Edgar Filing: THORATEC CORP

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2002

REGISTRATION NO. 333-72128
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 3 TO

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

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THORATEC CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

CALIFORNIA 94-2340464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6035 STONERIDGE DRIVE, PLEASANTON, CALIFORNIA 94588 (925) 847-8600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

D. KEITH GROSSMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6035 STONERIDGE DRIVE, PLEASANTON, CALIFORNIA 94588 (925) 847-8600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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COPIES TO:

KYLE GUSE ALEJANDRO E. CAMACHO
HELLER EHRMAN WHITE & MCAULIFFE LLP CLIFFORD CHANCE ROGERS & WELLS LLP
275 MIDDLEFIELD ROAD 200 PARK AVENUE
MENLO PARK, CA 94025 NEW YORK, NY 10166
TELEPHONE: (650) 324-6715 TELEPHONE: (212) 878-8000
FACSIMILE: (650) 324-0638 FACSIMILE: (212) 878-8375

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable following the effectiveness of this Registration Statement.
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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, 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 of 1933, please check the
following box and list the Securities Act registration 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 of 1933, 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: [ ]

WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JANUARY 24, 2002

PROSPECTUS

8,000,000 SHARES

[LOGO]

COMMON STOCK

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We are offering 2,055,000 shares of common stock. The selling shareholders are
offering 5,945,000 shares, of which Thermo Electron Corporation is offering
5,825,000 shares. We will not receive any of the proceeds from the sale of
shares being sold by the selling shareholders.

Our common stock is quoted on the Nasdaq National Market under the symbol
"THOR." On January 15, 2002, the last reported sale price of our common stock on
the Nasdaq National Market was $19.32 per share.

INVESTING IN THE SHARES INVOLVES RISKS. "RISK FACTORS" BEGIN ON PAGE 7.

PER
SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds to Thoratec........................................ $ $
Proceeds to the selling shareholders........................ $ $

We and the selling shareholders have granted the underwriters a 30-day option to
purchase up to 1,200,000 additional shares of common stock to cover any
over-allotments.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Lehman Brothers expects to deliver the shares on or about , 2002.

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LEHMAN BROTHERS
JPMORGAN
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ADAMS, HARKNESS & HILL, INC.
FIDELITY CAPITAL MARKETS

, 2002

TABLE OF CONTENTS

PAGE
----

Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 15
Price Range of Common Stock........... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21

PAGE
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Business.............................. 28
Management............................ 44
Principal and Selling Shareholders.... 47
Description of Capital Stock.......... 51
Underwriting.......................... 52
Legal Matters......................... 55
Experts............................... 55
Where You Can Find More Information... 55

FORWARD LOOKING STATEMENTS

This prospectus, including the documents incorporated by reference in this
prospectus, includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Our actual results could differ materially from those discussed
in, or implied by, these forward-looking statements. Forward-looking statements
are identified by words such as "believe," "anticipate," "expect," "intend,"
"plan," "will," "may" and other similar expressions. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances are forward-looking statements. Forward-looking
statements include, but are not necessarily limited to, those relating to:

- our ability to obtain and maintain regulatory approvals of our products
in the United States and internationally;

- results and timing of our clinical trials, including the results of the
REMATCH trial and publication of those results;

- the other competing therapies that may, in the future, be available to
heart failure patients;

- our plans to develop and market new products;

- our ability to improve our financial performance; and

- effects of the merger and integration with Thermo Cardiosystems, Inc.,
which we refer to as Thermo Cardiosystems or TCA.

Factors that could cause actual results or conditions to differ from those
anticipated by these and other forward-looking statements include those more
fully described in the "Risk Factors" section and elsewhere in this prospectus.
We are not obligated to update or revise these forward-looking statements to
reflect new events or circumstances.

You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. You should assume that the information appearing in this
prospectus is accurate only as of the date on the front cover of this
prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the "Risk
Factors" section and our consolidated financial statements and the related notes
that are incorporated by reference into this prospectus. Unless otherwise
indicated, the information in this prospectus assumes that the underwriters do
not exercise their over-allotment option.

OUR COMPANY

OUR BUSINESS

We develop and market products that are used by physicians and hospitals
for cardiac assist, vascular and diagnostic applications. Our three types of
products are:

- Circulatory support products. Our circulatory support products include
ventricular assist devices for the short-term and long-term treatment of
congestive heart failure. Our products address more indications than the
products of any other cardiac-assist device company.

- Vascular graft products. We have developed small diameter grafts to
address the vascular access and coronary bypass surgery markets. These
grafts use our proprietary materials that are designed to improve
performance. Our grafts are sold in the United States and internationally
for use in hemodialysis patients and are currently in clinical trials for
coronary artery bypass applications.

- Blood coagulation testing and skin incision devices. We have a leading
market position for devices that monitor blood coagulation and perform
blood screening analysis for patients undergoing various surgical
procedures. We also offer a family of single-use skin incision devices
used to create a blood sample.

OUR MARKETS

The primary markets for our VAD products are those patients suffering from
heart failure, and in particular, from CHF. CHF is a chronic disease that occurs
when degeneration of the heart muscle reduces the pumping power of the heart,
causing the heart to become too weak to pump blood at a level sufficient to meet
the body's demands. CHF can be caused by artery or valve diseases or a general
weakening of the heart muscle itself. In addition, other conditions, such as
high blood pressure or diabetes, can also lead to CHF. We believe that the
number of patients suffering from CHF who could benefit from some form of
cardiac assist could be over 200,000 annually.

We estimate that our VADs have treated over 4,700 patients. Our devices are
used primarily for patients awaiting a heart transplant or recovering from open
heart surgery. However, we are pursuing approval to use our VADs in other
indications, including as an alternative to maximum drug therapy for CHF
patients who are not eligible for a heart transplant and for therapeutic
recovery to partially reverse the complications of late-stage heart failure in
certain patients.

OUR STRATEGY

We are a leading developer and manufacturer of medical devices for the CHF,
cardiac surgery and vascular graft markets. Our key strategies to maintain and
expand this leadership position are to:

- Obtain approval for new indications for our products;

- Increase penetration of existing markets;

- Leverage benefits of our merger with TCA;

- Offer a broad range of product solutions;

- Focus on and partner with leading heart centers; and

- Grow internationally.

THE MERGER WITH THERMO CARDIOSYSTEMS

On February 14, 2001, we completed our merger with Thermo Cardiosystems, a
Massachusetts-based manufacturer of cardiac assist, blood coagulation testing
and skin incision devices. As a result of the merger, we substantially increased
the size of our company and became a leading provider of circulatory support
products worldwide. We now sell VADs to virtually every leading heart transplant
center worldwide and we market three out of the four VADs approved by the FDA as
a bridge to heart transplant. At the time of the merger, we changed our name to
Thoratec Corporation. As a consequence of the merger, the parent company of TCA,
Thermo Electron Corporation, owned approximately 26% of our outstanding stock on
September 29, 2001 and will own approximately 15% after this offering.

RECENT DEVELOPMENTS

On November 12, 2001 the results of a clinical trial called REMATCH, or
Randomized Evaluation of Mechanical Assistance for the Treatment of Congestive
Heart Failure, were presented at the American Heart Association Scientific
Sessions and were published in a website edition of The New England Journal of
Medicine. The REMATCH trial, which cost approximately $25 million according to
one of the trial sponsors, was a collaboration among the National Institutes of
Health, or NIH, as lead sponsor, Columbia University and our company. We were a
partial sponsor of the REMATCH trial, providing approximately $3.6 million of
financial support and all necessary VAD's and related equipment.

The REMATCH trial results, as published in the New England Journal of
Medicine, involved 129 late-stage CHF patients who, because of their ages or
other diseases, were not eligible to receive one of the very limited supply of
donor organs for heart transplantation. The study was independently coordinated
by Columbia University at 21 prestigious transplant centers in the United
States. Patient enrollment for the initial study protocol began in 1998 and
concluded in June 2001. The overall purpose of the study was to evaluate the
efficacy, safety and cost effectiveness of our HeartMate ventricular assist
device versus optimal medical management, which we call "maximum drug therapy."
The REMATCH publication provided a detailed evaluation of survivability, device
safety and impact on patient quality of life.

Results from the REMATCH trial showed a significant survival benefit and
improved quality of life for patients using the HeartMate compared to maximum
drug therapy. The study showed the overall probability of one-year survival for
those on the HeartMate was 52% versus 25% for patients treated with maximum drug
therapy. The one year survival rates for patients younger than 60 years old was
74% for those patients on the HeartMate and 33% for those treated with maximum
drug therapy. The one year survival rates for patients 60 to 69 years old was
47% for those patients on the HeartMate and 15% for those treated with maximum
drug therapy. Two-year survival rates are estimated to be 23% for patients on
the HeartMate and 8% for those treated with maximum drug therapy. The median
length of survival was approximately 408 days for those on the HeartMate and 150
days for those treated with maximum drug therapy. The frequency of serious
adverse events for patients in the HeartMate group was 2.35 times greater than
for patients in the maximum drug therapy group, with a predominance of
infection, bleeding

and malfunction of the device. Some of these adverse events experienced by
patients on the HeartMate included an ischemic stroke in approximately 10% of
the patients, half of which were major.

Based on a review of these data, the FDA approved an IDE Supplement
allowing up to 30 additional non-randomized patients to be implanted with the
HeartMate as an alternative to maximum drug therapy. This IDE Supplement also
permits patients who were being treated with maximum drug therapy in the
original study to be implanted with the HeartMate.

On October 16, 2001, we submitted a PMA Supplement for the HeartMate as an
alternative to maximum drug therapy for patients suffering from late-stage CHF.
On November 29, 2001, we received notification from the FDA that it will
expedite the review of our PMA Supplement. We have been notified that on March
4, 2002 the FDA Circulatory System Devices Advisory Panel will meet to review
our PMA Supplement based on the REMATCH trial. We believe that the panel will
issue a recommendation to the FDA on the day of its meeting. The panel could
recommend approval, disapproval or approval with certain conditions and the FDA
typically follows the panel's recommendations, although it is not legally
obligated to do so. If approved by the FDA, the HeartMate will become the first
ventricular assist device approved for use as an alternative treatment to
maximum drug therapy for patients suffering from late-stage CHF. We have already
initiated discussions with the Centers for Medicare and Medicaid Services
(formerly HCFA) regarding reimbursement coverage for use of the HeartMate in
this treatment.

We believe that this new application for our HeartMate device represents a
market opportunity of up to 100,000 additional patients annually in the United
States alone, which would represent a significant increase over our existing
customer base. For these patients, maximum drug therapy is currently the only
treatment available and, even with drug therapy, the 12-month mortality rate for
these patients is 75%. We believe that the HeartMate will provide a significant
survival benefit for this patient population.

On January 23, 2002, we announced a plan to redeem all outstanding 4 3/4%
convertible subordinated debentures due 2004 originally issued by Thermo
Cardiosystems. As of the date of this prospectus the outstanding principal
amount of the debentures is $54.8 million. We anticipate that the redemption
will be completed by the end of April, 2002.

We were founded in 1976 and are a California corporation. Our principal
offices are located at 6035 Stoneridge Drive, Pleasanton, California 94588. Our
telephone number is (925) 847-8600, and our fax number is (925) 847-8625.

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Thoratec, the Thoratec logo, Thoralon, TLC-II, Vectra, HeartTouch,
HeartMate and HeartPak are registered trademarks, and Aria is a trademark, of
Thoratec Corporation.

HEMOCHRON, ProTime, Surgicutt, Tenderlett and Tenderfoot are registered
trademarks of International Technidyne Corporation, our wholly-owned subsidiary.

THE OFFERING

Common stock offered by our
company....................... 2,055,000 shares

Common stock offered by
selling shareholders.......... 5,945,000 shares

Common stock outstanding after
the offering.................. 57,397,262 shares

Use of proceeds............... We intend to use the proceeds from this
offering for:

- the pursuit of additional regulatory
approvals for our products;

- research and development;

- expansion of sales and marketing;

- acquisitions of complementary technologies
and businesses; and

- working capital and other general corporate
purposes.

Nasdaq National Market
symbol........................ "THOR"

The common stock outstanding after this offering is based on the number of
shares outstanding at September 29, 2001, and excludes 5,817,961 shares of
common stock reserved for issuance upon the exercise of outstanding stock
options on that date at a weighted average exercise price of $9.97 per share and
1,457,682 shares of common stock reserved for issuance upon the conversion of
outstanding debentures issued by TCA at a conversion price of $37.62 per share.

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data presented below for the three
fiscal years ended December 30, 2000 is derived from audited financial
statements incorporated by reference in this prospectus. The interim summary
consolidated financial data for the nine-month periods ended September 2000 and
2001 have been prepared in accordance with accounting principles generally
accepted in the United States without audit and, in our opinion, reflect all
adjustments necessary (consisting only of normal recurring adjustments) to
present fairly our financial position and results of operations for the periods
shown. The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus, the consolidated financial statements of
Thoratec filed with the SEC in our Form 10-K on March 29, 2001, the consolidated
financial statements of TCA filed with the SEC on Form 8-K/A on March 30, 2001,
the interim consolidated financial statements of Thoratec filed with the SEC on
Forms 10-Q on May 14, 2001, August 13, 2001 and November 13, 2001, the interim
consolidated financial statements of TCA filed with the SEC on Form 10-Q on
November 9, 2000, pro forma financial information on Form 8-K filed with the SEC
on October 24, 2001, and our other filings made with the SEC. Certain
reclassifications have been made to the financial statements previously filed
with the SEC to conform to current practice.

The merger of Thoratec with TCA was completed on February 14, 2001. We
issued new shares of our common stock to the shareholders of TCA in exchange for
all the outstanding common stock of TCA at an exchange ratio of 0.835 shares of
Thoratec stock for each share of TCA. The merger with TCA was accounted for as a
reverse acquisition because former shareholders of TCA owned a majority of our
outstanding stock subsequent to the merger. For accounting purposes, TCA is
deemed to have acquired Thoratec and therefore for fiscal years 1998, 1999 and
2000 all financial information presented herein represents the results of
operations of TCA. The September 2001 consolidated financial information
presented herein includes the financial results of TCA for the full nine-month
period ended September 29, 2001 and our financial results for the post-merger
period from February 14, 2001 through September 29, 2001. The pro forma columns
of the statement of operations data for the fiscal year 2000 and the nine-month
period ended September 29, 2001 reflect our operating results as if the merger
with TCA had occurred at the beginning of fiscal year 2000. In addition, the pro
forma columns of the statement of operations data for fiscal year 2000 and the
nine-month period ended September 29, 2001 reflect the assumed retirement of
$54.8 million of 4 3/4% convertible subordinated debentures as if it had
occurred on the first day of each of the fiscal periods presented. The assumed
retirement of debt resulted in a decrease in interest expense of $2.8 million
(including interest on the debt of $2.6 million and amortization of capitalized
debt issuance costs of $0.2 million) for fiscal year 2000 and of $2.1 million
(including interest expense on the debt of $1.9 million and amortization of
capitalized debt issuance costs of $0.2 million) for the nine month period ended
September 29, 2001. The tax effect of the assumed debt retirement was to
increase tax expense for fiscal year 2000 by $1.1 million and to decrease the
tax benefit for the nine month period ended September 29, 2001 by $0.8 million.
The pro forma statement of operations data is presented for informational
purposes only and is not indicative of the operating results that would have
occurred had the merger been consummated as of the above dates, nor are they
necessarily indicative of future operating results. The weighted average number
of common shares previously reported by TCA has been adjusted for all periods to
reflect the exchange ratio of 0.835 to 1.

Our fiscal year ends on the closest Saturday to December 31. Accordingly,
our fiscal year will periodically contain more or less than 365 days. For
example, fiscal 1998 ended on January 1, 1999, fiscal 1999 ended on December 31,
1999 and fiscal 2000 ended on December 30, 2000. Our fiscal quarters are
three-month periods that end on the Saturday closest to the end of the
applicable calendar quarter. The first nine months of 2000 ended on September
30, 2000. The first nine months of 2001 ended on September 29, 2001.

PRO FORMA
NINE
NINE MONTHS ENDED MONTHS
FISCAL YEAR PRO FORMA SEPTEMBER ENDED
--------------------------- FISCAL YEAR ------------------------- SEPTEMBER
1998 1999 2000 2000 2000 2001 2001
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Product sales.................... $65,301 $78,611 $83,396 $113,825 $61,928 $ 78,363 $ 81,887
Cost of product sales............ 27,057 33,326 34,830 45,798 25,858 36,288 37,719
------- ------- ------- -------- ------- -------- --------
Gross profit..................... 38,244 45,285 48,566 68,027 36,070 42,075 44,168
Research and development......... 12,277 16,044 16,190 23,454 11,816 16,964 17,968
Selling, general and
administrative................. 18,960 22,018 23,587 34,580 17,601 23,986 25,637
Amortization of goodwill and
purchased intangible assets.... -- -- -- 17,884 -- 11,346 13,550
In-process research and
development.................... -- -- -- -- -- 76,858 76,858
Merger, restructuring and other
costs.......................... -- -- 1,831 6,000 1,094 6,555 7,889
------- ------- ------- -------- ------- -------- --------
Total operating expenses......... 31,237 38,062 41,608 81,918 30,511 135,709 141,902
Other operating income........... -- -- -- 331 -- -- --
------- ------- ------- -------- ------- -------- --------
Income (loss) from operations.... 7,007 7,223 6,958 (13,560) 5,559 (93,634) (97,734)
Interest and other
income -- net.................. 5,432 4,014 5,005 8,544 3,726 2,282 4,591
------- ------- ------- -------- ------- -------- --------
Income (loss) before income
taxes.......................... 12,439 11,237 11,963 (5,016) 9,285 (91,352) (93,143)
Income tax expense (benefit)..... 4,619 2,865 4,630 1,640 3,573 (3,100) (3,140)
------- ------- ------- -------- ------- -------- --------
Net income (loss) before
extraordinary item............. $ 7,820 $ 8,372 $ 7,333 $ (6,656) $ 5,712 $(88,252) $(90,003)
======= ======= ======= ======== ======= ======== ========
Basic and diluted earnings (loss)
per share before extraordinary
item........................... $ 0.24 $ 0.26 $ 0.23 $ (0.12) $ 0.18 $ (1.72) $ (1.64)
Weighted average shares
outstanding
Basic.......................... 32,406 32,100 32,193 54,024 32,188 51,169 54,799
Diluted........................ 32,552 32,132 32,209 54,024 32,208 51,169 54,799

The impact of the merger with TCA, which was completed on February 14,
2001, is reflected in the actual column of the balance sheet data at September
29, 2001 and therefore, is not included as a pro forma adjustment below. The pro
forma as adjusted column of the balance sheet data at September 29, 2001
reflects our sale of 2,055,000 shares of common stock under this prospectus at
an assumed public offering price of $19.32 per share and the application of the
net proceeds, after deducting the estimated fees of the underwriters and our
share of estimated offering expenses. The pro forma as adjusted column also
reflects the assumed retirement of $54.8 million of 4 3/4% convertible
subordinated debentures as if it had occurred on September 29, 2001, the debt
(and related accrued interest of $1.0 million) was retired at its carrying
amount using restricted investments of $45.8 million and cash of $10.0 million,
and the transaction resulted in an extraordinary loss of $0.4 million (net of
taxes of $0.2 million) representing unamortized capitalized debt issuance costs
at September 29, 2001 which were written off.

