exv10w5







Exhibit 10.5




POWER INTEGRATIONS, INC.




NONSTATUTORY STOCK OPTION AGREEMENT




FOR OUTSIDE DIRECTORS




(INITIAL OPTION)




     THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS
(INITIAL OPTION) (the “Option
Agreement”) is made and entered into as of                  
   
                    , by and between
Power Integrations, Inc. and                     
                     (the “Optionee”).



     The Company has granted to the Optionee an option to purchase certain shares of Stock pursuant
to the Directors Compensation Program under the 2007 Equity Incentive Plan upon the terms and
conditions set forth in this Option Agreement (the “Option”). In the event of any conflict between
the provisions of the Option Agreement and those of the Plan, the provisions of the Option
Agreement shall control.




	1.	 	Definitions and Construction.





     1.1 Definitions. Whenever used herein, the following terms shall have their respective
meanings set forth below:



          (a) “Date of Option Grant” means                                         .




          (b) “Number of Option Shares” means twenty-four thousand (24,000) shares of Stock, as adjusted
from time to time pursuant to Section 9.




          (c) “Exercise Price” means $                      per share of Stock, as adjusted from time to
time pursuant to Section 9.




          (d) “Initial Exercise Date” means the Initial Vesting Date.




          (e) “Initial Vesting Date” means the date occurring one (1) year after the Date of Option
Grant.




 









 









                    
(f) “Vested Ratio” means, on any relevant date, the ratio determined as follows:




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Vested Ratio
	 	 	 	 	Prior to Initial Vesting Date
	 	 	0	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	On Initial Vesting Date, provided the Optionee’s
Service has not terminated prior to such date
	 	 	1/3	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	Plus
	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	 	 	 	For each full month of the Optionee’s continuous
Service from the Initial Vesting Date until the
Vested Ratio equals 1/1, an additional
	 	 	1/36	 






                    (g) “Option Expiration Date” means the date ten (10) years after the Date of Option Grant.



                    (h) “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” shall also mean such Committee(s).



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



                    (j) “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 in the
Plan, 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.



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



                    (l) “Consultant” means any person, including an advisor, engaged by a Participating Company to
render services other than as an Employee or a Director.



                    (m) “Director” means a member of the Board or of the board of directors of any other
Participating Company.



                    (n) “Disability” means the permanent and total disability of the Optionee within the meaning
of Section 22(e)(3) of the Code.



 









 





                    (o) “Employee” means any person treated as an employee (including an officer or a Director who
is also treated as an employee) in the records of a Participating Company; provided, however, that
neither service as a Director nor payment of a director’s fee shall be sufficient to constitute
employment for purposes of the Plan.



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



                    (q) “Fair Market Value” means, as of any date, the value of a share of Stock or other property
as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if
such determination is expressly allocated to the Company herein, subject to the following:



                         (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share
of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and
asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq
National Market, the Nasdaq Small-Cap 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.



                         (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a
share of Stock shall be as determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.



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



                    (s) “Participating Company” means the Company or any Parent Corporation or Subsidiary
Corporation.



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



                    (u) “Plan” means the Power Integrations, Inc. 2007 Equity Incentive Plan.



                    (v) “Securities Act” means the Securities Act of 1933, as amended.



                    (w) “Service” means the Optionee’s service with the Participating Company Group, whether in
the capacity of an Employee, a Director or a Consultant. The Optionee’s Service shall not be
deemed to have terminated merely because of a change in the capacity in which the Optionee renders
Service to the Participating Company Group or a change



 









 








in the Participating Company for which the Optionee renders such Service, provided that there
is no interruption or termination of the Optionee’s Service. The Optionee’s Service shall be
deemed to have terminated either upon an actual termination of Service or upon the corporation for
which the Optionee performs Service ceasing to be a Participating Company.



                    (x) “Stock” means the common stock of the Company, as adjusted from time to time in accordance
with Section 9.



