Close

Form 10-Q Wright Medical Group For: Jun 26

FREE Breaking News Alerts from StreetInsider.com!

E-mail Address

StreetInsider.com Top Tickers, 4/16/2024

1. SPY
2. TSLA
3. RDDT
4. TCS:IN
5. MSFT
6. ALAB
7. JPM
8. AAPL
9. C
10. GS


August 2, 2016 5:33 PM EDT

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2016
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-35065
WRIGHT MEDICAL GROUP N.V.
(Exact name of registrant as specified in its charter)
The Netherlands
 
98-0509600
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
(Address of principal executive offices)
 
None
(Zip Code)
(+31) 20 521 4777
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
_________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
As of July 29, 2016, there were 102,976,836 ordinary shares outstanding.
 


WRIGHT MEDICAL GROUP N.V.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 26, 2016

TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
 
 
 
 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document may contain certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and that are subject to the safe harbor created by those sections. These statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations and express management's current view of future performance, results, and trends. Forward-looking statements may be identified by their use of terms such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements. The reader should not place undue reliance on forward-looking statements. Such statements are made as of the date of this report, and we undertake no obligation to update such statements after this date. Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements are discussed in our filings with the U.S. Securities and Exchange Commission (SEC) (including our most recent Annual Report on Form 10-K, which was filed with the SEC on February 23, 2016). By way of example and without implied limitation, such risks and uncertainties include:

•
future actions of the SEC, the United States Attorney’s office, the U.S. Food and Drug Administration (FDA), the Department of Health and Human Services, or other U.S. or foreign government authorities, including those resulting from increased scrutiny under the U.S. Foreign Corrupt Practices Act and similar laws, that could delay, limit, or suspend our development, manufacturing, commercialization, and sale of products, or result in seizures, injunctions, monetary sanctions, or criminal or civil liabilities;
•
risks associated with the merger between Tornier N.V. (Tornier or legacy Tornier) and Wright Medical Group, Inc. (WMG or legacy Wright), including the failure to realize intended benefits and anticipated synergies and cost-savings from the transaction or delay in realization thereof; our businesses may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; and business disruption after the transaction, including adverse effects on employee retention, our sales and distribution channel, especially in light of anticipated territory transitions, and business relationships with third parties;
•
risks associated with the divestiture of the U.S. rights to certain of legacy Tornier's ankle and silastic toe replacement products;
•
liability for product liability claims on hip/knee (OrthoRecon) products sold by legacy Wright prior to the divestiture of the OrthoRecon business and the anticipated sale of legacy Tornier’s large joints business;
•
failure to realize the anticipated benefits from previous acquisitions or from the divestiture of legacy Wright's OrthoRecon business;
•
adverse outcomes in existing product liability litigation;
•
new product liability claims;
•
inadequate insurance coverage;
•
copycat claims against our modular hip systems resulting from a competitor’s recall of its modular hip product;
•
the ability of a creditor of any one particular entity within our corporate structure to reach the assets of the other entities within our corporate structure not liable for the underlying claims of the one particular entity, despite our corporate structure which is intended to ring-fence liabilities;
•
failure to obtain anticipated commercial sales of our AUGMENT® Bone Graft in the United States;
•
challenges to our intellectual property rights or inability to defend our products against the intellectual property rights of others;
•
adverse effects of diverting resources and attention to proposed sale of large joints business;
•
failures of, interruptions to, or unauthorized tampering with, our information technology systems;
•
failure or delay in obtaining FDA or other regulatory approvals for our products;
•
the potentially negative effect of our ongoing compliance efforts on our relationships with customers and on our ability to deliver timely and effective medical education, clinical studies, and new products;
•
the possibility of private securities litigation or shareholder derivative suits;
•
insufficient demand for and market acceptance of our new and existing products;
•
recently enacted healthcare laws and changes in product reimbursements, which could generate downward pressure on our product pricing;
•
potentially burdensome tax measures;
•
lack of suitable business development opportunities;
•
inability to capitalize on business development opportunities;
•
product quality or patient safety issues;
•
geographic and product mix impact on our sales;
•
inability to retain key sales representatives, independent distributors, and other personnel or to attract new talent;
•
inventory reductions or fluctuations in buying patterns by wholesalers or distributors;

3

•
inability to generate sufficient cash flow to satisfy our capital requirements, including future milestone payments, and existing debt, including the conversion features of our convertible senior notes, or refinance our existing debt as it matures;
•
inability to raise additional financing when needed and on favorable terms;
•
the negative impact of the commercial and credit environment on us, our customers, and our suppliers;
•
deriving a significant portion of our revenues from operations in certain geographic markets that are subject to political, economic, and social instability, including in particular France, and risks and uncertainties involved in launching our products in certain new geographic markets;
•
fluctuations in foreign currency exchange rates;
•
not successfully developing and marketing new products and technologies and implementing our business strategy;
•
not successfully competing against our existing or potential competitors and the effect of significant recent consolidations amongst our competitors;
•
the reliance of our business plan on certain market assumptions;
•
our private label manufacturers failing to provide us with sufficient supply of their products, or failing to meet appropriate quality requirements;
•
our inability to timely manufacture products or instrument sets to meet demand;
•
our plans to bring the manufacturing of certain of our products in-house and possible disruptions we may experience in connection with such transition;
•
our plans to increase our gross margins by taking certain actions designed to do so;
•
the loss of key suppliers, which may result in our inability to meet customer orders for our products in a timely manner or within our budget;
•
the incurrence of significant expenditures of resources to maintain relatively high levels of inventory, which could reduce our cash flows and increase the risk of inventory obsolescence, which could harm our operating results;
•
consolidation in the healthcare industry that could lead to demands for price concessions or the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, financial condition, or operating results;
•
our clinical trials and their results and our reliance on third parties to conduct them;
•
the compliance of our products and activities with the laws and regulations of the countries in which they are marketed, which compliance may be costly and time-consuming;
•
the use, misuse or off-label use of our products that may harm our image in the marketplace or result in injuries that may lead to product liability suits, which could be costly to our business or result in governmental sanctions; and
•
pending and future other litigation, which could have an adverse effect on our business, financial condition, or operating results.

For more information regarding these and other uncertainties and factors that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements or otherwise could materially adversely affect our business, financial condition, or operating results, see “Part I. Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K and "Part II. Item 1A. Risk Factors" of this report. The risks and uncertainties described above and in “Part I. Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K and "Part II. Item 1A. Risk Factors" of this report are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time. We assume no obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our future Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K we file with or furnish to the SEC.


4

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited).
Wright Medical Group N.V.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(unaudited)
 
June 26, 2016
 
December 27, 2015
Assets:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
326,251

 
$
139,804

Accounts receivable, net
125,350

 
131,050

Inventories
182,995

 
210,701

Prepaid expenses
13,040

 
14,923

Other current assets
114,257

 
44,919

Current assets held for sale
23,305

 
18,487

Total current assets
785,198

 
559,884

 
 
 
 
Property, plant and equipment, net
216,041

 
224,256

Goodwill
861,738

 
866,989

Intangible assets, net
253,552

 
250,928

Deferred income taxes
2,647

 
2,580

Other assets 1
124,789

 
137,174

Non-current assets held for sale
—

 
31,683

Total assets 1
$
2,243,965

 
$
2,073,494

Liabilities and Shareholders’ Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
28,104

 
$
30,904

Accrued expenses and other current liabilities
368,124

 
171,171

Current portion of long-term obligations
2,009

 
2,171

Current liabilities held for sale
1,799

 
2,692

Total current liabilities
400,036

 
206,938

 
 
 
 
Long-term debt and capital lease obligations 1
759,461

 
561,201

Deferred income taxes
39,073

 
41,755

Other liabilities
203,026

 
208,574

Total liabilities 1
1,401,596

 
1,018,468

Commitments and contingencies (Note 13)
 
 
 
Shareholders’ equity:
 
 
 
Ordinary shares, €0.03 par value, authorized: 320,000,000 shares; issued and outstanding: 102,974,301 shares at June 26, 2016 and 102,672,678 shares at December 27, 2015
3,800

 
3,790

Additional paid-in capital
1,892,994

 
1,835,586

Accumulated other comprehensive loss
(3,201
)
 
(10,484
)
Accumulated deficit
(1,051,224
)
 
(773,866
)
Total shareholders’ equity
842,369

 
1,055,026

Total liabilities and shareholders’ equity 1
$
2,243,965

 
$
2,073,494

            
1 
The prior period debt issuance costs were reclassified to account for adoption of ASU 2015-03 and ASU 2015-15 (See Note 2).
The accompanying notes are an integral part of these consolidated financial statements.

5

Wright Medical Group N.V.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(unaudited)
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Net sales
$
170,716

 
$
80,420

 
$
340,007

 
$
158,354

Cost of sales 1, 2
49,009

 
21,635

 
95,675

 
40,760

Gross profit
121,707

 
58,785

 
244,332

 
117,594

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative 1
136,483

 
82,605

 
271,229

 
164,804

Research and development 1
12,108

 
7,957

 
24,224

 
15,074

Amortization of intangible assets
7,484

 
2,565

 
13,941

 
5,179

Total operating expenses
156,075

 
93,127

 
309,394

 
185,057

Operating loss
(34,368
)
 
(34,342
)
 
(65,062
)
 
(67,463
)
Interest expense, net
13,024

 
10,959

 
24,878

 
18,608

Other income, net
(2,061
)
 
(8,153
)
 
(3,129
)
 
(2,841
)
Loss from continuing operations before income taxes
(45,331
)
 
(37,148
)
 
(86,811
)
 
(83,230
)
(Benefit) provision for income taxes
(3,300
)
 
158

 
(4,588
)
 
324

Net loss from continuing operations
$
(42,031
)
 
$
(37,306
)
 
$
(82,223
)
 
$
(83,554
)
Loss from discontinued operations, net of tax
$
(187,329
)
 
$
(7,009
)
 
$
(195,135
)
 
$
(10,509
)
Net loss
$
(229,360
)
 
$
(44,315
)
 
$
(277,358
)
 
$
(94,063
)
 
 
 
 
 
 
 
 
Net loss from continuing operations per share (Note 12): 3
 
 
 
 
 
 
 
Basic
$
(0.41
)
 
$
(0.71
)
 
$
(0.80
)
 
$
(1.59
)
Diluted
$
(0.41
)
 
$
(0.71
)
 
$
(0.80
)
 
$
(1.59
)
 
 
 
 
 
 
 
 
Net loss per share (Note 12): 3
 

 
 

 
 
 
 
Basic
$
(2.23
)
 
$
(0.84
)
 
$
(2.70
)
 
$
(1.79
)
Diluted
$
(2.23
)
 
$
(0.84
)
 
$
(2.70
)
 
$
(1.79
)
 
 
 
 
 
 
 
 
Weighted-average number of ordinary shares outstanding-basic 3
102,785

 
52,631

 
102,745

 
52,535

Weighted-average number of ordinary shares outstanding-diluted 3
102,785

 
52,631

 
102,745

 
52,535

___________________________
1 
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Cost of sales
$
42

 
$
8

 
$
175

 
$
11

Selling, general and administrative
2,852

 
3,046

 
5,902

 
5,118

Research and development
162

 
290

 
296

 
552

2 
Cost of sales includes amortization of inventory step-up adjustment of $10.4 million and $20.6 million for the three and six months ended June 26, 2016, respectively.
3 
The prior period weighted-average shares outstanding and net loss per share amounts were converted to meet post-merger valuations as described within Note 12.
The accompanying notes are an integral part of these consolidated financial statements.

6

Wright Medical Group N.V.
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(unaudited)
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Net loss
$
(229,360
)
 
$
(44,315
)
 
$
(277,358
)
 
$
(94,063
)
 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Changes in foreign currency translation
(4,067
)
 
3,285

 
7,283

 
(5,712
)
Other comprehensive (loss) income
(4,067
)
 
3,285

 
7,283

 
(5,712
)
 
 
 
 
 
 
 
 
Comprehensive loss
$
(233,427
)
 
$
(41,030
)
 
$
(270,075
)
 
$
(99,775
)

The accompanying notes are an integral part of these consolidated financial statements.


7

Wright Medical Group N.V.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

 
Six months ended
 
June 26, 2016
 
June 30, 2015
Operating activities:
 
 
 
Net loss
$
(277,358
)
 
$
(94,063
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation
27,317

 
10,698

Share-based compensation expense
6,373

 
5,681

Amortization of intangible assets
14,282

 
5,179

Amortization of deferred financing costs and debt discount
17,126

 
12,556

Deferred income taxes
(3,199
)
 
2

Provision for excess and obsolete inventory 1
10,478

 
4,163

Non-cash loss on extinguishment of debt
12,343

 
24,746

Amortization of inventory step-up adjustment 1
22,895

 
49

Non-cash adjustment to derivative fair values
(23,273
)
 
(7,370
)
Impairment loss on large joints assets held for sale (Note 4)
21,876

 
—

Mark-to-market adjustment for CVRs (Note 6)
6,727

 
(21,863
)
Provision for metal-on-metal product liability loss (Note 13)
150,000

 
—

Other
2,052

 
2,302

Changes in assets and liabilities (net of acquisitions):
 
 
 
Accounts receivable
7,453

 
4,686

Inventories 1
(2,969
)
 
(26,311
)
Prepaid expenses and other current assets
1,551

 
1,912

Accounts payable
(3,004
)
 
6,609

Accrued expenses and other liabilities
(13,936
)
 
20,024

Net cash used in operating activities
(23,266
)
 
(51,000
)
Investing activities:
 
 
 
Capital expenditures
(24,761
)
 
(25,754
)
Purchase of intangible assets
(4,223
)
 
(82
)
Sales and maturities of available-for-sale marketable securities
—

 
2,566

Net cash used in investing activities
(28,984
)
 
(23,270
)
Financing activities:
 
 
 
Issuance of ordinary shares
774

 
1,871

Proceeds from convertible notes
395,000

 
632,500

Redemption of convertible senior notes
(102,974
)
 
(240,000
)
Payment of notes premium
(1,619
)
 
(49,152
)
Proceeds from stock warrants
54,629

 
86,400

Payment of notes hedge option
(99,816
)
 
(144,843
)
Repurchase of stock warrants
(3,319
)
 
(59,803
)
Proceeds from notes hedge option
3,892

 
69,764

Payments of deferred financing costs and equity issuance costs
(8,318
)
 
(20,081
)
Proceeds from issuance of other long-term debt
821

 
—

Payments of capital lease obligations and other borrowings
(1,115
)
 
(398
)
Net cash provided by financing activities
237,955

 
276,258

 
 
 
 
Effect of exchange rates on cash and cash equivalents
742

 
(1,449
)
 
 
 
 
Net increase in cash and cash equivalents
186,447

 
200,539

 
 
 
 
Cash and cash equivalents, beginning of period
139,804

 
227,326

 
 
 
 
Cash and cash equivalents, end of period
$
326,251

 
$
427,865

            
1 
The prior period balances were revised to show separate presentation related to provision for excess and obsolete inventory and amortization of inventory step-up adjustment.
The accompanying notes are an integral part of these consolidated financial statements.

8

WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




1. Organization and Description of Business
Wright Medical Group N.V. (Wright or we) is a global medical device company focused on extremities and biologics products. We are committed to delivering innovative, value-added solutions improving quality of life for patients worldwide and are a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics. We market our products in over 50 countries worldwide.
Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative activities); Bloomington, Minnesota (upper extremities sales and marketing); Arlington, Tennessee (manufacturing and warehousing operations); Grenoble, France (manufacturing and research and development); and Macroom, Ireland (manufacturing). In addition, we have local sales and distribution offices in Canada, Australia, Asia, and throughout Europe. For purposes of this report, references to "international" or "foreign" relate to non-U.S. matters while references to "domestic" relate to U.S. matters.
Upon completion of the merger between Wright Medical Group, Inc. (legacy Wright or WMG) and Tornier N.V. (legacy Tornier) (the Wright/Tornier merger or merger) effective October 1, 2015, Robert J. Palmisano, former President and Chief Executive Officer (CEO) of legacy Wright, became President and CEO of the combined company, and Lance A. Berry, former Senior Vice President (SVP) and Chief Financial Officer (CFO) of legacy Wright, became SVP and CFO. Immediately upon completion of the merger, legacy Wright shareholders owned approximately 52% of the combined company and legacy Tornier shareholders owned approximately 48% of the combined company, and our board of directors was comprised of five representatives from legacy Wright’s board of directors and five representatives from legacy Tornier’s board of directors. In connection with the merger, the trading symbol for our ordinary shares changed from “TRNX” to “WMGI.” Because of these and other facts and circumstances, the merger has been accounted for as a “reverse acquisition” under generally acceptable accounting principles in the United States (US GAAP), and as such, legacy Wright is considered the acquiring entity for accounting purposes. Therefore, legacy Wright’s historical results of operations replaced legacy Tornier’s historical results of operations for all periods prior to the merger. More specifically, the accompanying condensed consolidated financial statements for periods prior to the merger are those of legacy Wright and its subsidiaries, and for periods subsequent to the merger also include legacy Tornier and its subsidiaries.
Our fiscal year runs from the first Monday after the last Sunday of December of a year and ends on the last Sunday of December of the following year, and generally consists of four 13-week quarters. Prior to the merger, our fiscal year ended December 31 each year.
The condensed consolidated financial statements and accompanying notes present our consolidated results for each of the three and six months ended June 26, 2016 and June 30, 2015.
All amounts are presented in U.S. dollars ($), except where expressly stated as being in other currencies, e.g., Euros (€).
References in these notes to condensed consolidated financial statements to "we," "our" and "us" refer to Wright Medical Group N.V. and its subsidiaries after the Wright/Tornier merger and Wright Medical Group, Inc. and its subsidiaries before the merger.

2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation. The unaudited condensed consolidated interim financial statements of Wright Medical Group N.V. have been prepared in accordance with US GAAP for interim financial statements and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to these rules and regulations. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 27, 2015, as filed with the U.S. Securities and Exchange Commission (SEC) on February 23, 2016.
In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments necessary for a fair presentation of our interim financial results. All such adjustments are of a normal and recurring nature. The results of operations for any interim period are not indicative of results for the full fiscal year. The accompanying unaudited condensed

9
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

consolidated interim financial statements include our accounts and those of our domestic and international subsidiaries, all of which are wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates.
Reclassifications. Certain prior period amounts have been reclassified to conform to the current period presentation.
Discontinued Operations. During the second quarter of 2016, the Board of Directors approved a plan to divest our orthopaedic hip and knee, or “large joints”, business (Large Joints business) representing substantially all of our Large Joints reportable segment. On July 11, 2016, we announced the receipt of a binding offer under which Corin Orthopaedics Holdings Limited (Corin) provided us a binding promise to purchase substantially all of the assets related to our Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer. We determined that the Large Joints business meets the criteria for classification as discontinued operations. All historical operating results for the Large Joints business are reflected within discontinued operations in the unaudited condensed consolidated statements of operations. Further, all assets and associated liabilities to be transferred to Corin were classified as assets and liabilities held for sale in our condensed consolidated balance sheets for all periods presented. See Note 4 for further discussion of discontinued operations. Other than the discontinued operations discussed in Note 4, unless otherwise stated, all discussion of assets and liabilities in these notes to condensed consolidated financial statements reflect the assets and liabilities held and used in our continuing operations, and all discussion of revenues and expenses reflect those associated with our continuing operations.
Shipping and Handling Costs. We incur shipping and handling costs associated with the shipment of goods to customers, independent distributors, and our subsidiaries. Amounts billed to customers for shipping and handling of products are included in net sales. Costs incurred related to shipping and handling of products to customers are included in selling, general and administrative expenses. These amounts totaled $3.7 million and $7.5 million for the three and six months ended June 26, 2016, respectively, and $2.0 million and $4.1 million for the three and six months ended June 30, 2015, respectively. All other shipping and handling costs are included in cost of sales.
Recent Accounting Pronouncements. On May 28, 2014 and August 12, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09 and 2015-14, Revenue from Contracts with Customers, which supersedes virtually all existing revenue recognition guidance under US GAAP. The ASU provides a five-step model for revenue recognition that companies will apply to recognize revenue in a manner that reflects the timing of the transfer of services to customers and that the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The ASU will be effective for us beginning in fiscal year 2018. We are in the initial phases of our adoption plans and; accordingly, we are unable to estimate any effect this may have on our financial statements.
On April 7, 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, as part of its simplification initiative. The ASU changes the presentation of debt issuance costs in financial statements to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. Further, on August 16, 2015, the FASB issued ASU 2015-15 Presentation and Subsequent Measurement of Debt Issuance Costs Associated With Line-of-Credit Arrangements to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. The SEC staff has announced that it would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. We adopted this guidance during the first quarter of 2016 on a retrospective basis. Accordingly, we reclassified debt issuance costs on our December 27, 2015 consolidated balance sheet, which decreased other assets and long-term debt by $16.2 million.
On September 25, 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments to simplify the accounting for measurement-period adjustments. The ASU, which is part of the FASB’s simplification initiative, was issued in response to stakeholder feedback that restatements of prior periods to reflect adjustments made to provisional amounts recognized in a business combination increase the cost and complexity of financial reporting but do not significantly improve the usefulness of the information. Under this ASU, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and must present these amounts separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. We adopted ASU 2015-16 in the first quarter of 2016 and will recognize,

10
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

as applicable, any material adjustments to provisional amounts. As discussed in Note 3, purchase price allocations for the Wright/Tornier merger are subject to adjustment during the measurement period.
On February 25, 2016, the FASB issued ASU 2016-02, Leases, which introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in FASB Accounting Standards Codification (ASC) 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized). Furthermore, the ASU addresses other concerns related to the current leases model. The ASU will be effective for us beginning in fiscal year 2019. We are in the initial phases of our adoption plans and; accordingly, we are unable to estimate any effect this may have on our financial statements.

3. Acquisition and Disposition
Wright/Tornier Merger
On October 1, 2015, we completed the Wright/Tornier merger. Immediately upon completion of the merger, legacy Wright shareholders owned approximately 52% of the combined company and legacy Tornier shareholders owned approximately 48% of the combined company. Effective upon completion of the merger, we have operated under the leadership of the legacy Wright management team and our board of directors was comprised of five representatives from legacy Wright’s board of directors and five representatives from legacy Tornier’s board of directors. Because of these and other facts and circumstances, the merger has been accounted for as a “reverse acquisition” under US GAAP. As such, legacy Wright is considered the acquiring entity for accounting purposes; and therefore, legacy Wright’s historical results of operations replaced legacy Tornier’s historical results of operations for all periods prior to the merger. As part of the merger, each legacy Wright share was converted into the right to receive 1.0309 ordinary shares of the combined company. The Wright/Tornier merger added legacy Tornier’s complementary extremities product portfolio to further accelerate growth opportunities in our global extremities business. The results of operations of both companies are included in our consolidated financial statements for all periods after completion of the merger.
The acquired business contributed net sales of $78.2 million and $155.4 million and operating loss of $4.4 million and $9.8 million to our consolidated results of operations for the three and six months ended June 26, 2016, respectively.
Purchase Consideration and Net Assets Acquired
The purchase consideration in a reverse acquisition is determined with reference to the value of equity that the accounting acquirer, legacy Wright, would have had to issue to the owners of the accounting acquiree, legacy Tornier, to give them the same percentage interest in the combined entity. The fair value of WMG common stock used in determining the purchase price was $21.02 per share, the closing price on September 30, 2015, which resulted in a total purchase consideration of $1.034 billion.
The calculation of the purchase consideration is as follows (in thousands):
Fair value of ordinary shares effectively transferred to Tornier shareholders
$
1,005,468

Fair value of ordinary shares effectively transferred to Tornier share award holders
8,091

Fair value of ordinary shares effectively issued to Tornier stock option holders
20,676

Fair value of total consideration
$
1,034,235


11
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The following presents the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed on October 1, 2015 (in thousands):
Cash and cash equivalents
$
30,117

Accounts receivable
64,005

Inventories
139,377

Other current assets
9,256

Property, plant and equipment, net
123,099

Intangible assets, net
213,600

Deferred income taxes
1,399

Other assets
8,658

Total assets acquired
589,511

Current liabilities
(104,623
)
Long-term debt
(79,554
)
Deferred income taxes
(36,544
)
Other non-current liabilities
(8,434
)
Total liabilities assumed
(229,155
)
Net assets acquired
360,356

 
 
Goodwill
673,879

 
 
Total preliminary purchase consideration
$
1,034,235

Any changes in the estimated fair values of the net assets recorded for this business combination upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction will change the allocation of the purchase price. Any subsequent changes to the purchase allocation during the measurement period that are material will be recorded in the reporting period in which the adjustment amounts are determined in accordance with ASU 2015-16. The amounts recorded for acquired working capital and certain tax liabilities are preliminary.
During the three months ended March 27, 2016, we revised the opening balances of current liabilities and goodwill acquired as part of the Wright/Tornier merger by $0.6 million.
During the three months ended June 26, 2016, we revised the opening balances of intangible assets, accounts receivable, inventories, current liabilities, and goodwill acquired as part of the Wright/Tornier merger based on new information that existed as of the acquisition date. As a result of the completion of the valuation of acquired intangible assets by our third-party valuation firm, we increased the opening balance of intangible assets acquired by $9.4 million, with a corresponding decrease to goodwill. This allocation adjustment resulted in an increase to amortization expense of $0.3 million for the six months ended June 26, 2016, of which $0.1 million related to each of the previous two quarters. We also revised the opening balance of acquired working capital accounts by a net decrease of $0.5 million, with a corresponding increase to goodwill.
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. Trade receivables and payables, as well as certain other current and non-current assets and liabilities, were valued at the existing carrying values as they represented the fair value of those items at the acquisition date, based on management’s judgments and estimates. Trade receivables included gross contractual amounts of $73.9 million and our best estimate of $9.9 million which represents contractual cash flows not expected to be collected at the acquisition date.
Inventory was recorded at estimated selling price less costs of disposal and a reasonable selling profit. The resulting inventory step-up adjustment is being recognized in cost of sales as the related inventory is sold. The fair value of property, plant and equipment utilized a combination of the cost and market approaches, depending on the characteristics of the asset classification.
In determining the fair value of intangibles, we used an income method which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, the economic barriers to entry, and the discount rate applied to the cash flows.

12
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Of the $213.6 million of acquired intangible assets, $99.9 million was assigned to customer relationships (20 year life), $89.5 million was assigned to developed technology (10 year life), $15.9 million was assigned to in-process research and development, and $8.3 million was assigned to trade names (2.6 year life).
The excess of the cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill. The goodwill is primarily attributable to strategic opportunities that arose from the acquisition of Tornier. The goodwill is not expected to be deductible for tax purposes.
The assets acquired in connection with the acquisition of Tornier and included in the above preliminary allocation of the purchase consideration include, among other assets, assets associated with legacy Tornier's Large Joints business. As described in more detail in Note 4, on July 11, 2016, we announced the receipt of a binding offer under which Corin provided us a binding promise to purchase substantially all of the assets related to the Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer.
Pro Forma Condensed Combined Financial Information
The following pro forma combined financial information summarizes the results of operations for the periods indicated as if the Wright/Tornier merger had been completed as of January 1, 2015. Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the merger. The pro forma results include adjustments to reflect, among other things, the amortization of the inventory step-up, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset, and to eliminate interest expense related to legacy Tornier's former bank term debt and line of credit, which were repaid upon completion of the Wright/Tornier merger. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the merger had occurred as of January 1, 2015 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Net sales
$
170,716

 
$
150,206

 
$
340,007

 
$
300,183

Net loss from continuing operations
(31,644
)
 
(60,923
)
 
(67,180
)
 
(128,274
)
The pro forma net loss for the three and six months ended June 30, 2015 includes approximately $1.0 million and $3.5 million, respectively, of non-recurring merger-related transaction expenses.
Divestiture of Certain Legacy Tornier Ankle Replacement and Toe Assets
On October 1, 2015, simultaneous with the completion of the Wright/Tornier merger, legacy Tornier completed the divestiture of the U.S. rights to legacy Tornier's SALTO TALARIS® and SALTO TALARIS® XT™ line of ankle replacement products and line of silastic toe replacement products, among other assets, for cash. We retained the right to sell these products outside the United States for up to 20 years unless the purchaser exercises an option to purchase the ex-United States rights to the products. The completion of the asset divestiture was subject to and contingent upon the completion of the Wright/Tornier merger and we believe was necessary in order to obtain U.S. Federal Trade Commission approval of the Wright/Tornier merger. As these assets were not part of Wright/Tornier merger, they were not part of the purchase allocation.

4. Discontinued Operations
Large Joints Business
During the second quarter of 2016, the Board of Directors approved a plan to divest the Large Joints business, representing substantially all of our Large Joints reportable segment. On July 11, 2016, we announced the receipt of a binding offer under which Corin provided us a binding promise to purchase substantially all of the assets related to the Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer. Subject to the terms and conditions of the binding offer, including a consultation process with our employee works council and health and safety committee in France and the issuance or deemed issuance of the opinions of the works council and health and safety committee, we would be able to accept the binding offer and the parties would thereafter execute a business sale agreement, transitional services agreement

13
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

and supply agreement, among other ancillary agreements required to implement the transaction. These agreements are on arm’s length terms and are not expected to be material. The transaction is expected to close by the end of the third quarter or early in the fourth quarter of 2016, subject to customary closing conditions.
We determined that the Large Joints business meets the criteria for classification as discontinued operations. All historical operating results for the Large Joints business, including costs associated with corporate employees and infrastructure to be transferred as a part of the sale, are reflected within discontinued operations in the condensed consolidated statements of operations. Further, all assets and associated liabilities to be transferred to Corin were classified as assets and liabilities held for sale in our condensed consolidated balance sheets for all periods presented. We recognized an impairment loss on assets held for sale of $21.9 million, before the effect of income taxes, in the second quarter of 2016, based on the difference between the net carrying value of the assets and liabilities held for sale and the purchase price, less estimated adjustments and costs to sell. This loss was recorded within Net loss from discontinued operations in the accompanying condensed consolidated statements of operations.
All current operating results for the Large Joints business are reflected within discontinued operations in the condensed consolidated financial statements. As the Large Joints business was obtained as a result of the Wright/Tornier merger on October 1, 2015, the historical periods presented are not affected. The following table summarizes the results of discontinued operations for the Large Joints business (in thousands, except per share data):
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 26, 2016
Net sales
$
10,164

 
$
21,900

Cost of sales
5,711

 
11,360

Selling, general and administrative
6,008

 
10,172

Other
627

 
1,234

Loss from discontinued operations before income taxes
(2,182
)
 
(866
)
Impairment loss on assets held for sale, before income taxes
(21,876
)
 
(21,876
)
Total loss from discontinued operations before income taxes
(24,058
)
 
(22,742
)
Benefit for income taxes
(5,175
)
 
(4,770
)
Total loss from discontinued operations, net of tax
$
(18,883
)
 
$
(17,972
)
Net loss from discontinued operations per share (Note 12):
 
 
 
Basic
$
(0.18
)
 
$
(0.18
)
Diluted
$
(0.18
)
 
$
(0.18
)
 
 
 
 
Weighted-average number of ordinary shares outstanding-basic
102,785

 
102,745

Weighted-average number of ordinary shares outstanding-diluted
102,785

 
102,745

___________________________
1 
The prior period weighted-average shares outstanding and net loss per share amounts were converted to meet post-merger valuations as described within Note 12.

14
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The following table summarizes the assets and liabilities held for sale (in thousands):
 
June 26, 2016
 
December 27, 2015
Assets:
 
 
 
Inventories, net
$
15,536

 
$
18,408

Prepaid expenses
80

 
79

Property, plant & equipment, net
15,057

 
16,513

Goodwill
8,353

 
9,355

Intangible assets, net
6,155

 
5,815

Impairment loss on assets held for sale
(21,876
)
 
—

Total assets held for sale
$
23,305

 
$
50,170

 
 
 
 
Liabilities:
 
 
 
Other current liabilities
$
1,799

 
$
2,692

Total liabilities held for sale
$
1,799

 
$
2,692

Cash provided by operating activities from the Large Joints business totaled $4.1 million for the six months ended June 26, 2016.

OrthoRecon Business
On January 9, 2014, legacy Wright completed the divestiture and sale of its hip and knee (OrthoRecon) business to MicroPort Scientific Corporation (MicroPort). Pursuant to the terms of the agreement with MicroPort, the purchase price (as defined in the agreement) was approximately $283 million (including a working capital adjustment), which MicroPort paid in cash. As a result of the transaction, we recognized approximately $24.3 million as the gain on disposal of the OrthoRecon business, before the effect of income taxes.
All current and historical operating results for the OrthoRecon business are reflected within discontinued operations in the condensed consolidated financial statements. The following table summarizes the results of discontinued operations for the OrthoRecon business (in thousands, except per share data):

15
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Net sales
$
—

 
$
—

 
$
—

 
$
—

Selling, general and administrative
168,446

 
7,009

 
177,163

 
10,509

Loss from discontinued operations before income taxes
(168,446
)
 
(7,009
)
 
(177,163
)
 
(10,509
)
Provision for income taxes
—

 
—

 
—

 
—

Total loss from discontinued operations, net of tax
$
(168,446
)
 
$
(7,009
)
 
$
(177,163
)
 
$
(10,509
)
Net loss from discontinued operations per share (Note 12):
 
 
 
 
 
 
 
Basic
$
(1.64
)
 
$
(0.13
)
 
$
(1.72
)
 
$
(0.20
)
Diluted
$
(1.64
)
 
$
(0.13
)
 
$
(1.72
)
 
$
(0.20
)
 
 
 
 
 
 
 
 
Weighted-average number of ordinary shares outstanding-basic 1
102,785

 
52,631

 
102,745

 
52,535

Weighted-average number of ordinary shares outstanding-diluted 1
102,785

 
52,631

 
102,745

 
52,535

___________________________
1 
The prior period weighted-average shares outstanding and net loss per share amounts were converted to meet post-merger valuations as described within Note 12.
Certain liabilities associated with the OrthoRecon business, including product liability claims associated with hip and knee products sold prior to the closing, were not assumed by MicroPort. Charges associated with these product liability claims, including legal defense, settlements and judgments, income associated with product liability insurance recoveries, and changes to any contingent liabilities associated with the OrthoRecon business have been reflected within results of discontinued operations, and we will continue to reflect these within results of discontinued operations in future periods. During the second quarter of 2016, we recognized a $150 million charge within discontinued operations related to the retained metal-on-metal product liability claims associated with the OrthoRecon business (see Note 13 for additional discussion).
We will incur continuing cash outflows associated with legal defense costs and the ultimate resolution of these contingent liabilities, net of insurance proceeds, until these liabilities are resolved. Cash used in operating activities from the OrthoRecon business totaled $15.8 million and $8.8 million for the six months ended June 26, 2016 and June 30, 2015, respectively.

5. Inventories
Inventories consist of the following (in thousands):
 
June 26, 2016
 
December 27, 2015
Raw materials
$
17,050

 
$
18,057

Work-in-process
26,491

 
27,946

Finished goods
139,454

 
164,698

 
$
182,995

 
$
210,701


6. Fair Value of Financial Instruments and Derivatives
We account for derivatives in accordance with FASB ASC 815, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative’s fair value shall be recognized currently in earnings unless specific hedge accounting criteria are met.

16
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

FASB ASC Section 820, Fair Value Measurements and Disclosures requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1:
Financial instruments with unadjusted, quoted prices listed on active market exchanges.
Level 2:
Financial instruments determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3:
Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.
2021 Conversion Derivative and Notes Hedging
On May 20, 2016, we issued $395 million aggregate principal amount of 2.25% cash convertible senior notes due 2021 (the 2021 Notes). See Note 9 of the condensed consolidated financial statements for additional information regarding the 2021 Notes. The 2021 Notes have a conversion derivative feature (2021 Notes Conversion Derivative) that requires bifurcation from the 2021 Notes in accordance with ASC Topic 815, and is accounted for as a derivative liability. The fair value of the 2021 Notes Conversion Derivative at the time of issuance of the 2021 Notes was $117.2 million.
In connection with the issuance of the 2021 Notes, we entered into hedges (2021 Notes Hedges) with two option counterparties. The 2021 Notes Hedges, which are cash-settled, are generally intended to reduce our exposure to potential cash payments that we are required to make upon conversion of the 2021 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The aggregate cost of the 2021 Notes Hedges was $99.8 million and is accounted for as a derivative asset in accordance with ASC Topic 815. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to the 2021 Note Hedges, which may reduce the effectiveness of the 2021 Note Hedges.
The following table summarizes the fair value and the presentation in the condensed consolidated balance sheet (in thousands) of the 2021 Notes Hedges and 2021 Notes Conversion Derivative:
 
Location on condensed consolidated balance sheet
June 26, 2016
December 27, 2015
2021 Notes Hedges
Other assets
$
84,306

$
—

2021 Notes Conversion Derivative
Other liabilities
$
86,427

$
—

The 2021 Notes Hedges and the 2021 Notes Conversion Derivative are measured at fair value using Level 3 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data for inputs.
Neither the 2021 Notes Conversion Derivative nor the 2021 Notes Hedges qualify for hedge accounting; thus, any change in the fair value of the derivatives is recognized immediately in the condensed consolidated statements of operations. The following table summarizes the gain/(loss) on changes in fair value (in thousands) related to the 2021 Notes Hedges and 2021 Notes Conversion Derivative:
 
 
Three months ended
 
Six months ended
 
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
 
 
2021 Notes Hedges
$
(15,511
)
 
$
—

 
$
(15,511
)
 
$
—

 
2021 Notes Conversion Derivative
30,797

 
—

 
30,797

 
—

 
Net gain on changes in fair value
$
15,286

 
$
—

 
$
15,286

 
$
—

2020 Conversion Derivative and Notes Hedging
On February 13, 2015, WMG issued $632.5 million aggregate principal amount of 2.00% cash convertible senior notes due 2020 (the 2020 Notes). See Note 9 of the condensed consolidated financial statements for additional information regarding the 2020 Notes. The 2020 Notes have a conversion derivative feature (2020 Notes Conversion Derivative) that requires bifurcation from the 2020 Notes in accordance with ASC Topic 815, and is accounted for as a derivative liability. The fair value of the 2020 Notes Conversion Derivative at the time of issuance of the 2020 Notes was $149.8 million.

17
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

In connection with the issuance of the 2020 Notes, WMG entered into hedges (2020 Notes Hedges) with three option counterparties. The 2020 Notes Hedges, which are cash-settled, are generally intended to reduce WMG's exposure to potential cash payments that WMG is required to make upon conversion of the 2020 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The aggregate cost of the 2020 Notes Hedges was $144.8 million and is accounted for as a derivative asset in accordance with ASC Topic 815. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to the 2020 Note Hedges, which may reduce the effectiveness of the 2020 Note Hedges.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2020 Notes exchanged approximately $45 million aggregate principal amount of 2020 Notes (including the 2020 Notes Conversion Derivative) for the 2021 Notes. For each $1,000 principal amount of 2020 Notes validly submitted for exchange, we delivered $990 principal amount of the 2021 Notes (subject, in each case, to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2020 Notes and the rounded amount at an aggregate cost of approximately $44.6 million. We settled the associated portion of the 2020 Notes Conversion Derivative at a benefit of approximately $0.4 million and satisfied the accrued interest, which was not material.
In addition, during the three months ended June 26, 2016, we settled a portion of the 2020 Notes Hedges (receiving $3.9 million) and repurchased a portion of the warrants associated with the 2020 Notes (paying $3.3 million), generating net proceeds of approximately $0.6 million.
The following table summarizes the fair value and the presentation in the condensed consolidated balance sheet (in thousands) of the 2020 Notes Hedges and 2020 Notes Conversion Derivative:
 
Location on condensed consolidated balance sheet
June 26, 2016
December 27, 2015
2020 Notes Hedges
Other assets
$
33,421

$
127,758

2020 Notes Conversion Derivative
Other liabilities
$
39,435

$
129,107

The 2020 Notes Hedges and the 2020 Notes Conversion Derivative are measured at fair value using Level 3 inputs. These instruments are not actively traded and are valued using an option pricing model that uses observable and unobservable market data for inputs.
Neither the 2020 Notes Conversion Derivative nor the 2020 Notes Hedges qualify for hedge accounting; thus, any change in the fair value of the derivatives is recognized immediately in the condensed consolidated statements of operations. The following table summarizes the (loss)/gain on changes in fair value (in thousands) related to the 2020 Notes Hedges and 2020 Notes Conversion Derivative:
 
 
Three months ended
 
Six months ended
 
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
 
 
2020 Notes Hedges
$
(28,308
)
 
$
(11,822
)
 
$
(90,445
)
 
$
(21,105
)
 
2020 Notes Conversion Derivative
28,238

 
11,376

 
90,122

 
24,412

 
Net (loss) gain on changes in fair value
$
(70
)
 
$
(446
)
 
$
(323
)
 
$
3,307

2017 Conversion Derivative and Notes Hedging
On August 31, 2012, WMG issued $300 million aggregate principal amount of 2.00% cash convertible senior notes due 2017 (the 2017 Notes). See Note 9 of the condensed consolidated financial statements for additional information regarding the 2017 Notes. The 2017 Notes have a conversion derivative feature (2017 Notes Conversion Derivative) that requires bifurcation from the 2017 Notes in accordance with ASC Topic 815, and is accounted for as a derivative liability. The fair value of the 2017 Notes Conversion Derivative at the time of issuance of the 2017 Notes was $48.1 million.
In connection with the issuance of the 2017 Notes, WMG entered into hedges (2017 Notes Hedges) with three option counterparties. The aggregate cost of the 2017 Notes Hedges was $56.2 million and was accounted for as a derivative asset in accordance with ASC Topic 815.
In connection with the issuance of the 2020 Notes, WMG used approximately $292 million of the 2020 Notes' net proceeds to repurchase and extinguish approximately $240 million aggregate principal amount of the 2017 Notes, settle the associated portion of the 2017 Notes Conversion Derivative at a cost of approximately $49 million, and satisfy the accrued interest of $2.4 million.

18
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

WMG also settled all of the 2017 Notes Hedges (receiving $70 million) and repurchased all of the warrants associated with the 2017 Notes (paying $60 million), generating net proceeds of approximately $10 million.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes exchanged approximately $54.4 million aggregate principal amount of 2017 Notes (including the 2017 Notes Conversion Derivative) for the 2021 Notes. For each $1,000 principal amount of 2017 Notes validly submitted for exchange, we delivered $1,035.40 principal amount of the 2021 Notes (subject, in each case, to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2017 Notes and the rounded amount at a cost of approximately $56.3 million. We settled the associated portion of the 2017 Notes Conversion Derivative at a cost of approximately $1.9 million and satisfied the accrued interest, which was not material.
In addition, during the three months ended June 26, 2016, we repurchased and extinguished an additional $3.6 million aggregate principal amount of the 2017 Notes in privately negotiated transactions and settled the associated portion of the 2017 Notes Conversion Derivative at a cost of approximately $0.1 million, and satisfied the accrued interest, which was not material.
The following table summarizes the fair value and the presentation in the condensed consolidated balance sheet (in thousands) of the 2017 Notes Conversion Derivative:
 
Location on condensed consolidated balance sheet
June 26, 2016
December 27, 2015
2017 Notes Conversion Derivative
Other liabilities
$
61

$
10,440

The 2017 Notes Conversion Derivative is measured at fair value using Level 3 inputs. This instrument is not actively traded and is valued using an option pricing model that uses observable and unobservable market data for inputs.
Neither the 2017 Notes Conversion Derivative nor the 2017 Notes Hedges qualify for hedge accounting; thus, any change in the fair value of the derivatives is recognized immediately in the condensed consolidated statements of operations. The following table summarizes the gain/(loss) on changes in fair value (in thousands) related to the 2017 Notes Hedges and 2017 Notes Conversion Derivative:
 
 
Three months ended
 
Six months ended
 
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
 
 
2017 Notes Hedges
$
—

 
$
—

 
$
—

 
$
(10,236
)
 
2017 Notes Conversion Derivative
1,416

 
881

 
8,310

 
14,298

 
Net gain on changes in fair value
$
1,416

 
$
881

 
$
8,310

 
$
4,062

To determine the fair value of the embedded conversion option in the 2017, 2020, and 2021 Notes Conversion Derivatives, a trinomial lattice model was used. A trinomial stock price lattice generates three possible outcomes of stock price - one up, one down, and one stable. This lattice generates a distribution of stock prices at the maturity date and throughout the life of the 2017, 2020, and 2021 Notes. Using this stock price lattice, a convertible note lattice was created where the value of the embedded conversion option was estimated by comparing the value produced in a convertible note lattice with the option to convert against the value without the ability to convert. In each case, the convertible note lattice first calculates the possible convertible note values at the maturity date, using the distribution of stock prices, which equals to the maximum of (x) the remaining bond cash flows and (y) stock price times the conversion price. The values of the 2017, 2020, and 2021 Notes Conversion Derivatives at the valuation date were estimated using the values at the maturity date and moving back in time on the lattices (both for the lattice with the conversion option and without the conversion option). Specifically, at each node, if the 2017, 2020, or 2021 Notes are eligible for early conversion, the value at this node is the maximum of (i) converting to stock, which is the stock price times the conversion price, and (ii) holding onto the 2017, 2020, and 2021 Notes, which is the discounted and probability-weighted value from the three possible outcomes at the future nodes plus any accrued but unpaid coupons that are not considered at the future nodes. If the 2017, 2020, or 2021 Notes are not eligible for early conversion, the value of the conversion option at this node equals to (ii). In the lattice, a credit adjustment was applied to the discount for each cash flow in the model as the embedded conversion option, as well as the coupon and notional payments, is settled with cash instead of shares.
To estimate the fair value of the 2020 and 2021 Notes Hedges, we used the Black-Scholes formula combined with credit adjustments, as the option counterparties have credit risk and the call options are cash settled. We assumed that the call options will be exercised at the maturity since our ordinary shares do not pay any dividends and management does not expect to declare dividends in the near term.

19
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The following assumptions were used in the fair market valuations of the 2017 Notes Conversion Derivative, 2020 Notes Conversion Derivative, 2021 Notes Conversion Derivative, 2020 Notes Hedge, and 2021 Notes Hedge as of June 26, 2016:
 
2017 Notes Conversion Derivative
2020 Notes Conversion Derivative
2020 Notes
Hedge
2021 Notes Conversion Derivative
2021 Notes Hedge
Stock Price Volatility (1)
38.91%
38.91%
38.91%
38.91%
38.91%
Credit Spread for Wright (2)
6.79%
6.31%
N/A
6.03%
N/A
Credit Spread for Deutsche Bank AG (3)
N/A
N/A
2.03%
N/A
N/A
Credit Spread for Wells Fargo Securities, LLC (3)
N/A
N/A
0.54%
N/A
N/A
Credit Spread for JPMorgan Chase Bank (3)
N/A
N/A
0.58%
N/A
0.75%
Credit Spread for Bank of America (3)
N/A
N/A
N/A
N/A
1.04%
(1)
Volatility selected based on historical and implied volatility of ordinary shares of Wright Medical Group N.V.
(2)
Credit spread implied from traded price.
(3)
Credit spread of each bank is estimated using CDS curves. Source: Bloomberg.
Derivatives not Designated as Hedging Instruments
We employ a derivative program using foreign currency forward contracts to mitigate the risk of currency fluctuations on our intercompany receivable and payable balances that are denominated in foreign currencies. These forward contracts are expected to offset the transactional gains and losses on the related intercompany balances. These forward contracts are not designated as hedging instruments under FASB ASC Topic 815. Accordingly, the changes in the fair value and the settlement of the contracts are recognized in the period incurred in the accompanying condensed consolidated statements of operations. At June 26, 2016 and December 27, 2015, we had $0.4 million and $3.6 million in foreign currency contracts outstanding, respectively.
As part of the acquisition of WG Healthcare on January 7, 2013, we may be obligated to pay contingent consideration upon the achievement of certain revenue milestones; therefore, we have recorded the estimated fair value of future contingent consideration of approximately $0.6 million as of June 26, 2016 and December 27, 2015.
As part of the acquired sales and distribution business of Surgical Specialties Australia Pty. Ltd in 2015, we have recorded contingent consideration of approximately $1.7 million as of June 26, 2016 and $1.5 million as of December 27, 2015.
The fair value of the contingent consideration as of June 26, 2016 and December 27, 2015 was determined using a discounted cash flow model and probability adjusted estimates of the future earnings and is classified in Level 3. Changes in the fair value of contingent consideration are recorded in “Other income, net” in our condensed consolidated statements of operations.
On March 1, 2013, as part of the acquisition of BioMimetic Therapeutics, Inc. (BioMimetic), we issued Contingent Value Rights (CVRs) as part of the merger consideration. Each CVR entitles its holder to receive additional cash payments of up to $6.50 per share, which are payable upon receipt of FDA approval of AUGMENT® Bone Graft and upon achieving certain revenue milestones. On September 1, 2015, AUGMENT® Bone Graft received FDA approval and the first of the milestone payments associated with the CVRs was paid out at $3.50 per share, which totaled $98.1 million. The fair value of the CVRs outstanding at June 26, 2016 and December 27, 2015 was $35 million and $28 million, respectively, and was determined using the closing price of the security in the active market (Level 1). For the three and six months ended June 26, 2016, the change in the value of the CVRs resulted in expense of $1.4 million and $6.7 million, respectively, which was recorded in “Other income, net” in the condensed consolidated statements of operations. For the three and six months ended June 30, 2015, the change in the value of the CVRs resulted in income of $8.4 million and $21.9 million, respectively, which was recorded in “Other income, net” in the condensed consolidated statements of operations.
The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximates the fair value of these financial instruments at June 26, 2016 and December 27, 2015 due to their short maturities and variable rates.

20
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The following table summarizes the valuation of our financial instruments (in thousands):
 
Total
Quoted Prices
in Active
Markets
(Level 1)
Prices with
Other
Observable
Inputs
(Level 2)
Prices with
Unobservable
Inputs
(Level 3)
At June 26, 2016
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
$
326,251

$
326,251

$
—

$
—

2020 Notes Hedges
33,421

—

—

33,421

2021 Notes Hedges
84,306

—

—

84,306

Total
$
443,978

$
326,251

$
—

$
117,727

 
 
 
 
 
Liabilities
 
 
 
 
2017 Notes Conversion Derivative
$
61

$
—

$
—

$
61

2020 Notes Conversion Derivative
39,435

—

—

39,435

2021 Notes Conversion Derivative
86,427

—

—

86,427

Contingent consideration
2,526

—

—

2,526

Contingent consideration (CVRs)
35,037

35,037

—

—

Total
$
163,486

$
35,037

$
—

$
128,449

 
Total
Quoted Prices
in Active
Markets
(Level 1)
Prices with
Other
Observable
Inputs
(Level 2)
Prices with
Unobservable
Inputs
(Level 3)
At December 27, 2015
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
$
139,804

$
139,804

$
—

$
—

2020 Notes Hedges
127,758

—

—

127,758

Total
$
267,562

$
139,804

$
—

$
127,758

 


 
 
 
Liabilities
 

 

 

 

2017 Notes Conversion Derivative
$
10,440

$
—

$
—

$
10,440

2020 Notes Conversion Derivative
129,107

—

—

129,107

Contingent consideration
2,340

—

—

2,340

Contingent consideration (CVRs)
28,310

28,310

—

—

Total
$
170,197

$
28,310

$
—

$
141,887

The following is a roll forward of our assets and liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3):
 
 
Balance at December 27, 2015
Additions
Transfers into Level 3
Gain/(Loss) included in Earnings
Settlements
Currency
Balance at June 26, 2016
 
 
 
 
 
 
 
 
 
2017 Notes Conversion Derivative
 
$
(10,440
)
$
—

$
—

$
8,310

$
2,069

$
—

$
(61
)
2020 Notes Hedges
 
127,758

—

—

(90,445
)
(3,892
)
—

33,421

2020 Notes Conversion Derivative
 
(129,107
)
—

—

90,122

(450
)
—

(39,435
)
2021 Notes Hedges
 
—

99,817

—

(15,511
)
—

—

84,306

2021 Notes Conversion Derivative
 
—

(117,224
)
—

30,797

—

—

(86,427
)
Contingent consideration
 
(2,340
)
—

—

(530
)
297

47

(2,526
)

21
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


7. Property, Plant and Equipment
Property, plant and equipment, net consists of the following (in thousands):
 
June 26, 2016
 
December 27, 2015
Property, plant and equipment, at cost
$
348,858

 
$
331,416

Less: Accumulated depreciation
(132,817
)
 
(107,160
)
 
$
216,041

 
$
224,256


8. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill occurring during the quarter ended June 26, 2016, are as follows (in thousands):
 
U.S. Lower Extremities
& Biologics
U.S. Upper Extremities
International Extremities
& Biologics
Total
Goodwill at December 27, 2015
$
221,327

$
555,312

$
90,350

$
866,989

Goodwill adjustment associated with Wright/Tornier merger
(2,261
)
5,085

(9,925
)
(7,101
)
Foreign currency translation
—

—

1,850

1,850

Goodwill at June 26, 2016
$
219,066

$
560,397

$
82,275

$
861,738

During the first half of 2016, we revised opening balance accounts receivable, inventory, intangible assets, and liabilities acquired as part of the Wright/Tornier merger, which resulted in a $7.1 million decrease in the preliminary value of goodwill determined as of December 27, 2015. See Note 3 for additional discussion of these adjustments.
During the first quarter of 2016, our management, including our chief executive officer, who is our chief operating decision maker, began managing our operations as four operating segments: U.S. Lower Extremities & Biologics, U.S. Upper Extremities, International Extremities & Biologics, and Large Joints, based on our chief executive officer's review of financial information at the operating segment level to allocate resources and to assess the operating results and financial performance of each segment. Management's change to the way it monitors performance, aligns strategies, and allocates resources resulted in a change in our reportable segments (see Note 14). We have determined that each reportable segment represents a reporting unit and, in accordance with ASC 350, requires an allocation of goodwill to each reporting unit.  We allocated $219 million, $560 million, and $82 million of goodwill to the U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International Extremities & Biologics reportable segments, respectively. As a result of the approved plan to divest the Large Joints business, the $8.4 million balance of goodwill which was allocated to the Large Joints reportable segment has been reclassified to assets held for sale.
The change in segment reporting also required an interim review of potential goodwill impairment which we performed as of February 2016, the segment reorganization date. Upon completion of this analysis, we determined that the fair value of our reporting units, determined primarily by an income approach using projected cash flows, exceeded their carrying values; therefore, no goodwill was impaired.

