In order to reduce the potential dilution of Volcano's common stock upon future conversion of the notes, Volcano has entered into convertible note hedge transactions with the underwriters and/or their respective affiliates (the "option counterparties"). Volcano has also entered into warrant transactions with the option counterparties, which could have a dilutive effect on Volcano's common stock to the extent that the market value per share of Volcano's common stock, as measured under the warrant transactions, exceeds the strike price of the warrant transactions. The warrants have an exercise price of $37.59, which is 50% higher than the closing price of Volcano's stock on December 4, 2012. If the underwriters exercise their over-allotment option to purchase additional notes, Volcano expects to enter into additional convertible note hedge transactions and additional warrant transactions.Volcano has been advised that, in connection with establishing their initial hedge positions with respect to the convertible note hedge transactions and the warrant transactions, the option counterparties, and/or their affiliates, expect to enter into various over-the-counter derivative transactions with respect to Volcano's common stock concurrently with and/or shortly after the pricing of the notes. These activities could have the effect of increasing, or limiting a decline in, the market price of Volcano's common stock concurrently with and/or shortly after the pricing of the notes. In addition, the option counterparties and/or their affiliates may modify their hedge positions from time to time prior to conversion, repurchase or maturity of the notes by entering into and unwinding various over-the-counter derivative transactions and/or purchasing and selling shares of Volcano's common stock and/or Volcano's other securities, including the notes and/or other instruments they may wish to use in connection with such hedging activities (and are likely to do so during any observation period related to a conversion of the notes).