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



          1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Option Agreement. Except when
otherwise indicated by the context, the singular shall include the plural, the plural shall include
the singular, and the term “or” shall include the conjunctive as well as the disjunctive.




     2. Tax Status of the Option. This Option is intended to be a nonstatutory stock
option and shall not be treated as an incentive stock option within the meaning of Section 422(b)
of the Code.



     3. Administration. All questions of interpretation concerning this Option Agreement
shall be determined by the Board, including any duly appointed Committee of the Board. All
determinations by the Board shall be final and binding upon all persons having an interest in the
Option. Any officer of a Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, or election which is the responsibility of
or which is allocated to the Company herein, provided the officer has apparent authority with
respect to such matter, right, obligation, or election.



     4. Exercise of the Option.



          4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable
on and after the Initial Exercise Date and prior to the termination of the Option (as provided in
Section 6) in an amount not to exceed the Number of Option Shares multiplied by the Vested Ratio
less the number of shares previously acquired upon exercise of the Option. In no event shall the
Option be exercisable for more shares than the Number of Option Shares.




          4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company
which must state the election to exercise the Option, the number of whole shares of Stock for which
the Option is being exercised and such other representations and agreements as to the Optionee’s
investment intent with respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be delivered in
person, by certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief Financial Officer of
the Company, or other authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by




 









 




full payment of the aggregate Exercise Price for the number of shares of Stock being
purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written
notice and the aggregate Exercise Price.




          4.3 Payment of Exercise Price.




               (a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised
shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate
Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any
combination of the foregoing.




               (b) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender
to the Company of shares of Stock to the extent such tender of Stock would constitute a violation
of the provisions of any law, regulation or agreement restricting the redemption of the Company’s
stock. The Option may not be exercised by tender to the Company of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.




               (c) Cashless Exercise. A “Cashless Exercise” means the assignment in a form acceptable to the
Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock
acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the provisions of Regulation T
as promulgated from time to time by the Board of Governors of the Federal Reserve System). The
Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion,
to decline to approve or terminate any such program or procedure.




          4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Optionee agrees to make adequate provision for any sums
required to satisfy the federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the Option, or (iii) the
lapsing of any restriction with respect to any shares acquired upon exercise of the Option.




          4.5 Certificate Registration. Except in the event the Exercise Price is paid by means of a
Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be
registered in the name of the Optionee, or, if applicable, the heirs of the Optionee.




          4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and
the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all
applicable requirements of federal, state or foreign law with respect to such securities. The
Option may not be exercised if the issuance of shares of Stock upon exercise




 









 




would constitute a violation of any applicable federal, state or foreign securities laws or
other law or regulations or the requirements of any stock exchange or market system upon which the
Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration
statement under the Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel
to the Company, the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the Securities Act. THE
OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN
THOUGH THE OPTION IS VESTED. 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 subject to the Option 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 the Option, the Company
may require the Optionee 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.




          4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise of the Option.




     5. Nontransferability of the Option. The Option may be exercised during the lifetime
of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not
be assigned or transferred in any manner except by will or by the laws of descent and distribution.
Following the death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee’s legal representative or by any person empowered to do so under the
deceased Optionee’s will or under the then applicable laws of descent and distribution.



     6. Termination of the Option. The Option shall terminate and may no longer be
exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising
the Option following termination of the Optionee’s Service as described in Section 7, or (c) a
Change in Control to the extent provided in Section 8.



     7. Effect of Termination of Service.



          7.1 Option Exercisability.




                    (a) Disability. If the Optionee’s Service with the Participating Company Group is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on
the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the
Optionee’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Optionee’s Service terminated, but in any event no later than
the Option Expiration Date.



 









 





                    (b) Death. If the Optionee’s Service with the Participating Company Group is terminated
because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the
date on which the Optionee’s Service terminated, may be exercised by the Optionee’s legal
representative or other person who acquired the right to exercise the Option by reason of the
Optionee’s death at any time prior to the expiration of twelve (12) months after the date on which
the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. The
Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee’s termination of Service.



