Document:

Prepared by R.R. Donnelley Financial -- Joint Development Agreement, dated 1/31/2002

 

 EXHIBIT 10.52 
  
 Confidential—page 1 

 
 JOINT DEVELOPMENT AGREEMENT 
  
 Advanced Micro Devices, Inc, a Delaware corporation (“AMD”), and United Microelectronics Corporation, a Taiwan corporation (“UMC”) enter this Joint Development Agreement (“JDA”) as of
this 31st day of January 2002. This JDA, together with its exhibits, includes all essential terms for the program for joint technology development (the “AU JDP”) between AMD and UMC. 
  

1.  Development of CMOS Technology Platforms 
  
 UMC will develop
competitive CMOS technology platforms to serve broad foundry business needs on a time table competitive with the ITRS roadmap. 
  
 1.1    ***** 
  
 1.2    Through regular working group meetings, UMC and AMD will
exchange ideas on the appropriate targets for specifications, mainstream application/voltages, timing, and performance, with the understanding that UMC will have responsibility to decide upon these matters for the UMC Advanced CMOS Platforms.

 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 2 

 
  
 2.  Development of High Performance Capabilities & Modules 
  
 AMD will develop high performance capability, suitable for delivering performance levels to its MPU designs, and will include concentration on
appropriately based transistor designs (whether SOI, strained silicon or other). 
  
 2.1    ***** 

 
 2.2    Through working group meetings, AMD and UMC will exchange ideas on appropriate technology, manufacturing, and
performance considerations involved in high performance capability and transistor-specific modules, with the understanding that AMD will have responsibility to decide upon these matters for its products and needs. 
  
 3.  Working Groups and Team Mechanics 
  
 AMD and UMC teams will be responsible for the cooperation between the parties and the joint development work in the AU JDP. 
  
 3.1    The team members initially assigned to the specific JDP Working Groups, the leaders of these teams (“Management Leaders”), and the Executive Sponsors for the AU JDP are *****. Either party may, by
written notice to the other, update their list of team members with other qualified engineers and executives as may be reasonable. 
  
 3.2    The JDP Working Groups will be responsible for the day to day development efforts and coordination in the AU JDP. Each JDP Working Group will convene—in person, or by telephone or video conference—weekly
(except when the Working Group deems it appropriate, the weekly sessions may be reset to be biweekly), with the objective that the teams communicate routinely and regularly on all relevant aspects of the AU JDP joint development work. 

 
 3.2.1    The JDP Working Groups will establish, and modify or update as they deem appropriate, procedures and practices
for their meetings and coordination. 
  
 3.2.2    The JDP Working Groups will establish in writing agreed upon
projects, specific working plans, including schedules, milestones and manpower/resource needs, for the AU JDP. Any matters concerning the working plans, milestones, schedules or manpower/resource needs that cannot be resolved in the JDP Working
Group level will be escalated to the Management Leaders who will be responsible to cooperate in good faith to find a mutually acceptable solution in a timely manner, and failing such a resolution at that level, the matter will be escalated to and
resolved by the Executive Sponsors. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 3 

 
  
 3.3    The leaders of the JDP Working Groups, the Management
Leaders and Executive Sponsors will be responsible for the management and coordination of the development efforts in the AU JDP. AMD and UMC will convene—by telephone or video conference, or in person—regular status update meetings on a
monthly basis with the objective that the JDP Working Group and Management Leaders responsible for the program communicate routinely and regularly on all relevant aspects of the AU JDP joint development work. 
  
 3.4    AMD and UMC will convene regular management review meetings on a quarterly basis with the objective that the Executive
Sponsors, Management Leaders, and others responsible for the AU JDP meet regularly to review all relevant aspects of the AU JDP joint development work and to enhance the cooperation and resolve any issues. AMD and UMC intend that these quarterly
review meetings will alternate between UMC and AMD locations. The first such management review meeting will be held on or before *****. 
  
 4  Joint Development of ***** 
  
 4.1    Based on the above, and subject to their
obligations of confidentiality to third parties, AMD and UMC will each contribute their ***** to jointly develop *****. For purposes of the AU JDP, *****, competitive with the ITRS roadmap and industry conditions. 
  
 4.2    Without limiting Clause 4.1 and subject to their obligations of confidentiality to third parties, if, during their AU JDP
work, either UMC or AMD personnel become aware of information or developments that reasonably seem material to the work or results of the AU JDP, they will promptly disclose such matter to the other, and, thereafter the parties will cooperate to
evaluate the utility of the matter to the AU JDP. 
  
 4.2.1    Except as otherwise agreed in writing, neither
UMC nor AMD will seek or be entitled to *****. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 4 

 
 4.2.2    If any party believes they have information which may be material to the AU JDP but which is
subject to restrictions or which in the event of disclosure to the other or for the AU JDP requires compensation to unaffiliated third parties, AMD and UMC will cooperate in good faith to evaluate the situation and to find a mutually satisfactory
resolution consistent with any obligations to such third parties. 
  
 4.2.3    UMC and AMD will cooperate to
ensure that the JDP Working Groups have knowledge of ***** to enable a reasonably skilled team to participate in the JDP Working Groups as intended and to utilize UMC’s Advanced CMOS Platforms and Advanced MPU Processes in their preferred
manner (collectively, such technology and know-how shall be referred to as “Necessary Background”). 
  
 4.2.4    Notwithstanding anything to the contrary in Clauses 4.1 and/or 4.2, nothing in this JDA requires any party to disclose information or ideas which that party, at the time in their own good faith judgment, deems
so experimental, so preliminary or so unsubstantiated that they would not rely on such results in their own process development, and such matters will not be considered “Necessary Background.” 
  
 4.3    Through the working group efforts, AMD and UMC will jointly define ***** (the “Advanced MPU Processes”), with the
understanding that the processes are intended (i) to follow and be compatible with UMC’s Advanced CMOS Platform at the technology node involved, and (ii) to meet AMD’s MPU performance needs and mutually agreeable manufacturing, reliability
and quality criteria. Without limiting the foregoing, 
  
 4.3.1    the parties intend that they will *****.

  
 4.3.2    the parties intend that the JDP Working Groups will formulate specific plans and procedures for
regular review of MPU production with the Advanced MPU Processes ***** for the purpose of ongoing performance (including without limitation transistor speed and gate delay) and manufacturing enhancements. 
  
