Document:

MEDTRONIC, INC.

	
 

	
ISRAELI AMENDMENT

	
 

	
To The 2003 Long-Term Incentive Plan

	
 

	 

	
 

	
 

	
 

	
1.

	
GENERAL

	
 

	
 

	
 

	
1.1.

	
This
 Amendment (the “Amendment”) shall apply only to Participants who are
 residents of the State of Israel or those who are deemed to be residents of
 the State of Israel for the payment of tax. The provisions specified
 hereunder shall form an integral part of the 2003 Long-Term Incentive Plan,
 as amended (the “Plan”), of the
 Company as defined in the Plan. 

	
 

	
 

	
 

	
 

	
1.2.

	
This
 Amendment is effective with respect to Options, Stock Appreciation Rights,
 Shares of Restricted Stock, Other Stock-Based Awards or Other Cash-Based
 Awards; to be granted according to the resolution of the Committee, as such
 term is defined in the Plan and shall comply with Amendment no. 147 of the
 Israeli Tax Ordinance.

	
 

	
 

	
 

	
 

	
1.3.

	
This
 Amendment is to be read as a continuation of the Plan and only refers to
 Awards granted to Israeli Participants so that they comply with the
 requirements set by the Israeli law in general, and in particular with the
 provisions of Section 102 of the Israeli Income Tax Ordinance (New Version),
 1961 (the “Ordinance”), and any
 regulations, rules, orders or procedures promulgated thereunder, as may be
 amended or replaced from time to time. For the avoidance of doubt, this
 Amendment does not add to or modify the Plan in respect of any other category
 of Participants.

	
 

	
 

	
 

	
 

	
1.4.

	
The
 Plan and this Amendment are complementary to each other and shall be deemed
 one. In any case of contradiction, whether explicit or implied, between the
 provisions of this Amendment and the Plan, the provisions set out in this
 Amendment shall prevail with respect to Awards granted to Israeli
 Participants.

	
 

	
 

	
 

	
 

	
1.5.

	
Any
 capitalized terms not specifically defined in this Amendment shall be
 construed according to the interpretation given to them in the Plan.

	
 

	
 

	
 

	
2.

	
DEFINITIONS

	
 

	
 

	
 

	
 

	
2.1

	
“Award” means an Option, Stock
 Appreciation Right, Share of Restricted Stock, Other Stock-Based Award or
 Other Cash-Based Award granted pursuant to the Plan.

	
 

	
 

	
 

	
 

	
2.2

	
“Applicable Law” means the Israeli law in
 general, and in particular the Israeli Companies Law -1999, the
 Israeli Income Tax Ordinance (New Version), 1961 and any regulations, rules,
 orders or procedures promulgated thereunder, as may be amended or replaced
 from time to time.

	
 

	
 

	
 

	
 

	
2.3

	
 “Approved 102 Award” means an Award
 granted pursuant to Section 102(b) of the Ordinance and held in trust by a
 Trustee for the benefit of the Grantee.

	
 

	
 

	
 

	
 

	
2.4

	
“Capital Gain Award” or “CGA” means an Approved 102 Award elected
 and designated by the Company to qualify under the capital gain tax treatment
 in accordance with the provisions of Section 102(b)(2) of the Ordinance. 

	
 

	
 

	
 

	
 

	
2.5

	
“Controlling Shareholder” means a
 controlling shareholder (Ba’al Shlita) as such term is defined in Section
 32(9) of the Ordinance.

	
 

	
 

	
 

	
 

	
2.6

	
“Employee” including an individual who is
 serving as a director or an office holder, but excluding any Controlling
 Shareholder. 

	
 

	
 

	
 

	
 

	
2.7

	
“Employing corporation” means any subsidiary
 or affiliated company or group within the meaning of Section 102(a) of the
 Ordinance.

	
 

	
 

	
 

	
 

	
2.8

	
“ITA” means the Israeli Tax Authorities.

	
 

	
 

	
 

	
 

	
2.9

	
“Non-Employee” means a consultant,
 adviser, service provider, Controlling Shareholder or any other person who is
 not an Employee.

	
 

	
 

	
 

	
 

	
2.10

	
“Office Holders” [“Nose Misra”] - as such term is defined
 in the Companies Act, 1999, including, inter
 alia, any other person who is part of the upper management of the
 Company and who grants managerial services to the Company.

	
 

	
 

	
 

	
 

	
2.11

	
“Ordinary Income Award” or  “OIA”, which means an Approved 102 Award
 elected and designated by the Company to qualify under the ordinary income
 tax treatment in accordance with the provisions of Section 102(b)(1) of the
 Ordinance. 

	
 

	
 

	
 

	
 

	
2.12

	
“102 Award” means an Award that the Board intends to be a “102 Award”
 which shall only be granted to employees of the Company who are not Ten
 Percent shareholders, and shall be subject to and construed consistently with
 the requirements of Section 102 of the Tax Ordinance. The Company shall have
 no liability to a Participant or to any other party, if an Award (or any part
 thereof), which is intended to be a 102 Award, is not a 102 Award. Approved
 102 Awards may either be classified as Capital Gain Awards (“CGA”) or Ordinary Income Awards
(“OIA”).

	
 

	
 

	
 

	
 

	
2.13

	
“3(i) Award” means Awards that do not contain such terms as will qualify
 under Section 102 of the Tax Ordinance. 

	
 

	
 

	
 

	
 

	
2.14

	
“Ordinance” means the Israeli Income Tax
 Ordinance (New Version) 1961, as now in effect or as hereafter amended. 

