exv10w5






Exhibit 10.5




POWER INTEGRATIONS, INC.

1997 EMPLOYEE STOCK PURCHASE PLAN

(As Amended Through June 6, 2000)

(As Amended By the Board on April 22, 2008)

(Approved By the Stockholders on June 13, 2008)




1. Establishment, Purpose and Term of Plan.




     1.1 Establishment. The Power Integrations, Inc. 1997 Employee Stock Purchase Plan (the
“Plan”) is hereby established effective as of the effective date of the initial registration by the
Company of its Stock under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Effective Date”).



     1.2 Purpose. The purpose of the Plan is to advance the interests of Company and its
stockholders by providing an incentive to attract, retain and reward Eligible Employees of the
Participating Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group. The Plan provides such Eligible Employees with
an opportunity to acquire a proprietary interest in the Company through the purchase of Stock. The
Plan consists of two programs, which are referred to as the U.S. Program and the Global Program.
The U.S. Program is intended to qualify as an “employee stock purchase plan” under Section 423(b)
of the Code (including any amendments or replacements of such section), and the Global Program is
not intended to so qualify.



     1.3 Term of Plan. The Plan shall continue in effect until the earlier of its termination by
the Board or the date on which all of the shares of Stock available for issuance under the Plan
have been issued.



2. Definitions and Construction.




     2.1 Definitions. Any term not expressly defined in the Plan (or other provisions governing
the Global Program) but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their respective meanings
set forth below:



          (a) “Board” means the Board of Directors of the Company. If one or more Committees have been
appointed by the Board to administer the Plan, “Board” also means such Committee(s).




          (b) “Code” means the Internal Revenue Code of 1986, as amended, and any applicable regulations
promulgated thereunder.




          (c) “Committee” means a committee of the Board duly appointed to administer the Plan and
having such powers as shall be specified by the Board. Unless the powers of the Committee have
been specifically limited, the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or



 









 






terminate the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.




          (d) “Company” means Power Integrations, Inc., a Delaware corporation, or any successor
corporation thereto.




          (e) “Compensation” means, with respect to any Offering Period, base wages or salary,
commissions, overtime, bonuses, annual awards, other incentive payments, shift premiums, and all
other compensation paid in cash during such Offering Period before deduction for any contributions
to any plan maintained by a Participating Company and described in Section 401(k) or Section 125 of
the Code. Compensation shall not include reimbursements of expenses, allowances, long-term
disability, workers’ compensation or any amount deemed received without the actual transfer of cash
or any amounts directly or indirectly paid pursuant to the Plan or any other equity compensation
plan, or any other compensation not included above.




          (f) “Eligible Employee” means an Employee who meets the requirements set forth in Section 5
for eligibility to participate in the Plan.




          (g) “Employee” means a person treated as an employee of a Participating Company. A
Participant shall be deemed to have ceased to be an Employee either upon an actual termination of
employment or upon the corporation employing the Participant ceasing to be a Participating Company.
For purposes of the Plan, an individual shall not be deemed to have ceased to be an Employee while
such individual is on any military leave, sick leave, or other bona fide leave of absence approved
by the Company of three (3) months or less. In the event an individual’s leave of absence exceeds
three (3) months, the individual shall be deemed to have ceased to be an Employee on the first day
following the three (3)-month anniversary of such leave unless the individual’s right to
reemployment with the Participating Company Group is guaranteed either by statute or by contract.
The Company shall determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of such individual’s
employment or termination of employment, as the case may be. For purposes of an individual’s
participation in or other rights, if any, under the Plan as of the time of the Company’s
determination, all such determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently makes a contrary
determination.




          (h) “Fair Market Value” means, as of any date, if there is then a public market for the Stock,
the U.S. Dollar closing price of a share of Stock (or the mean of the U.S. Dollar closing bid and
asked prices if the Stock is so quoted instead) as quoted on the Nasdaq Global Select Market,
Nasdaq Global Market, the Nasdaq Capital Market or such other national or regional securities
exchange or market system constituting the primary market for the Stock, as reported in The Wall
Street Journal or such other source as the Company deems reliable. If the relevant date does not
fall on a day on which the Stock has traded on such securities exchange or market system, the date
on which the Fair Market Value shall be established shall be the last day on which the Stock was so
traded prior to the relevant date, or such other appropriate day as shall be determined by the
Board, in its sole discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board.




 









 








          (i) “Global Program” means the component of the Plan intended to provide Employees, who are
not subject to United States income tax, the opportunity to purchase Stock through accumulated
payroll deductions or other approved contributions. This component of the Plan is not intended to
qualify for special tax treatment under Section 423 of the Code.




          (j) “Offering” means an offering of Stock as provided in Section 6.




          (k) “Offering Date” means, for any Offering, the first day of the Offering Period with respect
to such Offering.




          (l) “Offering Period” means a period established in accordance with Section 6.1.




          (m) “Parent Corporation” means any present or future “parent corporation” of the Company, as
defined in Section 424(e) of the Code.