                    (c) Other Termination of Service. If the Optionee’s Service with the Participating Company
Group terminates for any reason, except Disability or death, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the Optionee’s Service
terminated, but in any event no later than the Option Expiration Date.



          7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of
the Option within the applicable time periods set forth in Section 7.1 is prevented by the
provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the
date the Optionee is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.




          7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale,
within the applicable time periods set forth in Section 7.1, of shares acquired upon the exercise
of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be subject to such suit,
(ii) the one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or
(iii) the Option Expiration Date.




     8. Ownership Change and Change in Control.



          8.1 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 shareholders 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 shareholders 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.



          8.2 Effect of Change in Control on Option. In the event of a Change in Control, any
unexercised portion of the Option shall be immediately exercisable and vested in full as of the
date ten (10) days prior to the date of the Change in Control. Any exercise of the Option that was
permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the
Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the “Acquiring Corporation”), may either assume the
Company’s rights and obligations under the Option or substitute for the Option a substantially
equivalent option for the Acquiring Corporation’s stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Change in Control to the extent that the Option is
neither assumed or substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing,
shares acquired upon exercise of the Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of this Option Agreement except as otherwise provided herein.
Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the
Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the provisions of
Section 1504(b) of the Code, the Option shall not terminate.




     9. 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, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a majority of the
shares which are of the same class as the shares that are subject to the Option 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 Option to
provide that the Option is exercisable for New Shares. In the event of any such amendment, the
Number of Option Shares and the Exercise Price 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 9 shall be rounded down to the nearest
whole number, and in no event may the Exercise Price be decreased to an amount less than the par
value, if any, of the stock subject to the Option.



     10. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with
respect to any shares covered by the Option until the date of the issuance of a certificate for the
shares for which the Option has been exercised (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 9.



     11. Legends. The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates representing shares of
stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of
the Company, promptly present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out the provisions of
this Section.



     12. Binding Effect. Subject to the restrictions on transfer set forth herein, this
Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, administrators, successors and assigns.



     13. Termination or Amendment. The Board may terminate or amend the Plan or the Option
at any time; provided, however, that no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee unless such
termination or amendment is necessary to comply with any applicable law, regulation or rule. No
amendment or addition to this Option Agreement shall be effective unless in writing.



     14. Integrated Agreement. This Option Agreement constitutes the entire understanding
and agreement of the Optionee and the Participating Company Group with respect to the subject
matter contained herein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any exercise of the
Option and shall remain in full force and effect.



 









 





     15. Applicable Law. This Option Agreement shall be governed by the laws of the State
of Delaware as such laws are applied to agreements between Delaware residents entered into and to
be performed entirely within the State of Delaware.



	 	 	 	 	 	 	 
	 	 	 	 	POWER INTEGRATIONS, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 





     The Optionee represents that the Optionee is familiar with the terms and provisions of this
Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof.
The Optionee hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under this Option Agreement.



	 	 	 	 	 	 	 
	 	 	 	 	OPTIONEE
	 
	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 
	 

	 	 
	 	 
	 	 





 









 






POWER INTEGRATIONS, INC.




NONSTATUTORY STOCK OPTION AGREEMENT




FOR OUTSIDE DIRECTORS




(ANNUAL OPTION)




     THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL OPTION) (the “Option
Agreement”) is made and entered into as of the Date of Option Grant, by and between Power
Integrations, Inc. and ___(the “Optionee”).



     The Company has granted to the Optionee an option to purchase certain shares of Stock,
pursuant to the Directors Compensation Program under the 2007 Equity Incentive Plan upon the terms
and conditions set forth in this Option Agreement (the “Option”). In the event of any conflict
between the provisions of the Option Agreement and those of the Plan, the provisions of the Option
Agreement shall control.


1. Definitions and Construction.




          1.1 Definitions. Whenever used herein, the following terms shall have their respective
meanings set forth below:




                    (a) “Date of Option Grant” means                                          , 20___.



