VP
      CONTINUITY AGREEMENT

    


     

    This
      VP
      Continuity Agreement (the “Agreement”) is made and entered into effective as of
      _____________, by and between ___________ (the “Employee”) and ArthroCare
      Corporation, a Delaware corporation (the “Company”).

     

    R
      E C I T
      A L S

     

    A. It
      is
      expected that the Company from time to time will consider the possibility of
      a
      Change of Control (as defined below). The Board of Directors of the Company
      recognizes that such consideration can be a distraction to the Employee and
      can
      cause the Employee to consider alternative employment opportunities. The Board
      of Directors has determined that it is in the best interests of the Company
      and
      its shareholders to assure that the Company will have the continued dedication
      and objectivity of the Employee, notwithstanding the possibility, threat or
      occurrence of a Change of Control.

     

    B. The
      Board
      of Directors believes that it is in the best interests of the Company and its
      shareholders to provide the Employee with an incentive to continue his/her
      employment and to motivate the Employee to maximize the value of the Company
      upon a Change of Control for the benefit of its shareholders.

     

    C. The
      Board
      of Directors believes that it is imperative to provide the Employee with certain
      benefits upon a Change of Control and, under certain circumstances, upon
      termination of the Employee’s employment, which benefits are intended to provide
      the Employee with financial security and sufficient incentive and encouragement
      to remain with the Company notwithstanding the possibility of a Change of
      Control or a termination of employment.

     

    D. Certain
      capitalized terms used in the Agreement are defined in Section 7
      below.

     

    In
      consideration of the mutual covenants herein contained, and in consideration
      of
      the continuing employment of Employee by the Company, the parties agree as
      follows:

     

    1. Duties
      and Scope of Employment.
      The
      Company shall continue to employ the Employee in the position of Vice President,
      ____________, as such position was defined in terms of responsibilities and
      compensation as of the effective date of this Agreement; provided, however,
      that
      the Board of Directors shall have the right, subject to the other provisions
      of
      this Agreement, at any time prior to the occurrence of a Change of Control,
      to
      revise such responsibilities and compensation as the Board of Directors in
      its
      discretion may deem necessary or appropriate. The Employee shall comply with
      and
      be bound by the Company’s operating policies, procedures and practices from time
      to time in effect during his/her employment. During the term of the Employee’s
      employment with the Company, the Employee shall devote his/her full time, skill
      and attention to his/her duties and responsibilities, and shall perform them
      faithfully, diligently


    
      
         

      

      
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    and
      competently, and the Employee shall use his/her best efforts to further the
      business of the Company and its affiliated entities.

     

    2. Base
      Compensation.
      The
      Company shall pay the Employee as compensation for his/her services a base
      salary, along with such performance bonus amounts as the Board of Directors
      shall authorize, in its discretion, from time to time. Such salary shall be
      paid
      periodically in accordance with normal Company payroll policies. The Employee’s
      compensation (including bonus amounts) specified in this Section 2,
      together with any increases in such compensation that the Board of Directors
      may
      grant from time to time, is referred to in this Agreement as the Employee’s
“Base Compensation.”

     

    3. Employee
      Benefits.
      The
      Employee shall be eligible to participate in the employee benefit plans and
      compensation programs maintained by the Company and applicable to other key
      employees of the Company, including (without limitation) retirement plans,
      savings or profit-sharing plans, stock option, incentive or other bonus plans,
      life, disability, health, accident and other insurance programs, paid vacations,
      and similar plans or programs, subject in each case to the generally applicable
      terms and conditions of the applicable plan or program in question and to the
      determination of any committee administering such plan or program.