SEPTEMBER 29, 2001
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short term investments........... $ 89,652 $117,184
Restricted investments...................................... 45,794 --
Total assets................................................ 518,771 499,924
Long-term debt.............................................. 54,838 --
Total shareholders' equity.................................. 362,467 399,682

RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. You should consider each of the risks and uncertainties described in
this section and all of the other information in this prospectus before deciding
to invest in our common stock. Our business, financial condition and results of
operations could be severely harmed by any of the following risks. The trading
price of our common stock could decline if any of these risks and uncertainties
develops into actual events. You may lose all or part of the money you paid to
buy our common stock.

WE HAVE A HISTORY OF NET LOSSES, AND WE MAY NOT ACHIEVE OR MAINTAIN
PROFITABILITY.

We were founded in 1976 and have a history of incurring losses from
operations. As of September 29, 2001, our accumulated deficit was approximately
$31.2 million. We anticipate that our expenses will increase as a result of
increased preclinical and clinical testing, research and development and
selling, general and administrative expenses. We could also incur significant
additional costs in connection with the merger with TCA and the development and
marketing of new products and indicated uses for our existing products. Such
costs could prevent us from achieving or maintaining profitability in future
periods.

WE COULD FACE SIGNIFICANT CHALLENGES IN INTEGRATING TCA AND, AS A RESULT, MAY
NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER.

Thoratec and TCA have different technologies, products and business
operations that have operated independently. The ongoing combination of these
businesses has been complex and costly. If we fail to integrate the employees
and products of both companies, the operating results of the combined company
could be adversely affected and we may not achieve the benefits or operating
efficiencies that we hoped to obtain from the merger.

PHYSICIANS MAY NOT ACCEPT OR CONTINUE TO ACCEPT OUR PRODUCTS AND PRODUCTS UNDER
DEVELOPMENT.

The success of our current and future products will require acceptance or
continued acceptance by cardiovascular and vascular surgeons and other medical
professionals. Such acceptance will depend on clinical results and the
conclusion by these professionals that our products are safe, cost-effective and
acceptable methods of treatment. Even if the safety and efficacy of our future
products are established, physicians may elect not to use them for a number of
reasons. These reasons could include the high cost of our VAD systems and
extensive training required for their use or unfavorable reimbursement from
health care payors. Also, economic, psychological, ethical and other concerns
may limit general acceptance of our ventricular assist, graft and other
products.

WE HAVE EXPERIENCED RAPID GROWTH AND CHANGES IN OUR BUSINESS, AND OUR FAILURE TO
MANAGE THIS AND ANY FUTURE GROWTH COULD HARM OUR BUSINESS.

As a result of the merger with TCA in February 2001, the number of our
employees has increased significantly, from 183 on December 30, 2000 to 667 on
September 29, 2001. We expect to continue to grow and we may suffer if we do not
integrate and train our new employees quickly and effectively. Our revenues may
not continue to grow at a rate sufficient to support the costs associated with
an increasing number of employees. Any future periods of rapid growth may place
significant strains on our managerial, financial and other resources. The rate
of any future expansion, in combination with our complex technologies and
products, may demand an unusually high level of managerial effectiveness in
anticipating, planning, coordinating and meeting our operational needs as well
as the needs of our customers.

IF WE FAIL TO SUCCESSFULLY INTRODUCE NEW PRODUCTS, OUR FUTURE GROWTH MAY SUFFER.

As part of our growth strategy, we intend to develop and introduce a number
of new products and product improvements. We also intend to develop new
indications for our existing products. If we do not

timely introduce these new products, product improvements and new indications,
or if they are not well-accepted by the market, our future growth may suffer.

AMORTIZATION OF OUR INTANGIBLE ASSETS, WHICH REPRESENTS A SIGNIFICANT PORTION OF
OUR TOTAL ASSETS, WILL ADVERSELY IMPACT OUR NET INCOME AND WE MAY NEVER REALIZE
THE FULL VALUE OF OUR INTANGIBLE ASSETS.

As of September 29, 2001, we had $298.6 million of net intangible assets,
representing 58% of our total assets and 82% of our shareholders' equity. These
intangible assets consist primarily of goodwill and other intangible assets
arising from our merger with TCA and our trademarks and patented technology.
Amortization expense relating to these intangible assets for the nine-month
period ended September 2001, was $11.3 million. Of this amount, $3.1 million
represented amortization of goodwill, which will no longer be amortized after we
adopt Statement of Financial Accounting Standards No. 142 at the beginning of
fiscal year 2002. These expenses will reduce our future earnings or increase our
future losses.

We may not receive the recorded value for our intangible assets if we sell
or liquidate our business or assets. The material concentration of intangible
assets increases the risk of a large charge to earnings in the event that the
recoverability of these intangible assets is impaired, and in the event of such
a charge to earnings, the market price of our common stock could be adversely
affected.

WE RELY ON SPECIALIZED SUPPLIERS AND ALTERNATIVE SUPPLIERS MAY NOT BE AVAILABLE.

We depend on a number of custom-designed components and materials supplied
by other companies including, in some cases, single source suppliers for
components and materials used in our VAD systems. We do not have long term
written agreements with most of our vendors and receive components on a purchase
order basis. For example, Arrow International Inc., with whom we have no long
term written contract, is the only supplier of the mechanical valves for the
Thoratec VADs and an alternative supplier may not be available. Sales of our
Thoratec VAD System accounted for approximately 30% of our proforma revenues for
the nine months ended September 29, 2001. If we need alternative sources for key
raw materials or component parts for any reason, such alternative sources may
not be available and our inventory may not be sufficient to fill orders before
we find alternative suppliers or begin manufacturing such components or
materials ourselves. Cessation or interruption of sales of ventricular assist
products would seriously harm our business, financial condition and results of
operations.

Alternative suppliers, if available, may not agree to supply us. In
addition, we may need to obtain FDA approval before using new suppliers or
manufacturing our own components or materials. Existing suppliers could also be
subject to an FDA enforcement action, which could also disrupt our supplies. If
alternative suppliers are not available, we may not have the expertise or
resources necessary to produce such materials or component parts internally. Any
interruption in supply of materials or component parts could seriously harm our
ability to manufacture products until we locate a new source of supply.

IF WE FAIL TO COMPETE SUCCESSFULLY AGAINST OUR EXISTING OR POTENTIAL
COMPETITORS, OUR REVENUES OR OPERATING RESULTS MAY BE HARMED.

Competition from medical device companies and medical device subsidiaries
of health care and pharmaceutical companies is intense and is expected to
increase. Competitors for the VAD system include, for example, World Heart
Corporation and ABIOMED, Inc. Principal competitors in the vascular graft market
include W.L. Gore, Inc., C.R. Bard and Boston Scientific Corporation. The
principal competitors in the coagulation monitoring equipment market are the
Hemotec division of Medtronic, Inc. and Roche Holding AG. The primary
competitors in the skin incision device market are Organon Teknika B.V.; Becton,
Dickson and Company; and Owen-Mumford Ltd.

Many of our competitors have substantially greater financial, technical,
distribution, marketing and manufacturing resources than we do. Accordingly, our
competitors may be able to develop, manufacture

and market products more efficiently and at a lower cost than we can. We expect
that the key competitive factors will include the relative speeds with which we
can:

- develop products;

- complete clinical testing;

- receive regulatory approval; and

- manufacture and sell commercial quantities of products.

Additionally, our competitors may succeed in developing and marketing
technologies and products that are more effective than ours. Any such products
may render our technology and products obsolete or noncompetitive. In addition,
new surgical procedures and medications could be developed that replace or
reduce the importance of current procedures that use our products.

IF WE FAIL TO OBTAIN APPROVAL FROM THE FDA AND FROM FOREIGN REGULATORY
AUTHORITIES, WE CANNOT MARKET AND SELL OUR PRODUCTS UNDER DEVELOPMENT IN THE
UNITED STATES AND IN OTHER COUNTRIES.

Before we can market new products in the United States, we must obtain
clearance from the FDA. This process is lengthy and uncertain. In the United
States, one must obtain clearance from the FDA of a 510(k) premarket
notification or approval of a more extensive submission known as a premarket
approval (PMA) application. If the FDA concludes that any of our products does
not meet the requirements to obtain clearance under Section 510(k) of the
Federal Food, Drug, and Cosmetic Act, then we would be required to file a PMA
application. The process for a PMA application is lengthy, expensive and
typically requires extensive preclinical and clinical trial data. Preclinical
data may need to be obtained in accordance with FDA good laboratory practices.

We may not obtain clearance of a 510(k) notification or approval of a PMA
application with respect to any of our products on a timely basis, if at all. If
we fail to obtain timely clearance or approval for our products, we will not be
able to market and sell our products, harming our ability to generate revenue.
The FDA may also limit the claims that we can make about our products. We may
also be required to obtain clearance of a 510(k) notification or PMA Supplement
from the FDA before we can market products that have been cleared that we have
now modified or for which we wish to use for new indications.

The FDA also requires us to adhere to cGMP regulations, which include
production design controls, testing, quality control, storage and documentation
procedures. The FDA may at any time inspect our facilities to determine whether
we have adequate compliance. Compliance with cGMP regulations for medical
devices is difficult and costly. In addition, we may not be found to be
compliant as a result of future changes in, or interpretations of, regulations
by the FDA or other regulatory agencies. If we do not achieve compliance, the
FDA may withdraw marketing clearance, require product recall or take other
enforcement action which in each case would harm our business. Any change or
modification in a device is required to be made in compliance with cGMP
regulations, which may cause interruptions or delays in the marketing and sale
of our products. The FDA also requires device manufacturers to submit reports
regarding deaths, serious injuries and certain malfunctions.

Sales of our products outside the United States are subject to foreign
regulatory requirements that vary from country to country. The time required to
obtain approvals from foreign countries may be longer or shorter than that
required for FDA approval, and requirements for foreign licensing may differ
from FDA requirements.

The federal, state and foreign laws and regulations regarding the
manufacture and sale of our products are subject to future changes, as are
administrative interpretations and policies of regulatory agencies. If we fail
to comply with applicable federal, state or foreign laws or regulations, we
could be subject to enforcement actions. Enforcement actions could include
product seizures, recalls, withdrawal of clearances or approvals, and civil and
criminal penalties which in each case would harm our business.

WE MAY ENCOUNTER PROBLEMS MANUFACTURING OUR PRODUCTS.

We may encounter difficulties manufacturing our products. We do not have
experience in manufacturing our products in the commercial quantities that might
be required if we receive FDA approval of several or all of the products and
indications currently under development. If we have difficulties manufacturing
our products, our business will be harmed.

SINCE WE DEPEND UPON DISTRIBUTORS, IF WE LOSE A DISTRIBUTOR OR A DISTRIBUTOR
FAILS TO PERFORM, OUR OPERATIONS WILL BE HARMED.

With the exception of Canada and most countries in Europe, we sell our
Thoratec VAD and HeartMate systems in foreign markets through distributors. In
addition, we sell our vascular access graft products through the IMPRA division
of C.R. Bard Corporation, which we refer to as Impra, in the United States,
Europe and selected countries in Scandinavia, the Middle East and Northern
Africa and through Goodman Co. Ltd. in Japan. Our wholly-owned subsidiary,
International Technidyne, had sales through a distributor, Allegiance
Healthcare, of approximately $9.8 million for the first nine months of 2001. Our
agreement with Allegiance Healthcare expires in June 2002, unless terminated
earlier by either party if there is a material breach of the agreement which
remains uncured.

To the extent we rely on distributors, our success will depend upon the
efforts of others, over which we may have little control. If we lose a
distributor or a distributor fails to perform, our revenues will be harmed.

SINCE WE DEPEND ON THIRD PARTY REIMBURSEMENT TO OUR CUSTOMERS, IF THIRD PARTY
PAYORS FAIL TO PROVIDE APPROPRIATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS, OUR
OPERATIONS WILL BE HARMED.

Significant uncertainty exists as to the reimbursement status of
newly-approved health care products such as ventricular assist devices and
vascular grafts. Government and other third party payors are increasingly
attempting to contain health care costs. Payors are attempting to contain costs
by, for example, limiting coverage and the level of reimbursement of new
therapeutic products. Payors are also attempting to contain costs by refusing in
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, a majority of private insurers that we have dealt with, and
Medicare and Medicaid, have determined to reimburse some portion of the costs of
our ventricular assist devices and our diagnostic and vascular graft products.
We cannot, however, estimate what portion of such costs have been reimbursed and
our products may not continue to be approved for reimbursement. In addition,
changes in the health care system may affect the reimbursability of future
products. If we fail to obtain such reimbursement or if the reimbursement levels
are partially or completely reduced, our revenues would be reduced.

OUR INABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGIES OR AN INFRINGEMENT OF
OTHERS' PATENTS COULD HARM OUR COMPETITIVE POSITION.

We rely on patents, trade secrets, copyrights, know-how, trademarks,
license agreements and contractual provisions to establish our intellectual
property rights and protect our products. These legal means, however, afford
only limited protection and may not adequately protect our rights. In addition,
we cannot assure you that any of our pending patent applications will issue. The
U.S. Patent and Trademark Office, or the PTO, may deny or significantly narrow
claims made under patent applications and the issued patents, if any, may not
provide us with commercial protection. We could incur substantial costs in
proceedings before the PTO or in any future litigation to enforce our patents in
court. These proceedings could result in adverse decisions as to the validity
and/or enforceability of our patents. In addition, the laws of some of the
countries in which our products are or may be sold may not protect our products
and intellectual property to the same extent as U.S. laws, if at all. We may be
unable to protect our rights in trade secrets and unpatented proprietary
technology in these countries.

Aside from the biomaterials patents which are utilized in the Thoratec VAD
blood pump and cannulae, and one patent covering aspects of our TLC-II, our
Thoratec VAD systems are not protected by any patents. We rely principally on
trade secret protection and, to a lesser extent patents, to protect our rights
to the HeartMate. We rely principally on patents to protect our coagulation
testing equipment and skin incision devices.

We seek to protect our trade secrets and unpatented proprietary technology,
in part, with confidentiality agreements with our employees and consultants.
Although it is our policy to require that all employees and consultants sign
such agreements, we cannot assure you that every person who gains access to such
information has done so. Moreover, these agreements may be breached and we may
not have an adequate remedy.

Our products may be found to infringe prior or future patents owned by
others. We may need to acquire licenses under patents belonging to others for
technology potentially useful or necessary, and such licenses may not be
available to us. We could incur substantial costs in defending suits brought
against us on such patents or in bringing suits to protect our patents or
patents licensed by us against infringement.

We own or hold rights in some U.S. patents by virtue of the merger between
Thoratec and Thermo Cardiosystems. However, documents transferring ownership of
some of these patents have not yet been submitted to the PTO and, while
documents have been submitted to the PTO for others, those documents have not
yet been recorded by the PTO. Until documents transferring rights to us as a
result of the merger are recorded, our rights in the respective patents could be
subject to rights of others who purchased those rights from Thoratec or Thermo
Cardiosystems without knowledge of the merger.

In addition, we have received correspondence from another company alleging
that our HeartMate infringes certain patent rights of that company. We cannot
assure you that we will be successful if the matter is litigated.

PRODUCT LIABILITY CLAIMS COULD DAMAGE OUR REPUTATION AND HURT OUR FINANCIAL
RESULTS.

Our business exposes us to an inherent risk of potential product liability
claims related to the manufacturing, marketing and sale of human medical
devices. We maintain only a limited amount of product liability insurance. Our
insurance policies generally must be renewed on an annual basis. We may not be
able to maintain or increase such insurance on acceptable terms or at reasonable
costs, and such insurance may not provide us with adequate coverage against
potential liabilities. A successful claim brought against us in excess of, or
outside of, our insurance coverage could seriously harm our financial condition
and results of operations. Claims against us, regardless of their merit or
potential outcome, may also reduce our ability to obtain physician endorsement
of our products or expand our business.

IF WE MAKE ACQUISITIONS OR DIVESTITURES, WE COULD ENCOUNTER DIFFICULTIES THAT
HARM OUR BUSINESS.

We may acquire companies, products or technologies that we believe to be
complementary to our business. If we do so, we may have difficulty integrating
the acquired personnel, operations, products or technologies. Acquisitions may
dilute our earnings per share, disrupt our ongoing business, distract our
management and employees and increase our expenses, which could harm our
business. We may also sell businesses or assets as part of our strategy or if we
receive offers from third parties. If we do so, we may sell an asset or business
for less than its full value.

THE LONG AND VARIABLE SALES AND DEPLOYMENT CYCLES FOR OUR VAD SYSTEMS MAY CAUSE
OUR REVENUE AND OPERATING RESULTS TO VARY SIGNIFICANTLY, WHICH INCREASES THE
RISK OF AN OPERATING LOSS FOR ANY GIVEN FISCAL QUARTER.

Our VAD systems have lengthy sales cycles and we may incur substantial
sales and marketing expenses and expend significant effort without making a
sale. Even after making the decision to purchase our VAD systems, our customers
often deploy our products slowly. For example, the length of time between
initial contact with cardiac surgeons and the purchase of our VAD systems is
generally between

nine and eighteen months. As a result, it is difficult for us to predict the
quarter in which our customers may purchase our VAD systems and our revenue and
operating results may vary significantly from quarter to quarter, which
increases the risk of an operating loss for us for any given quarter.

OUR NON-U.S. SALES PRESENT SPECIAL RISKS.

During 2000, sales originating outside the United States and U.S. export
sales accounted for approximately 16% of our total revenues on a pro forma
basis. For the nine months ended September 30, 2001, sales originating outside
the United States and U.S. export sales accounted for approximately 20% of our
total revenues. We anticipate that sales outside the United States and U.S.
export sales will continue to account for a significant percentage of our
revenues and we intend to continue to expand our presence in international
markets. Non-U.S. sales are subject to a number of special risks. For example:

- we generally sell many of our products at a lower price outside the
United States;

- agreements may be difficult to enforce;

- receivables may be difficult to collect through a foreign country's legal
system;

- foreign customers may have longer payment cycles;

- foreign countries may impose additional withholding taxes or otherwise
tax our foreign income, impose tariffs or adopt other restrictions on
foreign trade;

- U.S. export licenses may be difficult to obtain;

- intellectual property may be more difficult to enforce in foreign
countries; and

- fluctuations in exchange rates may affect product demand and adversely
affect the profitability, in U.S. dollars, of products sold in foreign
markets where payments are made in local currencies.