                    (b) “Number of Option Shares” means eight thousand (8,000) shares of Stock, as adjusted from
time to time pursuant to Section 9.



                    (c) “Exercise Price” means $                      per share of Stock, as adjusted from time to
time pursuant to Section 9.



                    (d) “Initial Exercise Date” means the Initial Vesting Date.



                    (e) “Initial Vesting Date” means the date occurring twenty-five (25) months after the Date of
Option Grant.



 









 





                    (f) “Vested Ratio” means, on any relevant date, the ratio determined as follows:



	 	 	 	 	 	 	 
	 	 	 	 	Vested Ratio
	 	 	Prior to Initial Vesting Date

	 	 	0	 
	 	 	 
	 	 	 	 
	 	 	On Initial Vesting Date, provided the Optionee’s
Service has not terminated prior to such date

	 	 	1/12	 
	 	 	 
	 	 	 	 
	 	 	Plus
	 	 	 	 
	 	 	 
	 	 	 	 
	 	 	For each full month of the Optionee’s continuous
Service from the Initial Vesting Date until the
Vested Ratio equals 1/1, an additional

	 	 	1/12	 






                    (g) “Option Expiration Date” means the date ten (10) years after the Date of Option Grant.



                    (h) “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” shall also mean such Committee(s).



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



                    (j) “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 in the
Plan, 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.



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



                    (l) “Consultant” means any person, including an advisor, engaged by a Participating Company to
render services other than as an Employee or a Director.



                    (m) “Director” means a member of the Board or of the board of directors of any other
Participating Company.



                    (n) “Disability” means the permanent and total disability of the Optionee within the meaning
of Section 22(e)(3) of the Code.



 









 






                    (o) “Employee” means any person treated as an employee (including an officer or a Director who
is also treated as an employee) in the records of a Participating Company; provided, however, that
neither service as a Director nor payment of a director’s fee shall be sufficient to constitute
employment for purposes of the Plan.



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



                    (q) “Fair Market Value” means, as of any date, the value of a share of Stock or other property
as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if
such determination is expressly allocated to the Company herein, subject to the following:



                         (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share
of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and
asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq
National Market, the Nasdaq Small-Cap 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.



                         (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a
share of Stock shall be as determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.



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



                    (s) “Participating Company” means the Company or any Parent Corporation or Subsidiary
Corporation.



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



                    (u) “Plan” means the Power Integrations, Inc. 2007 Equity Incentive Plan.



                    (v) “Securities Act” means the Securities Act of 1933, as amended.



                    (w) “Service” means the Optionee’s service with the Participating Company Group, whether in
the capacity of an Employee, a Director or a Consultant. The Optionee’s Service shall not be
deemed to have terminated merely because of a change in the capacity in which the Optionee renders
Service to the Participating Company Group or a change



 









 







in the Participating Company for which the Optionee renders such Service, provided that there
is no interruption or termination of the Optionee’s Service. The Optionee’s Service shall be
deemed to have terminated either upon an actual termination of Service or upon the corporation for
which the Optionee performs Service ceasing to be a Participating Company.



                    (x) “Stock” means the common stock of the Company, as adjusted from time to time in accordance
with Section 9.



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



          1.2 Construction. Captions and titles contained herein are for convenience only and shall not
affect the meaning or interpretation of any provision of this Option Agreement. Except when
otherwise indicated by the context, the singular shall include the plural, the plural shall include
the singular, and the term “or” shall include the conjunctive as well as the disjunctive.




     2. Tax Status of the Option. This Option is intended to be a nonstatutory stock
option and shall not be treated as an incentive stock option within the meaning of Section 422(b)
of the Code.



     3. Administration. All questions of interpretation concerning this Option Agreement
shall be determined by the Board, including any duly appointed Committee of the Board. All
determinations by the Board shall be final and binding upon all persons having an interest in the
Option. Any officer of a Participating Company shall have the authority to act on behalf of the
Company with respect to any matter, right, obligation, or election which is the responsibility of
or which is allocated to the Company herein, provided the officer has apparent authority with
respect to such matter, right, obligation, or election.