     

    4. At-Will
      Employment.
      The
      Company and the Employee acknowledge that the Employee’s employment is and shall
      continue to be at-will, as defined under applicable law. If the Employee’s
      employment terminates for any reason, the Employee shall not be entitled to
      any
      payments, benefits, damages, awards or compensation other than as provided
      by
      this Agreement, subject, however, to such terms as stated in the offer of
      employment letter dated _______________, or as may otherwise be available in
      accordance with the Company’s established employee plans and policies at the
      time of termination. The terms of this Agreement shall terminate upon the
      earlier of (i) termination of the Employee’s position as an executive officer of
      the Company; (ii) the date that all obligations of the parties hereunder
      have been satisfied or (iii) the date 24 months after a Change of Control
      (the “Expiration Date”). A termination of the terms of this Agreement pursuant
      to the preceding sentence shall be effective for all purposes, except that
      such
      termination shall not affect the payment or provision of compensation or
      benefits on account of a termination of employment occurring prior to the
      termination of the terms of this Agreement.

    


    5. Equity
      Acceleration Upon a Change of Control.
      Upon a
      Change of Control, Employee shall immediately become 50% vested with respect
      to
      any outstanding unvested options to purchase the Company’s capital stock or
      outstanding stock appreciation rights (SARs) that Employee then holds and/or
      any
      restrictions with respect to 50% of the unvested restricted shares and
      restricted stock units (RSUs) of the Company’s capital stock that Employee then
      holds shall immediately lapse at the time of the Change of Control.

    


    6. Equity
      Acceleration Upon a Hostile Takeover.
      Upon a
      Hostile Takeover,


    
      
         

      

      
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    Employee
      shall immediately become 100% vested with respect to any outstanding options
      to
      purchase the Company’s capital stock or
      outstanding SARs that
      Employee then holds and/or any restrictions with respect to restricted shares
      and RSUs of the Company’s capital stock that Employee then holds shall
      immediately lapse.

     

    7. Termination
      Following a Change of Control.
      If the
      Employee’s employment with the Company terminates at any time within twenty four
      (24) months after a change of control, then Employee shall be entitled to
      receive severance benefits as follows: 

     

    (a) Involuntary
      Termination.
      If the
      Employee’s employment with the Company terminates in an Involuntary Termination,
      then the Employee shall be entitled to receive severance benefits as
      follows:

     

    (i) Severance
      Pay.
      During
      the Compensation Continuation Period, the Company shall pay the Employee
      continuing payments of severance pay in accordance with its normal payroll
      practices at a rate equal to the Employee’s Current Compensation. Such severance
      payments shall be paid monthly. In addition, during the Compensation
      Continuation Period, the Company shall continue to make available to the
      Employee and the Employee's spouse and dependents any group health plans, life
      insurance plans and other benefits plans and programs of the Company on the
      date
      of such termination of employment to the extent permitted by law and subject
      to
      the terms and conditions of the relevant plan or program.

     

    (ii) Medical
      Benefits.
      The
      Company shall reimburse the Employee for the amount of his or her premium
      payment for group health coverage, if any, elected by the Employee pursuant
      to
      the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
      (“COBRA”); provided, however, that (A) such reimbursement shall not exceed
      $650.00 per month, and (B) the Employee shall be solely responsible for all
      matters relating to his or her continuation of coverage pursuant to COBRA,
      including (without limitation) his or her election of such coverage and his
      or
      her timely payment of premiums; provided, further, that upon the earlier to
      occur of (C) the time that the Employee no longer constitutes a Qualified
      Beneficiary (as such term is defined in Section 4980B(g)(1) of the Internal
      Revenue Code of 1986, as amended) and (D) the date twenty-four (24) months
      following the Employee’s termination, the Company’s obligations to reimburse the
      Employee under this subsection (ii) shall cease; provided, finally, that if
      the Company's obligations under this subsection (ii) cease pursuant to
      clause (C), the Company shall make a lump sum payment to the Employee equal
      to the product of the last monthly reimbursement paid to the Employee pursuant
      to this subsection (ii) multiplied by six (6).

     

    (iii)
      Outplacement
      Services.
      During
      the twenty-four (24) months following termination of the Employee’s employment,
      the Employee shall be entitled to executive-level outplacement services at
      the
      Company's expense, not to exceed $15,000. Such services shall be provided by
      a
      firm selected by the Employee from a list compiled by the Company.

    


    (iv)
      Equity
      Acceleration.
      At the
      time of the Involuntary Termination, Employee shall immediately become 100%
      vested with respect to any outstanding


    
      
         

      

      
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    options
      to purchase the Company’s capital stock or outstanding SARs that Employee then
      holds and/or any restrictions with respect to restricted shares and RSUs of
      the
      Company’s capital stock that Employee then holds shall immediately
      lapse.

     

    (b) Voluntary
      Resignation; Termination For Cause.
      If the
      Employee voluntarily resigns from the Company (other than in an Involuntary
      Termination), or if the Company terminates the Employee’s employment for Cause,
      then the Employee shall not be entitled to receive severance or other benefits
      under this Section 7, but shall be eligible for those benefits (if any) as
      may then be established under any other Section of this Agreement or the
      Company’s then-existing severance and benefits plans and policies at the time of
      such termination.

     

    (c) Disability;
      Death.
      If the
      Company terminates the Employee’s employment as a result of the Employee’s
      Disability, or such Employee’s employment terminates due to the death of the
      Employee, either in connection with or apart from a Change of Control, then
      the
      Employee shall not be entitled to receive severance or other benefits under
      this
      Section 7, but shall be eligible for those benefits (if any) as may then be
      established under any other Section of this Agreement or the Company’s
      then-existing severance and benefits plans and policies at the time of such
      Disability or death.

     

    8. Termination
      Apart from a Change of Control.
      If the
      Employee’s employment with the Company terminates at any time either prior to
      the occurrence of a Change of Control or after the twenty-four month period
      following the effective date of a Change of Control, then the Employee shall
      not
      be entitled to receive severance or other benefits under this Agreement, but
      shall be eligible for those benefits (if any) as may be established under the
      Company’s then-existing severance and benefits plans and policies at the time of
      such termination, or as may be provided in the offer of employment letter dated
      _______________.

     

    9. Definition
      of Terms.
      The
      following terms referred to in this Agreement shall have the following
      meanings:

     

    (a) Cause.
“Cause”
      shall mean (i) any act of personal dishonesty taken by the Employee in
      connection with his/her responsibilities as an employee and intended to result
      in substantial personal enrichment of the Employee, (ii) the Employee’s
      commission of a felony or an act of fraud against the Company or its affiliates,
      (iii) a willful act by the Employee that constitutes gross misconduct and
      that is injurious to the Company, and (iv) continued violations by the Employee
      of the Employee’s obligations under Section 1 of this Agreement, which are
      demonstrably willful and deliberate on the Employee’s part after there has been
      delivered to the Employee a written demand for performance from the Company
      that
      describes the basis for the Company’s belief that the Employee has not
      substantially performed his/her duties along with an opportunity for the
      Employee to meet such demands, which the Employee fails to accomplish within
      a
      reasonable period of time.

     

    (b) Change
      of Control.
“Change
      of Control” shall mean the occurrence of any of the following
      events:


    
      
         

      

      
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    (i) Any
      “person” (as such term is used in Sections 13(d) and 14(d) of the
      Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as
      defined in Rule 13d-3 under said Act), directly or indirectly, of
      securities of the Company representing fifteen percent (15%) or more of the
      total voting power represented by the Company’s then outstanding voting
      securities;

     

    (ii) A
      merger
      or consolidation of the Company with any other corporation, other than a merger
      or consolidation that 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;

     

    (iii)
      The
      approval by the shareholders of the Company of a plan of complete liquidation
      of
      the Company or an agreement for the sale or disposition by the Company of all
      or
      substantially all of the Company’s assets; or

     

    (iv)
      A
      change in the composition of the Board, as a result of which fewer than a
      majority of the directors are Incumbent Directors. “Incumbent Directors” shall
      mean directors who either (A) are directors of the Company as of the date
      hereof, or (B) are elected, or nominated for election, to the Board with
      the affirmative votes of at least a majority of those directors whose election
      or nomination was not in connection with any transaction described in
      subsections (i), (ii) or (iii) or in connection with an actual or
      threatened proxy contest relating to the election of directors of the
      Company.