Any of these events could harm our operations.

ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF HAZARDOUS
CHEMICALS AND BIOMATERIALS COULD BE TIME CONSUMING AND COSTLY.

Producing our products requires the use of hazardous materials, including
chemicals and biomaterials. We cannot eliminate the risk of accidental
contamination or discharge and any resultant injury from these materials.

We could be subject to civil damages in the event of an improper or
unauthorized release of, or exposure of individuals to, hazardous materials. In
addition, claimants may sue us for injury or contamination that results from our
use or the use by third parties of these materials, and our liability may exceed
our total assets. Compliance with environmental laws and regulations may be
expensive, and current or future environmental regulations may impair our
research, development or production efforts.

OUR STOCK PRICE HAS BEEN VOLATILE, IS LIKELY TO CONTINUE TO BE VOLATILE, AND
COULD DECLINE SUBSTANTIALLY.

The price of our common stock has been, and is likely to continue to be,
highly volatile. The price of our common stock could fluctuate significantly for
the following reasons:

- future announcements concerning us or our competitors;

- timing and reaction to the publication of clinical trial results;

- quarterly variations in operating results;

- charges, amortization and other financial effects relating to our merger;

- introduction of new products or changes in product pricing policies by us
or our competitors;

- acquisition or loss of significant customers, distributors or suppliers;

- business acquisitions or divestitures;

- changes in earnings estimates by analysts;

- changes in third party reimbursement practices;

- regulatory developments and disclosure regarding completed ongoing or
future clinical trials; or

- fluctuations in the economy or general market conditions.

In addition, stock markets in general, and the market for shares of health
care stocks in particular, have experienced extreme price and volume
fluctuations in recent years which have frequently been unrelated to the
operating performance of the affected companies. These broad market fluctuations
may adversely affect the market price of our common stock. The market price of
our common stock could decline below its current price and the market price of
our stock may fluctuate significantly in the future. These fluctuations may be
unrelated to our performance.

In the past, shareholders have often instituted securities class action
litigation after periods of volatility in the market price of a company's
securities. If a shareholder files a securities class action suit against us, we
would incur substantial legal fees and our management's attention and resources
would be diverted from operating our business in order to respond to the
litigation.

FUTURE ISSUANCES AND SALES OF OUR STOCK COULD DILUTE YOUR OWNERSHIP AND CAUSE
OUR STOCK PRICE TO DECLINE.

We have outstanding debentures issued by TCA prior to our merger. These
debentures are convertible into our common stock at $37.62 per share. If all of
the debentures are converted, we would issue approximately 1,457,682 shares of
common stock. Conversion of these debentures could dilute our existing
shareholders.

Future sales of substantial amounts of our stock in the public market, or
the perception that such sales could occur, could adversely affect the market
price of our stock. For example, upon completion of this offering, Thermo
Electron will own 8,735,544 shares of our common stock, which cannot be sold
without our permission prior to August 14, 2002. Sale of these shares and any
shares issued upon conversion of our debentures, and the potential for such
sales, could cause our stock price to decline.

THE OCCURRENCE OF A CATASTROPHIC DISASTER OR OTHER SIMILAR EVENTS COULD CAUSE
DAMAGE TO OUR FACILITIES AND EQUIPMENT, WHICH WOULD REQUIRE US TO CEASE OR
CURTAIL OPERATIONS.

We are vulnerable to damage from various types of disasters, including
earthquake, fire, flood, power loss, communications failures and similar events.
For example, in October 1989, a major earthquake that caused significant
property damage and a number of fatalities struck near the area in which our
Pleasanton facility is located. If any disaster were to occur, we may not be
able to operate our business at our facilities, which could seriously harm our
business and operations. The insurance we maintain may not be adequate to cover
our losses resulting from disasters or other business interruptions.

MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THE OFFERING IN WAYS YOU MAY NOT
AGREE WITH AND IN WAYS THAT MAY NOT YIELD A RETURN.

Our management will have broad discretion as to how the net proceeds of
this offering will be used. Investors will be relying on the judgment of
management regarding the application of the proceeds of this offering. The
results and effectiveness of the application of the proceeds are uncertain.

FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES COULD RESULT IN DECLINES IN OUR
REPORTED SALES AND EARNINGS.

Since our international sales are denominated in local currencies and not
in U.S. dollars, our reported sales and earnings are subject to fluctuations in
foreign exchange rates. At present, we do not engage in

hedging transactions to protect against uncertainty in future exchange rates
between particular foreign currencies and the U.S. dollar.

THE COMPETITION FOR QUALIFIED PERSONNEL IS PARTICULARLY INTENSE IN OUR INDUSTRY
AND IN NORTHERN CALIFORNIA. IF WE ARE UNABLE TO RETAIN OR HIRE KEY PERSONNEL, WE
MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS.

Our ability to operate successfully and manage our potential future growth
depends significantly upon retaining key research, technical, sales, marketing,
managerial and financial personnel, and attracting and retaining additional
highly qualified personnel in these areas. We face intense competition for such
personnel, and we may not be able to attract and retain these individuals. We
compete with numerous companies, as well as universities and nonprofit research
organizations in the highly competitive Northern California business area. The
loss of key personnel for any reason or our inability to hire and retain
additional qualified personnel in the future could prevent us from sustaining or
growing our business. Our success will depend in large part on the continued
services of our research, managerial and manufacturing personnel. We cannot
assure you that we will continue to be able to attract and retain sufficient
qualified personnel.

USE OF PROCEEDS

We estimate net proceeds to our company from the sale of the 2,055,000
shares of common stock of approximately $37.6 million, assuming a public
offering price of $19.32 per share and after deducting the estimated
underwriting discounts and a portion of the offering expenses paid by us. We
will not receive any proceeds from the sale of 5,945,000 shares by the selling
shareholders. We intend to use the net proceeds as follows:

- approximately $1 million to $2 million for the pursuit of additional
regulatory approvals for our products;

- approximately $1 million to $2 million for research and development;

- approximately $2 million to $3 million for the expansion of sales and
marketing;

- approximately $8 million to $10 million for acquisitions of complementary
technologies and businesses; and

- approximately $18 million to $21 million for working capital and other
general corporate purposes.

We may use a portion of the net proceeds to acquire or invest in
businesses, products and technologies that are complementary to our own,
although no acquisitions are planned or being negotiated as of the date of this
prospectus, and no portion of the net proceeds have been allocated for any
specific acquisition. Pending these uses, the net proceeds will be invested in
investment-grade interest-bearing securities.

The principal purposes of the offering are to provide partial liquidity for
our principal shareholders, and to increase our capitalization, financial
flexibility and the liquidity for our common stock. As of the date of this
prospectus, we cannot specify with certainty all of the particular uses for the
net proceeds we will have upon completion of the offering. Accordingly, our
management will have broad discretion in the application of net proceeds.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock and do
not plan to pay any cash dividends in the foreseeable future. Our current policy
is to retain all of our earnings to finance future growth.

PRICE RANGE OF COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
"THOR." The following table sets forth, for the periods indicated, the high and
low closing sales prices per share of our common stock, as reported by the
Nasdaq National Market.

HIGH LOW
------- ------

Fiscal Year 1999
First Quarter............................................. $ 8.63 $ 6.25
Second Quarter............................................ 11.00 6.50
Third Quarter............................................. 11.63 6.38
Fourth Quarter............................................ 9.75 5.50
Fiscal Year 2000
First Quarter............................................. $19.88 $ 8.50
Second Quarter............................................ 18.63 8.50
Third Quarter............................................. 24.75 15.13
Fourth Quarter............................................ 20.56 7.75
Fiscal Year 2001
First Quarter............................................. $12.88 $ 7.09
Second Quarter............................................ 15.55 6.56
Third Quarter............................................. 20.02 13.77
Fourth Quarter............................................ 20.85 15.67
Fiscal Year 2002
First Quarter (through January 15, 2002).................. $19.32 $16.97

The last reported sale price of common stock on the Nasdaq National Market
on January 15, 2002 was $19.32 per share. At September 29, 2001, there were
approximately 956 holders of record of our common stock, including multiple
beneficial holders at depositories, banks and brokers listed as a single holder
in the "street" name of each respective depository, bank or broker.

CAPITALIZATION

The following table sets forth our capitalization at September 29, 2001 on
an actual basis, and on an as adjusted basis to reflect our receipt of the
estimated net proceeds of $37.6 million from the sale of common stock in this
offering, after deducting estimated fees of the underwriters and the portion of
the estimated offering expenses that will be paid by us. The pro forma as
adjusted column also reflects the assumed retirement of $54.8 million of 4 3/4%
convertible subordinated debentures as if it had occurred on September 29, 2001.
The debt (and related accrued interest of $1.0 million) was retired at its
carrying amount using restricted investments of $45.8 million and cash of $10.0
million. The transaction resulted in an extraordinary loss of $0.4 million (net
of taxes of $0.2 million) representing unamortized capitalized debt issuance
costs at September 29, 2001 which were written off. This table should be read in
conjunction with our financial statements and accompanying notes incorporated by
reference into this prospectus.

The outstanding share information in the table excludes:

- 5,817,961 shares of common stock reserved for issuance upon the exercise
of stock options outstanding on September 29, 2001 at a weighted average
exercise price of $9.97 per share; and

- 1,457,682 shares of common stock reserved for issuance upon conversion of
the outstanding 4 3/4% convertible debentures issued by TCA at a
conversion price of $37.62 per share.

SEPTEMBER 29, 2001
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)

Cash, cash equivalents and short-term investments........... $ 89,652 $117,184
Restricted investments...................................... 45,794 --

4 3/4% convertible subordinated debentures due 2004......... 54,838 --
Preferred stock, 2,500,000 shares authorized; no shares
issued and outstanding.................................... -- --
Common stock, 100,000,000 shares authorized; 55,342,262
shares issued and outstanding; and 57,397,262 shares
issued and outstanding as adjusted........................ 394,267 431,833
Deferred compensation....................................... (586) (586)
Accumulated deficit......................................... (31,226) (31,577)
Accumulated translation adjustment.......................... 12 12
-------- --------
Total shareholders' equity............................. $362,467 $399,682
======== ========
Total capitalization................................. $417,305 $399,682
======== ========

DILUTION

If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the as adjusted net tangible book value per share of our common
stock after this offering.

Our net tangible book value at September 29, 2001 was $63.9 million, or
$1.15 per share of common stock. Net tangible book value per share represents
total tangible assets less total liabilities divided by the number of
outstanding shares of common stock on September 29, 2001. Our net tangible book
value at September 29, 2001 after giving effect to the sale of the 2,055,000
shares of common stock by our company at an assumed public offering price of
$19.32 per share, and after deducting estimated underwriting discounts and the
portion of estimated offering expenses that will be paid by us, would be $101.4
million or $1.77 per share. This represents an immediate increase in the
tangible book value of $0.62 per share to existing shareholders and an immediate
dilution of $17.55 per share to new investors, or approximately 91% of the
assumed offering price of $19.32 per share. The following table illustrates this
per share dilution:

Assumed public offering price per share..................... $19.32
Net tangible book value per share at September 29, 2001... $1.15
Increase in net tangible book value per share attributable
to this offering....................................... 0.62
-----
Net tangible book value per share after this offering....... 1.77
------
Dilution in net tangible book per share to new investors.... $17.55
======

The following table shows, at September 29, 2001, the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price paid per share by previous investors and by new investors
purchasing common stock in this offering at an assumed public offering price of
$19.32 per share, before deducting estimated underwriting discounts and the
portion of estimated offering expenses that will be paid by us.

SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- -------- ---------- -------------
(IN THOUSANDS)

Previous investors................... 55,342,262 96% $394,267 91% $ 7.12
New investors........................ 2,055,000 4% 39,703 9% 19.32
---------- --- -------- ---
Total................................ 57,397,262 100% $433,970 100% $ 7.56
========== === ======== ===

The computations in the table above assume no exercise of any outstanding
stock options or conversion of outstanding debentures after September 29, 2001.
At September 29, 2001, there were options outstanding to purchase a total of
5,817,961 shares of common stock at a weighted average exercise price of $9.97
per share and 1,457,682 shares of common stock reserved for issuance upon
conversion of outstanding debentures issued by TCA at a conversion price of
$37.62 per share and, if any of these options or debentures are exercised or
converted, there will be further dilution to new investors.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for the three
fiscal years ended December 30, 2000 is derived from audited financial
statements incorporated by reference in this prospectus. The interim selected
consolidated financial data for the nine-month periods ended September 2000 and
2001 has been prepared in accordance with accounting principles generally
accepted in the United States without audit and, in our opinion, reflect all
adjustments necessary (consisting only of normal recurring adjustments) to
present fairly our financial position and results of operations for the periods
shown. The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus, the consolidated financial statements of
Thoratec filed with the SEC in our Form 10-K on March 29, 2001, the consolidated
financial statements of TCA filed with the SEC on Form 8-K/A on March 30, 2001,
the interim consolidated financial statements of Thoratec filed with the SEC on
Forms 10-Q on May 14, 2001, August 13, 2001 and November 13, 2001, the interim
consolidated financial statements of TCA filed with the SEC on Form 10-Q on
November 9, 2000, pro forma financial information on Form 8-K filed with the SEC
on October 24, 2001, and our other filings made with the SEC. Certain
reclassifications have been made to the financial statements previously filed
with the SEC to conform to current practice.

SEPTEMBER 29, 2001
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 89,652 $117,184
Restricted investments...................................... 45,794 --
Total assets................................................ 518,771 499,924
Long-term debt.............................................. 54,838 --
Total shareholders' equity.................................. 362,467 399,682

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

The statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that relate to future plans, events or
performance are forward-looking statements which involve risks and
uncertainties. Actual results, events or performance may differ materially from
those anticipated in these forward-looking statements as a result of a variety
of factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly release the result of any revisions to these
forward-looking statements that may be needed to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

We are a leading manufacturer of circulatory support products for use by
patients with congestive heart failure, or CHF. According to the American Heart
Association, 4.7 million patients in the United States suffer from CHF and an
additional 550,000 patients are diagnosed with this disease annually. We were
the first company to receive FDA approval to commercially market a ventricular
assist device, or VAD, to treat patients with late-stage heart failure, which
comprises approximately 5% of the CHF patient population. Our VADs are used
primarily by these CHF patients to perform some or all of the pumping function
of the heart and we currently offer the widest range of products to serve this
market. We believe that our long-standing reputation for quality and innovation
and our excellent relationships with leading cardiovascular surgeons worldwide
position us to capture growth opportunities in the expanding congestive heart
failure market. We also develop and sell products that are used by physicians
and hospitals for vascular and diagnostic applications that include vascular
grafts, blood coagulation testing and skin incision devices. We conduct business
both domestically and internationally.

The Merger with Thermo Cardiosystems

On February 14, 2001, we completed our merger with TCA. Pursuant to the
merger agreement between Thoratec and TCA dated October 3, 2000, we issued
32,226,074 shares of our common stock to the shareholders of TCA in exchange for
all the outstanding common stock of TCA (38,594,281 shares outstanding as of
February 14, 2001) at an exchange ratio of 0.835 to 1. Immediately following the
transaction, TCA's shareholders owned 59% of our then outstanding common stock
and our former shareholders owned the remaining shares of our common stock.
Thermo Electron Corporation, which we refer to as Thermo Electron, the majority
shareholder of TCA prior to the merger, received 19,312,959 shares of the
32,226,074 newly issued shares. Immediately following the merger, Thermo
Electron owned 35% of our then outstanding shares of common stock. Pursuant to
the terms of a Registration Rights Agreement between us and Thermo Electron
dated October 3, 2000, we filed a Registration Statement on Form S-3 with the
SEC, which became effective on June 15, 2001, to register for resale 4,828,240
shares of our common stock held by Thermo Electron. Subsequent to that filing,
Thermo Electron sold substantially all of the 4,828,240 registered shares. As of
September 29, 2001, Thermo Electron owned 14,560,544 of our shares, representing
approximately 26% of our total outstanding shares. After completion of this
offering, Thermo Electron will own approximately 15% of our outstanding common
stock.

The merger with TCA was accounted for under the purchase method of
accounting and was treated as a reverse acquisition because the shareholders of
TCA owned the majority of our common stock after the merger. TCA was deemed the
acquiror for accounting and financial reporting purposes. Accordingly, all
historic financial information included in this prospectus reflects TCA's
results prior to the completion of the merger on February 14, 2001.

Due to the reverse acquisition, Thoratec's assets and liabilities were
recorded based upon estimated fair values at the date of acquisition. As of
September 29, 2001, $309.5 million of the purchase price of $346.2 million has
been allocated to goodwill and other purchased intangible assets. As a result of
the merger, $76.9 million relating to in-process research and development was
expensed upon completion of

the merger. The goodwill and other intangibles will be amortized over their
estimated useful lives of six to twenty years until we adopt Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires companies to cease amortizing goodwill that
existed at June 30, 2001 and also establishes a new method of testing goodwill
for impairment on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. We will adopt SFAS No. 142 at the beginning of fiscal year
2002 and we will stop amortizing goodwill and begin testing goodwill for
impairment under the new standard. If an impairment occurs, such impairment
could harm our future results of operations. Currently, amortization of goodwill
is $5.0 million per year.

Restructuring Plan

In June 2001, we approved a restructuring plan to consolidate all of our
ventricular assist device manufacturing operations to our manufacturing
facilities and headquarters in Pleasanton, California. The restructuring
initiatives, which have already commenced, are related to our desire to provide
maximum value to customers through achievement of operating efficiencies. We
estimate that annual savings of approximately $2.0 million will result upon
completion of this plan. This plan specifically provides for the reduction of
approximately 90 of our manufacturing and related workforce at our Woburn and
Chelmsford, Massachusetts facilities, both of which were acquired in the merger
with TCA in February 2001. We notified the affected employees during the second
quarter of 2001 both through direct personal contact and written notification.
Our HeartMate family of products, which are currently manufactured at the two
Massachusetts facilities, will be transitioned to the Pleasanton facility. This
plan is estimated to take 18 months because of FDA certification requirements
for the new manufacturing activities in Pleasanton. Through September 29, 2001,
we have accrued $1.0 million of restructuring charges, in accordance with
Emerging Issues Task Force (EITF) 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity," and Staff
Accounting Bulletin (SAB) 100, "Restructuring and Impairment Charges." These
charges represent estimated severance costs and stock option acceleration
charges.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000

Product Sales

Product sales in the first nine months of 2001 were $78.4 million compared
to $61.9 million in the first nine months of 2000, an increase of $16.5 million
or 27%. This increase was attributable primarily to the addition of Thoratec
product sales of $22.6 million, partially offset by a $6.2 million reduction in
sales of HeartMate products due principally to significant distractions and
uncertainties among Thermo Cardiosystems' sales force during the first and
second quarters while the merger was being closed and the companies were being
integrated. The impact was principally in the domestic market because we use
employees to sell the HeartMate products domestically compared to the
international markets where distributors are primarily used. Domestic sales of
the HeartMate in 2001 were $7.3 million lower than the previous year, partially
offset by a $1.1 million increase in sales of the HeartMate internationally. The
decrease in domestic HeartMate sales was also attributable, in part, to normal
fluctuations in the ventricular assist device market as customers used existing
inventories to address their implantation needs.