          (n) “Participant” means an Eligible Employee who has become a participant in an Offering
Period in accordance with Section 7 and remains a participant in accordance with the Plan.




          (o) “Participating Company” means (i) for purposes of the U.S. Program, the Company or any
U.S. Parent Corporation or U.S. Subsidiary Corporation designated by the Board as a corporation the
Employees of which may, if Eligible Employees, participate in the Plan, (ii) for purposes of the
Global Program, any entity (whether or not treated as a corporation for U.S. tax purposes)
controlling the Company or controlled by the Company directly or indirectly through one or more
intermediaries. The Board shall have the sole and absolute discretion to determine from time to
time which Parent Corporations or Subsidiary Corporations shall be Participating Companies. To the
extent that any Participating Company in the Global Program has an entity located in more than one
local jurisdiction, the Board shall also have the authority to establish eligibility to participate
in the Global Program on an entity-by-entity basis within such Participating Company. The
Participating Companies in the U.S. Program and Global Program are set forth on Appendix A.




          (p) “Participating Company Group” means, at any point in time, the Company and all other
corporations collectively which are then Participating Companies.




          (q) “Plan” means this 1997 Employee Stock Purchase Plan and shall apply to both the U.S.
Program and the Global Program.




          (r) “Purchase Date” means, for any Purchase Period, the last day of such period.




          (s) “Purchase Period” means a period established in accordance with Section 6.2.




          (t) “Purchase Price” means the price at which a share of Stock may be purchased under the
Plan, as determined in accordance with Section 9.




 








 








          (u) “Purchase Right” means an option granted to a Participant pursuant to the Plan to purchase
such shares of Stock as provided in Section 8, which the Participant may or may not exercise during
the Offering Period in which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant not previously
applied to the purchase of Stock under the Plan and to terminate participation in the Plan at any
time during an Offering Period.




          (v) “Stock” means the common stock of the Company, as adjusted from time to time in accordance
with Section 4.2.




          (w) “Subscription Agreement” means a written agreement in such form as specified by the
Company, stating an Employee’s election to participate in the Plan and authorizing payroll
deductions under the Plan from the Employee’s Compensation.




          (x) “Subscription Date” means the last business day prior to the Offering Date of an Offering
Period or such earlier date as the Company shall establish.




          (y) “Subsidiary Corporation” means any present or future “subsidiary corporation” of the
Company, as defined in Section 424(f) of the Code.




          (z) “U.S. Program” means the component of the Plan intended to provide Employees, who are
subject to United States income tax, the opportunity to purchase Stock through accumulated payroll
deductions or other approved contributions. This component of the Plan shall be deemed to be a
plan that is intended to qualify for special tax treatment under Section 423 of the Code and does
not include the Global Program.




     2.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated
by the context, the singular shall include the plural and the plural shall include the singular.
Use of the term “or” is not intended to be exclusive, unless the context clearly requires
otherwise.



3. Administration.




     3.1 Administration by the Board.



          (a) The Plan shall be administered by the Board. All questions of interpretation of the Plan,
of any form of agreement or other document employed by the Company in the administration of the
Plan, or of any Purchase Right shall be determined by the Board and shall be final and binding upon
all persons having an interest in the Plan or the Purchase Right. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company. Subject to the
provisions of the Plan, the Board shall determine all of the relevant terms and conditions of
Purchase Rights granted pursuant to the Plan under the U.S. Program; provided, however, that all
Participants granted Purchase Rights pursuant to the U.S. Program shall have the same rights and
privileges within the meaning of Section 423(b)(5) of the Code.




          (b) The Board may also adopt rules, procedures, or sub-plans applicable to a Participating
Company or jurisdiction as part of the Global Program to accommodate the specific



 









 






requirements of the law and procedures of foreign jurisdictions, including but not limited to,
establishing rules and procedures regarding handling of payroll deductions or other approved
contributions, payment of interest, conversion of local currency, payroll tax, withholding
procedures, and handling of stock certificates that vary with local requirements. Unless otherwise
superseded by the terms of a sub-plan under the Global Program, the provisions of the Plan shall
govern the operation of such sub-plan.




     3.2 Authority of Officers. Any officer of the Company shall have the authority to act on
behalf of the Company with respect to any matter, right, obligation, determination or election that
is the responsibility of or that is allocated to the Company herein, provided that the officer has
apparent authority with respect to such matter, right, obligation, determination or election.



     3.3 Policies and Procedures Established by the Company. The Company may, from time to time,
consistent with the Plan and the requirements of Section 423 of the Code, establish, change or
terminate such rules, guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required for participation in
an Offering, (b) a limitation on the frequency or number of changes permitted in the rate of
payroll deduction during an Offering, (c) an exchange ratio applicable to amounts withheld in a
currency other than United States dollars, (d) a payroll deduction greater than or less than the
amount designated by a Participant in order to adjust for the Company’s delay or mistake in
processing a Subscription Agreement or in otherwise effecting a Participant’s election under the
Plan or as advisable to comply with the requirements of Section 423 of the Code, and (e)
determination of the date and manner by which the Fair Market Value of a share of Stock is
determined for purposes of administration of the Plan.



