Document:

Reaffirmation of Guaranties and Collateral Documents

 Exhibit 10.5 
  
 REAFFIRMATION OF GUARANTIES 
 AND COLLATERAL DOCUMENTS 
  
 THIS REAFFIRMATION OF GUARANTIES AND COLLATERAL DOCUMENTS, dated March 26, 2004 (this “Reaffirmation”) is by the undersigned guarantors (individually, a “Guarantor”, and collectively, the “Guarantors”). Each
Guarantor has guaranteed the Indebtedness and Obligations of Sonic Automotive, Inc., a Delaware corporation (“Borrower”), under the Second Amended and Restated Credit Agreement, dated February 5, 2003, among Borrower, Ford Motor Credit
Company, as agent (the “Agent”) and the Lenders, as such agreement may be amended and/or restated from time to time (the “Credit Agreement”), and each Guarantor has provided a security interest in its assets and/or pledges of
other collateral to secure its Guaranty. 
  
 The Credit Agreement
provides for the Loan to Borrower in the aggregate principal amount of $500,000,000.00 to be made severally by Ford Credit, Chrysler Financial, Toyota Credit and Bank of America in accordance with the terms thereof. In accordance with the First
Amendment to Credit Agreement dated as of even date herewith (the “Amendment”), the Credit Agreement will be amended to add Merrill Lynch Capital Corporation, a Delaware corporation, and JPMorgan Chase Bank, a New York state chartered
bank, as Lenders and to increase the principal amount of the Loan to $550,000,000.00. 
  
 NOW, THEREFORE, in consideration of the promises and other valuable consideration, receipt of which is hereby acknowledged, and to induce each of the Lenders to amend the Credit Agreement in accordance with the
Amendment, the Guarantors, and each of them, agree as follows: 
  
 1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement. As used herein, the following terms shall have the following meanings: 
  
 2. Reaffirmation. Each Guarantor reaffirms its liabilities,
obligations and agreements under the Guaranties and the Collateral Documents with respect to the Credit Agreement, including the increase in the principal amount of the Loan, the addition of additional Lenders and any other changes to the other
terms and conditions as set forth in the Amendment. Guarantor acknowledges and agrees that every right, power and remedy of Agent and Lenders under the Guaranties and Collateral Documents are in full force and effect, including without limitation,
such right, powers and remedies relating to the Credit Agreement, as amended, and the payment of the Indebtedness and the performance of the Obligations. 
  
 3. No Defense or Set-Off. Each Guarantor acknowledges and declares that it has no defense, claim, charge, plea or set-off whatsoever in law or
equity against the Lenders, the Agent, the Guaranties, the Collateral Documents, the Credit Agreement, the Amendment, or any other instrument or document executed by Guarantor or Borrower in connection with the Credit Agreement or the Amendment.
Guarantor waives and releases any and all defenses that might accrue to Guarantor by the execution of the Amendment. 
  
 [REMAINER OF PAGE INTENTIONALLY LEFT BLANK] 
  
 [SIGNATURE PAGE TO FOLLOW] 

 IN WITNESS WHEREOF, the parties hereto have executed this Reaffirmation under seal as of the date set
forth above intending to be legally bound hereby. 
  