 5.  Working Group and Executive Responsibilities 
  
 5.1    All development and technology issues will be resolved in the first instance at the JDP Working Group level. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 5 

 
 5.2    If, at any time, the team leaders feel that a matter has not been satisfactorily resolved, or,
upon the written request of either party, the matter will be escalated to AMD and UMC Management Leaders. If the matter is not resolved at that level, then upon written request of either or both parties, it will be escalated to the Executive
Sponsors who will be responsible to find a mutually acceptable solution in a timely manner. 
  
 6.  Expenses and Mutual Support

  
 6.1    Except as otherwise agreed in writing, AMD and UMC will each pay *****, provided that there will
be assignment/delegation of engineers from each company to the facilities of the other (if from AMD, these engineers will be “AMD Delegates” and if from UMC, these engineers will be “UMC Delegates”) to assist in development,
integration and/or transfer. The Management Leaders will cooperate to agree upon, as part of their project definition and specific working plans, the tasks that need to be accomplished, and any associated cost allocation issues. 

 
 6.2    Without limiting the foregoing, and except as otherwise agreed in writing, each party will be responsible for all
compensation, travel, benefits, and taxes with respect to its activities and personnel. 
  
 6.3    AMD and UMC
will each arrange (at the expense of the company at the host location) suitable office space for the engineers from the other assigned to work at the host location, including reasonable communication and data line connections. 

 
 6.4    All personnel of one company while visiting and/or working at facilities or locations of the other will abide by
the standard and customary rules and practices of the host at the location involved. 
  
 7.  Intellectual Property, Technology Rights and
Restritions 
  
 7.1    Subject to the rights and obligations of the parties under this JDA, as between UMC
and AMD: 
  
 7.1.1    All inventions, conceptions, know-how and/or technology developed
and/or contributed by one party (or its employees or consultants) without joint contribution by the other (“Party Inventions”) will owned by the party who developed and/or contributed the specifics involved, and that party shall have the
rights to any and all patentable subject matter involved; 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 6 

 
  
 7.1.2    All inventions, conceptions,
know-how and/or technology conceived jointly by the parties pursuant to their efforts in the AU JDP (including without limitation, rights to patents with respect to such subject matter) (“Joint Inventions”) will be jointly owned by the
jointly responsible parties. Without limiting the foregoing, the Management Leaders will set up mutually agreeable mechanisms to allocate the responsibility to prepare and prosecute applications for patents pursuant to such procedures as will ensure
orderly and efficient protection for intellectual property, with the guideline that the costs of prosecution and maintenance for specific joint patents will be shared equally by the jointly responsible parties involved. 
  
 7.2    Subject to the rights and obligations of the parties under this JDA: 
  

7.2.1    AMD grants UMC worldwide licenses to ***** the UMC Advanced CMOS Platforms, the Advanced MPU Processes, and all Necessary Background,
***** to the fullest extent of AMD’s ability to do so without the obligation to pay unaffiliated third parties compensation for such grants, and 
  
 7.2.2    UMC grants AMD worldwide licenses to ***** the UMC Advanced CMOS Platforms, the Advanced MPU Processes, and all Necessary Background, *****
to the fullest extent of UMC’s ability to do so without the obligation to pay unaffiliated third parties compensation for such grants, and 
  
 7.2.3    Either party may terminate the licenses granted to the other under Clauses 7.2.1 and 7.2.2 in the event that the ***** is properly
terminated for material breach by the other (and the non-breaching party may retain its rights and licenses under such Clauses), subject however to the procedures agreed upon by the parties for dispute resolution. 
  
 7.2.4    AMD and UMC agree to negotiate a mutually acceptable ***** with the target to close on a solution by
*****. 
  
 7.3    Regardless of anything to the contrary above, and subject to AMD’s compliance with its
obligations in the Manufacturing Agreement to offer UMC the *****, UMC shall not use the Advanced MPU Processes or the UMC Advanced CMOS Platforms to manufacture ***** for any party other than AMD, except: 
  
 7.3.1    UMC may manufacture small engineering sample quantities of product; 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 7 

 
 7.3.2    UMC may manufacture products for applications to be specified and mutually
agreed to at times after AMD qualification of the process involved; 
  
 7.3.3    UMC may
manufacture for third parties who (at the applicable time) have a technology license and/or transfer from AMD to design, manufacture or sell *****; and 
  
 7.3.4    in other specific situations in which UMC and AMD senior executives mutually agree that the situation does not present a ***** to AMD from
the use of the technology involved; and 
  
 7.3.5    This restriction of Clause 7.3 shall
expire upon any one or more of the following: (i) if UMC and AMD mutually agree not to extend the JDP to ***** or to terminate the JDP prior to qualification of the ***** in UMC, (ii) the JDP is terminated for material breach by AMD, (iii) *****
after first qualification of any AMD Product with the process involved, if at such time, AMD and UMC are not then engaged in a JDP for Advanced MPU Processes, provided however that the restrictions of Clause 7.3 shall remain in place for *****
notwithstanding any such triggers for so long as *****. For purposes of this Clause 7.3.5, ***** such as those contemplated in the Manufacturing Agreements. 
  
 7.4    Subject to UMC’s compliance with its obligations to supply AMD and *****, AMD ***** UMC’s Advanced CMOS Platforms, the Advanced CMOS Processes, or the Necessary Background or any
specific information concerning any ***** other than AMD’s Fab 25 (Austin) or Fab 30 (Dresden) ***** from AMD’s Fab 25 (Austin) or Fab 30 (Dresden) for a *****, provided however that nothing in this Clause 7.4 shall prohibit *****.

 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 8 

 
 7.5    Regardless of anything to the contrary, and except as stated in Clauses 7.6 to 7.9, AMD shall
not have any rights under this JDA to disclose *****, and AMD shall not have any rights under this JDA *****. 
  