4. Shares Subject to Plan.




     4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Section 4.2, the
maximum aggregate number of shares of Stock that may be issued under the Plan shall be three
million (3,000,000) and shall consist of authorized but unissued or reacquired shares of Stock, or
any combination thereof. If an outstanding Purchase Right for any reason expires or is terminated
or canceled, the shares of Stock allocable to the unexercised portion of such Purchase Right shall
again be available for issuance under the Plan.



     4.2 Adjustments for Changes in Capital Structure. In the event of any stock dividend, stock
split, reverse stock split, recapitalization, combination, reclassification or similar change in
the capital structure of the Company, or in the event of any merger (including a merger effected
for the purpose of changing the Company’s domicile), sale of assets or other reorganization in
which the Company is a party, appropriate and proportionate adjustments shall be made in the number
and class of shares subject to the Plan and each Purchase Right and in the Purchase Price. If a
majority of the shares which are of the same class as the shares that are subject to outstanding
Purchase Rights are exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the “New Shares”), the Board may
unilaterally amend the outstanding Purchase Rights to provide that such Purchase Rights are
exercisable for New Shares. In the event of any such amendment, the number of shares subject to,
and the Purchase Price of, the outstanding Purchase Rights shall



 









 




be adjusted in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may
the Purchase Price be decreased to an amount less than the par value, if any, of the stock subject
to the Purchase Right. The adjustments determined by the Board pursuant to this Section 4.2 shall
be final, binding and conclusive.




5. Eligibility.




     5.1 Employees Eligible to Participate in U.S. Program. Each Employee of a Participating
Company in the U.S. Program is eligible to participate in the Plan and shall be deemed an Eligible
Employee, except the following:



          (a) Any Employee who is customarily employed by the Participating Company Group for less than
twenty (20) hours per week; or




          (b) Any Employee who is customarily employed by the Participating Company Group for not more
than five (5) months in any calendar year.




     5.2 Employees Eligible to Participate in Global Program. To the extent that any Participating
Company in the Global Program has Employees located in more than one local jurisdiction, the Board
shall have the authority to determine whether such Employees are Eligible Employees on a
jurisdiction-by-jurisdiction basis, and may otherwise excluded such Employees from participation in
the Global Program.



     5.3 Exclusion of Certain Stockholders. Notwithstanding any provision of the Plan to the
contrary, no Employee shall be granted a Purchase Right under the Plan if, immediately after such
grant, such Employee would own or hold options to purchase stock of the Company or of any Parent
Corporation or Subsidiary Corporation possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of such corporation, as determined in accordance with
Section 423(b)(3) of the Code. For purposes of this Section 5.3, the attribution rules of Section
424(d) of the Code shall apply in determining the stock ownership of such Employee.



6. Offerings.




     6.1 Offering Periods.



          (a) Prior to February 1, 2009, the Plan shall be implemented by sequential Offerings of
approximately twenty-four (24) months duration (an “Offering Period”); provided, however, that the
first such Offering Period shall commence on the Effective Date and end on January 31, 2000 (the
"Initial Offering Period”). Subsequent Offerings shall commence on the first day of February and
August of each year and end on the last day of the second January and July, respectively, occurring
thereafter.




          (b) Beginning February 1, 2009, the Plan shall be implemented by sequential Offerings of
approximately six (6) months duration, which shall run from the first day of February to the last
day of July each year and from the first day of August each year to the last day in January in the
following year.




 









 








          (c) Notwithstanding the foregoing, the Board may establish a different duration for one or
more future Offering Periods or different commencing or ending dates for such Offering Periods;
provided, however, that no Offering Period may have a duration exceeding twenty-seven (27) months.
If the first or last day of an Offering Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall specify the trading day
that will be deemed the first or last day, as the case may be, of the Offering Period.




     6.2 Purchase Periods.



          (a) Prior to February 1, 2009, each Offering Period shall consist of four (4) consecutive
Purchase Periods of approximately six (6) months duration, or such other number or duration as the
Board shall determine. The Purchase Period commencing on the Offering Date of the Initial Offering
Period shall end on July 31, 1998. A Purchase Period commencing on or about February 1 shall end
on or about the next July 31. A Purchase Period commencing on or about August 1 shall end on or
about the next January 31.




          (b) Beginning February 1, 2009, each Offering Period shall consist of one Purchase Period of
approximately six (6) months duration.




          (c) Notwithstanding the foregoing, the Board may establish a different duration for one or
more future Purchase Periods or different commencing or ending dates for such Purchase Periods. If
the first or last day of a Purchase Period is not a day on which the national securities exchanges
or Nasdaq Stock Market are open for trading, the Company shall specify the trading day that will be
deemed the first or last day, as the case may be, of the Purchase Period.