	
 

	
 

	
 

	
 

	
2.15

	
“Section 102” means section 102 of the
 Ordinance and any regulations, rules, orders or procedures promulgated
 thereunder as now in effect or as hereafter amended. 

	
 

	
 

	
 

	
 

	
2.16

	
“Trustee” shall mean any individual
 appointed by the Company to serve as a trustee and approved by the ITA, all
 in accordance with the provisions of Section 102(a) of the Ordinance. 

	
 

	
 

	
 

	
 

	
2.17

	
“Unapproved 102 Award” means an Award
 granted pursuant to Section 102(c) of the Ordinance and not held in trust by
 a Trustee. 

	
 

	
 

	
 

	
3.

	
ISSUANCE OF OPTIONS; ELIGIBILITY

	
 

	
 

	
 

	
 

	
3.1.

	
The persons eligible for
 participation in the Plan as Participants shall include any Employees, Office
 Holders and/or Non-Employees of the Company as such term is defined in the
 Plan; provided, however, that (i) Employees may only be granted 102 Awards
 and Office Holders may be granted 102 Awards; and (ii) 

	
 

	
 

	
 

	
 

	
 

	
Non-Employees and/or
 Controlling Shareholders may only be granted 3(i) Awards (the “Participants”).

	
 

	
 

	
 

	
 

	
3.2.

	
The
 Company may designate Awards granted to Israeli Employees pursuant to Section
 102 as Unapproved 102 Awards or Approved 102 Awards.

	
 

	
 

	
 

	
 

	
3.3.

	
The
 grant of Approved 102 Awards shall be made under this Amendment adopted by
 the Committee, and shall be conditioned upon the approval of this Amendment
 by the ITA. 

	
 

	
 

	
 

	
 

	
3.4.

	
Approved
 102 Award may either be classified as Capital Gain Award (CGA) or Ordinary
 Income Award (OIA).

	
 

	
 

	
 

	
 

	
3.5.

	
The
 Corporation’s election of the type of Approved 102 Awards as CGA or OIA
 granted to Israeli Employees (the “Election”),
 shall be appropriately filed with the ITA before the Date of Grant of an
 Approved 102 Award under such Election. Such Election shall become effective
 beginning the first Date of Grant of an Approved 102 Award under such
 Election and shall remain in effect until the end of the year following the
 year during which the Company first granted Approved 102 Awards under such
 Election. For the avoidance of doubt, such Election shall not prevent the
 Company from granting Unapproved 102 Awards simultaneously. 

	
 

	
 

	
 

	
 

	
3.6.

	
All
 approved 102 Awards, must be held in trust by a Trustee as described in
 Section 4 below.

	
 

	
 

	
 

	
 

	
3.7.

	
For
 the avoidance of any doubt, the designation of Unapproved 102 Awards and
 Approved 102 Awards shall be subject to the terms and conditions set forth in
 Section 102 of the Ordinance and the regulations promulgated thereunder.

	
 

	
 

	
 

	
 

	
3.8.

	
Anything
 in the Plan to the contrary notwithstanding, all grants of Awards to
 directors and office holders shall be authorized and implemented in
 accordance with the provisions of the Companies Law or any successor act or
 regulation, as in effect from time to time.

	
 

	
 

	
 

	
 

	
3.9.

	
The
 Company shall notify the Income Tax Commissioner about the grant and the
 capital gain course chosen at least 30 days before the Date of Grant. Grant
 of Options shall be made pursuant to, (a) Section 102; and (b) the Trust
 Agreement, in addition to being made pursuant to the provisions of the Plan
 and this Agreement; (c) the ITA’s regulation. 

	
 

	
 

	
 

	
 

	
3.10.

	
The
 Company’s election of the tax track according to Section 102 of the Tax
 Ordinance with regards to 102 Options granted to Employees, as specified in
 the Notice of Grant (the “Election”) shall be appropriately filed with the
 Israeli Tax Authorities at least 30 days before the Date of Grant. The
 Election shall obligate the Company to grant only under that same tax track
 elected for 102 Options, and shall apply to all Grantees who are granted
 qualified 102 Options until the end of the year following the year during
 which the Company first granted the 102 Options, all in accordance with the
 instructions of Section 102 (g) of the Tax Ordinance. The tax track of 102
 Options elected by the Company shall be noted in the Option Agreement.

	
 

	
 

	
 

	
 

	
3.11.

	
Notwithstanding
 anything to the contrary, the Trustee shall not release any unexercised 102
 award or any Share issued upon exercise of 102 Options prior to

	
 

	
 

	
 

	
 

	
 

	

 the full payment of the Grantee’s tax liabilities arising from 102 Options
 issued to the Grantee and/or any Shares issued upon exercise of such 102
 Options.

	
 

	
 

	
 

	
4.

	
TRUSTEE 

	
 

	
 

	
 

	
 

	
4.1.

	
Approved
 102 Awards which shall be granted under the Plan and/or any Shares allocated
 or issued upon exercise of such Approved 102 Awards and/or other shares
 received subsequently following any realization of rights including, without
 limitation, bonus shares, shall be allocated or issued to the Trustee (and
 registered in the Trustee’s name in the register of members of the
 Corporation) and held for the benefit of the Participants for such period of
 time as required by Section 102 (the “Restricted
 Period”). All certificates representing Shares issued to the
 Trustee under the Plan shall be deposited with the Trustee, and shall be held
 by the Trustee until such time that such Shares are released from the
 aforesaid trust as herein provided. In case the requirements for Approved 102
 Awards are not met, then the Approved 102 Awards may be treated as Unapproved
 102 Awards, all in accordance with the provisions of Section 102. 

	
 

	
 

	
 

	
 

	
4.2.

