Severance Agreement



 Exhibit 10.2 
  
 SEVERANCE AGREEMENT 
  
 This Agreement, effective as of January 28, 2005 (“Effective Date”), is entered into by and between Kyphon Inc., a corporation organized under
the laws of the State of Delaware (the “Company”), and Richard Mott (the “Executive”). 
  
 WHEREAS, the Board of Directors of the Company (the “Board”) recognizes that the possibility of a Change in Control (as hereinafter defined)
exists and that the threat or the occurrence of a Change in Control can result in significant distractions to its key management personnel because of the uncertainties inherent in such a situation; 
  
 WHEREAS, the Board has determined that it is essential and in the best
Interests of the Company and its stockholders to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure that the Executive is able to remain focused and dedicated to the Company’s
operations without undue concern for the Executive’s personal, financial and employment security; and 
  
 WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat or the occurrence of a Change in
Control, the Company desires to enter into this Agreement with the Executive to provide the Executive with certain benefits in the event that the Executive’s employment is terminated as a result of, or in connection with, a Change in Control.

  
 NOW, THEREFORE, in consideration of the respective agreements
of the 
  
 Parties contained herein, it is agreed as follows:

  
 1. Term of Agreement. This Agreement shall commence on
January 1, 2005 and shall continue in effect until the expiration of twelve (12) months after a Change-in-Control. 
  
 2. Definitions. 
  
 2.1 Accrued Compensation. For purposes of this Agreement, “Accrued Compensation” shall mean an amount which shall include all amounts
earned or accrued through the “Termination Date” (as hereinafter defined) but not paid as of the Termination Date, including (i) base salary, (ii) reimbursement for reasonable and necessary expenses incurred by the Executive on behalf of
the Company during the period ending on the Termination Date, (iii) vacation pay and (iv) bonuses and incentive compensation (other than the “Pro Rata Bonus” (as hereinafter defined)). 
  
 2.2 Base Amount. For purposes of this Agreement, “Base
Amount” shall mean the greater of the Executive’s annual base salary (a) at the rate in effect on the Termination Date or (b) at the highest rate in effect at any time during the ninety (90) day period prior to the Change in Control, and
shall include all amounts of base salary that are deferred under the employee benefit plans of the Company or any other agreement or arrangement. 
  
 2.3 Bonus Amount. For purposes of this Agreement, “Bonus Amount” shall mean the greatest of: (a) 100% of the annual bonus payable to the
Executive under the 








 
Company’s cash bonus incentive plan for the fiscal year in which the Termination Date occurs; (b) the annual bonus paid or payable to the Executive
under the Company’s cash bonus incentive plan for the full fiscal year ended prior to the fiscal year during which the Termination Date occurred; or (c) the annual bonus paid or payable to the Executive under the Company’s cash bonus
incentive plan for the full fiscal year ended prior to the fiscal year during which a Change in Control occurred. 
  
 2.4 Cause. For purposes of this Agreement, a termination of employment is for “Cause” if the basis of the termination is fraud,
misappropriation, embezzlement or willful engagement by the Executive in misconduct which is demonstrably injurious to the Company and its subsidiaries taken as a whole (no act, or failure to act, on the part of the Executive shall be considered
“willful” unless done, or omitted to be done, by the Executive not in good faith and without a reasonable belief that the action or omission was in the best interests of the Company and its subsidiaries); provided, however, that the
Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a Notice of Termination (as hereinafter defined) and copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of those members of the Company’s Board of Directors who are not then employees of the Company at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for
the Executive, together with the Executive’s counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in the first sentence of this Section 2.4 and
specifying the particulars thereof in detail. 
  
 2.5 Change in
Control. For purposes of this Agreement, a “Change in Control” shall mean any of the following events: 
  
 (a) An acquisition (other than directly from the Company) of any voting securities of the Company (the “Voting Securities”) by any
“Person” (as the term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”)) immediately after which such Person has “Beneficial Ownership” (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of greater than fifty percent (50%) of the combined voting power of the Company’s then outstanding Voting Securities; provided, however, that in determining whether a Change in Control has
occurred, Voting Securities which are acquired in a “Non-Control Acquisition” (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A “Non-Control Acquisition” shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person of which a majority of its voting power or its equity securities or equity interest is owned
directly or indirectly by the Company (a “Subsidiary”), (2) the Company or any Subsidiary in which the Company and its shareholders immediately before the acquisition retain beneficial ownership after the acquisition of at least 51% of the
combined voting power of the Company’s then outstanding Voting Securities; or (3) any Person in connection with a “Non-Control Transaction” (as hereinafter defined); or 
  
 (b) Approval by stockholders of the Company of a merger, consolidation or reorganization involving the Company, unless the
stockholders of the Company immediately before such merger, consolidation or reorganization, own immediately following such merger, consolidation or reorganization, directly or indirectly, at least fifty-one percent (51%) of the 

  

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combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation or reorganization (the
“Surviving Corporation”) in substantially the same proportion as their ownership of the Voting Securities immediately before such merger, consolidation or reorganization (a “Non-Control Transaction”); 
  
 (c) An agreement for the sale or other disposition of all or substantially
all of the assets of the Company to any Person (other than a transfer to a Subsidiary). 
  
 Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) acquired Beneficial Ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person,
provided, however, that, if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company the Subject Person becomes the
Beneficial Owner of any additional voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 
  
 2.6 Company. For purposes of this Agreement, the “Company”
shall mean Kyphon Inc. and its Subsidiaries and shall include Kyphon’s “Successors and Assigns” (as hereinafter defined). 
  
 2.7 Disability. For purposes of this Agreement, “Disability” shall mean a physical or mental infirmity which impairs the Executive’s
ability to substantially perform the Executive’s duties with the Company, with or without reasonable accommodating for a period of one hundred eighty (180) consecutive days and the Executive has not returned to full time employment prior to the
Termination Date as stated in the “Notice of Termination”. 
  
 2.8 Good Reason. 
  
 (a) For purposes of this
Agreement, “Good Reason” shall mean the occurrence, (i) within ninety (90) days before a Change in Control or (ii) during the twelve (12) month period following a Change in Control, of any of the events or conditions described in
subsections (1) through (7) hereof, which conditions remain in effect 10 days after written notice from the Executive to the Board of Directors of such conditions: 
  
 (i) without the Executive’s express written consent, a material reduction by the Company of the impact and nature of
the Executive’s duties, scope of responsibilities or authority, relative to the impact and nature of the Executive’s duties, scope of responsibilities or authority as in effect at any time within ninety (90) days preceding the date of a
Change of Control. The impact and nature of the Executive’s duties, scope of responsibilities or authority shall be determined based on objective metrics such as revenue and/or budget responsibility, size of organization managed, breadth of
responsibility, and the like. A change in title or a change which results in not reporting to the CEO shall not in and of themselves automatically be construed as a material reduction in the Executive’s duties, scope of responsibilities or
authority. 
  

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 (ii) A reduction in the Executive’s base salary or target bonus opportunity, or any failure to pay
the Executive any compensation or benefits to which the Executive is entitled within five (5) days of the date due; 
  
 (iii) the Company’s requiring the Executive to be based at any place outside a 40-mile radius from Sunnyvale, California, except for reasonably
required travel on the Company’s business which is not materially greater than such travel requirements prior to the Change in Control; 
  
 (iv) the failure by the Company to (A) continue in effect (without material reduction in benefit level and/or reward opportunities) any material
compensation or employee benefit plan in which the Executive was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter, unless such plan is replaced with a plan that provides
substantially equivalent compensation or benefits to the Executive, or (B) provides the Executive with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under
each other employee benefit plan, program and practice in which the Executive was participating at any time within ninety (90) days preceding the date of a Change in Control or at any time thereafter; 
  
 (v) any material breach by the Company of any provision of this Agreement;

  
 (vi) the insolvency or the filing (by any party, including
the Company) of a petition for bankruptcy of the Company, which petition is not dismissed within 60 days. 
  
 (vii) any purported termination of the Executive’s employment for Cause by the Company which does not comply with the terms of Section 2.4; or

  
 (b) The Executive’s right to terminate the
Executive’s employment pursuant to this Section 2.8 shall not be affected by the Executive’s incapacity due to physical or mental illness. 
  
 2.9 Notice of Termination. For purposes of this Agreement, “Notice of Termination” shall mean a written notice of termination of the
Executive’s employment from the Company, which notice shall indicate the specific termination provision in this Agreement relied upon and which sets forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated. 
  
 2.10 Pro Rata Bonus. For purposes of this Agreement, “Pro Rata Bonus” shall mean an amount equal to the Bonus Amount multiplied by a fraction, the numerator of which is the number of days in the
fiscal year through the Termination Date and the denominator of which is 365. 
  
 2.11 Successors and Assigns. For purposes of this Agreement, “Successors and Assigns” shall mean a corporation or other entity acquiring all or substantially all of the assets and business of the
Company (including this Agreement), whether by operation of law or otherwise. 
  

