Document:

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                                                                    EXHIBIT 10.4

                                  KYPHON INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

     The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Kyphon Inc..

     1.  Purpose.  The purpose of the Plan is to provide employees of the
         -------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a uniform and
nondiscriminatory basis consistent with the requirements of Section 423.

     2.  Definitions.
         -----------

         (a)  "Administrator" shall mean the Board or any Committee designated
               -------------
by the Board to administer the plan pursuant to Section 14.

         (b)  "Board" shall mean the Board of Directors of the Company.
               -----

         (c)  "Change of Control"  shall mean 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)  The consummation of the sale or disposition by the Company
of all or substantially all of the Company's assets; or

               (iii) 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.

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

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

         (e)  "Committee" means a committee of the Board appointed by the Board
               ---------
in accordance with Section 14 hereof.

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

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

         (h)  "Compensation" shall mean all base straight time gross earnings
               ------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, bonuses and other compensation.

         (i)  "Designated Subsidiary" shall mean any Subsidiary selected by the
               ---------------------
Administrator as eligible to participate in the Plan.

         (j)  "Eligible Employee" shall mean any individual who is a common law
               -----------------
employee of the Company or any Designated Subsidiary and whose customary
employment with the Company or Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.

         (k)  "Exercise Date" shall mean the first Trading Day on or after
               -------------
February 1 and August of each year. The first Exercise Date under the Plan shall
be the first Trading Day on or after August 1, 2001.

         (l)  "Fair Market Value" shall mean, 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 date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable;

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               (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; or

               (iv)  For purposes of the Offering Date of the first Offering
Period under the Plan, 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 (the "Registration
Statement").

         (m)  "Offering Periods" shall mean the periods of approximately twenty-
               ----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after February 1 and August
1 of each year and terminating on the first Trading Day on or after the February
1 and August 1 Offering Period commencement date approximately twenty-four
months later; provided, however, that the first Offering Period under the Plan
shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the first Trading Day on or after the earlier of (i)
February 1, 2003 or (ii) twenty-seven (27) months from the beginning of the
first Offering Period. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.

         (n)  "Offering Date" shall mean the first Trading Day of each Offering
               -------------
Period.

         (o)  "Plan" shall mean this 2000 Employee Stock Purchase Plan.
               ----

         (p)  "Purchase Period" shall mean the approximately six (6) month
               ---------------
period commencing on one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Offering Date and end with the next Exercise Date.

         (q)  "Purchase Price" shall mean 85% of the Fair Market Value of a
               --------------
share of Common Stock on the Offering Date or on the Exercise Date, whichever is
lower; provided however, that the Purchase Price may be adjusted by the
Administrator pursuant to Section 20.

         (r)  "Subsidiary" shall mean a "subsidiary corporation," whether now or
               ----------
hereafter existing, as defined in Section 424(f) of the Code.

         (s)  "Trading Day" shall mean a day on which national stock exchanges
               -----------
and the Nasdaq System are open for trading.

     3.  Eligibility.
         -----------

         (a)  First Offering Period.  Any individual who is an Eligible Employee
              ----------------------
immediately prior to the first Offering Period shall be automatically enrolled
in the first Offering Period.

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         (b)  Subsequent Offering Periods. Any Eligible Employee on a given
              ---------------------------
Offering Date shall be eligible to participate in the Plan.

         (c)  Limitations.  Any provisions of the Plan to the contrary
              -----------
notwithstanding, no Eligible Employee shall be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Eligible Employee (or
any other person whose stock would be attributed to such Eligible Employee
pursuant to Section 424(d) of the Code) would own capital stock of the Company
and/or hold outstanding options to purchase such stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of the
capital stock of the Company or of any Subsidiary, or (ii) to the extent that
his or her rights to purchase stock under all employee stock purchase plans of
the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

     4.  Offering Periods.  The Plan shall be implemented by consecutive,
         ----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after February 1 and August 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the first Trading Day on or after
the earlier of (i) August 1, 2003 or (ii) twenty-seven (27) months after the
beginning of the first Offering Period. The Board shall have the power to change
the duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced prior to the scheduled beginning of the first Offering Period to be
affected thereafter.