 7.6    Regardless of anything to the contrary in Clause 7.5, under appropriate non-disclosure agreements commensurate with the restrictions stated in this JDA, AMD shall be allowed to disclose ***** upon the occurrence
of any one or more of the following events: 
  
 7.6.1    For reasons reasonably attributable
to UMC, and without material contributory fault by AMD, ***** or 
  
 7.6.2    For reasons
other than material contributory fault by AMD, ***** or 
  
 7.6.3    In spite of good faith
negotiations by UMC and AMD, ***** or for reasons other than material contributory fault by AMD, ***** or from other qualified partners, or 
  
 7.6.4    If UMC or AU properly terminates a Manufacturing Agreement and ***** for UMC Advanced CMOS Platform and/or Advanced MPU Processes in volumes and *****, or 
  
 7.6.5    If AMD properly terminates a Manufacturing Agreement due to material breach by UMC or AU, or

  
 7.6.6    in such other situations as the parties may negotiate. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 9 

 
 7.7    Regardless of anything to the contrary in Clause 7.5, and under the conditions stated in this
Clause 7.7, AMD shall be allowed to disclose, ***** and, to the extent required under written non-foundry joint venture, joint product and/or joint development agreements entered between AMD and other third party(ies), AMD may, ***** subject to the
following conditions: 
  
 7.7.1    The third party to whom the information is transferred
must, at the time of disclosure and at a minimum, meet one of the two following conditions: (a) AMD must own a minimum of 40% of the third party, or (b) *****. 
  
 7.7.2    The third party, who at the time of disclosure, must not derive more than ***** and, if applicable, any shareholder who owns ***** of such
third party; 
  
 7.7.3    The third party may not use the information involved *****;

  
 7.7.4    The third party may not use the information involved to *****, provided however
that the restriction in this Clause 7.7.4 shall expire *****; 
  
 7.7.5    In the event that
AMD receives ***** to be negotiated between UMC and AMD. 
  
 7.7.6    Nothing in this Clause
7.7 shall waive or reduce in any fashion any capacity or loading commitment made by AMD under the Manufacturing Agreements. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 10 

 
 7.7.7    For purposes of this Clause 7.7, a ***** UMC for its contributions to and
investments in the technology involved, provided however that it is the intent of the parties that a ***** shall, for transfers that commence more than *****, approach zero. Upon written request to do so, the parties will negotiate in good faith to
reach an agreement on a ***** for the specific situation involved, provided however that if they fail to do so, the ***** will be set in a manner binding on all parties by a neutral decision-maker (or panel of decisionmakers) having experience in
such matters and under procedures which the parties will negotiate on or before March 31, 2002. The procedures will, at a minimum, insure initiation of the decision-making process within fifteen days of a written request to negotiate *****, and
enable equitable and efficient decision-making so that a resolution on any disputes can be secured within thirty days of a request for such a neutral decision. 
  
 7.8    Regardless of anything to the contrary in Clause 7.5, under appropriate non-disclosure agreements commensurate with the restrictions stated in this JDA, AMD shall ***** under the following
terms: 
  
 7.8.1    such information may not be used or employed *****, and 

 
 7.8.2    the process flows and modules in UMC’s Advanced CMOS Platform, Necessary Background
and/or Advanced MPU Processes *****, provided that this Clause 7.8.2 shall *****, and 
  
 7.8.3    If the *****. 
  
 7.9    Regardless of anything to the contrary, nothing
in this JDA shall prohibit either party from disclosing or licensing to others any technology, know-how or other intellectual property which was created and/or obtained independently of the other. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 11 

 
 7.10    No mask work or patent licenses are granted expressly, or by implication, estoppel or
otherwise, under this JDA. The parties will cooperate on library, cell, IP, test structure and other design aspects as they may deem appropriate, and all rights concerning such matters as between them will be as stated in a written agreement.

  
 7.11    Notwithstanding anything herein to the contrary, either party may use ***** for any purpose,
including without limitation use in development, manufacture, promotion, sale and maintenance of its products and services; provided that this right to *****. 
  
 7.12    Except as expressly stated, this JDA will not serve to impair the right of either AMD or UMC to develop, make, procure, market and/or maintain products or processes, now or in the future,
which incorporate features that may be competitive with the technology developed pursuant to the AU JDP, or require either AMD or UMC to disclose any planning information to the other. Nothing in this JDA prohibits or restricts either AMD or UMC
from developing or acquiring technology, rights, know-how, processes or information, independently of the other party, whether with or without the involvement of third parties. 
  
 7.13    Except as expressly agreed in writing, neither party will have any responsibilities or obligations under this JDA to transfer or install processes or know-how
to or into premises or facilities of the other, nor will either party have any responsibilities or obligations under this JDA to provide technical support or service to the other for such transfer or installation. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 12 

 
 8.    Miscellaneous 
  
 8.1    The terms of the attached Miscellaneous Provisions and Definitions Attachment are incorporated by reference. 
  
 8.2    *****. 
  
 
	 Advanced Micro Devices
 	    	 United Microelectronics Corporation
 
	 
	 /S/    HECTOR RUIZ
 
Hector Ruiz, President & COO
 	    	 /S/    ROBERT TSAO
 
Robert Tsao, Chairman and CEO
 

 
  
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 13 

 
 MISCELLANEOUS PROVISIONS & DEFINITIONS ATTACHMENT 
  
 Definitions 
  
 “Applicable Law” means the laws of the State of California,
without regard to that body of law which pertains to conflicts and/or choice of law and excluding the UN Convention on Contracts for International Sales of Goods, provided however that for purposes of the JVA “Applicable Law” means the
laws of Singapore, without regard to that body of law which pertains to conflicts and/or choice of law and excluding the UN Convention on Contracts for International Sales of Goods. 
  
 “AU” means the joint venture to be formed under Singapore law *****. 
  
 “AU Business Plan” means the business plan to be prepared by AU pursuant to the JVA. 
  
 “AU JDP” means the joint development program in which UMC and AMD participate pursuant to the terms of the JDA. 
  
 “Advanced MPU Processes” shall mean the jointly developed ***** pursuant to the AU JDP, including without limitation, all recipes, specifications, and flows reasonably used by either party to run such processes in their respective
manufacturing facilities. 
  
 “Delegates” means those engineers from AMD and/or UMC assigned or delegated to the
facilities of the other party (or to the facilities of AU) to work in the AU JDP (if from AMD, these engineers will be “AMD Delegates” and if from UMC, these engineers will be “UMC Delegates”). 
  
 “JDA” means the Joint Development Agreement entered between AMD and UMC. 
  
 “JDP Working Group” means the working groups and teams assigned by each party pursuant to Clauses 3.1 and 3.2 of the JDA. 
  