On a pro forma basis, as if the merger had occurred at the beginning of our
2000 fiscal year, product sales in the first nine months of 2001 were $81.9
million compared to $83.0 million in the first nine months of 2000, a decrease
of $1.1 million or 1%. However, for the three months ended September 29, 2001,
product sales were $28.7 million compared to $25.6 million on a pro forma basis
for the three months ended September 30, 2000, representing an increase of $3.1
million or 12%. This 12% growth in revenue for the quarter was comprised of a
21% increase in revenues from our circulatory support products offset by a 6%
reduction in sales of our blood coagulation testing and skin incision devices.

Gross Profit

Gross profit in the first nine months of 2001 was $42.1 million, or 54% of
product sales, compared to gross profit of $36.1 million in the first nine
months of 2000, or 58% of product sales. This decrease in gross profit as a
percentage of sales was primarily due to a lower proportion of domestic sales to
total product sales. Ventricular assist devices that are sold in the United
States have a higher gross margin than those sold in the rest of the world. In
addition, production costs for the HeartMate product line were higher in the
first nine months of 2001 due to $1.0 million of employee retention costs
related to manufacturing and $0.4 million of write-offs of product inventory
related to the HeartMate pneumatic driver which was discontinued in the second
half of 2001. In addition, we incurred $0.3 million of manufacturing costs
associated primarily with the introduction of new products. Without these
charges, gross profit for the first nine months of 2001 would have been $43.8
million, or 56% of product sales. In addition, approximately 1% of the decrease
in gross profit as a percentage of sales was attributable to lower gross profit
on our other medical equipment product line. This decrease was attributable
principally to lower average selling prices of our skin incision products due to
increased market competition.

On a pro forma basis, gross profit in the first nine months of 2001 was
$44.2 million, or 54% of product sales, compared to gross profit in the first
nine months of 2000 of $49.4 million, or 60% of product sales. The decrease in
gross profit as a percentage of sales was attributable to a lower proportion of
domestic sales to total product sales, and the above-mentioned charges. Without
these charges, gross profit for the first nine months of 2001 would have been
$45.9 million, or 56% of product sales.

Research and Development

Research and development expenses in the first nine months of 2001 were
$17.0 million, or 22% of product sales, compared to $11.8 million, or 19% of
product sales in the first nine months of 2000, an increase of $5.2 million or
44%. This increase resulted from combining Thoratec's research and development
expenses of $5.4 million with TCA's expenses after the merger.

On a pro forma basis, research and development expenses in the first nine
months of 2001 were $18.0 million, or 22% of product sales, compared to $17.3
million, or 21% of product sales, for the first nine months of 2000, an increase
of $0.7 million or 4%. This increase was attributable to increased spending of
$1.3 million for improvements to the HeartMate and the Thoratec VAD system,
partially offset by reduced spending of $0.5 million for the HeartMate II and
HeartMate III projects.

Selling, General and Administrative

Selling, general and administrative expenses in the first nine months of
2001 were $24.0 million, or 31% of product sales, compared to $17.6 million, or
28% of product sales, in the first nine months of 2000, an increase of $6.4
million or 36%. This increase resulted from combining Thoratec's selling,
general and administrative expenses with TCA's selling, general and
administrative expenses, partially offset by lower overall employee related
expenses.

On a pro forma basis, selling, general and administrative expenses in the
first nine months of 2001 were $25.6 million, or 31% of product sales, compared
to $25.4 million, or 31% of product sales, for the first nine months of 2000, an
increase of $0.2 million or 1%. This increase was attributable to $0.4 million
for higher corporate and patent legal costs, $0.4 million for higher employee
costs related to the promotion, recruiting and relocation of personnel as well
as overall higher employee salary costs and $0.3 million for higher audit and
financial consulting services. Partially offsetting the increase was a $1.0
million reduction in selling and marketing costs associated with staffing
reductions after the completion of the merger with Thermo Cardiosystems.

Amortization of Goodwill and Purchased Intangible Assets

Amortization of purchased intangibles and goodwill in the first nine months
of 2001 was $11.3 million. There was no such amortization in the first nine
months of 2000. All purchased intangibles and goodwill resulted from the merger
with Thermo Cardiosystems. Our goodwill and other intangibles will be amortized
over their estimated useful lives of six to twenty years until we adopt SFAS No.
142 at the

beginning of fiscal year 2002. Thereafter, we will stop amortizing goodwill and
will begin testing our goodwill for impairment under the new standard contained
in SFAS No. 142.

Merger, Restructuring and Other Costs

Merger, restructuring and other costs in the first nine months of 2001 were
$6.6 million compared to $1.1 million in the first nine months of 2000, an
increase of $5.5 million or 500%. This increase was caused by employee severance
and pre-merger retention costs of $2.4 million, consulting, accounting and legal
expenses of $1.4 million, restructuring costs of $1.0 million, which represented
estimated severance costs related to the consolidation of ventricular assist
device manufacturing operations, and costs of $0.7 million related to the events
of September 11, 2001.

In-process Research and Development

In-process research and development expense in the first nine months of
2001 was $76.9 million. There was no such expense in the first nine months of
2000. All in-process research and development was related to the merger with
Thermo Cardiosystems, representing a one-time charge related to acquired
in-process research and development that had not yet reached technological
feasibility and had no alternative future uses.

Interest and Other Income - Net

Interest and other income - net in the first nine months of 2001 was $2.3
million compared to $3.7 million in the first nine months of 2000, a decrease of
$1.4 million or 39%. This decrease was due to a $1.3 million reduction in
interest income caused by both lower cash balances and a reduction in interest
rates.

Income Taxes

Our effective tax benefit rate in the first nine months of 2001 was 3%
compared to an effective tax provision rate of 38% in the first nine months of
2000. Our effective tax benefit rate for 2001 differed from the statutory
federal income tax rate due to our net loss position before income taxes in the
first nine months of 2001. For the first nine months of 2000, our effective tax
provision rate exceeded the federal statutory income tax rate due to the impact
of state income taxes.

Net Income (Loss) Before Extraordinary Item

As a result of the foregoing factors, net loss before extraordinary item
was $88.3 million in the first nine months of 2001 compared to net income before
extraordinary item of $5.7 million in the first nine months of 2000.

FISCAL YEARS 2000 AND 1999

Product Sales

Product sales in 2000 were $83.4 million compared to $78.6 million in 1999,
an increase of $4.8 million or 6%. Ventricular assist device revenues increased
to $43.1 million in 2000 from $39.8 million in 1999, due to an increase in
revenues from our HeartMate products, principally due to higher demand. Product
sales from blood coagulation testing and skin incision devices increased to
$40.3 million in 2000 from $38.8 million in 1999 due to a $2.0 million increase
in revenues from blood coagulation testing systems due to increased demand and
the introduction of new products, offset in part by a decrease in revenues from
skin incision devices due to lower demand caused by competitive pricing
pressures.

Gross Profit

Gross profit in 2000 was $48.6 million, or 58% of product sales, compared
to $45.3 million, or 58% of product sales in 1999. An increase in the average
sales price for the HeartMate, and improved overhead absorption were offset by a
decrease in gross profit margin for blood coagulation testing and skin incision
devices during fiscal year 2000.

Research and Development

Research and development expenses in 2000 were $16.2 million, or 19% of
product sales, compared to $16.0 million, or 20% of product sales, in 1999, an
increase of $0.2 million or 1%. This increase was due to increased expenses
relating to ventricular assist products for the development of the HeartMate II
and continuing expenses related to the REMATCH trial.

Selling, General and Administrative

Selling, general, and administrative expenses in 2000 were $23.6 million,
or 28% of product sales, compared to $22.0 million, or 28% of revenues, in 1999,
an increase of $1.6 million or 7%. This increase was due to an increase in
selling and marketing expenses in support of increased product sales.

Merger, Restructuring and Other Costs

Merger, restructuring and other charges in 2000 were $1.8 million. All
merger, restructuring and other charges were due to employee retention costs in
connection with the merger. There were no such charges in 1999.

Interest and Other Income - Net

Interest and other income - net in 2000 was $5.0 million compared to $4.0
million in 1999, an increase of $1.0 million or 25%. Interest income increased
to $7.6 million in 2000 from $7.1 million in 1999, due to an increase in
interest rates. Interest expense decreased to $2.9 million in 2000 from $3.6
million in 1999, due to our purchase of $15.2 million principal amount of our
4.75% subordinated convertible debentures due 2004.

Income Taxes

The effective tax rate in 2000 was 39% compared to 25% in 1999. Our
effective tax rate exceeded the statutory federal income tax rate in 2000 due to
the impact of state income taxes. Our effective tax rate was lower than the
statutory federal income tax rate in 1999 as a result of a favorable resolution
of our claim for prior-year research and development tax credits. The effect of
the credit decreased the tax provision recorded in 1999 by $1.5 million.

Net Income (Loss) Before Extraordinary Item

As a result of the foregoing factors, net income before extraordinary item
was $7.3 million for 2000 compared to $8.4 million for 1999.

FISCAL YEARS 1999 AND 1998

Product Sales

Product sales in 1999 were $78.6 million compared to $65.3 million in 1998,
an increase of $13.3 million or 20%. Our ventricular assist device sales
increased to $39.8 million in 1999 from $28.8 million in 1998. The increase in
VAD sales was due to a $9.7 million increase in sales from our HeartMate
products due to an increase in demand as a result of an additional FDA approval
for commercial sale, which was granted in September 1998 and, to a lesser
extent, a 13% price increase for the HeartMate, effective November 1998. Product
sales from blood coagulation testing and skin incision devices increased to
$38.8 million in 1999 from $36.5 million in 1998, primarily due to a $2.0
million increase in sales from our skin incision devices and ProTime
Microcoagulation System, due to an increase in demand.

Gross Profit

Gross profit in 1999 was $45.3 million, or 58% of product sales, compared
to $38.2 million, or 59% of product sales, in 1998. Gross profit margin for
blood coagulation testing and skin incision devices decreased primarily due to
changes in product mix and pricing strategies. This decrease was offset in part

by an increase in gross profit margin of ventricular assist devices due to an
increase in demand resulting in higher overhead absorption.

Research and Development

Research and development expenses in 1999 were $16.0 million, or 20% of
product sales, compared to $12.3 million, or 19% of product sales, in 1998, an
increase of $3.7 million or 30%. This increase was due to a $2.7 million
increase in expenses for ventricular assist devices relating to the REMATCH
trial. To a lesser extent, research and development expenses increased due to
increased product development activities for blood coagulation testing and skin
incision devices.

Selling, General and Administrative

Selling, general, and administrative expenses in 1999 were $22.0 million,
or 28% of product sales, compared to $19.0 million, or 29% of product sales, in
1998, an increase of $3.0 million or 16%. This increase was due to a $1.5
million increase in costs for sales and marketing staff for ventricular assist
devices and, to a lesser extent, higher advertising costs relating to the
HeartMate, which was approved by the FDA for commercial sale in September 1998.

Interest and Other Income - Net

Interest and other income - net in 1999 was $4.0 million compared to $5.4
million in 1998, a decrease of $1.4 million or 26%. Interest income decreased to
$7.1 million in 1999 from $7.4 million in 1998, due to a decrease in interest
rates and, to a lesser extent, lower average invested balances. Interest expense
was $3.6 million in both periods. Other income decreased by $1.1 million due to
the expiration of several government research and development contracts.

Net Income (Loss) Before Extraordinary Item

As a result of the foregoing factors, net income before extraordinary item
was $8.4 million in 1999 compared to $7.8 million for 1998.

Income Taxes

Our effective tax rate in 1999 was 25% compared to 37% in 1998. The
effective tax rate of 25% in 1999 resulted from a favorable resolution of our
claim for prior-year research and development tax credits. The effect of the
credit decreased the tax provision recorded in 1999 by $1.5 million. The
effective tax rate of 37% in 1998 exceeded the statutory federal income tax rate
due to the impact of state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

At the end of September 2001, we had working capital of $125.6 million
compared with $149.2 million at the end of December 2000. Cash, cash equivalents
and short-term investments at the end of September 2001 were $89.7 million
compared to $128.9 million at the end of December 2000, a decrease of $39.2
million. This decrease was due principally to pledging $45.0 million in
short-term investments as collateral for a letter of credit guarantee to Thermo
Electron related to Thermo Electron's guarantee of our outstanding subordinated
debentures which are due in 2004. These investments are classified as restricted
investments on the September 29, 2001 balance sheet. As of September 29, 2001,
the outstanding principal amount of our subordinated debentures was $54.8
million and our restricted investments increased to $45.8 million due to
interest earned. For the nine-month period ended September 29, 2001, we received
interest payments of $3.8 million on our cash and short-term and restricted
investments and made interest payments of $1.3 million on our subordinated
debentures.

During the nine months ended September 29, 2001, we made cash payments of
$5.0 million for merger, restructuring and other costs. These payments consisted
mainly of employee retention and severance costs and legal and accounting costs
related to the merger transaction. During the nine months ended September 29,
2001, TCA incurred $5.8 million of merger transaction costs, consisting
principally of banking, legal and accounting costs, which were paid and
capitalized in the purchase consideration (now a component of goodwill).

On April 12, 2001, we announced a stock repurchase program under which our
common stock with a market value up to $20 million may be acquired in the open
market or in privately negotiated transactions. The number of shares to be
purchased and the timing of purchases is based on several conditions, including
the price of our stock, general market conditions and other factors. Through
September 29, 2001, $1.7 million in common stock repurchases have been made,
representing 192,700 shares. These repurchased shares were subsequently retired.

During the nine months ended September 29, 2001, we have made purchases of
$4.7 million for capital equipment, including rental and support equipment used
by our customers to operate the ventricular assist devices.

During the first nine months of 2001, we received cash of $6.3 million from
the exercise of employee stock options.

We believe that cash on-hand, short-term investments, proceeds from this
offering and expected cash flow from operations will be sufficient to fund our
operations and capital requirements for the foreseeable future. We expect that
our operating expenses will increase in future periods as we spend more on
product manufacturing, marketing and research and development of new product
lines as well as incur substantial costs associated with the consolidation of
our VAD manufacturing operations.

The impact of inflation on our financial position and results of operations
was not significant during the nine-month periods ended September 2001 and
September 2000.

QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

We do not currently use derivative financial instruments in our operations
or investment portfolio. We do not have material exposure to market risk
associated with changes in interest rates. Our subordinated debentures carry a
fixed rate of interest and are currently callable at par value. Our investment
portfolio at the end of the third quarter 2001 consisted of short-term state and
municipal government bonds and money market funds that are classified as
available-for-sale and have maturities of less than 90 days. We do not expect to
be subject to material interest rate risk with respect to our short-term
investments. We do not believe we have any other material exposure to market
risk associated with interest rates.

We conduct business in foreign countries. Our international operations
consist primarily of sales and service personnel for our ventricular assist
products. These employees report into our U.S. sales and marketing group and are
internally reported as part of that group. All assets and liabilities of our
non-U.S. operations are translated into U.S. dollars at the fiscal period-end
exchange rates. The resulting translation adjustments are included in
comprehensive income. The period-end translation of the non-functional currency
balances (the result of foreign sales, foreign expenses, and intercompany
transactions) in our wholly owned subsidiary in the United Kingdom at the fiscal
period-end exchange rate into the functional currency of our subsidiary results
in foreign currency exchange gains and losses. These foreign currency exchange
gains and losses are included in interest and other income-net. Net foreign
currency exchange loss was approximately $74,000 for the first nine months of
2001. There were no such gains or losses in the first nine months of 2000 as
Thoratec's United Kingdom subsidiary became a part of our operations upon the
completion of our merger with TCA on February 14, 2001.

Currently, we do not expect to be subject to material foreign currency risk
with respect to future costs or cash flows from our foreign operations and, to
date, we have not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange.

BUSINESS

OVERVIEW

We develop and market products that are used by physicians and hospitals
for cardiac assist, vascular and diagnostic applications. Our three types of
products are:

Our ventricular assist devices are regarded as the most versatile and
widely used circulatory support systems for patients with late-stage CHF. We
currently market devices that may be implanted or worn outside the body and that
are suitable for treatments of different durations for patients of varying sizes
and ages. We estimate that our VADs have treated over 4,700 patients, or more
than 3.5 times as many patients as our nearest competitor. Our devices are used
primarily for patients awaiting a heart transplant or recovering from open heart
surgery. However, we are pursuing approval to use our VADs in other indications,
including as an alternative to maximum drug therapy for CHF patients who are not
eligible for a heart transplant and for therapeutic recovery to partially
reverse the complications of late-stage heart failure in certain patients. We
estimate the combined market size for these indications could be over 200,000
patients annually in the United States alone. We have submitted PMA Supplements
for both these indications and expect to receive FDA approvals for each by the
end of 2002.

On February 14, 2001, we completed our merger with Thermo Cardiosystems, a
Massachusetts-based manufacturer of cardiac assist, blood coagulation testing
and skin incision devices. As a result of the merger, we substantially increased
the size of our company and became a leading provider of circulatory support
products worldwide. We now sell VADs to virtually every leading heart transplant
center worldwide and we market three out of the four VADs approved by the FDA as
a bridge to heart transplant. At the time of the merger, we changed our name to
Thoratec Corporation. As a consequence of the merger, the parent company of TCA,
Thermo Electron, today owns approximately 26% of our outstanding stock and will
own approximately 15% after this offering.

THE REMATCH TRIAL

On November 12, 2001 the results of a clinical trial called REMATCH, or
Randomized Evaluation of Mechanical Assistance for the Treatment of Congestive
Heart Failure, were presented at the American

Heart Association Scientific Sessions and the results were published in a
website edition of The New England Journal of Medicine. The REMATCH trial, which
cost approximately $25 million according to one of the trial sponsors, was a
collaboration among the National Institutes of Health, or NIH, as lead sponsor,
Columbia University and our company. We were a partial sponsor of the REMATCH
trial, providing approximately $3.6 million of financial support and all
necessary VADs and related equipment.