     

    (c) Compensation
      Continuation Period.
      “Compensation Continuation Period” shall mean the period of time commencing with
      termination of the Employee's employment in an Involuntary Termination during
      the term of this Agreement and ending with the expiration of twenty-four (24)
      months following the date of the Employee's termination. 

     

    (d) Current
      Compensation. “Current
      Compensation” shall mean an amount equal to the greater of (i) Employee’s Base
      Compensation earned in the fiscal year preceding the fiscal year of Employee’s
      termination; or (ii) Employee’s Base Compensation for the fiscal year of
      Employee’s termination, including 100% of any bonus which the Employee could
      have earned during such fiscal year, assuming the achievement of all relevant
      Employee and Company goals, milestones and performance criteria.

     

    (e) Disability.
      “Disability” shall mean that the Employee has been unable to perform his duties
      under this Agreement as the result of his incapacity due to physical or mental
      illness, and such inability, at least 26 weeks after its commencement, is
      determined to be total and permanent by a physician selected by the Company
      or
      its insurers and acceptable to the Employee or the Employee’s legal
      representative (such Agreement as to acceptability not to be unreasonably
      withheld). Termination resulting from Disability may only be effected after
      at
      least 30 days’ written notice by the Company of its intention to terminate the
      Employee’s


    
      
         

      

      
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    employment.
      In the event that the Employee resumes the performance of substantially all
      of
      his/her duties hereunder before the termination of his employment becomes
      effective, the notice of intent to terminate shall automatically be deemed
      to
      have been revoked.

     

    (f) Hostile
      Takeover.
      “Hostile Takeover” shall mean any “person” (as such term is used in
      Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
      amended) becoming the “beneficial owner” (as defined in Rule 13d-3 under
      said Act), directly or indirectly, of securities of the Company representing
      fifty percent (50%) or more of the total voting power represented by the
      Company’s then outstanding voting securities, without the approval of the
      Company’s Board of Directors;

     

    (g) Involuntary
      Termination.
      “Involuntary Termination” shall mean (i) without the Employee’s express
      written consent, the assignment to the Employee of any duties or the significant
      reduction of the Employee’s duties, either of which is inconsistent with the
      Employee’s position with the Company and his/her responsibilities in effect
      immediately prior to such assignment, or the removal of the Employee from such
      position and responsibilities; (ii) without
      the Employee’s express written consent, a substantial reduction, without good
      business reasons, of the facilities and perquisites (including office space
      and
      location) available to the Employee immediately prior to such reduction;
      (iii) a reduction by the Company in the Base Compensation of the Employee
      as in effect immediately prior to such reduction; (iv) a material reduction
      by the Company in the kind or level of employee benefits to which the Employee
      is entitled immediately prior to such reduction, with the result that the
      Employee’s overall benefits package is significantly reduced; (v) the
      relocation of the Employee to a facility or a location more than 30 miles from
      the Employee’s then present location, without the Employee’s express written
      consent; (vi) any purported termination of the Employee by the Company that
      is not effected for Disability or for Cause, or any purported termination for
      which the grounds relied upon are not valid; or (vii) the failure of the Company
      to obtain the assumption of this Agreement by any successors contemplated in
      Section 9 below; provided, however, that no Involuntary Termination shall be
      deemed to have occurred if any such successor substitutes an agreement for
      this
      Agreement providing comparable severance benefits to those provided for in
      this
      Agreement.

     

    10. Golden
      Parachute Excise Tax.

     

    (a) Reimbursement.
      In the
      event that it shall be determined that any payment or other benefit by the
      Company to or for the benefit of the Employee under this Agreement, whether
      paid
      or payable, but determined without regard to any additional payments required
      under this Section (the “Payments”), would be subject to the excise tax imposed
      by Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the
      Employee shall be entitled to receive an additional payment from the Company
      (the "First Reimbursement Payment") equal to one hundred percent (100%) of
      any
      Excise Tax actually paid or payable by the Employee in connection with the
      Payments, plus an additional payment from the Company in such amount that after
      payment of all taxes (including, without limitation, any interest and penalties
      on such


    
      
         

      

      
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    taxes
      and
      the Excise Tax) on the Reimbursement Payment, the Employee retains an amount
      equal to the Reimbursement Payment.

     

    (b) Determination.
      Unless
      the Company and the Employee otherwise agree in writing, any determination
      required under this Section shall be made in writing by the Company’s primary
      independent public accounting firm (the “Accountants”), whose determination
      shall be conclusive and binding upon the Employee and the Company for all
      purposes. For purposes of making the calculations required by this Section,
      the
      Accountants may make reasonable assumptions and approximations concerning
      applicable taxes and may rely on reasonable, good faith interpretations
      concerning the application of Sections 280G and 4999 of the Code. The
      Company and the Employee shall furnish to the Accountants such information
      and
      documents as the Accountants may reasonably request in order to make their
      determination under this Section. The Company shall bear all costs the
      Accountants may reasonably incur in connection with any calculations
      contemplated by this Section.

     

    11. Successors.

     

    (a) Company’s
      Successors.
      Any
      successor to the Company (whether direct or indirect and whether by purchase,
      lease, merger, consolidation, liquidation or otherwise) to all or substantially
      all of the Company’s business and assets shall assume the obligations under this
      Agreement and agree expressly to perform the obligations under this Agreement
      in
      the same manner and to the same extent as the Company would be required to
      perform such obligations in the absence of a succession. For all purposes under
      this Agreement, the term “Company” shall include any successor to the Company’s
      business and assets that executes and delivers the assumption agreement
      described in this subsection (a) or which becomes bound by the terms of
      this Agreement by operation of law.

     

    (b) Employee’s
      Successors.
      The
      terms of this Agreement and all rights of the Employee hereunder shall inure
      to
      the benefit of, and be enforceable by, the Employee’s personal or legal
      representatives, executors, administrators, successors, heirs, devisees and
      legatees.

     

    12. Notice.

     

    (a) General.
      Notices
      and all other communications contemplated by this Agreement shall be in writing
      and shall be deemed to have been duly given when delivered personally, or by
      facsimile, or three business days after deposit in the U.S. mail by registered
      or certified mail, return receipt requested and postage prepaid. In the case
      of
      the Employee, mailed notices shall be addressed to him/her at the home address
      which he/she most recently communicated to the Company in writing. In the case
      of the Company, mailed notices shall be addressed to its corporate headquarters,
      and all notices shall be directed to the attention of its
      Secretary.

     

    (b) Notice
      of Termination.
      Any
      termination by the Company for Cause or by the Employee as a result of an
      Involuntary Termination shall be communicated by a notice of


    
      
         

      

      
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    termination
      to the other party hereto given in accordance with this Section. Such notice
      shall indicate the specific termination provision in this Agreement relied
      upon,
      shall set forth in reasonable detail the facts and circumstances claimed to
      provide a basis for termination under the provision so indicated, and shall
      specify the termination date (which shall be not more than 15 days after the
      giving of such notice). The failure by the Employee to include in the notice
      any
      fact or circumstance which contributes to a showing of Involuntary Termination
      shall not waive any right of the Employee hereunder or preclude the Employee
      from asserting such fact or circumstance in enforcing his/her rights
      hereunder.

     

    13. Confidentiality.
      The
      Parties hereto each agree to use their best efforts to maintain in confidence
      the underlying facts leading up to this Agreement, the existence of this
      Agreement, the contents and terms of this Agreement, and the consideration
      for
      this Agreement. Each Party hereto agrees not to disclose or use and to take
      every reasonable precaution to prevent disclosure or use of any such information
      to or by third parties, and each agrees that there will be no publicity,
      directly or indirectly, concerning any such information. The parties hereto
      agree that breach of this Section shall constitute a material breach of this
      Agreement that shall entitle the non-breaching party to all available legal
      and
      equitable remedies including, but not limited to, recision of this Agreement.
      The parties hereto further agree that all benefits to the Employee under this
      Agreement shall be conditioned on his/her compliance with his/her obligations
      under this Section.