“Joint Inventions” means all inventions, conceptions, know-how and/or technology conceived jointly by the parties pursuant to their efforts in the AU JDP (including
without limitation, rights to patents with respect to such subject matter). 
  
 “JVA” means the Joint Venture Agreement
entered into between AMD and UMC with respect to the venture currently named “AU Pte Ltd.” 
  
 “Manufacturing
Agreement(s)” shall mean the UMC-AMD Comprehensive Foundry Agreement and the Manufacturing Agreement(s) to be entered by AMD and AU pursuant to the JVA. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 14 

 
  
 “Necessary Background” means *****. 
  
 “Party” shall refer to AMD, UMC, UMCi or AU as applicable, and “Parties” shall mean each Party (AMD, UMC, UMCi and AU) which is
signatory to the Party Agreement involved. 
  
 “Party(ies) Agreements” means and includes the JVA, the JDA and the
Manufacturing Agreement(s). 
  
 “Party Inventions” means all inventions, conceptions, know-how and/or technology
developed and/or contributed by one party (or its employees or consultants) without joint contribution by the other. 
  
 “UMC’s Advanced CMOS Platforms” shall mean those general purpose CMOS technology platforms developed solely or jointly *****. 
  
 Miscellaneous and General Provisions             
  
 1.  During the term of the AU JDP, neither party will solicit for employment any person at the time employed by and/or working on behalf of the other. 
  
 2.  Neither party shall be liable for failure to perform, in whole or in part, its obligations under this Agreement if such failure is caused by any event or condition not
reasonably within the control of the affected party, including, without limitation, by events of nature, fire, flood, typhoon, earthquake, explosion, strikes, labor troubles or other industrial disturbances, unavoidable accidents, war (declared or
undeclared), acts of terrorism, sabotage, embargoes, blockage, acts of governmental, judicial, administrative, military or other authorities, riots, insurrections, or any other cause beyond the control of the parties; provided, that the affected
party promptly notifies the other party of the occurrence of the event of force majeure and takes all reasonable steps necessary to minimize the disruption to the other party and to resume performance of its obligations so interfered with.

  
 3.  [Intentionally omitted] 
  
 4.  [intentionally omitted] 
  
 5.  AS A SEPARATE LIMITATION, IN NO EVENT WILL
ANY PARTY BE LIABLE TO THE OTHER (i) FOR COSTS OF SUBSTITUTE GOODS, (ii) FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, OR (iii) FOR LOSS OF USE, OPPORTUNITY, MARKET POTENTIAL, GOODWILL AND/OR PROFIT ON ANY THEORY (CONTRACT, TORT,
FROM THIRD PARTY CLAIMS OR OTHERWISE), provided however that in the event of material breach by UMC and/or AU which is not cured within sixty days of written notice from AMD that such breach was causing AMD to search for second sources for the
product involved, 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 15 

 
 UMC and/or AU (whichever was the breaching party) shall be responsible for *****. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OR OF ANY FAILURE OR INADEQUACY OF ANY REMEDY. Each Party has consulted with counsel concerning their respective agreements and AU, and enters into the JVA, the JDA and the Manufacturing Agreements with full advice and
understanding and accepting the risks involved. 
  
 6.  Except as expressly stated in the JVA, the JDA and/or the
Manufacturing Agreement(s) no Party makes any warranties or representations (express, implied or statutory). THE PARTIES EXPRESSLY DISCLAIM ALL SUCH OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR PARTICULAR PURPOSE. Without limiting the foregoing, except as expressly stated in the Party Agreements, there are no representations and/or warranties concerning the subject matter of such Party Agreements, and/or relating to AU of any sort or
manner, and each Party expressly agrees that it is not relying upon any such other representations and/or warranties. Each Party has consulted with counsel concerning such Agreements and AU, and enters into the Party Agreements with full advice and
understanding and accepting the risks involved. 
  
 6.1    Notwithstanding anything to the contrary (whether in
the Party Agreements or elsewhere), nothing contained in the Party Agreements, and/or in the AU Business Plan shall be or be construed as: 
  
 6.1.1    a warranty or representation as to the validity, utility, suitability or economic viability of this opportunity or of any intellectual property or technology except as expressly stated in
Clause 6.2 and/or in the Manufacturing Agreement(s); 
  
 6.1.2    a warranty or representation that any
manufacture, sales, use or other disposition of products to be manufactured by AU and/or UMC will be free from infringement of patents, utility models and/or design patents other than those under which licenses have been granted hereunder and/or
except as expressly stated in Clause 6.2 and/or in the Manufacturing Agreement(s); 
  
 6.1.3    a warranty or
representation that AU will be successful, that AU will realize and/or fulfill any of its business plans, that AU will return profit, or that the Parties will recover their investments (for purposes of this Clause 6.1.3, no express covenant or
obligation in the JVA shall be eliminated and/or excluded by reason of it also being part of the AU Business Plan, nor shall this Clause 6.1.3 absolve AU from efforts required under the JVA to implement the AU Business Plan nor shall this Clause
6.1.3 relieve any obligation under Clause 4.4 of the JV MOU or the provisions which implement that Clause in the JVA); 
  
 6.1.4    conferring any right to use in advertising, publicity, or otherwise, any trademark, trade name or names of any Party, or any contraction, abbreviation or simulation thereof; and/or 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 16 

 
  
 6.1.5    conferring by implication, estoppel or otherwise, any
license or other right under any class or type of patent, utility model or design patent, provided however that each Party holding joint ownership rights to joint inventions according to the JDA shall, subject to the express limitations of and
solely as expressly allowed under the JDA, have the right to grant licenses with respect to such jointly owned inventions without the consent of (and without any obligation to account to) any other Party. 
  
 7.  Without in any way limiting the provisions of the Party Agreements, each of the Parties agrees that no products, items, commodities or
technical data or information obtained from a Party nor any direct product of such technical data or information is intended to or shall be exported or reexported, directly or indirectly, to any destination restricted or prohibited by Applicable Law
without necessary authorization by the Governmental Authorities, including (without limitation) the Taiwanese Ministry of International Trade and Industry, the United States Bureau of Export Administration (the “BEA”) or other Governmental
Authorities of the United States and Taiwan with jurisdiction with respect to export matters. Without limiting the generality of the foregoing, each Party agrees that it will not, without authorization from the Office of Export Licensing of the BEA,
knowingly export or reexport to a destination outside of the United States General License GTDR technical data or information of United States origin subject to this Agreement, or the direct product thereof, or the product of a plant or major
component of a plant that is the direct product thereof, without first providing any applicable export assurances of the exporting party. Notwithstanding anything to the contrary, AMD will not disclose to UMC and/or AU any information concerning
processing, fabrication and/or equipment which is subject to any applicable export restrictions without first notifying UMC of these restrictions, and securing written consent from an officer of UMC to the disclosure. 
  
