Document:

EXHIBIT 10.5

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made and entered into by ISOTIS ORTHOBIOLOGICS, INC. (“Company”), and JOHN F. KAY, Ph.D. (“Kay’)

WHEREAS, Kay has been employed by the Company pursuant to a written Employment Agreement signed by Kay on October 30, 2003 (“2003 Employment Agreement”); and

WHEREAS, the parties have negotiated and agreed to new terms and conditions on which they will continue their employment relationship, and wish to memorialize their agreement in this Agreement, which will supersede the 2003 Employment Agreement as well as all other agreements and understandings concerning Kay’s employment with the Company made prior to the effective date of this Agreement, whether oral, written, or implied; and

NOW, THEREFORE, in consideration of the
promises and covenants set forth in this Agreement and for other valuable
consideration, the parties agree as follows: Scheme A 

1.                    Employment:  Kay shall continue to serve as Chief Scientific Officer of the Company, reporting to the Company’s Chief Executive Officer, and shall faithfully and diligently perform all duties and responsibilities on behalf of the Company and its subsidiaries and affiliated entities as assigned from time to time by the Chief Executive Officer, including service on behalf of the Company’s subsidiaries and affiliated companies.  Without limiting the duties to be assigned by the Chief Executive Officer, Kay shall promote the Company, the Company’s products, and the Company’s underlying science in the broadest sense through the following duties:

	
   
  	
  
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Continue to serve as a member of the Company’s   Management Team (“MT”) until the Company fills the position of Vice President   of Research and Development;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
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Supporting sales and marketing through presentations   to physicians and conducting training sessions for physicians and   representatives as requested by the CEO or on Kay’s own initiative;
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
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Writing, submitting, and reviewing articles for peer   review publications. monographs, and white papers as requested by the   Company, provided that for the Initial Term and a period of two years   thereafter Kay shall be cited as the senior author for any article,   presentation abstract, or other work based on materials, studies, or   inventions to which Kay made a critical contribution during his employment   with the Company;
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
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Participating in business development, product and   science reviews, due diligence investigations, public relations, and   independent review activities as requested by the CEO; and
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
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Be a member of the New Product Steering Committee   and Scientific Advisory Board, and attend meetings of the Medical Advisory   Board.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
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Conduct projects as directed by the Company in its   discretion consistent with Kay’s experience and qualifications. Kay shall not   be asked to perform “lab work”.
  

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Notwithstanding any provision to the contrary in this Agreement, Kay shall be permitted to serve in the capacities listed on Exhibit A hereto.  Kay may also serve in an advisory role for other business entities provided that: (i) such role does not interfere with the performance of his duties and responsibilities under this Agreement or create a conflict of interest with the Company, and (ii) in each case before undertaking any such additional roles, he first makes full disclosure to the Company of the nature of such other business entities and the extent of his advisory role and obtains the prior written consent of the Chief Executive Officer, which consent shall not unreasonably be withheld.

2.                    Initial Term and Renewal:  This Agreement shall take effect on November 1, 2004.  This Agreement and Kay’s employment shall be for a initial term of fourteen (14) months commencing on November 1, 2004, end expiring on December 31,2005 (“Initial Term”).  The Initial Term shall be renewed automatically for successive one year period(s) unless either party gives written notice of non-renewal at least ninety (90) days prior to the expiration of the initial term or any renewal term, which notice may be given at the will of either party with or without cause.

3.                    Compensation: In consideration for all services to be performed under this Agreement, Kay shall receive the following compensation:

	
  
 
  	
  
A.          Salary:    During the Initial Term of this Agreement, the Company shall pay Kay a   base salary at the annual rate of Two Hundred Forty Thousand Dollars   ($240,000), payable in regular instalments in accordance with the Company’s   usual payroll practices and subject to all required and customary   withholdings.  Commencing January 1,   2006, and annually on January 1 thereafter if this Agreement is renewed, the   Company’s Board of Directors shall review Kay’s performance with a view   toward adjusting his salary.
  
	
  
 
  	
  
 
  
	
   
  	
  
B.          Bonus:    Kay shall not be guaranteed a bonus during the Initial Term or any   renewal of the Initial Term. Concurrently with the granting of bonuses to   other employees of the Company, the Chief Executive Officer and the Board of   Directors shall consider in good faith whether to grant a bonus to Kay based   on Kay’s performance and the performance and financial condition of the   Company.  Any such bonus shall be at   the discretion of the Company, acting in good faith.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
C.          Stock Options:  All stock options previously granted to Kay shall continue to   vest and become exercisable in accordance with the terms on which they were   originally granted as reflected in the 2003 Employment Agreement, the Company’s   stock option plan(s), and the stock option agreement(s) between the Company   and Kay. Upon the expiration of the initial term of this Agreement, the Chief   Executive Officer and the Board of Directors shall consider in good faith   whether to grant additional stock options to Kay based on Kay’s performance   under this Agreement, and the performance and financial condition of the   Company. Any such additional stock option grants shall be at the sole   discretion of the Company.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
D.          Employee Benefits: The Company shall   continue to provide Kay the following employee benefits which he is currently   receiving:
  
