Exhibit 10.1

 

   CREDIT SUISSE         Leasing         Avenue d’Ouchy 52    Téléphone  
021 340 14 00    Case postale 5722    Téléfax   021 340 14 39    1002 Lausanne
   TVA N°   231’051

REAL ESTATE LEASING CONTRACT

No. 709’341

 

1.    Kyphon Sàrl    The Lessee    Rue du Puits-Godet 12/12a       2000
Neuchâtel       VAT No: 639’496    And    2.    CREDIT SUISSE    The Leasing
Company    Paradeplatz 8       8001 Zurich       Mailing address:       CREDIT
SUISSE       Leasing       Case postale 5722       1002 Lausanne       VAT No.:
231’051   

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

Contents

 

I

   PRELIMINARY PROVISIONS    4    1.    PURPOSE OF THE CONTRACT    4    2.   
CONTRACTUAL ELEMENTS    4    3.    INVESTMENT COSTS    4       3.1    Definition
   4       3.2    Residual Value    4       3.3    Residual Value at a given
time - 3.4 Provisions concerning the period of construction    5    4.   
ACQUISITION OF THE OBJECT OF THE LEASE    7       4.1    Description of the
object of the lease    7       4.2    Provisions of the sale contract and
investment costs    8       4.3    Transfer of title    8       4.4    Failure
of the sale contract    8    5.    ACCEPTANCE OF THE OBJECT OF THE LEASE    8   
   5.1    Date    8       5.2    Statement of the condition of the premises on
acceptance of the new building after its completion    8

II

   UTILISATION PHASE    9    6.    DURATION OF UTILISATION    9    7.   
PROCESSING COSTS    9    8.    LEASING PAYMENTS    9       8.1    Definition   
9       8.2    Calculation, determination    9       8.3    Interest period and
due date    10       8.4    Leasing payments at the beginning of the duration of
utilisation    10    9.    VALUE ADDED TAX    10       9.1    Liability    10   
   9.2    Security interests    11    10.    SECURITY INTERESTS / REQUIREMENTS
   11       10.1    Guarantees    11       10.2    Change of owner    12

III

   RIGHTS AND OBLIGATIONS    12      11.    LESSEE’S RIGHT TO ENJOYMENT    12   
   11.1    Scope    12       11.2    Obligation of diligence, maintenance and
third party rights    12       11.3    Modifications to the object of the lease
   13       11.4    Legal mortgages of artisans and construction firms    13   
   11.5    Pollution    13    12.    GUARANTEE AGAINST DEFECTS    13       12.1
   Guarantee against material and legal defects    14       12.2    Charges
encumbering the object of the lease    14    13.    RISK AND LIABILITY    14   
   13.1    Principle    14       13.2    Insurance taken out by the leasing
company    15       13.3    Insurance taken out by the lessee    15       13.4
   Accidents    15       13.5    Value Added Tax    16    14.    ACCESSORY COSTS
AND PUBLIC CONTRIBUTIONS    16

IV

   TERMINATION OF THE CONTRACT    16    15.    NORMAL TERMINATION OF THE
CONTRACT    16       15.1    Option of the Lessee    16       15.2    Extension
of the leasing contract    17       15.3    Purchase by the lessee    17      
15.4    Return of the object of the lease    17    16.    FAILURE TO PAY AND
OTHER BREACHES OF THE CONTRACT BY THE LESSEE    17       16.1    Interest on
arrears    17

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

     16.2    Option of the leasing company    18      16.3    Consequences of
failure to pay    18      16.4    Early termination of the leasing contract due
to serious circumstances    19    17.   EARLY TERMINATION OF THE CONTRACT BY THE
LESSEE    20    17 A)   EARLY TERMINATION BY THE LEASING COMPANY DUE TO THE
CASES LISTED IN CLAUSES 10.2 (CHANGE OF
OWNER) AND 13.4 (ACCIDENTS)    20

V

   FINAL PROVISIONS    21      18.   PROHIBITION OF OFFSETTING    21    19.  
COSTS OF THE CONTRACT    21    20.   RIGHT TO BE INFORMED AND TO VISIT    21   
21.      DECLARATION IN COMPLIANCE WITH THE LFAIE    21    22.      FORM    21
   23.      VALIDITY CLAUSE    22    24.      APPLICABLE LAW AND FORUM    22

VI

   SIGNATURES    22

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

I Preliminary Provisions

 

1. Purpose of the Contract

The leasing company shall acquire the object of the lease described under Clause
4.1 in accordance with the requirements notified to it by the lessee, in order
to construct on it the buildings requested by the lessee and to then grant it
the use and enjoyment of them for an agreed term. In consideration thereof, the
lessee shall pay the leasing company a periodical indemnity and bear the costs
and risks in connection with the use and enjoyment of the object.

 

2. Contractual Elements

The leasing contract consists of this document and its subsequent amendments and
related agreements signed by both parties. A schedule of up-to-date monthly
payments shall be attached as an appendix to the present leasing contract and to
the subsequent amendments.

The building permit (to be provided) and the contracts which the leasing company
shall enter into with third parties for constructing buildings, also form part
of the present contract.

The present leasing contract is being entered into subject to the express
condition precedent that all the documents concerning the guarantee referred to
under 10.1 hereof are duly signed and in the leasing company’s possession
(original documents with authenticated signature).

 

3. Investment Costs

 

3.1 Definition

At the time of signature of the leasing contract, the parties agreed to a
maximum price of

CHF 23,000,000.00 (before tax)

This is the maximum amount available to fund the acquisition of the object
described under 4.1 and the erection of the building. If the overall cost of the
acquisition and the construction of the building exceeds this amount, the lessee
shall reimburse the leasing company for the surplus.

VAT is not included in the calculation of the investment costs, since the
leasing company has made a prior application for tax deduction to the Federal
Tax Office (“Administration Fédérale des Contributions”). However, if this
deduction is not granted or is granted only partially, the lessee undertakes to
indemnify the leasing company in consequence (Clause 9).