 8.  Disputes 
  
 8.1    Mediation: 
  
 8.1.1    Each Party agrees that in the event of a
dispute arising out of or in any way relating to any one or more of the Party Agreements, the parties shall attempt to resolve the dispute through mediation prior to instituting litigation or any other adversary proceeding. A Party shall initiate a
mediation by serving written notice on the other party by facsimile and overnight mail. The parties may select any mediator mutually agreeable to them. If the parties cannot agree on a mediator within fifteen (15) days, they will, within five (5)
days thereafter submit a joint request for mediation to the San Francisco office of the American Arbitration Association (“AAA”) and request the AAA to select an appropriate mediator with experience in resolving financial and commercial
disputes, preferably with experience in the semiconductor industry. 
  
 8.1.2    The mediation session shall
occur within thirty (30) days of the selection of the mediator unless the parties mutually agree to extend this time, and shall be scheduled for not less than one day. Each party agrees to send a representative with full 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 17 

 
 settlement authority to the mediation. The mediation shall be in the English language and shall be conducted exclusively in Santa Clara County,
California, United States of America. The parties agree to hold the content of the mediation in confidence and further agree that the mediator is disqualified and shall be excluded from testifying as a witness in litigation between the parties
(except in proceedings to recover damages for actionable torts committed in the mediation). The parties further agree that the mediation shall be considered to be a form of settlement negotiations, the content of which shall not be admissible as
evidence in any judicial proceeding (except in a proceeding to recover damages for actionable torts committed in the mediation). Each party shall bear its own expenses (including attorney fees) for mediation proceedings under the Party Agreements,
and an equal share of the expenses of the mediator and, where applicable, the AAA. The parties agree that any refusal to mediate under this section is a breach of contract for which damages may be recovered in litigation between the parties. Except
as provided in Section 8.2 below, if the party who ultimately prevails in any litigation institutes a court action or other adversary proceeding without first attempting mediation as required hereby, SUCH PREVAILING PARTY SHALL NOT BE ENTITLED TO
ATTORNEYS’ FEES OR COSTS THAT MIGHT OTHERWISE BE AVAILABLE TO IT UNDER THE PARTY AGREEMENTS, ANY APPLICABLE LAW OR COURT RULES. 
  
 8.2    Litigation:  In the event a dispute is not resolved by such mediation within sixty days of written notice of mediation pursuant to Clause 8.1 (or in the event a party refuses to participate in
such a mediation), the parties shall have the right to initiate a suit, action or other adversary proceeding before the appropriate court exclusively within the jurisdiction of the courts of Santa Clara County, California, or the United States
District Courts for the Northern District of California. In the event of such suit, action or other adversary proceeding and solely for purposes of such an action or proceeding, the Parties hereto (a) submit to the exclusive personal jurisdiction of
the federal and state courts in the State of California, and (b) expressly waive any right they may have to a jury trial and agree that any such proceeding shall be tried by a judge without a jury, and (c) expressly covenant not to bring any such
suit or claim before any other judicial tribunal. All defenses based on passage of time shall be tolled from the date of timely written notice of mediation pursuant to Section 8.1 above and, shall not resume until sixty days after such notice,
unless otherwise prohibited by law. 
  
 8.2.1    Notwithstanding anything to the contrary, and subject to
Section 8.1 above, the parties may, without breach of Clause 8.2, seek appropriate judicial remedies from courts in Singapore having jurisdiction over such matters, to the extent reasonably necessary but only with respect to or concerning the JVA,
corporate formalities, ownership of property, or other matters peculiar to Singapore law and/or locations or property in Singapore.             
  
 8.3    Applicable Law:  The Party Agreements shall be governed by, construed, enforced and interpreted in
accordance with the internal substantive laws of the State of California applicable to agreements to be made and to be performed solely within such State, without giving effect to any conflicts or choice of laws principles which otherwise

 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 18 

 
 might be applicable and excluding the United Nations Convention on Contracts for the Sale of Goods provided however that the JVA shall be governed
by, construed, enforced and interpreted in accordance with the internal substantive laws of Singapore applicable to agreements to be made and to be performed solely within such jurisdiction, without giving effect to any conflicts or choice of laws
principles which otherwise might be applicable and excluding the United Nations Convention on Contracts for the Sale of Goods. 
  
 8.4    Interim Relief:  Nothing in this Section 8 shall be construed to preclude any party from seeking injunctive or other provisional relief in order to prevent irreparable harm pending mediation,
provided however that such relief may only be sought within the appropriate judicial forum as provided in section 8.2 above. In the event a party seeks interim relief without first attempting mediation, such party shall not forfeit its entitlement
to legal fees and costs that would otherwise be available to it only if such party initiates mediation within fifteen (15) days after initiating the action seeking interim relief. A request to a court for interim relief shall not be deemed a waiver
of the obligation to mediate. 
  
 8.5    Legal Fees and Costs:  Except as otherwise provided
herein, the substantially prevailing party in any proceeding brought by one party against the other shall be entitled, in addition to any other rights and remedies it may have, to reimbursement for the expenses reasonably incurred by it in such
proceeding, including but not limited to court costs, reasonable attorneys’ fees, reasonable costs, reasonable expenses of expert witnesses, reasonable costs of appeal, and any other reasonable out-of-pocket expenses. Notwithstanding anything
to the contrary, neither party will be entitled to recover or claim from the other any expenses incurred in connection with and/or pursuant to any mediation efforts under Section 8.1. 
  
 9.  Both parties agree that the details connected with the JDA, JVA and Manufacturing Agreements will not be published or disclosed without the other party’s written
permission or as required by Applicable Law or regulation, provided however that this Clause 9 shall not restrict a party from repeating disclosures made by the other. On or before February 8, the parties will negotiate mutually acceptable terms for
a nondisclosure agreement pursuant to the JDA, and when negotiated, that JDP NDA will be attached as an Exhibit and made part of the JDA. 
  