	
   
  	
  
 
  
	
  
 
  	
  
 
  	
  
1.          Insurance.  Coverage under all employee pension and welfare benefit   programs, plans and practices in accordance with the terms thereof, which the   Company generally makes available to its executives, including the following   which the Company shall continue to provide Kay at the Company’s expense: (i)   term life insurance, (ii) short and long-term disability insurance, (iii)   medical, dental, and vision care/insurance for Kay and Kay’s spouse and   children, (iv) Aflac extended benefits coverage; (v) coverage under director   and officer liability insurance including tail coverage, if any, that the   Company 
  

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provides to other executives of the Company; (vi)   indemnity to the extent required by the Company’s bylaws and applicable laws.
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
 
  	
  
2.          Vacation.  Accrued paid vacation of 20 days each calendar year. Any unused   vacation Kay has accrued as of the effective date of this Agreement shall be   carried forward, but the total amount of unused vacation including such   carryover that Kay may accrue at any time shall be limited to a maximum of 40   days of vacation. Upon accrual of the maximum amount of vacation time, Kay   shall not accrue any further vacation time until the existing accruals are   used or otherwise reduced. Vacation shall be taken at such times as are   consistent with Kay’s responsibilities hereunder.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
3.          Sick Time.  Paid sick leave of 10 days in each calendar year.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
4.          Holidays.  Paid holidays as set annually by the Company.
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
5.          Car Allowance.  A monthly car allowance of $500.00 shall be paid to Kay.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
6.          401k Program.  Kay shall continue to be eligible to participate in the   Company’s 401k program, in accordance with the terms thereof.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
7.          Dues and Subscriptions.  The Company shall pay directly or   reimburse Kay for customary and reasonable dues and subscriptions direct1y   applicable to Kay’s position, so long as such reimbursement is consistent   with approved budget.
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
8.          Office:    Kay shall be provided with a private office in the Company’s facility   at 2 Goodyear that is consistent with offices provided to other senior staff   at the Director or higher level in the Company.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
E.          Expense Reimbursement.  Kay shall attempt to receive pre-approval   of all expenses from the Company’s CEO. The Company shall reimburse Kay for   all reasonable expenses that he necessarily incurs in connection with his   employment and for which he presents adequate documentation in accordance   with the Company’s expense policy.
  

4.                     Termination: This Agreement and Kay’s employment are subject to termination at any time as follows:

	
   
  	
  
A.          Death:    This Agreement shall terminate immediately upon Kay’s death, in which   event the Company’s only obligations shall be to pay all compensation owing   for services rendered by Kay prior to the date of his death.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
B.          Disability:  In the event that Kay is disabled from performing his assigned   duties under this Agreement due to illness or injury, even with reasonable   accommodation to the extent required by law, for any period of twelve weeks   or more in the aggregate during any rolling twelve month period, the Company’s   Board of Directors in its sole discretion may terminate this Agreement   immediately upon written notice to Kay, in which event the Company’s only   obligations shall be to pay all compensation owing for services rendered by   Kay prior to his disability. In such instance, Kay shall be entitled to   continue receiving benefits under any disability insurance plan(s) in effect   at the time of his disability in accordance with the terms and conditions of   such plan(s).
  

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C.          Termination For Cause:  The Company may terminate Kay’s employment   under this Agreement at any time immediately upon written notice to Kay in   the event Kay (i) commits any wilful breach or habitual neglect of his duties   as the Chief Scientific Officer of the Company, or (ii) engages in any gross   misconduct; provided, however, that if such breach, neglect, or misconduct is   capable of being cured, the Company shall first provide Kay with written   notice specifying the breach, neglect or misconduct, and allow him a   reasonable opportunity to cure. In the event of any termination of Kay’s   employment under this subsection, the Company shall have no further   obligations to Kay other than to pay all compensation owing for services   rendered by Kay prior to notice of termination under this subsection and any   accrued but unused vacation up to the 40 day maximum Termination
for cause   shall be limited to conduct under subsections (i) or (ii) above occurring   subsequent to November 1, 2004, except for conduct subsequently discovered   which the Company did not and could not reasonably have know of prior to   November 1, 2004.
  