Each quarter, during the construction work period, interim interest shall be
calculated on the basis of the balance of advances and will be invoiced
separately to the lessee (plus VAT). The definitive amount of investment costs
will be determined in an amendment (appendix) to the present contract on
presentation of the final breakdown. The lease payments due by the lessee will
be calculated on the basis of this amount.

 

3.2 Residual Value

Independently of the definitive amount of the investment costs and any
investment which the lessee may make in accordance with 11.3, the residual value
of the object of the lease on expiry of the term of contractual use (Clause 6)
is set, by mutual agreement, at

CHF 7,500,000.00

 

4

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

The parties consider that in view of usual amortizations, this amount
corresponds to the fair market value of the object on expiry of the lease
contract.

VAT due will be added to the fair market value, since the present lease contract
(Clause 9) and the subsequent sale of the object to the lessee are subject to
VAT.

In this respect, the leasing company must provide the lessee with an invoice
authorising the prior deduction of the abovementioned tax.

 

3.3 Residual Value at a given time

The residual value at a given time is notably used as the basis for calculating
the lease payment (Clause 8.2) during the duration of the contract. The parties
understand this to mean the residual value at a given time, depending on the
amortisation already carried out. Amortisation is calculated on a monthly basis,
according to the fixed depreciation method.

 

3.4 Provisions concerning the period of construction

 

  a) Planning

Construction work can only begin once the following formalities have been
carried out:

 

  •   An authenticated contract for sale has been drawn up relating to the
acquisition of the plot by the leasing company;

 

  •   The property presently standing on the plot has been demolished and
adapted;

 

  •   All the required statutory authorisations for the erection of the object
of the lease (notably a construction permit) have been procured;

 

  •   A detailed estimate of the cost, a work schedule and building plan on a
scale of 1:50 / 1:20 are presented;

 

  •   A general planning contract with Mühlemann + Partner, Architekten + Planer
GmbH, Grenchen has been signed;

 

  •   A detailed list of project managers has been provided;

 

  •   Contracts with the main project managers have been entered into;

 

  •   The insurances policies referred to in clause 3.4 (e) have been taken out;

 

  •   The Federal Tax Office (“Administration Fédérale des Contributions”) has
approved of the leasing company’s application with respect to voluntary taxation
of the income from the leasing contract (subjection to VAT).

The following deadlines are envisaged:

 

  •   Beginning of construction work: 01.07.2006;

 

  •   Acceptance of the works: September 2007;

 

  •   Delivery of the building: 01.01.2008

 

  •   Presentation of the definitive breakdown of costs of the works: 31.03.2008

The leasing company excludes all liability for compliance with these deadlines,
except if it has caused the delay intentionally or has committed a serious
fault. The obligations of the lessee under the lease contract shall remain in
force even in the event of delay. It must notably pay interim interest for which
it will be invoiced separately.

 

5

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

  b) Performance of the contract

As project manager, the leasing company shall, with the prior approval of the
lessee, enter into the contracts required for the construction of the object of
the lease with the general planner, Mühlemann + Partner GmbH and third parties,
and will fully substitute the lessee as such for contracts into which the lessee
has already entered. SIA 118 and SIA 102 standards shall apply.

Insofar as the lessee has already made payments under existing contracts, the
leasing company must reimburse it for these and they must be debited from the
investment account.

The leasing company, together with the lessee, should periodically verify the
breakdown of construction costs provided by the general planner. This is to
avoid the possible registration of legal mortgages by the craftsmen and
construction firms. The general planner should draw up and provide the parties
with a detailed list of construction managers.

During construction work, should the leasing company not be able to reach the
lessee, or in an emergency if the building is in danger, the leasing company
may, insofar as these modifications do not penalise the lessee with respect to
price, quality and deadlines, agree to amendments with the general planner or
appointed third parties concerning the work and contractual terms so as to
protect its interests. In any other case, the leasing company can only agree to
amendments with the general planner or appointed third parties on the basis of
mutual agreement between the leasing company and the lessee.

The lessee can, with the leasing company’s approval, take its place in
supervising the site and construction work and give instructions. It is not,
however, authorised to sign reports by the construction firms and/or other
appointed third parties concerning the work carried out, to accept credit, or,
without the approval of the leasing company and in divergence from the estimate
of contracts with third parties, to request substantial modifications to the
construction project or major additional works. If it nonetheless does this, it
will be liable for the resulting extra cost (Clause 3.4 (d))

 

  c) Methods of payment

During the construction phase, the leasing company shall record all payments
made for the acquisition and construction of the object of the lease in an
investment account, without VAT. Interim interest shall be calculated quarterly
and invoiced separately (plus VAT). The terms of Credit Suisse for construction
loans, in accordance with those of the market, shall apply to the remuneration
of advances. Presently, and until further notice, the annual interest rate is
2.75%, plus quarterly commission of  1/4 % on the maximum amount used. This
interest rate may also be modified during the construction works insofar as it
is modified by the bank, until consolidation. The investment account is closed
after payment of all signed final invoices. The balance makes it possible to
define the investment costs of the present lease contract.

During the construction works, the costs incurred under individual contracts are
invoiced according to the payment plan, supervised by the general planner
Mühlemann + Partner GmbH as project manager. Invoices issued by firms must be
made out to the leasing company but initially submitted to the lessee for
approval and signature (legally valid). The lessee shall then submit them to the
leasing company which, as owner of the building, shall pay the amount. The
address for all invoices, which should enable prior deduction of tax, is as
follows:

CREDIT SUISSE

Leasing

Case postale 5722

1002 Lausanne

 

6

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

If craftsmen or construction firms’ legal mortgages encumbering the building are
registered, the lessee is liable to the leasing company and shall bear the cost
of ensuring that such registration (provisional or definitive) of legal
mortgages is removed.

The payment of the price of the plot on transfer of title, in accordance with
the contract for sale to be signed, constitutes the first advance.

 

  d) Exceeding Investment Costs

If the leasing company sees that the investment cost of CHF 23,000,000.00
(before tax) has been exceeded, it should contact the lessee with respect to
covering the extra costs. If the parties cannot reach agreement, the lessee
shall bear the extra costs and shall not have any action against the leasing
company.

If extra costs were paid by the leasing company from the investment account, the
lessee must pay it the corresponding amount plus interim interest and VAT, as a
lump sum within 30 days of the closure of the investment account (clause 3.4
(c)).