	
Notwithstanding
 anything to the contrary, the Trustee shall not release any Shares allocated
 or issued upon exercise of Approved 102 Awards prior to the full payment of
 the Participants’ tax liabilities arising from Approved 102 Awards, which
 were granted to such Participant, and/or any Shares allocated or issued upon
 exercise of such Awards. 

	
 

	
 

	
 

	
 

	
4.3.

	
With
 respect to any Approved 102 Award, subject to the provisions of Section 102,
 a Participant shall not be entitled to sell or release from trust any Share
 received upon the exercise of an Approved 102 Award and/or any share received
 subsequently following any realization of rights, including without
 limitation, bonus shares, until the lapse of the Restricted Period required
 under Section 102. 

	
 

	
 

	
 

	
 

	
4.4.

	
Upon
 receipt of Approved 102 Award, the Participant will sign an undertaking to
 release the Trustee from any liability in respect of any action or decision
 duly taken and bona fide executed in relation with the Plan and this Amendment,
 or any Approved 102 Award or Share granted to him thereunder.

	
 

	
 

	
 

	
5.

	
FAIR MARKET VALUE FOR TAX PURPOSES

	
 

	
 

	
 

	
 

	
Without
 derogating from the above, solely for the purpose of determining the tax
 liability pursuant to Section 102(b)(3) of the Ordinance, if at the Date of
 Grant the Company’s shares are listed on any established stock exchange or a
 national market system or if the Company’s shares will be registered for
 trading within ninety (90) days following the Date of Grant, the Fair Market
 Value of a Share at the Date of Grant shall be determined in accordance with
 the average value of the Company’s shares on the thirty (30) trading days
 preceding the Date of Grant or on the thirty (30) trading days following the
 date of registration for trading, as the case may be.

	
 

	
 

	
 

	
6.

	
EXERCISE OF OPTIONS

	
 

	
 

	
 

	
 

	
Options
 shall be exercised by the Participant’s giving a written notice and remitting
 payment of the Exercise Price to the Company or to any third party designated
 by the Company (the “Representative”),
 in such form and method as may be determined by the Company and the Trustee
 and when applicable, in accordance with the requirements of Section 102,
 which exercise shall be effective upon receipt of such notice by the Company
 or the Representative and the payment of the Exercise Price at the
 Corporation’s or the Representative’s principal office. The notice shall
 specify the nominal value of the Share with respect to which the Option is
 being exercised.

	
 

	
 

	
 

	
 

	
With
 respect to Unapproved 102 Awads, if the Participant ceases to be employed by
 the Company or any Affiliate, the Participant shall extend to the Company
 and/or its Affiliate a security or guarantee for the payment of tax due at
 the time of Sale of Shares, all in accordance with the provisions of Section 102.

	
 

	
 

	
 

	
7.

	
INTEGRATION OF SECTION 102 AND TAX COMMISSIONER’S PERMIT

	
 

	
 

	
 

	
 

	
7.1.

	
With
 regards to Approved 102 Awards, the provisions of the Plan and/or any Award
 Agreement entered into in conjunction with any Award Grant (the “Award Agreement”) shall be subject to the
 provisions of Section 102 and the Income Tax Commissioner’s permit, and the
 said provisions and permit shall be deemed an integral part of the Plan and
 of the Award Agreement.

	
 

	
 

	
 

	
 

	
7.2.

	
Any
 provision of Section 102 and/or the said permit which is necessary in order
 to receive and/or to keep any tax benefit pursuant to Section 102, which is
 not expressly specified in the Plan or the Award Agreement, shall be
 considered binding upon the Company and the Participants.

	
 

	
 

	
 

	
8.

	
TAX CONSEQUENCES

	
 

	
 

	
8.1.

	
To
 the extent permitted by Applicable laws, any tax consequences arising from
 the grant or exercise of any Award, from the payment for Shares covered
 thereby or from any other event or act (of the Company, and/or its
 Affiliates, and/or the Trustee or the Participant), hereunder, shall be borne
 solely by the Participant. The Company and/or its Affiliates and/or the
 Trustee shall withhold taxes according to the requirements under the
 applicable laws, rules, and regulations, including withholding taxes at source.
 Furthermore, the Participants agrees to indemnify the Company and/or its
 Affiliates and/or the Trustee and hold them harmless against and from any and
 all liability for any such tax or interest or penalty thereon, including
 without limitation, liabilities relating to the necessity to withhold, or to
 have withheld, any such tax from any payment made to the Participant.

	
 

	
 

	
 

	
 

	
8.2.

	
The
 Company and/or the Trustee shall not be required to release any Share
 certificate to a Participant until all required payments have been fully made
 by the Participant.

	
 

	
 

	
 

	
 

	
8.3.

	
In
 accordance with the Income Tax Rules (Tax Benefits Upon Issues of Shares to
 Employees) 2003, the Grantee warrants and represents to the Company, the
 Trustee and the Israeli Income Tax Authorities that it agrees to the
 provisions of Section 102 of the Income Tax Ordinance shall apply to it and
 that it will not transfer the Option Shares nor any other shares received
 subsequently following any realization of rights, by a way of tax-exempt
 transfer or a transfer under sections 104 (a), 104 (b) or 97 (a) of the
 Income Tax Ordinance.

	
 

	
 

	
 

	
 

	
8.4.

	
The
 Company and the Trustee shall be entitled to apply to the Israeli Income Tax
 Authorities for the purpose of ascertaining the income tax liability of the Grantee
 with respect to the Option Shares.

	
 

	
 

	
 

	
 

	
8.5.