	
   
  	
  
 
  
	
  
 
  	
  
D.          Termination Without Cause:  The Company may also terminate Kay’s   employment under this Agreement at any time with or without cause or prior   warning, immediately upon written notice, in which event the Company’s sole   obligations shall be to: i) pay all compensation owing for services rendered   by Kay prior to notice of termination under this subsection as well as all   accrued but unused vacation up to the 40 day maximum; and (ii) if such   termination occurs prior to the end of the Initial Term, pay Kay immediately   the amount of base compensation Kay would have earned for the balance of the   Initial Term, minus appropriate withholding and payroll deductions, or (iii)   if such termination occurs during a renewal of the Initial Term, pay Kay   immediately a lump sum equal to Kay’s then current base salary for a period   of three (3) months., minus appropriate
withholding and payroll deductions;   and (iv) pay the Company’s customary share of the premium for continuing   group medical coverage for Kay and his spouse and dependents pursuant to   COBRA for a period of three (3) months after the effective date of   termination, provided Kay makes a timely election to continua such coverage   under COBRA and remains eligible for such continued coverage under COBRA
  
	
  
 
  	
  
 
  
	
  
 
  	
  
E.          Notice of Termination:  Any purported notice of termination by the   Company (other than due to Kay’s death) shall be communicated by written   notice of termination to Kay which indicates the specific provision(s) of   this Agreement relied upon and sets forth in reasonable detail the facts and   circumstances claimed to provide a basis for termination under the   provision(s) so indicated.
  

5.                     Termination by Kay: This Agreement and Kay’s employment with the Company can be terminated by Kay at any time as follows:

	
  
 
  	
  
A.          Termination for Sufficient Reason:  Kay may terminate his employment under   this Agreement at any time immediately upon written notice to the Company in   the event of (i) the failure of the Company to comply with any provision of   this Agreement and such failure has continued for a period often (10) days   after written notice of such failure or change has been given by Kay to the   Company; (ii) a change in Kay reporting to the CEO; or (ii) the assignment to   Kay of any duties materially inconsistent with the duties and   responsibilities defined by Section 1 of this Agreement or the reduction   of Kay’s base salary, either of which is not cured within ten (10) days after   written notice of such assignment or reduction has been given by Kay to the   Company; or (iv) the inducement or requirement by the Company for Kay to   violate his professional, scientific, and/or
technical standards or ethics.   In the event of a termination by Kay under this Section, the Company shall   pay Kay the compensation due under Section 4(D) of this Agreement as if Kay’s   employment had been terminated by the Company without cause.
  

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B.          Termination Without Sufficient Reason:  Kay may terminate his employment under   this Agreement at any time for any reason by giving at least ninety (90) days   written notice, with the Company having the right to relieve Kay of all   duties at any time during such notice period and pay him immediately the base   compensation, minus appropriate withholding and payroll deductions, and   accrued but unused vacation up to a maximum of 40 days, that Kay would have   earned during the balance of the ninety (90) day resignation notice period.
  

6.                     Confidentiality and Non-Solicitation:  Kay acknowledges and agrees that he has been and will continue to be entrusted with trade secrets regarding the products, processes methods of manufacture and delivery, know-how, designs, formula, work in progress, research and development, computer software and data bases, copyrights, trademarks, patents, marketing techniques, and future business plans, as well as customer lists and information concerning the identity, needs, and desires of actual and potential customers of the Company and its subsidiaries, joint ventures, partners, and other affiliated persons and entities (“Confidential Information”), all of which derive significant economic value from not being generally known to others outside the Company.

	
  
 
  	
  
A.          During   the entire term of his employment with the Company, Kay shall not use,   disclose, or exploit any Confidential Information except for the sole benefit   of the Company or with its express written consent.
  
	
   
  	
  
 
  
	
  
 
  	
  
B.          At   all times after his employment with the Company has ended, Kay shall not use,   disclose, or exploit any Confidential Information without the express prior   written consent of the Company.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
C.          During   the entire term of his employment by the Company and for a period of one year   thereafter, Kay shall not solicit any customer or identified prospect of the   Company or its subsidiary and affiliated companies known to Kay through his   employment with the Company for any business that is in actual or likely   competition with the Company if and only if such solicitation would result in   the use or disclosure of Confidential Information.
  
	
  
 
  	
  
 
  
	
  
 
  	
  
D.          For   a period of one year after the termination of his employment with the Company,   Kay shall not directly solicit or induce any employee or contractor of the   Company whom Kay knows to be rendering services to the Company at that time   to terminate or curtail their services to the Company.
  
	
  
 
  	
  
 
  
	
   
  	
  
E.          In   the event any provision in this Section 6 is more restrictive than   allowed by law of any jurisdiction in which the Company seeks enforcement,   such provision shall be deemed amended and shall then be fully enforceable to   the extent permitted by such law. Kay and the Company agree that the   covenants outlined in this Section 6 are reasonable covenants under the   circumstances, and further agree that if in the opinion of any court of   competent jurisdiction in California any such covenant is not lawful in any   respect, the court shall have the right, power, and authority to exercise or   modify such provision as the court deems reasonable and to enforce the   remainder of the covenant as so amended.
  