 

  e) Insurance

All insurance policies in respect of the construction, such as property owner’s
civil liability insurance, construction work insurance and progressive building
insurance, are taken out by the leasing company.

The lessee and the general planner must verify that the architects, engineers,
construction firms, building artisans, suppliers etc., involved in the
construction works have sufficient insurance cover under an exploitation or
professional civil liability policy. Insofar as the insurance taken out by the
leasing company and/or the exploitation or professional civil liability policies
taken out by third parties do not cover, or only partially cover, the risks
incurred by the building owner or the land owner, the lessee and the general
planner bear the cost of any resulting loss suffered by the leasing company.

 

4. Acquisition of the object of the lease

 

4.1 Description of the object of the lease

The leasing company is acquiring the following plot, under a property sale
contract:

In the town of Neuchâtel, property No. 14541, folio plan No. 263 (1,827 m2) and
DDP No. D 14576, folio plan No. 263, (5,541 m2). The latter will be annulled
after alterations are carried out to property No. 14,542, folio plan No. 263,
which it is presently part of and will then be included in property No. 14,541
as altered.

Owner and seller: Town of Neuchâtel, Neuchâtel

Detailed description, annotations, easements, real estate charges and security
interests in accordance with the land registry records and with the contract of
sale to be signed.

As project manager, the leasing company is having the building erected in
accordance with the construction permit (application filed on 28 April 2006),
the general planner’s project, the estimate of costs and the following plans of
28 April 2006:

Location plan No. 06/297/001

Construction law compliance plan No. 06/297/005

Basement plan No.06/297/011

 

7

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

Ground floor plan No. 06/297/012

1st Floor plan No. 06/297/013

2nd Floor plan No. 06/297/014

Elevation plan No. 06/297/016

Facade plan No. 06/297/017

Exterior fittings plan No. 06/297/321

Pipe work location plan No. 06/297/004

and the forms and appendices to the planning application of 28 April 2006.

 

4.2 Provisions of the sale contract and investment costs

The lessee is aware of the terms of the sale contract and it accepts them
insofar as they relate to it.

Costs resulting from the change of owner such as taxes and fees form part of the
investment costs.

The maximum amount of the investment costs are CHF 23,000,000.00 (before tax)

 

4.3 Transfer of title

Title shall be transferred after an authenticated contract of sale has been
drawn up between the seller and the leasing company, envisaged for May 2006.

 

4.4 Failure of the sale contract

The lease contract shall be annulled if the contract for sale has not been
entered into with the seller or if it is subsequently annulled, or if title has
not been definitely transferred. The lessee shall reimburse the leasing company
for amounts already paid to the seller, except where it is proved that the
leasing company is liable for failure to reimburse.

If the sale contract or the transfer of title fails

 

  a) due to the lessee or the seller, the lessee is liable for loss suffered.
The costs of processing CHF 100,000.00 (plus 7.6 % VAT, clause 7) must
nonetheless be paid to the leasing company to cover its expenses.

 

  b) due to leasing company, and if it is possible to prove this, the leasing
company must reimburse the loss suffered by the lessee.

 

5. Acceptance of the object of the lease

 

5.1 Date

The lessee shall accept the object of the lessee after construction, i.e.
01.01.08, in favour of the leasing company (clause 4.3).

 

5.2 Statement of the condition of the premises on acceptance of the new building
after its completion

On acceptance of the new building, the lessee and the leasing company draw up a
written statement of the condition of the premises that are the object of the
leasing contract, completed by photographs if necessary. In this way, any
defects may be notified immediately to the construction contractual partners, in
accordance with standard SIA 118.

 

8

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

Prior to expiry of the guarantee period of two years, the lessee and the leasing
company should together draw up a list of apparent defects by virtue of standard
SIA 118.

If the lessee discovers hidden defects, it should immediately notify them to the
leasing company in writing so that the deadlines under standard SIA 118 may be
complied with.

The lessee is fully aware of the provisions of standard SIA 118 with respect to
deadlines.

 

II UTILISATION PHASE

 

6. Duration of Utilisation

The duration of utilisation begins on the first day of the month following
acceptance of the erected buildings, envisaged on 01.01.08. A fixed term of use
of 15 years therefore begins on 01.01.2008 and ends on 31.12.2022, subject to
early termination of the contract under Clauses 16 and 17. If, for any reason
whatever, the date of the start of utilisation of the new building is postponed,
the parties must agree to new deadlines in an amendment to the present contract.
The lessee is in no event authorised to terminate the leasing contract as a
result of delay with respect to this schedule.

 

7. Processing Costs

The lessee must pay processing costs of CHF 100,000.00 (plus 7.6 % in VAT) to
the leasing company. This amount is due within 10 days of the signature of the
present leasing contract.

 

8. Leasing payments

 

8.1 Definition

Leasing payments mean the remuneration of all the services due by leasing
company. In particular, it also covers the depreciation of the object of the
leasing (amortisation required for exploitation), but does not include any
indemnity for its maintenance, its repair or alteration work. It therefore still
remains due if for any reason whatsoever the object of the leasing cannot be
used or can only be partly used.

 

8.2 Calculation, determination

The leasing payments consist partly of amortisation and partly of the costs of
capital. The amortisation part results from the difference between the costs of
investment and the theoretical residual value of the object at the end of the
term of the leasing. The leasing company should draw up a table of monthly
payments to this effect. The capital costs part is calculated on the basis of
the interest rate of the leasing, as a percentage of the costs of the
investment.

The interest rate of the leasing is based on the capital market rate (presently
the SWAP rate) for loans superior to one year, plus a margin for the leasing
company of 1.85 % p.a. It will be determined definitively 2 business days prior
to the start of utilisation (Clause 6), and then each time, 2 business days
prior to the new interest period, on the basis of the conditions in force on the
capital market (interest rate corresponding the duration chosen). The definitive
investment costs and leasing payments due for the first interest period and
subsequent periods shall always be determined in an amendment (appendix) to the
present contract.

