exv10w63






Exhibit 10.63




POWER INTEGRATIONS, INC.




COMPLIANCE POLICY

REGARDING IRC SECTION 409A





	1.	 	Introduction.






     (a) This Compliance Policy Regarding IRC Section 409A (the “Policy”) is hereby adopted by
Power Integrations, Inc.(the “Company”) on December 31, 2008 (the “Adoption Date”), to be first
effective as of December 31, 2008, in order to comply with the documentary compliance requirements
of Section 409A of the Internal Revenue Code of 1986 (the “Code”) and the administrative guidance
promulgated thereunder (collectively, “Section 409A”). The Policy will have the scope and
limitations set forth herein and shall be enforceable to the extent permitted by law.



     (b) The Company from time to time has entered into and in the future may enter into agreements
with its executive officers (collectively the “Executives” and each an “Executive”) that provide
for certain compensation and benefits, including but not limited to separation benefits (each an
“Executive Benefits Agreement”).



     (c) The provisions of this Policy are intended to comply with the requirements of (including
by way of exception from) Section 409A so that none of the payments and benefits to be provided
under any arrangement covered by this Policy will be subject to the additional tax imposed under
Section 409A, and any ambiguities herein will be interpreted to so comply. The Company will take
such reasonable actions that are necessary, appropriate or desirable to avoid imposition of any
additional tax or income recognition under Section 409A prior to actual payment of payments and
benefits. However, the Company can give no assurance to any employee or other service provider
that such actions, including the adoption of this Policy, will have such effect, and employees and
other service providers shall remain responsible for paying all applicable taxes, including those
imposed by Section 409A.



     (d) This Policy is not intended to increase or decrease the payments or benefits offered to
affected employees and other service providers.




	2.	 	Coverage.






     (a) Retrospective Coverage. Except as set forth below, the Executive Benefits Agreements and
each compensation arrangement to which the Company or an affiliate is a party that potentially
provides for a nonqualified deferral of compensation described in Section 409A shall have its terms
governed by the Policy. A deferred compensation agreement that is governed by the Policy is
hereinafter referred to as a “Subject Arrangement.” The compensation arrangements that are
excluded from this Policy and therefore do not constitute Subject Arrangements are as follows:



     (i) Any “stock rights” as described in Treasury Regulations Section 1.409A-1(b)(5)(i);
provided further that the Executive Benefit Agreements shall not apply to stock



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options granted by the Company that constitute deferred compensation for the purposes of
Section 409A as of the date hereof (or would constitute such deferred compensation if the value of
the Company’s stock were greater than the exercise price of such options).



     (ii) With the exception of bonus and expense reimbursement arrangements, any arrangement that
is not in writing.



     (iii) Arrangements entered into with an individual who is not and is not reasonably likely to
become subject to taxation in the United States in respect of his or her compensation.



     (b) Prospective Coverage. Each compensation arrangement to which the Company or an affiliate
is a party that is entered into on or after January 1, 2009 that potentially provides for a
nonqualified deferral of compensation described in Section 409A shall have its terms governed by
this Policy, unless such arrangement specifically provides for an exemption from this Policy or
such new arrangement otherwise expressly provides for the manner in which it is exempt from or
compliant with Section 409A.




	3.	 	Payment Terms.






     (a) Lump Sum Payments. Unless otherwise expressly provided by the operative terms of a
Subject Arrangement, any amount to be paid to a service provider in the form of a single payment
following the date the amount is earned by the service provider pursuant to a Subject Arrangement
shall be paid not later than the March 15th of the calendar year following the calendar year during
which such amount was earned (i.e., ceased to be subject to a substantial risk of forfeiture) by
the service provider (such period, the “Short-Term Deferral Period”). For purposes of this Policy,
a “single payment” shall also include all payments otherwise scheduled to be made by the end of the
Short-Term Deferral Period.