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 2.12 Termination Date. For purposes of this Agreement, “Termination Date” shall mean in,
the case of the Executive’s death, the Executive’s date of death, in the case of Good Reason, the last day of the Executive’s employment and, in all other cases, the date specified in the Notice of Termination; provided, however, that
if the Executive’s employment is terminated by the Company due to Disability, the date specified in the Notice of Termination shall be at least 30 days from the date the Notice of Termination is given to the Executive, provided that the
Executive shall not have returned to the full-time performance of the Executive’s duties during such period of at least 30 days. 
  
 3. Termination of Employment. 
  
 3.1 If, during the term of this Agreement, the Executive’s employment with the Company shall be terminated (i) within ninety (90) days preceding a
Change in Control, or (ii) twelve (12) months following a Change in Control, the Executive shall be entitled to the following compensation and benefits: 
  
 (a) If the Executive’s employment with the Company shall be terminated (1) by the Company for Cause or Disability, (2) by reason of the
Executive’s death, or (3) by the Executive other than for Good Reason, the Company shall pay to the Executive the Accrued Compensation. 
  
 (b) If the Executive’s employment with the Company shall be terminated for any reason other than as specified in Section 3.1(a), whether by the
Company or the Executive, the Executive shall be entitled to the following: 
  
 (i) the Company shall pay the Executive all Accrued Compensation; 
  
 (ii) the Company shall pay the Executive as severance pay and in lieu of any further compensation for periods subsequent to the Termination Date, in a
single payment, an amount in cash equal to the sum of (A) 100% of the Base Amount and (B) 100% of the Bonus Amount; 
  
 (iii) for a number of months equal to twelve(12) (the “Continuation Period”), the Company shall, at its expense, continue on behalf of the
Executive and the Executive’s dependents and beneficiaries the same life insurance, disability, medical, dental, and hospitalization benefits provided (A) to the Executive and the Executive’s dependents at any time during the 90-day period
prior to the Change in Control or at any time thereafter or (B) to other similarly situated executives who continue in the employ of the Company during the Continuation Period. The coverage and benefits (including deductibles and costs) provided in
this Section 3.1 (b)(iii) during the Continuation Period shall be no less favorable to the Executive and the Executive’s dependents and beneficiaries, than the most favorable of such coverages and benefits during any of the periods referred to
in clauses (A) and (B) above. The Company’s obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer’s benefit plans, in which
case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverages and benefits of the combined benefit plans are no less favorable to the Executive than the coverages and
benefits required to be 
  

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provided hereunder. This subsection (iii) shall not be interpreted so as to limit any benefits to which the Executive or the Executive’s dependents or
beneficiaries may be entitled under any of the Company’s employee benefit plans, programs or practices following the Executive’s termination of employment, including without limitation, retiree medical and life insurance benefits;

  
 (iv) the restrictions on any outstanding equity incentive
awards, including stock options and restricted stock, granted to the Executive under the Company’s stock option plans or any other incentive plan or arrangement shall lapse and such incentive award shall become one hundred percent (100%) vested
and, in the case of stock options, immediately exercisable; 
  
 (v) for the duration of the Continuation Period, the Company shall, at its expense, provide the Executive with outplacement and career counseling services of the Executive’s choice, provided, however, that the Company’s obligation
to pay for such services shall in no event exceed an aggregate amount equal to 10% of the Base Amount. 
  
 (c) The amounts provided for in Sections 3.1 (a) and 3.1 (b)(i) and(ii) shall be paid in a single lump sum cash payment within forty five (45) days after
the Executive’s Termination Date (or earlier, if required by applicable law). 
  
 (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such payment shall be offset or reduced by the amount of
any compensation or benefits provided to the Executive in any subsequent employment except as provided in Section 3.1 (b)(iii). 
  
 3.2 (a) The severance pay and benefits provided for in this Section 3 shall be in lieu of any other severance or termination pay to which the Executive
may be entitled under any Company severance or termination plan, program, practice, agreement or arrangement. 
  
 (b) The Executive’s entitlement to any other compensation or benefits shall be determined in accordance with the Company’s employee benefit
plans and other applicable programs, policies and practices then in effect, 
  
 4. Notice of Termination. Any purported termination of the Executive’s employment by any Party, including Executive, that would be governed by this Agreement shall be communicated by Notice of Termination
to the Executive. For purposes of this Agreement, no such purported termination shall be effective without such Notice of Termination. 
  