 10.  All notices required or permitted to be given under the Party Agreements shall be in writing by first class certified or registered airmail, postage prepaid or by telex or telefax, if confirmed or
acknowledged, to the address specified below or to such other address as may be specified in writing by the addressed party to the other party in accordance with this Section 10: 
  
 If to UMC: 
 United Microelectronics Corporation 
 No. 3 Li Hsin Road 2 
 Science-Based Industrial Park 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 19 

 
 Hsin-Chu City, Taiwan 
 R.O.C. 
 Attention:    Chairman’s Office 
 Tel:            +886 3 578-2258 
 Fax:             +886 3 577-4767 and to +886 2 2703-3839 
  
 If to AMD: 
 Advanced Micro Devices, Inc. 
 One AMD Place 
 P.O. Box 3453 
 Sunnyvale, California 94088-3453 
 U.S.A. 
 Attention:       General Counsel 
 Tel (USA):     408/749-2202 
 Fax (USA):     408/774-7002 
  
 If to UMCi: 
 UMCi Pte Ltd.

 6 Temasek Blvd 
 #26-01 SuntecTower Four

 Singapore 038986 
 Attention:    President 
 Tel:            +65 836-0886

 Fax:             +65
836-3767             
  
 Each such notice or other communication shall for all purposes be
treated as effective or as having been given as follows: (i) if delivered in person, when delivered; (ii) if sent by airmail, at the earlier of its receipt or at 5 p.m., local time of the recipient, on the seventh day after deposit in a regularly
maintained receptacle for the deposition of airmail, as the case may be; and (iii) if sent by recognized courier service, on the date shown in the written confirmation of delivery issued by such delivery service. Either party may change the address
and/or addressee(s) to whom notice must be given by giving appropriate written notice at least seven (7) days prior to the date the change becomes effective. 
  
 11.  The Party Agreements and their Exhibits, all of which are incorporated herein by reference, set forth the entire understanding between UMC and AMD with respect to the subject matter hereof and merges
all prior agreements, dealings, negotiations, promises, representations and communications. The terms of the Party Agreements shall govern ***** as well as any and all exchanges of confidential information regardless of any other document signed
and/or executed or agreement made prior to January 31, 2002. No modification, alteration or amendment of the Party Agreements or their Exhibits (whether express, implied, by custom, course of dealing or otherwise) shall be effective unless in
writing and signed by both parties. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 20 

 
 12.  Except as expressly permitted under their terms none of the Party Agreements nor any of the rights and
obligations created hereunder may be assigned, transferred, pledged, or otherwise encumbered or disposed of, in whole or in part, whether voluntarily or by operation of law or otherwise, by any party without the prior written consent of the other
party, *****. 
  
 13.  The Party Agreements shall be governed by and under the Applicable Law. If any term or provision
of any Party Agreement shall be determined to be invalid or unenforceable under Applicable Law, such provision shall be deemed severed from such agreement, and a reasonable valid provision to be mutually agreed upon shall be substituted. In the
event that no reasonable valid provision can be so substituted, the remaining provisions of such Agreement shall remain in full force and effect, and shall be construed and interpreted in a manner that corresponds as far as possible with the
intentions of the parties as expressed in such Agreement. 
  
 14  Term and Termination 
  
 14.1    The term of the Party Agreements will be for period stated in the specific agreement involved. 
  
 14.2    In the event any material breach of a Party Agreement by either party is not corrected within sixty (60) days after delivery
of written notice describing such breach, the particular Party Agreement may be terminated immediately upon further written notice of termination from the non-breaching party, provided however that this Clause 14.2 shall not waive or relieve any
party from the requirements of Clause 8. 
  
 14.3    Either party shall also have the right to terminate such
Party Agreement forthwith by giving written notice of termination to the other party at any time, upon or after: 
  
 14.3.1    the filing by such other party of a petition in bankruptcy or insolvency; or 
  
 14.3.2    any adjudication that such other party is bankrupt or insolvent; or 
  
 14.3.3    the filing by such other party of any legal action or document seeking reorganization, readjustment or arrangement of its business under any law relating to bankruptcy or insolvency; or 
  
 14.3.4    the appointment of a receiver or bankruptcy trustee for all or substantially all of the property of such
other party; or 
  
 14.3.5    the making by such other party of any general assignment for
the benefit of creditors; or 
  
 14.3.6    the institution of any proceedings for the
liquidation or winding up of such other party’s business or for the termination of its corporate charter. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission. 

 

  
 Confidential—page 21 

 
 14.4    *****. 
  
 15.  Miscellaneous—Miscellaneous 
  
 15.1    The failure of any Party to enforce, or the delay by any Party in enforcing any of its rights under the Party Agreements shall not be deemed a waiver or a containing waiver of such rights or a modification of any
Party Agreement, and such party may, within the time provided by applicable law, commence appropriate proceedings to enforce any and/or all such rights. 
  
 15.2    The Clause headings in the Party Agreements are for convenience only and do not define or limit nor will they be used to construe the content of such Clauses. 
  
 15.3    Each Party expressly represents and warrants that it is free to enter into the Party Agreements and that it has not made and
will not make any creations or commitments in conflict with the provisions of the Party Agreements, or which reasonably might interfere with the full and complete performance of its obligations under the Party Agreements. Each Party further
represents and warrants that the Party Agreements, and the performance of its respective obligations under the Party Agreements, and the consummation of the transactions contemplated under the Party Agreements have been duly authorized and approved
by all necessary action, and all necessary consents or permits have been obtained, and neither the execution of the Party Agreements nor the performance of the Party’s obligations under the Party Agreements will violate any term or provision of
any valid contract or agreement to which such party is subject and/or by which such party is bound. No further actions or consents are necessary to make the Party Agreements valid and binding contract, enforceable against the respective parties in
accordance with their terms. 
  
 15.4    No Party shall be entitled to act on behalf of and/or to bind any one
or more of the others. 
  
 15.5    The Party Agreements, and any one or more of them, may be executed in any
number of counterparts, all of whom when taken together shall constitute a single instrument. 
 

 Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the 
 information subject to the confidentiality request. Omissions are designated as *****. A complete version 
 of this exhibit has been filed separately
with the Securities and Exchange Commission.<PAGE>

                                                                    Exhibit 10.5

                                   KYPHON INC.