     (b) Installment Payments. To the extent that payments made upon termination of employment are
not being made under a Subject Arrangement in a “single payment,” as described in Section 3(a)
above, any amount paid that qualifies as a payment made as a result of an involuntary separation
from service pursuant to Treasury Regulations Section 1.409A-1(b)(9)(iii) that does not exceed the
Section 409A Limit (as defined below) shall not constitute Deferred Compensation Separation
Benefits (as defined below). If a Subject Arrangement states that severance benefits will be paid
on a termination without cause, but is silent on whether such termination includes a termination by
reason of death or disability, the Subject Arrangement shall be read to preclude payment on a
termination by reason of death or disability (i.e., a termination without cause shall only be an
“involuntary termination” within the meaning of Treasury Regulations Section 1.409A-1(b)(9)(iii)).
“Section 409A Limit” shall mean the lesser of: (i) two (2) times the service provider’s annualized
compensation based upon the annual rate of pay paid to the service provider during the Company’s
taxable year preceding the Company’s taxable year of the service provider’s termination of
employment as determined under Treasury Regulations Section 1.409A-1(b)(9)(iii)(A)(1); and (ii) two
(2) times the maximum amount that may be taken into account under a qualified plan pursuant to
Section 401(a)(17) of the Code for the year in which the service provider’s employment is
terminated.



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     (c) Choice of Form of Payment. If a Subject Arrangement other than an Executive Benefit
Agreement provides for a choice between a lump sum payment and a series of installment payments, a
lump sum payment pursuant to Section 3(a) above is hereby selected.



     (d) Reimbursements and Taxable Health Benefits. To the extent that any taxable reimbursements
of expenses, including taxable health benefits, are provided pursuant to a Subject Arrangement,
they shall be made or provided in accordance with Section 409A, including, but not limited to, the
following provisions:



     (i) The amount of any such expense reimbursement or in-kind benefit provided during a service
provider’s taxable year shall not affect any expenses eligible for reimbursement in any other
taxable year;



     (ii) The reimbursement of the eligible expense shall be made no later than the last day of the
service provider’s taxable year that immediately follows the taxable year in which the expense was
incurred;



     (iii) The right to any reimbursement shall not be subject to liquidation or exchange for
another benefit or payment; and



     (iv) In the case of taxable health benefits, any health plan or insurance policy shall provide
an objective, non-discretionary definition of expenses eligible for reimbursement.



     (e) Relocation Expenses. Any Subject Arrangement providing for relocation expense
reimbursements and/or airfare expense reimbursements shall be subject to the following conditions:



     (i) Unless expressly provided otherwise in the Subject Arrangement, these expenses are
reimbursable only so long as the individual remains an employee of the Company and only if the
relocation occurs within the first 12 months following the commencement of employment (or, if
later, the request for relocation).



     (ii) Any such reimbursements will be paid to within 30 days after the date the employee
submits receipts for the expenses, provided the employee submits those receipts within 30 days
after the expense is incurred.



     (iii) In all cases, the reimbursements will be subject to Section 3(d) above.



     (f) Commissions and Bonuses. For purposes of this Policy and Section 409A, all commissions
and bonuses received under a Subject Arrangement shall be deemed earned and no longer subject to a
risk of forfeiture on the day of receipt and no earlier.



     (g) Golden Parachute Excise Tax Provisions. Any Subject Arrangement that involves a provision
designed to protect against the excise taxes imposed by Section 4999 of the Code by stating that
benefits will be either delivered in full or delivered as to such lesser extent that would result
in no portion of such benefits being subject to the excise tax (a “Reduced Amount”), whichever
provides the service provider with a greater after-tax benefit, shall be interpreted to provide
that any reduction in payments and/or benefits required by such provision shall occur in a manner
necessary to provide the service provider with the greatest economic benefit. If more than one
manner of reduction of payments or benefits necessary to arrive at the



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Reduced Amount yields the greatest economic benefit to the service provider, the payments and
benefits shall be reduced pro rata. Any authority of the service provider or the Company to
specify the order of reduction of benefits is hereby revoked.



     (h) Further Deferrals. Any action taken by the Company or a service provider in the form of
an amendment to a Subject Arrangement, where such action constitutes a “subsequent deferral
election” within the meaning of Treasury Regulations Section 1.409A-2(b)(1), shall comply with the
rules of Section 409A applicable to subsequent deferral elections. To the extent that any action
taken that would constitute a subsequent deferral election does not so comply, such action shall be
void.