     5.  Participation.
         -------------

         (a)  First Offering Period.  An Eligible Employee shall be entitled to
              ----------------------
participate in the first Offering Period only if such individual submits a
subscription agreement authorizing payroll deductions in the form of Exhibit A
                                                                     ---------
to this Plan (i) no earlier than the effective date of the Form S-8 registration
statement with respect to the issuance of Common Stock under this Plan and (ii)
no later than five (5) business days from the effective date of such S-8
registration statement (the "Enrollment Window"). An Eligible Employee's failure
to submit the subscription agreement during the Enrollment Window shall result
in the automatic termination of such individual's participation in the Offering
Period.

         (b)  Subsequent Offering Periods.  An Eligible Employee may become a
              ---------------------------
participant in the Plan by completing a subscription agreement authorizing
payroll deductions in the form of Exhibit A to this Plan and filing it with the
                                  ---------
Company's payroll office prior to the applicable Offering Date.

     6.  Payroll Deductions.
         ------------------

         (a)  At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding 15% of the Compensation which he or
she receives on each pay day during the

                                      -4-
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Offering Period; provided, however, that should a pay day occur on an Exercise
Date, a participant shall have the payroll deductions made on such day applied
to his or her account under the new Offering Period or Purchase Period, as the
case may be. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.

         (b)  Payroll deductions for a participant shall commence on the first
payday following the Offering Date and shall end on the last payday in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof; provided,
however, that for the first Offering Period, payroll deductions shall commence
on the first payday on or following the end of the Enrollment Window.

         (c)  All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.

         (d)  A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Administrator may, in its discretion, limit the nature
and/or number of participation rate changes during any Offering Period. The
change in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly.

         (e)  Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.

         (f)  At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Eligible Employee.

     7.  Grant of Option.  On the Offering Date of each Offering Period, each
         ---------------
Eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Eligible Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Eligible Employee be permitted to purchase during each
Purchase Period more than 5,000 shares of

                                      -5-
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the Company's Common Stock (subject to any adjustment pursuant to Section 19),
and provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. The Eligible Employee may accept the grant
of such option by turning in a completed Subscription Agreement (attached hereto
as Exhibit A) to the Company on or prior to an Offering Date, or with respect to
   ---------
the first Offering Period, prior to the last day of the Enrollment Window. The
Administrator may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Eligible Employee may purchase during each Purchase Period of such Offering
Period. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.

     8.  Exercise of Option.
         ------------------

         (a)  Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other funds left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.

         (b)  If the Administrator determines that, on a given Exercise Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Administrator may in its sole discretion (x) provide that the Company shall
make a pro rata allocation of the shares of Common Stock available for purchase
on such Offering Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Offering Date or Exercise Date, as applicable, in
as uniform a manner as shall be practicable and as it shall determine in its
sole discretion to be equitable among all participants exercising options to
purchase Common Stock on such Exercise Date, and terminate any or all Offering
Periods then in effect pursuant to Section 20 hereof. The Company may make pro
rata allocation of the shares available on the Offering Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Offering Date.

     9.  Delivery.  As soon as reasonably practicable after each Exercise Date
         --------
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant the shares purchased upon exercise of his or her option in a
form determined by the Administrator.

                                      -6-
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     10.  Withdrawal.
          ----------

          (a)  A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
            ---------
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.

          (b)  A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.

     11.  Termination of Employment.  In the event a participant ceases to be an
          -------------------------
Eligible Employee of the Company or any Designated Subsidiary, as applicable,
his or her option shall remain exercisable for a period of three (3) months from
the date of such Eligible Employee's termination.  Upon the expiration of such
three (3) month period or a date prior to the expiration of such three (3) month
period if requested by the participant, any payroll deductions credited to such
participant's account during the Offering Period but not yet used to purchase
shares under the Plan shall be returned to such participant or, in the case of
his or her death, to the person or persons entitled thereto under Section 15
hereof, and such participant's option shall be automatically terminated.