The leasing company’s margin shall be modified in the following cases:

 

9

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

  a) Each year, the leasing company shall calculate the lessee’s rating, in
accordance with recognised methods (Credit Suisse custom), on the basis of the
annual report which it submits to it (Clause 20). When this rating changes, the
leasing company shall adapt its margin accordingly.

 

  b) If the lessee’s interest reports (shareholders’ interest) changes
significantly and its solvency is modified as a result, on the basis of the
rating usually given to a firm of this kind by the leasing company (Clause 10),
the leasing company shall adapt its margin accordingly.

 

  c) If the shareholders’ equity cover requirements presently in force were to
be increased further to measures imposed by the authorities or by law, the
leasing company reserves the right to transfer the resulting increase in costs
of the leasing to the lessee.

Any modification of the interest rate of the leasing must be contained in an
amendment (appendix) to the present contract. The leasing company should also
attach an up to date table of monthly payments to this appendix.

 

8.3 Interest period and due date

The leasing payments shall be modified in proportion to the evolution of the
capital market. The lessee may select the duration of the initial interest
period of between 2 and 15 years, up until 2 business days prior to the
beginning of the utilisation phase, at the latest (Clause 6). The lessee shall
also set the duration of the following periods with a minimum of 2 years. The
total duration must not, however, exceed the end of the duration of utilisation
provided in Clause 6, and the residual duration between the end of the
penultimate period and the end of utilisation must be at least 2 years. The
lessee must inform the leasing company of its choice 5 days at the latest prior
the end of the current period.

The leasing payment is divided into 180 monthly payments during the contractual
term of 15 years. These amounts are payable in advance on the 1st (first) of
each month.

 

8.4 Leasing payments at the beginning of the duration of utilisation

The first leasing payment shall be due at the start of the duration of
utilisation (Clause 6) on the basis of the investment costs calculated (Clause
3.1).

If, for any reason whatsoever, the date of the start of utilisation is
postponed, the parties must agree to new deadlines in an appendix to the present
contract.

After the closure of the investment account and the definition of the definitive
investment costs, the leasing payments shall be modified retroactively on
01.01.2008 and shall be the object of a new amortisation table in an appendix to
the present leasing contract. Any difference between the leasing payments due
and payments made by the lessee must be set off immediately without interest
being calculated.

 

9. Value Added Tax

 

9.1 Liability

The leasing company undertakes to submit an application to the Federal Tax
Office (“Administration Fédérale des Contributions”) for voluntary taxation of
the income generated from the leasing contract, insofar as this is possible by
law. The income generated by the leasing contract includes all payments made by
the lessee to the leasing company on the basis of the leasing contract: leasing
payments, the leasing company’s processing costs, costs of the notary and the
Land Registry paid by the leasing company and charged back, surface area duty,

 

10

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

insurance premiums, uninsured costs of reconstituting the object of the leasing,
taxes such as VAT non-deductible by the leasing company, transfer duty, tax on
the services to self or capital gains tax where the object of the lease is sold
to the lessee, and the other accessory costs and public taxes provided under
Clause 14.

Once liability to tax has been approved, the leasing company is authorised to
invoice all the Value Added Tax and any tax due on services to self, on to
lessee at the VAT rate in force, upon the condition that the obligation to carry
out a service to self is not due to a situation created by the leasing company.
The leasing company must also provide the lessee with invoices authorising the
prior deduction of the tax.

Insofar as the prior tax relief is possible, the leasing company must claim and
credit the corresponding amount to the lessee. It must also, if possible,
request prior deduction of the tax and deduct the corresponding amount from the
amount of investment.

If, further to total or partial refusal or subsequent total or partial
withdrawal of liability to tax for any reason whatsoever, the leasing company
must pay a tax on the services to self (in particular further to a modification
of the utilisation or categorisation of the leasing contract as a credit
operation) or if the prior deduction of the tax is not granted or only partially
granted, the lessee undertakes to indemnify the leasing company as a result,
insofar as the refusal of liability to tax or the loss of the right to deduction
is not due to the leasing company. If, within 3 months of the termination of the
contract, the leasing company has not been able to add a new utilisation to the
object of the leasing in the context of the existing liability to tax, it is
authorised to impose services to self and invoice the corresponding amount to
the lessee. The leasing company undertakes to apply reasonable means during the
aforementioned three-month period to add a new utilisation of the object of the
leasing in the context of the existing liability to tax.

The lessee is aware of the risk of the services to self being subsequently
liable to tax.

 

9.2 Security interests

At the time of liability to tax, the leasing company may request collateral from
the lessee as security for the tax on the services to self.

 

10. Security interests / Requirements

 

10.1 Guarantees

As the lessee has been recently incorporated, Kyphon Inc., the parent company of
the lessee, the registered office of which is located at 1221 Crossman Avenue,
Sunnyvale, CA 94089, United States (Registered agent: Corporation Service
Company (CSC), 2711 Centerville Rd, Suite 400 Wilmington, DE 19808, United
States), provides an irrevocable guarantee of payment according to the following
separate documents:

 

  1. Guarantee (unsecured) of CHF 11,000,000.00 (see appendix 1a)

  2. Standby Letter of Credit of CHF 4,500,000.00, issued by a leading bank

The Guarantee (unsecured) must be accompanied by the following documents:

 

  •   Form of Board Resolutions (see appendix 1b)

 

  •   Legal Opinion (see appendix 1c)

 

  •   Specimen signatures of the company (see appendix 1d)

 

  •   Certificate of Good Standing mainly issued by the Secretary of State

 

11

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

If the total amount of investment is less than CHF 23,000,000.00, the amount of
the guarantees will be amended in the final breakdown as follows:

 

  •   Up to an investment amount of CHF 20,000,000.00:

 

  •   Guaranty (unsecured) CHF 9,500,000.00

 

  •   Standby Letter of Credit CHF 3,000,000.00

 

  •   Half of the investment amount in excess of CHF 20,000,000.00 would be
covered by the Guaranty (unsecured) and the other half by a Standby Letter of
Credit

Once the lessee has established a profitable business, the guarantee of Kyphon
Inc. may be reduced or restored as decided by the leasing company.