Results from the REMATCH trial showed a significant survival benefit and
improved quality of life for patients using the HeartMate compared to maximum
drug therapy. The study showed the overall probability of one-year survival for
those on the HeartMate was 52% versus 25% for patients treated with maximum drug
therapy. The one year survival rates for patients younger than 60 years old was
74% for those patients on the HeartMate and 33% for those treated with maximum
drug therapy. The one year survival rates for patients 60 to 69 years old was
47% for those patients on the HeartMate and 15% for those treated with maximum
drug therapy. Two-year survival rates are estimated to be 23% for patients on
the HeartMate and 8% for those treated with maximum drug therapy. The median
length of survival was approximately 408 days for those on the HeartMate and 150
days for those treated with maximum drug therapy. The frequency of serious
adverse events for patients in the HeartMate group was 2.35 greater than for
patients in the maximum drug therapy group, with a predominance of infection,
bleeding and malfunction of the device. Some of these adverse events experienced
by patients on the HeartMate included an ischemic stroke in approximately 10% of
the patients, half of which were major.

The overall quality of life, as measured by the patient's emotional state,
whether or not they were depressed, and their mobility, was significantly higher
at one year for patients on the HeartMate than for those treated with maximum
drug therapy. For example, as measured by the Medical Outcomes Study Short-Form
General Health Survey, on a variable score from 0-100, the physical function
mean score of patients on the HeartMate was approximately 45 compared to
approximately 20 for patients on maximum drug therapy. This survey also showed
that the emotional state mean score of patients on the HeartMate was
approximately 65 compared to 18 for patients on maximum drug therapy. At the
time the results of the REMATCH trial were published there were 27 HeartMate
patients still alive, versus 7 patients receiving maximum drug therapy.

On October 16, 2001, we submitted a PMA Supplement for the HeartMate as an
alternative to maximum drug therapy for patients suffering from late-stage CHF.
On November 29, 2001 we received notification from the FDA that it will expedite
the review of our PMA Supplement. We have been notified that on March 4, 2002
the FDA Circulatory System Devices Advisory Panel will meet to review our PMA
Supplement based on the REMATCH trial. We believe that the panel will issue a
recommendation to the FDA on the day of its meeting. The panel could recommend
approval, disapproval or approval with certain conditions and the FDA typically
follows the panel's recommendations although it is not legally obligated to do
so. If approved by the FDA, the HeartMate will become the first ventricular
assist device approved for use as an alternative treatment to maximum drug
therapy for patients suffering from late-stage CHF. We have already initiated
discussions with the Centers for Medicare and Medicaid Services (formerly HCFA)
regarding reimbursement coverage for use of the HeartMate in this treatment.

OTHER RECENT DEVELOPMENTS

On January 23, 2002, we announced a plan to redeem all outstanding 4 3/4%
convertible subordinated debentures originally issued by Thermo Cardiosystems.
As of the date of this prospectus the outstanding principal amount of the
debentures is $54.8 million. We anticipate that the redemption will be completed
by the end of April, 2002.

OUR STRATEGY

We are a leading developer and manufacturer of medical devices for the CHF,
cardiac surgery and vascular graft markets. Our key strategies to maintain and
expand this leadership position are to:

OBTAIN APPROVAL FOR NEW INDICATIONS FOR OUR PRODUCTS. We believe that
there are currently 4.7 million patients in the United States with CHF and that
some of these patients who are currently not using ventricular assist devices
can benefit from our products. We are in the process of obtaining FDA approvals
to market our products for a number of new indications, including the following:

- Alternative to current medical therapies. We have filed a PMA Supplement
with the FDA to obtain approval to market the HeartMate as an alternative
to maximum drug therapy for treating late-stage CHF patients who are not
candidates for heart transplants. We anticipate that we could receive FDA
approval within the next 12 months and can be marketing for this
indicated use shortly thereafter.

- Therapeutic recovery. We believe that the use of our Thoratec VAD system
may lead to recovery of the natural heart in certain patients. We have
submitted a PMA Supplement for this indication and hope to receive
approval during the first half of 2002. Although it is difficult to
estimate the size of this market, we believe that the patient population
that could benefit from this use could be substantial.

INCREASE PENETRATION OF EXISTING MARKETS. We plan to treat a greater
number and variety of patients within our current customer base. To accomplish
this, we are leveraging our existing relationships with leading cardiac surgeons
and hospitals and utilizing our existing sales channels to gain acceptance and
adoption of our products.

LEVERAGE BENEFITS OF OUR MERGER WITH TCA. We believe that our merger with
TCA resulted in substantial and significant strategic benefits including our
ability to combine sales forces and share research and development and
manufacturing resources. For example, we are in the process of consolidating our
manufacturing facilities into our Pleasanton facility, which we expect will
result in significant cost savings. In addition, integrating our sales force
with TCA's sales force has created cross-selling opportunities to further
penetrate our markets. Prior to the merger with TCA, we and TCA had different
sales forces selling our respective products to somewhat different hospitals and
surgeons. By combining our distribution channels, we are now able to offer both
the TCA and Thoratec products to a greater number of hospitals, surgeons and
patients.

OFFER A BROAD RANGE OF PRODUCT SOLUTIONS. We believe that our broad and
diverse product offering is an important competitive advantage because it allows
us to address the various preferences of surgeons and the clinical needs of a
wide variety of patients, as well as the economic needs and concerns of third
party payors. An important part of our growth strategy is to further broaden our
product line to meet customer needs by developing new products internally or
acquiring or licensing new products. Over the next 18 months, we intend to
further develop a number of new or improved products including next generation
versions of both our HeartMate and Thoratec VAD.
30

FOCUS ON AND PARTNER WITH LEADING HEART CENTERS. We have developed
extremely strong, long-standing relationships with leading cardiovascular
surgeons and heart centers worldwide. We believe that no other cardiac assist
company enjoys the same depth of relationship and access to these customers.
Maintaining and expanding these relationships is an important part of our growth
strategy, particularly for the development and introduction of new products and
the pursuit of additional indications for our existing products.

GROW INTERNATIONALLY. On a pro forma basis, for fiscal year 2000, 16% of
our revenue was derived from sources outside of the United States. We estimate
that the international market opportunity for our products is at least as large
as the market opportunity in the United States. Our recent merger greatly
expanded our international presence, particularly in Japan and Latin America. We
plan to continue to grow internationally by leveraging our combined distribution
channels and by developing marketing strategies on a country-by-country basis.

OUR MARKETS

According to the American Heart Association, or the AHA, there are 4.7
million CHF patients in the United States and approximately 550,000 new cases
are diagnosed each year. The AHA also estimates that approximately 50% of CHF
patients die within five years of diagnosis. We believe that the number of
patients suffering from CHF who could benefit from some form of cardiac assist
could be over 200,000 annually. While the number of treatment options for CHF
has increased in recent years, the use of medication remains the most widely
used approach for treatment of the disease. These drug therapies include ACE
inhibitors, anti-coagulants and beta-blockers which facilitate blood flow, thin
the blood or help the heart work in a more efficient manner. Other procedures
used to treat CHF include angioplasty, biventricular pacing, valve replacement,
bypass and left ventricular reduction surgery.

Despite attempts to manage CHF through drug therapy, there is currently
only one curative treatment for the disease - a heart transplant. Unfortunately,
the number of hearts available for transplant each year can meet the needs of
only a small number of the patients who need a heart transplant. The United
Network for Organ Sharing reported that there were only 2,340 hearts available
for transplant in the United States in 1999. At any given time, there are
approximately 4,000 to 5,000 patients on the U.S. national transplant waiting
list and we believe a comparable number of patients are waiting in Europe. The
median wait for a donor heart by patients on a heart transplant waiting list is
approximately nine months, and many patients have to wait as long as one to two
years before receiving one of the few donor hearts available. In 1999,
approximately 17% of such patients died while waiting for a donor heart.

In the United States, there is currently one FDA-approved indication for
ventricular assist devices for patients with CHF - as a bridge to heart
transplant. We are pursuing two additional indications for our VAD products - as
an alternative to maximum drug therapy and for therapeutic recovery of the
heart. If approved, these additional indications will represent larger market
opportunities than the current indication. Beyond the CHF markets, ventricular
assist devices are also approved for use during recovery following coronary
artery bypass graft, or CABG, surgery. All four indications are summarized
below.

BRIDGE TO TRANSPLANT

Ventricular assist devices provide additional cardiac support for patients
who are in late-stage heart failure waiting for a donor heart. Of the
approximately 4,000 to 5,000 patients on the waiting list for a heart transplant
in the United States, we estimate that approximately 25% will receive a
ventricular assist device.
31

We believe that the percentage of patients bridged to transplant continues
to increase with surgeons' level of comfort with the technology, particularly
for longer-term support cases. There are currently four devices approved in the
United States as a bridge to transplant, three of which are manufactured by us.
We estimate that the bridge to transplant indication represents a worldwide
market opportunity of up to 8,000 patients annually.

ALTERNATIVE TO MAXIMUM DRUG THERAPY

We are pursuing approval to use our VAD as an alternative to maximum drug
therapy for patients with late-stage CHF who are not candidates for heart
transplantation due to other degenerative illnesses or advanced age. We believe
that the success in transitioning this market from maximum drug therapy to
ventricular assist devices is dependent on the development of VADs, like our
HeartMate, with substantial longevities and proof of clinical efficacy.

The results of the REMATCH trial were presented at the American Heart
Association Scientific Sessions on November 12, 2001 and were published in a
website edition of The New England Journal of Medicine. We have submitted a PMA
Supplement for the HeartMate as an alternative to maximum drug therapy for
patients suffering from late-stage CHF. These CHF patients are not candidates
for heart transplants due to their age or medical condition. We estimate the
size of this market opportunity at up to an additional 100,000 patients annually
in the United States.

THERAPEUTIC RECOVERY

We believe that, for most patients, recovery of their own heart is a better
alternative than either heart transplantation or permanent implantation of a
blood pumping device. Based on recently reported cases of recovery in heart
failure patients, we believe that our Thoratec VAD system is a potential therapy
that can reverse the complications of late-stage heart failure in certain
patients.

While this therapeutic recovery indication is not yet approved for our
devices, we are actively investigating the worldwide experience with our VAD
systems as a means of therapeutic recovery and the requirements for pursuing
regulatory approval for this indication. Although it is not certain how many
patients with CHF could benefit from this indication, based upon the percentage
of patients with late-stage CHF, we believe that the patient population could be
substantial. We submitted a PMA Supplement to the FDA in December 2000 and
expect to receive approval in the United States during the first half of 2002.
We are also formulating a regulatory and clinical strategy for non-U.S. markets.

RECOVERY FOLLOWING CARDIAC SURGERY

In addition to CHF, our devices are also used for patients who suffer from
acute cardiac failure and undergo cardiac surgery. Following cardiac surgery,
some patients have difficulty being weaned off heart/lung machines -- a
complication that arises in approximately one to three percent of the more than
900,000 open-heart procedures performed each year. Many of these patients
ultimately die from heart failure when the heart, weakened by disease and the
additional trauma of surgery, fails to maintain adequate blood circulation. We
believe that only a small portion of this market is currently being treated with
VADs and this patient population could benefit substantially from further
awareness and use of our VADs in this market.

OTHER MARKETS

In addition to the circulatory support market, we sell other devices
including those that address the vascular graft access market. Our vascular
grafts program has developed the Aria graft for patients undergoing CABG surgery
or who have too few and/or poor quality vessels of their own to use for the
procedure. The Aria is currently in clinical trials. We have also developed and
are marketing the Vectra Vascular Access Graft, or Vectra, for patients
undergoing renal hemodialysis.

We believe that the market opportunity for the Aria could be up to 20% of
those patients who undergo CABG surgery but do not have healthy native vessels.
Industry sources estimate that this market could be approximately 180,000
patients each year. Our Vectra product targets the estimated 225,000 prosthetic
access vascular grafts implanted in hemodialysis patients annually.

Finally, our diagnostic products, which we sell through our ITC subsidiary,
for blood coagulation testing and our single use skin incision equipment address
the market for those patients who must monitor their blood chemistry. We
estimate this market is smaller than our other markets but that we hold a
leading position for these devices. We currently estimate that the market for
these products is over $250 million per year.

OUR PRODUCTS

We offer two complementary circulatory support product lines:

- the Thoratec Ventricular Assist Device system, which we call the Thoratec
VAD system, an external device for short to mid-term cardiac support; and

- the HeartMate Left Ventricular Assist system, which we call the
HeartMate, an internal device for longer term cardiac support.

In addition to our cardiac assist products, we offer vascular access
grafts, used in hemodialysis for patients with end stage renal disease. We are
also developing a small diameter access graft for use in CABG surgery.
Additionally, we sell whole-blood coagulation testing equipment used in bedside
anticoagulation management, coagulation screening and skin incision devices for
the drawing of blood from adult, children and infant patients.

CIRCULATORY SUPPORT PRODUCTS

Ventricular assist devices perform some or most of the pumping function of
the heart in patients with severe heart failure. A cannula connects the left
ventricle of the heart to a blood pump that is driven by a power source, which
can be either electric or pneumatic. Blood flows from the left ventricle to the
pump chamber, via the cannula. An electric or air driven mechanism compresses
the pump chamber and forces the blood through another cannula into the aorta.
From the aorta, the blood then circulates throughout the body. Valves, which can
be mechanical or tissue, enable unidirectional flow.

Certain VADs are implanted internally, while others are placed outside the
body. Some external devices are placed immediately adjacent to the body
(paracorporeal), while other external VADs are positioned at a distance from the
body (extracorporeal). Between 15% and 20% of assist patients require
biventricular support and therefore require a second pump for the right
ventricle. For all currently FDA-approved VADs, the power source remains outside
the body.

The Thoratec VAD

The Thoratec VAD has been FDA-approved since 1995 and has treated over
1,700 patients worldwide. The Thoratec VAD is a paracorporeal device that
remains outside of the body. The product is less invasive than implantable VADs
since only the cannulae must be implanted. The paracorporeal nature of the
Thoratec VAD has several positive consequences including relatively shorter and
less invasive implantation times (approximately two hours) and the ability to
use the device in smaller patients.

A pneumatic power source drives our VAD. It is designed for intermediate
duration use of a few weeks to several months though this device has supported
numerous patients for six to eighteen months. Offering left, right or
biventricular support, the Thoratec VAD is the only biventricular support system
approved for use as a bridge to transplant. This characteristic is significant
since 15-20% of patients require right-sided ventricular assist. The Thoratec
VAD is also the only device approved for both bridge to transplant and recovery
following cardiac surgery. We submitted a PMA Supplement in December 2000

for a therapeutic recovery indication, which we expect to receive by the end of
2001. The Thoratec VAD is made with our proprietary biomaterial, Thoralon, which
may reduce clotting.

[Illustration showing placement of
left and right ventricular assist devices]

Ambulation with most paracorporeal VADs is possible, but very limited
because of the large size of the typical drive console. In order to improve
patient mobility, we developed the TLC-II, a small portable driver, which
increases portability and ambulation options. The portable driver was recently
approved in the United States for use in off-site excursions and is under
investigation for a home discharge indication. The TLC-II has been approved for
use in Europe since 1998.

The HeartMate

The HeartMate has been used to treat over 3,000 patients worldwide. There
are currently two versions of the HeartMate available on the market with
different sources of power. The pneumatic-powered version of the HeartMate,
called the HeartMate IP, was approved in the United States in 1994 and was the
first FDA-approved cardiac assist device. The electric HeartMate, called the
HeartMate VE, received FDA approval in September 1998. Currently, the electric
version accounts for over 90% of our total HeartMate sales and we recently
introduced a number of enhancements to the HeartMate which have been approved by
the FDA. Compared with the Thoratec VAD, the HeartMate is designed for longer
duration use of several months to up to two or three years. The HeartMate offers
only left ventricular support. While the device is currently approved as a
bridge to transplant indication and for home discharge, the REMATCH trial
evaluated HeartMate as a potential alternative to maximum drug therapy for
patients who are not eligible for a heart transplant.

Patients with a HeartMate do not require anti-coagulation, since the device
utilizes proprietary textured surfaces and tissue valves rather than mechanical
valves. As a result, we believe that this device has the lowest rate of stroke
for patients using ventricular support. The implantable nature of the device
enables patient ambulation and home discharge.

[Illustration showing placement of the HeartMate.]

Implantable VAD

We are developing and expect to commercialize the IVAD, which is an
implantable version of the Thoratec VAD. The IVAD maintains the same blood flow
path, valves and blood pump as the paracorporeal device and is better suited for
longer-term support compared to the Thoratec VAD. The outer covering of the IVAD
is made of a titanium alloy, which facilitates implantation. The device is
approximately half the size of other implantable VADs and weighs less than one
pound. The device can be implanted in patients ranging in weight from 40 kg to
over 100 kg. The small blood pump is implanted in the body and is connected to a
small, briefcase size, battery-powered, external control unit. The device can
provide left, right, or biventricular support. The IVAD is being designed as a
bridge to transplant and possibly for therapeutic recovery, but not as an
alternative to transplant.

In February 2001, we received a conditional IDE approval to commence an
IVAD clinical trial. The study will evaluate up to 30 patients in up to 10
centers, which are in the process of obtaining approval. We plan to submit a PMA
Supplement in the second half of 2002, and expect approval in the first half of
2003.

HeartMate II and HeartMate III

HeartMate II, the next-generation HeartMate device, is being designed for
use in many types of patients and indications, including as an alternative to
maximum drug therapy. HeartMate II, is a small implantable electrically powered
device that weighs only 12 ounces and is approximately 1.5 inches wide and 3
inches long. The small size of the device is made possible by a continuous axial
flow mechanism, as compared with the pulsatile flow of other currently marketed
products. The device is also designed to be quieter than currently marketed
products. The pump speed can be controlled manually or by a proprietary
automatic mode, which regulates pumping activity based on the demands of the
body. We believe this will be a competitive advantage since most competitive
axial pumps currently in development must be manually adjusted. The anticipated
longevity of the device is expected to be five to seven years.

The first HeartMate II was implanted in Israel in 2000 and the first
European implant occurred in April 2001. We filed for a U.S. IDE in August,
2001. Our goal is to complete U.S. clinical trials by the

end of 2002, with HeartMate II launches anticipated in Europe by year-end 2002
and in the United States by the end of 2003.

In addition, we are developing our third generation HeartMate, the
HeartMate III. The HeartMate III is a centrifugal flow pump that employs an
electrically powered magnetic rotor that eliminates wear from touching parts. No
bearings are present and the device is completely encased in titanium. HeartMate
III maintains both continuous and pulsatile flow capabilities. The anticipated
longevity of the device is 10-20 years. To date, preclinical studies have been
performed, with the first six-month preclinical studies already completed.

VASCULAR GRAFT PRODUCTS

We are developing small diameter vascular graft products intended initially
to address the vascular access and CABG markets. Both products utilize our
proprietary Thoralon biomaterial, and are protected by several U.S. and foreign
patents covering the material and the structure of the graft products, as well
as several foreign patents covering aspects of the manufacturing processes used
to make the products. We believe that our vascular grafts are highly compliant,
have excellent handling and suturing properties and have the "feel" of a natural
blood vessel. Our manufacturing process creates a structure in which the three
different layers in the graft 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 resistance to blood clots.
The solid middle layer gives the graft its strength and self-sealing properties.
The outer textured layer is designed to promote tissue ingrowth to enhance graft
stability.

Aria Coronary Artery Bypass Graft

We have developed a small diameter graft for use in coronary artery bypass
surgery patients who have too few or no suitable vessels of their own. The most
unique aspect of the Aria is its potential for improved long-term patency (up to
eight years) in small diameter grafts. We believe 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.

We received FDA approval for a Phase I IDE study of the Aria graft in May
2000. This study was designed to evaluate the Aria graft in patients with
inadequate autologous vessels to complete revascularization. In Phase I of the
study 19 patients were enrolled at six institutions. In September 2001, the
Phase I results were submitted to the FDA and we requested approval to begin the
pivotal Phase II study involving an additional 91 patients and 20 institutions.

Vectra Vascular Access Graft

The Vectra vascular access graft was approved for sale in the United States
in December 2000 and in Europe in January 1998. It 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. Other currently available vascular access grafts are commonly
made out of ePTFE, which can lose integrity after repeated punctures and require
a three to six week healing period between implantation and the initiation of
dialysis treatment. We believe that the Vectra may provide significant
advantages over existing synthetic vascular access grafts that may encourage its
use by surgeons who are currently using natural vessels for vascular access. We
currently sell Vectra through the Impra division of C.R. Bard Corporation in the
United States, Europe and selected countries in Scandinavia, the Middle East and
Northern Africa and through Goodman Co. Ltd. in Japan.

BLOOD COAGULATION TESTING AND SKIN INCISION DEVICES

Through our wholly owned subsidiary, International Technidyne Corporation,
we manufacture and supply whole blood coagulation testing equipment and related
disposables, as well as premium-quality, single-use skin incision devices.

Our whole-blood coagulation testing equipment product lines offer systems
for bedside anticoagulation management, coagulation screening, and transfusion
management. Each analyzes small blood samples, then processes and quickly
displays comprehensive patient homeostasis information. Blood management of this
type is essential for cardiopulmonary bypass surgery and angioplasty. HEMOCHRON
models are designed for use in a clinical setting at the patient's bedside. They
are lightweight, battery-operated, portable, and some provide data-management
features.

The Protime Microcoagulation System is designed to allow testing for
patients who take the blood-thinning drug Warfarin (or Coumadin, the trade name
for the generic drug, Warfarin). The system consists of a hand-held instrument,
a five-channel cuvette, and a finger incision device. These tests are performed
in a doctor's office, clinic, or by the patients at home.

We also manufacture a family of single-use skin incision devices for
drawing blood from adults, children, and infants. Each employs a patented skin
incision technology to provide a standardized surgical incision.

SALES AND MARKETING

We operate in the following business segments: circulatory support
products, graft products, and blood coagulation testing and skin incision
products.

CIRCULATORY SUPPORT PRODUCTS

The potential customers for our circulatory support products are hospitals
that perform open heart surgery procedures and heart transplants. We estimate
that 140 of the approximately 900 hospitals in the United States that perform
open-heart surgery also perform heart transplants. We actively are marketing to
these 140 heart transplant hospitals and large cardiac surgery centers in
addition to 110 heart transplant hospitals in Europe.

We have recruited and trained a direct sales force that, as of September
29, 2001, was comprised of 18 experienced cardiovascular sales specialists to
sell our circulatory support systems in the United States, Canada, France,
Germany, Spain, United Kingdom, Austria, Switzerland, Netherlands, Portugal and
South Africa.

The sales effort is complemented by 10 direct clinical specialists that
conduct clinical educational seminars, assist with a new open-heart center's
first VAD implant and resolve clinical questions or issues. We also partner with
universities, experienced clinicians and opinion leaders to assist with
expanding clinical educational needs. The sales team focuses on cardiac surgeons
that perform heart transplantation and transplant surgeons, perfusionists and
the transplant nursing staff. In addition to our direct selling effort, we have
established a network of international distributors who cover those markets that
represent the majority of ventricular assist device potential. We employ sales
and marketing tactics commonly found within the cardiovascular device market
such as direct mail, clinical education seminars, symposia, equipment purchase
and lease programs and journal advertisement. We have also assembled a Medical
Advisory Board consisting of opinion leaders who provide clinical input and
direction on product development, marketing and market issues.

Hospitals or other medical institutions that acquire a VAD system generally
purchase VAD pumps, related disposables and training and purchase or rent two of
the associated pump drivers (to ensure that a backup driver is available). The
time from the initial contact with the cardiac surgeon until purchase is
generally between nine and eighteen months, due to the expense of the product
and common hospital capital equipment acquisition procedures. Upon receipt of a
purchase order, we will usually ship the products within thirty days.

The introduction of a new system requires training of the appropriate
personnel. We provide initial training for the surgical and clinical support
teams when a center purchases and takes delivery of one of our VAD products. As
a follow-up to the initial training, we provide clinical support at the first
implant

whenever possible. We also provide 24-hour access to clinically trained
personnel. Our sales force also assists customers with obtaining reimbursement
from third-party payors.

VASCULAR GRAFT PRODUCTS

We market the Vectra through Impra in the United States, Europe and
selected countries in Scandinavia, the Middle East and Northern Africa and
through Goodman Co. Ltd. in Japan. We intend to market the Aria CABG device
through our direct sales force in the United States and Europe and potentially
through distributors in other international markets.

The Aria is being developed as a preferable clinical option for patients
who lack suitable native vessels. We believe that more clinician education will
be required for the Aria graft in terms of patient indications, product use, and
product capabilities. We may accomplish this education by sponsoring educational
programs, video educational tools and scientific lecture programs. We also
anticipate that we may need a larger domestic sales force structure to
effectively market the Aria graft.

BLOOD COAGULATION TESTING AND SKIN INCISION DEVICES

International Technidyne maintains a direct sales staff of 31 in the United
States who sell to hospitals as well as to third party dealers and distributors
including Allegiance Healthcare. Outside of the United States, International
Technidyne has two salespeople selling principally to third-party dealers.

MANUFACTURING AND FACILITIES

We manufacture our products at the following facilities:

- The Thoratec VAD systems are manufactured at our 62,000 square foot
leased facility in Pleasanton, California. This facility has been
inspected, approved and licensed by the FDA and the State of California
Department of Health Services, Food and Drug Section for the manufacture
of medical devices and has received the International Standards
Organization (ISO) 9001 certification. Our manufacturing processes for
the Thoratec VAD system consist of the assembly of standard and custom
component parts, including blood-contacting components fabricated from
our proprietary biomaterials, and the testing of completed products. We
rely on single sources of supply for several components of the Thoratec
VAD system. We are aware of alternative suppliers for all single-sourced
items other than the Thoratec VAD mechanical valves, which have been
supplied by Arrow International Inc.

- We lease approximately 11,000 square feet of research and development
facilities in Rancho Cordova, California pursuant to a lease expiring in
2002.

- We lease approximately 12,000 square feet of office space in Chelmsford,
Massachusetts pursuant to a lease expiring in January 2002.

- HeartMate devices are manufactured at a 34,000 square foot sub-leased
facility in Woburn, Massachusetts. We are in the process of moving
portions of this facility to Pleasanton, California and expect the move
to be completed by the end of 2002. We will continue operating marketing,
research and development and administrative functions at the Woburn
facility.

- Blood coagulation testing and skin incision devices are manufactured at a
66,000 square feet owned facility and a 24,000 square foot leased
facility, each in Edison, New Jersey.

We believe our facilities will be sufficient to meet our needs for at least
the next year and that additional space will be available at a reasonable price
to satisfy space needs thereafter.

PATENTS AND PROPRIETARY RIGHTS

We seek to patent certain aspects of our technology. We hold, or have
exclusive rights to, several U.S. and foreign patents. Except for the patents
mentioned below, the Thoratec VAD system is not

protected by any patents other than one patent pertaining to the TLC-II. We do
not believe that this lack of patent protection will have a material adverse
effect on our ability to sell the Thoratec VAD system because of the lengthy
regulatory period required to obtain approval of a ventricular assist device. We
are not aware of any ventricular assist devices that are based on our product
design currently approved by the FDA or undergoing clinical trials. Several
patents cover aspects of our HeartMate products.

Our patents relating to blood coagulation and skin incision devices are
assigned to our wholly-owned subsidiary International Technidyne Corporation. We
own or hold rights in the remainder of the U.S. patents by virtue of the merger
between Thoratec and Thermo Cardiosystems. However, documents transferring
ownership of some of these patents have not yet been submitted to the PTO and,
while documents have been submitted to the PTO for others, those documents have
not yet been recorded by the PTO. Until documents transferring rights to us as a
result of the merger are recorded, our rights in the respective patents could be
subject to rights of others who purchased those rights from Thoratec or Thermo
Cardiosystems without knowledge of the merger.

Several patents cover aspects of our proprietary biomaterials technology,
some of which were sold to TH Goldschmidt AG, a German chemical manufacturer, in
1989, but we have retained worldwide, royalty-free, exclusive rights to these
patents for most medical applications. The patent license from Goldschmidt will
remain in effect for the duration of the patents sold to Goldschmidt and
includes medical uses that we expect are necessary for our business as now
conducted or as proposed to be conducted in the future. For example, the medical
applications include blood pumps, artificial hearts and cardiac assist devices
of all kinds, cardiovascular products, including heart valves and prosthetic
blood vessels and cannulae and blood tubing of all kinds. Aspects of our
vascular graft products are covered by patents covering materials, graft
structure, and, in some foreign countries, manufacturing processes used to make
the graft products. Aspects of our blood coagulation and skin incision device
products are covered by patents directed to blood coagulation testing equipment
and methods, and to skin incision devices and methods of manufacturing such
devices. The duration of some of our patents on our HeartMate products range
from 14 to 15 years, on our biomaterials, 2 1/2 years, on our grafts, from 3
months to 3 1/2 years and on our blood coagulation and skin incision device
products, from 3 to 15 years. During the term of our patents, we have the right
to prevent third parties from manufacturing, marketing or distributing products
that infringe upon our patents.

We hold, or have exclusive rights to, several international patents,
including several biomaterial patents licensed from Goldschmidt referred to
above. In August 1998, we obtained a license to incorporate technology developed
by Sulzer Electronics Ltd. into the HeartMate III. HeartMate III is a miniature
centrifugal pump featuring a magnetically controlled system that has been
developed by Levitronix GmbH. The license from Sulzer gives us the exclusive
right to use in our HeartMate products technology protected by several U.S. and
foreign patents covering implantable magnetically controlled pumps for the
duration of those patents, subject to our payment of royalties. In December
2000, we were informed by Sulzer Electronics that Sulzer had sold all of their
business in the bearingless motor and magnetic bearing fields to Levitronix and
had assigned the agreements between Sulzer and us to Levitronix. The license
remains in full force and effect.

The validity of any of our patents may be challenged by others, and we
could encounter legal and financial difficulties in enforcing our patent rights
against alleged infringements. In addition, others could develop technologies
that avoids infringement of our patents or obtain patents which would render our
patents obsolete. Although we do not believe patents are the sole determinant in
the commercial success of our products, the loss of a significant percentage of
our patents or the patents relating to our products could seriously harm our
business.

We have developed technical knowledge, which although non-patentable, we
consider to be significant in enabling us to compete. However, the proprietary
nature of such knowledge may be difficult to protect. It is our policy to enter
into confidentiality agreements with each of our employees prohibiting such
employee from disclosing any confidential information or trade secrets. In
addition, these agreements provide that any inventions or discoveries relating
to our business by these individuals will be assigned to

us and become our sole property. However, we cannot guarantee that every person
who gets access to our confidential information or trade secrets will have
signed such an agreement, or that every person who has signed such an agreement
will abide by it. If they do not, or if our confidential information or trade
secrets are otherwise disclosed, there is no guarantee that any legal remedies
will prevent the harmful disclosure or use of our confidential information or
trade secrets.

Claims by competitors and other third parties that our products allegedly
infringe the patent rights of others could seriously harm our business. 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 and significant diversion of the
efforts of our technical and management personnel. An adverse determination in
any such proceeding could subject us to significant liabilities or require us to
seek licenses from third parties or pay royalties that may be substantial.
Furthermore, we cannot assure you 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 us from manufacturing or selling certain of our products, any of
which could seriously harm our business.

We have received correspondence from a third party alleging that the
textured surface of our HeartMate housing infringes certain patent rights of
such third party. In general, an owner of intellectual property can prevent
others from using such property without a license and is entitled to damages for
unauthorized usage. We have investigated the bases of the allegation and, based
upon an evaluation of all of the facts and circumstances, we believe that we
have meritorious defenses. However, we cannot be sure that our defenses would
prevail, and given the inherent uncertainties in dispute resolution, if we were
sued and the outcome was unfavorable, our results of operations or financial
condition could be seriously harmed.

COMPETITION

Principal competitors of our VAD systems include:

- World Heart Corporation, which manufactures and markets the Novacor
implantable left ventricular assist device approved only for bridge to
heart transplant in the United States; and

- ABIOMED, Inc., which manufactures and markets the BVS 5000 biventricular
assist device approved only for temporary circulatory support of patients
in post-heart surgery shock and other recovery indications in the United
States.

We believe that the principal competitive factors in the circulatory
support market are patient outcomes, product performance, size and portability,
quality, cost-effectiveness and customer service. We believe that our principal
competitive advantages are:

- our ability to provide left, right or biventricular support;

- our ability to provide short-term or long-term circulatory support;

- the lowest known rate of stroke for patients using ventricular support;

- our ability to provide implantable or paracorporeal VAD placement;

- our ability to provide support in the hospital or in the home;

- our ability to provide support to a greater range of patients as a result
of the smaller size and placement of the paracorporeal system outside the
body;

- the greater range of cannulation options available;

- the quality of our biomaterials;

- the availability and quality of service and field support; and

- our ability to offer numerous products from one company.

Although we believe that these attributes of our VAD systems offer certain
advantages over existing ventricular assist devices, we expect our current
competitors to defend their market positions vigorously.

Our principal competitors in the vascular access graft market are W.L.
Gore, Inc., C.R. Bard and Boston Scientific Corporation, who manufacture and
market ePTFE grafts worldwide. Smaller competitors include CardioTech
International, Inc., which manufactures and markets a polyurethane graft that is
available for sale outside of the United States. Finally, Possis Medical, Inc.
manufactures a self-sealing silicone rubber graft marketed with limited
indications in the United States through Horizon Medical Products, Inc.

International Technidyne's principal competitor for the HEMOCHRON
coagulation monitoring instruments, used in the operating room and in cardiac
catheterization, is the HemoTec division of Medtronic, Inc. Roche Holding AG
competes with the ProTime product with a blood coagulation monitor that is
marketed to clinics and also is used for patient self-testing. There are also
several new competitors that have recently entered the blood coagulation
monitoring market. Our wholly-owned subsidiary International Technidyne's
products compete primarily on the basis of reputation, utility, and price.

International Technidyne's skin incision devices compete with products
offered by a number of companies, including Organon Teknika B.V.; Becton,
Dickinson and Company; and Owen-Mumford Ltd. The skin incision devices compete
primarily on the basis of safety, quality and reputation.

GOVERNMENT REGULATIONS

Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of our
current and future products and in our ongoing product research and development
activities. All of our 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 United States, the FDA regulates the design, manufacture,
distribution and promotion of medical devices pursuant to the Federal Food,
Drug, and Cosmetic Act and the regulations promulgated thereunder (the "FDA Act
and Regulations"). Our VAD systems, blood coagulation testing devices, skin
incision devices, and Aria and Vectra graft products are regulated as medical
devices. To obtain FDA approval to market ventricular assist devices similar to
those under development, the FDA requires proof of safety and efficacy in human
clinical trials performed under an IDE. An IDE application must contain
preclinical test data supporting the safety of the product for human
investigational use, information on manufacturing processes and procedures,
proposed clinical protocols and other information. If the IDE application is
accepted, human clinical trials may begin. The trials must be conducted in
compliance with FDA regulations and with the approval of one or more
institutional review boards. 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 us is permitted in the United States.

The PMA Supplement must be supported by extensive data, including
preclinical and human clinical data, to prove the safety and efficacy of the
device with respect to the modifications disclosed in the supplement. 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 approved 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 predicate
device, the manufacturer may seek marketing clearance from the FDA to market the
device by filing a 510(k) premarket notification with the FDA. This is the
process that is used to gain FDA market clearance for most of the International
Technidyne products including HEMOCHRON and ProTime. 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 approved by the FDA prior to marketing the
device in the United States.

Both a 510(k) and a PMA, if approved, may include significant limitations
on the indicated uses for which a product may be marketed. FDA enforcement
policy 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.

The approval process for each of our products is expensive and time
consuming and we cannot assure you that any regulatory agency will grant its
approval. Our inability to obtain, or delays in obtaining, such approval would
adversely affect our ability to commence marketing our products. We cannot
assure you that we will have sufficient resources to complete the required
testing and regulatory review processes. Furthermore, we are unable to predict
the extent of adverse governmental regulation which might arise from future U.S.
or foreign legislative or administrative action.

In addition, any products distributed 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 regulations and adverse events must be reported to the FDA. Labeling
and promotional activities are subject to scrutiny by the FDA and, in certain
instances, by the Federal Trade Commission. The failure to comply with the FDA's
regulations can result in enforcement action, including seizure, injunction,
prosecution, civil penalties, recall and suspension of FDA approval. The export
of devices is also subject to regulation in certain instances.

We are also subject to regulation by the California Food and Drug Branch,
which may inspect us and enforce regulations. Failure to comply with applicable
California regulations may result in seizures, injunctions or other types of
enforcement actions.

INTERNATIONAL REGULATIONS

We are also subject to regulation in each of the foreign countries in which
we sell products with regard to product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. Many of the regulations applicable to our products in such
countries are similar to those of the FDA. The national health or social
security organizations of certain countries require our products to be qualified
before they can be marketed in those countries.

In order to be positioned for access to European and other international
markets, we 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 1947. ISO has over 90
member countries. ISO certification is widely regarded as essential to enter
Western European markets. We obtained certification and were registered as an
ISO 9002 compliant company in January 1995. Commencing in mid-1998, all
companies are required to obtain CE Marks for medical devices sold or
distributed in the European Union. The CE Mark is an international symbol of
quality. With it, medical devices can be distributed within the European Union,
which is comprised of 15 European countries representing a population of over

379 million people. A prerequisite for obtaining authority to CE Mark products
is to achieve full quality system certification in accordance with ISO 9001 and
EN 46001. These are quality standards that cover design, production,
installation and servicing of medical devices. We have our ISO 9001 and EN 46001
certification and authority to CE Mark all VAD systems including the HeartMate,
blood coagulation testing and skin incision devices, and the Vectra graft. We
are also certified to be in compliance with the requirements of the European
Medical Device Directive, another prerequisite for applying the CE Mark.

OTHER REGULATIONS

We are 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 our research and
development work. Specifically, the manufacture of our biomaterials is subject
to compliance with federal environmental regulations and by various state and
local agencies. Although we believe we are in compliance with these laws and
regulations in all material respects, we cannot assure you that we will not be
required to incur significant costs to comply with environmental laws or
regulations in the future.

THIRD PARTY REIMBURSEMENT AND COST CONTAINMENT

Our 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 health insurance
companies and managed care organizations, reimburse part or all of the costs and
fees associated with these devices and the procedures performed with these
devices.

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
determined by the payor, was experimental or was used for an unapproved
application. To date, some private insurers and Medicare and Medicaid have
determined to reimburse the costs of our VAD systems. Changes in reimbursement,
policies and practices of third party payors could seriously harm sales of our
products.

EMPLOYEES

As of September 29, 2001, we had 667 full-time employees 301 of whom worked
in manufacturing, 94 in engineering, 87 in quality control and regulatory
affairs, 108 in marketing and sales support, 35 in administration and finance,
and 42 in other support functions, including human resources, management
information, purchasing and facilities. None of our employees is covered by a
collective bargaining agreement. We consider relations with our employees to be
good.

LITIGATION

We are not a party to any material legal proceedings.

MANAGEMENT

DIRECTORS AND OFFICERS

Our directors and officers at September 29, 2001 were as follows:

NAME AGE POSITION
---- --- --------

J. Donald Hill....................... 65 Director and Chairman of the Board
D. Keith Grossman.................... 41 Director, President and Chief Executive Officer
Howard E. Chase...................... 65 Director
J. Daniel Cole....................... 55 Director
William M. Hitchcock................. 62 Director
George W. Holbrook, Jr. ............. 70 Director
Daniel M. Mulvena.................... 53 Director
Theo Melas-Kyriazi................... 42 Director
M. Wayne Boylston.................... 43 Senior Vice President, Chief Financial Officer and
Secretary
Lawrence Cohen....................... 52 President -- International Technidyne Corporation
David J. Farrar...................... 54 Vice President -- Research and Development
Bradley D. Goskowicz................. 45 Vice President -- Sales and Marketing
Jeffrey C. Mack...................... 39 Vice President -- Finance and Corporate Controller
Donald A. Middlebrook................ 50 Vice President -- Regulatory Affairs/Quality Assurance
Joseph G. Sharpe..................... 42 Vice President -- Operations
Beth A. Taylor....................... 39 Vice President -- Human Resources

J. DONALD HILL, M.D., CHAIRMAN OF THE BOARD OF DIRECTORS, has been a
director of our company since our inception. In January 1995, Dr. Hill became
Chairman of the Board of Directors. Dr. Hill is the director of the Heart
Failure, Transplant, Artificial Heart and Circulatory Support Program at
California Pacific Medical Center in San Francisco where he has been a
practicing cardiovascular surgeon since 1966.

D. KEITH GROSSMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR, joined
our company as President and Chief Executive Officer in January 1996. He was
elected to the Board of Directors in February 1996. Prior to joining us, Mr.
Grossman was a Division President of Major Pharmaceuticals, Inc., from June 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, and division of SulzerMedica
formerly Intermedics, Inc. Prior to 1988, Mr. Grossman held various other sales
and marketing management positions within the McGaw Laboratories Division of
American Hospital Supply Corporation.

HOWARD E. CHASE, DIRECTOR became a director of our company in November
1986. Mr. Chase served as President and CEO of Carret Holdings, Inc. (formerly
Matrix Global Investments, Inc.) from June 1999 until December 2001. Mr. Chase
served as President and CEO of Trident Rowan Group, Inc. ("TRGI") from September
1995 to March 1998 and Chairman of the Board of TRGI from March 1998 to December
1999. From 1984 to August 1995, Mr. Chase was a partner in the law firm of
Morrison Cohen Singer & Weinstein, LLP in New York City. He acted as an advisor
and as a special counsel to our company from 1979 to 1995. Mr. Chase serves as a
member of the board of directors of Trident Rowan Group, Inc., Centerpoint
Corporation (formerly Moto Guzzi Corporation) and Carret Holdings, Inc.

J. DANIEL COLE, DIRECTOR became a director of our company in June 1997. Mr.
Cole has been a general partner of the Spray Venture Fund of Boston since March
1997. Mr. Cole was President and Chief Operating Officer of SciMed Life Systems
Corporation from March 1993 to March 1995, and Senior Vice President and Group
President of Boston Scientific Corporation's vascular business from March 1995
to

March 1997. He has also held a number of senior executive positions at Baxter
Healthcare Corporation, including President of its Edwards Less Invasive Surgery
Division and its Critical Care Division. Mr. Cole also serves as a member of the
board of directors of numerous private companies.

WILLIAM M. HITCHCOCK, DIRECTOR became a director of our company in
September 1996. In December 1996, Mr. Hitchcock became President and director of
Avalon Financial, Inc. From May 1992 to December 1996, Mr. Hitchcock was
President of Plains Resources International Inc., a wholly owned subsidiary of
Plains Resources Inc. Mr. Hitchcock also serves as a member of the board of
directors of Plains Resources Inc., Luna Imaging, Inc. and Protalex, Inc.

GEORGE W. HOLBROOK, JR., DIRECTOR became a director of our company in June
1995. Since 1984 Mr. Holbrook has been the Managing Partner of Bradley Resources
Company, a private investment partnership. Mr. Holbrook is also a director and
trustee of Merrill Lynch Institutional Fund, Inc., and several associated funds,
in addition to being a director of ThinGap, Autogenics, Ltd., Radiomed
Corporation, Soilzone, and Radius Medical Technologies, Inc.

DANIEL M. MULVENA, DIRECTOR became a director of our company in May 1997.
Mr. Mulvena is the founder and owner of Commodore Associates, a consulting
company. Mr. Mulvena was Group Vice President of the Cardiac/Cardiology Division
and a member of the operating committee for Boston Scientific Corporation from
February 1992 to May 1995. Prior to that, he was the President and Chief
Executive Officer and Chairman of Lithox Systems, Inc. Prior to that, Mr.
Mulvena held a number of executive positions, including President of the
Implants Division and President of the Cardiosurgery Division, at C.R. Bard,
Inc. Mr. Mulvena also serves as a member of the board of directors of Echocath,
Inc., Magna-Lab Inc., Zoll Medical Corporation and Cambridge Heart, Inc.

THEO MELAS-KYRIAZI, DIRECTOR became a director of our company in February
2001. He has been the Chief Financial Officer of Thermo Electron Corporation
since January 1, 1999. He joined Thermo Electron in 1986 as Assistant Treasurer,
and became Treasurer in 1988. He was named President and Chief Executive Officer
of ThermoSpectra Corporation in 1994, a position he held until becoming Vice
President of Corporate Strategy of Thermo Electron in 1998.

M. WAYNE BOYLSTON, SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
SECRETARY, became our Senior Vice President, Chief Financial Officer and
Secretary in August 2001. Prior to joining us, Mr. Boylston was Chief Financial
Officer at Flashcom, Inc., a provider of broadband communications services.
Flashcom filed for bankruptcy protection in December 2000. From July 1998 until
March 2000, Mr. Boylston served as Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary of iXL Enterprises, Inc., an Internet
consulting service provider. From 1995 until 1998, Mr. Boylston served as Vice
President -- Finance, Chief Financial Officer and Treasurer of Healthdyne
Technologies, Inc., a medical device manufacturer. Prior to 1995, Mr. Boylston
held a variety of financial management positions with Healthdyne, Inc., a
diversified healthcare products and services company. Mr. Boylston is a
Certified Public Accountant.

LAWRENCE COHEN, PRESIDENT OF ITC, joined our Company in May 2001 as
President of ITC. Prior to joining ITC, Mr. Cohen served as CEO of HemoSense,
Inc., a developer of medical diagnostic products, from August 1998 to April
2000. From October 1989 to March 1998, Mr. Cohen held the positions of Vice
President Marketing and Sales, Vice President International and Worldwide
Executive Vice President at Ortho-Clinical Diagnostics, a Johnson & Johnson
company. From 1980 to 1989, Mr. Cohen has also held executive management
positions at Instrumentation Laboratory and Beckman Coulter Corporation. He is a
past president of the Biomedical Marketing Association and is currently on the
Board of Trustees of the National Blood Foundation.

DAVID J. FARRAR, PH.D., VICE PRESIDENT -- RESEARCH AND DEVELOPMENT, joined
our company as Program Manager of our circulatory support products in January
1980 and became Vice President -- Circulatory Support Products in 1988, and Vice
President -- Research & Development in 1996. In addition, Dr. Farrar has a
research appointment in the Department of Cardiac Surgery at the California
Pacific Medical Center

of San Francisco. Dr. Farrar has over 20 years of research experience in the
cardiovascular and medical device industry.

BRADLEY D. GOSKOWICZ, VICE PRESIDENT -- SALES AND MARKETING, joined our
company as Vice President, Sales and Marketing in January 2001. Prior to joining
our company, Mr. Goskowicz was Director of Marketing in the Cardiac Surgery
Division of Medtronic, Inc. where he was responsible for directing, developing
and implementing marketing strategies for a broad line of cardiovascular surgery
products worldwide. He joined Medtronic in March 1999, as part of Medtronic's
acquisition of Avecor Cardiovascular, and was one of the original Directors when
Avecor Cardiovascular was formed in 1991. Before assuming the role of Director
of Marketing, he held the position of Director of Sales. Prior to 1991 Mr.
Goskowicz held various sales and marketing positions with Bio-Medicus, Inc.,
Medtronic, Inc. and Johnson & Johnson.

JEFFREY C. MACK, VICE PRESIDENT -- FINANCE AND CORPORATE CONTROLLER, joined
our company as Controller in 1996. He became Director of Finance and Corporate
Controller in September 1999 and Vice President of Finance in September 2000.
Prior to joining our company, he served as Director of Finance and Corporate
Controller for The North Face, a designer and manufacturer of outdoor apparel
and equipment. He also held various other financial and operational positions
with Kenetech Corporation, a manufacturer and operator of utility grade wind
turbines, and Deloitte & Touche, LLP. Mr. Mack is a Certified Public Accountant.

DONALD A. MIDDLEBROOK, VICE PRESIDENT -- REGULATORY AFFAIRS/QUALITY
ASSURANCE, joined our company as Vice President -- Regulatory Affairs/Quality
Assurance in September 1996. Before joining our company, he held the position of
Senior Director, Global Regulatory Affairs and Assurance for Chiron Vision
Corporation, a manufacturer of implantable ophthalmic devices and surgical
equipment. Prior to that, Mr. Middlebrook spent fifteen years with Baxter
International in a number of positions, including Vice President of Regulatory
Affairs and Quality Assurance for the CardioVascular Group, a producer of a wide
range of cardiopulmonary, critical care, vascular and cardiovascular products.

JOSEPH G. SHARPE, VICE PRESIDENT -- OPERATIONS, joined our company as Vice
President -- Operations in September 1997. Prior to joining us, Mr. Sharpe was
Director of Operations for the IV Systems Division of Baxter International, Inc.
from 1992 to September 1997. Prior to that, Mr. Sharpe held a number of other
positions at Baxter International, Inc. including Director of Engineering of the
Pharmaseal Division, and Honeywell Information Systems.

BETH A. TAYLOR, VICE PRESIDENT -- HUMAN RESOURCES, joined our company as
Director of Human Resources in November 1999 and became Vice President of Human
Resources in February 2001. Prior to joining our company, Ms. Taylor served as
Director of Human Resources for CCI/Triad. She has also held various other human
resource positions such as Corporate Employee Development Manager with Valent
U.S.A. Corporation, and as Director of Human Resources with Automatic Data
Processing, Inc.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 29, 2001:

- by each of our directors;

- by each of our named executive officers;

- by all of our directors and executive officers as a group;

- by each person who is known by us to own beneficially more than 5% of our
common stock; and

- by each selling shareholder.

Percentage ownership for each shareholder is based on 55,342,262 shares of
common stock outstanding at September 29, 2001, together with options owned by
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
debentures exercisable or convertible within 60 days of September 29, 2001.
Shares of common stock subject to outstanding options or convertible debentures
are deemed outstanding for computing the percentage of ownership of the person
holding such options or convertible debentures, but are not deemed outstanding
for 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 our 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.

OWNERSHIP BEFORE OFFERING OWNERSHIP AFTER OFFERING
--------------------------- ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
SHARES SHARES NUMBER OF SHARES SHARES
BENEFICIALLY BENEFICIALLY SHARES BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(1) OWNED OWNED OFFERED OWNED OWNED
------------------- ------------ ------------ --------- ------------ ------------

Thermo Electron Corporation.......... 14,600,416 26.4% 5,825,000 8,775,416 15.3%
81 Wyman Street
Waltham, MA 02454(2)
Peter R. Kellogg(3).................. 3,580,600 6.5 -- 3,580,600 6.2
Gambro, Inc.(4)...................... 3,133,077 5.7 -- 3,133,077 5.5
(formerly COBE Cardiovascular,
Inc.)
225 Union Blvd.
Lakewood, Colorado 80288
J. Donald Hill(5).................... 1,359,870 2.5 30,000 1,329,870 2.3
D. Keith Grossman(6)................. 502,833 * -- 502,833 *
George W. Holbrook, Jr.(7)........... 422,642 * 50,000 372,642 *
Bradley Resources Company(7)......... 383,059 * -- 333,059 *
James McGoogan(7).................... 383,059 * -- 333,059 *
William M. Hitchcock(8).............. 416,623 * -- 416,623 *
J. Daniel Cole(9).................... 81,250 * 40,000 41,250 *
Howard E. Chase(10).................. 72,235 * -- 72,235 *
Daniel M. Mulvena(11)................ 41,250 * -- 41,250 *
Theo Melas-Kyriazi(12)............... 19,660 * -- 19,660 *
M. Wayne Boylston.................... -- * -- -- *
Directors and Executive Officers as a
Group (9 persons)(13).............. 2,916,363 5.2% 120,000 2,796,363 4.8%

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

* Less than one percent

(1) Except as otherwise indicated, the address of the persons above is our
address appearing on page 3 of this prospectus.

(2) Includes 39,872 shares issuable upon conversion of debentures convertible
within 60 days of September 29, 2001.

(3) Figures as reported on Form 13-G filed on March 9, 2001.

(4) Kevin M. Smith, President and Chief Executive Officer, has voting control
over our securities owned by Gambro.

(5) Includes 108,472 shares issuable upon exercise of options exercisable
within 60 days of September 29, 2001.

(6) Includes 444,325 shares issuable upon exercise of options exercisable
within 60 days of September 29, 2001.

(7) Bradley Resources Company is an investment partnership which owns 383,059
shares. George W. Holbrook, Jr., a director of our company, is a general
partner of Bradley Resources Company and is deemed to share beneficial
ownership of such shares with Mr. James McGoogan, a general partner of
Bradley Resources Company. Includes, in Mr. Holbrook's number only, 39,583
shares issuable upon exercise of options within 60 days of September 29,
2001. In January 2002, Bradley Resources Company transferred ownership of
214,925 of its shares to Mr. Holbrook, 1,408 of its shares to Mr. McGoogan,
and 57 of its shares to Richard Traister, a general partner in Bradley
Resources Company.

(8) Includes 39,583 shares issuable upon exercise of options exercisable within
60 days of September 29, 2001.

(9) Includes 41,250 shares issuable upon exercise of options exercisable within
60 days of September 29, 2001.

(10) Includes 67,902 shares issuable upon exercise of options exercisable within
60 days of September 29, 2001.

(11) Includes 41,250 shares issuable upon exercise of options exercisable within
60 days of September 29, 2001.

(12) Includes 16,700 shares issuable upon exercise of options exercisable within
60 days of September 29, 2001.

(13) Includes 799,065 shares issuable upon exercise of options exercisable
within 60 days of September 29, 2001.

RELATIONSHIP WITH THERMO ELECTRON

Other than its ownership of our securities pursuant to, and other rights
arising under, the following agreements, Thermo Electron did not have any
material relationship with us within the past three years.

MERGER AGREEMENT

On October 3, 2000, we entered into an Agreement and Plan of Merger by and
among Thoratec, Lightning Acquisition Corp., our wholly owned subsidiary, TCA
and Thermo Electron. Pursuant to this agreement, each share of TCA common stock
outstanding immediately prior to the merger was converted into the right to
receive 0.835 of a share of our common stock. In the merger, we issued
32,226,074 shares of our common stock, of which 19,312,959 shares were issued to
Thermo Electron.

REGISTRATION RIGHTS AGREEMENT

The shares of our common stock issued in the merger to Thermo Electron are
subject to certain limitations on resale pursuant to Rules 144 and 145 as
promulgated under the Securities Act, and are not

freely transferable. Under a registration rights agreement, dated October 3,
2000, we agreed to register for resale the following number of shares issued to
Thermo Electron in the merger:

- 4,828,240 shares (approximately 25% of the shares issued to Thermo
Electron in the merger with TCA) on or before June 14, 2001,

- an additional 4,828,240 shares before February 14, 2002, and

- the remainder of the shares before August 14, 2002.

In addition, we granted Thermo Electron piggy-back registration rights in
the event that we file a registration statement under the Securities Act. We and
Thermo Electron have agreed that if we complete the offering of at least
4,828,240 shares covered by this prospectus, we will not be required to seek the
registration of the shares that we were required to register on or before
February 14, 2002 or up to 1 million shares required to be registered on or
before August 14, 2002. In the event that the underwriters exercise the
overallotment option with respect to shares held by Thermo Electron, the number
of shares that we will be required to register on or before August 14, 2002 will
be reduced by such number of shares.

Under the registration rights agreement, we agreed to indemnify Thermo
Electron against certain liabilities arising under the Securities Act. We are
required to reimburse Thermo Electron for certain expenses they incur in
investigating or defending against claims based upon untrue statements (or
alleged untrue statements) or omissions (or alleged omissions) of material facts
concerning us in this prospectus. In addition, we are required to indemnify
Thermo Electron against certain claims based on violations (or alleged
violations) by us of the Securities Act in connection with this registration.

SHAREHOLDER AGREEMENT

On October 3, 2000, we entered into a shareholder agreement with Thermo
Electron and TCA pursuant to which Thermo Electron has the right to be
represented on our Board of Directors and pursuant to which Thermo Electron
agreed to certain restrictions in respect of our common stock issued pursuant to
the merger agreement. For example, Thermo Electron agreed:

- not to directly or indirectly acquire voting securities of our company,
other than those issued in the merger, excluding those securities which
may be acquired by way of a dividend, stock split or recapitalization;

- not to sell, transfer, pledge or otherwise encumber the shares acquired
in the merger except under a registration statement or an exemption from
such registration;

- not to sell shares acquired in the merger prior to June 14, 2001;

- not to sell more than 25% of the shares acquired in the merger prior to
February 14, 2002;

- not to sell more than 50% of the shares acquired in the merger prior to
August 14, 2002;

- until the termination of the agreement, to irrevocably and
unconditionally ensure that our shares which are beneficially held by
Thermo Electron or its affiliates will be counted as present, in person
or by proxy, at any meeting of our company for the purposes of
establishing and maintaining a quorum; and

- that neither it nor any affiliates will deposit our shares beneficially
held by them in a voting trust or subject such shares to any voting
agreements or arrangements except in a limited circumstance.

The shareholder agreement will terminate when Thermo Electron beneficially
owns less than 5% of our voting securities. We have agreed to modify the
shareholder agreement to provide for the sale of the shares by Thermo Electron
under this prospectus.

CONVERTIBLE DEBENTURES

TCA had subordinated convertible debentures outstanding prior to the merger
with Thoratec, which were guaranteed by Thermo Electron. In connection with the
merger, we obtained a letter of credit to guarantee Thermo Electron's
obligations on the debentures. We also entered into a collateral and security
agreement with the bank that issued the letter of credit for the pledge of cash
and short term instruments of $45.0 million to support the letter of credit.
After the merger, the debentures became convertible into shares of Thoratec
common stock, at a conversion price of $37.62. Thermo Electron continues to
guarantee the debentures.

OTHER AGREEMENTS

During the past three years, Thermo Electron and its subsidiaries have had
several agreements with TCA, including the following:

- a fiscal agency agreement dated May 14, 1997 related to the convertible
debentures;

- agreements dated December 18, 1997 and June 1, 1999 related to cash
management and intercompany loans;

- subleases dated August 19, 1998 and April 1, 1997, as amended, related to
the lease of property used in TCA's operation; and

- agreements for the supply of components used in the HeartMate.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock, no par value, and 2,500,000 shares of preferred stock, no par value.

COMMON STOCK

Holders of common stock are entitled to one vote per share on all matters
to be voted upon by our shareholders. 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 of Directors out of funds legally available therefor. In the event
of our liquidation, dissolution or winding up, 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 are, and the shares offered by us in this
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 we may designate and issue in the future.

PREFERRED STOCK

The Board of Directors is authorized, without shareholder approval, to
issue up to 2,500,000 shares of preferred stock in one or more series, 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 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. At the closing of the offering, no shares of
preferred stock will be outstanding and we currently have no plans to issue any
shares of preferred stock.

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 of Directors. This may discourage another person or entity
from making a tender offer for the 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.

We have also included in our Articles of Incorporation provisions to
eliminate the personal liability of our directors for monetary damages resulting
from breaches of their fiduciary duty to the extent permitted by the California
Corporations Code and to indemnify our directors and officers to the fullest
extent permitted by Section 317 of the California Corporations Code.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Computershare
Trust Company, Inc.

UNDERWRITING

GENERAL

Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, each of the underwriters
named below has agreed to purchase from us and the selling shareholders the
number of shares of common stock shown opposite its name below:

NUMBER OF
UNDERWRITERS SHARES
------------ ---------

Lehman Brothers Inc. .......................................
J.P. Morgan Securities Inc. ................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co. Inc. ...................................
Adams, Harkness & Hill, Inc. ...............................
Fidelity Capital Markets, a division of National Financial
Services LLC..............................................
---------
Total............................................. 8,000,000
=========

The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, including:

- the obligation to purchase all of the shares of common stock offered
hereby, if any of the shares are purchased;

- the representations and warranties made by us and the selling
shareholders to the underwriters are true;

- there is no material change in the financial markets; and

- we and the selling shareholders deliver customary closing documents to
the underwriters.

The underwriters have agreed to contribute up to $100,000 to a memorial
fund established for the family of Thomas E. Burnett, Jr., our Senior Vice
President and Chief Operating Officer, who died in the tragic events of
September 11, 2001.

OVER-ALLOTMENT OPTION

We and the selling shareholders have granted to the underwriters an option
to purchase up to an aggregate of 1,200,000 additional shares of common stock,
exercisable to cover over-allotments, if any, at the public offering price less
the underwriting discount shown on the cover page of this prospectus. The
underwriters may exercise this option at any time, and from time to time, until
30 days after the date of the underwriting agreement. To the extent the
underwriters exercise this option, each underwriter will be committed, so long
as the conditions of the underwriting agreement are satisfied, to purchase a
number of additional shares of common stock proportionate to that underwriter's
initial commitment as indicated in the preceding table, and we or the selling
shareholders will be obligated to sell the additional shares of common stock to
the underwriters.

COMMISSIONS AND EXPENSES

The following table summarizes the underwriting discount that we and the
selling shareholders will pay. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase up to an additional
1,200,000 shares. The underwriting fee is the difference between the public
offering price and the amount the underwriters pay to purchase the shares from
us and the selling shareholders.

AMOUNT THORATEC AMOUNT SELLING SHAREHOLDERS
WILL PAY WILL PAY
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------

Per share..............................
Total..................................

The underwriters have advised us that they propose to offer the shares of
common stock directly to the public at the public offering price presented on
the cover page of this prospectus, and to selected dealers, who may include the
underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the selected dealers
may reallow, a concession not in excess of $ per share to brokers and
dealers. After the offering, the underwriters may change the offering price and
other selling terms.

We estimate that the total expenses of the offering, excluding underwriting
discounts, will be approximately $750,000. Thermo Electron has agreed to pay an
approximately pro-rata share of such expenses, up to $400,000, based on the
number of shares that it sells.

LOCK-UP AGREEMENTS

Our company, directors, executive officers, certain other officers and the
selling shareholders have agreed, under lock-up agreements, that, without the
prior written consent of Lehman Brothers Inc., we will not, directly or
indirectly, offer, sell or dispose of any shares of common stock or any
securities which may be converted into or exchanged for shares of common stock
for a period of 90 days from the completion of this offering.

INDEMNIFICATION

We and the selling shareholders have agreed to indemnify the underwriters
against liabilities relating to the offering, including liabilities under the
Securities Act and liabilities arising from breaches of the representations and
warranties contained in the underwriting agreement, and to contribute to
payments that the underwriters may be required to make for these liabilities.

STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids or purchases for the purpose
of pegging, fixing or maintaining the price of the common stock, in accordance
with Regulation M under the Exchange Act of 1934:

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.

- Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the common stock originally sold by the syndicate
member is purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
common stock or preventing or retarding a decline in the market price of the
common stock. As a result, the price of the common stock may be higher than the
price that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor the underwriters make any representation that the underwriters will
engage in these stabilizing transactions or that any transaction, once
commenced, will not be discontinued without notice.

PASSIVE MARKET MAKING

In connection with the offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934 during the period before the commencement of offers or
sales of common stock and extending through the completion of the distribution.
A passive market maker must display its bids at a price not in excess of the
highest independent bid of the security. However, if all independent bids are
lowered below the passive market maker's bid, that bid must be lowered when
specified purchase limits are exceeded.

STAMP TAXES

Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.

OFFERS AND SALES IN CANADA

This prospectus is not, and under no circumstances is to be construed as,
an advertisement or a public offering of shares in Canada or any province or
territory thereof. Any offer or sale of shares in Canada will be made only under
an exemption from the requirements to file a prospectus supplement or prospectus
and an exemption from the dealer registration requirement in the relevant
province or territory of Canada in which such offer or sale is made.

ELECTRONIC DISTRIBUTION

A prospectus in electronic format may be made available on Internet sites
or through other online services maintained by one or more of the underwriters
and/or selling group members participating in this offering, or by their
affiliates. In those cases, prospective investors may view offering terms online
and, depending upon the particular underwriter or selling group member,
prospective investors may be allowed

to place orders online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account holders. Any such
allocation for online distributions will be made by the representatives on the
same basis as other allocations.

Other than the prospectus in electronic format, information contained in
any other web site maintained by an underwriter or selling group member is not
part of this prospectus or the registration statement of which this prospectus
forms a part, has not been endorsed by us and should not be relied on by
investors in deciding whether to purchase any shares of common stock. The
underwriters and selling group members are not responsible for information
contained in web sites that they do not maintain.

LEGAL MATTERS

Heller Ehrman White & McAuliffe LLP, Menlo Park, California will pass on
the validity of the common stock offered by this prospectus for us. Clifford
Chance Rogers & Wells LLP, New York, New York, will pass upon certain legal
matters in connection with this offering for the underwriters.

EXPERTS

The consolidated financial statements of Thoratec incorporated into this
prospectus by reference from Thoratec's Annual Report on Form 10-K for the year
ended December 30, 2000, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.

The consolidated financial statements of TCA incorporated into this
prospectus by reference from Thoratec's current report on Form 8-K filed on
February 28, 2001 and amended March 30, 2001 and October 24, 2001, have been
audited by Arthur Andersen LLP, independent auditors, as stated in their report,
which is incorporated herein by reference, and have been so incorporated 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 -- Our
inability to protect our proprietary technologies or an infringement of others'
patents could harm our competitive position," the statements in the second
paragraph under the caption "Business -- Our Products -- Circulatory Support
Products -- The Thoratec VAD," the statements in the first paragraph under the
caption "Business -- Our Products -- Vascular Graft Products," the statements in
the fourth paragraph of the section under the caption "Business -- Our
Products -- Blood Coagulation Testing and Skin Incision Devices," and
"Business -- Patents and Proprietary Rights" have been reviewed, to the extent
that they relate to intellectual property matters but not as to any other
aspect, by Fish & Richardson P.C., our outside intellectual property counsel, as
experts on such matters, and are included herein in reliance upon that review
and approval.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, NW, Washington, D.C., 20549,
and at the SEC's public reference rooms in Chicago, Illinois and New York, New
York. Please call the SEC at 1-800-SEC-0330 for further information concerning
the public reference rooms. Our SEC filings are also available to the public on
the SEC's Website at http://www.sec.gov.

We have filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the common stock offered in connection
with this prospectus. This prospectus does not contain all of the information
set forth in the registration statement. We have omitted certain parts of the
registration statement in accordance with the rules and regulations of the SEC.
For further information

with respect to us and the common stock, you should refer to the registration
statement. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
you should refer to the copy of such contract or document filed as an exhibit to
or incorporated by reference in the registration statement. Each statement as to
the contents of such contract or document is qualified in all respects by such
reference. You may obtain copies of the registration statement from the SEC's
principal office in Washington, D.C. upon payment of the fees prescribed by the
SEC, or you may examine the registration statement without charge at the offices
of the SEC described above.

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934.

(1) Thoratec's Annual Report on Form 10-K for the fiscal year ended
December 30, 2000, as amended;

(2) Thoratec's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2001 as amended;

(3) Thoratec's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2001 as amended;

(4) Thoratec's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 29, 2001 as amended;

(5) TCA's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2000, as amended; and

(6) The following reports by Thoratec on Form 8-K:

(a) Form 8-K (File No. 033-72502), filed with the SEC on February 28,
2001;

(b) Form 8-K (File No. 033-72502), filed with the SEC on March 2,
2001;

(d) Form 8-K (File No. 033-72502) filed with the SEC on October 24,
2001; and

(e) Form 8-K/A (File No. 033-72502) filed with the SEC on or about
January 24, 2002.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

Thoratec Corporation
Investor Relations
6035 Stoneridge Drive
Pleasanton, California 94588
(925) 847-8600

LOGO

8,000,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

, 2002

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

LEHMAN BROTHERS
JPMORGAN
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
ADAMS, HARKNESS & HILL, INC.
FIDELITY CAPITAL MARKETS

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

SEC Registration Fee........................................ $ 47,495
NASD Filing Fee............................................. 19,498
Nasdaq National Market Listing Fee.......................... 17,500
Transfer Agent and Registrant Fees.......................... 25,000
Accounting Fees and Expenses................................ 130,000
Printing Fees............................................... 150,000
Legal Fees and Expenses..................................... 165,000
Miscellaneous............................................... 195,507
--------
TOTAL....................................................... $750,000
========

These expenses will be paid by us and Thermo Electron.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our certificate of incorporation provides that, to the fullest extent
permitted by California law, none of our directors shall be personally liable to
us or our shareholders for monetary damages for breach of fiduciary duty as a
director, notwithstanding any other provision of law. However, a director shall
be liable to the extent required by law (i) for any breach of the director's
duty of loyalty to us or our shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock redemptions
or repurchases, or (iv) for any transaction from which the director derived an
improper personal benefit.

We entered into indemnification agreements with each of our directors and
anticipate that we will enter into similar agreements with any future director.
Generally, these agreements attempt to provide the maximum protection permitted
by California law with respect to indemnification. The indemnification
agreements provide that we will pay certain amounts incurred by a director in
connection with any civil or criminal action or proceeding, specifically
including actions by us or in our name (derivative suits) where the individual's
involvement is by reason of the fact that he is or was a director or officer.
For directors, such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily incurred in connection with legal proceedings. Under
the indemnification agreements, a director will not receive indemnification if
the director is found not to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests. We have also
entered into similar agreements with certain of our officers and top management
personnel who are not also directors. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by California law with
respect to indemnification of directors and officers.

The effect of these provisions would be to permit such indemnification by
us for liabilities arising under the Securities Act of 1933, as amended.

II-1

ITEM 16. EXHIBITS

Exhibits and Index of Exhibits

EXHIBIT
NUMBER EXHIBIT
------- -------

1.1 -- Form of Underwriting Agreement among the Underwriters named
therein, the selling shareholders and us.
5.1* -- Opinion of Heller Ehrman White & McAuliffe LLP.
10.1 -- Agreement and plan of merger by and among Thoratec
Laboratories Corporation (since renamed Thoratec
Corporation), Lightning Acquisition Corporation, TCA, Inc,
and Thermo Electron Corporation dated October 3, 2000.(1)
10.2 -- Registration Rights Agreement by and between Thoratec
Laboratories Corporation (since renamed to Thoratec
Corporation) and Thermo Electron Corporation dated October
3, 2000.(1)
10.3 -- Shareholders Agreement by and among Thoratec Laboratories
Corporation (since renamed Thoratec Corporation), Thermo
Electron Corporation and TCA, Inc. dated October 3, 2001.(1)
10.4 -- Employment Agreement by and between Thoratec Corporation and
Keith D. Grossman, dated as of December 6, 2001.
10.5 -- 1997 Stock Option Plan of Thoratec Corporation, as amended.
23.1 -- Independent Auditors' Consent -- Deloitte & Touche LLP.
23.2 -- Independent Auditors' Consent -- Arthur Andersen LLP.
23.3* -- Consent of Heller Ehrman White & McAuliffe LLP (contained in
Exhibit 5.1).
23.4* -- Consent of Fish & Richardson P.C.
24.1 -- Power of Attorney -- Reference is made to page II-4 hereof.

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

* Previously filed as an exhibit to this registration statement.

(1) Filed as an Annex to our Registration Statement on Form S-4 filed with the
SEC on December 29, 2000 (Registration No. 333-49120).

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for 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 that time
shall be deemed to be the initial bona fide offering thereof.

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

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, 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

II-2

497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

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

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Pleasanton, State of California, on January 23, 2002.

THORATEC 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
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ D. KEITH GROSSMAN* Chief Executive Officer, January 23, 2002
------------------------------------------------ President and Director
D. Keith Grossman

/s/ HOWARD E. CHASE* Director January 23, 2002
------------------------------------------------
Howard E. Chase

/s/ J. DANIEL COLE* Director January 23, 2002
------------------------------------------------
J. Daniel Cole

/s/ J. DONALD HILL* Director and Chairman of January 23, 2002
------------------------------------------------ the Board of Directors
J. Donald Hill

/s/ WILLIAM M. HITCHCOCK* Director January 23, 2002
------------------------------------------------
William M. Hitchcock

/s/ GEORGE W. HOLBROOK, JR.* Director January 23, 2002
------------------------------------------------
George W. Holbrook, Jr.

/s/ THEO MELAS-KYRIAZI* Director January 23, 2002
------------------------------------------------
Theo Melas-Kyriazi

/s/ DANIEL M. MULVENA* Director January 23, 2002
------------------------------------------------
Daniel M. Mulvena

II-4

SIGNATURE TITLE DATE
--------- ----- ----

/s/ M. WAYNE BOYLSTON Senior Vice President, January 23, 2002
------------------------------------------------ Chief Financial Officer and
M. Wayne Boylston Secretary
(Principal Financial and
Accounting Officer)

/s/ M. WAYNE BOYLSTON
------------------------------------------------
M. Wayne Boylston
*(Attorney-in-fact)

II-5

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------- -----------

1.1 -- Form of Underwriting Agreement among the Underwriters named
therein, the selling Shareholders and us.
5.1* -- Opinion of Heller Ehrman White & McAuliffe LLP.
10.1 -- Agreement and Plan of Merger by and among Thoratec
Laboratories Corporation (since renamed Thoratec
Corporation), Lightning Acquisition Corporation, TCA, Inc,
and Thermo Electron Corporation dated October 3, 2000.(1)
10.2 -- Registration Rights Agreement by and between Thoratec
Laboratories Corporation (since renamed Thoratec
Corporation) and Thermo Electron Corporation dated October
3, 2000.(1)
10.3 -- Shareholders Agreement by and among Thoratec Laboratories
Corporation (since renamed to Thoratec Corporation), Thermo
Electron Corporation and TCA, Inc. dated October 3, 2001.(1)
10.4 -- Employment Agreement by and between Thoratec Corporation and
Keith D. Grossman, dated as of December 6, 2001.
10.5 -- 1997 Stock Option Plan of Thoratec Corporation, as amended.
23.1 -- Independent Auditors' Consent -- Deloitte & Touche LLP.
23.2 -- Independent Auditors' Consent -- Arthur Andersen LLP.
23.3* -- Consent of Heller Ehrman White & McAuliffe LLP (contained in
Exhibit 5.1).
23.4* -- Consent of Fish & Richardson P.C.
24.1 -- Power of Attorney -- Reference is made to page II-4 hereof.

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

* Previously filed as an exhibit to this registration statement.

(1) Filed as an Annex to our Registration Statement on Form S-4 filed with the
SEC on December 29, 2000 (Registration No. 333-49120).