Document:

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                                                                    Exhibit 10.8

                                     LEASE

                            DATED JANUARY 27, 2000

                                 BY AND BETWEEN

                              AMB PROPERTY, L.P.,

                                  as Landlord

                                      and

                                    KYPHON,

                                   as Tenant

                     AFFECTING PREMISES COMMONLY KNOWN AS

                               1350 BORDEAUX DRIVE
                              SUNNYVALE, CALIFORNIA

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                               TABLE OF CONTENTS

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                                                                                            Page
<S>                                                                                         <C>
1.       Basic Provisions                                                                    1
         1.1      Parties                                                                    1
         1.2      Premises                                                                   1
         1.3      Term                                                                       1
         1.4      Base Rent                                                                  1
         1.5      Tenant's Share of Operating Expenses                                       1
         1.6      Tenant's Estimated Monthly Rent Payment                                    1
         1.7      Security Deposit                                                           1
         1.8      Permitted Use                                                              1
         1.9      Guarantor                                                                  1
         1.10     Addenda and Exhibits                                                       1
         1.11     Address for Rent Payments                                                  1
2.       Premises, Parking and Common Areas                                                  2
         2.1      Letting                                                                    2
         2.2      Common Areas - Definition                                                  2
         2.3      Common Areas - Tenant's Rights                                             2
         2.4      Common Areas - Rules and Regulations                                       2
         2.5      Common Area Changes                                                        2
         2.6      Parking                                                                    2
3.       Term                                                                                2
         3.1      Term                                                                       2
         3.2      Delay in Possession                                                        2
         3.3      Commencement Date Certificate                                              3
4.       Rent                                                                                3
         4.1      Base Rent                                                                  3
         4.2      Operating Expenses                                                         3
5.       Security Deposit                                                                    4
6.       Use                                                                                 4
         6.1      Permitted Use                                                              4
         6.2      Hazardous Substances                                                       4
         6.3      Tenant's Compliance with Requirements                                      5
         6.4      Inspection:  Compliance with Law                                           5
7.       Maintenance, Repairs, Trade Fixtures and Alterations                                5
         7.1      Tenant's Obligations                                                       5
         7.2      Landlord's Obligations                                                     5
         7.3      Alterations                                                                5
         7.4      Surrender/Restoration                                                      6
8.       Insurance; Indemnity                                                                6
         8.1      Payment of Premiums                                                        6
         8.2      Tenant's Insurance                                                         6
         8.3      Landlord's Insurance                                                       7
         8.4      Waiver of Subrogation                                                      7
         8.5      Indemnity                                                                  7
         8.6      Exemption of Landlord from Liability                                       7
9.       Damage or Destruction                                                               7
         9.1      Termination Right                                                          7
         9.2      Intentionally Omitted                                                      7
10.      Real Property Taxes                                                                 7
         10.1     Payment of Real Property Taxes                                             7
         10.2     Real Property Tax Definition                                               7
         10.3     Additional Improvements                                                    8
         10.4     Joint Assessment                                                           8
         10.5     Tenant's Property Taxes                                                    8
11.      Utilities                                                                           8
12.      Assignment and Subletting                                                           8
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                               TABLE OF CONTENTS

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<CAPTION>

                                                                                             Page
<S>                                                                                          <C>
         12.1     Landlord's Consent Required                                                 8
13.      Default; Remedies                                                                    8
         13.1     Default                                                                     8
         13.2     Remedies                                                                    9
         13.3     Late Charges                                                                9
14.      Condemnation                                                                         9
15.      Estoppel Certificate and Financial Statements                                        9
         15.1     Estoppel Certificate                                                        9
         15.2     Financial Statement                                                         9
16.      Additional Covenants and Provisions                                                  9
         16.1     Severability                                                                9
         16.2     Interest on Past-Due Obligations                                            9
         16.3     Time of Essence                                                            10
         16.4     Landlord Liability                                                         10
         16.5     No Prior or Other Agreements                                               10
         16.6     Notice Requirements                                                        10
         16.7     Date of Notice                                                             10
         16.8     Waivers                                                                    10
         16.9     Holdover                                                                   10
         16.10    Cumulative Remedies                                                        10
         16.11    Binding Effect; Choice of Law                                              10
         16.12    Landlord                                                                   10
         16.13    Attorneys' Fees and Other Costs                                            10
         16.14    Landlord's Access: Showing Premises; Repairs                               11
         16.15    Signs                                                                      11
         16.16    Termination: Merger                                                        11
         16.17    Quiet Possession                                                           11
         16.18    Subordination: Attornment; Non-Disturbance                                 11
         16.19    Rules and Regulations                                                      12
         16.20    Security Measures                                                          12
         16.21    Reservations                                                               12
         16.22    Conflict                                                                   12
         16.23    Offer                                                                      12
         16.24    Amendments                                                                 12
         16.25    Multiple Parties                                                           12
         16.26    Authority                                                                  12

                  Signatures                                                                 12

                Exhibit A:  Diagram of Premises.
                Exhibit B:  Commencement Date Certificate.
                Exhibit C:  Improvement Agreement.
                Exhibit D:  Approved Specifications.
                Exhibit E:  Description of Private Restrictions.
                Exhibit F:  Sign Criteria.
                Exhibit G:  Hazardous Materials Questionnaire.
                Exhibit H:  Legal Description.
                Exhibit I:  Rules and Regulations.
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                           AMB PROPERTY CORPORATION
                         INDUSTRIAL MULTI-TENANT LEASE

1.       Basic Provisions ("Basic Provisions").

         1.1  Parties: This Lease ("Lease") dated January 27, 2000, is made by
              -------
and between AMB Property, L.P., a Delaware limited partnership, ("Landlord") and
KYPHON, a California corporation ("Tenant") (collectively the "Parties," or
individually a "Party").

         1.2  Premises: The area consisting of 34,500 square feet of leasable
              --------
area as outlined on Exhibit A attached hereto ("Premises"), of the building
("Building") located at 1350 Bordeaux Drive in the City of Sunnyvale, State of
California. The Building is located in the industrial center commonly known as
Bordeaux Business Park (the "Industrial Center"). Tenant shall have non-
exclusive rights to the Common Areas (as defined in Paragraph 2.3 below), but
shall not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located and all other
buildings and improvements thereon are herein collectively referred to as the
"Industrial Center."

         1.3  Term: Five (5) years and Zero (0) months ("Term") commencing April
              ----
1, 2000 ("Commencement Date") and ending March 31, 2005 ("Expiration Date").

         1.4  Base Rent: $77,625.00 per month ("Base Rent"). $77,625.00 payable
              ---------
on execution of this Lease for period April 1, 2000 through April 30, 2000.

         1.5  Tenant's Share of Operating Expenses ("Tenant's Share"):
              ------------------------------------

              (a) Industrial Center                             25.50%
              (b) Building                                        100%

         1.6  Tenant's Estimated Monthly Rent Payment: Following is the
              ---------------------------------------
estimated monthly Rent payment to Landlord pursuant to the provisions of this
Lease. This estimate is made at the inception of the Lease and is subject to
adjustment pursuant to the provisions of this Lease:

              (a)  Base Rent (Paragraph 4.1)               $77,625.00
              (b)  Operating Expenses (Paragraph 4.2;
                   Landlord Insurance)                     $ 4,757.00
              (c)  Landlord Insurance (Paragraph 8.3)      $   192.00
              (d)  Real Property Taxes (Paragraph 10)      $ 4,297.00
                                                           ==========
                   Estimated Monthly Payment               $86,871.00

         1.7  Security Deposit: $274,275.00 ("Security Deposit").
              ----------------

         1.8  Permitted Use ("Permitted Use") General office sales and
              -------------
marketing, production, research and development, and assembly.

         1.9  Guarantor: Not Applicable
              ---------

         1.10 Addenda and Exhibits: Attached hereto are the following Addenda
              ---------------------
and Exhibits, all of which constitute a part of
this Lease:

              (a) Addenda:  First Addendum to Lease/Second Addendum to Lease
                            [/s/ RDM, JLR]
              (b) Exhibits: Exhibit A:  Diagram of Premises.
                            Exhibit B:  Commencement Date Certificate.
                            Exhibit C:  Improvement Agreement.
                            Exhibit D:  Approved Specifications.
                            Exhibit E:  Description of Private Restrictions.
                            Exhibit F:  Sign Criteria.
                            Exhibit G:  Hazardous Materials Questionnaire.
                            Exhibit H:  Legal Description.
                            Exhibit I:  Rules and Regulations.

         1.11 Address for Rent Payments: All amounts payable by Tenant to
              -------------------------
Landlord shall until further notice from Landlord be paid to AMB Property L.
P./Bordeaux Business Park, c/o Orchard Properties at the following address:

                                File No.:  3750789034
                                P.O. Box 840349
                                Dallas, TX 75284-0349

2.       Premises, Parking and Common Areas.

         2.1  Letting. Landlord hereby leases to Tenant and Tenant hereby leases
              -------
from Landlord the

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Premises upon all of the terms, covenants and conditions set forth in this
Lease. Any statement of square footage set forth in this Lease or that may have
been used in calculating Base Rent and/or Operating Expenses is an approximation
which Landlord and Tenant agree is reasonable and the Base Rent and Tenant's
Share based thereon is not subject to revision whether or not the actual square
footage is more or less.

         2.2 Common Areas - Definition. "Common Areas" are all areas and
             -------------------------
facilities outside the Premises and within the exterior boundary line of the
Industrial Center and interior utility raceways within the Premises that are
provided and designated by the Landlord from time to time for the general non-
exclusive use of Landlord, Tenant and other tenants of the Industrial Center and
their respective employees, suppliers, shippers, tenants, contractors and
invitees.

         2.3 Common Areas - Tenant's Rights. Landlord hereby grants to Tenant,
             ------------------------------
for the benefit of Tenant and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Landlord under the terms hereof or under the terms of any rules and
regulations or covenants, conditions and restrictions governing the use of the
Industrial Center.

         2.4 Common Areas - Rules and Regulations. Landlord shall have the
             ------------------------------------
exclusive control and management of the Common Areas and shall have the right,
from time to time, to establish, modify, amend and enforce reasonable Rules and
Regulations with respect thereto in accordance with Paragraph 16.19.

         2.5 Common Area Changes. Landlord shall have the right, in Landlord's
             -------------------
sole discretion, from time to time:

             (a) To make changes to the Common Areas, including, without
limitation, changes in the locations, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;

             (b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;

             (c) To add additional buildings and improvements to the Common
Areas;
             (d) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and t To do and perform such other acts and make such other changes in,
to or with respect to the Common Are and Industrial Center as Landlord may, in
the exercise of sound business judgment, deem to be appropriate.

         2.6 Parking. Tenant is allocated and shall have the non-exclusive right
             -------
to use not more than 120 parking stalls ("Tenant's Allocated Parking Stalls"
contained within the Industrial Center for its use and the use of its agents,
servants, employees, and invitees, the location of which may be designated from
time to time by Landlord. Tenant shall not at any time use more parking spaces
than the number so allocated to Tenant or park its vehicles or the vehicles of
others in any portion of the Industrial Center not designated by Landlord as a
non-exclusive parking area. Tenant shall not have the exclusive right to use any
specific parking space. If Landlord grants to any other tenant the exclusive
right to use any particular parking space(s), Tenant shall not use such spaces.
Landlord reserves the right, after having given Tenant reasonable notice, to
have any vehicles owned by Tenant or Tenant's employees, servants, agents, or
invitees utilizing parking spaces in excess of the parking spaces allowed for
Tenant's use to be towed away at Tenant's cost. All trucks and delivery vehicles
shall be (i) parked at the rear of the Building, (ii) loaded and unloaded in a
manner which does not interfere with the businesses of other occupants of the
Industrial Center, and (iii) permitted to remain on the Industrial Center only
so long as is reasonably necessary to complete loading and unloading. In the
event Landlord elects or is required by any Law to limit or control parking in
the Industrial Center , whether by validation of parking tickets or any other
method of assessment, Tenant agrees to participate in such validation or
assessment program under such reasonable rules and regulations as are from time
to time established by Landlord.

3.       Term.

         3.1 Term. The Commencement Date, Expiration Date and Term of this Lease
             ----
are as specified in Paragraph 1.3.

         3.2 Delay in Possession. If for any reason Landlord cannot deliver
             -------------------
possession of the Premises to Tenant by the Commencement Date, Landlord shall
not be subject to any liability therefor, nor shall such failure affect the
validity of this Lease or the obligations of Tenant hereunder. In such case,
Tenant shall not, except as otherwise provided herein, be obligated to pay Rent
or perform any other obligation of Tenant under the terms of this Lease until
Landlord delivers possession of the Premises to Tenant. If possession of the
Premises is not delivered to Tenant within 60 days after the Commencement Date
and such delay is not due to Tenant's acts, failure to act or omissions, Tenant
may by notice in writing to Landlord within 10 business days after the end of
said 60 day period cancel this Lease and the parties shall be discharged from
all obligations hereunder. If such written notice of Tenant is not

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received by Landlord within said 10 business day period, Tenant's right to
cancel this Lease shall terminate, provided that Landlord shall return any
amounts paid to Landlord by Tenant.

         3.3 Commencement Date Certificate. At the request of Landlord, Tenant
             -----------------------------
shall execute and deliver to Landlord a completed certificate ("Commencement
Date Certificate") in the form attached hereto as Exhibit B.

4.       Rent.

         4.1 Base Rent. Tenant shall pay to Landlord Base Rent and other
             ---------
monetary obligations of Tenant to Landlord under the terms of this Lease (such
other monetary obligations are herein referred to as "Additional Rent") in
lawful money of the United States, without offset or deduction, in advance on or
before the first day of each month. Base Rent and Additional Rent for any period
during the term hereof which is for less than one full month shall be prorated
based upon the actual number of days of the month involved. Payment of Base Rent
and Additional Rent shall be made to Landlord at its address stated herein or to
such other persons or at such other addresses as Landlord may from time to time
designate in writing to Tenant. Base Rent and Additional Rent are collectively
referred to as "Rent". All monetary obligations of Tenant to Landlord under the
terms of this Lease are deemed to be rent.

         4.2 Operating Expenses. Tenant shall pay to Landlord on the first day
             ------------------
of each month during the term hereof, in addition to the Base Rent, Tenant's
Share of all Operating Expenses in accordance with the following provisions:

             (a) "Operating Expenses" are all costs incurred by Landlord
relating to the ownership, management and operation of the Industrial Center,
Building and Premises including, but not limited to, the following:

                 (i)    The management, operation, repair, maintenance and
replacement in neat, clean, good order and condition of the Common Areas,
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, drainage systems, lighting facilities, fences and gates,
exterior signs and tenant directories.

                 (ii)   Water, gas, electricity, telephone and other utilities
servicing the Common Areas.

                 (iii)  Trash disposal, janitorial services, snow removal,
property management and security services.

                 (iv)   Real Property Taxes.

                 (v)    Premiums for the insurance policies maintained by
Landlord under Paragraph 8 hereof .

                 (vi)   Environmental monitoring (but excluding monitoring to
the extent that it relates to activities of persons other than Tenant and its
agents, servants, and employees ) and environmental insurance programs.

                 (vii)  Amortization of capital expenditures to the Common Areas
and the Building, including but not limited to expenses to replace Building
components and/or systems, amortized over the number of months of useful life of
such improvement with interest at the lesser of 12% or Landlord's actual cost of
funds.
                 (viii) Maintenance of the Building including, but not limited
to, painting, caulking and repair of Building components, including, but not
limited to, roof, elevators and fire detection and sprinkler systems.

                 (ix)   If Tenant fails to maintain the Premises in accordance
with the terms of this Lease, any expense incurred by Landlord for such
maintenance.
             (b) Tenant's Share of Operating Expenses that are not specifically
attributed to the Premises or Building ("Common Area Operating Expenses") shall
be that percentage shown in Paragraph 1.5(a). Tenant's Share of Operating
Expenses that are attributable to the Building ("Building Operating Expenses")
shall be that percentage shown in Paragraph 1.5(b). Landlord in its reasonable
discretion shall determine which Operating Expenses are Common Area Operating
Expenses, Building Operating Expenses or expenses to be entirely borne by
Tenant.
             (c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose any obligation upon
Landlord to either have said improvements or facilities or to provide those
services.
             (d) Tenant shall pay monthly in advance on the same day as the Base
Rent is due Tenant's Share of estimated Operating Expenses in the amount set
forth in Paragraph 1.6. Landlord shall deliver to Tenant within 90 days after
the expiration of each calendar year a reasonably detailed statement showing
Tenant's Share of the actual Operating Expenses incurred during the preceding
year. If Tenant's estimated payments under this Paragraph 4(d) during the
preceding year exceed Tenant's Share as indicated on said statement, Tenant
shall be credited the amount of such overpayment against Rent next becoming due.
If Tenant's estimated payments under this Paragraph 4.2(d) during said preceding
year were less than Tenant's Share as indicated on said statement, Tenant shall
pay to Landlord the amount of

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the deficiency within 10 business days after delivery by Landlord to Tenant of
said statement. At any time Landlord may adjust the amount of the estimated
Tenant's Share of Operating Expenses to reflect Landlord's estimate of such
expenses for the year.

5. Security Deposit. Tenant shall deposit with Landlord upon Tenant's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Tenant's
faithful performance of Tenant's obligations under this Lease. If Tenant
defaults under this Lease (as defined in Paragraph 13.1), Landlord may use the
Security Deposit for the payment of any amount due Landlord or to reimburse or
compensate Landlord for any liability, cost, expense, loss or damage (including
attorney's fees) which Landlord may suffer or incur by reason thereof. Tenant
shall on demand pay Landlord the amount so used or applied so as to restore the
Security Deposit to the amount set forth in Paragraph 1.7. Landlord shall not be
required to keep all or any part of the Security Deposit separate from its
general accounts. Landlord shall, at the expiration or earlier termination of
the term hereof and after Tenant has vacated the Premises, return to Tenant that
portion of the Security Deposit not used or applied by Landlord. No part of the
Security Deposit shall be considered to be held in trust, to bear interest, or
to be prepayment for any monies to be paid by Tenant under this Lease.