7. Participation in the Plan.




     7.1 Initial Participation. An Eligible Employee may become a Participant in an Offering
Period by delivering a properly completed Subscription Agreement to the office designated by the
Company not later than the close of business for such office on the Subscription Date established
by the Company for such Offering Period. An Eligible Employee who does not deliver a properly
completed Subscription Agreement to the Company’s designated office on or before the Subscription
Date for an Offering Period shall not participate in the Plan for that Offering Period or for any
subsequent Offering Period unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of the Company on or before the Subscription Date
for such subsequent Offering Period. An Employee who becomes an Eligible Employee after the
Offering Date of an Offering Period shall not be eligible to participate in such Offering Period
but may participate in any subsequent Offering Period provided such Employee is still an Eligible
Employee as of the Offering Date of such subsequent Offering Period.



     7.2 Continued Participation. A Participant shall automatically participate in the next
Offering Period commencing immediately after the final Purchase Date of each Offering Period in
which the Participant participates provided that such Participant remains an Eligible Employee on
the Offering Date of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.



 









 




A Participant who may automatically participate in a subsequent Offering Period, as provided
in this Section, is not required to deliver any additional Subscription Agreement for the
subsequent Offering Period in order to continue participation in the Plan. However, a Participant
may deliver a new Subscription Agreement for a subsequent Offering Period in accordance with the
procedures set forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant’s then effective Subscription Agreement. Eligible Employees may not
participate simultaneously in more than one Offering.




8. Right to Purchase Shares.




     8.1 Grant of Purchase Right. Except as set forth below, on the Offering Date of each Offering
Period, each Participant in such Offering Period shall be granted automatically a Purchase Right
consisting of an option to purchase the lesser of (a) that number of whole shares of Stock
determined by dividing Fifty Thousand Dollars ($50,000) by the Fair Market Value of a share of
Stock on such Offering Date or (b) five thousand (5,000) shares of Stock. No Purchase Right shall
be granted on an Offering Date to any person who is not, on such Offering Date, an Eligible
Employee.



     8.2 Pro Rata Adjustment of Purchase Right. Notwithstanding the provisions of Section 8.1, if
the Board establishes an Offering Period of any duration other than twenty-four months, then (a)
the dollar amount in Section 8.1 shall be determined by multiplying $2,083.33 by the number of
months (rounded to the nearest whole month) in the Offering Period and rounding to the nearest
whole dollar, and (b) the share amount in Section 8.1 shall be determined by multiplying 208.33
shares by the number of months (rounded to the nearest whole month) in the Offering Period and
rounding to the nearest whole share.



     8.3 Calendar Year Purchase Limitation. Notwithstanding any provision of the Plan to the
contrary, no Participant shall be granted a Purchase Right which permits his or her right to
purchase shares of Stock under the Plan to accrue at a rate which, when aggregated with such
Participant’s rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other limit, if any, as may be
imposed by the Code) for each calendar year in which such Purchase Right is outstanding at any
time. For purposes of the preceding sentence, the Fair Market Value of shares purchased during a
given Offering Period shall be determined as of the Offering Date for such Offering Period. The
limitation described in this Section 8.3 shall be applied in conformance with applicable
regulations under Section 423(b)(8) of the Code.



9. Purchase Price.




     The Purchase Price at which each share of Stock may be acquired in an Offering Period upon the
exercise of all or any portion of a Purchase Right shall be established by the Board; provided,
however, that the Purchase Price shall not be less than eighty-five percent (85%) of the lesser of
(a) the Fair Market Value of a share of Stock on the Offering Date of the Offering Period or (b)
the Fair Market Value of a share of Stock on the Purchase Date. Unless otherwise provided by the
Board prior to the commencement of an Offering Period, the Purchase Price for that Offering Period
shall be eighty-five percent (85%) of the lesser of (a) the Fair Market Value



 









 







of a share of Stock on the Offering Date of the Offering Period, or (b) the Fair Market Value
of a share of Stock on the Purchase Date.



10. Accumulation of Purchase Price through Payroll Deduction.




     Shares of Stock acquired pursuant to the exercise of all or any portion of a Purchase Right
may be paid for only by means of payroll deductions from the Participant’s Compensation accumulated
during the Offering Period for which such Purchase Right was granted, subject to the following:



     10.1 Amount of Payroll Deductions. Except as otherwise provided herein or prohibited by the
law of a local jurisdiction, the amount to be deducted under the Plan from a Participant’s
Compensation on each payday during an Offering Period shall be determined by the Participant’s
Subscription Agreement. The Subscription Agreement shall set forth the percentage of the
Participant’s Compensation to be deducted on each payday during an Offering Period in whole
percentages of not less than one percent (1%) (except as a result of an election pursuant to
Section 10.3 to stop payroll deductions made effective following the first payday during an
Offering) or more than fifteen percent (15%). Notwithstanding the foregoing, the Board may change
the limits on payroll deductions effective as of any future Offering Date. In jurisdictions where
payroll deductions are not permitted under local law, the Participants may participate in the
Global Program by making contributions in the form that is acceptable and approved by the Board.



     10.2 Commencement of Payroll Deductions. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the Offering Period unless
sooner altered or terminated as provided herein.



