<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 28, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
________________
COMMISSION FILE NUMBER: 1-8145
THORATEC LABORATORIES CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-2340464
- ----------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2023 Eighth Street, Berkeley, California 94710
- ------------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (510) 841-1213
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of July 28, 1997, registrant had 18,044,526 shares of common
stock outstanding.
- 1 -
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 28, December 28,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,915,984 $ 5,348,000
Short-term investments available-for-sale 6,217,607 10,631,990
Receivables 1,419,834 833,700
Inventories (Note 3) 2,716,778 2,826,220
Prepaid expenses and other 84,923 266,519
------------ ------------
Total current assets 16,355,126 19,906,429
Equipment and leasehold improvements, at cost 2,735,555 2,509,099
Construction in progress 2,921,983 534,089
Accumulated depreciation and amortization (2,000,922) (1,908,667)
------------ ------------
Equipment and leasehold improvements - net 3,656,616 1,134,521
Other Assets 939,739 929,495
------------ ------------
TOTAL ASSETS $ 20,951,481 $ 21,970,445
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,552,553 $ 1,352,732
Accrued compensation 684,453 527,497
Product sales advances 268,393 267,128
Other 229,814 493,198
------------ ------------
Total current liabilities 3,735,213 2,640,555
Commitments (Note 4)
Shareholders' Equity:
Common shares, 100,000,000 authorized; issued and
outstanding 18,043,236 in 1997 and 17,942,117 in 1996 63,581,412 63,519,139
Paid-in capital 2,481,469 2,471,877
Accumulated deficit (48,838,105) (46,679,195)
Unrealized gain on investments - net 362 5,651
Cumulative translation adjustment (8,870) 12,418
------------ ------------
Total shareholders' equity 17,216,268 19,329,890
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 20,951,481 $ 21,970,445
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
------------------------------ ------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue: $ 2,707,977 $ 2,162,790 $ 4,436,057 $ 3,464,439
Product sales - net 124,720 24,800 238,320 24,800
Rental income 186,972 38,609 390,491 77,230
Interest and other income
------------ ------------ ------------ ------------
Total revenue 3,019,669 2,226,199 5,064,868 3,566,469
------------ ------------ ------------ ------------
Costs and expenses:
Costs of products sold 1,237,450 817,921 2,075,247 1,639,820
Research and development 1,091,652 865,938 2,313,788 1,471,525
Selling, general and administrative 1,520,323 799,171 2,834,743 1,532,226
Debt conversion expense 378,295
Interest expense 45,811
------------ ------------ ------------ ------------
Total costs and expenses 3,849,425 2,483,030 7,223,778 5,067,677
------------ ------------ ------------ ------------
Net loss $ (829,756) $ (256,831) $ (2,158,910) $ (1,501,208)
============ ============ ============ ============
Net loss per common share $ (.05) $ (.02) $ (.12) $ (.10)
============ ============ ============ ============
Weighted average number of
common shares outstanding 18,016,473 15,837,512 17,992,435 15,481,950
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,158,910) $ (1,501,208)
Adjustments to reconcile net loss to net cash used in
operating activities:
Debt conversion expense 378,295
Common stock options granted for services 9,592 59,980
Depreciation and amortization 101,093 62,003
Changes in assets and liabilities:
Receivables (586,134) (633,253)
Prepaid expenses and other 181,596 192,844
Inventories 109,442 (299,260)
Other assets (16,494) 1,372
Accounts payable and other liabilities (160,386) 325,264
------------ ------------
Net cash used in operating activities (2,520,201) (1,413,963)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments available-for-sale (37,207,536)
Maturities of short-term investments available-for-sale 36,295,000
Sales of short-term investments available-for-sale 5,321,630
Capital expenditures (1,383,182) (108,693)
------------ ------------
Net cash provided by (used in) investing activities 3,025,912 (108,693)
------------ ------------
Cash flows from financing activities:
Common stock issued upon exercise of warrants 961,739
Common stock issued upon exercise of options 62,273 151,551
Deferred financing charges -- net (183,206)
------------ ------------
Net cash provided by financing activities 62,273 930,084
------------ ------------
Net increase (decrease) in cash and cash equivalents 567,984 (592,572)
Cash and cash equivalents at beginning of period 5,348,000 1,645,523
------------ ------------
Cash and cash equivalents at end of period $ 5,915,984 $ 1,052,951
============ ============
Noncash Financing Transactions:
Conversion of long-term debt into common stock $ $ 1,675,000
Noncash Investing Transactions:
Construction costs in accounts payable $ 1,520,180 $
Other Cash Flow Information:
Interest paid $ $ 45,811
</TABLE>
See notes to condensed consolidated financial statements.