     4. Exercise of the Option.



          4.1 Right to Exercise. Except as otherwise provided herein, the Option shall be exercisable
on and after the Initial Exercise Date (provided the Optionee’s Service has not terminated prior to
such date) and prior to the termination of the Option (as provided in Section 6) in an amount not
to exceed the Number of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option be exercisable for
more shares than the Number of Option Shares.




          4.2 Method of Exercise. Exercise of the Option shall be by written notice to the Company
which must state the election to exercise the Option, the number of whole shares of Stock for which
the Option is being exercised and such other representations and agreements as to the Optionee’s
investment intent with respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be delivered in
person, by certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief Financial Officer of
the Company, or other authorized representative of the Participating




 









 




Company Group, prior to the termination of the Option as set forth in Section 6, accompanied
by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased.
The Option shall be deemed to be exercised upon receipt by the Company of such written notice and
the aggregate Exercise Price.




          4.3 Payment of Exercise Price.




                    (a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the
aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised
shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate
Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(c), or (iv) by any
combination of the foregoing.



                    (b) Tender of Stock. Notwithstanding the foregoing, the Option may not be exercised by tender
to the Company of shares of Stock to the extent such tender of Stock would constitute a violation
of the provisions of any law, regulation or agreement restricting the redemption of the Company’s
stock. The Option may not be exercised by tender to the Company of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.



                    (c) Cashless Exercise. A “Cashless Exercise” means the assignment in a form acceptable to the
Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock
acquired upon the exercise of the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the provisions of Regulation T
as promulgated from time to time by the Board of Governors of the Federal Reserve System). The
Company reserves, at any and all times, the right, in the Company’s sole and absolute discretion,
to decline to approve or terminate any such program or procedure.



          4.4 Tax Withholding. At the time the Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the Optionee agrees to make adequate provision for any sums
required to satisfy the federal, state, local and foreign tax withholding obligations of the
Participating Company Group, if any, which arise in connection with the Option, including, without
limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the Option, or (iii) the
lapsing of any restriction with respect to any shares acquired upon exercise of the Option.




          4.5 Certificate Registration. Except in the event the Exercise Price is paid by means of a
Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be
registered in the name of the Optionee, or, if applicable, the heirs of the Optionee.




          4.6 Restrictions on Grant of the Option and Issuance of Shares. The grant of the Option and
the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all
applicable requirements of federal, state or foreign law with respect to such




 









 




securities. The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign securities laws or other
law or regulations or the requirements of any stock exchange or market system upon which the Stock
may then be listed. In addition, the Option may not be exercised unless (i) a registration
statement under the Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel
to the Company, the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the Securities Act. THE
OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN
THOUGH THE OPTION IS VESTED. 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 subject to the Option 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 the Option, the Company
may require the Optionee 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.




          4.7 Fractional Shares. The Company shall not be required to issue fractional shares upon the
exercise of the Option.




     5. Nontransferability of the Option. The Option may be exercised during the lifetime
of the Optionee only by the Optionee or the Optionee’s guardian or legal representative and may not
be assigned or transferred in any manner except by will or by the laws of descent and distribution.
Following the death of the Optionee, the Option, to the extent provided in Section 7, may be
exercised by the Optionee’s legal representative or by any person empowered to do so under the
deceased Optionee’s will or under the then applicable laws of descent and distribution.



     6. Termination of the Option. The Option shall terminate and may no longer be
exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising
the Option following termination of the Optionee’s Service as described in Section 7, or (c) a
Change in Control to the extent provided in Section 8.



     7. Effect of Termination of Service.



          7.1 Option Exercisability.




                    (a) Disability. If the Optionee’s Service with the Participating Company Group is terminated
because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on
the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the
Optionee’s guardian or legal representative) at any time prior to the expiration of twelve (12)
months after the date on which the Optionee’s Service terminated, but in any event no later than
the Option Expiration Date.