	
	SONIC - MONTGOMERY FLM, INC.,
	COBB PONTIAC-CADILLAC, INC.,
	ROYAL MOTOR COMPANY, INC.,
	CAPITAL CHEVROLET AND IMPORTS, INC.,
	SONIC AUTOMOTIVE - 21699 U.S. HWY 19 N., INC.,
	HMC FINANCE ALABAMA, INC.
	SONIC AUTOMOTIVE OF GEORGIA, INC.,
	SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC,
	FRONTIER OLDSMOBILE-CADILLAC, INC.,
	MARCUS DAVID CORPORATION,
	SONIC AUTOMOTIVE - 9103 E. INDEPENDENCE, NC, LLC,
	SONIC LAKE NORMAN CHRYSLER JEEP, LLC,
	TOWN AND COUNTRY FORD, INCORPORATED,
	SONIC AUTOMOTIVE-3700 WEST BROAD
	STREET, COLUMBUS, INC.,
	SONIC AUTOMOTIVE-1455 AUTOMALL DRIVE, COLUMBUS, INC.,
	SONIC AUTOMOTIVE-1495 AUTOMALL DRIVE, COLUMBUS, INC.,
	SONIC AUTOMOTIVE-4000 WEST BROAD
	STREET, COLUMBUS, INC.,
	SONIC AUTOMOTIVE-1500 AUTOMALL
	DRIVE, COLUMBUS, INC.,
	SONIC AUTOMOTIVE-1400 AUTOMALL DRIVE, COLUMBUS, INC.,
	SONIC-FORT MILL DODGE, INC.,
	SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.,
	SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC.,
	SONIC-FORT MILL CHRYSLER JEEP, INC.,
	SONIC AUTOMOTIVE OF CHATTANOOGA, LLC,
	SONIC AUTOMOTIVE OF NASHVILLE, LLC,
	SONIC AUTOMOTIVE - 6025
	INTERNATIONAL DRIVE, LLC,
	SONIC-CREST CADILLAC, LLC,
	TOWN AND COUNTRY JAGUAR, LLC,
	TOWN AND COUNTRY FORD OF CLEVELAND, LLC,
	SONIC — 2185 CHAPMAN RD., CHATTANOOGA, LLC,
	SONIC OF TEXAS, INC.,

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -2- 

	
	SONIC - WILLIAMS IMPORTS, INC.,
	SONIC - WILLIAMS BUICK, INC.,
	SONIC - WILLIAMS CADILLAC, INC.,
	SONIC - WILLIAMS MOTORS, LLC,
	SONIC - NEWSOME CHEVROLET WORLD, INC.,
	SONIC - NEWSOME OF FLORENCE, INC.,
	SONIC - CLASSIC DODGE, INC.
	SONIC - ROCKVILLE MOTORS, INC.,
	SONIC - ROCKVILLE IMPORTS, INC.,
	SONIC - MANHATTAN WALDORF, INC.,
	SONIC - MANHATTAN FAIRFAX, INC.,
	SONIC - NORTH CHARLESTON, INC.,
	SONIC AUTOMOTIVE - 5585 PEACHTREE
	INDUSTRIAL BLVD., LLC,
	SONIC - NORTH CHARLESTON DODGE, INC.,
	VILLAGE IMPORTED CARS, INC.,
	FIRSTAMERICA AUTOMOTIVE, INC.,
	FA SERVICE CORPORATION,
	FAA AUTO FACTORY, INC.,
	FAA BEVERLY HILLS, INC.,
	FAA CAPITOL N, INC.,
	FAA CONCORD H, INC.,
	FAA CONCORD N, INC.,
	FAA CONCORD T, INC.,
	FAA DUBLIN N, INC.,
	FAA MARIN D, INC.,
	FAA POWAY D, INC.,
	FAA POWAY G, INC.,
	FAA SAN BRUNO, INC.,
	FAA SERRAMONTE H, INC.,
	FAA SERRAMONTE L, INC.,
	FAA SERRAMONTE, INC.,
	FAA STEVENS CREEK, INC.,
	SONIC – COAST CADILLAC, INC.
	FAA TORRANCE CPJ, INC.,
	FAA DUBLIN VWD, INC.,
	KRAMER MOTORS INCORPORATED,
	FAA SANTA MONICA V, INC.,
	FAA LAS VEGAS H, INC.,
	L DEALERSHIP GROUP, INC.,
	WINDWARD, INC.,
	AUTOBAHN, INC.,
	SONIC – STEVENS CREEK B, INC.,
	FAA HOLDING CORP.,
	FRANCISCAN MOTORS, INC.,