- 4 -
<PAGE> 5
THORATEC LABORATORIES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by Thoratec Laboratories Corporation (the Company) without audit and, in the
opinion of management, reflect all adjustments necessary (consisting only of
normal recurring adjustments) to present fairly the financial position,
results of operations and cash flows at June 28, 1997 and for all periods
presented. The results of operations for any interim period are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has been
derived from the consolidated financial statements that have been audited by
the Company's independent public accountants. The consolidated financial
statements and notes are presented as permitted by the Securities and
Exchange Commission and do not contain certain information included in the
annual consolidated financial statements and notes of the Company. It is
suggested that the accompanying condensed consolidated financial statements
be read in conjunction with the audited consolidated financial statements
and the notes thereto contained in the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1996, filed with the Securities and
Exchange Commission.
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.
2. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
1997 and will restate at that time earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock.
If SFAS 128 had been in effect during the current and prior periods, basic
EPS and diluted EPS would not have been significantly different than primary
EPS and fully diluted EPS currently reported for the periods. Fully diluted
EPS, as with diluted EPS, is not reported due to its antidilutive effect on
EPS.
5
<PAGE> 6
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 28, December 28,
1997 1996
---------- ----------
<S> <C> <C>
Finished goods $1,503,796 $1,639,444
Work in process 577,807 648,622
Raw materials 635,175 538,154
---------- ----------
Total $2,716,778 $2,826,220
========== ==========
</TABLE>
4. COMMITMENTS
In February 1997, the Company notified its largest European VAD products
distributor that it intended to expand its marketing efforts in Europe and
begin distributing its VAD products directly to hospitals and therefore
would be terminating the distribution agreement with the distributor
effective July 1997. According to the distribution agreement, the Company or
its appointed successor distributor will purchase equipment and inventory
meeting certain requirements and specifications held by the distributor as
of the termination date. The Company estimates that approximately $340,000
of goods may be subject to repurchase by the Company. The estimated income
statement impact of this distributor agreement termination has been accrued
as of June 28, 1997.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
At the end of the second quarter of 1997 the Company had working capital of
$12,620,000 compared with $17,266,000 at the end of 1996. The decrease in
working capital was due primarily to planned expenditures related to the
construction of the Company's new manufacturing facility. In addition, ongoing
operations contributed to the decrease in working capital. Receivables increased
principally as a result of higher sales in June compared to December. Prepaid
expenses and other decreased primarily from amortization of insurance premiums.
Other operating assets and liabilities did not fluctuate significantly from the
end of the year.
While the Company believes it has sufficient funds for its current business plan
for at least the next twelve months it expects that its operating expenses will
increase in future periods as the Company expends increased amounts on product
manufacturing and marketing and on research and development. As a result, the
Company expects to incur net losses for at least the current year. There can be
no assurance that the Company will achieve profitability or positive cash flow.
The Company does not expect that inflation will have a material impact on its
operations.
Results of Operations
Fiscal Quarters Ended June 28, 1997 and June 29, 1996
Product sales in the second quarter of 1997 were approximately $2,708,000
compared to $2,163,000 in the second quarter of 1996. The $545,000, or 25%,
increase is primarily the result of increased sales of the Company's VAD System
in the United States, the establishment of a domestic sales and marketing
organization in 1996, and an increase in the number of hospitals using the
Company's VAD System. Partially offsetting this increase is a decrease in
European VAD sales of $374,000 in the second quarter of 1997 compared to the
second quarter of 1996 as a result of the Company's largest European VAD
products distributor reducing its orders in preparation for the termination of
the distribution agreement with the Company effective July 1997. In February
1997, the Company notified this distributor that it intended to expand its
marketing efforts in Europe and begin distributing its VAD products directly to
hospitals. In June 1996, the Company implemented a rental program whereby
hospitals can rent certain of the Company's products on a short-term basis.
Rental income in the second quarter of 1997 was approximately $125,000 compared
to $25,000 in the second quarter of 1996. Interest and other income increased
approximately $148,000 to $187,000 due to higher cash balances, primarily as a
result of proceeds received from the Company's public stock offering in July
1996. Cost of sales in 1997 increased $420,000, or 51%, as a result of higher
sales volume partially offset by reduced expenditures incurred to upgrade
existing investigational center equipment. Gross margins decreased from 63% in
1996 to 56% in 1997 due in large part to the mix of products sold, there being
proportionately more drivers sold in the second quarter of 1997 than in the
second quarter of 1996. Research and development expenses for the second quarter
of 1997 increased $226,000, or 26%, compared to the second quarter of 1996 due
to increased costs associated with the development of the Company's portable VAD
driver, the TLC-II, and its graft products. Selling, general and administrative
expenses in the second quarter of 1997 increased $721,000, or 90%, compared to
the second quarter of 1996, due to expanded domestic and international marketing
and sales efforts, including costs associated with going direct in Europe,
general
7
<PAGE> 8
corporate and legal expenses, investor relations, and general support needed for
expected growth, including increased personnel.
Six Months Ended June 28, 1997 and June 29, 1996
Product sales in the first six months of 1997 were approximately $4,436,000
compared to $3,464,000 in the first six months of 1996. The $972,000, or 28%,
increase is primarily the result of increased sales of the Company's VAD System
in the United States, the establishment of a domestic sales and marketing
organization in 1996, and an increase in the number of hospitals using the
Company's VAD System. Partially offsetting this increase is a decrease in
European VAD product sales of $593,000 in the first six months of 1997 compared
to the first six months of 1996 as a result of the Company's largest European
VAD products distributor reducing its orders in preparation for the termination
of the distribution agreement with the Company effective July 1997. In February
1997, the Company notified this distributor that it intended to expand its
marketing efforts in Europe and begin distributing its VAD products directly to
hospitals. In June 1996, the Company implemented a rental program whereby
hospitals can rent certain of the Company's products on a short-term basis.
Rental income in the first six months of 1997 was approximately $238,000
compared to $25,000 in the first six months of 1996. Interest and other income
increased approximately $313,000 to $390,000 due to higher cash balances,
primarily as a result of proceeds received from the Company's public stock
offering in July 1996. Cost of sales in 1997 increased $435,000, or 27%, as a
result of higher sales volume. Gross margins increased from 53% in 1996 to 56%
in 1997 due to increases in the average selling prices of many of its products
in the second quarter of 1996 partially offset by proportionately more drivers
being sold in 1997 than in 1996. Research and development expenses for the first
six months of 1997 increased $842,000, or 57%, compared to the first six months
of 1996 due to increased costs associated with the development of the Company's
portable VAD driver, the TLC-II, and its graft products. Selling, general and
administrative expenses in the first six months of 1997 increased $1,303,000, or
85%, compared to the first six months of 1996, due to expanded domestic and
international marketing and sales efforts, including costs associated with going
direct in Europe, corporate and legal expenses associated with trademark and
patent submissions as well as general corporate activities, investor relations
and annual report preparation, and general support needed for expected growth,
including increased personnel. There was no debt conversion expense or interest
expense in the first six months of 1997 because all $1,675,000 of convertible
notes issued in 1994 were converted into common stock in the first quarter of
1996.
Forward-Looking Statements
The portions of this report that relate to future plans, events or performance
are forward-looking statements. Investors are cautioned that all such statements
involve risks and uncertainties, including announcements by the Company's
competitors, risks related to the government regulatory approval processes,
delays in facility construction, delays in product development and new product
introductions, rapidly changing technology, an intensely competitive market,
market acceptance of new products, relationships with foreign distributors,
reimbursement policies and general economic conditions. These factors, and
others, are discussed more fully in the Company's Form 10-K for the year ended
December 28, 1996 and the Company's other filings with the Securities and
Exchange Commission. Actual results, events or performance may differ
materially. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The annual meeting of Shareholders was held on May 16, 1997. The following items
were voted upon and approved at the meeting:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Thoratec 1997 Stock Option Plan.
3. To approve amendments to the Thoratec 1996 Nonemployee Directors Stock
Option Plan.
Number of Votes
<TABLE>
<CAPTION>
Item #1 For Withheld
--- --------
<S> <C> <C>
Christy W. Bell 15,412,075 102,240
Howard E. Chase 15,150,777 363,538
D. Keith Grossman 15,412,675 101,640
J. Donald Hill 15,411,650 102,665
William M. Hitchcock 15,412,275 102,040
George W. Holbrook, Jr. 15,412,593 101,722
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Item #2 11,251,695 1,880,984 13,368 2,368,268
Item #3 14,955,076 226,133 21,776 311,330
</TABLE>
9
<PAGE> 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
10
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THORATEC LABORATORIES CORPORATION
Date: 7/30/97 /s/ D. Keith Grossman
---------------------- -----------------------------------------
D. Keith Grossman, Chief Executive Officer
Date: 7/30/97 /s/ Cheryl D. Hess
---------------------- -----------------------------------------
Cheryl D. Hess, Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Document
-------------- --------
<S> <C>
10.1 First Amendment to Lease Agreement Originally
By and Between Main Street Associates and
Thoratec Laboratories Corporation dated July
25, 1996
10.2(1) Thoratec 1997 Stock Option Plan
10.3 Thoratec 1996 Nonemployee Directors Stock
Option Plan, as amended
11 Statement Re: Computation of Per-Share
Earnings
27 Financial Data Schedule
</TABLE>
- -------------
(1) Incorporated by reference to Form S-8, filed by the registrant on July 28,
1997.
12
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment"), is entered into
as of January 15, 1997 by and between Main Street Associates, a California
general partnership ("Main Street") and EJC Partners, L.P., a California limited
partnership ("EJC Partners", and collectively with Main Street, hereinafter
referred to as "Landlord"), and Thoratec Laboratories Corporation, a California
corporation ("Tenant").
BACKGROUND
A. Main Street and Tenant are the original parties to that
certain Lease Agreement dated July 25, 1996 (the "Original Lease"). Each term
used without definition in this Amendment shall have the meaning given to such
term in the Original Lease.
B. EJC Partners has heretofore acquired from Main Street an
undivided fee interest as tenant-in-common with Main Street in the Parcel (and
the Building which is in the process of being constructed thereon) which is the
subject of the Lease, and accordingly has also succeeded to a portion of the
interest of Main Street as the landlord under the Original Lease.
C. Landlord and Tenant now desire to amend certain of the
terms and conditions set forth in the Original Lease (which together with the
amendments made herein shall be hereinafter referred to as the "Lease") as more
fully described herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and
promises contained herein, the parties to this Amendment hereby agree as
follows:
1. EFFECTIVE DATE. The effective date ("Effective
Date") of this Amendment shall be January 1, 1997.
2. APPROXIMATE SIZE OF BUILDING. Effective as of the
Effective Date, Paragraph 2.B. of the Ground Lease shall be deleted and the
following shall be substituted in its place:
B. That certain two story building to be constructed by
Landlord on the Parcel at the general location shown on the
site plan attached hereto as EXHIBIT "B" containing
approximately 62,188 square feet consisting of approximately
50,688 square feet on the first floor and 11,500 square feet
of offices on the second floor (the "Building") and other
improvements to be constructed by Landlord in accordance with
<PAGE> 2
the provisions of the Improvement Agreement attached hereto as
EXHIBIT "C" (the "Improvement Agreement").
3. MONTHLY INSTALLMENT OF RENT. Effective as of the
Effective Date, Paragraph 4.B. of the Original Lease shall be deleted and the
following shall be substituted in its place:
B. Monthly Installment. Subject to Paragraph 12 of the
Improvement Agreement, the initial Monthly Installment of rent
shall be Eighty-Eight Cents ($0.88) per square foot multiplied
by the gross square foot area of the Building as reasonably
certified in writing by Landlord's Architect to Landlord and
Tenant following completion of construction of the Building,
with the gross square foot measurement to be measured from the
exterior surface of the outside walls of the Building
(excluding any deviations in the exterior surface for minor
indentations or protrusions such as windows and window
casings) ("Building Area"). In no event shall the Building
Area so calculated for this purpose be deemed to exceed 62,188
square feet (the maximum square footage approved for
development on the Parcel by the City Council of the City of
Pleasanton pursuant to Resolution No. 96-101 adopted on
September 3, 1996).
Commencing as of the first (1st) anniversary of the Rental
Commencement Date, and continuing every year thereafter
throughout the remainder of the Lease Term (each such date
being referred to as a "Rent Adjustment Date"), the Monthly
Installment of rent shall be increased by an amount equal to
the product obtained by multiplying the Monthly Installment of
rent in effect for the calendar month immediately preceding
the Rent Adjustment Date in question by a fraction, the
numerator of which is the New Index (as defined below) and the
denominator of which is the Prior Index (as defined below);
provided, however, that in no event shall the Monthly
Installment of rent be increased in excess of four percent
(4%) per annum. If, on any Rent Adjustment Date, the New Index
for such Rent Adjustment Date has not yet been published,
Tenant shall continue to pay the rent then in effect until
such time as the New Index is published, at which time the
entire increase specified above shall take effect retroactive
to the Rent Adjustment Date and Tenant shall pay to Landlord
any portion of the entire increase not already paid.
4. LANDLORD IMPROVEMENT COSTS.
(a) Effective as of the Effective Date,
Paragraph 2.J. of Exhibit "C" to the Lease ("Improvement Agreement") shall be
deleted and the following shall be substituted in its place:
J. Base Landlord Improvement Costs. The term "Base
Landlord Improvement Costs" shall mean Thirty-Six Dollars
Forty Cents ($36.40) per square foot multiplied by the
Building Area (as determined pursuant to Paragraph 4.B of the
Lease).
-2-
<PAGE> 3
(b) Effective as of the Effective Date,
Paragraph 12 of Exhibit C to the Lease ("Improvement Agreement") shall be
deleted and the following shall be substituted in its place:
12. Payment of Landlord Improvement Costs. Subject to
Paragraph 11 above, the Landlord Improvement Costs for the
Landlord Improvements shall be paid by Landlord and Tenant as
follows:
A. Landlord shall pay all Landlord Improvement Costs up
to the Base Landlord Improvement Costs.
B. Landlord shall pay all Excess Landlord Improvement Costs up
to Three Hundred Fifty Thousand Dollars ($350,000). In such
event Tenant shall have the option of either reimbursing
Landlord for such Excess Landlord Improvement Costs at the
time of Substantial Completion of the Landlord Improvements,
or, in lieu of such reimbursement, increasing each Monthly
Installment of rent (as calculated pursuant to Paragraph 4.B
of the Lease) during the Lease Term by an amount equal to one
percent (1%) of the Excess Landlord Improvement Costs.
Notwithstanding the foregoing to the contrary Landlord shall
pay all, and in no event shall Tenant be obligated to
reimburse Landlord or pay any increased rent as a result of,
Excess Landlord Improvement Costs greater than Three Hundred
Fifty Thousand Dollars ($350,000).
C. [Landlord's termination rights have expired and
therefore are intentionally deleted.]
5. RATIFICATION OF THE LEASE AS AMENDED. Except as modified by
this Amendment, Landlord and Tenant hereby acknowledge and ratify all of the
terms and conditions of the Original Lease and agree that the Original Lease, as
amended hereby, is and shall remain in full force and effect between Landlord
and Tenant.
IN WITNESS WHEREOF, the parties hereto have entered into this
Amendment in one or more counterparts.
TENANT:
THORATEC LABORATORIES, CORPORATION,
a California corporation
By: /s/ Dan Nielsen
---------------------------------------
Name: Dan Nielsen
---------------------------------------
Title: Vice President - Operations
---------------------------------------
-3-
<PAGE> 4
LANDLORD:
MAIN STREET ASSOCIATES,
a California general partnership
Tenant-in-Common
By: /s/ Steven P. Thomas
-------------------------------------------------
Steven P. Thomas, Managing General Partner
By: The Bailey Revocable Trust Dated June 24,
1993, General Partner
By: /s/ Robert J. Bailey
----------------------------------------------
Robert J. Bailey, Co-Trustee under the
Bailey Revocable Trust Dated June 24, 1993
By: /s/ Adele B. Bailey
---------------------------------------------
Adele B. Bailey, Co-Trustee under the
Bailey Revocable Trust Dated June 24, 1993
EJC PARTNERS, L.P.,
a California Limited partnership
Tenant-in-Common
By: /s/ John F. Miller
-------------------------------------------------
John F. Miller, Trustee of the Survivor's
Trust Established by Cashin 1990 Trust,
General Partner
By: /s/ John F. Miller
-------------------------------------------------
John F. Miller, Trustee of the Residual
Balance Trust Established by Cashin 1990 Trust,
General Partner
-4-
<PAGE> 1
ANNEX I
1996 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
OF
THORATEC LABORATORIES CORPORATION
1. PURPOSES OF THE PLAN
The purposes of the 1996 Nonemployee Directors Stock
Option Plan of Thoratec Laboratories Corporation, a California
corporation, are to:
(a) Encourage Nonemployee Directors to improve operations and
increase profits of the Company;
(b) Encourage Nonemployee Directors to accept or continue
their association with the Company; and
(c) Increase the interest of Nonemployee Directors in the
Company's welfare through participation in the growth in value of the Common
Stock of the Company.
Options granted hereunder shall be "Nonstatutory Options", and
shall not include "incentive stock options" intended to satisfy the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended.
2. DEFINITIONS
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the entity, either the Board or
the Committee, responsible for administering this Plan, as provided in Section
3.
(b) "Board" shall mean the Board of Directors of the Company,
as constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee, if any, appointed by
the Board in accordance with Section 5(a) to administer this Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
(f) "Company" shall mean Thoratec Laboratories Corporation, a
California corporation.
<PAGE> 2
(g) "Director Fee" shall mean the cash amount, if any, a
Nonemployee Director shall be entitled to receive for serving as a director of
the Company in any fiscal year.
(h) "Fair Market Value" shall mean, as of the date in
question, the last transaction price quoted by the NASDAQ National Market System
on the date of grant; provided, however, that if the Common Stock is not traded
on such market system or the foregoing shall otherwise be inappropriate, then
the Fair Market Value shall be determined by the Administrator in good faith at
its sole discretion and on such basis as it shall deem appropriate. Such
determination shall be conclusive and binding on all persons.
(i) "Nonemployee Director" shall mean any person who is a
member of the Board but is not an employee of the Company or any Parent or
Subsidiary of the Company and has not been an employee of the Company or any
Parent or Subsidiary of the Company at any time during the preceding twelve (12)
months. Service as a director does not in itself constitute employment for
purposes of this definition.
(j) "Option" shall mean a stock option granted pursuant to
this Plan. Each Option shall be a nonstatutory option not intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(k) "Option Agreement" shall mean the written agreement
described in Section 6 evidencing the grant of an Option to a Nonemployee
Director and containing the terms, conditions and restrictions pertaining to
such Option.
(l) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(m) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(n) "Plan" shall mean this Thoratec Laboratories Corporation
Nonemployee Directors Stock Option Plan, as it may be amended from time to time.
(o) "Related Option" shall have the meaning set forth in
Section 8.7.
(p) "Rule 16b-3" shall have the meaning set forth in Section
5(a).
(q) "Section" unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
-2-
<PAGE> 3
(r) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 8.1.
(s) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 424(f)
of the Code, but only for so long as it is a "subsidiary corporation".
3. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a
Nonemployee Director is eligible to receive Options under this Plan.
4. STOCK SUBJECT TO THIS PLAN
Subject to Section 8.1 of this Plan, the maximum aggregate
number of Shares which may be issued on exercise of Options granted pursuant to
this Plan is 150,000 Shares. The Shares covered by the portion of any grant
under the Plan which expires unexercised shall become available again for grants
under the Plan.
5. ADMINISTRATION
(a) This Plan shall be administered by the Board, or by a
committee (the "Committee") of at least two (2) Board members to which
administration of the Plan is delegated (in either case, the "Administrator"),
in accordance with the requirements of Rule 16b-3 promulgated by the Securities
and Exchange Commission ("Rule 16b-3"), or any successor rule thereto.
(b) Subject to the other provisions of this Plan, the
Administrator shall have the authority, in its sole discretion: (i) to determine
the Fair Market Value of the Shares subject to Option; (ii) to interpret this
Plan; (iii) to prescribe, amend and rescind rules and regulations relating to
this Plan; (iv) to defer (with the consent of the Optionee) or accelerate the
exercise date of any Option; (v) to authorize any person to execute on behalf of
the Company any instrument evidencing the grant of an Option; and (vi) to make
all other determinations deemed necessary or advisable for the administration of
this Plan. The Administrator may delegate nondiscretionary administrative duties
to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation and
application of this Plan shall be determined by the Administrator. Such
determination shall be final and binding on all persons.
-3-
<PAGE> 4
6. GRANT OF OPTIONS
(a) Subject to the terms and conditions of this Plan, if any
person who is not an officer or employee of the Company is first elected or
appointed as a member of the Board on or after the Company's annual meeting of
shareholders held in 1996 but before the annual meeting of shareholders held in
1997, then on the effective date of such appointment or election of such person,
the Company shall grant to such Nonemployee Director an Option to purchase 3,333
Shares at an exercise price equal to the Fair Market Value of such Shares on the
date of such Option grant. If any person who is not an officer or employee of
the Company is first elected or appointed as a member of the Board on or after
the Company's annual meeting of shareholders held in 1997, then on the effective
date of such appointment or election of such person, the Company shall grant to
such Nonemployee Director an Option to purchase 10,000 Shares at an exercise
price equal to the Fair Market Value of such Shares on the date of such Option
grant.
(b) Subject to the terms and conditions of this Plan, on the
date of the first meeting of the Board immediately following each annual meeting
of shareholders of the Company (even if held on the same day as the meeting of
shareholders) which is held after the date this Plan is approved by the
shareholders of the Company and before the annual meeting of shareholders held
in 1997, the Company shall grant to each Nonemployee Director then in office an
Option to purchase 1,667 Shares at an exercise price equal to the Fair Market
Value of such Shares on the date of such Option grant. Subject to the terms and
conditions of this Plan, on the date of the first meeting of the Board
immediately following each annual meeting of shareholders of the Company (even
if held on the same day as the meeting of shareholders) which is held on or
after the annual meeting of shareholders held in 1997, the Company shall grant
to each Nonemployee Director then in office an Option to purchase 5,000 Shares
at an exercise price equal to the Fair Market Value of such Shares on the date
of such Option grant. Provided, however, that if in any year an annual meeting
of shareholders is not held by June 15, then on June 15 of any such year the
Company shall grant to each Nonemployee Director then in office an Option to
purchase 5,000 Shares at an exercise price equal to the Fair Market Value of
such Shares on June 15 and the Company shall not thereafter grant any Options
pursuant to this subsection (b) in any such year. Notwithstanding anything in
this subsection (b) to the contrary, a director shall not receive an Option
pursuant to this subsection (b) if such director has been first elected or
appointed as a member of the Board within six months before the date on which an
Option would be granted hereunder.
(c) No Options shall be granted under this Plan after ten (10)
years from the date of adoption of this Plan by the
-4-
<PAGE> 5
Board. Each Option shall be evidenced by a written Option Agreement, in form
satisfactory to the Company, executed by the Company and the Nonemployee
Director to whom such Option is granted; provided, however, that the failure by
the Company, the Nonemployee Director or both to execute such an agreement shall
not invalidate the granting of an Option.
7. DIRECTOR FEE ELECTION
Upon election by the Board, all or any part of the Director
Fees can be waived in any given year, and the Director Fees waived may be
applied by the Board to reduce the exercise price of Options granted to the
Nonemployee Directors pursuant to Sections 6(a) and 6(b). The amount of Director
Fees waived may vary from year to year. By way of example, if the Board elects
pursuant to this Section to waive an aggregate of $6,000 of Director Fees which
would otherwise be payable to three Nonemployee Directors ($2,000 of fees for
each), an amount of $6,000 ($2,000 each) shall be applied by the Board to reduce
the exercise price of Options granted pursuant to Section 6(b), so that if each
of the three Nonemployee Directors in this example are granted Options for 1,000
shares exercisable at $5.00 each, the $2,000 could be applied to reduce the
exercise price of these options to $3.00 per share ($2,000 / 1,000 shares =
$2.00 per share reduction in exercise price).
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the
terms and conditions set forth in this Section 8.
8.1 Changes in Capital Structure. Subject to Section 8.2, if
the Common Stock is changed by reason of a stock split, reverse stock split,
stock dividend or re-capitalization, or converted into or exchanged for other
securities as a result of a merger, consolidation or reorganization, appropriate
adjustments shall be made in: (a) the number and class of shares of Common Stock
subject to this Plan and each Option outstanding under this Plan; and (b) the
exercise price of each outstanding Option; provided, however, that the Company
shall not be required to issue fractional shares as a result of any such
adjustments. Each such adjustment shall be subject to approval by the
Administrator in its sole discretion.
8.2 Time of Option Exercise. Subject to the other provisions
of this Plan, each Option granted pursuant to this Plan shall be for a term of
ten (10) years and two (2) days. Each Option granted under Section 6 of this
Plan shall be exercisable in full six months after the date of grant. The
Company shall have a right of repurchase at the option exercise price with
respect to shares purchased upon exercise of Options granted pursuant to Section
6 which shall expire with respect to
-5-
<PAGE> 6
12 1/2% of the number of Shares covered by such Option six months after the date
such Option is granted and shall expire with respect to 6 1/4% of the number of
shares covered by such Option at the end of each three-month period thereafter.
8.3 Corporate Transactions. In connection with an acquisition
of the Company affected by a merger, consolidation, sale of all or substantially
all of the Company's assets, acquisition of shares, or any like occurrence in
which the Company is involved, the right of repurchase specified in Section 8.2
shall lapse with respect to twice the number of shares then subject to such
right of repurchase. The Administrator shall have the authority, in its sole
discretion, to determine the time prior to consummation of such transaction when
such right of repurchase shall so lapse.
8.4 Limitation on Other Grants. The Administrator shall have
no discretion to grant Options under this Plan other than as set forth in
Sections 6(a) and 6(b).
8.5 Nonassignability of Option Rights. No Option granted under
this Plan shall be assignable or otherwise transferable by the Optionee, except
by will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by the Code. During the life of an Optionee,
an Option shall be exercisable only by the Optionee.
8.6 Payment. Except as provided below, payment in full, in
cash, shall be made for all Option Shares purchased at the time written notice
of exercise of an Option is given to the Company, and proceeds of any payment
shall constitute general funds of the Company. Payment may also be made pursuant
to a cashless exercise/sale procedure. At the time an Option is granted or
exercised, the Administrator, in the exercise of its absolute discretion, may
authorize any one or more of the following additional methods of payment: (a)
acceptance of the Optionee's full recourse promissory note for all or part of
the Option price, less any par value per share, which must be paid in cash,
payable on such terms and bearing such interest rate as determined by the
Administrator (but in no event less than the minimum interest rate specified
under the Code at which no additional interest on debt instruments of such type
would be imputed), which promissory note may be either secured or unsecured in
such manner as the Administrator shall approve (including, without limitation,
by a security interest in the Shares); (b) delivery by the Optionee of Common
Stock already owned by the Optionee for all or part of the Option price,
provided the Fair Market Value of such Common Stock is equal on the date of
exercise to the Option price, or such portion thereof as the Optionee is
authorized to pay by delivery of such stock; provided, however, that if an
Optionee has exercised any portion of any option granted by the Company by
delivery of Common Stock,
-6-
<PAGE> 7
the Optionee may not, within six (6) months following such exercise, exercise
any Option granted under this Plan by delivery of Common Stock; and (c) any
other consideration and method of payment to the extent permitted under the
California Corporations Code.
8.7 Termination as Director. Unless determined otherwise by
the Administrator in its absolute discretion, to the extent not already expired
or exercised, an Option shall terminate at the earlier of: (a) the expiration of
the term of the Option; or (b) three (3) months after the last day served by the
Optionee as a director of the Company; provided, that an Option shall be
exercisable after the date of termination of service as a director only to the
extent exercisable on the date of termination; and provided further, that if
termination of service as a director is due to the Optionee's death or
"disability" (as determined in accordance with Section 22(e)(3) of the Code),
the Optionee, or the Optionee's personal representative (or any other person who
acquires the Option from the Optionee by will or the applicable laws of descent
and distribution), may at any time within twelve (12) months after the
termination of service as a director (or such lesser period as is specified in
the Option Agreement but in no event after the expiration of the term of the
Option), exercise the rights to the extent they were exercisable on the date of
the termination.
8.8 Withholding and Employment Taxes. At the time of exercise
of an Option (or at such later time(s) as the Company may prescribe), the
Optionee shall remit to the Company in cash all applicable federal and state
withholding and employment taxes. If authorized by the Administrator in its sole
discretion, an Optionee shall be permitted to elect, by means of a form of
election to be prescribed by the Administrator, to have shares of Common Stock
which are acquired upon exercise of the Option withheld by the Company or to
tender to the Company other shares of Common Stock or other securities of the
Company owned by the Optionee on the date of determination of the amount of tax
to be withheld as a result of the exercise of such Option (the "Tax Date") to
pay the amount of tax that is required by law to be withheld by the Company as a
result of the exercise of such Option. Any securities so withheld or tendered
shall be valued by the Company as of the Tax Date.
8.9 Option Term. Each Option granted hereunder shall expire
ten (10) years and two (2) days after the date of grant.
9. MANNER OF EXERCISE
(a) An Optionee wishing to exercise an Option shall give
written notice to the Company at its principal executive office, to the
attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise
-7-
<PAGE> 8
price as provided in Section 8.6 and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option. The date the Company receives written notice of an
exercise hereunder accompanied by payment of the exercise price and any required
federal or state withholding or employment taxes will be considered as the date
such Option was exercised. Unless otherwise provided by the Administrator,
options may be exercised only twice in any calendar year.
(b) Promptly after the date an Option is exercised, the
Company shall, without stock issue or transfer taxes to the optionee or other
person entitled to exercise the Option, deliver to the Optionee or such other
person a certificate or certificates for the requisite number of shares of
Common Stock. An Optionee or transferee of an Optionee shall not have any
privileges as a stockholder with respect to any Common Stock covered by the
Option until the date of issuance of a stock certificate.
10. NO RIGHT TO DIRECTORSHIP
Neither this Plan nor any Option granted hereunder shall
confer upon any Optionee any right with respect to continuation of the
Optionee's membership on the Board or shall interfere in any way with provisions
in the Company's Articles of Incorporation and By-Laws relating to the election,
appointment, terms of office, and removal of members of the Board.
11. FINANCIAL INFORMATION
The Company shall provide to each Optionee during the period
such optionee holds an outstanding Option a copy of the financial statements of
the Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall be delivered as soon
as practicable following the end of the Company's fiscal year during the period
Options are outstanding.
12. LEGAL REQUIREMENTS
The Company shall not be obligated to offer or sell any Shares
upon exercise of any Option unless the Shares are at that time effectively
registered or exempt from registration under the federal securities laws and the
offer and sale of the Shares are otherwise in compliance with all applicable
securities laws and the regulations of any stock exchange on which the Company's
securities may then be listed. The Company shall have no obligation to register
the Shares covered by this Plan under the federal securities laws or take any
other steps as may be necessary to enable the Shares covered by this Plan to be
offered and sold under federal or other securities laws. Upon exercising
-8-
<PAGE> 9
all or any portion of an Option, an Optionee may be required to furnish
representations or undertakings deemed appropriate by the Company to enable the
offer and sale of the Shares or subsequent transfers of any interest in the
Shares to comply with applicable securities laws. Certificates evidencing Shares
acquired upon exercise of Options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan or the
Option Agreements.
13. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent
of an optionee, no amendment may adversely affect outstanding Options. No
amendment shall require shareholder approval unless:
(a) shareholder approval is required to meet the exemptions
provided by Rule 16b-3, or any successor rule thereto; or
(b) the Board otherwise concludes that shareholder approval is
advisable.
14. SHAREHOLDER APPROVAL; TERM
This Plan shall become effective upon adoption by the Board of
Directors; provided, however, that no Option shall be exercisable unless and
until written consent of holders of a majority of the outstanding shares of
capital stock of the Company, or approval by holders of a majority of shares of
capital stock of the Company present, or represented, and entitled to vote at a
validly called shareholders' meeting (or such greater number as may be required
by law or applicable governmental regulations or orders) is obtained within
twelve (12) months after adoption by the Board. This Plan shall terminate ten
(10) years after adoption by the Board unless terminated earlier by the Board.
The Board may terminate this Plan at any time without shareholder approval. No
Options shall be granted after termination of this Plan, but termination shall
not affect rights and obligations under then outstanding Options.
-9-
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Number of common shares
outstanding for entire period 17,974,591 15,575,352 17,942,117 14,933,136
Weighted average number
of shares issued upon
conversion of convertible notes
and exercise of warrants 241,728 490,683
Weighted average number of
shares issued upon exercise of
options 41,882 20,432 50,318 58,131
------------ ------------ ------------ ------------
Weighted average number of 18,016,473 15,837,512 17,992,435 15,481,950
common shares outstanding
============ ============ ============ ============
Net loss $ (829,756) $ (256,831) $ (2,158,910) $ (1,501,208)
============ ============ ============ ============
Net loss per common share $ (.05) $ (.02) $ (.12) $ (.10)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS OF THORATEC
LABORATORIES CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1997
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 5,915,984
<SECURITIES> 6,217,607
<RECEIVABLES> 1,419,834
<ALLOWANCES> 0
<INVENTORY> 2,716,778
<CURRENT-ASSETS> 16,355,126
<PP&E> 5,657,538
<DEPRECIATION> 2,000,922
<TOTAL-ASSETS> 20,951,481
<CURRENT-LIABILITIES> 3,735,213
<BONDS> 0
0
0
<COMMON> 63,581,412
<OTHER-SE> (46,365,144)
<TOTAL-LIABILITY-AND-EQUITY> 20,591,481
<SALES> 4,436,057
<TOTAL-REVENUES> 5,064,868
<CGS> 2,075,247
<TOTAL-COSTS> 2,075,247
<OTHER-EXPENSES> 5,148,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,158,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,158,910)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,158,910)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