6. Use.

   6.1 Permitted Use. Tenant shall use and occupy the Premises only for the
       -------------
Permitted Use set forth in Paragraph 1.8. Tenant shall not commit any nuisance,
permit the emission of any objectionable noise or odor, suffer any waste, make
any use of the Premises which is contrary to any law or ordinance or which will
invalidate or increase the premiums for any of Landlord's insurance. Tenant
shall not service, maintain or repair vehicles on the Premises, Building or
Common Areas. Tenant shall not store foods, pallets, drums or any other
materials outside the Premises.

   6.2 Hazardous Substances.
       --------------------

       (a) Reportable Uses Require Consent. The term "Hazardous Substance" as
           -------------------------------
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority relating to health, safety or the environment; or (iii) a basis for
potential liability of Landlord to any governmental agency or third party under
any applicable statute or common law theory relating to health, safety or the
environment. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Tenant shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Landlord and compliance in a timely
manner (at Tenant's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Requirements require that a notice be given to
persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Tenant may, without Landlord's prior consent, but
upon notice to Landlord and in compliance with all Applicable Requirements, use
any ordinary and customary materials reasonably required to be used by Tenant in
the normal course of the Permitted Use, so long as such use is not a Reportable
Use and does not expose the Premises, or neighboring properties to any
meaningful risk of contamination or damage or expose Landlord to any liability
therefor. In addition, Landlord may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous Substance by Tenant
upon Tenant's giving Landlord such additional assurances as Landlord, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Landlord's option, removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit.

       (b) Duty to Inform Landlord. If Tenant knows, or has reasonable cause to
           -----------------------
believe, that a Hazardous Substance is located in, under or about the Premises
or the Building, Tenant shall immediately give Landlord written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous
Substance. Tenant shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including, without
limitation, through the plumbing or sanitary sewer system).

       (c) Indemnification. Tenant shall indemnify, protect, defend and hold
           ---------------
Landlord,

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Landlord's affiliates, Lenders, and the officers, directors, shareholders,
partners, employees, managers, independent contractors, attorneys and agents of
the foregoing ("Landlord Entities") and the Premises, harmless from and against
any and all damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, loss of permits and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Tenant
or by any of Tenant's employees, agents, contractors or invitees. Tenant's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Tenant, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved.
Tenant's obligations under this Paragraph 6.2(c) shall survive the expiration or
earlier termination of this Lease.

   6.3 Tenant's Compliance with Requirements. Tenant shall, at Tenant's sole
       -------------------------------------
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, and permits, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill or release of
any Hazardous Substance), now in effect or which may hereafter come into effect.
Tenant shall, within 5 business days after receipt of Landlord's written
request, provide Landlord with copies of all readily available documents and
information evidencing Tenant's compliance with any Applicable Requirements and
shall immediately upon receipt, notify Landlord in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Tenant or the
Premises to comply with any Applicable Requirements.

   6.4 Inspection; Compliance with Law. In addition to Landlord's environmental
       -------------------------------
monitoring and insurance program, the cost of which is included in Operating
Expenses, Landlord and the holders of any mortgages, deeds of trust or ground
leases on the Premises ("Lenders") shall have the right to enter the Premises at
any time in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Tenant with this Lease and all Applicable Requirements. Landlord shall be
entitled to employ experts and/or consultants in connection therewith to advise
Landlord with respect to Tenant's installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance on or from the Premises. The
cost and expenses of any such inspections shall be paid by the party requesting
same unless a violation of Applicable Requirements exists or is imminent or the
inspection is requested or ordered by a governmental authority. In such case, if
Tenant is the responsible party, then Tenant shall upon request reimburse
Landlord or Landlord's Lender, as the case may be, for the costs and expenses of
such inspections.

7. Maintenance, Repairs, Trade Fixtures and Alterations.

   7.1 Tenant's Obligations. Subject to the provisions of Paragraph 7.2
       --------------------
(Landlord's Obligations), Paragraph 9 (Damage or Destruction) and Paragraph 14
(Condemnation), Tenant shall, at Tenant's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonable or readily accessible to Tenant and
whether or not the need for such repairs occurs as a result of Tenant's use, any
prior use, the elements or the age of such portion of the Premises) including,
without limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired pressure
vessels, fire hose connectors if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Landlord pursuant to Paragraph 7.2 below. Tenant's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.

   7.2 Landlord's Obligations. Subject to the provisions of Paragraph 6 (Use),
       -----------------------
Paragraph 7.1 (Tenant's Obligations), Paragraph 9 (Damage or Destruction) and
Paragraph 14 (Condemnation), Landlord at its expense and not subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and
repair the foundations, structural and exterior walls of the Building and
utility systems outside the Building. Landlord, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
Building roof and Common Areas.

   7.3 Alterations. Construction by Tenant of Alterations shall be governed by
       ------------
the following:

   A.  Except as set forth below, Tenant shall not construct any Tenant
Alterations or otherwise alter, improve, modify, or perform any work of
improvement to the Premises without Landlord's prior written approval not to be
unreasonably withheld. However, Tenant shall be entitled, without Landlord's
prior approval, to make Tenant Alterations (i) which do not affect the
structural or exterior parts or water tight character of the Building, and (ii)
the reasonably estimated cost of which, plus the original cost of any part of
the Premises removed or materially altered in connection with such Tenant
Alterations,

                                       5

<PAGE>

together do not exceed the Permitted Tenant Alterations Limit per work of
improvement. In the event Landlord's approval for any Tenant Alterations is
required, Tenant shall not construct the Tenant Alterations until Landlord has
approved in writing the plans and specifications therefor. Such Tenant
Alterations shall be constructed substantially in compliance with such approved
plans and specifications by a licensed contractor first approved by Landlord.
All Tenant Alterations (whether Landlord's consent is required or not) shall be
constructed by a licensed contractor in accordance with all Laws (including the
ADA) using new materials of good quality.

   B.  Tenant shall not commence construction of any Tenant Alterations until
(i) all required governmental approvals and permits have been obtained, (ii) all
requirements regarding insurance imposed by this Lease have been satisfied,
(iii) Tenant has given Landlord at least five days' prior written notice of its
intention to commence such construction, and (iv) if requested by Landlord,
Tenant has obtained contingent liability and broad form builders' risk insurance
in an amount reasonably satisfactory to Landlord if there are any perils
relating to the proposed construction not covered by insurance carried pursuant
to the Lease.

   C.  All Tenant Alterations shall remain the property of Tenant during the
Lease Term but shall not be altered or removed from the Premises except with
Landlord's advance written permission. At the expiration or sooner termination
of the Lease Term, all Tenant Alterations shall be surrendered to Landlord as
part of the realty and shall then become Landlord's property, and Landlord shall
have no obligation to reimburse Tenant for all or any portion of the value or
cost thereof; provided, however, that if Landlord requires Tenant to remove any
Tenant Alterations, Tenant shall so remove such Tenant Alterations prior to the
expiration or sooner termination of the Lease Term. Notwithstanding the
foregoing, Tenant shall not be obligated to remove any Tenant Alterations with
respect to which the following is true: (i) Tenant was required, or elected, to
obtain the approval of Landlord to the installation of the Leasehold Improvement
in question; (ii) at the time Tenant requested Landlord's approval, Tenant
requested of Landlord in writing that Landlord inform Tenant of whether or not
Landlord would require Tenant to remove such Leasehold Improvement at the
expiration of the Lease Term; and (iii) at the time Landlord granted its
approval, it did not inform Tenant that it would require Tenant to remove such
Leasehold Improvement at the expiration of the Lease Term.

   D.  Landlord's consent to the construction of Tenant Alterations may be
withheld in Landlord's reasonable discretion. Landlord's consent to construction
of Tenant Alterations and Landlord's approval of plans and specifications for
Tenant Alterations shall not create any responsibility or liability on
Landlord's part in regard to the completeness, competency, design sufficiency,
or compliance with Law of such Tenant Alterations or the plans and
specifications therefor.

   7.4 Surrender/Restoration. Tenant shall surrender the Premises by the end of
       ---------------------
the last day of the Lease term or any earlier termination date, clean and free
of debris and in good operating order, condition and state of repair ordinary
wear and tear, casualty and condemnation excepted. Without limiting the
generality of the above, Tenant shall remove all personal property, trade
fixtures and floor bolts, patch all floors and cause all lights to be in good
operating condition.

8. Insurance; Indemnity.

   8.1 Payment of Premiums. The cost of the premiums for the insurance policies
       -------------------
maintained by Landlord under this Paragraph 8 shall be a Common Area Operating
Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date of Expiration Date.

   8.2 Tenant's Insurance.
       ------------------

       (i)  At its sole cost and expense, Tenant shall maintain in full force
and effect during the Term of the lease the following insurance coverages
insuring against claims which may arise from or in connection with the Tenant's
operation and use of the leased premises.

            (a) Commercial General Liability with minimum limits of $1,000,000
per occurrence; $3,000,000 general aggregate for bodily injury, personal injury
and property damage. If required by Landlord, liquor liability coverage will be
included.

            (b) Workers' Compensation insurance with statutory limits and
Employers Liability with a $1,000,000 per accident limit for bodily injury or
disease.

            (c) Automobile Liability covering all owned, non-owned and hired
vehicles with a $1,000,000 per accident limit for bodily injury and property
damage.

            (d) Property insurance against all risks of loss to any tenant
improvements or betterments and business personal property on a full replacement
cost basis with no coinsurance penalty provision; and Business Interruption
Insurance with a limit of liability representing loss of at least approximately
six months of income.

       (ii) Tenant shall deliver to AMB certificates of all insurance reflecting
evidence of required coverages prior to initial occupancy; and annually
thereafter.

       (iii) If, in the reasonable opinion of Landlord's insurance advisor, the
amount or scope of such coverage is inadequate at any time during the Term,
Tenant shall increase such coverage to such

                                       6

<PAGE>

reasonable amounts or scope as Landlord's advisor deems adequate.

        (iv)  All insurance required under Paragraph 8.2 (i) shall be primary
and non-contributory (ii) shall provide for severability of interests, (iii)
shall be issued by insurers, licensed to do business in the state in which the
Premises are located and which are rated B+:VII or better by Best's Key Rating
Guide, (iv) shall be endorsed to include Landlord and such other persons or
entities as Landlord may from time to time designate, as additional insureds
(Commercial General Liability only), and (v) shall be endorsed to provide at
least 30-days prior notification of cancellation or material change in coverage
to said additional insureds.

    8.3 Landlord's Insurance. Landlord shall maintain all risk insurance and may
        --------------------
maintain other insurance including earthquake and flood covering the buildings
within the Industrial Center, Commercial General Liability and such other
insurance in such amounts and covering such other liability or hazards as deemed
appropriate by Landlord. The amount and scope of coverage of Landlord's
insurance shall be determined by Landlord from time to time in its reasonable
discretion and shall be subject to such deductible amounts as Landlord may
elect. Notwithstanding any other provision hereof, Tenant shall not be liable,
as a Common Area Operating Expense or otherwise, for any earthquake damage
repairs or replacement not covered by insurance except in an amount not to
exceed $15,000 per year. Landlord shall have the right to reduce or terminate
any insurance or coverage. Premiums for any such insurance shall be a Common
Area Operating Expense.

    8.4 Waiver of Subrogation. Intentionally omitted, see Second Addendum to
        ---------------------
Lease.

    8.5 Indemnity. Tenant shall protect, indemnify and hold Landlord Entities
        ---------
harmless from and against any and all loss, claims, liability or costs
(including court costs and attorney's fees) incurred by reason of:

        (i)   any damage to any property (including but not limited to property
of Landlord) or death or injury to any person occurring in or about the
Premises, the Building or the Industrial Center to the extent that such injury
or damage shall be caused by or arise from any negligence or willful misconduct
of Tenant, its agents, servants, employees, invitees, or visitors;

        (ii)  the conduct or management of any work or anything whatsoever done
by the Tenant on or about the Premises or from transactions of the Tenant
concerning the Premises;

        (iii) Tenant's failure to comply with any and all governmental laws,
ordinances and regulations applicable to the condition or Tenant's particular
use of the Premises or its occupancy; or

        (iv)  any breach or default of the part of Tenant in the performance of
any covenant or agreement on the part of the Tenant to be performed pursuant to
this Lease. The provisions of this Paragraph 8.5 shall survive the termination
of this Lease with respect to any claims or liability accruing prior to such
termination.

    8.6 Exemption of Landlord from Liability. Except to the extent caused by the
        ------------------------------------
negligence or willful misconduct of Landlord, Landlord Entities shall not be
liable for and Tenant waives any claims against Landlord Entities for injury or
damage to the person or the property of Tenant, Tenant's employees, contractors,
invitees, customers or any other person in or about the Premises, Building or
Industrial Center from any cause whatsoever, including, but not limited to,
damage or injury which is caused by or results from (i) fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or (ii) from the condition of the Premises,
other portions of the Building or Industrial Center. Landlord shall not be
liable for any damages arising from any act or neglect of any other tenant of
Landlord nor from the failure by Landlord to enforce the provisions of any other
lease in the Industrial Center. Notwithstanding Landlord's negligence or breach
of this Lease, Landlord shall under no circumstances be liable for injury to
Tenant's business, for any loss of income or profit therefrom or any indirect,
consequential or punitive damages.

9. Damage or Destruction.

   9.1 Termination Right. Tenant shall give Landlord immediate written notice
       -----------------
of any damage to the Premises. Subject to the provisions of Paragraph 9.2, if
the Premises or the Building shall be damaged to such an extent that there is
substantial interference for a period exceeding 90 consecutive days with the
conduct by Tenant of its business at the Premises, Tenant, at any time prior to
commencement of repair of the Premises and following 10 days written notice to
Landlord, may terminate this Lease effective 30 days after delivery of such
notice to Landlord. Such termination shall not excuse the performance by Tenant
of those covenants which under the terms hereof survive termination. Rent shall
be abated in proportion to the degree of interference during the period that
there is such substantial interference with the conduct of Tenant's business at
the Premises. Abatement of rent and Tenant's right of termination pursuant to
this provision shall be Tenant's sole remedy for failure of Landlord to keep in
good order, condition and repair the foundations and exterior walls of the
Building, Building roof, utility systems outside the Building and the Common
Areas.

    9.2 Intentionally omitted, see Second Addendum to Lease.
        ---------------------

10. Real Property Taxes.

                                       7

<PAGE>

          10.1 Payment of Real Property Taxes. Landlord shall pay the Real
               ------------------------------
Property Taxes due and payable during the term of this Lease and, except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Operating Expenses in accordance with the provisions of Paragraph
4.2.

          10.2 Real Property Tax Definition. As used herein, the term "Real
               ----------------------------
Property Taxes" is any form of tax or assessment, general, special, ordinary or
extraordinary, imposed or levied upon (a) the Industrial Center, and/or (b) any
interest of Landlord in the Industrial Center. Real Property Taxes include (i)
any improvement bond or bonds, levy or tax; (ii) any tax or charge which
replaces or is in addition to any of such above-described "Real Property Taxes"
and (iii) any fees, expenses or costs (including attorney's fees, expert fees
and the like) incurred by Landlord in protesting or contesting any assessments
levied or any tax rate, to the extent of any reduction achieved thereby. The
term "Real Property Taxes" shall also include any increase resulting from a
change in the ownership of the Industrial Center or Building, the execution of
this Lease or any modification, amendment or transfer thereof. Real Property
Taxes for tax years commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Commencement Date and
Expiration Date.

          10.3 Additional Improvements. Operating Expenses shall not include
               -----------------------
Real Property Taxes attributable to improvements placed upon the Industrial
Center by other tenants or by Landlord for the exclusive enjoyment of such other
tenants. Notwithstanding Paragraph 10.1 hereof, Tenant shall, however, pay to
Landlord at the time Operating Expenses are payable under Paragraph 4.2, the
entirety of any increase in Real Property Taxes if assessed by reason of
improvements placed upon the Premises by Tenant or at Tenant's request.

          10.4 Joint Assessment. If the Building is not separately assessed,
               ----------------
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed.

          10.5 Tenant's Property Taxes. Tenant shall pay prior to delinquency
               -----------------------
all taxes assessed against and levied upon Tenant's improvements, fixtures,
furnishings, equipment and all personal property of Tenant contained in the
Premises or stored within the Industrial Center.

11.       Utilities. Tenant shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon.

12.       Assignment and Subletting.

          12.1 Landlord's Consent Required. Tenant shall not assign, transfer,
               ---------------------------
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Tenant's interest in this Lease or in the Premises without
Landlord's prior written consent which consent shall not be unreasonably
withheld, conditioned, or delayed. Relevant criteria in determining
reasonability of consent include, but are not limited to, credit history of a
proposed assignee or sublessee, references from prior landlords, any change or
intensification of use of the Premises or the Common Areas and any limitations
imposed by the Internal Revenue Code and the Regulations promulgated thereunder
relating to Real Estate Investment Trusts. Assignment or sublet shall not
release Tenant from its obligations hereunder. Tenant shall not (i) sublet or
assign or enter into other arrangements such that the amounts to be paid by the
sublessee or assignee thereunder would be based, in whole or in part, on the
income or profits derived by the business activities of the sublessee or
assignee; (ii) sublet the Premises or assign this Lease to any person in which
Landlord owns an interest, directly or indirectly (by applying constructive
ownership rules set forth in Section 856(d)(5) of the Internal Revenue Code (the
"Code"); or (iii) sublet the Premises or assign this Lease in any other manner
which could cause any portion of the amounts received by Landlord pursuant to
this Lease or any sublease to fail to qualify as "rents from real property"
within the meaning of Section 856(d) of the Code, or which could cause any other
income received by Landlord to fail to qualify as income described in Section
856(c)(2) of the Code. The requirements of this Section 12.1 shall apply to any
further subleasing by any subtenant.