     10.3 Election to Change or Stop Payroll Deductions. During an Offering Period, a Participant
may elect to increase or decrease the rate of or to stop deductions from his or her Compensation by
delivering to the Company’s designated office an amended Subscription Agreement authorizing such
change on or before the “Change Notice Date.” The “Change Notice Date” shall be a date prior to the
beginning of the first pay period for which such election is to be effective as established by the
Company from time to time and announced to the Participants. A Participant who elects to decrease
the rate of his or her payroll deductions to zero percent (0%) shall nevertheless remain a
Participant in the current Offering Period unless such Participant withdraws from the Plan as
provided in Section 12.1.



     10.4 Administrative Suspension of Payroll Deductions. The Company may, in its sole
discretion, suspend a Participant’s payroll deductions under the Plan as the Company deems
advisable to avoid accumulating payroll deductions in excess of the amount that could reasonably be
anticipated to purchase the maximum number of shares of Stock permitted during a calendar year
under the limit set forth in Section 8.3. Payroll deductions shall be resumed at the rate
specified in the Participant’s then effective Subscription Agreement at the beginning of the next
Purchase Period the Purchase Date of which falls in the following calendar year.



     10.5 Participant Accounts. Individual bookkeeping accounts shall be maintained for each
Participant. Except as otherwise required by the law of a local jurisdiction, all payroll
deductions from a Participant’s Compensation shall be: (i) credited to such Participant’s Plan



 









 




account, (ii) deposited with the general funds of the Company, and (iii) used by the Company
for any corporate purpose.




     10.6 No Interest Paid. Except as otherwise required by the law of a local jurisdiction,
interest shall not be paid on sums deducted from a Participant’s Compensation pursuant to the Plan.



     10.7 Voluntary Withdrawal from Plan Account. A Participant may withdraw all or any portion of
the payroll deductions credited to his or her Plan account and not previously applied toward the
purchase of Stock by delivering to the Company’s designated office a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the entire remaining balance
credited to his or her Plan account shall be deemed to have withdrawn from the Plan in accordance
with Section 12.1. Amounts withdrawn shall be returned to the Participant as soon as practicable
after the withdrawal and may not be applied to the purchase of shares in any Offering under the
Plan. The Company may from time to time establish or change limitations on the frequency of
withdrawals permitted under this Section, establish a minimum dollar amount that must be retained
in the Participant’s Plan account, or terminate the withdrawal right provided by this Section.



11. Purchase of Shares.




     11.1 Exercise of Purchase Right. On each Purchase Date of an Offering Period, each
Participant who has not withdrawn from the Plan and whose participation in the Offering has not
terminated before such Purchase Date shall automatically acquire pursuant to the exercise of the
Participant’s Purchase Right the number of whole shares of Stock determined by dividing (a) the
total amount of the Participant’s payroll deductions accumulated in the Participant’s Plan account
during the Offering Period and not previously applied toward the purchase of Stock by (b) the
Purchase Price. However, in no event shall the number of shares purchased by the Participant
during an Offering Period exceed the number of shares subject to the Participant’s Purchase Right.
No shares of Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase Date.



     11.2 Pro Rata Allocation of Shares. In the event that the number of shares of Stock which
might be purchased by all Participants in the Plan on a Purchase Date exceeds the number of shares
of Stock available in the Plan as provided in Section 4.1, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from such pro rata
allocation to any Participant shall be disregarded.



     11.3 Delivery of Certificates. As soon as practicable after each Purchase Date, the Company
shall arrange the delivery to each Participant, as appropriate, of a certificate representing the
shares acquired by the Participant on such Purchase Date; provided that the Company may deliver
such shares to a broker that holds such shares in street name for the benefit of the Participant.
Shares to be delivered to a Participant under the Plan shall be registered in the name of the
Participant, or, if requested by the Participant, in the name of the Participant and his or her
spouse, or, if applicable, in the names of the heirs of the Participant.



 









 





     11.4 Return of Cash Balance. Any cash balance remaining in a Participant’s Plan account
following any Purchase Date shall be refunded to the Participant as soon as practicable after such
Purchase Date. However, if the cash to be returned to a Participant pursuant to the preceding
sentence is an amount less than the amount that would have been necessary to purchase an additional
whole share of Stock on such Purchase Date, the Company may retain such amount in the Participant’s
Plan account to be applied toward the purchase of shares of Stock in the subsequent Purchase Period
or Offering Period, as the case may be.



     11.5 Tax Withholding. At the time a Participant’s Purchase Right is exercised, in whole or in
part, or at the time a Participant disposes of some or all of the shares of Stock he or she
acquires under the Plan, the Participant shall make adequate provision for the foreign, federal,
state and local tax withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares, respectively. The
Participating Company Group may, but shall not be obligated to, withhold from the Participant’s
compensation the amount necessary to meet such withholding obligations.



     11.6 Expiration of Purchase Right. Any portion of a Participant’s Purchase Right remaining
unexercised after the end of the Offering Period to which the Purchase Right relates shall expire
immediately upon the end of the Offering Period.



