ARTC Arthrocare Corp. (MM)

PROPOSAL 1—ADOPTION OF THE MERGER AGREEMENT

THE MERGER

         This discussion of the merger does not purport to be complete and is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

Background of the Merger

        Our Board of Directors and management, in their ongoing effort to maximize stockholder value, have periodically reviewed and assessed our business strategy, the various trends and conditions affecting our industry and our businesses generally and a variety of strategic alternatives, including a potential sale of the Company.

        In early 2013, our management and members of the Transaction Committee of our Board of Directors, a standing committee of the Board of Directors that was formed to review strategic alternatives that might become available to the Company and to meet periodically to consider those matters (which we refer to as our Transaction Committee and whose membership is comprised of Gregory A. Belinfanti, Terrence E. Geremski and Peter L. Wilson, with James G. Foster as an alternate), discussed potential strategic alternatives that might be available to the Company with representatives of Piper Jaffray. While we expected that an exploration of strategic alternatives with third parties might receive a limited response given that the investigation of the Company by the United States Department of Justice regarding allegations of securities and related fraud committed under a previous management team was still pending at that time, at the direction of the Company, Piper Jaffray contacted three medical device manufacturing companies, which did not include Smith & Nephew, to gauge their potential interest in an acquisition of our Company. These three companies were identified based on their business and operations within the medical device manufacturing industry and their prior experience in making large acquisitions.

        From early February through April 2013, Piper Jaffray had preliminary discussions with these three companies regarding a potential acquisition of the Company. In March 2013, one of the three medical device manufacturing companies entered into a confidentiality agreement with the Company, which agreement included a standstill provision that terminated upon the announcement of a merger, and that company also met with our senior management to discuss the Company and our business. Two of the three medical device manufacturing companies, including the company that had entered into a confidentiality agreement and met with our senior management, indicated that they were not interested in engaging in discussions regarding a potential acquisition of the Company at that time. The third medical device manufacturing company indicated that it was interested in potentially acquiring only the Company's ENT business, emphasized that it had no interest in the Company's sports medicine business and noted that its position regarding a lack of interest in the sports medicine business was not likely to change. Our Board of Directors determined not to pursue negotiations with the third medical device manufacturing company because we believed, in consultation with Piper Jaffray, that the Company's value as a stand-alone entity exceeded the net value after tax that could be achieved from splitting the Company into two separate businesses and selling the ENT business.

        In October 2013, Mike Frazzette, Smith & Nephew's President of Advanced Surgical Devices, requested a meeting with the Company's senior management. On November 5, 2013, Mr. Frazzette and Cyrille Petit, Smith & Nephew's Chief Corporate Development Officer, met with David Fitzgerald, our President and Chief Executive Officer, and Todd Newton, our Executive Vice President, Chief Financial Officer and Chief Operating Officer, in Austin, Texas. During the meeting, Mr. Frazzette and Mr. Petit expressed Smith & Nephew's interest in engaging in discussions concerning a potential acquisition of

31

Table of Contents

the Company. Smith & Nephew did not make an offer to acquire the Company or indicate a potential purchase price at that time.

        Shortly after the meeting, representatives of the Company and Smith & Nephew and their respective advisors began negotiating the terms of a potential confidentiality agreement pursuant to which the Company would provide Smith & Nephew with confidential Company information to facilitate Smith & Nephew's evaluation of the Company.

        In addition, on November 5, 2013, our senior management met with representatives of Piper Jaffray to discuss potential responses to Smith & Nephew's inquiry as well as possible timing and process for engaging with additional third parties that might have the financial capability and strategic interest to pursue a potential transaction with the Company.

        On November 8, 2013, our Transaction Committee held a special telephonic meeting. Representatives of Latham & Watkins LLP, our legal advisors (which we refer to as Latham & Watkins), attended the meeting. Our Transaction Committee received an update regarding the meeting between Mr. Fitzgerald, Mr. Newton and representatives of Smith & Nephew, including a discussion of the status of a confidentiality agreement being negotiated by the parties and plans for Smith & Nephew to commence due diligence efforts.

        On November 12, 2013, Smith & Nephew signed a confidentiality agreement with the Company, which included a standstill provision that terminated upon the announcement of a merger. Following execution of the confidentiality agreement, our management began to participate in preliminary meetings and discussions with Smith & Nephew relating to business and legal due diligence.

        Starting on November 18, 2013, at the direction of our Board of Directors, Piper Jaffray began to contact certain medical device manufacturing companies regarding a potential acquisition of the Company, in addition to Smith & Nephew. The parties contacted were selected based on an assessment conducted by Piper Jaffray and reviewed with management, which considered, among other things, the perceived strategic fit of their respective businesses with the Company's businesses, the likelihood that they might be interested in a potential acquisition of the Company based upon their position in the market place, historical contacts with the Company and historical acquisition activity, including their prior experience making large acquisitions, and their perceived ability to complete an acquisition of the Company in a timely manner.

        From November 18, 2013 through early-December 2013, at the direction of our Board of Directors, Piper Jaffray contacted a total of five medical device manufacturing companies, in addition to Smith & Nephew, including two of the three potential acquirors contacted by Piper Jaffray at the request of the Company in early 2013. Piper Jaffray did not re-contact the third medical device manufacturing company that had identified potential interest only in the Company's ENT business in early 2013 because our Transaction Committee, based on the input of its advisors, continued to believe that the highest value for the Company would be realized through the sale of the combined businesses and thus it was in the best interest of the Company's stockholders to evaluate the potential sale of the combined business. Our Board of Directors had not reached any decision, however, on whether it was in the best interests of the Company's stockholders to sell the Company. The Company ultimately entered into confidentiality agreements with three medical device manufacturing companies (in addition to the confidentiality agreement with Smith & Nephew) including one of the potential acquirors who had also been contacted in early 2013 and entered into its confidentiality agreement with the Company in March 2013. Each of the confidentiality agreements included a standstill provision that terminated upon the announcement of the merger.

        Our senior management, together with representatives of Piper Jaffray, held meetings with each of the four potential acquirors who executed confidentiality agreements regarding a potential acquisition of the Company and the Company's business(including Smith & Nephew) and, at those meetings, the

32

Table of Contents

Company described the material terms of the pending deferred prosecution agreement that the Company expected to enter into with the U.S. Department of Justice. At various times following these meetings, each of the three potential acquirors who met with management, other than Smith & Nephew, indicated that they were not interested in pursuing an acquisition of the Company at that time, either without giving a reason for their decision, because they were not interested in an acquisition of the entire Company but might be interested in an acquisition of only its ENT business or because they were not prepared to explore a potential acquisition with the Company or make an offer to acquire the Company at that time.

        On November 19, 2013, at a meeting held in Austin, Texas with members of Smith & Nephew senior management, members of our senior management provided an overview of the Company and our businesses. Following the meeting, Mr. Fitzgerald and Mr. Newton met with Mr. Petit and Jeff Thomas, Smith & Nephew's Vice President, Corporate Development for Advanced Surgical Devices, and Mr. Petit emphasized that Smith & Nephew would not be interested in a multiple-bidder process to acquire the Company and would like to enter into an exclusivity agreement with the Company with the intent to expeditiously conduct its required due diligence and negotiate satisfactory terms to acquire the Company.

        On November 25, 2013, our Transaction Committee held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Transaction Committee reviewed the Company's discussions with third parties to date with representatives of Piper Jaffray and our management, including Piper Jaffray's ongoing outreach to third parties that might be interested in a potential strategic transaction with the Company. Our Transaction Committee selected Piper Jaffray to act as financial advisor to our Board of Directors and to facilitate continuation of the strategic transaction process based on its knowledge and experience in the medical device industry and familiarity with the Company and our business, and authorized management to finalize an engagement letter with Piper Jaffray.

        On November 26, 2013, we entered into an engagement letter with Piper Jaffray to engage them as our financial advisor in connection with a potential sale of the Company. In early 2013, our Board of Directors and management had discussed with representatives of J.P. Morgan Securities LLC strategic alternatives that might be available to the Company and the potential retention of J.P. Morgan Securities LLC to provide financial advisory services (which retention did not occur). J.P. Morgan Securities LLC informed the Company that from time to time, as part of its ordinary course business development activities, it had discussions with two medical device manufacturing companies, including Smith & Nephew, concerning the industry landscape and inquired as to those companies' potential interest in a transaction with various potential acquisition candidates, including the Company, and neither company expressed an interest in a potential transaction with the Company at that time.

        On December 10, 2013, Mr. Petit called Mr. Fitzgerald and indicated that Smith & Nephew's board of directors had authorized Mr. Petit to present to the Company a preliminary non-binding acquisition proposal at a price of $43.00 per share of our common stock in cash, contingent on completion of due diligence. Mr. Petit reiterated during the call that Smith & Nephew would be unwilling to participate in any auction process, and stated that Smith & Nephew would require a 60-day exclusivity period as a condition to its continued exploration of a potential transaction with the Company. In addition, Mr. Petit outlined certain other contemplated elements of Smith & Nephew's non-binding proposal, including Smith & Nephew's preliminary views with respect to transaction structure, timing of a transaction, receipt of voting agreements and the parties to those voting agreements, the termination fee to be paid by the Company in certain circumstances (although no specific proposal was discussed), and Smith & Nephew's obligations with respect to obtaining any required regulatory approvals in connection with the transaction. Smith & Nephew's $43.00 per share non-binding proposal reflected an approximately 11.54% premium to the $38.55 per share closing price of our common stock on December 10, 2013.

33

Table of Contents

        On December 13, 2013, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Transaction Committee discussed Smith & Nephew's preliminary non-binding oral proposal to acquire the Company at a price of $43.00 per share of our common stock in cash. In reviewing Smith & Nephew's proposal, our Transaction Committee considered, among other things, a preliminary valuation analysis of the Company discussed with Piper Jaffray, the timing and risks associated with our business plan, the optimal timing for a sale of the Company and Smith & Nephew's statement that it would require a 60-day exclusivity period as a condition to their continued exploration of a potential transaction with the Company. Our Transaction Committee authorized Mr. Fitzgerald to inform Mr. Petit, and representatives of Piper Jaffray to inform J.P. Morgan Limited and Centerview Partners LLC, which we refer to as JP Morgan and Centerview, the financial advisors for Smith & Nephew, that the proposed purchase price of $43.00 per share for our common stock in the initial proposal was financially inadequate, and that our Transaction Committee would seek a price proposal of at least $50.00 per share.

        In addition, at the December 13, 2013 meeting, our Transaction Committee determined that it was not in the best interests of the Company's stockholders to enter into exclusive negotiations with Smith & Nephew at the $43.00 per share price proposed by Smith & Nephew. Representatives of Piper Jaffray, the members of our Transaction Committee and the members of management present discussed the potential acquirors that had been contacted to date regarding interest in a potential strategic transaction with the Company, including three medical device manufacturers that entered into confidentiality agreements with the Company other than Smith & Nephew and that had held or agreed to have meetings with the Company prior to December 13, 2013, as well as certain additional potential companies that might be subject to future outreach. Following the discussion, our Transaction Committee instructed Piper Jaffray to contact two additional medical device manufacturers which had prior experience in making large acquisitions and which had not previously been contacted by Piper Jaffray regarding a potential acquisition of the Company. Our Transaction Committee and representatives of Piper Jaffray discussed the possibility of soliciting interest in a potential transaction from private equity firms and other financial investors, but, based in part on an ability-to-pay analysis performed by Piper Jaffray, our Transaction Committee determined that financial buyers would be unlikely to be able to match the price being offered by Smith & Nephew or other potential strategic acquirors due to the synergies that those strategic acquirors would expect to be able to realize through an acquisition. Our Transaction Committee also considered the risks to the Company should information concerning its potential exploration of strategic alternatives leak to the public, which risks included damaging the Company's relationships with its customers, suppliers, and employees.

        On December 16 and December 17, 2013, Piper Jaffray spoke with representatives of the two additional medical device manufacturing companies that had not previously been contacted about the Company concerning their interest in a potential acquisition of the Company. On December 19 and December 20, 2013, each of the two potential acquirors indicated that they were not interested in pursuing an acquisition of the Company at that time, and the Company did not enter into a confidentiality agreement or conduct management meetings with either potential acquiror.

        Ultimately, on or prior to December 20, 2013, all seven potential acquirors that Piper Jaffray contacted in the fall of 2013 (other than Smith & Nephew) declined to continue with discussions or submit a proposal regarding an acquisition of the entire Company. On December 16, 2013, representatives of Piper Jaffray called representatives of JP Morgan and Centerview to discuss Smith & Nephew's proposal in accordance with the instructions given by our Transaction Committee at its meeting on December 13, 2013. During that call, representatives of Piper Jaffray informed the representatives of JP Morgan and Centerview that our Transaction Committee believed the price proposed in Smith & Nephew's December 10, 2013 proposal was financially inadequate.

        On December 18, 2013, we received a written non-binding acquisition proposal from Smith & Nephew, pursuant to which Smith & Nephew proposed to acquire all the outstanding shares of our

34

Table of Contents

common stock at a price of $45.50 per share in cash. The offer was subject to the satisfactory completion of due diligence, negotiation of a definitive merger agreement, a termination fee equal to 4.5% of the equity value implied by the offer price and other conditions. The letter indicated that Smith & Nephew intended to finance the transaction through third party financing, but that its offer would not be subject to a financing condition. The letter also indicated that Smith & Nephew wished to enter into exclusive negotiations with us for a period of 45 days to work toward the completion of due diligence and execution of a definitive acquisition agreement. Smith & Nephew's offer of $45.50 per share reflected an approximately 14.04% premium over the $39.90 per share closing price of our common stock on December 18, 2013.

        On December 18, 2013 and December 19, 2013, our Board of Directors held a regularly scheduled meeting. Representatives of Latham & Watkins and Piper Jaffray also attended the meeting. During that meeting, representatives of Latham & Watkins reviewed the fiduciary duties of our Board of Directors, including in connection with a potential sale of the Company, and a member of our Board of Directors designated by OEP again discussed with our Board of Directors the relationship between OEP and JP Morgan (which relationship had been discussed at prior meetings at which the two members of our Board of Directors designated by OEP also disclosed the existence of informational barriers between OEP and JP Morgan), noting, among other things, that OEP was an indirect subsidiary of JPMorgan Chase & Co., an affiliate of JP Morgan. After discussion, the members of our Board of Directors who were not designated by OEP fully considered the relationship between OEP and JPMorgan Chase & Co., and the status of JP Morgan as an advisor to Smith & Nephew, and unanimously agreed that OEP's relationship with JPMorgan Chase & Co. would not affect the Company's ongoing negotiations with Smith & Nephew. Our Board of Directors then discussed Smith & Nephew's non-binding proposal and reviewed the third parties contacted and the results of Piper Jaffray's outreach to other potential acquirors to date. Our Board of Directors reviewed the Company's strategic plan and its potential future as a stand-alone business, noting the Company's current financial position, the principal products in its development pipeline and preliminary results for the Company's fourth quarter, and discussed the various risks facing the Company, including that achieving significant results from the Company's current strategic plan would take a number of years and the significant risks related to the continued growth of the Company's business and the ultimate success of the Company's research and development initiatives. Our Board of Directors also discussed strategies the Company might pursue as an alternative to pursuing the Company's stand-alone business plan or a sale of the Company, including engaging in a strategic business combination with another company, acquiring another business, a leveraged recap and special dividend, and/or potentially splitting the Company into two separate businesses. Following the discussions and consultation with Piper Jaffray and our management, our Board of Directors determined that there were no other currently viable potential acquirors of the Company, including private equity firms and other financial investors, who were likely to offer to pay a price higher than Smith & Nephew to acquire the Company and be able to complete a transaction in a timely manner. After weighing the information provided by Piper Jaffray and Latham & Watkins, and discussing at length, our Board of Directors authorized our management to negotiate with Smith & Nephew to attempt to obtain a higher price, a reduced termination fee and eliminate or reduce the time of any exclusivity period.

        On December 19, 2013, representatives of Piper Jaffray contacted representatives of JP Morgan and Centerview and communicated the Company's intention to make a non-binding counter-offer to Smith & Nephew's proposal, including a proposed purchase price of $47.00 per share and a termination fee equal to 2.5%.

        On December 20, 2013, Mr. Fitzgerald spoke with Mr. Petit by telephone and, during their conversation, made a non-binding counter-offer to Smith & Nephew, including a proposed purchase price of $47.00 per share of our common stock in cash and a termination fee equal to 2.5% of the equity value implied by the offer price. The closing price of our common stock on that day was $39.40.

35

Table of Contents

        On December 22, 2013, Mr. Petit called Mr. Fitzgerald to indicate that he was authorized to present to the Company a revised non-binding proposal to acquire the Company at a price of $46.00 per share of our common stock, with a termination fee equal to 3.5% of the equity value implied by the offer price and an exclusive negotiating period ending February 5, 2014. Mr. Petit informed Mr. Fitzgerald that the $46.00 per share price represented Smith & Nephew's best and final offer. The $46.00 per share price reflected an approximately 16.75% premium to the $39.40 per share closing price of our common stock on December 20, 2013.

        Later that day, our Board of Directors held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray attended. Our Board of Directors discussed the revised proposal from Smith & Nephew and reviewed a preliminary valuation analysis of the Company prepared by Piper Jaffray. Representatives from Piper Jaffray confirmed that JP Morgan and Centerview had stated during a telephone call between Piper Jaffray, JP Morgan and Centerview that took place following Mr. Petit's call to Mr. Fitzgerald that Smith & Nephew would be unwilling to further increase its offered price. Piper Jaffray also informed our Board of Directors that all of the other potential bidders contacted on behalf of the Company had either declined to proceed with discussions or had indicated that they were only interested in an acquisition of the ENT business. Our Board of Directors also discussed the required regulatory approvals in connection with a transaction with Smith & Nephew, and the impact of those regulatory requirements on certainty and timing of the transaction. After weighing the strength of Smith & Nephew's offer against the likelihood of successfully soliciting other potential bidders, our Board of Directors requested that our management attempt to negotiate a reduced termination fee, an increase in the offer price, a commitment from Smith & Nephew on regulatory approval efforts to ensure certainty in exchange for exclusivity and a shorter exclusivity period. Management was authorized to negotiate and enter into an exclusivity agreement with Smith & Nephew. Our Board of Directors also authorized our Transaction Committee to work with management and the Company's advisors to negotiate and enter into a proposed transaction with Smith & Nephew.

        On December 26, 2013, after subsequent negotiations, we entered into a written exclusivity agreement with Smith & Nephew that contemplated a non-binding purchase price of $46.00 per share of our common stock in cash and a termination fee equal to 3.2% of the equity value implied by the offer price (which was below the mean and median termination fee for similarly sized medical device acquisitions) and provided for a binding exclusivity period ending January 21, 2014, with an automatic extension to February 4, 2014, unless the Company gave notice of termination on or before January 15, 2014. We and Smith & Nephew were unable to agree to any terms related to regulatory approval efforts obligations in the exclusivity letter. The $46.00 per share offer price reflected an approximately 14.91% premium to the $40.03 per share closing price of our common stock on December 26, 2013.

        On December 30, 2013, we provided Smith & Nephew and its advisors access to our electronic due diligence data site to facilitate the due diligence process.

        Between January 3, 2014 and January 28, 2014, members of our management team, together with representatives of Piper Jaffray and Latham & Watkins, participated in due diligence meetings in Austin, Texas and Dallas, Texas and attended due diligence conference calls with representatives of Smith & Nephew and its advisors to review various operational aspects of the Company and to address various business and legal due diligence questions.

        On January 7, 2014, following the close of trading on the U.S. public stock markets, we issued a press release announcing that we had entered into a deferred prosecution agreement with the Department of Justice relating to reported allegations of securities and related fraud committed under a previous management team. The terms of the deferred prosecution agreement were materially the same as previously described to the three potential acquirers and Smith & Nephew in the management meetings that took place prior to entering into the exclusivity agreement with Smith & Nephew and the financial terms were consistent with the amounts reserved for the matter as disclosed in the Company's

36

Table of Contents

public filings. The closing price on the day following the announcement was $46.57, an increase of approximately 14.48% from the $40.68 per share closing price the prior day.

        On January 10, 2014, during management due diligence meetings in Dallas, Texas, Mr. Newton and a representative of Piper Jaffray met with members of Smith & Nephew's senior management and discussed Smith & Nephew's non-binding price proposal of $46.00 per share in cash in light of the deferred prosecution agreement and the subsequent increase in the trading price of the Company's common stock. Mr. Petit responded that he would discuss with his Board of Directors whether Smith & Nephew was willing to increase its proposed offer price, and Mr. Newton emphasized to Mr. Petit the need for Smith & Nephew to provide more closing certainty related to regulatory matters to obtain our Board of Directors' approval for the proposed transaction.

        On January 12, 2014, Latham & Watkins sent an initial draft of a merger agreement to Davis, Polk & Wardwell, LLP, Smith & Nephew's legal advisors, which we refer to as Davis Polk.

        On January 13, 2014, representatives from Piper Jaffray called representatives from JP Morgan and Centerview to discuss the Company's request that Smith & Nephew increase its per share proposal to acquire the Company. The representatives from JP Morgan and Centerview stated that Smith & Nephew hoped to send a revised proposal at a higher price on January 14, 2014, before the next meeting of our Board of Directors.

        On January 14, 2014, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our management and advisors provided our Transaction Committee with an update on the status of negotiations with Smith & Nephew, including the provisions of the draft merger agreement sent to Davis Polk, the comments from JP Morgan and Centerview that Smith & Nephew hoped to provide a revised price proposal at a higher price, the fact that Smith & Nephew failed to provide a new price proposal that day, an absence of in-bound contacts from other participants in the strategic transaction process since the announcement of the deferred prosecution agreement and the terms of the exclusivity agreement with Smith & Nephew. After discussing these topics, our Transaction Committee directed our management to terminate the current exclusivity period in accordance with its terms, and extend exclusivity until January 24, 2014 in order to provide sufficient time for Smith & Nephew to complete its due diligence efforts and submit a revised acquisition proposal and to allow any continuation of exclusivity thereafter to be at the Company's discretion.

        On January 15, 2014, representatives from Piper Jaffray called representatives from JP Morgan and Centerview to emphasize that Smith & Nephew would need to provide a revised price proposal in order to extend exclusivity. On that same day, Mr. Fitzgerald spoke with Mr. Petit by telephone and Mr. Petit indicated that he expected that a revised price proposal with a premium to the then-market price would be forthcoming following further input from Smith & Nephew's board of directors.

        Later that day, the Company gave Smith & Nephew notice that it was exercising its right to terminate exclusivity effective at 5:00 p.m. Eastern Standard Time on January 21, 2014 but that it would continue to abide by the terms of the exclusivity agreement until 5:00 p.m. Eastern Standard Time on January 24, 2014 in order to facilitate continued discussions.

        On January 16, 2014, members of our senior management and representatives of Piper Jaffray met with members of Smith & Nephew's senior management in Austin, Texas for further management due diligence meetings. That evening, Mr. Fitzgerald and Mr. Newton met with Mr. Petit and Mr. Thomas and discussed the continuation of the exclusivity period, the need for Smith & Nephew to complete its due diligence with respect to the Company and the need for the Company to receive a revised price proposal from Smith & Nephew.

        On January 17, 2014, based on Mr. Petit's assurances that a revised price proposal with a premium to the then-market price would be forthcoming, Mr. Fitzgerald confirmed by email that the Company

37

Table of Contents

would extend exclusivity until January 24, 2014 and that exclusivity would remain in place thereafter so as long as good faith negotiations were continuing, as determined in the Company's discretion, but that in no event would exclusivity extend beyond February 4, 2014, unless communicated in writing.

        On January 21, 2014, we publicly announced the dismissal by the Department of Justice of the pending civil investigative demand involving the Company related the False Claims Act. The closing price of our common stock on January 22, 2014, the day following the announcement was $47.72.

        On January 23, 2014, Mr. Petit called Mr. Fitzgerald to inform him that he was unable to provide an update on price at that time. Later on January 23, 2014, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our management team updated our Transaction Committee on the negotiation process to date and informed our Transaction Committee that Smith & Nephew had not yet provided an updated price proposal. Our Transaction Committee discussed with our management team and representatives of Piper Jaffray the upcoming expiration of the exclusivity period on January 24, 2014, the absence of in-bound contacts following the announcement of the deferred prosecution agreement and resolution of certain civil claims from any of the other potential acquirors previously approached by the Company, the delay in receiving Smith & Nephew's revised proposal, the potential outcomes of negotiations with Smith & Nephew and the terms and timing of a potential strategic transaction.

        On January 24, 2014, our Board of Directors held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Board of Directors discussed the status of the negotiation process, the timing of a potential transaction and whether to continue exclusive negotiations with Smith & Nephew given that Smith & Nephew had yet to provide an updated price proposal.

