WRIGHT MEDICAL GROUP INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

/ / 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 000-32883

WRIGHT MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-4088127
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)

5677 AIRLINE ROAD, ARLINGTON, TENNESSEE 38002
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code:
(901) 867-9971

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to section 12(g) of the Act:

VOTING COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ NATIONAL MARKET
(Title of class) (Name of exchange on which registered)

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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. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /

The aggregate market value of the voting common stock held by non-affiliates
of the registrant as of February 22, 2002, based upon the last sale price of
such voting common stock on that date as reported by the Nasdaq National Market
was $144,316,337.

As of February 22, 2002, there were 23,332,854 shares of voting common stock
outstanding.

Information required by Part III of this Form 10-K, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement for its 2002 annual meeting of stockholders, which will be filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, within 120 days after the end of the fiscal year to which this
Form 10-K relates.

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WRIGHT MEDICAL GROUP, INC.
ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this Form 10-K regarding Wright Medical Group, Inc.'s
business, which are not historical facts, are forward-looking statements that
involve risks and uncertainties and our actual results of operations may differ
materially from those indicated in these forward-looking statements. These
statements may include, without limitation, the words, "believes", "estimates",
"projects", "anticipates", "expects", "future", "intends", "plans" and words of
similar import. For a discussion of such risks and uncertainties, which could
cause actual results to differ from those contained in the forward-looking
statements, see Wright Medical Group, Inc.'s reports filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933 and the
Securities Exchange Act of 1934. The forward-looking statements included herein
are made as of the date of this Form 10-K, and Wright Medical Group, Inc.
assumes no obligation to update the forward-looking statements after the date
hereof.

1

PART I

ITEM 1. BUSINESS.

OVERVIEW

Wright Medical Group, Inc. (the "Company") is a global orthopaedic device
company specializing in the design, manufacture and marketing of reconstructive
joint devices and bio-orthopaedic materials. Reconstructive joint devices are
used to replace knee, hip and other joints that have deteriorated through
disease or injury. Bio-orthopaedic materials are used to replace damaged or
diseased bone and to stimulate natural bone growth. Within these markets, the
Company focuses on the higher-growth sectors of advanced knee implants,
bone-conserving hip implants, revision replacement implants and extremity
implants, as well as on the integration of our bio-orthopaedic products into
reconstructive joint procedures and other orthopaedic applications. In 2001, the
Company had net sales of $172.9 million and a net loss of $1.5 million.

HISTORY

The Company was incorporated on November 23, 1999 as a Delaware corporation
(previously named Wright Acquisition Holdings, Inc.) and had no operations until
an investment group led by Warburg, Pincus Equity Partners, L.P. ("Warburg")
acquired majority ownership of the Company's predecessor, Wright Medical
Technology, Inc. ("Wright" or the "Predecessor Company") in December 1999. This
transaction, which represented a recapitalization of Wright and the inception of
the Company in its present form, reduced the Company's debt and provided
investment capital, thus allowing the Company to build on the Predecessor
Company's respected brand name and strong relationships with orthopaedic
surgeons developed during their fifty year history.

Shortly thereafter, a new management team was put in place and on
December 22, 1999, the Company acquired Cremascoli Ortho Group ("Cremascoli"),
based in Toulon, France. This acquisition extended the Company's product
offerings, enhanced the Company's product development capabilities, and expanded
the Company's European presence. As a result of combining Cremascoli's strength
in hip reconstruction with Wright's historical expertise in knee reconstruction
and bio-orthopaedic materials, the Company now offers orthopaedic surgeons a
broad range of reconstructive joint devices and bio-orthopaedic materials in
over 40 countries.

Since January 2000, the Company's new management team has implemented
several initiatives, which have increased the Company's focus and spending on
research and development, significantly raised the efficiency of its
manufacturing process, and improved sales force productivity, leading to an
increase in average sales revenue per sales representative in the U.S. of over
33%.

In July 2001, the Company completed its initial public offering ("IPO") of
7,500,000 shares of common stock at a public offering price of $12.50 per share.
The net proceeds generated of $84.8 million, after deducting underwriting
discounts and offering expenses, were used to repay debt.

ORTHOPAEDIC INDUSTRY

The worldwide orthopaedic industry was estimated to be approximately
$11.0 billion in 2000, and the Company believes it will grow at 6-8% annually
over the next three to four years. Six multinational companies currently
dominate the orthopaedic industry, each with approximately $1.0 billion or more
in annual sales. The size of these companies leads them to concentrate their
marketing and research and development efforts on products that they believe
will have a relatively high minimum threshold level of sales. As a result, there
is an opportunity for a mid-sized orthopaedic company, such as the Company, to
focus on smaller higher-growth sectors of the orthopaedic market, while still
offering a comprehensive product line to address the needs of its customers.

2

Orthopaedic devices are commonly divided into several primary sectors
corresponding to the major subspecialties within the orthopaedic field:
reconstruction, trauma, arthroscopy, spine and bio-orthopaedic materials. The
Company specializes in reconstructive joint devices and bio-orthopaedic
materials.

RECONSTRUCTIVE JOINT DEVICE MARKET

Most reconstructive devices are used to replace or repair joints that have
deteriorated as a result of disease or injury. Despite the availability of
non-surgical treatment alternatives such as oral medications, injections and
joint fluid supplementation of the knee, severe cases of disease or injury often
require reconstructive joint surgery. Reconstructive joint surgery involves the
modification of the bone area surrounding the affected joint and the insertion
of one or more manufactured components, and may also involve the use of bone
cement.

The reconstructive joint market is generally divided into the areas of
knees, hips and extremities. The reconstructive joint market is estimated at
$4.8 billion worldwide, with hip reconstruction and knee reconstruction
representing two of the largest sectors.

KNEE RECONSTRUCTION. The knee joint involves the surfaces of three distinct
bones: the lower end of the femur, the upper end of the tibia or shin bone, and
the patella or kneecap. Cartilage on any of these surfaces can be damaged due to
disease or injury, leading to pain and inflammation requiring knee
reconstruction. Knee reconstruction was the largest sector of the reconstructive
joint market in 2000, accounting for sales of approximately $2.2 billion
worldwide.

Major trends in knee reconstruction include the use of alternative, better
performing surface materials to extend the implant's life and increase
conservation of the patient's bone to minimize surgical trauma and accelerate
recovery. Another significant trend in the knee industry is the use of more
technologically advanced knees, called advanced kinematic knees, which more
closely resemble natural joint movement. Additionally, we believe the minimally
invasive unicompartmental knee procedure, which replaces only one femoral
condyle, is becoming more widely accepted.

HIP RECONSTRUCTION. The hip joint is a ball-and-socket joint which enables
the wide range of motion that the hip joint performs in daily life. The hip
joint is most commonly replaced due to degeneration of the cartilage between the
head of the femur (the ball) and the acetabulum or hollow portion of the pelvis
(the socket), which causes pain, stiffness and a reduction in hip mobility. Hip
reconstruction was an approximately $2.1 billion market worldwide in 2000.

Similar to the knee market, major trends in hip replacement procedures and
implants are to extend implant life and to minimize surgical trauma and recovery
time for patients. New products have been developed that incorporate bearing
surfaces other than the traditional polyethylene surface, which may create
debris due to wear that can lead to potential loosening of the implant. These
alternative bearing surfaces include metal-on-metal and ceramic-on-ceramic
combinations, which may exhibit better wear characteristics and lead to longer
implant life. In addition, in order to minimize surgical trauma and recovery
time for patients, implants that preserve more natural bone have been developed.
These implants, known as bone-conserving implants, leave more of the hip bone
intact, which is beneficial given the likelihood of future revision replacement
procedures as the average patient's lifetime increases. In addition,
bone-conserving procedures often allow patients to delay their first total hip
procedure and may significantly increase the time from the first procedure to
the time when a revision replacement implant is required.

EXTREMITY RECONSTRUCTION. Extremity reconstruction involves the implant of
a device to replace or reconstruct injured or diseased joints. Reconstruction of
the extremities consists of implants for joints such as the finger, toe, wrist,
foot, ankle and shoulder. The extremity reconstruction market was approximately
$250 million worldwide in 2000.

3

Major trends in extremity reconstruction include separately designed implant
stems for press-fit and cemented applications and a variety of geometries to
more closely accommodate each patient's unique anatomy. In addition, patients
and physicians are increasingly recognizing extremity reconstruction as a viable
treatment alternative to traditional treatment options.

BIO-ORTHOPAEDIC MARKET

The bio-orthopaedic materials market is one of the fastest growing sectors
of the orthopaedic market. These materials use both biological tissue-based and
synthetic materials to regenerate damaged or diseased bone. The bio-orthopaedic
materials sector includes products such as tissue-based bone grafts and bone
graft substitute materials. These products stimulate the body's natural
regenerative capabilities to minimize or delay the need for invasive implant
surgery. These materials are used in spinal fusions, trauma fractures, joint
replacements, and cranio-maxillofacial procedures. Currently, there are three
main types of bio-orthopaedic products: osteoconductive, osteoinductive and
combined osteoconductive/osteoinductive. These types refer to the way in which
the materials affect bone growth. Osteoconductive materials serve as a scaffold
that supports the formation of bone but does not trigger new bone growth,
whereas osteoinductive materials induce bone growth.

The Company believes there is an increasing acceptance of bone graft
substitute materials for use in spinal fusions, trauma fractures, joint
replacements, cranio-maxillofacial procedures and other orthopaedic
applications.

GOVERNMENT REGULATION

UNITED STATES

Numerous governmental authorities, principally the Federal Food and Drug
Administration, or FDA, and corresponding state and foreign regulatory agencies,
strictly regulate the Company's products and research and development
activities. The Federal Food, Drug, and Cosmetic Act, or FDC Act, the
regulations promulgated under this act, and other federal and state statutes and
regulations, govern, among other things, the pre-clinical and clinical testing,
design, manufacture, safety, efficacy, labeling, storage, recordkeeping,
advertising and promotion of medical devices.

Generally, before the Company can market a new medical device, marketing
clearance must be obtained through a 510(k) premarket notification or approval
of a premarket approval application, or PMA. The FDA will typically grant a
510(k) clearance if the applicant can establish that the device is substantially
equivalent to a predicate device. It generally takes a number of months from the
date of a 510(k) submission to obtain clearance, but it may take longer,
particularly if a clinical trial is required. The FDA may find that a 510(k) is
not appropriate or that substantial equivalence has not been shown and, as a
result, will require a PMA.

A PMA application must be submitted if a proposed device does not qualify
for a 510(k) premarket clearance procedure. PMA applications must be supported
by valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of clinical trials, bench tests and
laboratory and animal studies. The PMA must also contain a complete description
of the device and its components, and a detailed description of the methods,
facilities and controls used to manufacture the device. In addition, the
submission must include the proposed labeling and any training materials. The
PMA process can be expensive, uncertain and lengthy, require detailed and
comprehensive data and generally take significantly longer than the 510(k)
process. Additionally, the FDA may never approve the PMA. Toward the end of the
PMA review process, the FDA generally will conduct an inspection of the
manufacturer's facilities to ensure compliance with applicable quality system
regulation requirements, which include quality control testing, control
documentation and other quality assurance procedures.

4

If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, and the device presents a significant risk, the
sponsor of the trial, usually the manufacturer or the distributor of the device,
must file an investigational device exemption, or an IDE, application prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and/or laboratory testing. If the IDE
application is approved by the FDA and one or more institutional review boards,
or IRBs, human clinical trials may begin at a specific number of investigational
sites with a specific number of patients, as approved by the FDA. If the device
presents a nonsignificant risk to the patient, a sponsor may begin the clinical
trial after obtaining approval for the study by one or more IRBs without
separate approval from the FDA. Submission of an IDE does not give assurance
that the FDA will approve the IDE and, if it is approved, there can be no
assurance the FDA will determine that the data derived from the studies support
the safety and efficacy of the device or warrant the continuation of clinical
trials. An IDE supplement must be submitted to and approved by the FDA before a
sponsor or investigator may make a change to the investigational plan that may
affect its scientific soundness, study indication or the rights, safety or
welfare of human subjects. The study must also comply with the FDA's IDE
regulations and informed consent must be obtained from each subject. If the FDA
believes the Company is not in compliance with the law, it can institute
proceedings to detain or seize products, issue a recall, enjoin future
violations and seek civil and criminal penalties against the Company and its
officers and employees. If the Company fails to comply with these regulatory
requirements, the Company's business, financial condition and results of
operations could be harmed.

Most of the Company's products are approved through the 510(k) premarket
notification process. The Company has conducted clinical trials to support many
of its regulatory approvals. Regulations regarding the manufacture and sale of
the Company's products are subject to change. The Company cannot predict the
effect, if any, that these changes might have on its business, financial
condition and results of operations. In particular, the FDA has statutory
authority to regulate allograft-based products, processing and materials. The
FDA has been working to establish a more comprehensive regulatory framework for
allograft-based products, which are principally derived from cadaveric tissue.
The framework developed by the FDA establishes criteria for determining whether
a particular human tissue-based product will be classified as human tissue, a
medical device or biologic drug requiring premarket clearance or approval. All
tissue-based products are subject to extensive FDA regulation, including a
requirement that ensures that diseases are not transmitted to tissue recipients.
The FDA has also proposed extensive additional regulations that would govern the
processing and distribution of all allograft products. Consent to use the
donor's tissue must also be obtained. If a tissue-based product is considered
tissue, it does not require FDA clearance or approval before being marketed. If
it is considered a device, or a biologic drug, then FDA clearance approval may
be required.

On April 11, 2001, the FDA sent the Company a "warning letter" stating that
the FDA believes ALLOMATRIX-TM- Injectable Putty is a medical device that is
subject to the premarket notification requirement. The Company believes that
ALLOMATRIX-TM- Injectable Putty and certain of its other allograft-based
products are human tissue and therefore are not subject to FDA clearance or
approval as a medical device. The Company asked the FDA to designate
ALLOMATRIX-TM- Injectable Putty as a product regulated solely as a tissue. The
FDA has orally advised the Company that after reviewing the Company's
designation request it has decided to regulate ALLOMATRIX-TM- Injectable Putty
as a medical device. Upon official notification of this decision, the Company
will submit a 510(k) premarket notification for the product. The Company has
continued to market ALLOMATRIX-TM- Injectable Putty after receiving the warning
letter, and intends to continue to market and sell ALLOMATRIX-TM- Injectable
Putty. The FDA has not raised any objection to the Company's continued marketing
and sale of ALLOMATRIX-TM- Injectable Putty pending submission of the premarket
notification. There can be no assurance that the 510(k) premarket notification
that the Company intends to submit will be cleared by the FDA in a timely manner
or at all. Also, the FDA may take enforcement action against the Company,
including requiring the Company to modify or cease distributing ALLOMATRIX-TM-

5

Injectable Putty, detaining or seizing the Company's inventory of ALLOMATRIX-TM-
Injectable Putty, requiring the recall of ALLOMATRIX-TM- Injectable Putty,
enjoining future violations, and seeking criminal and civil penalties against
the Company and its officers and employees, any of which could adversely affect
the Company's financial condition and results of operations.

In addition to granting approvals for the Company's products, the FDA and
international regulatory authorities periodically inspect the Company for
compliance with the host of regulatory requirements that apply to medical
devices marketed in the United States and internationally. These requirements
include labeling regulations, manufacturing regulations, quality system
regulations, regulations governing unapproved or off-label uses, and medical
device regulations. Medical device regulations require a manufacturer to report
to the FDA serious adverse events or certain types of malfunctions involving its
products. The FDA periodically inspects device and drug manufacturing facilities
in the United States in order to assure compliance with applicable quality
system regulations. The FDA last inspected the Company's Arlington, Tennessee
manufacturing facility in January 2002. The Company was found to be in
compliance with the Quality System Regulations with only one minor observation,
which has already been corrected and confirmed by the FDA.

The Company believes its U.S. manufacturing facility complies in all
material respects with FDA requirements. The Company has also implemented
comprehensive procedures to ensure compliance with the FDA quality system
regulations with a focus on comprehensive product design controls.

INTERNATIONAL

The Company must obtain required regulatory approvals and comply with
extensive regulations governing product safety, quality and manufacturing
processes in order to market its products in European and other foreign
countries. These regulations vary significantly from country to country and with
respect to the nature of the particular medical device. The time required to
obtain these foreign approvals to market its products may be longer or shorter
than that required in the United States, and requirements for such approval may
differ from FDA requirements.

In order to market its products in the member countries of the European
Union, the Company is required to comply with the medical devices directive and
obtain CE mark certification. CE mark certification is an international symbol
of adherence to quality assurance standards and compliance with applicable
European medical device directives. Under the medical devices directives, all
medical devices including active implants must qualify for CE marking.

All of the Company's products sold internationally are subject to
appropriate foreign regulatory approvals, such as CE marking for the European
Union. The Company's products are manufactured in ISO 9001 compliant facilities.
The Company's manufacturing facility in France was ISO 9001 and EN 46001
certified in October 1996 by SGS, an English certified body. This facility is
also registered as a medical device manufacturing facility with the FDA. The FDA
may audit the Company's facility at any time.

PRODUCTS

The Company operates as one reportable segment, offering products in four
primary market sectors: knee reconstruction, hip reconstruction, extremity
reconstruction, and bio-orthopaedic

6

materials. The following table shows the net sales and percentages of net sales
contributed by each of the Company's product groups for each of the three most
recent fiscal years ended December 31, 2001.

KNEE RECONSTRUCTION

The Company's knee reconstruction product portfolio strategically positions
the Company in the areas of total knee reconstruction, revision replacement
implants, and limb preservation procedures. These products provide the surgeon
with a continuum of treatment options for improving patient care. The Company
differentiates its products through innovative design features that reproduce
movement and stability more closely resembling a healthy knee, and by a broad
array of surgical instrumentation to accommodate surgeon preference.

The ADVANCE-Registered Trademark- Knee System is the Company's most recent
knee product line offering. One of the most innovative products in the
ADVANCE-Registered Trademark- Knee System product line is the
ADVANCE-Registered Trademark- Medial Pivot Knee. The understanding of knee
motions and functions has advanced significantly over the past several years,
and the Company believes the ADVANCE-Registered Trademark- Medial Pivot Knee is
the first knee to be mass marketed that takes full advantage of the strides made
in understanding the knee joint. The ADVANCE-Registered Trademark- Medial Pivot
Knee is designed to approximate the motion of a healthy knee by using an unique
spherical medial feature. Overall, the Company believes the
ADVANCE-Registered Trademark- Medial Pivot Knee more closely approximates
natural knee motion, improves clinical wear and provides a better range of
motion. The ADVANCE-Registered Trademark- Knee System is CE marked for sale in
Europe. The Company recently introduced the ADVANCE-Registered Trademark-
product line into some of its international markets and it has received some
initial success. The Company believes that international markets present a
significant opportunity for sales of the ADVANCE-Registered Trademark- Knee
System.

The ADVANTIM-Registered Trademark- Knee System, one of the Company's early
flagship products, was developed to meet the needs of patients with special
stability requirements and has over 19 years of successful clinical history. The
ADVANTIM-Registered Trademark- Knee System continues to be popular with surgeons
because of its specialized instrumentation and successful clinical history.

7

HIP RECONSTRUCTION

The Company offers a comprehensive line of products for hip joint
reconstruction. This product portfolio, which was strengthened by the Cremascoli
acquisition, provides offerings in the areas of bone-conserving implants, total
hip reconstruction, revision replacement implants, and limb preservation.
Additionally, the Company's hip products offer a combination of innovative
modular designs, a complete portfolio of surface bearing materials, including
polyethylene, ceramic and metal components, and innovative technology in single
surface replacement implants. The Company is therefore able to offer surgeons
and their patients a continuum of treatment options.

The CONSERVE-Registered Trademark- Hip System provides a conservative
restoration, or bone conserving, alternative to conventional total hip
reconstruction, and the Company believes it is becoming the treatment of choice
for avascular necrosis, or AVN, of the femoral head. AVN is a disease which
causes bone to die and deteriorate. It is estimated that approximately 10% of
total hip replacement procedures performed annually are initially diagnosed as
related to AVN. People who suffer from AVN are usually younger than the typical
hip replacement patient and need a solution that is less invasive than
conventional total hip replacement. With the CONSERVE-Registered Trademark-
Resurfacing System, only the surface of the femoral head is replaced and the
rest of the hip remains untouched. This early intervention alternative allows
the patient to live with less pain and avoid extensive bone loss at a young age.
The CONSERVE-Registered Trademark- Hip System's conservative restoration
provides a better solution for the patient by leaving maximum bone for future
surgical procedures, if needed.

The LINEAGE-TM- Acetabular System, the Company's newest hip product which
was introduced during the third quarter of 2001, is one of the first hip systems
to reach the market that provides the surgeon with the option to interchangeably
use either polyethylene, ceramic or metal acetabular bearing surfaces for use
with a common metal acetabular shell, thus offering maximum flexibility to the
surgeon while minimizing inventory levels. The standard for replacement of the
acetabulum, or socket, in the hip joint is a two-piece system consisting of a
metal shell with a polyethylene liner. The polyethylene component serves as a
bearing surface for the head of the femoral component, or ball. Alternative
bearing materials, such as metal in the domestic market and metal and ceramic in
the international market, have recently been introduced in their respective
markets. The Company anticipates offering the ceramic option in the United
States in the near future.

The PERFECTA-Registered Trademark- Hip System is the basic platform for the
Company's more traditional hip stem product line. This system provides a full
range of fixation options including press fit and cemented versions, and offers
a wide selection of geometries in order to meet the needs of the patient's
anatomical requirements as well as the surgeon's preferences. This product
allows surgeons the flexibility to match the implant to each patient's unique
requirements. The PERFECTA-Registered Trademark- Hip System has over ten years
of proven clinical success worldwide, and the Company continues to build upon
the existing platform, as illustrated by the introduction of the
PERFECTA-Registered Trademark- Slim Neck during the third quarter of 2001. This
product has a slimmer neck that provides for a greater range of motion after
being implanted.

Through the Company's acquisition of Cremascoli, several hip implant
products designed for the European market, including the ANCA
FIT-Registered Trademark- Hip System and PROFEMUR-TM- R Hip System, were
acquired. The ANCA FIT-Registered Trademark- Hip System, a traditional hip
replacement system, has received clinical acceptance in Europe for seven years.
The PROFEMUR-TM- R hip stem is a revision replacement implant with a patented
modular femoral neck component, which allows the surgeon to make final
adjustments to the implant as the last step in the procedure in order to
accommodate each patient's unique anatomy.

EXTREMITY RECONSTRUCTION

The Company offers extremity products for the hand, wrist, elbow, shoulder,
foot and ankle in a number of markets worldwide. The Company's small joint
orthopaedic implants have many years of successful clinical history. The Swanson
Hinge Finger has been used by surgeons for over 30 years.