     11.7 Reports to Participants. Each Participant who has exercised all or part of his or her
Purchase Right shall receive, as soon as practicable after the Purchase Date, a report of such
Participant’s Plan account setting forth the total payroll deductions accumulated prior to such
exercise, the number of shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the cash balance, if any, remaining immediately after such purchase that is to be
refunded or retained in the Participant’s Plan account pursuant to Section 11.4. The report
required by this Section may be delivered in such form and by such means, including by electronic
transmission, as the Company may determine.



12. Withdrawal from Offering or Plan.




     12.1 Voluntary Withdrawal from the Plan. A Participant may withdraw from the Plan by signing
and delivering to the Company’s designated office a written notice of withdrawal on a form provided
by the Company for such purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period; provided, however, that if a Participant withdraws from the Plan after the
Purchase Date of a Purchase Period, the withdrawal shall not affect shares of Stock acquired by the
Participant on such Purchase Date. A Participant who voluntarily withdraws from the Plan is
prohibited from resuming participation in the Plan in the same Offering from which he or she
withdrew, but may participate in any subsequent Offering by again satisfying the requirements of
Sections 5 and 7.1. The Company may impose, from time to time, a requirement that the notice of
withdrawal from the Plan be on file with the Company’s designated office for a reasonable period
prior to the effectiveness of the Participant’s withdrawal.



     12.2 Automatic Withdrawal from an Offering. If the Fair Market Value of a share of Stock on a
Purchase Date of an Offering Period (other than the final Purchase Date of such offering) is less
than the Fair Market Value of a share of Stock on the Offering Date for such Offering Period, then
every Participant shall automatically be (a) withdrawn from such Offering



 









 




Period after the acquisition of shares of Stock on the Purchase Date and (b) enrolled in the
new Offering Period effective on its Offering Date. A Participant may elect not to be
automatically withdrawn from an Offering Period pursuant to this Section 12.2 by delivering to the
Company’s designated office not later than the close of business on Offering Date new Offering
Period a written notice indicating such election.




     12.3 Return of Payroll Deductions. Upon a Participant’s voluntary withdrawal from the Plan
pursuant to Sections 12.1 or automatic withdrawal from an Offering pursuant to Section 12.2, the
Participant’s accumulated payroll deductions which have not been applied toward the purchase of
shares of Stock (except, in the case of an automatic withdrawal pursuant to Section 12.2, for an
amount necessary to purchase an additional whole share as provided in Section 11.4) shall be
refunded to the Participant as soon as practicable after the withdrawal, without the payment of any
interest, and the Participant’s interest in the Plan or the Offering, as applicable, shall
terminate. Such accumulated payroll deductions to be refunded in accordance with this Section may
not be applied to any other Offering under the Plan.



13. Termination of Employment or Eligibility.




     Upon a Participant’s ceasing, prior to a Purchase Date, to be an Employee of the Participating
Company Group for any reason, including retirement, disability or death, or the failure of a
Participant to remain an Eligible Employee, the Participant’s participation in the Plan shall
terminate immediately. In such event, the payroll deductions credited to the Participant’s Plan
account since the last Purchase Date shall, as soon as practicable, be returned to the Participant
or, in the case of the Participant’s death, to the Participant’s legal representative, and all of
the Participant’s rights under the Plan shall terminate. Except as otherwise required by the law
of a local jurisdiction, interest shall not be paid on sums returned pursuant to this Section 13.
A Participant whose participation has been so terminated may again become eligible to participate
in the Plan by again satisfying the requirements of Sections 5 and 7.1.



14. Change in Control.




     14.1 Definitions.



          (a) An “Ownership Change Event” shall be deemed to have occurred if any of the following
occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.




          (b) A “Change in Control” shall mean an Ownership Change Event or a series of related
Ownership Change Events (collectively, the “Transaction”) wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the Transaction, in
substantially the same proportions as their ownership of shares of the Company’s voting stock
immediately before the Transaction, direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the outstanding voting stock of the Company or
the corporation or corporations to which the assets of the Company were transferred (the
"Transferee Corporation(s)”), as the case may be. For



 









 






purposes of the preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one or more corporations
which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the
case may be, either directly or through one or more subsidiary corporations. The Board shall have
the right to determine whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be final, binding and
conclusive.




     14.2 Effect of Change in Control on Purchase Rights. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the
case may be (the “Acquiring Corporation”), may assume the Company’s rights and obligations under
the Plan. If the Acquiring Corporation elects not to assume the Company’s rights and obligations
under outstanding Purchase Rights, the Purchase Date of the then current Purchase Period shall be
accelerated to a date before the date of the Change in Control specified by the Board, but the
number of shares of Stock subject to outstanding Purchase Rights shall not be adjusted. All
Purchase Rights which are neither assumed by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall terminate and cease
to be outstanding effective as of the date of the Change in Control.



15. Nontransferability of Purchase Rights.




     A Purchase Right may not be transferred in any manner otherwise than by will or the laws of
descent and distribution and shall be exercisable during the lifetime of the Participant only by
the Participant.