 

10.2 Change of owner

If the lessee’s interest reports changes significantly and if its solvency is
greatly diminished as a result on the basis of the rating usually given to a
firm of this kind by the leasing company (for example, demotion), the leasing
company may unilaterally request, with a reasonable time period, for further
security to make up for the diminished solvency, or terminate the present
leasing contract early, in compliance with the termination period of three
months and with the legal consequences set out under Clause 17 a).

 

III RIGHTS AND OBLIGATIONS

 

11. Lessee’s right to enjoyment

 

11.1 Scope

The leasing company assigns the use and enjoyment of the object in accordance
with its purpose, to the lessee. The lessee must procure the prior written
approval of the leasing company in order to lease all or part of the object of
the leasing and grant enjoyment rights to third parties. The leasing company
cannot withhold its approval without valid reason. Additionally, by virtue of
the present leasing contract, the leasing company agrees to a rental lease
between the lessee and Swissgenetics to lease part of the object of the leasing
until 31 December 2007 at the latest. The lessee undertakes, vis-à-vis the
leasing company, to ensure that these third parties do not acquire rights that
are greater than its own.

 

11.2 Obligation of diligence, maintenance and third party rights

The lessee undertakes to use the object of the leasing and maintain it with
appropriate care. It is liable to the leasing company for excessive wear and
tear or deterioration due to improper use or use contrary to its purpose.

The lessee is responsible for the general maintenance of the object of the
leasing. It must carry out without delay, and on its own behalf, any
restoration, renovation or repair work which becomes necessary, failing which
the leasing company shall order it in writing to proceed with these works within
30 days. On the expiry of this deadline, the leasing company may carry out the
works itself and invoice back the corresponding costs to the lessee. The lessee
will ensure that any present and future administrative obligations in relation
to the existence and exploitation of the object of the leasing are satisfied.
Additionally, it must satisfy, and discharge the leasing company in this respect
from, any third party claims and rights arising from agreement relating to the
surface area rights, easements and real estate charges or any other contract in
relation to the object of the leasing.

 

12

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

The lessee must have appropriate concern for third parties such as may be
expected from the holder or manager of a building such as the object of the
lease.

 

11.3 Modifications to the object of the lease

The lessee can only transform the object of the leasing or change its use with
the written approval of the leasing company. The leasing company cannot withhold
its approval without valid reason. Administrative requirements and obligations
remain reserved (notably the supervision of buildings and protection of the
environment). If these modifications increase the value of the property or are
closely connected with the building, the leasing company shall acquire title to
them by the normal or early expiry of the contract. The lessee therefore has no
right to claim the reimbursement of its expenses from the leasing company. In
consideration of this, the leasing company waives its right to require
collateral with respect to these modifications.

For any construction work and installation that are purely connected with
exploitation and carried out by the lessee at its own cost, title must be
clearly specified in writing.

In the absence of written authorisation from the leasing company for these
modifications, it may in any event require the return of the object of the lease
in its original state at the normal or early deadline of the contract.

 

11.4 Legal mortgages of artisans and construction firms

If legal mortgages of craftsmen or construction firms encumbering the object of
the leasing are registered as security for the amounts due by the lessee
(maintenance and restoration costs within the meaning of Clause 11.2, or
alterations made to the object of the leasing within the meaning of Clause
11.3), the lessee must immediately ensure their removal at its own cost.

 

11.5 Pollution

The lessee guarantees the leasing company, in the sense of an independent
guarantee under Article 111 of the Swiss Code of Obligations (hereafter, “CO”),
that no third party, neighbour or authority shall make any claims against or
demands from the leasing company relating to the investigation, supervision,
confinement, clearance or removal of waste of substances which are harmful to
the environment and/or claims for indemnification as a result of such of waste
or unidentified substances which are harmful to the environment.

If claims are made against the leasing company due to unidentified pollution,
the lessee undertakes to discharge the leasing company, its representatives and
employees from the aforesaid claims, without limit, irrevocable and at first
demand. The lessee waives the right to claim time bar or raise any other
objection or defence whatsoever. The lessee additionally undertakes to intervene
in any proceedings instigated against the leasing company due to such claims and
to carry them through at its own cost.

In addition, the leasing company is liable for any pollution of contamination of
the object of the leasing by substances that are harmful for the environment or
waste (for example in the ground, subsoil and in the building) which may result
from the erection, exploitation or demolition of installations and buildings of
the object of the lease.

 

13

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

The lessee undertakes to carry out a prior investigation of the site within the
meaning of Article 7 Osites at the expiry of the present contract by a
specialised firm recognised by the ASR at its own cost. The report of this
investigation should be delivered to the leasing company three months prior to
the expiry of the lease. The leasing company should be consulted as to its
choice of expert and may propose its own expert. If the preliminary
investigation indicates the presence of pollution linked to substances that are
harmful to the environment, or waste caused by the lessee, the lessee must
immediately and without delay, take any necessary measures at its own cost to
restore the site to a condition that is legally compliant entirely clear the
site of any substances that are dangerous for the environment or waste
(decontamination; Articles 6 paragraph 2 (b) and 16 (a) Osites).

 

12. Guarantee against defects

 

12.1 Guarantee against material and legal defects

The leasing company shall satisfy the claims of the lessee insofar as it has
similar claims towards third parties and where these can be exercised. Any other
warranty is excluded.

The lessee is aware of the condition and nature of the object of the leasing,
both from a legal and material perspective.

The lessee shall carefully verify that the object of the lease is free from
defects, not only on acceptance of the works but also subsequently. It shall
make any claims for defects within the required timeframe and in due form to the
persons bound by the guarantee, on the account of the leasing company and shall
notify it of this. The expenses and risks shall be borne by the lessee. The
leasing company may ask the lessee to instigate proceedings to enforce the
guarantee on behalf of the leasing company and at its cost. It shall define
together with the lessee, the scope of its appointment as agent to instigate the
proceedings.

Guarantee enforcement proceedings instigated by the lessee do not in any event
affect its obligations under the present contract. In particular, it remains
liable to pay the leasing payments on time on their due date during the period
in which the object of the leasing cannot be used or can only be partly used. It
cannot demand either the suspension or a reduction of the payments under the
lease.

 

12.2 Charges encumbering the object of the lease

The leasing company can only encumber the object of the leasing with security
interests for the purpose of funding the entire amount of the investments
according to the present contract. Moreover, it requires the prior written
approval of the lessee to encumber the object of the lease with either
contractual rights or limited proprietary rights in favour of third parties.

 

13. Risk and Liability

 

13.1 Principle

As soon as title is transferred to the leasing company, the risk of damage,
destruction or any other depreciation of the object of the lease, as well as the
ensuing loss, passes to the lessee, irrespective of the cause, insofar as they
have not been caused by the leasing company intentionally or consequent to a
serious fault. The lessee must satisfy all its obligations towards the leasing
company inherent to the present contract and notably must pay the agreed leasing
payments.

 

14

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

The lessee discharges the leasing company of any liability to third parties,
which the owner of the building or the owner or manager of the object of the
leasing incur by law and under the contract, and in particular building owner’s
liability (Article 58 CO) and real estate owner’s liability (Article 679 CC).
The leasing company shall, however, be liable for loss which it has caused
intentionally or further to serious fault.

 

13.2 Insurance taken out by the leasing company

The leasing company shall, at the lessee’s cost, take out any insurance
necessary to cover the risks arising from the existence of the object of the
leasing (property insurance with respect to the building and civil liability
property insurance). The premiums shall be invoiced to the lessee. If the lessee
can demonstrate that it is able to procure lower premiums from other insurance
companies, the leasing company may, as an exceptional measure, authorise it to
take out, at its own cost, all the policies required to cover the risks arising
from the operation of the object of the lease. The cover provided must be at
least equivalent to the cover offered by the leasing company. In this case,
copies of the corresponding policies must be provided to the leasing company.
The lessee shall assign its claims under the insurance policies to the leasing
company. The leasing company may (but is not obliged to) notify the assignment
to the insurance company.

In the case of damage, the leasing company shall provide the services under the
building insurance in order to restore it. Loss which is not or only partly
covered shall be borne by the lessee. Any excess shall also be borne by the
lessee. Similarly, it shall bear any uninsurable and uncovered risks, and
discharge the leasing company of this. See Clause 3.4 (e) for insurance policies
relating to the construction.

 

13.3 Insurance taken out by the lessee

The lessee must take out, at its cost, industrial third party insurance. The
lessee is advised to also take out insurance against operational risks, such
business interruption insurance, and in any event, against the loss of rental
income further to damage to the building.

 

13.4 Accidents

In the case of an accident, the lessee must immediately inform the leasing
company and take all measures to limit the damage as far as possible. Any excess
shall be borne by the lessee. Similarly, it shall bear any uninsurable and
uncovered risks, and discharge the leasing company of this.

If the object of the leasing is entirely or partly destroyed, the leasing
company shall be bound to restore it for the amount paid out by the insurance
companies. The lessee shall pay the leasing company in a specific lump sum
payment, the extra costs of restoration, irrespective of the causes of the
accident, insofar as it was not caused by the leasing company intentionally or
further to serious fault. If the lessee refuses or is not able to do this,
either party may terminate the contract in compliance with the termination
period of three months and with the legal consequences set out under Clause 17
(a).

 

15

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

13.5 Value Added Tax

If the income generated by the present leasing contract is subject to VAT, the
leasing company may charge back to the lessee the VAT on the insurance premiums
which it has paid out and invoiced and on the uninsured costs of restoration of
the object of the leasing (Clause 9). In this respect, the leasing company must
provide the lessee with an invoice authorising the prior deduction of the tax.

 

14. Accessory costs and public contributions

The leasing company shall pay the ordinary federal, cantonal and communal taxes
(income and capital gains tax) for which it is liable as the owner of the object
of the leasing.

The real estate taxes (such as real estate tax) as well as any other public
contributions and the accessory costs of the property shall be borne by the
lessee, in particular:

 

  a) Taxes and public contributions (property insurance premiums, waste disposal
tax, water consumption tax, road maintenance and clearance tax, etc.);

 

  b) electricity costs;

 

  c) the costs of maintenance and exploitation of heating (oil, electricity,
maintenance contracts, etc.);

 

  d) The maintenance of water treatment installations;

 

  e) Any kind of environment tax;

 

  f) Any insurance premiums listed in Clause 13;

 

  g) Mandatory payments or contributions under private law contracts which
constitute easements (contributions to neighbour funds for access routes to the
buildings, etc.)

 

  h) Value Added Tax, if applicable, to the leasing payments and to the other
payments inherent to this leasing contract.

 

IV TERMINATION OF THE CONTRACT

 

15. Normal Termination of the Contract

 

15.1 Option of the Lessee

At the end of the period of the utilisation and if the lessee has duly satisfied
its obligations under the present contract, the lessee may elect one of the
following:

 

  a) The extension of the leasing contract;

 

  b) The purchase of the object of the lease;

 

  c) The return of the object of the lease

The lessee will notify its choice to the leasing company in writing 12 months in
advance with effect from the end of the utilisation period.

If it fails to do this or it is late, the present leasing contract will be
automatically renewed for one year. The interest rate of the leasing for the
calculation of the payments shall be determined two business days prior to the
start of the extension, on the basis of valid capital market conditions. The
leasing company’s margin shall be adapted in accordance of the lessee’s rating.

 

16

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

15.2 Extension of the leasing contract

The lessee may request the leasing contract to be extended once for another term
(relay contract). In this case, the terms shall be redefined. The amount of the
investments of the relay contract corresponds to the theoretical value of the
object according to Clause 3.2. The leasing company can refuse to extend the
contract if the lessee’s financial means are insufficient.

 

15.3 Purchase by the lessee

The leasing company grants the lessee a non transferable purchase option on the
object of the leasing which may be exercised at the end of the utilisation
period. The purchase price corresponds to the theoretical residual value of the
object of the leasing in accordance with Clause 3.2. As the present leasing
contract is subject to VAT in accordance with Clause 9, the leasing company
shall also subject the sale of the object to the lessee to this tax and will
increase its sale price as a result. The lessee shall bear the risk of the total
or partial refusal of liability to this tax and shall indemnify the leasing
company for any costs related to the tax on the services to self. The lessee
shall bear all the costs resulting from the change of ownership, such as taxes
(in the present case, transfer rights and any capital gains tax, except where
these gains are the result of excess amortisation by the leasing company), taxes
and fees, including VAT and, as the case may be, tax on services to self in the
case of total or partial refusal of liability.

Any investments which may be made by the lessee in the context of Clause 11.3
shall not be reimbursed by the leasing company.

If the lessee expresses its interest in purchasing the object of the leasing
within the required time period, it should also present a draft notarised
contract of sale and evidence of funding 6 months prior the expiry of the
present leasing contract at the latest, failing which the leasing company shall
be free again to sell the object of the leasing to a third party. Up to the
expiry of this time period, the lessee may select another option referred to in
Clause 15.1.

At the lessee’s request, the purchase option is contained in a separate
authenticated contract, which the lessee can therefore register at its own cost
at the Land Registry.

The lessee expressly declares that the leasing company has informed it of the
tax risk of transaction chains that it will incur by enabling a third party to
benefit from the purchase option.

 

15.4 Return of the object of the lease

At the end of the utilisation period, the lessee shall return the object of the
lease to the leasing company, fully vacated, cleaned out and duly restored, with
all the keys. It will be liable for excessive wear and tear. If the lessee has
leased the premises to third parties, the rental leases must be terminated and
the premises vacated at this date. The parties may agree otherwise in writing.

 

16. Failure to pay and other breaches of the contract by the lessee

 

16.1 Interest on arrears

If the lessee is late in its payments, the leasing company will charge it
interest on the arrears, without prior notice, for the entire period of delay.
This interest corresponds to the interest rate of the lease is used to set the
lease payments for the current period of use, according to Clause 8, increased
by 2%.

 

17

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

16.2 Option of the leasing company

If the lessee does not satisfy its contractual obligations, in particular if it
is late in paying a leasing payment, the leasing company shall grant it an
initial extension of 30 days to satisfy to the above obligations. If the
contractual obligation has not been satisfied by the expiry of this first
extension, the leasing company shall grant it a second extension of the same
duration. If the obligation has still not been satisfied at the expiry of the
second time period, the leasing company may demand the immediate provision of
appropriate collateral for all the payments due and the performance of all the
contractual obligations. The lessee must present the collateral within one month
of the request.

If this period expires with no effect, or if the lessee cannot provide the
required collateral, the leasing company may, by virtue of its option under
Article 107 CO:

 

  a) Terminate the leasing contract and claim indemnification of the loss
resulting from the non-performance of the contract, of up to the amount of the
negative contractual interest; or

 

  b) While continuing the leasing contract, waive its performance by the lessee
and claim damages for non-performance, of up to the amount of the positive
contractual interest.

 

16.3 Consequences of failure to pay

 

  a) If the leasing company exercises its right within the meaning of Clause
16.2 (a), it shall terminate this leasing contract for the end of the calendar
month with at least 30 days’ notice. The lessee must in that case vacate and
return the object of the leasing within this time period, in accordance with the
provisions of the present contract relating to the return.

The leasing company may claim damages of up the amount of the negative
contractual interest as follows:

 

  •   All the leasing payments due which are still outstanding at the time of
termination of the contract, plus moratorium interest;

 

  •   Plus other payments which may be due by the lessee under the present
leasing contract (e.g. the reimbursement of insurance costs, etc.);

 

  •   Plus all the costs related to the restoration and construction of the
object of the leasing;

 

  •   Plus an indemnity for all the expenses of the leasing company in relation
liability for VAT on the income generated by the present leasing contract, e.g.
tax on the services to self if the use of the object of leasing is changed.

 

  b) If, while continuing the leasing contract, the leasing company waives
performance of the contract by the lessee within the meaning of Clause 16.2 (b),
it will grant the lessee at least 30 days from the end of the current calendar
month, in which the lessee should vacate and return the object of the leasing in
accordance with the provisions of the present contract concerning the return.

The leasing company may claim damages of up the amount of the positive
contractual interest according to the theory of the difference, as follows:

 

  •   All the leasing payments due up to the expiry of the duration of use and
which are still outstanding at the expiry of the supplementary extension;

 

  •   Plus the theoretical residual value of the object of the leasing at the
expiry of the ordinary duration of utilisation;

 

  •   Plus all the costs related to the restoration and construction of the
object of the leasing;

 

18

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

  •   Plus an indemnity for all the expenses of the leasing company in relation
to liability for VAT on the income generated by the present leasing contract
(e.g. tax on the services to self if the use of the object of leasing is
changed);

 

  •   Plus other payments which may be due by the lessee under the present
contract (e.g. the reimbursement of insurance costs);

 

  •   Less a discount at the market rate on future leasing payments which shall
apply as soon as the leasing company notifies its option until the expiry of the
period of ordinary use;

 

  •   Less (at the leasing company’s discretion) the fair market value at the
time of notification of the option, or less the net income of the construction
of the object of the leasing.

The indemnification of any other duly evidenced loss is reserved.

 

16.4 Early termination of the leasing contract due to serious circumstances

The leasing company may terminate the leasing contract early, with immediate
effect, on proper grounds, notably if the lessee had breached a fundamental
contractual obligation, if the object of the leasing is confiscated, if a
craftsman’s or construction firms’ legal mortgage is registered (on a
provisional or definitive basis), or if the economic situation of the lessee or
the guarantor, i.e. Kyphon Inc. has changed in such a way as to threaten the
leasing company’s contractual rights, notably if it becomes insolvent, requests
the suspension of payments, drafts an authenticated protest against bills of
exchange, is seized or wound up. In these cases, the leasing company may proceed
as in Clause 16.2 of this contract.

If the leasing contract is terminated on proper grounds, the lessee must vacate
the object of the leasing and return it to the leasing company in accordance
with the provisions of the present contract concerning the return. The leasing
company may, at its discretion, claim damages of up to the amount of the
positive or negative interest, analogous to Clause 16.3 (a) and (b).