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -3- 

	
	SANTA CLARA IMPORTED CARS, INC.,
	STEVENS CREEK CADILLAC, INC.,
	FAA MARIN F, INC.,
	FAA POWAY H, INC.,
	FAA POWAY T, INC.,
	FAA MARIN LR, INC.,
	SONIC-RIVERSIDE, INC.,
	SONIC-GLOVER, INC.,
	RIVERSIDE NISSAN, INC.,
	SPEEDWAY CHEVROLET, INC.
	FORT MILL FORD, INC.,
	FREEDOM FORD, INC.,
	SONIC AUTOMOTIVE - CLEARWATER, INC.,
	SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC.,
	SONIC AUTOMOTIVE - 1919 N. DIXIE HWY.,
	NSB, INC.,
	SONIC AUTOMOTIVE - 1307 N. DIXIE HWY.,
	NSB, INC.,
	SONIC AUTOMOTIVE- 1720 MASON AVE., DB, INC.,
	SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE., HH, INC.,
	SONIC AUTOMOTIVE OF NEVADA, INC.,
	SONIC AUTOMOTIVE OF TENNESSEE, INC.,
	SONIC AUTOMOTIVE - BONDESEN, INC.,
	SONIC - LLOYD PONTIAC - CADILLAC, INC.,
	SONIC - LLOYD NISSAN, INC.,
	SONIC - SUPERIOR OLDSMOBILE, LLC,
	SONIC - SHOTTENKIRK, INC.,
	SONIC - INTEGRITY DODGE LV, LLC,
	SONIC - VOLVO LV, LLC,
	SONIC - FM AUTOMOTIVE, LLC,
	SONIC - FM, INC.,
	SONIC - FM VW, INC.,
	SONIC - NORTH CADILLAC, INC.,
	SONIC - FREELAND, INC.,
	SONIC AUTOMOTIVE - 1720 MASON AVE., DB, LLC
	SONIC AUTOMOTIVE SERVICING COMPANY, LLC
	SONIC AUTOMOTIVE F & I, LLC
	SONIC – RIVERSIDE AUTO FACTORY, INC.
	TRANSCAR LEASING, INC.
	SONIC AUTOMOTIVE – 2490 SOUTH LEE
	HIGHWAY, L.L.C.
	FAA CAPITOL F, INC.,

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -4- 

	
	SONIC – LAS VEGAS C EAST, LLC,
	SONIC – LAS VEGAS C EAST, LLC
	SONIC – LAS VEGAS C WEST, LLC,
	SONIC - CAPITOL CHEVROLET, INC.
	SONIC DEVELOPMENT, LLC
	SONIC – HARBOR CITY H, INC.
	SONIC – BUENA PARK H, INC.
	SONIC – WEST COVINA T, INC.
	SONIC – BETHANY H, INC.
	SONIC – WEST RENO CHEVROLET, INC.
	AVALON FORD, INC.
	SONIC-CARSON F, INC.
	SONIC-CARSON LM, INC.
	SONIC-DOWNEY CADILLAC, INC.
	SONIC-MASSEY CHEVROLET, INC.
	SONIC-LONE TREE CADILLAC, INC.
	SONIC-ENGLEWOOD M, INC.
	SONIC-MASSEY PONTIAC BUICK GMC, INC.
	SONIC-SANFORD CADILLAC, INC.
	SONIC-PLYMOUTH CADILLAC. INC.
	SONIC-CAPITOL CADILLAC, INC.
	ARNGAR, INC.
	MASSEY CADILLAC, INC. (TX)
	MASSEY CADILLAC, INC. (TN)
	SMART NISSAN, INC.
	SONIC-LS, LLC
	SONIC-AUTOMOTIVE WEST, LLC
	SONIC-RESOURCES, INC.
	SONIC-LAKE NORMAN DODGE, LLC
	SONIC-CREST H, LLC
	SONIC – CALABASAS A, INC.
	SONIC – OKLAHOMA T, INC.
	SONIC – CAPITOL IMPORTS, INC.
	FRANK PARRA AUTOPLEX, INC.
	MOUNTAIN STATES MOTORS CO., INC.
	Z MANAGEMENT, INC.
	SONIC-SERRAMONTE I, INC.
	SONIC CALABASAS V, INC.
	SONIC DENVER T, INC.
	SONIC ANN ARBOR IMPORTS, INC.
	WRANGLER INVESTMENTS, INC.
	SONIC – SATURN OF SILICON VALLEY, INC.
	ONTARIO L, LLC
	SONIC ONTARIO T, INC.
	FAA MONTEREY F, INC.
	SONIC — DENVER VOLKSWAGEN, INC.
	FORT MYERS COLLISION CENTER, LLC
	SONIC – SOUTH CADILLAC, INC.
	SONIC AGENCY, INC.

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -5- 

	
	SONIC AUTOMOTIVE SUPPORT, LLC
	SONIC ESTORE, INC.
	ADI OF THE SOUTHEAST, LLC
	SONIC CHATTANOOGA D EAST, LLC
	CASA FORD OF HOUSTON, INC.

  

			
	 By:
	 	 /s/ E. Lee Wyatt             (Seal)

	 Name:
	 	E. Lee Wyatt, Jr.
	 Title:
	 	Vice President of each of the above named entities

  

	
	SONIC AUTOMOTIVE OF TEXAS, L.P.,
	SONIC AUTOMOTIVE-4701 I-10 EAST, TX, L.P.,
	SONIC AUTOMOTIVE - 3401 N. MAIN, TX, L.P.,
	SONIC AUTOMOTIVE - 5221 I-10 EAST, TX, L.P.,
	SONIC - SAM WHITE NISSAN, L.P.,
	SONIC - LUTE RILEY, L.P.,
	SONIC - READING, L.P.,
	SONIC - CAMP FORD, L.P.,
	SONIC-FORT WORTH T, L.P.,
	PHILPOTT MOTORS, LTD.
	SONIC – RICHARDSON F, L.P.
	SONIC – CARROLLTON V, L.P.
	SONIC – HOUSTON V, L.P.
	SONIC – LS CHEVROLET, L.P.,
	SONIC UNIVERSITY PARK A, L.P.
	SONIC-MASSEY CADILLAC, L.P.
	SONIC – FRANK PARRA AUTOPLEX, L.P.
	SONIC – CADILLAC D, L.P.
	SONIC SAM WHITE OLDSMOBILE, LP
	SONIC — CLEAR LAKE VOLKSWAGEN, L.P.
	SONIC – JERSEY VILLAGE VOLKSWAGEN, L.P.
	SONIC – MESQUITE HYUNDAI, L.P.

  

					
	 By:
	 	Sonic of Texas, Inc.,
	 	 	a Texas corporation, as General Partner of each of the above entities
			
	 	 	 By:
	 	 /s/ E. Lee Wyatt          (SEAL)

	 	 	Name:	 	E. Lee Wyatt, Jr.
	 	 	Title:	 	Vice President

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -6- 

					
	 SONIC — GLOBAL IMPORTS, L.P.

	 SONIC – STONE MOUNTAIN CHEVROLET, L.P.

	 SONIC PEACHTREE INDUSTRIAL BLVD., L.P.

	 SONIC – STONE MOUNTAIN T, L.P.

