Document:

Letter Agreement - Derek Bell

 EXHIBIT 10.2 
 [Company Letterhead] 
 August 31, 2007 
 Derek Bell 
 19240 Linda Vista Avenue 
 Los Gatos, CA 95030 
  

	RE:	Correction to December 8, 2006 Letter Agreement (the “December Agreement”) 

 Dear Derek: 
 This letter is to confirm the correction of that certain letter agreement, dated December 8, 2006, by and
between you and Power Integration, Inc. (the “December Agreement”), to reflect the amendment of stock option grant #1232 (the “Omitted Grant”) which was inadvertently omitted as an At Risk Option (as defined in the December
Agreement) from the December Agreement. This letter acknowledges that the intent of the parties in the December Agreement was to amend the Omitted Option such that 431 shares under the Omitted Option would be exercisable in 2007 and 430 shares under
the Omitted Option would be exercisable in 2008 (similarly to how option #1231 was amended in the December Agreement, which was granted on the same day and at the same exercise price as the Omitted Option). Enclosed is an Amended and Restated
Incentive Stock Option Agreement to reflect such amendment. To acknowledge your agreement to the above-mentioned correction, please counter sign this letter below and the attached Amended and Restated Incentive Stock Option Agreement and return both
to me at your earliest convenience. 
 Sincerely, 
 Rafael
Torres 
 Chief Financial Officer and 
 Vice President, Finance
and Administration 
  

	
	Acknowledged and Agreed:
	
	/s/ Derek Bell
	Derek Bell

 POWER INTEGRATIONS, INC. 
 AMENDED AND RESTATED INCENTIVE STOCK OPTION AGREEMENT 
 THIS AMENDED AND RESTATED INCENTIVE
STOCK OPTION AGREEMENT (the “Option Agreement”) is made and entered into as of September 5, 2007, by and between Power Integrations, Inc. and Derek Bell (the “Optionee”) with respect to the stock
option with grant number 1232 (the “Option”) that was granted to Optionee on May 31, 2001 (the “Date of Option Grant”) to reflect that certain letter agreement, dated December 8, 2006, by and
between the Company and Optionee, as corrected by letter dated August 31, 2007 (the “December Agreement”). This Option Agreement amends and restates the original Immediately Exercisable Incentive Stock Option Agreement
Optionee (the “Original Agreement”) only as to 861 shares subject to the Option as to which the Optionee elected an amended exercise schedule pursuant to the December Agreement (such amended portion of the Option, the
“Amended Portion”). 
 The Amended Portion continues to be subject to the Power Integrations, Inc. 1997 Stock Option
Plan (the “Plan”) and shall be subject to all of the terms and conditions set forth herein Any capitalized terms not defined herein shall have the meanings set forth in the Plan. In the event of any conflict between the terms
of this Option Agreement and the terms of the Plan, the terms of the Plan shall control. 
  

	 	1.	DEFINITIONS AND CONSTRUCTION. 

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

 (a) “Disabled” shall have the meaning set forth in Section 409A (a)(2)(C) of the Code.

 (b) “Exercise Price” means $12.10 per share of Stock, as adjusted from time to time
pursuant to Section 4.2 of the Plan. 
 (c) “Number of Option Shares” means the
861 shares of Stock, as adjusted from time to time pursuant to Section 4.2 of the Plan, subject to the Amended Portion. 
 (d) “Option Expiration Date” means the date ten (10) years after the Date of Option Grant. 
 (e) “Vesting Schedule” means the Vesting Schedule schedule set forth in the Original Agreement. As of the date hereof, the Amended Portion is fully vested. 
 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 and the plural shall include the singular. Use of the term “or” is not intended to be
exclusive, unless the context clearly requires otherwise. 

	 	2.	TAX CONSEQUENCES. 

 2.1 Status Tax of Option. This Option is a Nonstatutuory Stock Option. The Optionee should consult with the Optionee’s own tax advisor regarding the tax effects of this Option. 
  

	 	3.	ADMINISTRATION. 

 All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Amended Portion. 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 AMENDED PORTION. 

 4.1 Right to Exercise. 
 (a) In no event may any part of the Amended Portion be exercised after the Option Expiration Date. 
 (b) Optionee shall be entitled to exercise the Amended Portion, if at all and to the extent vested, as follows: 
 (i) As to 431 shares in calendar year 2007 (“Tranche A”). 
 (ii) As to 430 shares in
calendar year 2008 (“Tranche B”). 
 Any portion of the Amended Portion that becomes exercisable pursuant to this Section 4.1(b)
shall cease to be exercisable not later than December 31 of the applicable year indicated above. 
 (c) Notwithstanding
the foregoing, all of the shares subject to the Amended Portion shall become exercisable (to the extent then-vested) as of the earliest to occur of the following events, for the periods described with respect to each such event: 
 (i) The date of the termination of Optionee’s “service” with the
Company for any reason, as determined pursuant to Treasury Regulation 1.409A-1(h). In the event of the termination of service other than as a result of death or the Optionee becoming Disabled, the Amended Portion shall be exercisable until the
earlier of (1) the date that is three (3) months following the termination date and (2) the later of (x) December 31 of the year of termination or (y) the 15th day of the third calendar month following the termination date. In the 