     12.  Interest.  No interest shall accrue on the payroll deductions of a
          --------
participant in the Plan.

     13.  Stock.
          -----

          (a)  Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
1,200,000 shares, (ii) 2% of the outstanding shares on such date or (iii) an
amount determined by the Administrator.

          (b)  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), a participant shall only have the rights of an unsecured creditor with
respect to such shares, and no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to such shares.

          (c)  Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.

                                      -7-
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     14.  Administration.  The Administrator shall administer the Plan and shall
          --------------
have full and exclusive discretionary authority to construe, interpret and apply
the terms of the Plan, to determine eligibility and to adjudicate all disputed
claims filed under the Plan. Every finding, decision and determination made by
the Administrator shall, to the full extent permitted by law, be final and
binding upon all parties.

     15.  Designation of Beneficiary.
          --------------------------

          (a)  A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.

          (b)  Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

          (c)  All beneficiary designations shall be in such form and manner as
the Administrator may designate from time to time.

     16.  Transferability.  Neither payroll deductions credited to a
          ---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.

     17.  Use of Funds.  All payroll deductions received or held by the Company
          ------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions. Until
shares are issued, participants shall only have the rights of an unsecured
creditor.

     18.  Reports.  Individual accounts shall be maintained for each participant
          -------
in the Plan. Statements of account shall be given to participating Eligible
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.

                                      -8-
<PAGE>

     19.  Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
          ---------------------------------------------------------------------
Merger or Change of Control.
---------------------------

          (a)  Changes in Capitalization.  Subject to any required action by the
               -------------------------
shareholders of the Company, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan, the maximum
number of shares each participant may purchase each Purchase Period (pursuant to
Section 7), the number of shares that may be added annually to the shares
reserved under the Plan (pursuant to Section 13(a)(i)), as well as the price per
share and the number of shares of Common Stock covered by each option under the
Plan which has not yet been exercised shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other change in the number of
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.

          (b)  Dissolution or Liquidation.  In the event of the proposed
               --------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Administrator. The
New Exercise Date shall be before the date of the Company's proposed dissolution
or liquidation. The Administrator shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.

          (c)  Merger or Change of Control.  In the event of a merger or Change
               ---------------------------
of Control, each outstanding option shall be assumed or an equivalent option
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, any Purchase Periods then in progress shall
be shortened by setting a New Exercise Date and any Offering Periods then in
progress shall end on the New Exercise Date. The New Exercise Date shall be
before the date of the Company's proposed merger or Change of Control. The
Administrator shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.

                                      -9-
<PAGE>

     20.  Amendment or Termination.
          ------------------------

          (a)  The Administrator may at any time and for any reason terminate or
amend the Plan. Except as otherwise provided in the Plan, no such termination
can affect options previously granted, provided that an Offering Period may be
terminated by the Administrator on any Exercise Date if the Administrator
determines that the termination of the Offering Period or the Plan is in the
best interests of the Company and its shareholders. Except as provided in
Section 19 and this Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.

          (b)  Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Administrator shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion advisable which are
consistent with the Plan.

          (c)  In the event the Administrator determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:

               (i)   increasing the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;

               (ii)  shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and

               (iii) allocating shares.

Such modifications or amendments shall not require stockholder approval or the
consent of any Plan participants.

     21.  Notices.  All notices or other communications by a participant to the
          -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form and manner specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

                                      -10-
<PAGE>

     22.  Conditions Upon Issuance of Shares.  Shares shall not be issued with
          ----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, 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 applicable provisions of law.

     23.  Term of Plan.  The Plan shall become effective upon the earlier to
          ------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect until terminated under
Section 20 hereof.

     24.  Automatic Transfer to Low Price Offering Period.  To the extent
          -----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Offering Date of
such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period.

                                      -11-
<PAGE>

                                   EXHIBIT A
                                   ---------

                                 KYPHON INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

                             SUBSCRIPTION AGREEMENT

_____ Original Application                             Offering Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)

1.    ____________________ hereby elects to participate in the Kyphon Inc.
      Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
      subscribes to purchase shares of the Company's Common Stock in accordance
      with this Subscription Agreement and the Employee Stock Purchase Plan.

2.    I hereby authorize payroll deductions from each paycheck in the amount of
      ____% of my Compensation on each payday (from 0 to 15%) during the
      Offering Period in accordance with the Employee Stock Purchase Plan.
      (Please note that no fractional percentages are permitted.)

3.    I understand that said payroll deductions shall be accumulated for the
      purchase of shares of Common Stock at the applicable Purchase Price
      determined in accordance with the Employee Stock Purchase Plan.  I
      understand that if I do not withdraw from an Offering Period, any
      accumulated payroll deductions will be used to automatically exercise my
      option.

4.    I have received a copy of the complete Employee Stock Purchase Plan. I
      understand that my participation in the Employee Stock Purchase Plan is in
      all respects subject to the terms of the Plan. I understand that my
      ability to exercise the option under this Subscription Agreement is
      subject to shareholder approval of the Employee Stock Purchase Plan.

5.    Shares purchased for me under the Employee Stock Purchase Plan should be
      issued in the name(s) of (Eligible Employee or Eligible Employee and
      Spouse only).

6.    I understand that if I dispose of any shares received by me pursuant to
      the Plan within 2 years after the Offering Date (the first day of the
      Offering Period during which I purchased such shares) or one year after
      the Exercise Date, I will be treated for federal income tax purposes as
      having received ordinary income at the time of such disposition in an
      amount equal to the excess of the fair market value of the shares at the
      time such shares were purchased by me over the price which I paid for the
      shares. I hereby agree to notify the Company in writing within 30 days
              --------------------------------------------------------------
      after the date of any disposition of my shares and I will make adequate
      -----------------------------------------------------------------------
      provision for Federal, state or other tax withholding obligations, if any,
      --------------------------------------------------------------------------
      which arise upon the
      --------------------
<PAGE>

      disposition of the Common Stock. The Company may, but will not be
      -------------------------------
      obligated to, withhold from my compensation the amount necessary to meet
      any applicable withholding obligation including any withholding necessary
      to make available to the Company any tax deductions or benefits
      attributable to sale or early disposition of Common Stock by me. If I
      dispose of such shares at any time after the expiration of the 2-year and
      1-year holding periods, I understand that I will be treated for federal
      income tax purposes as having received income only at the time of such
      disposition, and that such income will be taxed as ordinary income only to
      the extent of an amount equal to the lesser of (1) the excess of the fair
      market value of the shares at the time of such disposition over the
      purchase price which I paid for the shares, or (2) 15% of the fair market
      value of the shares on the first day of the Offering Period. The remainder
      of the gain, if any, recognized on such disposition will be taxed as
      capital gain.

7.    I hereby agree to be bound by the terms of the Employee Stock Purchase
      Plan.  The effectiveness of this Subscription Agreement is dependent upon
      my eligibility to participate in the Employee Stock Purchase Plan.

8.    In the event of my death, I hereby designate the following as my
      beneficiary(ies) to receive all payments and shares due me under the
      Employee Stock Purchase Plan:

      NAME:  (Please print)_____________________________________________________
                                (First)        (Middle)         (Last)

      _________________________      ___________________________________________
      Relationship

      _________________________      ___________________________________________
      Percentage Benefit             (Address)

      NAME:  (Please print)_____________________________________________________
                                (First)        (Middle)         (Last)

      _________________________      ___________________________________________
      Relationship

      _________________________      ___________________________________________
      Percentage of Benefit          (Address)
<PAGE>

     Employee's Social
     Security Number:                ____________________________________

     Employee's Address:             ____________________________________

                                     ____________________________________

                                     ____________________________________

I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.

Dated:_________________________      ___________________________________________
                                     Signature of Employee

                                     ___________________________________________
                                     Spouse's Signature (If beneficiary other
                                     than spouse)
<PAGE>

                                   EXHIBIT B
                                   ---------

                                 KYPHON INC.

                       2000 EMPLOYEE STOCK PURCHASE PLAN

                              NOTICE OF WITHDRAWAL

     The undersigned participant in the Offering Period of the Kyphon Inc.
Employee Stock Purchase Plan which began on ____________, ______ (the "Offering
Date") hereby notifies the Company that he or she hereby withdraws from the
Offering Period.  He or she hereby directs the Company to pay to the undersigned
as promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period.  The undersigned understands and
agrees that his or her option for such Offering Period will be automatically
terminated.  The undersigned understands further that no further payroll
deductions will be made for the purchase of shares in the current Offering
Period and the undersigned shall be eligible to participate in succeeding
Offering Periods only by delivering to the Company a new Subscription Agreement.

                                    Name and Address of Participant:

                                    ________________________________

                                    ________________________________

                                    ________________________________

                                    Signature:

                                    ________________________________

                                    Date:____________________________REPUBLIC  OF  YEMEN
MINISTRY  OF  OIL  &  MINERAL  RESOURCES

MEMORANDUM  OF  UNDERSTANDING

This Memorandum of understanding (MOIU) is made and entered into on the 17th day
Of Rajab 1420  H, corresponding to  the  26th  day, of October 1999, between the
Following  Parties:

1-   The  Ministry  of  Oil  &  Mineral  Resources  in  the  Republic  of  Yemen
     (Hereinafter referred to as MINISTRY):

                                          And
                                          ---

2-   ADAIR INTERNATIONAL OIL & GAS, INC (ADAIR), a Texas Corporation, having its
     headquarters at 3000 Richmond Avenue Suite 100,  Houston,  Texas,  USA, and
     PARTNERS IN EXPLORATION, LLC (PIE), a limited liability corporation, having
     its headquarters at 1001 Hampshire Lane, Richardson,  Texas, USA being duly
     organized  and  existing  under  the Laws and  Regulations  of The State of
     Nevada, with ADAIR and PIE as joint venture partners  (hereinafter referred
     to as "CONTRACTOR").

In  Reference  to  Block  No (20) Al-Sabatain area of Marib-Shabwa Govern orates
Republic  of Yemen as determined by the coordinates, and the map attached hereto
with  approximate  area  of  2049  Sq.  Km.

The  MINISTRY and the CONTRACTOR hereby agree to start negotiating in good faith
a  production  sharing  Agreement  (PSA)  immediately  and  finalize it within a
maximum  two  (2) months period from the date of signing of this MOU, During the
said  period  of  (2)  months,  MINISTRY  agrees that it will not enter into any
Memorandum  of  Understanding,  commitment  or  agreement in respect of the said
block No (20) with any party other than CONTRACTOR, In the event the Parties are
not  able  to agree upon the terms and conditions of the PSA within the said two
(2) months period, this MOU will automatically expire and be of no further force
or  effect,  unless  extended  in  writing  by  the  Parties  hereto.

This  MOU  records  the basis for the principal commercial terms of the PSA. The
Exploration  period  shall  be  (  5  )  Years  to  be  divided into (2) phases:

The  First  Exploration  Phase:
-------------------------------
The  First  Phase  of Exploration Period shall be an obligatory period of Thirty
Six  (  36)  months plus Zero ( 0 ) Months extension upon written Request by the
CONTRACTOR  and  the  approval  of  the  MINISTRY.
Minimum  Exploration  Work  Program  and  Budget:

<PAGE>
MINIMUM EXPLORATION WORK PROGRAM AND BUDGET:
--------------------------------------------

-    Reprocess  (1000 km of 2D seismic  data  related  to the Block (U$  300,000
     USD).
-    Conduct, acquire, process and interpret minimum Zero Km (2D) of New seismic
     lines.
-    Conduct,  acquire,  process  and  interpret  minimum  100 Sq Km (3D) of New
     seismic lines ($ 4,0 Million USD).
-    Drill and  evaluate ( 2 )  exploration  wells with total  depth as mutually
     agreed and  Technically  Justified to test identified  prospect  objectives
     ($4,0 million USD).

The  CONTRACTOR  shall provide to the MINISTRY full amount of irrevocable Letter
of  Credit,  issued  by  any  local  Bank in ROY, or mutually acceptable Bank in
correspondence with a Yemeni Bank and submitted to the MINISTRY on the signature
date  of  the  PSA  and  becomes  valid  on  the  Effective  date,  of the total
Expenditure  Commitment  of  the  First  Exploration  Phase  and shall be in the
minimum amount of Eight Million Three Hundred Thousand United State Dollars (US$
8,3).

The  Second  Exploration  Phase:
--------------------------------

The Second Phase ( optional ) shall be  twenty-four ( 24 )  months  plus  twelve
( 12 ) months extension upon approval of the MINISTRY.

Minimum  Exploration  work  Program  and  Budget:

-    Conduct,  acquire,  process and interpret an additional Zero Km (2D) of New
     seismic lines.
-    Conduct,  acquire,  process and  interpret  minimum  Zero Sq Km (3D) of New
     seismic lines.
-    Drill and evaluate four (4) exploration  wells with total depth as mutually
     agreed and  Technically  Justified to test identified  prospect  objectives
     Eight Million United State Dollars (US$ 8,0 Million).

The  CONTRACTOR  shall provide to the MINISTRY full amount of irrevocable Letter
of  Credit,  issued  by  local  Bank  in  ROY,  or  mutually  acceptable Bank in
correspondence  with a Yemeni Bank and submitted to the MINISTRY in due time, of
the  total  minimum Expenditure commitment by the CONTRACTOR of the Second Phase
and  shall  be  in the Minimum amount of Eight Million United State Dollars (US$
8,0).

The  Total  Minimum  Expenditures  for both phases will be Sixteen Million Three
Hundred  Thousand  United  State  Dollars  (US$  16,3  Million).

The  minimum  work  commitment  shall  be  carried  out  and  performed  in full
regardless  of  the  minimum  Expenditure  commitment  and  according  to  Good
International  Petroleum  Industry  Practices.

<PAGE>
ROYALTY
-------
The  MINISTRY  shall  be  entitled  to  have  as  Royalty:-
     0  -  25,000                BOPD     (3%)
     25,000  -  50,000           BOPD     (4%)
     50,000  -  75,000           BOPD     (5%)
     75,000  -  100,000          BOPD     (6%)
     In  excess  of  100,000     BOPD     (8%)

Fixed  Tax:
-----------
CONTRACTOR  shall pay a fixed percentage tax (" fixed tax ") equivalent to Three
(3%)  percent  of  all  its actual Exploration Expenditures incurred and paid in
conducting  its  Exploration  Operations.

Signature  Bonus:
-----------------
The  CONTRACTOR  shall  pay  to  the MINISTRY Four Hundred Thousand United State
Dollars  (US$  400,000 ) as signature Bonus. The CONTRACTOR shall provide to the
MINISTRY  full  amount of irrevocable Letter of Credit, issued by any local bank
in  ROY  and submitted to the MINISTRY within (2) weeks after the signing of the
PSA, such letter of Credit shall be payable immediately upon the ratification of
the  PSA  by  Parliament  or by authorization of the PSA by Presidential Decree.

Commercial  and  Production  Bonuses:
-------------------------------------
-    US Dollars  One  Million  (US$ 1,0)  within  fifteen  (15) days after first
     tanker lifting.

-    US Dollars One Million  (US$ 1.0 ) when the  Production  reaches  (12,500 )
     BOPD.

-    US Dollars  One Million  (US$ 1.0) when the  Production  reaches  (25,000 )
     BOPD.

-    US Dollars Two Million  (US$ 2.0 ) when the  Production  reaches ( 50,000 )
     BOPD.

-    US Dollars Three Million (US$ 3.0 ) when the Production  reaches  (75,000 )
     BOPD.

-    US Dollars Four Million (US$ 4.0 ) when the  Production  reaches  (100,000)
     BOPD.

Each  of  the Bonuses is to be paid once only at time as the production level is
achieved  for  a  period  of  thirty  (30)  consecutive days as indicated above

Training  Bonus:
----------------
The  CONTRACTOR  shall  pay annually to the MINISTRY during the Agreement Period
an amount of One Hundred Thousand United State Dollars (US$ 100,000) as Training
Bonus  commencing  from  the  effective  date.

Institutional  bonus:
---------------------
The CONTRACTOR shall pay annually to the MINISTRY during the Agreement Period an
Amount   of   one  hundred  Thousand  United  State  Dollars (US $  100,000)  as
Institutional Bonus  commencing  from  the  Effective  date.

<PAGE>
Social  Development  Bonus:
----------------------------

The  CONTRACTOR  Shall  ay  annually  to  the  MINISTRY  during  the  Agreement
Period  an  amount  of     Thousand  United  State  Dollars (US$ 5.0OO&) as
Social Development  Bonus  commencing  from  the  Effective  date

All Taxes, Royalties and Bonuses are not recoverable from the Cost Oil. Cost Oil
Recovery:

COST OIL RECOVERY:
------------------

Fifty  percent  (50 %)  Maximum  of  oil  produced and saved after deduction of
Royalty, shall be allocated for the recovery of costs incurred and paid by  the
CONTRACTOR in conducting petroleum operations  in  the Agreement Area, and will
be recovered annually as  follows:-

-     Exploration  Expenditure      75%.
-     Development  Expenditure      75%.
-     Operation  Expenditure       100%.

Production  sharing  oil:
-------------------------

Increment                       MINISTRY      CONTRACTOR
0-12,500             BOPD          63%            37%
12,500-25,000        BOPD          65%            35%
25,000-50,000        BOPD          70%            30%
50.000-75,000        BOPD          75%            25%
75,000-100,000       BOPD          80%            20%
In excess of 100,000 BOPD          82%            18%

Relinquishments:
----------------

     -     25% of the original area at the and of the First
           phase of the Exploration period, if the CONTRACTOR
           elects  to  enter  into  the  Second  phase of the
           exploration  period.

     -     100%  of  the  remaining  area  except  the  area
           (s)  transferred  into development  area  (s).

Development  Period:
--------------------

The  development  period  shall  be  Twenty ( 20 ) years starting from the first
Commercial  Discovery  and  can  be  extended  up to five (5) years Upon six (6)
months  written request by the CONTRACTOR and subject to written approval of the
MINISTRY.

<PAGE>
MINISTRY'S  Participating  Carried  Interests:
----------------------------------------------

The  MINISTRY'S  operating  arm  the  Yemen  Company  shall  acquire  as  of the
CONTRACTOR'S  right  and  working Interests of seven percent (7%) under the PSA.

This  MOU  is  signed in two (2) originals in the English language, MINISTRY and
one  (1)  for  the  CONTRACTOR.

On behalf of the MINISTRY               On behalf of the CONTRACTOR
                                        1- ADAIR
                                           INTERNATIONAL
                                           OIL
By:  /s/  RASHID  S.  BA-RABA'A          By:  /s/  JALAL  AL  GHANI
   ----------------------------             ------------------------------------
Name:     RASHID  S.  BA-RABA'A          Name:     JALAL  AL  GHANI
   Title: Deputy  Minister                 Title: Vice Chairman and Chief
                                               Financial  Officer

                                        2- PARTNERS
                                           IN EXPLORATION

                                        By:  /s/ RICHARD  G.  BOYCE
                                           -------------------------------------
                                        Name:    RICHARD  G.  BOYCE

                                        Title:  Vice  President

<PAGE>
                        GRAPHIC OMITED

<PAGE>

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