	4.	 	Separation from Service; Specified Employee Delays.






     (a) Notwithstanding anything to the contrary in a Subject Arrangement, no severance benefits
shall become payable under a Subject Arrangement until the recipient of such benefits has a
“separation from service” within the meaning of Section 409A. Furthermore, subject to Section 4(b)
below, if the service provider is a “specified employee” within the meaning of Section 409A at the
time of the service provider’s separation from service (other than due to death), and the severance
benefits payable to the service provider, if any, pursuant to a Subject Arrangement, when
considered together with any other severance benefits, are considered deferred compensation under
Section 409A (together, the “Deferred Compensation Separation Benefits”), such Deferred
Compensation Separation Benefits that are otherwise payable within the first six (6) months
following the service provider’s separation from service will become payable on the first payroll
date that occurs after the date six (6) months and one (1) day following the date of the service
provider’s separation from service (or such later date as is required to avoid the imposition of
additional tax under Section 409A). All subsequent Deferred Compensation Separation Benefits, if
any, shall be payable in accordance with the payment schedule applicable to each payment or
benefit. Notwithstanding anything herein to the contrary, if a service provider dies following
termination but prior to the six (6) month anniversary of termination (or any later delay date),
then any payments delayed in accordance with this Section 4(a) shall be payable in a lump sum as
soon as administratively practicable after the date of the service provider’s death, and all other
Deferred Compensation Separation Benefits shall be payable in accordance with the payment schedule
applicable to each payment or benefit.



     (b) Prior to the imposition of the delay set forth in Section 4(a) above, the short-term
deferral exception set forth in Section 6(d) below, the involuntary termination exception set forth
in Section 3(b) above, and the exception for COBRA benefits set forth in Treasury Regulations
Section 1.409A-1(b)(9)(v) shall first be applied to the greatest extent possible.




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	5.	 	Release Requirements.





     If an individual’s receipt of severance benefits under a Subject Arrangement will be subject
to signing and not revoking a release of claims, such release of claims must be effective no later
than sixty (60) days following the termination of employment date or, for releases already attached
to Subject Arrangements prior to January 1, 2009, such earlier time as is expressly provided under
the release (such deadline, the “Release Deadline”). If the release does not become effective by
the Release Deadline, the individual will forfeit any rights to severance benefits that are
conditioned on an effective release of claims. In no event will severance benefits be paid until
the release becomes effective. If the severance benefits provided under the
Subject Arrangement are not exempt from Section 409A, then on the first regular payroll date
coinciding with or next following the Release Deadline, the Company shall pay the employee the
severance benefits that would have been paid on and through such date pursuant to the original
payment schedule but for the delay pending the date of the Release Deadline, with the balance of
the payments paid thereafter on the original schedule. If the severance benefits provided under
the Subject Arrangement are exempt from Section 409A, then on the first regular payroll date
coinciding with or next following the date on which the release becomes effective, the Company will
pay the employee the severance benefits that would have been paid on and through such date pursuant
to the original payment schedule but for the delay pending the effectiveness of the release, with
the balance of the payments paid thereafter on the original schedule.




	6.	 	Interpretative Provisions.





     (a) Separation from Service. To the extent that any payments that may be considered deferred
compensation under Section 409A are conditioned upon a termination of employment, “termination of
employment” or any analogous term shall be read to mean “separation from service,” as such term is
defined in Section 409A, without regard to alternative definitions permitted by Treasury
Regulations Section 1.409A-1(h)(1)(ii).



     (b) Good Reason.




     (i) To the extent that any payments pursuant to a Subject Arrangement are to be made based
upon a constructive termination or termination for good reason, those provisions are to be
interpreted as requiring the individual choosing to exercise his or her right to terminate
employment to provide the Company notice of a condition giving rise to the good reason within
ninety (90) days following its occurrence and to provide the Company thirty (30) days to cure such
condition. The individual’s resignation must then be effective on or before the first anniversary
of such first occurrence of a condition, or the date provided for in the Subject Arrangement, if
earlier, if the condition is not cured.