		
	 By:
	 	Sonic Automotive of Georgia, Inc., a Georgia corporation, as General Partner of each of the above entities
			
	 	 	By:	 	 /s/ E. Lee Wyatt            (SEAL)

	 	 	Name:	 	E. Lee Wyatt, Jr.
	 	 	Title:	 	Vice President

  
 [SIGNATURE PAGE
TO REAFFIRMATION OF GUARANTIES] 
  

 -7-Executive Officer Benefits Agreement

 Exhibit 10.18 
  
 EXECUTIVE OFFICER BENEFITS AGREEMENT 
  
 This Executive Officer Benefits Agreement (the “Agreement”) is made and entered into as of August 19, 2002 (the
“Effective Date”), by and between Power Integrations, Inc., a Delaware corporation and Andrew John Morrish (“Executive”). 
  
 Recitals 
  

	A.	Executive is an 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 intentional action by Executive causing 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 

  

 1 

 
other fiduciary holding securities of the Company under an employee benefit plan of the 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 the Effective Date of
this Agreement; 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 directly or indirectly 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 any employer directly competing with the Company or materially acting against the interest of the Company or (ii) recruiting and employing any present or future 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): 
  
 (i) A material decrease or planned decrease in
Executive’s annual salary, targeted annual incentive bonus 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 nor his position, responsibilities or
duties materially reduced or his substantive functional responsibilities or duties materially adversely changed if Executive is responsible for substantially the same function that Executive had in the Company and such function and the
responsibilities and duties thereof are similar to those of like situated employees of the acquirer employed in other subsidiaries, divisions, or units. 
  
 (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.

  
 “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. 
  
 (h) “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. 
  
 “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. 
  
 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 25% 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 50% 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. 
  
 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; 
  

 4 

 (iii) Six (6) months of Executive’s highest annual salary (with the Company) and 50%
of the Executive’s targeted annual incentive bonus 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 the Effective Date of this Agreement (and any options granted prior to the Effective Date of this Agreement 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 have their vesting accelerated, such that 50% of the then unvested shares will be deemed 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 six
(6) 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. Termination of Employment. 
  
 (a) Severance Benefits. In the event of the Executive’s Termination of Employment, Executive shall be entitled to all separation benefits provided in Section 4(a)(i) through 4(a)(iii) above. 
  
 (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 six (6) 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 

  

 5 

 
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 than 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 on
contract full time by a third party or (2) engage in Competition. If the Executive engages in either (1) or (2), then all Retirement Benefits shall terminate immediately. 
  
 (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 the Effective Date of this Agreement (and any options granted prior to the Effective Date of this Agreement 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 earlier of: (i) the term of the option or
(ii) five years; and 
  
 (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 
  

 6 

 (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, that, when combined with the coverage provided by Medicare (both Parts A and B), provides Comparable Coverage. The Executive shall be solely responsible for the payment of any Medicare premiums and/or Medical supplemental policy premiums
for the Comparable Coverage. 
  
 (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 and the Executive having satisfied the criteria provided at Section 6(a)(i) as of or prior to the date of his death 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. 
  

 7 

 (b) In the event of the Executive’s Permanent Disability during his employment with
the Company and the Executive having satisfied the criteria provided at Section 6(a)(i), 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 8 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. 
  

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 

  

 8 

 
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. 
  
 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 15 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 
  

 9 

 (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 Executive Officer or
 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. 
  
 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. 
  
 [signature page follows] 
  

 10 

 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: August 27, 2002	 	 	 	By:	 	 /s/ John Cobb

	 	 	 	 	 	 	 	

	 	 	 	 	 	 	 Title:
	 	 Chief Financial Officer

			
	 	 	 	 	 EXECUTIVE:

			
	Date: August 27, 2002	 	 	 	 /s/ Andrew John Morrish

	 	 	 	 	 	

	 	 	 	 	 	 	 Executive’s Signature

				
	 	 	 	 	 	 	 Andrew John Morrish

	 	 	 	 	 	 	 Print Executive’s Name

			
	 Address for Notice:
	 	 	 	 
			
	 	 	 	 	 
	
	 	 	 	 	 
	 	 	 	 	 
	
	 	 	 	 	 
	 	 	 	 	 
	
	 	 	 	 	 

  

 11

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