22
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The components of our identifiable intangible assets, net are as follows (in thousands):
 
June 26, 2016
 
December 27, 2015
 
Cost
 
Accumulated
amortization
 
Cost
 
Accumulated
amortization
Indefinite life intangibles:
 
 
 
 
 
 
 
In process research and development (IPRD) technology
$
15,310

 
 
 
$
15,290

 
 
Total indefinite life intangibles
15,310

 
 
 
15,290

 
 
 
 
 
 
 
 
 
 
Finite life intangibles:
 
 
 
 
 
 
 
 Distribution channels
900

 
$
231

 
250

 
$
219

 Completed technology
124,032

 
20,800

 
122,604

 
14,828

 Licenses
4,868

 
911

 
4,868

 
703

 Customer relationships
125,616

 
11,605

 
115,457

 
7,918

 Trademarks
14,078

 
5,139

 
14,440

 
3,393

 Non-compete agreements
11,903

 
4,851

 
7,521

 
2,917

 Other
538

 
156

 
527

 
51

Total finite life intangibles
281,935

 
$
43,693

 
265,667

 
$
30,029

 
 
 
 
 
 
 
 
Total intangibles
297,245

 
 
 
280,957

 
 
Less: Accumulated amortization
(43,693
)
 
 
 
(30,029
)
 
 
Intangible assets, net
$
253,552

 
 
 
$
250,928

 
 
Based on the total finite life intangible assets held at June 26, 2016, we expect amortization expense of approximately $28.6 million in 2016, $26.5 million in 2017, $21.5 million in 2018, $19.8 million in 2019, and $19.1 million in 2020.

9. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following (in thousands):
 
June 26, 2016
 
December 27, 2015
Capital lease obligations
$
14,547

 
$
13,763

 
 
 
 
2021 Notes
271,905

 
—

2020 Notes 1
467,989

 
489,006

2017 Notes 1
1,928


55,865

 
 
 
 
Mortgages/other
3,126

 
2,740

Shareholder debt
1,975

 
1,998

 
761,470

 
563,372

Less: current portion
(2,009
)
 
(2,171
)
 
$
759,461

 
$
561,201

            
1 
The prior period debt issuance costs were reclassified to account for adoption of ASU 2015-03 and ASU 2015-15 (See Note 2).
2021 Notes
On May 20, 2016, we issued $395 million aggregate principal amount of the 2021 Notes pursuant to an indenture, dated as of May 20, 2016, between us and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2021 Notes will pay interest at an annual rate of 2.25% semi-annually in arrears on each May 15 and November 15, beginning on November 15, 2016, and will mature on November 15, 2021 unless earlier converted or repurchased. The 2021 Notes are convertible, subject to certain conditions, solely into cash. The initial conversion rate for the 2021 Notes will be 46.8165 ordinary shares (subject to adjustment

23
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

as provided in the indenture) per $1,000 principal amount of the 2021 Notes (subject to, and in accordance with, the settlement provisions of the indenture), which is equal to an initial conversion price of approximately $21.36 per ordinary share. We may not redeem the 2021 Notes prior to the maturity date, and no “sinking fund” is available for the 2021 Notes, which means that we are not required to redeem or retire the 2021 Notes periodically.
The holders of the 2021 Notes may convert their 2021 Notes at any time prior to May 15, 2021 solely into cash, in multiples of $1,000 principal amount, upon satisfaction of one or more of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2016 (and only during such calendar quarter), if the last reported sale price of our ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2021 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our ordinary shares and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2021 Notes solely into cash, regardless of the foregoing circumstances. Upon conversion, a holder will receive an amount in cash, per $1,000 principal amount of the 2021 Notes, equal to the settlement amount as calculated under the indenture relating to the 2021 Notes. If we undergo a fundamental change, as defined in the indenture relating to the 2021 Notes, subject to certain conditions, holders of the 2021 Notes will have the option to require us to repurchase for cash all or a portion of their 2021 Notes at a repurchase price equal to 100% of the principal amount of the 2021 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the indenture relating to the 2021 Notes. In addition, following certain corporate transactions, we, under certain circumstances, will increase the applicable conversion rate for a holder that elects to convert its 2021 Notes in connection with such corporate transaction. The 2021 Notes are senior unsecured obligations that rank: (i) senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 2021 Notes; (ii) equal in right of payment to any of our unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities (including trade payables) of our subsidiaries. As a result of this transaction, we recorded deferred financing charges of approximately $7.3 million, which are being amortized over the term of the 2021 Notes using the effective interest method.
The 2021 Notes Conversion Derivative requires bifurcation from the 2021 Notes in accordance with ASC Topic 815, Derivatives and Hedging, and is accounted for as a derivative liability. See Note 6 for additional information regarding the 2021 Notes Conversion Derivative. The fair value of the 2021 Notes Conversion Derivative at the time of issuance of the 2021 Notes was $117.2 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2021 Notes. This discount is amortized as interest expense using the effective interest method over the term of the 2021 Notes. For the three months ended June 26, 2016, we recorded $1.4 million of interest expense related to the amortization of the debt discount based upon an effective rate of 9.72%.
The components of the 2021 Notes were as follows (in thousands):
 
June 26, 2016
 
December 27, 2015
Principal amount of 2021 Notes
$
395,000

 
$
—

Unamortized debt discount
(115,860
)
 
—

Unamortized debt issuance costs
(7,235
)
 
—

Net carrying amount of 2021 Notes
$
271,905

 
$
—

The estimated fair value of the 2021 Notes was approximately $397 million at June 26, 2016, based on a quoted price in an active market (Level 1).
We entered into 2021 Notes Hedges in connection with the issuance of the 2021 Notes with two counterparties. The 2021 Notes Hedges, which are cash-settled, are generally intended to reduce our exposure to potential cash payments that we would be required to make if holders elect to convert the 2021 Notes at a time when our ordinary share price exceeds the conversion price. However, in connection with certain events, including, among others, (i) a merger or other make-whole fundamental change (as defined in the 2021 Notes indenture), (ii) certain hedging disruption events, which may include changes in tax laws, an increase in the cost of borrowing our ordinary shares in the market or other material increases in the cost to the option counterparties of hedging the 2021 Note Hedges, (iii) our failure to perform certain obligations under the 2021 Notes indenture or under the 2021 Notes Hedges, (iv) certain payment defaults on our existing indebtedness in excess of $25 million or (v) if we or any of our significant subsidiaries

24
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

become insolvent or otherwise becomes subject to bankruptcy proceedings, the option counterparties have the discretion to terminate the 2021 Notes Hedges, which may reduce the effectiveness of the 2021 Notes Hedges. In addition, the option counterparties have broad discretion to make certain adjustments to the 2021 Notes Hedges and warrant transactions upon the occurrence of certain other events, including, among others, (i) any adjustment to the conversion rate of the 2021 Notes, or (ii) upon the announcement of certain significant corporate events, including events that may give rise to a termination event as described above, such as the announcement of a third-party tender offer. Any such adjustment may also reduce the effectiveness of the 2021 Note Hedges. The aggregate cost of the 2021 Notes Hedges was $99.8 million and is accounted for as a derivative asset in accordance with ASC Topic 815. See Note 6 of the condensed consolidated financial statements for additional information regarding the 2021 Notes Hedges and the 2021 Notes Conversion Derivative.
We also entered into warrant transactions in which we sold warrants for an aggregate of 18.5 million ordinary shares to the two option counterparties, subject to adjustment, for an aggregate of $54.6 million. The strike price of the warrants is $30.00 per share, which was 69% above the last reported sale price of our ordinary shares on May 12, 2016. The warrants are expected to be net-share settled and exercisable over the 100 trading day period beginning on February 15, 2022. The warrant transactions will have a dilutive effect on our ordinary shares to the extent that the market value per ordinary share during such period exceeds the applicable strike price of the warrants. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to warrant transactions, which may increase our obligations under the warrant transactions.
Aside from the initial payment of the $99.8 million premium in the aggregate to the two option counterparties and subject to the right of the option counterparties to terminate the 2021 Notes Hedges in certain circumstances, we do not expect to be required to make any cash payments to the option counterparties under the 2021 Notes Hedges and expect to be entitled to receive from the option counterparties cash, generally equal to the amount by which the market price per ordinary share exceeds the strike price of the convertible note hedging transactions during the relevant valuation period. The strike price under the 2021 Notes Hedges is initially equal to the conversion price of the 2021 Notes. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to the 2021 Note Hedges, which may reduce the effectiveness of the 2021 Note Hedges. Additionally, if the market value per ordinary share exceeds the strike price on any settlement date under the warrant transaction, we will generally be obligated to issue to the option counterparties in the aggregate a number of shares equal in value to one percent of the amount by which the then-current market value of one ordinary share exceeds the then-effective strike price of each warrant, multiplied by the number of ordinary shares into which the 2021 Notes are initially convertible. We will not receive any additional proceeds if warrants are exercised.
As described in more detail below, concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes and the 2020 Notes exchanged their 2017 Notes or 2020 Notes for the 2021 Notes.
2020 Notes
On February 13, 2015, WMG issued $632.5 million aggregate principal amount of the 2020 Notes pursuant to an indenture, dated as of February 13, 2015 between WMG and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2020 Notes require interest to be paid semi-annually on each February 15 and August 15 at an annual rate of 2.00%, and mature on February 15, 2020 unless earlier converted or repurchased. The 2020 Notes are convertible at the option of the holder, during certain periods and subject to certain conditions described below, solely into cash at an initial conversion rate of 32.3939 shares of WMG common stock per $1,000 principal amount of the 2020 Notes, subject to adjustment upon the occurrence of certain events, which represents an initial conversion price of approximately $30.87 per share of WMG common stock. On November 24, 2015, Wright Medical Group N.V. executed a supplemental indenture, fully and unconditionally guaranteeing, on a senior unsecured basis, WMG’s obligations relating to the 2020 Notes, changing the underlying reference securities from WMG common stock to Wright Medical Group N.V. ordinary shares and making a corresponding adjustment to the conversion price. From and after the effective time of the Wright/Tornier merger, (i) all calculations and other determinations with respect to the 2020 Notes previously based on references to WMG common stock are calculated or determined by reference to our ordinary shares, and (ii) the conversion rate (as defined in the 2020 Notes Indenture) for the 2020 Notes was adjusted to an initial conversion rate of 33.39487 ordinary shares (subject to adjustment as provided in the 2020 Notes Indenture) per $1,000 principal amount of the 2020 Notes (subject to, and in accordance with, the settlement provisions of the 2020 Notes Indenture). The 2020 Notes may not be redeemed by WMG prior to the maturity date, and no “sinking fund” is available for the 2020 Notes, which means that WMG is not required to redeem or retire the 2020 Notes periodically.
The holders of the 2020 Notes may convert their notes at any time prior to August 15, 2019 solely into cash, in multiples of $1,000 principal amount, upon satisfaction of one or more of the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2015 (and only during such calendar quarter), if the last reported sale price of our ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on

25
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2020 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our ordinary shares and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. The Wright/Tornier merger did not result in a conversion right for holders of the 2020 Notes. On or after August 15, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2020 Notes solely into cash, regardless of the foregoing circumstances. Upon conversion, a holder will receive an amount in cash, per $1,000 principal amount of the 2020 Notes, equal to the settlement amount as calculated under the indenture relating to the 2020 Notes. If WMG undergoes a fundamental change, as defined in the indenture relating to the 2020 Notes, subject to certain conditions, holders of the 2020 Notes will have the option to require WMG to repurchase for cash all or a portion of their notes at a purchase price equal to 100% of the principal amount of the 2020 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the indenture relating to the 2020 Notes. In addition, following certain corporate transactions, WMG, under certain circumstances, will increase the applicable conversion rate for a holder that elects to convert its 2020 Notes in connection with such corporate transaction. The 2020 Notes are senior unsecured obligations that rank: (i) senior in right of payment to any of WMG's indebtedness that is expressly subordinated in right of payment to the 2020 Notes; (ii) equal in right of payment to any of WMG's unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities (including trade payables) of WMG's subsidiaries. In conjunction with the issuance of the 2020 Notes, we recorded deferred financing charges of approximately $18 million, which are being amortized over the term of the 2020 Notes using the effective interest method.
The 2020 Notes Conversion Derivative requires bifurcation from the 2020 Notes in accordance with ASC Topic 815, Derivatives and Hedging, and is accounted for as a derivative liability. See Note 6 of the condensed consolidated financial statements for additional information regarding the 2020 Notes Conversion Derivative. The fair value of the 2020 Notes Conversion Derivative at the time of issuance of the 2020 Notes was $149.8 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2020 Notes. This discount is amortized as interest expense using the effective interest method over the term of the 2020 Notes. For the three and six months ended June 26, 2016, we recorded $6.6 million and $13.1 million, respectively, of interest expense related to the amortization of the debt discount based upon an effective rate of 8.54%. For the three and six months ended June 30, 2015, we recorded $6.1 million and $9.2 million, respectively, of interest expense related to the amortization of the debt discount based upon an effective rate of 8.54%.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2020 Notes exchanged approximately $45.0 million aggregate principal amount of their 2020 Notes for the 2021 Notes. For each $1,000 principal amount of 2020 Notes validly submitted for exchange, we delivered $990.00 principal amount of the 2021 Notes (subject to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2020 Notes and the rounded amount. As a result of this note exchange and retirement of $45.0 million aggregate principal amount of the 2020 Notes, we recognized approximately $9.3 million for the write-off of related pro-rata unamortized deferred financing fees and debt discount within “Other income, net” in our condensed consolidated statements of operations during the three months ended June 26, 2016. As of June 26, 2016 and December 27, 2015, $587.5 million and $632.5 million, respectively, aggregate principal amount of the 2020 Notes remained outstanding and is included within long-term obligations on the condensed consolidated balance sheets.
The components of the 2020 Notes were as follows (in thousands):
 
June 26, 2016
 
December 27, 2015
Principal amount of 2020 Notes
$
587,500

 
$
632,500

Unamortized debt discount
(106,567
)
 
(127,953
)
Unamortized debt issuance costs
(12,944
)
 
(15,541
)
Net carrying amount of 2020 Notes1
$
467,989

 
$
489,006

            
1 
The prior period debt issuance costs were reclassified to account for adoption of ASU 2015-03 and ASU 2015-15 (See Note 2).
The estimated fair value of the 2020 Notes was approximately $530 million at June 26, 2016, based on a quoted price in an active market (Level 1).

26
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

WMG entered into the 2020 Notes Hedges in connection with the issuance of the 2020 Notes with three option counterparties. See Note 6 of the condensed consolidated financial statements for additional information on the 2020 Notes Hedges. The 2020 Notes Hedges, which are cash-settled, are generally intended to reduce WMG's exposure to potential cash payments that WMG would be required to make if holders elect to convert the 2020 Notes at a time when our ordinary share price exceeds the conversion price. However, in connection with certain events, including, among others, (i) a merger or other make-whole fundamental change (as defined in the 2020 Notes indenture), (ii) certain hedging disruption events, which may include changes in tax laws, an increase in the cost of borrowing our ordinary shares in the market or other material increases in the cost to the option counterparties of hedging the 2020 Note Hedges, (iii) WMG's failure to perform certain obligations under the 2020 Notes indenture or under the 2020 Notes Hedges, (iv) certain payment defaults on WMG's existing indebtedness in excess of $25 million or (v) if WMG or any of its significant subsidiaries become insolvent or otherwise becomes subject to bankruptcy proceedings, the option counterparties have the discretion to terminate the 2020 Note Hedges at a value determined by them in a commercially reasonable manner and/or adjust the terms of the 2020 Note Hedges, which may reduce the effectiveness of the 2020 Note Hedges. In addition, the option counterparties have broad discretion to make certain adjustments to the 2020 Notes Hedges upon the occurrence of certain other events, including, among others, (i) any adjustment to the conversion rate of the 2020 Notes, or (ii) upon the announcement of certain significant corporate events, including events that may give rise to a termination event as described above, such as the announcement of a third-party tender offer. Any such adjustment may also reduce the effectiveness of the 2020 Note Hedges. The aggregate cost of the 2020 Notes Hedges was $145 million and is accounted for as a derivative asset in accordance with ASC Topic 815. See Note 6 of the condensed consolidated financial statements for additional information regarding the 2020 Notes Hedges and the 2020 Notes Conversion Derivative.
WMG also entered into warrant transactions in which it sold warrants for an aggregate of 20.5 million shares of WMG common stock to the three option counterparties, subject to adjustment. The strike price of the warrants was initially $40 per share of WMG common stock, which was 59% above the last reported sale price of WMG common stock on February 9, 2015. On November 24, 2015, Wright Medical Group N.V. assumed WMG's obligations pursuant to the warrants. Following the assumption, the warrants became exercisable for 21.1 million Wright Medical Group N.V. ordinary shares and the strike price of the warrants was adjusted to $38.8010 per ordinary share. The warrants are expected to be net-share settled and exercisable over the 200 trading day period beginning on May 15, 2020. The warrant transactions will have a dilutive effect on our ordinary shares to the extent that the market value per ordinary share during such period exceeds the applicable strike price of the warrants. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to warrant transactions, which may increase our obligations under the warrant transactions.
During the three months ended June 26, 2016, we settled a portion of the 2020 Notes Hedges (receiving $3.9 million) and repurchased warrants for an aggregate of 1.5 million ordinary shares (paying $3.3 million) associated with the 2020 Notes.
Aside from the initial payment of the $145 million premium in the aggregate to the option counterparties, we do not expect to be required to make any cash payments to the option counterparties under the 2020 Notes Hedges and expect to be entitled to receive from the option counterparties cash, generally equal to the amount by which the market price per ordinary share exceeds the strike price of the convertible note hedging transactions during the relevant valuation period. The strike price under the 2020 Notes Hedges is initially equal to the conversion price of the 2020 Notes. However, in connection with certain events, these option counterparties have the discretion to make certain adjustments to the 2020 Note Hedges, which may reduce the effectiveness of the 2020 Note Hedges. Additionally, if the market value per ordinary share exceeds the strike price on any settlement date under the warrant transaction, we will generally be obligated to issue to the option counterparties in the aggregate a number of ordinary shares equal in value to one half of one percent of the amount by which the then-current market value of one ordinary share exceeds the then-effective strike price of each warrant, multiplied by the number of reference ordinary shares into which the 2020 Notes are initially convertible. We will not receive any additional proceeds if warrants are exercised.
2017 Notes
On August 31, 2012, WMG issued $300 million aggregate principal amount of the 2017 Notes pursuant to an indenture, dated as of August 31, 2012 between WMG and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2017 Notes mature on August 15, 2017, and we pay interest on the 2017 Notes semi-annually on each February 15 and August 15 at an annual rate of 2.00%. WMG may not redeem the 2017 Notes prior to the maturity date, and no “sinking fund” is available for the 2017 Notes, which means that WMG is not required to redeem or retire the 2017 Notes periodically. The 2017 Notes are convertible at the option of the holder, during certain periods and subject to certain conditions as described below, solely into cash at an initial conversion rate of 39.3140 shares per $1,000 principal amount of the 2017 Notes, subject to adjustment upon the occurrence of specified events, which represents an initial conversion price of $25.44 per share. Holders may convert their 2017 Notes at any time prior to February 15, 2017 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending December 31, 2012 (and only during such calendar quarter), if the last reported sale price of our ordinary

27
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our ordinary shares and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. While we currently do not expect significant conversions because the 2017 Notes currently trade at a premium to the as-converted value, and a converting holder would forego future interest payments, any conversions would reduce our cash resources. On or after February 15, 2017 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2017 Notes solely into cash, regardless of the foregoing circumstances. Upon conversion, a holder will receive an amount in cash, per $1,000 principal amount of the 2017 Notes, equal to the settlement amount as calculated under the indenture relating to the 2017 Notes. If we undergo a fundamental change, as defined in the indenture relating to the 2017 Notes, subject to certain conditions, holders of the 2017 Notes will have the option to require WMG to repurchase for cash all or a portion of their 2017 Notes at a purchase price equal to 100% of the principal amount of the 2017 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the indenture relating to the 2017 Notes. In addition, following certain corporate transactions, WMG, under certain circumstances, will pay a cash make-whole premium by increasing the applicable conversion rate for a holder that elects to convert its 2017 Notes in connection with such corporate transaction. The 2017 Notes are senior unsecured obligations that rank: (i) senior in right of payment to any of WMG's indebtedness that is expressly subordinated in right of payment to the 2017 Notes; (ii) equal in right of payment to any of WMG's unsecured indebtedness that is not so subordinated; (iii) effectively junior in right of payment to any secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all indebtedness and other liabilities (including trade payables) of WMG's subsidiaries. As a result of this transaction, we recognized deferred financing charges of approximately $8.8 million, which are being amortized over the term of the 2017 Notes using the effective interest method.
The 2017 Notes Conversion Derivative requires bifurcation from the 2017 Notes in accordance with ASC Topic 815, Derivatives and Hedging, and is accounted for as a derivative liability. See Note 6 of the condensed consolidated financial statements for additional information regarding the 2017 Notes Conversion Derivative. The fair value of the 2017 Notes Conversion Derivative at the time of issuance of the 2017 Notes was $48.1 million and was recorded as original debt discount for purposes of accounting for the debt component of the 2017 Notes. This discount is amortized as interest expense using the effective interest method over the term of the 2017 Notes. For the three and six months ended June 26, 2016, we recorded $0.4 million and $0.9 million, respectively, of interest expense related to the amortization of the debt discount, respectively, based upon an effective rate of 6.47%. For the three and six months ended June 30, 2015, we recorded $0.5 million and $1.9 million, respectively, of interest expense related to the amortization of the debt discount, respectively, based upon an effective rate of 6.47%.
In connection with the issuance of the 2020 Notes, on February 13, 2015, WMG repurchased and extinguished $240 million aggregate principal amount of the 2017 Notes and settled all of the 2017 Notes Hedges (receiving $70 million) and repurchased all of the warrants (paying $60 million) associated with the 2017 Notes. As a result of the repurchase, we recognized approximately $25.1 million for the write-off of related pro-rata unamortized deferred financing fees and debt discount within “Other income, net” in our condensed consolidated statements of operations during the six months ended June 30, 2015.
Concurrently with the issuance and sale of the 2021 Notes, certain holders of the 2017 Notes exchanged approximately $54.4 million aggregate principal amount their 2017 Notes for the 2021 Notes. For each $1,000 principal amount of 2017 Notes validly submitted for exchange, we delivered $1,035.40 principal amount of 2021 Notes (subject to rounding down to the nearest $1,000 principal amount of the 2021 Notes, the difference being referred as the rounded amount) to the investor plus an amount of cash equal to the unpaid interest on the 2017 Notes and the rounded amount. In addition, during the three months ended June 26, 2016, we repurchased and extinguished an additional $3.6 million aggregate principal amount of the 2017 Notes in privately negotiated transactions. As a result of this exchange and these repurchases, we recognized approximately $3.0 million for the write-off of related pro-rata unamortized deferred financing fees and debt discount within “Other income, net” in our condensed consolidated statements of operations during the three months ended June 26, 2016. As of June 26, 2016 and December 27, 2015, $2.0 million and $60.0 million, respectively, aggregate principal amount of the 2017 Notes remained outstanding and is included within long-term obligations on the condensed consolidated balance sheets.

28
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

The components of the 2017 Notes were as follows (in thousands):
 
June 26, 2016
 
December 27, 2015
Principal amount of 2017 Notes
$
2,026

 
$
60,000

Unamortized debt discount
(84
)
 
(3,495
)
Unamortized debt issuance costs
(14
)
 
(640
)
Net carrying amount of 2017 Notes1
$
1,928

 
$
55,865

            
1 
The prior period debt issuance costs were reclassified to account for adoption of ASU 2015-03 and 2015-15 (See Note 2).
The estimated fair value of the 2017 Notes was approximately $2 million at June 26, 2016, based on a quoted price in an active market (Level 1).
Mortgages and Shareholder Debt
The mortgages acquired as a result of the Wright/Tornier merger are secured by an office building in Montbonnot, France. Mortgages and other debt had an outstanding balance of $3.1 million and $2.7 million at June 26, 2016 and December 27, 2015 and bear fixed annual interest rates of 2.55%-4.9%.
The shareholder debt is the result of a 2008 transaction where a 51%-owned and consolidated subsidiary of legacy Tornier borrowed $2.2 million from a then-current member of the legacy Tornier board of directors, who was also a 49% owner of the consolidated subsidiary. This loan was used to partially fund the purchase of real estate in Grenoble, France, to be used as a manufacturing facility. Interest on the debt is variable-based on the three-month Euro Libor rate plus 0.5% and has no stated term. The outstanding balance on this debt was $2.0 million as of June 26, 2016 and December 27, 2015.

10. Accumulated Other Comprehensive Income (AOCI)
Other comprehensive income (OCI) includes certain gains and losses that under US GAAP are included in comprehensive income but are excluded from net income as these amounts are initially recorded as an adjustment to shareholders’ equity. Amounts in OCI may be reclassified to net income upon the occurrence of certain events.
Our 2016 and 2015 OCI is comprised solely of foreign currency translation adjustments.
Changes in AOCI for the six months ended June 26, 2016 and June 30, 2015 were as follows (in thousands):
 
Six months ended June 26, 2016
 
Currency translation adjustment
Balance at December 27, 2015
$
(10,484
)
Other comprehensive income
7,283

Balance at June 26, 2016
$
(3,201
)
 
Six months ended June 30, 2015
 
Currency translation adjustment
Balance at December 31, 2014
$
2,398

Other comprehensive loss
(5,712
)
Balance at June 30, 2015
$
(3,314
)


29
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

11. Changes in Shareholders' Equity
The below table provides an analysis of changes in each balance sheet caption of shareholders’ equity for the six months ended June 26, 2016 and June 30, 2015 (in thousands, except share data):
 
Six months ended June 26, 2016
 
Ordinary shares
 
Additional paid-in capital 1
 
Accumulated deficit
 
Accumulated other comprehensive income (loss)
 
Total shareholders' equity
 
Number of shares 1
 
Amount 1
 
Balance at December 27, 2015
102,672,678

 
$
3,790

 
$
1,835,586

 
$
(773,866
)
 
$
(10,484
)
 
$
1,055,026

2016 Activity:
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(277,358
)
 
—

 
(277,358
)
Foreign currency translation
—

 
—

 
—

 
—

 
7,283

 
7,283

Issuances of ordinary shares
37,947

 
1

 
774

 
—

 
—

 
775

Vesting of restricted stock units
263,676

 
9

 
(9
)
 
—

 
—

 
—

Share-based compensation
—

 
—

 
6,331

 
—

 
—

 
6,331

Issuance of stock warrants, net of repurchases and equity issuance costs
—

 
—

 
50,312

 
—

 
—

 
50,312

Balance at June 26, 2016
102,974,301

 
$
3,800

 
$
1,892,994

 
$
(1,051,224
)
 
$
(3,201
)
 
$
842,369

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2015
 
Ordinary shares
 
Additional paid-in capital 1
 
Accumulated deficit
 
Accumulated other comprehensive income (loss)
 
Total shareholders' equity
 
Number of shares 1
 
Amount 1
 
Balance at December 31, 2014
52,913,093

 
$
2,101

 
$
749,469

 
$
(475,165
)
 
$
2,398

 
$
278,803

2015 Activity:
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(94,063
)
 
—

 
(94,063
)
Foreign currency translation
—

 
—

 
—

 
—

 
(5,712
)
 
(5,712
)
Issuances of ordinary shares
82,272

 
3

 
1,874

 
—

 
—

 
1,877

Forfeitures of non-vested ordinary shares
(5,961
)
 
—

 
—

 
—

 
—

 
—

Vesting of restricted stock units
9,407

 
7

 
(7
)
 
—

 
—

 
—

Share-based compensation
—

 
—

 
5,701

 
—

 
—

 
5,701

Issuance of stock warrants, net of repurchases and equity issuance costs
—

 
—

 
24,575

 
—

 
—

 
24,575

Balance at June 30, 2015
52,998,811

 
$
2,111

 
$
781,612

 
$
(569,228
)
 
$
(3,314
)
 
$
211,181

            
1 
The prior period balances of ordinary shares and additional paid-in capital were restated to meet post-merger conversion values as further described within Note 12.

12. Capital Stock and Earnings Per Share
We are authorized to issue up to 320 million ordinary shares, each share with a par value of three Euro cents (€0.03). We had 103.0 million and 102.7 million ordinary shares issued and outstanding as of June 26, 2016 and December 27, 2015, respectively. As discussed in Note 3, the Wright/Tornier merger completed on October 1, 2015 has been accounted for as a “reverse acquisition” under US GAAP. As such, legacy Wright is considered the acquiring entity for accounting purposes; and therefore, legacy Wright’s historical results of operations replaced legacy Tornier’s historical results of operations for all periods prior to the merger. Additionally, each legacy Wright share was converted into the right to receive 1.0309 ordinary shares of the combined company and the par value was revised to reflect the €0.03 par value as compared to the legacy Wright par value of $0.01. These changes resulted in the restatement of the following to conform to the current presentation:

30
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

•
ordinary shares and additional paid-in capital balances for the three and six months ended June 30, 2015 included in Note 11;
•
June 30, 2015 earnings per share and weighted-average ordinary shares outstanding on the statements of operations; and
•
June 30, 2015 weighted-average ordinary shares outstanding below.
FASB ASC Topic 260, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated to include any dilutive effect of our ordinary share equivalents. For the three and six months ended June 26, 2016, our ordinary share equivalents consisted of stock options, restricted stock units, and warrants. For the three and six months ended June 30, 2015, our ordinary share equivalents consisted of stock options, non-vested ordinary shares, restricted stock units, and warrants. The dilutive effect of the stock options, non-vested ordinary shares, restricted stock units, and warrants is calculated using the treasury-stock method. Net-share settled warrants on the 2017 Notes, 2020 Notes, and 2021 Notes were anti-dilutive for the three and six months ended June 26, 2016 and June 30, 2015.
We had outstanding options to purchase 9.3 million ordinary shares and 0.7 million restricted stock units at June 26, 2016 and options to purchase 4.4 million ordinary shares and 0.3 million restricted stock units and restricted stock awards at June 30, 2015. None of the options, restricted stock units, or restricted stock awards were included in diluted earnings per share for the three and six months ended June 26, 2016 and June 30, 2015 because we recorded a net loss for all periods; and therefore, including these instruments would be anti-dilutive.
The weighted-average number of ordinary shares outstanding for basic and diluted earnings per share purposes is as follows (in thousands):
 
Three months ended
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
June 26, 2016
 
June 30, 2015
Weighted-average number of ordinary shares outstanding — basic1
102,785

 
52,631

 
102,745

 
52,535

Ordinary share equivalents
—

 
—

 
—

 
—

Weighted-average number of ordinary shares outstanding — diluted1
102,785

 
52,631

 
102,745

 
52,535

            
1 
The prior period balances were converted to meet post-merger valuations as described above.

13. Commitments and Contingencies
Legal Contingencies
The legal contingencies described in this footnote relate primarily to Wright Medical Technology, Inc., an indirect subsidiary of Wright Medical Group N.V., and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities. Maintaining separate legal entities within our corporate structure is intended to ring-fence liabilities.  We believe our ring-fenced structure should preclude corporate veil-piercing efforts against entities whose assets are not associated with particular claims.  
As described below, our business is subject to various contingencies, including patent and other litigation, product liability claims, and a government inquiry.  These contingencies could result in losses, including damages, fines, or penalties, any of which could be substantial, as well as criminal charges. Although such matters are inherently unpredictable, and negative outcomes or verdicts can occur, we believe we have significant defenses in all of them, and are vigorously defending all of them. However, we could incur judgments, pay settlements, or revise our expectations regarding the outcome of any matter. Such developments, if any, could have a material adverse effect on our results of operations in the period in which applicable amounts are accrued, or on our cash flows in the period in which amounts are paid, however we do not believe any of them will have a material adverse effect on our financial position.
Our legal contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss or the measurement of a loss can be complex. We have accrued for losses that are both probable and reasonably estimable. Unless otherwise indicated, we are unable to estimate the range of reasonably possible loss in excess of amounts accrued.  Our assessment process relies on estimates and assumptions that may prove to be incomplete or inaccurate. Unanticipated events and circumstances may occur that could cause us to change our estimates and assumptions.

31
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Governmental Inquiries
On August 3, 2012, we received a subpoena from the United States Attorney's Office for the Western District of Tennessee requesting records and documentation relating to our PROFEMUR® series of hip replacement devices. The subpoena covers the period from January 1, 2000 to August 2, 2012. We continue to cooperate with the investigation.
Patent Litigation
In 2011, Howmedica Osteonics Corp. and Stryker Ireland, Ltd. (collectively, Stryker), each a subsidiary of Stryker Corporation, filed a lawsuit against us in the United States District Court for the District of New Jersey alleging that we infringed Stryker's U.S. Patent No. 6,475,243 related to our LINEAGE® Acetabular Cup System and DYNASTY® Acetabular Cup System. The lawsuit seeks an order of infringement, injunctive relief, unspecified damages, and various other costs and relief. On July 9, 2013, the Court issued a claim construction ruling. On November 25, 2014, the Court entered judgment of non-infringement in our favor. On January 7, 2015, Stryker filed a notice of appeal to the Court of Appeals for the Federal Circuit. The Court of Appeals heard oral argument on December 10, 2015 and, on May 12, 2016, upheld the lower court’s decision. Stryker subsequently filed a combined petition for rehearing with the Court of Appeals, which was denied.
In 2012, Bonutti Skeletal Innovations, LLC (Bonutti) filed a patent infringement lawsuit against us in the United States Court for the District of Delaware. Subsequently, Inter Partes Review (IPR) of the Bonutti patents was sought before the U.S. Patent and Trademark Office. On April 7, 2014, the Court stayed the case pending outcome of the IPR. Bonutti originally alleged that the Link Sled Prosthesis infringes U.S. Patent 6,702,821. The Link Sled Prosthesis is a product we distributed under a distribution agreement with LinkBio Corp, which expired on December 31, 2013. In January 2013, Bonutti amended its complaint, alleging that the ADVANCE® knee system, including ODYSSEY® instrumentation, infringes U.S. Patent 8,133,229, and that the ADVANCE® knee system, including ODYSSEY® instrumentation and PROPHECY® guides, infringes U.S. Patent 7,806,896, which was issued on October 5, 2010. All of the claims of the asserted patents are directed to surgical methods for minimally invasive surgery. As a result of the arguments submitted in the IPR, Bonutti abandoned the claims subject to the IPR from U.S. Patent 8,133,229, leaving one claim from U.S. Patent 7,806,896 still pending before the Patent Office Board that administers IPR’s. On February 18, 2015, the Patent Office Board held that remaining claim invalid. Following the conclusion of the IPRs, the District Court lifted the stay. On May 13, 2016, we entered into a Settlement and Patent License Agreement with Bonutti and MicroPort for an immaterial amount, pursuant to which Bonutti agreed to dismiss the case with prejudice and granted to us and MicroPort fully paid-up licenses to Bonutti patents. The case was formally dismissed with prejudice on May 27, 2016.
In June 2013, Orthophoenix, LLC filed a patent lawsuit against us in the United States District Court for the District of Delaware alleging that the X-REAM® product infringes two patents. In June 2014, we filed a request for IPR with the U.S. Patent and Trademark Office, which was denied on December 16, 2014. Effective April 5, 2016, we entered into a Settlement and License Agreement with Orthophoenix, LLC pursuant to which Orthophoenix agreed to dismiss the lawsuit with prejudice and WMT received a fully paid license to Orthophoenix’s patents. The case was formally dismissed with prejudice on April 20, 2016. The settlement amount was not material.
In June 2013, Anglefix, LLC filed suit in the United States District Court for the Western District of Tennessee, alleging that our ORTHOLOC® products infringe Anglefix’s asserted patent. On April 14, 2014, we filed a request for IPR with the U.S. Patent and Trademark Office. In October 2014, the Court stayed the case pending outcome of the IPR. On June 30, 2015, the Patent Office Board entered judgment in our favor as to all patent claims at issue in the IPR. Following the conclusion of the IPR, the District Court lifted the stay, and we have been continuing with our defense as to remaining patent claims asserted by Anglefix. On June 27, 2016, the Court granted in part our motion for summary judgment on Anglefix’s lack of standing and gave Anglefix 30 days to join the University of North Carolina (UNC) as a co-plaintiff in the lawsuit. On July 25, 2016, Anglefix filed a motion asking the Court to accept a waiver of claims by UNC as a substitute for joining UNC as a co-plaintiff in the lawsuit. We intend to oppose this motion. The case is stayed, and the pending motions for summary judgment will not be addressed, until the issue of UNC’s joinder is resolved.
In February 2014, Biomedical Enterprises, Inc. filed suit against Solana Surgical, LLC (Solana) in the United States District Court for the Western District of Texas alleging Solana's FuseForce Fixation system infringes U.S. Patent No. 8,584,853 entitled “Method and Apparatus for an Orthopedic Fixation System.” On February 20, 2015, Solana filed a request for IPR with the U.S. Patent and Trademark Office. On February 27, 2015, Biomedical Enterprises filed an amended complaint to add WMG and WMT as parties to the litigation. On April 3, 2015, the parties filed a stipulation of dismissal without prejudice as to us. On August 10, 2015, the Patent Office Review Board initiated IPR as to all challenged patent claims. The Patent Office Board heard oral argument in the IPR proceeding on February 17, 2016. On May 4, 2016 the Patent Office Board issued an order finding that the contested claims were not unpatentable. We appealed this decision On June 6, 2016, the date on which the trial before the District Court was scheduled to begin, we reached a settlement in principle with Biomedical Enterprises. On July 1, 2016, we entered into a Settlement

32
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

and Patent License Agreement with Biomedical Enterprises pursuant to which Biomedical Enterprises agreed to dismiss the lawsuit with prejudice and we received a worldwide, non-exclusive license to Biomedical Enterprise’s patents. The case was formally dismissed with prejudice on July 6, 2016. We do not consider the settlement amount to be material.
On September 23, 2014, Spineology filed a patent infringement lawsuit, Case No. 0:14-cv-03767, in the U.S. District Court in Minnesota, alleging that our X-REAM® bone reamer infringes U.S. Patent No. RE42,757 entitled “EXPANDABLE REAMER.”  In January 2015, on the deadline for service of its complaint, Spineology dismissed its complaint without prejudice and filed a new, identical complaint. We filed an answer to the new complaint with the Court on April 27, 2015 and discovery is underway. The Court conducted a Markman hearing on March 23, 2016 and has not yet issued a ruling. The case is scheduled for mediation on August 11, 2016.
On March 1, 2016, Musculoskeletal Transplant Foundation (MTF) filed suit against Solana and WMT in the United States District Court for the District of New Jersey alleging that the TenFUSE PIP product infringes U.S. Patent No. 6,432,436 entitled “Partially Demineralized Cortical Bone Constructs.” On May 25, 2016, we agreed to waive service of MTF’s complaint. We continue to investigate MTF’s allegations and our answer to MTF’s complaint is due on August 8, 2016.
Subject to the provisions of the asset purchase agreement with MicroPort for the sale of the OrthoRecon business, we, as between us and MicroPort, will continue to be responsible for defense of pre-existing patent infringement cases relating to the OrthoRecon business, and for resulting liabilities, if any.
Product Liability
We have received claims for personal injury against us associated with fractures of our PROFEMUR® long titanium modular neck product (PROFEMUR® Claims). As of June 26, 2016 there were 49 pending U.S. lawsuits and 49 pending non-U.S. lawsuits alleging such claims. The overall fracture rate for the product is low and the fractures appear, at least in part, to relate to patient demographics. Beginning in 2009, we began offering a cobalt-chrome version of our PROFEMUR® modular neck, which has greater strength characteristics than the alternative titanium version. Historically, we have reflected our liability for these claims as part of our standard product liability accruals on a case-by-case basis. However, during the quarter ended September 30, 2011, as a result of an increase in the number and monetary amount of these claims, management estimated our liability to patients in North America who have previously required a revision following a fracture of a PROFEMUR® long titanium modular neck, or who may require a revision in the future. Management has estimated that this aggregate liability ranges from approximately $31.8 million to $42.4 million. Any claims associated with this product outside of North America, or for any other products, will be managed as part of our standard product liability accrual methodology on a case-by-case basis.
Due to the uncertainty within our aggregate range of loss resulting from the estimation of the number of claims and related monetary payments, we have recorded a liability of $31.8 million, which represents the low-end of our estimated aggregate range of loss. We have classified $15.3 million of this liability as current in “Accrued expenses and other current liabilities” and $16.5 million as non-current in “Other liabilities” on our consolidated balance sheet. We expect to pay the majority of these claims within the next three years.
We are aware that MicroPort has recalled certain sizes of its cobalt chrome modular neck products as a result of alleged fractures. As of June 26, 2016, there were four pending U.S. lawsuits and five pending non-U.S. lawsuits against us alleging personal injury resulting from the fracture of a cobalt chrome modular neck. These claims will be managed as part of our standard product liability accrual methodology on a case-by-case basis.
We have maintained product liability insurance coverage on a claims-made basis. During the quarter ended March 31, 2013, we received a customary reservation of rights from our primary product liability insurance carrier asserting that present and future claims related to fractures of our PROFEMUR® titanium modular neck hip products and which allege certain types of injury (Titanium Modular Neck Claims) would be covered as a single occurrence under the policy year the first such claim was asserted. The effect of this coverage position would be to place Titanium Modular Neck Claims into a single prior policy year in which applicable claims-made coverage was available, subject to the overall policy limits then in effect. Management agrees with the assertion that the Titanium Modular Neck Claims should be treated as a single occurrence, but notified the carrier that it disputed the carrier's selection of available policy years. During the second quarter of 2013, we received confirmation from the primary carrier confirming their agreement with our policy year determination. Based on our insurer's treatment of Titanium Modular Neck Claims as a single occurrence, we increased our estimate of the total probable insurance recovery related to Titanium Modular Neck Claims by $19.4 million, and recognized such additional recovery as a reduction to our selling, general and administrative expenses for the three months ended March 31, 2013, within results of discontinued operations. In the quarter ended June 30, 2013, we received payment from the primary insurance carrier of $5 million. In the quarter ended September 30, 2013, we received payment of $10 million from the next insurance carrier in the tower. We have requested, but not yet received, payment of the

33
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

remaining $25 million from the third insurance carrier in the tower for that policy period. The policies with the second and third carrier in this tower are “follow form” policies and management believes the third carrier should follow the coverage position taken by the primary and secondary carriers. On September 29, 2015, that third carrier asserted that the terms and conditions identified in its reservation of rights will preclude coverage for the Titanium Modular Neck Claims. We strongly dispute the carrier's position and, in accordance with the dispute resolution provisions of the policy, have initiated an arbitration proceeding in London, England seeking payment of these funds. Pursuant to applicable accounting standards, we reduced our insurance receivable balance for this claim to $0, and recorded a $25 million charge within "Net loss from discontinued operations" during the year ended December 27, 2015. The arbitration proceeding is ongoing.
Claims for personal injury have also been made against us associated with our metal-on-metal hip products (primarily our CONSERVE® product line). The pre-trial management of certain of these claims has been consolidated in the federal court system, in the United States District Court for the Northern District of Georgia under multi-district litigation (MDL) and certain other claims by the Judicial Counsel Coordinated Proceedings (JCCP) in state court in Los Angeles County, California (collectively the Consolidated Metal-on-Metal Claims).
As of June 26, 2016, there were 1,167 such lawsuits pending in the MDL and JCCP, and an additional 26 cases pending in various state courts. We have also entered into 896 so called "tolling agreements" with potential claimants who have not yet filed suit. There are also 40 non-U.S. lawsuits presently pending. We believe we have data that supports the efficacy and safety of our metal-on-metal hip products. While continuing to dispute liability, we have participated in court supervised non-binding mediation in the multi-district federal court litigation and expect to begin similar mediation in the JCCP.
The first bellwether trial in the MDL commenced on November 9, 2015 in Atlanta, Georgia. On November 24, 2015, the jury returned a verdict in favor of the plaintiff and awarded the plaintiff $1 million in compensatory damages and $10 million in punitive damages. We believe there were significant trial irregularities and vigorously contested the trial result. On December 28, 2015, we filed a post-trial motion for judgment as a matter of law or, in the alternative, for a new trial or a reduction of damages awarded. On April 5, 2016, the trial judge issued an order reducing the punitive damage award from $10 million to $1.1 million, but otherwise denied our motion. On May 4, 2016, we filed a notice of appeal with the United States Court of Appeals for the Eleventh Circuit. In light of the trial judge’s April 5th order, we recorded an accrual for this verdict in the amount of $2.1 million within “Accrued expenses and other current liabilities,” and a $2.1 million receivable associated with the probable recovery from product liability insurance is reflected within “Other current assets.”
The supervising judge in the JCCP has set a trial date of October 31, 2016 for the first bellwether trial in California. The parties are currently in an expert discovery and pre-trial procedure phase.
We have maintained product liability insurance coverage on a claims-made basis. During the quarter ended September 30, 2012, we received a customary reservation of rights from our primary product liability insurance carrier asserting that certain present and future claims which allege certain types of injury related to our CONSERVE® metal-on-metal hip products (CONSERVE® Claims) would be covered as a single occurrence under the policy year the first such claim was asserted. The effect of this coverage position would be to place CONSERVE® Claims into a single prior policy year in which applicable claims-made coverage was available, subject to the overall policy limits then in effect. Management agrees that there is insurance coverage for the CONSERVE® Claims, but has notified the carrier that it disputes the carrier's characterization of the CONSERVE® Claims as a single occurrence.
Management has recorded an insurance receivable for the probable recovery of spending in excess of our retention for a single occurrence. As of June 26, 2016, we have received $11.7 million of insurance proceeds, and our insurance carrier has paid a total of $4.5 million directly to claimants in connection with various settlements of certain litigation, which represent the amount undisputed by the carrier for the policy year the first claim was asserted. Our acceptance of these proceeds was not a waiver of any other claim that we may have against the insurance carrier. As of June 26, 2016, this receivable totaled approximately $17.3 million, and is solely related to defense costs incurred through June 26, 2016, less insurance proceeds received, and the $2.1 million accrual for the MDL verdict discussed above. However, the amount we ultimately receive may differ depending on the final conclusion of the insurance policy year or years and the number of occurrences. We believe our contracts with the insurance carriers are enforceable for these claims; and, therefore, we believe it is probable that we will receive recoveries from our insurance carriers. However, our insurance carriers could still ultimately deny coverage for some or all of our insurance claims.
In June 2014, St. Paul Surplus Lines Insurance Company (Travelers), which was an excess carrier in our coverage towers across multiple policy years, filed a declaratory judgment action in Tennessee state court naming us and certain of our other insurance carriers as defendants and asking the court to rule on the rights and responsibilities of the parties with regard to the CONSERVE® Claims. Among other things, Travelers appears to dispute our contention that the CONSERVE® Claims arise out of more than a single occurrence thereby triggering multiple policy periods of coverage.  Travelers further seeks a determination

34
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

as to the applicable policy period triggered by the alleged single occurrence.  We filed a separate lawsuit in state court in California for declaratory judgment against certain carriers and breach of contract against the primary carrier, and have moved to dismiss or stay the Tennessee action on a number of grounds, including that California is the most appropriate jurisdiction. During the third quarter of 2014, the California Court granted Travelers' motion to stay our California action. On April 29, 2016, we filed a dispositive motion seeking partial judgment in our favor in the Tennessee action. On June 10, 2016, Travelers withdrew its motion for summary judgment in the Tennessee action.
In May 2015, we entered into confidential settlement discussions with our insurance carriers through a private mediator. During the second quarter of 2016, confidential coverage mediation with our insurance carriers continued. Although to date we have focused our settlement efforts on a tripartite resolution involving plaintiffs and all carriers as a group, in June 2016 we reached a settlement in principle with a subgroup of three carriers.
Settlement discussions with the remaining insurance carriers continue. Regardless of the outcome of these discussions, we believe the insurance recoveries from the settlement in principle with the subgroup of three carriers, together with potential availability of proceeds from our recent convertible debt offering (to the extent we elect to earmark such proceeds towards settlement of a subsidiary liability), enhanced our ability to conduct meaningful bilateral negotiations with plaintiffs. On July 8, 2016, we held bilateral mediation discussions with the plaintiffs in the MDL and JCCP and made a settlement offer to resolve a substantial portion of known revision cases in the MDL and JCCP, conditioned on us finalizing the settlement in principle with the subgroup of three carriers. The plaintiffs countered with a proposal to resolve the same cohort of cases. We continue to evaluate plaintiffs’ counter proposal and have not yet responded. As a result, and relative only to the substantial portion of known revision metal-on-metal hip cases, we have established a reasonably possible loss range of $150 million to $198 million, net of the expected insurance recoveries from the insurance settlement. Accordingly, we have recognized a $150 million charge within discontinued operations in the accompanying condensed consolidated statement of operations. The accrual for such potential settlement and receivable for expected proceeds from the insurance settlement are included in our condensed consolidated balance sheet within “Accrued expenses and other current liabilities” and “Other current assets”, respectively. Our settlement discussions with the plaintiffs are continuing.
Every metal-on-metal hip case involves fundamental issues of law, science and medicine that often are uncertain, that continue to evolve, and which present contested facts and issues that can differ significantly from case to case. Such contested facts and issues include medical causation, individual patient characteristics, surgery specific factors, statutes of limitation, and the existence of actual, provable injury. As noted above, we have provided for a substantial portion of the Consolidated Metal-on-Metal Claims that would be subject to settlement. However, there are a substantial number of non-revision and other claims that are not subject to the settlement. Due to the uncertainties noted above and the case-by-case outcomes of any metal on metal claims litigated, as well as uncertainties regarding insurance coverage of such claims, we are unable to estimate a reasonably possible range of loss for metal-on metal hip cases not proposed for settlement.
Given the substantial or indeterminate amounts sought in these matters, and the inherent unpredictability of such matters, an adverse outcome in these matters in excess of the amounts included in the Company’s accrual for contingencies could have a material adverse effect on our financial condition, results of operations and cash flow. Future revisions in the Company’s estimates of these provisions could materially impact its results of operations and financial position. The Company uses the best information available to determine the level of accrued product liabilities, and the Company believes its accruals are adequate.
Certain liabilities associated with legacy Wright's OrthoRecon business, including product liability claims associated with hip and knee products sold prior to the closing, were not assumed by MicroPort. Liabilities associated with these product liability claims, including legal defense, settlements and judgments, income associated with product liability insurance recoveries, and changes to any contingent liabilities associated with the OrthoRecon business have been reflected within results of discontinued operations, and we will continue to reflect these within results of discontinued operations in future periods. MicroPort is responsible for product liability claims associated with products it sells after the closing.
In June 2015, a jury returned a $4.4 million verdict against us in a case involving a fractured hip implant stem sold prior to the MicroPort closing.  This was a one-of-a-kind case unrelated to the modular neck fracture cases we have been reporting. There are no other cases pending related to this component, nor are we aware of other instances where this component has fractured. In September 2015, the trial judge reduced the jury verdict to $1.025 million and indicated that if the plaintiff did not accept the reduced award he would schedule a new trial solely on the issue of damages. The plaintiff elected not to accept the reduced damage award, and both parties have appealed. The Court has not set a date for a new trial on the issue of damages and we do not expect it will do so until the appeals are adjudicated. We will maintain our current $4.4 million accrual as a probable liability until the matter is resolved. The $4.4 million probable liability associated with this matter is reflected within “Accrued expenses and other

35
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

current liabilities,” and a $4 million receivable associated with the probable recovery from product liability insurance is reflected within “Other current assets.”
MicroPort Indemnification Claim
In July 2015, we received demand letters from MicroPort seeking indemnification under the terms of the asset purchase agreement for the sale of our OrthoRecon business for losses or potential losses it has incurred or may incur as a result of either alleged breaches of representations in the asset purchase agreement or alleged unassumed liabilities. MicroPort asserted that the range of potential losses for which it seeks indemnity is between $18.5 million and $30 million. We responded to MicroPort's demand letters and received a further demand letter reiterating each of their claims and providing revised claim amounts. In this letter MicroPort asserted that the range of potential losses for which it seeks indemnity is between $77.5 million and $112.5 million.
On October 27, 2015, MicroPort filed a lawsuit in the United States District Court for the District of Delaware against Wright Medical Group N.V. alleging that we breached the indemnification provisions of the asset purchase agreement by failing to indemnify MicroPort for alleged damages arising out of certain pre-closing matters and for breach of certain representations and warranties. The complaint included claims relating to MicroPort’s recall of certain of its cobalt chrome modular neck products, and seeks damages in an unspecified amount plus attorneys’ fees and costs, as well as declaratory judgment. On January 4, 2016, we filed an answer to the complaint and also filed a counterclaim seeking declaratory judgment and indemnification and other damages in an unspecified amount from MicroPort. On April 28, 2016, we entered into a mutual settlement agreement with MicroPort pursuant to which the lawsuit, including all claims and counterclaims that were brought in the lawsuit, was dismissed with prejudice. The settlement agreement resolved all known issues between the parties. We have recognized the settlement within “Loss from discontinued operations, net of tax” for the three months ended March 31, 2015. We do not consider the settlement amount to be material. The case was formally dismissed with prejudice on May 20, 2016.
Other
In addition to those noted above, we are subject to various other legal proceedings, product liability claims, corporate governance, and other matters which arise in the ordinary course of business.

14. Segment Information
During the first quarter of 2016, our management, including our Chief Executive Officer, who is our chief operating decision maker, began managing our operations as four operating business segments: U.S. Lower Extremities & Biologics, U.S. Upper Extremities, International Extremities & Biologics, and Large Joints. We determined that each of these operating segments represented a reportable segment. Our Chief Executive Officer reviews financial information at the operating segment level to allocate resources and to assess the operating results and performance of each segment.  As a result of the classification of the Large Joints business as a discontinued operation during the second quarter of 2016, the Large Joints reportable segment is presented in our condensed consolidated statements of operations as discontinued operations and is not included in segment results for all periods presented. See Note 4 of the condensed consolidated financial statements for additional information regarding this divestiture. U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International Extremities & Biologics are our remaining three reportable segments as of June 26, 2016.
Our U.S. Lower Extremities & Biologics segment consists of our operations focused on the sale in the U.S. of our lower extremities products, such as joint implants and bone fixation devices for the foot and ankle and our biologics products used to support treatment of damaged or diseased bone, tendons, and soft tissues or to stimulate bone growth. Our U.S. Upper Extremities segment consists of our operations focused on the sale in the U.S. of our upper extremities products, such as joint implants and bone fixation devices for the shoulder, elbow, wrist, and hand and products used across several anatomic sites to mechanically repair tissue-to-tissue or tissue-to-bone injuries and other ancillary products. Our International Extremities and Biologics segment consists of our operations focused on the sale outside the U.S. of all lower and upper extremities products, including associated biologics products, except for those that relate to hip and knee replacements.
Management measures segment profitability using an internal operating performance measure that excludes the impact of inventory step-up amortization and due diligence, transaction and transition costs associated with acquisitions, as such items are not considered representative of segment results. Management's change to the way it monitors performance, aligns strategies, and allocates resources results in a change in our reportable segments and a change in reporting units for goodwill impairment measurement

36
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

purposes. We have determined that each reportable segment represents a reporting unit and, in accordance with ASC 350, requires an allocation of goodwill to each reporting unit. We allocated $219 million, $560 million, and $82 million of goodwill to the U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International Extremities & Biologics reportable segments, respectively.
Selected financial information related to our segments is presented below for the three months ended June 26, 2016 and June 30, 2015 (in thousands):
 
Three months ended June 26, 2016
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate 1
Total
Net sales from external customers
$
70,645

$
51,228

$
48,843

$
—

$
170,716

Depreciation expense
2,874

2,671

2,634

5,091

13,270

Amortization expense
—

—

—

7,484

7,484

Segment operating income (loss)
$
18,968

$
16,849

$
2,208

$
(49,610
)
$
(11,585
)
Other:
 
 
 
 
 
Inventory step-up amortization
 
 
 
 
10,387

Transaction and transition expenses
 
 
 
 
7,060

Product rationalization
 
 
 
 
1,954

Legal settlement
 
 
 
 
1,800

Management changes
 
 
 
 
1,348

Costs associated with new convertible debt
 
 
 
 
234

Operating loss
 
 
 
 
(34,368
)
Interest expense, net
 
 
 
 
13,024

Other income, net
 
 
 
 
(2,061
)
Loss before income taxes
 
 
 
 
$
(45,331
)
 
Three months ended June 30, 2015
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate 1
Total
Net sales from external customers
$
54,096

$
4,174

$
22,150

$
—

$
80,420

Depreciation expense
2,946

227

735

1,510

5,418

Amortization expense
—

—

—

2,540

2,540

Segment operating income (loss)
$
7,111

$
1,763

$
(2,443
)
$
(28,598
)
$
(22,167
)
Other:
 
 
 
 
 
Inventory step-up amortization
 
 
 
 
21

Distributor conversion and non-compete charges
 
 
 
 
25

Due diligence, transaction and transition expenses
 
 
 
 
12,129

Operating loss
 
 
 
 
(34,342
)
Interest expense, net
 
 
 
 
10,959

Other income, net
 
 
 
 
(8,153
)
Loss before income taxes
 
 
 
 
$
(37,148
)

37
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)


Selected financial information related to our segments is presented below for the six months ended June 26, 2016 and June 30, 2015 (in thousands):
 
Six months ended June 26, 2016
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate 1
Total
Net sales from external customers
$
143,905

$
102,512

$
93,590

$
—

$
340,007

Depreciation expense
5,689

5,219

5,455

9,757

26,120

Amortization expense
—

—

—

13,941

13,941

Segment operating income (loss)
$
39,833

$
34,135

$
3,785

$
(98,970
)
$
(21,217
)
Other:
 
 
 
 
 
Inventory step-up amortization
 
 
 
 
20,616

Transaction and transition expenses
 
 
 
 
17,893

Product rationalization
 
 
 
 
1,954

Legal settlement
 
 
 
 
1,800

Management changes
 
 
 
 
1,348

Costs associated with new convertible debt
 
 
 
 
234

Operating loss
 
 
 
 
(65,062
)
Interest expense, net
 
 
 
 
24,878

Other income, net
 
 
 
 
(3,129
)
Loss before income taxes
 
 
 
 
$
(86,811
)
 
Six months ended June 30, 2015
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate 1
Total
Net sales from external customers
$
107,708

$
8,048

$
42,598

$
—

$
158,354

Depreciation expense
5,762

431

1,503

3,002

10,698

Amortization expense
—

—

—

5,130

5,130

Segment operating income (loss)
$
11,950

$
3,376

$
(5,098
)
$
(54,440
)
$
(44,212
)
Other:
 
 
 
 
 
Inventory step-up amortization
 
 
 
 
49

Distributor conversion and non-compete charges
 
 
 
 
49

Due diligence, transaction and transition expenses
 
 
 
 
23,153

Operating loss
 
 
 
 
(67,463
)
Interest expense, net
 
 
 
 
18,608

Other income, net
 
 
 
 
(2,841
)
Loss before income taxes
 
 
 
 
$
(83,230
)
            
1 
The Corporate category primarily reflects general and administrative expenses not specifically associated with the U.S. Lower Extremities & Biologics, U.S. Upper Extremities, and International Extremities & Biologics segments. These non-allocated corporate expenses relate to global administrative expenses that support all segments, including salaries and benefits of executive officers and expenses such as: information technology administration and support; corporate headquarters; legal, compliance, and corporate finance functions; insurance; and all share-based compensation.

38
WRIGHT MEDICAL GROUP N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Our principal geographic regions consist of the United States, EMEA (which includes Europe, the Middle East and Africa), and Other (which principally represents Asia, Australia, Canada, and Latin America). Net sales attributed to each geographic region are based on the location in which the products were sold.
Net sales by geographic region are as follows (in thousands):
 
Three months ended
Net sales by geographic region:
June 26, 2016
 
June 30, 2015
United States
$
121,873

 
$
58,270

EMEA
32,192

 
11,985

Other
16,651

 
10,165

Total
$
170,716

 
$
80,420

 
Six months ended
Net sales by geographic region:
June 26, 2016
 
June 30, 2015
United States
$
246,417

 
$
115,756

EMEA
63,347

 
24,233

Other
30,243

 
18,365

Total
$
340,007

 
$
158,354

Assets in the U.S. Upper Extremities, U.S. Lower Extremities & Biologics, and International Extremities & Biologics segments are those assets used exclusively in the operations of each business segment or allocated when used jointly. Assets in the Corporate category are principally cash and cash equivalents, derivative assets, property, plant and equipment associated with our corporate headquarters, assets associated with discontinued operations, product liability insurance receivables, and assets associated with income taxes. Total assets by business segment as of June 26, 2016 and December 27, 2015 are as follows (in thousands):
 
June 26, 2016
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate
Assets held for sale
Total
Total assets
$
478,806

$
822,902

$
327,585

$
591,367

$
23,305

$
2,243,965

 
December 27, 2015
 
U.S. Lower Extremities & Biologics
U.S. Upper Extremities
International Extremities & Biologics
Corporate
Assets held for sale
Total
Total assets
$
490,798

$
833,432

$
365,621

$
333,473

$
50,170

$
2,073,494



39

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following management’s discussion and analysis of financial condition and results of operations describes the principal factors affecting the results of our operations, financial condition, and changes in financial condition for the three and six months ended June 26, 2016. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, our Annual Report on Form 10-K for the year ended December 27, 2015, which includes additional information about our critical accounting policies and practices and risk factors, and "Special Note Regarding Forward-Looking Statements."
Background
On October 1, 2015, we became Wright Medical Group N.V. following the merger of Wright Medical Group, Inc. with Tornier N.V. Upon completion of the merger, Robert J. Palmisano, former President and Chief Executive Officer (CEO) of legacy Wright, became President and CEO of the combined company, and Lance A. Berry, former Senior Vice President (SVP) and Chief Financial Officer (CFO) of legacy Wright, became SVP and CFO. Immediately upon completion of the merger, legacy Wright shareholders owned approximately 52% of the combined company and legacy Tornier shareholders owned approximately 48%, and our board of directors was comprised of five representatives from legacy Wright’s board of directors and five representatives from legacy Tornier’s board of directors. In connection with the merger, the trading symbol for our ordinary shares changed from “TRNX” to “WMGI.” Because of these and other facts and circumstances, the merger has been accounted for as a “reverse acquisition” under US GAAP, and as such, legacy Wright is considered the acquiring entity for accounting purposes. Therefore, legacy Wright’s historical results of operations replaced legacy Tornier’s historical results of operations for all periods prior to the merger. More specifically, the accompanying consolidated financial statements for periods prior to the merger are those of legacy Wright and its subsidiaries, and for periods subsequent to the merger also include legacy Tornier and its subsidiaries.
During the first quarter of 2016, our management, including our chief executive officer, who is our chief operating decision maker, began managing our operations as four operating business segments: U.S. Lower Extremities and Biologics, U.S. Upper Extremities, International Extremities and Biologics, and Large Joints. We determined that each of these operating segments represents a reportable segment.
During the second quarter of 2016, our Board of Directors approved a plan to divest legacy Tornier's Large Joints business and on July 11, 2016, we announced the receipt of a binding offer under which Corin Orthopaedics Holdings Limited (Corin) provided us a binding promise to purchase substantially all of the assets related to the Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer. Subject to the terms and conditions of the binding offer, including following a consultation process with our employee works council and health and safety committee in France and the issuance or deemed issuance of the opinions of the works council and health and safety committee, we would be able to accept the binding offer and the parties would thereafter execute a business sale agreement, transitional services agreement and supply agreement, among other ancillary agreements required to implement the transaction. The transaction is expected to close by the end of the third quarter or early in the fourth quarter of 2016, subject to customary closing conditions. We determined that the approval of the plan to divest the Large Joints business by the Board of Directors, together with our receipt of the binding offer, meets the criteria for classification as discontinued operations. As such, the financial results of our Large Joints business have been reflected within discontinued operations for all periods presented, unless otherwise noted, and the discussion below is on a continuing operations basis.
On January 9, 2014, legacy Wright completed the sale of its hip and knee (OrthoRecon) business to MicroPort Scientific Corporation (MicroPort). The financial results of the OrthoRecon business have also been reflected within discontinued operations for all periods presented and, unless otherwise noted, the discussion below is on a continuing operations basis.
References in this section to "we," "our" and "us" refer to Wright Medical Group N.V. and its subsidiaries after the Wright/Tornier merger and Wright Medical Group, Inc. and its subsidiaries before the merger. As a result of the Wright/Tornier merger, our fiscal year runs from the first Monday after the last Sunday of December of a year and ends on the last Sunday of December of the following year. Due to this change, our second quarter of operations for 2016 and 2015 ended on June 26 and June 30, respectively.
Executive Overview
Company Description. We are a global medical device company focused on extremities and biologics products. We are committed to delivering innovative, value-added solutions improving quality of life for patients worldwide, and are a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics. Our product portfolio consists of the following product categories:
•
Upper extremities, which include joint implants and bone fixation devices for the shoulder, elbow, wrist, and hand;
•
Lower extremities, which include joint implants and bone fixation devices for the foot and ankle;

40

•
Biologics, which include products used to support treatment of damaged or diseased bone, tendons, and soft tissues or to stimulate bone growth; and
•
Sports medicine and other, which include products used across several anatomic sites to mechanically repair tissue-to-tissue or tissue-to-bone injuries and other ancillary products
Our global corporate headquarters are located in Amsterdam, the Netherlands. We also have significant operations located in Memphis, Tennessee (U.S. headquarters, research and development, sales and marketing administration, and administrative activities); Bloomington, Minnesota (upper extremities sales and marketing); Arlington, Tennessee (manufacturing and warehousing operations); Grenoble, France (manufacturing and research and development); and Macroom, Ireland (manufacturing). In addition, we have local sales and distribution offices in Canada, Australia, Asia, and throughout Europe.
We promote our products in over 50 countries with principal markets in the United States, Europe, the Middle East, Africa, Asia, Canada, Australia and Latin America. Our products are sold primarily through a network of employee sales representatives and independent sales representatives in the United States and by a combination of employee sales representatives, independent sales representatives and stocking distributors outside the United States.
Principal Products. We have focused our efforts into growing our position in the extremities and biologics markets. We believe a more active and aging patient population with higher expectations regarding “quality of life,” an increasing global awareness of extremities and biologics solutions, improved clinical outcomes as a result of the use of such products, technological advances resulting in specific designs for such products that simplify procedures and address unmet needs for early interventions, and the growing need for revisions and revision related solutions will drive the market for extremities and biologics products.
Our principal upper extremities products include the AEQUALIS ASCEND® and SIMPLICITI® total shoulder replacement systems, the AEQUALIS® REVERSED II™ reversed shoulder system, and the AEQUALIS ASCEND® FLEX™ convertible shoulder system. The SIMPLICITI® is the first minimally invasive, ultra-short stem total shoulder that has been available in certain international markets for a couple of years, but was commercially launched by legacy Tornier on a limited focused basis in the United States late in the second quarter of 2015, after receipt of FDA 510(k) clearance in March 2015. Our principal lower extremities products include the INBONE® and INFINITY® Total Ankle Replacement Systems. We expect to commercially launch our most recent total ankle replacement product, the INVISION™ Total Ankle Revision System, in 2016. Our biologic products use both biological tissue-based and synthetic materials to allow the body to regenerate damaged or diseased bone and to repair damaged or diseased soft tissue. These products aid the body’s natural regenerative capabilities to heal itself, minimizing or delaying the need for invasive implant surgery. The newest addition to our biologics product portfolio is AUGMENT® Bone Graft, which is based on recombinant human platelet-derived growth factor (rhPDGF-BB), a synthetic copy of one of the body’s principal healing agents. FDA approval of AUGMENT® Bone Graft in the United States for ankle and/or hindfoot fusion indications occurred during the third quarter of 2015. Prior to FDA approval, this product was available for sale in Canada for foot and ankle fusion indications and in Australia and New Zealand for hindfoot and ankle fusion indications.
Supplemental Non-GAAP Pro Forma Information. Due to the significance of the legacy Tornier business that is not included in our results of operations for the three and six months ended June 30, 2015 and to supplement our consolidated financial statements prepared in accordance with US GAAP, we use certain non-GAAP financial measures, including combined pro forma net sales. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. See tables below for a reconciliation of our non-GAAP combined pro forma net sales for the three and six months ended June 30, 2015.
Significant Quarterly Business Developments.
In May 2016, we issued new convertible debt, resulting in net cash proceeds of approximately $237.5 million (including the settlement and issuance of associated hedging transactions, and the exchange of certain previously outstanding convertible debt). See Note 6 and Note 9 to our condensed consolidated financial statements for additional information regarding these transactions.
During the second quarter of 2016, our Board of Directors approved a plan to divest legacy Tornier's Large Joints business, and on July 11, 2016, we announced the receipt of a binding offer under which Corin provided us a binding promise to purchase substantially all of the assets related to our Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer. All historical operating results for the Large Joints business, including costs associated with corporate employees and infrastructure to be transferred as a part of the sale, are reflected within discontinued operations in the condensed consolidated statements of operations. Further, all assets and associated liabilities to be transferred

41

to Corin were classified as assets and liabilities held for sale in our unaudited condensed consolidated balance sheet for all periods presented. Following this classification to assets and liabilities held for sale, we recorded a $21.9 million impairment loss within net loss from discontinued operations for the excess of the net carrying value of the assets and liabilities held for sale over the purchase price less estimated adjustments and costs to sell.
During the second and early third quarters of 2016, we believe we made meaningful progress toward resolution of the legacy Wright metal-on-metal hip litigation and the related insurance litigation. In June 2016, we reached a confidential settlement in principle with a subgroup of three insurance carriers.  Settlement discussions with the remaining insurance carriers continue.  In July 2016, we and the plaintiffs continued with ongoing mediation discussions. As a result of the July discussions, we established a reasonably possible loss range applicable to a substantial portion of revision cases of $150 million to $198 million, net of expected recoveries from the insurance settlement.  Accordingly, we have recognized a $150 million charge within discontinued operations in the accompanying condensed consolidated statement of operations.  Settlement discussions with the plaintiffs continue. We are continuing to actively work toward our goal of securing a global settlement, although this is complex and subject to significant uncertainties, which makes the ultimate outcome and precise timing difficult to predict. See Note 13 to our condensed consolidated financial statements for additional discussion.
Net sales increased 112% totaling $171 million in the second quarter of 2016, compared to $80 million in the second quarter of 2015, primarily due to the impact of the Wright/Tornier merger. Net sales in the second quarter of 2016 increased 14% as compared to second quarter 2015 non-GAAP combined pro forma net sales (pro forma net sales), primarily driven by 16% growth in our U.S. businesses.
Our U.S. net sales increased $64 million or 109% in the second quarter of 2016 as compared to the second quarter of 2015, primarily due to the impact of the Wright/Tornier merger. Our U.S. sales in the second quarter of 2016 increased 16% as compared to second quarter 2015 combined pro forma net sales, driven by the continued success of our INFINITY® total ankle replacement system, and the ongoing rollouts of the SIMPLICITI® shoulder system, AEQUALIS ASCEND® FLEXTM convertible shoulder system and our AUGMENT® Bone Graft product. 
Our international extremities and biologics net sales increased $27 million or 121% in the second quarter of 2016 as compared to the second quarter of 2015, primarily due to the impact of the Wright/Tornier merger. Our international extremities and biologics net sales in the second quarter of 2016 increased 9% as compared to second quarter 2015 combined pro forma net sales, driven primarily by 9% growth in our European direct markets, 14% growth in Canada, and 10% growth in Australia, partially offset by a $0.4 million unfavorable impact from foreign currency exchange rates.
In the second quarter of 2016, our net loss from continuing operations totaled $42.0 million, compared to a net loss from continuing operations of $37.3 million for the second quarter of 2015. This increase in net loss from continuing operations was primarily driven by:
•
$21.0 million of incremental Corporate expenses, primarily due to expenses from the acquired Tornier business;
•
$10.4 million of incremental amortization of the inventory step-up fair value adjustment associated with the Wright/Tornier merger; and
•
$6.1 million decrease in other (income) expense, net, primarily driven by changes in fair value adjustments associated with derivative assets and liabilities and CVRs, as well as write-offs of unamortized debt discount and deferred financing charges associated with the portion of the 2017 Notes and 2020 Notes that were extinguished.
These were offset by favorable changes in segment operating income, driven primarily by:
•
$15.1 million increase in profitability of our U.S. Upper Extremities segment driven almost entirely by the acquired Tornier business;
•
$11.9 million increase in profitability of our U.S. Lower Extremities and Biologics segment driven by leverage on increased sales, as operating expenses grew at a lower rate than net sales; and
•
$4.7 million increase in profitability of our International Extremities and Biologics segment primarily driven by the acquired Tornier business.
Opportunities and Challenges. With the completion of the Wright/Tornier merger, we believe we are now well positioned and committed to accelerating growth in our extremities and biologics business. We intend to leverage the global strengths of both the legacy Wright and legacy Tornier product brands as a pure-play extremities and biologics business. We believe our leadership will be further enhanced by the recent FDA approval of AUGMENT® Bone Graft, a biologic solution that adds additional depth to one of the most comprehensive extremities product portfolios in the industry, as well as provides a platform technology for future new product development. The highly complementary nature of legacy Wright’s and legacy Tornier’s businesses has given us significant diversity and scale across a range of geographies and product categories. We believe we are differentiated in the marketplace by

42

our strategic focus on extremities and biologics, our full portfolio of upper and lower extremities and biologics products, and our specialized and focused sales organization.
We are highly focused on ensuring that during this integration period no business momentum is lost. Although we recognize that we will have revenue dis-synergies during the integration period, we believe we have an excellent opportunity to improve efficiency and leverage fixed costs in our business going forward.
While our ultimate financial goal is to achieve sustained profitability, in the short-term we anticipate continuing operating losses until we are able to grow our sales to a sufficient level to support our cost structure, including the inherent infrastructure costs of our industry.
Significant Industry Factors. Our industry is affected by numerous competitive, regulatory, and other significant factors. The growth of our business relies on our ability to continue to develop new products and innovative technologies, obtain regulatory clearance and maintain compliance for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture our products cost-effectively, respond to competitive pressures specific to each of our geographic markets, including our ability to enforce non-compete agreements, and successfully market and distribute our products in a profitable manner. We, and the entire industry, are subject to extensive governmental regulation, primarily by the FDA. Failure to comply with regulatory requirements could have a material adverse effect on our business, operating results, and financial condition. We, as well as other participants in our industry, are subject to product liability claims, which could have a material adverse effect on our business, operating results, and financial condition.

43

Results of Operations
During the second quarter of 2016, our Board of Directors approved a plan to divest the Large Joints business. On July 11, 2016, we announced the receipt of a binding offer under which Corin provided us a binding promise to purchase substantially all of the assets related to the Large Joints business. We determined that the Large Joints business meets the criteria for classification as discontinued operations. As such, the financial results of our Large Joints business have been reflected within discontinued operations for all periods presented and the discussion below is on a continuing operations basis, unless otherwise noted.
Comparison of the three months ended June 26, 2016 to the three months ended June 30, 2015
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands) and as percentages of net sales:
 
Three months ended
 
June 26, 2016
 
June 30, 2015
 
Amount
% of sales
 
Amount
% of sales
Net sales
$
170,716

100.0
 %
 
$
80,420

100.0
 %
Cost of sales 1,2
49,009

28.7
 %
 
21,635

26.9
 %
Gross profit
121,707

71.3
 %
 
58,785

73.1
 %
Operating expenses:
 
 

 
 
 

Selling, general and administrative 1
136,483

79.9
 %
 
82,605

102.7
 %
Research and development 1
12,108

7.1
 %
 
7,957

9.9
 %
Amortization of intangible assets
7,484

4.4
 %
 
2,565

3.2
 %
Total operating expenses
156,075

91.4
 %
 
93,127

115.8
 %
Operating loss
(34,368
)
(20.1
)%
 
(34,342
)
(42.7
)%
Interest expense, net
13,024

7.6
 %
 
10,959

13.6
 %
Other income, net
(2,061
)
(1.2
)%
 
(8,153
)
(10.1
)%
Loss from continuing operations before income taxes
(45,331
)
(26.6
)%
 
(37,148
)
(46.2
)%
(Benefit) provision for income taxes
(3,300
)
(1.9
)%
 
158

0.2
 %
Net loss from continuing operations
$
(42,031
)
(24.6
)%
 
$
(37,306
)
(46.4
)%
Loss from discontinued operations, net of tax
(187,329
)
 
 
(7,009
)
 
Net loss
$
(229,360
)
 
 
$
(44,315
)
 
__________________________
1 
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
 
Three months ended
 
June 26, 2016
% of sales
 
June 30, 2015
% of sales
Cost of sales
$
42

—
%
 
$
8

—
%
Selling, general and administrative
2,852

1.7
%
 
3,046

3.8
%
Research and development
162

0.1
%
 
290

0.4
%
2 Cost of sales includes amortization of inventory step-up adjustment of $10.4 million for the three months ended June 26, 2016.







44

The following table sets forth our net sales by product line for the periods indicated (in thousands) and the percentage of year-over-year change:
 
Three months ended
 
June 26, 2016
 
June 30, 2015
 
% change
U.S.
 
 
 
 
 
Lower extremities
$
52,008

 
$
42,360

 
22.8
 %
Upper extremities
49,909

 
4,175

 
1,095.4
 %
Biologics
17,792

 
11,281

 
57.7
 %
Sports med & other
2,164

 
454

 
376.7
 %
Total U.S.
$
121,873

 
$
58,270

 
109.2
 %
 
 
 
 
 
 
International
 
 
 
 
 
Lower extremities
$
16,241

 
$
12,600

 
28.9
 %
Upper extremities
23,940

 
2,042

 
1,072.4
 %
Biologics
4,867

 
5,318

 
(8.5
)%
Sports med & other
3,795

 
2,190

 
73.3
 %
Total International
$
48,843

 
$
22,150

 
120.5
 %
 
 
 
 
 
 
Total net sales
$
170,716

 
$
80,420

 
112.3
 %
The results of operations discussion that appears below has been presented utilizing a combination of historical unaudited and, where relevant, non-GAAP combined pro forma unaudited information to include the effects on our consolidated financial statements of our acquisition of Tornier, as if we had acquired Tornier as of January 1, 2015. The combined pro forma net sales have been adjusted to reflect a combination of the historical results of operations of Tornier, as adjusted to reflect the effect on our combined net sales of incremental revenues that would have been recognized had Tornier been acquired on January 1, 2015. The combined pro forma net sales have been developed based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Wright/Tornier merger.
The pro forma financial data is not necessarily indicative of results of operations that would have occurred had the Wright/Tornier merger been consummated at the beginning of the period presented or which might be attained in the future.

45


The following table reconciles our non-GAAP combined pro forma net sales by product line for the three months ended June 30, 2015 (in thousands):
 
Three months ended
June 30, 2015
 
 
Standalone Wright Medical Group, Inc.
 
Standalone Tornier N.V., recast 1
 
Discontinued
revenues 2
 
Non-GAAP
combined pro forma
net sales
U.S.
 
 
 
 
 
 
 
Lower extremities
$
42,360

 
$
9,518

 
$
(2,930
)
 
$
48,948

Upper extremities
4,175

 
38,525

 
—

 
42,700

Biologics
11,281

 
415

 
—

 
11,696

Sports med & other
454

 
1,606

 
—

 
2,060

Total extremities & biologics
58,270

 
50,064

 
(2,930
)
 
105,404

Large joint
—

 
40

 
(40
)
 
—

Total U.S.
$
58,270

 
$
50,104

 
$
(2,970
)
 
$
105,404

 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
Lower extremities
$
12,600

 
$
2,525

 
$
—

 
$
15,125

Upper extremities
2,042

 
18,316

 
—

 
20,358

Biologics
5,318

 
127

 
—

 
5,445

Sports med & other
2,190

 
1,684

 
—

 
3,874

Total extremities & biologics
22,150

 
22,652

 
—

 
44,802

Large joint
—

 
10,465

 
(10,465
)
 
—

Total International
$
22,150

 
$
33,117

 
$
(10,465
)
 
$
44,802

 
 
 
 
 
 
 
 
Global
 
 
 
 
 
 
 
Lower extremities
$
54,960

 
$
12,043

 
$
(2,930
)
 
$
64,073

Upper extremities
6,217

 
56,841

 
—

 
63,058

Biologics
16,599

 
542

 
—

 
17,141

Sports med & other
2,644

 
3,290

 
—

 
5,934

Total extremities & biologics
80,420

 
72,716

 
(2,930
)
 
150,206

Large joint
—

 
10,505

 
(10,505
)
 
—

Total sales
$
80,420

 
$
83,221

 
$
(13,435
)
 
$
150,206

___________________________
1 
Legacy Tornier product line sales have been recast to reflect the reclassification of cement, instruments and freight from the historical Tornier product line "Large Joints and Other" to the product line associated with those revenues that will be utilized for future revenue reporting.
2 
To reduce from Tornier’s historical sales the U.S. sales associated with Tornier’s Salto Talaris and Salto XT ankle replacement products and silastic toe replacement products and the global sales associated with Tornier's Large Joints business.

46

The following table sets forth our 2016 net sales growth rates by product line as compared to our 2015 non-GAAP combined pro forma net sales for the periods indicated (in thousands) and the percentage of year-over-year change:
 
Net sales
Three months ended
June 26, 2016
 
Non-GAAP combined pro forma net sales
Three months ended
June 30, 2015
 
%
change
U.S.
 
 
 
 
 
Lower extremities
$
52,008

 
$
48,948

 
6.3
 %
Upper extremities
49,909

 
42,700

 
16.9
 %
Biologics
17,792

 
11,696

 
52.1
 %
Sports med & other
2,164

 
2,060

 
5.0
 %
Total U.S.
$
121,873

 
$
105,404

 
15.6
 %
 
 
 
 
 
 
International
 
 
 
 
 
Lower extremities
$
16,241

 
$
15,125

 
7.4
 %
Upper extremities
23,940

 
20,358

 
17.6
 %
Biologics
4,867

 
5,445

 
(10.6
)%
Sports med & other
3,795

 
3,874

 
(2.0
)%
Total International
$
48,843

 
$
44,802

 
9.0
 %
 
 
 
 
 
 
Global
 
 
 
 
 
Lower extremities
$
68,249

 
$
64,073

 
6.5
 %
Upper extremities
73,849

 
63,058

 
17.1
 %
Biologics
22,659

 
17,141

 
32.2
 %
Sports med & other
5,959

 
5,934

 
0.4
 %
Total sales
$
170,716

 
$
150,206

 
13.7
 %
Net sales
U.S. Sales. U.S. net sales totaled $121.9 million in the second quarter of 2016, a 109% increase from $58.3 million in the second quarter of 2015, primarily due to the impact of the Wright/Tornier merger. U.S. net sales in the second quarter of 2016 increased 16% as compared to second quarter 2015 pro forma net sales. U.S. sales represented approximately 71% of total net sales in the second quarter of 2016, compared to 72% of total net sales in the second quarter of 2015.
Our U.S. lower extremities net sales increased to $52.0 million in the second quarter of 2016 from $42.4 million in the second quarter of 2015, representing growth of 23%, driven by continued growth in legacy Wright's lower extremities business, as well as the impact of the Wright/Tornier merger. Our U.S. lower extremities net sales grew 6% in the second quarter of 2016 as compared to second quarter 2015 pro forma net sales. This pro forma net sales growth was driven by 33% net sales growth in our total ankle replacement products, partially offset by a continued decline in sales of legacy Tornier foot and ankle systems due to sales dis-synergies that the legacy Tornier business experienced prior to the closing of the merger.
Our U.S. upper extremities net sales increased to $49.9 million in the second quarter of 2016 from $4.2 million in the second quarter of 2015, representing growth of 1,095%. This growth was driven almost entirely by the impact of the Wright/Tornier merger. Our U.S. upper extremities net sales grew 17% in the second quarter of 2016 as compared to second quarter 2015 pro forma net sales. This pro forma growth was driven by continued success of our AEQUALIS ASCEND® shoulder products, including the AEQUALIS ASCEND® FLEXTM convertible shoulder system, as well as sales from our recently launched SIMPLICITI® shoulder system.
Our U.S. biologics net sales totaled $17.8 million in the second quarter of 2016, representing a 58% increase over the second quarter of 2015. Our U.S. biologics net sales grew 52% in the second quarter of 2016 as compared to second quarter 2015 pro forma net sales, primarily driven by sales of recently launched biologic products, including AUGMENT® Bone Graft, which was commercially launched in the fourth quarter of 2015.

47

International Sales. Net sales of our extremities and biologics products in our international regions totaled $48.8 million in the second quarter of 2016, a 121% increase from $22.2 million in the second quarter of 2015, primarily due to the impact of the Wright/Tornier merger, as growth in the legacy Wright business was mostly offset by unfavorable foreign currency exchange rates. Our international extremities and biologics net sales in the second quarter of 2016 increased 9% as compared to second quarter 2015 pro forma net sales, and included a $0.4 million unfavorable impact from foreign currency exchange rates (a 1 percentage point unfavorable impact to pro forma sales growth rate).
Our international lower extremities net sales increased 29% to $16.2 million in the second quarter of 2016. Our international lower extremities sales grew 7% in the second quarter of 2016 as compared to second quarter 2015 pro forma net sales, primarily driven by an 11% increase in sales in our direct markets in Europe and a 12% increase in sales in Australia. These increased sales were partially offset by a $0.2 million unfavorable impact from foreign currency exchange rates (a 2 percentage point unfavorable impact to pro forma international lower extremities sales growth rate).
Our international upper extremities net sales increased 1,072% to $23.9 million in the second quarter of 2016 from $2.0 million in the second quarter of 2015, driven entirely by the impact of Wright/Tornier merger. Our international upper extremities net sales grew 18% in the second quarter of 2016 as compared to second quarter 2015 pro forma net sales, driven by a 49% increase in sales to our stocking distributors, partially offset by a $0.1 million unfavorable impact from foreign currency exchange rates (less than 1 percentage point unfavorable impact to pro forma international upper extremities net sales growth rate).
Our international biologics net sales decreased 9% to $4.9 million in the second quarter of 2016 from $5.3 million in the second quarter of 2015. On a pro forma basis, our international biologics net sales decreased 11% in the second quarter of 2016 as compared to the second quarter of 2015. This pro forma decrease in international biologics net sales was primarily attributable to lower levels of sales to stocking distributors, as well as a $0.2 million unfavorable impact from foreign currency exchange rates (a 3 percentage point unfavorable impact to pro forma international biologics sales growth rate), which was partially offset by a 20% increase in Australia driven by increased volume associated with our Augment® products.
Cost of sales
Our cost of sales totaled $49.0 million, or 28.7% of net sales, in the second quarter of 2016, compared to $21.6 million, or 26.9% of net sales, in the second quarter of 2015, representing an increase of 1.8 percentage points as a percentage of net sales. This increase was primarily driven by $10.4 million (6.1% of net sales) of inventory step-up amortization in the second quarter of 2016 associated with inventory acquired from the Wright/Tornier merger, as well as a $2.0 million (1.1% of net sales) provision for excess and obsolete inventory associated product rationalization initiatives, which were mostly offset by favorable absorption of fixed manufacturing expenses and favorable geographic mix.
We anticipate we will continue to record inventory step-up amortization through the end of 2016.
Selling, general and administrative
As a percentage of net sales, selling, general and administrative expenses decreased to 79.9% in the second quarter of 2016, from 102.7% in the second quarter of 2015. The decrease in selling, general and administrative expenses as a percentage of sales was driven primarily by leveraged spending in our U.S. lower extremities segment as expense grew at a significantly lower rate than sales, the addition of the legacy Tornier U.S. upper extremities business with a lower percentage of selling, general and administrative expenses as a percentage of net sales than legacy Wright, and lower levels of corporate spending as a percentage of net sales following the Wright/Tornier merger.
Research and development
Our research and development expense totaled $12.1 million in the second quarter of 2016 compared to $8.0 million in the same quarter of 2015. This increase was almost entirely due to $3.9 million of additional research and development expenses associated with the acquired Tornier business in the second quarter of 2016.
Amortization of intangible assets
Charges associated with amortization of intangible assets totaled $7.5 million in the second quarter of 2016, compared to $2.6 million in the second quarter of 2015. This increase was driven by amortization of intangible assets acquired as part of the Wright/Tornier merger. Based on intangible assets held at June 26, 2016, we expect amortization expense to be approximately $28.6 million for the full year of 2016, $26.5 million in 2017, $21.5 million in 2018, $19.8 million in 2019, and $19.1 million in 2020.
Interest expense, net
Interest expense, net, totaled $13.0 million in the second quarter of 2016 and $11.0 million in the second quarter of 2015. Increased interest expense was driven by the increase in debt outstanding following the issuance of the 2021 Notes in the second quarter of 2016, offset by approximately $0.8 million of interest income following the resolution of an IRS tax audit. Our interest expense in the second quarter of 2016 related primarily to non-cash interest expense associated with the amortization of the discount on the 2021 Notes, 2020 Notes and 2017 Notes of $1.4 million, $6.6 million and $0.4 million, respectively; amortization of deferred

48

financing charges on the 2021 Notes, 2020 Notes, and 2017 Notes totaling $0.9 million; and cash interest expense on the 2021 Notes, 2020 Notes, and 2017 Notes totaling $4.2 million. Our interest expense in the second quarter of 2015 related primarily to non-cash interest expense associated with the amortization of the discount on the 2020 Notes and 2017 Notes of $6.1 million and $0.5 million, respectively, non-cash interest expense associated with the amortization of deferred financing charges on the 2020 Notes and 2017 Notes totaling $0.8 million, as well as cash interest expense primarily associated with the coupon on the 2020 Notes and 2017 Notes totaling $3.5 million.
Other income, net
Other income, net totaled $2.1 million of income in the second quarter of 2016, compared to $8.2 million of income in the same period of 2015. In the second quarter of 2016, other income, net included a gain of $16.6 million for the net mark-to-market adjustments on and settlements of our derivative assets and liabilities. This gain was partially offset by an unrealized loss of $1.4 million for the mark-to-market adjustment on CVRs issued in connection with the acquisition of BioMimetic and a $12.3 million charge for the write-off of unamortized deferred financing fees and debt discount associated with the extinguishment of $45 million of the 2020 Notes and $58 million of the 2017 Notes. In the second quarter of 2015,  other income, net primarily consisted of an unrealized gain of $8.4 million for the mark-to-market adjustment on CVRs issued in connection with the acquisition of BioMimetic. 
(Benefit)/provision for income taxes
We recorded a tax benefit of $3.3 million in the second quarter of 2016 and a provision of $0.2 million in the second quarter of 2015. For the second quarter of 2016, we recognized a $2.3 million tax benefit related to the resolution of an IRS tax audit. The remaining tax benefits primarily related to losses in jurisdictions where we do not have a valuation allowance.
Loss from discontinued operations, net of tax
Loss from discontinued operations, net of tax, consists of the operating results for the Large Joints business that was approved to be disposed of by sale to Corin, the impairment loss on the Large Joints assets held for sale, as well as the costs associated with legal defense, income/loss associated with product liability insurance recoveries/denials, and changes to any contingent liabilities associated with the OrthoRecon business that was sold to MicroPort. During the second quarter of 2016, we recognized a $150 million charge as the low-end of a reasonably possible loss range for certain retained metal-on-metal product liability claims associated with the OrthoRecon business (see Note 13 to our condensed consolidated financial statements for further discussion). See Note 4 to our condensed consolidated financial statements for further discussion of our discontinued operations.


49

Comparison of the six months ended June 26, 2016 to the six months ended June 30, 2015
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts (in thousands) and as percentages of net sales:
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
Amount
% of sales
 
Amount
% of sales
Net sales
$
340,007

100.0
 %
 
$
158,354

100.0
 %
Cost of sales 1,2
95,675

28.1
 %
 
40,760

25.7
 %
Gross profit
244,332

71.9
 %
 
117,594

74.3
 %
Operating expenses:
 

 
 

Selling, general and administrative 1
271,229

79.8
 %
 
164,804

104.1
 %
Research and development 1
24,224

7.1
 %
 
15,074

9.5
 %
Amortization of intangible assets
13,941

4.1
 %
 
5,179

3.3
 %
Total operating expenses
309,394

91.0
 %
 
185,057

116.9
 %
Operating loss
(65,062
)
(19.1
)%
 
(67,463
)
(42.6
)%
Interest expense, net
24,878

7.3
 %
 
18,608

11.8
 %
Other (income) expense, net
(3,129
)
(0.9
)%
 
(2,841
)
(1.8
)%
Loss from continuing operations before income taxes
(86,811
)
(25.5
)%
 
(83,230
)
(52.6
)%
(Benefit) provision for income taxes
(4,588
)
(1.3
)%
 
324

0.2
 %
Net loss from continuing operations
$
(82,223
)
(24.2
)%
 
$
(83,554
)
(52.8
)%
Loss from discontinued operations, net of tax
(195,135
)
 
 
(10,509
)
 
Net loss
$
(277,358
)
 
 
$
(94,063
)
 
___________________________
1 
These line items include the following amounts of non-cash, share-based compensation expense for the periods indicated:
 
Six months ended
 
June 26, 2016
% of sales
 
June 30, 2015
% of sales
Cost of sales
$
175

0.1
%
 
$
11

—
%
Selling, general and administrative
5,902

1.7
%
 
5,118

3.2
%
Research and development
296

0.1
%
 
552

0.3
%
2 Cost of sales includes amortization of inventory step-up adjustment of $20.6 million for the six months ended June 26, 2016.


50

The following table sets forth our net sales by product line for the periods indicated (in thousands) and the percentage of year-over-year change:
 
Six months ended
 
June 26, 2016
 
June 30, 2015
 
% change
U.S.
 
 
 
 
 
Lower extremities
$
107,286

 
$
84,348

 
27.2
 %
Upper extremities
99,910

 
8,049

 
1,141.3
 %
Biologics
34,920

 
22,414

 
55.8
 %
Sports med & other
4,301

 
945

 
355.1
 %
Total U.S.
$
246,417

 
$
115,756

 
112.9
 %
 
 
 
 
 
 
International
 
 
 
 
 
Lower extremities
$
31,783

 
$
24,396

 
30.3
 %
Upper extremities
44,915

 
3,959

 
1,034.5
 %
Biologics
9,065

 
9,810

 
(7.6
)%
Sports med & other
7,827

 
4,433

 
76.6
 %
Total International
$
93,590

 
$
42,598

 
119.7
 %
 
 
 
 
 


Total net sales
$
340,007

 
$
158,354

 
114.7
 %
The results of operations discussion that appears below has been presented utilizing a combination of historical unaudited and, where relevant, non-GAAP pro forma unaudited information to include the effects on our consolidated financial statements of our acquisition of Tornier, as if we had acquired Tornier as of January 1, 2015. The combined pro forma net sales have been adjusted to reflect a combination of the historical results of operations of Tornier, as adjusted to reflect the effect on our combined net sales of incremental revenues that would have been recognized had Tornier been acquired on January 1, 2015. The combined pro forma net sales have been developed based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Wright/Tornier merger.
The pro forma financial data is not necessarily indicative of results of operations that would have occurred had the Wright/Tornier merger been consummated at the beginning of the period presented or which might be attained in the future.

51


The following table reconciles our non-GAAP combined pro forma net sales by product line for the six months ended June 30, 2015 (in thousands):
 
Six months ended
June 30, 2015
 
 
Standalone Wright Medical Group, Inc.
 
Standalone Tornier N.V., recast 1
 
Discontinued
revenues 2
 
Non-GAAP
combined pro forma
net sales
U.S.
 
 
 
 
 
 
 
Lower extremities
$
84,348

 
$
20,961

 
$
(6,827
)
 
$
98,482

Upper extremities
8,049

 
77,938

 
—

 
85,987

Biologics
22,414

 
878

 
—

 
23,292

Sports med & other
945

 
3,211

 
—

 
4,156

Total extremities & biologics
115,756

 
102,988

 
(6,827
)
 
211,917

Large joint
—

 
86

 
(86
)
 
—

Total U.S.
$
115,756

 
$
103,074

 
$
(6,913
)
 
$
211,917

 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
Lower extremities
$
24,396

 
$
5,127

 
$
—

 
$
29,523

Upper extremities
3,959

 
36,431

 
—

 
40,390

Biologics
9,810

 
243

 
—

 
10,053

Sports med & other
4,433

 
3,867

 
—

 
8,300

Total extremities & biologics
42,598

 
45,668

 
—

 
88,266

Large joint
—

 
22,571

 
(22,571
)
 
—

Total International
$
42,598

 
$
68,239

 
$
(22,571
)
 
$
88,266

 
 
 
 
 
 
 
 
Global
 
 
 
 
 
 
 
Lower extremities
$
108,744

 
$
26,088

 
$
(6,827
)
 
$
128,005

Upper extremities
12,008

 
114,369

 
—

 
126,377

Biologics
32,224

 
1,121

 
—

 
33,345

Sports med & other
5,378

 
7,078

 
—

 
12,456

Total extremities & biologics
158,354

 
148,656

 
(6,827
)
 
300,183

Large joint
—

 
22,657

 
(22,657
)
 
—

Total sales
$
158,354

 
$
171,313

 
$
(29,484
)
 
$
300,183

___________________________
1 
Legacy Tornier product line sales have been recast to reflect the reclassification of cement, instruments and freight from the historical Tornier product line "Large Joints and Other" to the product line associated with those revenues that will be utilized for future revenue reporting.
2 
To reduce from Tornier’s historical sales the U.S. sales associated with Tornier’s Salto Talaris and Salto XT ankle replacement products and silastic toe replacement product, and the global sales associated with Tornier's Large Joints business.

52

The following table sets forth our 2016 net sales growth rates by product line as compared to our 2015 non-GAAP combined pro forma net sales for the periods indicated (in thousands) and the percentage of year-over-year change:
 
Net sales
Six months ended
June 26, 2016
 
Non-GAAP combined pro forma net sales
six months ended
June 30, 2015
 
%
change
U.S.
 
 
 
 
 
Lower extremities
$
107,286

 
$
98,482

 
8.9
 %
Upper extremities
99,910

 
85,987

 
16.2
 %
Biologics
34,920

 
23,292

 
49.9
 %
Sports med & other
4,301

 
4,156

 
3.5
 %
Total U.S.
$
246,417

 
$
211,917

 
16.3
 %
 
 
 
 
 


International
 
 
 
 


Lower extremities
$
31,783

 
$
29,523

 
7.7
 %
Upper extremities
44,915

 
40,390

 
11.2
 %
Biologics
9,065

 
10,053

 
(9.8
)%
Sports med & other
7,827

 
8,300

 
(5.7
)%
Total international
$
93,590

 
$
88,266

 
6.0
 %
 
 
 
 
 


Global
 
 
 
 


Lower extremities
$
139,069

 
$
128,005

 
8.6
 %
Upper extremities
144,825

 
126,377

 
14.6
 %
Biologics
43,985

 
33,345

 
31.9
 %
Sports med & other
12,128

 
12,456

 
(2.6
)%
Total sales
$
340,007

 
$
300,183

 
13.3
 %
Net sales
U.S. Sales. U.S. net sales totaled $246.4 million in the first six months of 2016, a 113% increase from $115.8 million in the first six months of 2015, primarily due to the impact of the Wright/Tornier merger. U.S. net sales in the first six months of 2016 increased 16% as compared to the first six months of 2015 pro forma net sales. U.S. sales represented approximately 72% of total net sales in the first six months of 2016, compared to 73% of total net sales in the first six months of 2015.
International Sales. International net sales totaled $93.6 million in the first six months of 2016, a 120% increase from $42.6 million in the first six months of 2015, primarily due to the impact of the Wright/Tornier merger. Our international extremities and biologics net sales in the first six months of 2016 increased 6% as compared to the first six months of 2015 pro forma net sales, and included a $2.1 million unfavorable impact from foreign currency exchange rates (a 2 percentage point unfavorable impact to pro forma sales growth rate).
Cost of sales
Our cost of sales as a percentage of net sales increased to 28.1% in the first six months of 2016, as compared to 25.7% in the first six months of 2015. This increase was primarily driven by $20.6 million (6.0% of net sales) of inventory step-up amortization in the first six months of 2016 associated with inventory acquired from the Wright/Tornier merger, as increased provisions for excess and obsolete inventory and inventory losses were more than offset by favorable absorption of fixed manufacturing expenses.
Operating expenses
As a percentage of net sales, operating expenses decreased to 91.0% in the first six months of 2016, compared to 116.9% in the first six months of 2015. This decrease was driven primarily by the decrease in spending on due diligence, transition and transaction costs, which were higher in the first six months of 2015 due to the then pending Wright/Tornier merger, as well as leveraging of corporate expenses following the merger.

53

(Benefit)/provision for income taxes
We recorded an income tax benefit of $4.6 million in the first six months of 2016, compared to a tax provision of $0.3 million in the first six months of 2015. Our 2016 tax benefit includes a $2.3 million tax benefit related to the resolution of an IRS tax audit, as well as benefits primarily related to losses in jurisdictions where we do not have a valuation allowance.
Loss from discontinued operations, net of tax
Loss from discontinued operations, net of tax, consists of the operating results for the Large Joints business that was approved to be disposed of by sale to Corin, the impairment loss on the Large Joints assets held for sale, as well as the costs associated with legal defense, income/loss associated with product liability insurance recoveries/denials, and changes to any contingent liabilities associated with the OrthoRecon business that was sold to MicroPort. During the second quarter of 2016, we recognized a $150 million charge as the low-end of a reasonably possible loss range for certain retained metal-on-metal product liability claims associated with the OrthoRecon business (see Note 13 to our condensed consolidated financial statements for further discussion). See Note 4 to our condensed consolidated financial statements for further discussion of our discontinued operations.

Reportable Segments
The following tables set forth, for the periods indicated, net sales and operating income (loss) of our reportable segments expressed as dollar amounts (in thousands) and as a percentage of net sales:
 
Three Months Ended
June 26, 2016
 
U.S. Lower Extremities
& Biologics
 
U.S. Upper Extremities
 
International Extremities
& Biologics
Net sales
$
70,645

 
$
51,228

 
$
48,843

Operating income
$
18,968

 
$
16,849

 
$
2,208

Operating income as a percent of net sales
26.8
%
 
32.9
%
 
4.5
%
 
Three Months Ended
June 30, 2015
 
U.S. Lower Extremities
& Biologics
 
U.S. Upper Extremities
 
International Extremities
& Biologics
Net sales
$
54,096

 
$
4,174

 
$
22,150

Operating income (loss)
$
7,111

 
$
1,763

 
$
(2,443
)
Operating income (loss) as a percent of net sales
13.1
%
 
42.2
%
 
(11.0
)%
 
Six Months Ended
June 26, 2016
 
U.S. Lower Extremities
& Biologics
 
U.S. Upper Extremities
 
International Extremities
& Biologics
Net sales
$
143,905

 
$
102,512

 
$
93,590

Operating income
$
39,833

 
$
34,135

 
$
3,785

Operating income as a percent of net sales
27.7
%
 
33.3
%
 
4.0
%
 
Six Months Ended
June 30, 2015
 
U.S. Lower Extremities
& Biologics
 
U.S. Upper Extremities
 
International Extremities
& Biologics
Net sales
$
107,708

 
$
8,048

 
$
42,598

Operating income (loss)
$
11,950

 
$
3,376

 
$
(5,098
)
Operating income (loss) as a percent of net sales
11.1
%
 
41.9
%
 
(12.0
)%

54

Operating income of our U.S. lower extremities and biologics segment increased $11.9 million and $27.9 million for the three and six months ended June 26, 2016, respectively, as compared to the three and six months ended June 30, 2015, respectively. This increase was driven by leveraging expenses, as sales increased at a higher rate than operating expenses.
Operating income of our U.S. upper extremities segment increased $15.1 million and $30.8 million for the three and six months ended June 26, 2016, respectively, as compared to the three and six months ended June 30, 2015, respectively. This increase was driven almost entirely by the acquired Tornier business.
Operating income of our International extremities and biologics segment increased $4.7 million and $8.9 million for the three and six months ended June 26, 2016, respectively, as compared to the three and six months ended June 30, 2015, respectively. This increase was primarily driven by the acquired Tornier business.
See “Results of Operations-Comparison of the three months ended June 26, 2016 to the three months ended June 30, 2015-Net sales”  and "Results of Operations-Comparison of the six months ended June 26, 2016 to the six months ended June 30, 2015 -Net sales" for a discussion of the various factors impacting the net sales of our reporting segments for the three and six months ended June 26, 2016 compared to the three and six months ended June 30, 2015.

Liquidity and Capital Resources
The following table sets forth, for the periods indicated, certain liquidity measures (in thousands):
 
June 26, 2016
 
December 27, 2015
Cash and cash equivalents
$
326,251

 
$
139,804

Working capital
385,162

 
352,946

Cash and cash equivalents and working capital increased due to the convertible debt activities in the second quarter of 2016. See Note 9 for additional discussion of these activities.
Operating Activities. Cash used in operating activities totaled $23.3 million and $51.0 million in the first six months of 2016 and 2015, respectively. The decrease in cash used in operating activities in the first six months of 2016 compared to the first six months of 2015 was due to improved cash profitability, partially offset by unfavorable changes in working capital due to timing of payments for accrued liabilities.
Investing Activities. Our capital expenditures totaled $24.8 million and $25.8 million in the first six months of 2016 and 2015, respectively. Historically, our capital expenditures have consisted principally of surgical instrumentation, purchased manufacturing equipment, research and testing equipment, and computer systems. We expect to incur capital expenditures of approximately $43 million in 2016.
Financing Activities. During the first six months of 2016, cash provided by financing activities totaled $238.0 million, compared to $276.3 million in the six months of 2015. The cash provided by financing activities in both periods is primarily attributable to the proceeds received from the issuance of convertible notes, partially offset by the partial settlement of previously outstanding convertible notes (see Note 6 to our condensed consolidated financial statements for further discussion).
We provide for tax liabilities in our financial statements with respect to amounts that we expect to repatriate from subsidiaries (to the extent the repatriation would be subject to tax); however, no tax liabilities are recorded for amounts that we consider to be permanently reinvested. Our current plans do not foresee a need to repatriate funds that are designated as permanently reinvested in order to fund our operations or meet currently anticipated liquidity and capital investment needs.
Discontinued Operations. Cash flows from discontinued operations are combined with cash flows from continuing operations in the consolidated statements of cash flows. During the first six months of 2016 and 2015, cash used in discontinued operations was approximately $15.8 million and $8.8 million, respectively, for legal defense costs and settlement of product liabilities associated with our former OrthoRecon operations, partially offset in 2016 by $4.1 million of cash provided by operations of the Large Joints business. We do not expect that the future cash outflows from discontinued operations, including the payment of retained liabilities of the OrthoRecon business, will have an impact on our ability to meet contractual cash obligations and fund our working capital requirements, operations, and anticipated capital expenditures.
In Process Research and Development. In connection with the BioMimetic acquisition, we acquired in-process research and development (IPRD) technology related to projects that had not yet reached technological feasibility as of the acquisition date, which included AUGMENT® Bone Graft, which was undergoing the FDA approval process, and AUGMENT® Injectable Bone Graft. FDA approval of AUGMENT® Bone Graft in the United States for ankle and/or hindfoot fusion indications was obtained during the third quarter of 2015. The acquisition date fair value of the IPRD technology was $27.1 million for AUGMENT® Injectable Bone Graft. The fair value of the IPRD technology was reduced to $0 as of December 31, 2014, which reflected the

55

impairment charges recognized in 2013 after receipt of the not approvable letter from the FDA in response to a PMA application for AUGMENT® Bone Graft for use as an alternative to autograft in hindfoot and ankle fusion procedures.
In connection with the Wright/Tornier merger, we acquired IPRD technology related to three projects that had not yet reached technological feasibility as of the merger date. These projects included PerFORM Rev/Rev+, AEQUALIS® Adjustable Reversed Ext (AARE) (re-branded in 2016 to AEQUALIS® Flex Revive), and PerFORM+ that were assigned fair values of $14.5 million, $2.1 million, and $0.4 million, respectively, on the acquisition date.
The current IPRD projects we acquired in our BioMimetic acquisition and the Wright/Tornier merger are as follows:
•
AUGMENT® Injectable Bone Graft (Augment Injectable) combines rhPDGF-BB with an injectable bone matrix, and is targeted to be used in either open (surgical) treatment of fusions and fractures or closed (non-surgical) or minimally invasive treatment of fractures. AUGMENT® Injectable can be injected into a fusion or fracture site during an open surgical procedure, or it can be injected through the skin into a fracture site, in either case locally delivering rhPDGF-BB to promote fusion or fracture repair. Our initial clinical development program for AUGMENT® Injectable has focused on securing regulatory approval for open indications in the United States and in several markets outside the United States. We currently estimate it could take one to three years to complete this project. We have incurred expenses of approximately $4.3 million for AUGMENT® Injectable since the date of acquisition and $0.3 million in the quarter ended June 26, 2016. We are currently evaluating future costs related to AUGMENT® Injectable following the recent FDA approval of AUGMENT®.
•
PerFORM Rev/Rev+ is a next-generation reverse construct which replaces the existing Reverse II Glenoid Product. PerFORM Reverse consists of new baseplate options, with various backside angles and thicknesses to address additional glenoid deformities, and also includes a new central fixation technology that is different than any other system in the market. Development of this product is in manufacturing validation stage. Pre-market release trials began in the first quarter of 2016. We achieved CE marking for PerFORM Reverse in the first quarter of 2016, and 510(k) clearance is anticipated to occur later in 2016. We have an anticipated completion date in 2017 and the cost to complete the project is estimated to be less than $1 million. However, the risks and uncertainties associated with completion are dependent upon FDA clearance.
•
AEQUALIS® Flex Revive (previously AEQUALIS® Adjustable Reversed Ext (AARE)) will ultimately be our second-generation revision product, with an improved implant that is convertible and addresses more indications, and a revamped instrument set that includes universal extraction instrumentation. The implants in this system are complete from a design standpoint, have regulatory approval, and are being sold using a previous generation of instrumentation in a limited capacity. The instruments for the new revision system are currently in design phase. We have an anticipated completion date in 2017 and project cost to complete is estimated to be less than $1 million. However, the risks and uncertainties associated with completion are dependent upon testing validations and FDA clearance.
Other Liquidity Information. We have historically funded our cash needs through various equity and debt issuances and through cash flow from operations.
In May 2016, we issued $395 million aggregate principal amount of the 2021 Notes, which, after consideration of the exchange of approximately $54 million principal amount of the 2017 Notes and $45 million principal amount of the 2020 Notes, generated net proceeds of approximately $237.5 million. In connection with the offering of the 2021 Notes, we entered into convertible note hedging transactions with two counterparties. We also entered into warrant transactions in which we sold stock warrants for an aggregate of 18.5 million ordinary shares to these two counterparties. We used approximately $45 million of the net proceeds from the offering to pay the cost of the convertible note hedging transactions (after such cost was partially offset by the proceeds we received from the sale of the warrants).
In February 2015, WMG issued $632.5 million of the 2020 Notes, which generated net proceeds of approximately $613 million. In connection with the offering of the 2020 Notes, WMG entered into convertible note hedging transactions with three counterparties. WMG also entered into warrant transactions in which WMG sold stock warrants for an aggregate of 20,489,142 shares of WMG common stock to these three counterparties. WMG used approximately $58 million of the net proceeds from the offering to pay the cost of the convertible note hedging transactions (after such cost was partially offset by the proceeds we received from the sale of the warrants). WMG also used approximately $292 million of the net proceeds from the offering to repurchase approximately $240 million aggregate principal amount of outstanding 2017 Notes in privately negotiated transactions.  On November 24, 2015, we entered into a supplemental indenture to the indenture governing the 2020 Notes which provided for, among other things, our full and unconditional guarantee, on a senior unsecured basis, of all of WMG's obligations relating to the 2020 Notes and to make certain other adjustments to the terms of the indenture to give effect to the Wright/Tornier merger. Also on November 24, 2015, we assumed the stock warrants initially issued by WMG in connection with the 2020 Note offering.

56

Although it is difficult for us to predict our future liquidity requirements, we believe that our cash balance of approximately $326.3 million as of June 26, 2016 will be sufficient for the next 12 months to fund our working capital requirements and operations, permit anticipated capital expenditures in 2016 of approximately $43 million, pay retained liabilities of the OrthoRecon business, and meet our anticipated contractual cash obligations in 2016. However, our future funding requirements will depend on many factors, including our future net sales and expenses.
In the event that we would require additional working capital to fund future operations, we could seek to acquire that through additional equity or debt financing arrangements which may or may not be available on favorable terms at such time. If we raise additional funds by issuing equity securities, our shareholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt, in addition to those under our existing indentures. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our shareholders. If we do not have, or are not able to obtain, sufficient funds, we may have to delay development or commercialization of our products or scale back our operations.
We intend to use our cash balance and any additional financing to fund integration costs associated with the Wright/Tornier merger, to fund growth opportunities for our extremities and biologics business, and to pay retained liabilities of the OrthoRecon business.

Critical Accounting Policies and Estimates
Information on judgments related to our most critical accounting policies and estimates is discussed in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" of our Annual Report on Form 10-K for the year ended December 27, 2015 filed with the SEC on February 23, 2016. Certain of our more critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. Actual results may differ from these judgments under different assumptions or conditions. Different, reasonable estimates could have been used for the current period. Additionally, changes in accounting estimates are reasonably likely to occur from period to period. Both of these factors could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.
There have been no material changes to our critical accounting policies and estimates discussed in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates" of our Annual Report on Form 10-K for the year ended December 27, 2015, except for the following additional disclosure under our "Discontinued operations" policy.
Discontinued operations. During the second quarter of 2016, our Board of Directors approved a plan to divest the Large Joints business, representing substantially all of our Large Joints reportable segment. On July 11, 2016, we announced the receipt of a binding offer under which Corin provided us a binding promise to purchase substantially all of the assets related to the Large Joints business for approximately €29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to working capital adjustments and on the terms set forth in the binding offer. Subject to the terms and conditions of the binding offer, including a consultation process with our employee works council and health and safety committee in France and the issuance or deemed issuance of the opinions of the works council and health and safety committee, we would be able to accept the binding offer and the parties would thereafter execute a business sale agreement, transitional services agreement and supply agreement, among other ancillary agreements required to implement the transaction. Services to be provided under the transitional services agreement and supply agreement are expected to commence on the effective date of the sale transaction and are expected to terminate within 24 months after the effective date. The transaction is expected to close by the end of the third quarter or early in the fourth quarter of 2016, subject to customary closing conditions.
We determined that the Large Joints business meets the criteria for classification as discontinued operations. All historical operating results for the Large Joints business, including costs associated with corporate employees and infrastructure to be transferred as a part of the sale, are reflected within discontinued operations in the condensed consolidated statements of operations. Further, all assets and associated liabilities to be transferred to Corin were classified as assets and liabilities held for sale in our condensed consolidated balance sheets for all periods presented. We recognized an impairment loss on held for sale classification of $21.9 million, before the effect of income taxes, in the second quarter of 2016, based on the difference between the net carrying value of the assets and liabilities held for sale and the purchase price, less estimated adjustments and costs to sell. This loss was recorded within Net loss from discontinued operations in the accompanying condensed consolidated statements of operations.
All current operating results for the Large Joints business are reflected within discontinued operations in the condensed consolidated financial statements. 

57



58

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
Our exposure to interest rate risk arises principally from the interest rates associated with our invested cash balances. On June 26, 2016, we had invested short-term cash and cash equivalents of approximately $326.3 million for the combined business. We believe that a 10 basis point change in interest rates is reasonably possible in the near term. Based on our current level of investment, an increase or decrease of 10 basis points in interest rates would have an annual impact of approximately $0.3 million to our interest income.
Equity Price Risk
The 2017 Notes include conversion and settlement provisions that are based on the price of our ordinary shares and prior to the Wright/Tornier merger, WMG common stock, at conversion or at maturity of the notes. On February 13, 2015, WMG issued $632.5 million of the 2020 Notes, which generated net proceeds of approximately $613 million. Approximately $292 million of the net proceeds from the 2020 Notes offering were used to repurchase approximately $240 million aggregate principal amount of the 2017 Notes in privately negotiated transactions. In addition, all of the 2017 Notes Hedges were settled and all of the warrants associated with the 2017 Notes were repurchased, generating net proceeds of approximately $10 million. On May 20, 2016, we issued $395 million aggregate principal amount of the 2021 Notes. Concurrently with the issuance and sale of the 2021 Notes, certain holders of $54.4 million aggregate principal amount of the 2017 Notes exchanged their 2017 Notes for the 2021 Notes. Approximately $3.7 million of the net proceeds from the 2021 Notes offering were subsequently used to repurchase approximately $3.6 million aggregate principal amount of the 2017 Notes in privately negotiated transactions. As of June 26, 2016, we had approximately $2 million in outstanding debt under the 2017 Notes. The following table shows the amount of cash that we would be required to provide holders of the 2017 Notes upon maturity assuming various closing prices of our ordinary shares at the date of maturity:
Share price
 
Cash payment in excess of principal (in thousands)
$27.98
(10% greater than conversion price)
$
203

$30.53
(20% greater than conversion price)
$
405

$33.07
(30% greater than conversion price)
$
608

$35.62
(40% greater than conversion price)
$
811

$38.16
(50% greater than conversion price)
$
1,013

The fair value of our 2017 Notes Conversion Derivative is directly impacted by the price of our ordinary shares and prior to the Wright/Tornier merger, WMG common stock. The following table presents the fair values of our 2017 Notes Conversion Derivative as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:
(in thousands)
 
 
 
 
Fair value of security given a 10% decrease in share price
Fair value of security as of June 26, 2016
Fair value of security given a 10% increase in share price
2017 Notes Conversion Derivative (Liability)
34
61
101
The 2020 Notes include conversion and settlement provisions that are based on the price of our ordinary shares at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.
Upon the expiration of our warrants issued in connection with the 2020 Notes, we will issue ordinary shares to the purchasers of the warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $40.00 at that time. On November 24, 2015, Wright Medical Group N.V. assumed WMG's obligations pursuant to the warrants. Following the assumption, the warrants became exercisable for Wright Medical Group N.V. ordinary shares and the strike price of the warrants was adjusted to $38.8010 per ordinary share. The following table shows the number of shares that we would issue to warrant counterparties at expiration of the warrants assuming various closing prices of our ordinary shares on the date of warrant expiration:

59

Share price
 
Shares (in thousands)
$42.68
(10% greater than strike price)
1,533
$46.56
(20% greater than strike price)
2,811
$50.44
(30% greater than strike price)
3,892
$54.32
(40% greater than strike price)
4,818
$58.20
(50% greater than strike price)
5,621
The fair value of the 2020 Notes Conversion Derivative and the 2020 Notes Hedge is directly impacted by the price of our ordinary shares. We entered into the 2020 Notes Hedges in connection with the issuance of the 2020 Notes with the option counterparties. The 2020 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are required to make upon conversion of the 2020 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The following table presents the fair values of the 2020 Notes Conversion Derivative and 2020 Notes Hedge as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:
(in thousands)
 
 
 
 
Fair value of security given a 10% decrease in share price
Fair value of security as of June 26, 2016
Fair value of security given a 10% increase in share price
2020 Notes Hedges (Asset)
$24,586
$33,421
$43,603
2020 Notes Conversion Derivative (Liability)
$27,718
$39,435
$53,253
The 2021 Notes include conversion and settlement provisions that are based on the price of our ordinary shares at conversion or at maturity of the notes. In addition, the hedges and warrants associated with these convertible notes also include settlement provisions that are based on the price of our ordinary shares. The amount of cash we may be required to pay, or the number of shares we may be required to provide to note holders at conversion or maturity of these notes, is determined by the price of our ordinary shares. The amount of cash that we may receive from hedge counterparties in connection with the related hedges and the number of shares that we may be required to provide warrant counterparties in connection with the related warrants are also determined by the price of our ordinary shares.
Upon the expiration of our warrants issued in connection with the 2021 Notes, we will issue ordinary shares to the purchasers of the warrants to the extent the price of our ordinary shares exceeds the warrant strike price of $30.00 at that time. The following table shows the number of shares that we would issue to warrant counterparties at expiration of the warrants assuming various closing prices of our ordinary shares on the date of warrant expiration:
Share price
 
Shares (in thousands)
$33.00
(10% greater than strike price)
1,681
$36.00
(20% greater than strike price)
3,082
$39.00
(30% greater than strike price)
4,268
$42.00
(40% greater than strike price)
5,284
$45.00
(50% greater than strike price)
6,164
The fair value of the 2021 Notes Conversion Derivative and the 2021 Notes Hedge is directly impacted by the price of our ordinary shares. We entered into the 2021 Notes Hedges in connection with the issuance of the 2021 Notes with the option counterparties. The 2021 Notes Hedges, which are cash-settled, are intended to reduce our exposure to potential cash payments that we are required to make upon conversion of the 2021 Notes in excess of the principal amount of converted notes if our ordinary share price exceeds the conversion price. The following table presents the fair values of the 2021 Notes Conversion Derivative and 2021 Notes Hedge as a result of a hypothetical 10% increase and decrease in the price of our ordinary shares. We believe that a 10% change in our share price is reasonably possible in the near term:
(in thousands)
 
 
 
 
Fair value of security given a 10% decrease in share price
Fair value of security as of June 26, 2016
Fair value of security given a 10% increase in share price
2021 Notes Hedges (Asset)
$67,537
$84,306
$102,334
2021 Notes Conversion Derivative (Liability)
$66,168
$86,427
$108,516

60

Foreign Currency Exchange Rate Fluctuations
Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies could adversely affect our financial results. Approximately 29% and 28% of our net sales were from international sales for the three months ended June 26, 2016 and June 30, 2015, respectively, and 28% and 27% of our net sales were from international sales for the six months ended June 26, 2016 and June 30, 2015, respectively. We expect that foreign sales will continue to represent a similarly significant percentage of our net sales in the future. Cost of sales related to these sales are primarily denominated in U.S. dollars; however, operating costs related to these sales are largely denominated in the same respective currencies, thereby partially limiting our transaction risk exposure. For sales not denominated in U.S. dollars, an increase in the rate at which a foreign currency is exchanged for U.S. dollars will require more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. In such cases, if we price our products in the foreign currency, we will receive less in U.S. dollars than we did before the rate increase went into effect. If we price our products in U.S. dollars and our competitors price their products in local currency, an increase in the relative strength of the U.S. dollar could result in our prices not being competitive in a market where business is transacted in the local currency.
As discussed in Note 6 to the condensed consolidated financial statements, we enter into certain short-term derivative financial instruments in the form of foreign currency forward contracts. These forward contracts are designed to mitigate our exposure to currency fluctuations in our intercompany balances denominated currently in Euros, British pounds, and Canadian dollars. Any change in the fair value of these forward contracts as a result of a fluctuation in a currency exchange rate is expected to be offset by a change in the value of the intercompany balance.
Other
As of June 26, 2016, we had outstanding $2.0 million, $587.5 million, and $395 million principal amount of our 2017, 2020, and 2021 Notes, respectively. We carry these instruments at face value less unamortized discount on our condensed consolidated balance sheets. Since these instruments bear interest at a fixed rate, we have no financial statement risk associated with changes in interest rates. However, the fair value of these instruments fluctuates when interest rates change, and when the market price of our ordinary shares fluctuates. We do not carry the 2017, 2020, and 2021 Notes at fair value, but present the fair value of the principal amount of our 2017, 2020, and 2021 Notes for disclosure purposes.

61

ITEM 4. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
We have established disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our disclosure controls and procedures are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within our organization. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 26, 2016 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 26, 2016.
Changes in Internal Control Over Financial Reporting
During the three month period ended June 26, 2016, there were no changes in our internal control over financial reporting that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting, except for changes that we made to continue to incorporate the internal control over financial reporting of legacy Tornier with and into our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.
From time to time, we or our subsidiaries are subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of our business and some of which involve claims for damages that are substantial in amount. These actions and proceedings may relate to, among other things, product liability, intellectual property, distributor, commercial, and other matters. These actions and proceedings could result in losses, including damages, fines, or penalties, any of which could be substantial, as well as criminal charges. Although such matters are inherently unpredictable, and negative outcomes or verdicts can occur, we believe we have significant defenses in all of them, are vigorously defending all of them, and do not believe any of them will have a material adverse effect on our financial position. However, we could incur judgments, pay settlements, or revise our expectations regarding the outcome of any matter. Such developments, if any, could have a material adverse effect on our results of operations in the period in which applicable amounts are accrued, or on our cash flows in the period in which amounts are paid.
The actions and proceedings described in this section relate primarily to Wright Medical Technology, Inc., an indirect subsidiary of Wright Medical Group N.V., and are not necessarily applicable to Wright Medical Group N.V. or other affiliated entities. Maintaining separate legal entities within our corporate structure is intended to ring-fence liabilities.  We believe our ring-fenced structure should preclude corporate veil-piercing efforts against entities whose assets are not associated with particular claims.
Governmental Inquiries
On August 3, 2012, we received a subpoena from the United States Attorney's Office for the Western District of Tennessee requesting records and documentation relating to our PROFEMUR® series of hip replacement devices. The subpoena covers the period from January 1, 2000 to August 2, 2012. We continue to cooperate with the investigation.
Patent Litigation
In 2011, Howmedica Osteonics Corp. and Stryker Ireland, Ltd. (collectively, Stryker), each a subsidiary of Stryker Corporation, filed a lawsuit against us in the United States District Court for the District of New Jersey alleging that we infringed Stryker's U.S. Patent No. 6,475,243 related to our LINEAGE® Acetabular Cup System and DYNASTY® Acetabular Cup System. The lawsuit seeks an order of infringement, injunctive relief, unspecified damages, and various other costs and relief. On July 9, 2013, the Court issued a claim construction ruling. On November 25, 2014, the Court entered judgment of non-infringement in our favor. On January 7, 2015, Stryker filed a notice of appeal to the Court of Appeals for the Federal Circuit. The Court of Appeals heard oral argument on December 10, 2015 and, on May 12, 2016, upheld the lower court’s decision. Stryker subsequently filed a combined petition for rehearing with the Court of Appeals, which was denied.
In 2012, Bonutti Skeletal Innovations, LLC (Bonutti) filed a patent infringement lawsuit against us in the United States Court for the District of Delaware. Subsequently, Inter Partes Review (IPR) of the Bonutti patents was sought before the U.S. Patent and

62

Trademark Office. On April 7, 2014, the Court stayed the case pending outcome of the IPR. Bonutti originally alleged that the Link Sled Prosthesis infringes U.S. Patent 6,702,821. The Link Sled Prosthesis is a product we distributed under a distribution agreement with LinkBio Corp, which expired on December 31, 2013. In January 2013, Bonutti amended its complaint, alleging that the ADVANCE® knee system, including ODYSSEY® instrumentation, infringes U.S. Patent 8,133,229, and that the ADVANCE® knee system, including ODYSSEY® instrumentation and PROPHECY® guides, infringes U.S. Patent 7,806,896, which was issued on October 5, 2010. All of the claims of the asserted patents are directed to surgical methods for minimally invasive surgery. As a result of the arguments submitted in the IPR, Bonutti abandoned the claims subject to the IPR from U.S. Patent 8,133,229, leaving one claim from U.S. Patent 7,806,896 still pending before the Patent Office Board that administers IPRs. On February 18, 2015, the Patent Office Board held that remaining claim invalid. Following the conclusion of the IPRs, the District Court lifted the stay. On May 13, 2016, we entered into a Settlement and Patent License Agreement with Bonutti and MicroPort for an immaterial amount, pursuant to which Bonutti agreed to dismiss the case with prejudice and granted to us and MicroPort fully paid-up licenses to Bonutti patents. The case was formally dismissed with prejudice on May 27, 2016.
In June 2013, Orthophoenix, LLC filed a patent lawsuit against us in the United States District Court for the District of Delaware alleging that the X-REAM® product infringes two patents. In June 2014, we filed a request for IPR with the U.S. Patent and Trademark Office, which was denied on December 16, 2014. Effective April 5, 2016, we entered into a Settlement and License Agreement with Orthophoenix, LLC pursuant to which Orthophoenix agreed to dismiss the lawsuit with prejudice and WMT received a fully paid license to Orthophoenix’s patents. The case was formally dismissed with prejudice on April 20, 2016. We do not consider the settlement amount to be material.
In June 2013, Anglefix, LLC filed suit in the United States District Court for the Western District of Tennessee, alleging that our ORTHOLOC® products infringe Anglefix’s asserted patent. On April 14, 2014, we filed a request for IPR with the U.S. Patent and Trademark Office. In October 2014, the Court stayed the case pending outcome of the IPR. On June 30, 2015, the Patent Office Board entered judgment in our favor as to all patent claims at issue in the IPR. Following the conclusion of the IPR, the District Court lifted the stay, and we have been continuing with our defense as to remaining patent claims asserted by Anglefix. On June 27, 2016, the Court granted in part our motion for summary judgment on Anglefix’s lack of standing and gave Anglefix 30 days to join the University of North Carolina (UNC) as a co-plaintiff in the lawsuit. On July 25, 2016, Anglefix filed a motion asking the Court to accept a waiver of claims by UNC as a substitute for joining UNC as a co-plaintiff in the lawsuit. We intend to oppose this motion. The case is stayed, and the pending motions for summary judgment will not be addressed, until the issue of UNC’s joinder is resolved.
In February 2014, Biomedical Enterprises, Inc. filed suit against Solana Surgical, LLC (Solana) in the United States District Court for the Western District of Texas alleging Solana's FuseForce Fixation system infringes U.S. Patent No. 8,584,853 entitled “Method and Apparatus for an Orthopedic Fixation System.” On February 20, 2015, Solana filed a request for IPR with the U.S. Patent and Trademark Office. On February 27, 2015, Biomedical Enterprises filed an amended complaint to add WMG and WMT as parties to the litigation. On April 3, 2015, the parties filed a stipulation of dismissal without prejudice as to us. On August 10, 2015, the Patent Office Review Board initiated IPR as to all challenged patent claims. The Patent Office Board heard oral argument in the IPR proceeding on February 17, 2016. On May 4, 2016 the Patent Office Board issued an order finding that the contested claims were not unpatentable. We appealed this decision. On June 6, 2016, the date on which the trial before the District Court was scheduled to begin, we reached a settlement in principle with Biomedical Enterprises. On July 1, 2016, we entered into a Settlement and Patent License Agreement with Biomedical Enterprises pursuant to which Biomedical Enterprises agreed to dismiss the lawsuit with prejudice and we received a worldwide, non-exclusive license to Biomedical Enterprise’s patents. The case was formally dismissed with prejudice on July 6, 2016. We do not consider the settlement amount to be material.
On September 23, 2014, Spineology filed a patent infringement lawsuit, Case No. 0:14-cv-03767, in the United States District Court in Minnesota, alleging that our X-REAM® bone reamer infringes U.S. Patent No. RE42,757 entitled “EXPANDABLE REAMER.”  In January 2015, on the deadline for service of its complaint, Spineology dismissed its complaint without prejudice and filed a new, identical complaint. We filed an answer to the new complaint with the Court on April 27, 2015 and discovery is underway. The Court conducted a Markman hearing on March 23, 2016 and has not yet issued a ruling. The case is scheduled for mediation on August 11, 2016.
On March 1, 2016, Musculoskeletal Transplant Foundation (MTF) filed suit against Solana and WMT in the United States District Court for the District of New Jersey alleging that the TenFUSE PIP product infringes U.S. Patent No. 6,432,436 entitled “Partially Demineralized Cortical Bone Constructs.” On May 25, 2016, we agreed to waive service of MTF’s complaint. We continue to investigate MTF’s allegations and our answer to MTF’s complaint is due on August 8, 2016.
Subject to the provisions of the asset purchase agreement with MicroPort for the sale of the OrthoRecon business, we, as between us and MicroPort, will continue to be responsible for defense of pre-existing patent infringement cases relating to the OrthoRecon business, and for resulting liabilities, if any.

63

Product Liability
We have been named as a defendant, in some cases with multiple other defendants, in lawsuits in which it is alleged that as yet unspecified defects in the design, manufacture, or labeling of certain metal-on-metal hip replacement products rendered the products defective. The lawsuits generally employ similar allegations that use of the products resulted in excessive metal ions and particulate in the patients into whom the devices were implanted, in most cases resulting in revision surgery (collectively, the CONSERVE® Claims). We anticipate that additional lawsuits relating to metal-on-metal hip replacement products may be brought.
Because of the similar nature of the allegations made by several plaintiffs whose cases were pending in federal courts, upon motion of one plaintiff, Danny L. James, Sr., the United States Judicial Panel on Multidistrict Litigation in February 2012 transferred certain actions pending in the federal court system related to metal-on-metal hip replacement products to the United States District Court for the Northern District of Georgia, for consolidated pre-trial management of the cases before a single United States District Court Judge (the MDL). The consolidated matter is known as In re: Wright Medical Technology, Inc. Conserve Hip Implant Products Liability Litigation.
Certain plaintiffs have elected to file their lawsuits in state courts in California. In doing so, most of those plaintiffs have named a surgeon involved in the design of the allegedly defective products as a defendant in the actions, along with his personal corporation. Pursuant to contractual obligations, we have agreed to indemnify and defend the surgeon in those actions. Similar to the MDL proceeding in federal court, because the lawsuits generally employ similar allegations, certain of those pending lawsuits in California were consolidated for pre-trial handling on May 14, 2012 pursuant to procedures of California State Judicial Counsel Coordinated Proceedings (the JCCP). The consolidated matter is known as In re: Wright Hip Systems Cases, Judicial Counsel Coordination Proceeding No. 4710.
There are other individual lawsuits related to metal-on-metal hip products pending in various state courts. As of June 26, 2016, there were 1,167 such lawsuits pending in the MDL and JCCP, and an additional 26 cases pending in various state courts. We have also entered into 896 so-called "tolling agreements" with potential claimants who have not yet filed suit. There are also 40 non-U.S. lawsuits presently pending. We believe we have data that supports the efficacy and safety of our metal-on-metal hip products. While continuing to dispute liability, we have participated in court supervised non-binding mediation in the multi-district federal court litigation and expect to begin similar mediation in the JCCP.
The first bellwether trial in the MDL commenced on November 9, 2015 in Atlanta, Georgia. On November 24, 2015, the jury returned a verdict in favor of the plaintiff and awarded the plaintiff $1 million in compensatory damages and $10 million in punitive damages. We believe there were significant trial irregularities and vigorously contested the trial result. On December 28, 2015, we filed a post-trial motion for judgment as a matter of law or, in the alternative, for a new trial or a reduction of damages awarded. On April 5, 2016, the trial judge issued an order reducing the punitive damage award from $10 million to $1.1 million, but otherwise denied our motion. On May 4, 2016, we filed a notice of appeal with the United States Court of Appeals for the Eleventh Circuit. In light of the trial judge’s April 5th order, we recorded an accrual for this verdict in the amount of $2.1 million within “Accrued expenses and other current liabilities,” and a $2.1 million receivable associated with the probable recovery from product liability insurance is reflected within “Other current assets.”
The supervising judge in the JCCP has set a trial date of October 31, 2016, for the first bellwether trial in California. The parties are currently in an expert discovery and pre-trial procedure phase.
We have received claims for personal injury against us associated with fractures of our PROFEMUR® long titanium modular neck product (Titanium Modular Neck Claims). As of June 26, 2016, there were 49 pending U.S. lawsuits and 49 pending non-U.S. lawsuits alleging such claims.
We are aware that MicroPort has recalled certain sizes of its cobalt chrome modular neck products as a result of alleged fractures. As of June 26, 2016, there were four pending U.S. lawsuits and five pending non-U.S. lawsuits against us alleging personal injury resulting from the fracture of a cobalt chrome modular neck.
In June 2015, a jury returned a $4.4 million verdict against us in a case involving a fractured hip implant stem sold prior to the MicroPort closing. This was a one-of-a-kind case unrelated to the modular neck fracture cases we have previously reported. There are no other cases pending related to this component, nor are we aware of other instances where this component has fractured. The case, Alan Warner et al. vs. Wright Medical Technology, Inc. et al., case no. BC 475958, was tried in the Superior Court of the State of California for the County of Los Angeles, Central District. In September 2015, the trial judge reduced the jury verdict to $1.025 million and indicated that if the plaintiff did not accept the reduced award he would schedule a new trial solely on the issue of damages. The plaintiff elected not to accept the reduced damage award, and both parties have appealed. The Court has not set a date for a new trial on the issue of damages and we do not expect it will do so until the appeals are adjudicated.
Insurance Litigation
In June 2014, St. Paul Surplus Lines Insurance Company (Travelers), which was an excess carrier in our coverage towers across multiple policy years, filed a declaratory judgment action in Tennessee state court naming us and certain of our other insurance

64

carriers as defendants and asking the Court to rule on the rights and responsibilities of the parties with regard to the CONSERVE® Claims. Among other things, Travelers appears to dispute our contention that the CONSERVE® Claims arise out of more than a single occurrence thereby triggering multiple policy periods of coverage.  Travelers further seeks a determination as to the applicable policy period triggered by the alleged single occurrence.  We filed a separate lawsuit in state court in California for declaratory judgment against certain carriers and breach of contract against the primary carrier, and have moved to dismiss or stay the Tennessee action on a number of grounds, including that California is the most appropriate jurisdiction. During the third quarter of 2014, the California Court granted Travelers' motion to stay our California action. On April 29, 2016, we filed a dispositive motion seeking partial judgment in our favor in the Tennessee action. On June 10, 2016, Travelers withdrew its motion for summary judgment in the Tennessee action.
In May 2015, we entered into confidential settlement discussions with our insurance carriers through a private mediator. During the second quarter of 2016, confidential coverage mediation with our insurance carriers continued. In June 2016, we reached a settlement in principle with a subgroup of three carriers.
On September 29, 2015, Markel International Insurance Company Ltd., as successor to Max Insurance Europe Ltd. (Max Insurance), which is the third insurance carrier in our coverage towers across multiple policy years, asserted that the terms and conditions identified in its reservation of rights will preclude coverage for the Titanium Modular Neck Claims. We strongly dispute the carrier's position, and in accordance with the dispute resolution provisions of the policy, on January 18, 2016, we filed a Notice of Arbitration against Max Insurance in London, England pursuant to the provisions of the Arbitration Act of 1996.  We are seeking reimbursement, up to the policy limits of $25 million, of costs incurred in the defense and settlement of the Titanium Modular Neck Claims.
MicroPort Indemnification Claim
On October 27, 2015, MicroPort filed a lawsuit in the United States District Court for the District of Delaware against Wright Medical Group N.V. alleging that we breached the indemnification provisions of the asset purchase agreement by failing to indemnify MicroPort for alleged damages arising out of certain pre-closing matters and for breach of certain representations and warranties. The complaint includes claims relating to MicroPort’s recall of certain of its cobalt chrome modular neck products, and seeks damages in an unspecified amount plus attorneys’ fees and costs, as well as declaratory judgment. On January 4, 2016, we filed an answer to the complaint and also filed a counterclaim seeking declaratory judgment and indemnification and other damages in an unspecified amount from MicroPort. On April 28, 2016, we entered into a mutual settlement agreement with MicroPort pursuant to which the lawsuit, including all claims and counterclaims that were brought in the lawsuit, was dismissed with prejudice. The settlement agreement resolved all known issues between the parties. We do not consider the settlement amount to be material. The case was formally dismissed with prejudice on May 20, 2016.
Wright/Tornier Merger Related Litigation
Beginning on November 25, 2014, purported shareholders of WMG filed a number of class action complaints (Delaware Actions) in the Court of Chancery of the state of Delaware (Delaware Chancery Court), many of which were later amended. The complaints and amended complaints in the Delaware Actions named as defendants WMG, Tornier, Trooper Holdings Inc. (Holdco), Trooper Merger Sub Inc. (Merger Sub) and the members of the WMG board of directors. The Delaware Actions generally asserted various causes of action, including, among other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly failed to disclose material information about the merger. The Delaware Actions further alleged that WMG, Tornier, Holdco, and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of directors.
On March 2, 2015, the Delaware Chancery Court consolidated the Delaware Actions, specifically Paul Parshall v. Wright Medical Group, Inc., et al., C.A. No. 10400-CB, and Anthony Marks as Trustee for Marks Clan Super v. Wright Medical Group, Inc., et al., C.A. No. 10706-CB, under the caption In re Wright Medical Group, Inc. Stockholders Litigation, C.A. No. 10400-CB (Consolidated Delaware Action). A later-filed case, Michael Prince v. Robert J. Palmisano, et al., C.A. No. 10829-CB, was also made part of the Consolidated Delaware Action by order dated May 22, 2015. On April 8, 2016, the Delaware Chancery Court entered a Stipulated Order dismissing the Consolidated Delaware Action as moot, with prejudice as to Plaintiffs’ claims, and without prejudice as to other members of the putative class. The court retained jurisdiction to hear any mootness fee application that plaintiffs in the Consolidated Delaware Action may choose to file. In lieu of such application, the parties to the Consolidated Delaware Action subsequently agreed that we would pay $250,000 directly to Plaintiffs’ counsel in full satisfaction of Plaintiffs’ claim for attorneys’ fees and expenses in the action. The Court of Chancery has not been asked to review, and will pass no judgment on, the payment of a fee or its reasonableness. We have been advised that the costs associated with the Consolidated Delaware Action will be covered by relevant insurance.
On November 26, 2014, a class action complaint was filed in the Circuit Court of Tennessee, for the Thirtieth Judicial District, at Memphis (Tennessee Circuit Court), by a purported shareholder of WMG under the caption City of Warwick Retirement System v. Gary D. Blackford et al., CT-005015-14. An amended complaint in the action was filed on January 5, 2015. The amended

65

complaint names as defendants WMG, Tornier, Holdco, Merger Sub, and the members of the WMG board of directors. The amended complaint asserts various causes of action, including, among other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly fails to disclose material information about the merger. The amended complaint further alleges that Tornier, Holdco, and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of directors. The plaintiff is seeking, among other things, injunctive relief enjoining or rescinding the merger and an award of attorneys’ fees and costs.
On December 2, 2014, a separate class action complaint was filed in the Tennessee Chancery Court by a purported shareholder of WMG under the caption Paulette Jacques v. Wright Medical Group, Inc., et al., CH-14-1736-1. An amended complaint in the action was filed on January 27, 2015. The amended complaint names as defendants WMG, Tornier, Holdco, Merger Sub, Warburg Pincus LLC and the members of the WMG board of directors. The amended complaint asserts various causes of action, including, among other things, that the members of the WMG board of directors breached their fiduciary duties owed to the WMG shareholders in connection with entering into the merger agreement, approving the merger, and causing WMG to issue a preliminary Form S-4 that allegedly fails to disclose material information about the merger. The amended complaint further alleges that WMG, Tornier, Warburg Pincus LLC, Holdco and Merger Sub aided and abetted the alleged breaches of fiduciary duties by the WMG board of directors. The plaintiff is seeking, among other things, injunctive relief enjoining or rescinding the merger and an award of attorneys’ fees and costs.
In an order dated March 31, 2015, the Tennessee Circuit Court transferred City of Warwick Retirement System v. Gary D. Blackford et al., CT-005015-14 to the Tennessee Chancery Court for consolidation with Paulette Jacques v. Wright Medical Group, Inc., et al., CH-14-1736-1 (Consolidated Tennessee Action). In an order dated April 9, 2015, the Tennessee Chancery Court stayed the Consolidated Tennessee Action; that stay expired upon completion of the Wright/Tornier merger.
Other
In addition to those noted above, we are subject to various other legal proceedings, product liability claims, corporate governance, and other matters which arise in the ordinary course of business.

ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors that were discussed in "Part I, Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 27, 2015, as filed with the SEC on February 23, 2016, other than the new and updated risk factors below.
To the extent transition activities related to the proposed sale of our large joints business divert management attention from ongoing operations, this could have an adverse effect on our business which could be exacerbated if the proposed transaction does not close or is delayed.
On July 8, 2016, we entered into a binding offer letter with Corin Orthopaedics Holdings Limited (Corin) pursuant to which Corin provided us a binding promise to purchase substantially all of the assets related to our France based large joints business for approximately € 29.7 million in cash, less €8.6 million for net working capital associated with the Large Joints business that will not transfer to Corin upon closing, subject to adjustments and on the terms set forth in the letter. Subject to the terms and conditions of the letter, including obtaining approval or deemed approval from our employee works council and health and safety committee in France, we would be able to accept the binding offer and the parties would thereafter execute a business sale agreement, transitional services agreement, supply agreement and other ancillary agreements required to effectuate the transaction. The transaction is expected to close by the end of the third quarter or early in the fourth quarter of 2016, subject to customary closing conditions.
Whether or not the transaction is completed, the announcement and pendency of the transaction could cause disruptions in or otherwise negatively impact our business and operating results. For example, the attention of our management and employees may be directed toward completion of the transaction, transaction-related considerations and our post-closing obligations and may be diverted from the day-to-day operations and pursuit of other opportunities that could be beneficial to our business. In addition, our post-closing obligations under the transitional services agreement and supply agreement will require us to dedicate substantial resources, personnel and manufacturing capacity that may add costs to our ongoing business and could cause us to incur unanticipated costs and liabilities.
No assurance can be provided that the transaction will close or that the transaction will close in the anticipated timeframe or on the exact terms contemplated in the binding offer. We have incurred and expect to continue to incur significant costs and expenses associated with the transaction and would remain liable for these costs and expenses in the event the transaction did not close. Additionally, in the event the transaction does not close, under certain circumstances, we may be required to reimburse Corin’s reasonable costs up to €500,000.

66

In addition, if the transaction does not close, it is possible the large joints business could decrease in value due to the above described business and employee distractions associated with sale and transition activities.
We operate in markets outside the United States that are subject to political, economic, and social instability and expose us to additional risks.
Operations in countries outside of the United States accounted for approximately 28% of our net sales for our fiscal year ended December 27, 2015. Our operations outside of the United States are accompanied by certain financial and other risks. We intend to continue to pursue growth opportunities in sales outside the United States, especially in emerging markets, which could expose us to greater risks associated with international sales operations. Our international sales operations expose us and our representatives, agents, and distributors to risks inherent in operating in foreign jurisdictions. These risks include:
•
the imposition of additional U.S. and foreign governmental controls or regulations on orthopaedic implants and biologic products;
•
new export license requirements;
•
the imposition of U.S. or international sanctions against a country, company, person, or entity with whom we do business that would restrict or prohibit continued business with that country, company, person, or entity;
•
economic instability, including currency risk between the U.S. dollar and foreign currencies, in our target markets;
•
the imposition of restrictions on the activities of foreign agents, representatives, and distributors;
•
scrutiny of foreign tax authorities, which could result in significant fines, penalties, and additional taxes being imposed upon us;
•
a shortage of high-quality international salespeople and distributors;
•
loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets;
•
changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate our reducing selling prices for our products;
•
unexpected changes in foreign regulatory requirements;
•
differing local product preferences and product requirements;
•
changes in tariffs and other trade restrictions, particularly related to the exportation of our biologic products;
•
work stoppages or strikes in the healthcare industry, such as those that have affected our operations in France, Canada, Korea, and Finland in the past;
•
difficulties in enforcing and defending intellectual property rights;
•
foreign currency exchange controls that might prevent us from repatriating cash earned in countries outside the Netherlands;
•
complex data privacy requirements and labor relations laws; and
•
exposure to different legal and political standards due to our conducting business in over 50 countries.

In addition, on June 23, 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” As a result of the referendum, negotiations are expected to commence to determine the future terms of the United Kingdom’s relationship with the European Union, including the terms of trade between the United Kingdom and the European Union. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on the movement of goods and people between the United Kingdom and European Union countries and increased regulatory complexities, which could affect our ability to sell our products in certain European Union countries. Brexit could adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British pound and Euro. In addition, other European countries may seek to conduct referenda with respect to continuing membership with the European Union. We do not know to what extent these changes will impact our business. Any of these effects of Brexit, and others that we cannot anticipate, could adversely affect our business, operations and financial results.
Since we conduct operations through U.S. operating subsidiaries, not only are we subject to the laws of non-U.S. jurisdictions, but we also are subject to U.S. laws governing our activities in foreign countries, such as the FCPA, as well as various import-

67

export laws, regulations, and embargoes. If our business activities were determined to violate these laws, regulations, or rules, we could suffer serious consequences.
Healthcare regulation and reimbursement for medical devices vary significantly from country to country. This changing environment could adversely affect our ability to sell our products in some jurisdictions.
We have a significant amount of indebtedness. We may not be able to generate enough cash flow from our operations to service our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our business, financial condition, and operating results.
We have a significant amount of indebtedness, including $2.0 million in aggregate principal with additional accrued interest under WMG’s 2.00% cash convertible senior notes due 2017 (2017 Notes), $587.5 million in aggregate principal with additional accrued interest under WMG’s 2.00% cash convertible senior notes due 2020, which Wright Medical Group N.V. has guaranteed (2020 Notes), and $395.0 million in aggregate principal with additional accrued interest under our 2.25% cash convertible senior notes due 2021(2021 Notes, together with the 2017 Notes and 2020 Notes, the Notes). Our ability to make payments on, and to refinance, our indebtedness, including the Notes, and our ability to fund planned capital expenditures, contractual cash obligations, research and development efforts, working capital, acquisitions, and other general corporate purposes depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors, some of which are beyond our control. If we do not generate sufficient cash flow from operations or if future borrowings are not available to us in an amount sufficient to pay our indebtedness, including payments of principal upon conversion of outstanding Notes or on their respective maturity dates or in connection with a transaction involving us that constitutes a fundamental change under the respective indenture governing the Notes, or to fund our liquidity needs, we may be forced to refinance all or a portion of our indebtedness, including the Notes, on or before the maturity dates thereof, sell assets, reduce or delay capital expenditures, seek to raise additional capital, or take other similar actions. We may not be able to execute any of these actions on commercially reasonable terms or at all. Our ability to refinance our indebtedness will depend on our financial condition at the time, the restrictions in the instruments governing our indebtedness, and other factors, including market conditions. In addition, in the event of a default under the Notes, the holders and/or the trustee under the indentures governing the Notes may accelerate payment obligations under the Notes, which could have a material adverse effect on our business, financial condition, and operating results. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or restructure our obligations on commercially reasonable terms or at all, would likely have an adverse effect, which could be material, on our business, financial condition, and operating results.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
•
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;
•
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
•
restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities;
•
place us at a competitive disadvantage compared to our competitors who have less debt; and
•
limit our ability to borrow additional amounts for working capital, capital expenditures, contractual obligations, research and development efforts, acquisitions, debt service requirements, execution of our business strategy, or other purposes.
Any of these factors could materially and adversely affect our business, financial condition, and operating results. In addition, we may incur additional indebtedness, and if we do, the risks related to our business and our ability to service our indebtedness would increase.
In addition, under our Notes, we are required to offer to repurchase the Notes upon the occurrence of a fundamental change, which could include, among other things, any acquisition of ours for consideration other than publicly traded securities. The repurchase price must be paid in cash, and this obligation may have the effect of discouraging, delaying, or preventing an acquisition of ours that would otherwise be beneficial to our security holders.
A failure to comply with the covenants and other provisions of the indentures governing the Notes could result in events of default under such indentures, which could require the immediate repayment of our outstanding indebtedness. If we are at any time unable to generate sufficient cash flows from operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the indentures and other agreements relating to the indebtedness, seek to refinance all or a portion of the indebtedness, or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such terms, that any such refinancing would be possible, or that any additional financing could be obtained on terms that are favorable or acceptable to us.

68

Hedge and warrant transactions entered into in connection with the issuance of our Notes may affect the value of our ordinary shares.
In connection with the issuance of the 2020 Notes, WMG entered into hedge transactions with various financial institutions with the objective of reducing the potential dilutive effect of issuing WMG common stock upon conversion of the 2020 Notes and the potential cash outlay from the cash conversion of the 2020 Notes. WMG also entered into separate warrant transactions with the same financial institutions. These hedge and warrant transactions were subject to certain modifications as a result of the consummation of the Wright/Tornier merger. In connection with the issuance of the 2021 Notes, we also entered into hedge transactions with various financial institutions with the objective of reducing the potential dilutive effect of issuing our ordinary shares upon conversion of the 2021 Notes and the potential cash outlay from the cash conversion of the 2021 Notes. We also entered into separate warrant transactions with the same financial institutions.
In connection with the hedge and warrant transactions associated with the 2020 Notes, these financial institutions purchased WMG common stock in secondary market transactions and entered into various over-the-counter derivative transactions with respect to WMG common stock. As a result of the completion of the Wright/Tornier merger, the WMG common stock converted into our ordinary shares. In connection with the hedge and warrant transactions associated with the 2021 Notes, these financial institutions purchased our ordinary shares in secondary market transactions and entered into various over-the-counter derivative transactions with respect to our ordinary shares. These entities or their affiliates are likely to modify their hedge positions from time to time prior to conversion or maturity of the 2020 Notes and 2021 Notes by purchasing and selling our ordinary shares, other of our securities, or other instruments they may wish to use in connection with such hedging. Any of these transactions and activities could adversely affect the value of our ordinary shares and, as a result, the number and value of the ordinary shares holders will receive upon conversion of the 2020 Notes and 2021 Notes. In addition, subject to movement in the price of our ordinary shares, if the hedge transactions settle in our favor, we could be exposed to credit risk related to the other party with respect to the payment we are owed from such other party. If any of the participants in the hedge transactions is unwilling or unable to perform its obligations for any reason, we would not be able to receive the benefit of such transaction. We cannot provide any assurances as to the financial stability or viability of any of the participants in the hedge transactions.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.

ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.

ITEM 5. OTHER INFORMATION.
On August 2, 2016, we provided an update on our Consolidated Delaware Action, which is included under “Legal Proceedings” in Part II Item 1 of this Quarterly Report on Form 10-Q.

ITEM 6. EXHIBITS.
(a)
Exhibits.
A list of exhibits is set forth on the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.


69

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
August 2, 2016    
WRIGHT MEDICAL GROUP N.V.
 
By:  
/s/ Robert J. Palmisano
 
Robert J. Palmisano
 
President and Chief Executive Officer 
 
(principal executive officer)
 
 
By:  
/s/ Lance A. Berry
 
Lance A. Berry
 
Senior Vice President and Chief Financial Officer 
 
(principal financial officer)






70

WRIGHT MEDICAL GROUP N.V.
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10‑Q
FOR THE QUARTER ENDED JUNE 26, 2016
Exhibit No.
 
Exhibit
 
Method of Filing
3.1
 
Articles of Association of Wright Medical Group N.V.
 
Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 1, 2016 (File No. 001-35065)
4.1
 
Indenture, dated as of May 20, 2016, between Wright Medical Group N.V. and The Bank of New York Mellon Trust Company, N.A. (including the form of the 2.25% Cash Convertible Senior Note due 2021)
 
Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 25, 2016 (File No. 001-35065)
10.1
 
Form of Exchange/Subscription Agreement, dated as of May 12, 2016, between Wright Medical Group N.V. and Each Investor Party Thereto
 
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 18, 2016 (File No. 001-35065)
10.2
 
Form of Subscription Agreement, dated as of May 12, 2016, between Wright Medical Group N.V. and Each Investor Party Thereto
 
Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 18, 2016 (File No. 001-35065)
10.3
 
Call Option Transaction Confirmation, dated as of May 12, 2016, between Wright Medical Group N.V. and JPMorgan Chase Bank, National Association
 
Filed herewith
10.4
 
Call Option Transaction Confirmation, dated as of May 12, 2016, between Wright Medical Group N.V. and Bank of America, N.A.
 
Filed herewith
10.5
 
Warrants Confirmation, dated as of May 12, 2016, between Wright Medical Group N.V. and JPMorgan Chase Bank, National Association
 
Filed herewith
10.6
 
Warrants Confirmation, dated as of May 12, 2016, between Wright Medical Group N.V. and Bank of America, N.A.
 
Filed herewith
10.7
 
Form of Partial Termination Confirmation among Wright Medical Group N.V., Wright Medical Group, Inc. and each of JPMorgan Chase Bank, National Association, Wells Fargo Bank, National Association and Deutsch Bank AG, London Branch
 
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (with respect to Item 1.01) as filed with the Securities and Exchange Commission on June 16, 2016 (File No. 001-35065)
10.8
 
Resignation Agreement dated June 10, 2016 between Wright Medical Group N.V. and Terry M. Rich
 
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (with respect to Item 5.02) as filed with the Securities and Exchange Commission on June 16, 2016 (File No. 001-35065)
10.9*
 
Commercial Supply Agreement dated March 29, 2016 between BioMimetic Therapeutics, LLC and FUJIFILM Diosynth Biotechnologies U.S.A., Inc.
 
Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 7, 2016 (File No. 001-35065)
31.1
 
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
 
Filed herewith
31.2
 
Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002
 
Filed herewith

71

Exhibit No.
 
Exhibit
 
Method of Filing
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002
 
Furnished herewith
101
 
The following materials from Wright Medical Group N.V.’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets as of June 26, 2016 and December 27, 2015, (ii) the Consolidated Statements of Operations for the three and six months ended June 26, 2016 and June 30, 2015, (iii) the Consolidated Statements of Comprehensive Loss for the three and six months ended June 26, 2016 and June 30, 2015, (iv) the Consolidated Statements of Cash Flows for the six months ended June 26, 2016 and June 30, 2015, and (v) Notes to Consolidated Financial Statements
 
Filed herewith


*
Portions of this exhibit have been redacted and are subject to an order granting confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended (File No. 001-35065, CF #33696). The redacted material was filed separately with the Securities and Exchange Commission.


72


EXECUTION VERSION

JPMorgan Chase Bank, National Association
London Branch
25 Bank Street
Canary Wharf
London E14 5JP
England
May 12, 2016
To: Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002

Re:    Call Option Transaction
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the call option transaction entered into between JPMorgan Chase Bank, National Association, London Branch (“Dealer”) and Wright Medical Group N.V. (“Counterparty”) as of the Trade Date specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements with respect to the Transaction and serve as the final documentation for the Transaction.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used herein are based on terms that are defined in the Private Placement Circular dated May 9, 2016 (the “Private Placement Circular”) relating to the 2.25% Cash Convertible Senior Notes due 2021 (as originally issued by Counterparty, the “Convertible Notes” and each USD 1,000 principal amount of Convertible Notes, a “Convertible Note”) issued by Counterparty in an aggregate initial principal amount of USD 395,000,000 pursuant to an Indenture to be dated May 20, 2016 between Counterparty and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”). In the event of any inconsistency between the terms defined in the Private Placement Circular, the Indenture and this Confirmation, this Confirmation shall govern. The parties acknowledge that this Confirmation is entered into on the date hereof with the understanding that (i) definitions set forth in the Indenture which are also defined herein by reference to the Indenture and (ii) sections of the Indenture that are referred to herein will conform to the descriptions thereof in the Private Placement Circular. If any such definitions in the Indenture or any such sections of the Indenture differ from the descriptions thereof in the Private Placement Circular, the descriptions thereof in the Private Placement Circular will govern for purposes of this Confirmation. The parties further acknowledge that the Indenture section numbers used herein are based on the draft of the Indenture last reviewed



EXECUTION VERSION

by Dealer as of the date of this Confirmation, and if any such section numbers are changed in the Indenture as executed, the parties will amend this Confirmation in good faith to preserve the intent of the parties. Subject to the foregoing, references to the Indenture herein are references to the Indenture as in effect on the date of its execution, and if the Indenture is amended following such date, any such amendment will be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing.
Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.
1.
This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form (but without any Schedule except for (i) the election of US Dollars (“USD”) as the Termination Currency, and (ii) the election of the laws of the State of New York as the governing law (without reference to choice of law doctrine)) on the Trade Date. In the event of any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. The parties acknowledge that the Transaction to which this Confirmation relates is not governed by, and shall not be treated as a transaction under, any other ISDA Master Agreement entered into between the parties from time to time. In the event of any inconsistency between this Confirmation and the Agreement, this Confirmation shall govern.
2.
The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:
General Terms.    
Trade Date:
May 12, 2016
Effective Date:
The third Exchange Business Day immediately prior to the Premium Payment Date
Option Style:
“Modified American”, as described under “Procedures for Exercise” below
Option Type:
Call
Buyer:
Counterparty
Seller:
Dealer

2


EXECUTION VERSION

Shares:
The ordinary shares of Counterparty, par value 0.03 Euros per share (Exchange symbol “WMGI”).
Number of Options:
395,000. For the avoidance of doubt, the Number of Options shall be reduced by any Options exercised by Counterparty. In no event will the Number of Options be less than zero.
Applicable Percentage:
50.0%
Option Entitlement:
A number equal to the product of the Applicable Percentage and 46.8165.
Strike Price:
USD 21.36
Premium:
USD 49,908,250.00
Premium Payment Date:
May 20, 2016
Exchange:
The NASDAQ Global Select Market
Related Exchange(s):
All Exchanges
Excluded Provisions:
Section 14.03 and Section 14.04(h) of the Indenture.
Procedures for Exercise.    
Conversion Date:
With respect to any conversion of a Convertible Note, the date on which the Holder (as such term is defined in the Indenture) of such Convertible Note satisfies all of the requirements for conversion thereof as set forth in Section 14.02(b) of the Indenture; provided that if Counterparty has not delivered to Dealer a related Notice of Exercise, then in no event shall a Conversion Date be deemed to occur hereunder (and no Option shall be exercised or deemed to be exercised hereunder) with respect to any surrender of a Convertible Note for conversion in respect of which Counterparty has elected to designate a financial institution for exchange in lieu of conversion of such Convertible Note pursuant to Section 14.08 of the Indenture.
Expiration Time:
The Valuation Time
Expiration Date:
November 15, 2021, subject to earlier exercise.

3


EXECUTION VERSION

Multiple Exercise:
Applicable, as described under “Automatic Exercise” below.
Automatic Exercise:
Notwithstanding Section 3.4 of the Equity Definitions, on each Conversion Date in respect of which a Notice of Conversion that is effective as to Counterparty has been delivered by the relevant converting Holder, a number of Options equal to the number of Convertible Notes in denominations of USD 1,000 as to which such Conversion Date has occurred shall be deemed to be automatically exercised; provided that such Options shall be exercised or deemed exercised only if Counterparty has provided a Notice of Exercise to Dealer in accordance with “Notice of Exercise” below.
Notwithstanding the foregoing, in no event shall the number of Options that are exercised or deemed exercised hereunder exceed the Number of Options.
Notice of Exercise:
Notwithstanding anything to the contrary in the Equity Definitions or under “Automatic Exercise” above, in order to exercise any Options, Counterparty must notify Dealer in writing, including by email, before 5:00 p.m. (New York City time) on the Scheduled Valid Day immediately preceding the scheduled first day of the Settlement Averaging Period for the Options being exercised of (i) the number of such Options and (ii) the scheduled first day of the Settlement Averaging Period and the scheduled Settlement Date; provided that in respect of Options relating to Convertible Notes with a Conversion Date occurring on or after the 45th Scheduled Valid Day preceding November 15, 2021, such notice may be given on or prior to the second Scheduled Valid Day immediately preceding the Expiration Date and need only specify the number of such Options.
Valuation Time:
At the close of trading of the regular trading session on the Exchange; provided that if the principal trading session is extended, the Calculation Agent shall determine the Valuation Time in good faith and in its commercially reasonable discretion.