        Later that morning, Mr. Petit called Mr. Fitzgerald to provide an update on timing for delivery of a revised proposal by Smith & Nephew. Mr. Petit told Mr. Fitzgerald that Smith & Nephew's due diligence was substantially complete and that it intended to provide a revised price proposal following Smith & Nephew's board meeting on January 29, 2014, at a premium to the then-current price per share of common stock, which was $47.05 per share. Mr. Petit also notified Mr. Fitzgerald that Smith & Nephew intended to deliver a draft of the merger agreement on January 25, 2014.

        That evening, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Transaction Committee discussed the extension of Smith & Nephew's exclusivity period in light of Smith & Nephew's indication that it would not provide a revised proposal until January 29, 2014, the fact that there had been no in-bound contacts from other potential acquirors since the Company's Department of Justice settlement and litigation announcements and the fact that Smith & Nephew had indicated it would submit a proposal at a premium to the current market price for the Company's common stock by January 29, 2014. Following the discussion, our Transaction Committee agreed to continue the exclusivity period through January 29, 2014, subject to its satisfaction that negotiations continued in good faith, in order to incentivize Smith & Nephew to submit a revised offer.

        That night, Davis Polk sent Latham & Watkins a draft merger agreement.

        On January 26, 2014, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray attended. Our Transaction Committee, management and the Company's advisors discussed certain principal issues raised by the draft merger agreement provided by Davis Polk, including Smith & Nephew's obligations related to obtaining regulatory approvals and the potential impact of those terms on the certainty of closing of the transaction. Our Transaction Committee emphasized the Company's interest in getting a revised price proposal before further engaging in detail on the draft merger agreement.

        Later that day, representatives of Latham & Watkins called representatives of Davis Polk and representatives from Piper Jaffray called representatives from JP Morgan and Centerview to discuss

38

Table of Contents

certain principal issues raised by the draft merger agreement provided by Davis Polk. During the call with Piper Jaffray, JP Morgan and Centerview reiterated that we should expect a revised price proposal on January 29, 2014.

        On January 27, 2014, Davis Polk sent to Latham & Watkins an initial draft of the form of Voting Agreement, which Smith & Nephew had requested to be signed by OEP and each member of our Board of Directors as a condition to Smith & Nephew's willingness to proceed with a potential transaction. Between January 28, 2014 and February 2, 2014, representatives of OEP's legal counsel, Latham & Watkins and Davis Polk negotiated and finalized the terms of the form of Voting Agreement.

        Between January 28, 2014 and February 2, 2014, based on input from their respective clients, representatives of Latham & Watkins and Davis Polk negotiated the principal issues raised by the merger agreement, which included the scope of the Company's representations and warranties, the conditions to the obligations of the parties to complete the transaction, the strength of Smith & Nephew's commitment to obtain regulatory approvals and whether Smith & Nephew would be required to pay a reverse termination fee in the event the transaction was not completed due to a failure to obtain regulatory approval, and exchanged revised drafts of the merger agreement.

        On January 28, 2014, Mr. Petit confirmed in a telephone call with Mr. Fitzgerald that Smith & Nephew would be submitting a revised price proposal on January 29, 2014.

        On January 28, 2014, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Transaction Committee discussed the open issues under the draft merger agreement as well as the processes for attempting to reach agreement on the principal outstanding issues.

        On January 29, 2014, Mr. Petit called Mr. Fitzgerald by telephone to deliver Smith & Nephew's revised non-binding acquisition proposal for an acquisition of all of the outstanding common stock of the Company at a purchase price of $48.00 per share in cash. Mr. Petit reiterated that Smith & Nephew would be unwilling to accept total risk with respect to regulatory approvals. Mr. Petit informed Mr. Fitzgerald that the revised offer represented Smith & Nephew's stretched valuation based on the further due diligence performed since its last proposal and would terminate the following day at 12:00 p.m. Central Standard Time unless agreed to by the Company. Smith & Nephew's offer of $48.00 per share reflected an approximately 4.78% premium to the $45.81 per share closing price of our common stock on January 29, 2014.

        Later that afternoon, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. At this meeting, representatives from Piper Jaffray reviewed their preliminary valuation analysis for the Company and discussed with our Transaction Committee the proposed $48.00 per share transaction price, the premium it represented over the Company's current and historical share prices, the Company's significant stockholders and the trading history of the Company's stock. In addition, representatives from Latham & Watkins discussed the status of the merger agreement, including the negotiations of the party's obligations with respect to obtaining regulatory approvals and the regulatory risk analysis. Our management also discussed the Company's financial results from the fourth quarter, which were within but at the high end of analysts' expectations, and our Transaction Committee and our advisors discussed the price proposed by Smith & Nephew as well as potential responses to Smith & Nephew's offer both with respect to price and with respect to open transaction terms.

        Following these discussions, our Transaction Committee directed our management and advisors to inform Smith & Nephew that it would need to raise its proposed purchase price to $50.00 per share and provide more closing certainty related to regulatory matters to obtain our Board of Directors' approval for the proposed transaction. Our Transaction Committee concluded that it should take this

39

Table of Contents

approach not because it believed that $50.00 per share was the fair value of the Company, or the minimum bid that it would accept, but rather as a means to elicit from Smith & Nephew the highest price that it was willing to pay to acquire the Company.

        Later that day, Piper Jaffray contacted representatives of JP Morgan and Centerview and said that Smith & Nephew would need to increase its proposed purchase price to $50.00 per share.

        The next day, on January 30, 2014, Mr. Fitzgerald called Mr. Petit to discuss increasing Smith & Nephew's proposed price. Mr. Petit suggested Smith & Nephew would wait until after the close of the markets on January 31, 2014 to consider increasing its proposed price and emphasized Smith & Nephew's desire to announce the transaction prior to the opening of the trading markets in London on February 3, 2014.