13.       Default; Remedies.

          13.1 Default. The occurrence of any one of the following events shall
               -------
constitute an event of default on the part of Tenant ("Default"):

               (a) The abandonment of the Premises by Tenant;

               (b) Failure to pay any installment of Base Rent, Additional Rent
or any other monies due and payable hereunder, said failure continuing for a
period of 3 days after Tenant's receipt of written notice that the same is due,
provided, that such notice may be combined at Landlord's option with any legal
notice, including but not limited to a Three Day Notice to Pay Rent or Quit or
other notice given in regard to unlawful detainer remedies.;

               (c) A general assignment by Tenant or any guarantor for the
benefit of creditors;

                                       8

<PAGE>

           (d) The filing of a voluntary petition in bankruptcy by Tenant or any
guarantor, the filing of a voluntary petition for an arrangement, the filing of
a petition, voluntary or involuntary, for reorganization, or the filing of an
involuntary petition by Tenant's creditors or guarantors;

           (e) Receivership, attachment, of other judicial seizure of the
Premises or all or substantially all of Tenant's assets on the Premises;

           (f) Failure of Tenant to maintain insurance as required by Paragraph
8.2 (provided, however, that such failure must continue for five (5) calendar
days after written notice before such default shall have occurred) ;

           (g) Failure in the performance of any of Tenant's covenants,
agreements or obligations hereunder (except those failures specified as events
of Default in other Paragraphs of this Paragraph 13.1 which shall be governed by
such other Paragraphs), which failure continues for 10 days after written notice
thereof from Landlord to Tenant provided that, if Tenant has exercised
reasonable diligence to cure such failure and such failure cannot be cured
within such 10 day period despite reasonable diligence, Tenant shall not be in
default under this subparagraph unless Tenant fails thereafter diligently and
continuously to prosecute the cure to completion; and

           (h) Any transfer of a substantial portion of the assets of Tenant, or
any incurrence of a material obligation by Tenant, unless such transfer or
obligation is undertaken or incurred in the ordinary course of Tenants business
or in good faith for equivalent consideration, or with Landlord's consent.

     13.2  Remedies. In the event of any Default by Tenant, Landlord shall have
           --------
the remedies set forth in the Addendum attached hereto entitled "Landlord's
Remedies in Event of Tenant Default".

     13.3  Late Charges. Tenant hereby acknowledges that late payment by Tenant
           ------------
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges. Accordingly, if any installment of rent or
other sum due from Tenant shall not be received by Landlord or Landlord's
designee within 10 days after such amount shall be due, then, without any
requirement for notice to Tenant, Tenant shall pay to Landlord a late charge
equal to 5% of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's Default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.

14.  Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of exercise of said power (all
of which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the Premises, or
more than 25% of the portion of the Common Areas designated for Tenant's
parking, is taken by condemnation, Tenant may, at Tenant's option, to be
exercised in writing within 10 days after Landlord shall have given Tenant
written notice of such taking (or in the absence of such notice, within 10 days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Tenant does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Landlord,
provided, however, that Tenant shall be entitled to any compensation, awarded to
Tenant for Tenant's relocation expenses and/or loss of Tenants trade fixtures.
In the event that this Lease is not terminated by reason of such condemnation,
Landlord shall to the extent of its net severance damages in the condemnation
matter, repair any damage to the Premises caused by such condemnation authority.
Tenant shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.

15.  Estoppel Certificate and Financial Statements.

     15.1  Estoppel Certificate. Each party (herein referred to as "Responding
           --------------------
Party") shall within 10 days after written notice from the other Party (the
"Requesting Party") execute, acknowledge and deliver to the Requesting Party, to
the extent it can truthfully do so, an estoppel certificate, plus such
additional information, confirmation and/or statements as be reasonably
requested by the Requesting Party.

     15.2  Financial Statement. If Landlord desires to finance, refinance, or
           -------------------
sell the Building, Industrial Center or any part thereof, Tenant and all
Guarantors shall deliver to any potential lender or purchaser designated by
Landlord such financial statements of Tenant and such Guarantors as may be

                                       9

<PAGE>

reasonably required by such lender or purchaser, including but not limited to
Tenant's readily available financial statements for the past 3 years. All such
financial statements shall be received by Landlord and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.

16. Additional Covenants and Provisions.

    16.1  Severability. The invalidity of any provision of this Lease, as
          ------------
determined by a court of competent jurisdiction, shall not affect the validity
of any other provision hereof.

    16.2  Interest on Past-Due Obligations. Any monetary payment due Landlord
          --------------------------------
hereunder not received by Landlord within 10 days following the date on which it
was due shall bear interest from the date due at 12% per annum, but not
exceeding the maximum rate allowed by law in addition to the late charge
provided for in Paragraph 13.3.

    16.3  Time of Essence. Time is of the essence with respect to the
          ---------------
performance of all obligations to be performed or observed by the Parties under
this Lease.

    16.4  Landlord Liability. Tenant, its successors and assigns, shall not
          ------------------
assert nor seek to enforce any claim for breach of this Lease against any of
Landlord's assets other than Landlord's interest in the Industrial Center.
Tenant agrees to look solely to such interest for the satisfaction of any
liability or claim against Landlord under this Lease. In no event whatsoever
shall Landlord (which term shall include, without limitation, any general or
limited partner, trustees, beneficiaries, officers, directors, or stockholders
of Landlord) ever be personally liable for any such liability.

    16.5  No Prior or Other Agreements. This Lease contains all agreements
          ----------------------------
between the Parties with respect to any matter mentioned herein, and supersedes
all oral, written prior or contemporaneous agreements or understandings.

    16.6  Notice Requirements. All notices required or permitted by this Lease
          -------------------
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, and shall be deemed
sufficiently given if served in a manner specified in the Paragraph 16.6. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Tenant's taking possessing of the Premises, the Premises shall
constitute Tenant's address for the purpose of mailing or delivering notices to
Tenant. A copy of all notices required or permitted to be given to Landlord
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Landlord may from time to time hereafter designate by written
notice to Tenant.

    16.7  Date of Notice. Any notice sent by registered or certified mail,
          --------------
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given 48 hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given 24 hours after delivery of the same to the United
States Postal Service or courier. If notice is received on a Saturday or a
Sunday or a legal holiday, it shall be deemed received on the next business day.

    16.8  Waivers. No waiver by Landlord or Tenant of a Default by the other
          -------
party hereto shall be deemed a waiver of any other term, covenant or condition
hereof, or of any subsequent Default of the same or any other term, covenant or
condition hereof.

    16.9  Holdover. Tenant has no right to retain possession of the Premises or
          --------
any part thereof beyond the expiration or earlier termination of this Lease. If
Tenant holds over with the consent of Landlord: (i) the Base Rent payable shall
be increased to 150% of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination; (ii) Tenant's right to
possession shall terminate on 30 days notice from Landlord and (iii) all other
terms and conditions of this Lease shall continue to apply. Nothing contained
herein shall be construed as a consent by Landlord to any holding over by
Tenant. Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, demands, actions, losses, damages, obligations,
costs and expenses, including, without limitation, attorneys' fees incurred or
suffered by Landlord by reason of Tenant's failure to surrender the Premises on
the expiration or earlier termination of this Lease in accordance with the
provisions of this Lease.

    16.10 Cumulative Remedies. No remedy or election hereunder shall be deemed
          -------------------
exclusive but shall, wherever possible, be cumulative with all other remedies in
law or in equity.

    16.11 Binding Effect: Choice of Law. This Lease shall be binding upon the
          ------------------------------
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

    16.12 Landlord. The covenants and obligations contained in this Lease on the
          --------
part of Landlord are binding on Landlord, its successors and assigns, only
during and in respect of their respective period of ownership of such interest
in the Industrial Center. In the event of any transfer or transfers of such
title to the Industrial Center, Landlord (and in case of any subsequent
transfers or conveyances, the then

                                       10

<PAGE>

grantor) shall be concurrently freed and relieved from and after the date of
such transfer or conveyance, without any further instrument or agreement, of all
liability with respect to the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed. Solely in
the event that Landlord has not yet satisfied its obligations to construct
Tenant Improvements for Tenant hereunder, the foregoing release shall require
transferee's written assumption of Landlord's construction obligations
hereunder.

    16.13 Attorneys' Fees and Other Costs. If any Party brings an action or
          -------------------------------
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding shall be entitled
to reasonable attorneys' fees. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought. Landlord shall be entitled to reasonable attorneys' fees, costs and
expenses incurred in preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting breach.
Tenant shall reimburse Landlord on demand for all reasonable legal, engineering
and other professional services expenses incurred by Landlord in connection with
all requests by Tenant for consent or approval hereunder.

    16.14 Landlord's Access; Showing Premises; Repairs. Landlord and Landlord's
          --------------------------------------------
agents shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times upon reasonable notice for the
purpose of showing the same to prospective purchasers, lenders, or tenants, and
making such alterations, repairs, improvements or additions to the Premises or
to the Building, as Landlord may reasonably deem necessary. Landlord may at any
time place on or about the Premises or Building any ordinary "For Sale" signs
and Landlord may at any time during the last 90 days of the term hereof place on
or about the Premises any ordinary "For Lease" signs. All such activities of
Landlord shall be without abatement of rent or liability to Tenant.

    16.15 Signs. Tenant shall not place any signs at or upon the exterior of the
          -----
Premises or the Building, except that Tenant may, with Landlord's prior written
consent, install (but not on the roof) such signs as are reasonably required to
advertise Tenant's own business so long as such signs are in a location
designated by Landlord and comply with sign ordinances and the signage criteria
established for the Industrial Center by Landlord.

    16.16 Termination: Merger. Unless specifically stated otherwise in writing
          -------------------
by Landlord, the voluntary or other surrender of this Lease by Tenant, the
mutual termination or cancellation hereof, or a termination hereof by Landlord
for Default by Tenant, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Landlord shall, in the event of any
such surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Landlord's failure within 10 days following
any such event to make a written election to the contrary by written notice to
the holder of any such lesser interest, shall constitute Landlord's election to
have such event constitute the termination of such interest.

    16.17 Quiet Possession. Upon payment by Tenant of the Base Rent and
          ----------------
Additional Rent for the Premises and the performance of all of the covenants,
conditions and provisions on Tenant's part to be observed and performed under
this Lease, Tenant shall have quiet possession of the Premises for the entire
term hereof subject to all of the provisions of this Lease.

    16.18 Subordination; Attornment; Non-Disturbance.
          ------------------------------------------

               (a) Subordination. This Lease shall be subject and subordinate to
any ground lease, mortgage, deed of trust, or other hypothecation or mortgage
(collectively, "Mortgage") now or hereafter placed by Landlord upon the real
property of which the Premises are a part, to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Tenant agrees that any person holding any
Mortgage shall have no duty, liability or obligation to perform any of the
obligations of Landlord under this Lease. In the event of Landlord's default
with respect to any such obligation, Tenant will give any Lender, whose name and
address have previously in writing been furnished Tenant, notice of a default by
Landlord. Tenant may not exercise any remedies for default by Landlord unless
and until Landlord and the Lender shall have received written notice of such
default and a reasonable time (not less than 90 days) shall thereafter have
elapsed without the default having been cured. If any Lender shall elect to have
this Lease superior to the lien of its Mortgage and shall give written notice
thereof to Tenant, this Lease shall be deemed prior to such Mortgage. The
provisions of a Mortgage relating to the disposition of condemnation and
insurance proceeds shall prevail over any contrary provisions contained in this
Lease.

               (b) Attornment. Subject to the non-disturbance provisions of
subparagraph C of this Paragraph 16.18, Tenant agrees to attorn to a Lender or
any other party who acquires ownership of the Premises by reason of a
foreclosure of a Mortgage. In the event of such foreclosure, such new owner
shall not: (i) be liable for any act or omission of any prior landlord or with
respect to events occurring prior to acquisition of ownership, (ii) be subject
to any offsets or defenses which Tenant might have against any prior Landlord,
or (iii) be liable for security deposits or be bound by prepayment of more than
one month's rent.

                                       11

<PAGE>

               (c) Non-Disturbance. With respect to Mortgage entered into by
Landlord after the execution of this Lease, Tenant's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Mortgage holder that Tenant's possession and this Lease will not be disturbed so
long as Tenant is not in default and attorns to the record owner of the
Premises.

               (d) Self-Executing. The agreements contained in this Paragraph
16.18 shall be effective without the execution of any further documents;
provided, however, that upon written request from Landlord or a Lender in
connection with a sale, financing or refinancing of Premises, Tenant and
Landlord shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein. Landlord is hereby
irrevocably vested with full power to subordinate this Lease to a Mortgage.

    16.19 Rules and Regulations. Tenant agrees that it will abide by, and to
          ---------------------
cause its employees, suppliers, shippers, customers, tenants, contractors and
invitees to abide by all reasonable rules and regulations ("Rules and
Regulations") which Landlord may make from time to time for the management,
safety, care, and cleanliness of the Common Areas, the parking and unloading of
vehicles and the preservation of good order, as well as for the convenience of
other occupants or tenants of the Building and the Industrial Center and their
invitees. Landlord shall not be responsible to Tenant for the non-compliance
with said Rules and Regulations by other tenants of the Industrial Center.

    16.20 Security Measures. Tenant acknowledges that the rental payable to
          -----------------
Landlord hereunder does not include the cost of guard service or other security
measures. Landlord has no obligations to provide same. Tenant assumes all
responsibility for the protection of the Premises, Tenant, its agents and
invitees and their property from the acts of third parties.

    16.21 Reservations. Landlord reserves the right to grant such easements that
          ------------
Landlord deems necessary and to cause the recordation of parcel maps, so long as
such easements and maps do not reasonably interfere with the use of the Premises
by Tenant. Tenant agrees to sign any documents reasonable requested by Landlord
to effectuate any such easements or maps.

    16.22 Conflict. Any conflict between the printed provisions of this Lease
          --------
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.

    16.23 Offer. Preparation of this Lease by either Landlord or Tenant or agent
          -----
or Tenant's agent and submission of same to Tenant or Landlord shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.

    16.24 Amendments. This Lease may be modified only in writing, signed by the
          ----------
parties in interest at the time of the modification.

    16.25 Multiple Parties. Except as otherwise expressly provided herein, if
          ----------------
more than one person or entity is named herein as Tenant, the obligations of
such persons shall be the joint and several responsibility of all persons or
entities named herein as such Tenant.

    16.26 Authority. Each person signing on behalf of Landlord or Tenant
          ---------
warrants and represents that he or she is authorized to execute and deliver this
Lease and to make it a binding obligation of Landlord or Tenant.

          The parties hereto have executed this Lease at the place and on the
dates specified above their respective signatures.

Landlord:                            Tenant:
AMB Property, L.P.,                  KYPHON,
a Delaware limited partnership       a California corporation

By:  AMB Property Corporation,
     a Maryland corporation

 By:  /s/ John L. Rossi                    By: /s/ Richard D. Murdock
     ---------------------------              ----------------------------------
      John L. Rossi                             Richard D. Murdock
 Its: Regional Manager                     Its: President and CEO

Telephone: (415)394-9000                   Telephone: (408) 727-9622
           ---------------------                      -----------------------
Facsimile: (415)394-0903                   Facsimile: (408) 727-9623
           ---------------------                      --------------------

Executed at: 505 Montgomery Street           Executed at: 3110 Coronado Drive
             6/th/ Floor                                 -----------------------
             San Francisco, CA 94111                      Santa Clara, CA 95054

Date: 2/29/00                        Date: February 25, 2000
     --------------------                  -------------------------------

                                       12

<PAGE>

                            FIRST ADDENDUM TO LEASE

         THIS FIRST ADDENDUM is dated for reference purposes as January 27,
2000, and is made a part of that Lease Agreement (the "Lease") dated January 27,
2000, by and between AMB PROPERTY L.P., a Delaware limited partnership
("Landlord") and KYPHON, a California corporation ("Tenant") affecting certain
real property commonly known as 1350 Bordeaux Drive, Sunnyvale, California, with
reference to the following facts:

         1.  Base Monthly Rent:
             -----------------
             April 1, 2000 through and including March 31, 2001 = $77,625.00
             April 1, 2001 through and including March 31, 2002 = $81,075.00
             April 1, 2002 through and including March 31, 2003 = $84,525.00
             April 1, 2003 through and including March 31, 2004 = $87,975.00
             April 1, 2004 through and including March 31, 2005 = $91,425.00

         2.  Option to Extend  Lease  Term:  Landlord hereby grants to Tenant
             -----------------------------
one (1) option to extend the Lease Term for a five (5) year term commencing when
the prior term expires, under the following terms and conditions:

             A.  Exercise  Dates:  Tenant must give Landlord notice in writing
                 ---------------
of its exercise of the option in question no earlier than one hundred eighty
(180) days before the date the Lease Term would end but for said exercise (the
"Earliest Exercise Date") and no later than one hundred twenty (120) days before
the date the Lease Term would end but for said exercise (the "Last Exercise
Date").
             B.  Conditions to Exercise of Option:  Tenant' rights to extend is
                 --------------------------------
conditioned upon and subject to each of the following:

                 (1)   In order to exercise its option to extend, Tenant must
give written notice of such election to Landlord and Landlord must receive same
by the Last Exercise Date, but not prior to the Earliest Exercise Date. If
proper notification of the exercise of an option is not given and/or received by
the Last Exercise Date, such option shall automatically expire and terminate.
Failure to exercise an option terminates that option and all subsequent options.
Tenant acknowledges that because of the importance of Landlord of knowing no
later than the Last Exercise Date whether or not Tenant will exercise the
option, the failure of Tenant to notify Landlord by the Last Exercise Date will
conclusively be presumed an election by Tenant not to exercise the option.

                 (2)   Tenant shall have no right to exercise an option (i) if
Tenant is in Default beyond any cure period provided in the Lease (if
applicable) either on the date of exercise of the option or on the date on which
the Lease would terminate absent exercise of the option . The period of time
within which an option may be exercised shall not be extended or enlarged by
reason of Tenant's inability to exercise an option because of the provisions of
this Paragraph.

             C.  Creation of Extended  Term:  Upon the timely exercise of the
                 --------------------------
option to extend and the commencement of the extended Term, all references in
the Lease to the Term shall be considered to mean the Term as extended by the
exercise of the option, which shall be referred to herein as the "Extended
Term".