	
The
 Grantee acknowledges that, under the current law, if the date of termination
 of employment shall be prior to the second anniversary of the date of the
 issue of the Shares then (i) the tax benefits of Section 102 shall not apply
 (except in the opinion of the Israeli Income Tax Authorities the employment
 of the Grantee was ceased under special circumstances which were beyond its
 control) and (ii) the Grantee will be responsible to immediately settle on
 its own account all of the tax issues and liabilities that are related to the
 Options or the Option Shares.

	
 

	
 

	
 

	
 

	
8.6.

	
The
 Grantee further acknowledges that the income that may be earned in connection
 with the issue of the Option Shares, their transfer in the name of the
 Grantee or sale thereof shall not be taken into account in calculation of the
 entitlement of the Grantee to any social benefits. Such social benefits shall
 include, without limitation, national insurance, managers’ insurance, study
 funds, pension funds, and severance pay and vacation payments. In the event
 that the Company or any of its subsidiaries shall be obligated by applicable
 law to include social benefits as income or profits of the Grantee then the
 Grantee shall indemnify and hold harmless the Company and the Trustee for any
 cost that they may incur in this regards. 

	
 

	
 

	
 

	
9.

	
RESTRICTED PERIOD PER SECTION 102

	
 

	
 

	
 

	
 

	
The
 following provisions shall apply for the purpose of the tax benefits under
 Section 102 of the ordinance:

	
 

	
 

	
 

	
 

	
9.1.

	
Restricted
 Period Per Section 102. In accordance with the requirements of
 Section 102 as now in place and as may be amended in the future, the
 Option to be issued shall be issued to the Grantee and held in trust by the
 Trustee for the benefit of Grantee for a period of no less than twenty four
 (24) months from the date of which the Options were granted and placed with
 the Trustee (during the Restricted Period Per Section 102 the Grantee will
 not be allowed to order the Trustee to sell the Option held by him/her on
 behalf of the Grantee or transfer the Option from Trustee’s hands).

	
 

	
 

	
 

	
 

	
9.2.

	
In
 order to apply the tax benefits of Section 102, the Options and or
 Shares may not be sold or transferred (other than through a transfer by will
 or by operation of law), and no power of attorney or transfer deed shall be
 given in respect thereof (other than a power of attorney for the purpose of
 participation in general meetings of shareholders).

	
 

	
 

	
 

	
 

	
9.3.

	
End
 of Restricted Period per Section 102. Upon the completion of the Restricted
 Period Per Section 102 as now in place and as may be amended in the future,
 Grantee shall be entitled to receive from the Trustee the Options, or the
 Shares acquired in the exercise thereof, which have vested, subject to the
 provisions of the Plan concerning the continued employment of Grantee at the
 Company or any Parent or Subsidiary of the Company, and subject to any other
 provisions set forth herein or in the Plan, and Grantee shall be entitled to
 exercise the Option and sell the Options or Shares thereby obtained subject
 to the other terms and conditions of this Option Agreement and the Plan,
 including the provisions relating to the payment of tax set forth below.

	
 

	
 

	
 

	
10.

	
GRANTEE’S REPRESENTATIONS

	
 

	
 

	
 

	
 

	
10.1.

	
The
 Grantee hereby agrees that the terms of Section 102 of the Tax Ordinance
 (“Section 102”) shall apply regarding to the Options and or Shares granted.

	
 

	
 

	
 

	
 

	
10.2.

	
The
 Grantee is obliged not to sell or remove from the Trustee the Options/Shares
 granted to him prior to the end of restricted period as defined by Section
 102.

	
 

	
 

	
 

	
 

	
10.3.

	
The
 Grantee is aware of the directives set forth in Section 102, and of the tax
 track that was chosen under Section 102 and its implications.

	
 

	
 

	
 

	
 

	
10.4.

	
The
 Grantee hereby accepts the terms of the Trust Agreement signed between the
 Company and the Trustee.

	
 

	
 

	
 

	
 

	
10.5.

	
Grantee
 acknowledges that during the period in which Shares issued to the Trustee on
 behalf of an Grantee upon exercise of an Approved 102 Option, are held by the
 Trustee, if dividends payable in securities are declared on Approved 102
 Options held by the Trustee, such securities shall also be subject to the
 provisions of Section 102 and the provision of this agreement and shall be
 held in trust by the Trustee. Notwithstanding anything to the contrary, in
 case that a Grantee of Approved 102 Options/Shares is entitled to receive
 dividend in cash, the proceeds of such dividend may be wired to the Grantee,
 after deduction of all applicable taxes.

	
 

	
 

	
 

	
11.

	
GOVERNING LAW
 & JURISDICTION

	
 

	
 

	
 

	
 

	
The Amendment shall be
 governed by and construed and enforced in accordance with the laws of the
 State of Israel applicable to contracts made and to be performed therein,
 without giving effect to the principles of conflict of laws. Notwithstanding
 anything stated herein to the contrary, if and to the extent any issue or
 matter arises hereunder which involves the application of another
 jurisdiction or the requirements relating to the administration of share
 Award of any stock exchange or quotation system, then such laws and
 requirements shall apply and shall govern such issues or matters, with
 accordance with any Applicable Laws. The competent courts of Tel-Aviv, Israel
 shall have sole jurisdiction to adjudicate any dispute that may arise in
 connection with the application, interpretation or enforcement of Section 102
 including (without limitation) matters involving the Trustee and the Israeli
 tax consequences of the Restricted of the Awards or the Shares in trust and
 the release and transfer of such Awards or Shares by the Trustee. 

IN WITNESS WHEREOF, the Company executed this Amendment in
duplicate on the day and year first above written.