     (ii) If a Subject Arrangement includes a material breach of the terms of the Subject
Arrangement as a condition potentially giving rise to a constructive termination or termination for
good reason, then unless specifically provided otherwise in a Subject Arrangement, the failure of
any successor or assign to all or substantially all of the business or assets of the Company to
assume such Subject Arrangement and substantially perform under such Subject Arrangement shall be
deemed to be a material breach of the Subject Arrangement. In the case of the Executive Benefit
Agreements, the foregoing provision shall supersede the second sentence of Section 16(a) of such
agreements.



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     (iii) If a Subject Arrangement includes a decrease of a service provider’s base salary, target
annual bonus or employee benefits as a condition giving rise to a constructive termination or
termination for good reason, such condition shall be interpreted in a manner so that a decrease in
bonus or employee benefits, taken alone, shall not satisfy the condition if there is not also a
material decrease in the service provider’s total compensation.



     (c) Separate Payments. Each payment and benefit paid under any Subject Arrangement is
intended to constitute a separate payment for purposes of Treasury Regulations Section
1.409A-2(b)(2).



     (d) Short-Term Deferral. Any amount paid under any Subject Arrangement that satisfies the
requirements of the short-term deferral exception set forth in Treasury Regulations Section
1.409A-1(b)(4), including, without limitation, installment payments that are not covered by
Treasury Regulations Section 1.409A-1(b)(9)(iii), shall not constitute Deferred Compensation
Separation Benefits for purposes of the Policy.



     (e) Disability. The definition of “disability” set forth in Treasury Regulations Section
1.409A-3(i)(4)(i) shall apply to a Subject Arrangement other than an Executive Benefits Agreement
and shall supersede such definition (or the definition of an analogous term) in the Subject
Arrangement to the extent necessary to avoid gross income inclusion and additional taxation under
Section 409A(a)(1). With respect to the Executive Benefits Agreements, no health insurance
continuation benefits shall become payable in connection with the Permanent Disability of an
Executive until the Executive has a “separation from service” within the meaning of Section 409A.



     (f) Change of Control. The definitions of “change in the ownership of a corporation,” “change
in the effective control of a corporation,” and “change in the ownership of a substantial portion
of a corporation’s assets” set forth in Treasury Regulations Section 1.409A-(3)(i)(5) shall apply
to a Subject Arrangement other than an Executive Benefits Agreement and supersede such definitions
(or the definitions of analogous terms) in the Subject Arrangement to the extent necessary to avoid
gross income inclusion and additional taxation under Section 409A(a)(1).




	7.	 	Miscellaneous.





     (a) Full Force and Effect. To the extent not expressly amended hereby, all Subject
Arrangements shall remain in full force and effect.



     (b) Administration. This Policy shall be administered by the Company, and its application and
interpretation of this Policy shall be final and binding on all persons.



     (c) Amendment, Waiver and Termination. Any provision of this Policy may be amended, waived or
terminated by a written instrument executed by the Company.



     (d) At-Will Employment. Any service provider’s employment with the Company is “at-will” and
may be terminated at any time with or without cause or notice unless otherwise set forth in a
writing signed by the Company and the service provider. This Policy is not intended and shall not
be interpreted to change such at-will relationship.



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     (e) Governing Law. This Policy shall be governed in all respects by the internal laws of
California, without regard to principles of conflicts of law.



     (f) Severability. If any provision of this Policy becomes or is determined to be illegal,
unenforceable or void, this Policy shall continue in full force and effect without said provision.



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     (g) Integration. This Policy represents the entire agreement and understanding as to the
subject matter hereof and supersedes all prior or contemporaneous agreements, whether written or
oral.



	 	 	 	 	 
	 	 	POWER INTEGRATIONS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Bill Roeschlein 

	 
	 	 	 	 
	 

	 	Name:
	 	Bill Roeschlein 

	 
	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer 

	 
	 	 	 	 
	 

	 	Date:
	 	December 31, 2008 








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