                            2002 DIRECTOR OPTION PLAN

     1. Purposes of the Plan. The purposes of this 2002 Director Option Plan are
        --------------------
to attract and retain the best available personnel for service as Outside
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.

     All Options granted hereunder shall be nonstatutory stock options.

     2. Definitions. As used herein, the following definitions shall apply:
        -----------

          (a) "Administrator" means the Board or any of its Committees as shall
               -------------
be administering the Plan, in accordance with Section 4 of the Plan.

          (b) "Applicable Laws" means the requirements relating to the
               ---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

          (c) "Board" means the Board of Directors of the Company.
               -----

          (d) "Code" means the Internal Revenue Code of 1986, as amended.
               ----

          (e) "Committee" means a committee of Directors appointed by the Board
               ---------
in accordance with Section 4 of the Plan.

          (f) "Common Stock" means the common stock of the Company.
               ------------

          (g) "Company" means Kyphon Inc., a Delaware corporation.
               -------

          (h) "Director" means a member of the Board.
               --------

          (i) "Disability" means total and permanent disability as defined in
               ----------
section 22(e)(3) of the Code.

          (j) "Employee" means any person, including officers and Directors,
               --------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.

          (k) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended.

          (l) "Fair Market Value" means, as of any date, the value of Common
               -----------------
Stock determined as follows:

<PAGE>

               (i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

               (ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.

          (m) "Notice of Grant" means a written or electronic notice evidencing
               ---------------
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.

          (n) "Option" means a stock option granted pursuant to the Plan.
               ------

          (o) "Option Agreement" means an agreement between the Company and an
               ----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

          (p) "Optioned Stock" means the Common Stock subject to an Option.
               --------------

          (q) "Optionee" means a Director who holds an Option.
               --------

          (r) "Outside Director" means a Director who is not an Employee.
               ----------------

          (s) "Parent" means a "parent corporation," whether now or hereafter
               ------
existing, as defined in Section 424(e) of the Code.

          (t) "Plan" means this 2002 Director Option Plan.
               ----

          (u) "Share" means a share of the Common Stock, as adjusted in
               -----
accordance with Section 11 of the Plan.

          (v) "Subsidiary" means a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.

     3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
        -------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares plus an annual increase to be added on the
first day of the Company's fiscal year beginning in

                                      -2-

<PAGE>

2003, equal to the lesser of (i) the number of Shares granted pursuant to
Options under the Plan in the prior fiscal year or (ii) an amount determined by
the Board. The Shares may be authorized, but unissued, or reacquired Common
Stock.

     If an Option expires or becomes unexercisable without having been exercised
in full, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.

     4. Administration of the Plan.
        --------------------------

          (a) Administration. The Plan shall be administered by (i) the Board or
              --------------
(ii) a Committee, which committee shall be constituted to satisfy Applicable
Laws.

          (b) Powers of the Administrator. Subject to the provisions of the
              ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i) to determine the Fair Market Value of the Common Stock;

               (ii) to select the Outside Directors to whom Options may be
granted hereunder;

               (iii) to determine whether and to what extent Options are granted
hereunder;

               (iv) to determine the number of Shares to be covered by each
Option granted hereunder;

               (v) to approve forms of agreement for use under the Plan;

               (vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the Shares relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;

               (vii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

               (viii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

                                      -3-

<PAGE>

               (ix) to modify or amend each Option (subject to Section 12(b) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;

               (x) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;

               (xi) to determine the terms and restrictions applicable to
Options;

               (xii) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and

               (xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

          (c) Effect of Administrator's Decision. The Administrator's decisions,
              ----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.

     5. Eligibility. Options may be granted only to Outside Directors.
        -----------

     The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.

     6. Term of Plan. The Plan shall become effective upon the later to occur of
        ------------
its adoption by the Board or its approval by the stockholders of the Company. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 12 of the Plan.

     7. Term of Option. The term of each Option shall be stated in the Option
        --------------
Agreement.

     8. Option Exercise Price and Consideration.
        ---------------------------------------

          (a) Exercise Price. The per share exercise price for the Shares to be
              --------------
issued pursuant to exercise of an Option shall be determined by the
Administrator.

          (b) Waiting Period and Exercise Dates. At the time an Option is
              ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

                                      -4-

<PAGE>

          (c) Form of Consideration. The Administrator shall determine the
              ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. Such consideration may consist entirely of:

               (i) cash;

               (ii) check;

               (iii) promissory note;

               (iv) other Shares, provided Shares acquired from the Company, (A)
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said Option shall be
exercised;

               (v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

               (vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

               (vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or

               (viii) any combination of the foregoing methods of payment.

     9. Exercise of Option.
        ------------------

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option
              -----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. An Option may not be exercised for a fraction of
a Share.

          An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a

                                      -5-

<PAGE>

dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 11 of the Plan.

          Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.

          (b) Termination of Continuous Status as a Director. Subject to Section
              ----------------------------------------------
11 hereof, in the event an Optionee's status as a Director terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise his or
her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its term). To the extent that the Optionee was not vested as to his or her
entire Option on the date of such termination, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

          (c) Disability of Optionee. In the event Optionee's status as a
              ----------------------
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its term). To the extent that the Optionee was not vested as to his or her
entire Option on the date of termination, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

          (d) Death of Optionee. In the event of an Optionee's death, the
              -----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its term). To the extent that the Optionee was not vested as to
his or her entire an Option on the date of death, the Shares covered by the
unvested portion of the Option shall revert to the Plan. To the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.

     10. Non-Transferability of Options. The Option may not be sold, pledged,
         ------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.

     11. Adjustments; Dissolution; Merger or Asset Sale.
         ----------------------------------------------

          (a) Adjustments. In the event that any dividend or other distribution
              -----------
(whether in the form of cash, Common Stock, other securities, or other
property), recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Common Stock or other securities of the Company, or other change in the
corporate

                                      -6-

<PAGE>

structure of the Company affecting the Common Stock such that an adjustment is
determined by the Board (in its sole discretion) to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Board shall, in such manner as it
may deem equitable, adjust the number and class of Common Stock which may be
delivered under the Plan, the purchase price per Share and the number of Shares
covered by each Option which has not yet been exercised.