	
 

	

	

Medtronic, Inc.Pursuant
to the resolution of the Board of Directors of Kyphon Inc. (the “Company”)
dated October 18, 2007, from and after the Effective Time, as such term is
defined in that certain Agreement and Plan of Mergerm (the “Merger Agreement”),
dated as of July 26, 2007, by and among Medtronic, Inc., a Minnesota
corporation (“Medtronic”), Jets Acquisition Corporation, a Delaware
corporation and wholly owned subsidiary of Medtronic (“Merger Sub”), and
the Company, the Kyphon Inc. 2002 Stock Plan (the “Plan”) and each
agreement evidencing outstanding awards thereunder shall be deemed amended to
the extent necessary so that each reference to the Company (other than
references relating to a “change in control” of the Company) shall refer to
Medtronic. In addition, pursuant to the terms of the Merger Agreement and as
required by Section 303A.08 of the New York Stock Exchange Listed Company
Manual,  the number of shares available
under the Plan and all other limitations on the number of shares that may be
granted under the Plan, shall be adjusted by the Exchange Ratio, as defined in
the Merger Agreement. 

MEDTRONIC,
INC. — KYPHON INC. 2002 STOCK PLAN

(FORMERLY
THE KYPHON INC. 2002 STOCK PLAN)

(Amended and Restated July 26, 2007, as further amended on
October 18, 2007)

	
 

	
 

	
 

	
 

	
1.  Purposes of the Plan.  The purposes of this 2002 Stock Plan are:

	
 

	
 

	
 

	
 

	
•

	
to attract and retain the best available personnel
  for positions of substantial responsibility,

	
 

	
 

	
 

	
 

	
•

	
to provide additional incentive to Employees,
  Directors and Consultants, and 

	
 

	
 

	
 

	
 

	
•

	
to promote the success of the Company’s business.

                    Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant.  Stock Purchase Rights and Restricted Stock
Units may also be granted under the Plan.

	
 

	
 

	
 

	
 

	
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, Restricted Stock Units or Stock Purchase Rights
are, or will be, granted under the Plan.

1

                    (c)
“Board” means the Board of Directors of the Company.

                    (d)
“Change in Control” means the occurrence of any of the following events:

                         (i)
Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange
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; or

                         (ii)
A change in the composition of the Board occurring within a two-year period, as
a result of which fewer than a majority of the directors are Incumbent
Directors.  “Incumbent Directors” will 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 the Incumbent Directors at the time of such
election or nomination (but will not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company); or

                         (iii)
The consummation of the sale or disposition by the Company of all or
substantially all of the Company’s assets; or

                         (iv)
The consummation of a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its parent) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity or its parent outstanding immediately
after such merger or consolidation.

                    (e)
“Code” means the Internal Revenue Code of 1986, as amended.

                    (f)
“Committee” means a committee of Directors appointed by the Board in
accordance with Section 4 of the Plan.

                    (g)
“Common Stock” means the common stock of the Company.

                    (h)
“Company” means Kyphon Inc., a Delaware corporation.

                    (i)
“Consultant” means any natural person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

                    (j)
“Director” means a member of the Board.

                    (k)
“Disability” means total and permanent disability as defined in Section
22(e)(3) of the Code.

                    (l)
“Employee” means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company.  A Service Provider shall not cease to 

2

be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor.  For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 90th
day of such leave, any Incentive Stock Option held by the Optionee shall cease
to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director’s fee by the
Company shall be sufficient to constitute “employment” by the Company.

                    (m)
“Equity Restructuring” means a non-reciprocal transaction between the
Company and its stockholders, such as a stock dividend, stock split, spin-off,
rights offering or recapitalization through a large, nonrecurring cash
dividend, that affects the shares of Common Stock (or other securities of the
Company) or the share price of Common Stock (or other securities) and causes a
change in the per share value of the Common Stock underlying outstanding
Options, Restricted Stock Units and Stock Purchase Rights.

                    
(n) “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

                    
(o) “Fair Market Value” means, as of any date, the value of Common Stock
determined as follows:

                                             (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 on the day 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 on the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable; 

                                             (iii)
For purposes of any awards granted on the first day the Company initially
offers it equity securities to the public, the Fair Market Value shall be the
initial price to the public as set forth in the final prospectus included
within the registration statement in Form S-1 filed with the Securities and
Exchange Commission for the initial public offering of the Company’s Common
Stock.

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

                              (p)
“Incentive Stock Option” means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

3

                    (q)
 “Nonstatutory Stock Option” means
an Option not intended to qualify as an Incentive Stock Option.

                    (r)
“Notice of Grant” means a written or electronic notice evidencing
certain terms and conditions of an individual Option, Restricted Stock Units or
Stock Purchase Right grant.  The Notice
of Grant is part of the Option Agreement,
Restricted Stock Unit Agreement and Restricted Stock Purchase Agreement.

                    (s)
“Officer” means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

                    (t)
“Option” means a stock option granted pursuant to the Plan.

                    (u)
“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.

                    (v)
“Option Exchange Program” means a program whereby outstanding Options
are surrendered in exchange for Options with a lower exercise price.

                    (w)
“Optioned Stock” means the Common Stock subject to an Option, Restricted
stock Unit or Stock Purchase Right.

                    (x)
“Optionee” means the holder of an outstanding Option, Restricted Stock
Unit or Stock Purchase Right granted under the Plan.

                    (y)
“Parent” means a “parent corporation,” whether now or hereafter
existing, as defined in Section 424(e) of the Code.

                    (z)
“Plan” means this 2002 Stock Plan, as amended and restated herein.