 
event of the termination of service as a result of death or the Optionee becoming Disabled, the Amended Portion shall be exercisable until the earlier of
(1) the date that is six (6) months following the termination date and (2) the later of (x) December 31 of the year of termination or (y) the 15th day of the third calendar month following the termination date. However, of it is determined that Optionee is a “specified employee” (as defined under Section 409A(a)(2)(B)(i) of the Code) as of the
date of such termination, then the Amended Portion will be exercisable starting the date that is six (6) months and one day after such termination date and ending on the date that is nine (9) months and one day after such termination date;
provided, however, that if such termination occurs upon the Optionee’s death, or if following the termination date the Optionee dies or the Company undergoes a corporate transaction described in Section 4.1(c)(iii) below, the six
(6) month delay in exercisability shall no longer be required and the Amended Portion shall be exercisable for the post-termination exercise period otherwise provided in this Section 4.1(c)(i) and such period shall be deemed to commence as
of the date of death or the effectiveness of the transaction. 
 (ii) The effective date of a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation, as determined for purposes of Section 409A(a)(2)(A)(v) of the
Code. In the event the effective date of the corporate transaction occurs prior to any termination of “service”, the Amended Portion shall be exercisable, to the extent permitted in the applicable transaction documents, until the later of
(1) December 31 of the year in which the transaction occurs and (2) the 15th day of the third calendar month following the effective date of
the corporate transaction. 
 (d) Except as otherwise provided herein, the Amended Portion shall be exercisable in an
amount not to exceed the Number of Option Shares less the number of shares previously acquired upon exercise of the Amended Portion. 
 4.2 Method of Exercise. Exercise of the Amended Portion shall be by such procedure as may be adopted or permitted from time to time by the Company. In the event that exercise is permitted pursuant to a written notice to
the Company, such written notice must state the election to exercise the Amended Portion, the number of whole shares of Stock for which the Amended Portion 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 and the Plan. 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 Amended Portion 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 Amended Portion 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 Amended Portion 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 (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) 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 Amended Portion 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 Amended Portion 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 Amended Portion 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 Amended Portion is exercised, in whole or in part, or at any time thereafter as
requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted
by the Company), 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 Amended Portion, including, without limitation,
obligations arising upon (i) the exercise, in whole or in part, of the Amended Portion, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Amended Portion, (iii) the operation of any law or regulation
providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Amended Portion. The Optionee is cautioned that the Amended Portion is not exercisable unless the tax
withholding obligations of the Participating Company Group are satisfied. Accordingly, the Optionee may not be able to exercise the Amended Portion when desired even though the Amended Portion is vested, and the Company shall have no obligation to
issue a certificate for such shares. 
 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 Amended Portion is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 

 4.6 Restrictions on Grant of the Amended Portion and Issuance of
Shares. The grant of the Amended Portion and the issuance of shares of Stock upon exercise of the Amended Portion shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such
securities. The Amended Portion 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 Amended Portion may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Amended Portion be
in effect with respect to the shares issuable upon exercise of the Amended Portion or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Amended Portion 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 AMENDED PORTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE AMENDED PORTION WHEN DESIRED EVEN THOUGH THE AMENDED PORTION 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 Amended Portion 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 Amended Portion, 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 Amended Portion. 
  

	 	5.	NONTRANSFERABILITY OF THE AMENDED PORTION. 

 The Amended Portion 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 Amended Portion may be exercised in accordance with the terms of this Option
Agreement 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 AMENDED PORTION. 

 6.1 The Amended Portion will expire as to each tranche of the Amended Portion on the last day on which such tranche of the Amended Portion
can be exercised in accordance with Section 4.1, but in all cases the Amended Portion will expire in full not later 

 
than the Option Expiration Date. The Company makes no representation as to the tax consequences of any delay following the termination of Optionee’s
service in the exercisability of the Amended Portion. The Optionee should consult with the Optionee’s own tax advisor as to the tax consequences of any such delayed exercise. 
 6.2 Notwithstanding the foregoing, if the Company reasonably anticipates that the exercise of the Amended Portion within the applicable
time periods set forth in Section 4.1 will violate Federal securities laws or other applicable law, the period in which the affected Amended Portion can be exercised will be extended until the first business day on which the Company reasonably
anticipates that the exercise of the Amended Portion will not cause such a violation. In no event may the Amended Portion be exercisable after the Option Expiration Date. This provision shall be interpreted in accordance with Treasury Regulation
1.409A-2(b)(7)(ii). However, the Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee’s own tax advisor as to the tax consequences of any such delayed exercise.

  

	 	7.	RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.

 The Optionee shall have no rights as a shareholder with respect to any shares covered by the Amended Portion
until the date of the issuance of a certificate for the shares for which the Amended Portion 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 the Plan. If the Optionee is an Employee, the Optionee understands and acknowledges that,
except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee’s employment is “at will” and is for no specified term. Nothing in this Option Agreement
shall confer upon the Optionee any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee’s Service as an Employee or Consultant, as the
case may be, at any time. 
  