8

The ORTHOSPHERE-Registered Trademark- implant for the repair of the basal
thumb joint, is constructed from ceramic biomaterials, which reduce wear and
increase biocompatibility compared to polyethylene implants. By providing an
alternative to the harvesting of the patient's own soft tissues as a spacer for
the repaired joint, the ORTHOSPHERE-Registered Trademark- implant thereby
reduces morbidity and operating time. The Company believes this product
represents a significant improvement over conventional techniques.

The LOCON-T-TM- Distal Radius Plating System, which was introduced during
the first quarter of 2001, provides surgeons with an anatomically designed,
stainless steel plating system used in the repair of radial fractures. In
designing the LOCON-T-TM- Distal Radius Plating System, the Company utilized
thin, high-strength stainless steel with low profile screws in order to avoid
tendon irritation and/or rupture, which are complications known to result from
this type of surgical repair. Thus, the Company believes this product offers
distinct advantages over other currently marketed systems.

In May 2000, the Company introduced the EVOLVE-Registered Trademark- Modular
Radial Head elbow device. The EVOLVE-Registered Trademark- Modular Radial Head
elbow device offers two primary benefits over its predecessors: the surgeon may
choose implant heads and stems that accommodate the patient's anatomy, and it is
easier to insert compared to the single piece implants, when assembled in the
patient.

The Company's NEWDEAL-Registered Trademark- foot and ankle implants provide
a system of components for performing various repair procedures in the foot and
ankle. These products include various screws and staples that meet a wide array
of surgical challenges in the foot. These products are the result of the
Company's exclusive U.S. distribution agreement, entered into in the second half
of 2000, with Newdeal, S.A., a French company that has developed an extensive
line of products for foot and ankle procedures. These new instruments and
implants have allowed the Company to continue expanding its dominant position in
the extremity market.

BIO-ORTHOPAEDIC MATERIALS

The Company offers an expanding number of bio-orthopaedic products that
stimulate the natural regenerative capabilities of the human body. These
products focus on biological musculoskeletal repair, including synthetic and
human tissue-based bone grafting materials. The Company was among the first
companies to receive FDA market clearance for the use of resorbable synthetic
bone graft substitutes for the spine, currently the largest application for this
product.

In 1996, the Company introduced OSTEOSET-Registered Trademark- bone graft
substitute, a synthetic bone graft substitute made of surgical grade calcium
sulfate. OSTEOSET-Registered Trademark- bone graft substitute provides an
attractive alternative to autograft because it facilitates bone regeneration
without requiring a painful, secondary, bone harvesting procedure. Additionally,
being purely synthetic, OSTEOSET-Registered Trademark- pellets are cleared for
use in infected sites, an advantage over tissue based material. The human body
resorbs the OSTEOSET-Registered Trademark- material at a rate close to the rate
that new bone grows. The Company also offers surgeons the option of
custom-molding their own beads in the operating room using the
OSTEOSET-Registered Trademark- Resorbable Bead Kit, which is available in
mixable powder form. Our surgical grade calcium sulfate is manufactured
internally using a patented and proprietary process that consistently produces a
high quality product.

In late 1999, the Company introduced ALLOMATRIX-TM- Injectable Putty. This
product combines a high content of demineralized bone matrix, or DBM, with the
Company's proprietary surgical grade calcium sulfate carrier. The combination
provides an injectable putty with the osteoinductive properties of DBM and
exceptional handling qualities. This product has been well received by surgeons.
Another combination the Company offers is ALLOMATRIX-TM- C bone graft putty,
which includes the addition of bone chips. The addition of the bone chips
increases the stiffness of the material, improves handling characteristics and
provides more structural support. In the third quarter of 2001, the Company
introduced ALLOMATRIX-TM- Custom bone graft putty, which allows the surgeon to
customize the amount of bone to add to the putty based on its surgical
application.

9

The Company's bio-orthopaedic offerings in international markets include
OSTEOSET-TM- T medicated pellets and OSTEOSET-TM- pellets containing DBM.
OSTEOSET-TM- T medicated pellets are currently the only synthetic resorbable
bone void filler available on the international market for the treatment of
osteomyelitis, an acute or chronic inflammation of the bone.

PRODUCT DEVELOPMENT

The Company's research and development staff focuses on developing new
products in the knee, hip, extremity reconstruction and bio-orthopaedic material
markets, and expanding the current product offerings and the markets in which
they are offered. Realizing that new product offerings are a key to future
success, the Company is committed to a strong research and development program.
Research and development expenses totaled $10.1 million in 2001. The Company
believes this level of spending will produce a steady stream of innovative, new
product introductions in coming years.

The Company has established several surgeon advisory panels that provide
advice on market trends and assist with the development and clinical testing of
the Company's products. The Company believes these surgeon advisors are
prominent in the field of orthopaedics. The Company also partners periodically
with other industry participants, particularly in the bio-orthopaedic materials
area, to develop new products.

In the knee, hip and extremity reconstruction areas, the Company's research
and development focus is on expanding the continuum of products that span the
life of implant patients, from early intervention, such as bone-conserving
implants, to primary implants to revision replacement implants to limb
preservation implants. In the bio-orthopaedic materials area, the Company has a
variety of research and development projects that are designed to further expand
the Company's entry into this rapidly growing market. Such projects include
developing materials for new bio-orthopaedic applications as well as leveraging
the use of biologic coatings to enhance fixation and performance in traditional
orthopaedic implants.

The Company continues to explore and develop alternative bearing surfaces
that improve the clinical performance of its reconstructive joint devices.
Active programs in cross-linked polyethylene, alternative bearing materials and
other proprietary substitutes are currently expected to be incorporated into
some of the Company's product designs during 2002.

Following is a brief description of products under development in each of
the Company's principal market sectors:

KNEES

The ADVANCE-Registered Trademark- Stemmed Medial Pivot Knee is a new
extension of the Company's successful ADVANCE-Registered Trademark- Total Knee
System. Surgeons are often confronted with significant challenges when replacing
a knee joint, such as bone loss that compromises implant fixation. The
ADVANCE-Registered Trademark- Stemmed Medial Pivot Knee offers the surgeon the
ability to implant a stemmed version in cases

10

requiring additional implant fixation and stability in a primary surgery. This
system also accepts augmentation wedges to replace areas of deficient bone. With
this system, the surgeon will have more options for treating patients requiring
additional stability without resorting to total knee replacement products, which
remove more bone. This design conserves bone as compared to other posterior
stabilized products while providing a higher degree of fixation and implant
stability.

There is growing interest in the market for a unicompartmental knee that
addresses injury or disease in the medial head in the base of the femur. In
response to that interest, the Company has developed the
ADVANCE-Registered Trademark- Unicompartmental Knee System, a unique system of
implants and instruments that allows for medial compartment replacement with a
minimally invasive surgical approach. The Company believes the simplified
instrumentation utilized by the ADVANCE-Registered Trademark- Unicompartmental
Knee System is a significant improvement over the cumbersome or poorly designed
instrumentation utilized in unicompartmental knee systems on the market today.

The ADVANCE-Registered Trademark- Spiked Tibial Base is a fixation
modification option for the ADVANCE-Registered Trademark- Medial Pivot Knee
whereby a spiked tibial base is used with the implant, which allows for less
bone removal while providing optimal stability and fixation. It is available in
porous and non-porous options that accept ADVANTIM-Registered Trademark- style
tibial stem extensions. Thus, it bridges the superior movement qualities of the
ADVANCE-Registered Trademark- Medial Pivot Knee with the optimal fixation
qualities of the ADVANTIM-Registered Trademark- knee system.

HIPS

Modular hip systems are growing in popularity, especially in revision
replacement hip implant procedures. The PROFEMUR-TM- R was designed by
Cremascoli for the European market. Although the Company is currently selling
this product in the U.S., the Company is also developing a modified version and
instrumentation to address the needs of U.S. surgeons. The new system, the
PROFEMUR-TM- USA Modular Hip will capitalize on the successful clinical history
of the current PROFEMUR-TM- R product while incorporating new technology into
the design.

REPIPHYSIS-TM- Technology can be used in any long bone where growth
potential is needed. This technology, which the Company licenses from the
inventor, can be inserted into a bone implant and subsequently adjusted
non-invasively when lengthening of the bone is needed. The most common
application of this breakthrough technology is in the field of children's
oncology, where growing children can have the bones attached to their hip or
knee implant lengthened non-invasively, thus eliminating the need for more
frequent surgeries and anesthesia.

11

The GUARDIAN-Registered Trademark- Limb Salvage System is ideal for cases
when proximal or distal femur replacement can no longer be achieved due to
extensive femoral and tibia bone loss as a result of cancer, trauma, or failed
hip and knee arthroplasty. The GUARDIAN-Registered Trademark- Proximal Tibia
Implants, one of the products offered in this modular component system, allows
for very small femoral bone resection and is available in a wide range of sizes
that promote optimal prosthesis fit. The constrained design precludes the need
for a patellar component. The GUARDIAN-Registered Trademark- Revision Hinge
Implants, another of the products offered within the system, is similar to the
GUARDIAN-Registered Trademark- Proximal Tibia Implants, but its prosthesis
includes a tibia sleeve and an optional tibia stem extension instead of a
proximal tibia, optional midsection, and tibia stem.

The CONSERVE-Registered Trademark- Plus Resurfacing Hip System offers a
unique hip replacement system that requires minimal bone removal. With this
system, only the surfaces of the hip are replaced, as opposed to the significant
bone removal that is typical in most conventional total hip systems on the
market today. The CONSERVE-Registered Trademark- Plus Resurfacing Hip System
allows for the replacement of both the femoral and acetabular articular
surfaces, while the CONSERVE-Registered Trademark- System allows for the
replacement of the femoral head which moves directly against the natural
acetabular cartilage.

EXTREMITIES

The OLYMPIA-TM- Total Shoulder System, is a comprehensive system that offers
the surgeon many choices in terms of fixation and implant stability. This system
offers two fixation options, including patented press-fit stems for cementless
applications and stems that are optimized for cemented applications. Most
systems now available do not offer this level of versatility and surgeons must
adjust their surgical technique to fit the available products. An additional
advantage of the system is that the humeral head is modular and asymmetric,
allowing the surgeon to adjust joint tension as the final step of the surgical
process.

Following the success of the EVOLVE-Registered Trademark- Modular Radial
Head, the Company is developing a modular replacement system for the distal
ulna, a small forearm bone. This new system will continue the Company's
expansion into new markets in the extremity area.

12

BIO-ORTHOPAEDIC MATERIALS

The latest offering in the Company's ALLOMATRIX-TM- family of products is
ALLOMATRIX-TM- C Putty. The Company recently launched ALLOMATRIX-TM- C Putty in
the U.S. and hopes to soon offer the product internationally, pending receipt of
necessary regulatory clearance.

ALLOMATRIX-TM- DR Graft is ALLOMATRIX-TM- putty that has been optimized for
application in smaller fractures. The properties of this graft that make it
ideal for such application include its semi-structural consistency, smaller
particle size for optimized packing, and the application-specific volume in
which it is marketed.

MIIG-TM-(Minimally Invasive Injectable Graft) paste is an injectable form of
the Company's surgical grade calcium sulfate paste that hardens in the body.
This product combines the operative flexibility of an injectable substance with
the clinically proven osteoconductive properties of
OSTEOSET-Registered Trademark- material. This product is targeted for
application to traumatic fractures of the distal radius and tibial plateau.

OSTEOSET-Registered Trademark- DBM Pellets combine
OSTEOSET-Registered Trademark- material with demineralized bone in pellet form,
thereby providing both osteoconductive and osteoinductive properties.

SALES AND MARKETING

The Company's sales and marketing staff targets orthopaedic surgeons, who
typically are the decision-makers in orthopaedic device purchases. The Company
has established several surgeon advisory panels comprised of surgeons who the
Company believes are leaders in their chosen orthopaedic specialties and involve
both these surgeons and the Company's marketing personnel in all stages of
bringing a product to market--from initial product development to product
launch. As a result, the Company has a well-educated, highly involved marketing
staff and an installed base of well-respected surgeons who serve as advocates to
promote the Company's products in the orthopaedic community.

The Company offers clinical symposia and seminars, publishes advertisements
and the results of clinical studies in industry publications, and offers
surgeon-to-surgeon education on the Company's new products using the surgeon
advisors in an instructional capacity. Additionally, approximately 16,000
practicing orthopaedic surgeons in the U.S. receive information on the Company's
latest products through frequent catalogue and brochure mailings.

The Company's acquisition of Cremascoli provided an opportunity to
cross-sell legacy Wright products and legacy Cremascoli products in Europe and
North America, respectively. Because North American and European orthopaedic
surgeons have different product preferences, the Company believes that by
utilizing its European and North American sales and marketing teams'
understanding of surgeon preferences in their local markets, the Company can
effectively modify and cross-sell existing products throughout the worldwide
markets in which the Company competes.

13

The Company's sales are subject to seasonality. Primarily because of the
European holiday schedule during the summer months, the Company traditionally
experiences lower sales volumes in these months than throughout the rest of the
year.

The Company sells its products in the United States through a sales force of
over 200 people, consisting of 44 independent commission-based sales
representatives or distributors, and approximately 161 independent and 3
employee sales associates engaged principally in the business of supplying
orthopaedic products to hospitals in their geographic areas. These independent
distributors have formal contracts with the Company, which allows the Company to
manage the distributor based on performance criteria. The U.S. field sales
organization is supported by the Company's Tennessee-based sales and marketing
organization. A Vice President of U.S. Sales, a national sales manager, and four
regional directors manage the Company's domestic sales organization.

The Company's products are marketed internationally through a combination of
direct sales offices in certain key international markets and exclusive
distributors in other markets. The Company has sales offices in France, Italy,
the United Kingdom, Belgium, Japan, Canada and Germany that employ direct sales
employees and use independent sales representatives to sell the Company's
products into their respective markets. The Company's products are sold into
other countries in Europe, Asia, Africa, South America and Australia using
stocking distribution partners. Stocking distributors purchase products directly
from the Company for resale directly to their local customers, with product
ownership generally passing to the distributor upon shipment. In total, the
Company's international distribution system consists of approximately 250
distributors and sales associates who sell in over 40 countries. The Company's
President of International and the Vice-President of International Sales and
Distribution manage the Company's international sales organization.

The Company's new sales representatives receive formal product training and
are then typically given one product to sell for a period of time, thus allowing
the representatives time to establish relationships within the orthopaedic
community. The sales representatives gradually add additional products until
they carry all of the Company's product lines. This process typically takes
three years. In addition, the Company requires each sales representative to
attend periodic sales and product training.

MANUFACTURING AND SUPPLY

The Company operates manufacturing facilities in both Arlington, Tennessee
and Toulon, France. These facilities primarily produce orthopaedic implants and
some of the related surgical instrumentation used to prepare the bone surfaces
and cavities during the surgical procedure. The majority of the Company's
surgical instrumentation is produced to the Company's specifications and designs
by qualified subcontractors who serve medical device companies.

During the past year, the Company has continued to modernize both production
facilities through changes to the physical appearance and layout, and have added
new production and quality control equipment to meet the evolving needs of the
Company's product specifications and designs. In seeking to optimize the
Company's manufacturing operations, the Company has adopted many sophisticated
manufacturing practices, such as lean manufacturing, which are designed to lower
lead times, minimize waste and reduce inventory. The Company has a wide breadth
of manufacturing capabilities at both facilities, including skilled and
semi-skilled manufacturing personnel.

The Company's reconstructive joint devices are produced from various
surgical grades of titanium, cobalt chrome and stainless steel, various surgical
grades of high-density polyethylenes, silicone elastomer and ceramics. The
Company is aware of only two suppliers of medical grade silicone elastomer, only
one of which is used by the Company. Currently, the Company relies on two
suppliers of DBM for use in the Company's bio-orthopaedic products. Other raw
material supplies come from multiple suppliers that supply products to the
Company's specifications and purchase order requirements.

14

The Company maintains a comprehensive quality assurance and quality control
program, which includes documentation of all material specifications, operating
procedures, equipment maintenance and quality control methods. The Company's
U.S. and European based quality systems are based on and in compliance with the
requirements of ISO 9001/EN 46001 and the applicable regulations imposed by the
FDA on medical device manufacturers.

The Company believes that its two production facilities can continue to meet
anticipated business needs for the foreseeable future.

COMPETITION

Competition in the orthopaedic device industry is intense and is
characterized by extensive research efforts and rapid technological progress.
Major companies in this industry include DePuy, Inc., a subsidiary of Johnson &
Johnson; Stryker Corporation; Zimmer Holdings, Inc.; Sulzer Orthopedics, Inc., a
division of Sulzer Medica; Smith & Nephew, Inc.; and Biomet, Inc. Competitors
also include academic institutions and other public and private research
organizations that continue to conduct research, seek patent protection and
establish arrangements for commercializing products in this market that will
compete with the Company's products.

The primary competitive factors facing the Company include: price, quality,
technical capability, breadth of product line and distribution capabilities.
Current and future competitors in this market may have greater resources, more
widely accepted products, less-invasive therapies, greater technical
capabilities, and stronger name recognition than the Company does. The Company's
ability to compete is affected by its ability to:

- develop new products and innovative technologies;

- obtain regulatory clearance and compliance for its products;

- protect the proprietary technology of its products and manufacturing
process;

- market its products;

- attract and retain skilled employees and sales representatives; and

- maintain and establish distribution relationships.

INTELLECTUAL PROPERTY

The Company currently owns or has exclusive licenses to more than 108
patents and pending patent applications throughout the world. The Company seeks
to aggressively protect technology, inventions and improvements that are
considered important through the use of patents and trade secrets in the United
States and significant foreign markets. The Company manufactures and markets the
products both under patents and license agreements with other parties.

The Company's knowledge and experience, creative product development,
marketing staff, and trade secret information with respect to manufacturing
processes, materials and product design, are as equally important as the
Company's patents in maintaining the Company's proprietary product lines. As a
condition of employment, the Company requires all employees to execute a
confidentiality agreement relating to proprietary information and assigning
patent rights to the Company.

15

There can be no assurances that the Company's patents will provide
competitive advantages for the Company's products, or that competitors will not
challenge or circumvent these rights. In addition, there can be no assurances
that the United States Patent and Trademark Office, or PTO, will issue any of
the Company's pending patent applications. The PTO may also deny or require
significant narrowing of claims in the Company's pending patent applications,
and patents issuing from the pending patent applications. Any patents issuing
from the pending patent applications may not provide the Company with
significant commercial protection. The Company could incur substantial costs in
proceedings before the PTO, including interference proceedings. These
proceedings could result in adverse decisions as to the priority of the
Company's inventions. Additionally, the laws of some of the countries in which
the Company's products are or may be sold may not protect the Company's products
and intellectual property to the same extent as the laws in the United States,
or at all.

While the Company does not believe that any of its products infringe any
valid claims of patents or other proprietary rights held by third parties, there
can be no assurances that the Company does not infringe any patents or other
proprietary rights held by third parties. If the Company's products were found
to infringe any proprietary right of a third party, the Company could be
required to pay significant damages or license fees to the third party or cease
production, marketing and distribution of those products. Litigation may also be
necessary to enforce patent rights the Company holds or to protect trade secrets
or techniques the Company owns. The Company is currently involved in an
intellectual property lawsuit with Howmedica Osteonics Corp., a subsidiary of
Stryker Corporation. See Item 3 of this Form 10-K for further details. Also, the
Company was contacted in August 1996 by Tranquil Prospects, Ltd. claiming that
the Company's EVOLUTION-Registered Trademark- Hip infringed its patents. The
Company has had occasional contact with Tranquil since that time. The Company
believes that neither this former product nor any of its existing products
infringes Tranquil's patents.

The Company also relies on trade secrets and other unpatented proprietary
technology. There can be no assurances that the Company can meaningfully protect
its rights in its unpatented proprietary technology or that others will not
independently develop substantially equivalent proprietary products or processes
or otherwise gain access to the Company's proprietary technology. The Company
seeks to protect its trade secrets and proprietary know-how, in part, with
confidentiality agreements with employees and consultants. There can be no
assurances, however, that the agreements will not be breached, that adequate
remedies for any breach would be available, or that competitors will not
discover or independently develop the Company's trade secrets.

THIRD-PARTY REIMBURSEMENT

In the United States, as well as in foreign countries, government-funded or
private insurance programs, commonly known as third-party payors, pay a
significant portion of the cost of a patient's medical expenses. A uniform
policy of reimbursement does not exist among all these payors. Therefore,
reimbursement can be quite different from payor to payor. The Company believes
that reimbursement is an important factor in the success of any medical device.
Consequently, the Company seeks to obtain reimbursement for all of its products.

Reimbursement in the United States depends on the Company's ability to
obtain FDA clearances and approvals to market these products. Reimbursement also
depends on the Company's ability to demonstrate the short-term and long-term
clinical and cost-effectiveness of its products from the results obtained from
its clinical experience and formal clinical trials. The Company presents these
results at major scientific and medical meetings and publishes them in
respected, peer-reviewed medical journals.

All U.S. and foreign third-party reimbursement programs, whether government
funded or insured commercially, are developing increasingly sophisticated
methods of controlling health care costs through prospective reimbursement and
capitation programs, group purchasing, redesign of benefits, second opinions
required prior to major surgery, careful review of bills, encouragement of
healthier lifestyles

16

and exploration of more cost-effective methods of delivering health care. These
types of programs can potentially limit the amount which health care providers
may be willing to pay for medical devices.

HCFA issued a Final Rule on its Prospective Payment System For Outpatient
Services on April 7, 2000. The Company estimates that 25% of the procedures
using its extremity products are used in an outpatient hospital setting. This
rule provides for a new system to reimburse Medicare outpatient surgical
services provided in a hospital made up of two parts: payment to the hospital
for the procedure costs and a separate payment, known as a pass-through payment,
intended to cover the cost of medical devices used during the procedure that are
more than 25% of the total procedure cost. Some medical devices that do not fit
the pass-through criteria may be reimbursed by a separate payor known as New
Technology Ambulatory Payment Classification. This rule became effective on
August 1, 2000. On July 26, 2000, HCFA published a list of pharmaceuticals and
medical devices that are eligible for pass-through payments. HCFA currently
intends only to provide payment for the products on this list. HCFA has stated
that it will update this list on a quarterly basis.

EMPLOYEES

As of December 31, 2001, the Company employed directly and through our
subsidiaries 751 people in the following areas: 347 in manufacturing, 217 in
sales and marketing, 121 in administration and 66 in research and development.
The Company does not have any active organized labor unions. The Company
believes it has an excellent relationship with its employees.

ENVIRONMENTAL

The Company's operations and properties are subject to extensive foreign,
federal, state and local environmental protection and health and safety laws and
regulations. These laws and regulations govern, among other things, the
generation, storage, handling, use and transportation of hazardous materials and
the handling and disposal of hazardous waste generated at the Company's
facilities. Under such laws and regulations, the Company is required to obtain
permits from governmental authorities for some of its operations. If the Company
violates or fails to comply with these laws, regulations or permits, it could be
fined or otherwise sanctioned by regulators. Under some environmental laws and
regulations, the Company could also be held responsible for all of the costs
relating to any contamination at its past or present facilities and at third
party waste disposal sites.

The Company believes its costs of complying with current and future
environmental laws, and its liabilities arising from past or future releases of,
or exposure to, hazardous substances will not materially adversely affect its
business, results of operations or financial condition, although there can be no
assurances that they will not do so.

In 1999, groundwater contamination was detected at the Company's Arlington,
Tennessee facility. The Company has taken steps to investigate the nature and
extent of the contamination and, in connection with a state administrative
proceeding, the Company is presently negotiating a Remediation Order with state
environmental officials that will specify the terms of further investigation
and, if necessary, remediation. The Company believes the contamination was
caused by the former owner of the business and has requested indemnification in
accordance with the 1993 purchase agreement by which the Company acquired the
business. The former owner may have factual and legal defenses to the claim and
there can be no assurances that the former owner will not prevail. Additionally,
the former owner is currently involved in bankruptcy proceedings. The Company
believes the bankruptcy will not affect the Company's ability to pursue the
claim under the indemnification, although there can be no assurances that it
will not. Further, there can be no assurance that, even if the Company should
prevail on the claim, the former owner will have the capacity to pay the claim.

17

The Company does not believe that the cost of addressing the contamination,
without regard to indemnification from the former owner of the business, will
materially adversely affect its business, results of operations or financial
condition although there can be no assurances that it will not.

ITEM 2. PROPERTIES.

The Company's U.S. corporate headquarters includes warehouse,
administrative, and manufacturing facilities located in three buildings on 31
acres in Arlington, Tennessee with an aggregate of 168,000 square feet. The
manufacturing facilities have additional capacity, which will allow the Company
to expand production of its current product lines.

The majority of the Company's products are manufactured in the Company's
74,000 square foot manufacturing facility located in Arlington, Tennessee. This
facility is leased from the Industrial Development Board of the City of
Arlington. The lease has an automatic renewal through 2049. The Company may
exercise a nominal purchase option at any time. The Company's office and
warehouse facilities are also leased from the Industrial Development Board of
the City of Arlington. The office facility lease expires July 8, 2005; however,
the Company may exercise a $101,000 purchase option at any time. The Company may
exercise a nominal purchase option at any time on the warehouse facility lease.
It is an open-ended lease with no predetermined expiration date.

The Company's international operations include warehouse, research,
administrative and manufacturing facilities located in several countries. The
Company's primary international manufacturing facility and warehouse are located
in leased facilities in Toulon, France. The Company's primary international
research and development facility is located in leased facilities in Milan,
Italy. In addition, the Company leases office space in France, Belgium and Italy
and warehouse space in Belgium and Italy.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is subject to lawsuits and claims which arise
out of its operations in the normal course of business. The Company is the
plaintiff or defendant in various litigation matters in the ordinary course of
business, some of which involve claims for damages that are substantial in
amount. The Company believes that the disposition of claims currently pending,
including the matters discussed below, will not have a material adverse effect
on its financial position or results of operations.

HOWMEDICA OSTEONICS CORP. V. WRIGHT MEDICAL GROUP, INC.

On March 28, 2000, Howmedica Osteonics Corp., a subsidiary of Stryker
Corporation, filed a complaint in the United States District Court in New Jersey
alleging that the Company infringed Howmedica's U.S. Patent No. 5,824,100
related to the Company's ADVANCE-Registered Trademark- Knee product line.
Howmedica Osteonics Corp. is seeking an order of infringement, treble
compensatory damages and injunctive relief. If Howmedica Osteonics Corp. were to
succeed in obtaining the relief it claims, the Court could award damages to
Howmedica Osteonics Corp., could impose an injunction against further sales of
the Company's products and could rule that the Company's patents are invalid or
unenforceable. The Company is unable to quantify the potential range of any
damage award and no specific monetary damage was requested in Howmedica
Osteonics Corp.'s complaint. A damage award could be significant. If a final
damage award is rendered against the Company, the Company may be forced to raise
or borrow funds, as a supplement to any available insurance claim proceeds, to
pay the damages award. The Company believes that it has good defenses to this
lawsuit and intends to defend it vigorously.

18

WRIGHT MEDICAL TECHNOLOGY, INC. V. GRISONI

The Company filed an action against a former employee on March 31, 1998,
regarding the use of intellectual property and trade secrets. The Company
alleged the former employee violated a "trade secrets" provision of his
employment contract by developing a calcium sulfate bone void filler product to
compete against the Company's similar product. Initially, the trial court
granted the Company a temporary restraining order and later granted a temporary
injunction. Seven months later, the former employee filed a motion to dissolve
the injunction. The former employee claimed that the injunction was improperly
granted and alleged damages as a result of the issuance of the injunction. On
May 3, 2000, the trial court found the Company "guilty of malicious prosecution"
and awarded the former employee a judgment of $4.8 million, plus $408,000 per
month for twelve months or until a final resolution of the case, whichever is
earlier, and $4.8 million in punitive damages. The Company appealed the judgment
and agreed to suspend the injunction pending the outcome of the appeal. In
connection with the appeal the Company was required to post a $5.0 million bond.

The Tennessee Court of Appeals issued its decision on the Company's appeal
on December 18, 2001. The Court of Appeals concluded that the evidence neither
established malice nor lack of probable cause. Accordingly, the trial court's
finding that the Company was liable for malicious prosecution was reversed.
Since the Court of Appeals reversed the finding of malicious prosecution, the
Court of Appeals stated that the award of punitive damages was not warranted and
it reversed the award of punitive damages. The Court of Appeals, however,
affirmed the dissolution of the injunction. Since the finding of liability for
malicious prosecution was reversed, the damages to Grisoni were limited to the
amount of the injunction bond of $500,000 and Grisoni was thus entitled to
recover compensatory damages for the wrongful injunction in the amount of
$500,000. The trial court's award of damages was modified to that amount.
Grisoni appealed the trial court's decision not to award damages for the
Company's alleged misappropriation of material from Grisoni. The Court of
Appeals affirmed the trial court and found that the preponderance of the
evidence supported the trial court's finding that the Company did not use
Grisoni's information.

In February 2002, Grisoni sought permission to appeal the Court of Appeals'
findings. If this case is accepted by the Tennessee Supreme Court and the
damages reversed by the Court of Appeals are reinstated, the Company may be
required to raise or borrow the money to pay all or a portion of the damages
award.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

19

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

On July 18, 2001, the Company completed its initial public offering, and
issued 7,500,000 shares of voting common stock at $12.50 per share, which
produced net proceeds of $84.8 million after deducting underwriting discounts
and offering expenses. The Company used the net proceeds of its initial public
offering to repay debt. Simultaneous with the closing of the offering, all of
its outstanding mandatorily redeemable, convertible preferred stock, plus
accrued dividends, was converted into 19,602,799 shares of common stock. Also in
connection with the offering, Warburg, Pincus Equity Partners, L.P. converted
approximately $13.1 million of the Company's senior subordinated notes into
1,125,000 shares of non-voting common stock.

The Company's common stock began trading on the Nasdaq National Market
System on July 13, 2001 under the symbol "WMGI". Before that date, no public
market for the Company's common stock existed. The following table sets forth,
for the periods indicated, the high and low closing sales prices per share of
the Company's common stock as reported on the Nasdaq National Market.

On February 27, 2002, the last reported sales price of the Company's common
stock on the Nasdaq National Market was $15.89 per share. As of February 27,
2002, there were 61 stockholders of record and an estimated 3,400 beneficial
stockholders.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its common stock.
The Company currently intends to retain all future earnings for the operation
and expansion of its business. The Company does not anticipate declaring or
paying cash dividends on its common stock in the foreseeable future. Any payment
of cash dividends on the Company's common stock will be at the discretion of the
Company's board of directors and will depend upon the Company's results of
operations, earnings, capital requirements, contractual restrictions and other
factors deemed relevant by our board. In addition, the Company's current credit
facility prohibits the Company from paying any cash dividends without the
lenders' consent.

RECENT SALES OF UNREGISTERED SECURITIES

In reliance on Section 4(2) under the Securities Act of 1933, the Company
issued the following securities without registration under the Securities Act of
1933:

In February 2001, the Company issued 5,453 shares of voting common stock at
$4.35 per share, and $11,945 aggregate principal amount of 10% subordinated
notes as a result of the release of an environmental escrow established in
connection with the Company's acquisition of Cremascoli.

In March 2001, the Company sold Robert Glen Coleman, Senior Vice President
of Marketing and Business Development, 100,001 shares of our series C preferred
stock at $1.58 per share, 1 share of our voting common stock and $91,676
aggregate principal amount of 10% subordinated notes, for a total purchase price
of $250,000.

20

At the closing of the Company's initial public offering in July 2001, all of
the Company's subordinated notes were repaid in full and all of the Company's
series of preferred stock were converted into common stock of the Company.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth certain selected consolidated financial data
of Wright Medical Group, Inc. (the Company) and Wright Medical
Technology, Inc., (the Predecessor Company), for the periods indicated. The
selected consolidated financial data as of December 31, 2001, 2000, 1999, and
1997 and for the years ended December 31, 2001, 2000 and 1997, the period from
January 1, 1999 to December 7, 1999, and the period from December 8, 1999 to
December 31, 1999 was derived from the Company's consolidated financial
statements audited by Arthur Andersen LLP. The selected consolidated financial
data as of December 31, 1998 and for the year then ended was derived from the
consolidated financial statements audited by a different firm. The audited
consolidated financial statements as of December 31, 2001 and 2000 and for the
years ended December 31, 2001 and 2000, for the period January 1, 1999 to
December 7, 1999 and for the period December 8, 1999 through December 31, 1999
are included elsewhere in this filing. The audited consolidated financial
statements as of December 31, 1999, 1998 and 1997 and for the years ended
December 31, 1998 and 1997 are not

21

included in this filing. Historical and pro forma results are not necessarily
indicative of the results to be expected for any future period.

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

(1) In connection with the Company's recapitalization and acquisition of
Cremascoli, the Company recorded inventory step-ups pursuant to Accounting
Principles Board (APB) Opinion 16. This accounting treatment required a
$31.1 million step-up of inventories above manufacturing costs. The step-up
was charged to cost of sales over the following twelve months, reflecting
the estimated period over which the inventory was sold. Cost of sales was
charged $2.0 million in the period from December 8 to December 31, 1999, and
$29.1 million in the year ended December 31, 2000.

(2) Net loss applicable to common stockholders includes preferred stock
dividends of $230,000 for the period from December 8, to December 31, 1999,
preferred stock dividends of $4.4 million and the beneficial conversion
feature of the series C preferred stock of $13.1 million for the year ended
December 31, 2000, and preferred stock dividends of $2.5 million for the
year ended December 31, 2001.

(3) In calculating the pro forma net loss per share, the Company has given
effect to the conversion of all of its outstanding mandatorily redeemable,
convertible preferred stock, plus accrued dividends, into common stock as if
the conversion occurred at the beginning of the respective period.
Therefore, pro forma net loss applicable to common stockholders excludes
preferred stock dividends of $4.4 million and the beneficial conversion
feature of the series C preferred stock of $13.1 million for the year ended
December 31, 2000, and preferred stock dividends of $2.5 million for the
year ended December 31, 2001.

(4) Adjusted EBITDA consists of net loss excluding net interest, taxes,
depreciation, amortization, stock based expenses, and non-cash charges
related to acquired inventory, the in-process research and development
write-off, and the extraordinary loss on early retirement of debt. Adjusted
EBITDA is provided because it is a measure of financial performance commonly
used as an indicator of a company's historical ability to service debt. The
Company has presented Adjusted EBITDA to enhance your understanding of its
operating results. It should not be construed as an alternative to operating
income as an indicator of operating performance. It should also not be
construed as an alternative to cash flows from operating activities as a
measure of liquidity determined in accordance with GAAP. The Company may
calculate Adjusted EBITDA differently from other companies. For further
information, see the Company's consolidated financial statements and related
notes.

23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

We are a global orthopaedic device company specializing in the design,
manufacture and marketing of reconstructive joint devices and bio-orthopaedic
materials. Reconstructive joint devices are used to replace knee, hip and other
joints that have deteriorated through disease or injury. Bio-orthopaedic
materials are used to replace damaged or diseased bone and to stimulate bone
growth. We have been in business for over fifty years and have built a
well-known and respected brand name and strong relationships with orthopaedic
surgeons.

Our corporate headquarters and U.S. operations are located in Arlington,
Tennessee, where we conduct our domestic manufacturing, warehousing, research
and administrative activities. Outside the U.S., we operate manufacturing and
administrative facilities in Toulon, France, research, distribution and
administrative facilities in Milan, Italy and sales and distribution offices in
Canada, Japan and across Europe. Our global distribution system consists of a
sales force of approximately 450 persons that market our products to orthopaedic
surgeons and hospitals. We have approximately 200 exclusive independent
distributors and sales associates in the U.S. and approximately 250 distributors
and sales associates internationally. In addition, we sell our products to
stocking distributors in certain international markets, who resell the products
to third-party customers.

In December 1999, an investment group led by Warburg, Pincus, Equity
Partners, L.P. ("Warburg") acquired majority ownership of our predecessor
company, Wright Medical Technology, Inc., in a transaction that recapitalized
our business. Our recapitalization was accounted for using the purchase method
of accounting and generated intangible assets totaling $34.6 million, of which
$10.0 million was allocated to goodwill. In addition, we recorded a
$24.0 million inventory step-up in accordance with APB 16, "BUSINESS
COMBINATIONS". The step-up was subsequently charged to cost of sales over the
twelve-month period during which these inventories were estimated to be sold,
totaling $2.0 million during the period from December 8 to December 31, 1999 and
$22.0 million during 2000. Also in connection with our recapitalization in 1999,
we recorded a one-time write-off of purchased in-process research and
development costs totaling $11.7 million.

In December 1999, immediately following our recapitalization, we acquired
Cremascoli Ortho Holding, S.A. ("Cremascoli"), an orthopaedic device company
based in Toulon, France. As a result of this acquisition, we enhanced our
product development capabilities, expanded our presence in Europe and extended
our product offerings.

The acquisition, which was accounted for using the purchase method of
accounting, generated intangible assets totaling $26.0 million, of which
$9.3 million was allocated to goodwill. In addition, we recorded an inventory
step-up totaling $7.1 million. The step-up was subsequently charged to cost of
sales over the nine-month period from January 1, 2000 to September 30, 2000,
during which these inventories were estimated to be sold. No in-process research
and development was identified related to this acquisition.

Net sales in our international markets totaled $29.6 million, or
approximately 27% of our total net sales in 1999, $62.6 million, or
approximately 40% of our total net sales in 2000, and $64.9 million, or
approximately 38% of our total net sales in 2001. No single foreign country
accounted for more than 10% of our total net sales during 1999, 2000 or 2001;
however, Italy and France together represented approximately 17% of our total
net sales in 2000 and 16% in 2001.

On July 18, 2001, we completed our initial public offering (the "IPO"),
issuing 7,500,000 shares of voting common stock at $12.50 per share, the net
proceeds of which were $84.8 million after deducting underwriting discounts and
offering expenses. We have used the net proceeds of our initial public offering
to repay debt. Simultaneous with the closing of the offering, all of our
outstanding mandatorily redeemable, convertible preferred stock, plus accrued
dividends, was converted into 19,602,799 shares

24

of common stock. Also in connection with the offering, Warburg converted
approximately $13.1 million of our senior subordinated notes into 1,125,000
shares of non-voting common stock.

In August 2001, we began selling our products in Japan through our newly
formed wholly-owned Japanese subsidiary. We previously marketed our products in
Japan through an independent sales distributor, and have since transitioned to a
direct sales initiative. We view this direct sales initiative as a positive
event in the long-term growth of our international business.

During the mid- and late-1990s, we experienced operating difficulties
resulting from several successive years of flat or declining net sales, an
expense infrastructure that reduced our profit generating capability and debt
service and repayment requirements that became difficult to meet. Following our
December 1999 recapitalization, a new management team was put in place. This new
management team implemented a turnaround strategy that increased our focus and
spending on research and development, significantly raised the efficiency of our
manufacturing processes and improved our sales force productivity. Since then,
we have experienced growth in net sales across our primary product lines,
improved our operating efficiencies and renewed our ability to meet our debt
service and repayment obligations.

NET SALES AND EXPENSE COMPONENTS

NET SALES

We derive our net sales primarily from the sale of reconstructive joint
devices and bio-orthopaedic materials. Our reconstructive joint device net sales
are derived from three primary product lines: knees, hips and extremities. Other
product sales consists of various orthopaedic products not considered to be part
of our knee, hip, extremity or bio-orthopaedic product lines that we
manufactured directly or distributed for others. A substantial majority of our
other product sales consists of products added as a result of our acquisition of
Cremascoli. We anticipate that other product sales will decline in the future,
both in amount and as a percentage of total net sales, as we continue to focus
our resources on our reconstructive joint device and bio-orthopaedic product
lines.

25

Our total net sales were $109.2 million in 1999, $157.6 million in 2000, and
$172.9 million in 2001. The following table sets forth our net sales by product
line for 1999, 2000, and 2001 expressed as a dollar amount and as a percentage
of total net sales:

EXPENSES

COST OF SALES. Cost of sales consists primarily of direct labor, allocated
manufacturing overhead, raw materials and components, royalty expenses
associated with licensing technologies used in our products or processes and
certain other period expenses. Cost of sales and corresponding gross profit
percentages can be expected to fluctuate in future periods depending upon
changes in our product sales mix and prices, distribution channels and
geographies, manufacturing yields, period expenses and levels of production
volume.

Our cost of sales for the period from December 8 to December 31, 1999 and
the year ended December 31, 2000 are not comparable to those of other periods
because (a) under U.S. generally accepted accounting principles, we were
required to step-up our inventories in connection with our recapitalization and
the acquisition of Cremascoli, in the amount of $31.1 million and (b) we changed
our method of accounting for surgical instruments effective December 8, 1999,
which discontinued the practice of charging related expenses to cost of sales.
The following table sets forth our cost of sales expressed as a percentage of
sales for 1999, 2000, and 2001, adjusted to exclude the cost of sales

26

associated with our inventory step-ups and the costs associated with surgical
instruments historically carried in inventories:

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense consists primarily of salaries, sales commissions, royalty expenses
associated with our key surgeons, marketing costs, facility costs, other general
business and administrative expenses and beginning on December 8, 1999
depreciation expense associated with surgical instruments that we loan to
surgeons to use when implanting our products. These surgical instruments are
depreciated over their useful life of 1 to 6 years. We expect that our selling,
general and administrative expenses will increase in absolute dollars in future
periods to the extent that any further growth in net sales drives commissions
and royalties, and as we continue to add infrastructure to support our expected
business growth and public company requirements.

RESEARCH AND DEVELOPMENT. Research and development expense includes costs
associated with the design, development, testing, deployment, enhancement and
regulatory approval of our products. We anticipate that our research and
development expenditures will increase in absolute dollars in future periods as
we continue to increase our investment in product development initiatives;
however, we expect these expenses to be relatively consistent as a historical
percentage of net sales.

AMORTIZATION OF INTANGIBLES. Amortization of intangible assets is primarily
related to our recapitalization and our acquisition of Cremascoli. Intangible
assets consist of goodwill and purchased intangibles principally related to
completed technology, workforce, distribution channels and trademarks. Purchased
intangibles are amortized over periods ranging from three months to 15 years.
Until January 1, 2002, goodwill was amortized on a straight-line basis over
20 years. In accordance with Statement of Financial Accounting Standards (SFAS)
142, "GOODWILL AND OTHER INTANGIBLE ASSETS," after January 1, 2002 we will no
longer amortize goodwill but will evaluate it for impairment upon adoption and
at least annually thereafter.

At December 31, 2000 and 2001, we had net intangible assets totaling
$54.7 million and $48.8 million, respectively. We expect to amortize
approximately $3.2 million in 2002, $3.1 million in 2003, and $3.1 million in
2004. This amortization gives effect to the aforementioned cessation of goodwill
amortization.

STOCK-BASED EXPENSE. Our stock-based expense includes the non-cash
compensation recorded in connection with the issuance of stock options to
employees when the exercise price of the option is less than the deemed fair
value of the stock at the date of grant, the sale of preferred stock to
employees at less than the deemed fair value, and the issuance of stock and
stock options to distributors. Compensation expense related to stock options is
deferred and amortized straight-line over the vesting period of the option,
which is generally four years.

27

We incurred approximately $7.9 million and $4.0 million of stock-based
compensation for the years ended December 31, 2000 and 2001, respectively
related to stock grants, stock option grants and the sale of preferred stock to
employees. We recognized $5.0 million and $2.0 million of this compensation
during 2000 and 2001, respectively. The remainder of the compensation was
deferred, and we expect to recognize $1.7 million in 2002, $1.7 million in 2003,
$1.5 million in 2004 and $230,000 in 2005 as non-cash stock-based expense.

TRANSACTION AND REORGANIZATION. Transaction and reorganization expense
includes one-time costs incurred by our predecessor company in connection with
our recapitalization, and costs incurred by us following our recapitalization
and acquisition of Cremascoli related primarily to employee recruitment and
termination expenses, and subsequent terminations or realignments of
arrangements with various international distributors. During the fourth quarter
of 1999 we incurred expenses totaling $9.9 million related to these events.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. Upon consummation of the
recapitalization, we charged to income approximately $11.7 million, representing
the estimated fair value of purchased in-process research and development, or
IPRD, that had not yet reached technological feasibility and had no alternative
future use. The value was determined by estimating the costs to develop the
purchased IPRD into commercially viable products, estimating the resulting net
cash flows from such projects, and discounting the net cash flows back to their
present values. A discount rate and likelihood of success factor were applied to
each project to take into account the uncertainty surrounding the successful
development and commercialization of the purchased IPRD.

The resulting net cash flows from such projects were based on our
management's best estimates of revenue, cost of sales, research and development
costs, selling, general and administrative costs, and income taxes from such
projects, and the net cash flows reflect the assumptions that would be used by
market participants.

A summary of the projects is as follows:

GUARDIAN-Registered Trademark-( )(S.O.S.-REGISTERED TRADEMARK- PROJECT)

The objective of the Segmented Orthopaedic System, or
S.O.S.-Registered Trademark-, was to develop an adjustable prosthesis to be used
in limb salvage for adolescents.

We expected development efforts to be completed by July 2000 with an
estimated completion cost of $217,000 and projected first year revenues of
$1.9 million. We deemed the technical and commercialization risks to be low
because this product is considered a line extension and some of the products do
not require FDA approval because they are minor modifications to existing
products.

28

Development efforts were completed in May 2000 at a total cost of $63,000
and first year revenues were $346,000. The reduction in first year revenues was
primarily due to the delay in commercialization of the
S.O.S.-Registered Trademark- Adjustable product line. The delay in completion of
this portion of the S.O.S.-Registered Trademark- development project was due to
negotiation efforts with a third-party developer, which have now been completed.
Commercialization of this product was completed in January 2002, and first year
revenues are expected to be $930,000 with no additional development costs
expected to be incurred.

OSTEOSET-REGISTERED TRADEMARK- DERIVATIVES

The objective of these products was to develop bone substitute products to
be used to repair bone defects.

At the date of our recapitalization, we expected development efforts to be
completed by April 2001 with estimated completion costs of $3.6 million and
first year revenues projected at $1.0 million. Although this product must pass
regulatory qualifications, we deemed the technical and commercialization risks
to be moderate.

We are currently pursuing an evaluation and a pre-clinical study. We expect
development efforts to be completed by July 2002 with first year revenues of
$1.0 million. Full commercialization of this product could be delayed pending
the FDA's final conclusion on whether to categorize this product as a tissue or
a device for regulatory clearance purposes.

NEW SHOULDER (OLYMPIA-TM-)

The objective of this project was to develop a product for replacement of
arthritic shoulders and for repairing shoulder fractures.

At the date of the recapitalization, $314,000 had been spent on this project
with additional expenditures of $70,000 anticipated through completion. We
initially expected development efforts to be completed by the end of 2000 with
projected first year revenues of $800,000. We deemed the technical and
commercialization risks to be low because similar competitive products are
already in the market.

Following a successful evaluation period, development was completed in
December 2001 with first year revenue expectations of $1.5 million in 2002.
Revenue expectations have been increased from original estimates primarily due
to customer responses received from our clinical evaluations and field sales
force enthusiasm for the product.

FAT PAD AUGMENTATION MATERIAL

The objective of this product was to develop a product for the treatment and
prevention of certain diabetic foot ulcers.

At the date of our recapitalization, we anticipated a completion date of
January 2003 with estimated completion costs of $170,000 and first year revenues
of $1.5 million in 2005. We deemed the technical and commercialization risks to
be high because this product required certain testing to meet regulatory
approval.

Due to the costly and lengthy process of identifying an appropriate material
and receiving regulatory approval, we terminated this project in May 2001.

STRUCTURAL RESORBABLE BONE GRAFT SUBSTITUTE

We intended this product to be a bone putty product that would provide
structural support to correct bone defects.

29

At the date of our recapitalization, we expected development efforts to be
completed by the end of 2004 with projected first year revenues of $274,000 in
2005 and estimated completion costs of $5.9 million. We deemed the technical and
commercialization risks to be moderate. While this product has to pass certain
regulatory qualifications, we believe the worldwide market for such a new and
innovative product is very large.

We are continuing development efforts on this product. We expect development
efforts to be completed in 2002 with first year revenues of $500,000 expected in
2003.

There were eleven additional projects included in the valuation of purchased
IPRD. In total, these projects represented 19% of the valuation, although none
individually represented more than 6% of the total valuation. These projects
related to a variety of orthopaedic medical device products.

We plan to use our existing cash and operating cash flows to develop the
purchased IPRD related to our recapitalization into commercially viable
products. This development consists primarily of the completion of all planning,
designing, clinical evaluation testing activities and regulatory approvals,
where applicable, that are necessary to establish that a product can be
successfully developed. Bringing the purchased IPRD to market also includes
testing the product for compatibility and interoperability with commercially
viable products.

If these projects are not successfully developed, our revenue may be
adversely affected in future periods. Additionally, the value of other
intangible assets acquired may become impaired. We are continuously monitoring
our development projects. We believe that the assumptions used in the valuation
of purchased IPRD represent a reasonably reliable estimate of the future
benefits attributable to the purchased IPRD. We cannot be certain that actual
results will not deviate from our assumptions in future periods.

INTEREST EXPENSE, NET. Net interest expense prior to December 8, 1999 was
primarily related to debt obligations existing prior to our recapitalization.
Thereafter, interest expense consists primarily of interest associated with
borrowings outstanding under our senior credit facilities and our subordinated
notes, offset partially by interest income on invested cash balances. Interest
expense includes $30,000 in the period from December 8 to December 31, 1999,
$457,000 in 2000, and $522,000 in 2001, of non-cash expense associated with the
amortization of deferred financing costs resulting from the origination of our
senior credit facilities. During the third quarter of 2001, we repaid amounts
outstanding under our Euro-denominated senior credit facility, and renegotiated
the terms of our dollar-denominated senior credit facility.

We used the net proceeds from our IPO completed on July 18, 2001, to repay
our senior subordinated notes and reduce our outstanding bank borrowings. As a
result, we expect that net interest expense will decrease in periods following
our IPO as compared to prior periods.

OTHER (INCOME)/EXPENSE, NET. Other (income)/expense consists primarily of
net gains and losses resulting from foreign currency fluctuations. We expect
other expense and income to fluctuate in future periods depending upon our
relative exposures to foreign currency risk and ultimate fluctuations in
exchange rates.

PROVISION/(BENEFIT) FOR INCOME TAXES. Our payment of income taxes has
generally been limited to earnings generated by certain of our foreign
operations, principally in Europe. At December 31, 2001, we have net operating
loss carryforwards of approximately $74.7 million domestically, which expire in
2009 through 2021, and $17.6 million internationally, which expire in 2002
through 2010. Generally, we are limited in the amount of net operating loss
carryforwards which can be utilized in any given year. Additionally, we have
domestic general business credit carryforwards of approximately $1.2 million,
which expire in 2007 through 2016.

30

We have provided a valuation allowance against all of our net deferred tax
assets for United States federal income tax purposes and a portion of our
deferred tax assets for foreign income tax purposes because, given our history
of operating losses, our ability to recover these assets is uncertain. We will
continue to reassess the realization of our deferred tax assets and adjust the
related valuation allowance as necessary.

EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT. In connection with our IPO,
we repaid amounts outstanding under our Euro-denominated senior credit facility,
and renegotiated the terms of our dollar-denominated senior credit facility.
Accordingly, we incurred an extraordinary non-cash charge totaling approximately
$1.6 million during the third quarter of 2001 principally related to expensing
unamortized loan costs relating to that debt. We expect the amortization of
deferred financing costs to approximate $255,000 annually over the remaining
term of our new senior credit facility.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain financial
data expressed as a dollar amount (in thousands) and as a percentage of net
sales:

PREDECESSOR COMPANY CONSOLIDATED WRIGHT MEDICAL GROUP, INC.
---------------------- ----------------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1 DECEMBER 8
TO TO YEAR ENDED YEAR ENDED
DECEMBER 7, % OF DECEMBER 31, % OF DECEMBER 31, % OF DECEMBER 31,
1999 SALES 1999 SALES 2000 SALES 2001
----------- -------- ------------ -------- ------------ -------- ------------

Net sales..................... $101,194 100.0% $ 7,976 100.0% $157,552 100.0% $172,921
Cost of sales................. 44,862 44.3 4,997 62.7 80,370 51.0 51,351
-------- ----- -------- ------ -------- ----- --------
Gross profit.................. 56,332 55.7 2,979 37.3 77,182 49.0 121,570
Operating expenses:
Selling, general and
administrative............ 47,547 47.0 4,837 60.6 82,813 52.6 93,945
Research and development.... 5,857 5.8 508 6.4 8,390 5.3 10,108
Amortization of intangible
assets.................... 2,334 2.3 466 5.8 5,586 3.5 5,349
Stock-based expense......... 523 0.5 -- -- 5,029 3.2 1,996
Transaction and
reorganization............ 6,525 6.5 3,385 42.4 -- -- --
Acquired in-process research
and development costs..... -- -- 11,731 147.1 -- -- --
-------- ----- -------- ------ -------- ----- --------
Total operating expenses...... 62,786 62.1 20,927 262.3 101,818 64.6 111,398
-------- ----- -------- ------ -------- ----- --------
Income (loss) from
operations.................. (6,454) (6.4) (17,948) (225.0) (24,636) (15.6) 10,172
Interest expense, net......... 13,196 13.0 1,909 23.9 12,446 7.9 7,809
Other expense, net............ 616 0.6 67 0.9 870 0.6 685
-------- ----- -------- ------ -------- ----- --------
Income (loss) before income
tax and extraordinary
item........................ (20,266) (20.0) (19,924) (249.8) (37,952) (24.1) 1,678
Provision (benefit) for income
taxes....................... 190 0.2 (25) (0.3) 1,541 1.0 1,574
-------- ----- -------- ------ -------- ----- --------
Income (loss) before
extraordinary item.......... $(20,456) (20.2)% $(19,899) (249.5)% $(39,493) (25.1)% $ 104
======== ===== ======== ====== ======== ===== ========

--------
% OF
SALES
--------
Net sales..................... 100.0%
Cost of sales................. 29.7
-----
Gross profit.................. 70.3
Operating expenses:
Selling, general and
administrative............ 54.3
Research and development.... 5.8
Amortization of intangible
assets.................... 3.1
Stock-based expense......... 1.2
Transaction and
reorganization............ --
Acquired in-process research
and development costs..... --
-----
Total operating expenses...... 64.4
-----
Income (loss) from
operations.................. 5.9
Interest expense, net......... 4.5
Other expense, net............ 0.4
-----
Income (loss) before income
tax and extraordinary
item........................ 1.0
Provision (benefit) for income
taxes....................... 0.9
-----
Income (loss) before
extraordinary item.......... 0.0%
=====

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000

NET SALES. Net sales totaled $172.9 million for 2001, compared to
$157.6 million for 2000, representing an increase of $15.3 million, or 10%. The
increase resulted primarily from unit sales growth in our knee, hip, extremity
and bio-orthopaedic product lines. Unfavorable foreign exchange rates negatively
impacted net sales by approximately 1% during 2001 as compared to 2000.

31

Knee sales increased $5.1 million, or 8%, in 2001 compared to 2000 due to
the continued growth of our ADVANCE-Registered Trademark- knee system which was
partially offset by decreased sales of certain of our more mature knee products.
Extremity sales increased $3.7 million, or 21%, in 2001 compared to 2000 due to
the introduction of our new LOCON-T-TM-, EVOLVE-Registered Trademark- and
NEWDEAL-Registered Trademark- products and continued sales growth for our core
extremity products. Bio-orthopaedic product sales increased $5.8 million, or
28%, and hip sales increased $611,000, or 1%, for 2001 when compared to 2000.
The substantial majority of the increase in bio-orthopaedic product sales was
due to the continued success of our ALLOMATRIX-TM- line of bone graft substitute
products and the OSTEOSET-Registered Trademark- Bone Void Filler Kits. Continued
growth of our CONSERVE-Registered Trademark- and PROFEMUR-TM- hip systems
coupled with the second quarter 2001 introduction of our
LINEAGE-Registered Trademark- hip system was offset by reduced levels of
block-purchase sales, or large volume contractual agreements, for other hip
products in certain international markets during 2001 as compared to 2000.

Domestic net sales totaled $108.0 million in 2001, representing 62% of our
total net sales compared to $95.0 million in 2000, or 60% of total net sales.
International sales totaled $64.9 million in 2001, net of a negative currency
impact of approximately $1.5 million, and $62.6 million in 2000.

COST OF SALES. Cost of sales as a percentage of net sales decreased from
51% in 2000 to 30% in 2001. Cost of sales was negatively impacted during the
2000 period by $29.1 million of expense associated with the inventory step-ups
related to our recapitalization and the Cremascoli acquisition. Excluding this
non-cash expense, cost of sales as a percentage of sales decreased from 33%
during 2000 to 30% in 2001. This decrease was primarily due to improved margins
resulting from efficiency gains and from moderate shifts in sales composition to
the United States market and to higher margin product lines, such as
bio-orthopaedics.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense, exclusive of stock-based expense, increased $11.1 million, or 13%, from
$82.8 million in 2000, to $93.9 million in 2001. The increase was primarily
attributable to increased commissions and royalties resulting from domestic
sales growth, infrastructure additions to support our Japanese direct sales
initiative, costs associated with senior management additions, and expenses
related to enhancing our information systems and administrative capabilities.
Including stock-based expense, selling, general and administrative expense
increased $8.1 million or 9% from $87.7 million in 2000 to $95.8 million in
2001.

RESEARCH AND DEVELOPMENT. Research and development expenses, exclusive of
stock-based expense, increased $1.7 million, or 20%, from $8.4 million in 2000
to $10.1 million in 2001. The majority of this increase was due to additional
personnel costs and professional fees associated with increased product
development efforts in the 2001 period. As a percentage of historical net sales,
research and development expenses remained relatively constant, within the 5% to
6% range for both years. Including stock-based expense, research and development
expense increased $1.7 million or 20% from $8.5 million in 2000 to
$10.2 million in 2001.

AMORTIZATION OF INTANGIBLE ASSETS. Non-cash charges associated with the
amortization of intangible assets decreased $237,000, or 4%, from $5.6 million
in 2000 to $5.3 million in 2001. Amortization for both the 2000 and 2001 periods
was primarily attributable to intangible assets resulting from our
recapitalization and subsequent acquisition of Cremascoli in December 1999. The
decrease resulted from the acquisition of some shorter-lived intangible assets
acquired in 1999 which were fully amortized prior to the beginning of 2001.

STOCK-BASED EXPENSE. Stock-based expense totaled $2.0 million in 2001,
consisting of non-cash charges of $1.6 million in connection with the
amortization of deferred compensation associated with employee stock option
grants issued below fair market value, $315,000 resulting from the sale of the
Company's equity securities to employees below fair market value and
approximately $100,000 of other stock-based expenses. Stock-based expense
totaled $5.0 million in 2000, consisting of non-cash charges

32

of $3.8 million resulting from the sale of equity securities below fair market
value, $907,000 for compensation associated with equity incentives granted to
certain consultants, and $298,000 in amortization of deferred compensation
associated with employee stock option grants deemed to be issued below fair
market value.

INTEREST EXPENSE, NET. Interest expense, net totaled $7.8 million and
$12.4 million in 2001 and 2000, respectively. The significant decrease in net
interest expense is the result of our use of the proceeds from our IPO to repay
our senior subordinated notes and to reduce our outstanding bank borrowings.
Additionally, we were able to negotiate more favorable terms with regards to the
interest rate charged on borrowings under our new senior credit facility. (See
discussion in "--Liquidity and Capital Resources").

OTHER EXPENSE, NET. Other expense, net totaled $685,000 and $870,000 in
2001 and 2000, respectively, and consisted primarily of net losses resulting
from foreign currency fluctuations.

PROVISION FOR INCOME TAXES. We recorded a tax provision of $1.6 million and
$1.5 million in 2001 and 2000, respectively. The tax provision in 2001 resulted
from taxes incurred related to earnings generated by some of our international
operations and changes to the valuation allowance on foreign deferred tax
assets. The tax provision in 2000 primarily resulted from taxes incurred related
to earnings generated by some of our international operations, principally in
Europe. The differences between our effective tax rate and applicable statutory
rates are primarily due to nondeductible goodwill amortization and changes in
the valuation allowance related to our deferred tax assets.

EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT. As a result of our IPO, we
repaid amounts outstanding under our Euro-denominated senior credit facility,
and renegotiated the terms of our dollar-denominated senior credit facility.
Accordingly, the Company incurred an extraordinary non-cash charge totaling
approximately $1.6 million during the third quarter of 2001 principally related
to expensing unamortized loan costs relating to that debt.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED
DECEMBER 31, 1999 (INCLUDING THE PERIODS FROM JANUARY 1 TO DECEMBER 7, 1999 AND
FROM DECEMBER 8 TO DECEMBER 31, 1999)

NET SALES. Net sales totaled $157.6 million for 2000, compared to
$109.2 million for 1999, representing an increase of $48.4 million, or 44%. Of
this increase, approximately $34.2 million, or 31%, is attributable to the
inclusion of a full year of net sales of Cremascoli. The remainder of the
increase, totaling $14.2 million, or 13%, resulted primarily from unit sales
growth across our knee, hip, extremity and bio-orthopaedic product lines.
Unfavorable exchange rates negatively impacted net sales by approximately 4%
during 2000.

Knee sales increased $6.9 million, or 12%, in 2000 compared to 1999, of
which $8.1 million was attributable to increased knee sales related to the
Cremascoli acquisition, offset by a decrease of $1.2 million in sales of
existing knee products. A decrease in sales of certain of our more mature knee
systems was offset by a significant increase in our
ADVANCE-Registered Trademark- knee system. Hip sales increased $22.5 million, or
88%, in 2000 compared to 1999, of which $19.4 million was attributable to a full
year of net sales by Cremascoli. Increased sales of
PERFECTA-Registered Trademark- and CONSERVE-Registered Trademark- hip products
accounted for the substantial remainder of this growth. Extremity sales
increased $2.7 million, or 18%, in 2000 compared to 1999, and bio-orthopaedic
products increased $12.7 million, or 154%, in 2000 compared to 1999. The
substantial majority of the increase in bio-orthopaedic product sales was due to
ALLOMATRIX-TM- injectable putty, which was launched in late 1999.

Domestic net sales totaled $95.0 million in 2000, representing 60% of our
total net sales. International sales totaled $62.6 million in 2000, net of a
negative currency impact of $6.3 million.

33

COST OF SALES. Cost of sales as a percentage of net sales increased from
44% in the period from January 1 to December 7, 1999 to 63% during the period
December 8 to December 31, 1999 and decreased to 51% in 2000. Cost of sales was
negatively impacted beginning in December 1999 due to inventory step-ups
totaling $31.1 million related to our recapitalization and subsequent
acquisition of Cremascoli. These step-ups were taken as non-cash charges to cost
of sales over twelve- and nine-month periods, respectively, beginning in
December 1999, representing an estimate of the period over which such
inventories were sold. Excluding the charges associated with our inventory
revaluations and the costs associated with surgical instruments prior to our
change in accounting method, cost of sales as a percentage of sales decreased
from 41% in 1999 to 33% in 2000, representing a net improvement in gross margin
of 8% of net sales. Improved manufacturing efficiencies, resulting principally
from our lean manufacturing initiative, improved gross margin by 1% of net
sales, while shifts in our sales composition toward higher-margin product lines,
principally bio-orthopaedics, improved gross margin by approximately 6% of net
sales. Lean manufacturing initiatives refer to the process of identifying
manufacturing operations that add value to the customer and eliminating those
that do not. This results in a product that is manufactured with less human
effort, equipment, time and space. The substantial remainder of our gross margin
improvement was due to slightly more favorable net pricing changes within our
product lines.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense, excluding stock-based expense, increased $30.4 million, or 58%, from
$52.4 million in 1999 to $82.8 million in 2000. Approximately $18.7 million of
this increase was attributable to a full year of expense for Cremascoli and
$4.6 million of the remaining increase was due to the increased depreciation
expense resulting from our change in accounting method in 2000 for surgical
instruments that we loan to surgeons. The remaining increase was attributable
primarily to increased commissions and royalties resulting from net sales
growth. As a percentage of net sales, selling, general and administrative
expenses increased from 48% in 1999 to 53% in 2000. Excluding the instrument
depreciation, selling, general and administrative expenses as a percentage of
net sales, increased slightly from 48% in 1999 to 50% in 2000. Including
stock-based expense, selling, general and administrative expense increased
$34.9 million, or 66%, from $52.8 million in 1999 to $87.7 million in 2000. Of
this increase, $4.4 million was due to increased levels of stock-based expense.

RESEARCH AND DEVELOPMENT. Research and development expenses, excluding
stock-based expense, increased $2.0 million, or 32%, from $6.4 million in 1999
to $8.4 million in 2000. Approximately $1.1 million of this increase was due to
a full year of expense for Cremascoli. The remaining increase of $900,000 was
due to additional personnel costs and professional fees associated with product
development efforts during 2000. Including stock-based expense, research and
development expenses increased $2.1 million, or 32%, from $6.4 million in 1999
to $8.5 million in 2000. Of this increase, $61,000 was due to increased levels
of stock-based expense.

AMORTIZATION OF INTANGIBLES AND ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
COSTS. Non-cash charges associated with the amortization of intangible assets
increased by $2.8 million, or 100%, from $2.8 million in 1999 to $5.6 million in
2000. Amortization during 2000 was attributable exclusively to intangible assets
resulting from our recapitalization and subsequent acquisition of Cremascoli.
Amounts for 1999 included amortization totaling $2.3 million related to the
intangible assets of our predecessor company prior to our recapitalization and
$466,000 resulting from our recapitalization and acquisition of Cremascoli.
Acquired in-process research and development expense totaled $11.7 million in
1999 and related entirely to our recapitalization.

STOCK-BASED EXPENSE. Stock-based expense totaled $5.0 million in 2000,
consisting of non-cash charges of $298,000 in connection with the amortization
of deferred compensation associated with employee stock option grants issued
below fair market value, $3.8 million resulting from the sale of equity
securities below fair market value and $907,000 in connection with the
amortization of deferred compensation associated with equity incentives granted
to certain consultants. Stock-based expense was not significant in 1999.

34

TRANSACTION AND REORGANIZATION. Our predecessor company recorded
approximately $6.5 million of transaction and reorganization expenses during the
period from January 1, 1999 to December 7, 1999. These costs consisted primarily
of $4.8 million of investment banking, consulting and advisory fees incurred by
our predecessor company to identify and pursue financing alternatives leading up
to our December 1999 recapitalization by Warburg Pincus and $1.3 million of
management compensation costs where no ongoing service obligations existed.

We recorded approximately $3.4 million of transaction and reorganization
expenses during the period from December 8, 1999 to December 31, 1999. These
amounts were largely attributable to $1.9 million of distributor close out costs
incurred to eliminate duplicate distributors upon integrating the Wright and
Cremascoli distribution channels, and $1.1 million incurred by us for
recruitment and employee termination expenses based on an assessment of senior
management personnel needs following our recapitalization and the Cremascoli
acquisition.

INTEREST EXPENSE, NET. Interest expense, net totaled $12.4 million in 2000
and $15.1 million in 1999. Interest expense, net during 2000 consisted entirely
of interest associated with borrowings outstanding under our senior credit
facilities, our subordinated notes and a non-cash expense for the amortization
of deferred financing costs resulting from the origination of our senior credit
facilities, offset partially by interest income on invested cash balances.
Amounts for 1999 primarily relate to debt obligations that existed prior to our
recapitalization.

OTHER EXPENSE, NET. Other expense, net totaled $870,000 in 2000 and
$683,000 in 1999. For each of these periods, other expense, net consisted
primarily of net losses resulting from foreign currency fluctuations.

PROVISION (BENEFIT) FOR INCOME TAXES. We recorded a tax benefit of $25,000
during the period from December 8 to December 31, 1999 and a tax provision of
$1.5 million for the year ended December 31, 2000. The tax provision in 2000
primarily resulted from taxes incurred internationally, principally related to
Cremascoli. The primary differences between our income tax provision (benefit)
and that which would have resulted based upon the applicable statutory rates was
the impact of the write-off of acquired in process research and development in
1999 and the impact of changes in the valuation allowance in both 1999 and 2000.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following table sets forth our results for the year ended December 31,
1999 on a pro forma basis as if both our December 1999 recapitalization and our
acquisition of Cremascoli occurred on January 1, 1999. The pro forma financial
information does not purport to be indicative of what would have occurred had
the recapitalization and acquisition been made as of January 1, 1999 or the
results that may occur in the future. Pro forma adjustments included reducing
the 1999 cost of sales by

35

$2.0 million for inventory step-up charges and the elimination of the
$11.7 million expense in 1999 related to the one-time write-off of acquired
in-process research and development.

QUARTERLY RESULTS OF OPERATIONS

The following table presents a summary of our unaudited quarterly operating
results for each of the four quarters in 2000 and 2001, respectively. We derived
this information from unaudited interim financial statements that, in the
opinion of management, have been prepared on a basis consistent with the
financial statements contained elsewhere in this filing and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of such information when read in

36

conjunction with our audited financial statements and related notes. The
operating results for any quarter are not necessarily indicative of results for
any future period.

SEASONALITY

Our net sales are subject to seasonality. Primarily because of the European
holiday schedule during the summer months, we traditionally experience lower
sales volumes in the summer months than throughout the rest of the year.

RELATED PARTY TRANSACTIONS

We compensate each of our non-employee and non-stockholder representative
directors $12,000 per year. Non-employee directors are directors who are neither
our employees nor representatives of one of our stockholders. We compensate the
Chairman of our audit committee an additional $18,000 per year and the Chairman
of our board of directors an additional $38,000 per year. In addition, we
reimburse each member of our board of directors for out-of-pocket expenses
incurred in connection with attending our board meetings. We do not compensate
employee directors for board meeting attendance or activities.

37

LIQUIDITY AND CAPITAL RESOURCES

In December 1999, an investment group led by Warburg Pincus acquired our
predecessor company in a recapitalization that provided us with proceeds from
new equity and subordinated debt issuances totaling $70.0 million and advances
from a new senior credit facility totaling $60.0 million. Together, these funds
were used to provide us with working capital for operations, to retire
then-outstanding debt obligations and accrued interest totaling $110.0 million,
as partial consideration for the acquisition of the former stockholders' equity
interests for $9.2 million, to pay transaction and reorganization costs of
$9.9 million and to pay acquisition costs of $2.9 million.

We financed our acquisition of Cremascoli by issuing equity and subordinated
debt in exchange for cash proceeds totaling $32.0 million and by adding a second
senior credit facility to provide additional advances totaling $17.7 million.
Subsequently, we issued additional equity and subordinated debt in exchange for
cash proceeds totaling $11.5 million during 2000 and $250,000 during 2001.

On July 18, 2001 we completed our IPO issuing 7,500,000 shares of voting
common stock at $12.50 per share, the net proceeds of which were $84.8 million
after deducting underwriting discounts and offering expenses. We have used the
net proceeds of our initial public offering to retire our subordinated notes
plus accrued interest, totaling $39.4 million, all of our Euro-denominated
senior credit facility plus interest, totaling approximately $14.0 million, and
approximately $31.4 million of our dollar-denominated senior credit facility.
Simultaneous with the closing of the IPO, all of our outstanding mandatorily
redeemable, convertible preferred stock, plus accrued dividends, was converted
into 19,602,799 shares of common stock. Also in connection with the IPO, the
remaining senior subordinated notes totaling approximately $13.1 million
aggregate principal amount, which were held by Warburg Pincus, were converted
into 1,125,000 shares of non-voting common stock.

On August 1, 2001, we entered into a new five-year senior credit facility
with a syndicate of commercial banks on more favorable terms than our prior
senior credit facilities. The new senior credit facility consists of
$20 million in term loans and an unused revolving loan facility of up to
$60 million. Upon entering into the new senior credit facility, we used
$20 million in term loan proceeds from the new facility and existing cash
balances to repay all remaining amounts outstanding plus accrued interest,
totaling approximately $22.9 million, under our previous dollar-denominated
senior credit facility. Thus, following our IPO, the use of proceeds and related
transactions as described above, we have approximately $20 million of debt
outstanding, excluding capitalized lease obligations.

Borrowings under the new senior credit facility are guaranteed by all of our
subsidiaries and collateralized by all of the assets of Wright Medical
Technology, Inc., our wholly-owned subsidiary, and our other domestic
subsidiaries. The new credit facility contains customary covenants including,
among other things, restrictions on our ability to pay cash dividends, prepay
debt, incur additional debt and sell assets. The new credit facility also
requires us to meet certain financial tests, including a consolidated leverage
(or debt-to-equity) ratio test and a consolidated fixed charge coverage ratio
test. At our option, borrowings under the new credit facility bear interest
either at a rate equal to a fixed base rate plus a spread of .75% to 1.25% or at
a rate equal to an adjusted LIBOR plus a spread of 1.75% to 2.25%, depending on
our consolidated leverage ratio.

38

At December 31, 2001 we had contractual cash obligations and commercial
commitments as follows:

PAYMENTS DUE BY PERIOD
----------------------------------------------------
LESS
THAN 1-3 4-5 AFTER
TOTAL 1 YEAR YEARS YEARS 5 YEARS
-------- -------- -------- -------- --------

Long-term debt.................................. $20,000 $ 2,750 $ 8,500 $ 8,750 $ --
Capital lease obligations....................... 4,212 1,354 2,287 425 146
Operating leases................................ 6,726 2,684 3,299 585 158
Repurchase obligations.......................... 2,588 2,588 -- -- --
Other long-term obligations..................... 4,133 1,752 1,906 475 --
------- ------- ------- ------- ----
Total contractual cash obligations.............. $37,659 $11,128 $15,992 $10,235 $304
======= ======= ======= ======= ====

Our repurchase obligations consist of payments we are required to make to
repurchase certain of our inventory owned by two stocking distributors whose
distribution agreements are expiring and will not be renewed. Revenue related to
this inventory has been appropriately deferred in accordance with SAB 101,
"REVENUE RECOGNITION IN FINANCIAL STATEMENTS".

At December 31, 2001 we had cash and equivalents totaling approximately
$2.8 million, working capital totaling $47.5 million and availability under
committed credit facilities, after considering outstanding letters of credit,
totaling $57.4 million. We generated approximately $800,000 of cash in operating
activities during the year ended December 31, 2001 compared to $18.2 million of
cash generated by operating activities during the year ended December 31, 2000.
However, operating cash flows for the year ended December 31, 2001 were
negatively affected by the payment of approximately $7.0 million in accrued
interest on the senior subordinated notes paid off as a result of our initial
public offering, and $4.0 million used in an intellectual property license
settlement as described further in Note 15 to our consolidated financial
statements. Additionally, in anticipation of new product launches during the
first quarter of 2002, we increased our balance of inventory on hand at
December 31, 2001, resulting in a negative impact on cash generated from
operating activities in 2001 when compared to 2000 of approximately
$3.3 million. Cash used in operating activities totaled $13.8 million in 1999,
reflecting the negative impact of one-time transaction and reorganization costs
totaling $9.9 million related to our recapitalization, our acquisition of
Cremascoli and the termination or modification of certain international
distribution arrangements.

Capital expenditures totaled approximately $16.8 million in 2001,
$14.1 million in 2000, and $2.2 million for the full year in 1999. Historically,
our capital expenditures have consisted primarily of purchased manufacturing
equipment, research and testing equipment, computer systems, office furniture
and equipment, and surgical instruments. We expect to incur capital expenditures
of approximately $19.0 million in total for 2002, approximately $3.0 million of
which we anticipate will be used for the implementation of a new enterprise
computer system and $16.0 million of which we anticipate will be used for
routine recurring capital expenditures, including surgical instruments.

In January 2002, we received an interim award of $4.2 million in a
commercial arbitration proceeding with a former business services provider of
our predecessor company. In addition to the $4.2 million, we have filed a motion
with the arbitration panel seeking reimbursement of legal fees, costs and
expenses. We are awaiting a ruling on our motion and a final award. We have to
date not recorded any income with respect to this matter in our statement of
operations.

In early March 2002, we anticipate completing our follow-on public offering
for 6.0 million shares, not including its over-allotment option. Of the
6.0 million shares, 3.0 million of the shares will be offered by the Company,
and the remaining 3.0 million shares will be offered by certain of the Company's
stockholders. We will not receive any proceeds from the sale of its common stock
to the public by the selling stockholders.

39

We plan to use the net proceeds of the follow-on offering for general
corporate purposes, including to fund working capital, expansion of our current
product offerings through research and development, and acquisitions of
technologies, products and companies. We have no present understandings,
commitments or agreements with respect to any acquisitions. We anticipate our
spending on research and development to remain consistent as a percentage of net
sales with our past levels of spending. Pending these uses, we intend to invest
the net proceeds of the offering in short-term, investment-grade securities.

Although it is difficult for us to predict future liquidity requirements, we
believe that our current cash balances, our existing credit lines and other
available sources of liquidity, and expected cash flows from our operating
activities, will be sufficient for the foreseeable future to fund our working
capital requirements and operations, permit anticipated capital expenditures and
make required payments of principal and interest on our debt.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements. Certain of our accounting policies
require the application of significant judgment by management in selecting the
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty. These
judgments are 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. Our significant accounting policies include:

SALES RETURNS AND ALLOWANCES FOR DOUBTFUL ACCOUNTS. We make estimates of
potential future product returns related to current period product revenues. In
doing so, we analyze historical returns, current economic trends, and changes in
customer demand and acceptance of our products when evaluating the adequacy of
our sales return reserve. Material differences may result in the amount and
timing of our revenue for any period if we made different judgments or utilized
different estimates. Similarly, we estimate the uncollectibility of our accounts
receivables. We specifically analyze our accounts receivable, historical bad
debts, customer concentrations, customer credit-worthiness, and current economic
trends, when evaluating the adequacy of our allowance for doubtful accounts. Our
accounts receivable balance was $32.5 million and $27.4 million, net of
allowance for doubtful accounts, at December 31, 2001 and 2000, respectively.

EXCESS AND OBSOLETE INVENTORIES. We value our inventory at the lower of the
actual cost to purchase and/or manufacture the inventory or its net realizable
value. We regularly review inventory quantities on hand and record a provision
for excess and obsolete inventory based primarily on our estimated forecast of
product demand and production requirements for the next twenty-four months. A
significant increase in the demand for our products could result in a decrease
in the amount of excess inventory on hand while a significant decrease in demand
could result in an increase in the amount of excess inventory quantities on
hand. Additionally, our industry is characterized by regular new product
development that could result in an increase in the amount of obsolete inventory
quantities on hand due to cannibalization of existing products. Also, our
estimates of future product demand may prove to be inaccurate, in which case we
may have understated or overstated the provision required for excess and
obsolete inventory. In the future, if our inventory is determined to be
overvalued, we would be required to recognize additional cost of goods sold at
the time of such determination. Likewise, if our inventory is determined to be
undervalued, we may have over-reported our costs of goods sold in previous
periods and would be required to recognize additional gross profit at the time
of sale. Therefore, although we make every effort to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a significant impact on the
value of our inventory and our reported operating results. At December 31, 2001
and 2000, our inventory balance was $41.9 million and $37.9 million,
respectively.

40

PRODUCT LIABILITY CLAIMS. From time to time, claims arise involving the use
of our products. We make provisions for claims specifically identified for which
we believe the likelihood of an unfavorable outcome is probable and estimable.
We have recorded at least the minimum estimated liability related to those
claims where there is a range of loss. Because of the uncertainties related to
the likelihood and amount of loss on any other remaining pending claims, we are
unable to make a reasonable estimate of the liability that could result from an
unfavorable outcome of those claims. As additional information becomes
available, we assess the potential liability related to our pending claims and
revise our estimates. Future revisions in our estimates of the potential
liability could materially impact our results of operation and financial
position. We maintain insurance coverage that limits the severity of any single
claim as well as total amounts incurred per policy year, and we believe our
insurance coverage is adequate. We make every effort to use the best information
available to us in determining the level of product liability reserves and we
believe our reserves are adequate.

ACCOUNTING FOR INCOME TAXES. As part of the process of preparing our
consolidated financial statements we are required to determine our income taxes
in each of the jurisdictions in which we operate. This process involves
estimating our actual current tax expense together with assessing temporary
differences resulting from differing recognition of items for income tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and, to the extent we believe that recovery is not likely,
we must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must reflect this increase
as an expense within the tax provision in the statement of operations.

Management's judgment is required in determining our provision for income
taxes, our deferred tax assets and liabilities and any valuation allowance
recorded against our net deferred tax assets. We have recorded a valuation
allowance of $41.8 million and $40.4 million as of December 31, 2001 and 2000,
respectively, due to uncertainties related to our ability to utilize, before
expiration, some of our deferred tax assets, primarily consisting of the carry
forward of certain net operating losses and general business tax credits. The
valuation allowance is based on our estimates of taxable income by jurisdiction
in which we operate and the period over which our deferred tax assets will be
recoverable. In the event that actual results differ from these estimates or we
adjust these estimates in future periods we may need to increase or decrease our
valuation allowance which could materially impact our financial position and
results of operations. $24.8 million of our valuation allowance was recorded
during our recapitalization. To the extent that this portion of the valuation
allowance is decreased, it will not result in a benefit to the tax provision,
but will first reduce goodwill and then other intangible assets. As of
December 31, 2001, we had a net deferred tax liability of $1.0 million. As of
December 31, 2000, we had a net deferred tax asset of $320,000.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On June 30, 2001, the Financial Accounting Standards Board ("FASB") issued
two new pronouncements: Statement of Financial Accounting Standards ("SFAS")
141, "BUSINESS COMBINATIONS", and SFAS 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS". The two statements modify the method of accounting for business
combinations initiated after June 30, 2001 and address the accounting for
intangible assets. SFAS 141 is effective immediately and SFAS 142 became
effective for the Company on January 1, 2002. Upon adoption of SFAS 142, we will
no longer amortize goodwill, but will evaluate it for impairment at least
annually. Additionally, in accordance with SFAS 142, we have reviewed the
classification of our intangible assets and have determined that the net book
value of our workforce intangible asset at December 31, 2001, net of associated
deferred tax liabilities, of $2.0 million, should be reclassified into goodwill
effective January 1, 2002. Because goodwill will not be amortized in 2002, we
expect our amortization of intangible assets to be approximately $2.0 million
less in 2002 than it

41

would have been had SFAS 142 not been issued. During January 2002 we engaged an
independent third party to determine the fair value of our reporting units as
defined by SFAS 142. Because this third party appraisal is not yet final, we are
unable to determine the impact of adopting SFAS 142, if any. However, we do not
believe that we will incur a goodwill impairment charge associated with the
adoption of this accounting principle.

In July and August 2001, the FASB issued SFAS 143, "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS", and SFAS 144, "ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS." SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made.
SFAS 144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of. We implemented
SFAS 144 on January 1, 2002 with no material impact on our financial position,
results of operations, or cash flows. We are required to implement SFAS 143 as
of January 1, 2003. We believe the adoption of SFAS 143 will not have a material
impact on our financial position, results of operations, or cash flows.

On January 1, 2001, we adopted SFAS 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" as amended by SFAS 138, which establishes
accounting and reporting standards that require all derivative instruments to be
recorded on the balance sheet as either an asset or liability and measured at
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. We have implemented a risk management policy to assist in managing our
exposure to foreign currency fluctuations. During 2001 and 2000, our principal
derivative instruments represented certain foreign currency contracts
denominated in British pounds sterling to manage currency fluctuations on
intercompany sales between certain Cremascoli subsidiaries. As these contracts
are not specifically designated as hedges, the change in value is recognized in
the accompanying consolidated statement of operations. For the year ended
December 31, 2001 and 2000, we recorded $146,000 and $154,000, respectively, in
gains on these foreign currency contracts. These contracts did not exist prior
to 2000 and, thus, had no impact on our or our predecessor company's operations.
At December 31, 2001, foreign currency futures contracts with an aggregate
notional amount of L900,000 ($1.3 million) had a nominal fair market value. At
December 31, 2000, foreign currency futures contracts with an aggregate notional
amount of L5.0 million ($7.4 million) had a fair market value of $267,000 at the
adoption date.

FACTORS AFFECTING FUTURE OPERATING RESULTS

In addition to the factors described above in this discussion and analysis,
our future financial results could vary from period to period due to a variety
of causes, including expenditures and timing relating to acquisition and
integration of businesses or products, the introduction of new products by us or
our competitors, changes in the treatment practices of our surgeon customers,
changes in the costs of manufacturing our products, supply interruptions, the
availability and cost of raw materials, our mix of products sold, changes in our
marketing and sales expenditures, changes affecting our methods of distributing
products, market acceptance of our products, competitive pricing pressures,
changes in regulations affecting our business, general economic and industry
conditions that affect customer demand, our level of research and development
activities, changes in our administrative infrastructure, foreign currency
fluctuations, changes in assets and liabilities subject to interest rate
variability and changes in related interest rates, and the effect of domestic
and international income taxes and the utilization of related net operating loss
carryforwards.

INFLATION

We do not believe that inflation has had a material effect on our results of
operations in recent years and periods. There can be no assurance, however, that
our business will not be adversely affected by inflation in the future.

42

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

Our exposure to interest rate risk arises principally from the variable
rates associated with our credit facilities. On December 31, 2001, we had
borrowings of $20.0 million under our credit facility which are subject to a
variable rate, with a current rate of 4.03%. The carrying value of these
borrowings approximates fair value due to the variable rate. An adverse change
of 1.0% in the interest rate of all such borrowings outstanding would cause us
to incur an increase in interest expense of approximately $200,000 on an annual
basis. We currently do not hedge our exposure to interest rate fluctuations, but
may do so in the future.

FOREIGN CURRENCY RATE FLUCTUATIONS

Fluctuations in the rate of exchange between the U.S. dollar and foreign
currencies could adversely affect our financial results. Approximately 28% of
our total net sales were denominated in foreign currencies during the years
ended December 31, 2001 and 2000, respectively, and we expect that foreign
currencies will continue to represent a similarly significant percentage of our
net sales in the future. Costs related to these sales are largely denominated in
the same respective currencies, thereby limiting our transaction risk exposures.
However, for sales not denominated in U.S. dollars, if there is an increase in
the rate at which a foreign currency is exchanged for U.S. dollars, it will
require more of the foreign currency to equal a specified amount of U.S. dollars
than before the rate increase. In such cases, and 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
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.

A substantial majority of our sales denominated in foreign currencies are
derived from European Union countries and are denominated in the Euro.
Additionally, we have significant intercompany receivables from our foreign
subsidiaries which are denominated in foreign currencies, principally the Euro
and the yen. Our principal exchange rate risk therefore exists between the U.S.
dollar and the Euro and the U.S. dollar and the yen. Except for limited rate
stabilization activities between the British pound and the Euro, we do not
currently hedge our exposure to foreign currency exchange rate fluctuations. We
may, however, hedge such exposures in the future.

43

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

WRIGHT MEDICAL GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1 TO DECEMBER 7, 1999,
FOR THE PERIOD FROM DECEMBER 8 TO DECEMBER 31, 1999,
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001

INDEX TO FINANCIAL STATEMENTS

44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Wright Medical Group, Inc.

We have audited the accompanying consolidated balance sheets of Wright
Medical Group, Inc. and subsidiaries (a Delaware corporation, formerly known as
Wright Acquisition Holdings, Inc.) (the "Company") as of December 31, 2000 and
2001 and the related consolidated statements of operations, cash flows and
changes in stockholders' equity (deficit), comprehensive loss and mandatorily
redeemable convertible preferred stock for the period from December 8, 1999 to
December 31, 1999 and for the years ended December 31, 2000 and 2001. We have
also audited the consolidated statements of operations, cash flows and changes
in stockholders' deficit, comprehensive loss and redeemable preferred stock of
Wright Medical Technology, Inc. and subsidiaries (a Delaware corporation, the
"Predecessor Company") for the period from January 1, 1999 to December 7, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Wright Medical Group, Inc. and subsidiaries as of December 31, 2000 and 2001 and
the consolidated results of its operations and its cash flows for the period
from December 8, 1999 to December 31, 1999 and for the years ended December 31,
2000 and 2001 and the results of operations and cash flows of Wright Medical
Technology, Inc. for the period from January 1, 1999 to December 7, 1999, in
conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, on
December 8, 1999, the Company changed its method of accounting for surgical
instruments.

Arthur Andersen LLP

Memphis, Tennessee,
February 22, 2002

45

WRIGHT MEDICAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

46

WRIGHT MEDICAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PREDECESSOR
COMPANY WRIGHT MEDICAL GROUP, INC.
------------ ------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1 TO DECEMBER 8 TO YEAR ENDED YEAR ENDED
DECEMBER 7, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 2000 2001
------------ ------------- ----------------- ------------

Net sales......................................... $ 101,194 $ 7,976 $ 157,552 $172,921
Cost of sales..................................... 44,862 4,997 80,370 51,351
----------- ----------- ---------- --------
Gross profit................................ 56,332 2,979 77,182 121,570
Operating expenses:
Selling, general and administrative(1).......... 47,547 4,837 82,813 93,945
Research and development(2)..................... 5,857 508 8,390 10,108
Amortization of intangible assets............... 2,334 466 5,586 5,349
Stock-based expense............................. 523 -- 5,029 1,996
Transaction and reorganization.................. 6,525 3,385 -- --
Acquired in-process research and development
costs......................................... -- 11,731 -- --
----------- ----------- ---------- --------
Total operating expenses...................... 62,786 20,927 101,818 111,398
----------- ----------- ---------- --------
Income (loss) from operations................. (6,454) (17,948) (24,636) 10,172
Interest expense, net............................. 13,196 1,909 12,446 7,809
Other expense, net................................ 616 67 870 685
----------- ----------- ---------- --------
Income (loss) before income taxes and
extraordinary item.......................... (20,266) (19,924) (37,952) 1,678
Provision (benefit) for income taxes.............. 190 (25) 1,541 1,574
----------- ----------- ---------- --------
Income (loss) before extraordinary item....... (20,456) (19,899) (39,493) 104
Extraordinary loss on early retirement of
debt, net of taxes.......................... -- -- -- (1,611)
----------- ----------- ---------- --------
Net loss...................................... $ (20,456) $ (19,899) $ (39,493) $ (1,507)
=========== =========== ========== ========
Net loss per share (Note 9):
Net loss........................................ $ (19,899) $ (39,493) $ (1,507)
Accrued preferred stock dividends............... (230) (4,401) (2,546)
Deemed preferred stock dividends on beneficial
conversion feature............................ -- (13,087) --
=========== ========== ========
Net loss applicable to common stockholders...... $ (20,129) $ (56,981) $ (4,053)
=========== ========== ========
Net loss per common share, basic & diluted:
Loss before extraordinary item................ $(27,918.17) $(3,405.71) $ (0.19)
Extraordinary charge.......................... -- -- $ (0.12)
----------- ---------- --------
$(27,918.17) $(3,405.71) $ (0.31)
----------- ---------- --------
Weighted average number of common shares
outstanding................................... 1 17 13,195
=========== ========== ========
Unaudited pro forma net loss per share (Note 9):
Net loss applicable to common stockholders...... $ (39,493) $ (1,507)
========== ========
Net loss per common share, basic and diluted:
Loss before extraordinary item................ $ (2.29) $ 0.00
Extraordinary charge.......................... $ -- $ (0.07)
$ (2.29) $ (0.06)
========== ========
Weighted-average number of common shares
outstanding................................. 17,260 23,544
========== ========

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

(1) Amounts presented are exclusive of $465, $4,909, and $1,896 in stock-based
expense for 1999, 2000, and 2001, respectively.

(2) Amounts presented are exclusive of $58, $120, and $100 in stock-based
expense for 1999, 2000 and 2001, respectively.

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

47

WRIGHT MEDICAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

WRIGHT MEDICAL GROUP, INC.
PREDECESSOR COMPANY ----------------------------------------------------
------------------- PERIOD FROM
PERIOD FROM DECEMBER 8 TO YEAR ENDED YEAR ENDED
JANUARY 1 TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
DECEMBER 7, 1999 1999 2000 2001
------------------- ----------------- ----------------- ------------

Cash flow from operating activities:
Net loss.............................. $(20,456) $(19,899) $(39,493) $(1,507)
Non-cash items included in net loss:
Depreciation.......................... 6,236 489 11,008 10,096
Amortization of deferred financing
costs............................... 1,040 30 457 522
Amortization of intangible assets..... 2,334 466 5,586 5,349
Provision for inventory reserves...... 8,098 680 4,479 2,928
Inventory step-ups expensed in cost of
sales............................... -- 2,002 29,081 --
Acquired in-process research and
development costs................... -- 11,731 -- --
Deferred income taxes................. -- -- 1,087 1,047
Stock-based expenses.................. 523 -- 5,029 1,996
Debt extinguishment................... -- -- -- 1,589
Other................................. 542 (841) (457) (283)
Changes in operating assets and
liabilities:
Accounts receivable................. (3,340) (701) (4,305) (5,541)
Inventories......................... (2,396) (140) (4,092) (7,413)
Other current assets................ 93 (2,943) 2,079 (688)
Accounts payable.................... 250 (3,188) (955) 964
Accrued expenses and other
liabilities....................... 15,990 (10,387) 8,647 (8,241)
-------- -------- -------- -------
Net cash provided by (used in) operating
activities............................ 8,914 (22,701) 18,151 818
-------- -------- -------- -------
Cash flow from investing activities:
Capital expenditures.................. (2,179) (11) (14,109) (16,764)
Business acquisitions including
escrowed funds, net of cash
acquired............................ -- (22,399) -- --
Escrow release (Note 3)............... 1,208
Other................................. -- -- -- (2)
-------- -------- -------- -------
Net cash used in investing activities... (2,179) (22,410) (14,109) (15,558)
-------- -------- -------- -------
Cash flow from financing activities:
Issuance of common stock.............. -- -- -- 85,279
Proceeds from bank and other
financing........................... -- 79,172 -- 21,854
Payments of bank and other
financing........................... (6,105) (126,217) (5,498) (72,809)
Issuance (payments) of senior
subordinated notes.................. -- 37,404 4,226 (32,326)
Issuance of preferred stock........... -- 64,596 7,300 158
Payment of deferred financing costs... -- (3,111) -- (784)
-------- -------- -------- -------
Net cash (used in) provided by financing
activities............................ (6,105) 51,844 6,028 1,372
-------- -------- -------- -------
Effect of exchange rates on cash and
cash equivalents...................... -- -- (503) (162)
Net increase (decrease) in cash and cash
equivalents........................... 630 6,733 9,567 (13,530)
Cash and cash equivalents, beginning of
period................................ 579 -- 6,733 16,300
-------- -------- -------- -------
Cash and cash equivalents, end of
period................................ $ 1,209 $ 6,733 $ 16,300 $ 2,770
======== ======== ======== =======
Supplemental disclosure of cash flow
information:
Cash paid for interest................ $ 7,217 $ 15,128 $ 7,952 $11,071
======== ======== ======== =======
Cash paid for income taxes............ $ 92 $ 12 $ 737 $ 894
======== ======== ======== =======

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

48

WRIGHT MEDICAL TECHNOLOGY, INC.
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT, COMPREHENSIVE LOSS
AND REDEEMABLE PREFERRED STOCK
FOR THE PERIOD FROM JANUARY 1, 1999 TO DECEMBER 7, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)

SERIES B AND C SERIES A
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
-------------------- -------------------- --------------------- ADDITIONAL
NUMBER NUMBER NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT
--------- -------- --------- -------- ---------- -------- ---------- ------------

Balance at December 31,
1998................... 1,150,000 $106,467 915,325 $9 10,685,080 $11 $57,428 $(188,676)
Net loss................. -- -- -- -- -- -- -- (20,456)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- --
Total comprehensive
loss................... -- -- -- -- -- -- -- --
Issuance of common
stock.................. -- -- -- -- 3,000 -- 216 --
Preferred stock
dividends.............. -- -- -- -- -- -- -- (13,236)
Write-off of notes
receivable from
stockholders........... -- -- -- -- -- -- (743) --
Accretion of preferred
stock discount......... -- 5,975 -- -- -- -- -- (5,975)
--------- -------- ------- -- ---------- --- ------- ---------
Balance at December 7,
1999 (prior to
acquisition)........... 1,150,000 $112,442 915,325 $9 10,688,080 $11 $56,901 $(228,343)
========= ======== ======= == ========== === ======= =========

ACCUMULATED NOTES
OTHER RECEIVABLE TOTAL
COMPREHENSIVE FROM TREASURY STOCKHOLDERS'
INCOME (LOSS) SHAREHOLDERS STOCK DEFICIT
-------------- ------------ -------- ------------
Balance at December 31,
1998................... $ (51) $(764) $(2) $(132,045)
Net loss................. -- -- -- (20,456)
Foreign currency
translation
adjustment............. (1,089) -- -- (1,089)
---------
Total comprehensive
loss................... -- -- -- (21,545)
Issuance of common
stock.................. -- -- -- 216
Preferred stock
dividends.............. -- -- -- (13,236)
Write-off of notes
receivable from
stockholders........... -- 743 -- --
Accretion of preferred
stock discount......... -- -- -- (5,975)
------- ----- --- ---------
Balance at December 7,
1999 (prior to
acquisition)........... $(1,140) $ (21) $(2) $(172,585)
======= ===== === =========

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

49

WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT, COMPREHENSIVE LOSS
AND
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
FOR THE PERIOD FROM DECEMBER 8, 1999 TO DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)

SERIES A, B, AND C
MANDATORILY
REDEEMABLE
CONVERTIBLE COMMON STOCK ACCUMULATED
PREFERRED STOCK -------------------- OTHER
--------------------- NUMBER ADDITIONAL COMPREHENSIVE
NUMBER OF OF PAID-IN ACCUMULATED INCOME
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (LOSS)
---------- -------- -------- --------- -------- --------- -----------

Initial capitalization and
acquisition of predecessor company... 15,840,000 $50,333 721 $ -- $(2,784) $ -- $ --
Net loss............................... -- -- -- -- -- (19,899) --
Foreign currency translation........... -- -- -- -- -- -- 79
Total comprehensive loss............... -- -- -- -- -- -- --
Series A preferred stock issuance...... 3,564,401 11,289 -- -- -- -- --
Series B preferred stock issuance...... 2,919,626 9,245 -- -- -- -- --
Preferred stock dividends.............. -- -- -- -- -- (230) --
---------- ------- --- --------- ------- -------- ---------
Balance at December 31, 1999........... 22,324,027 $70,867 721 $ -- $(2,784) $(20,129) $ 79
========== ======= === ========= ======= ======== =========

TOTAL
STOCKHOLDERS'
DEFICIT
----------
Initial capitalization and
acquisition of predecessor company... $ (2,784)
Net loss............................... (19,899)
Foreign currency translation........... 79
--------
Total comprehensive loss............... (19,820)
Series A preferred stock issuance...... --
Series B preferred stock issuance...... --
Preferred stock dividends.............. (230)
--------
Balance at December 31, 1999........... $(22,834)
========

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

50

WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT, COMPREHENSIVE LOSS
AND
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)

SERIES A, B, AND C
MANDATORILY
REDEEMABLE
CONVERTIBLE COMMON STOCK
PREFERRED STOCK --------------------
--------------------- NUMBER ADDITIONAL
NUMBER OF OF PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
---------- -------- -------- --------- -------- --------- ----------

Balance at December 31, 1999......... 22,324,027 $70,867 721 $ -- $(2,784) $(20,129) $ --
2000 Activity:
Net loss............................. -- -- -- -- -- (39,493) --
Foreign currency translation......... -- -- -- -- -- -- --
Total comprehensive loss.............
Issuance of common stock............. -- -- 46,878 1 609 -- --
Series B preferred stock exchange.... (376,868) (1,193) -- -- -- -- --
Series C preferred stock issuance.... 5,363,771 8,493 -- -- 3,812 -- --
Beneficial conversion feature of -- 13,087 -- -- -- (13,087) --
Series C preferred stock...........
Preferred stock dividends............ -- -- -- -- -- (4,401) --
Deferred stock-based compensation.... -- -- -- -- 3,132 -- (3,132)
Stock-based compensation............. -- -- -- -- -- -- 298
---------- ------- ------ --------- ------- -------- -------
Balance at December 31, 2000......... 27,310,930 $91,254 47,599 $ 1 $ 4,769 $(77,110) $(2,834)
========== ======= ====== ========= ======= ======== =======

ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS'
(LOSS) DEFICIT
----------- ----------
Balance at December 31, 1999......... $ 79 $(22,834)
2000 Activity:
Net loss............................. -- (39,493)
Foreign currency translation......... (1,881) (1,881)
--------
Total comprehensive loss............. (41,374)
Issuance of common stock............. -- 610
Series B preferred stock exchange.... -- --
Series C preferred stock issuance.... -- 3,812
Beneficial conversion feature of -- (13,087)
Series C preferred stock...........
Preferred stock dividends............ -- (4,401)
Deferred stock-based compensation.... -- --
Stock-based compensation............. -- 298
------- --------
Balance at December 31, 2000......... $(1,802) $(76,976)
======= ========

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

51

WRIGHT MEDICAL GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY/(DEFICIT),
COMPREHENSIVE LOSS AND
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)

SERIES A, B AND C
MANDATORILY
REDEEMABLE CONVERTIBLE COMMON STOCK,
PREFERRED STOCK COMMON STOCK, VOTING NON-VOTING
---------------------- --------------------- ---------------------- ADDITIONAL
NUMBER OF NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- -------- ---------- -------- ---------- --------- ---------

Balance at December 31, 2000..... 27,310,930 $91,254 47,599 $ 1 -- $ -- $ 4,769
2001 Activity:
Net loss......................... -- -- -- -- -- -- --
Foreign currency translation..... -- -- -- -- -- -- --
Total comprehensive loss.........
Issuance of common stock, net of
costs.......................... -- -- 7,770,729 78 -- -- 85,999
Series C preferred stock
issuance....................... 114,997 181 -- -- -- -- 362
Preferred stock dividends........ -- -- -- -- -- -- --
Conversion of preferred stock
into common stock.............. (27,425,927) (91,435) 13,604,455 136 5,998,344 60 98,418
Conversion of senior subordinated
notes into common stock........ -- -- -- -- 1,125,000 11 14,051
Conversion of non-voting common
stock to voting common stock... -- -- 1,834,749 18 (1,834,749) (18) --
Deferred stock-based
compensation................... -- -- -- -- -- -- 3,598
Stock-based compensation......... -- -- -- -- -- -- --
----------- ------- ---------- ---- ---------- --------- --------
Balance at December 31, 2001..... -- -- 23,257,532 $233 5,288,595 $ 53 $207,197
=========== ======= ========== ==== ========== ========= ========

ACCUMULATED
OTHER TOTAL
ACCUMULATED DEFERRED COMPREHENSIVE STOCKHOLDERS'
DEFICIT COMPENSATION INCOME (LOSS) DEFICIT
----------- ------------- ------------- ------------
Balance at December 31, 2000..... $(77,110) $(2,834) $(1,802) $(76,976)
2001 Activity:
Net loss......................... (1,507) -- -- (1,507)
Foreign currency translation..... -- -- (1,436) (1,436)
--------
Total comprehensive loss......... (2,943)
Issuance of common stock, net of
costs.......................... -- -- -- 86,077
Series C preferred stock
issuance....................... -- -- -- 362
Preferred stock dividends........ (2,546) -- -- (2,546)
Conversion of preferred stock
into common stock.............. -- -- -- 98,614
Conversion of senior subordinated
notes into common stock........ (984) -- -- 13,078
Conversion of non-voting common
stock to voting common stock... -- -- -- --
Deferred stock-based
compensation................... -- (3,598) -- --
Stock-based compensation......... -- 1,634 -- 1,634
-------- ------- ------- --------
Balance at December 31, 2001..... $(82,147) $(4,798) $(3,238) $117,300
======== ======= ======= ========

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

52

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS:

Wright Medical Group, Inc. (the "Company") is a global medical device
company specializing in the design, manufacture and marketing of orthopaedic
implants and bio-orthopaedic materials used in joint reconstruction and bone
regeneration. The Company is focused on the reconstructive joint device and
bio-orthopaedic materials sectors of the orthopaedic industry. The Company
markets its products through independent representatives in the United States
and through a combination of employee representatives, independent
representatives and stocking distributors in its international markets. The
Company is headquartered in suburban Memphis, Tennessee.

The Company was incorporated on November 23, 1999 as a Delaware corporation
(previously named Wright Acquisition Holdings, Inc.) and had no operations until
an investment group led by Warburg, Pincus Equity Partners, L.P. ("Warburg")
acquired majority ownership of the predecessor company, Wright Medical
Technology, Inc. ("Wright" or the "Predecessor Company"). As more fully
described in Note 3, this transaction, which represents a recapitalization of
Wright and the inception of the Company in its present form, was accounted for
using the purchase method of accounting. The financial statements and
accompanying notes present the historical cost basis results of the Predecessor
Company for the period from January 1, 1999 through its acquisition on
December 7, 1999, and the results of the Company, as successor to Wright, for
periods thereafter.

As more fully described in Note 3, on December 22, 1999 the Company acquired
all of the outstanding common stock of Cremascoli Ortho Holding S.A.
("Cremascoli"), an orthopaedic medical device company headquartered in Toulon,
France. The acquisition was accounted for using the purchase method of
accounting and, accordingly, the results of operations of Cremascoli have been
included in the Company's consolidated financial statements from the date of
acquisition.

On July 18, 2001, the Company completed its initial public offering (the
"IPO"), issuing 7,500,000 shares of voting common stock at $12.50 per share, the
net proceeds of which were $84.8 million after deducting underwriting discounts
and offering expenses. The Company used the net proceeds from the IPO to repay
debt (see Note 10).

The Company's future success is dependent upon a number of factors which
include, among others, the success of its principal product lines, its ability
to compete with other orthopaedic medical product companies, continued
development of new products and technologies, continued recommendation and
endorsement of its products by key surgeons, compliance with government
regulations, maintaining adequate levels of reimbursement for its products,
operating successfully in international markets, maintaining adequate access to
materials supply, enforcing and defending its claims to intellectual property,
the performance of its independent distributor network, reliance on key
personnel, and the ability to obtain adequate financing to support its future
growth.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned domestic and
international subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates. The most significant areas requiring the use of management
estimates

53

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

relate to the determination of allowances for doubtful accounts and sales
returns, excess and obsolete inventories, product liability claims and the need
for a valuation allowance on deferred tax assets.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all cash
balances and short-term investments with original maturities of three months or
less.

ALLOWANCE FOR SALES RETURNS. The Company maintains an allowance for
anticipated future returns of products by customers, which is established at the
time of sale. An allowance for sales returns of $885,000 and $643,000 is
included as a reduction of trade receivables at December 31, 2000 and 2001,
respectively.

INVENTORIES. The Company's inventories are valued at the lower of cost or
market on a first-in, first-out ("FIFO") basis. Inventory costs include
material, labor costs and manufacturing overhead. Inventory reserves are
established to reduce the carrying amount of obsolete and excess inventory to
its net realizable value. The Company principally follows an inventory reserve
formula that reserves inventory balances based on historic and forecasted sales.

PROPERTY, PLANT AND EQUIPMENT. The Company's property, plant and equipment
is stated at cost. Depreciation, which includes amortization of assets held
under capital leases, is provided on a straight-line basis over estimated useful
lives of 15 to 20 years for land improvements, 10 to 45 years for buildings, 3
to 11 years for machinery and equipment and 4 to 14 years for furniture,
fixtures and office equipment, or term of related lease, whichever is shorter.
Expenditures for major renewals and betterments that extend the useful life of
the assets are capitalized. Maintenance and repair costs are charged to expense
as incurred. Upon sale or retirement, the asset cost and related accumulated
depreciation are eliminated from the respective accounts and any resulting gain
or loss is included in income.

Instruments used by surgeons during implant procedures of the Company's
products that are permanently held by the Company are included in property,
plant and equipment and are depreciated on a straight-line basis over periods
not to exceed six years.

CHANGE IN ACCOUNTING POLICY. On December 8, 1999, the Company changed its
accounting policy for surgical instruments. Prior to this change in accounting
policy, the Predecessor Company principally classified surgical instruments as
inventory as these instruments were held for sale to independent distributors
and surgeons. However, beginning on December 8, 1999, the Company has classified
these surgical instruments as a component of property, plant and equipment as
the Company will principally loan these instruments to surgeons or in some cases
rent these instruments to distributors who subsequently loan them to surgeons
for the implantation of the Company's products.

The surgical instruments reclassified to property, plant and equipment will
be amortized over a period of one to five years based upon an assessment of the
instrument's remaining useful life. At December 8, 1999, the effect of this
change in accounting policy resulted in a reclassification of $11.9 million in
surgical instruments from inventories to property, plant and equipment. There
was not a material cumulative impact on the Company's statement of operations
related to this change.

INTANGIBLE ASSETS. Intangible assets consist of goodwill and purchased
intangibles amortized on a straight-line basis over 10 to 13 years for completed
technology, 5 years for workforce, 10 years for distribution channels, 15 years
for trademarks and 20 years for goodwill. The Company continually evaluates the
periods of amortization to determine whether events and circumstances, such as
effects of competition, obsolescence and other economic factors, warrant
revision of useful lives. See related discussion in "RECENT PRONOUNCEMENTS"
section of this footnote.

54

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

VALUATION OF LONG-LIVED ASSETS. Management periodically evaluates carrying
values of long-lived assets, including property, plant and equipment, and
intangible assets, when events and circumstances indicate that these assets may
have been impaired. An asset is considered impaired when undiscounted cash flows
to be realized from the use of such assets are less than its carrying value. In
that event, a loss is determined based on the amount the carrying value exceeds
the fair market value of such asset.

CONCENTRATIONS OF CREDIT RISK. Concentrations of credit risk with respect
to trade accounts receivable are limited due to the large number of customers
and their dispersion across a number of geographic areas. However, essentially
all trade receivables are concentrated in the hospital and health care sectors
in the United States and several other countries or with stocking distributors
that operate in international markets and, accordingly, are exposed to their
respective business, economic and country-specific variables. Although the
Company does not currently foresee a concentrated credit risk associated with
these receivables, repayment is dependent upon the financial stability of these
industry sectors and the respective countries' national economies and health
care systems.

At December 31, 2000 and 2001, the Company's allowance for doubtful accounts
totaled $2.3 million and $1.9 million, respectively.

INCOME TAXES. Income taxes are accounted for pursuant to the provisions of
Statement of Financial Accounting Standards (SFAS) 109, "ACCOUNTING FOR INCOME
TAXES." This statement requires the use of the liability method of accounting
for deferred income taxes. The provision for income taxes includes federal,
foreign, and state income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax bases of assets
and liabilities. Provisions for federal income taxes are not made on the
undistributed earnings of foreign subsidiaries where the subsidiaries do not
have the capability to remit earnings in the foreseeable future and when
earnings are considered permanently invested. Deferred taxes on these
undistributed earnings of foreign subsidiaries at December 31, 2000 and 2001 are
not material to the Company's financial position.

REVENUE RECOGNITION. The Company recognizes revenue upon shipment of
product to customers. For inventory held on consignment, revenue is recognized
when evidence of customer acceptance is obtained. In limited instances, the
Company has agreed to repurchase inventory from certain international stocking
distributors if such inventory is not acquired by a third party customer. In
these instances, revenue is deferred until evidence is obtained that such
inventory has been sold to a third party customer. At December 31, 2000 and
2001, deferred revenue related to those arrangements totaled $2.2 million and
$1.2 million, respectively.

SHIPPING AND HANDLING COSTS. The Company incurs shipping and handling costs
associated with the shipment of goods to customers, independent distributors and
its subsidiaries. All shipping and handling amounts billed to customers are
included in net sales. All shipping and handling costs are recorded in selling,
general, and administrative expenses.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged
to expense as incurred. In-process research and development activities of
$11.7 million acquired in connection with the Wright acquisition were expensed
immediately upon consummation of the acquisition (see Note 3).

FOREIGN CURRENCY TRANSLATION. The financial statements of the Company's
international subsidiaries are translated into U.S. dollars using the end of
period exchange rate at the balance sheet date for assets and liabilities and
the weighted average exchange rate for the applicable period for revenues,
expenses, gains and losses. Translation adjustments are recorded as a separate
component of

55

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

comprehensive income (loss). Gains and losses resulting from transactions
denominated in a currency other than the local functional currency are included
in other income (expense).

STOCK-BASED COMPENSATION. The Company accounts for employee stock-based
compensation in accordance with the provisions of Accounting Principles Board
Opinion (APB) 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." Nonemployee
stock-based compensation is accounted for in accordance with SFAS 123
"ACCOUNTING FOR STOCK-BASED COMPENSATION."

COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) is defined as the
change in equity during a period related to transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. The difference between the Company's net income (loss) and comprehensive
income (loss) is principally attributable to foreign currency translation.

STOCK SPLIT. In August 2000, the Company's certificate of incorporation was
amended increasing its authorized shares for each class of stock and the Board
of Directors authorized that all classes of the Company's common stock be split
two for one. Also at the Board's direction, in July 2001 upon successful
completion of the Company's IPO, the Company's common shares were reverse-split
1 for 2.75. All share and per share information in the consolidated financial
statements for the Company have been restated to give effect to these
adjustments.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable and notes payable
approximates fair value of these financial instruments at December 31, 2000 and
2001 due to their short maturities or variable rates.

The carrying value of the Company's subordinated notes approximates fair
value, evidenced by the issuance of additional subordinated notes in
December 2000 with terms substantially similar to the previously issued
subordinated notes.

The Company's Series A, Series B and Series C Preferred Stock described in
Note 11 are specialized instruments with various terms and preferential
treatment which render it impractical to determine the fair value.

SUPPLEMENTAL NON-CASH DISCLOSURES. In July 2001, simultaneous with the
closing of the Company's IPO, the Company converted all of its outstanding
mandatorily redeemable, convertible preferred stock, including accrued
dividends, totaling approximately $98.6 million, into common stock. Also in
connection with the IPO, senior subordinated notes totaling approximately
$13.1 million were converted into 1,125,000 shares of non-voting common stock,
resulting in an equity distribution of approximately $1.0 million. Additionally,
the resolution of the Company's escrow liabilities (see Note 3) resulted in an
increase in goodwill of approximately $1.1 million.

During 2000, the Company issued Warburg 753,736 shares of Series C voting
preferred stock in exchange for 376,868 shares of Series B non-voting preferred
stock. At the time of the exchange, both the Series C shares received and the
Series B shares exchanged were convertible into 274,086 shares of common stock.
During the period from December 8 to December 31, 1999, the Company issued
Series A preferred stock, common stock, warrants and senior subordinated debt
totaling $9.8 million as a portion of the total consideration paid to the Wright
and Cremascoli shareholders in exchange for all of the outstanding common and
preferred stock of Wright and Cremascoli (see Note 3).

RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the 2001 presentation.

56

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECENT PRONOUNCEMENTS. On June 30, 2001, the FASB issued two new
pronouncements: SFAS 141, "BUSINESS COMBINATIONS", and SFAS 142, "GOODWILL AND
OTHER INTANGIBLE ASSETS". The two statements modify the method of accounting for
business combinations initiated after June 30, 2001 and address the accounting
for intangible assets. In accordance with the provisions of the standards, the
Company adopted SFAS 141 upon issuance, and SFAS 142 on January 1, 2002. Thus,
effective January 1, 2002 the Company no longer amortizes goodwill, but will
evaluate it for impairment at least annually. See Note 7 for further details.
During January 2002 the Company engaged an independent third party to determine
the fair value of its reporting units as defined by SFAS 142. Because this third
party appraisal is not yet final, the Company is unable to determine the impact
of adopting SFAS 142, if any. However, the Company does not believe that it will
incur an impairment charge associated with the adoption of this accounting
principle.

In July and August 2001, the FASB issued SFAS 143, "ACCOUNTING FOR ASSET
RETIREMENT OBLIGATIONS", and SFAS 144, "ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS." SFAS 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made.
SFAS 144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of. The Company
implemented SFAS 144 on January 1, 2002, with no material impact on our
financial position, results of operations, or cash flows. The Company is
required to implement SFAS 143 as of January 1, 2003. The Company believes the
adoption of SFAS 143 will not have a material impact on the Company's financial
position, results of operations, or cash flows.

On January 1, 2001, the Company adopted SFAS 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" as amended by SFAS 138, which establishes
accounting and reporting standards that require all derivative instruments to be
recorded on the balance sheet as either an asset or liability and measured at
fair value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. The Company has implemented a risk management policy to assist in
managing its exposure to foreign currency fluctuations. During 2001 and 2000,
its principal derivative instruments represented certain foreign currency
contracts denominated in British pounds sterling to manage currency fluctuations
on intercompany sales between certain Cremascoli subsidiaries. As these
contracts are not specifically designated as hedges, the change in value is
recognized in the accompanying consolidated statement of operations. For the
year ended December 31, 2001 and 2000, the Company recorded $146,000 and
$154,000, respectively, in gains on these foreign currency contracts. These
contracts did not exist prior to 2000 and, thus, had no impact on the Company's
or Predecessor Company's operations. At December 31, 2001, foreign currency
futures contracts with an aggregate notional amount of L900,000 ($1.3 million)
had a nominal fair market value. At December 31, 2000, foreign currency futures
contracts with an aggregate notional amount of L5.0 million ($7.4 million) had a
fair market value of $267,000 at the adoption date.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "REVENUE RECOGNITION IN FINANCIAL STATEMENTS."
SAB 101 outlines the basic criteria that must be met before registrants can
record revenue under existing rules and addresses revenue recognition for
transactions not addressed by existing rules. The Company's accounting policies
are in compliance with the provisions of SAB 101.

3. ACQUISITIONS:

On December 7, 1999, the investment group led by Warburg received from the
Company Series A preferred stock, common stock and senior subordinated debt in
exchange for $70.0 million in cash. Concurrently, the Company acquired all of
the outstanding shares of common and preferred stock of

57

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Wright for $9.2 million in cash, of which $3.5 million was placed in escrow (see
Note 15), and the issuance of 1,840,000 shares of the Company's Series A
preferred stock valued at $5.8 million, 121 shares of common stock valued at
$529, 334,545 warrants valued at $193,000 and senior subordinated debt valued at
$3.4 million. In addition, the Company borrowed approximately $60.0 million
under a term loan as further described in Note 10. This recapitalization and
related acquisition was accounted for using the purchase method of accounting
and represents the inception of the Company in its present form.

Former Wright shareholders retained a 17% voting interest in the Company
after the acquisition. The equity interest of former Wright shareholders that
became shareholders of the Company was recorded at its carryover basis.
Accordingly, the assets acquired and liabilities assumed in connection with the
acquisition were recorded at 17% of their historical carrying value and 83% of
their fair value at the date of acquisition. Total consideration paid for the
outstanding preferred and common stock of Wright was $21.5 million, including
acquisition costs of $2.9 million, and has been allocated as follows (in
thousands):

Current assets, excluding inventory......................... $ 23,509
Inventories................................................. 57,969
Acquired in-process research and development................ 11,731
Identifiable intangible assets:
Completed technology...................................... 11,008
Workforce................................................. 4,825
Distribution channels..................................... 5,442
Trademarks................................................ 2,372
Other..................................................... 915
------
Total identifiable intangible assets........................ 24,562
Other assets................................................ 34,601
Goodwill.................................................... 9,988
Accounts payable and accrued expenses....................... (30,466)
Debt........................................................ (100,376)
Other liabilities........................................... (10,044)
---------
$ 21,474
=========

On December 22, 1999, the Company acquired all of the equity ownership of
Cremascoli. The Company paid the Cremascoli stockholders $4.2 million in cash
and issued 84,027 shares of its Series A preferred stock valued at $266,000 and
senior subordinated debt valued at $166,000. Additionally, the Company placed
$14.1 million in escrow consisting of 230,306 shares of Series A preferred stock
($700,000) and senior subordinated debt of $422,000 and the remainder in the
form of cash related to this acquisition. Concurrent with the acquisition of
Cremascoli, the investment group led by Warburg contributed cash of
$32.0 million to the Company in exchange for the Company's Series A and B
preferred stock and senior subordinated debt. In addition, the Company borrowed
approximately $17.7 million (17.5 million Euros) under a term loan as further
described in Note 10.

58

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Cremascoli acquisition was accounted for using the purchase method of
accounting. Total consideration paid for the outstanding preferred and common
stock of Cremascoli was $16.2 million, including acquisition costs of
$0.6 million, and has been allocated as follows (in thousands):

Current assets, excluding inventory......................... $ 15,065
Inventories................................................. 15,914
Identifiable intangible assets:
Completed technology...................................... 608
Workforce................................................. 818
Distribution channels..................................... 15,298
------
Total identifiable intangible assets........................ 16,724
Other assets................................................ 13,027
Goodwill.................................................... 8,218
Accounts payable and accrued expenses....................... (18,491)
Debt........................................................ (27,693)
Other liabilities........................................... (6,590)
--------
$ 16,174
========

Upon completion of a final evaluation of Cremascoli's net assets and the
resolution of potential income tax liabilities and environmental matters, the
escrowed funds were released during the fourth quarter of 2001, $12.2 million to
the Cremascoli stockholders and other third parties, and $1.9 million to the
Company. Of the amounts released to the Cremascoli stockholders and other third
parties during 2001, only $1.1 million resulted in goodwill being recorded in
2001 (in addition to the $8.2 million recorded above) as the remainder had
previously been considered part of the acquisition consideration at the original
date of purchase.

In connection with the acquisitions of Wright and Cremascoli, the Company
conducted a valuation of the intangible assets acquired. The value assigned to
purchased in-process research and development ("IPRD") was $11.7 million of the
purchase price for Wright. There was no IPRD identified for Cremascoli. IPRD
represented IPRD that had not yet reached technological feasibility and had no
alternative future use. Accordingly, these amounts were expensed in the period
from December 8, 1999 to December 31, 1999 following consummation of the
acquisition of Wright. The value assigned to IPRD was determined by identifying
research projects in areas for which technological feasibility had not been
achieved. The value was determined by estimating the costs to develop the IPRD
into commercially viable products, estimating the resulting cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate utilized in discounting the net cash flows from IPRD was 22% for
Wright products. This discount rate reflects uncertainties surrounding the
successful development of the IPRD.

The Company estimated costs required to obtain regulatory approvals and has
assumed the approvals will be received. Costs related to manufacturing,
distribution, and marketing of the products were included in the projections.
The resulting cash flows from such projects were based on management's estimates
of revenues, cost of sales, research and development costs, sales and marketing,
general and administrative, and the anticipated income tax effect.

The forecast data employed in the analyses was based upon internal product
level forecast information. The forecast data and assumptions were inherently
uncertain and unpredictable. However, based upon the information available at
that time, management believed the forecast data and

59

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assumptions to be reasonable. These assumptions may be incomplete or inaccurate,
and no assurance can be given that unanticipated events and circumstances will
not occur.

As both the Wright and Cremascoli acquisitions were accounted for using the
purchase method of accounting, the results of operations of the acquired
businesses are included in the consolidated financial statements of the Company
from their respective acquisition dates.

The following unaudited pro forma financial information for the year ended
December 31, 1999 represents the consolidated results of operations of the
Company as if the acquisition of Wright and Cremascoli had occurred on
January 1, 1999. The pro forma financial information excludes the $31.1 million
charge to cost of sales related to the step-up of inventory in connection with
the Wright and Cremascoli acquisitions (see Note 5) and the charge to operations
of $11.7 million related to the purchased IPRD in connection with the Wright
acquisition. The pro forma financial information does not purport to be
indicative of what would have occurred had the acquisitions been made as of
January 1, 1999 or the results that may occur in the future (in thousands).

Net loss per share has not been shown as it is not meaningful for
comparative purposes to the Company.

4. TRANSACTION AND REORGANIZATION EXPENSES:

The Predecessor Company recorded approximately $6.5 million of transaction
and reorganization expenses during the period from January 1, 1999 to
December 7, 1999. These costs consisted primarily of $4.8 million of investment
banking, consulting and advisory fees incurred by the Predecessor Company to
identify and pursue financing alternatives leading up to its December 1999
recapitalization, and $1.3 million of management compensation costs where no
ongoing service obligations existed.

The Company recorded approximately $3.4 million of transaction and
reorganization expenses during the period from December 8, 1999 to December 31,
1999. These amounts were largely attributable to $1.9 million of distributor
close out costs incurred to eliminate duplicate distributors upon integrating
the Wright and Cremascoli distribution channels and $1.1 million incurred by the
Company for recruitment and employee termination expenses based on an assessment
of senior management personnel needs following the recapitalization and
Cremascoli acquisition.

Costs incurred by the Company that were directly associated with
consummating the December 1999 recapitalization and subsequent acquisition of
Cremascoli have been included in those respective purchase prices and,
accordingly, are not included in transaction and reorganization expenses. As
described in Note 3, the Wright and Cremascoli purchase prices include direct
acquisition costs of $2.9 million and $600,000, respectively.

60

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INVENTORIES:

Inventories, net of reserves, consist of the following (in thousands):

At December 31, 2001, the Company had pledged approximately $2.6 million of
inventory held at Wright Medical Japan (WMJ), a wholly-owned subsidiary of the
Company, as collateral in a transition agreement with its prior Japanese
distributor. Once the terms of the transition agreement have been satisfied, all
security interests in the WMJ inventory will be removed.

At the dates the Company acquired Wright and Cremascoli (see Note 3),
inventories were recorded at stepped-up values pursuant to APB 16 requiring an
aggregate $31.1 million step-up. This step-up was charged to the statements of
operations over a one-year period, representing an estimate of the period over
which such inventories were sold. Cost of sales was charged $2.0 million for the
period from December 8, 1999 to December 31, 1999 and $29.1 million for the year
ended December 31, 2000.

6. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following (in thousands):

Depreciation expense approximated $6.2 million for the period from
January 1, 1999 through December 7, 1999, $489,000 for the period from
December 8, 1999 through December 31, 1999, and $11.0 million and $10.1 million
for the years ended December 31, 2000 and 2001, respectively.

61

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. INTANGIBLE ASSETS:

Intangible assets, which principally result from the recapitalization and
the acquisition of Cremascoli, consist of the following (in thousands):

Included in accumulated amortization above was $932,000 and $1.8 million
related to goodwill at December 31, 2000 and 2001, respectively.

In accordance with the transition provisions of SFAS 142, the Company
reviewed all of its intangible assets to determine if they meet the criteria for
recognition as separately identifiable intangible assets as defined by SFAS 141
(see Note 2). The Company determined that its workforce intangible asset does
not meet the criteria for recognition as a separate identifiable intangible
asset and thus, effective January 1, 2002, the Company reclassified the net book
value of its workforce intangible asset, net of associated deferred tax
liabilities, of approximately $2.0 million into goodwill. Based on the results
of the Company's review, no other recharacterization of intangible assets was
required. As goodwill will no longer be amortized in 2002, the Company
anticipates the amortization of intangible assets will be approximately
$2.0 million less in 2002 than it would have been had SFAS 142 not been issued.

62

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses and other current liabilities consist of the following (in
thousands):

9. EARNINGS PER SHARE:

SFAS 128, "EARNINGS PER SHARE" requires the presentation of basic and
diluted earnings per share. Basic earnings per share is calculated based on the
weighted-average shares of common stock outstanding during the period. Diluted
earnings per share is calculated to include any dilutive effect of the Company's
common stock equivalents, which consists of stock options, warrants, and
convertible preferred stock. The dilutive effect of such instruments is
calculated using the treasury-stock method.

During the period from December 8, 1999 to December 31, 1999, and for the
years ended December 31, 2000 and 2001, the Company's computation of diluted
earnings per share does not differ from basic earnings per share, as the effect
of the Company's common stock equivalents is anti-dilutive. For the same reason,
the Company's pro forma computation of diluted earnings per share for the years
ended December 31, 2000 and 2001 does not differ from pro forma basic earnings
per share. Common stock equivalents excluded from the calculation of diluted
earnings per share totaled approximately 18,920,000 and 12,604,000 for the years
ended December 31, 2000 and 2001, respectively.

Net loss applicable to common stockholders for basic and diluted earnings
per share purposes is as follows (in thousands):

63

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

No earnings per share data is presented for the Predecessor Company as it is
not considered meaningful for comparative purposes.

A reconciliation of shares and net income (loss) applicable to common
stockholders for unaudited pro forma basic earnings per share is as follows: (in
thousands)

The weighted-average effect of the conversion of redeemable convertible
preferred stock and related dividends into common shares was computed as if such
stock was converted at the beginning of the respective period (see Note 11).

10. DEBT:

Long-term obligations consist of the following (in thousands):

Prior to the Company's completion of its IPO on July 18, 2001, the Company's
bank financing consisted of two senior credit facilities. The first senior
credit facility consisted of a $60.0 million term loan arrangement and permitted
borrowings up to $5.0 million under a revolving line of credit. The term loan
bore interest at the Eurodollar rate plus 3.25% (9.69% at December 31, 2000).
The second senior credit facility consisted of a 17.5 million Euro term loan
that bore interest at the EURIBO rate plus .25% (5.1% at December 31, 2000). The
second facility also permitted borrowings up to 5.0 million Euro under a
revolving line of credit. Immediately preceding the IPO, there was
$54.0 million outstanding under the first senior credit facility and
$13.5 million outstanding under the second senior credit facility.

Additionally, in connection with the acquisitions of Wright and Cremascoli
discussed in Note 3, the Company had issued $41.2 million in Senior Subordinated
Notes (the "Notes"). The Notes bore

64

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

interest at 10%. At the option of the Company, the amount of interest due and
payable on the Notes was added to the unpaid principal of the Notes. The Notes
were subordinated in right of payment to amounts due under the aforementioned
two senior credit facilities. During 2000, the Company had issued an additional
$4.3 million of Notes to certain stockholders and members of management.
Immediately preceding the IPO, the Company had accrued, but not paid, interest
of approximately $7.0 million, related to these Notes.

On July 18, 2001, the Company completed its IPO, issuing 7.5 million shares
of voting common stock at $12.50 per share, the net proceeds of which were
$84.8 million after deducting underwriting discounts and offering expenses. The
Company used the net proceeds of this offering to retire $39.4 million of the
Notes including accrued interest, all of the Euro-denominated senior credit
facility plus interest, totaling approximately $14.0 million, and approximately
$31.4 million of the dollar-denominated senior credit facility. Simultaneous
with the closing of the offering, the Company converted all of its outstanding
mandatorily redeemable, convertible preferred stock, including accrued
dividends, totaling approximately $98.6 million, into common stock. Also in
connection with the offering, the remaining senior subordinated notes totaling
approximately $13.1 million, converted into 1,125,000 shares of non-voting
common stock.

On August 1, 2001, the Company entered into a new 5-year senior credit
facility with a syndicate of commercial banks. The new senior credit facility
consists of $20 million in term loans and an unused revolving loan facility of
up to $60 million. Upon entering into the new senior credit facility, the
Company used $20 million in term loan proceeds from the new facility and
existing cash balances to repay all remaining amounts outstanding plus accrued
interest, totaling approximately $22.9 million, under the previous
dollar-denominated senior credit facility. Thus, following the IPO, the use of
proceeds and related transactions as described above, the Company has
$20 million of debt outstanding, excluding capitalized lease obligations. In
connection with the replacement of the Company's debt as described, the Company
incurred an extraordinary non-cash charge of approximately $1.6 million
principally related to unamortized loan costs relating to that debt.

Borrowings under the new senior credit facility are guaranteed by the
Company's subsidiaries and collateralized by all of the assets of Wright Medical
Technology, Inc. and the other domestic subsidiaries. The new credit facility
contains customary covenants including, among other things, restrictions on the
Company's ability to pay cash dividends, prepay debt, incur additional debt and
sell assets. The new credit facility also requires the Company to meet certain
financial tests, including a consolidated leverage (or debt-to-equity) ratio
test and a consolidated fixed charge coverage ratio test. At the Company's
option, borrowings under the new credit facility bear interest either at a rate
equal to a fixed base rate plus a spread of .75% to 1.25% or at a rate equal to
an adjusted LIBOR plus a spread of 1.75% to 2.25%, depending on the Company's
consolidated leverage ratio, with a rate of 4.03% at December 31, 2001.

Aggregate annual maturities of the Company's long-term obligations at
December 31, 2001, excluding capitalized lease obligations, are as follows: (in
thousands)

2002........................................................ $ 2,750
2003........................................................ 4,000
2004........................................................ 4,500
2005........................................................ 5,000
2006........................................................ 3,750
-------
$20,000
=======

65

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company has acquired certain property and equipment pursuant to capital
leases. These leases have various maturity dates ranging from one to seven years
with interest rates ranging from 4.02% to 10.68%. At December 31, 2001, future
minimum lease payments under capital lease obligations, together with the
present value of the net minimum lease payments, is as follows (in thousands):

11. CAPITAL STOCK:

COMMON STOCK. The Company is authorized to issue up to 70,000,000 shares of
voting common stock and 30,000,000 shares of non-voting common stock. The
Company has 46,742,468 shares of voting common stock and 24,711,405 shares of
non-voting common stock available for future issuance at December 31, 2001.

MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK. Convertible preferred
stock outstanding consisted of the following at December 31, 2000 (in thousands
except par value):

Series A convertible, mandatorily redeemable preferred
stock, $.01 par value (shares authorized--50,000, issued
and outstanding--14,434 in 2000).......................... $45,885
Series B convertible, mandatorily redeemable preferred
stock, $.01 par value (shares authorized--30,000, issued
and outstanding--7,513 in 2000)........................... 23,789
Series C convertible, mandatorily redeemable preferred
stock, $.01 par value (shares authorized--20,000, issued
and outstanding--5,364 in 2000)........................... 21,580
-------
$91,254
=======

Prior to the completion of the Company's IPO in July 2001, the Company was
authorized to issue up to 50,000,000 shares of Series A Convertible Preferred
Stock (the Series A Preferred Stock). The holders of Series A Preferred Stock
were entitled to the number of votes equal to the number of shares of common
stock into which each such share of Series A Preferred Stock was convertible.
Each share of Series A Preferred Stock was convertible at any time at the option
of the holder into shares of common stock at the Series A Conversion Rate, as
defined, in the Company's Certificate of Incorporation. The Series A Preferred
Stock was mandatorily convertible into shares of common stock at the Series A
Conversion Price at any time upon the closing of an underwritten public
offering. Series A Preferred stockholders were entitled to receive dividends at
6% per year. The dividends were cumulative and compounded quarterly. At
December 31, 2000, the aggregate preferential distribution

66

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

for the Series A Preferred Stock approximated $48.8 million, including accrued
and unpaid dividends of approximately $2.9 million. Simultaneous with the
completion of the Company's IPO, the Company converted all of its outstanding
Series A Preferred Stock plus accrued but unpaid dividends of $4.4 million into
shares of the Company's common stock.

Prior to the completion of the Company's IPO, the Company was authorized to
issue up to 30,000,000 shares of Series B Non-Voting Convertible Preferred Stock
(the Series B Preferred Stock). Each share of Series B Preferred Stock was
convertible at any time at the option of the holder into shares of common stock
at the Series B Conversion Rate, as defined, in the Company's Certificate of
Incorporation. Series B Preferred stockholders were entitled to receive
dividends at 6% per year. The dividends were cumulative and compounded
quarterly. At December 31, 2000, the aggregate preferential distribution for the
Series B Preferred Stock approximated $25.3 million, including accrued and
unpaid dividends of approximately $1.5 million. Simultaneous with the completion
of the Company's IPO, the Company converted all of its outstanding Series B
Preferred Stock plus accrued but unpaid dividends of $2.3 million into shares of
the Company's common stock.

Prior to the completion of the Company's IPO, the Company was authorized to
issue up to 20,000,000 shares of Series C Convertible Preferred Stock (the
Series C Preferred Stock). Each share of Series C Preferred Stock was
convertible at any time at the option of the holder into shares of common stock
at the Series C Conversion Rate, as defined, in the Company's Certificate of
Incorporation. Series C Preferred stockholders were entitled to receive
dividends at 6% per year. The dividends were cumulative and compounded
quarterly. At December 31, 2000, the aggregate preferential distribution for the
Series C Preferred Stock approximated $8.7 million, including accrued and unpaid
dividends of approximately $178,000. Simultaneous with the completion of the
Company's IPO, the Company converted all of its outstanding Series C Preferred
Stock plus accrued but unpaid dividends of $460,000 into shares of the Company's
common stock.

During 2000, the Company issued Series C Preferred Stock to both management
and existing investors. The issuance of this stock to management resulted in a
stock based compensation expense of $3.8 million for the difference between the
deemed fair value of the stock for accounting purposes and the issuance price of
the Series C Preferred Stock. Additionally, a deemed preferred stock dividend of
$13.1 million was incurred by the Company for the issuance of this stock to the
existing investors.

WARRANTS. In connection with the December 1999 recapitalization, the
Company issued warrants to stockholders to purchase an aggregate of 727,276
shares of the Company's common stock at an exercise price of $4.35 per share.
The fair value of these warrants at the time of the issuance of $420,000 was
recorded as additional paid-in-capital. The exercise price and the number of
shares that can be acquired through the warrants are subject to adjustment in
certain situations to prevent dilution of the warrants. The warrants are
exercisable at any time after issuance and, unless exercised, expire ten years
from the date of issuance. The warrants do not entitle the holders to any voting
rights. The holders of warrants are entitled to share in the assets of the
Company in the event of reorganization, consolidation, merger, or sale of the
Company's assets on the same basis as holders of common stock. In the case of
certain consolidations or mergers of the Company, or the sale of all or
substantially all of the assets of the Company, each warrant shall be
exercisable for the right to receive the same consideration to which such holder
would have been entitled as a result of such consolidation, merger or sale had
the warrants been exercised immediately prior thereto. No warrants were
exercised during the period from December 8, 1999 to December 31, 1999 and the
year ended December 31, 2000. During the year ended December 31, 2001, 18,182
warrants were exercised.

67

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Predecessor Company had two classes of common stock and three classes of
preferred stock authorized for issuance. The preferred stock accumulated
dividends at rates ranging from 11% to 24.97% for the period from January 1,
1999 to December 7, 1999. Dividend amounts accrued for the period from
January 1, 1999 to December 7, 1999 were $13.2 million. In connection with the
Company's acquisition of the Predecessor Company's common and preferred stock,
all accrued and unpaid preferred stock dividends approximating $39.5 million
were discharged.

12. STOCK OPTION PLAN:

During the period from January 1, 1999 to December 7, 1999, the Predecessor
Company had two fixed stock option plans for employees, two stock option plans
for non-employees, which principally included the distributors of the
Predecessor Company's products, and a distributor stock purchase plan.
Generally, Wright's stock option plans granted options to purchase common stock
and, in certain instances, Wright's Series A Preferred Stock. Under these two
fixed stock option plans, options generally became exercisable in installments
of 25% annually in each of the first through fourth anniversaries of the grant
date and had a maximum term of ten years. Under the fixed stock option plans,
the exercise price of each option equaled the market price, as internally
determined based on certain factors, of Wright's respective stock on the date of
grant. During the period from January 1, 1999 to December 7, 1999, the
Predecessor Company expensed $523,000 related to the non-employee stock option
plans. Effective with the acquisition of Wright by the Company, the stock option
plans and distributor purchase plan were terminated.

68

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On December 7, 1999, the Company approved and adopted the 1999 Equity
Incentive Plan (the "Plan"). The Plan authorizes the granting of options to
purchase up to 4,767,051 shares of common stock. Under the Plan, options to
purchase common stock generally are exercisable in increments of 25% annually in
each of the first through fourth anniversaries of the date of grant. Options to
purchase Series A Preferred Stock that were outstanding at the time the Company
completed its IPO in July 2001, became options to purchase the Company's common
stock. Those options were immediately exercisable upon their issuance. The
options expire after ten years.

A summary of the Company's stock option activity is as follows (shares in
thousands):

As of December 31, 2001, there were options for 866,879 shares of common
stock exercisable at a weighted average price of $4.35 per share. The weighted
average remaining contractual life for all options to purchase common stock is
9.05 years.

As permitted by SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company applies APB Opinion 25 and related interpretations in accounting for its
employee stock option plan. Accordingly, compensation cost related to stock
option grants to employees has been recognized only to the extent that the fair
market value of the stock exceeds the exercise price of the stock option at the
date of the grant. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value of the stock options
at the grant dates for awards under those plans consistent with SFAS 123, the
Company's net loss for the period December 8, 1999 to December 31, 1999 and the

69

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

years ended December 31, 2000 and 2001 would have been increased to the
following pro forma amounts:

For the year ended December 31, 2001, the fair value of each option is
estimated on the date of grant using the Black-Scholes methodology required by
SFAS 123 for publicly traded companies. The weighted-average fair value of the
Company's options granted in 2001 was $10.25 per share. In applying the
Black-Scholes methodology to the 2001 option grants, the Company used risk-free
interest rates ranging from 3.5% to 5.75% with an expected option life of
7 years. The Company assumed a volatility factor of 67.3% and a dividend yield
of zero percent.

For the 1999 and 2000 periods presented above, the fair value of each option
is estimated on the date of grant using the minimum value methodology
promulgated by SFAS 123. This methodology was used as the Company's shares were
not then publicly traded. The weighted average fair value of the Company's
options was $1.86 per share for the period from December 8, 1999 to
December 31, 1999 and $2.90 per share for the year ended December 31, 2000. In
applying the minimum value methodology, the Company used a risk free interest
rate of 4.25% for the period from December 8, 1999 to December 31, 1999 and
rates between 4.25% and 6.5% in 2000 with an expected option life of 7 years for
the 1999 and 2000 periods. Additionally, the Company assumed a dividend yield
and volatility of zero percent. The Predecessor Company did not grant options in
the period from January 1 to December 7, 1999.

DISTRIBUTOR STOCK PURCHASE PLAN. In 2000 and 2001, the Company granted a
group of independent distributors a total of 21,182 and 12,518 common stock
options, respectively, under the Plan. The distributors were given options to
purchase common stock, exercisable in 25% increments on the first through fourth
anniversaries of the date of grant, at a weighted-average exercise price of
$4.35 and $9.58 per share in 2000 and 2001, respectively. The options expire
after ten years. In addition, a group of independent distributors were granted a
total of 46,846 and 22,842 shares of common stock in 2000 and 2001,
respectively, under the Plan.

In connection with the issuance of certain stock options to employees and
distributors and the distributor stock grants discussed above, the Company
incurred stock-based compensation of $7.6 million representing the fair value of
the stock and stock options granted to distributors and for

70

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

employee stock options, the extent to which the fair value of the Company's
stock exceeded the exercise price of the stock option at the date of the grant.
The Company will recognize this stock-based compensation over the respective
vesting period, as appropriate. For the years ended December 31, 2000 and 2001,
stock-based compensation expense of $1.2 million and $1.6 million, respectively,
was recorded in the accompanying statement of operations related to these stock
options and stock grants. Based on the stock-based compensation incurred as of
December 31, 2001, the Company expects that $1.7 million in 2002, $1.7 million
in 2003, $1.5 million in 2004, and $230,000 in 2005 will be recognized as
non-cash stock-based expense. The amount of the remaining stock-based
compensation expense to be recorded in future periods could decrease if the
related options are forfeited.

13. INCOME TAXES:

The components of the Company's income/(loss) before income taxes and
extraordinary item are as follows (in thousands):

The components of the provision (benefit) for income taxes or income/(loss)
before extraordinary items are as follows (in thousands):

71

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the statutory federal income tax provision (benefit) to
the Company's actual income tax provision (benefit) attributable to continuing
operations is as follows (in thousands):

The significant components of the Company's deferred tax assets and
liabilities as of December 31, 2000 and 2001 are as follows (in thousands):

The Company has provided a valuation allowance against all of its net
deferred tax assets for United States federal income tax purposes and a portion
of its net deferred tax assets for foreign income tax purposes because, given
the Company's history of operating losses, the realizability of these assets is
uncertain. Approximately $500,000 of the increase in the valuation allowance for
deferred taxes in 2001 is attributable to employee stock options deductions, the
benefit of which will be credited to equity when realized. Approximately
$600,000 of the increase in the valuation allowance for deferred taxes in 2001
is attributable to the portion of current year net operating losses generated by
the Company's 2001 extraordinary loss, for which no benefit has been recognized.
The Company's

72

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

assessment of the need for a valuation allowance could change in the future
based on the Company's future operating results.

At December 31, 2001, the Company has net operating loss carryforwards for
U.S. federal income tax purposes of approximately $74.7 million, which expire in
2009 through 2021. Additionally, the Company has general business credit
carryforwards of approximately $1.2 million, which expire in 2007 through 2016.
The use of some of these net operating loss carryforwards is subject to annual
limitations.

At December 31, 2001, the Company has foreign net operating loss
carryforwards of approximately $17.6 million, which expire in 2002 through 2010.
The use of some of these foreign net operating loss carryforwards is subject to
annual limitations.

14. EMPLOYEE BENEFIT PLANS:

The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code, which covers U.S. employees who are 21 years of age and
over. Under this plan, the Company matches voluntary employee contributions at a
rate of 100% for the first 2% of an employee's annual compensation and at a rate
of 50% for the next 2% of an employee's annual compensation. Employees vest in
the Company's contributions after three years of service with the Company. The
Company's expense related to the plan was $550,000 and $609,000 in 2000 and
2001, respectively. The Company's expense related to the plan was not material
for the period from December 8, 1999 to December 31, 1999.

Prior to its acquisition by the Company, the Predecessor Company sponsored a
defined contribution plan under Section 401(k) of the Internal Revenue Code,
which covered employees who were 21 years of age and over. The Predecessor
Company had the option to contribute annually to the plan shares of the
Predecessor Company's stock as determined by the Board of Directors and matched
employee's voluntary contributions at rates of 100% of the first 2% of an
employee's annual compensation, and 50% of the next 2% of an employee's annual
compensation. Employees vested in the Predecessor Company's contributions after
five years. The Predecessor Company's expense related to this plan was
approximately $500,000 for the period from January 1, 1999 to December 7, 1999.

15. COMMITMENTS AND CONTINGENCIES:

The Company leases certain equipment under non-cancelable operating leases.
Rental expense under operating leases approximated $1.0 million for the period
from January 1, 1999 to December 7, 1999, $56,000 for the period from
December 8, 1999 to December 31, 1999, and $1.7 million and $2.4 million for the
years ended December 31, 2000 and 2001, respectively. Future minimum payments,

73

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

by year and in the aggregate, under non-cancelable operating leases with initial
or remaining lease terms of one year or more, are as follows at December 31,
2001 (in thousands):

On June 30, 1993, the Predecessor Company acquired substantially all the
assets of the large joint orthopaedic implant business from Dow Corning
Corporation (DCC). DCC retains liability for matters arising from certain
conduct of DCC prior to June 30, 1993. As such, DCC has agreed to indemnify the
Predecessor Company against all liability for all products manufactured prior to
the acquisition except for products provided under the Predecessor Company's
1993 agreement with DCC pursuant to which the Predecessor Company purchased
certain small joint orthopaedic implants for worldwide distribution.

The Predecessor Company was notified in May 1995 that DCC, which filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code, would no longer
defend the Predecessor Company in such matters until it received further
direction from the bankruptcy court. Based on the most recent plan of
reorganization submitted to the court, it appears that the Predecessor Company
would be considered an unsecured creditor and, under the terms of the plan,
would receive 24% of any such claim as a cash payment with the remainder to be
paid by a senior note due within ten years. There are several appeals regarding
the confirmed plan of reorganization pending before the U.S. District Court in
Detroit, Michigan, which have delayed implementation of the plan.

There can be no assurance that DCC will indemnify the Predecessor Company or
the Company on any claims in the future. Although neither the Predecessor
Company nor the Company maintains insurance for claims arising on products sold
by DCC, the Company does not believe the outcome of any of these matters will
have a material adverse effect on the Company's financial position or results of
operations.

In January 1996, the Predecessor Company entered into an agreement with a
licensor of intellectual property (the "Licensor") to acquire an option to
purchase rights to patents, ideas and designs related to certain spinal product
designs. In January 1997, the Predecessor Company entered into an additional
agreement with the same Licensor to purchase rights to patents, ideas and
designs related to additional spinal product designs. Both agreements required
guaranteed royalties to be paid to the Licensor over a period of years.

In January 1999, the Predecessor Company entered into an exclusive license
agreement with a third party orthopaedic company whereby the Predecessor Company
sold its rights related to these spinal product designs for an up front
$3.5 million license fee and royalties based upon future product sales. The
Licensor filed a complaint in the United States District Court against the
Predecessor Company alleging breach of contract and other charges related to the
licensing of these spinal product designs to this third party. As this licensing
arrangement was contested by the Licensor, the Predecessor Company deferred
revenue on the $3.5 million license fee it had received.

74

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of December 31, 2000, the Company had recorded a liability of
$7.5 million for the estimated amount of settlement, which included the
reclassification of the $3.5 million deferred license fee, in accrued expenses
and other current liabilities in the accompanying balance sheet. In
January 2001, the Company and the Licensor executed a settlement and release
agreement (the "S & R Agreement"). The Licensor and the Company agreed to
irrevocably release and discharge the other party from any previous claims
related to these spinal product designs. By February 28, 2001, the Company had
fully paid its obligation to the Licensor. A portion of the proceeds
($3.5 million) to settle this liability came from an escrow established in
connection with the acquisition of Wright (see Note 3).

During March 1998, the Company filed a complaint for injunctive relief in
the Chancery Court of Shelby County, Tennessee, against a former employee of the
Company. In the complaint, the Company alleged that this former employee
violated a "trade secrets" employment contract provision and had developed a
calcium sulfate bone void filler product to compete against the Company's
similar product. The court initially granted a temporary injunction barring the
defendant from participating in direct competition against the Company in the
calcium sulfate bone void filler market.

During 1999, the court set aside the temporary injunction and, in
March 2000, conducted a hearing on the defendant's charges from being wrongfully
enjoined. In May 2000, the court entered a judgement in favor of the defendant
awarding the defendant compensatory damages of $4.8 million and punitive damages
of $4.8 million. Additionally, the court awarded the defendant ongoing
compensatory damages of $408,000 per month for the next twelve months or until
final resolution of this case, whichever comes first, and assessed the Company
for related court costs.

In December 2001, the Tennessee Court of Appeals reversed, in part, the
trial court's ruling. The Court of Appeals reversed the punitive damages award
and limited the total damages to the amount of the injunction bond of $500,000,
which the Company has accrued. In February 2002, the defendant sought permission
to appeal the Court of Appeals' findings.

Management believes that if an adverse outcome related to this appeal did
occur, a portion of such judgment may be subject to reimbursement from the
Company's applicable insurance carrier. Accordingly, management does not believe
that the resolution of this matter will have a material adverse effect on the
Company's financial position or results of operations.

On April 11, 2001, the FDA sent the Company a "warning letter" stating that
the FDA believes ALLOMATRIX-TM- Injectable Putty is a medical device that is
subject to the premarket notification requirement. The Company believes that
ALLOMATRIX-TM- Injectable Putty and some of their other allograft-based products
are human tissue and therefore are not subject to FDA approval as medical
devices. The Company asked the FDA to designate ALLOMATRIX-TM- Injectable Putty
as a product regulated solely as a tissue. The FDA has orally advised the
Company that after reviewing the Company's designation request it has decided to
regulate ALLOMATRIX-TM- Injectable Putty as a medical device. Upon official
notification of this decision, the Company will submit a 510(k) premarket
notification for the product. The Company has continued to market ALLOMATRIX-TM-
Injectable Putty after receiving the warning letter, and intends to continue to
market and sell ALLOMATRIX-TM- Injectable Putty. The FDA has not raised any
objection to the Company's continued marketing and sale of ALLOMATRIX-TM-
Injectable Putty pending submission of the premarket notification. There can be
no assurance that the 510(k) premarket notification that the Company intends to
submit will be cleared by the FDA in a timely manner or at all. Also, the FDA
may take enforcement action against the Company, including requiring the Company
to modify or cease distributing ALLOMATRIX-TM- Injectable Putty, detaining or
seizing the Company's inventory of ALLOMATRIX-TM- Injectable Putty, requiring
the Company to recall ALLOMATRIX-TM- Injectable Putty, enjoining future
violations and

75

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

seeking criminal and civil penalties against the Company and its officers and
directors, any of which could adversely affect the Company's financial condition
and results of operations. However, the Company believes that such punitive
actions by the FDA against the Company are unlikely. In 2000 and 2001,
ALLOMATRIX-TM- products represented approximately 9% and 11% of the Company's
total net sales, respectively. The net book value of long-lived assets related
to ALLOMATRIX-TM- totaled approximately $700,000 at December 31, 2001.

In March 2000, Howmedica Osteonics Corp. served a lawsuit against the
Company alleging patent infringement. The lawsuit seeks an order of
infringement, injunctive relief, compensatory damages and various other costs
and relief. The Company believes it has strong defenses against this claim and
intends to vigorously defend this lawsuit. The Company also believes this claim
is, in part, covered pursuant to the Company's patent infringement insurance.
Management does not believe that the outcome of this claim will have a material
adverse effect on the Company's financial position or results of operations.

In 1999, groundwater contamination was detected at our Arlington, Tennessee
facility. The Company is presently negotiating the terms of further
investigation with state environmental officials; however, based on the
Company's current assessment, it does not believe it will have a significant
effect on the Company's financial position and results of operations.

The Company is subject to various legal proceedings, product liability
claims and other matters which arise in the ordinary course of business. In the
opinion of management, the amount of liability, if any, with respect to these
matters will not materially affect the results of operations or financial
position of the Company.

The Company has entered into various royalty agreements with third party
surgeons and consultants. Minimum guaranteed payments under royalty or other
consultant agreements, for which the Company has not recorded a liability, are
as follows at December 31, 2001 (in thousands):

16. RELATED PARTY TRANSACTIONS:

The Company compensates each of their non-employee and non-stockholder
representative directors $12,000 per year. Non-employee directors are directors
who are neither the Company's employees nor representatives of one of the
Company's stockholders. The Company compensates the Chairman of its audit
committee an additional $18,000 per year and the Chairman of its board of
directors an additional $38,000 per year. In addition, the Company reimburses
each member of its board of directors for out-of-pocket expenses incurred in
connection with attending the Company's board meetings. The Company does not
compensate employee directors for board meeting attendance or activities.

76

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. SEGMENT DATA:

The Company has one reportable segment, orthopaedic products, which includes
the design, manufacture and marketing of reconstructive joint devices and
bio-orthopaedic products. The Company's geographic business units consist of
operations in the United States, Europe and Other (which principally represents
Canada and Japan since August 2001). Identifiable assets are those assets used
exclusively in the operations of each business unit. Revenues attributed to each
geographic unit are based on the location in which the sale originated.

Net sales of orthopaedic products by category and information by geographic
area are as follows (in thousands):

Sales to United States-based customers, aggregated $73.8 million,
$5.7 million, $95.0 million, and $108.0 million for the period from January 1 to
December 7, 1999, for the period from December 8 to December 31, 1999, and for
the years ended December 31, 2000 and 2001, respectively. These sales

77

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

along with United States export sales are included in United States sales in the
above table. No single foreign country accounted for more than 10% of the
Company's total net sales during 1999, 2000 or 2001; however, Italy and France
together represented approximately 17% of the Company's total net sales in 2000
and 16% in 2001.

18. SECONDARY OFFERING:

In January 2002, the Company's Board of Directors authorized management to
pursue a follow-on registration with the SEC to sell 6,000,000 shares of the
Company's common stock to the public at an offering price to be determined. The
Company anticipates that 3,000,000 of those shares will be sold to the public by
certain of the Company's current shareholders.

19. SUBSEQUENT EVENTS:

In January 2002, the Company received an interim award of $4.2 million in a
commercial arbitration proceeding with a former business services provider of
the Company's predecessor. In addition to the $4.2 million, the Company has
filed a motion with the arbitration panel seeking reimbursement of legal fees,
costs and expenses. The Company is awaiting a ruling on its motion and a final
award. The Company has to date not recorded any income with respect to this
matter in its statement of operations.

78

WRIGHT MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated herein by reference to Wright Medical Group Inc.'s Proxy
Statement for its Annual Meeting of Stockholders to be held in 2002.

ITEM 11. EXECUTIVE COMPENSATION.

Incorporated herein by reference to Wright Medical Group Inc.'s Proxy
Statement for its Annual Meeting of Stockholders to be held in 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated herein by reference to Wright Medical Group Inc.'s Proxy
Statement for its Annual Meeting of Stockholders to be held in 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated herein by reference to Wright Medical Group Inc.'s Proxy
Statement for its Annual Meeting of Stockholders to be held in 2002.

79

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) (1) FINANCIAL STATEMENTS:

See Wright Medical Group, Inc.--Index to Consolidated Financial
Statements at Item 8 on page 44 of this report.

(2) FINANCIAL STATEMENT SCHEDULE:

See Wright Medical Group, Inc.--Schedule II--Valuation and Qualifying
Accounts Allowance for Doubtful Accounts on page 84 of this report.

(3) INDEX TO EXHIBITS

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

* Incorporated by reference to the Company's Registration Statement on
Form S-1
(File No. 333-59732).

** Incorporated by reference to the Company's Current Report on Form 8-K, filed
August 3, 2001.

*** Filed Herewith.

(b) Reports on Form 8-K.

On August 3, 2001, Wright Medical Group, Inc. (the "Company") filed a
Form 8-K announcing that on August 1, 2001, the Company entered into a Credit
Agreement, by and among the Company, Wright Medical Technology, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company, as borrower thereunder,
each of the lenders named therein, The Chase Manhattan Bank, as administrative
agent and collateral agent for such lenders and as issuing bank, and Credit
Suisse First Boston and U.S. Bank National Association, as co-syndication
agents.

81

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.

February 28, 2002

WRIGHT MEDICAL GROUP, INC.

By: /s/ F. BARRY BAYS
-----------------------------------------
F. Barry Bays
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

(a) Wright Medical Group, Inc. will furnish to security holders its Proxy
Statement for its Annual Meeting of Stockholders to be held in 2002
subsequent to to the filing of this annual report on Form 10-K.

82

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To WRIGHT MEDICAL GROUP, INC.

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Wright Medical Group, Inc. included in
this Form 10-K for the periods indicated in our report thereon. Our report on
the financial statements includes an explanatory paragraph with respect to the
change in the method of accounting for surgical instruments as discussed in
Note 2 to the financial statements. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The financial statement
schedule on page 84 of this Form 10-K is the responsibility of Wright Medical
Group's management is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. The financial statement schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

Arthur Andersen LLP

Memphis, Tennessee
February 22, 2002

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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS
WRIGHT MEDICAL GROUP, INC.
(IN THOUSANDS)