             D. The Base  Monthly  Rent for the Option  Period shall be the
greater of (i) one hundred  percent (100%) of the Base Monthly Rent due the last
month of the previous Lease Term, or (ii) one hundred percent (100%) of the then
fair market monthly rent determined as of the  commencement of the option period
in question based upon like buildings with like  improvements in the area within
the boundaries of Highways 101, 237, and 880. The Option Period shall contain no
free rent and the Premises shall be taken `as-is'.  If the parties are unable to
agree upon the fair

                                       1

<PAGE>

market monthly rent for the Premises for the option period in question at least
seventy-five (75) days prior to the commencement of the option period in
question, then the fair market monthly rent shall be determined by appraisal
conducted pursuant to subparagraph F.

          E. In the event it becomes necessary to determine by appraisal the
fair market rent of the Premises for the purpose of establishing the Base
Monthly Rent during the Option Period, then such fair market monthly rent shall
be determined by three (3) real estate appraisers, all of whom shall be members
of the American Institute of Real Estate Appraisers with not less than five (5)
years experience appraising real property (other than residential or
agricultural property) located in Santa Clara County, California, in accordance
with the following procedures:

                    (1)    The party demanding an appraisal (the "Notifying
Party") shall notify the other party (the "Non-Notifying Party") thereof by
delivering a written demand for appraisal, which demand, to be effective, must
give the name, address, and qualifications of an appraiser selected by the
Notifying Party. Within ten (10) days of receipt of said demand, the Non-
Notifying Party shall select its appraiser and notify the Notifying Party, in
writing, of the name, address, and qualifications of an appraiser selected by
it. Failure by the Non-Notifying Party to select a qualified appraiser within
said ten (10) day period shall be deemed a waiver of its right to select a
second appraiser on its own behalf and the Notifying Party shall select a second
appraiser on behalf of the Non-Notifying Party within five (5) days after the
expiration of said ten (10) day period. Within ten (10) days from the date the
second appraiser shall have been appointed, the two (2) appraisers so selected
shall appoint a third appraiser. If the two appraisers fail to select a third
qualified appraiser, the third appraiser shall be selected by the American
Arbitration Association or if it shall refuse to perform this function, then at
the request of either Landlord or Tenant, such third appraiser shall be promptly
appointed by the then Presiding Judge of the Superior Court of the State of
California for the County of Santa Clara.

                    (2)    The three (3) appraisers so selected shall meet in
San Jose, California, not later than twenty (20) days following the selection of
the third appraiser. At said meeting the appraisers so selected shall attempt to
determine the fair market monthly rent of the Premises for the option period in
question (including the timing and amount of periodic increases).

                    (3)    If the appraisers so selected are unable to complete
their determinations in one meeting, they may continue to consult at such times
as they deem necessary for a fifteen (15) day period from the date of the first
meeting, in an attempt to have at least two (2) of them agree. If, at the
initial meeting or at any time during said fifteen (15) day period, two (2) or
more of the appraisers so selected agree on the fair market rent of the Leased
Premises, such agreement shall be determinative and binding on the parties
hereto, and the agreeing appraisers shall, in simple letter form executed by the
agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set
by such agreement.

                    (4)    If two (2) or more appraisers do not so agree within
said fifteen (15) day period, then each appraiser shall, within five (5) days
after the expiration of said fifteen (15) day period, submit his independent
appraisal in simple letter form to Landlord and Tenant stating his determination
of the fair market rent of the Premises for the option period in question. The
parties shall then determine the fair market rent for the Premises by
determining the average of the fair market rent set by each of the appraisers.
However, if the lowest appraisal is less than eighty-five percent (85%) of the
middle appraisal then such lowest appraisal shall be disregarded and/or if the
highest appraisal is greater than one hundred fifteen percent (115%) of the
middle appraisal then such highest appraisal shall be disregarded. If the fair
market rent set by any appraisal is so disregarded, then the average shall be
determined by computing the average set by the other appraisals that have not
been disregarded.

                    (5)    Nothing contained herein shall prevent Landlord and
Tenant from jointly selecting a single appraiser to determine the fair market
rent of the Premises, in which event

                                       2

<PAGE>

the determination of such appraisal shall be conclusively deemed the fair market
rent of the Premises.
                      (6)   Each party shall bear the fees and expenses of
the appraiser selected by or for it, and the fees and expenses of the third
appraiser (or the joint appraiser if one joint appraiser is used) shall be borne
fifty percent (50%) by Landlord and fifty percent (50%) by Tenant.

         3.       Early Occupancy:
                  ---------------

                  A.  As consideration for Tenant's performance of all
obligations to be performed by Tenant under the Lease, and upon receipt of (i)
the first month's Base Monthly Rent and Security Deposit totaling $351,900.00,
and (ii) a certificate of insurance as provided by Article 9.1C of the Lease,
Landlord shall permit Tenant to enter and use the "Premises" from completion of
construction until April 1, 2000 (the "Early Occupancy Period"). Such occupancy
during the Early Occupancy Period shall be subject to all of the terms,
covenants and conditions of the Lease provided, however, that Rent payable
during the Early Occupancy Period shall be waived.

                  B. In the event either party shall bring any action or legal
proceeding for damages for alleged breach of any provision of this agreement, to
recover rent, to terminate tenancy of the Premises, or to enforce, protect or
establish any term or covenant of this agreement or the Lease or right of remedy
of either party, the prevailing party shall be entitled to recover as a part of
such action or proceeding, reasonable attorney's fees and court costs as may be
fixed by the court or jury.

                  C.  In consideration of executing this Early Occupancy
Agreement, Tenant agrees to indemnify and save Landlord harmless of and from any
and all liability, damage, expense, cause of action, suits or claims or
judgments resulting from injury to person or property arising from the use of
the Premises by Tenant during the Early Occupancy Period, including loss or
damage to Tenant, its equipment, materials or supplies.

                  D. Tenant agrees to cooperate with construction personnel
completing the Interior Improvements in the Premises and not cause any delay in
the completion of these improvements. It is the intent of Landlord and Tenant
that Tenant's obligation to pay the Base Monthly Rent and all Additional Rent
not be delayed by any cause or other act of Tenant and, if it is so delayed, and
provided that Landlord promptly notifies Tenant in writing of each separate
delay and the estimated period of delay, then Tenant's obligation to pay the
Base Monthly Rent and all Additional Rent shall commence as of the date it would
have commenced absent said delay caused by Tenant.

                  E. During the Early Occupancy Period, Tenant shall arrange to
have all utility services, including but not limited to gas, electric, water and
trash, billed directly to Tenant for payment.

         4.       Tenant Improvement Allowances:
                  -----------------------------

                  A. The term "Tenant Improvement Allowance" shall mean the
maximum amount Landlord is required to spend toward the payment of Interior
Improvement Costs (as defined in the Interior Improvement Agreement) for all
Interior Improvements (as defined in the Interior Improvement Agreement)
constructed in the Premises, which amount is Four Hundred Thirty-Six Thousand
One Hundred Seventy-Six and 26/100 Dollars ($436,176.26).

                  B. The term "Tenant Contributed Interior Improvement Costs"
shall mean the amount Tenant is required to spend toward the payment of Interior
Improvement Costs for all Interior Improvements constructed in the Premises.
Tenant shall pay all Interior Improvement Costs except the portion which
Landlord is obligated to pay pursuant to the Tenant Improvement Allowance.

                                       3

<PAGE>

                  C. No  credit  in the  Base  Monthly  Rent  shall be made if a
portion of the Tenant Improvement Allowance is not spent. Additionally, Landlord
shall not be obligated to provide future use of any Tenant Improvement Allowance
not spent prior to the Commencement Date.

         5.       Tenant  Maintenance:  Tenant shall (i) maintain, repair and
                  -------------------
replace when necessary all HVAC equipment which services only the Premises, and
shall keep the same in good condition through regular inspection and servicing,
and (ii) maintain continuously throughout the Lease Term a service contract for
the maintenance of all such HVAC equipment with a licensed HVAC repair and
maintenance contractor approved by Landlord, which contract provides for the
periodic inspection and servicing of the HVAC equipment at least once every
sixty (60) days during the Lease Term. Tenant shall furnish Landlord with a copy
of such service contract, which shall provide that it may not be canceled or
changed without at least thirty (30) day's prior written notice to Landlord.
Notwithstanding the foregoing, Landlord may elect at any time to assume
responsibility for the maintenance, repair and replacement of such HVAC
equipment which serves only the Premises. Tenant shall maintain continuously
through the Lease Term a service contract for the washing of all windows (both
interior and exterior surfaces) in the Premises.

         6.       Landlord's Remedies in Event of Tenant Default: (AMB)
                  ----------------------------------------------

                  A. Termination. In the event of any Default by Tenant, then in
                     -----------
addition to any other remedies available to Landlord at law or in equity and
under this Lease, Landlord shall have the immediate option to terminate this
Lease and all rights of Tenant hereunder by giving written notice of such
intention to terminate. In the event that Landlord shall elect to so terminate
this Lease then Landlord may recover from Tenant:

                     (1)      the worth at the time of award of any unpaid Rent
and any other sums due and payable which have been earned at the time of such
termination; plus

                     (2)      the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable which would have been
earned after termination until the time of award exceeds the amount of such
rental loss Tenant proves could have been reasonably avoided; plus

                     (3)      the worth at the time of award of the amount by
which the unpaid Rent and any other sums due and payable for the balance of the
term of this Lease after the time of award exceeds the amount of such rental
loss that Tenant proves could be reasonably avoided; plus

                     (4)      any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course would be likely to
result therefrom, including, without limitation, any costs or expenses incurred
by Landlord (i) in retaking possession of the Premises; (ii) in maintaining,
repairing, preserving, restoring, replacing, cleaning, altering or
rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new lessee or lessees; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus

                     (5)      such reasonable attorneys' fees incurred by
Landlord as a result of a Default, and costs in the event suit is filed by
Landlord to enforce such remedy; and plus

                     (6)      at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.

Under subparagraphs (1) and (2) above, interest at twelve percent (12%) per
annum or the maximum rate allowed by law, whichever is less, shall be added to
the amount otherwise due and under subparagraph (3) above, the `worth at the
time of award' is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award, plus one percent
(1%). Tenant waives redemption or relief from forfeiture under California Code
of Civil Procedure Sections 1174 and 1179, or under any other present or future
law, in the event Tenant is

                                       4

<PAGE>

evicted or Landlord takes possession of the Premises by reason of any Default of
Tenant hereunder, or in regard to any proceedings to obtain possession or evict
Tenant.

              B.  Continuation  of  Lease.  In the event of any Default by
                  -----------------------
Tenant, then in addition to any other remedies available to Landlord at law or
in equity and under this Lease, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue this Lease in effect
after Tenant's Default and abandonment and recover Rent as it becomes due,
provided tenant has the right to sublet or assign, subject only to reasonable
limitations).

              C.  Re-entry.  In the event of any Default by Tenant, Landlord
                  --------
shall also have the right, with or without terminating this Lease, in compliance
with applicable law, to re-enter the Premises and remove all persons and
property from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Tenant.

              D.  Reletting.  In the event of the abandonment of the Premises by
                  ---------
Tenant or in the event that Landlord shall elect to re-enter or shall take
possession of the Premises pursuant to legal proceeding or pursuant to any
notice provided by law, then if Landlord does not elect to terminate this Lease
as provided in Paragraph a, Landlord may from time to time, without terminating
this Lease, relet the Premises or any part thereof for such term or terms and at
such rental or rentals and upon such other terms and conditions as Landlord in
its sole discretion may deem advisable with the right to make alterations and
repairs to the Premises. In the event that Landlord shall elect to so relet,
then rentals received by Landlord from such reletting shall be applied in the
following order: (1) to reasonable attorneys' fees incurred by Landlord as a
result of a Default and costs in the event suit is filed by Landlord to enforce
such remedies; (2) to the payment of any indebtedness other than Rent due
hereunder from Tenant to Landlord; (3) to the payment of any costs of such
reletting; (4) to the payment of the costs of any alterations and repairs to the
Premises; (5) to the payment of Rent due and unpaid hereunder; and (6) the
residue, if any, shall be held by Landlord and applied in payment of future Rent
and other sums payable by Tenant hereunder as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied to the payment of Rent hereunder,
be less than the Rent payable during the month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. Tenant shall also pay to Landlord, as soon as ascertained, any
costs and expenses incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received from such reletting.

              E.  Termination.  No re-entry or taking of possession of the
                  -----------
Premises by Landlord pursuant to this Addendum shall be construed as an election
to terminate this Lease unless a written notice of such intention is given to
Tenant or unless the termination thereof is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any Default by Tenant, Landlord may at any time after such reletting
elect to terminate this Lease for any such Default.

              F.  Cumulative Remedies.  The remedies herein provided are not
                  -------------------
exclusive and Landlord shall have any and all other remedies provided herein or
by law or in equity.

              G.  No Surrender.  No act or conduct of Landlord, whether
                  ------------
consisting of the acceptance of the keys to the Premises, or otherwise, shall be
deemed to be or constitute an acceptance of the surrender of the Premises by
Tenant prior to the expiration of the Term, and such acceptance by Landlord of
surrender by Tenant shall only flow from and must be evidenced by a written
acknowledgment of acceptance of surrender signed by Landlord. The surrender of
this Lease by Tenant, voluntarily or otherwise, shall not work a merger unless
Landlord elects in writing that such merger take place, but shall operate as an
assignment to Landlord of any and all existing subleases, or Landlord may, at
its option, elect in writing to treat such surrender as a merger terminating
Tenant's estate under this Lease, and thereupon Landlord may terminate any or
all such subleases by notifying the sublessee of its election so to do within
five (5) days after such surrender.

              H.  Notice Provisions.  Tenant agrees that any notice given by
                  -----------------
Landlord

                                       5

<PAGE>

pursuant to Paragraph 13.1 of the Lease shall satisfy the requirements for
notice under California Code of Civil Procedure Section 1161, and Landlord shall
not be required to give any additional notice in order to be entitled to
commence an unlawful detainer proceeding.

          7.   Warrants:  As additional consideration, tenant will give Landlord
               --------
Twenty-Five Thousand (25,000) shares of Kyphon stock valued at Three and 09/100
Dollars ($3.09) per share, subject to the parties's separate agreement relating
thereto.

LANDLORD:                               TENANT:

AMB Property, L.P.,                     KYPHON,
a Delaware limited partnership          a California corporation

By:  AMB Property Corporation,
     a Maryland corporation

    By:   /s/ John L. Rossi                  By:  /s/ Richard D. Murdock
        --------------------------                ----------------------------
         John L. Rossi                             Richard D. Murdock
    Its: Regional Manager                    Its: President and CEO

Telephone: (415) 394-9000                    Telephone: (408)  727-9622
           -----------------------                      ----------------------

Facsimile: (415) 394-0903                    Facsimile: (408)  727-9623
           -----------------------                      ----------------------

Executed at: 505 Montgomery Street            Executed at: 3110 Coronado Drive
             6/th/ Floor                                   ---------------------
             San Francisco, CA 94111                       Santa Clara, CA 95054

Date:    2/29/00                     Date:   February 25, 2000
     -----------------------              ------------------------------

                                       6

<PAGE>

                           Second Addendum To Lease
                           ------------------------

         THIS SECOND ADDENDUM TO LEASE (this "Addendum") is made by and between
AMB Property L.P., a Delaware limited partnership (`Landlord') and Kyphon, a
California corporation (`Tenant'), to be a part of that certain lease (the
"Lease") of even date herewith between Landlord and Tenant concerning premises
located at 1350 Bordeaux Drive, Sunnyvale, California (the "Premises"). Landlord
and Tenant agree that, notwithstanding anything to the contrary in the Lease,
the Lease is hereby modified and supplemented as set forth below.

         1.  Term.  The Lease shall commence (the "Commencement Date") on April
             ----
1, 2000 without regard to completion of Tenant Improvements.

         2.  Operating Expenses.  "Operating Expenses" shall not include and
             ------------------
Tenant shall in no event have any obligation to perform or to pay directly, or
to reimburse Landlord for, all or any portion of the following repairs,
maintenance, improvements, replacements, premiums, claims, losses, fees,
charges, costs and expenses (collectively, "Costs"): (a) Costs occasioned by the
violation of any Applicable Law by Landlord or its agents, employees or
contractors; (b) Costs occasioned by fire except for uninsured costs or
deductibles or Costs occasioned by the exercise of the power of eminent domain;
(c) Costs to correct any construction defect in the Industrial Center for which
Landlord is responsible hereunder or to comply with any Applicable Law on the
Commencement Date the compliance with which is one of Landlord's
responsibilities hereunder; (d) Costs of any renovation, improvement, painting
or redecorating of any portion of the Industrial Center not made available for
Tenant's use; (e) Costs incurred in connection with negotiations or disputes
with any other occupant of the Industrial Center and Costs arising from the
violation by Landlord or any other occupant of the Industrial Center of the
terms and conditions of any lease or other agreement; (g) Costs incurred in
connection with the presence of any Hazardous Substances, except to the extent
caused by Tenant;(i) Costs relating to the repair, maintenance and replacement
of the structural elements of the Industrial Center; (j) interest, charges and
fees incurred on debt, payments on mortgages and rent under ground leases; (k)
any fee, profit or compensation retained by Landlord or its affiliates for
management and administration of the Industrial Center in excess of the
management fee which would be charged by a professional management service for
operation of comparable projects in the vicinity of the Building.

         3.  Hazardous Substances.  To the best actual knowledge of Landlord,
             --------------------
(meaning the actual knowledge of Joe Lewis) without duty of investigation or

<PAGE>

imputation of knowledge (a) except as previously disclosed to Tenant in writing,
no Hazardous Substances are present on the Industrial Center or the soil,
surface water or groundwater thereof at levels constituting a violation of
Applicable Laws (b) no underground storage tanks are present on the Industrial
Center, and (c) no action, proceeding, or claim is pending or threatened
involving the Industrial Center concerning any Hazardous Substances or pursuant
to any Applicable Laws or Requirements.

         4.    Intentionally omitted.
               ---------------------

         5.    Maintenance, Repairs. Landlord shall perform and construct, and
               --------------------
Tenant shall have no responsibility to perform, construct or pay for, any
repair, maintenance or improvement necessitated by the acts or omissions of
Landlord or any other occupant of the Industrial Center, or their respective
agents, employees or contractors.

         6.    Utility Installations, Trade Fixtures, Alterations. All
               --------------------------------------------------
Alterations, trade fixtures, furniture, equipment and other personal property
installed in the Premises ("Tenant's Property") shall at all times be and remain
Tenant's property. Except for Alterations which cannot be removed without
structural injury to the Premises, at any time Tenant may remove Tenant's
Property from the Premises, provided that Tenant repairs all damage caused by
such removal. Upon written request, Landlord shall advise Tenant in writing
prior to the making of any Alterations whether it reserves the right to require
Tenant to remove any such Alterations from the Premises upon termination of the
Lease.

         7.    Intentionally omitted.
               ---------------------

         8.    Indemnity.  Landlord shall not be released or indemnified from,
               ---------
and shall indemnify, defend, protect and hold harmless Tenant from, any damages,
liabilities, judgments, actions, claims, attorneys' fees, consultants' fees,
payments, costs or expenses arising from the active negligence or willful
misconduct of Landlord or its agents or contractors.

         9.    Waiver of Subrogation.  The parties hereto release each other
               ---------------------
and their respective agents, employees, successors, assignees and subtenants
from all liability for injury to any person or damage to any property that is
caused by or results from a risk which is actually insured against or which is
required to be insured against under the Lease, without regard to the negligence
or willful misconduct of the entity so released.

<PAGE>

         10. Damage or Destruction.  If the Premises are substantially damaged
             ---------------------
(that is, if repair or restoration would cost as much as or more than ten
percent (10%) of the replacement cost of the Building) and Landlord is, in the
opinion of Landlord's architect, unable to repair or rebuild the Premises within
90 days of the event giving rise to damage, Landlord may terminate the Lease by
written notice given within thirty (30) days after Landlord receives the written
opinion of its architect relating to the time required to reconstruct or
rebuild. If the Premises are damaged by any peril and Landlord does not elect to
terminate the Lease or is not entitled to terminate the Lease, Tenant may
terminate the Lease as set forth in Paragraph 9.1.. If the Lease is not
terminated by Landlord or Tenant as provided herein, Landlord shall restore the
Premises to the condition in which they existed immediately prior to the
casualty. Landlord shall not have the right to terminate the Lease if damage to
or destruction of the Building is relatively minor (e.g., repair or restoration
would cost less than ten percent (10%) of the replacement cost of the Building).

         11. Real Property Taxes.  Tenant shall not be required to pay any
             -------------------
portion of any tax or assessment expense (a) levied on Landlord's rental income,
unless such tax or assessment expense is imposed in lieu of real property taxes;
(b) in excess of the amount which would be payable if such tax or assessment
expense were paid in installments over the longest possible term that is
available for such payments in the ordinary course of business; or (c) imposed
on land and improvements other than the Industrial Center.

         12. Intentionally omitted.
             ---------------------

         13. Assignment and Subletting. Tenant, without Landlord's prior written
             -------------------------
consent and without complying with any of the restrictions of Section 12 of the
Lease, may (a) sublet the Premises or assign the Lease to a subsidiary,
affiliate, franchisee, division or corporation controlling, controlled by or
under at least fifty percent (50%) common control with Tenant; (b) assign the
Lease to a successor corporation related to Tenant by merger, consolidation,
non-bankruptcy reorganization or government action; (c) assign the Lease to a
purchaser of substantially all of Tenant's assets or (d) assign the Lease to a
purchaser at a private sale of a majority of Tenant's stock; provided that in
each case Landlord receives ten (10) days advance written notice thereof and
provided further that in each case the transferee must have (and Tenant's notice
must document) a net worth at the close of the transfer transaction equal to or
greater than that of the Tenant immediately prior thereto or the Tenant's net
worth at the time this Lease is

                                      -3-

<PAGE>

executed, whichever is greater, and in each case, Tenant shall not be released
from liability hereunder. A transfer of Tenant's capital stock on a public
exchange shall not be deemed an assignment, subletting or other transfer of the
Lease or the Premises requiring Landlord's consent.

         14.  Subordination:  Landlord will use reasonable efforts to obtain a
              -------------
subordination and non-disturbance agreement in commercially reasonable form from
its Lender which will provide that the Lender will not terminate the Lease so
long as Tenant does not default hereunder. If any expense is required to obtain
this agreement, such expense will be born by Tenant as a condition of receiving
the agreement.

         15.  Landlord's Access.  Landlord and Landlord's agents, except in the
              -----------------
case of emergency, shall provide Tenant with twenty-four (24) hours' notice
prior to entry of the Premises. Any entry by Landlord and Landlord's agents
shall not impair Tenant's operations more than reasonably necessary.

         16.  Rules and Regulations.  Tenant shall not be required to comply
              ---------------------
with any new rule or regulation unless the same applies non-discriminatorily to
all occupants of the Industrial Center, does not unreasonably interfere with
Tenant's use of the Premises or Tenant's parking rights and does not materially
increase the obligations or decrease the rights of Tenant under the Lease.

         17.  Common Areas, Reservations.  Landlord shall not (a) modify the
              --------------------------
Common Areas, (b) grant any easements, rights of way, utility raceways or
dedications, or (c) record any Parcel Maps or restrictions, if such actions
would unreasonably interfere with Tenant's use of the Premises. In taking such
actions, Landlord shall at all times use reasonable efforts to minimize any
disruption to Tenant.

         18   Intentionally omitted.
              ---------------------

         19.  Approvals.  Except as otherwise specifically provided in the
              ---------
Lease, whenever the Lease requires an approval, consent, designation,
determination, selection or judgment by either Landlord or Tenant, such
approval, consent, designation, determination, selection or judgment and any
conditions imposed thereby shall be reasonable and shall not be unreasonably
withheld or delayed and, in exercising any right or remedy hereunder, each party
shall at all times act reasonably and in good faith.

                                      -4-

<PAGE>

         20.  Reasonable Expenditures.  Any expenditure by a party permitted or
              -----------------------
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred and shall
be substantiated by documentary evidence available for inspection and review by
the other party or its representative during normal business hours.

         21.  Effect of Addendum.  All terms with initial capital letters used
              ------------------
herein as defined terms shall have the meanings ascribed to them in the Lease
unless specifically defined herein. In the event of any inconsistency between
this Addendum and the Lease, the terms of this Addendum shall prevail.

LANDLORD:                                   TENANT:

AMB Property, L.P., a Delaware              Kyphon, a California corporation
limited partnership
                                            By:   /s/ Richard D. Murdock
By:      AMB Property Corporation, a            ----------------------------
         Maryland corporation, its               Richard D. Murdock
         general partner
                                            Its: President and CEO
By:       /s/ John L. Rossi
         ----------------------------       Dated: February 25, 2000
         John L. Rossi                            -----------------------

Its:     Vice President

Dated:    2/29/00
       ----------------------

                                      -5-

<PAGE>

Exhibit A

[This Exhibit A contains a map of the premises.]

<PAGE>

                                   EXHIBIT C
                        INTERIOR IMPROVEMENT AGREEMENT
                        ------------------------------

         THIS IMPROVEMENT AGREEMENT is made part of that Lease dated January 27,
2000, (the "Lease") by and between AMB Property, L.P., a Delaware limited
partnership, ("Landlord"), and KYPHON, a California corporation, ("Tenant").
Landlord and Tenant agree that the following terms are part of the Lease:

         1. Purpose of Improvement Agreement:  The purpose of this Improvement
            --------------------------------
Agreement is to set forth the rights and obligations of Landlord and Tenant with
respect to the construction of Interior Improvements within the Premises prior
to the Commencement Date.

         2. Definitions:  As used in this Interior Improvement Agreement, the
            -----------
following terms shall have the following meanings, and terms which are not
defined below, but which are defined in the Lease and which are used in this
Interior Improvement Agreement, shall have the meanings ascribed to them by the
Lease:

            A.  Approved Specifications:  The term "Approved Specifications"
                -----------------------
shall mean those specifications for the Interior Improvements to be constructed
by Landlord which are described by Exhibit "D" to the Lease.

            B.  Interior Improvements:  The term "Interior Improvements" shall
                ---------------------
mean all interior improvements to be constructed by Landlord in accordance with
the Approved Specifications (e.g., HVAC equipment and distribution, transformer
and power distribution, partitions, floor, wall, and window covering, lighting
fixtures).

            C.  Interior Improvement Costs: The term "Interior Improvement
                --------------------------
Costs" shall mean the following: (i) the total amount due pursuant to the
general construction contract entered into by Landlord to construct the Interior
Improvements, including costs for any and all building code compliance; (ii) the
cost of all governmental approvals required as a condition to the construction
of the Interior Improvements (including all construction taxes imposed by the
City of Sunnyvale) in connection with the issuance of a building permit for the
Interior Improvements; (iii) all utility connection or use fees; (iv) fees of
architects or engineers for services rendered in connection with the design and
construction of the Interior Improvements; (v) the cost of payment and
performance bonds obtained by Landlord or Prime Contractor to assure completion
of the Interior Improvement; (vi) the cost of any fees or other exactions of any
municipal or governmental entities which arise out of the construction of the
Interior Improvements; and (vii) costs associated with compliance with the
Americans with Disabilities Act and/or such California laws and/or regulations
which relate to facilities for the disabled.

                                 Page 1 of 12

<PAGE>

               D.  Substantial Completion and Substantially Complete: The terms
                   -------------------------------------------------
"Substantial Completion" and "Substantially Complete" shall each mean the date
when all of the following have occurred with respect to the Interior
Improvements in question: (i) the construction of the Interior Improvements in
question has been substantially completed in accordance with the requirements of
this Lease; (ii) the architect responsible for preparing the plans shall have
executed a certificate or statement representing that the Interior Improvements
in question have been substantially completed in accordance with the plans and
specifications therefor; and (iii) the Building Department of the City of
Sunnyvale has completed its final inspection of such improvements and has
"signed off" the building inspection card approving such work as complete.

         3.    Schedule of Performance:  Set forth in this paragraph is a
               -----------------------
schedule of certain critical dates relating to Landlord's and Tenant's
respective obligations regarding the construction of the Interior Improvements
(the "Schedule of Performance"). Landlord and Tenant shall each be obligated to
use reasonable efforts to perform their respective obligations within the time
periods set forth in the Schedule of Performance and elsewhere in this Interior
Improvement Agreement. The Schedule of Performance is as follows:

     Action                                                Responsible
     Items                   Due Date                         Party
 -------------        -----------------------             -------------

A. Delivery to          Completed                            Tenant
   Landlord of
   Tenant's
   Interior
   Requirements

B. Delivery to          Completed                            Landlord
   Tenant of
   Preliminary
   Interior
   Improvement
   Plans

C. Approval by          Within three (3) business            Tenant
   Tenant of            days after lease execution.
   Preliminary
   Interior
   Plans

D. Delivery to          Within fifteen (15) business         Landlord
   Tenant of            days after approval of the

                                 Page 2 of 12

<PAGE>

     Final                    Preliminary Interior Plans.
     Interior
     Plans

E.   Approval by              Within three (3) business days        Tenant
     Tenant of                after Tenant receives Final
     Final                    Interior Plans.
     Interior
     Plans

F.   Approval by Tenant of    Within three (3) business days        Tenant
     Construction Costs       after receipt of construction costs.

G.   Commence-                Within five (5) days after            Landlord
     ment of                  issuance of all necessary
     construction             governmental approvals.
     of Interior
     Improvement

H.   Substantial              Within thirty (30) business days      Landlord
     Completion               after issuance of building permit
     of Interior              for the Interior Improvements.
     Improvements

I.   Commence-                Rent shall commence                   Tenant
     ment of Rent             April 1, 2000.
     Payments

     4.  Construction of Interior Improvements: Landlord shall construct the
         -------------------------------------
Interior Improvements in accordance with the following:

         A.  Development and Approval of Preliminary Interior Plans: Tenant has
             ------------------------------------------------------
delivered to Landlord a proposed floor plan identifying its requirements for the
Interior Improvements that is consistent with the Approved Specifications
("Tenant's Interior Requirements"). Landlord has delivered to Tenant for its
review and approval preliminary plans for the Interior Improvements which are
consistent with and conform to Tenant's Interior Requirements and the Approved
Specifications (the "Preliminary Interior Plans"). On or before the due date
specified in the Schedule of Performance, Tenant shall either approve such plans
or notify Landlord in writing of its specific objections to the Preliminary
Interior Plans. If Tenant so objects, Landlord shall revise the Preliminary
Interior Plans to address such objections in a manner consistent with the
parameters for the Interior Improvements set forth in this Improvement Agreement
and the Approved Specifications and shall resubmit such revised Preliminary
Interior Plans as soon as reasonably

                                 Page 3 of 12

<PAGE>

practicable to Tenant for its approval. When such revised Preliminary Interior
Plans are resubmitted to Tenant, it shall either approve such plans or notify
Landlord of any further objections in writing within two (2) business days after
receipt thereof. If Tenant has further objections to the revised Preliminary
Interior Plans, the parties shall meet and confer to develop Preliminary
Interior Plans that are acceptable to both Landlord and Tenant within five (5)
business days after Tenant has notified Landlord of its second set of
objections. In the event Tenant and Landlord do not resolve all of Tenant's
objections within such five (5) business day period, Landlord and Tenant shall
immediately cause Landlord's architect to meet and confer with Tenant's
architect or construction consultant, who shall apply the standards set forth in
this Improvement Agreement to resolve Tenant's objections and incorporate such
resolution into the Preliminary Interior Plans, which process Landlord and
Tenant shall cause to be completed within five (5) business days after the
conclusion of the five (5) business day period referred to in the immediately
preceding sentence.

                  B. Development and Approval of Final Interior Plans: Once the
                     ------------------------------------------------
Preliminary Interior Plans have been approved by Landlord and Tenant (including
all changes made to resolve Tenant's objections approved by Landlord's architect
and Tenant's architect or construction consultant pursuant to subparagraph 4A),
Landlord shall complete and submit to Tenant for its approval final working
drawings for the Interior Improvements by the due date specified in the Schedule
of Performance. Tenant shall approve the final plans for the Interior
Improvements or notify Landlord in writing of its specific objections by the due
date specified in the Schedule of Performance. If Tenant so objects, the parties
shall confer and reach agreement upon final working drawings for the Interior
Improvements within five (5) business days after Tenant has notified Landlord of
its objections. In the event Tenant and Landlord do not resolve all of Tenant's
objections within such five (5) business day period, Landlord and Tenant shall
immediately cause Landlord's architect to meet and confer with Tenant's
architect or construction consultant, who shall apply the standards set forth in
the Improvement Agreement to resolve Tenant's objections and incorporate such
resolution into the Final Interior Plans, which process Landlord and Tenant
shall cause to be completed within five (5) business days after the conclusion
of the five (5) business day period referred to in the immediately preceding
sentence. The final working drawings so approved by Landlord and Tenant
(including all changes made to resolve Tenant's objections approved by
Landlord's architect and Tenant's architect or construction consultant) are
referred to herein as the "Final Interior Plans".

                  C. Building Permit: As soon as the Final Interior Plans have
                     ---------------
been approved by Landlord and Tenant, Landlord shall apply for a building permit
for the Interior Improvements, and shall diligently prosecute to completion such
approval process.

                  D. Construction Contract: Landlord and Tenant shall cooperate
                     ---------------------
to cause the Interior Improvements to be constructed by a general contractor who
is engaged by Landlord in accordance with the procedures set forth in
subparagraph 4D (1) hereof.

                                 Page 4 of 12

<PAGE>

                    (1)  The Interior Improvements will be constructed pursuant
to a "fixed price" construction contract awarded to a general contractor
selected by Landlord and approved by Tenant. Landlord has submitted to Tenant
Landlord's recommendation of the general contractor --Hollander Smith Inc. --
which Tenant has approved. Landlord shall submit to Tenant the terms of the
"fixed price" construction contract for the Interior Improvements for Tenant's
approval, which shall be deemed given if objection is not made by Tenant within
three (3) business days after receipt of such proposal from landlord. Subject to
mutual agreement of Landlord and Tenant, the general construction contract will
provide that major subcontractors for electrical, plumbing, mechanical and HVAC,
(as well as all other subcontractors as to which Landlord and Tenant agree) for
the Interior Improvements shall be engaged on a "design-build" basis where
Tenant shall have the right to reasonably approve such subcontractors. Tenant
shall have the right to approve the total Interior Improvement Costs. After all
such costs are known, in the event that Tenant does not approve the total
Interior Improvement Costs, Tenant may request that changes be made to the Final
Interior Plans (subject to Landlord's approval which shall not be unreasonably
withheld or delayed) for the purpose of lowering the total Interior Improvement
Costs. Other major subcontracts shall go through the bid process, wherein Tenant
shall have the right to reasonably approve such subcontractors and to have major
subcontracts rebid if Tenant does not approve the bid. Delays caused by any
modifications to the Final Interior Plans and rebidding or re-pricing requested
by Tenant shall be deemed delays caused by Tenant for purposes of Paragraph 7
hereof.

                    (2)  Landlord and Tenant shall use their best efforts to
approve the subcontractors so that the construction contract may be executed as
soon as possible.

               E.   Commencement of Interior Improvements: On or before the due
                    -------------------------------------
date specified in the Schedule of Performance, Landlord shall commence
construction for the Interior Improvements and shall diligently prosecute such
construction to completion, using all reasonable efforts to achieve Substantial
Completion of the Interior Improvements by the due date specified in the
Schedule of Performance.

         5.    Payment of Interior Improvement Costs:  Landlord and Tenant shall
               -------------------------------------
have the following obligations with respect to the payment of Interior
Improvement Costs:

         A.         Landlord shall be obligated to pay an amount equal to the
Tenant Improvement Allowance as provided for in Paragraph 3 of the First
Addendum to Lease and Tenant shall be obligated to pay the balance of the
Interior Improvement Costs (including Landlord's construction management fee of
Four Percent (4%) of the hard costs of construction) as set forth in this
Paragraph:

                    (1)  Prior to commencing construction of the Tenant
Improvements, Landlord shall provide Tenant with a written estimate stating the
estimated Interior Improvement Cost, and calculating, according to Paragraph 3
of the First Addendum To Lease, the amount of the

                                 Page 5 of 12

<PAGE>

Tenant Contributed Interior Improvement Cost.