                    (aa)
“Restricted Stock” means shares of Common Stock acquired pursuant to a
grant of Stock Purchase Rights under Section 11 of the Plan.

                    (bb)
“Restricted Stock Purchase Agreement”
means a written agreement between the Company and the Optionee evidencing the
terms and restrictions applying to stock purchased under a Stock Purchase
Right.  The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.

                    (cc)
“Restricted Stock Unit” means an award granted under Section 12 of the
Plan. 

                    (dd)
“Restricted Stock Unit Agreement” means a written agreement between the
Company and the Optionee evidencing the terms and conditions of an award of
Restricted Stock Units.  The Restrictred
Stock Unit Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant. 

4

                    (ee)
“Rule 16b-3” means Rule 16b-3 of the
Exchange Act or any successor to Rule 16b-3, as in effect when discretion is
being exercised with respect to the Plan.

                    (ff)
“Section 16(b) “ means Section 16(b) of the Exchange Act.

                    (gg)
“Service Provider” means an Employee, Director or Consultant.

                    (hh)
“Share” means a share of the Common Stock, as adjusted in accordance
with Section 14 of the Plan.

                    (ii)
“Stock Purchase Right” means the right to purchase Common Stock pursuant
to Section 11 of the Plan, as evidenced by a Notice of Grant.

                    (jj)
“Subsidiary” means a “subsidiary corporation”, whether now or hereafter
existing, as defined in Section 424(f) of the Code.

          3.
Stock Subject to the Plan.
Subject to the provisions of Section 14 of the Plan, the maximum
aggregate number of Shares that may be optioned and sold under the Plan is
2,500,000 Shares plus (a) any Shares which have been reserved but not issued
under the Company’s 1996 Stock Option Plan (the “1996 Plan”) as of the date of
stockholder approval of this Plan, (b) any Shares returned to the 1996 Plan as
a result of termination of options or repurchase of Shares issued under the
1996 Plan and (c) an annual increase to be added on the first day of the
Company’s fiscal year beginning in 2003, equal to the lesser of (i) 3,500,000
shares, (ii) 5% of the outstanding shares on such date or (iii) an amount
determined by the Board.  The Shares may
be authorized, but unissued, or reacquired Common Stock.

                    If
an Option, Restricted Stock Unit or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have
actually been issued under the Plan, whether upon exercise of an Option,
Restricted Stock Unit or Stock Purchase Right, shall not be returned to the
Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan. 

	
 

	
 

	
 

	
 

	
4. Administration of the Plan.

	
 

	
 

	
 

	
 

	
(a)

	
Procedure.

                         (i)
  Multiple Administrative Bodies.  Different Committees with respect to
different groups of Service Providers may administer the Plan.

                         (ii)
Section 162(m).  To the extent
that the Administrator determines it to be desirable to qualify Options granted
hereunder as “performance-based compensation” within the meaning of Section
162(m) of the Code, the Plan shall be administered by a Committee of two or
more “outside directors” within the meaning of Section 162(m) of the Code.

5

                         (iii)
Rule 16b-3.  To the extent desirable
to qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.

                         (iv)
Other Administration.  Other than
as provided above, the Plan shall be administered by (A) the Board or (B) 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;

                         (ii)
to select the Service Providers to whom Options, Restricted Stock Units and
Stock Purchase Rights may be granted hereunder;

                         (iii)
to determine the number of shares of Common Stock to be covered by each Option,
Restricted Stock Unit and Stock Purchase Right granted hereunder;

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

                         (v)
to determine the terms and conditions, not inconsistent with the terms of the
Plan, of any Option, Restricted Stock Unit or Stock Purchase Right granted
hereunder.  Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights 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,
Restricted Stock Unit or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

                         (vi)
to institute an Option Exchange Program subject to shareholder approval;

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

                         (viii)
to establish, 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;

                         
(ix) to modify or amend each Option, Restricted Stock Unit or Stock Purchase
Right (subject to Section 16(c) 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;

6

                         (x)
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,
Restricted Stock Unit or Stock Purchase Right 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;

                         (xi)
to authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an Option, Restricted Stock Unit or Stock
Purchase Right previously granted by the Administrator;

                         (xii)
to correct any defect, supply any omission, or reconcile any inconsistency in
the Plan, or in any Option Agreement, Restricted Stock Unit Agreement or
Restricted Stock Purchase Agreement, in a manner and to the extent it shall
deem necessary, all of which determinations and interpretations made by the
Administrator shall be conclusive and binding on all Optionees, any other
holders of Options and on their legal representatives and beneficiaries; and

                         (xiii)
except to the extent prohibited by, or impermissible in order to obtain
treatment desired by the Administrator under, applicable law or rule, to
allocate or delegate all or any portion of its powers and responsibilities to
any one or more of its members or to any person(s) selected by it, subject to
revocation or modification by the Administrator of such allocation or
delegation.

                         (xiv)
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,
Restricted Stock Units or Stock Purchase Rights.

          5. Eligibility.
 Nonstatutory Stock Options, Restricted Stock
Units and Stock Purchase Rights may be granted to Service Providers.  Incentive Stock Options may be granted only
to Employees.

          6. Limitations.

                    (a)
Each Option shall be designated in the Option Agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.  For purposes of this Section 6(a), Incentive
Stock Options shall be taken into account in the order in which they were
granted.  The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such
Shares is granted.

7

                    (b)
Neither the Plan nor any Option, Restricted Stock Unit or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee’s relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee’s right or the Company’s right to
terminate such relationship at any time, with or without cause. 

                    (c)
The following limitations shall apply to grants of Options: 

                              (i)
No Service Provider shall be granted, in any fiscal year of the Company,
Options to purchase more than 750,000 Shares. 