     

    14. Miscellaneous
      Provisions.

     

    (a) No
      Duty to Mitigate.
      The
      Employee shall not be required to mitigate the amount of any payment or benefit
      contemplated by this Agreement (whether by seeking new employment or in any
      other manner), nor (except as otherwise provided in this Agreement) shall any
      such payment or benefit be reduced by the Employee obtaining new employment
      or
      by any earnings that the Employee may receive from any other
      source.

     

    (b) Waiver.
      No
      provision of this Agreement shall be modified, waived or discharged unless
      the
      modification, waiver or discharge is agreed to in writing and signed by the
      Employee and by an authorized officer of the Company (other than the Employee).
      No waiver by either party of any breach of, or of compliance with, any condition
      or provision of this Agreement by the other party shall be considered a waiver
      of any other condition or provision or of the same condition or provision at
      another time.

     

    (c) Whole
      Agreement.
      No
      agreements, representations or understandings (whether oral or written and
      whether express or implied) between the parties with regard to severance or
      other benefits in connection with a Change of Control that are not expressly
      set
      forth or referred to in this Agreement have been made or entered into by either
      party.

     

    (d) Choice
      of Law.
      The
      validity and interpretation of this Agreement shall be governed by the laws
      of
      the State of California without reference to rules of conflicts of law. Employee
      hereby consents to the personal jurisdiction of the state and federal courts
      located in


    
      
         

      

      
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    California
      for any action or proceeding arising from or relating to this Agreement or
      relating to any arbitration in which the parties are participants.

     

    (e) Severability.
      If any
      portion of this Agreement is held by an arbitrator or a court of competent
      jurisdiction to conflict with any federal, state or local law, or to be
      otherwise invalid or unenforceable, such portion of this Agreement shall be
      of
      no force or effect and the remaining provisions of this Agreement shall
      otherwise remain in full force and effect and be construed as if such portion
      had not been included in this Agreement.

     

    (f) Arbitration.
      Employee agrees that any dispute or controversy arising out of, relating to,
      or
      in connection with this Agreement, or the interpretation, validity,
      construction, performance, breach, or termination thereof, shall be settled
      by
      binding arbitration to be held in Santa Clara County, California in accordance
      with the rules of the American Arbitration Association then in effect. The
      prevailing party shall be entitled to recover its attorneys’ fees. Judgment may
      be entered on the arbitrator’s award in any court having jurisdiction. Punitive
      damages shall not be awarded.

     

    (g) No
      Assignment of Benefits.
      The
      rights of any person to payments or benefits under this Agreement shall not
      be
      made subject to option or assignment, either by voluntary or involuntary
      assignment or by operation of law, including (without limitation) bankruptcy,
      garnishment, attachment or other creditor’s process, and any action in violation
      of this subsection (g) shall be void.

     

    (h) Employment
      Taxes.
      All
      payments made pursuant to this Agreement will be subject to withholding of
      applicable income and employment taxes.

     

    (i) Assignment
      by Company.
      The
      Company may assign its rights under this Agreement to an affiliate, and an
      affiliate may assign its rights under this Agreement to another affiliate of
      the
      Company or to the Company; provided, however, that no assignment shall be made
      if the net worth of the assignee is less than the net worth of the Company
      at
      the time of assignment. In the case of any such assignment, the term “Company”
when used in a Section of this Agreement shall mean the corporation that
      actually employs the Employee.

     

    (j) Counterparts.
      This
      Agreement may be executed in counterparts, each of which shall be deemed an
      original, but all of which together will constitute one and the same
      instrument.


    
      
         

      

      
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    IN
      WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
      of
      the Company by its duly authorized officer, as of the day and year first above
      written.

     

    COMPANY:

     

    ARTHROCARE
      CORPORATION

     

    By: 
      ________________________________________

    Title:
      _______________________________________

     

    EMPLOYEE:

     

    ______________________________________

    (Signature)

     

    ______________________________________

    (Print
      Name)

     

     

    Date:
      _______________________________________

     

    
      
         

      

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