                           (2)      Tenant shall pay such estimated costs to
Landlord within five business days after receipt of Landlord's estimate.
Landlord shall not be obligated to commence construction of the Interior
Improvements unless and until the full amount of this estimate has been paid by
Tenant to Landlord. At Landlord's option, if Tenant does not pay such amount
within the time specified above, Landlord may give Tenant a further five (5) day
notice to pay such costs or commit an Event of Tenant's Default as defined in
the Lease, and if Tenant does not pay as required hereby within such five (5)
day period after such notice, then Tenant shall be considered to have committed
an Event of Tenant's Default without any further notice or cure periods, and
Landlord shall be entitled, in addition to any other rights or remedies
hereunder, to all of its rights and remedies prescribed in the Lease in the case
of an Event of Tenant's Default.

                           (3)      Notwithstanding the foregoing, if Tenant
provides Landlord, at Tenant's sole cost, an irrevocable letter of credit which
(i) is for an initial term ending no earlier than three (3) months after the
Scheduled Completion Date; (ii) is drawn upon a local commercial bank reasonably
acceptable to Landlord; (iii) is in an amount equal to One Hundred Twenty Five
Percent (125%) of the estimated amount of the Tenant Contributed Interior
Improvement Cost; (iv) is in a form satisfactory to Landlord; and (v) may be
drawn on by Landlord solely upon submission of a written certification of
Landlord that Tenant has failed to pay a progress payment required under this
Paragraph per Landlord's billing and that the amount drawn on the letter of
credit is the amount due Landlord under such progress payment, then Tenant may
avoid the above requirement of depositing the amount of the estimated cost of
the Tenant Contributed Interior Improvement Cost, and instead pay the said sum
to Landlord in progress payments as billed by Landlord to Tenant. Such billings
shall be accompanied by customary lien waivers. Landlord shall exercise good
faith discretion in setting up a series of progress payments that bear a
reasonable relationship to progress on the Interior Improvements, which payments
shall include all amounts payable by Tenant hereunder. If the Interior
Improvements are not Substantially Completed as of 30 days before the expiration
date or any extended execution date of such irrevocable Letter of Credit, Tenant
shall cause its renewal for at least an additional sixty days, and the failure
to do so shall be an Event of Tenant's Default under this Lease without further
notice or opportunity to cure, and shall allow Landlord to draw down all
remaining funds under the letter of credit.

                           (4)      At the time the final accounting is rendered
by Landlord pursuant to subparagraph 5C hereof, there shall be an adjustment
between Landlord and Tenant such that each shall only be required to contribute
to the payment of Interior Improvement Costs in accordance with the obligations
set forth in Paragraph 3 of the First Addendum to Lease and this Paragraph 5,
which adjustment shall be made within ten (10) business days after Landlord
notifies Tenant of the required adjustment. If Tenant is required to make a
payment to Landlord, Tenant shall make such payment even if Tenant elects to
audit the statement submitted by Landlord pursuant to subparagraph 5C. In the
event Tenant's audit discloses that an overpayment or underpayment was made by
Tenant, there

                                 Page 6 of 12

<PAGE>

shall be an adjustment between Landlord and Tenant as soon as reasonably
practicable such that each shall only be required to contribute to the payment
of costs in accordance with the obligations set forth in Paragraph 3 of the
First Addendum to Lease and this Subparagraph 5A.

                           (5)      Funds delivered to Landlord under this
Paragraph 5A, either by deposit of the entire estimate, or by progress payment,
shall be held by Landlord in Trust for the sole purpose of paying the portion of
the Interior Improvement Cost which is payable by Tenant.

                        B. If Tenant fails to pay any amount when due pursuant
to this Paragraph 5, then (i) Landlord may (but without the obligation to do so)
advance such funds on Tenant's behalf, and Tenant shall be obligated to
reimburse Landlord for the amount of funds so advanced on its behalf, and (ii)
Tenant shall be liable for the payment of a late charge and interest in the same
manner as if Tenant had failed to pay Base Monthly Rent when due as described in
Paragraph 3.4 of the Lease.

                        C. When the Interior Improvements are Substantially
Completed, Landlord shall submit to Tenant a final and detailed accounting of
all Interior Improvement Costs paid by Landlord, certified as true and correct
by Landlord's financial officers. Tenant shall have the right to audit the
books, records, and supporting documents of Landlord to the extent necessary to
determine the accuracy of such accounting during normal business hours after
giving Landlord at least two (2) days prior written notice. Tenant shall bear
the cost of such audit, unless such audit discloses that Landlord has overstated
Tenant's contribution to such costs by more than two percent (2%) of the actual
amount of such contribution, in which event Landlord shall pay the cost of
Tenant's audit. Any such audit must be commenced, if at all, within ninety (90)
days after Landlord delivers such accounting to Tenant.

                        D. Landlord shall pay, and Tenant shall have no
responsibility for, the following costs associated with the Improvements: (i)
costs attributable to improvements installed outside the demising walls of the
Premises; (ii) costs for improvements which are not shown on or described in the
Final Space Plan unless otherwise approved by Tenant; (iii) costs incurred to
remove Hazardous Materials from the Premises or the Project provided such are
not the responsibility of Tenant; (iv) attorneys' fees incurred in connection
with the negotiation of construction contracts and attorneys' and experts' fees
and other costs in connection with disputes with third parties (including,
without limitation, the General Contractor); (v) costs incurred as a consequence
of delay (unless the delay is caused by Tenant), construction defects or
defaults by any contractor; (vi) costs recoverable by Landlord on account of
warranties or insurance; (vii) penalties and late charges attributable to
Landlord's failure to pay construction costs (provided Tenant makes timely
progress payments as required under the Lease); (viii) costs to bring the
Building into compliance with applicable Laws, including, without limitation,
the Americans with Disabilities Act ("ADA") and Hazardous Materials Laws; (x)
wages, labor and overhead for overtime and premium time; (xi) off-site
management or other general overhead costs incurred by Landlord; (xii)
construction management, profit and overhead charges in excess of four

                                 Page 7 of 12

<PAGE>

percent (4%) of the total Improvement Cost; and (xiii) interest and other costs
of financing construction, (xiv) costs in excess of the Final Cost Estimate.
Notwithstanding any contrary provisions hereof, including those set forth above
in this Paragraph, Landlord shall have only the duty to procure compliance with
the ADA at its own expense in regard to conditions outside the Premises and the
need for which is not occasioned by Tenant's particular use of the Premises and
the Building. Expenses of having construction performed by Landlord for Tenant
under this Agreement comply with the ADA shall be a proper Interior Improvement
Cost.

         6. Changes to Approved Plans:  Once the Final Interior Plans have been
            -------------------------
approved by Landlord and Tenant, neither shall have the right to order extra
work or change orders with respect to the construction of the Interior
Improvements without the prior written consent of the other. All extra work or
change orders requested by either Landlord or Tenant shall be made in writing,
shall specify any added or reduced cost (including the construction manager's
fees of Landlord for the management of the construction specified under such
change order or extra work, as set forth in paragraph 5A) and/or construction
time resulting therefrom, and shall become effective and a part of the Final
Interior Plans once approved in writing by both parties. If a change order
requested or approved by Tenant results in an increase in the cost of
constructing the Interior Improvements, (including Landlord's construction
management fee of four percent (4%) of the hard costs of construction), Tenant
shall pay the amount of such increase caused by the change order at the time the
change order is approved by both Landlord and Tenant if and to the extent such
change order causes the Interior Improvement Costs to increase. If a change
order results in an increase in the amount of construction time needed by
Landlord to complete the Interior Improvements, paragraph 7 hereof may apply.

         7. Delay in Completion Caused by Tenant: The parties hereto acknowledge
            ------------------------------------
that the date on which Tenant's obligation to pay the Base Monthly Rent and the
Additional Rent would otherwise commence may be delayed because of: (i) Tenant's
failure to submit necessary information to Landlord when required; (ii) Tenant's
failure to promptly review and approve the plans for the Interior Improvements
in accordance with the Schedule for Performance; (iii) any act by Tenant which
interferes with or delays the completion of the plans for the Interior
Improvements or Landlord's construction work; (iv) change orders requested by
Tenant and approved by Landlord; (v) special materials or equipment ordered or
specified by Tenant that cannot be obtained by Landlord at normal cost within a
reasonable period of time because of limited availability; or (vi) any delay or
default by Tenant in paying the estimated cost of construction of Interior
Improvements in excess of the Landlord's required contribution. It is the intent
of the parties hereto that the commencement of Tenant's obligation to pay the
Base Monthly Rent and all Additional Rent not be delayed by any of such causes
or by any other act of Tenant, and in the event it is so delayed, Tenant's
obligation to pay the Base Monthly Rent and all Additional Rent shall commence
as of the date it would otherwise have commenced absent delay caused by Tenant,
provided that within a reasonable period of time after learning of the
occurrence of the cause of any such delay, Landlord notifies Tenant in writing
of the fact that such delay has occurred and the known or anticipated

                                 Page 8 of 12

<PAGE>

extent of any such delay, (but Landlord is not required to give any notice in
regard to failure to pay estimated excess Interior Improvement Costs except the
initial notice to pay such costs required by Paragraph 5A above).

         8. Delivery of Possession, Punch List, and Acceptance Agreement:  As
            ------------------------------------------------------------
soon as the Interior Improvements are Substantially Completed, Landlord and
Tenant shall together walk through the Premises and inspect all Interior
Improvements so completed, using reasonable efforts to discover all uncompleted
or defective construction in the Interior Improvements. After such inspection
has been completed, each party shall sign an acceptance agreement in the form
attached to the Lease as Exhibit "B", which shall (i) include a list of all
                         ----------
"punch list" items which the parties agree are to be corrected by Landlord and
(ii) shall state the Commencement Date and the initial Base Monthly Rent. As
soon as such inspection has been completed and such acceptance agreement
executed, Landlord shall deliver possession of the Premises to Tenant. Landlord
shall repair such "punch list" items within thirty (30) days after executing the
acceptance agreement. Landlord shall have no obligation to deliver possession of
the Premises to Tenant until such procedures regarding the preparation of a
punch list and the execution of the acceptance agreement have been completed..
Except as otherwise provided by the Lease and this Agreement, Tenant's taking
possession of any part of the Premises shall be deemed to be an acceptance by
Tenant of Landlord's work of improvement in such part as complete and in
accordance with the terms of the Lease except for the punch list items noted and
latent defects that could not reasonable have been discovered by Tenant during
its inspection of the Interior Improvements prior to completion of the
acceptance agreement. Notwithstanding anything contained herein, Tenant's
obligation to pay the Base Monthly Rent and Additional Rent shall commence as
provided in the Lease, regardless of whether Tenant completes such inspection or
executes such acceptance agreement.

         9. Standard of Construction and Warranty: Landlord here by warrants
            -------------------------------------
that the Interior Improvements shall be constructed substantially in accordance
with the Final Interior Plans (as modified by change orders approved by Landlord
and Tenant), all Private Restrictions and all Laws, in a good and workmanlike
manner, and all materials and equipment furnished shall conform to such final
plans and shall be new and otherwise of good quality. The foregoing warranty
shall be subject to, and limited by, the following:

            A. Once Landlord is notified in writing of any breach of the above-
described warranty, Landlord shall promptly commence the cure of such breach and
complete such cure with diligence at Landlord's sole cost and expense.

            B. Landlord's liability pursuant to such warranty shall be limited
to the cost of correcting the defect or other matter in question. In no event
shall Landlord be liable to Tenant for any damages or liability incurred by
Tenant as a result of such defect or other matter, including without limitation
damages resulting from any loss of business by Tenant or other consequential
damages.

                                 Page 9 of 12

<PAGE>

       C. Notwithstanding anything contained herein, Landlord shall not be
liable for any defect in design, construction, or equipment furnished which is
discovered and of which Landlord receives written notice from Tenant after the
first (1st) anniversary of the recordation of a notice of completion for the
work of improvement affected by the defect.

       D. With respect to defects for which Landlord is not responsible pursuant
to subparagraph 9C, Tenant shall have the benefit of any construction or
equipment warranties existing in favor of Landlord that would assist Tenant in
correcting construction defects and in discharging its obligations regarding the
repair and maintenance of the Premises. Upon request by Tenant, Landlord shall
inform Tenant of all written construction and equipment warranties existing in
favor of Landlord which affect the Interior Improvements. Landlord shall
cooperate with Tenant in enforcing such warranties and in bringing any suit that
may be necessary to enforce liability with regard to any defect for which
Landlord is not responsible pursuant to this paragraph so long as Tenant pays
all costs reasonably incurred by Landlord in so acting..

       E  Landlord makes no other express or implied warranty with respect to
the design, construction or operation of the Interior Improvements except as set
that forth in this paragraph.

       F. Notwithstanding anything to the contrary in this Work Letter or the
Lease, effective upon delivery of the Premises to Tenant, Landlord does hereby
warrant that (i) the construction of the Tenant Improvements was performed in
accordance with all rules, regulations, codes, statutes, ordinances, and laws of
all governmental and quasi-governmental authorities, in accordance with the
Construction Documents, and in a good and workman-like manner, (ii) all material
and equipment installed therein conformed to the Construction Documents and was
new and otherwise of good quality, (iii) the electrical, plumbing, heating,
ventilating, air conditioning and mechanical systems servicing the Premises are
in working order and in good condition, and (iv) the roof is in good condition
and water tight. So long as such occupancy does not interfere with Landlord's
construction of the Tenant Improvements, Tenant shall have the right to enter
the Premises prior to the completion of the Tenant Improvements for the purpose
of installing its equipment, data, telecommunications systems and trade
fixtures.

   10. Condition to Landlord's Performance:  Landlord's obligations under the
       -----------------------------------
Lease are subject to the satisfaction or waiver of the condition that Landlord
obtain all building permits and other governmental approvals required in order
to commence construction of the Interior Improvements by the due dates specified
in the Schedule of Performance. If such condition is not satisfied or waived
within the applicable time period, Landlord shall have the option of terminating
the Lease; provided, however, that Landlord shall have the option to extend the
time period for the satisfaction of such condition for a period of up to sixty
(60) days to enable Landlord to continue its efforts to cause such condition to
be satisfied. If any such option to extend the time for satisfaction

                                 Page 10 of 12

<PAGE>

of this condition is exercised: (i) Landlord shall continue to use reasonable
efforts to cause the condition to be satisfied; (ii) all other time periods
contained in the Schedule of Performance which are impacted by such extension
shall be appropriately adjusted; and (iii) such extension shall not constitute a
delay caused by Tenant pursuant to paragraph 7 hereof, nor shall Landlord in any
way be penalized for exercising such option to obtain additional time to cause
the condition to be satisfied. If Landlord becomes entitled to and elects to so
terminate the Lease, the Lease shall terminate on the dated notice is so given
to Tenant. Landlord shall be under an obligation of good faith to use all
reasonable good faith efforts to cause the condition to be satisfied.

         11.  Effect of Agreement:  In the event of any inconsistency between
              -------------------
this Improvement Agreement and the Lease, the terms of this Improvement
Agreement shall prevail.

                                 Page 11 of 12

<PAGE>

AMB Property, L.P.,                         KYPHON,
a Delaware limited partnership              a California corporation
By:  AMB Property Corporation,
     a Maryland corporation                 By: /s/ Richard D. Murdock
                                                --------------------------------
                                                 Richard D. Murdock
   By: /s/ John L. Rossi                    Its: President and CEO
       ---------------------------
        John L. Rossi
   Its: Regional Manager

Telephone: (415)394-9000                    Telephone: (408)727-9622
           ------------------------                    ----------------------

Facsimile: (415)394-0903                    Facsimile: (408)727-9623
           ------------------------                    ----------------------

Executed at: 505 Montgomery Street           Executed at: 3110 Coronado Drive
             6/th/ Floor                                  ----------------------
             San Francisco, CA 94111                      Santa Clara, CA 95054

Date:    2/29/00                      Date: February 25, 2000
      -------------------------             ---------------------------------

                                 Page 12 of 12

<PAGE>

Exhibit D

[Not Applicable]

<PAGE>

Exhibit E

[This Exhibit E contains the covenants, conditions and restrictions applicable
to the premises.]

<PAGE>

Exhibit F

[This Exhibit F describes the sign criteria for the premises.]

<PAGE>

Exhibit G

[This Exhibit G contains a questionnaire regarding the use of hazardous
materials on the premises.]

<PAGE>

Exhibit H

[Not Applicable]

<PAGE>

Exhibit I

[This Exhibit I contains rules and regulations applicable to the premises.]

<PAGE>

                            SECOND AMENDMENT TO LEASE

     THIS SECOND AMENDMENT TO LEASE is dated for reference purposes only as
November 29, 2001, and is part of that Lease dated January 27, 2000 together
with the Summary of Basic Lease Terms, the First and Second Addendums To Lease,
the Acceptance Agreement, Warrant Agreement and the First Amendment to Lease
dated July 18, 2000 thereto (collectively, the "Lease") by and between AMB
PROPERTY, L.P., a Delaware limited partnership ("Landlord"), and KYPHON INC., a
Delaware corporation ("Tenant"), and is made with reference to the following
facts:

     A.  The Premises currently leased by Tenant pursuant to the Lease consists
of 34,500 rentable square feet commonly known as 1350 Bordeaux Drive, City of
Sunnyvale, California.

     B.  The Lease Term for said Premises currently expires on March 31, 2005.

     C.  Tenant and Landlord have agreed to expand the square footage of the
Tenant by 4,000 rentable square feet as shown on "Exhibit A" attached hereto and
incorporated herein by reference as the "Expansion Space".

     D.  Tenant and Landlord wish to amend the Lease on the Terms and Conditions
set forth in this Second Amendment to Lease.

     NOW, THEREFORE, Landlord and Tenant hereby agree that the Lease Terms are
amended as follows:

     1.  Landlord's Address: Landlord's address for notices is amended to read:
         ------------------

               AMB Property, L.P.
               Pier 1, Bay 1
               San Francisco, CA 94111

     2.  Premises: Article 1.2 is hereby amended to provide for the Expansion
         --------
Space of 4,000 rentable square feet located at 1364 Bordeaux Drive, Sunnyvale
resulting in a total of 38,500 rentable square feet.