4


EXECUTION VERSION

Market Disruption Event:
Section 6.3(a) of the Equity Definitions is hereby replaced in its entirety by the following:
“‘Market Disruption Event’ means, in respect of a Share, (i) a failure by the primary United States national or regional securities exchange or market on which the Shares are listed or admitted for trading to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m. (New York City time) on any Scheduled Valid Day for the Shares for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Shares or in any options, contracts or future contracts relating to the Shares.”
Settlement Terms.    
Settlement Method:
Cash Settlement
Cash Settlement:
In lieu of Section 8.1 of the Equity Definitions, Dealer will pay to Counterparty, on the relevant Settlement Date, the Option Cash Settlement Amount in respect of any Option exercised or deemed exercised hereunder. In no event will the Option Cash Settlement Amount be less than zero.
Option Cash Settlement Amount:
In respect of any Option exercised or deemed exercised, an amount in cash equal to (A) the sum of the products, for each Valid Day during the Settlement Averaging Period for such Option, of (x) the Option Entitlement on such Valid Day multiplied by (y) the Relevant Price on such Valid Day less the Strike Price, divided by (B) the number of Valid Days in the Settlement Averaging Period; provided that if the calculation contained in clause (y) above results in a negative number, such number shall be replaced with the number “zero”.
Valid Day:
A day on which (i) there is no Market Disruption Event and (ii) trading in the Shares generally occurs on the Exchange or, if the Shares are not then listed on the Exchange, on the principal other United States national or regional securities exchange on

5


EXECUTION VERSION

which the Shares are then listed or, if the Shares are not then listed on a United States national or regional securities exchange, on the principal other market on which the Shares are then listed or admitted for trading. If the Shares are not so listed or admitted for trading, “Valid Day” means a Business Day.
Scheduled Valid Day:
A day that is scheduled to be a Valid Day on the principal United States national or regional securities exchange or market on which the Shares are listed or admitted for trading. If the Shares are not so listed or admitted for trading, “Scheduled Valid Day” means a Business Day.
Business Day:
Any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.
Relevant Price:
On any Valid Day, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page WMGI <equity> AQR (or any successor thereto) in respect of the period from the scheduled opening time of the Exchange to the Scheduled Closing Time of the Exchange on such Valid Day (or if such volume-weighted average price is unavailable at such time, the market value of one Share on such Valid Day, as determined by the Calculation Agent using, if practicable, a volume-weighted average method). The Relevant Price will be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.
Settlement Averaging Period:
For any Option:
(i)    if the related Conversion Date occurs prior to the 45th Scheduled Valid Day immediately preceding the Expiration Date, the 40 consecutive Valid Days commencing on, and including, the second Valid Day following such Conversion Date; or
(ii)    if the related Conversion Date occurs on or following the 45th Scheduled Valid Day

6


EXECUTION VERSION

immediately preceding the Expiration Date, the 40 consecutive Valid Days commencing on, and including, the 42nd Scheduled Valid Day immediately prior to the Expiration Date.
Settlement Date:
For any Option, the date cash is paid under the terms of the Indenture with respect to the conversion of the Convertible Note related to such Option.
Settlement Currency:
USD
Representation and Agreement:
Notwithstanding anything to the contrary in Equity Definitions (including, but not limited to, Section 9.11 thereof), the parties acknowledge that (i) any Shares delivered to Counterparty shall be, upon delivery, subject to restrictions and limitations arising from Issuer’s status as issuer of the Shares under applicable securities laws, (ii) Dealer may deliver any Shares required to be delivered hereunder in certificated form in lieu of delivery through the Clearance System and (iii) any Shares delivered to Counterparty may be “restricted securities” (as defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”)).

3.
Additional Terms applicable to the Transaction.
Adjustments applicable to the Transaction:
Potential Adjustment Events:
Notwithstanding Section 11.2(e) of the Equity Definitions, a “Potential Adjustment Event” means an occurrence of any event or condition, as set forth in any Dilution Adjustment Provision, that would result in an adjustment under the Indenture to the “Conversion Rate” or the composition of a “unit of Reference Property” or to any “Last Reported Sale Price”, “Daily VWAP” or “Daily Conversion Value” (each as defined in the Indenture). For the avoidance of doubt, Dealer shall not have any delivery obligation hereunder in respect of any “Distributed Property” delivered by Counterparty and/or Issuer pursuant to the fourth sentence of Section 14.04(c) of the Indenture or any payment obligation in respect of any cash paid by Counterparty and/or Issuer pursuant to the fourth

7


EXECUTION VERSION

sentence of Section 14.04(d) of the Indenture (collectively, the “Conversion Rate Adjustment Fallback Provisions”), and no adjustment shall be made to the terms of the Transaction on account of any event or condition described in the Conversion Rate Adjustment Fallback Provisions.
Method of Adjustment:
Calculation Agent Adjustment, which means that, notwithstanding Section 11.2(c) of the Equity Definitions, upon any Potential Adjustment Event, the Calculation Agent shall make a corresponding adjustment to any one or more of the Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction.
Notwithstanding the foregoing and “Consequences of Merger Events / Tender Offers” below, if the Calculation Agent in good faith disagrees with any adjustment to the Convertible Notes that involves an exercise of discretion by Counterparty, Issuer or its board of directors, as applicable (including, without limitation, pursuant to Section 14.05 of the Indenture, Section 14.07(a) of the Indenture or any supplemental indenture entered into thereunder or in connection with any proportional adjustment or the determination of the fair value of any securities, property, rights or other assets), then in each such case, the Calculation Agent will determine the adjustment to be made to any one or more of the Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction in a commercially reasonable manner, after consultation with Counterparty; provided, that, notwithstanding the foregoing, if any Potential Adjustment Event occurs during the Settlement Averaging Period but no adjustment was made to any Convertible Note under the Indenture because the relevant Holder (as such term is defined in the Indenture) was deemed to be a record owner of the underlying Shares on the related Conversion Date, then the Calculation Agent shall make an adjustment, as determined by it in a commercially reasonable manner, after consultation with

8


EXECUTION VERSION

Counterparty, to the terms hereof in order to account for such Potential Adjustment Event.
Dilution Adjustment Provisions:
Section 14.04(a), (b), (c), (d), (e) and Section 14.05 of the Indenture.

Extraordinary Events applicable to the Transaction:
Merger Events:
Applicable; provided that notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in the definition of “Reorganization Event” in Section 14.07(a) of the Indenture.
Tender Offers:
Applicable; provided that notwithstanding Section 12.1(d) of the Equity Definitions, a “Tender Offer” means the occurrence of any event or condition set forth in Section 14.04(e) of the Indenture.
Consequences of Merger Events /
Tender Offers:
Notwithstanding Section 12.2 and Section 12.3 of the Equity Definitions, upon the occurrence of a Merger Event or a Tender Offer, and to the extent the Calculation Agent determines appropriate, the Calculation Agent shall make a corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares (in the case of a Merger Event), Strike Price, Number of Options, Option Entitlement, the definitions of “Exchange”, “Relevant Price”, “Settlement Averaging Period”, “Valid Day”, “Scheduled Valid Day”, “Market Disruption Event”, the number of Share thresholds in Section 9(b)(i) and 9(b)(ii) of this Confirmation and any other variable relevant to the exercise, settlement or payment for the Transaction, subject to the second paragraph under “Method of Adjustment”; provided, however, that such adjustment shall be made without regard to any adjustment to the Conversion Rate pursuant to any Excluded Provision; provided further that if, with respect to a Merger Event or a Tender Offer, (i) the consideration for the Shares includes (or, at the option of a holder of Shares, may include) shares of

9


EXECUTION VERSION

an entity or person that is not a (1) Dutch public limited company, (2) corporation or limited liability company that is treated, or, if disregarded for U.S. federal income tax purposes, its regarded owner is treated, as a “United States person” under Section 7701(a)(30) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (any such corporation or limited liability company being referred to hereinafter as a “U.S. Entity”) or (3) solely in the case of a Non-US Merger Transaction in respect of which Counterparty and Issuer have satisfied all of the requirements set forth in Sections 9(a) and 9(v) below, a corporation or entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom), or (ii) the Counterparty to the Transaction following such Merger Event or Tender Offer, will not be a U.S. Entity or will not be the Issuer or a wholly-owned subsidiary of the Issuer following such Merger Event or Tender Offer, then Cancellation and Payment (Calculation Agent Determination) may apply at Dealer’s sole election.
Nationalization, Insolvency or
Delisting:
Cancellation and Payment (Calculation Agent Determination); provided that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re‑listed, re‑traded or re‑quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re‑quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors), such exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:    

10


EXECUTION VERSION

Change in Law:
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the word “Shares” with the phrase “Hedge Positions” in clause (X) thereof and (ii) inserting the parenthetical “(including, for the avoidance of doubt and without limitation, adoption or promulgation of new regulations authorized or mandated by existing statute)” at the end of clause (A) thereof.
Failure to Deliver:
Applicable
Hedging Disruption:
Applicable; provided that:
(i)    Section 12.9(a)(v) of the Equity Definitions is hereby amended by (a) inserting the following words at the end of clause (A) thereof: “in the manner contemplated by the Hedging Party on the Trade Date” and (b) inserting the following two phrases at the end of such Section:
“For the avoidance of doubt, the term “equity price risk” shall be deemed to include, but shall not be limited to, stock price and volatility risk. And, for the further avoidance of doubt, any such transactions or assets referred to in phrases (A) or (B) above must be available on commercially reasonable pricing terms.”; and
(ii)    Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in the third line thereof, after the words “to terminate the Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
Increased Cost of Hedging:
Applicable
Hedging Party:
For all applicable Additional Disruption Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Hedging Party shall be made in good faith and in a commercially reasonable manner (it being

11


EXECUTION VERSION

understood that Hedging Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Determining Party:
For all applicable Extraordinary Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Determining Party shall be made in good faith and in a commercially reasonable manner (it being understood that Determining Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Non-Reliance:
Applicable.
Agreements and Acknowledgements
Regarding Hedging Activities:
Applicable
Additional Acknowledgments:
Applicable

4.
Calculation Agent. Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner. The parties agree that they will work reasonably to resolve any disputes as set forth in the immediately following paragraph.
In the case of any calculation, adjustment or determination by the Hedging Party, the Determining Party or the Calculation Agent, following any written request from Counterparty, the Hedging Party, the Determining Party or the Calculation Agent, as the case may be, shall promptly provide to Counterparty a written explanation describing in reasonable detail the basis for such calculation, adjustment or determination (including any quotation, market data or information from internal or external sources used in making such calculation, adjustment or determination, but without disclosing any proprietary models or other information that may be proprietary or confidential). If Counterparty promptly disputes such calculation, adjustment or determination in writing and provides reasonable detail as to the basis for such dispute, the Calculation Agent shall, to the extent permitted by applicable law, discuss the dispute with Counterparty in good faith.
5.
Account Details.
(a)
Account for payments to Counterparty:
Bank: Bank of America
ABA#: 026009593
Acct No.: 444014532256

12


EXECUTION VERSION

Acct Name:    Wright Medical Group N.V.
Swift: BOFAUS3N
(b)
Account for payments to Dealer:
Bank:    JPMorgan Chase Bank, N.A.
ABA#:     021000021
Acct No.:     099997979
Beneficiary: JPMorgan Chase Bank, N.A. New York
Ref:    Derivatives
6.
Offices.
(a)
The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch Party.
(b)
The Office of Dealer for the Transaction is: London
JPMorgan Chase Bank, National Association
London Branch
25 Bank Street
Canary Wharf
London E14 5JP
England
7.
Notices.
(a)
Address for notices or communications to Counterparty:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002

with a copy to:

Wright Medical Technology, Inc.
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
1023 Cherry Road
Memphis, TN 38117
Telephone No.: (901) 867-4743
Facsimile No.: (901) 867-4398

and

Ropes & Gray LLP
Attention: Isabel Dische, Esq. and Thomas Holden, Esq.

13


EXECUTION VERSION

Telephone No: (212) 596-9000
Facsimile No: (212) 596-9090
(b)
Address for notices or communications to Dealer:
JPMorgan Chase Bank, National Association
EDG Marketing Support
Email:     [email protected]
Facsimile No: 1-866-886-4506
J.P. Morgan Securities LLC,
383 Madison Ave,
New York, NY 10179

8.
Representations and Warranties of Counterparty.
Each of the representations and warranties of Counterparty set forth in Section 6 of the Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12, 2016, between Counterparty and J. Wood Capital Advisors, LLC, as Placement Agent (the “Placement Agent”), are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein; except to the extent that such representation and warranties if not true or correct, would not have a material adverse effect on the power or ability of Counterparty to execute and deliver this Confirmation or to perform its obligations hereunder. Counterparty hereby further represents and warrants to Dealer on the date hereof and on and as of the Premium Payment Date that:
(a)
Counterparty has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of the Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on Counterparty’s part; and this Confirmation has been duly and validly executed and delivered by Counterparty and constitutes its valid and binding obligation, enforceable against Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification

14


EXECUTION VERSION

and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto.
(b)
Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Counterparty or any of its subsidiaries is a party or by which Counterparty or any of its subsidiaries is bound or to which Counterparty or any of its subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.
(c)
No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by Counterparty of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the “Securities Act”) or state securities laws or under the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(d)
Counterparty is not and, after consummation of the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
(e)
Counterparty is an “eligible contract participant” (as such term is defined in Section 1a(18) of the Commodity Exchange Act, as amended, other than a person that is an eligible contract participant under Section 1a(18)(C) of the Commodity Exchange Act).
(f)
Each of it and its affiliates is not, on the date hereof, in possession of any material non-public information with respect to Issuer or the Shares.
(g)
No state or local (including any non-U.S. jurisdiction’s) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity), except for the reporting requirements of the Exchange Act and rules promulgated thereunder, or, the reporting or registration requirements of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969), in each case, as a result of Dealer or its affiliates owning or holding (however defined) Shares.
(h)
Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least $50 million.
(i)
It is a party which is able to adhere to the Attachment to the ISDA 2013 EMIR NFC Representation Protocol published by ISDA on March 8, 2013 (the “NFC Representation Protocol”) as if it were a party making the NFC Representation (as such term is defined in the NFC Representation Protocol).
9.
Other Provisions.

15


EXECUTION VERSION

(a)
Counterparty shall deliver to Dealer an opinion of Dutch counsel, dated as of the date hereof, with respect to the matters set forth in Sections 8(a) through (c). Delivery of such opinion to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer under Section 2(a)(i) of the Agreement.
(b)
Repurchase Notices. Counterparty shall, on any day on which Issuer effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the number of outstanding Shares as determined on such day is (i) less than 99,423,718 (in the case of the first such notice) or (ii) thereafter more than 3,073,706 less than the number of Shares included in the immediately preceding Repurchase Notice. Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses (including losses relating to Dealer’s hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities and any losses in connection therewith with respect to the Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint or several, which an Indemnified Person may become subject to, as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice on the day and in the manner specified in this paragraph, and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice in accordance with this paragraph, such Indemnified Person shall promptly notify Counterparty in writing, and Counterparty, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others Counterparty may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. Counterparty shall not be liable for any settlement of any proceeding contemplated by this paragraph that is effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Counterparty shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding contemplated by this paragraph that is in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in this paragraph is

16


EXECUTION VERSION

unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then Counterparty hereunder, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph (b) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this paragraph shall remain operative and in full force and effect regardless of the termination of the Transaction.
(c)
Regulation M. Counterparty is not on the Trade Date engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Counterparty, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. Counterparty shall not, until the second Scheduled Trading Day immediately following the Effective Date, engage in any such distribution.
(d)
No Manipulation. Counterparty is not entering into the Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares) or otherwise in violation of the Exchange Act or the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(e)
Transfer or Assignment.
(i)
Counterparty shall have the right to transfer or assign its rights and obligations hereunder with respect to all, but not less than all, of the Options hereunder (such Options, the “Transfer Options”); provided that such transfer or assignment shall be subject to reasonable conditions that Dealer may impose, including but not limited, to the following conditions:
(A)
With respect to any Transfer Options, Counterparty shall not be released from its notice and indemnification obligations pursuant to Section 9(b) or any obligations under Section 9(m) or 9(q) of this Confirmation;
(B)
Such transfer or assignment shall be effected on terms, including any reasonable undertakings by such third party (including, but not limited to, an undertaking with respect to compliance with applicable securities laws in a manner that, in the reasonable judgment of Dealer, will not expose Dealer to material risks under applicable securities laws) and execution of any documentation and delivery of legal opinions with respect to securities laws and other matters by such third party and Counterparty, as are requested and reasonably satisfactory to Dealer;
(C)
Dealer will not, as a result of such transfer and assignment, be required to pay the transferee on any payment date an amount under Section 2(d)(i)(4) of the Agreement greater than an amount that Dealer would

17


EXECUTION VERSION

have been required to pay to Counterparty in the absence of such transfer and assignment;
(D)
An Event of Default, Potential Event of Default or Termination Event will not occur as a result of such transfer and assignment;
(E)
Without limiting the generality of clause (B), Counterparty shall cause the transferee to make such Payee Tax Representations and to provide such tax documentation as may be reasonably requested by Dealer to permit Dealer to determine that results described in clause (C) will not occur upon or after such transfer and assignment; and
(F)
Counterparty shall be responsible for all reasonable costs and expenses, including reasonable counsel fees, incurred by Dealer in connection with such transfer or assignment;
(ii)
Dealer may, without Counterparty’s consent, transfer or assign all or any part of its rights or obligations under the Transaction (A) to any affiliate of Dealer (1) that has a rating for its long term, unsecured and unsubordinated indebtedness that is equal to or better than Dealer’s credit rating at the time of such transfer or assignment, or (2) whose obligations hereunder will be guaranteed, pursuant to the terms of a customary guarantee in a form used by Dealer generally for similar transactions, by Dealer, or (B) to any other third party with a rating for its long term, unsecured and unsubordinated indebtedness equal to or better than the lesser of (1) the credit rating of Dealer at the time of the transfer and (2) A- by Standard and Poor’s Rating Group, Inc. or its successor (“S&P”), or A3 by Moody’s Investor Service, Inc. (“Moody’s”) or, if either S&P or Moody’s ceases to rate such debt, at least an equivalent rating or better by a substitute rating agency mutually agreed by Counterparty and Dealer. If at any time at which (A) the Section 16 Percentage exceeds 7.5%, (B) the Option Equity Percentage exceeds 14.5%, or (C) the Share Amount exceeds the Applicable Share Limit (if any applies) (any such condition described in clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after using its good faith and commercially reasonable efforts to effect a transfer or assignment of Options to a third party on pricing terms reasonably acceptable to Dealer and within a time period reasonably acceptable to Dealer such that no Excess Ownership Position exists, then Dealer may designate any Exchange Business Day as an Early Termination Date with respect to a portion of the Transaction (the “Terminated Portion”), such that following such partial termination no Excess Ownership Position exists. In the event that Dealer so designates an Early Termination Date with respect to a portion of the Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Options equal to the number of Options underlying the Terminated Portion, (2) Counterparty were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(k) shall apply to any amount

18


EXECUTION VERSION

that is payable by Dealer to Counterparty pursuant to this sentence as if Counterparty was not the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and each person subject to aggregation of Shares with Dealer under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder directly or indirectly beneficially own (as defined under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder) and (B) the denominator of which is the number of Shares outstanding. The “Option Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (1) the product of the Number of Options and the Option Entitlement and (2) the aggregate number of Shares underlying any other call option transaction sold by Dealer to Counterparty or Issuer, as applicable, and (B) the denominator of which is the number of Shares outstanding. The “Share Amount” as of any day is the number of Shares that Dealer and any person whose ownership position would be aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”) under any law, rule, regulation, regulatory order or organizational documents or contracts of Issuer that are, in each case, applicable to ownership of Shares (“Applicable Restrictions”), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership under any Applicable Restriction, as determined by Dealer in its reasonable discretion. The “Applicable Share Limit” means a number of Shares equal to (A) the minimum number of Shares that could give rise to reporting or registration obligations or other requirements (including obtaining prior approval from any person or entity) of a Dealer Person, or could result in an adverse effect on a Dealer Person, under any Applicable Restriction, as determined by Dealer in its reasonable discretion, minus (B) 1% of the number of Shares outstanding.
(iii)
Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities, or make or receive any payment in cash, to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities, or to make or receive such payment in cash, and otherwise to perform Dealer’s obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.
(f)
Ratings Decline. If at any time the long term, unsecured and unsubordinated indebtedness of Dealer is rated Ba1 or lower by Moody’s or BB+ or lower by S&P (any such rating, a “Ratings Downgrade”), then Counterparty may, at any time following the occurrence and during the continuation of such Ratings Downgrade, provide written notice to Dealer specifying that it elects for this Section 9(f) to apply (a “Trigger Notice”). Upon receipt by Dealer of a Trigger Notice from Counterparty, Dealer shall promptly elect that either (i) the parties shall negotiate in good faith

19


EXECUTION VERSION

terms for collateral arrangements pursuant to which Dealer is required to provide collateral (including, but not limited to, equity or equity-linked securities issued by Counterparty or Issuer, as applicable) to Counterparty in respect of the Transaction with a value equal to the full mark-to-market exposure of Counterparty under the Transaction, as determined by Dealer in a good faith commercially reasonable manner, or (ii) an Additional Termination Event shall occur and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, and (B) the Transaction shall be the sole Affected Transaction.
(g)
Role of Agent. Each party agrees and acknowledges that (i) J.P. Morgan Securities LLC, an affiliate of Dealer (“JPMS”), has acted solely as agent for Dealer (and not as agent for Counterparty) and not as principal with respect to the Transaction and (ii) JPMS has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of the Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under the Transaction. For the avoidance of doubt, any performance by Dealer of its obligations hereunder solely to JPMS shall not relieve Dealer of such obligations. Any performance by Counterparty of its obligations (including notice obligations) through or by means of JPMS’ agency for Dealer shall constitute good performance of Counterparty’s obligations hereunder to Dealer.
(h)
Additional Termination Events.
(i)
Notwithstanding anything to the contrary in this Confirmation if an event of default occurs under the terms of the Convertible Notes as set forth in Section 6.01 of the Indenture, then such event of default shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
(ii)
Notwithstanding anything to the contrary in this Confirmation, the receipt by Dealer from Counterparty, within the applicable time period set forth under “Notice of Exercise” of any Notice of Exercise in respect of Options that relate to Convertible Notes as to which additional Shares would be added to the Conversion Rate pursuant to Section 14.03 of the Indenture in connection with a “Make-Whole Fundamental Change” (as defined in the Indenture) (such Convertible Notes, “Make-Whole Convertible Notes”) shall constitute an Additional Termination Event as provided in this Section 9(h). Upon receipt of any such Notice of Exercise, Dealer shall designate an Exchange Business Day following such Additional Termination Event (which Exchange Business Day shall in no event be earlier than the related settlement date for such Convertible Notes) as an Early Termination Date with respect to the portion of this Transaction corresponding to a number of Options (the “Make-Whole Conversion Options”) equal to the lesser of (A) the number of such Options specified in such Notice of Exercise and (B) the Number of Options as of the date Dealer designates such Early

20


EXECUTION VERSION

Termination Date (prior to giving effect to a reduction thereto on such date pursuant to the immediately following sentence). As of any such Early Termination Date, the Number of Options shall be reduced by the applicable number of Make-Whole Conversion Options. Any payment hereunder with respect to such termination of the Make-Whole Conversion Options shall be calculated pursuant to Section 6 of the Agreement using a volatility input that is equal to the Relevant Volatility Input, as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to this Transaction and a Number of Options equal to the number of Make-Whole Conversion Options, (2) Counterparty were the sole Affected Party with respect to such Additional Termination Event and (3) the terminated portion of the Transaction were the sole Affected Transaction (and, for the avoidance of doubt, in determining the amount payable pursuant to Section 6 of the Agreement, the Calculation Agent shall not take into account any adjustments to the Option Entitlement that result from corresponding adjustments to the Conversion Rate pursuant to Section 14.03 of the Indenture); provided that the amount of cash deliverable in respect of such early termination by Dealer to Counterparty shall not be greater than the product of (x) the Applicable Percentage, (y) the number of Make-Whole Conversion Options and (z) the excess of (I) (1) the Conversion Rate (after taking into account any applicable adjustments to the Conversion Rate pursuant to Section 14.03 of the Indenture) multiplied by (2) a price per Share determined by the Calculation Agent over (II) the principal amount per Make-Whole Convertible Note, as determined by the Calculation Agent. For the avoidance of doubt, if the Transaction (or a portion of the Transaction) is subject to termination or cancellation both (i) pursuant to this Section 9(h)(ii) and (ii) pursuant to either Section 12.7 or Section 12.9 of the Equity Definitions, in each case, as a result of the same “Make-Whole Fundamental Change” (as defined in the Indenture), as determined by Dealer in good faith and commercially reasonably, any such termination or cancellation payment with respect to the Transaction (or such portion of the Transaction, as applicable) shall be calculated using a volatility input that is equal to the Relevant Volatility Input. “Relevant Volatility Input” means a volatility input that is determined by Dealer in good faith and in a commercially reasonable manner and which, without limitation, may be based on implied volatility levels for options on the Shares with strike prices approximate to the Strike Price of the Transaction or approximate to the strike price of over-the-counter equity options on the Shares that are included in its commercially reasonable Hedge Positions with respect to the Transaction, in each case, as determined by Dealer in good faith and a commercially reasonable manner; provided that, if (i) Dealer (whether in its capacity as “Calculation Agent”, “Determining Party”, “Hedging Party” or otherwise) is required to determine a volatility input under any over-the-counter equity option transaction to which Dealer is a party and to which Counterparty (or, if different, Issuer) is party relating to the Shares (such equity option transactions, “Relevant

21


EXECUTION VERSION

Positions”) and (ii) Dealer determines that such Relevant Positions (or a portion thereof) are terminated, cancelled, offset or otherwise unwound at approximately the same time (as determined by Dealer in good faith and commercially reasonably) as the Transaction (or portion thereof) is terminated, cancelled, offset or otherwise unwound, Dealer shall use a Relevant Volatility Input that is no less than such volatility input for such Relevant Positions. For the avoidance of doubt, a Relevant Volatility Input that is equal to the volatility input for any Relevant Positions shall, in no event, be deemed to be commercially unreasonable.
(iii)
(a) Promptly following any Repayment Event (as defined below) (but, in any event, within 5 Scheduled Trading Days following settlement thereof), Counterparty may notify Dealer of such Repayment Event and the aggregate principal amount of Convertible Securities subject to such Repayment Event (the “Repayment Convertible Securities”) (any such notice, a “Repayment Notice”). The receipt by Dealer from Counterparty of any Repayment Notice shall constitute an Additional Termination Event as provided in this Section 9(h)(iii).
(b)    Upon receipt of any such Repayment Notice, Dealer shall designate an Exchange Business Day following receipt of such Repayment Notice (which Exchange Business Day will in no event be earlier than the settlement date for the relevant Repayment Event) as an Early Termination Date with respect to a portion (the “Repayment Terminated Portion”) of the Transaction consisting of a number of Options (the “Repayment Options”) equal to the lesser of (A) the number of Repayment Convertible Securities in denominations of USD1,000 that are subject to the relevant Repayment Event and (B) the Number of Options as of the date Dealer designates such Early Termination Date (prior to giving effect to a reduction thereto on such date pursuant to the immediately following sentence). As of any such Early Termination Date, the Number of Options shall be reduced by the applicable number of Repayment Options.
(c)    Any payment or delivery in respect of such termination of the Repayment Terminated Portion of the Transaction shall be made pursuant to Section 6 of the Agreement. If Dealer determines or otherwise uses a volatility input in determining an Early Termination Amount under Section 6 of the Agreement in respect of an Additional Termination Event pursuant to this Section 9(h)(iii), Dealer shall use the Relevant Volatility Input.  Counterparty shall be the sole Affected Party with respect to such Additional Termination Event and the Repayment Terminated Portion of the Transaction shall be the sole Affected Transaction. “Repayment Event” means that (i) any Convertible Securities are repurchased by Counterparty or any of its subsidiaries, (ii) any Convertible Securities are delivered to Counterparty in exchange for delivery of any property or assets of Counterparty or any of its subsidiaries (howsoever described), (iii) any principal of any of the Convertible Securities is repaid prior to the final maturity date of the

22


EXECUTION VERSION

Convertible Securities (other than upon an event of default under the Convertible Securities described in Section 9(h)(i)), or (iv) any Convertible Securities are exchanged by or for the benefit of the Holders (as defined in the Indenture) thereof for any other securities of Counterparty or any of its Affiliates (as defined in the Indenture) (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction; provided that no conversion of Convertible Securities pursuant to the terms of the Indenture shall constitute a Repayment Event.  Counterparty acknowledges its responsibilities under applicable securities laws, and in particular Section 9 and Section 10(b) of the Exchange Act and the rules and regulations thereunder, in respect of any action taken by Counterparty or any of its Affiliates (as defined in the Indenture) in respect of a Repayment Event, including, without limitation, the delivery of a Repayment Notice.
(d)    Counterparty shall cause any Convertible Securities subject to a Repayment Event to be promptly cancelled and acknowledges and agrees that, except to the extent provided above in this Section 9(h)(iii), all such Convertible Securities subject to a Repayment Event will be deemed for all purposes under the Transaction to be permanently extinguished and no longer outstanding.
(i)
Amendments to the Equity Definitions.
(i)
Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii)(1) through (9) of the ISDA Master Agreement with respect to that Issuer.”
(ii)
Section 12.9(b)(i) of the Equity Definitions is hereby amended by (1) replacing “either party may elect” with “Dealer may elect” and (2) replacing “notice to the other party” with “notice to Counterparty” in the first sentence of such section.
(j)
Setoff. Obligations under the Transaction shall not be set off by either party against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. For the avoidance of doubt, in the event of bankruptcy or liquidation of either Counterparty or Dealer neither party shall have the right to set off any obligation that it may have to the other party under the Transaction against any obligation such other party may have to it, whether arising under the Agreement, this Confirmation or any other agreement between the parties hereto, by operation of law or otherwise.
(k)
Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events. If in respect of the Transaction, an amount is payable by Dealer to Counterparty (i) pursuant to Section 12.7 or Section 12.9 of the Equity

23


EXECUTION VERSION

Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “Payment Obligation”), Dealer shall satisfy the Payment Obligation by the Share Termination Alternative (as defined below), unless (a) Counterparty gives irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, the Tender Offer Date, the Announcement Date (in the case of Nationalization, Insolvency or Delisting), the Early Termination Date or date of cancellation, as applicable, of its election that the Share Termination Alternative shall not apply, (b) Counterparty remakes (which representation is confirmed to Dealer in writing by Issuer, if other than Counterparty) the representation set forth in Section 8(f) as of the date of such election and (c) Dealer agrees, in its reasonable discretion, to such election, in which case the provisions of Section 12.7 or Section 12.9 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply.
Share Termination Alternative:
If applicable, Dealer shall deliver to Counterparty the Share Termination Delivery Property on, or within a commercially reasonable period of time after, the date when the relevant Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section 6(d) (ii) and 6(e) of the Agreement, as applicable, in satisfaction of such Payment Obligation in the manner reasonably requested by Counterparty free of payment.
Share Termination Delivery Property:
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.
Share Termination Unit Price:
The value to Dealer of property contained in one Share Termination Delivery Unit, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified by the Calculation Agent to Dealer at the time of notification of the

24


EXECUTION VERSION

Payment Obligation. For the avoidance of doubt, the parties agree that in determining the Share Termination Delivery Unit Price the Calculation Agent may consider, if commercially reasonable, the purchase price paid in connection with the purchase of Share Termination Delivery Property.
Share Termination Delivery Unit:
One Share or, if the Shares have changed into cash or any other property or the right to receive cash or any other property as the result of a Nationalization, Insolvency or Merger Event (any such cash or other property, the “Exchange Property”), a unit consisting of the type and amount of such Exchange Property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency or Merger Event, as determined by the Calculation Agent.
Failure to Deliver:
Applicable
Other applicable provisions:
If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9 and 9.11 (as modified above) of the Equity Definitions and the provisions set forth opposite the caption “Representation and Agreement” in Section 2 will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Share Termination Settled” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”. “Share Termination Settled” in relation to the Transaction means that the Share Termination Alternative is applicable to the Transaction.

(l)
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of either party has represented, expressly or otherwise, that such other party

25


EXECUTION VERSION

would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein.
(m)
Registration. Counterparty hereby agrees that if, in the good faith reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations pursuant to the Transaction cannot be sold in the public market by Dealer without registration under the Securities Act, Counterparty shall (or shall cause Issuer to), at its election, either (i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer an effective registration statement under the Securities Act and enter into an agreement, in form and substance satisfactory to Dealer, substantially in the form of an underwriting agreement for a registered secondary offering; provided, however, that if Dealer, in its sole reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this paragraph shall apply at the election of Counterparty, (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance satisfactory to Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii) purchase the Hedge Shares from Dealer at the Relevant Price on such Exchange Business Days, and in the amounts, requested by Dealer.
(n)
Tax Disclosure. Effective from the date of commencement of discussions concerning the Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Counterparty relating to such tax treatment and tax structure.
(o)
Right to Extend. Dealer may postpone or add, in whole or in part, any Valid Day or Valid Days during the Settlement Averaging Period or any other date of valuation, payment or delivery by Dealer, with respect to some or all of the Options hereunder, if Dealer reasonably and in good faith determines, based on the advice of counsel in the case of the immediately following clause (ii), that such action is reasonably necessary or appropriate (i) to preserve Dealer’s commercially reasonable hedging or hedge unwind activity hereunder in light of existing liquidity conditions or (ii) to enable Dealer to effect transactions with respect to Shares in connection with its commercially reasonable hedging, hedge unwind or settlement activity hereunder in a manner that would, if Dealer were Issuer or an affiliated purchaser of Issuer, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.

26


EXECUTION VERSION

(p)
Securities Contract; Swap Agreement. The parties hereto intend for (i) the Transaction to be a “securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code, (ii) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as described in the Bankruptcy Code, and (iii) each payment and delivery of cash, securities or other property hereunder to constitute a “margin payment” or “settlement payment” and a “transfer” as defined in the Bankruptcy Code.
(q)
Notice of Certain Other Events. Counterparty covenants and agrees that:
(i)
promptly following the public announcement of the results of any election by the holders of Shares with respect to the consideration due upon consummation of any Merger Event, Counterparty shall give Dealer written notice of the types and amounts of consideration that holders of Shares have elected to receive upon consummation of such Merger Event (the date of such notification, the “Consideration Notification Date”); provided that in no event shall the Consideration Notification Date be later than the date on which such Merger Event is consummated; and
(ii)
promptly following any adjustment to the Convertible Notes in connection with any Potential Adjustment Event, Merger Event or Tender Offer, Counterparty shall give Dealer written notice of the details of such adjustment.
(r)
Wall Street Transparency and Accountability Act. In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, but not limited to, rights arising from Change in Law, Hedging Disruption, Increased Cost of Hedging, an Excess Ownership Position, or Illegality (as defined in the Agreement)).
(s)
Agreements and Acknowledgements Regarding Hedging. Counterparty understands, acknowledges and agrees that: (A) at any time on and prior to the Expiration Date, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction; (B) Dealer and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Issuer shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Relevant Prices;

27


EXECUTION VERSION

and (D) any market activities of Dealer and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Relevant Prices, each in a manner that may be adverse to Counterparty.
(t)
Early Unwind. In the event the sale of the “Securities” (as defined in the Placement Agency Agreement) is not consummated with the Placement Agent for any reason by 5:00 p.m. (New York City time) on the Premium Payment Date, or such later date as agreed upon by the parties (the Premium Payment Date or such later date, the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”) on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of Dealer and Counterparty under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed as Hedging Positions in respect of this Transaction either prior to or after the Early Unwind Date. Each of Dealer and Counterparty represents and acknowledges to the other that, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.
(u)
Designation of Dealer. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Issuer, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.
(v)
Non-US Merger Transactions. Issuer shall not enter into or consummate any Non-US Merger Transaction unless the successor Issuer immediately following such Non-US Merger Transaction repeats to Dealer immediately following such Non-US Merger Transaction the representations and warranties set forth in Sections 8(a), 8(b), 8(c) and 8(d) of this Confirmation (as if references therein to (i) “execute, deliver” were replaced with “assume”, (ii) “execution, delivery” and “execution and delivery” were replaced with “assumption” and (iii) “executed and delivered” were replaced with “assumed”).
Notwithstanding anything to the contrary in this Confirmation if (1) Issuer enters into or consummates any Non-US Merger Transaction pursuant to which Issuer following such Non-US Merger Transaction is organized under the laws of a jurisdiction other than the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom, (2) Counterparty ceases to be a corporation organized under the laws of the Netherlands, the United States, any State thereof or the District of Columbia that is a wholly-owned subsidiary of Issuer, or (3) Issuer enters into or consummates any Non-US Merger Transaction and does not comply with the requirements of the immediately previous paragraph of this Section 9(v), then such transaction or event shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected

28


EXECUTION VERSION

Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
If, at any time following the occurrence of any Non-US Merger Transaction, Dealer determines in good faith that (x) such Non-US Merger Transaction has had an adverse effect on Dealer’s rights and obligations under the Transaction or (y) Dealer would incur an increased amount of tax, duty, expense or fee to (1) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the economic risk of entering into and performing its obligations with respect to the Transaction, or (2) realize, recover or remit the proceeds of any such transaction(s) or asset(s) (each of the events described in clause (x) and clause (y) above, a “Non-US Merger Event”), then, in either case, Dealer shall give notice to Counterparty of such Non-US Merger Event. Concurrently with delivering such notice, Dealer shall give notice to Counterparty of a Price Adjustment that Dealer reasonably and in good faith determines appropriate to account for the economic effect on the Transaction of such Non-US Merger Event (unless Dealer determines that no Price Adjustment will produce a commercially reasonably result, in which case Dealer shall so notify Counterparty). Unless Dealer determines in good faith that no Price Adjustment will produce a commercially reasonably result, within one Scheduled Trading Day of receipt of such notice, Counterparty shall notify Dealer that it elects to (A) agree to amend the Transaction to take into account such Price Adjustment or (B) pay Dealer the amount determined by Dealer that corresponds to such Price Adjustment (and, in each case, Counterparty shall repeat the representation set forth in Section 8(f) of this Confirmation (which representation is confirmed to Dealer in writing by Issuer, if other than Counterparty) as of the date of such election). If Counterparty fails to give such notice to Dealer of its election in accordance with the foregoing by the end of that first Scheduled Trading Day, or if Dealer determines that no Price Adjustment will produce a commercially reasonably result, then such failure or such determination, as the case may be, shall constitute an Additional Termination Event applicable to the Transaction (it being understood that in the case of a Non-US Merger Event solely pursuant to clause (x) of the definition thereof, such determination shall constitute an Additional Termination Event only if the relevant adverse effect may have a material impact on Dealer’s rights and obligations under the Transaction, as determined by Dealer in good faith) and, with respect to such Additional Termination Event, (1) Counterparty shall be deemed to be the sole Affected Party, (2) the Transaction shall be the sole Affected Transaction and (3) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
For the avoidance of doubt, the parties hereto agree and acknowledge that (I) the occurrence of an Non-US Merger Event shall not preclude the occurrence of one or more additional, subsequent Non-US Merger Events and (II) if a Non-US Merger Event occurs, Dealer will determine, in its sole discretion, whether to exercise its rights under the provisions of this Section 9(v) and/or the rights and remedies of

29


EXECUTION VERSION

Dealer and its affiliates under any other provision of this Confirmation, the Equity Definitions and the Agreement.
(w)
Tax Forms. Counterparty shall provide to Dealer a valid U.S. Internal Revenue Service (“IRS”) Form W-8BEN-E on or before the date of execution of this Confirmation and will promptly tender an updated IRS Form W-8BEN-E or other applicable IRS Form if the previously tendered IRS Form W-8BEN-E becomes obsolete or incorrect. Dealer shall provide Counterparty a valid IRS Form W-9 on or before the date of execution of this Confirmation and will promptly tender an updated IRS Form W-9 or applicable IRS Form if the previously tendered IRS Form becomes obsolete or incorrect.
(x)
FATCA. “Indemnifiable Tax” as defined in Section 14 of this Agreement shall not include any U.S. federal withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of this Agreement.
(y)
Section 871 (m). Dealer and Counterparty hereby agree that this Agreement shall be treated as a Covered Master Agreement (as that term is defined in the 2015 Section 871(m) Protocol) and this Agreement shall be deemed to have been amended in accordance with the modifications specified in the Attachment to the 2015 Section 871(m) Protocol.
(z)
2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol. The parties agree that terms of the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by ISDA on July 19, 2013 (“Protocol”) apply to the Agreement as if the parties had adhered to the Protocol without amendment. In respect of the Attachment to the Protocol, (i) the definition of “Adherence Letter” shall be deemed to be deleted and references to “Adherence Letter” shall be deemed to be to this Section (and references to “such party’s Adherence Letter” and “its Adherence Letter” shall be read accordingly), (ii) references to “adheres to the Protocol” shall be deemed to be “enters into this Amendment”, (iii) references to “Protocol Covered Agreement” shall be deemed to be references to the Agreement (and “each Protocol Covered Agreement” shall be read accordingly), (iv) references to “Implementation Date” shall be deemed to be references to the date of this Amendment, and (v) the term “the parties” shall be construed as referring to Dealer and the Counterparty. For the purposes of this Section:
(i)
Dealer is a Portfolio Data Sending Entity and the Counterparty is a Portfolio Data Receiving entity;
(ii)
The Local Business Days for such purposes in relation to Dealer are London and in relation to Counterparty are New York and Amsterdam;

30


EXECUTION VERSION

(iii)
The provisions in this section shall survive the termination of the Transaction; and
(iv)
The following are the applicable email addresses.
Portfolio Data:            Dealer: [email protected]
Counterparty: [email protected]
Notice of discrepancy:    Dealer: [email protected]
Counterparty: [email protected]
Dispute Notice:        Dealer: [email protected]
Counterparty: [email protected]

[Remainder of page left blank intentionally.]


31


EXECUTION VERSION

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning by email to Dealer.
Very truly yours,
J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association
By: /s/ Sudheer Tegulapalle    
Authorized Signatory
Name:    Sudheer Tegulapalle
Managing Director

32


EXECUTION VERSION

Accepted and confirmed
as of the Trade Date:
WRIGHT MEDICAL GROUP N.V.

By: /s/ Lance A. Berry    
Name: Lance A. Berry
Title:     Senior Vice President and
Chief Financial Officer


33


EXECUTION VERSION


Bank of America, N.A.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
New York, NY 10036
Attention: Gary Rosenblum
Telephone No.: (646) 855-3684
Facsimile: (646) 834-9809
May 12, 2016
To: Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002

Re:    Call Option Transaction
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the call option transaction entered into between Bank of America, N.A. (“Dealer”) and Wright Medical Group N.V. (“Counterparty”) as of the Trade Date specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements with respect to the Transaction and serve as the final documentation for the Transaction.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”) are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms used herein are based on terms that are defined in the Private Placement Circular dated May 9, 2016 (the “Private Placement Circular”) relating to the 2.25% Cash Convertible Senior Notes due 2021 (as originally issued by Counterparty, the “Convertible Notes” and each USD 1,000 principal amount of Convertible Notes, a “Convertible Note”) issued by Counterparty in an aggregate initial principal amount of USD 395,000,000 pursuant to an Indenture to be dated May 20, 2016 between Counterparty and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”). In the event of any inconsistency between the terms defined in the Private Placement Circular, the Indenture and this Confirmation, this Confirmation shall govern. The parties acknowledge that this Confirmation is entered into on the date hereof with the understanding that (i) definitions set forth in the Indenture which are also defined herein by reference to the Indenture and (ii) sections of the Indenture that are referred to herein will conform to the descriptions thereof in the Private Placement Circular. If any such definitions in the Indenture or any such sections of the Indenture differ from the descriptions thereof in the Private Placement Circular, the descriptions thereof in the Private Placement Circular will govern for purposes of this Confirmation. The parties further acknowledge



EXECUTION VERSION


that the Indenture section numbers used herein are based on the draft of the Indenture last reviewed by Dealer as of the date of this Confirmation, and if any such section numbers are changed in the Indenture as executed, the parties will amend this Confirmation in good faith to preserve the intent of the parties. Subject to the foregoing, references to the Indenture herein are references to the Indenture as in effect on the date of its execution, and if the Indenture is amended following such date, any such amendment will be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing.
Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.
1.
This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Counterparty had executed an agreement in such form (but without any Schedule except for (i) the election of US Dollars (“USD”) as the Termination Currency, and (ii) the election of the laws of the State of New York as the governing law (without reference to choice of law doctrine)) on the Trade Date. In the event of any inconsistency between provisions of the Agreement and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. The parties acknowledge that the Transaction to which this Confirmation relates is not governed by, and shall not be treated as a transaction under, any other ISDA Master Agreement entered into between the parties from time to time. In the event of any inconsistency between this Confirmation and the Agreement, this Confirmation shall govern.
2.
The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:
General Terms.    
Trade Date:
May 12, 2016
Effective Date:
The third Exchange Business Day immediately prior to the Premium Payment Date
Option Style:
“Modified American”, as described under “Procedures for Exercise” below
Option Type:
Call
Buyer:
Counterparty
Seller:
Dealer

2


EXECUTION VERSION


Shares:
The ordinary shares of Counterparty, par value 0.03 Euros per share (Exchange symbol “WMGI”).
Number of Options:
395,000. For the avoidance of doubt, the Number of Options shall be reduced by any Options exercised by Counterparty. In no event will the Number of Options be less than zero.
Applicable Percentage:
50.0%
Option Entitlement:
A number equal to the product of the Applicable Percentage and 46.8165.
Strike Price:
USD 21.36
Premium:
USD 49,908,250.00
Premium Payment Date:
May 20, 2016
Exchange:
The NASDAQ Global Select Market
Related Exchange(s):
All Exchanges
Excluded Provisions:
Section 14.03 and Section 14.04(h) of the Indenture.
Procedures for Exercise.    
Conversion Date:
With respect to any conversion of a Convertible Note, the date on which the Holder (as such term is defined in the Indenture) of such Convertible Note satisfies all of the requirements for conversion thereof as set forth in Section 14.02(b) of the Indenture; provided that if Counterparty has not delivered to Dealer a related Notice of Exercise, then in no event shall a Conversion Date be deemed to occur hereunder (and no Option shall be exercised or deemed to be exercised hereunder) with respect to any surrender of a Convertible Note for conversion in respect of which Counterparty has elected to designate a financial institution for exchange in lieu of conversion of such Convertible Note pursuant to Section 14.08 of the Indenture.
Expiration Time:
The Valuation Time
Expiration Date:
November 15, 2021, subject to earlier exercise.

3


EXECUTION VERSION


Multiple Exercise:
Applicable, as described under “Automatic Exercise” below.
Automatic Exercise:
Notwithstanding Section 3.4 of the Equity Definitions, on each Conversion Date in respect of which a Notice of Conversion that is effective as to Counterparty has been delivered by the relevant converting Holder, a number of Options equal to the number of Convertible Notes in denominations of USD 1,000 as to which such Conversion Date has occurred shall be deemed to be automatically exercised; provided that such Options shall be exercised or deemed exercised only if Counterparty has provided a Notice of Exercise to Dealer in accordance with “Notice of Exercise” below.
Notwithstanding the foregoing, in no event shall the number of Options that are exercised or deemed exercised hereunder exceed the Number of Options.
Notice of Exercise:
Notwithstanding anything to the contrary in the Equity Definitions or under “Automatic Exercise” above, in order to exercise any Options, Counterparty must notify Dealer in writing, including by email, before 5:00 p.m. (New York City time) on the Scheduled Valid Day immediately preceding the scheduled first day of the Settlement Averaging Period for the Options being exercised of (i) the number of such Options and (ii) the scheduled first day of the Settlement Averaging Period and the scheduled Settlement Date; provided that in respect of Options relating to Convertible Notes with a Conversion Date occurring on or after the 45th Scheduled Valid Day preceding November 15, 2021, such notice may be given on or prior to the second Scheduled Valid Day immediately preceding the Expiration Date and need only specify the number of such Options.
Valuation Time:
At the close of trading of the regular trading session on the Exchange; provided that if the principal trading session is extended, the Calculation Agent shall determine the Valuation Time in good faith and in its commercially reasonable discretion.

4


EXECUTION VERSION


Market Disruption Event:
Section 6.3(a) of the Equity Definitions is hereby replaced in its entirety by the following:
“‘Market Disruption Event’ means, in respect of a Share, (i) a failure by the primary United States national or regional securities exchange or market on which the Shares are listed or admitted for trading to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m. (New York City time) on any Scheduled Valid Day for the Shares for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Shares or in any options, contracts or future contracts relating to the Shares.”
Settlement Terms.    
Settlement Method:
Cash Settlement
Cash Settlement:
In lieu of Section 8.1 of the Equity Definitions, Dealer will pay to Counterparty, on the relevant Settlement Date, the Option Cash Settlement Amount in respect of any Option exercised or deemed exercised hereunder. In no event will the Option Cash Settlement Amount be less than zero.
Option Cash Settlement Amount:
In respect of any Option exercised or deemed exercised, an amount in cash equal to (A) the sum of the products, for each Valid Day during the Settlement Averaging Period for such Option, of (x) the Option Entitlement on such Valid Day multiplied by (y) the Relevant Price on such Valid Day less the Strike Price, divided by (B) the number of Valid Days in the Settlement Averaging Period; provided that if the calculation contained in clause (y) above results in a negative number, such number shall be replaced with the number “zero”.
Valid Day:
A day on which (i) there is no Market Disruption Event and (ii) trading in the Shares generally occurs on the Exchange or, if the Shares are not then listed on the Exchange, on the principal other United States national or regional securities exchange on

5


EXECUTION VERSION


which the Shares are then listed or, if the Shares are not then listed on a United States national or regional securities exchange, on the principal other market on which the Shares are then listed or admitted for trading. If the Shares are not so listed or admitted for trading, “Valid Day” means a Business Day.
Scheduled Valid Day:
A day that is scheduled to be a Valid Day on the principal United States national or regional securities exchange or market on which the Shares are listed or admitted for trading. If the Shares are not so listed or admitted for trading, “Scheduled Valid Day” means a Business Day.
Business Day:
Any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.
Relevant Price:
On any Valid Day, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page WMGI <equity> AQR (or any successor thereto) in respect of the period from the scheduled opening time of the Exchange to the Scheduled Closing Time of the Exchange on such Valid Day (or if such volume-weighted average price is unavailable at such time, the market value of one Share on such Valid Day, as determined by the Calculation Agent using, if practicable, a volume-weighted average method). The Relevant Price will be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.
Settlement Averaging Period:
For any Option:
(i)    if the related Conversion Date occurs prior to the 45th Scheduled Valid Day immediately preceding the Expiration Date, the 40 consecutive Valid Days commencing on, and including, the second Valid Day following such Conversion Date; or
(ii)    if the related Conversion Date occurs on or following the 45th Scheduled Valid Day

6


EXECUTION VERSION


immediately preceding the Expiration Date, the 40 consecutive Valid Days commencing on, and including, the 42nd Scheduled Valid Day immediately prior to the Expiration Date.
Settlement Date:
For any Option, the date cash is paid under the terms of the Indenture with respect to the conversion of the Convertible Note related to such Option.
Settlement Currency:
USD
Representation and Agreement:
Notwithstanding anything to the contrary in Equity Definitions (including, but not limited to, Section 9.11 thereof), the parties acknowledge that (i) any Shares delivered to Counterparty shall be, upon delivery, subject to restrictions and limitations arising from Issuer’s status as issuer of the Shares under applicable securities laws, (ii) Dealer may deliver any Shares required to be delivered hereunder in certificated form in lieu of delivery through the Clearance System and (iii) any Shares delivered to Counterparty may be “restricted securities” (as defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”)).

3.
Additional Terms applicable to the Transaction.
Adjustments applicable to the Transaction:
Potential Adjustment Events:
Notwithstanding Section 11.2(e) of the Equity Definitions, a “Potential Adjustment Event” means an occurrence of any event or condition, as set forth in any Dilution Adjustment Provision, that would result in an adjustment under the Indenture to the “Conversion Rate” or the composition of a “unit of Reference Property” or to any “Last Reported Sale Price”, “Daily VWAP” or “Daily Conversion Value” (each as defined in the Indenture). For the avoidance of doubt, Dealer shall not have any delivery obligation hereunder in respect of any “Distributed Property” delivered by Counterparty and/or Issuer pursuant to the fourth sentence of Section 14.04(c) of the Indenture or any payment obligation in respect of any cash paid by Counterparty and/or Issuer pursuant to the fourth

7


EXECUTION VERSION


sentence of Section 14.04(d) of the Indenture (collectively, the “Conversion Rate Adjustment Fallback Provisions”), and no adjustment shall be made to the terms of the Transaction on account of any event or condition described in the Conversion Rate Adjustment Fallback Provisions.
Method of Adjustment:
Calculation Agent Adjustment, which means that, notwithstanding Section 11.2(c) of the Equity Definitions, upon any Potential Adjustment Event, the Calculation Agent shall make a corresponding adjustment to any one or more of the Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction.
Notwithstanding the foregoing and “Consequences of Merger Events / Tender Offers” below, if the Calculation Agent in good faith disagrees with any adjustment to the Convertible Notes that involves an exercise of discretion by Counterparty, Issuer or its board of directors, as applicable (including, without limitation, pursuant to Section 14.05 of the Indenture, Section 14.07(a) of the Indenture or any supplemental indenture entered into thereunder or in connection with any proportional adjustment or the determination of the fair value of any securities, property, rights or other assets), then in each such case, the Calculation Agent will determine the adjustment to be made to any one or more of the Strike Price, Number of Options, Option Entitlement and any other variable relevant to the exercise, settlement or payment for the Transaction in a commercially reasonable manner, after consultation with Counterparty; provided, that, notwithstanding the foregoing, if any Potential Adjustment Event occurs during the Settlement Averaging Period but no adjustment was made to any Convertible Note under the Indenture because the relevant Holder (as such term is defined in the Indenture) was deemed to be a record owner of the underlying Shares on the related Conversion Date, then the Calculation Agent shall make an adjustment, as determined by it in a commercially reasonable manner, after consultation with

8


EXECUTION VERSION


Counterparty, to the terms hereof in order to account for such Potential Adjustment Event.
Dilution Adjustment Provisions:
Section 14.04(a), (b), (c), (d), (e) and Section 14.05 of the Indenture.

Extraordinary Events applicable to the Transaction:
Merger Events:
Applicable; provided that notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in the definition of “Reorganization Event” in Section 14.07(a) of the Indenture.
Tender Offers:
Applicable; provided that notwithstanding Section 12.1(d) of the Equity Definitions, a “Tender Offer” means the occurrence of any event or condition set forth in Section 14.04(e) of the Indenture.
Consequences of Merger Events /
Tender Offers:
Notwithstanding Section 12.2 and Section 12.3 of the Equity Definitions, upon the occurrence of a Merger Event or a Tender Offer, and to the extent the Calculation Agent determines appropriate, the Calculation Agent shall make a corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares (in the case of a Merger Event), Strike Price, Number of Options, Option Entitlement, the definitions of “Exchange”, “Relevant Price”, “Settlement Averaging Period”, “Valid Day”, “Scheduled Valid Day”, “Market Disruption Event”, the number of Share thresholds in Section 9(b)(i) and 9(b)(ii) of this Confirmation and any other variable relevant to the exercise, settlement or payment for the Transaction, subject to the second paragraph under “Method of Adjustment”; provided, however, that such adjustment shall be made without regard to any adjustment to the Conversion Rate pursuant to any Excluded Provision; provided further that if, with respect to a Merger Event or a Tender Offer, (i) the consideration for the Shares includes (or, at the option of a holder of Shares, may include) shares of

9


EXECUTION VERSION


an entity or person that is not a (1) Dutch public limited company, (2) corporation or limited liability company that is treated, or, if disregarded for U.S. federal income tax purposes, its regarded owner is treated, as a “United States person” under Section 7701(a)(30) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) (any such corporation or limited liability company being referred to hereinafter as a “U.S. Entity”) or (3) solely in the case of a Non-US Merger Transaction in respect of which Counterparty and Issuer have satisfied all of the requirements set forth in Sections 9(a) and 9(v) below, a corporation or entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom), or (ii) the Counterparty to the Transaction following such Merger Event or Tender Offer, will not be a U.S. Entity or will not be the Issuer or a wholly-owned subsidiary of the Issuer following such Merger Event or Tender Offer, then Cancellation and Payment (Calculation Agent Determination) may apply at Dealer’s sole election.
Nationalization, Insolvency or
Delisting:
Cancellation and Payment (Calculation Agent Determination); provided that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re‑listed, re‑traded or re‑quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re‑quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors), such exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:    

10


EXECUTION VERSION


Change in Law:
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the word “Shares” with the phrase “Hedge Positions” in clause (X) thereof and (ii) inserting the parenthetical “(including, for the avoidance of doubt and without limitation, adoption or promulgation of new regulations authorized or mandated by existing statute)” at the end of clause (A) thereof.
Failure to Deliver:
Applicable
Hedging Disruption:
Applicable; provided that:
(i)    Section 12.9(a)(v) of the Equity Definitions is hereby amended by (a) inserting the following words at the end of clause (A) thereof: “in the manner contemplated by the Hedging Party on the Trade Date” and (b) inserting the following two phrases at the end of such Section:
“For the avoidance of doubt, the term “equity price risk” shall be deemed to include, but shall not be limited to, stock price and volatility risk. And, for the further avoidance of doubt, any such transactions or assets referred to in phrases (A) or (B) above must be available on commercially reasonable pricing terms.”; and
(ii)    Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in the third line thereof, after the words “to terminate the Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
Increased Cost of Hedging:
Applicable
Hedging Party:
For all applicable Additional Disruption Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Hedging Party shall be made in good faith and in a commercially reasonable manner (it being

11


EXECUTION VERSION


understood that Hedging Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Determining Party:
For all applicable Extraordinary Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Determining Party shall be made in good faith and in a commercially reasonable manner (it being understood that Determining Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Non-Reliance:
Applicable.
Agreements and Acknowledgements
Regarding Hedging Activities:
Applicable
Additional Acknowledgments:
Applicable

4.
Calculation Agent. Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner. The parties agree that they will work reasonably to resolve any disputes as set forth in the immediately following paragraph.
In the case of any calculation, adjustment or determination by the Hedging Party, the Determining Party or the Calculation Agent, following any written request from Counterparty, the Hedging Party, the Determining Party or the Calculation Agent, as the case may be, shall promptly provide to Counterparty a written explanation describing in reasonable detail the basis for such calculation, adjustment or determination (including any quotation, market data or information from internal or external sources used in making such calculation, adjustment or determination, but without disclosing any proprietary models or other information that may be proprietary or confidential). If Counterparty promptly disputes such calculation, adjustment or determination in writing and provides reasonable detail as to the basis for such dispute, the Calculation Agent shall, to the extent permitted by applicable law, discuss the dispute with Counterparty in good faith.
5.
Account Details.
(a)
Account for payments to Counterparty:
Bank: Bank of America
ABA#: 026009593
Acct No.: 444014532256

12


EXECUTION VERSION


Acct Name:    Wright Medical Group N.V.
Swift: BOFAUS3N
(b)
Account for payments to Dealer:
Bank of America NA
ABA: 026-009-593
SWIFT: BOFAUS3N
Bank Routing: 026-009-593
Account No. : 0012334-61892
Account Name: Bank of America
6.
Offices.
(a)
The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch Party.
(b)
The Office of Dealer for the Transaction is: New York
7.
Notices.
(a)
Address for notices or communications to Counterparty:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002

with a copy to:

Wright Medical Technology, Inc.
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
1023 Cherry Road
Memphis, TN 38117
Telephone No.: (901) 867-4743
Facsimile No.: (901) 867-4398

and

Ropes & Gray LLP
Attention: Isabel Dische, Esq. and Thomas Holden, Esq.
Telephone No: (212) 596-9000
Facsimile No: (212) 596-9090

13


EXECUTION VERSION


(b)
Address for notices or communications to Dealer:
Bank of America, N.A.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
New York, NY 10036
Attention: Gary Rosenblum
Telephone No.: (646) 855-3684
Facsimile: (646) 834-9809

8.
Representations and Warranties of Counterparty.
Each of the representations and warranties of Counterparty set forth in Section 6 of the Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12, 2016, between Counterparty and J. Wood Capital Advisors, LLC, as Placement Agent (the “Placement Agent”), are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein; except to the extent that such representation and warranties if not true or correct, would not have a material adverse effect on the power or ability of Counterparty to execute and deliver this Confirmation or to perform its obligations hereunder. Counterparty hereby further represents and warrants to Dealer on the date hereof and on and as of the Premium Payment Date that:
(a)
Counterparty has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of the Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on Counterparty’s part; and this Confirmation has been duly and validly executed and delivered by Counterparty and constitutes its valid and binding obligation, enforceable against Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto.
(b)
Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Counterparty hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Counterparty, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Counterparty or any of its subsidiaries is a party or by which Counterparty or any of its subsidiaries is bound or to which Counterparty or any of its subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.
(c)
No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery

14


EXECUTION VERSION


or performance by Counterparty of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the “Securities Act”) or state securities laws or under the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(d)
Counterparty is not and, after consummation of the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
(e)
Counterparty is an “eligible contract participant” (as such term is defined in Section 1a(18) of the Commodity Exchange Act, as amended, other than a person that is an eligible contract participant under Section 1a(18)(C) of the Commodity Exchange Act).
(f)
Each of it and its affiliates is not, on the date hereof, in possession of any material non-public information with respect to Issuer or the Shares.
(g)
No state or local (including any non-U.S. jurisdiction’s) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity), except for the reporting requirements of the Exchange Act and rules promulgated thereunder, or, the reporting or registration requirements of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969), in each case, as a result of Dealer or its affiliates owning or holding (however defined) Shares.
(h)
Counterparty (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least $50 million.
(i)
It is a party which is able to adhere to the Attachment to the ISDA 2013 EMIR NFC Representation Protocol published by ISDA on March 8, 2013 (the “NFC Representation Protocol”) as if it were a party making the NFC Representation (as such term is defined in the NFC Representation Protocol).
9.
Other Provisions.
(a)
Counterparty shall deliver to Dealer an opinion of Dutch counsel, dated as of the date hereof, with respect to the matters set forth in Sections 8(a) through (c). Delivery of such opinion to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer under Section 2(a)(i) of the Agreement.
(b)
Repurchase Notices. Counterparty shall, on any day on which Issuer effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the number of outstanding Shares as determined on such day is (i) less than 97,296,541 (in the case of the first such notice) or (ii) thereafter more than 4,863,283 less than the number of Shares included in the immediately preceding Repurchase Notice. Counterparty agrees to indemnify and hold harmless Dealer and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons

15


EXECUTION VERSION


(each, an “Indemnified Person”) from and against any and all losses (including losses relating to Dealer’s hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities and any losses in connection therewith with respect to the Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint or several, which an Indemnified Person may become subject to, as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice on the day and in the manner specified in this paragraph, and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person as a result of Counterparty’s failure to provide Dealer with a Repurchase Notice in accordance with this paragraph, such Indemnified Person shall promptly notify Counterparty in writing, and Counterparty, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others Counterparty may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. Counterparty shall not be liable for any settlement of any proceeding contemplated by this paragraph that is effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Counterparty shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding contemplated by this paragraph that is in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in this paragraph is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then Counterparty hereunder, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph (b) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this paragraph shall remain operative and in full force and effect regardless of the termination of the Transaction.
(c)
Regulation M. Counterparty is not on the Trade Date engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Counterparty, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10)

16


EXECUTION VERSION


and 102(b)(7) of Regulation M. Counterparty shall not, until the second Scheduled Trading Day immediately following the Effective Date, engage in any such distribution.
(d)
No Manipulation. Counterparty is not entering into the Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares) or otherwise in violation of the Exchange Act or the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(e)
Transfer or Assignment.
(i)
Counterparty shall have the right to transfer or assign its rights and obligations hereunder with respect to all, but not less than all, of the Options hereunder (such Options, the “Transfer Options”); provided that such transfer or assignment shall be subject to reasonable conditions that Dealer may impose, including but not limited, to the following conditions:
(A)
With respect to any Transfer Options, Counterparty shall not be released from its notice and indemnification obligations pursuant to Section 9(b) or any obligations under Section 9(m) or 9(q) of this Confirmation;
(B)
Such transfer or assignment shall be effected on terms, including any reasonable undertakings by such third party (including, but not limited to, an undertaking with respect to compliance with applicable securities laws in a manner that, in the reasonable judgment of Dealer, will not expose Dealer to material risks under applicable securities laws) and execution of any documentation and delivery of legal opinions with respect to securities laws and other matters by such third party and Counterparty, as are requested and reasonably satisfactory to Dealer;
(C)
Dealer will not, as a result of such transfer and assignment, be required to pay the transferee on any payment date an amount under Section 2(d)(i)(4) of the Agreement greater than an amount that Dealer would have been required to pay to Counterparty in the absence of such transfer and assignment;
(D)
An Event of Default, Potential Event of Default or Termination Event will not occur as a result of such transfer and assignment;
(E)
Without limiting the generality of clause (B), Counterparty shall cause the transferee to make such Payee Tax Representations and to provide such tax documentation as may be reasonably requested by Dealer to permit Dealer to determine that results described in clause (C) will not occur upon or after such transfer and assignment; and
(F)
Counterparty shall be responsible for all reasonable costs and expenses, including reasonable counsel fees, incurred by Dealer in connection with such transfer or assignment;
(ii)
Dealer may, without Counterparty’s consent, transfer or assign all or any part of its rights or obligations under the Transaction (A) to any affiliate of Dealer

17


EXECUTION VERSION


(1) that has a rating for its long term, unsecured and unsubordinated indebtedness that is equal to or better than Dealer’s credit rating at the time of such transfer or assignment, or (2) whose obligations hereunder will be guaranteed, pursuant to the terms of a customary guarantee in a form used by Dealer generally for similar transactions, by Dealer, or (B) to any other third party with a rating for its long term, unsecured and unsubordinated indebtedness equal to or better than the lesser of (1) the credit rating of Dealer at the time of the transfer and (2) A- by Standard and Poor’s Rating Group, Inc. or its successor (“S&P”), or A3 by Moody’s Investor Service, Inc. (“Moody’s”) or, if either S&P or Moody’s ceases to rate such debt, at least an equivalent rating or better by a substitute rating agency mutually agreed by Counterparty and Dealer. If at any time at which (A) the Section 16 Percentage exceeds 7.5%, (B) the Option Equity Percentage exceeds 14.5%, or (C) the Share Amount exceeds the Applicable Share Limit (if any applies) (any such condition described in clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after using its good faith and commercially reasonable efforts to effect a transfer or assignment of Options to a third party on pricing terms reasonably acceptable to Dealer and within a time period reasonably acceptable to Dealer such that no Excess Ownership Position exists, then Dealer may designate any Exchange Business Day as an Early Termination Date with respect to a portion of the Transaction (the “Terminated Portion”), such that following such partial termination no Excess Ownership Position exists. In the event that Dealer so designates an Early Termination Date with respect to a portion of the Transaction, a payment shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Options equal to the number of Options underlying the Terminated Portion, (2) Counterparty were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(k) shall apply to any amount that is payable by Dealer to Counterparty pursuant to this sentence as if Counterparty was not the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and each person subject to aggregation of Shares with Dealer under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder directly or indirectly beneficially own (as defined under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder) and (B) the denominator of which is the number of Shares outstanding. The “Option Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (1) the product of the Number of Options and the Option Entitlement and (2) the aggregate number of Shares underlying any other call option transaction sold by Dealer to Counterparty or Issuer, as applicable, and (B) the denominator of which is the number of Shares outstanding. The

18


EXECUTION VERSION


“Share Amount” as of any day is the number of Shares that Dealer and any person whose ownership position would be aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”) under any law, rule, regulation, regulatory order or organizational documents or contracts of Issuer that are, in each case, applicable to ownership of Shares (“Applicable Restrictions”), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership under any Applicable Restriction, as determined by Dealer in its reasonable discretion. The “Applicable Share Limit” means a number of Shares equal to (A) the minimum number of Shares that could give rise to reporting or registration obligations or other requirements (including obtaining prior approval from any person or entity) of a Dealer Person, or could result in an adverse effect on a Dealer Person, under any Applicable Restriction, as determined by Dealer in its reasonable discretion, minus (B) 1% of the number of Shares outstanding.
(iii)
Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities, or make or receive any payment in cash, to or from Counterparty, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities, or to make or receive such payment in cash, and otherwise to perform Dealer’s obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.
(f)
Ratings Decline. If at any time the long term, unsecured and unsubordinated indebtedness of Dealer is rated Ba1 or lower by Moody’s or BB+ or lower by S&P (any such rating, a “Ratings Downgrade”), then Counterparty may, at any time following the occurrence and during the continuation of such Ratings Downgrade, provide written notice to Dealer specifying that it elects for this Section 9(f) to apply (a “Trigger Notice”). Upon receipt by Dealer of a Trigger Notice from Counterparty, Dealer shall promptly elect that either (i) the parties shall negotiate in good faith terms for collateral arrangements pursuant to which Dealer is required to provide collateral (including, but not limited to, equity or equity-linked securities issued by Counterparty or Issuer, as applicable) to Counterparty in respect of the Transaction with a value equal to the full mark-to-market exposure of Counterparty under the Transaction, as determined by Dealer in a good faith commercially reasonable manner, or (ii) an Additional Termination Event shall occur and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, and (B) the Transaction shall be the sole Affected Transaction.
(g)
[Reserved.]
(h)
Additional Termination Events.
(i)
Notwithstanding anything to the contrary in this Confirmation if an event of default occurs under the terms of the Convertible Notes as set forth in Section 6.01 of the Indenture, then such event of default shall constitute an Additional Termination Event applicable to the Transaction and, with respect

19


EXECUTION VERSION


to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
(ii)
Notwithstanding anything to the contrary in this Confirmation, the receipt by Dealer from Counterparty, within the applicable time period set forth under “Notice of Exercise” of any Notice of Exercise in respect of Options that relate to Convertible Notes as to which additional Shares would be added to the Conversion Rate pursuant to Section 14.03 of the Indenture in connection with a “Make-Whole Fundamental Change” (as defined in the Indenture) (such Convertible Notes, “Make-Whole Convertible Notes”) shall constitute an Additional Termination Event as provided in this Section 9(h). Upon receipt of any such Notice of Exercise, Dealer shall designate an Exchange Business Day following such Additional Termination Event (which Exchange Business Day shall in no event be earlier than the related settlement date for such Convertible Notes) as an Early Termination Date with respect to the portion of this Transaction corresponding to a number of Options (the “Make-Whole Conversion Options”) equal to the lesser of (A) the number of such Options specified in such Notice of Exercise and (B) the Number of Options as of the date Dealer designates such Early Termination Date (prior to giving effect to a reduction thereto on such date pursuant to the immediately following sentence). As of any such Early Termination Date, the Number of Options shall be reduced by the applicable number of Make-Whole Conversion Options. Any payment hereunder with respect to such termination of the Make-Whole Conversion Options shall be calculated pursuant to Section 6 of the Agreement using a volatility input that is equal to the Relevant Volatility Input, as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to this Transaction and a Number of Options equal to the number of Make-Whole Conversion Options, (2) Counterparty were the sole Affected Party with respect to such Additional Termination Event and (3) the terminated portion of the Transaction were the sole Affected Transaction (and, for the avoidance of doubt, in determining the amount payable pursuant to Section 6 of the Agreement, the Calculation Agent shall not take into account any adjustments to the Option Entitlement that result from corresponding adjustments to the Conversion Rate pursuant to Section 14.03 of the Indenture); provided that the amount of cash deliverable in respect of such early termination by Dealer to Counterparty shall not be greater than the product of (x) the Applicable Percentage, (y) the number of Make-Whole Conversion Options and (z) the excess of (I) (1) the Conversion Rate (after taking into account any applicable adjustments to the Conversion Rate pursuant to Section 14.03 of the Indenture) multiplied by (2) a price per Share determined by the Calculation Agent over (II) the principal amount per Make-Whole Convertible Note, as determined by the Calculation Agent. For the avoidance of doubt, if the Transaction (or a portion of the Transaction)

20


EXECUTION VERSION


is subject to termination or cancellation both (i) pursuant to this Section 9(h)(ii) and (ii) pursuant to either Section 12.7 or Section 12.9 of the Equity Definitions, in each case, as a result of the same “Make-Whole Fundamental Change” (as defined in the Indenture), as determined by Dealer in good faith and commercially reasonably, any such termination or cancellation payment with respect to the Transaction (or such portion of the Transaction, as applicable) shall be calculated using a volatility input that is equal to the Relevant Volatility Input. “Relevant Volatility Input” means a volatility input that is determined by Dealer in good faith and in a commercially reasonable manner and which, without limitation, may be based on implied volatility levels for options on the Shares with strike prices approximate to the Strike Price of the Transaction or approximate to the strike price of over-the-counter equity options on the Shares that are included in its commercially reasonable Hedge Positions with respect to the Transaction, in each case, as determined by Dealer in good faith and a commercially reasonable manner; provided that, if (i) Dealer (whether in its capacity as “Calculation Agent”, “Determining Party”, “Hedging Party” or otherwise) is required to determine a volatility input under any over-the-counter equity option transaction to which Dealer is a party and to which Counterparty (or, if different, Issuer) is party relating to the Shares (such equity option transactions, “Relevant Positions”) and (ii) Dealer determines that such Relevant Positions (or a portion thereof) are terminated, cancelled, offset or otherwise unwound at approximately the same time (as determined by Dealer in good faith and commercially reasonably) as the Transaction (or portion thereof) is terminated, cancelled, offset or otherwise unwound, Dealer shall use a Relevant Volatility Input that is no less than such volatility input for such Relevant Positions. For the avoidance of doubt, a Relevant Volatility Input that is equal to the volatility input for any Relevant Positions shall, in no event, be deemed to be commercially unreasonable.
(iii)
(a) Promptly following any Repayment Event (as defined below) (but, in any event, within 5 Scheduled Trading Days following settlement thereof), Counterparty may notify Dealer of such Repayment Event and the aggregate principal amount of Convertible Securities subject to such Repayment Event (the “Repayment Convertible Securities”) (any such notice, a “Repayment Notice”). The receipt by Dealer from Counterparty of any Repayment Notice shall constitute an Additional Termination Event as provided in this Section 9(h)(iii).
(b)    Upon receipt of any such Repayment Notice, Dealer shall designate an Exchange Business Day following receipt of such Repayment Notice (which Exchange Business Day will in no event be earlier than the settlement date for the relevant Repayment Event) as an Early Termination Date with respect to a portion (the “Repayment Terminated Portion”) of the Transaction consisting of a number of Options (the “Repayment Options”) equal to the lesser of (A) the number of Repayment Convertible Securities in denominations of USD1,000 that are subject to the relevant Repayment

21


EXECUTION VERSION


Event and (B) the Number of Options as of the date Dealer designates such Early Termination Date (prior to giving effect to a reduction thereto on such date pursuant to the immediately following sentence). As of any such Early Termination Date, the Number of Options shall be reduced by the applicable number of Repayment Options.
(c)    Any payment or delivery in respect of such termination of the Repayment Terminated Portion of the Transaction shall be made pursuant to Section 6 of the Agreement. If Dealer determines or otherwise uses a volatility input in determining an Early Termination Amount under Section 6 of the Agreement in respect of an Additional Termination Event pursuant to this Section 9(h)(iii), Dealer shall use the Relevant Volatility Input.  Counterparty shall be the sole Affected Party with respect to such Additional Termination Event and the Repayment Terminated Portion of the Transaction shall be the sole Affected Transaction. “Repayment Event” means that (i) any Convertible Securities are repurchased by Counterparty or any of its subsidiaries, (ii) any Convertible Securities are delivered to Counterparty in exchange for delivery of any property or assets of Counterparty or any of its subsidiaries (howsoever described), (iii) any principal of any of the Convertible Securities is repaid prior to the final maturity date of the Convertible Securities (other than upon an event of default under the Convertible Securities described in Section 9(h)(i)), or (iv) any Convertible Securities are exchanged by or for the benefit of the Holders (as defined in the Indenture) thereof for any other securities of Counterparty or any of its Affiliates (as defined in the Indenture) (or any other property, or any combination thereof) pursuant to any exchange offer or similar transaction; provided that no conversion of Convertible Securities pursuant to the terms of the Indenture shall constitute a Repayment Event.  Counterparty acknowledges its responsibilities under applicable securities laws, and in particular Section 9 and Section 10(b) of the Exchange Act and the rules and regulations thereunder, in respect of any action taken by Counterparty or any of its Affiliates (as defined in the Indenture) in respect of a Repayment Event, including, without limitation, the delivery of a Repayment Notice.
(d)    Counterparty shall cause any Convertible Securities subject to a Repayment Event to be promptly cancelled and acknowledges and agrees that, except to the extent provided above in this Section 9(h)(iii), all such Convertible Securities subject to a Repayment Event will be deemed for all purposes under the Transaction to be permanently extinguished and no longer outstanding.
(i)
Amendments to the Equity Definitions.
(i)
Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end

22


EXECUTION VERSION


of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii)(1) through (9) of the ISDA Master Agreement with respect to that Issuer.”
(ii)
Section 12.9(b)(i) of the Equity Definitions is hereby amended by (1) replacing “either party may elect” with “Dealer may elect” and (2) replacing “notice to the other party” with “notice to Counterparty” in the first sentence of such section.
(j)
Setoff. Obligations under the Transaction shall not be set off by either party against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. For the avoidance of doubt, in the event of bankruptcy or liquidation of either Counterparty or Dealer neither party shall have the right to set off any obligation that it may have to the other party under the Transaction against any obligation such other party may have to it, whether arising under the Agreement, this Confirmation or any other agreement between the parties hereto, by operation of law or otherwise.
(k)
Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events. If in respect of the Transaction, an amount is payable by Dealer to Counterparty (i) pursuant to Section 12.7 or Section 12.9 of the Equity Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “Payment Obligation”), Dealer shall satisfy the Payment Obligation by the Share Termination Alternative (as defined below), unless (a) Counterparty gives irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, the Tender Offer Date, the Announcement Date (in the case of Nationalization, Insolvency or Delisting), the Early Termination Date or date of cancellation, as applicable, of its election that the Share Termination Alternative shall not apply, (b) Counterparty remakes (which representation is confirmed to Dealer in writing by Issuer, if other than Counterparty) the representation set forth in Section 8(f) as of the date of such election and (c) Dealer agrees, in its reasonable discretion, to such election, in which case the provisions of Section 12.7 or Section 12.9 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply.
Share Termination Alternative:
If applicable, Dealer shall deliver to Counterparty the Share Termination Delivery Property on, or within a commercially reasonable period of time after, the date when the relevant Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section 6(d) (ii) and 6(e) of the Agreement, as applicable, in satisfaction of such Payment Obligation in the manner

23


EXECUTION VERSION


reasonably requested by Counterparty free of payment.
Share Termination Delivery Property:
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price.
Share Termination Unit Price:
The value to Dealer of property contained in one Share Termination Delivery Unit, as determined by the Calculation Agent in its discretion by commercially reasonable means and notified by the Calculation Agent to Dealer at the time of notification of the Payment Obligation. For the avoidance of doubt, the parties agree that in determining the Share Termination Delivery Unit Price the Calculation Agent may consider, if commercially reasonable, the purchase price paid in connection with the purchase of Share Termination Delivery Property.
Share Termination Delivery Unit:
One Share or, if the Shares have changed into cash or any other property or the right to receive cash or any other property as the result of a Nationalization, Insolvency or Merger Event (any such cash or other property, the “Exchange Property”), a unit consisting of the type and amount of such Exchange Property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency or Merger Event, as determined by the Calculation Agent.
Failure to Deliver:
Applicable

24


EXECUTION VERSION


Other applicable provisions:
If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9 and 9.11 (as modified above) of the Equity Definitions and the provisions set forth opposite the caption “Representation and Agreement” in Section 2 will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Share Termination Settled” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”. “Share Termination Settled” in relation to the Transaction means that the Share Termination Alternative is applicable to the Transaction.

(l)
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of either party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein.
(m)
Registration. Counterparty hereby agrees that if, in the good faith reasonable judgment of Dealer, the Shares (“Hedge Shares”) acquired by Dealer for the purpose of hedging its obligations pursuant to the Transaction cannot be sold in the public market by Dealer without registration under the Securities Act, Counterparty shall (or shall cause Issuer to), at its election, either (i) in order to allow Dealer to sell the Hedge Shares in a registered offering, make available to Dealer an effective registration statement under the Securities Act and enter into an agreement, in form and substance satisfactory to Dealer, substantially in the form of an underwriting agreement for a registered secondary offering; provided, however, that if Dealer, in its sole reasonable discretion, is not satisfied with access to due diligence materials, the results of its due diligence investigation, or the procedures and documentation for the registered offering referred to above, then clause (ii) or clause (iii) of this paragraph shall apply at the election of Counterparty, (ii) in order to allow Dealer to sell the Hedge Shares in a private placement, enter into a private placement agreement substantially similar to private placement purchase agreements customary for private placements of equity securities, in form and substance satisfactory to Dealer (in which case, the Calculation Agent shall make any adjustments to the terms of the Transaction that are necessary, in its reasonable judgment, to compensate Dealer for any discount from the public market price of the Shares incurred on the sale of Hedge Shares in a private placement), or (iii) purchase the Hedge Shares

25


EXECUTION VERSION


from Dealer at the Relevant Price on such Exchange Business Days, and in the amounts, requested by Dealer.
(n)
Tax Disclosure. Effective from the date of commencement of discussions concerning the Transaction, Counterparty and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Counterparty relating to such tax treatment and tax structure.
(o)
Right to Extend. Dealer may postpone or add, in whole or in part, any Valid Day or Valid Days during the Settlement Averaging Period or any other date of valuation, payment or delivery by Dealer, with respect to some or all of the Options hereunder, if Dealer reasonably and in good faith determines, based on the advice of counsel in the case of the immediately following clause (ii), that such action is reasonably necessary or appropriate (i) to preserve Dealer’s commercially reasonable hedging or hedge unwind activity hereunder in light of existing liquidity conditions or (ii) to enable Dealer to effect transactions with respect to Shares in connection with its commercially reasonable hedging, hedge unwind or settlement activity hereunder in a manner that would, if Dealer were Issuer or an affiliated purchaser of Issuer, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.
(p)
Securities Contract; Swap Agreement. The parties hereto intend for (i) the Transaction to be a “securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code, (ii) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as described in the Bankruptcy Code, and (iii) each payment and delivery of cash, securities or other property hereunder to constitute a “margin payment” or “settlement payment” and a “transfer” as defined in the Bankruptcy Code.
(q)
Notice of Certain Other Events. Counterparty covenants and agrees that:
(i)
promptly following the public announcement of the results of any election by the holders of Shares with respect to the consideration due upon consummation of any Merger Event, Counterparty shall give Dealer written notice of the types and amounts of consideration that holders of Shares have elected to receive upon consummation of such Merger Event (the date of such notification, the “Consideration Notification Date”); provided that in no event shall the Consideration Notification Date be later than the date on which such Merger Event is consummated; and
(ii)
promptly following any adjustment to the Convertible Notes in connection with any Potential Adjustment Event, Merger Event or Tender Offer, Counterparty shall give Dealer written notice of the details of such adjustment.

26


EXECUTION VERSION


(r)
Wall Street Transparency and Accountability Act. In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, but not limited to, rights arising from Change in Law, Hedging Disruption, Increased Cost of Hedging, an Excess Ownership Position, or Illegality (as defined in the Agreement)).
(s)
Agreements and Acknowledgements Regarding Hedging. Counterparty understands, acknowledges and agrees that: (A) at any time on and prior to the Expiration Date, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction; (B) Dealer and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Issuer shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Relevant Prices; and (D) any market activities of Dealer and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Relevant Prices, each in a manner that may be adverse to Counterparty.
(t)
Early Unwind. In the event the sale of the “Securities” (as defined in the Placement Agency Agreement) is not consummated with the Placement Agent for any reason by 5:00 p.m. (New York City time) on the Premium Payment Date, or such later date as agreed upon by the parties (the Premium Payment Date or such later date, the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”) on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of Dealer and Counterparty under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed as Hedging Positions in respect of this Transaction either prior to or after the Early Unwind Date. Each of Dealer and Counterparty represents and acknowledges to the other that, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.
(u)
Designation of Dealer. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Issuer, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Counterparty to the extent of any such performance.

27


EXECUTION VERSION


(v)
Non-US Merger Transactions. Issuer shall not enter into or consummate any Non-US Merger Transaction unless the successor Issuer immediately following such Non-US Merger Transaction repeats to Dealer immediately following such Non-US Merger Transaction the representations and warranties set forth in Sections 8(a), 8(b), 8(c) and 8(d) of this Confirmation (as if references therein to (i) “execute, deliver” were replaced with “assume”, (ii) “execution, delivery” and “execution and delivery” were replaced with “assumption” and (iii) “executed and delivered” were replaced with “assumed”).
Notwithstanding anything to the contrary in this Confirmation if (1) Issuer enters into or consummates any Non-US Merger Transaction pursuant to which Issuer following such Non-US Merger Transaction is organized under the laws of a jurisdiction other than the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom, (2) Counterparty ceases to be a corporation organized under the laws of the Netherlands, the United States, any State thereof or the District of Columbia that is a wholly-owned subsidiary of Issuer, or (3) Issuer enters into or consummates any Non-US Merger Transaction and does not comply with the requirements of the immediately previous paragraph of this Section 9(v), then such transaction or event shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Counterparty shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
If, at any time following the occurrence of any Non-US Merger Transaction, Dealer determines in good faith that (x) such Non-US Merger Transaction has had an adverse effect on Dealer’s rights and obligations under the Transaction or (y) Dealer would incur an increased amount of tax, duty, expense or fee to (1) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the economic risk of entering into and performing its obligations with respect to the Transaction, or (2) realize, recover or remit the proceeds of any such transaction(s) or asset(s) (each of the events described in clause (x) and clause (y) above, a “Non-US Merger Event”), then, in either case, Dealer shall give notice to Counterparty of such Non-US Merger Event. Concurrently with delivering such notice, Dealer shall give notice to Counterparty of a Price Adjustment that Dealer reasonably and in good faith determines appropriate to account for the economic effect on the Transaction of such Non-US Merger Event (unless Dealer determines that no Price Adjustment will produce a commercially reasonably result, in which case Dealer shall so notify Counterparty). Unless Dealer determines in good faith that no Price Adjustment will produce a commercially reasonably result, within one Scheduled Trading Day of receipt of such notice, Counterparty shall notify Dealer that it elects to (A) agree to amend the Transaction to take into account such Price Adjustment or (B) pay Dealer the amount determined by Dealer that corresponds to such Price Adjustment (and, in each case, Counterparty shall repeat the representation set forth in Section 8(f) of this Confirmation (which representation

28


EXECUTION VERSION


is confirmed to Dealer in writing by Issuer, if other than Counterparty) as of the date of such election). If Counterparty fails to give such notice to Dealer of its election in accordance with the foregoing by the end of that first Scheduled Trading Day, or if Dealer determines that no Price Adjustment will produce a commercially reasonably result, then such failure or such determination, as the case may be, shall constitute an Additional Termination Event applicable to the Transaction (it being understood that in the case of a Non-US Merger Event solely pursuant to clause (x) of the definition thereof, such determination shall constitute an Additional Termination Event only if the relevant adverse effect may have a material impact on Dealer’s rights and obligations under the Transaction, as determined by Dealer in good faith) and, with respect to such Additional Termination Event, (1) Counterparty shall be deemed to be the sole Affected Party, (2) the Transaction shall be the sole Affected Transaction and (3) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
For the avoidance of doubt, the parties hereto agree and acknowledge that (I) the occurrence of an Non-US Merger Event shall not preclude the occurrence of one or more additional, subsequent Non-US Merger Events and (II) if a Non-US Merger Event occurs, Dealer will determine, in its sole discretion, whether to exercise its rights under the provisions of this Section 9(v) and/or the rights and remedies of Dealer and its affiliates under any other provision of this Confirmation, the Equity Definitions and the Agreement.
(w)
Tax Forms. Counterparty shall provide to Dealer a valid U.S. Internal Revenue Service (“IRS”) Form W-8BEN-E on or before the date of execution of this Confirmation and will promptly tender an updated IRS Form W-8BEN-E or other applicable IRS Form if the previously tendered IRS Form W-8BEN-E becomes obsolete or incorrect. Dealer shall provide Counterparty a valid IRS Form W-9 on or before the date of execution of this Confirmation and will promptly tender an updated IRS Form W-9 or applicable IRS Form if the previously tendered IRS Form becomes obsolete or incorrect.
(x)
FATCA. “Indemnifiable Tax” as defined in Section 14 of this Agreement shall not include any U.S. federal withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of this Agreement.
(y)
Section 871 (m). Dealer and Counterparty hereby agree that this Agreement shall be treated as a Covered Master Agreement (as that term is defined in the 2015 Section 871(m) Protocol) and this Agreement shall be deemed to have been amended in

29


EXECUTION VERSION


accordance with the modifications specified in the Attachment to the 2015 Section 871(m) Protocol.
(z)
The Counterparty acknowledges that it has not been solicited by Dealer, or any person acting on behalf of the Dealer, to enter into this Transaction but rather it has independently approached the Dealer, through the Counterparty’s advisor, and invited the Dealer to bid competitively for this Transaction.
(aa)
2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol. The parties agree that terms of the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by ISDA on July 19, 2013 (“Protocol”) apply to the Agreement as if the parties had adhered to the Protocol without amendment. In respect of the Attachment to the Protocol, (i) the definition of “Adherence Letter” shall be deemed to be deleted and references to “Adherence Letter” shall be deemed to be to this Section (and references to “such party’s Adherence Letter” and “its Adherence Letter” shall be read accordingly), (ii) references to “adheres to the Protocol” shall be deemed to be “enters into this Amendment”, (iii) references to “Protocol Covered Agreement” shall be deemed to be references to the Agreement (and “each Protocol Covered Agreement” shall be read accordingly), (iv) references to “Implementation Date” shall be deemed to be references to the date of this Amendment, and (v) the term “the parties” shall be construed as referring to Dealer and the Counterparty. For the purposes of this Section:
(i)
Dealer is a Portfolio Data Sending Entity and the Counterparty is a Portfolio Data Receiving entity;
(ii)
The Local Business Days for such purposes in relation to Dealer are London and in relation to Counterparty are New York and Amsterdam;
(iii)
The provisions in this section shall survive the termination of the Transaction; and
(iv)
The following are the applicable email addresses.
Portfolio Data:            Dealer: [email protected]
Counterparty: [email protected]
Notice of discrepancy:    Dealer: [email protected]
Counterparty: [email protected]
Dispute Notice:        Dealer: [email protected]
Counterparty: [email protected]
[Remainder of page left blank intentionally.]


30


EXECUTION VERSION


Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning by email to Dealer.
Very truly yours,
BANK OF AMERICA, N.A.
By: /s/ Christopher A. Hutmaker    
Authorized Signatory
Name: Christopher A. Hutmaker
Managing Director




31


EXECUTION VERSION


Accepted and confirmed
as of the Trade Date:
WRIGHT MEDICAL GROUP N.V.

By: /s/ Lance A. Berry    
Name: Lance A. Berry
Title:     Senior Vice President and
Chief Financial Officer



32


EXECUTION VERSION


JPMorgan Chase Bank, National Association
London Branch
25 Bank Street
Canary Wharf
London E14 5JP
England

May 12, 2016
To:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: + 31 20 675 4002

Re:
Warrants
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Warrants issued by Wright Medical Group N.V. (“Company”) to JPMorgan Chase Bank, National Association, London Branch (“Dealer”) as of the Trade Date specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements with respect to the Transaction and serve as the final documentation for the Transaction.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”), are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern.
Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.
1.
This Confirmation evidences a complete and binding agreement between Dealer and Company as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Company had executed an agreement in such form (but without any Schedule except for (i) the election of the laws of the State of New York as the governing law (without reference to choice of law doctrine), and (ii) the election of US Dollars (“USD”) as the Termination Currency) on the Trade Date. In the event of any inconsistency between provisions of that Agreement



EXECUTION VERSION


and this Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. The parties acknowledge that the Transaction to which this Confirmation relates is not governed by, and shall not be treated as a transaction under, any other ISDA Master Agreement entered between the parties from time to time.
2.The Transaction is a Warrant Transaction, which shall be considered a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms.
Trade Date:
May 12, 2016
Effective Date:
The third Exchange Business Day immediately prior to the Premium Payment Date
Warrants:
Equity call warrants, each giving the holder the right to purchase a number of Shares equal to the Warrant Entitlement at a price per Share equal to the Strike Price, subject to the terms set forth under the caption “Settlement Terms” below. For the purposes of the Equity Definitions, each reference to a Warrant herein shall be deemed to be a reference to a Call Option.
Warrant Style:
European
Seller:
Company
Buyer:
Dealer
Shares:
The ordinary shares of Company, par value 0.03 Euros per share (Exchange symbol “WMGI”).
Number of Warrants:
9,246,259. For the avoidance of doubt, the Number of Warrants shall be reduced by any Warrants exercised or deemed exercised hereunder. In no event will the Number of Warrants be less than zero.
Warrant Entitlement:
One Share per Warrant
Strike Price:
USD 30.00.
Notwithstanding anything to the contrary in the Agreement, this Confirmation or the Equity Definitions, in no event shall the Strike Price be

2


EXECUTION VERSION


subject to adjustment to the extent that, after giving effect to such adjustment, the Strike Price would be less than USD 17.80, except for any adjustment pursuant to the terms of this Confirmation and the Equity Definitions in connection with stock splits or similar changes to Issuer’s capitalization.
Premium:
USD 27,314,250.00 in the aggregate (the “Aggregate Premium Amount”), to be paid by Dealer to Company on the Premium Payment Date as follows:
(i) EUR554,775.54; and
(ii) an amount in USD equal to the excess of (x) the Aggregate Premium Amount over (y) the amount in EUR set forth in clause (i) above (as converted into the corresponding amount in USD by the Calculation Agent in a commercially reasonable manner on or prior to the Premium Payment Date).
Premium Payment Date:
May 20, 2016
Exchange:
The NASDAQ Global Select Market
Related Exchange(s):
All Exchanges
Procedures for Exercise.
Expiration Time:
The Valuation Time
Expiration Dates:
Each Scheduled Trading Day during the period from, and including, the First Expiration Date to, but excluding, the 100th Scheduled Trading Day following the First Expiration Date shall be an “Expiration Date” for a number of Warrants equal to the Daily Number of Warrants on such date; provided that, notwithstanding anything to the contrary in the Equity Definitions, if any such date is a Disrupted Day, the Calculation Agent shall make adjustments, if applicable, to the Daily Number of Warrants or shall reduce such Daily Number of Warrants to zero for which such day shall be an Expiration Date and shall designate a Scheduled Trading Day or a number of Scheduled Trading Days as the Expiration Date(s) for the remaining Daily Number of Warrants or a portion thereof for the originally scheduled Expiration Date;

3


EXECUTION VERSION


and provided further that if such Expiration Date has not occurred pursuant to this clause as of the eighth Scheduled Trading Day following the last scheduled Expiration Date under the Transaction, the Calculation Agent shall have the right to declare such Scheduled Trading Day to be the final Expiration Date and the Calculation Agent shall determine its good faith estimate of the fair market value for the Shares as of the Valuation Time on that eighth Scheduled Trading Day or on any subsequent Scheduled Trading Day, as the Calculation Agent shall determine using commercially reasonable means.
First Expiration Date:
February 15, 2022, (or if such day is not a Scheduled Trading Day, the next following Scheduled Trading Day), subject to Market Disruption Event below.
Daily Number of Warrants:
For any Expiration Date, the Number of Warrants that have not expired or been exercised as of such day, divided by the remaining number of Expiration Dates (including such day), rounded down to the nearest whole number, subject to adjustment pursuant to the provisos to “Expiration Dates”.
Automatic Exercise:
Applicable; and means that for each Expiration Date, a number of Warrants equal to the Daily Number of Warrants for such Expiration Date will be deemed to be automatically exercised at the Expiration Time on such Expiration Date.
Market Disruption Event:
Section 6.3(a) of the Equity Definitions is hereby amended by replacing clause (ii) in its entirety with “(ii) an Exchange Disruption, or” and inserting immediately following clause (iii) the phrase “; in each case that the Calculation Agent determines is material.”
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the words “Scheduled Closing Time” in the fourth line thereof.
Valuation Terms.
Valuation Time:
Scheduled Closing Time; provided that if the principal trading session is extended, the Calculation Agent

4


EXECUTION VERSION


shall determine the Valuation Time in good faith and in its reasonable discretion.
Valuation Date:
Each Exercise Date.
Settlement Terms.
Settlement Method:
Net Share Settlement.
Net Share Settlement:
On the relevant Settlement Date, Company shall deliver to Dealer a number of Shares equal to the Share Delivery Quantity for such Settlement Date to the account specified herein free of payment (other than, for the avoidance of doubt, the payment obligation that will be satisfied by the Par Value Payment) through the Clearance System, and Dealer shall be treated as the holder of record of such Shares at the time of delivery of such Shares or, if earlier, at 5:00 p.m. (New York City time) on such Settlement Date.
Share Delivery Quantity:
For any Settlement Date, a number of Shares (rounded down to the nearest whole Share), as calculated by the Calculation Agent, equal to the Net Share Settlement Amount for such Settlement Date divided by the Settlement Price on the Valuation Date for such Settlement Date.
Net Share Settlement Amount:
For any Settlement Date, an amount equal to the product of (i) the number of Warrants exercised or deemed exercised on the relevant Exercise Date, (ii) the Strike Price Differential for the relevant Valuation Date and (iii) the Warrant Entitlement.
Settlement Price:
For any Valuation Date, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page WMGI <equity> AQR (or any successor thereto) in respect of the period from the scheduled opening time of the Exchange to the Scheduled Closing Time on such Valuation Date (or if such volume-weighted average price is unavailable, the market value of one Share on such Valuation Date, as determined by the Calculation Agent). Notwithstanding the foregoing, if (i) any Expiration Date is a Disrupted Day and (ii) the Calculation Agent determines that such Expiration

5


EXECUTION VERSION


Date shall be an Expiration Date for fewer than the Daily Number of Warrants, as described above, then the Settlement Price for the relevant Valuation Date shall be the volume-weighted average price per Share on such Valuation Date on the Exchange, as determined by the Calculation Agent based on such sources as it deems appropriate using a volume-weighted methodology, for the portion of such Valuation Date for which the Calculation Agent determines there is no Market Disruption Event.
Settlement Dates:
As determined pursuant to Section 9.4 of the Equity Definitions, subject to Section 9(k)(i) hereof.
Other Applicable Provisions:
The provisions of Sections 9.1(c), 9.8, 9.9, 9.11 (except that, with respect to any Private Placement Settlement, the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Seller is the Issuer of the Shares) and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Net Share Settled.” “Net Share Settled” in relation to any Warrant means that Net Share Settlement is applicable to that Warrant.
Representation and Agreement:
Notwithstanding Section 9.11 of the Equity Definitions, the parties acknowledge that any Shares delivered to Dealer may be, upon delivery, subject to restrictions and limitations arising from Issuer’s status as issuer of the Shares under applicable securities laws.

3.
Additional Terms applicable to the Transaction.
Adjustments applicable to the Transaction:
Method of Adjustment:
Calculation Agent Adjustment. For the avoidance of doubt, in making any adjustments under the Equity Definitions, the Calculation Agent may make adjustments, if any, to any one or more of the Strike Price, the Number of Warrants, the Daily Number of Warrants and the Warrant Entitlement. Notwithstanding the foregoing, any cash dividends or

6


EXECUTION VERSION


distributions on the Shares, whether or not extraordinary, shall be governed by Section 9(f) of this Confirmation in lieu of Article 10 or Section 11.2(c) of the Equity Definitions.
Extraordinary Events applicable to the Transaction:
New Shares:
Section 12.1(i) of the Equity Definitions is hereby amended (a) by deleting the text in clause (i) thereof in its entirety (including the word “and” following clause (i)) and replacing it with the phrase “publicly quoted, traded or listed (or whose related depositary receipts are publicly quoted, traded or listed) on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors)” and (b) by inserting immediately prior to the period the phrase “and (iii) of an entity or person that is a (I) Dutch public limited company, (II) corporation or limited liability company that is treated, or, if disregarded for U.S. federal income tax purposes, its regarded owner is treated, as a “United States person” under Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (any such corporation or limited liability company being referred to hereinafter as a “U.S. Entity”) or (III) solely in the case of a Non-US Merger Transaction in respect of which Company and Issuer have satisfied all of the requirements set forth in Section 9(y) below, a corporation or entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom), in each case, that also becomes Company under the Transaction following such Merger Event or Tender Offer”.
Consequence of Merger Events:
Merger Event:
Applicable; provided, however, that if an event occurs that constitutes both a Merger Event under Section 12.1(b) of the Equity Definitions and an Additional Termination Event under Section 9(h)(ii)(B) of this Confirmation, Dealer may elect, in its commercially reasonable judgment, whether the

7


EXECUTION VERSION


provisions of Section 12.2 of the Equity Definitions or Section 9(h)(ii)(B) will apply.
Share-for-Share:
Modified Calculation Agent Adjustment
Share-for-Other:
Cancellation and Payment (Calculation Agent Determination)
Share-for-Combined:
Cancellation and Payment (Calculation Agent Determination); provided that Dealer may elect, in its commercially reasonable judgment, Component Adjustment (Calculation Agent Determination) for all or any portion of the Transaction.
Consequence of Tender Offers:
Tender Offer:
Applicable; provided, however, that if an event occurs that constitutes both a Tender Offer under Section 12.1(d) of the Equity Definitions and Additional Termination Event under Section 9(h)(ii)(A) of this Confirmation, Dealer may elect, in its commercially reasonable judgment, whether the provisions of Section 12.3 of the Equity Definitions or Section 9(h)(ii)(A) will apply.
Share-for-Share:
Modified Calculation Agent Adjustment
Share-for-Other:
Modified Calculation Agent Adjustment
Share-for-Combined:
Modified Calculation Agent Adjustment
Announcement Event:
If an Announcement Date occurs in respect of a Merger Event (for the avoidance of doubt, determined without regard to the language in the definition of “Merger Event” following the definition of “Reverse Merger” therein) or Tender Offer (such occurrence, an “Announcement Event”), then on the earliest of the Expiration Date, Early Termination Date or other date of cancellation (the “Announcement Event Adjustment Date”) in respect of each Warrant, the Calculation Agent will determine the economic effect on such Warrant of the Announcement Event (regardless of whether the Announcement Event actually results in a Merger Event or Tender Offer, and taking into account such factors as the Calculation Agent may determine, including, without limitation,

8


EXECUTION VERSION


changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or the Transaction whether prior to or after the Announcement Event or for any period of time, including, without limitation, the period from the Announcement Event to the relevant Announcement Event Adjustment Date). If the Calculation Agent determines that such economic effect on any Warrant is material, then on the Announcement Event Adjustment Date for such Warrant, the Calculation Agent may make such adjustment to the exercise, settlement, payment or any other terms of such Warrant as the Calculation Agent determines appropriate to account for such economic effect, which adjustment shall be effective immediately prior to the exercise, termination or cancellation of such Warrant, as the case may be.
Announcement Date:
The definition of “Announcement Date” in Section 12.1 of the Equity Definitions is hereby amended by (i) replacing the words “a firm” with the word “any” in the second and fourth lines thereof, (ii) replacing the word “leads to the” with the words “, if completed, would lead to a” in the third and the fifth lines thereof, (iii) replacing the words “voting shares” with the word “Shares” in the fifth line thereof, and (iv) inserting the words “by any entity” after the word “announcement” in the second and the fourth lines thereof.
Nationalization, Insolvency or
Delisting:
Cancellation and Payment (Calculation Agent Determination); provided, that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors), such

9


EXECUTION VERSION


exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:
Change in Law:
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the word “Shares” with the phrase “Hedge Positions” in clause (X) thereof and (ii) inserting the parenthetical “(including, for the avoidance of doubt and without limitation, adoption or promulgation of new regulations authorized or mandated by existing statute)” at the end of clause (A) thereof.
Failure to Deliver:
Not Applicable
Insolvency Filing:
Applicable
Hedging Disruption:
Applicable; provided that:
(i)
Section 12.9(a)(v) of the Equity Definitions is hereby amended by (a) inserting the following words at the end of clause (A) thereof: “in the manner contemplated by the Hedging Party on the Trade Date” and (b) inserting the following two phrases at the end of such Section:
“For the avoidance of doubt, the term “equity price risk” shall be deemed to include, but shall not be limited to, stock price and volatility risk. And, for the further avoidance of doubt, any such transactions or assets referred to in phrases (A) or (B) above must be available on commercially reasonable pricing terms.”; and
(ii)
Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in the third line thereof, after the words “to terminate the Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
Increased Cost of Hedging:
Applicable.

10


EXECUTION VERSION


Loss of Stock Borrow:
Applicable.
Maximum Stock Loan Rate:
100 basis points
Increased Cost of Stock Borrow:
Applicable.
Initial Stock Loan Rate:
25 basis points
Hedging Party:
For all applicable Additional Disruption Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Hedging Party shall be made in good faith and in a commercially reasonable manner (it being understood that Hedging Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Determining Party:
For all applicable Extraordinary Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Determining Party shall be made in good faith and in a commercially reasonable manner (it being understood that Determining Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Non-Reliance:
Applicable.
Agreements and
Acknowledgments Regarding
Hedging Activities:
Applicable
Additional Acknowledgments:
Applicable

4.
Calculation Agent. Dealer. All calculations, adjustments, specifications, choices and determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner. The parties agree that they will work reasonably to resolve any disputes as set forth in the immediately following paragraph.
In the case of any calculation, adjustment or determination by the Hedging Party, the Determining Party or the Calculation Agent, following any written request from Issuer, the Hedging Party, the Determining Party or the Calculation Agent, as the case may be, shall promptly provide to Issuer a written explanation describing in reasonable detail the basis for such calculation, adjustment or determination (including any quotation, market data or information from internal or external sources used in making such calculation, adjustment or determination, but without

11


EXECUTION VERSION


disclosing any proprietary models or other information that may be proprietary or confidential). If Issuer promptly disputes such calculation, adjustment or determination in writing and provides reasonable detail as to the basis for such dispute, the Calculation Agent shall, to the extent permitted by applicable law, discuss the dispute with Issuer in good faith.
5.
Account Details.
(a)
Account for payments to Company:
For payments in EUR:

Account Name - Tornier N.V.
Bank instructions - INGBNL2AXXX
Account Number - 66.40.77.560
IBAN - NL42INGB0664077560

For payments in USD:

Bank: Bank of America
ABA#: 026009593
Acct No.: 444014532256
Acct Name:    Wright Medical Group N.V.
Swift: BOFAUS3N
        
(b)
Account for payments to Dealer:
Bank:    JPMorgan Chase Bank, N.A.
ABA#:     021000021
Acct No.:     099997979
Beneficiary: JPMorgan Chase Bank, N.A. New York
Ref:    Derivatives
Account for delivery of Shares to Dealer:
To be advised.
6.
Offices.
(a)
The Office of Company for the Transaction is: Inapplicable, Company is not a Multibranch Party.
(b)
The Office of Dealer for the Transaction is: London
JPMorgan Chase Bank, National Association
London Branch
25 Bank Street
Canary Wharf

12


EXECUTION VERSION


London E14 5JP
England
7.
Notices.
(a)
Address for notices or communications to Company:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002

With a copy to:

Ropes & Gray LLP
Attention: Isabel Dische, Esq. and Thomas Holden, Esq.
Telephone No: (212) 596-9000
Facsimile No: (212) 596-9090
(b)
Address for notices or communications to Dealer:
JPMorgan Chase Bank, National Association
EDG Marketing Support
Email:     [email protected]
Facsimile No: 1-866-886-4506
J.P. Morgan Securities LLC,
383 Madison Ave,
New York, NY 10179
8.
Representations and Warranties of Company.
Each of the representations and warranties of Company set forth in Section 6 of the Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12, 2016, between Company and J. Wood Capital Advisors, LLC, as Placement Agent (the “Placement Agent”), are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein; except to the extent that such representations and warranties, if not true or correct,

13


EXECUTION VERSION


would not have a material adverse effect on the power or ability of Company to execute and deliver this Confirmation or to perform its obligations hereunder. Company hereby further represents and warrants to Dealer on the date hereof, on and as of the Premium Payment Date and, in the case of the representations in Section 8(d), at all times until termination of the Transaction, that:
(a)
Company has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of the Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on Company’s part; and this Confirmation has been duly and validly executed and delivered by Company and constitutes its valid and binding obligation, enforceable against Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto.
(b)
Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Company hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Company, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Company or any of its subsidiaries is a party or by which Company or any of its subsidiaries is bound or to which Company or any of its subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.
(c)
No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by Company of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the “Securities Act”) or state securities laws or under the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(d)
All corporate action has been taken by the Company to duly authorize the granting of rights to acquire a number of Shares equal to the Maximum Number of Shares (as defined below) (the “Warrant Shares”). The Warrant Shares have been duly authorized and, upon application of the Par Value Payment to satisfy the payment obligation of the par value of the Shares and otherwise as contemplated by the terms of the Warrants, following the exercise of the Warrants in accordance with the terms and conditions of the Warrants, will be validly issued, fully-paid, and the issuance of the Warrant Shares will not be subject to any preemptive or similar rights and the Warrant Shares shall upon issuance be accepted for listing or quotation on the Exchange.