          (b) Dissolution or Liquidation. In the event of the proposed
              --------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.

          (c) Merger or Asset Sale. In the event of a merger of the Company with
              --------------------
or into another corporation or the sale of substantially all of the assets of
the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Option
Agreement for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with the Plan and the
applicable Option Agreement.

          If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Administrator shall notify the Optionee that the
Option shall be fully exercisable for a period of thirty (30) days from the date
of such notice, and upon the expiration of such period the Option shall
terminate.

          For the purposes of this Section 11(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share subject to the Option immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares). If
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.

     12. Amendment and Termination of the Plan.
         -------------------------------------

          (a) Amendment and Termination. The Board may at any time amend, alter,
              -------------------------
suspend or terminate the Plan.

                                      -7-

<PAGE>

          (b) Effect of Amendment or Termination. No amendment, alteration,
              ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     13. Date of Grant. The date of grant of an Option shall be, for all
         -------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

     14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
         ----------------------------------
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder,
state securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

     As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares, if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.

     Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

     15. Reservation of Shares. The Company, during the term of this Plan, will
         ---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     16. Option Agreement. Options shall be evidenced by written option
         ----------------
agreements in such form as the Administrator shall approve.

                                      -8-

<PAGE>

                                   KYPHON INC.

                            2002 DIRECTOR OPTION PLAN

                             STOCK OPTION AGREEMENT

     Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.

I.   NOTICE OF STOCK OPTION GRANT
     ----------------------------

     Name:

     Address:

     You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:

     Grant Number                     ------------------------------------------

     Date of Grant                    ------------------------------------------

     Vesting Commencement Date        ------------------------------------------

     Exercise Price per Share         $
                                      ------------------------------------------

     Total Number of Shares Granted   ------------------------------------------

     Total Exercise Price             $
                                      ------------------------------------------

     Type of Option:                  Nonstatutory Stock Option

     Term/Expiration Date:            ------------------------------------------

     Vesting Schedule:
     ----------------

     Subject to the Optionee continuing to be a Service Provider on such dates,
this Option shall vest and become exercisable in accordance with the following
schedule:

     [25% of the Shares subject to the Option shall vest twelve (12) months
after the Vesting Commencement Date, and 1/48th of the Shares subject to the
Option shall vest each month thereafter on the same day of the month as the
Vesting Commencement Date, subject to Optionee continuing to be a Director on
each such date.

<PAGE>

100% of the Shares subject to the Option shall vest on the ____ anniversary
following the Vesting Commencement Date, subject to Optionee continuing to be a
Service Provider on each such date.]

     Termination Period:
     ------------------

     This Option may be exercised, to the extent vested on the date of
termination, for three (3) months after Optionee ceases to be a Service
Provider. Notwithstanding the foregoing, upon the death or Disability of the
Optionee, this Option may be exercised, to the extent vested on the date of
termination, for twelve (12) months after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.

II.  AGREEMENT
     ---------

     1. Grant of Option. The Plan Administrator of the Company hereby grants to
        ---------------
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 12(b)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.

     2. Exercise of Option.
        ------------------

          (a) Right to Exercise. This Option is exercisable during its term in
              -----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.

          (b) Method of Exercise. This Option is exercisable by delivery of an
              ------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
                                         ---------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.

          No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.

     3. Method of Payment. Payment of the aggregate Exercise Price shall be by
        -----------------
any of the following, or a combination thereof, at the election of the Optionee:

                                      -2-

<PAGE>

          (a) cash;

          (b) check;

          (c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or

          (d) surrender of other Shares, provided Shares acquired from the
Company, (i) have been owned by the Optionee for more than six (6) months on the
date of surrender, and (ii) have a Fair Market Value on the date of surrender
equal to the aggregate Exercise Price of the Exercised Shares.

     4. Non-Transferability of Option. This Option may not be transferred in any
        -----------------------------
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     5. Term of Option. This Option may be exercised only within the term set
        --------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.

     6. Taxation Upon Exercise of Option. Optionee understands that, upon
        --------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.

     7. Entire Agreement; Governing Law. The Plan is incorporated herein by
        -------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.

     8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT
        ---------------------------------
THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY
CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE
ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER).
OPTIONEE FURTHER

                                       -3-

<PAGE>

ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

     By Optionee's signature and the signature of the Company's representative
below, Optionee and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety, has
had an opportunity to obtain the advice of counsel prior to executing this
Option Agreement and fully understands all provisions of the Plan and Option
Agreement. Optionee hereby agrees to accept as binding, conclusive and final all
decisions or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.

OPTIONEE                                KYPHON INC.

-----------------------------------     ----------------------------------------
Signature                               By

-----------------------------------     ----------------------------------------
Print Name                              Title

-----------------------------------
Residence Address

                                       -4-

<PAGE>

                                    EXHIBIT A
                                    ---------

                                    KYPHON INC.

                            2002 DIRECTOR OPTION PLAN

                                 EXERCISE NOTICE

Kyphon Inc.
1350 Bordeaux Dr.
Sunnyvale, CA 94089

Attention: Stock Option Administrator

     1. Exercise of Option. Effective as of today, ________________, _____, the
        ------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Kyphon Inc. (the "Company") under and pursuant
to the 2002 Director Option Plan (the "Plan") and the Stock Option Agreement
dated, _________, ___ (the "Option Agreement"). The purchase price for the
Shares shall be $__________, as required by the Option Agreement.

     2. Delivery of Payment. Purchaser herewith delivers to the Company the full
        -------------------
purchase price for the Shares, and any and all withholding taxes due in
connection with the exercise of the Option.

     3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
        ----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.

     4. Rights as Shareholder. Until the issuance (as evidenced by the
        ---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 11 of the
Plan.

     5. Tax Consultation. Purchaser understands that Purchaser may suffer
        ----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

     6. Entire Agreement; Governing Law. The Plan and Option Agreement are
        -------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire

<PAGE>

agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of California.

Submitted by:                           Accepted by:

PURCHASER                               KYPHON INC.

-----------------------------------     ----------------------------------------
Signature                               By

-----------------------------------     ----------------------------------------
Print Name                              Title

                                        ----------------------------------------
                                        Date Received

Address:                                Address:  1350 Bordeaux Dr.
-------  --------------------------     -------   Sunnyvale, CA 94089

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

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

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