     3.  Tenant's Share: Article 1.5 is hereby amended to mean fifteen and
         --------------
87/100 percent (15.87%) of Building D and twenty-eight and 46/100 percent
(28.46%) of the Industrial Center.

     4.  Tenant's Allocated Parking Stalls: Article 2.6 is hereby amended to
         ---------------------------------
mean an additional 17 stalls for the Expansion Space for a total of 137 parking
spaces.

     5.  Lease Term: Article 1.3 is hereby amended to provide that the Lease
         ----------
Term shall be coterminous with the existing Lease through and including March
31, 2005.

     6.  Base Monthly Rent: Commencing January 1, 2002, Article 1.6 is hereby
         -----------------
amended to provide for the Base Monthly Rent on the Expansion Space as follows:

<PAGE>

January 1, 2002 through and including December 31, 2002:    $6,000.00 per month
January 1, 2003 through and including December 31, 2003:    $6,000.00 per month
January 1, 2004 through and including December 31, 2004:    $6,000.00 per month
January 1, 2005 through and including March 31, 2005:       $6,000.00 per month

     7.  Security Deposit: Article 1.7 is hereby amended to provide for an
         ----------------
increase in the Security Deposit of $6,000.00 which Tenant has provided Landlord
upon signature hereon, for a total of $280,275.00.

     8.  Option to Extend Lease Term for Expansion Space: Landlord hereby grants
         -----------------------------------------------
to Tenant one option to extend the Lease Term for the Expansion Space for a five
(5) year term commencing when the prior term expires, under the following terms
and conditions:

          A.  Exercise Dates: Tenant must give Landlord notice in writing of its
              --------------
exercise of the option in question no earlier than one hundred eighty (180) days
before the date the Lease Term would end but for said exercise (the "Earliest
Exercise Date") and no later than one hundred twenty (120) days before the date
the Lease Term would end but for said exercise (the "Last Exercise Date").

          B.  Conditions to Exercise of Option: Tenant's rights to extend is
              --------------------------------
conditioned upon and subject to each of the following:

               (1) In order to exercise its option to extend, Tenant must give
written notice of such election to Landlord and Landlord must receive same by
the Last Exercise Date, but not prior to the Earliest Exercise Date. If property
notification of the exercise of an option is not given and/or received, such
option shall automatically expire. Failure to exercise an option terminates that
option and all subsequent options. Tenant acknowledges that because of the
importance of Landlord of knowing no later than the Last Exercise Date whether
or not Tenant will exercise the option, the failure of Tenant to notify Landlord
by the Last Exercise Date will conclusively be presumed an election by Tenant
not to exercise the option.

               (2) Tenant shall have no right to exercise an option (i) if
Tenant is in Default beyond any cure period provided in the Lease (if
applicable) either on the date of exercise of the option or on the date on which
the Lease would terminate absent exercise of the option or (ii) in the event
that Landlord has given to Tenant three (3) or more notices of separate Defaults
during the 12 month period immediately preceding the exercise of the option,
whether or not the Defaults are cured. The period of time within which an option
may be exercised shall not be extended or enlarged by reason of Tenant's
inability to exercise an option because of the provisions of this Paragraph.

          C.  Creation of Extended Term: Upon the timely exercise of the option
              -------------------------
to extend and the commencement of the extended Term, all references in the Lease
to the Term shall be considered to mean the Term as extended by the exercise of
the option, which shall be referred to herein as the "Extended Term".

                                      -2-

<PAGE>

          D.  Options Personal: The option is personal to the Tenant, and cannot
              ----------------
be assigned to or exercised by anyone other than the Tenant. The option can only
be exercised at a time when the Tenant is in full possession of the Premises and
does not have any intent of thereafter assigning or subletting.

          E.  The Base Monthly Rent for the Option Period shall be the greater
of (i) one hundred percent (100%) of the Base Monthly Rent due the last month of
the previous Lease Term, or (ii) one hundred percent (100%) of the then fair
market monthly rent determined as of the commencement of the option period in
question based upon like buildings with like improvements in the area. The
Option Period shall contain no free rent and the Premises shall be taken
"as-is". If the parties are unable to agree upon the fair market monthly rent
for the Premises for the option period in question at least seventy-five (75)
days prior to the commencement of the option period in question, then the fair
market monthly rent shall be determined by appraisal conducted pursuant to
subparagraph F.

          F.  In the event it becomes necessary to determine by appraisal the
fair market rent of the Premises for the purposes of establishing the Base
Monthly Rent during the Option Period, then such fair market monthly rent shall
be determined by three (3) real estate appraisers, all of whom shall be members
of the American Institute of Real Estate Appraisers with not less than five (5)
years experience appraising real property (other than residential or
agricultural property) located in Santa Clara County, California, in accordance
with the following procedures:

               (1)  The party demanding an appraisal (the "Notifying Party")
shall notify the other party (the "Non-Notifying Party") thereof by delivering a
written demand for appraisal, which demand, to be effective, must give the name,
address, and qualifications of an appraiser selected by the Notifying Party.
Within ten (10) days of receipt of said demand, the Non-Notifying Party shall
select its appraiser and notify the Notifying Party, in writing, of the name,
address, and qualifications of an appraiser selected by it. Failure by the
Non-Notifying Party to select a qualified appraiser within said ten (10) day
period shall be deemed a waiver of on its own behalf and the Notifying Party
shall select a second appraiser on behalf of the Non-Notifying Party within five
(5) days after the expiration of said ten (10) day period. Within ten (10) days
from the date the second appraiser shall have been appointed, the two (2)
appraisers so selected shall appoint a third appraiser. If the two appraisers
fail to select a third qualified appraiser, the third appraiser shall be
selected by the American Arbitrations Association or if it shall refuse to
perform this function, then at the request of either Landlord or Tenant such
third appraiser shall be promptly appointed by the then Presiding Judge its
right to select a second appraiser of the Superior Court of the State of
California for the County of Santa Clara.

               (2)  The three (3) appraisers so selected shall meet in San Jose,
California, not later than twenty (20) days following the selection of the third
appraiser. At said meeting the appraisers so selected shall attempt to determine
the fair market monthly rent of the Premises for the option period in question
(including the timing and amount of periodic increases).

               (3)  If the appraisers so selected are unable to complete their
determinations in one meeting, they may continue to consult at such times as
they deem necessary for a fifteen (15) day period from the date of the first
meeting, in an attempt to have at least two (2)

                                      -3-

<PAGE>

of them agree. If, at the initial meeting or at any time during said fifteen
(15) day period, two (2) or more of the appraisers so selected agree on the fair
market rent of the Leased Premises, such agreement shall be determinative and
binding on the parties hereto, and the agreeing appraisers shall, in simple
letter form executed by the agreeing appraisers, forthwith notify both Landlord
and Tenant of the amount set by such agreement.

               (4)  If two (2) or more appraisers do not so agree within said
fifteen (15) day period, then each appraiser shall, within five (5) days after
the expiration of said fifteen (15) day period, submit his independent appraisal
in simple letter form to Landlord and Tenant stating his determination of the
fair market rent of the Premises for the option period in question. The parties
shall then determine the fair market rent for the Premises by determining the
average of the fair market rent set by each of the appraisers. However, if the
lowest appraisal is less than eighty-five percent (85%) of the middle appraisal
then such lowest appraisal shall be disregarded and/or if the highest appraisal
is greater than one hundred fifteen percent (115%) of the middle appraisal then
such highest appraisal shall be disregarded. If the fair market rent set by any
appraisal is so disregarded, then the average shall be determined by computing
the average set by the other appraisals that have not been disregarded.

               (5)  Nothing contained herein shall prevent Landlord and Tenant
from jointly selecting a single appraiser to determine the fair market rent of
the Premises, in which event the determination of such appraisal shall be
conclusively deemed the fair market rent of the Premises.

               (6)  Each party shall bear the fees and expenses of the appraiser
selected by or for it, and the fees and expenses of the third appraiser (or the
joint appraiser if one joint appraiser is used) shall be borne fifty percent
(50%) by Landlord and fifty percent (50%) by Tenant.

     9.  Retained Real Estate Brokers: Tenant is represented by Colliers
         ----------------------------
International in the execution of this Second Amendment to Lease.

     10.  Delivery and Acceptance of Premises: Tenant accepts the Expansion
          -----------------------------------
Space for the extended term created hereby with Tenant Improvements made by
Landlord, at Landlord's sole cost and expense, as shown on Exhibit A including
ceiling insulation in the areas covered by drop ceiling, to be completed prior
to Tenant's Commencment Date.

     11.  Continuing Obligation: Except as expressly set forth in this
          ---------------------
Amendment, all terms and conditions of the Lease remain in full force and
effect, and all terms and conditions of the Lease are incorporated herein as
though set forth at length.

     12.  Effect of Amendment: This Amendment modifies the Lease only with
          -------------------
regards to the Expansion Space, and does not purport to modify Landlord's or
Tenant's rights or obligations under the original Lease dated January 27, 2000.
In the event of any conflict or discrepancy between the Lease and/or any other
previous documents between the parties and the provisions of this Amendment,
then the provisions of this Amendment shall control only where such matters
relate solely to the Expansion Space and not to the extent that such matters
relate to the space

                                      -4-

<PAGE>

leased under the Lease of January 27, 2000. Except as specifically modified
herein, all terms and provisions of the original Lease dated January 27, 2000
shall remain in full force and effect.

     13.  Authority: Each individual executing this Amendment on behalf of
          ---------
Tenant represents and warrants that he or she is duly authorized to and does
execute and deliver this Amendment pursuant to express authority from Tenant
pursuant to and in accordance with the By-Laws and the other organic documents
of the Tenant corporation.

     14.  Entire Agreement: The Lease, as modified by this Amendment,
          ----------------
constitutes and contains the entire agreement between the parties, and there are
no binding agreements or representations between the parties except as expressed
herein. Tenant acknowledges that neither Landlord nor Landlord's Agents have
made any legally binding representations or warranties as to any matter except
for such matters binding representations or warranties as to any matter except
for such matters which are expressly set forth herein, including any
representations or warranties relating to the condition of the Premises or the
improvements thereto or the suitability of the Premises or the Project for
Tenant's business.

                                      -5-

<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
to be effective as of the date first set forth above.

Landlord:                                 Tenant:

AMB PROPERTY, L.P.                        KYPHON INC.
a Delaware limited partnership            a Delaware corporation
By: AMB Property Corporation,             By: /s/ Gary Grenter
    a Maryland corporation its                ----------------------------------
    general partner                           Gary Grenter
                                              Chief Executive Officer

By: /s/ John Rossi                        By: /s/ Eric Doelling
    ------------------------------------      ----------------------------------
      John L. Rossi                           Eric Doelling
                                              Vice President Operations
Its:  Senior Vice President

Telephone: (415) 394-9000                 Telephone: (408) 548-6500
           -----------------------------             ---------------------------

Facsimile: (415) 394-0903                 Facsimile: (415) 394-0903
           -----------------------------             ---------------------------

Executed at: Pier 1, Bay 1                Executed at:
             San Francisco, CA 94111

Date: 12/9/01                             Date: 12/04/01
      ----------------------------------        --------------------------------

<PAGE>

                                    Exhibit A

            This Exhibit A contains a diagram of the expansion space<PAGE>

                                                                    Exhibit 10.9

                                   KYPHON INC.

                        GARY GRENTER EMPLOYMENT AGREEMENT

     This Agreement is entered into as of July 16, 2001 (the "Effective Date")
by and between Kyphon Inc. (the "Company") and Gary Grenter ("Executive").

     1.   Duties and Scope of Employment.
          ------------------------------

          (a)  Positions and Duties. As of the Effective Date, Executive will
               --------------------
serve as President and Chief Executive Officer of the Company. Executive will
render such business and professional services in the performance of his duties,
consistent with Executive's position within the Company, as shall reasonably be
assigned to him by the Company's Board of Directors (the "Board"). Executive
shall report to the Board. The period of Executive's employment under this
Agreement is referred to herein as the "Employment Term." During the Employment
Term, Executive will also be entitled to a position on the Board. Executive
agrees to resign from the Board at the end of the Employment Term, if requested
to do so by action of the Board.

          (b)  Obligations. During the Employment Term, Executive will perform
               -----------
his duties faithfully and to the best of his ability and will devote his full
business efforts and time to the Company. For the duration of the Employment
Term, Executive agrees not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration
without the prior approval of the Board.

     2.   Employment Term. The parties agree that Executive's employment with
          ---------------
the Company will be "at-will" employment and may be terminated by either party
at any time with or without cause, and Executive shall not be entitled to any
benefits or payments upon termination, except as set forth in this Agreement.
Executive understands and agrees that neither his job performance nor
promotions, commendations, bonuses or the like from the Company give rise to or
in any way serve as the basis for modification, amendment or extension, by
implication or otherwise, of his employment with the Company.

     3.   Compensation.
          ------------

          (a)  Base Salary. During the Employment Term, the Company will pay
               -----------
Executive as compensation for his services a base salary at a minimum annualized
rate of $310,000 (the "Base Salary"). Executive's Base Salary will be paid
periodically in accordance with the Company's normal payroll practices and will
be subject to the usual, required withholding. The Board will review Executive's
performance periodically at least once per year, and Executive's compensation
will be subject to adjustment as a result of such review.

          (b)  Bonus. Executive shall be eligible to receive an annual
               -----
performance bonus of 35% of the Base Salary, which percentage will be increased
to 50% by the Board following an initial public offering by the Company ("IPO").
The performance bonus shall be earned by Executive meeting performance
objectives established by the Board on an annual basis. Any bonus earned during
Executive's first year of employment will be pro-rated from the Effective Date.

<PAGE>

          (c)  Equity Compensation. As soon as practicable following the
               -------------------
Effective Date, Executive shall be granted a stock option, which shall be, to
the extent possible under the $100,000 rule of Section 422(d) of the Internal
Revenue Code of 1986, as amended (the "Code"), an "incentive stock option" (as
defined in Section 422 of the Code), to purchase 865,000 shares of the Company's
Common Stock (the number of shares equals 2.5% of the Company's outstanding
shares of capital stock on a fully diluted basis, which includes all outstanding
shares and rights to obtain shares as of the Effective Date), at an exercise
price per share equal to the fair market value on the date of grant by the Board
(the "Option"). Subject to the accelerated vesting provisions set forth herein,
the Option will vest as to 1/48th of the shares subject to the Option at the end
of each full calendar month following the Effective Date, so that the Option
will be fully vested and exercisable four (4) years from the Effective Date,
subject to Executive's continued employment with the Company on the relevant
vesting dates. The Option will be subject to the terms, definitions and
provisions of the Company's 1996 Stock Plan (the "Stock Plan") and the Stock
Option Agreement by and between Executive and the Company (the "Option
Agreement"), which documents are incorporated herein by reference.

          (d) Additional Compensation.
              -----------------------

               (i)   Life Insurance. During the Employment Term, the Company
                     --------------
will reimburse Executive for life insurance premiums of up to $5,000 per year.

               (ii)  Auto Allowance. During the Employment Term, the Company
                     --------------
will reimburse Executive for the reasonable costs of purchasing or leasing a car
for use in connection with his employment with the Company of up to $15,000 per
year.

               (iii) Property Tax Adjustment. During the Employment Term, the
                     -----------------------
Company will reimburse Executive for the difference between Executive's annual
property tax obligation for the Former Residence (as defined below) and
Executive's annual property tax obligation for the New Residence (as defined
below) following the closing of Executive's purchase of the New Residence. Such
reimbursement will be pro-rated for Executive's first year of employment from
the date of closing.

     4.   Employee Benefits.
          -----------------

          (a)  General. During the Employment Term, Executive will be entitled
               -------
to participate in the employee benefit plans currently and hereafter maintained
by the Company of general applicability to other senior executives of the
Company. The Company reserves the right to cancel or change the benefit plans
and programs it offers to its employees at any time.

          (b)  Temporary Living Reimbursement. For up to the first twelve (12)
               ------------------------------
months of the Employment Term or Executive's earlier relocation to the San
Francisco Bay Area, the Company will reimburse Executive for his reasonable
temporary living expenses, including: (i) a furnished corporate apartment
(including reasonable utilities and computer line) as mutually agreed to by the
Company and Executive, (ii) a reasonable monthly auto allowance sufficient to
rent an automobile and (iii) Executive's travel expenses incurred between his
current primary residence and the San Francisco Bay Area.

                                      -2-

<PAGE>

               (c)  Relocation Reimbursement. During the Employment Term, the
                    ------------------------
Company will reimburse Executive for reasonable moving expenses incurred by
Executive and his family during their relocation from Executive's primary
residence to the San Francisco Bay Area. Such expenses shall include, but shall
not be limited to, reasonable costs associated with (i) up to three (3)
"house-hunting" trips to the San Francisco Bay Area for Executive's spouse, (ii)
moving Executive's household furnishings, automobiles and personal effects,
(iii) economy airfare for Executive's family, (iv) the transaction costs
associated with buying Executive's new residence (closing costs, inspections,
title insurance, brokerage and related fees, etc.) and (v) the transaction costs
associated with selling Executive's former residence in Connecticut (the "Former
Residence") (closing costs, inspections, title insurance, brokerage and related
fees, etc.). In addition, upon Executive's request, the Company will guarantee
the value of the Former Residence such that the Company will reimburse Executive
for the difference between the actual sale price of the Former Residence and
$615,000, provided that (i) Executive has in good faith attempted unsuccessfully
to sell the Former Residence for at least six (6) months at a price of at least
$615,000 and (ii) that the Company may select the real estate agent and have
input on the pricing of the Former Residence following Executive's request for
such guarantee. Executive will be fully grossed-up by the Company for any
imputed income required to be recognized with respect to the reimbursements
provided in this Section 4(c) so that the economic effect to Executive, after
taking into account any tax deductions available to Executive, is the same as if
this reimbursement was provided to Executive on a non-taxable basis.