16. Compliance with Securities Law.




     The issuance of shares under the Plan shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities. A Purchase Right
may not be exercised if the issuance of shares upon such exercise would constitute a violation of
any applicable federal, state or foreign securities laws or other law or regulations or the
requirements of any securities exchange or market system upon which the Stock may then be listed.
In addition, no Purchase Right may be exercised unless (a) a registration statement under the
Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in
effect with respect to the shares issuable upon exercise of the Purchase Right, or (b) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of the Purchase Right
may be issued in accordance with the terms of an applicable exemption from the registration
requirements of said Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company’s legal counsel to be necessary to the
lawful issuance and sale of any shares under the Plan 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. As a condition to the exercise of a Purchase Right, the Company may require
the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence
compliance with any applicable law or regulation, and to make any representation or warranty with
respect thereto as may be requested by the Company.



 









 





17. Rights as a Stockholder and Employee.




     A Participant shall have no rights as a stockholder by virtue of the Participant’s
participation in the Plan until the date of the issuance of a certificate for the shares purchased
pursuant to the exercise of the Participant’s Purchase Right (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment
shall be made for dividends, distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in Section 4.2. Nothing herein shall
confer upon a Participant any right to continue in the employ of the Participating Company Group or
interfere in any way with any right of the Participating Company Group to terminate the
Participant’s employment at any time.



18. Legends.




     The Company may at any time place legends or other identifying symbols referencing any
applicable federal, state or foreign securities law restrictions or any provision convenient in the
administration of the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to a Purchase Right in the
possession of the Participant in order to carry out the provisions of this Section. Unless
otherwise specified by the Company, legends placed on such certificates may include but shall not
be limited to the following:




“THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE
REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN
AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE
TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION
IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER HEREOF. THE
REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED
HOLDER’S NAME (AND NOT IN THE NAME OF ANY NOMINEE).”



19. Notification of Sale of Shares.




     The Company may require the Participant to give the Company prompt notice of any disposition
of shares acquired by exercise of a Purchase Right within two years from the date of granting such
Purchase Right or one year from the date of exercise of such Purchase Right. The Company may
require that until such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant’s name (or, if
elected by the Participant, in the name of the Participant and his or her spouse but not in the
name of any nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the certificates evidencing
shares acquired by exercise of a Purchase Right refer to such requirement to give prompt notice of
disposition.



 









 





20. 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 specified by the
Company at the location, or by the person, designated by the Company for the receipt thereof.



21. Indemnification.




     In addition to such other rights of indemnification as they may have as members of the Board
or officers or employees of the Participating Company Group, members of the Board and any officers
or employees of the Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable expenses, including
attorneys’ fees, actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection with the Plan, or any
right granted hereunder, and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as
to which it shall be adjudged in such action, suit or proceeding that such person is liable for
gross negligence, bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding, such person shall offer
to the Company, in writing, the opportunity at its own expense to handle and defend the same.



22. Amendment or Termination of the Plan.




     The Board may at any time amend or terminate the Plan, except that (a) such termination shall
not affect Purchase Rights previously granted under the Plan, except as permitted under the Plan,
and (b) no amendment may adversely affect a Purchase Right previously granted under the Plan
(except to the extent permitted by the Plan or as may be necessary to qualify the Plan as an
employee stock purchase plan pursuant to Section 423 of the Code or to obtain qualification or
registration of the shares of Stock under applicable federal, state or foreign securities laws).
In addition, an amendment to the Plan must be approved by the stockholders of the Company within
twelve (12) months of the adoption of such amendment if such amendment would authorize the sale of
more shares than are authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies.



 









 





APPENDIX A




Participating Companies in U.S. Program

Power Integrations, Inc.




Participating Companies in Global Program

Power Integrations, K.K.

Power Integrations Ltd.

Power Integrations International Ltd.

Power Integrations Singapore Pte. Ltd.

Power Integrations Netherlands B.V. (excluding the Shanghai Representative Office and

Shenzhen Representative Office)

Power Integrations GmbH

Power Integrations Italy S.r.l.

Power Integrations India Private Ltd.

Power Integrations Canada ULC (Alberta)

Power Integrations Canada ULC (Ontario)

Power Integrations Europe Ltd.




 









 





POWER INTEGRATIONS, INC.

1997 EMPLOYEE STOCK PURCHASE PLAN

SUBSCRIPTION AGREEMENT




	 	 	 	 	 	 	 
	NAME (Please print):
	 	 	 	 	 	 
	 	 	 
	 

	 	(Last)
	 	(First)
	 	(Middle)






	 	 	 
	o

	 	Application for the Offering Period beginning                     , 20                    .
	 
	 	 
	o

	 	Change in Payroll Deduction rate effective with the pay period ending                     , 20                    .






     I hereby elect to participate in the 1997 Employee Stock Purchase Plan (the “Plan”) of Power
Integrations, Inc. (the “Company”) and subscribe to purchase shares of the Company’s Stock in
accordance with this Subscription Agreement and the Plan.