                              (ii)
In connection with his or her initial service, a Service Provider may be
granted Options to purchase up to an additional 2,000,000 Shares, which shall
not count against the limit set forth in subsection (i) above. 

                              (iii)
The foregoing limitations shall be adjusted proportionately in connection with
any change in the Company’s capitalization as described in Section 14. 

                              (iv)
If an Option is cancelled in the same fiscal year of the Company in which it
was granted (other than in connection with a transaction described in Section
14), the cancelled Option will be counted against the limits set forth in
subsections (i) and (ii) above. For this purpose, if the exercise price of an
Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option. 

          7.
  Term of Plan. Subject to Section
20 of the Plan, the Plan shall become effective upon its adoption by the Board.
It shall continue in effect for a term of ten (10) years unless terminated
earlier under Section 16 of the Plan. 

          8.
Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant or
such shorter term as may be provided in the Option Agreement. 

          9.
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,
subject to the following: 

                              (i)
In the case of an Incentive Stock Option 

                                        (A)
granted to an Employee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant. 

8

                                        (B)
granted to any Employee other than an Employee described in paragraph (A)
immediately above, the per Share exercise price shall be no less than 100% of
the Fair Market Value per Share on the date of grant. 

                              (ii)
In the case of a Nonstatutory Stock Option, the per Share exercise price shall
be determined by the Administrator. In the case of a Nonstatutory Stock Option
intended to qualify as “performance-based compensation” within the meaning of
Section 162(m) of the Code, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant. 

                              (iii)
Notwithstanding the foregoing, Options may be granted with a per Share exercise
price of less than 100% of the Fair Market Value per Share on the date of grant
pursuant to a merger or other corporate transaction. 

                    (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 that must be satisfied before the Option may be
exercised. 

                    (c)
Form of Consideration. The Administrator shall determine the acceptable
form of consideration for exercising an Option, including the method of
payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of: 

                              (i)
cash; 

                              (ii)
check; 

                              (iii)
promissory note; 

                              (iv)
other Shares, provided Shares acquired directly or indirectly 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)
any combination of the foregoing methods of payment; or 

                              (viii)
such other consideration and method of payment for the issuance of Shares to
the extent permitted by Applicable Laws. 

9

          10.
Exercise of Option. 

                    (a)
Procedure for Exercise; Rights as a Stockholder. 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. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence. 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 or in the name of a
family trust of which the Optionee is a trustee. 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 stockholder 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; provided that if the Company shall be advised by counsel that
certain requirements under the Federal, state or foreign securities laws must
be met before Shares may be issued under this Plan, the Company shall notify
all persons who have been issued Options, and the Company shall have no
liability for failure to issue Shares under any exercise of Options because of
delay while such requirements are being met or the inability of the Company to
comply with such requirements. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 14 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 Relationship as a Service Provider. If an Optionee ceases
to be a Service Provider, other than upon the Optionee’s death or Disability,
the Optionee may exercise his or her Option within such period of time as is
specified in the Option Agreement to the extent that the Option is vested on
the date of termination (but in no event later than the expiration of the term
of such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
three (3) months following the Optionee’s termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, 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 by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan. 

                    (c)
Disability of Optionee. If an Optionee ceases to be a Service Provider
as a result of the Optionee’s Disability, the Optionee may exercise his or her
Option within such period 

10

of time as is
specified in the Option Agreement to the extent the Option is vested on the
date of termination (but in no event later than the expiration of the term of
such Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for
twelve (12) months following the Optionee’s termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, 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. If an Optionee dies while a Service Provider, the
Option may be exercised following the Optionee’s death within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of death (but in no event may the Option be exercised later
than the expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee’s designated beneficiary, provided such beneficiary
has been designated prior to the Optionee’s death in a form acceptable to the
Administrator. If no such beneficiary has been designated by the Optionee, then
such Option may be exercised by the personal representative of the Optionee’s
estate or by the person(s) to whom the Option is transferred pursuant to the
Optionee’s will or in accordance with the laws of descent and distribution. In
the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for twelve (12) months following the Optionee’s death. If,
at the time of death, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan. 

          11. Stock Purchase Rights. 

                    (a) 
Rights to Purchase. Stock Purchase Rights may be issued either alone, in
addition to, or in tandem with other awards granted under the Plan and/or cash
awards made outside of the Plan. After the Administrator determines that it
will offer Stock Purchase Rights under the Plan, it shall advise the offeree in
writing or electronically, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid,
and the time within which the offeree must accept such offer. The offer shall
be accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator. 

                    (b)
Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser’s
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator. 

                    (c)
Other Provisions. The Restricted Stock Purchase Agreement shall contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Administrator in its sole discretion. 

11

                    (d)
Rights as a Stockholder. Once the Stock Purchase Right is exercised, the
purchaser shall have the rights equivalent to those of a stockholder, and shall
be a stockholder when his or her purchase is entered upon the records of the
duly authorized transfer agent of the Company. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 14 of the
Plan. 

          12. Restricted Stock Units. The Administrator is authorized to make awards
of Restricted Stock Units to any Service Provider selected by the Administrator
in such amounts and subject to such terms and conditions as determined by the
Administrator. At the time of grant, the Administrator shall specify the date
or dates on which the Restricted Stock Units shall become fully vested and
nonforfeitable, and may specify such conditions to vesting as it deems appropriate.
At the time of grant, the Administrator shall specify the maturity date
applicable to each grant of Restricted Stock Units which shall be no earlier
than the vesting date or dates of the Restricted Stock Units and may be
determined at the election of the grantee. On the maturity date, the Company
shall, subject to Section 17, transfer to the Participant one unrestricted,
fully transferable share of Common Stock for each Restricted Stock Unit
scheduled to be paid out on such date and not previously forfeited. The
Restricted Stock Unit Agreement shall contain such terms, provisions and
conditions as may be determined by the Administrator in its sole discretion. 