	 	8.	RESTRICTIONS ON TRANSFER OF SHARES. 

 No shares acquired upon exercise of the Amended Portion may be sold, exchanged, transferred (including, without limitation, any transfer
to a nominee or agent of the Optionee), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Option Agreement, and any such attempted disposition shall be
void. The Company shall not be required (a) to transfer on its books any shares which will have been transferred in violation of any of the provisions set forth in this Option Agreement or (b) to treat as owner of such shares or to accord
the right to vote as such owner or to pay dividends to any transferee to whom such shares will have been so transferred. 

	 	9.	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. 
  

	 	10.	TERMINATION OR AMENDMENT. 

 The Board may terminate or amend the Plan or the Amended Portion at any time; provided, however, that except as provided under the Plan in
connection with a Change in Control, no such termination or amendment may adversely affect the Amended Portion or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any
applicable law or government regulation. No amendment or addition to this Option Agreement shall be effective unless in writing. 
  

	 	11.	INTEGRATED AGREEMENT. 

 This Option Agreement (including the Plan) 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 Amended Portion and shall remain in full force and effect. 
  

	 	12.	APPLICABLE LAW. 

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

	
	POWER INTEGRATIONS, INC.
	
	/s/ Rafael Torres
	 Rafael Torres
 Vice President of Finance &

 Administration/CFO

	
	 Address: 5245 Hellyer Avenue
                 San Jose, CA 95138

 The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement and hereby
agrees to the amendment of the Option as to the Amended Portion 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: September 5, 2007	 		 	/s/ Derek Bell
		 		 	

 Optionee:
                                        
                                        
         
 Date:
                                        
                                        
         

 POWER INTEGRATIONS, INC. 
 STOCK OPTION EXERCISE NOTICE 
 Power Integrations, Inc. 
 Attention: Vice President, Finance and Administration 
 5245 Hellyer Ave

 San Jose, California 95138 
 Ladies and Gentlemen: 

1. Option. I was granted a stock option, as amended by the Amended and Restated Incentive Stock Option Agreement dated September 5,
2007 (“Option”), to purchase shares of the common stock of Power Integrations, Inc. (“Company”) pursuant to the Company’s 1997 Stock Option Plan as follows:

  

			
	 Grant Number:
	  	1232
	 Date of Option Grant:
	  	May 31, 2001
	 Exercise Price per Share:
	  	$12.10

 2. Exercise of Option. I hereby elect to exercise the Amended Portion to purchase
the following number of shares: 
  

						
	 	  	Vested	  	Unvested
	 Number of Shares Purchased
 __________________________(“Shares”):
	  			  	N/A
		  	 	 	  	
	 Total Exercise Price:
	  	$	_______________________	  	

 3. Payment. I enclose payment in full or have made arrangements for payment from the
sale proceeds of the Shares of the total exercise price for the Shares in the following form(s), as authorized by my Option Agreement: 
  

				
	 •        Cash:
	  	$	______________________
	 •        Check:
	  	$	______________________
	 •        Tender of Company shares:
	  	$	______________________
	 •        Cashless exercise (same-day-sale):
	  	 	$ _____________________

 4. Tax Withholding. I authorize payroll withholding and otherwise will make adequate
provision for federal, state, local and foreign tax withholding obligations of the Company, if any, in connection with my exercise of the Amended Portion and my subsequent disposition of the Shares. 

 6. Optionee Information. 
 My current address is: 
 ________________________________________________________________________________________________________ 
 ________________________________________________________________________________________________________ 
 I understand that I am
purchasing the Shares pursuant to the terms of the Power Integrations, Inc. 1997 Stock Option Plan and my Amended and Restated Nonstatutory Stock Option Agreement, a copy of which I have received and have carefully read and understand. I agree
(i) to provide such additional documents as you may require pursuant to the terms of the 1997 Stock Option Plan, and (ii) to provide for the payment by me to you (in the manner designated by you) of the withholding obligation, if any,
relating to the exercise of this option. 
  

	
	Very truly yours,
	
	  
	(Signature)
	
	 
	(Optionee’s Name Printed)

 Receipt of the above is hereby acknowledged: 
  

			
	POWER INTEGRATIONS, INC.
		
	By:	 	 
	Title:	 	 
	Dated:Amendment and Restated CEO Benefits Agreement - Balu Balakrishnan

 EXHIBIT 10.3 
 AMENDED AND RESTATED 
 CHIEF EXECUTIVE OFFICER BENEFITS AGREEMENT

 This AMENDED AND RESTATED CHIEF EXECUTIVE
OFFICER BENEFITS AGREEMENT (the “Agreement”) is made and entered into as of August 8, 2007 (the “Effective Date”), by and between POWER
INTEGRATIONS, INC., a Delaware corporation, and BALU BALAKRISHNAN (“Executive”). 
 RECITALS 
 A. Executive is the president and chief
executive officer of the Company and possesses valuable knowledge of the Company, its business and operations, and the markets in which the Company competes. 
 B. The Company draws upon the knowledge, experience and advice of Executive in order to manage its business for the benefit of the Company’s stockholders. 
 C. The Board of Directors desires to supplement Executive’s employment arrangements so as to provide additional compensation and benefits to
the Executive to encourage Executive to continue to devote his attention and dedication to the Company and to create additional incentives to continue his employment with the Company. 
 1. Definitions. As used in this Agreement, unless the context requires a different meaning, the following terms shall have the meanings set
forth herein: 
 (a) “Cause” means: 
 (i) A material act of theft, dishonesty, fraud, intentional falsification of any employment or Company records or the commission of
any criminal act which impairs Executive’s ability to perform his/her duties under this Agreement; 
 (ii) A
material improper disclosure of the Company’s confidential, business or proprietary information by Executive; 
 (iii) Any action by Executive intentionally causing or expected to cause material harm to the reputation and standing of the Company, or gross negligence or willful misconduct in the performance of Executive’s assigned duties
(but not mere unsatisfactory performance); or 
 (iv) The Executive’s conviction (including any plea of guilty or
nolo contendere) for a felony causing material harm to the reputation and standing of the Company, as determined by the Company in good faith. 
 (b) “Change of Control” means: 
 (i) Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than a trustee or other fiduciary holding securities of the Company under an
employee benefit plan of the 

  

 1. 

 
Company becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the
Company representing 50% or more of (A) the outstanding shares of common stock of the Company or (B) the combined voting power of the Company’s then-outstanding securities; 
 (ii) The Company is party to a merger or consolidation which results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or consolidation; 
 (iii) There occurs a change in the
Board of Directors of the Company within a two-year period, as a result of which fewer than a majority of the Directors are Incumbent Directors. For purposes of this Agreement, an “Incumbent Director” is any director who is either:

 (A) A director of the Company as of January 1, 2007; or 
 (B) A director who is elected or nominated for election to the Board of Directors of the Company with the affirmative votes of at
least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of
directors to the Company). 
 (iv) The sale or disposition of 50% or more of the Company’s assets (or consummation
of any transaction having similar effect); or 
 (v) The dissolution or liquidation of the Company. 
 (c) “Company” shall mean Power Integrations, Inc., and following a Change of Control, any successor or
assign to its business and/or assets that agrees or otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 
 (d) “Competition” shall mean rendering services for any organization or engaging in any business directly competitive with the Company or materially contrary or harmful to the interests
of the Company, including, but not limited to (i) accepting employment with, or serving as a consultant, advisor or in any other capacity to, the division or other portion of the business of any employer which competes directly with the
Company; (ii) materially acting against the interest of the Company or (iii) personally recruiting, directly or indirectly, any person who is then an employee of the Company. 
 (e) “Good Reason” means the occurrence of any of the following conditions, without Executive’s written
consent, which condition(s) remain(s) in effect 20 days after written notice to the Board from Executive of such condition(s), if such notice is given within one year of the occurrence of such condition(s): 
 (i) A material decrease or planned decrease in Executive’s Total Annual Earnings or employee benefits following a Change of
Control; 
  

 2. 

 (ii) A demotion, a material reduction in Executive’s position,
responsibilities or duties or a material, adverse change in Executive’s substantive functional responsibilities or duties, provided, however, that in the event of a Change of Control, Executive will not be deemed demoted or his position,
responsibilities or duties materially reduced or his substantive functional responsibilities or duties materially adversely changed if Executive is the general manager of the subsidiary, division or functional unit of the acquirer which includes the
business operations of the Company and Executive’s responsibilities and duties are comparable to those of the general managers of comparable subsidiaries, divisions or units within the acquirer; 
 (iii) The relocation of Executive’s work place for the Company to a location more than fifty (50) miles from the current
location of Executive’s work place or a material adverse change in the working conditions or established working hours which persist for a period of six continuous months; or 
 (iv) Any material breach of this Agreement by the Company. 
 (f) “Permanent Disability” means that: 
 (i) The Executive has been incapacitated by bodily injury or disease so as to be prevented thereby from engaging in the performance
of the Executive’s duties; 
 (ii) Such total incapacity shall have continued for a period of six consecutive
months; and 
 (iii) Such incapacity will, in the opinion of a qualified physician, be permanent and continuous during
the remainder of the Executive’s life. 
 (g) “Termination of Employment” means:

 (i) Any termination of employment of the Executive by the Company without Cause; and 
 (ii) Any resignation by the Executive for Good Reason. 
 (h) “Termination of Employment” shall not include any termination of the employment of the Executive
(a) by the Company for Cause; (b) as a result of Permanent Disability of the Executive; (c) as a result of the death of the Executive; (d) as a result of the voluntary termination of employment by the Executive for reasons other
than Good Reason; or (e) a Termination Upon Change of Control. 
 (i) “Termination Upon Change of
Control” means: 
 (i) Any termination of the employment of the Executive by the Company without Cause on
or within eighteen (18) months after the occurrence of a Change of Control; or 
  

 3. 

 (ii) Any resignation by the Executive for Good Reason within eighteen
(18) months after the occurrence of a Change of Control. 
 (j) “Termination Upon Change of
Control” shall not include any termination of the employment of the Executive (a) by the Company for Cause; (b) as a result of the Permanent Disability of the Executive; (c) as a result of the death of the Executive; or
(d) as a result of the voluntary termination of employment by the Executive for reasons other than Good Reason. 
 (k) “Total Annual Earnings” means the sum of the Executive’s highest annual salary with the Company and targeted annual incentive bonus. 
 2. Position and Duties. Executive shall continue to be an at-will employee of the Company employed in his/her current position at his/her
then current salary rate. Executive shall also be entitled to continue to participate in and to receive benefits on the same basis as other executive or senior staff members under any of the Company’s employee benefit plans as in effect from
time to time. In addition, Executive shall be entitled to the benefits afforded to other employees similarly situated under the Company’s vacation, holiday and business expense reimbursement policies. Executive agrees to devote the business
time, energy and skill necessary to execute his/her duties at the Company. These duties shall include, but not be limited to, any duties consistent with his/her position which may be assigned to Executive from time to time. 
 3. Acceleration of Vesting of Stock Options Upon a Change of Control. In the event of a Change of Control, and provided that Executive’s
employment with the Company has not terminated prior to such date, all stock options granted by the Company to the Executive prior to the Change of Control shall have their vesting accelerated, such that 50% of the then unvested shares will be
deemed vested and exercisable as of the consummation of the Change of Control. 
 Notwithstanding the foregoing, if the Change of Control
does not require the assumption or substitution by the acquiring entity (or parent thereof) of all of the Company’s obligations of the then outstanding stock options, then 100% of the then unvested shares will be accelerated and deemed vested
and exercisable ten (10) days prior to the consummation of the Change of Control. 
 In the event of a Change of Control, the Company
undertakes to facilitate Executive’s receipt of the benefits set forth in this section by providing written notice to Executive, at least ten (10) days in advance of the closing of such transaction, which (i) indicates the anticipated
timing and material economic terms of the anticipated transaction and (ii) references the Executive’s rights under this Section 3. The Company shall also provide appropriate option exercise forms and instructions to assist Executive
in exercising his or her rights to acquire securities of the Company on or prior to the consummation of the Change of Control. Executive is strongly encouraged to consult with his or her tax and financial advisor prior to electing to exercise any
option pursuant to this Agreement. 
  

 4. 

 4. Termination Upon Change of Control. 
 (a) Severance Benefits. In the event of the Executive’s Termination Upon Change of Control, Executive shall be entitled to the
following separation benefits: 
 (i) All salary, accrued but unused vacation earned through the date of
Executive’s termination and Executive’s target bonus for the year in which termination occurs, prorated through the date of Executive’s termination; 
 (ii) Within fourteen (14) days of submission of proper expense reports by the Executive, reimbursement by the Company for all
expenses reasonably and necessarily incurred by the Executive in connection with the business of the Company prior to his termination of employment; 
 (iii) Twelve (12) months of Executive’s Total Annual Earnings as in effect as of the date of such termination, all less applicable withholding, paid in a lump sum within thirty (30) days of
termination of employment; and 
 (iv) The ability to exercise any and all vested options granted after April 26,
2002 (and any other options granted prior to April 26, 2002 only to the extent that such extension of exercisability would not require the Company to incur a compensation expense for financial statement purposes) for twelve (12) months
from the date of termination of employment. 
 (v) The vesting of all stock options granted by the Company to the
Executive and outstanding immediately prior to such Termination Upon Change of Control shall accelerate and be 100% vested and exercisable as of the date of termination of employment. 
 (b) Benefits Continuation. 
 (i) In the event of Executive’s Termination Upon Change of Control, Executive shall be entitled to elect continued medical and dental insurance coverage in accordance with the applicable provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, (“COBRA”) and the Company shall pay such COBRA premiums for twelve (12) months from the date of termination of employment. Notwithstanding the above, in the event
Executive becomes eligible to be covered under another employer’s group health plan (other than a plan which imposes a preexisting condition exclusion unless the preexisting condition exclusion does not apply) during the period provided for
herein, the Company shall cease payment of the COBRA premiums; and 
 (ii) Executive shall receive the benefits, if
any, under the Company’s 401(k) Plan and other Company benefit plans to which he may be entitled pursuant to the terms of such plans. 
  

 5. 

 5. Termination of Employment. 
 (a) Severance Benefits. In the event of the Executive’s Termination of Employment, Executive shall be entitled to the
following separation benefits: 
 (i) All separation benefits provided in Section 4(a)(i) through 4(a)(iii) above;
and 
 (ii) All stock options granted by the Company to the Executive shall have their vesting accelerated, such that
50% of the then unvested shares will be deemed vested and exercisable as of the date of the termination of employment. 
 (b) Benefits Continuation. 
 (i) In the event of Executive’s Termination of Employment,
Executive shall be entitled to elect continued medical and dental insurance coverage in accordance with the applicable provisions of COBRA and the Company shall pay such COBRA premiums for twelve (12) months from the date of termination of
employment. Notwithstanding the above, in the event Executive becomes eligible to be covered under another employer’s group health plan (other than a plan which imposes a preexisting condition exclusion unless the preexisting condition
exclusion does not apply) during the period provided for herein, the Company shall cease payment of the COBRA premiums; and 
 (ii) Executive shall receive the benefits, if any, under the Company’s 401(k) Plan and other Company benefit plans to which he may be entitled pursuant to the terms of such plans. 
 6. Retirement Benefits. 
 (a) In order to be eligible for the “Retirement Benefits” described in Section 6(b) below, the Executive must meet both of the following criteria: 
 (i) At the time of Executive’s voluntary termination of employment with the Company (other then in circumstances in which such
termination constitutes a Termination of Employment), the Executive has (1) achieved the age of 50 and served the Company for at least 15 years; or (2) achieved the age of 55 and served the Company for at least 10 years; and 
 (ii) At any time during which the Executive is receiving Retirement Benefits, the Executive shall not (1) be employed or
contract full time by a third party (excluding a non-profit organization described in Section 501(c)(3) of the Code) or (2) engage in Competition. If the Executive engages in either (1) or (2), then all Retirement Benefits shall
terminate immediately and permanently. 
 (b) If both conditions in Sections 6(a)(i) and 6(a)(ii) above are satisfied,
the Executive shall be entitled to receive the following “Retirement Benefits:” 
 (i) The ability to
exercise any and all options granted after April 26, 2002 (and any other options granted prior to April 26, 2002 only to the extent that such extension of exercisability would not require the Company to incur a compensation expense for
financial statement purposes) to the extent such options are vested as of the date of termination of employment for the term of the option; and 
  

 6. 

 (ii) The Company shall pay the Executive’s medical and dental premiums until
the Executive achieves the age of 65 and additionally, if the Executive’s medical and dental coverage on the date of termination included the Executive’s dependents, the premiums of such dependents until the Executive achieves the age of
65, as follows: 
 (A) COBRA Continuation Coverage. Upon the termination of Executive’s active employment
with the Company, Executive shall be entitled to elect continued medical and dental insurance coverage in accordance with the applicable provisions of COBRA and the Company shall pay such COBRA premiums. 
 Notwithstanding the above, in the event Executive becomes eligible to be covered under another employer’s group health plan (other than a plan which
imposes a preexisting condition exclusion unless the preexisting condition exclusion does not apply) during the period provided for herein, the Company shall cease payment of the COBRA premiums; and 
 (B) Coverage After COBRA & Prior to Medicare Eligibility. In the event the Executive is not eligible for Medicare
coverage at end of his maximum applicable COBRA coverage period, then, the Executive shall identify and locate either or both an individual conversion policy through the insurer providing insurance coverage in connection with the Company sponsored
medical and dental plans available to active employees (the “Conversion Policy”), and/or a supplemental individual policy or an individual policy on the open market (the “Individual Policy”) to be effective upon the termination
of his COBRA continuation coverage so that, when the coverages for Executive provided by the Conversion Policy and/or the Individual Policy are combined, such coverages provide substantially similar medical and dental benefits in the aggregate as
those provided under the medical and dental plans sponsored by the Company at such time, or at any time after the termination of Executive’s employment, for active employees (the “Comparable Coverage”). The Company shall be
responsible for the payment of any Conversion Policy premiums and/or Individual Policy premiums for the Comparable Coverage which payment shall not exceed the cost of premiums for medical and dental coverage for then active employees. 
 Notwithstanding the above, in the event Executive becomes eligible to be covered under another employer’s group health plan (other than a plan which
imposes a preexisting condition exclusion unless the preexisting condition exclusion does not apply) during the period provided for herein, the Company shall cease payment of such premiums; and 
 (C) Coverage After COBRA & Upon Medicare Eligibility. In the event the Executive is eligible for Medicare coverage
at the end of his maximum applicable COBRA coverage period, the Executive may identify and locate a Medicare supplemental policy, which may include, to the extent permitted, the medical and dental plans sponsored by the Company at such time for
active employees (the “Company Plans”), that, when combined with the coverage provided by Medicare (both Parts A and B), provides Comparable Coverage. If Executive is at such time eligible to participate under the Company Plans, Executive
will be entitled to so participate; provided that Executive shall be solely responsible 

  

 7. 

 
for the payment of any Medicare premiums and/or Medical supplemental policy premiums for the Comparable Coverage (including, if applicable, any premiums
under the Company Plans). The Company will use commercially reasonable efforts to provide that Executive will continue to be eligible for coverage under the Company Plans, unless the Board of Directors or Compensation Committee determines that such
coverage would create an undue burden on the Company. 
 (D) Taxes. The Executive shall be responsible for any
taxes that may be attributable to or result from the payments made by the Company in accordance with this Section 6(b)(ii) or receipt of medical and dental benefits attributable to or result from such payments. 
 7. Termination of Employment due to Death or Permanent Disability. 
 (a) In the event of (i) the Executive’s death during his employment with the Company or (ii) the Executive’s
death during the period while Executive was receiving Retirement Benefits as a result of compliance with the criteria provided at Section 6(a)(i) and 6(a)(ii), (1) the Executive’s legal representative or any person empowered to act on
his behalf under his will or under the then applicable laws of descent and distribution shall be entitled to the extension of the term of stock option exercisability pursuant to Section 6(b)(i) and (2) the Executive’s dependents, to
the extent applicable, shall be entitled to the medical and dental benefits pursuant to Section 6(b)(ii)(A)-(D) for that period of time until the Executive would have achieved the age of 65 if the Executive had lived. 
 (b) In the event of the Executive’s Permanent Disability during his employment with the Company, the Executive, and to the
extent applicable, his dependents, shall be entitled to the benefits provided in Section 6(b)(i)and 6(b)(ii)(A)-(D). 
 8.
Payment of Taxes. All payments made to Executive under this Agreement shall be subject to all applicable federal and state income, employment and payroll taxes. 
 9. Parachute Payment. In the event that any of the payments and benefits provided for in this Agreement or otherwise payable to the Executive in connection with the Change of Control (collectively, the
“Payments”) would result in a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the amount of such Payments shall be either: (i) the full
amount of the Payments, or (ii) a reduced amount which would result in no portion of the Payments being subject to the excise tax imposed pursuant to Section 4999 of the Code (the “Excise Tax”), whichever of the foregoing
amounts, taking into account the applicable federal, stated and local income tax and the Excise Tax, results in the receipt by the Executive, on an after-tax basis, of the greatest amount of benefit. Unless the Company and the Executive otherwise
agree in writing, any determination required under this Section 9 shall be made in writing by independent public accountants appointed by the Company and reasonably acceptable to the Executive (the “Accountants”), whose determination
shall be conclusive and binding upon the Executive and the Company for all purposes. The Company shall bear all costs the Accountants may reasonably incur in connection with such determination, and the Company and the Executive shall furnish to the
Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 9. 
  

 8. 

 10. Exclusive Remedy. The payments and benefits provided for in Section 4 or
Section 5 shall constitute the Executive’s sole and exclusive remedy for any alleged injury or other damages arising out of the cessation of the employment relationship between the Executive and the Company. To the extent Executive is
entitled to severance or other benefits upon termination of employment under this Agreement and any other agreement, the benefits payable under this Agreement shall be reduced by the amounts paid to Executive under any other such agreement.

 11. Proprietary and Confidential Information. The Executive agrees to continue to abide by the terms and conditions of any
Company’s confidentiality and/or proprietary rights agreement between the Executive and the Company. 
 12. Arbitration. Any
claim, dispute or controversy arising out of this Agreement, the interpretation, validity or enforceability of this Agreement or the alleged breach thereof shall be submitted by the parties to binding arbitration by the American Arbitration
Association in San Jose, California or elsewhere by mutual agreement. The selection of the arbitrator and the arbitration procedure shall be governed by the Commercial Arbitration Rules of the American Arbitration Association. All costs and expenses
of arbitration or litigation, including but not limited to reasonable attorneys fees and other costs reasonably incurred by the Executive, shall be paid by the Company. Judgment may be entered on the award of the arbitration in any court having
jurisdiction. 
 13. Interpretation. Executive and the Company agree that this Agreement shall be interpreted in accordance with and
governed by the laws of the State of California, without regard to such state’s conflict of laws rules. 
 14. Conflict in
Benefits. This Agreement shall supersede all prior arrangements, whether written or oral, and understandings regarding the subject matter of this Agreement. To the extent Executive is entitled to severance or other benefits upon termination of
employment under this Agreement and any other agreement, including any change in control agreement entered into by the Company and the Executive, the benefits payable under this Agreement shall supersede and replace any other such agreement.
However, this Agreement is not intended to and shall not affect, limit or terminate (i) any plans, programs, or arrangements of the Company that are regularly made available to a significant number of employees of the Company, (ii) the
Company’s stock option plans, (iii) any agreement or arrangement with the Executive that has been reduced to writing and which does not relate to the subject matter hereof, or (iv) any agreements or arrangements hereafter entered into
by the parties in writing, except as otherwise expressly provided herein. 
 15. Release of Claims. No severance benefits shall be
paid to Executive under this Agreement unless and until the Executive shall, in consideration of the payment of such severance benefit, execute a release of claims in a form reasonably satisfactory to the Company. Notwithstanding the foregoing, the
general release shall not be construed to waive any right to indemnification or contribution otherwise available to Executive under law or rules of corporate governance with respect to claims by third parties for actions or omissions in
Executive’s role as an officer of the Company. 
  

 9. 

 16. Successors and Assigns. 
 (a) Successors of the Company. The Company will require any successor or assign (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession transaction shall be a breach of this Agreement and shall
entitle the Executive to terminate his or her employment with the Company within three (3) months thereafter and to receive the benefits provided under Section 4 of this Agreement in the event of Termination Upon Change of Control. As used
in this Agreement, “Company” shall mean the Company as defined above and any successor or assign to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 16 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of law. 
 (b) Heirs of Executive. This
Agreement shall inure to the benefit of and be enforceable by the Executive’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 
 17. Notices. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: 
 if to the Company: 
 Power Integrations, Inc. 
 5245 Hellyer Avenue 
 San Jose, California 95138 
 Attn: Chief Financial Officer 
 and if to the Executive at the address specified at the end of this Agreement. Notice may also be given at such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 
 18. No
Representations. Executive acknowledges that he/she is not relying and has not relied on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement. 
 19. Validity. If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby. 
  

 10. 

 20. Modification. This Agreement may only be modified or amended by a supplemental written
agreement signed by Executive and the Company. 
 21. Consultation with Legal and Financial Advisors. Executive acknowledges that his
Agreement confers significant legal rights, and may also involve the waiver of rights under other agreements; that the Company has encouraged Executive to consult with Executive’s personal legal and financial advisers; and that Executive has
had adequate time to consult with Executive’s advisers before signing this Agreement. 
 22. Application of Section 409A and
Other Limitations. 
 (a) Extension of Stock Option Exercise Period. Notwithstanding anything to the contrary in
this Agreement, in the event any extended exercise period provided for in this Agreement shall result in a portion of a stock option becoming subject to the provisions of Section 409A of the Code, the extended exercise period of such portion of
such stock option shall be automatically shortened to the minimum extent necessary to prevent such portion of such option from becoming subject to Section 409A of the Code. In further limitation of any provisions providing for an extended
exercise period, the following provisions shall apply: 
 (i) If the stock option was granted pursuant to the 1997
Stock Option Plan, as amended (the “1997 Plan”) and pursuant to a Change in Control (as defined in the 1997 Plan) substantially all of the stock options outstanding pursuant to the 1997 Plan will be terminated at the effective date of such
Change in Control, any provisions in this Agreement providing for an extended exercise period shall not apply to such stock option. 
 (ii) If the stock option was granted pursuant to the 1998 Nonstatutory Stock Option Plan (the “1998 Plan”) and pursuant to a Change in Control (as defined in the 1998 Plan) substantially all of the stock options outstanding
pursuant to the 1998 Plan will be terminated at the effective date of such Change in Control, any provisions in this Agreement providing for an extended exercise period shall not apply to such stock option. 
 (iii) If the stock option was granted pursuant to an equity incentive plan adopted after the date hereof (a “Future
Plan”) and, pursuant to the provisions of the Future Plan, substantially all of the stock options outstanding pursuant to the Future Plan will be terminated at the effective date of an event or transaction, any provisions in this Agreement
providing for an extended exercise period shall not apply to such stock option. 
 (b) Other Benefits. In the
event that any benefit provided for under this Agreement, including but not limited to severance, medical, dental and retirement benefits, shall fail to satisfy the distribution requirement of Section 409A(a)(2)(A) of the Code as a result of
the application of Section 409A(a)(2)(B)(i) of the Code, the payment of such benefit shall be accelerated to the minimum extent necessary so that the benefit is not subject to the provisions of Section 409A(a)(1) of the Code. (The payment
schedule as revised after the application of the preceding sentence shall be referred to as the “Revised Payment Schedule.”) In the event the payment of such benefits pursuant to the Revised Payment Schedule would be subject to
Section 409A(a)(1) of the Code, the payment of such benefits shall not be paid pursuant to the Revised Payment Schedule and instead the payment of such benefits shall be delayed to the minimum extent necessary so that such benefits are not
subject to the provisions of Section 409A(a)(1) of the Code. The Board of Directors or the Compensation Committee may attach conditions to or adjust the amounts paid pursuant to this Section 22(b) to preserve, as closely as possible, the
economic consequences that would have applied in the absence of this Section 22(b); provided, however, that no such condition or adjustment shall result in the payments being subject to Section 409A(a)(1) of the Code. 
 [SIGNATURE PAGE FOLLOWS] 
  

 11. 

 IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date and year written below, intending to be legally bound as of the Effective Date. 
  

									
		 		 	POWER INTEGRATIONS, INC.
					
	Date:	 	8-15-07	 		 	By:	 	/s/ Rafael Torres
		 		 		 	Title:	 	Chief Financial Officer
				
		 		 		 	 EXECUTIVE:

				
	Date:	 	8-15-2007	 		 	/s/ Balu Balakrishnan
				
		 		 		 	Executive’s Signature
		 		 		 	Balu Balakrishnan
		 		 		 	Print Executive’s Name: Balu Balakrishnan

  

	
	Address for Notice:
	
	on file
	
	 
	
	 

 [Signature Page to Chief Executive Officer Benefits Agreement]

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