     I hereby authorize payroll deductions in the amount of                      percent (in whole percentages
not less than 1% (unless an election to stop deductions is being made) or more than 15%) of my
"Compensation” on each payday throughout the “Offering Period” in accordance with the Plan. I
understand that these payroll deductions will be accumulated for the purchase of shares of Stock at
the applicable purchase price determined in accordance with the Plan. I understand that, except as
otherwise provided by the Plan, I will automatically purchase shares on each Purchase Date under
the Plan unless I withdraw from the Plan by giving written notice on a form provided by the Company
or unless my employment terminates.



     I understand that I will automatically participate in each subsequent Offering that commences
immediately after the last day of an Offering in which I am participating until I withdraw from the
Plan by giving written notice on a form provided by the Company or my employment terminates.



     Shares I purchase under the Plan should be issued in the name(s) set forth below. (Shares may
be issued in the participant’s name alone or together with the participant’s spouse as community
property or in joint tenancy.)




	 	 	 	 	 
	 

	 	NAME(S):	 	 
	 
	 	
 

	 
	 	 	 	 
	 

	 	ADDRESS:	 	 
	 
	 	
 

	 
	 	 	 	 
	 

	 	MY SOCIAL SECURITY NUMBER:	 	 
	 

	 	 	 	 





     I agree to make adequate provision for the federal, state, local and foreign tax withholding
obligations, if any, which may arise upon my purchase of shares under the Plan and/or my
disposition of such shares. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet such withholding obligations.



     I agree that, unless otherwise permitted by the Company, until I dispose of the shares I
purchased under the Plan, I will hold such shares in the name(s) entered above (and not in the name
of any nominee) for at least two years from the first day of the Offering Period in which, and at
least one year from the Purchase Date on which, I acquired such shares.



     I agree that I will notify the Chief Financial Officer of the Company in writing within 30
days after any sale, gift, transfer or other disposition of any kind prior to the end of the
periods referred to in the preceding paragraph (a “Disqualifying Disposition”) of any shares I
purchased under the Plan. I further agree that if I do not respond within 30 days of the date of a
Disqualifying Disposition Survey delivered to me by certified mail, the Company may treat my
nonresponse as my notice to the Company of a Disqualifying Disposition and may compute and report
to the Internal Revenue Service the ordinary income I must recognize upon such Disqualifying
Disposition.



     I am familiar with the provisions of the Plan and agree to participate in the Plan subject to
all of its provisions. I understand that the Board of Directors of the Company reserves the right
to terminate the Plan or to amend the Plan and my right to purchase stock under the Plan to the
extent provided by the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.



	 	 	 	 	 	 	 	 	 
	Date:

	 	 	 	 	 	Signature:	 	 
	 

	 	 
	 	 	 	 	 	 






 








 








POWER INTEGRATIONS, INC.

1997 EMPLOYEE STOCK PURCHASE PLAN

NOTICE OF WITHDRAWAL




	 	 	 	 	 	 	 
	NAME (Please print):
	 	 	 	 	 	 
	 	 	 
	 

	 	(Last)
	 	(First)
	 	(Middle)






     I hereby elect to withdraw from the Offering under Power Integrations, Inc. 1997 Employee
Stock Purchase Plan (the “Plan”) which began on                     , 20                     and in which I
am currently participating (the “Current Offering”).



     Elect either A or B below:




	 	 	 	 	 
	o

	 	A.
	 	I elect to terminate immediately my participation
in the Current Offering and in the Plan.
	 
	 	 	 	 
	 

	 	 	 	I request that the Company cease all further payroll deductions from my Compensation
under the Plan (provided that I have given sufficient notice prior to the next payday).
I request that all payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall not be used to purchase
shares on the next Purchase Date of the Current Offering.
	 
	 	 	 	 
	 

	 	 	 	Instead, I request that all such amounts be paid to me as soon as practicable. I
understand that this election immediately terminates my interest in the Current
Offering and in the Plan.
	 
	 	 	 	 
	o

	 	B.
	 	I elect to terminate my participation in the Current Offering and in the Plan following my
purchase of shares on next Purchase Date of the Current Offering.
	 
	 	 	 	 
	 

	 	 	 	I request that the Company cease all further payroll deductions from my Compensation
under the Plan (provided that I have given sufficient notice prior to the next payday).
I request that all payroll deductions credited to my account under the Plan (if any)
not previously used to purchase shares under the Plan shall be used to purchase shares
on the next Purchase Date of the Current Offering to the extent permitted by the Plan.
I understand that this election will terminate my interest in the Current Offering and
in the Plan immediately following such purchase. I request that any cash balance
remaining in my account under the Plan after my purchase of shares be paid to me as
soon as practicable.






     I understand that by making this election I am terminating my interest in the Plan and that no
further payroll deductions will be made (provided that I have given sufficient notice prior to the
next payday) unless I elect in accordance with the Plan to become a participant in another Offering
under the Plan by filing a new Subscription Agreement with the Company.



	 	 	 	 	 	 	 	 	 
	Date:

	 	 	 	 	 	Signature: