KYPH Kyphon (MM)

On October 5, 2007, the U.S. Federal Trade Commission (the “FTC”) accepted a consent decree executed by Kyphon for public comment. The consent decree requires Kyphon to divest its right to purchase certain spine-related assets and associated intellectual property rights of Disc-O-Tech Medical Technologies Ltd., a privately held Israeli company, and its U.S. subsidiary, which we refer to collectively as “Disc-O-Tech.”

Kyphon executed two definitive agreements in December 2006 with Disc-O-Tech. Under the first agreement, Kyphon agreed to acquire all of Disc-O-Tech’s non-vertebroplasty spine-related assets and associated intellectual property, including minimally invasive technologies for performing fusion and vertebral body augmentation, for $100.0 million in cash that Kyphon has already paid. Kyphon previously announced that it had obtained clearance from the FTC and U.S. Department of Justice with respect to its acquisition of these assets from Disc-O-Tech and that closing of this particular transaction is expected later this year after receipt of various foreign regulatory approvals.

Under the second agreement executed in December 2006, Kyphon agreed to acquire all of Disc-O-Tech’s assets and associated intellectual property rights relating to its Confidence™ technology used in the treatment of vertebral compression factures, for a total of an additional $120.0 million payable in three equal annual installments beginning in January 2008. An additional payment of $20 million, plus potential royalties, is payable pursuant to the second agreement upon the development of additional technologies. Kyphon has entered into a consent decree in connection with this second agreement that requires Kyphon to divest its right to purchase the assets and associated intellectual property encompassed by the second agreement. There can be no assurance as to the terms that will be reached in any divestiture, including the purchase price payable to Kyphon. Regardless of the terms that may be reached in the divestiture, Kyphon is nonetheless obligated to make the payments described above to Disc-O-Tech.