          13. Transferability of Options, Restricted Stock Units and Stock Purchase
Rights. Unless determined otherwise by the Administrator, an Option, Restricted
Stock Unit or Stock Purchase Right 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. If the Administrator makes an
Option, Restricted Stock Unit or Stock Purchase Right transferable, such
Option, Restricted Stock Unit or Stock Purchase Right shall contain such
additional terms and conditions as the Administrator deems appropriate. 

          14. Adjustments; Dissolution; Merger or Change in Control. 

                    (a)
Adjustments. In the event that any dividend or other distribution,
reorganization, merger, consolidation, combination, repurchase, or exchange of
Common Stock or other securities of the Company, or other change in the
corporate structure of the Company affecting the Common Stock (other than an
Equity Restructuring) occurs such that an adjustment is determined by the
Administrator (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 Administrator 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 and each Restricted
Stock Unit for wich a Share has not yet been issued, and the numerical limits
of Sections 3 and 6. 

                    (b)
Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares
as to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any 

12

Company
repurchase option applicable to any Shares purchased upon exercise of an Option
or Stock Purchase Right shall lapse as to all such Shares and that the vesting
with respect to Restricted Stock Units shall fully accelerate, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent an Option or Stock Purchase Right has not been
previously exercised or Shares subject to a Restricted Stock Unit have not been
previously issued, such Option, Restricted Stock Unit or Stock Purchase Right
will terminate immediately prior to the consummation of such proposed action. 

                    (c)
In connection with the occurrence of any Equity Restructuring, and
notwithstanding anything to the contrary in Section 14(a) and 14(b): 

                              (i)
The number and type of securities subject to each outstanding Option,
Restricted Stock Unit or Stock Purchase Right and the exercise price or grant
price thereof, if applicable, will be proportionately adjusted. The adjustments
provided under this Section 14(c)(i) shall be nondiscretionary and shall be
final and binding on the affected Service Provider and the Company. 

                              (ii)
The Administrator shall make such proportionate adjustments, if any, as the
Administrator in its discretion may deem appropriate to reflect such Equity
Restructuring with respect to the aggregate number and kind of shares that may
be issued under the Plan (including, but not limited to, adjustments of the
limitations in Sections 3 and 6). 

                              (iii)
Notwithstanding anything in this Section 14 to the contrary, this Section 14(c)
shall not apply to, and instead Section 14(a) shall apply to, any Option to
which the application of this Section 14(c) would (A) result in a penalty tax
under Section 409A of the Code and the Department of Treasury proposed and
final regulations and guidance thereunder or (B) cause any Incentive Stock
Option to fail to qualify as an “incentive stock option” under Section 422 of
the Code. 

                    (d)
Merger or Change in Control. In the event of a merger of the Company
with or into another corporation, or a Change in Control, each outstanding
Option, Restricted Stock Unit and Stock Purchase Right shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, Restricted Stock
Unit or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right and to have Shares issued
pursuant to the Restricted Stock Unit, in each case, as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
Change in Control, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested
and exercisable for a period of fifteen (15) days from the date of such notice,
and the Option or Stock Purchase Right shall terminate upon the expiration of
such period. If a Restricted Stock Unit becomes fully vested in lieu of assumption
or substitution in the event of a merger or Change in Control, the Share
subject to such Restricted Stock Unit shall be issued no later than immediately
prior to the consummation of such merger or Change in Control. 

13

                              For
the purposes of this subsection (c), the Option, Restricted Stock Unit or Stock
Purchase Right shall be considered assumed if, following the merger or Change
in Control, the option, unit or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option, Restricted Stock Unit
or Stock Purchase Right immediately prior to the merger or Change in Control,
the consideration (whether stock, cash, or other securities or property)
received in the merger or Change in Control 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); provided, however, that if
such consideration received in the merger or Change in Control 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 or Stock Purchase Right and upon
the maturity of the Restricted Stock Unit, for each Share of Optioned Stock
subject to the Option, Restricted Stock Unit or Stock Purchase Right, 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 Change in Control. 

          15.
Date of Grant. The date of grant of an Option, Restricted Stock Unit or
Stock Purchase Right shall be, for all purposes, the date on which the
Administrator makes the determination granting such Option, Restricted Stock
Unit or Stock Purchase Right, 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. 

          16.
Amendment and Termination of the Plan. 

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

                    (b)
Stockholder Approval. The Company shall obtain stockholder approval of
any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws. 

                    (c)
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, Restricted
Stock Units and Stock Purchase Rights granted under the Plan prior to the date
of such termination. 

          17.
Conditions Upon Issuance of Shares. 

                    (a)
Legal Compliance. Shares shall not be issued pursuant to the exercise of
an Option, Restricted Stock Unit or Stock Purchase Right unless the exercise of
such Option, Restricted Stock Unit or Stock Purchase Right and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance. 

                    (b)
Investment Representations. As a condition to the exercise of an Option
or Stock Purchase Right or the issuance of Shares pursuant to a Restricted
Stock Unit, the Company 

14

may require
the person exercising such Option, Restricted Stock Unit or Stock Purchase
Right 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. 

          18. Inability to Obtain Authority. The 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. 

          19. 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. 

          20. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan
is adopted. Such stockholder approval shall be obtained in the manner and to
the degree required under Applicable Laws. 

15

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