 5. Excise Tax Limitation. 
  
 (a) Notwithstanding anything contained in this Agreement, in the event that any payment or benefit (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended (the “Code”)), to the Executive or for the Executive’s benefit paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, the Executive’s employment with the Company or a Change in Control (a “Payment” or “Payments”) would be subject to the excise tax imposed by Section 
  

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4999 of the Code (the “Excise Tax”), the Payments shall be reduced (but not below zero) if and to the extent necessary so that no Payment to be
made or benefit to be provided to the Executive shall be subject to the Excise Tax (such reduced Payments being hereinafter referred to as the “Limited Payment Amount”). Unless the Executive shall have given prior written notice specifying
a different order to the Company to effectuate the Limited Payment Amount, the Company shall reduce or eliminate the Payments by first reducing or eliminating cash payments and then by reducing those payments or benefits which are not payable in
cash, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as hereinafter defined). Any notice given by the Executive pursuant to the preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation, 
  
 (b) An initial determination as to whether the Payments shall be reduced to the Limited Payment Amount and the amount of
such Limited Payment Amount shall be made, at the Company’s expense, by the accounting firm that is the Company’s independent accounting firm as of the date of the Change in Control (the “Accounting Firm”). The Accounting Firm
shall provide its determination (the “Determination,), together with detailed supporting calculations and documentation, to the Company and the Executive within twenty (20) days of the Termination Date if applicable, or such other time as
requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax), and if the Accounting Firm determines that there is substantial authority (within the meaning of
Section 6662 of the Code) that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the Determination to the Executive, the Executive shall have the right to dispute the Determination (the “Dispute”). If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Company and the Executive subject to the application of Section 5(c) below. 
  
 (c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that the Payments to be made to, or provided
for the benefit of, the Executive either will be greater (an “Excess Payment”) or less (an “Underpayment”) than the amounts provided for by the limitations contained in Section 5(a). If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the “IRS”) proceeding which has been finally and conclusively resolved that an Excess Payment has been made, such Excess Payment shall be deemed for all purposes to be a loan to the
Executive made on the date the Executive received the Excess Payment and the Executive shall repay the Excess Payment to the Company on demand (but not less than ten (10) days after written notice is received by the Executive) together with interest
on the Excess Payment at the “Applicable Federal Rate” (as defined in Section 1274(d) of the Code) from the date of the Executive’s receipt of such Excess Payment until the date of such repayment. In the event that it is determined by
(i) the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS, (ii) pursuant to a determination by a court, or (iii) upon the
resolution to the Executive’s satisfaction of the Dispute that an Underpayment has occurred, the Company shall pay an amount equal to the Underpayment to the Executive within ten (10) days of such determination or resolution, together with
interest on such amount at the Applicable Federal Rate from the date such amount would have been paid to the Executive until the date of payment. 
  

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 6. Successors: Binding Agreement. 
  
 (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its Successors and Assigns and the
Company shall require any Successors and Assigns to expressly assume and agree to perform this Agreement in connection with any Change in Control and in the same manner and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place. 
  
 (b) Neither
this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive or the Executive’s beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive’s legal personal representative. 
  
 7. Fees and Expenses. The Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by
the Executive as they become due as a result of (a) the Executive’s termination of employment (i) within ninety (90) days preceding a Change in Control, or (ii) during the twelve (12) month period following a Change in Control (including all
such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (b) the Executive seeking to obtain or enforce any right or benefit provided by this Agreement (i) within ninety (90) days preceding a Change in
Control, or (ii) following a Change in Control (including, but not limited to, any such fees and expenses incurred in connection with the Dispute whether as a result of any applicable government taxing authority proceeding, audit or otherwise) or by
any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits, and (c) the Executive’s hearing before the Board as contemplated in Section 2.4 of this Agreement. 
  
 8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall
be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 
  
 9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive’s continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company (except for any severance or termination policies, plans, programs or practices) and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company (except for any severance or termination agreement). Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or program of the Company shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 
  

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 10. Settlement of Claims. The Company’s obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against an Executive or
others. 
  
 11. Miscellaneous. No provision of this
Agreement may be modified, waived or discharged, unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto,
or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 
  
 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the
State of California without giving effect to the conflict of laws principles thereof. Any action brought by any party to this Agreement shall be brought and maintained in a court of competent jurisdiction in Santa Clara County in the State of
California. 
  
 13. Severability. The provisions of this
Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 
  
 14. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all
prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof 
  
 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as
of the Effective Date. 
  

							
	KYPHON INC.	 	EXECUTIVE
				
	By:	 	 /S/ STEPHEN C. HAMS

	 	 	 	 /S/ RICHARD W. MOTT


				
	Its:	 	Vice President, Human Resources	 	Date:	 	January 28, 2005
				
	Date:	 	  

	 	 	 	 

  

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