 









 





                    (b) Death. If the Optionee’s Service with the Participating Company Group is terminated
because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the
date on which the Optionee’s Service terminated, may be exercised by the Optionee’s legal
representative or other person who acquired the right to exercise the Option by reason of the
Optionee’s death at any time prior to the expiration of twelve (12) months after the date on which
the Optionee’s Service terminated, but in any event no later than the Option Expiration Date. The
Optionee’s Service shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee’s termination of Service.



                    (c) Other Termination of Service. If the Optionee’s Service with the Participating Company
Group terminates for any reason, except Disability or death, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be
exercised by the Optionee within three (3) months after the date on which the Optionee’s Service
terminated, but in any event no later than the Option Expiration Date.



          7.2 Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of
the Option within the applicable time periods set forth in Section 7.1 is prevented by the
provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the
date the Optionee is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.




          7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale,
within the applicable time periods set forth in Section 7.1, of shares acquired upon the exercise
of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the
Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following
the date on which a sale of such shares by the Optionee would no longer be subject to such suit,
(ii) the one hundred and ninetieth (190th) day after the Optionee’s termination of Service, or
(iii) the Option Expiration Date.




     8. Ownership Change and Change in Control.



          8.1 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.



          8.2 Effect of Change in Control on Option. In the event of a Change in Control, any
unexercised portion of the Option shall be immediately exercisable and vested in full as of the
date ten (10) days prior to the date of the Change in Control. Any exercise of the Option that was
permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the
Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the “Acquiring Corporation”), may either assume the
Company’s rights and obligations under the Option or substitute for the Option a substantially
equivalent option for the Acquiring Corporation’s stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Change in Control to the extent that the Option is
neither assumed or substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control. Notwithstanding the foregoing,
shares acquired upon exercise of the Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of this Option Agreement except as otherwise provided herein.
Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the
Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the provisions of
Section 1504(b) of the Code, the Option shall not terminate.




     9. 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, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a majority of the



 









 







shares which are of the same class as the shares that are subject to the Option 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 Option to
provide that the Option is exercisable for New Shares. In the event of any such amendment, the
Number of Option Shares and the Exercise Price 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 9 shall be rounded down to the nearest
whole number, and in no event may the Exercise Price be decreased to an amount less than the par
value, if any, of the stock subject to the Option.



     10. Rights as a Stockholder. The Optionee shall have no rights as a stockholder with
respect to any shares covered by the Option until the date of the issuance of a certificate for the
shares for which the Option has been exercised (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 9.



     11. Legends. The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions on all certificates representing shares of
stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of
the Company, promptly present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out the provisions of
this Section.



     12. Binding Effect. Subject to the restrictions on transfer set forth herein, this
Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, executors, administrators, successors and assigns.



     13. Termination or Amendment. The Board may terminate or amend the Plan or the Option
at any time; provided, however, that no such termination or amendment may adversely affect the
Option or any unexercised portion hereof without the consent of the Optionee unless such
termination or amendment is necessary to comply with any applicable law, regulation or rule. No
amendment or addition to this Option Agreement shall be effective unless in writing.



     14. Integrated Agreement. This Option Agreement constitutes the entire understanding
and agreement of the Optionee and the Participating Company Group with respect to the subject
matter contained herein, and there are no agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company Group with respect
to such subject matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any exercise of the
Option and shall remain in full force and effect.



 









 





     15. Applicable Law. This Option Agreement shall be governed by the laws of the State
of Delaware as such laws are applied to agreements between Delaware residents entered into and to
be performed entirely within the State of Delaware.



	 	 	 	 	 	 	 
	 	 	 	 	POWER INTEGRATIONS, INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 





     The Optionee represents that the Optionee is familiar with the terms and provisions of this
Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof.
The Optionee hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under this Option Agreement.



	 	 	 	 	 	 	 
	 	 	 	 	OPTIONEE
	 
	 	 	 	 	 	 
	Date: