EXHIBIT 10.51

ARTHROCARE CORPORATION

7500 Rialto Boulevard

Building Two, Suite 100

Austin, Texas 78735

August 14, 2009

OEP AC Holdings, LLC

320 Park Avenue, 18th Floor

New York, New York 10022

Re:  Disclosure Letter

Ladies and Gentlemen:

Reference is made to the Securities Purchase Agreement (the “Agreement”),
entered into as of August 14, 2009, by and between ArthroCare Corporation, a
Delaware corporation (the “Company”), and OEP AC Holdings, LLC, a Delaware
limited liability company. This letter (the “Disclosure Letter”) is being
provided pursuant to Section 2 of the Agreement and the information and
disclosures contained herein are intended only to qualify and limit the
representations and warranties contained in the Agreement. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Agreement.

The headings and descriptions used herein are for convenience of reference only
and are not intended to and do not alter or amend the meaning of any provision
of the Agreement. Furthermore, disclosure of any item in this Disclosure Letter
by reference to any particular Section or Subsection of the Agreement shall be
deemed to constitute disclosure with respect to any other Section or Subsection
of the Agreement if the relevance of such disclosure to such other Section or
Subsection is readily apparent from such disclosure or the context in which such
disclosure is made. This Disclosure Letter may include items or information
which the Company is not required to disclose under the Agreement. Disclosure of
such items or information does not necessarily mean that other matters of a
similar nature are required to be disclosed, but such disclosure shall not
affect the scope of the disclosure obligation under the Agreement. No disclosure
in this Disclosure Letter relating to any possible breach or violation of any
agreement, law or regulation shall be construed as an admission that any such
breach or violation exists or has actually occurred.

This Disclosure Letter is qualified in its entirety by reference to the specific
provisions of the Agreement.

 

Sincerely, ARTHROCARE CORPORATION

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

Section 2.5

Litigation

Patent Litigation:

On November 14, 2007, the Company brought a lawsuit against Gyrus Medical Inc.,
Gyrus ENT L.L.C. and Gyrus ACMI Inc., Case No. 1:07-CV-00729-SLR in the United
States District Court for the District of Delaware, in which the Company seeks
monetary damages and equitable relief for claims of patent infringement relating
to U.S. Patent No. 5,697,882 (the “’882 Patent). In the lawsuit, the Company
alleges that the use of Gyrus’s “PlasmaCision” and “PlasmaKinetic” products and
systems infringes the ’882 Patent. Gyrus seeks invalidation of the Company’s
patent based on alleged inequitable conduct and alleged prior art. This
litigation is currently pending and the case has been set for trial beginning on
November 2, 2009.

On May 5, 2008, Gyrus Medical Ltd. and Gyrus Group PLC commenced an arbitration
proceeding against the Company. In its arbitration notice, Gyrus alleged that,
under the Settlement Agreement dated June 28, 1999 among the Company, Gyrus
Medical Ltd., and Ethicon, Inc. and certain Ethicon affiliates (collectively,
“Ethicon”), the Company had made “material changes” to certain of its
arthroscopy products — the Super TurboVac 90, the UltraVac, the Super MultiVac
50, the TurboVac 90XL and the MultiVac XL — and that those products infringed
two Gyrus patents. Shortly thereafter, on June 12, 2008, Ethicon and DePuy
Mitek, Inc. joined the arbitration (Gyrus, Ethicon and DePuy Mitek collectively,
the “Claimants”). The Company filed a counterclaim in the arbitration for breach
of the Settlement Agreement, alleging that Ethicon had not paid certain
royalties when due under the Settlement Agreement.

On June 10, 2009, the arbitration panel issued its interim decision and
award. The panel ruled in favor of the Claimants on all issues, including the
patent infringement and breach of contract claims, and against the Company on
its breach of contract counterclaim. The panel awarded the Claimants (i) $11.7
million for royalties on the patents due from April 2001 through February 2009,
including pre-judgment interest of 10% through July 15, 2009; (ii) a 6.5%
royalty for all sales of the infringing products starting from March 1, 2009;
and (iii) reasonable attorneys’ fees and costs, including the costs of the
arbitration. The interim decision is attached as Exhibit B to the Petition
referenced below and attached hereto.

Gyrus and Ethicon submitted a fee request to the Company in the amount of $4.5
million. The Company objected to the amount of this request and the parties
informed the panel that they have failed to reach agreement on an attorneys fees
amount and the panel has requested that both sides submit additional information
to the Panel so that it can issue a ruling on this dispute.

The Company has since filed a Petition to vacate or modify the Arbitration Award
and to stay the award. This petition was filed in the U.S. District Court for
the Northern District of California. The petition is attached hereto.

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

Securities Litigation – Class Action and Derivative Suits:

On April 4, 2008, a securities fraud class action lawsuit was filed in Federal
court in the Southern District of Florida against the Company and certain of its
former executive officers alleging improper revenue recognition practices by the
Company and the improper reporting of such revenue in Commission filings and
press releases (McIlvaine v. ArthroCare).

On July 25, 2008, a securities fraud class action lawsuit was filed in Federal
court in the Western District of Texas against the Company, a former director
and certain of its current and former executive officers alleging improper
revenue recognition practices by the Company and the improper reporting of such
revenue in Commission filings and press releases (Strong v. ArthroCare).

On August 7, 2008, a derivative action was filed in Federal court in the
Southern District of Florida against the Company and its then directors alleging
breach of fiduciary duty based on the Company’s improper revenue recognition and
its improper reporting of such revenue in Commission filings and press releases
(Weil v. Baker).

On October 20, 2008, a derivative action was filed in Texas State District Court
against the Company, its then directors and certain of its current and former
executive officers alleging breach of fiduciary duty and unjust enrichment based
on the Company’s improper revenue recognition and its improper reporting of such
revenue in Commission filings and press releases (Bocklet v. Baker). A stay has
been granted in this action until October 1, 2009.

On March 4, 2009, a derivative action was filed in Federal court in the Western
District of Texas against the Company’s current directors, a former director,
certain of its current and former executive officers and other employees and
PriceWaterhouseCoopers, LLP alleging (i) disgorgement under Section 304 of the
Sarbanes-Oxley Act; (ii) violations of Section 10(b) of the Exchange Act;
(iii) breach of fiduciary duty; (iv) abuse of control; (v) gross mismanagement
of the Company; (vi) waste of corporate assets; and (vii) unjust enrichment
(King v. Baker). A joint motion to consolidate and motion to stay was filed on
July 2, 2009.

On April 29, 2009, a derivative action was filed in Federal court in the
Southern District of Florida against the Company’s current directors and a
former director alleging breach of fiduciary duty based on the Company’s
improper revenue recognition and its improper reporting of such revenue in
Commission filings and press releases (Barron v. Baker).

As of the date hereof, the aforementioned cases have been consolidated into the
following:

(i) In Re ArthroCare Corporation Securities Litigation, Case
No. 1:08-cv-00574-SS (consolidated), U.S. District Court, Western District of
Texas. In this action, Plaintiffs allege violations of Sections 10(b) and 20(a)
of the Exchange Act and Rule 10b-5 promulgated thereunder in a putative
securities class action on behalf of certain purchasers of Company stock.
Plaintiffs allege that the Company and certain officers and directors violated
federal securities laws by issuing false and misleading financial statements

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

and making material misrepresentations regarding the Company’s internal
controls, business, and financial results. Additionally, certain shareholders
have alleged derivative claims on behalf of the Company that directors and
officers of the Company breached their fiduciary duties to shareholders based on
similar acts. The cases have been consolidated, and the Plaintiffs have been
ordered to file an Amended Consolidated Complaint.

(ii) In Re ArthroCare Corporation Derivative Litigation, Case No. D-1-GN-08-3484
(consolidated), Travis County District Court. In this action, certain
shareholders of the Company have alleged derivative claims on behalf of the
Company that directors and officers of the Company breached their fiduciary
duties to shareholders by failing to maintain adequate financial controls over
revenue recognition, allowing improper financial reporting, disseminating false
financial statements, and engaging in insider trading. The case has been stayed
until October 1, 2009 based on the consolidated federal securities and
derivative case.

Insurance-related Private Third-Party Claims:

The Company has been approached by The Allstate Corporation (“Allstate”) seeking
a monetary settlement of potential claims resulting from the former
reimbursement practices of the Company and certain of its subsidiaries relating
to the settlements of personal injury accident cases obtained from automotive
insurance providers. As of the date hereof, no settlement arrangement has been
reached.

SEC Investigation:

On July 24, 2008, the Company received a letter from the U.S. Securities and
Exchange Commission Division of Enforcement (“SEC”) stating that the SEC was
conducting an informal inquiry into accounting matters related to ArthroCare
Corporation arising out of the Company’s announced restatement of financial
results. On February 9, 2009, the SEC issued a formal order of investigation.

DOJ Investigation:

The United States Department of Justice (“DOJ”) is investigating certain
activities of the Company including its past sales, accounting, and billing
procedures in relation to, primarily, the operation of the Company’s spine
division. The DOJ is also reviewing the Company’s relationship with the
Company’s subsidiary called DiscoCare, which was acquired in December of 2007,
and its billing practices. The DOJ has requested the production of documents and
other information in relation to this investigation.

[*]

 

[*] Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.

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

Section 2.7

Tax

The Company’s 2007 US Consolidated Form 1120 has been held by the Company and
has not yet been filed pending resolution regarding the Company’s restatement of
its financial results and its acquisition of DiscoCare, Inc. All anticipated tax
liabilities have been remitted.

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

Section 2.8

Subsidiaries

 

  •  

ArthroCare Canada Limited – Canada (British Columbia)

 

  •  

ArthroCare Corporation Cayman Islands – Cayman Islands

 

  •  

ArthroCare Costa Rica S.R.L. – Costa Rica

 

  •  

ArthroCare Europe Aktiebolag – Sweden

 

  •  

ArthroCare France SARL – France

 

  •  

ArthroCare (Deutschland) AG – Germany

 

  •  

ArthroCare (Hong Kong) Limited – Hong Kong

 

  •  

ArthroCare Italy SRL – Italy

 

  •  

ArthroCare Luxembourg S.à r.l. – Luxembourg

 

  •  

ArthroCare Medical Corporation – Nevada

 

  •  

ArthroCare (Australasia) Pty Ltd – Australia (New South Wales)

 

  •  

ArthroCare Scandinavia ApS – Denmark

 

  •  

ArthroCare UK Limited – United Kingdom

 

  •  

Atlantech Medical Devices (UK) Limited – United Kingdom

 

  •  

Atlantech medizinische Produkte Vertriebs-GmbH – Austria

 

  •  

Device Reimbursement Services, Inc. – Nevada

 

  •  

DiscoCare, Inc. – Delaware

 

  •  

Medical Device Alliance Inc. – Nevada

 

  •  

OC Acquisition Sub, LLC – California

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

Section 2.15

Agreements

Section 2.15(a). On January 13, 2006, the Company entered into a five-year
Revolving Credit Agreement with a syndicate of banks and Bank of America, N.A.
acting as Administrative Agent. On December 18, 2007, the Company entered into
the First Amendment to Credit Agreement, and on November 26, 2008, the Company
entered into the Second Amendment and Consent to the Credit Agreement between
the Company and the lenders to the Credit Agreement and Bank of America, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer. The current available
and outstanding amount under the Agreement is $45,000,000. In addition, the
Company has a Standby Letter of Credit valued at 750,000 Euros, also under the
Credit Agreement. This Standby Letter of Credit relates to a VAT Guarantee
associated with the establishment of the Company’s Belgium warehouse.

Section 2.15(b). None.

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

Section 2.22

Intellectual Property

Section 2.22(a). In an arbitration proceeding conducted in March of 2009 against
Claimants Ethicon, Inc. and Gyrus Group PLC, the arbitration panel entered an
Interim Decision and Award on June 10, 2009 finding that certain of the
Company’s “Arbitration Products” infringe two patents held by Gyrus Group PLC
and ordering the Company to pay $11,709,000 to Claimants in past damages, to pay
Claimants reasonable costs and fees, and a 6.5% royalty on future sales of the
“Arbitration Products.” The Company and Claimants have submitted briefs to the
panel related to the appropriate amount of Costs and Fees claimed by
Claimants. The Arbitration panel’s final award is pending. On July 15, 2009, the
Company filed a Petition to Vacate the arbitration award in the United States
District Court for the Northern District of California. The Motion to Vacate is
pending. Please see attached 1999 Settlement Agreement, Arbitration Award and
Motion to Vacate. Please also refer to Section 2.5 and the subsection thereof
entitled “Patent Litigation.”

Section 2.22(b). The Company has entered into discussions with its joint partner
for surgical fluid management (pump) systems, Medical Vision Research &
Development AB (“Medical Vision”), concerning a previously signed Manufacturing,
Development and Supply Agreement between the Company and Medical Vision, and
each party’s desire to unwind such agreement and to assign ownership of
potential intellectual property rights resulting from cooperation between the
parties. Please see the Manufacturing, Supply and Distribution Agreement
attached hereto for more information.

Section 2.22(c). In the Company’s enforcement proceedings involving the ’882
Patent in the US District Court in Delaware against Gyrus Group PLC, Gyrus has
alleged that the ’882 Patent is invalid over certain prior art and unenforceable
due to alleged inequitable conduct. Please also refer to Section 2.5 and the
subsection thereof entitled “Patent Litigation.”

Section 2.22(e). The Company is currently enforcing the ’882 Patent in the US
District Court in Delaware against Gyrus Group PLC related to certain Gyrus
products sold for use in Ear, Nose and Throat and general surgical
procedures. Please also refer to Section 2.5 and the subsection thereof entitled
“Patent Litigation.”

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

Section 2.23

Insurance

(i) In Re ArthroCare Corporation Securities Litigation, Case
No. 1:08-cv-00574-SS (consolidated), U.S. District Court, Western District of
Texas. In this action, Plaintiffs allege violations of Sections 10(b) and 20(a)
of the Exchange Act and Rule 10b-5 promulgated thereunder in a putative
securities class action on behalf of certain purchasers of Company stock.
Plaintiffs allege that the Company and certain officers and directors violated
federal securities laws by issuing false and misleading financial statements and
making material misrepresentations regarding the Company’s internal controls,
business, and financial results. Additionally, certain shareholders have alleged
derivative claims on behalf of the Company that directors and officers of the
Company breached their fiduciary duties to shareholders based on similar acts.
The cases have been consolidated, and the Plaintiffs have been ordered to file
an Amended Consolidated Complaint.

(ii) In Re ArthroCare Corporation Derivative Litigation, Case No. D-1-GN-08-3484
(consolidated), Travis County District Court. In this action, certain
shareholders of the Company have alleged derivative claims on behalf of the
Company that directors and officers of the Company breached their fiduciary
duties to shareholders by failing to maintain adequate financial controls over
revenue recognition, allowing improper financial reporting, disseminating false
financial statements, and engaging in insider trading. The case has been stayed
until October 1, 2009 based on the consolidated federal securities and
derivative case.