14


EXECUTION VERSION


(e)
Company is not and, after consummation of the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
(f)
Company is an “eligible contract participant” (as such term is defined in Section 1a(18) of the Commodity Exchange Act, as amended, other than a person that is an eligible contract participant under Section 1a(18) (C) of the Commodity Exchange Act).
(g)
Company and each of its affiliates are not, on the date hereof, in possession of any material non-public information with respect to Company or the Shares.
(h)
No state or local (including any non-U.S. jurisdiction’s) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity), except for the reporting requirements of the Exchange Act and rules promulgated thereunder, or, the reporting or registration requirements of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969), in each case, as a result of Dealer or its affiliates owning or holding (however defined) Shares.
(i)
Company (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least $50 million.
(j)
It is a party which is able to adhere to the Attachment to the ISDA 2013 EMIR NFC Representation Protocol published by ISDA on March 8, 2013 (the “NFC Representation Protocol”) as if it were a party making the NFC Representation (as such term is defined in the NFC Representation Protocol).
9.Other Provisions.
(a)
Company shall deliver to Dealer an opinion of Dutch counsel, dated as of the date hereof, with respect to the matters set forth in Sections 8(a) through (d). Delivery of such opinion to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer under Section 2(a)(i) of the Agreement.
(b)
Repurchase Notices. Issuer shall, on any day on which Issuer effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase Notice”) on such day if following such repurchase, the number of outstanding Shares on such day, subject to any adjustments provided herein, is (i) less than 99,423,718 (in the case of the first such notice) or (ii) thereafter more than 3,073,706 less than the number of Shares included in the immediately preceding Repurchase Notice. Issuer agrees to indemnify and hold harmless Dealer and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses (including losses relating to Dealer’s hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities

15


EXECUTION VERSION


and any losses in connection therewith with respect to the Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint or several, which an Indemnified Person actually may become subject to, as a result of Issuer’s failure to provide Dealer with a Repurchase Notice on the day and in the manner specified in this paragraph, and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person, such Indemnified Person shall promptly notify Issuer in writing, and Issuer, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others Issuer may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. Issuer shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, Issuer agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Issuer shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in this paragraph is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then Issuer under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this paragraph shall remain operative and in full force and effect regardless of the termination of the Transaction.
(c)
Regulation M. Issuer is not on the Trade Date engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Issuer, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. Issuer shall not, until the second Scheduled Trading Day immediately following the Effective Date, engage in any such distribution.
(d)
No Manipulation. Issuer is not entering into the Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares) or

16


EXECUTION VERSION


otherwise in violation of the Exchange Act or the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(e)
Transfer or Assignment. Company may not transfer any of its rights or obligations under the Transaction without the prior written consent of Dealer. Dealer may, without Company’s or Issuer’s (if other than Company) consent, transfer or assign all or any part of its rights or obligations under the Transaction to any third party; provided, however, that the transferee or assignee shall not be entitled to receive any greater payment of additional amounts under Section 2(d)(i)(4) of the Agreement than Dealer would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Tax Law that occurs after the date of the transfer or assignment. If at any time at which (A) the Section 16 Percentage exceeds 7.5%, (B) the Warrant Equity Percentage exceeds 14.5%, or (C) the Share Amount exceeds the Applicable Share Limit (if any applies) (any such condition described in clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after using its commercially reasonable efforts to effect a transfer or assignment of Warrants to a third party on pricing terms reasonably acceptable to Dealer and within a time period reasonably acceptable to Dealer such that no Excess Ownership Position exists, then Dealer may designate any Exchange Business Day as an Early Termination Date with respect to a portion of the Transaction (the “Terminated Portion”), such that following such partial termination no Excess Ownership Position exists. In the event that Dealer so designates an Early Termination Date with respect to a Terminated Portion, a payment shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Warrants equal to the number of Warrants underlying the Terminated Portion, (2) Company were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(j) shall apply to any amount that is payable by Company to Dealer pursuant to this sentence as if Company was not the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and each person subject to aggregation of Shares with Dealer under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder directly or indirectly beneficially own (as defined under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder) and (B) the denominator of which is the number of Shares outstanding. The “Warrant Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (1) the product of the Number of Warrants and the Warrant Entitlement and (2) the aggregate number of Shares underlying any other warrants purchased by Dealer from Company or Issuer, as applicable, and (B) the denominator of which is the number of Shares outstanding. The “Share Amount” as of any day is the number of Shares that Dealer and any person whose ownership position would be aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”) under any law, rule, regulation, regulatory order or organizational documents or contracts of Issuer that are, in each case, applicable to ownership of Shares (“Applicable Restrictions”),

17


EXECUTION VERSION


owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership under any Applicable Restriction, as determined by Dealer in its reasonable discretion. The “Applicable Share Limit” means a number of Shares equal to (A) the minimum number of Shares that could give rise to reporting or registration obligations or other requirements (including obtaining prior approval from any person or entity) of a Dealer Person, or could result in an adverse effect on a Dealer Person, under any Applicable Restriction, as determined by Dealer in its reasonable discretion, minus (B) 1% of the number of Shares outstanding. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities, or make or receive any payment in cash, to or from Company or Issuer, as applicable, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities, or make or receive such payment in cash, and otherwise to perform Dealer’s obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Company or Issuer (if other than Company) to the extent of any such performance.
(f)
Dividends. If at any time during the period from and including the Effective Date, to and including the last Expiration Date, an ex-dividend date for a cash dividend occurs with respect to the Shares (an “Ex‑Dividend Date”), then the Calculation Agent will adjust any of the Strike Price, Number of Warrants, Daily Number of Warrants and/or any other variable relevant to the exercise, settlement or payment of the Transaction to preserve the fair value of the Warrants to Dealer after taking into account such dividend.
(g)
Role of Agent. Each party agrees and acknowledges that (i) J.P. Morgan Securities LLC, an affiliate of Dealer (“JPMS”), has acted solely as agent for Dealer (and not as agent for Company) and not as principal with respect to the Transaction and (ii) JPMS has no obligation or liability, by way of guaranty, endorsement or otherwise, in any manner in respect of the Transaction (including, if applicable, in respect of the settlement thereof). Each party agrees it will look solely to the other party (or any guarantor in respect thereof) for performance of such other party’s obligations under the Transaction. For the avoidance of doubt, any performance by Dealer of its obligations hereunder solely to JPMS shall not relieve Dealer of such obligations. Any performance by Company of its obligations (including notice obligations) through or by means of JPMS’ agency for Dealer shall constitute good performance of Company’s obligations hereunder to Dealer.
(h)
Additional Provisions.
(i)
Amendments to the Equity Definitions:
(A)
Section 11.2(a) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative” and replacing them with the words “an”; and adding the phrase “or Warrants” at the end of the sentence.
(B)
Section 11.2(c) of the Equity Definitions is hereby amended by (w) replacing the words “a diluting or concentrative” with “an” in the fifth line thereof, (x) adding the phrase “or Warrants” after the

18


EXECUTION VERSION


words “the relevant Shares” in the same sentence, (y) deleting the words “diluting or concentrative” in the sixth to last line thereof and (z) deleting the phrase “(provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares)” and replacing it with the phrase “(and, for the avoidance of doubt, adjustments may be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares).”
(C)
Section 11.2(e)(vii) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative” and replacing them with the word “a material”; and adding the phrase “or Warrants” at the end of the sentence.
(D)
Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.”
(E)
Section 12.9(b)(iv) of the Equity Definitions is hereby amended by:
(x)
deleting (1) subsection (A) in its entirety, (2) the phrase “or (B)” following subsection (A) and (3) the phrase “in each case” in subsection (B); and
(y)
replacing the phrase “neither the Non-Hedging Party nor the Lending Party lends Shares” with the phrase “such Lending Party does not lend Shares” in the penultimate sentence.
(F)
Section 12.9(b)(v) of the Equity Definitions is hereby amended by:
(x)
adding the word “or” immediately before subsection “(B)” and deleting the comma at the end of subsection (A); and
(y)
(1) deleting subsection (C) in its entirety, (2) deleting the word “or” immediately preceding subsection (C), (3) deleting the penultimate sentence in its entirety and replacing it with the sentence “The Hedging Party will determine the Cancellation Amount payable by one party to the other.” and (4) deleting clause (X) in the final sentence.
(ii)
Notwithstanding anything to the contrary in this Confirmation, upon the occurrence of one of the following events, with respect to the Transaction, (1) Dealer shall have the right to designate such event an Additional Termination Event and designate an Early Termination Date pursuant to Section 6(b) of the Agreement, (2) Company shall be deemed the sole Affected Party with respect to such Additional Termination Event and (3) the

19


EXECUTION VERSION


Transaction, or, at the election of Dealer in its reasonable discretion, any portion of the Transaction, shall be deemed the sole Affected Transaction; provided that if Dealer so designates an Early Termination Date with respect to a portion of the Transaction, (a) a payment shall be made pursuant to Section 6 of the Agreement as if an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Warrants equal to the number of Warrants included in the terminated portion of the Transaction, and (b) for the avoidance of doubt, the Transaction shall remain in full force and effect except that the Number of Warrants shall be reduced by the number of Warrants included in such terminated portion:
(A)
A “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than Issuer or its subsidiaries files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the common equity of Issuer representing more than 50% of the voting power of such common equity.
(B)
Consummation of (I) any recapitalization, reclassification or change of the Shares (other than changes resulting from a subdivision or combination), as a result of which the Shares would be converted into, or exchanged for, stock, other securities, other property or assets; (II) any share exchange, consolidation or merger of Issuer pursuant to which the Shares will be converted into cash, securities or other property; or (III) any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of Issuer and its subsidiaries, taken as a whole, to any person other than one of Issuer’s subsidiaries; provided, however, that a transaction or transactions described in this clause (B) shall not constitute an Additional Termination Event pursuant to this clause (B), if at least 90% of the consideration received or to be received by holders of the Shares, excluding cash payments for fractional Shares and cash payments made pursuant to dissenters’ appraisal rights, in connection with such transaction or transactions consists of ordinary shares of (1) a U.S. Entity or (2) an entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Netherlands, the Republic of Ireland or the United Kingdom, in each case that are listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions, and as a result of such transaction or transactions, the reference property for the Shares becomes such consideration, excluding cash payments for fractional Shares. For purposes of the exception described in the immediately

20


EXECUTION VERSION


preceding proviso, any transaction or event described under both clause (A) above and this clause (B) will be evaluated solely under this clause (B).
(C)
Default by the Issuer or any of its subsidiaries with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $25 million in the aggregate of the Issuer and/or any such subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being accelerated and declared due and payable prior to its stated maturity date or (ii) constituting a failure to pay the principal or interest of any such debt when due and payable (after the expiration of any applicable grace period) at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise.
(D)
Certain events of bankruptcy, insolvency, or reorganization of the Issuer or any of its significant subsidiaries as defined in Article 1, Rule 1‑02 of Regulation S‑X.
(E)
Dealer, despite using commercially reasonable efforts, is unable or reasonably determines that it is impractical or illegal, to hedge its exposure with respect to the Transaction in the public market without registration under the Securities Act or as a result of any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer).
(F)
On any day during the period from and including the date hereof, to and including the final Expiration Date, (I) the Notional Unwind Shares (as defined below) as of such day exceeds a number of Shares equal to 90.0% of the Par Value Delivery Number (as of the date of such determination), or (II) Company or any of its controlled affiliates makes a public announcement of any transaction or event that, in the reasonable opinion of Dealer would, upon consummation of such transaction or upon the occurrence of such event, as applicable, and after giving effect to any applicable adjustments hereunder, cause the Notional Unwind Shares immediately following the consummation of such transaction or the occurrence of such event to exceed a number of Shares equal to 90.0% of the Par Value Delivery Number (as of the date of such determination). The “Notional Unwind Shares” as of any day is a number of Shares equal to (1) the amount that would be payable pursuant to Section 6 of the Agreement (determined as of such day as if an Early Termination Date had been designated in respect of the Transaction and as if the Company were the sole Affected Party and the Transaction were the sole Affected Transaction), divided by (2) the Settlement Price (determined as if such day were a Valuation Date). “Par Value Delivery Number”

21


EXECUTION VERSION


means a number of Shares equal to (i) the Par Value Payment (as defined in Section 9(z) below) divided by (ii) the par value per Share.
(i)
No Collateral or Setoff. Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Company hereunder are not secured by any collateral. Obligations under the Transaction shall not be set off by either party against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. For the avoidance of doubt, in the event of bankruptcy or liquidation of either Company or Dealer, neither party shall have the right to set off any obligation that it may have to the other party under the Transaction against any obligation such other party may have to it, whether arising under the Agreement, this Confirmation or any other agreement between the parties hereto, by operation of law or otherwise.
(j)
Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events.
(i)
If, in respect of the Transaction, an amount is payable by Company to Dealer, (A) pursuant to Section 12.7 or Section 12.9 of the Equity Definitions or (B) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “Payment Obligation”), Company shall satisfy the Payment Obligation by the Share Termination Alternative (as defined below), unless (a) Company gives irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, Tender Offer Date, Announcement Date (in the case of a Nationalization, Insolvency or Delisting), Early Termination Date or date of cancellation, as applicable, of its election that the Share Termination Alternative shall not apply, (b) Company represents to Dealer that each of Company and its affiliates is not, as of the date of such election, in possession of any material non-public information with respect to Company or the Shares and (c) Dealer agrees, in its sole discretion, to such election, in which case the provisions of Section 12.7 or Section 12.9 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply.
Share Termination
Alternative:
If applicable, Company shall deliver to Dealer the Share Termination Delivery Property on the date (the “Share Termination Payment Date”) on which the Payment Obligation would otherwise be due pursuant to Section 12.7 or Section 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable, subject to Section 9(k)(i) below, in satisfaction, subject to Section 9(k)(ii) below, of the relevant Payment Obligation, in the manner reasonably requested by Dealer free of payment (other

22


EXECUTION VERSION


than, for the avoidance of doubt, the Par Value Payment pursuant to Section 9(z)).
Share Termination Delivery
Property:
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the relevant Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the amount of Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price (without giving effect to any discount pursuant to Section 9(k)(i)).
Share Termination Unit
Price:
The value to Dealer of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent in its discretion by commercially reasonable means. In the case of a Private Placement of Share Termination Delivery Units that are Restricted Shares (as defined below), as set forth in Section 9(k)(i) below, the Share Termination Unit Price shall be determined by the discounted price applicable to such Share Termination Delivery Units. In the case of a Registration Settlement of Share Termination Delivery Units that are Restricted Shares (as defined below) as set forth in Section 9(k)(ii) below, notwithstanding the foregoing, the Share Termination Unit Price shall be the Settlement Price on the Merger Date, Tender Offer Date, Announcement Date (in the case of a Nationalization, Insolvency or Delisting), Early Termination Date or date of cancellation, as applicable. The Calculation Agent shall notify Company of the Share Termination Unit Price at the time of notification of such Payment Obligation to

23


EXECUTION VERSION


Company or, if applicable, at the time the discounted price applicable to the relevant Share Termination Units is determined pursuant to Section 9(k)(i).
Share Termination Delivery
Unit:
One Share or, if the Shares have changed into cash or any other property or the right to receive cash or any other property as the result of a Nationalization, Insolvency or Merger Event (any such cash or other property, the “Exchange Property”), a unit consisting of the type and amount of Exchange Property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency or Merger Event. If such Nationalization, Insolvency or Merger Event involves a choice of Exchange Property to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash.
Failure to Deliver:
Inapplicable
Other applicable
provisions:
If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.11 and 9.12 (as modified above) of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Share Termination Settled” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”. “Share Termination Settled” in relation to the Transaction means that the Share Termination Alternative is applicable to the Transaction.

(k)
Registration/Private Placement Procedures. If, in the reasonable opinion of Dealer, following any delivery of Shares or Share Termination Delivery Property to Dealer hereunder, such Shares or Share Termination Delivery Property would be in the hands of Dealer subject to any applicable restrictions with respect to any registration or qualification requirement or prospectus delivery requirement for such Shares or

24


EXECUTION VERSION


Share Termination Delivery Property pursuant to any applicable federal or state securities law (including, without limitation, any such requirement arising under Section 5 of the Securities Act as a result of such Shares or Share Termination Delivery Property being “restricted securities”, as such term is defined in Rule 144 under the Securities Act, or as a result of the sale of such Shares or Share Termination Delivery Property being subject to paragraph (c) of Rule 145 under the Securities Act) (such Shares or Share Termination Delivery Property, “Restricted Shares”), then delivery of such Restricted Shares shall be effected pursuant to either clause (i) or (ii) below at the election of Issuer, unless Dealer waives the need for registration/private placement procedures set forth in (i) and (ii) below. Notwithstanding the foregoing, solely in respect of any Daily Number of Warrants exercised or deemed exercised on any Expiration Date, Issuer shall elect, prior to the first Settlement Date for the first applicable Expiration Date, a Private Placement Settlement or Registration Settlement for all deliveries of Restricted Shares for all such Expiration Dates which election shall be applicable to all remaining Settlement Dates for such Warrants and the procedures in clause (i) or clause (ii) below shall apply for all such delivered Restricted Shares on an aggregate basis commencing after the final Settlement Date for such Warrants. The Calculation Agent shall make reasonable adjustments to settlement terms and provisions under this Confirmation to reflect a single Private Placement or Registration Settlement for such aggregate Restricted Shares delivered hereunder.
(i)
If Issuer elects to settle the Transaction pursuant to this clause (i) (a “Private Placement Settlement”), then delivery of Restricted Shares by Issuer shall be effected in customary private placement procedures with respect to such Restricted Shares reasonably acceptable to Dealer; provided that Issuer may not elect a Private Placement Settlement if, on the date of its election, it has taken, or caused to be taken, any action that would make unavailable either the exemption pursuant to Section 4(a)(2) of the Securities Act for the sale by Issuer to Dealer (or any affiliate designated by Dealer) of the Restricted Shares or the exemption pursuant to Section 4(a)(1) or Section 4(a)(3) of the Securities Act for resales of the Restricted Shares by Dealer (or any such affiliate of Dealer). In addition to, and without limitation of, the other requirements set forth in this Section 9(k)(i), the Issuer will use its best efforts to provide that the Private Placement Settlement of such Restricted Shares shall include customary representations, covenants, blue sky and other governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer or any designated buyer of the Restricted Shares by Dealer), opinions and certificates, and such other documentation as is customary for private placement agreements, all commercially reasonably acceptable to Dealer. In the case of a Private Placement Settlement, Dealer shall determine the appropriate discount to the Share Termination Unit Price (in the case of settlement of Share Termination Delivery Units pursuant to Section 9(j) above) or any Settlement Price (in the case of settlement of Shares pursuant to Section 2 above) applicable to such Restricted Shares in a commercially reasonable manner and appropriately adjust the number of

25


EXECUTION VERSION


such Restricted Shares to be delivered to Dealer hereunder. Notwithstanding anything to the contrary in the Agreement or this Confirmation, the date of delivery of such Restricted Shares shall be the Exchange Business Day following notice by Dealer to Issuer, of such applicable discount and the number of Restricted Shares to be delivered pursuant to this clause (i). For the avoidance of doubt, delivery of Restricted Shares shall be due as set forth in the previous sentence and not be due on the Share Termination Payment Date (in the case of settlement of Share Termination Delivery Units pursuant to Section 9(j) above) or on the Settlement Date for such Restricted Shares (in the case of settlement in Shares pursuant to Section 2 above).
(ii)
If Issuer elects to settle the Transaction pursuant to this clause (ii) (a “Registration Settlement”), then Issuer shall promptly (but in any event no later than the beginning of the Resale Period) file and use its reasonable best efforts to make effective under the Securities Act a registration statement or supplement or amend an outstanding registration statement in form and substance reasonably satisfactory to Dealer, to cover the resale of such Restricted Shares in accordance with customary resale registration procedures, including covenants, conditions, representations, underwriting discounts (if applicable), commissions (if applicable), indemnities due diligence rights, opinions and certificates, and such other documentation as is customary for equity resale underwriting agreements, all reasonably acceptable to Dealer. If Dealer, in its reasonable discretion, is not satisfied with such procedures and documentation Private Placement Settlement shall apply. If Dealer is satisfied with such procedures and documentation, it shall sell the Restricted Shares pursuant to such registration statement during a period (the “Resale Period”) commencing on the Exchange Business Day following delivery of such Restricted Shares (which, for the avoidance of doubt, shall be (x) the Share Termination Payment Date in case of settlement in Share Termination Delivery Units pursuant to Section 9(j) above or (y) the Settlement Date in respect of the final Expiration Date for all Daily Number of Warrants) and ending on the earliest of (i) the Exchange Business Day on which Dealer completes the sale of all Restricted Shares or, in the case of settlement of Share Termination Delivery Units, a sufficient number of Restricted Shares so that the realized net proceeds of such sales equals or exceeds the Payment Obligation (as defined above), (ii) the date upon which all Restricted Shares have been sold or transferred pursuant to Rule 144 (or similar provisions then in force) or Rule 145(d)(2) (or any similar provision then in force) under the Securities Act and (iii) the date upon which all Restricted Shares may be sold or transferred by a non-affiliate pursuant to Rule 144 (or any similar provision then in force) or Rule 145(d)(2) (or any similar provision then in force) under the Securities Act. If the Payment Obligation exceeds the realized net proceeds from such resale, Issuer shall transfer to Dealer by the open of the regular trading session on the Exchange on the Exchange Trading Day immediately following such resale the amount of such excess (the “Additional Amount”) in cash or in a number of Shares

26


EXECUTION VERSION


(“Make-whole Shares”) in an amount that, based on the Settlement Price on such day (as if such day was the “Valuation Date” for purposes of computing such Settlement Price), has a dollar value equal to the Additional Amount. The Resale Period shall continue to enable the sale of the Make-whole Shares. If Issuer elects to pay the Additional Amount in Shares, the requirements and provisions for Registration Settlement shall apply. This provision shall be applied successively until the Additional Amount is equal to zero. In no event shall Issuer deliver a number of Restricted Shares greater than the Maximum Number of Shares.
(iii)
Without limiting the generality of the foregoing, Issuer agrees that (A) any Restricted Shares delivered to Dealer may be transferred by and among Dealer and its affiliates and Issuer shall effect such transfer without any further action by Dealer and (B) after the period of 6 months from the Trade Date (or 1 year from the Trade Date if, at such time, informational requirements of Rule 144(c) under the Securities Act are not satisfied with respect to Issuer) has elapsed in respect of any Restricted Shares delivered to Dealer, Issuer shall promptly remove, or cause the transfer agent for such Restricted Shares to remove, any legends referring to any such restrictions or requirements from such Restricted Shares upon request by Dealer (or such affiliate of Dealer) to Issuer or such transfer agent, without any requirement for the delivery of any certificate, consent, agreement, opinion of counsel, notice or any other document, any transfer tax stamps or payment of any other amount or any other action by Dealer (or such affiliate of Dealer). Notwithstanding anything to the contrary herein, to the extent the provisions of Rule 144 of the Securities Act or any successor rule are amended, or the applicable interpretation thereof by the Securities and Exchange Commission or any court change after the Trade Date, the agreements of Issuer herein shall be deemed modified to the extent necessary, in the opinion of outside counsel of Issuer, to comply with Rule 144 of the Securities Act, as in effect at the time of delivery of the relevant Shares or Share Termination Delivery Property.
(iv)
If the Private Placement Settlement or the Registration Settlement shall not be effected as set forth in clauses (i) or (ii), as applicable, then failure to effect such Private Placement Settlement or such Registration Settlement shall constitute an Event of Default with respect to which Issuer shall be the Defaulting Party.
(l)
Limit on Beneficial Ownership. Notwithstanding any other provisions hereof, Dealer may not exercise any Warrant hereunder or be entitled to take delivery of any Shares deliverable hereunder, and Automatic Exercise shall not apply with respect to any Warrant hereunder, to the extent (but only to the extent) that, after such receipt of any Shares upon the exercise of such Warrant or otherwise hereunder, (i) the Section 16 Percentage would exceed 7.5%, or (ii) the Share Amount would exceed the Applicable Share Limit. Any purported delivery hereunder shall be void and have no effect to the extent (but only to the extent) that, after such delivery, (i) the Section 16 Percentage would exceed 7.5%, or (ii) the Share Amount would exceed

27


EXECUTION VERSION


the Applicable Share Limit. If any delivery owed to Dealer hereunder is not made, in whole or in part, as a result of this provision, Company’s obligation to make such delivery shall not be extinguished and Company shall make such delivery as promptly as practicable after, but in no event later than one Business Day after, Dealer gives notice to Company that, after such delivery, (i) the Section 16 Percentage would not exceed 7.5%, and (ii) the Share Amount would not exceed the Applicable Share Limit.
(m)
Share Deliveries. Notwithstanding anything to the contrary herein, Issuer agrees that any delivery of Shares or Share Termination Delivery Property shall be effected by book-entry transfer through the facilities of DTC, or any successor depositary, if at the time of delivery, such class of Shares or class of Share Termination Delivery Property is in book-entry form at DTC or such successor depositary.
(n)
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein.
(o)
Tax Disclosure. Effective from the date of commencement of discussions concerning the Transaction, Company and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Company relating to such tax treatment and tax structure.
(p)
Maximum Share Delivery.
(i)
Notwithstanding any other provision of this Confirmation, the Agreement or the Equity Definitions, in no event will Company at any time be required to issue a number of Shares greater than two times the Number of Warrants (the “Maximum Number of Shares”) to Dealer in connection with the Transaction, subject to the provisions regarding Deficit Shares in Section 9 (p)(ii).
(ii)
In the event Issuer shall not have issued to Dealer the full number of Shares or Restricted Shares otherwise to be issued by Issuer to Dealer pursuant to the terms of the Transaction because Issuer has insufficient authorized capital to issue the full number of Shares or Restricted Shares (such deficit, the “Deficit Shares”), Issuer shall be continually obligated to transfer, from time to time, Shares or Restricted Shares, as the case may be, to Dealer until the full number of Deficit Shares have been transferred pursuant to this Section 9(p)(ii), when, and to the extent that Shares are repurchased, acquired or otherwise received by Company or any of its subsidiaries after the Trade Date (whether or not in exchange for cash, fair value or any other consideration), provided that in no event shall Issuer transfer any Shares or Restricted Shares to Dealer pursuant to this Section 9(p)(ii) to the extent that

28


EXECUTION VERSION


such transfer would cause the aggregate number of Shares and Restricted Shares transferred to Dealer to exceed the Maximum Number of Shares. Issuer shall immediately notify Dealer of the occurrence of any of the foregoing events (including the number of Shares that are repurchased, acquired or otherwise received by Company or any of its subsidiaries after the Trade Date and the corresponding number of Shares or Restricted Shares, as the case may be, to be transferred) and promptly transfer such Shares or Restricted Shares, as the case may be, thereafter.
(iii)
The Maximum Number of Shares shall only be subject to adjustment on account of (w) adjustments of the type specified in Section 9(f), (x) Potential Adjustment Events of the type specified in (1) Section 11.2(e)(i) through (vi) of the Equity Definitions or (2) Section 11.2(e)(vii) of the Equity Definitions as long as, in the case of this sub-clause (2), such event is within Issuer’s control, (y) Merger Events or Tender Offers requiring corporate action of the Issuer and (z) Announcement Events that are not outside the Issuer’s control. Any Payment Obligation hereunder shall be calculated without regard to the Maximum Number of Shares; provided that, for the avoidance of doubt, the number of Shares deliverable under Section 9(j) shall be limited to the Maximum Number of Shares.
(q)
Right to Extend. Dealer may postpone or add, in whole or in part, any Expiration Date or any other date of valuation or delivery with respect to some or all of the relevant Warrants (in which event the Calculation Agent shall make appropriate adjustments to the Daily Number of Warrants with respect to one or more Expiration Dates) if Dealer determines, in good faith and in its commercially reasonable judgment, that such extension is reasonably necessary or appropriate to preserve Dealer’s hedging or hedge unwind activity hereunder in light of existing liquidity conditions or to enable Dealer to effect transactions with respect to Shares in connection with its hedging, hedge unwind or settlement activity hereunder in a manner that would, if Dealer were Issuer or an affiliated purchaser of Issuer, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.
(r)
Status of Claims in Bankruptcy. Dealer acknowledges and agrees that this Confirmation is not intended to convey to Dealer rights against Issuer with respect to the Transaction that are senior to the claims of shareholders of Issuer in any bankruptcy proceedings of Issuer; provided that nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue remedies in the event of a breach by Issuer of its obligations and agreements with respect to the Transaction other than during any such bankruptcy proceedings; provided further that nothing herein shall limit or shall be deemed to limit Dealer’s rights in respect of any transactions other than the Transaction.
(s)
Securities Contract; Swap Agreement. The parties hereto intend for (i) the Transaction to be a “securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the

29


EXECUTION VERSION


Bankruptcy Code, (ii) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as described in the Bankruptcy Code, and (iii) each payment and delivery of cash, securities or other property hereunder to constitute a “margin payment” or “settlement payment” and a “transfer” as defined in the Bankruptcy Code.
(t)
Wall Street Transparency and Accountability Act. In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by WSTAA, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, but not limited to, rights arising from Change in Law, Hedging Disruption, Increased Cost of Hedging, an Excess Ownership Position, or Illegality (as defined in the Agreement)).
(u)
Agreements and Acknowledgements Regarding Hedging. Issuer understands, acknowledges and agrees that: (A) at any time on and prior to the last Expiration Date, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction; (B) Dealer and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Issuer shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Settlement Prices; and (D) any market activities of Dealer and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Settlement Prices, each in a manner that may be adverse to Issuer.
(v)
Early Unwind. In the event the exchange and sale of the “Securities” (as defined in the Placement Agency Agreement) is not consummated with the Placement Agent for any reason by 5:00 p.m. (New York City time) on the Premium Payment Date, or such later date as agreed upon by the parties (the Premium Payment Date or such later date the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”), on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of Dealer and Company under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date. Each of Dealer and Company represents and acknowledges to the other that, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.

30


EXECUTION VERSION


(w)
Payment by Dealer. In the event that (i) an Early Termination Date occurs or is designated with respect to the Transaction as a result of a Termination Event or an Event of Default (other than an Event of Default arising under Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a result, Dealer owes to Company an amount calculated under Section 6(e) of the Agreement, or (ii) Dealer owes to Company, pursuant to Section 12.7 or Section 12.9 of the Equity Definitions, an amount calculated under Section 12.8 of the Equity Definitions, such amount shall be deemed to be zero.
(x)
Designation of Dealer. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Company or Issuer, as applicable, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Company to the extent of any such performance.
(y)
Non-US Merger Transactions. Issuer shall not enter into or consummate any Non-US Merger Transaction unless the successor Issuer immediately following such Non-US Merger Transaction repeats to Dealer immediately following such Non-US Merger Transaction the representations and warranties set forth in Sections 8(a), 8(b), 8(c) and 8(d) of this Confirmation (as if references therein to (i) “execute, deliver” were replaced with “assume”, (ii) “execution, delivery” and “execution and delivery” were replaced with “assumption” and (iii) “executed and delivered” were replaced with “assumed”).
Notwithstanding anything to the contrary in this Confirmation if (1) Issuer enters into or consummates any Non-US Merger Transaction pursuant to which Issuer following such Non-US Merger Transaction is organized under the laws of a jurisdiction other than the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom that also becomes Company hereunder, (2) Company ceases to be Issuer or (3) Issuer enters into or consummates any Non-US Merger Transaction and does not comply with the requirements of the immediately previous paragraph of this Section 9(y), then, in any such case of clauses (1), (2) or (3) such transaction or event shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Company shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
If, at any time following the occurrence of any Non-US Merger Transaction, Dealer determines in good faith that (x) such Non-US Merger Transaction has had an adverse effect on Dealer’s rights and obligations under the Transaction or (y) Dealer would incur an increased amount of tax, duty, expense or fee to (1) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the economic risk of entering into and performing its obligations with respect to the Transaction, or (2) realize, recover or remit the

31


EXECUTION VERSION


proceeds of any such transaction(s) or asset(s) (each of the events described in clause (x) and clause (y) above, a “Non-US Merger Event”), then, in either case, Dealer shall give notice to Company of such Non-US Merger Event. Concurrently with delivering such notice, Dealer shall give notice to Company of a Price Adjustment that Dealer reasonably and in good faith determines appropriate to account for the economic effect on the Transaction of such Non-US Merger Event (unless Dealer determines that no Price Adjustment will produce a commercially reasonably result, in which case Dealer shall so notify Company). Unless Dealer determines in good faith that no Price Adjustment will produce a commercially reasonably result, within one Scheduled Trading Day of receipt of such notice, Company shall notify Dealer that it elects to (A) agree to amend the Transaction to take into account such Price Adjustment or (B) pay Dealer an amount determined by Dealer that corresponds to such Price Adjustment (and, in each case, Company shall repeat the representation set forth in Section 8(g) of this Confirmation (which representation is confirmed to Dealer in writing by Issuer, if other than Company) as of the date of such election). If Company fails to give such notice to Dealer of its election in accordance with the foregoing by the end of that first Scheduled Trading Day, or if Dealer determines that no Price Adjustment will produce a commercially reasonably result, then such failure or such determination, as the case may be, shall constitute an Additional Termination Event applicable to the Transaction (it being understood that in the case of a Non-US Merger Event solely pursuant to clause (x) of the definition thereof, such determination shall constitute an Additional Termination Event only if the relevant adverse effect may have a material impact on Dealer’s rights and obligations under the Transaction, as determined by Dealer in good faith) and, with respect to such Additional Termination Event, (1) Company shall be deemed to be the sole Affected Party, (2) the Transaction shall be the sole Affected Transaction and (3) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
For the avoidance of doubt, the parties hereto agree and acknowledge that (I) the occurrence of an Non-US Merger Event shall not preclude the occurrence of one or more additional, subsequent Non-US Merger Events and (II) if a Non-US Merger Event occurs, Dealer will determine, in its sole discretion, whether to exercise its rights under the provisions of this Section 9(y) and/or the rights and remedies of Dealer and its affiliates under any other provision of this Confirmation, the Equity Definitions and the Agreement.
(z)
Par Value Payment. Company and Dealer each acknowledges and agrees that, by paying the Premium hereunder to Company, on the Premium Payment Date Dealer will have made a payment for purposes of paying up the aggregate par value of the Shares issuable pursuant to the Transaction (for the avoidance of doubt, prior to any subsequent adjustment to the Transaction), equal to EUR554,775.54 (the “Initial Par Value Payment”). Upon receipt, the Company shall reserve the Initial Par Value Payment and apply the Initial Par Value Payment against the obligation to pay-up the Shares upon issue of the Shares. To the extent that the Initial Par Value Payment

32


EXECUTION VERSION


exceeds the aggregate nominal value of the Shares issued, then such excess shall be regarded as share premium. Company acknowledges and agrees that such Initial Par Value Payment constitutes, based on the par value per Share as of the date hereof, a payment (volstorting) of the par value of the Shares sufficient under Dutch law to give effect to the issuance by Company to Dealer of a number of Shares equal to the Maximum Number of Shares (for the avoidance of doubt, prior to any subsequent adjustment to the Transaction). Company represents and warrants to, and acknowledges and agrees with, Dealer that Company has not taken, and will not take or permit to be taken, any action that would result in the Maximum Number of Shares (subject to adjustment as set forth herein) exceeding the Par Value Delivery Number, and in no event will such an excess occur prior to final settlement, payment or delivery in full of Company’s obligations to Dealer hereunder. In addition, it shall constitute a Potential Adjustment Event if on any day during the period from and including the Trade Date, to and including the final Expiration Date, Company or its controlled affiliates make a public announcement of any transaction or event, or any previously announced transaction or event, that, in the reasonable opinion of Dealer would, upon consummation of such transaction or upon the occurrence of such event, as applicable, and after giving effect to any applicable adjustments hereunder, cause the Maximum Number of Shares (subject to adjustment as set forth herein) to exceed the Par Value Delivery Number. Company will promptly notify Dealer of any change to the par value of the Shares. Each of Company and Dealer acknowledges and agrees that if, following any subsequent adjustment to the Transaction, the Maximum Number of Shares exceeds the Maximum Number of Shares as of the date hereof (the “Initial Maximum Number of Shares”), Company may use such additional funds or resources of the Company as it may in its discretion determine to the extent required to pay up the par value of the Shares issuable in excess of the Initial Maximum Number of Shares and apply such funds for the payment of the par value of such shares (which payment or source of funds, for the avoidance of doubt, will not result in a holding period (within the meaning of Rule 144) for Dealer with respect to the Warrants, or any Shares issuable upon settlement thereof, that commences after the Premium Payment Date) (such payment, when actually paid or applied by the Company and notified in writing to Dealer, together with the Initial Par Value Payment, the “Par Value Payment”).
(aa)
Certain Adjustments. Notwithstanding anything to the contrary in the Confirmation, if Dealer or the Calculation Agent is required to calculate any payment under Section 6(e) of the Agreement or Sections 12.7 or 12.8 of the Equity Definitions, in each case, with respect to a Merger Termination Event, then Dealer or the Calculation Agent, as applicable, will make such calculation based on a volatility input that is equal to the Relevant Volatility Input.
“Merger Termination Event” means that the Transaction (or a portion of the Transaction) is terminated or cancelled both (i) as a result of (x) a Merger Event, (y) an Additional Termination Event pursuant to Section 9(h)(ii)(A) or 9(h)(ii)(B) of the Confirmation or (z) an Additional Disruption Event arising as a result of a Merger Event and (ii) as a result of the same event as any over-the-counter equity option transaction (or portion of such a transaction) to which Dealer is a party and to which

33


EXECUTION VERSION


Company (or a wholly-owned subsidiary of Company) is party relating to the Shares (such equity option transactions, “Relevant Positions”) and under which Dealer is also required to determine a volatility input is terminated, in each case, as determined by Dealer in good faith and commercially reasonably.
“Relevant Volatility Input” means a volatility input that is determined by Dealer in good faith and in a commercially reasonable manner and which, without limitation, may be based on implied volatility levels for options on the Shares with strike prices approximate to the Strike Price of the Transaction or approximate to the strike price of over-the-counter equity options on the Shares that are included in its commercially reasonable Hedge Positions with respect to the Transaction, in each case, as determined by Dealer in good faith and a commercially reasonable manner; provided that, if (i) Dealer (whether in its capacity as “Calculation Agent”, “Determining Party”, “Hedging Party” or otherwise) is required to determine a volatility input under any Relevant Positions and (ii) Dealer determines that such Relevant Positions (or a portion thereof) are terminated, cancelled, offset or otherwise unwound at approximately the same time (as determined by Dealer in good faith and commercially reasonably) as the Transaction (or portion thereof) is terminated, cancelled, offset or otherwise unwound, Dealer shall use a Relevant Volatility Input that is no greater than such volatility input for such Relevant Positions. For the avoidance of doubt, a Relevant Volatility Input that is equal to the volatility input for any Relevant Positions shall, in no event, be deemed to be commercially unreasonable.
(ab)
Taxes.
(i)
“Indemnifiable Tax” as defined in Section 14 of this Agreement shall not include any U.S. federal withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of this Agreement.
(ii)
Dealer and Company hereby agree that this Agreement shall be treated as a Covered Master Agreement (as that term is defined in the 2015 Section 871(m) Protocol) and this Agreement shall be deemed to have been amended in accordance with the modifications specified in the Attachment to the 2015 Section 871(m) Protocol.
(ac)
2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol. The parties agree that terms of the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by ISDA on July 19, 2013 (“Protocol”) apply to the Agreement as if the parties had adhered to the Protocol

34


EXECUTION VERSION


without amendment. In respect of the Attachment to the Protocol, (i) the definition of “Adherence Letter” shall be deemed to be deleted and references to “Adherence Letter” shall be deemed to be to this Section (and references to “such party’s Adherence Letter” and “its Adherence Letter” shall be read accordingly), (ii) references to “adheres to the Protocol” shall be deemed to be “enters into this Amendment”, (iii) references to “Protocol Covered Agreement” shall be deemed to be references to the Agreement (and “each Protocol Covered Agreement” shall be read accordingly), (iv) references to “Implementation Date” shall be deemed to be references to the date of this Amendment, and (v) the term “the parties” shall be construed as referring to Dealer and the Company. For the purposes of this Section:
(i)
Dealer is a Portfolio Data Sending Entity and the Company is a Portfolio Data Receiving entity;
(ii)
The Local Business Days for such purposes in relation to Dealer are London and in relation to Company are New York and Amsterdam;
(iii)
The provisions in this section shall survive the termination of the Transaction; and
(iv)
The following are the applicable email addresses.
Portfolio Data:            Dealer: [email protected]
Notice of discrepancy:    Dealer: [email protected]
Dispute Notice:        Dealer: [email protected]





35


EXECUTION VERSION


Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning by email to Dealer.
Very truly yours,
J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National Association
By: /s/ Sudheer Tegulapalle    
Authorized Signatory
Name:    Sudheer Tegulapalle
Managing Director




36


EXECUTION VERSION


Accepted and confirmed
as of the Trade Date:
WRIGHT MEDICAL GROUP N.V.


By: /s/ Lance A. Berry    
Name: Lance A. Berry
Title:     Senior Vice President and
Chief Financial Officer










37


EXECUTION VERSION

Bank of America, N.A.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
New York, NY 10036
Attention: Gary Rosenblum
Telephone No.: (646) 855-3684
Facsimile: (646) 834-9809
May 12, 2016
To:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: + 31 20 675 4002

Re:
Warrants
The purpose of this letter agreement (this “Confirmation”) is to confirm the terms and conditions of the Warrants issued by Wright Medical Group N.V. (“Company”) to Bank of America, N.A. (“Dealer”) as of the Trade Date specified below (the “Transaction”). This letter agreement constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below. This Confirmation shall replace any previous agreements with respect to the Transaction and serve as the final documentation for the Transaction.
The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”), as published by the International Swaps and Derivatives Association, Inc. (“ISDA”), are incorporated into this Confirmation. In the event of any inconsistency between the Equity Definitions and this Confirmation, this Confirmation shall govern.
Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.
1.This Confirmation evidences a complete and binding agreement between Dealer and Company as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA Master Agreement (the “Agreement”) as if Dealer and Company had executed an agreement in such form (but without any Schedule except for (i) the election of the laws of the State of New York as the governing law (without reference to choice of law doctrine), and (ii) the election of US Dollars (“USD”) as the Termination Currency) on the Trade Date. In the event of any inconsistency between provisions of that Agreement and this Confirmation, this Confirmation will prevail for the purpose



EXECUTION VERSION

of the Transaction to which this Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to which this Confirmation relates shall be governed by the Agreement. The parties acknowledge that the Transaction to which this Confirmation relates is not governed by, and shall not be treated as a transaction under, any other ISDA Master Agreement entered between the parties from time to time.

2.The Transaction is a Warrant Transaction, which shall be considered a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms.
Trade Date:
May 12, 2016
Effective Date:
The third Exchange Business Day immediately prior to the Premium Payment Date
Warrants:
Equity call warrants, each giving the holder the right to purchase a number of Shares equal to the Warrant Entitlement at a price per Share equal to the Strike Price, subject to the terms set forth under the caption “Settlement Terms” below. For the purposes of the Equity Definitions, each reference to a Warrant herein shall be deemed to be a reference to a Call Option.
Warrant Style:
European
Seller:
Company
Buyer:
Dealer
Shares:
The ordinary shares of Company, par value 0.03 Euros per share (Exchange symbol “WMGI”).
Number of Warrants:
9,246,259. For the avoidance of doubt, the Number of Warrants shall be reduced by any Warrants exercised or deemed exercised hereunder. In no event will the Number of Warrants be less than zero.
Warrant Entitlement:
One Share per Warrant
Strike Price:
USD 30.00.

2


EXECUTION VERSION

Notwithstanding anything to the contrary in the Agreement, this Confirmation or the Equity Definitions, in no event shall the Strike Price be subject to adjustment to the extent that, after giving effect to such adjustment, the Strike Price would be less than USD 17.80, except for any adjustment pursuant to the terms of this Confirmation and the Equity Definitions in connection with stock splits or similar changes to Issuer’s capitalization.
Premium:
USD27,314,250.00 in the aggregate (the “Aggregate Premium Amount”), to be paid by Dealer to Company on the Premium Payment Date as follows:
(i) EUR554,775.54; and
(ii) an amount in USD equal to the excess of (x) the Aggregate Premium Amount over (y) the amount in EUR set forth in clause (i) above (as converted into the corresponding amount in USD by the Calculation Agent in a commercially reasonable manner on or prior to the Premium Payment Date).
Premium Payment Date:
May 20, 2016
Exchange:
The NASDAQ Global Select Market
Related Exchange(s):
All Exchanges
Procedures for Exercise.
Expiration Time:
The Valuation Time
Expiration Dates:
Each Scheduled Trading Day during the period from, and including, the First Expiration Date to, but excluding, the 100th Scheduled Trading Day following the First Expiration Date shall be an “Expiration Date” for a number of Warrants equal to the Daily Number of Warrants on such date; provided that, notwithstanding anything to the contrary in the Equity Definitions, if any such date is a Disrupted Day, the Calculation Agent shall make adjustments, if applicable, to the Daily Number of Warrants or shall reduce such Daily Number of Warrants to zero for which such day shall be an Expiration Date and shall designate a Scheduled Trading Day or a number of

3


EXECUTION VERSION

Scheduled Trading Days as the Expiration Date(s) for the remaining Daily Number of Warrants or a portion thereof for the originally scheduled Expiration Date; and provided further that if such Expiration Date has not occurred pursuant to this clause as of the eighth Scheduled Trading Day following the last scheduled Expiration Date under the Transaction, the Calculation Agent shall have the right to declare such Scheduled Trading Day to be the final Expiration Date and the Calculation Agent shall determine its good faith estimate of the fair market value for the Shares as of the Valuation Time on that eighth Scheduled Trading Day or on any subsequent Scheduled Trading Day, as the Calculation Agent shall determine using commercially reasonable means.
First Expiration Date:
February 15, 2022, (or if such day is not a Scheduled Trading Day, the next following Scheduled Trading Day), subject to Market Disruption Event below.
Daily Number of Warrants:
For any Expiration Date, the Number of Warrants that have not expired or been exercised as of such day, divided by the remaining number of Expiration Dates (including such day), rounded down to the nearest whole number, subject to adjustment pursuant to the provisos to “Expiration Dates”.
Automatic Exercise:
Applicable; and means that for each Expiration Date, a number of Warrants equal to the Daily Number of Warrants for such Expiration Date will be deemed to be automatically exercised at the Expiration Time on such Expiration Date.
Market Disruption Event:
Section 6.3(a) of the Equity Definitions is hereby amended by replacing clause (ii) in its entirety with “(ii) an Exchange Disruption, or” and inserting immediately following clause (iii) the phrase “; in each case that the Calculation Agent determines is material.”
Section 6.3(d) of the Equity Definitions is hereby amended by deleting the remainder of the provision following the words “Scheduled Closing Time” in the fourth line thereof.
Valuation Terms.

4


EXECUTION VERSION

Valuation Time:
Scheduled Closing Time; provided that if the principal trading session is extended, the Calculation Agent shall determine the Valuation Time in good faith and in its reasonable discretion.
Valuation Date:
Each Exercise Date.
Settlement Terms.
Settlement Method:
Net Share Settlement.
Net Share Settlement:
On the relevant Settlement Date, Company shall deliver to Dealer a number of Shares equal to the Share Delivery Quantity for such Settlement Date to the account specified herein free of payment (other than, for the avoidance of doubt, the payment obligation that will be satisfied by the Par Value Payment) through the Clearance System, and Dealer shall be treated as the holder of record of such Shares at the time of delivery of such Shares or, if earlier, at 5:00 p.m. (New York City time) on such Settlement Date.
Share Delivery Quantity:
For any Settlement Date, a number of Shares (rounded down to the nearest whole Share), as calculated by the Calculation Agent, equal to the Net Share Settlement Amount for such Settlement Date divided by the Settlement Price on the Valuation Date for such Settlement Date.
Net Share Settlement Amount:
For any Settlement Date, an amount equal to the product of (i) the number of Warrants exercised or deemed exercised on the relevant Exercise Date, (ii) the Strike Price Differential for the relevant Valuation Date and (iii) the Warrant Entitlement.
Settlement Price:
For any Valuation Date, the per Share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page WMGI <equity> AQR (or any successor thereto) in respect of the period from the scheduled opening time of the Exchange to the Scheduled Closing Time on such Valuation Date (or if such volume-weighted average price is unavailable, the market value of one Share on such Valuation Date, as determined by the Calculation Agent). Notwithstanding the foregoing, if (i) any

5


EXECUTION VERSION

Expiration Date is a Disrupted Day and (ii) the Calculation Agent determines that such Expiration Date shall be an Expiration Date for fewer than the Daily Number of Warrants, as described above, then the Settlement Price for the relevant Valuation Date shall be the volume-weighted average price per Share on such Valuation Date on the Exchange, as determined by the Calculation Agent based on such sources as it deems appropriate using a volume-weighted methodology, for the portion of such Valuation Date for which the Calculation Agent determines there is no Market Disruption Event.
Settlement Dates:
As determined pursuant to Section 9.4 of the Equity Definitions, subject to Section 9(k)(i) hereof.
Other Applicable Provisions:
The provisions of Sections 9.1(c), 9.8, 9.9, 9.11 (except that, with respect to any Private Placement Settlement, the Representation and Agreement contained in Section 9.11 of the Equity Definitions shall be modified by excluding any representations therein relating to restrictions, obligations, limitations or requirements under applicable securities laws arising as a result of the fact that Seller is the Issuer of the Shares) and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Net Share Settled.” “Net Share Settled” in relation to any Warrant means that Net Share Settlement is applicable to that Warrant.
Representation and Agreement:
Notwithstanding Section 9.11 of the Equity Definitions, the parties acknowledge that any Shares delivered to Dealer may be, upon delivery, subject to restrictions and limitations arising from Issuer’s status as issuer of the Shares under applicable securities laws.

3.Additional Terms applicable to the Transaction.
Adjustments applicable to the Transaction:
Method of Adjustment:
Calculation Agent Adjustment. For the avoidance of doubt, in making any adjustments under the Equity

6


EXECUTION VERSION

Definitions, the Calculation Agent may make adjustments, if any, to any one or more of the Strike Price, the Number of Warrants, the Daily Number of Warrants and the Warrant Entitlement. Notwithstanding the foregoing, any cash dividends or distributions on the Shares, whether or not extraordinary, shall be governed by Section 9(f) of this Confirmation in lieu of Article 10 or Section 11.2(c) of the Equity Definitions.
Extraordinary Events applicable to the Transaction:
New Shares:
Section 12.1(i) of the Equity Definitions is hereby amended (a) by deleting the text in clause (i) thereof in its entirety (including the word “and” following clause (i)) and replacing it with the phrase “publicly quoted, traded or listed (or whose related depositary receipts are publicly quoted, traded or listed) on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors)” and (b) by inserting immediately prior to the period the phrase “and (iii) of an entity or person that is a (I) Dutch public limited company, (II) corporation or limited liability company that is treated, or, if disregarded for U.S. federal income tax purposes, its regarded owner is treated, as a “United States person” under Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (any such corporation or limited liability company being referred to hereinafter as a “U.S. Entity”) or (III) solely in the case of a Non-US Merger Transaction in respect of which Company and Issuer have satisfied all of the requirements set forth in Section 9(y) below, a corporation or entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom), in each case, that also becomes Company under the Transaction following such Merger Event or Tender Offer”.
Consequence of Merger Events:

7


EXECUTION VERSION

Merger Event:
Applicable; provided, however, that if an event occurs that constitutes both a Merger Event under Section 12.1(b) of the Equity Definitions and an Additional Termination Event under Section 9(h)(ii)(B) of this Confirmation, Dealer may elect, in its commercially reasonable judgment, whether the provisions of Section 12.2 of the Equity Definitions or Section 9(h)(ii)(B) will apply.
Share-for-Share:
Modified Calculation Agent Adjustment
Share-for-Other:
Cancellation and Payment (Calculation Agent Determination)
Share-for-Combined:
Cancellation and Payment (Calculation Agent Determination); provided that Dealer may elect, in its commercially reasonable judgment, Component Adjustment (Calculation Agent Determination) for all or any portion of the Transaction.
Consequence of Tender Offers:
Tender Offer:
Applicable; provided, however, that if an event occurs that constitutes both a Tender Offer under Section 12.1(d) of the Equity Definitions and Additional Termination Event under Section 9(h)(ii)(A) of this Confirmation, Dealer may elect, in its commercially reasonable judgment, whether the provisions of Section 12.3 of the Equity Definitions or Section 9(h)(ii)(A) will apply.
Share-for-Share:
Modified Calculation Agent Adjustment
Share-for-Other:
Modified Calculation Agent Adjustment
Share-for-Combined:
Modified Calculation Agent Adjustment
Announcement Event:
If an Announcement Date occurs in respect of a Merger Event (for the avoidance of doubt, determined without regard to the language in the definition of “Merger Event” following the definition of “Reverse Merger” therein) or Tender Offer (such occurrence, an “Announcement Event”), then on the earliest of the Expiration Date, Early Termination Date or other date of cancellation (the “Announcement Event Adjustment Date”) in respect of each Warrant, the

8


EXECUTION VERSION

Calculation Agent will determine the economic effect on such Warrant of the Announcement Event (regardless of whether the Announcement Event actually results in a Merger Event or Tender Offer, and taking into account such factors as the Calculation Agent may determine, including, without limitation, changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or the Transaction whether prior to or after the Announcement Event or for any period of time, including, without limitation, the period from the Announcement Event to the relevant Announcement Event Adjustment Date). If the Calculation Agent determines that such economic effect on any Warrant is material, then on the Announcement Event Adjustment Date for such Warrant, the Calculation Agent may make such adjustment to the exercise, settlement, payment or any other terms of such Warrant as the Calculation Agent determines appropriate to account for such economic effect, which adjustment shall be effective immediately prior to the exercise, termination or cancellation of such Warrant, as the case may be.
Announcement Date:
The definition of “Announcement Date” in Section 12.1 of the Equity Definitions is hereby amended by (i) replacing the words “a firm” with the word “any” in the second and fourth lines thereof, (ii) replacing the word “leads to the” with the words “, if completed, would lead to a” in the third and the fifth lines thereof, (iii) replacing the words “voting shares” with the word “Shares” in the fifth line thereof, and (iv) inserting the words “by any entity” after the word “announcement” in the second and the fourth lines thereof.
Nationalization, Insolvency or
Delisting:
Cancellation and Payment (Calculation Agent Determination); provided, that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The

9


EXECUTION VERSION

NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or their respective successors), such exchange or quotation system shall thereafter be deemed to be the Exchange.
Additional Disruption Events:
Change in Law:
Applicable; provided that Section 12.9(a)(ii) of the Equity Definitions is hereby amended by (i) replacing the word “Shares” with the phrase “Hedge Positions” in clause (X) thereof and (ii) inserting the parenthetical “(including, for the avoidance of doubt and without limitation, adoption or promulgation of new regulations authorized or mandated by existing statute)” at the end of clause (A) thereof.
Failure to Deliver:
Not Applicable
Insolvency Filing:
Applicable
Hedging Disruption:
Applicable; provided that:
(i)
Section 12.9(a)(v) of the Equity Definitions is hereby amended by (a) inserting the following words at the end of clause (A) thereof: “in the manner contemplated by the Hedging Party on the Trade Date” and (b) inserting the following two phrases at the end of such Section:
“For the avoidance of doubt, the term “equity price risk” shall be deemed to include, but shall not be limited to, stock price and volatility risk. And, for the further avoidance of doubt, any such transactions or assets referred to in phrases (A) or (B) above must be available on commercially reasonable pricing terms.”; and
(ii)
Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in the third line thereof, after the words “to terminate the

10


EXECUTION VERSION

Transaction”, the words “or a portion of the Transaction affected by such Hedging Disruption”.
Increased Cost of Hedging:
Applicable.
Loss of Stock Borrow:
Applicable.
Maximum Stock Loan Rate:
100 basis points
Increased Cost of Stock Borrow:
Applicable.
Initial Stock Loan Rate:
25 basis points
Hedging Party:
For all applicable Additional Disruption Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Hedging Party shall be made in good faith and in a commercially reasonable manner (it being understood that Hedging Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Determining Party:
For all applicable Extraordinary Events, Dealer; provided, however, that all calculations, adjustments, specifications, choices and determinations by Dealer acting in its capacity as the Determining Party shall be made in good faith and in a commercially reasonable manner (it being understood that Determining Party will be subject to the requirements of the second paragraph under “Calculation Agent” below).
Non-Reliance:
Applicable.
Agreements and
Acknowledgments Regarding
Hedging Activities:
Applicable
Additional Acknowledgments:
Applicable


11


EXECUTION VERSION

4.Calculation Agent. Dealer. All calculations, adjustments, specifications, choices and determinations by the Calculation Agent shall be made in good faith and in a commercially reasonable manner. The parties agree that they will work reasonably to resolve any disputes as set forth in the immediately following paragraph.
In the case of any calculation, adjustment or determination by the Hedging Party, the Determining Party or the Calculation Agent, following any written request from Issuer, the Hedging Party, the Determining Party or the Calculation Agent, as the case may be, shall promptly provide to Issuer a written explanation describing in reasonable detail the basis for such calculation, adjustment or determination (including any quotation, market data or information from internal or external sources used in making such calculation, adjustment or determination, but without disclosing any proprietary models or other information that may be proprietary or confidential). If Issuer promptly disputes such calculation, adjustment or determination in writing and provides reasonable detail as to the basis for such dispute, the Calculation Agent shall, to the extent permitted by applicable law, discuss the dispute with Issuer in good faith.
5.Account Details.
(a)
Account for payments to Company:
For payments in EUR:
Account Name - Tornier N.V.
Bank instructions - INGBNL2AXXX
Account Number - 66.40.77.560
IBAN - NL42INGB0664077560
For payments in USD:
Bank: Bank of America
ABA#: 026009593
Acct No.: 444014532256
Acct Name:    Wright Medical Group N.V.
Swift: BOFAUS3N
        
(b)
Account for payments to Dealer:
Bank of America NA
ABA: 026-009-593
SWIFT: BOFAUS3N
Bank Routing: 026-009-593
Account No. : 0012334-61892
Account Name: Bank of America
Account for delivery of Shares to Dealer:

12


EXECUTION VERSION

To be advised.
6.Offices.
(a)
The Office of Company for the Transaction is: Inapplicable, Company is not a Multibranch Party.
(b)
The Office of Dealer for the Transaction is: New York
7.Notices.
(a)
Address for notices or communications to Company:
Wright Medical Group N.V. | Legal
Attention: James Lightman Sr. Vice President, General Counsel and Secretary
Prins Bernhardplein 200
1097 JB Amsterdam
The Netherlands
Telephone No.: +31 20 675 4002
With a copy to:
Ropes & Gray LLP
Attention: Isabel Dische, Esq. and Thomas Holden, Esq.
Telephone No: (212) 596-9000
Facsimile No: (212) 596-9090
(b)
Address for notices or communications to Dealer:
Bank of America, N.A.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
New York, NY 10036
Attention: Gary Rosenblum
Telephone No.: (646) 855-3684
Facsimile: (646) 834-9809
8.Representations and Warranties of Company.
Each of the representations and warranties of Company set forth in Section 6 of the Placement Agency Agreement (the “Placement Agency Agreement”), dated as of May 12, 2016, between Company and J. Wood Capital Advisors, LLC, as Placement Agent (the “Placement Agent”), are true and correct and are hereby deemed to be repeated to Dealer as if set forth herein; except to the extent that such representations and warranties, if not true or correct,

13


EXECUTION VERSION

would not have a material adverse effect on the power or ability of Company to execute and deliver this Confirmation or to perform its obligations hereunder. Company hereby further represents and warrants to Dealer on the date hereof, on and as of the Premium Payment Date and, in the case of the representations in Section 8(d), at all times until termination of the Transaction, that:
(a)
Company has all necessary corporate power and authority to execute, deliver and perform its obligations in respect of the Transaction; such execution, delivery and performance have been duly authorized by all necessary corporate action on Company’s part; and this Confirmation has been duly and validly executed and delivered by Company and constitutes its valid and binding obligation, enforceable against Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution hereunder may be limited by federal or state securities laws or public policy relating thereto.
(b)
Neither the execution and delivery of this Confirmation nor the incurrence or performance of obligations of Company hereunder will conflict with or result in a breach of the certificate of incorporation or by-laws (or any equivalent documents) of Company, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which Company or any of its subsidiaries is a party or by which Company or any of its subsidiaries is bound or to which Company or any of its subsidiaries is subject, or constitute a default under, or result in the creation of any lien under, any such agreement or instrument.
(c)
No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required in connection with the execution, delivery or performance by Company of this Confirmation, except such as have been obtained or made and such as may be required under the Securities Act of 1933, as amended (the “Securities Act”) or state securities laws or under the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(d)
All corporate action has been taken by the Company to duly authorize the granting of rights to acquire a number of Shares equal to the Maximum Number of Shares (as defined below) (the “Warrant Shares”). The Warrant Shares have been duly authorized and, upon application of the Par Value Payment to satisfy the payment obligation of the par value of the Shares and otherwise as contemplated by the terms of the Warrants, following the exercise of the Warrants in accordance with the terms and conditions of the Warrants, will be validly issued, fully-paid, and the issuance of the Warrant Shares will not be subject to any preemptive or similar rights and the

14


EXECUTION VERSION

Warrant Shares shall upon issuance be accepted for listing or quotation on the Exchange.
(e)
Company is not and, after consummation of the transactions contemplated hereby, will not be required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.
(f)
Company is an “eligible contract participant” (as such term is defined in Section 1a(18) of the Commodity Exchange Act, as amended, other than a person that is an eligible contract participant under Section 1a(18) (C) of the Commodity Exchange Act).
(g)
Company and each of its affiliates are not, on the date hereof, in possession of any material non-public information with respect to Company or the Shares.
(h)
No state or local (including any non-U.S. jurisdiction’s) law, rule, regulation or regulatory order applicable to the Shares would give rise to any reporting, consent, registration or other requirement (including without limitation a requirement to obtain prior approval from any person or entity), except for the reporting requirements of the Exchange Act and rules promulgated thereunder, or, the reporting or registration requirements of the Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969), in each case, as a result of Dealer or its affiliates owning or holding (however defined) Shares.
(i)
Company (A) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; (B) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing; and (C) has total assets of at least $50 million.
(j)
It is a party which is able to adhere to the Attachment to the ISDA 2013 EMIR NFC Representation Protocol published by ISDA on March 8, 2013 (the “NFC Representation Protocol”) as if it were a party making the NFC Representation (as such term is defined in the NFC Representation Protocol).
9.Other Provisions.
(a)
Company shall deliver to Dealer an opinion of Dutch counsel, dated as of the date hereof, with respect to the matters set forth in Sections 8(a) through (d). Delivery of such opinion to Dealer shall be a condition precedent for the purpose of Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer under Section 2(a)(i) of the Agreement.
(b)
Repurchase Notices. Issuer shall, on any day on which Issuer effects any repurchase of Shares, promptly give Dealer a written notice of such repurchase (a “Repurchase

15


EXECUTION VERSION

Notice”) on such day if following such repurchase, the number of outstanding Shares on such day, subject to any adjustments provided herein, is (i) less than 97,296,541 (in the case of the first such notice) or (ii) thereafter more than 4,863,283 less than the number of Shares included in the immediately preceding Repurchase Notice. Issuer agrees to indemnify and hold harmless Dealer and its affiliates and their respective officers, directors, employees, affiliates, advisors, agents and controlling persons (each, an “Indemnified Person”) from and against any and all losses (including losses relating to Dealer’s hedging activities as a consequence of becoming, or of the risk of becoming, a Section 16 “insider”, including without limitation, any forbearance from hedging activities or cessation of hedging activities and any losses in connection therewith with respect to the Transaction), claims, damages, judgments, liabilities and expenses (including reasonable attorney’s fees), joint or several, which an Indemnified Person actually may become subject to, as a result of Issuer’s failure to provide Dealer with a Repurchase Notice on the day and in the manner specified in this paragraph, and to reimburse, within 30 days, upon written request, each of such Indemnified Persons for any reasonable legal or other expenses incurred in connection with investigating, preparing for, providing testimony or other evidence in connection with or defending any of the foregoing. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against the Indemnified Person, such Indemnified Person shall promptly notify Issuer in writing, and Issuer, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others Issuer may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. Issuer shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, Issuer agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Issuer shall not, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding on terms reasonably satisfactory to such Indemnified Person. If the indemnification provided for in this paragraph is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then Issuer under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities. The remedies provided for in this paragraph are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this paragraph shall remain operative and in full force and effect regardless of the termination of the Transaction.

16


EXECUTION VERSION

(c)
Regulation M. Issuer is not on the Trade Date engaged in a distribution, as such term is used in Regulation M under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of any securities of Issuer, other than a distribution meeting the requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. Issuer shall not, until the second Scheduled Trading Day immediately following the Effective Date, engage in any such distribution.
(d)
No Manipulation. Issuer is not entering into the Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or to raise or depress or otherwise manipulate the price of the Shares (or any security convertible into or exchangeable for the Shares) or otherwise in violation of the Exchange Act or the Dutch Act on Financial Supervision (Wet op het Financieel Toezicht).
(e)
Transfer or Assignment. Company may not transfer any of its rights or obligations under the Transaction without the prior written consent of Dealer. Dealer may, without Company’s or Issuer’s (if other than Company) consent, transfer or assign all or any part of its rights or obligations under the Transaction to any third party; provided, however, that the transferee or assignee shall not be entitled to receive any greater payment of additional amounts under Section 2(d)(i)(4) of the Agreement than Dealer would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Tax Law that occurs after the date of the transfer or assignment. If at any time at which (A) the Section 16 Percentage exceeds 7.5%, (B) the Warrant Equity Percentage exceeds 14.5%, or (C) the Share Amount exceeds the Applicable Share Limit (if any applies) (any such condition described in clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after using its commercially reasonable efforts to effect a transfer or assignment of Warrants to a third party on pricing terms reasonably acceptable to Dealer and within a time period reasonably acceptable to Dealer such that no Excess Ownership Position exists, then Dealer may designate any Exchange Business Day as an Early Termination Date with respect to a portion of the Transaction (the “Terminated Portion”), such that following such partial termination no Excess Ownership Position exists. In the event that Dealer so designates an Early Termination Date with respect to a Terminated Portion, a payment shall be made pursuant to Section 6 of the Agreement as if (1) an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Warrants equal to the number of Warrants underlying the Terminated Portion, (2) Company were the sole Affected Party with respect to such partial termination and (3) the Terminated Portion were the sole Affected Transaction (and, for the avoidance of doubt, the provisions of Section 9(j) shall apply to any amount that is payable by Company to Dealer pursuant to this sentence as if Company was not the Affected Party). The “Section 16 Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the number of Shares that Dealer and each person subject to aggregation of Shares with Dealer under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder directly or

17


EXECUTION VERSION

indirectly beneficially own (as defined under Section 13 or Section 16 of the Exchange Act and rules promulgated thereunder) and (B) the denominator of which is the number of Shares outstanding. The “Warrant Equity Percentage” as of any day is the fraction, expressed as a percentage, (A) the numerator of which is the sum of (1) the product of the Number of Warrants and the Warrant Entitlement and (2) the aggregate number of Shares underlying any other warrants purchased by Dealer from Company or Issuer, as applicable, and (B) the denominator of which is the number of Shares outstanding. The “Share Amount” as of any day is the number of Shares that Dealer and any person whose ownership position would be aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”) under any law, rule, regulation, regulatory order or organizational documents or contracts of Issuer that are, in each case, applicable to ownership of Shares (“Applicable Restrictions”), owns, beneficially owns, constructively owns, controls, holds the power to vote or otherwise meets a relevant definition of ownership under any Applicable Restriction, as determined by Dealer in its reasonable discretion. The “Applicable Share Limit” means a number of Shares equal to (A) the minimum number of Shares that could give rise to reporting or registration obligations or other requirements (including obtaining prior approval from any person or entity) of a Dealer Person, or could result in an adverse effect on a Dealer Person, under any Applicable Restriction, as determined by Dealer in its reasonable discretion, minus (B) 1% of the number of Shares outstanding. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities, or make or receive any payment in cash, to or from Company or Issuer, as applicable, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities, or make or receive such payment in cash, and otherwise to perform Dealer’s obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Company or Issuer (if other than Company) to the extent of any such performance.
(f)
Dividends. If at any time during the period from and including the Effective Date, to and including the last Expiration Date, an ex-dividend date for a cash dividend occurs with respect to the Shares (an “Ex‑Dividend Date”), then the Calculation Agent will adjust any of the Strike Price, Number of Warrants, Daily Number of Warrants and/or any other variable relevant to the exercise, settlement or payment of the Transaction to preserve the fair value of the Warrants to Dealer after taking into account such dividend.
(g)
[Reserved.]
(h)
Additional Provisions.
(i)
Amendments to the Equity Definitions:
(A)
Section 11.2(a) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative” and replacing them

18


EXECUTION VERSION

with the words “an”; and adding the phrase “or Warrants” at the end of the sentence.
(B)
Section 11.2(c) of the Equity Definitions is hereby amended by (w) replacing the words “a diluting or concentrative” with “an” in the fifth line thereof, (x) adding the phrase “or Warrants” after the words “the relevant Shares” in the same sentence, (y) deleting the words “diluting or concentrative” in the sixth to last line thereof and (z) deleting the phrase “(provided that no adjustments will be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares)” and replacing it with the phrase “(and, for the avoidance of doubt, adjustments may be made to account solely for changes in volatility, expected dividends, stock loan rate or liquidity relative to the relevant Shares).”
(C)
Section 11.2(e)(vii) of the Equity Definitions is hereby amended by deleting the words “a diluting or concentrative” and replacing them with the word “a material”; and adding the phrase “or Warrants” at the end of the sentence.
(D)
Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1) deleting from the fourth line thereof the word “or” after the word “official” and inserting a comma therefor, and (2) deleting the semi-colon at the end of subsection (B) thereof and inserting the following words therefor “or (C) at Dealer’s option, the occurrence of any of the events specified in Section 5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that Issuer.”
(E)
Section 12.9(b)(iv) of the Equity Definitions is hereby amended by:
(x)
deleting (1) subsection (A) in its entirety, (2) the phrase “or (B)” following subsection (A) and (3) the phrase “in each case” in subsection (B); and
(y)
replacing the phrase “neither the Non-Hedging Party nor the Lending Party lends Shares” with the phrase “such Lending Party does not lend Shares” in the penultimate sentence.
(F)
Section 12.9(b)(v) of the Equity Definitions is hereby amended by:
(x)
adding the word “or” immediately before subsection “(B)” and deleting the comma at the end of subsection (A); and
(y)
(1) deleting subsection (C) in its entirety, (2) deleting the word “or” immediately preceding subsection (C), (3) deleting the penultimate sentence in its entirety and

19


EXECUTION VERSION

replacing it with the sentence “The Hedging Party will determine the Cancellation Amount payable by one party to the other.” and (4) deleting clause (X) in the final sentence.
(ii)
Notwithstanding anything to the contrary in this Confirmation, upon the occurrence of one of the following events, with respect to the Transaction, (1) Dealer shall have the right to designate such event an Additional Termination Event and designate an Early Termination Date pursuant to Section 6(b) of the Agreement, (2) Company shall be deemed the sole Affected Party with respect to such Additional Termination Event and (3) the Transaction, or, at the election of Dealer in its reasonable discretion, any portion of the Transaction, shall be deemed the sole Affected Transaction; provided that if Dealer so designates an Early Termination Date with respect to a portion of the Transaction, (a) a payment shall be made pursuant to Section 6 of the Agreement as if an Early Termination Date had been designated in respect of a Transaction having terms identical to the Transaction and a Number of Warrants equal to the number of Warrants included in the terminated portion of the Transaction, and (b) for the avoidance of doubt, the Transaction shall remain in full force and effect except that the Number of Warrants shall be reduced by the number of Warrants included in such terminated portion:
(A)
A “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than Issuer or its subsidiaries files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect “beneficial owner,” as defined in Rule 13d-3 under the Exchange Act, of the common equity of Issuer representing more than 50% of the voting power of such common equity.
(B)
Consummation of (I) any recapitalization, reclassification or change of the Shares (other than changes resulting from a subdivision or combination), as a result of which the Shares would be converted into, or exchanged for, stock, other securities, other property or assets; (II) any share exchange, consolidation or merger of Issuer pursuant to which the Shares will be converted into cash, securities or other property; or (III) any sale, lease or other transfer in one transaction or a series of transactions of all or substantially all of the consolidated assets of Issuer and its subsidiaries, taken as a whole, to any person other than one of Issuer’s subsidiaries; provided, however, that a transaction or transactions described in this clause (B) shall not constitute an Additional Termination Event pursuant to this clause (B), if at least 90% of the consideration received or to be received by holders of the Shares, excluding cash payments for fractional Shares and cash payments made pursuant to dissenters’ appraisal rights, in

20


EXECUTION VERSION

connection with such transaction or transactions consists of ordinary shares of (1) a U.S. Entity or (2) an entity treated as a corporation for U.S. federal income tax purposes organized and existing under the laws of the Netherlands, the Republic of Ireland or the United Kingdom, in each case that are listed or quoted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions, and as a result of such transaction or transactions, the reference property for the Shares becomes such consideration, excluding cash payments for fractional Shares. For purposes of the exception described in the immediately preceding proviso, any transaction or event described under both clause (A) above and this clause (B) will be evaluated solely under this clause (B).
(C)
Default by the Issuer or any of its subsidiaries with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $25 million in the aggregate of the Issuer and/or any such subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being accelerated and declared due and payable prior to its stated maturity date or (ii) constituting a failure to pay the principal or interest of any such debt when due and payable (after the expiration of any applicable grace period) at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise.
(D)
Certain events of bankruptcy, insolvency, or reorganization of the Issuer or any of its significant subsidiaries as defined in Article 1, Rule 1‑02 of Regulation S‑X.
(E)
Dealer, despite using commercially reasonable efforts, is unable or reasonably determines that it is impractical or illegal, to hedge its exposure with respect to the Transaction in the public market without registration under the Securities Act or as a result of any legal, regulatory or self-regulatory requirements or related policies and procedures (whether or not such requirements, policies or procedures are imposed by law or have been voluntarily adopted by Dealer).
(F)
On any day during the period from and including the date hereof, to and including the final Expiration Date, (I) the Notional Unwind Shares (as defined below) as of such day exceeds a number of Shares equal to 90.0% of the Par Value Delivery Number (as of the date of

21


EXECUTION VERSION

such determination), or (II) Company or any of its controlled affiliates makes a public announcement of any transaction or event that, in the reasonable opinion of Dealer would, upon consummation of such transaction or upon the occurrence of such event, as applicable, and after giving effect to any applicable adjustments hereunder, cause the Notional Unwind Shares immediately following the consummation of such transaction or the occurrence of such event to exceed a number of Shares equal to 90.0% of the Par Value Delivery Number (as of the date of such determination). The “Notional Unwind Shares” as of any day is a number of Shares equal to (1) the amount that would be payable pursuant to Section 6 of the Agreement (determined as of such day as if an Early Termination Date had been designated in respect of the Transaction and as if the Company were the sole Affected Party and the Transaction were the sole Affected Transaction), divided by (2) the Settlement Price (determined as if such day were a Valuation Date). “Par Value Delivery Number” means a number of Shares equal to (i) the Par Value Payment (as defined in Section 9(z) below) divided by (ii) the par value per Share.
(i)
No Collateral or Setoff. Notwithstanding any provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Company hereunder are not secured by any collateral. Obligations under the Transaction shall not be set off by either party against any other obligations of the parties, whether arising under the Agreement, this Confirmation, under any other agreement between the parties hereto, by operation of law or otherwise. For the avoidance of doubt, in the event of bankruptcy or liquidation of either Company or Dealer, neither party shall have the right to set off any obligation that it may have to the other party under the Transaction against any obligation such other party may have to it, whether arising under the Agreement, this Confirmation or any other agreement between the parties hereto, by operation of law or otherwise.
(j)
Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events.
(i)
If, in respect of the Transaction, an amount is payable by Company to Dealer, (A) pursuant to Section 12.7 or Section 12.9 of the Equity Definitions or (B) pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “Payment Obligation”), Company shall satisfy the Payment Obligation by the Share Termination Alternative (as defined below), unless (a) Company gives irrevocable telephonic notice to Dealer, confirmed in writing within one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the Merger Date, Tender Offer Date, Announcement Date (in the case of a Nationalization, Insolvency or Delisting), Early Termination Date or date of cancellation, as applicable, of its election that the Share Termination Alternative shall not apply, (b) Company represents to Dealer that each of

22


EXECUTION VERSION

Company and its affiliates is not, as of the date of such election, in possession of any material non-public information with respect to Company or the Shares and (c) Dealer agrees, in its sole discretion, to such election, in which case the provisions of Section 12.7 or Section 12.9 of the Equity Definitions, or the provisions of Section 6(d)(ii) of the Agreement, as the case may be, shall apply.
Share Termination
Alternative:
If applicable, Company shall deliver to Dealer the Share Termination Delivery Property on the date (the “Share Termination Payment Date”) on which the Payment Obligation would otherwise be due pursuant to Section 12.7 or Section 12.9 of the Equity Definitions or Section 6(d)(ii) of the Agreement, as applicable, subject to Section 9(k)(i) below, in satisfaction, subject to Section 9(k)(ii) below, of the relevant Payment Obligation, in the manner reasonably requested by Dealer free of payment (other than, for the avoidance of doubt, the Par Value Payment pursuant to Section 9(z)).
Share Termination Delivery
Property:
A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the relevant Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the amount of Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price (without giving effect to any discount pursuant to Section 9(k)(i)).
Share Termination Unit
Price:
The value to Dealer of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Calculation Agent in its discretion by commercially reasonable means. In the case

23


EXECUTION VERSION

of a Private Placement of Share Termination Delivery Units that are Restricted Shares (as defined below), as set forth in Section 9(k)(i) below, the Share Termination Unit Price shall be determined by the discounted price applicable to such Share Termination Delivery Units. In the case of a Registration Settlement of Share Termination Delivery Units that are Restricted Shares (as defined below) as set forth in Section 9(k)(ii) below, notwithstanding the foregoing, the Share Termination Unit Price shall be the Settlement Price on the Merger Date, Tender Offer Date, Announcement Date (in the case of a Nationalization, Insolvency or Delisting), Early Termination Date or date of cancellation, as applicable. The Calculation Agent shall notify Company of the Share Termination Unit Price at the time of notification of such Payment Obligation to Company or, if applicable, at the time the discounted price applicable to the relevant Share Termination Units is determined pursuant to Section 9(k)(i).
Share Termination Delivery
Unit:
One Share or, if the Shares have changed into cash or any other property or the right to receive cash or any other property as the result of a Nationalization, Insolvency or Merger Event (any such cash or other property, the “Exchange Property”), a unit consisting of the type and amount of Exchange Property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency or Merger Event. If such Nationalization, Insolvency or Merger Event involves a choice of Exchange Property to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash.
Failure to Deliver:
Inapplicable

24


EXECUTION VERSION

Other applicable
provisions:
If Share Termination Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.11 and 9.12 (as modified above) of the Equity Definitions will be applicable, except that all references in such provisions to “Physically-settled” shall be read as references to “Share Termination Settled” and all references to “Shares” shall be read as references to “Share Termination Delivery Units”. “Share Termination Settled” in relation to the Transaction means that the Share Termination Alternative is applicable to the Transaction.
(k)
Registration/Private Placement Procedures. If, in the reasonable opinion of Dealer, following any delivery of Shares or Share Termination Delivery Property to Dealer hereunder, such Shares or Share Termination Delivery Property would be in the hands of Dealer subject to any applicable restrictions with respect to any registration or qualification requirement or prospectus delivery requirement for such Shares or Share Termination Delivery Property pursuant to any applicable federal or state securities law (including, without limitation, any such requirement arising under Section 5 of the Securities Act as a result of such Shares or Share Termination Delivery Property being “restricted securities”, as such term is defined in Rule 144 under the Securities Act, or as a result of the sale of such Shares or Share Termination Delivery Property being subject to paragraph (c) of Rule 145 under the Securities Act) (such Shares or Share Termination Delivery Property, “Restricted Shares”), then delivery of such Restricted Shares shall be effected pursuant to either clause (i) or (ii) below at the election of Issuer, unless Dealer waives the need for registration/private placement procedures set forth in (i) and (ii) below. Notwithstanding the foregoing, solely in respect of any Daily Number of Warrants exercised or deemed exercised on any Expiration Date, Issuer shall elect, prior to the first Settlement Date for the first applicable Expiration Date, a Private Placement Settlement or Registration Settlement for all deliveries of Restricted Shares for all such Expiration Dates which election shall be applicable to all remaining Settlement Dates for such Warrants and the procedures in clause (i) or clause (ii) below shall apply for all such delivered Restricted Shares on an aggregate basis commencing after the final Settlement Date for such Warrants. The Calculation Agent shall make reasonable adjustments to settlement terms and provisions under this Confirmation to reflect a single Private Placement or Registration Settlement for such aggregate Restricted Shares delivered hereunder.
(i)
If Issuer elects to settle the Transaction pursuant to this clause (i) (a “Private Placement Settlement”), then delivery of Restricted Shares by Issuer shall be effected in customary private placement procedures with respect to such Restricted Shares reasonably acceptable to Dealer; provided that Issuer may

25


EXECUTION VERSION

not elect a Private Placement Settlement if, on the date of its election, it has taken, or caused to be taken, any action that would make unavailable either the exemption pursuant to Section 4(a)(2) of the Securities Act for the sale by Issuer to Dealer (or any affiliate designated by Dealer) of the Restricted Shares or the exemption pursuant to Section 4(a)(1) or Section 4(a)(3) of the Securities Act for resales of the Restricted Shares by Dealer (or any such affiliate of Dealer). In addition to, and without limitation of, the other requirements set forth in this Section 9(k)(i), the Issuer will use its best efforts to provide that the Private Placement Settlement of such Restricted Shares shall include customary representations, covenants, blue sky and other governmental filings and/or registrations, indemnities to Dealer, due diligence rights (for Dealer or any designated buyer of the Restricted Shares by Dealer), opinions and certificates, and such other documentation as is customary for private placement agreements, all commercially reasonably acceptable to Dealer. In the case of a Private Placement Settlement, Dealer shall determine the appropriate discount to the Share Termination Unit Price (in the case of settlement of Share Termination Delivery Units pursuant to Section 9(j) above) or any Settlement Price (in the case of settlement of Shares pursuant to Section 2 above) applicable to such Restricted Shares in a commercially reasonable manner and appropriately adjust the number of such Restricted Shares to be delivered to Dealer hereunder. Notwithstanding anything to the contrary in the Agreement or this Confirmation, the date of delivery of such Restricted Shares shall be the Exchange Business Day following notice by Dealer to Issuer, of such applicable discount and the number of Restricted Shares to be delivered pursuant to this clause (i). For the avoidance of doubt, delivery of Restricted Shares shall be due as set forth in the previous sentence and not be due on the Share Termination Payment Date (in the case of settlement of Share Termination Delivery Units pursuant to Section 9(j) above) or on the Settlement Date for such Restricted Shares (in the case of settlement in Shares pursuant to Section 2 above).
(ii)
If Issuer elects to settle the Transaction pursuant to this clause (ii) (a “Registration Settlement”), then Issuer shall promptly (but in any event no later than the beginning of the Resale Period) file and use its reasonable best efforts to make effective under the Securities Act a registration statement or supplement or amend an outstanding registration statement in form and substance reasonably satisfactory to Dealer, to cover the resale of such Restricted Shares in accordance with customary resale registration procedures, including covenants, conditions, representations, underwriting discounts (if applicable), commissions (if applicable), indemnities due diligence rights, opinions and certificates, and such other documentation as is customary for equity resale underwriting agreements, all reasonably acceptable to Dealer. If Dealer, in its reasonable discretion, is not satisfied with such procedures and documentation Private Placement Settlement shall apply. If Dealer is satisfied with such procedures and documentation, it shall

26


EXECUTION VERSION

sell the Restricted Shares pursuant to such registration statement during a period (the “Resale Period”) commencing on the Exchange Business Day following delivery of such Restricted Shares (which, for the avoidance of doubt, shall be (x) the Share Termination Payment Date in case of settlement in Share Termination Delivery Units pursuant to Section 9(j) above or (y) the Settlement Date in respect of the final Expiration Date for all Daily Number of Warrants) and ending on the earliest of (i) the Exchange Business Day on which Dealer completes the sale of all Restricted Shares or, in the case of settlement of Share Termination Delivery Units, a sufficient number of Restricted Shares so that the realized net proceeds of such sales equals or exceeds the Payment Obligation (as defined above), (ii) the date upon which all Restricted Shares have been sold or transferred pursuant to Rule 144 (or similar provisions then in force) or Rule 145(d)(2) (or any similar provision then in force) under the Securities Act and (iii) the date upon which all Restricted Shares may be sold or transferred by a non-affiliate pursuant to Rule 144 (or any similar provision then in force) or Rule 145(d)(2) (or any similar provision then in force) under the Securities Act. If the Payment Obligation exceeds the realized net proceeds from such resale, Issuer shall transfer to Dealer by the open of the regular trading session on the Exchange on the Exchange Trading Day immediately following such resale the amount of such excess (the “Additional Amount”) in cash or in a number of Shares (“Make-whole Shares”) in an amount that, based on the Settlement Price on such day (as if such day was the “Valuation Date” for purposes of computing such Settlement Price), has a dollar value equal to the Additional Amount. The Resale Period shall continue to enable the sale of the Make-whole Shares. If Issuer elects to pay the Additional Amount in Shares, the requirements and provisions for Registration Settlement shall apply. This provision shall be applied successively until the Additional Amount is equal to zero. In no event shall Issuer deliver a number of Restricted Shares greater than the Maximum Number of Shares.
(iii)
Without limiting the generality of the foregoing, Issuer agrees that (A) any Restricted Shares delivered to Dealer may be transferred by and among Dealer and its affiliates and Issuer shall effect such transfer without any further action by Dealer and (B) after the period of 6 months from the Trade Date (or 1 year from the Trade Date if, at such time, informational requirements of Rule 144(c) under the Securities Act are not satisfied with respect to Issuer) has elapsed in respect of any Restricted Shares delivered to Dealer, Issuer shall promptly remove, or cause the transfer agent for such Restricted Shares to remove, any legends referring to any such restrictions or requirements from such Restricted Shares upon request by Dealer (or such affiliate of Dealer) to Issuer or such transfer agent, without any requirement for the delivery of any certificate, consent, agreement, opinion of counsel, notice or any other document, any transfer tax stamps or payment of any other amount or any other action by Dealer (or such affiliate of Dealer).

27


EXECUTION VERSION

Notwithstanding anything to the contrary herein, to the extent the provisions of Rule 144 of the Securities Act or any successor rule are amended, or the applicable interpretation thereof by the Securities and Exchange Commission or any court change after the Trade Date, the agreements of Issuer herein shall be deemed modified to the extent necessary, in the opinion of outside counsel of Issuer, to comply with Rule 144 of the Securities Act, as in effect at the time of delivery of the relevant Shares or Share Termination Delivery Property.
(iv)
If the Private Placement Settlement or the Registration Settlement shall not be effected as set forth in clauses (i) or (ii), as applicable, then failure to effect such Private Placement Settlement or such Registration Settlement shall constitute an Event of Default with respect to which Issuer shall be the Defaulting Party.
(l)
Limit on Beneficial Ownership. Notwithstanding any other provisions hereof, Dealer may not exercise any Warrant hereunder or be entitled to take delivery of any Shares deliverable hereunder, and Automatic Exercise shall not apply with respect to any Warrant hereunder, to the extent (but only to the extent) that, after such receipt of any Shares upon the exercise of such Warrant or otherwise hereunder, (i) the Section 16 Percentage would exceed 7.5%, or (ii) the Share Amount would exceed the Applicable Share Limit. Any purported delivery hereunder shall be void and have no effect to the extent (but only to the extent) that, after such delivery, (i) the Section 16 Percentage would exceed 7.5%, or (ii) the Share Amount would exceed the Applicable Share Limit. If any delivery owed to Dealer hereunder is not made, in whole or in part, as a result of this provision, Company’s obligation to make such delivery shall not be extinguished and Company shall make such delivery as promptly as practicable after, but in no event later than one Business Day after, Dealer gives notice to Company that, after such delivery, (i) the Section 16 Percentage would not exceed 7.5%, and (ii) the Share Amount would not exceed the Applicable Share Limit.
(m)
Share Deliveries. Notwithstanding anything to the contrary herein, Issuer agrees that any delivery of Shares or Share Termination Delivery Property shall be effected by book-entry transfer through the facilities of DTC, or any successor depositary, if at the time of delivery, such class of Shares or class of Share Termination Delivery Property is in book-entry form at DTC or such successor depositary.
(n)
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been

28


EXECUTION VERSION

induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein.
(o)
Tax Disclosure. Effective from the date of commencement of discussions concerning the Transaction, Company and each of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Transaction and all materials of any kind (including opinions or other tax analyses) that are provided to Company relating to such tax treatment and tax structure.
(p)
Maximum Share Delivery.
(i)
Notwithstanding any other provision of this Confirmation, the Agreement or the Equity Definitions, in no event will Company at any time be required to issue a number of Shares greater than two times the Number of Warrants (the “Maximum Number of Shares”) to Dealer in connection with the Transaction, subject to the provisions regarding Deficit Shares in Section 9 (p)(ii).
(ii)
In the event Issuer shall not have issued to Dealer the full number of Shares or Restricted Shares otherwise to be issued by Issuer to Dealer pursuant to the terms of the Transaction because Issuer has insufficient authorized capital to issue the full number of Shares or Restricted Shares (such deficit, the “Deficit Shares”), Issuer shall be continually obligated to transfer, from time to time, Shares or Restricted Shares, as the case may be, to Dealer until the full number of Deficit Shares have been transferred pursuant to this Section 9(p)(ii), when, and to the extent that Shares are repurchased, acquired or otherwise received by Company or any of its subsidiaries after the Trade Date (whether or not in exchange for cash, fair value or any other consideration), provided that in no event shall Issuer transfer any Shares or Restricted Shares to Dealer pursuant to this Section 9(p)(ii) to the extent that such transfer would cause the aggregate number of Shares and Restricted Shares transferred to Dealer to exceed the Maximum Number of Shares. Issuer shall immediately notify Dealer of the occurrence of any of the foregoing events (including the number of Shares that are repurchased, acquired or otherwise received by Company or any of its subsidiaries after the Trade Date and the corresponding number of Shares or Restricted Shares, as the case may be, to be transferred) and promptly transfer such Shares or Restricted Shares, as the case may be, thereafter.
(iii)
The Maximum Number of Shares shall only be subject to adjustment on account of (w) adjustments of the type specified in Section 9(f), (x) Potential Adjustment Events of the type specified in (1) Section 11.2(e)(i) through (vi) of the Equity Definitions or (2) Section 11.2(e)(vii) of the Equity Definitions as long as, in the case of this sub-clause (2), such event is within Issuer’s control, (y) Merger Events or Tender Offers requiring corporate action of the

29


EXECUTION VERSION

Issuer and (z) Announcement Events that are not outside the Issuer’s control. Any Payment Obligation hereunder shall be calculated without regard to the Maximum Number of Shares; provided that, for the avoidance of doubt, the number of Shares deliverable under Section 9(j) shall be limited to the Maximum Number of Shares.
(q)
Right to Extend. Dealer may postpone or add, in whole or in part, any Expiration Date or any other date of valuation or delivery with respect to some or all of the relevant Warrants (in which event the Calculation Agent shall make appropriate adjustments to the Daily Number of Warrants with respect to one or more Expiration Dates) if Dealer determines, in good faith and in its commercially reasonable judgment, that such extension is reasonably necessary or appropriate to preserve Dealer’s hedging or hedge unwind activity hereunder in light of existing liquidity conditions or to enable Dealer to effect transactions with respect to Shares in connection with its hedging, hedge unwind or settlement activity hereunder in a manner that would, if Dealer were Issuer or an affiliated purchaser of Issuer, be in compliance with applicable legal, regulatory or self-regulatory requirements, or with related policies and procedures applicable to Dealer.
(r)
Status of Claims in Bankruptcy. Dealer acknowledges and agrees that this Confirmation is not intended to convey to Dealer rights against Issuer with respect to the Transaction that are senior to the claims of shareholders of Issuer in any bankruptcy proceedings of Issuer; provided that nothing herein shall limit or shall be deemed to limit Dealer’s right to pursue remedies in the event of a breach by Issuer of its obligations and agreements with respect to the Transaction other than during any such bankruptcy proceedings; provided further that nothing herein shall limit or shall be deemed to limit Dealer’s rights in respect of any transactions other than the Transaction.
(s)
Securities Contract; Swap Agreement. The parties hereto intend for (i) the Transaction to be a “securities contract” and a “swap agreement” as defined in the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”), and the parties hereto to be entitled to the protections afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code, (ii) a party’s right to liquidate the Transaction and to exercise any other remedies upon the occurrence of any Event of Default under the Agreement with respect to the other party to constitute a “contractual right” as described in the Bankruptcy Code, and (iii) each payment and delivery of cash, securities or other property hereunder to constitute a “margin payment” or “settlement payment” and a “transfer” as defined in the Bankruptcy Code.
(t)
Wall Street Transparency and Accountability Act. In connection with Section 739 of the Wall Street Transparency and Accountability Act of 2010 (“WSTAA”), the parties hereby agree that neither the enactment of WSTAA or any regulation under the WSTAA, nor any requirement under WSTAA or an amendment made by

30


EXECUTION VERSION

WSTAA, shall limit or otherwise impair either party’s otherwise applicable rights to terminate, renegotiate, modify, amend or supplement this Confirmation or the Agreement, as applicable, arising from a termination event, force majeure, illegality, increased costs, regulatory change or similar event under this Confirmation, the Equity Definitions incorporated herein, or the Agreement (including, but not limited to, rights arising from Change in Law, Hedging Disruption, Increased Cost of Hedging, an Excess Ownership Position, or Illegality (as defined in the Agreement)).
(u)
Agreements and Acknowledgements Regarding Hedging. Issuer understands, acknowledges and agrees that: (A) at any time on and prior to the last Expiration Date, Dealer and its affiliates may buy or sell Shares or other securities or buy or sell options or futures contracts or enter into swaps or other derivative securities in order to adjust its hedge position with respect to the Transaction; (B) Dealer and its affiliates also may be active in the market for Shares other than in connection with hedging activities in relation to the Transaction; (C) Dealer shall make its own determination as to whether, when or in what manner any hedging or market activities in securities of Issuer shall be conducted and shall do so in a manner that it deems appropriate to hedge its price and market risk with respect to the Settlement Prices; and (D) any market activities of Dealer and its affiliates with respect to Shares may affect the market price and volatility of Shares, as well as the Settlement Prices, each in a manner that may be adverse to Issuer.
(v)
Early Unwind. In the event the exchange and sale of the “Securities” (as defined in the Placement Agency Agreement) is not consummated with the Placement Agent for any reason by 5:00 p.m. (New York City time) on the Premium Payment Date, or such later date as agreed upon by the parties (the Premium Payment Date or such later date the “Early Unwind Date”), the Transaction shall automatically terminate (the “Early Unwind”), on the Early Unwind Date and (i) the Transaction and all of the respective rights and obligations of Dealer and Company under the Transaction shall be cancelled and terminated and (ii) each party shall be released and discharged by the other party from and agrees not to make any claim against the other party with respect to any obligations or liabilities of the other party arising out of and to be performed in connection with the Transaction either prior to or after the Early Unwind Date. Each of Dealer and Company represents and acknowledges to the other that, upon an Early Unwind, all obligations with respect to the Transaction shall be deemed fully and finally discharged.
(w)
Payment by Dealer. In the event that (i) an Early Termination Date occurs or is designated with respect to the Transaction as a result of a Termination Event or an Event of Default (other than an Event of Default arising under Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a result, Dealer owes to Company an amount calculated under Section 6(e) of the Agreement, or (ii) Dealer owes to Company, pursuant to Section 12.7 or Section 12.9 of the Equity Definitions, an amount

31


EXECUTION VERSION

calculated under Section 12.8 of the Equity Definitions, such amount shall be deemed to be zero.
(x)
Designation of Dealer. Notwithstanding any other provision in this Confirmation to the contrary requiring or allowing Dealer to purchase, sell, receive or deliver any Shares or other securities to or from Company or Issuer, as applicable, Dealer may designate any of its affiliates to purchase, sell, receive or deliver such Shares or other securities and otherwise to perform Dealer obligations in respect of the Transaction and any such designee may assume such obligations. Dealer shall be discharged of its obligations to Company to the extent of any such performance.
(y)
Non-US Merger Transactions. Issuer shall not enter into or consummate any Non-US Merger Transaction unless the successor Issuer immediately following such Non-US Merger Transaction repeats to Dealer immediately following such Non-US Merger Transaction the representations and warranties set forth in Sections 8(a), 8(b), 8(c) and 8(d) of this Confirmation (as if references therein to (i) “execute, deliver” were replaced with “assume”, (ii) “execution, delivery” and “execution and delivery” were replaced with “assumption” and (iii) “executed and delivered” were replaced with “assumed”).
Notwithstanding anything to the contrary in this Confirmation if (1) Issuer enters into or consummates any Non-US Merger Transaction pursuant to which Issuer following such Non-US Merger Transaction is organized under the laws of a jurisdiction other than the Islands of Bermuda, the Netherlands, Belgium, Switzerland, Luxembourg, the Republic of Ireland, Canada or the United Kingdom that also becomes Company hereunder, (2) Company ceases to be Issuer or (3) Issuer enters into or consummates any Non-US Merger Transaction and does not comply with the requirements of the immediately previous paragraph of this Section 9(y), then, in any such case of clauses (1), (2) or (3) such transaction or event shall constitute an Additional Termination Event applicable to the Transaction and, with respect to such Additional Termination Event, (A) Company shall be deemed to be the sole Affected Party, (B) the Transaction shall be the sole Affected Transaction and (C) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
If, at any time following the occurrence of any Non-US Merger Transaction, Dealer determines in good faith that (x) such Non-US Merger Transaction has had an adverse effect on Dealer’s rights and obligations under the Transaction or (y) Dealer would incur an increased amount of tax, duty, expense or fee to (1) acquire, establish, re-establish, substitute, maintain, unwind or dispose of any transaction(s) or asset(s) it deems necessary to hedge the economic risk of entering into and performing its obligations with respect to the Transaction, or (2) realize, recover or remit the proceeds of any such transaction(s) or asset(s) (each of the events described in clause (x) and clause (y) above, a “Non-US Merger Event”), then, in either case, Dealer shall give notice to Company of such Non-US Merger Event. Concurrently with

32


EXECUTION VERSION

delivering such notice, Dealer shall give notice to Company of a Price Adjustment that Dealer reasonably and in good faith determines appropriate to account for the economic effect on the Transaction of such Non-US Merger Event (unless Dealer determines that no Price Adjustment will produce a commercially reasonably result, in which case Dealer shall so notify Company). Unless Dealer determines in good faith that no Price Adjustment will produce a commercially reasonably result, within one Scheduled Trading Day of receipt of such notice, Company shall notify Dealer that it elects to (A) agree to amend the Transaction to take into account such Price Adjustment or (B) pay Dealer an amount determined by Dealer that corresponds to such Price Adjustment (and, in each case, Company shall repeat the representation set forth in Section 8(g) of this Confirmation (which representation is confirmed to Dealer in writing by Issuer, if other than Company) as of the date of such election). If Company fails to give such notice to Dealer of its election in accordance with the foregoing by the end of that first Scheduled Trading Day, or if Dealer determines that no Price Adjustment will produce a commercially reasonably result, then such failure or such determination, as the case may be, shall constitute an Additional Termination Event applicable to the Transaction (it being understood that in the case of a Non-US Merger Event solely pursuant to clause (x) of the definition thereof, such determination shall constitute an Additional Termination Event only if the relevant adverse effect may have a material impact on Dealer’s rights and obligations under the Transaction, as determined by Dealer in good faith) and, with respect to such Additional Termination Event, (1) Company shall be deemed to be the sole Affected Party, (2) the Transaction shall be the sole Affected Transaction and (3) Dealer shall be the party entitled to designate an Early Termination Date pursuant to Section 6(b) of the Agreement.
For the avoidance of doubt, the parties hereto agree and acknowledge that (I) the occurrence of an Non-US Merger Event shall not preclude the occurrence of one or more additional, subsequent Non-US Merger Events and (II) if a Non-US Merger Event occurs, Dealer will determine, in its sole discretion, whether to exercise its rights under the provisions of this Section 9(y) and/or the rights and remedies of Dealer and its affiliates under any other provision of this Confirmation, the Equity Definitions and the Agreement.
(z)
Par Value Payment. Company and Dealer each acknowledges and agrees that, by paying the Premium hereunder to Company, on the Premium Payment Date Dealer will have made a payment for purposes of paying up the aggregate par value of the Shares issuable pursuant to the Transaction (for the avoidance of doubt, prior to any subsequent adjustment to the Transaction), equal to EUR554,775.54 (the “Initial Par Value Payment”). Upon receipt, the Company shall reserve the Initial Par Value Payment and apply the Initial Par Value Payment against the obligation to pay-up the Shares upon issue of the Shares. To the extent that the Initial Par Value Payment exceeds the aggregate nominal value of the Shares issued, then such excess shall be regarded as share premium. Company acknowledges and agrees that such Initial Par Value Payment constitutes, based on the par value per Share as of the date hereof, a

33


EXECUTION VERSION

payment (volstorting) of the par value of the Shares sufficient under Dutch law to give effect to the issuance by Company to Dealer of a number of Shares equal to the Maximum Number of Shares (for the avoidance of doubt, prior to any subsequent adjustment to the Transaction). Company represents and warrants to, and acknowledges and agrees with, Dealer that Company has not taken, and will not take or permit to be taken, any action that would result in the Maximum Number of Shares (subject to adjustment as set forth herein) exceeding the Par Value Delivery Number, and in no event will such an excess occur prior to final settlement, payment or delivery in full of Company’s obligations to Dealer hereunder. In addition, it shall constitute a Potential Adjustment Event if on any day during the period from and including the Trade Date, to and including the final Expiration Date, Company or its controlled affiliates make a public announcement of any transaction or event, or any previously announced transaction or event, that, in the reasonable opinion of Dealer would, upon consummation of such transaction or upon the occurrence of such event, as applicable, and after giving effect to any applicable adjustments hereunder, cause the Maximum Number of Shares (subject to adjustment as set forth herein) to exceed the Par Value Delivery Number. Company will promptly notify Dealer of any change to the par value of the Shares. Each of Company and Dealer acknowledges and agrees that if, following any subsequent adjustment to the Transaction, the Maximum Number of Shares exceeds the Maximum Number of Shares as of the date hereof (the “Initial Maximum Number of Shares”), Company may use such additional funds or resources of the Company as it may in its discretion determine to the extent required to pay up the par value of the Shares issuable in excess of the Initial Maximum Number of Shares and apply such funds for the payment of the par value of such shares (which payment or source of funds, for the avoidance of doubt, will not result in a holding period (within the meaning of Rule 144) for Dealer with respect to the Warrants, or any Shares issuable upon settlement thereof, that commences after the Premium Payment Date) (such payment, when actually paid or applied by the Company and notified in writing to Dealer, together with the Initial Par Value Payment, the “Par Value Payment”).
(aa)
Certain Adjustments. Notwithstanding anything to the contrary in the Confirmation, if Dealer or the Calculation Agent is required to calculate any payment under Section 6(e) of the Agreement or Sections 12.7 or 12.8 of the Equity Definitions, in each case, with respect to a Merger Termination Event, then Dealer or the Calculation Agent, as applicable, will make such calculation based on a volatility input that is equal to the Relevant Volatility Input.
“Merger Termination Event” means that the Transaction (or a portion of the Transaction) is terminated or cancelled both (i) as a result of (x) a Merger Event, (y) an Additional Termination Event pursuant to Section 9(h)(ii)(A) or 9(h)(ii)(B) of the Confirmation or (z) an Additional Disruption Event arising as a result of a Merger Event and (ii) as a result of the same event as any over-the-counter equity option transaction (or portion of such a transaction) to which Dealer is a party and to which Company (or a wholly-owned subsidiary of Company) is party relating to the Shares

34


EXECUTION VERSION

(such equity option transactions, “Relevant Positions”) and under which Dealer is also required to determine a volatility input is terminated, in each case, as determined by Dealer in good faith and commercially reasonably.
“Relevant Volatility Input” means a volatility input that is determined by Dealer in good faith and in a commercially reasonable manner and which, without limitation, may be based on implied volatility levels for options on the Shares with strike prices approximate to the Strike Price of the Transaction or approximate to the strike price of over-the-counter equity options on the Shares that are included in its commercially reasonable Hedge Positions with respect to the Transaction, in each case, as determined by Dealer in good faith and a commercially reasonable manner; provided that, if (i) Dealer (whether in its capacity as “Calculation Agent”, “Determining Party”, “Hedging Party” or otherwise) is required to determine a volatility input under any Relevant Positions and (ii) Dealer determines that such Relevant Positions (or a portion thereof) are terminated, cancelled, offset or otherwise unwound at approximately the same time (as determined by Dealer in good faith and commercially reasonably) as the Transaction (or portion thereof) is terminated, cancelled, offset or otherwise unwound, Dealer shall use a Relevant Volatility Input that is no greater than such volatility input for such Relevant Positions. For the avoidance of doubt, a Relevant Volatility Input that is equal to the volatility input for any Relevant Positions shall, in no event, be deemed to be commercially unreasonable.
(ab)
Taxes.
(i)
“Indemnifiable Tax” as defined in Section 14 of this Agreement shall not include any U.S. federal withholding tax imposed or collected pursuant to Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (a “FATCA Withholding Tax”). For the avoidance of doubt, a FATCA Withholding Tax is a Tax the deduction or withholding of which is required by applicable law for the purposes of Section 2(d) of this Agreement.
(ii)
Dealer and Company hereby agree that this Agreement shall be treated as a Covered Master Agreement (as that term is defined in the 2015 Section 871(m) Protocol) and this Agreement shall be deemed to have been amended in accordance with the modifications specified in the Attachment to the 2015 Section 871(m) Protocol.
(ac)
The Company acknowledges that it has not been solicited by Dealer, or any person acting on behalf of the Dealer, to enter into this Transaction but rather it has

35


EXECUTION VERSION

independently approached the Dealer, through the Company’s advisor, and invited the Dealer to bid competitively for this Transaction.
(ad)
2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol. The parties agree that terms of the 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by ISDA on July 19, 2013 (“Protocol”) apply to the Agreement as if the parties had adhered to the Protocol without amendment. In respect of the Attachment to the Protocol, (i) the definition of “Adherence Letter” shall be deemed to be deleted and references to “Adherence Letter” shall be deemed to be to this Section (and references to “such party’s Adherence Letter” and “its Adherence Letter” shall be read accordingly), (ii) references to “adheres to the Protocol” shall be deemed to be “enters into this Amendment”, (iii) references to “Protocol Covered Agreement” shall be deemed to be references to the Agreement (and “each Protocol Covered Agreement” shall be read accordingly), (iv) references to “Implementation Date” shall be deemed to be references to the date of this Amendment, and (v) the term “the parties” shall be construed as referring to Dealer and the Company. For the purposes of this Section:
(i)
Dealer is a Portfolio Data Sending Entity and the Company is a Portfolio Data Receiving entity;
(ii)
The Local Business Days for such purposes in relation to Dealer are London and in relation to Company are New York and Amsterdam;
(iii)
The provisions in this section shall survive the termination of the Transaction; and
(iv)
The following are the applicable email addresses.
Portfolio Data:            Dealer: [email protected]
Notice of discrepancy:    Dealer: [email protected]
Dispute Notice:        Dealer: [email protected]




36


EXECUTION VERSION

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing this Confirmation and returning by email to Dealer.
Very truly yours,

BANK OF AMERICA, N.A.
By: /s/ Christopher A. Hutmaker    
Authorized Signatory
Name: Christopher A. Hutmaker
Managing Director



37


EXECUTION VERSION

Accepted and confirmed
as of the Trade Date:
WRIGHT MEDICAL GROUP N.V.

By: /s/ Lance A. Berry    
Name: Lance A. Berry
Title:     Senior Vice President and
Chief Financial Officer



38


EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Robert J. Palmisano, certify that:

1.
I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 26, 2016, of Wright Medical Group N.V.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2016
 
/s/ Robert J. Palmisano 
 
 
Robert J. Palmisano
 
 
President and Chief Executive Officer 
 




EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Lance A. Berry, certify that:
1.
I have reviewed this quarterly report on Form 10-Q for the fiscal quarter ended June 26, 2016, of Wright Medical Group N.V.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 2, 2016

 
/s/ Lance A. Berry  
 
 
Lance A. Berry 
 
 
Senior Vice President and Chief Financial Officer 
 




Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b) UNDER
THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 1350 OF
CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
Each of the undersigned, Robert J. Palmisano and Lance A. Berry, certifies pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 (Exchange Act) and Section 1350 of Chapter 63 of Title 18 of the United States Code, that (1) this Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 2016 (Report) of Wright Medical Group N.V. (Company) fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 2, 2016

 
/s/ Robert J. Palmisano
 
 
Robert J. Palmisano
 
 
President and Chief Executive Officer 
 
 
 
 
 
/s/ Lance A. Berry  
 
 
Lance A. Berry 
 
 
Senior Vice President and Chief Financial Officer 
 



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

SEC Filings