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SEC Filings

HEARTWARE INTERNATIONAL, INC. filed this Form 10-Q on 11/02/2015
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committed to undertaking certain quality system improvements and providing the FDA with periodic updates. During 2014 and 2015, we commenced implementing systemic changes and organizational enhancements to address the four warning letter items and related quality systems. We established teams to review and address the items cited by the FDA and engaged external subject matter experts to assist in assessment and remediation efforts. We have developed an overall corporate quality plan and individual quality plans which govern our quality improvement efforts.

As more fully explained in Note 3, we have entered into a business combination agreement with Valtech. Following the consummation of the Transactions, as defined in the BCA, both HeartWare and Valtech will be subsidiaries of Holdco. Immediately following Closing, based on the number of HeartWare and Valtech shares outstanding as of the record date, the former stockholders of HeartWare are expected to own approximately 77% of the outstanding shares of Holdco common stock and the former Valtech security holders, together with minority shareholders of a subsidiary of Valtech, are expected to own approximately 23% of the outstanding shares of Holdco common stock.

In the event the BCA is terminated in accordance with the termination provisions of the BCA, HeartWare would be obligated to make a loan to Valtech in a principal amount equal to $30 million pursuant to a convertible promissory note.

At September 30, 2015, we had purchase order commitments of approximately $45.5 million related to product costs, supplies, services and property, plant and equipment purchases. Many of our materials and supplies require long lead times. Our purchase order commitments reflect materials that may be received up to one year from the date of order.

In addition, we have entered into employment agreements with all of our executive officers. These contracts do not have a fixed term and are constructed on an at-will basis. Some of these contracts provide executives with the right to receive certain additional payments and benefits if their employment is terminated including after a change of control, as defined in these agreements.

From time to time we invest in certain development-stage entities in connection with research activities. Certain contingent milestone payments in connection with these arrangements have not been accrued in the accompanying condensed consolidated financial statements as the amounts are indeterminate at this time.

The taxation and customs requirements, together with other applicable laws and regulations of certain foreign jurisdictions, can be inherently complex and subject to differing interpretation by local authorities. We are subject to the risk that either we have misinterpreted applicable laws and regulations, or that foreign authorities may take inconsistent, unclear or changing positions on local law, customs practices or rules. In the event that we have misinterpreted any of the above, or that foreign authorities take positions contrary to ours, we may incur liabilities that may differ materially from the amounts accrued in the accompanying condensed consolidated financial statements.

Contingent Consideration and Milestone Payments

In December 2013, we acquired CircuLite using a combination of cash, stock and post-acquisition milestone and royalty payments payable over periods ranging from 8-10 years subsequent to the acquisition date. As of September 30, 2015, the maximum future milestone and royalty payment amounted to $300 million, reduced from the original agreement maximum of $320 million, since certain milestones are no longer achievable. As of September 30, 2015, the fair value of the contingent consideration was estimated to be $50.4 million (see Note 4).

License and Development Agreements

From time to time, we license rights to technology or intellectual property from third parties. These licenses may require us to pay upfront payments as well as development or other payments upon successful completion of preclinical, clinical, regulatory or revenue milestones. In addition, these agreements may require us to pay royalties on sales of products arising from the licensed technology or intellectual property. Because the achievement of these milestones is not reasonably estimable, we have not recorded a liability in the accompanying consolidated financial statements for any of these contingencies.


From time to time we may be involved in litigation or other contingencies arising in the ordinary course of business. Based on the information presently available, management believes there are no contingencies, claims or actions, pending or threatened, the ultimate resolution of which will have a material adverse effect on our financial position, liquidity or results of operations.