        Later that day, our Board of Directors held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray attended. Our Board of Directors and its advisors discussed the proposed terms of the transaction, including the $48.00 per share price previously proposed by Smith & Nephew, the draft merger agreement and the related risks to consummating a transaction. Representatives from Latham & Watkins provided an update regarding the parties' obligations with respect to obtaining regulatory approvals, the regulatory risk analysis, and the anticipated regulatory approval requirements and process. Our Board of Directors, its advisors and our management also discussed in detail that while much of the uncertainty related to the Department of Justice actions against the Company had been resolved, many public stock analysts believed that the Company's current stock price reflected an acquisition premium. The Board of Directors also discussed the fact that, even assuming that the Company attained results near the high end of management's forecasts for the next five years, the Company was unlikely to achieve a valuation above the price being offered by Smith & Nephew. Our Board of Directors also reviewed with its advisors the history of the price negotiations with Smith & Nephew, including the increase of the proposed acquisition price from $43.00 per share of common stock to $48.00 per share of common stock since the initial non-binding oral proposal made by Smith & Nephew and the lack of alternative buyers likely to match or exceed Smith & Nephew's offer based on the strategic transaction process that had been undertaken by the Company and the fact that no in-bound inquires had been received from any alternative buyers following the announcement of the deferred prosecution agreement with the Department of Justice.

        On January 31, 2014, Mr. Petit called Mr. Fitzgerald to indicate that Smith & Nephew would provide a revised price proposal on February 1, 2014, pending continued progress on the merger agreement.

        Later that day, our Transaction Committee held a telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray also attended. Our Transaction Committee discussed the progress of negotiations on the merger agreement. Representatives of Latham & Watkins discussed with our Transaction Committee their regulatory risk analysis for the proposed transaction, the ways in which such regulatory risk may be addressed, and the obligations of the parties with respect to obtaining regulatory approvals under the merger agreement.

        On February 1, 2014, our Transaction Committee held a telephonic meeting to discuss the status of negotiations and the continued progress on the merger agreement.

        That afternoon, Mr. Petit called Mr. Fitzgerald to inform Mr. Fitzgerald that only Olivier Bohuon, Smith & Nephew's Chief Executive Officer, was authorized to provide an increase to Smith & Nephew's prior offer price and that any increase would be very small and subject to satisfactory resolution of the obligations of the parties with respect to obtaining regulatory approvals under the merger agreement.

        Later that day, Mr. Petit and Mr. Bohuon called Mr. Fitzgerald to confirm that Smith & Nephew would revise its proposal to offer $48.25 in cash for each outstanding share of common stock of the

40

Table of Contents

Company. Mr. Bohuon informed Mr. Fitzgerald that Smith & Nephew would not offer any further increases. The $48.25 per share reflected an approximately 6.32% premium to the $45.38 per share closing price of our common stock on January 31, 2014. The 52-week high closing price for our common stock for the period ending January 31, 2014 was $48.00, which occurred on January 21, 2014.

        Later that evening, our Board of Directors held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray attended. At this meeting, representatives of Latham & Watkins reviewed with our Board of Directors their fiduciary duties in connection with considering a sale of the Company to Smith & Nephew. Representatives of Latham & Watkins also reviewed with our Board of Directors the terms and conditions of the proposed merger agreement, including the scope of the parties' obligations with respect to obtaining regulatory approvals, and the terms and conditions of the form of Voting Agreement. In addition, representatives of Piper Jaffray reviewed their valuation analysis with respect to the Company and Smith & Nephew's offer, as well as Smith & Nephew's proposed financing for the transaction.

        Following these discussions, our Board of Directors authorized its advisors to negotiate the final terms of the definitive merger agreement and related documents with the goal of presenting final agreements to our Board of Directors the following day. Our Board of Directors also discussed the fact that another investment bank had historically provided financial advisory services to the Company, and was party with the Company to an engagement letter that provided that this investment bank would be entitled to a role in future transactions. In light of this existing arrangement, our Board of Directors determined to continue that engagement and authorized the amendment of the previously existing engagement letter to address those matters. Our Board of Directors did not request a fairness opinion from this investment bank in connection with the merger.

        That night and the following morning, Latham & Watkins and Davis Polk negotiated and exchanged drafts of the merger agreement and form of Voting Agreement.

        On February 2, 2014, our Board of Directors held a special telephonic meeting. Representatives of Latham & Watkins and Piper Jaffray attended. At this meeting, representatives of Latham & Watkins reviewed the fiduciary duties of our Board of Directors, the negotiations that had taken place regarding the terms of the merger agreement since the previous Board meeting in particular concerning improvements still required in the agreed actions being committed to in the agreement by Smith & Nephew to reduce the regulatory risk being borne by the Company, changes to the merger agreement and the remaining open issues. Our Board of Directors then instructed its advisors to finalize the terms of the definitive merger agreement, including improving the terms relating to Smith & Nephew's obligations to obtain regulatory approvals, and stayed the meeting pending further negotiations.

        Latham & Watkins and Davis Polk negotiated the remaining terms and finalized the merger agreement, pending board approval.

        Later that night, our Board of Directors reconvened its meeting. Latham & Watkins and Piper Jaffray attended. At this meeting,

•

representatives of Latham & Watkins reviewed with our Board of Directors the final terms and conditions of the proposed merger agreement and the form of Voting Agreement;



•

representatives of Latham & Watkins, Piper Jaffray and management discussed with our Board of Directors the parties' obligations with respect to obtaining regulatory approvals, the regulatory approval process, and potential outcomes in connection with a transaction with Smith & Nephew, and representatives from both Latham & Watkins and Piper Jaffray provided their views with respect to Smith & Nephew's obligations under the merger agreement to obtain required regulatory approvals in connection with the transaction and related risks to the consummation of the transaction; and

41

Table of Contents

•

representatives of Piper Jaffray delivered their oral opinion (subsequently confirmed in writing) that, as of such date, and based upon and subject to the factors and assumptions set forth in Piper Jaffray's written opinion, dated February 2, 2014, the consideration of $48.25 per share of common stock in cash to be paid to the holders of our common stock in the proposed transaction was fair, from a financial point of view, to such holders. See "—Opinion of Piper Jaffray & Co."

        After discussions with its financial and legal advisors, our Board of Directors unanimously determined the merger to be advisable and fair to and in the best interests of our stockholders. Our Board of Directors resolved unanimously to approve, adopt and declare advisable the merger agreement and the transactions contemplated thereby, including the merger. Our Board of Directors also waived any restrictions (including standstill restrictions) pursuant to the Stock Purchase Agreement between the Company and OEP dated August 14, 2009 that may have been applicable in connection with OEP and its designees on our Board of Directors entering into the Voting Agreement required by Smith & Nephew. Our Board of Directors also unanimously resolved to recommend approval and adoption of the merger agreement by the stockholders of the Company.

        The merger agreement was executed by the Company and Smith & Nephew later that night on February 2, 2014.

        On February 3, 2014, before the opening of trading on the London public stock markets, Smith & Nephew issued a press release announcing the execution of the merger agreement.

Recommendation of our Board of Directors; Our Reasons for the Merger

        In evaluating the merger, the Board of Directors consulted with the Company's senior management, the Company's outside counsel, Latham & Watkins, and the Company's financial advisor, Piper Jaffray, and, in the course of reaching its determination that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and to approve and adopt the merger agreement and the transactions contemplated thereby and to recommend that the Company's stockholders vote to approve and adopt the merger agreement, our Board of Directors considered a wide and complex range of factors, including the following principal factors supporting our Board of Directors' determination:

        Certainty of Value.     Based upon its knowledge of, and familiarity with, the Company's historical and current business, operations, prospects, business strategy, competitive position and the medical device industry generally, our Board of Directors determined that the merger consideration, which consists solely of cash, provides immediate liquidity and certainty of value to the Company's stockholders.

        Stand-Alone Operational Risks.     The advantages of entering into the merger agreement and consummating the merger in comparison to the risks associated with remaining independent as a stand-alone company and pursuing the Company's strategic plan, including (i) potential future competition, including from larger and better funded companies which might have competitive advantages from their broader commercial scope and economies of scale in pricing, (ii) the risks inherent in the medical device industry, (iii) the challenges and risks associated with growing the Company through either organic growth or strategic acquisitions, and (iv) the various additional risk factors pertaining to the Company that are listed in Item 1A of Part I of its Annual Report on Form 10-K for the year ended December 31, 2013 and the "Where You Can Find More Information" section below.

42

Table of Contents

        Compelling Value.     The fact that the merger consideration represents a premium over the market prices at which the Company common stock closed prior to the announcement of the execution of the merger agreement, including the fact that the merger consideration of $48.25 represented a premium of approximately:

•

6.32% over the $45.38 closing price per share of Company common stock on January 31, 2014, the last trading day before the announcement of the execution of the merger agreement;



•

10.30% over the $43.75 average closing price per share of Company common stock for the 30 trading days ended January 31, 2014;



•

20.09% over the $40.18 average closing price per share of Company common stock for the 60 trading days ended January 31, 2014;



•

23.98% over the $38.92 average closing price per share of Company common stock for the 90 trading days ended January 31, 2014; and



•

31.00% over the $36.83 average closing price per share of Company common stock for the 180 trading days ended January 31, 2014.

        Strategic Alternatives.     Our Board of Directors considered its understanding of, and familiarity with, the other strategic alternatives available to the Company, including the discussions that took place with certain other potential acquirors as described in more detail above in "Background of the Merger," and determined that the merger is superior to the other strategic alternatives reasonably available currently to the Company.

        Negotiations with Smith & Nephew.     The Company considered the course of negotiations between the Company and Smith & Nephew, which resulted in an increase of $5.25 from the price per share of Company common stock initially offered by Smith & Nephew, and our Board of Director's belief, based on these negotiations, that this was the highest price per share of common stock that Smith & Nephew was willing to pay and that the terms of the merger agreement were the most favorable terms to the Company to which Smith & Nephew was then willing to agree.

        Solicitation of Other Potential Acquirors.     The Company had solicited eight other potential acquirors to see if they would be interested in acquiring the Company, and no other potential acquiror had submitted a price proposal or proposed a strategic alternative as favorable to the Company stockholders as the merger with Smith & Nephew.

        Likelihood of Completion.     Our Board of Directors considered the likelihood that the merger will be consummated, based on, among other things, the likelihood of receiving the Company stockholder approval necessary to complete the transaction in a timely manner, the limited number of conditions to the merger, the absence of a financing condition, Smith & Nephew's representation that it will have sufficient financial resources to pay the aggregate merger consideration and consummate the merger, our Board of Director's assessment, after discussion with Piper Jaffray, that Smith & Nephew has the financial capability to complete the merger, the relative likelihood of obtaining required regulatory approvals and the remedies available under the merger agreement to the Company in the event of various breaches of the merger agreement by Smith & Nephew or Merger Sub.

        Opinion of Piper Jaffray.     The opinion of Piper Jaffray, delivered to our Board of Directors on February 2, 2014, to the effect that, as of such date and based on and subject to the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray, as described in its written opinion, the merger consideration of $48.25 in cash per share to be received by the holders of common stock in the merger was fair, from a financial point of view, to such stockholders, as more fully described below under "Opinion of Piper Jaffray."

43

Table of Contents

        Terms of the Merger Agreement.     The terms and conditions of the merger agreement, including the Company's ability under certain circumstances to respond to a bona fide written proposal for an acquisition transaction from a third party prior to stockholder approval, and our Board of Directors' right, after complying with the terms of the merger agreement, to terminate the merger agreement in order to enter into an agreement with respect to a superior proposal, upon payment of a termination fee of $54.9 million (approximately 3.2% of the equity value of the transaction), which is within the customary range of termination fees payable in similar transactions and which, in the determination of our Board of Directors, taking into consideration the advice of its advisors, would not deter or preclude a third party with both the financial capability and strategic interest in the Company from submitting a potential superior proposal.

        Regulatory Commitments.     The level of commitment of Smith & Nephew to obtain applicable regulatory approvals was negotiated vigorously to the satisfaction of our Board of Directors.

        Stockholder Vote.     The fact that the merger will be subject to approval by the Company's stockholders.

        Structure and Availability of Appraisal Rights.     Our Board of Directors considered the fact that the merger would be subject to the approval of the Company stockholders and that the Company stockholders would be free to reject the merger and that if the Company's stockholders so desire and if they comply fully with all of the required procedures under the DGCL, they will be able to exercise appraisal rights with respect to the merger, which would allow such stockholders to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery.

        Our Board of Directors also considered a variety of risks and other potentially negative factors concerning the merger and the merger agreement, including the following:

        No Stockholder Participation in Future Growth or Earnings.     The fact that the nature of the transaction as an all cash transaction would prevent Company stockholders from participating in any future earnings or growth of the Company, and Company stockholders would not benefit from any potential future appreciation in the value of the Company or the shares, including any value that could be achieved if the Company engaged in future strategic transactions, including a future sale of the Company.