               (d)  Relocation Assistance. The Company shall provide Executive,
                    ---------------------
at the Company's option, with either (i) a mortgage loan (the "Loan"), (ii)
mortgage allowance payments or (iii) a combination of the two in support of a
loan balance of up to $3,000,000 (collectively, the "Housing Assistance"),
exclusively for use in Executive's acquisition of a new principal residence in
the San Francisco Bay Area (the "New Residence"), provided Executive shall be
responsible for the first $500,000 of the purchase price. Executive will be
fully grossed-up by the Company for any imputed income or interest required to
be recognized with respect to the Housing Assistance so that the economic effect
to Executive, after taking into account any tax deductions available to
Executive, is the same as if the Housing Assistance were provided to Executive
on a non-taxable basis. Any such Loan shall be subject to, and governed by, the
terms and conditions of a full recourse loan agreement and mortgage by and
between Executive and the Company. The outstanding balance of the Loan shall be
due and payable and/or the mortgage allowance payments shall be eliminated upon
the earlier of (i) six (6) months following the voluntary termination of
Executive's employment with the Company (or upon Executive's earlier closing of
the sale of the New Residence), (ii) one (1) year following the involuntary
termination of Executive's employment with the Company (or upon Executive's
earlier closing of the sale of the New Residence) or (iii) following the
Company's IPO as to 25% of the Housing Assistance on each anniversary of the
effective date of the Company's IPO, provided Executive's vested option(s) to
purchase Common Stock of the Company or Common Stock purchased pursuant thereto
meet the valuation criteria set forth on Exhibit A on each such anniversary
date. In any event, Executive agrees that, on the sixth (6/th/) anniversary of
the issuance of the Housing Assistance, and on each subsequent anniversary
thereafter, Executive shall assume responsibility for at least 25% of the
Housing Assistance, such that the Housing Assistance shall be eliminated
altogether no later than the ninth (9th) anniversary of the issuance thereof.

                                      -3-

<PAGE>

         In addition, in connection with Executive's sale of the New Residence
following the voluntary or involuntary termination of his employment with the
Company within three (3) years following the closing of Executive's purchase of
the New Residence, the Company will guarantee the value of the New Residence if
the sale price is less than the purchase price such that (i) if Executive sells
the New Residence after the Company's IPO, the Company will reimburse Executive
for the difference between the purchase price and the sale price to the extent
of such difference in excess of 75% of the in-the-money value of Executive's
option(s) to purchase Common Stock of the Company or Common Stock purchased
pursuant thereto or (ii) if Executive sells the New Residence while the Company
is still private, the Company will reimburse Executive for 50% of the difference
between the purchase price and the sale price, provided in both cases that
Executive uses a real estate agent who is reasonably acceptable to the Company.
Executive will be fully grossed-up by the Company for any imputed income
required to be recognized with respect to this reimbursement so that the
economic effect to Executive, after taking into account any tax deductions
available to Executive, is the same as if this reimbursement was provided to
Executive on a non-taxable basis.

               (e)  Vacation. Executive will be entitled to paid vacation in
                    --------
accordance with the Company's vacation policy, with the timing and duration of
specific vacations mutually and reasonably agreed to by the parties hereto.

               (f)  Expenses. The Company will reimburse Executive for
                    --------
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder, in accordance with the Company's expense reimbursement policy as in
effect from time to time.

     5.   Severance.
          ---------

               (a)  Termination During Employment Term. If the Company
                    ----------------------------------
terminates Executive other than for Cause or if Executive voluntarily terminates
as a result of a Constructive Termination (as such terms are defined below), and
Executive signs and does not revoke a standard release of claims with the
Company, then, subject to Executive's compliance with Section 9, Executive shall
be entitled to receive severance benefits consisting of (i) continued payment
for twelve (12) months of Executive's Base Salary as in effect on the date of
termination and the Additional Compensation set forth in Section 3(d), paid
periodically in accordance with the Company's normal payroll practices and
subject to the usual, required withholding and (ii) if Executive elects to
convert his health insurance benefits to individual coverage pursuant to
Cal-COBRA, reimbursement for health care coverage under Cal-COBRA for up to
twelve (12) months following such termination, or for such shorter period until
Executive obtains new employment offering health insurance coverage.

               (b)  Other Termination. If Executive's employment with the
                    -----------------
Company terminates at any time and for any reason other than as described in
Section 5(a), then (i) all vesting of the Option and any other equity awards
made by the Company to Executive will immediately terminate, (ii) all payments
of compensation by the Company to Executive hereunder will immediately terminate
(except as to amounts already earned) and (iii) Executive will only be eligible
for severance benefits in accordance with the Company's established plans,
policies or programs then in effect.

                                      -4-

<PAGE>

          6.   Change of Control Benefits.
               --------------------------

               (a)  Vesting Acceleration and Bonus. If, following a Change of
                    ------------------------------
Control (as defined below), the Company terminates Executive other than for
Cause or if Executive voluntarily terminates as a result of a Constructive
Termination, then, in addition to the cash severance set forth in Section 5(a),
(i) the Option will have its vesting accelerated so as to become 100% vested as
of the date of such termination and (ii) Executive will be paid an amount equal
to his actual paid out bonus for the previous fiscal year as set forth in
Section 3(b). Thereafter, the Option will continue to be subject to the terms,
definitions and provisions of the Stock Plan and Option Agreement.

               (b)  Golden Parachute Excise Tax Gross-Up. Executive and the
                    ------------------------------------
Company acknowledge and agree that the Company may, in its sole discretion and
prior to the Company's IPO, make commercially reasonable efforts to seek
stockholder approval of, by the requisite vote and in the manner contemplated by
Section 280G of the Code, any severance and other benefits provided for in this
Agreement or otherwise payable to Executive which may be characterized as
"parachute payments" within the meaning of Section 280G of the Code (the
"Parachute Payments"), provided that Executive agrees to waive the rights to the
Parachute Payments in the event approval is sought and not obtained by the
requisite vote of the Company's stockholders (as determined in accordance with
Section 280G). Following an IPO, or prior to an IPO in the event that
stockholder approval of the Parachute Payments is not solicited by the Company,
and in the event that the severance and other benefits provided for in this
Agreement or otherwise payable to Executive constitute parachute payments and
will be subject to the excise tax imposed by Section 4999 of the Code, Executive
shall receive a payment from the Company sufficient to pay such excise tax, and
Executive will be fully grossed-up by the Company for any imputed income
required to be recognized with respect to such payment so that the economic
effect to Executive, after taking into account any tax deductions available to
Executive, is the same as if such payment was provided to Executive on a
non-taxable basis.

          7.    Definitions.
                -----------

               (a)  Cause. For purposes of this Agreement, "Cause" is defined as
                    -----
(i) a material act of dishonesty made by Executive in connection with
Executive's responsibilities as an employee that leads to material harm to the
Company, (ii) Executive's conviction of, or plea of guilty or nolo contendere
                                                              ---------------
to, a felony, (iii) a willful act by Executive which constitutes gross
misconduct or fraud and which is materially injurious to the Company, or (iv)
Executive's continued, substantial violations of his employment duties after
Executive has received a written demand for performance from the Company which
specifically sets forth the factual basis for the Company's belief that
Executive has not substantially performed his duties.

               (b)  Change of Control. For purposes of this Agreement, "Change
                    -----------------
of Control" of the Company is defined as: (i) the date of the consummation of a
merger or consolidation of the Company with any other corporation that has been
approved by the stockholders of the Company, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (ii) a plan of
complete liquidation of the

<PAGE>

 Company approved by the Company's stockholders; or (iii) the date of the
consummation of the sale by the Company of all or substantially all the
Company's assets.

          (c)  Constructive Termination. For purposes of this Agreement,
               ------------------------
"Constructive Termination" is defined as a resignation of Executive's employment
within ninety (90) days of the occurrence of any of the following events: (i)
without Executive's written consent, a significant reduction of Executive's
duties or responsibilities relative to Executive's duties or responsibilities in
effect immediately prior to such reduction or (ii) without Executive's written
consent, a reduction of greater than five percent (5%) by the Company of
Executive's Base Salary as in effect immediately prior to such reduction.

     8.   Confidential Information. Executive agrees to enter into the Company's
          ------------------------
standard Proprietary Information Agreement in substantially the form attached
hereto as Exhibit B (the "Proprietary Information Agreement") upon commencing
employment hereunder.

     9.   Noncompetition and Nonsolicitation.
          ----------------------------------

          (a)  Noncompetition. Executive acknowledges that the nature of the
               --------------
Company's business is such that if Executive were to become employed by, or
substantially involved in, the business of a competitor of the Company following
the termination of Executive's service with the Company, it would be very
difficult for the Executive not to rely on or use the Company's trade secrets
and confidential information. Thus, to avoid the inevitable disclosure of the
Company's trade secrets and confidential information, Executive agrees and
acknowledges that Executive will not directly or indirectly engage in (whether
as an employee, consultant, agent, proprietor, principal, partner, stockholder,
corporate officer, director or otherwise), nor have any ownership interest in or
participate in the financing, operation, management or control of, any person,
firm, corporation or business that competes with the Company's then current
products or products under development for the twelve (12) month period (the
"Noncompete Period") following the termination of Executive's service to or
employment with the Company. The Noncompete Period shall be tolled during any
violation of this section.

          (b)  Non-Solicitation. During Executive's service to or employment
               ----------------
with the Company and during the Noncompete Period, Executive agrees and
acknowledges that he will not either directly or indirectly solicit, induce,
attempt to hire, recruit, encourage, take away or hire any employee of the
Company or cause any employee of the Company to leave his or her employment
either for Executive or for any other entity or person.

          (c)  Understanding of Covenants. The Executive represents that he (i)
               --------------------------
is familiar with the foregoing covenants not to compete and not to solicit, and
(ii) is fully aware of his obligations hereunder, including, without limitation,
the reasonableness of the length of time, scope and geographic coverage of these
covenants.

     10.  Assignment. This Agreement will be binding upon and inure to the
          ----------
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "successor" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or

                                      -6-

<PAGE>

 otherwise, directly or indirectly acquires all or substantially all of the
assets or business of the Company. None of the rights of Executive to receive
any form of compensation payable pursuant to this Agreement may be assigned or
transferred except by will or the laws of descent and distribution. Any other
attempted assignment, transfer, conveyance or other disposition of Executive's
right to compensation or other benefits will be null and void.

     11.  Notices. All notices, requests, demands and other communications
          -------
called for hereunder shall be in writing and shall be deemed given (i) on the
date of delivery if delivered personally, (ii) one (1) day after being sent by a
well established commercial overnight service, or (iii) four (4) days after
being mailed by registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors at the following addresses, or
at such other addresses as the parties may later designate in writing:

          If to the Company:

          Kyphon Inc.
          1350 Bordeaux Drive
          Sunnyvale, CA 94089
          Attn:  Board of Directors
          ----

          If to Executive:

          At the last residential address known by the Company.

     12.  Severability. In the event that any provision hereof becomes or is
          ------------
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

     13.  Arbitration.
          -----------

          (a)  General. In consideration of Executive's service to the Company,
               -------
its promise to arbitrate all employment related disputes and Executive's receipt
of the compensation, pay raises and other benefits paid to Executive by the
Company, at present and in the future, Executive agrees that any and all
controversies, claims, or disputes with anyone (including the Company and any
employee, officer, director, shareholder or benefit plan of the Company in their
capacity as such or otherwise) arising out of, relating to, or resulting from
Executive's service to the Company under this Agreement or otherwise or the
termination of Executive's service with the Company, including any breach of
this Agreement, shall be subject to binding arbitration under the Arbitration
Rules set forth in California Code of Civil Procedure Section 1280 through
1294.2, including Section 1283.05 (the "Rules") and pursuant to California law.
Disputes which Executive agrees to arbitrate, and thereby agrees to waive any
right to a trial by jury, include any statutory claims under state or federal
law, including, but not limited to, claims under Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination
in Employment Act of 1967, the Older Workers Benefit Protection Act, the
California Fair Employment and Housing Act, the California Labor Code, claims of
harassment, discrimination or wrongful termination and any statutory claims.
Executive further understands that this Agreement to arbitrate also applies to
any disputes that the Company may have with Executive.

                                      -7-

<PAGE>

          (b)  Procedure. Executive agrees that any arbitration will be
               ---------
administered by the American Arbitration Association ("AAA") and that a neutral
arbitrator will be selected in a manner consistent with its National Rules for
the Resolution of Employment Disputes. The arbitration proceedings will allow
for discovery according to the rules set forth in the National Rules for the
Resolution of Employment Disputes or California Code of Civil Procedure.
Executive agrees that the arbitrator shall have the power to decide any motions
brought by any party to the arbitration, including motions for summary judgment
and/or adjudication and motions to dismiss and demurrers, prior to any
arbitration hearing. Executive agrees that the arbitrator shall issue a written
decision on the merits. Executive also agrees that the arbitrator shall have the
power to award any remedies, including attorneys' fees and costs, available
under applicable law. Executive understands the Company will pay for any
administrative or hearing fees charged by the arbitrator or AAA except that
Executive shall pay the first $200.00 of any filing fees associated with any
arbitration Executive initiates. Executive agrees that the arbitrator shall
administer and conduct any arbitration in a manner consistent with the Rules and
that to the extent that the AAA's National Rules for the Resolution of
Employment Disputes conflict with the Rules, the Rules shall take precedence.

          (c)  Remedy. Except as provided by the Rules, arbitration shall be the
               ------
sole, exclusive and final remedy for any dispute between Executive and the
Company. Accordingly, except as provided for by the Rules, neither Executive nor
the Company will be permitted to pursue court action regarding claims that are
subject to arbitration. However, the arbitrator will not have the authority to
disregard or refuse to enforce any lawful Company policy, and the arbitrator
shall not order or require the Company to adopt a policy not otherwise required
by law which the Company has not adopted.

          (d)  Availability of Injunctive Relief. In addition to the right under
               ---------------------------------
the Rules to petition the court for provisional relief, Executive agrees that
any party may also petition the court for injunctive relief where either party
alleges or claims a violation of this Agreement or the Proprietary Information
Agreement or any other agreement regarding trade secrets, confidential
information, nonsolicitation or Labor Code ss.2870. In the event either party
seeks injunctive relief, the prevailing party shall be entitled to recover
reasonable costs and attorneys fees.

          (e)  Administrative Relief. Executive understands that this Agreement
               ---------------------
does not prohibit Executive from pursuing an administrative claim with a local,
state or federal administrative body such as the Department of Fair Employment
and Housing, the Equal Employment Opportunity Commission or the workers'
compensation board. This Agreement does, however, preclude Executive from
pursuing court action regarding any such claim.

          (f)  Voluntary Nature of Agreement. Executive acknowledges and agrees
               -----------------------------
that Executive is executing this Agreement voluntarily and without any duress or
undue influence by the Company or anyone else. Executive further acknowledges
and agrees that Executive has carefully read this Agreement and that Executive
has asked any questions needed for Executive to understand the terms,
consequences and binding effect of this Agreement and fully understands it,
including that Executive is waiving Executive's right to a jury trial. Finally,
Executive agrees that Executive has been provided an opportunity to seek the
advice of an attorney of Executive's choice before signing this Agreement.

                                      -8-

<PAGE>

          14.  Integration. This Agreement, together with the Stock Plan, the
               -----------
Option Agreement, the Proprietary Information Agreement and any other written
document referred to herein, represents the entire agreement and understanding
between the parties as to the subject matter herein and supersedes all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement will be binding unless
in writing and signed by duly authorized representatives of the parties hereto.

          15.  Tax Withholding. All payments made pursuant to this Agreement
               ---------------
will be subject to withholding of applicable taxes.

          16.  Identification. For purposes of federal immigration law,
               --------------
Executive will be required to provide to the Company documentary evidence of
Executive's identity and eligibility for employment in the United States. Such
documentation must be provided to the Company within three (3) business days of
the Effective Date, or Executive's employment relationship with the Company may
be terminated and Executive will not be entitled to any benefits provided under
this Agreement.

          17.  Non-Disclosure. Executive will follow the Company's strict policy
               --------------
that employees must not disclose any information regarding salary, bonuses or
stock purchase or option allocations to other employees, either directly or
indirectly.

          18.  Governing Law. This Agreement will be governed by the laws of the
               -------------
State of California (with the exception of its conflict of laws provisions).

          19.  Counterparts. This Agreement may be executed in counterparts,
               ------------
each of which shall be an original and all of which together shall constitute
one instrument.

                  [Remainder of Page Intentionally Left Blank]

                                   -9-

<PAGE>

          IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by a duly authorized officer, as of the Effective
Date.

KYPHON INC.

By: /s/ Jeffrey L. Kaiser                     Date: 6/27/01
   ------------------------------------            -----------------------------

Title: Chief Financial Officer
      ---------------------------------

EXECUTIVE

/s/ Gary Grenter                              Date: 6/27/01
---------------------------------------            -----------------------------
Gary Grenter

                                      -10-

<PAGE>

                                    EXHIBIT A

                     POST IPO MORTGAGE LOAN REPAYMENT AND/OR
                     MORTGAGE ALLOWANCE ELIMINATION CRITERIA

..  Valuation Period:

   -    Last 10 business days of any 12 month period ending on the anniversary
        date of Kyphon's IPO

..  Kyphon Loan Balance/Mortgage Allowance Reduction:

   -    If at the end of each 12 month period following the IPO, the ratio of
        the value of Executive's vested, in the money options/stock to the
        original loan balance, defined as the mortgage loan from Kyphon or
        mortgage loan being supported by monthly mortgage allowance payments
        from Kyphon, or the combination thereof, is greater than or equal to
        the ratio shown below, the mortgage loan from Kyphon and/or the
        mortgage allowance payments will be reduced as follows:

                                                     Ratio        Reduction %
                                              ----------------------------------

         12 Months Following IPO                      .75            25%
         24 Months Following IPO                     1.50            50%
         36 Months Following IPO                     2.25            75%
         48 Months Following IPO                     3.00           100%
         60 Months Following IPO                     3.00           100%
         72 Months Following IPO                     3.00           100%
         (continues until reduction is 100%)

<PAGE>

                                    EXHIBIT B

                        PROPRIETARY INFORMATION AGREEMENT

                                    [OMITTED]

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