7.                    Inventions:  Any and all patents, copyrights, trademarks, inventions, discoveries, developments, or trade secrets developed or perfected by Kay during his employment with the Company shall constitute a work-for-hire and shall be the sole and exclusive property of the Company. To the extent any such matters are not properly considered a work-for-hire, Kay hereby assigns all right, title, and interest he may have in them. During the Initial Term and any renewal of this Agreement, Kay shall cooperate with the Company in doing any and all things which the Company may reasonably deem necessary to establish or document the Company’s exclusive ownership of any and all rights in such

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matters, including but not limited to obtaining and perfecting any patent, copyright, trademark, or other legal protection by providing such information, executing such documents, and taking such actions as the Company may reasonably request. In the event this Agreement is terminated for any reason, Kay shall cooperate with the Company in doing any and all things which the Company may deem reasonably necessary to establish or document the Company’s exclusive ownership of any and all rights in such matters. In the event such cooperation is requested after Kay’s termination for any reason, it shall be provided at mutually agreeable times and places for which Kay shall be compensated at an hourly rate equivalent to his base salary at the time of termination. This Section does not apply to an invention that is encompassed by Section 2870 of the California Labour Code, which applies to any invention for which no equipment, supplies, facilities or
Confidential Information of the Company was used, and which does not (i) relate to the business of the Company; (ii) relate to the Company’s actual or demonstrable anticipated research or development; or (iii) result from any work performed by Kay for the Company.

8.                    Arbitration:  Any dispute between Kay and the Company (including its officers, directors, employees, and agents) arising from or relating to this Agreement or the relationship between Kay and the Company shall be settled exclusively by final and binding arbitration in Orange County, California, under the auspices of the American Arbitration Association. If Kay or the Company are unable to agree on an arbitrator within 30 days following delivery of such notice, the arbitrator shall be selected in accordance with the American Arbitration Association National Rules for the Resolution of Employment Disputes in effect at the time (“National Rules”).  The arbitrator shall apply California law. The award of the Labour Commissioner shall be final and binding, and shall not be subject to appeal or review except as required
by California law, Once final, the award of the arbitrator may be reduced to judgment in any Superior Court having jurisdiction over the party against whom the judgment is to be enforced. To the extent allowed by California law, the prevailing party in any such arbitration shall be entitled to recover reasonable attorneys’ fees.  Nothing contained in this Section shall prevent either party from seeking a temporary restraining order, preliminary injunction, or similar injunctive relief from a court of competent jurisdiction to enforce the provisions of this Agreement.

9.                    Conflict of Interest:  During the term of this Agreement, Kay shall devote his time, ability, and attention to the business of the Company, and shall not accept other employment or engage in any other outside business activity which interferes with the performance of his duties and responsibilities under this Agreement or which involves actual or reasonably likely competition with the business of the Company, except with the express written consent of the CEO, which consent shall not unreasonably be withheld. Kay may continue to serve in the capacities outlined in Exhibit A hereto which shall not be considered a conflict of interest.

10.                    Assignment.  This Agreement may not be assigned by Kay, but may be assigned by the Company to any successor in interest to its business.  In the event the Company does not survive any merger, acquisition, or other reorganization it shall make a reasonable effort to obtain an assumption of this Agreement by the surviving entity in such merger, acquisition, or other reorganization, but the failure to obtain such assumption shall not prevent or delay such merger, acquisition, or other reorganization or relieve the Company of its other obligations under this Agreement. This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Kay’s heirs, executors, administrators, and legal representatives.

11.                    Notices: All notices required by this Agreement may be delivered by first class mail or overnight mail (Federal Express or equivalent) at the following addresses:

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                         To the Company:

                                        IsoTis OrthoBiologics, Inc.
                                         2 Goodyear
                                         Irvine, CA  92618

                                        Attention: Chief Executive Officer

                         To Kay:

                                        John F. Kay, Ph.D.
                                         2892 Camino Serbal
                                         Carlsbad, CA 92009

12.                    Amendment:  This Agreement may be modified only by written agreement signed by both parties.

13.                    Choice of Law: This Agreement shall be governed by the laws of the State of California.

14.                    Partial Invalidity:  In the event any provision of this Agreement is void or unenforceable, the remaining provisions shall continue in full force and effect.

15.                    Waiver:  No waiver of any breach of this Agreement shall constitute a waiver of any subsequent breach.

16.                    Counterparts:  This Agreement may be signed in counterparts, and the signature pages may be transmitted by facsimile, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

17.                    Complete Agreement: This Agreement contains the entire agreement between the parties. and supersedes any and all prior and contemporaneous oral and written agreements including but not limited to the 2003 Employment Agreement, which shall have no further force and effect.

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  JOHN   F. KAY, PH.D.
  	
  
 
  
	
  
 
  	
  
 
  
	
  
/s/ JOHN F. KAY
  	
  
 
  
	
  

  	
  
 
  
	
  
Date:
  	
  
November 8, 2004
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
ISOTIS ORTHOBIOLOGICS, INC.
  	
  
 
  
	
  
 
  	
  
 
  
	
  
By:
  	
  
/s/ PIETER WOLTERS
  	
  
 
  
	
   
  	
  

  	
  
 
  
	
  
Name:
  	
  
Peter Wolters
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
Title:
  	
  
CEO
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
Date:
  	
  
November 8, 2004
  	
  
 
  

EXHIBIT A

PERMITTED ACTIVITIES

	
  1.
  	
  Act as President and CEO of Bio-Interfaces, Inc.,   and using best efforts to promptly dissolve the company or before December   31, 2004.
  
	
   
  	
   
  
	
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  Manager and participant in LaCosta Youth   Organization (LCYO) Sports League.
  
	
   
  	
   
  
	
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  “O” Company v. Osteotech, serves as consultant to   plaintiff’s counsel.EXHIBIT 10.6

TERMINATION AGREEMENT

between

	
  
 
  	
  
ISOTIS SA, a company with registered offices at Rue de Sébeillon 1-3, 1004   Lausanne, Switzerland (hereinafter referred to as “ISOTIS” or “the Company”)
  	
  
 
  
	
  
 
  	
   
 
	
  
 
  	
  
of the one   hand,
  
	
  
 
  	
  
 
  	
  
 
  
	
  
and
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
Mr. Jacques R. ESSINGER, Chemin des Coullénes 54, 1090 La Croix (Lutry), Switzerland   (hereinafter referred to as “Mr. Essinger” or “The Employee”),
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
of the other   hand,
  

Whereas

	
  
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The parties entered into a “Restated and Amended   Employment Agreement” (the “Employment   Agreement”) in February 2004.    The employment of Mr. Essinger with the Company started on September   5, 1997.
  
	
  
 
  	
  
 
  
	
  
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The Board of Directors of ISOTIS has informed Mr.   Essinger of its wishes to terminate the Employment Agreement of Mr. Essinger   as CEO.
  
	
   
  	
  
 
  
	
  
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Several discussions and meetings took place between   Mr. Aart Brouwer, acting on behalf of the Board of Directors, and Mr.   Essinger.  They decided by mutual   agreement to terminate the employment relationships and negotiated the terms   of the termination of Mr. Essinger’s employment contract.
  
	
  
 
  	
  
 
  
	
  
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The present contract confirms the terms of the   Agreement reached by the Parties.
  

Now, it is hereby agreed as follows:

	
  
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Date of Termination
  

By mutual agreement, the parties terminate the employment agreement of Mr. Essinger as CEO of ISOTIS with effect on June 30, 2004.

By his signature on this Agreement, Mr. Essinger confirms that he is resigning with immediate effect of all functions which he is exercising for ISOTIS and all its subsidiaries and affiliated companies.  He undertakes that he will sign all the necessary documents and fully cooperate with ISOTIS and the other Companies concerned in order to take the necessary steps for registering his resignation.

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Remuneration
  

The Employee will receive a gross amount of CHF 231’751.-- (Employee’s participation to social security charges, including but not limited to AVS, LPP, AI, LAA, will be deducted from this amount), representing 6 (six) months of salary corresponding to the notice period he would have been entitled to should the employment agreement have been terminated unilaterally by the Company.  He will also receive CHF 9’000.-- and CHF 7’500.-- by way of representation fees and respectively transport allowance.

He will also receive a gross amount of CHF 463’501.-- (Employee’s participations to social security charges, including but not limited to AVS, LPP, AI, LAA, will be deducted from this amount) representing 12 (twelve) months of paid salary, by way of severance payment, as provided for at Article 8.3 of the Employment Agreement.

As soon as possible after the signature of this Agreement, the amounts to be deducted by way of social security, insurance premiums, unemployment insurance, pension fund premiums, etc. will be determined by ISOTIS and notified to Mr. Essinger.

Payment by ISOTIS of the total net remuneration due to Mr. Essinger will be made as follows:

	
  
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payment of CHF 400’000.-- upon signature of the   present Agreement; and
  
	
   
 	
   
  
	
  
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payment of the balance within 10 (ten) business days   after signature of this Agreement.
  

It is agreed that, upon Mr. Essinger’s written request, part of the payment of the total remuneration due to him will be paid to the insurance company La Bâloise, in order  to increase Mr. Essinger’s rights under his pension fund.

	
  
3.
  	
  
Options
  

Employee has been awarded 617,259 ISOTIS stock options, of which to date 317,259 options with an exercise price of CHF 1.60 (the “Options (1.60)”) are fully vested.  The remaining 300,000 options (the “Options (1.28)”) were granted at an exercise price of CHF 1.28 and would normally vest in four annual parts of 75,000 per October 27 of the years 2004 through 2007.

Employer and Employee hereby agree that Employee will be allowed to exercise the 317,259 Options (1.60) at any time between now and June 30, 2005.  Any Option (1.60) which has not been exercised on or before June 30, 2005, shall lapse automatically on July 1, 2005 without any compensation to Employee.

Employer and Employee hereby agree that the 300,000 Options (1.28) will vest according to the following schedule:

	
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50,000 Options (1.28) to vest on July 1, 2004
  
	
  
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50,000 Options (1.28) to vest on October 1, 2004
  

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100,000 Options (1.28) to vest on January 1, 2005
  
	
  
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100,000 Options (1.28) to vest on April 1, 2005
  

The Parties agree that any Options (1.28) which have become vested pursuant to the schedule above shall be exercisable for a period of 3 (three) months starting on the vesting date (e.g. for a vesting date on July 1, 2004, the last day to exercise the option is September 30, 2004).  Any Option (1.28) which has not been exercised within such three month period shall automatically lapse upon expiry of such period, without any compensation to Employee.

In the event where the Company is of the opinion that the Employee is breaching a provision of this Agreement, the Company will inform Mr. Essinger in writing of the breach, and give him a cure period which is adequate in view of the nature of the breach to remedy the situation.  Should the situation not have been remedied within the cure period granted to Mr. Essinger, the Employee shall automatically forfeit any Option (1.28) which was not vested at the time of such breach, unless Employer decides otherwise at its sole discretion.

In the event where Employer would be subject to a change of control, any Option (1.28) which was not vested at the time of such change of control shall become automatically vested as of the date of such change of control.  The three months period during which the Options (1.28) will be exercisable shall start to run on the date of such change of control.  A change of control shall mean any event where a third party (whether already a shareholder of Employer or not) would acquire more than 50% of the share capital of Employer, or in the event of a merger where Employer is not the surviving entity, a change of control would occur if the shareholders of Employer would own less than 50% of the share capital of the merged entity.

The terms and provisions of the Stock Option Agreement pursuant to which the Options (1.28) and (1.60) have been issued and the various Awards concerning Mr. Essinger shall remain valid for and in force, subject to the terms and provisions contained in this Agreement, which shall prevail over them.

	
  
4.
  	
  
Insurance against accidents
  

Mr. Essinger confirms that he is aware and accepts the fact that, as from the 30th date after the date of termination, he will no longer be insured against the consequences of accidents by ISOTIS.  The same rule will apply in the case where Mr. Essinger is insured against the consequences of accidents due to his functions for subsidiaries or affiliated companies of ISOTIS.

	
  5.
  	
  
Non compete
  

As from July 1, 2004, Mr. Essinger will cease being an employee and Director of ISOTIS and any of its subsidiaries or affiliated companies.

He will accordingly be free to take up another employment.

It is however expressively agreed and confirmed that the provisions of Article 10 of the Employment Agreement, “Restrictions on competition” will remain in full force and effect.

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Mr. Essinger expressly reconfirms that he accepts and will abide by all provisions and restrictions provided for at above-mentioned Article 10 of the Employment Agreement.

	
  
6.
  	
  
Confidentiality
  

Mr. Essinger confirms to be fully aware of the fact that even after the termination of his employment contract, he will remain bound by his confidentiality duty towards ISOTIS, all its subsidiaries and affiliated companies.

More particularly, he undertakes not to disclose to anyone, any trade secret or any business information in relation to ISOTIS, its subsidiaries and affiliated companies, their directors and their employees and clients.

	
  7.
  	
  
Return of documents
  

Mr. Essinger undertakes to return to the Company without keeping any photostatic copies all the documents, information files, diskettes, etc. regarding ISOTIS, all its subsidiaries or affiliated companies, and their clients, which may be in his possession.

	
  
8.
  	
  
Communications
  

The parties confirm that the text of the public announcements to be made by the Company, as attached to the present Agreement as Schedule 2 is a text which is agreed upon as the official communication to third parties and the stock market authorities on the departure of Mr. Essinger from ISOTIS.

The employee declares that he will refrain from making representations, statements or comments, to any third party, which intend to damage the name and image of ISOTIS, or any of its subsidiaries or affiliated companies, which are related to it or them, their shareholders, directors, employees, agents, etc.

The parties confirm that they will endeavour that any future communication which may become necessary, or felt desirable, will be discussed by them in advance.  However, this is without prejudice of ISOTIS’ legal obligations in Switzerland or abroad, more particularly as regards the requirements of the various stock exchanges where it is listed.

ISOTIS declares that it will refrain from making representations, statements or comments, to any third party, which intend to damage the name and image of Mr. Essinger.

	
  
9.
  	
  
Chattels kept by Mr. Essinger
  

By derogation to the other provisions of this Agreement, ISOTIS expressly confirms that Mr. Essinger is authorized to keep the personal computer and the mobile telephone (and the subscription number) belonging to the Company which he is currently using.  The cost of the subscription and of the communications will be borne by Mr. Essinger and will be transferred to Mr. Essinger as soon as practical.

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It is agreed that, for a period of 3 (three) months as from the date of signature of this Agreement, Mrs. Nakisa Serry of ISOTIS will be given full access to the e-mail address of Mr. Essinger at ISOTIS.  She will be instructed to open all messages received on Mr. Essinger’s address, and to send him, at the private e-mail address indicated by him, all messages of a private character, as well as those of the messages which are of a professional nature but which Mr. Essinger should, in the opinion of Mrs. Serry, be received by him.  Mrs. Serry will forward all messages received on Mr. Essinger’s e-mail address which are of a professional nature to the relevant persons indicated to her within ISOTIS.

As from October 1, 2004, the professional e-mail box of Mr. Essinger shall be deactivated.

	
  
10.
  	
  
Assistance to ISOTIS
  

Mr. Essinger agrees that he will use reasonable efforts, at ISOTIS’ cost, to assist ISOTIS, its subsidiaries or affiliated companies in the defence of any claim which has its cause or origin during the term of his office.

	
  
11.
  	
  
Insurance
  

Mr. Essinger remains covered by the Company’s current D&O insurance as foreseen in it for retired officers and board members.

	
  
12.
  	
  
Mutual Release
  

The payment set forth in Article 2 of this Agreement is made by ISOTIS to Mr. Essinger for full and final settlement.

Mr. Essinger hereby expressly acknowledges that upon payment by ISOTIS of the amount provided for at Article 2, as it will be determined in accordance with Schedule A of this Agreement, any and all claims Mr. Essinger may have against ISOTIS, its subsidiaries and affiliated companies, their shareholders, directors and officers, under the Employment Agreement or on any other grounds, whatsoever, are forever satisfied and discharged and that there is no further claim of any kind whatsoever, against any of the aforesaid persons or companies.  Mr. Essinger’s rights related to the Options are reserved.

ISOTIS hereto acknowledges that upon the signing of this Agreement by both parties, any and all claims ISOTIS may have against Mr. Essinger under the Employment Agreement and his functions as Director and CEO or any other grounds, whatsoever, are forever satisfied and discharged and that ISOTIS has no further claim of any kind, whatsoever, against him, subject to claims which could be made against ISOTIS, its subsidiaries or affiliated companies, having their origin or cause at a time when Mr. Essinger was an officer of ISOTIS or another company.

	
  
13.
  	
  
Governing Law
  

The present Agreement is governed by Swiss law.

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14.
  	
  
Jurisdiction
  

Any dispute which may arise in relation with the present Agreement will be submitted to the Ordinary Courts of Lausanne, Canton of Vaud.  The right of appeal to the Swiss Federal Court, in the cases provided for by law, is reserved.

****

Executed in two originals on June 29, 2004

	
  
/s/ PIETER WOLTERS   – CFO
  	
  
 
  
	
  

  	
   
  
	
  
ISOTIS SA
  	
  
 
  
	
 	
  
	
   
 	
  
June 29,   2004                                        
  
	
  	
  
	
  
/s/ M. JACQUES R. ESSINGER
  	
  
 
  
	
  

  	
  
 
  
	
  
M. Jacques R. Essinger
  	
  
 
  

EXHIBIT 10.6

CODICIL 1 TO 
 TERMINATION AGREEMENT

between

ISOTIS SA, a company with registered offices at Rue de Sébeillon 1-3, 1004 Lausanne, Switzerland (hereinafter referred to as “ISOTIS” or “the Company”), 

of the one hand,

and

Mr. Jacques R. ESSINGER, Chemin des Coullènes 54, 1090 La Croix (Lutry), Switzerland (hereinafter referred to as “Mr. Essinger” or “The Employee”),

of the one hand,

Whereas

	
  
 
  	
  
1.
  	
  
The Parties entered into a Termination agreement   which was signed on 29th June 2004.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
2.
  	
  
Mr. Essinger is wishing to postpone the date of   termination in order to validate the payment made to the Insurance Company La   Baloise on 1st Ju[l]y 2004 for increasing his pension fund.
  
	
  
 
  	
  
 
  	
   
 
	
  
Now, it is hereby agreed as follows:
  
	
   
  	
  
 
  
	
  
 
  	
  
1.        Date   of Termination:
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
Parties agree to postpone the end of the employment   agreement of Mr. Essinger as employee of Isotis to July 2, 2004.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
Isotis will inform the Insurance Company La Baloise   that the employment contract ended on July 2, 2004.
  

- 2 -

	
   
  	
  
2.        Maintain   of the Termination agreement:
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
All other provisions of the Termination agreement   which was signed on 29th June 2004 are maintained without any   change.
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
In particular, the remuneration which is agreed by   article 2 of the Termination agreement stays unchanged.
  

****

	
  
Executed in two originals on   July 8, 2004
  	
  
 
  
	
   
  	
  
 
  
	
  
/s/ PIETER WOLTERS
  	
  
 
  
	
  

  	
  
 
  
	
  
ISOTIS SA
  	
  
 
  
	
  
 
  	
   
 
	
  
 
  	
   
 
	
  
/s/ M. JACQUES R. ESSINGER
  	
  
 
  
	
  

  	
  
 
  
	
  
M. Jacques R. Essinger
  	
  
 
  

IsoTis Further Reinforces US Operations
 Pieter Wolters appointed CEO to succeed Jacques Essinger

LAUSANNE, Switzerland, and IRVINE, Calif. – July [H]1, 2004 – After two consecutive quarters of strong post-merger growth, IsoTis OrthoBiologics (SWX/Euronext Amsterdam: ISON; TSX: ISO) further reinforces its US operations by announcing the succession of Swiss based Jacques Essinger, PhD, by US based Pieter Wolters.

Given the importance of the US business and operations to the company, IsoTis’ Board of Directors and Jacques Essinger reached the conclusion that IsoTis’ CEO should be permanently based in the US.  Pieter Wolters was IsoTis NV’s CEO at the time of merging into IsoTis SA in 2002, and subsequently IsoTis SA’s CFO.  He will now lead the company as CEO together with his colleagues on the Executive Committee, Jim Hogan, President International, and John Kay, PhD, Chief Scientific Officer.

The organization thas been led the organization through two consecutive international mergers in 2002 and 2003 by Jacques Essinger[.,]  In 1997, he was appointed as CEO of Modex Therapeutics, later to become IsoTis SA[,.].  Now that the company is entering a new phase of development, Jacques Essinger has expressed his wish to pursue other interests in the medical field and to resign as CEO and Board Director.

Dr. James Trotman, Chairman of the Board, commented: “Jacques has been a relentless and inspired driver of the turnaround of IsoTis and the creation of IsoTis Orthobiologics.  We wish Jacques success in challenges that lie closer to his heart and ambition.  There still is work to be done and the Board has full confidence in Pieter’s and the Executive Committee’s capacity to continue executing the business plan and bring the company to the next level.”

Jacques Essinger commented:  “With two major transactions in less than 18 months, and one successful spin-off, EpiSource, I feel I have driven the consolidation process as far as I should and that it is the right time to hand over the baton to a US based management.  Pieter and I have worked very closely together over the past two years, in two consecutive mergers and in turning around the company with Jim and John.  I have every confidence that this group has the right skill mix and experience to carry on building the company.”

Profile IsoTis OrthoBiologics

IsoTis OrthoBiologics was created in Q4 2003 through the merger of GenSci OrthoBiologics, a US-based orthobiology company, and IsoTis SA, a Swiss-based biomedical company.  IsoTis OrthoBiologics has approximately 150 employees, a product portfolio with 6 orthobiology products on the market and 15 others in development, sales of US$24 million in 2003, an established North American independent distribution network of 400 sales representatives, and a rapidly expanding international presence.

The field of orthobiologics combines advances in biotechnology, material sciences and tissue biology to promote and enhance the body’s natural ability to regenerate and repair musculoskeletal tissue.  The company is a dedicated and global orthobiologics player focused on the market of orthopaedics and bone graft substitutes.  IsoTis is developing a broad presence in 

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both “natural” demineralized bone matrix (DBM) products and “synthetic” bone graft substitutes, carrier technologies and biologically-based growth factors.  Orthobiologics is the fastest growing segment of the US$14 billion orthopedics market.

For additional information on IsoTis OrthoBiologics, its products, and the orthobiologics market, please visit the company’s website at: 

	
  
For information contact
  	
  
 
  
	
  
Hans Herklots
  	
  
Louis G. Plourde
  
	
  Tel:  +41 21   620 6011
  	
  
Tel:  +(800)   561-2955 (North America)
  
	
  
Fax:  +41 21   620 6060
  	
  
        +(514)   277-5984
  
	
  
E-mail:
  	
  
E-mail:
  

Certain statements in this Press Release are “forward-looking statements”, as that term is defined in U.S. federal securities laws, including those that refer to management’s plans and expectations for future operations, prospects and financial condition.  These forward-looking statements can be identified by use of words such as ‘strategy’, ‘expects’, ‘plans’, ‘anticipates’, ‘believes’, ‘will’, ‘continues’, ‘estimates’, ‘intends’, ‘projects’, ‘goals’, ‘targets’ and other words of similar meaning.  Such statements are based on the current expectations of the management of IsoTis only.  Reliance should not be placed on these statements because they are subject to known and unknown risks and can be affected by factors that are beyond IsoTis’ control.  Actual results could differ materially from current
expectations due to a number of factors, including the timely commencement and success of clinical trials and research endeavors, delays in receiving U.S. FDA or other regulatory approvals (a.o. EMEA, CE), market acceptance of products, development of competing therapies and technologies, the terms of any future strategic alliances, the need for additional capital, the inability to obtain, or meet conditions imposed for required governmental and regulatory approvals.  For a more detailed description of the factors affecting IsoTis, refer to the Joint Information Circular and to IsoTis’ reports submitted to the Swiss Stock Exchange (SWX), Euronext Amsterdam N.V., SEDAR at, the Toronto Stock Exchange (TSX), and the U.S. Securities and Exchange Commission.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

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