 

19

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

17. Early termination of the contract by the lessee

Provided that it has fully satisfied its contractual obligations towards the
leasing company, the lessee may terminate the present contract early, on the
expiry of an initial term of 10 years, with 12 months’ notice, by purchasing the
object of the leasing.

The purchase price corresponds to the theoretical residual value of the object
of the leasing at the termination of the contract, in accordance with Clause
3.2, plus a termination commission of 4 % of this value. As the present leasing
contract is subject to VAT, the leasing company shall also subject the sale of
the object to the lessee to this tax and will increase its sale price as a
result. The lessee shall bear the risk of the total or partial refusal of
liability to this tax and shall indemnify the leasing company for any costs
related to the tax on services to self insofar as they are not the result of
fault or negligence by the leasing company. If the termination period does not
coincide with the end of an interest period, the lessee shall pay the leasing
company the indemnity for early repayment which it may have paid in the case of
early termination of funding. The lessee shall be liable for all the costs
arising from the change of owner, such as taxes and fees, including VAT and, if
relevant, the tax on services to self, in the case of total or partial refusal
of liability insofar as the refusal of liability is not due to the leasing
company. Any investments which may be made by the lessee in the context of
Clause 11.3 shall not be reimbursed by the leasing company.

The lessee’s purchase request must be made in writing. A draft notarised sale
contract and evidence of funding must be provided 6 months at the latest prior
to the expiry of the termination period. If these documents have not been
provided within the required time, the purchase request shall be considered null
and void.

At the lessee’s request, the purchase option is contained in a separate
authenticated contract, which the lessee can therefore register at its own cost
at the Land Registry.

 

17 a)     Early termination by the leasing company due to the cases listed in
Clauses 10.2 (change of owner) and 13.4 (accidents)

Should the leasing company terminate the present contract following a change of
owner (Clause 10.2) or in the case of an accident (Clause 13.4), the lessee –
provided it has fully satisfied all its contractual obligations towards the
leasing company – has an option to purchase the object of the leasing.

The purchase price corresponds to the theoretical residual value of the object
of the leasing at the termination of the contract, in accordance with Clause
3.2, plus a termination commission of 4 % of this value. As the present leasing
contract is subject to VAT, the leasing company shall also subject the sale of
the object to the lessee to this tax and will increase its sale price as a
result. The lessee shall bear the risk of the total or partial refusal of
liability to this tax and shall indemnify the leasing company for any costs
related to the tax on services to self provided they are not the result of fault
or negligence by the leasing company. If the termination period does not
coincide with the end of an interest period, the lessee shall pay the leasing
company the indemnity for early repayment which it may have paid in the case of
early termination of funding. The lessee shall be liable for all the costs
arising from the change of owner, such as taxes and fees, including VAT and, if
relevant, the tax on services to self, in the case of total or partial refusal
of liability provided that the refusal of liability is not due to the leasing
company. Any investments which may be made by the lessee in the context of
Clause 11.3 shall not be reimbursed by the leasing company.

 

20

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

The lessee’s purchase request must be made in writing. A draft notarised sale
contract and evidence of funding must be provided within two months of the
leasing company’s termination instrument. If these documents are not provided
within the required time, the purchase request shall be considered to be null
and void and the lessee shall have to return the object of the leasing according
to Clause 15.4 of the present contract at the expiry of the termination period
of three months.

At the lessee’s request, the purchase option is contained in a separate
authenticated contract, which the lessee can therefore register at its own cost
at the Land Registry.

 

V FINAL PROVISIONS

 

18. Prohibition of offsetting

The lessee may not offset any debts which may be due to the leasing company
against debts owed by it to the leasing company under the present contract.

 

19. Costs of the contract

The lessee is liable for any costs in relation to the conclusion, amendment and
performance of the present contract and contracts entered with third parties
under the present contract, notably notary and Land Registry costs, any transfer
duty and capital gains tax in relation to the acquisition of the object by the
leasing company, and in relation to purchase, if relevant, by the lessee.

 

20. Right to be informed and to visit

During the term of the present contract, the lessee is bound to spontaneously
provide the leasing company each year with a copy of its annual report (Article
662 CO) together with the report of the verification body (with the consolidated
figures for the group) within 6 months of annual closure.

Moreover, the leasing company is authorised to visit the object of the leasing
at any time with reasonable notice.

 

21. Declaration in compliance with the LFAIE

By signing this contract, the parties expressly confirm that the object of the
leasing shall be used as a stable establishment within the meaning of Article 2,
paragraph 2 (a) of the Federal Law on the Acquisition of Property by Persons
Abroad (LFAIE / Lex Koller / “Loi Fédérale sur l’Acquisition d’Immeubles par des
Personnes à l’Etranger”), that the reserve area to be used for extension of the
enterprise does not exceed one third of the total area that the reserve area
will not be used for residential flats. The signature and performance of the
present contract are therefore not subject to authorisation within the meaning
of the LFAIE.

 

22. Form

In order to be valid, the present contract and accessory agreements, additions
and amendments must be made in writing and bear the handwritten signature of
both parties within the meaning of Articles 13 to 15 CO.

By the present contract, the parties expressly waive the presumption that verbal
or implied agreements are also valid.

The parties are not bound until this contractually agreed formality has been
carried out (Article 16 paragraph 1 CO).

 

21

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

23. Validity clause

If one or more provisions of the present contract are or become partly or wholly
unreceivable, null and void or unenforceable, the validity of the present
contract shall not be otherwise affected.

The parties undertake to cooperate in good faith to replace such provision by
another which corresponds as closely as possible to the originally intended
economic purpose.

 

24. Applicable law and forum

The present Contract is entirely and exclusively governed by Swiss law.

The parties agree to bring any proceedings relating to the present contract
before the ordinary courts of the registered office of the leasing company. The
leasing company may, however, instigate proceedings against the lessee at its
domicile or at the place where the object of the leasing is located.

 

VI SIGNATURES

 

Brussels, May 24, 2006         Lausanne, May 18, 2006 KYPHON SÀRL     CREDIT
SUISSE

/s/ Robert A. Vandervelde

   

/s/ Serge Bornick

Director, Kyphon Sàrl     Director, Credit Suisse

Appendix: Table of monthly payments of 18.05.2006

 

22