        Effect of Failure to Complete Transactions.     While the Company expects that the merger will be consummated, there can be no assurance that all of the conditions to the consummation of the merger will be satisfied or that the merger will receive required regulatory approvals, and, as a result, it is possible that the merger may not be completed in a timely matter or at all, even if the merger agreement is adopted by the Company's stockholders. Our Board of Directors also considered potential negative effects if the merger were not consummated, including:

•

the trading price of Company common stock could be adversely affected;



•

the Company would have incurred significant transaction and opportunity costs attempting to consummate the merger without compensation;



•

the Company could lose customers, suppliers, business partners and employees, including key sales and other personnel, after the announcement of the entry into the merger agreement;



•

the Company's business may be subject to significant disruption and decline;



•

the market's perceptions of the Company's prospects could be adversely affected; and



•

the Company's directors, officers, and other employees would have expended considerable time and effort to negotiate, implement and consummate the merger, and their time may have been

44

Table of Contents

diverted from other important business opportunities and operational matters while working to implement the merger.

        Effect of Public Announcement.     Our Board of Directors considered the effect of a public announcement of the merger on the Company's operations, stock price and employees, the Company's ability to retain key management, the Company's ability to effectively recruit replacement personnel if key sales and other personnel were to depart while the merger is pending and the potential adverse effects on the financial results of the Company as a result of any related disruption in the Company's business.

        Taxable Transaction.     Our Board of Directors considered the fact that the merger will be a taxable transaction to the Company's stockholders that are U.S. holders for U.S. federal income tax purposes.

        Interim Restrictions on Business.     Our Board of Directors considered restrictions imposed by the merger agreement on the conduct of the Company's business prior to the consummation of the merger, which require the Company to operate its business in the ordinary course of business, and which subject the operations of the Company's business to other restrictions, which could delay or prevent the Company from undertaking timely business enhancement opportunities that may arise prior to the consummation of the merger and that may have an adverse effect on the Company's ability to respond to changing market and business conditions in a timely manner or at all.

        Termination Fee.     Our Board of Directors considered the fact that, under certain circumstances, the Company may be required to pay to Smith & Nephew a termination fee of $54.9 million, including the potential effect of such termination fee to deter other potential acquirors from publicly making a competing offer for the Company, and the impact of the termination fee on the Company's ability to engage in certain transactions for nine months from the date the merger agreement is terminated in certain circumstances; and

        Interests of our Board of Directors and Management.     Our Board of Directors considered the possibility that the executive officers and directors of the Company could have interests in the transactions contemplated by the merger agreement that would be different from, or in addition to, those of the Company's stockholders. See "—Interests of Our Directors and Executive Officers in the Merger."

        Our Board of Directors concluded that the potential benefits that it expected the Company and the Company's stockholders would achieve as a result of the merger outweighed the risks and potentially negative factors relevant to the merger. The foregoing discussion of our Board of Directors' reasons for its recommendation to the Company's stockholders to vote to adopt the merger agreement is not intended to be exhaustive, but addresses the material information and factors considered by our Board of Directors in its consideration of the merger. In light of the wide variety of factors considered by our Board of Directors in connection with its evaluation of the merger and the complexity of these matters, our Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to, the specific reasons underlying its determination and recommendation. Rather, our Board of Directors viewed its determinations and recommendations as being based on the totality of the information and factors presented to and considered by the Board of Directors. In considering the factors discussed above, individual directors may have given different weights to different factors.

Opinion of Piper Jaffray

        The Company retained Piper Jaffray to act as financial advisor to the Board of Directors, and, if requested, to render to the Board of Directors an opinion as to the fairness, from a financial point of view, of the merger consideration of $48.25 in cash per share to be received by the holders of common stock.

45

Table of Contents

         The full text of the Piper Jaffray written opinion dated February 2, 2014, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray in rendering its opinion, is attached as Annex B . You are urged to, and should, carefully read the Piper Jaffray opinion in its entirety and this summary is qualified in its entirety by reference to the written opinion. The Piper Jaffray opinion addresses only the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration of $48.25 in cash per share to be received by the holders of common stock in the merger. Piper Jaffray's opinion was directed to the Board of Directors in connection with its consideration of the merger and was not intended to be, and does not constitute, a recommendation to any holders of common stock as to how such holders should vote or act with respect to the merger or any other matter.

        In connection with rendering the opinion described above and performing its related financial analyses, Piper Jaffray, among other things:

•

reviewed and analyzed the financial terms of a draft of the merger agreement;



•

reviewed and analyzed certain financial and other data with respect to the Company that was publicly available;



•

reviewed and analyzed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of the Company that were publicly available, as well as those that were furnished to Piper Jaffray by the Company;



•

conducted discussions with members of senior management and representatives of the Company concerning the immediately preceding matters described above, as well as the Company's business and prospects before and after giving effect to the merger;



•

reviewed the current and historical reported prices and trading activity of common stock and similar information for certain other companies deemed by Piper Jaffray to be comparable to the Company;



•

compared the financial performance of the Company with that of certain other publicly-traded companies that Piper Jaffray deemed relevant; and



•

reviewed the financial terms, to the extent publicly available, of certain business combination transactions that Piper Jaffray deemed relevant.

        In addition, Piper Jaffray conducted such other analyses, examinations and inquiries and considered such other financial, economic and market criteria as Piper Jaffray deemed necessary in arriving at its opinion.

        The following is a summary of the material financial analyses performed by Piper Jaffray in connection with the preparation of its fairness opinion and reviewed with the Board of Directors at a meeting held on February 2, 2014.

        This summary includes information presented in tabular format, which tables must be read together with the text of each analysis summary and considered as a whole in order to fully understand the financial analyses presented by Piper Jaffray. The tables alone do not constitute a complete summary of the financial analyses. The order in which these analyses are presented below, and the results of those analyses, should not be taken as any indication of the relative importance or weight given to these analyses by Piper Jaffray or the Board of Directors. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 31, 2014, and is not necessarily indicative of current market conditions.

46

Table of Contents

        For purposes of its analyses, and unless the context indicates otherwise, Piper Jaffray calculated (i) the Company's implied per share equity value based on diluted shares of common stock and common stock equivalents outstanding, including options and stock units calculated using the treasury stock method, together with the assumed conversion of the Company's Series A Preferred Stock, and (ii) enterprise value ("EV") to be implied equity value, plus debt and preferred stock (if applicable), less cash, which, in the case of the Company, was $178 million, or $192.5 million of cash (after payment of the Department of Justice, which we refer to as the DOJ, settlement), less $14.5 million estimated as the fair value of contingent consideration related to the ENTrigue Surgical acquisition.