THORATEC CORP

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The new standard amends the guidelines for the measurement of inventory from lower of cost or market to the lower of cost and net realizable value (NRV). NRV is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Under existing standards, inventory is measured at lower of cost or market, which requires the consideration of replacement cost, NRV, and NRV less an amount that approximates a normal profit margin. This ASU eliminates the requirement to determine and consider replacement cost or NRV less an approximately normal profit margin for inventory measurement. The new standard is effective prospectively beginning January 1, 2017, with early adoption permitted. We are currently evaluating the impact, if any, of adopting this new accounting guidance on our condensed consolidated financial statements.

On July 23, 2015, the Company and its directors were named as defendants in a purported class action shareholder lawsuit entitled Solak v. Grossman, which was filed in the Superior Court of California, County of Alameda in connection with our entrance into the Merger Agreement (as defined below) with St. Jude Medical, Inc. and certain other parties named therein. The lawsuit generally alleges that the members of our Board of Directors breached their fiduciary duties in negotiating and approving the Merger Agreement, that the Merger Agreement undervalues the Company, that our stockholders will not receive adequate or fair value for their common stock in the Merger (as defined below), and that the terms of the Merger Agreement impose improper deal protection terms that preclude competing offers.

Plaintiffs seek, among other things, to declare that the action is properly maintainable as a class action and to enjoin the Company from consummating the proposed Merger in the manner provided for by the Merger Agreement. Plaintiffs further seek unspecified money damages, costs and attorneys’ and experts’ fees. See also Note 14 titled “Subsequent Events” for a more detailed discussion of the Merger Agreement.

On July 21, 2015, the Company, St. Jude Medical, Inc., a Minnesota corporation (“St. Jude Medical”), and Spyder Merger Corporation, a California corporation and a wholly-owned subsidiary of St. Jude Medical (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Merger Sub will, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, merge with and into the Company, and the Company will survive the merger and continue as a wholly-owned subsidiary of St. Jude Medical (the “Merger”). All issued and outstanding shares of Company stock immediately prior to the effective time of the Merger (the “Effective Time”) will be cancelled and converted into the right to receive the merger consideration specified therein, in each case upon the terms and subject to the conditions set forth in the Merger Agreement.

Under the terms of the Merger Agreement, the Company’s shareholders will receive $63.50 in cash, without interest, for each share of the Company’s common stock they own at the Effective Time. The transaction is conditioned upon, among other things, Company shareholder approval, regulatory approvals and other customary closing conditions. The Merger Agreement includes customary representations, warranties and covenants of the Company and St. Jude Medical. The Company has agreed to operate its business and the business of its subsidiaries in the ordinary course of business consistent with past practices through the Effective Time. The transaction is expected to be completed in the fourth quarter of 2015.

The Merger Agreement includes a “go-shop” period, during which the Company will actively solicit alternative proposals from third parties for a period of 30 days from the date of the Merger Agreement continuing through August 20, 2015. The Merger Agreement provides for the Company to pay a termination fee of approximately $30 million to St. Jude Medical if the Company terminates the Merger Agreement in connection with a superior proposal that arises during the go-shop period and a termination fee of approximately $111 million if the Company terminates the Merger Agreement in connection with a superior proposal that arises following the go-shop period. See also Note 8 titled “Legal Proceedings — Purported Shareholder Class Action Lawsuit, filed July 2015” for a discussion on litigation related to the proposed Merger.

The completion of the Merger is subject to a number of conditions and there can be no assurance that the conditions to the completion of the Merger will be satisfied. The Merger Agreement may also be terminated by us and St. Jude Medical in certain specified circumstances, including, subject to compliance with the terms of the Merger Agreement, by us in order to accept a third-party acquisition proposal that our Board of Directors determines constitutes a superior offer upon payment of a termination fee to St. Jude Medical If the Merger is not completed, we will be subject to several risks, including:

·                  the current price of our common stock may reflect a market assumption that the Merger will occur, meaning that a failure to complete the Merger could result in a decline in the price of our common stock;