, shall be borne by the
Company; provided, however, that the Company shall only be required to bear the
fees and out-of-pocket expenses of one legal counsel selected by the Selling
Holders in connection with such registration.
8.
<PAGE> 9
(e) Indemnification. In the event any Registrable
Securities are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the
Company will indemnify and hold harmless each Selling Holder who holds such
Registrable Securities, the directors, if any, of such Selling Holder, the
officers, if any, of such Selling Holder, each person, if any, who controls any
Selling Holder within the meaning of the 1933 Act, any underwriter (as defined
in the 1933 Act) for the Selling Holders, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each person, if
any, who controls any such underwriter within the meaning of the 1933 Act (each,
an "Indemnified Person"), against any losses, claims, damages, expenses or
liabilities (joint or several) (collectively, "Claims") to which any of them may
become subject under the 1933 Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement when it first became
effective, or any related final prospectus, amendment or supplement thereto, or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which the statements therein were made, not misleading (a
"Violation"). The Company shall reimburse the Selling Holders and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 14(e)(i) shall not apply in such case to the
extent any such Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, and shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.
ii. In connection with any Registration Statement
in which a Selling Holder is participating, each such Selling Holder agrees to
indemnify and hold harmless, to the same extent and in the same manner set forth
in Section 14(e)(i), the Company, each of its directors, each of its officers
who signs the Registration Statement, each person, if any, who controls the
Company within the meaning of the 1933 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the
9.
<PAGE> 10
1933 Act (collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim to which any of them may become subject, under the
1933 Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Selling Holder expressly for use in connection
with such Registration Statement, and such Selling Holder will reimburse any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 14(e)(ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Selling Holder, which consent shall not be unreasonably
withheld.
iii. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in any distribution to the same
extent as provided above, with respect to information furnished in writing by
such persons expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 14(e) of notice of the commencement of
any action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnifying Party shall pay
for only one separate legal counsel for the Indemnified Parties; such legal
counsel shall be selected by the Indemnified Parties holding a majority in
interest of the Registrable Securities. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 14(e), except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 14(e) shall be made by
10.
<PAGE> 11
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
v. Notwithstanding any of the
foregoing, if, in connection with an underwritten public offering of
Registrable Securities, the Company, the Selling Holders and the underwriter(s)
enter into an underwriting or purchase agreement relating to such offering
which contains provisions covering indemnification and contribution among the
parties, the indemnification and contribution provisions of this Section 14(e)
shall be deemed inoperative for purposes of such offering.
(f) Contribution. To the extent any
indemnification by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under Section 14(e) to the
fullest extent permitted by law; provided, however, that (a) no contribution
shall be made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 14(e), (b) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
(g) Reports Under Exchange Act. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act or any other similar rule or regulation of the SEC that may at any time
permit the Holders to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
i. make and keep public information
available, as those terms are understood and defined in Rule 144;
and
ii. file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
iii. furnish to each Holder so long as
such Holder owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other
11.
<PAGE> 12
information as may be reasonably requested to permit the Holders to sell such
securities without registration pursuant to Rule 144.
(h) Assignment of the Registration Rights. The
rights to have the Company register Registrable Securities pursuant to this
Agreement shall be automatically assigned by the Holders to transferees or
assignees of all or any portion of such securities only if: (a) the Holder
agrees in writing with the transferee or assignee to assign such rights, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of the name and address of such transferee or
assignee (c) such assignment is in accordance with and permitted by law and all
other agreements between the transferor or assignor and the Company, including
without limitation, shareholder's agreements, warrants and subscription
agreements, and the transferor or assignor otherwise is not in material default
of any obligation to the Company under any such other agreement, and (d) at or
before the time the Company received the written notice contemplated by clause
(b) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein.
(i) Termination of Registration Rights. No
Holder of Warrants or Shares shall be entitled to exercise any right provided
for in this Section 14 at such time as such Holder would be able to dispose of
all of its Registrable Securities in any three (3) month period under SEC Rule
144.
15. Transferability.
(a) General. This Warrant shall be transferable
only on the books of the Company maintained at its principal office in Berkeley,
California or wherever its principal office may then be located, upon delivery
thereof duly endorsed by the Holder or by its duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer. Upon any registration of transfer, the Company shall
execute and deliver new Warrants to the person entitled thereto.
(b) Limitations on Transfer. This Warrant shall
not be sold, transferred, assigned or hypothecated by the Holder except to (i)
one or more persons, each of whom on the date of transfer is an officer of the
Holder; (ii) a general partnership or general partnerships, the general partners
of which are the Holder and one or more persons, each of whom on the date of
transfer is an officer of the Holder; (iii) a successor to the Holder in any
merger or consolidation; (iv) a purchaser of all or substantially all of the
Holder's assets; or (v) any person receiving this Warrant from one or more of
the persons listed in this Section 15(b) at such person's or persons' death
pursuant to will, trust or the laws of intestate succession. This Warrant may be
divided or combined, upon request to the Company by the Holder, into a
12.
<PAGE> 13
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
16. Miscellaneous.
(a) Construction. Unless the context indicates
otherwise the term "Holder" shall include any transferee or transferees of this
Warrant pursuant to Section 15(b), and the term "Warrant" shall include any and
all warrants outstanding pursuant to this Agreement, including those evidenced
by a certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to Section 15(b).
(b) Restrictions. By receipt of this Warrant,
the Holder makes the same representations with respect to the acquisition of
this Warrant as the Holder is required to make upon the exercise of this Warrant
and acquisition of the Shares purchasable hereunder as set forth in the Form of
Investment Letter attached as Exhibit A to the Notice of Exercise attached
hereto.
(c) Notices. Unless otherwise provided, any
notice required or permitted under this Warrant shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or three (3) days following deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified (or one (1) day following timely deposit with a reputable overnight
courier with next day delivery instructions), or upon confirmation of receipt by
the sender of any notice by facsimile transmission, at the address indicated
below or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
To Holder: 5~
13.
<PAGE> 14
To the Company: Thoratec Laboratories Corporation
2023 Eighth Street
Berkeley, CA 94710
Attention: President
With a copy to: Heller, Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attention: August J. Moretti
(d) Governing Law. This Warrant shall be
governed by and construed under the laws of the State of California as applied
to agreements among California residents entered into and to be performed
entirely within California.
(e) Entire Agreement. This Warrant, the exhibits
and schedules hereto, and the documents referred to herein, constitute the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous agreements
and understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof.
(f) Binding Effect. This Warrant and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and its successors and assigns, and Holder and its
successors and assigns.
(g) Waiver; Consent. This Warrant may not be
changed, amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Warrant or
any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto.
(h) Severability. If one or more provisions of
this Warrant are held to be unenforceable under applicable law, such provision
shall be excluded from this Warrant and the balance of the Warrant shall be
interpreted as if such provision were so excluded and the balance shall be
enforceable in accordance with its terms.
(i) Early Termination. Notwithstanding the terms
and provisions hereof, the exercisability of this Warrant shall terminate prior
to the expiration thereof concurrently with the occurrence of any "change in
control" of the Company. For purposes of this Section 16(i), a "change in
control" shall mean
a. a merger or consolidation in which more than
fifty percent (50%) of the Company's outstanding voting stock
is transferred to a person or persons
14.
<PAGE> 15
different from those who held the stock immediately prior
to such transaction, or
b. the sale, transfer or other
disposition of all or substantially all of the Company's
assets in complete liquidation or dissolution of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this
Common Stock Warrant effective as of the date hereof.
DATED: June __, 1996 THE COMPANY:
Thoratec Laboratories
Corporation
By:
--------------------------------
Cheryl D. Hess,
Vice President - Finance
and Chief Financial
Officer
HOLDER:
1~
By:
--------------------------------
--------------------------------
15.
<PAGE> 16
NOTICE OF EXERCISE
To: THORATEC LABORATORIES CORPORATION
1. The undersigned hereby elects to purchase _____________
shares of Common Stock ("Stock") of Thoratec Laboratories Corporation, a
California corporation (the "Company") pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price pursuant to the
terms of the Warrant.
2. Attached as Exhibit A is an appropriate investment
representation letter addressed to the Company and executed by the
undersigned as required by Section 12 of the Warrant.
3. Please issue certificates representing the shares of
Stock purchased hereunder in the names and in the denominations
indicated on Exhibit A attached hereto.
4. Please issue a new Warrant for the unexercised
portion of the attached Warrant, if any, in the name of the
undersigned.
Dated:
---------------------- --------------------------
1.
<PAGE> 17
NET ISSUANCE ELECTION NOTICE
To: THORATEC LABORATORIES CORPORATION Date:_____________
The undersigned hereby elects under Section 2 of the attached Warrant
to surrender the right to purchase ___________ shares of Common Stock pursuant
to the attached Warrant. The Certificate(s) for the shares issuable upon such
net issuance election shall be issued in the name of the undersigned or as
otherwise indicated below.
---------------------------
Signature
---------------------------
Name for Registration
---------------------------
Mailing Address
<PAGE> 18
EXHIBIT A
To: THORATEC LABORATORIES CORPORATION
In connection with the purchase by the undersigned of
___________ shares of the Common Stock (the "Stock") of Thoratec Laboratories
Corporation, a California corporation (the "Company"), upon exercise of that
certain Common Stock Warrant dated as of June __, 1996 the undersigned hereby
represents and warrants as follows:
1. The shares of Stock to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same. The undersigned further represents that
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
2. The undersigned understands that the shares of Stock are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with SEC Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
3. Without in any way limiting the representations set
forth above, the undersigned agrees not to make any disposition of
all or any portion of the Stock unless and until:
(a) There is then in effect a registration
statement under the Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) (i) The undersigned shall have notified the
Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding
the proposed disposition, and (ii) if requested, the undersigned
shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company that such disposition will
not require registration of such shares under the Act. The Company
A-1
<PAGE> 19
will not require an opinion of counsel for sales made pursuant to Rule 144
except in unusual circumstances.
4. The undersigned understands the instruments
evidencing the Stock may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SUCH ACT.
Dated:
----------------- --------------------------
A-2
<PAGE> 1
EXHIBIT 5.1
May 23, 1996
Thoratec Laboratories Corporation
1823 Eighth Street
Berkeley, California 94710
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Thoratec Laboratories Corporation, a California
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 (Registration No. 333-03637) filed with the Securities and Exchange
Commission on May 13, 1996 (the "Registration Statement") for the purpose of
registering under the Securities Act of 1993, as amended, 2,875,000 shares of
the Company's Common Stock, no par value (the "Shares"), all of which are being
sold by the Company. The Shares are to be sold pursuant to an Underwriting
Agreement (the "Underwriting Agreement") among the Company, Vector Securities
International, Inc. and Cruttenden Roth Incorporated, as representatives of the
several underwriters named in Schedule I to the Underwriting Agreement.
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to us as
copies. We have based our opinion upon our review of the following records,
documents, instruments and certificates:
(a) The Restated Articles of Incorporation of the Company certified by the
Secretary of State of the State of California as of May 23, 1996, and
certified to us by an officer of the Company as being complete and in
full force and effect as of the date of this opinion;
(b) The Bylaws of the Company certified to us by an officer of the Company
as being complete and in full force and effect as of the date of this
opinion;
(c) A Certificate of the Secretary of the Company: (i) certifying that
copies of all records of proceedings and actions of the Board of
Directors of the Company, including any committee thereof, relating to
the issuance of the Shares and the proposed public offering have been
provided to us; and (ii) certifying as to certain factual matters;
(d) The Registration Statement;
(e) The draft of the Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement; and
(f) A Report of American Securities Transfer, Inc., Transfer Agent to the
Company, to the effect that, as of May 22, 1996, there were 46,809,755
shares of Common Stock issued and outstanding.
This opinion is limited to the laws of the State of California, and we
disclaim any opinion as to the laws of any other jurisdiction. We further
disclaim any opinion as to any other statute, rule, regulation, ordinance, order
or other promulgation of any other jurisdiction or any regional or local
governmental body or as to any related judicial or administrative opinion.
Based upon the foregoing and our examination of such questions of law as we
have deemed necessary or appropriate for the purpose of this opinion, and
assuming that: (i) the Registration Statement becomes and remains effective
during the period when the Shares are offered and sold;
<PAGE> 2
Thoratec Laboratories Corporation
May 23, 1996 Page 2
(ii) the Underwriting Agreement signed by the parties thereto conforms in all
material respects to the draft filed as Exhibit 1.1 to the Registration
Statement; (iii) the currently unissued Shares to be sold by the Company are
issued, delivered and paid for in accordance with the terms of the Underwriting
Agreement; and (iv) all applicable securities laws are complied with, it is our
opinion that the Shares, when issued by the Company, will be legally issued,
fully paid and nonassessable.
This opinion is rendered to you in connection with the Registration
Statement and is solely for your benefit. This opinion may not be relied upon by
you for any other purpose, or relied upon by any other person, firm, corporation
or other entity for any purpose, without our prior written consent. We disclaim
any obligation to advise you of any developments that come to our attention
after the date of this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
------------------------------------
Heller Ehrman White & McAuliffe
<PAGE> 1
EXHIBIT 11
THORATEC LABORATORIES CORPORATION
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------- ---------------------------
1993 1994 1995 APRIL 1, MARCH 30,
----------- ----------- ----------- 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Number of common shares
outstanding for entire
period................. 14,113,454 14,149,456 14,243,610 14,243,610 14,933,136
Weighted average number
of shares issued in
private placement...... -- -- 170,824 -- --
Weighted average number
of shares issued upon
conversion of
convertible notes and
exercise of warrants... -- -- -- -- 183,381
Weighted average number
of shares issued upon
exercise of options.... 5,248 43,165 14,105 3,137 9,872
Weighted average number
of shares issued for
purchase of patent..... 3,519 -- -- -- --
----------- ----------- ----------- ----------- -----------
Weighted average number
of common shares
outstanding............ 14,122,221 14,192,621 14,428,539 14,246,747 15,126,389
=========== =========== =========== =========== ===========
Net loss................. $(725,087) $(1,646,898) $(1,894,166) $(189,027) $(1,244,377)
=========== =========== =========== =========== ===========
Net loss per common
share.................. $(.05) $(.12) $(.13) $(.01) $(.08)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-03637 of Thoratec Laboratories Corporation of our report dated March 1, 1996
(June 3, 1996 as to Note 3) (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the substantial doubt about the
Company's ability to continue as a going concern), appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Oakland, California
June 3, 1996
------------------------------------
The accompanying consolidated financial statements reflect the
one-for-three reverse split of Common Stock, which is to be effected on or about
June 3, 1996. The above consent is in the form which will be signed by Deloitte
& Touche LLP upon consumation of such reverse split, which is described in Note
3 of Notes to Consolidated Financial Statements, and assuming that, from March
1, 1996 to the date of such reverse split, no other events shall have occurred
that would affect the accompanying consolidated financial statements and notes
thereto.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
OAKLAND, CALIFORNIA
MAY 28, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF FISH & RICHARDSON P.C.
We hereby consent to the reference to our name under the caption "Experts"
in the Prospectus included in the Registration Statement on Form S-3
(Registration No. 333-03637) of Thoratec Laboratories Corporation.
Dated: May , 1996
/s/ Fish & Richardson P.C.
------------------------------------
Fish & Richardson P.C.
