<PAGE>
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-
6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Power Integrations, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
POWER INTEGRATIONS, INC.
477 N. Mathilda Avenue
Sunnyvale, California 94086
May 2, 2000
To our stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Power Integrations, Inc. on June 6, 2000 at 477 N. Mathilda Avenue, Sunnyvale,
California 94086 at 1:00 p.m., Pacific Daylight Time.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement. Also enclosed is a copy of the 1999 Power Integrations, Inc. Annual
Report, which includes audited financial statements and certain other
information.
It is important that you use this opportunity to take part in the affairs
of Power Integrations, Inc. by voting on the business to come before this
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. Returning the proxy does not deprive you of your right to attend the
meeting and vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Howard F. Earhart
Howard F. Earhart
President and Chief Executive Officer
<PAGE>
POWER INTEGRATIONS, INC.
477 N. Mathilda Avenue
Sunnyvale, California 94086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2000
Dear Stockholder:
You are invited to attend the annual meeting of stockholders of Power
Integrations, Inc., which will be held on June 6, 2000, at 1:00 p.m. Pacific
Daylight Time at 477 N. Mathilda Avenue, Sunnyvale, California 94086, for the
following purposes:
1. To elect two (2) Class III directors to hold office for a three-year term
and until their successors are elected and qualified.
2. To approve an amendment to our Restated Certificate of Incorporation to
increase the number of shares of common stock authorized for issuance by
100,000,000 shares, to a total of 140,000,000 shares.
3. To approve an amendment to our 1997 Stock Option Plan which provides that
effective January 1, 2001, 662,000 shares which would otherwise only be
available for grant under the plan pursuant to non-statutory stock options
may instead be granted pursuant to incentive stock options.
4. To approve an increase in the number of shares reserved for issuance under
our 1997 Employee Stock Purchase Plan from 1,000,000 to 1,500,000 shares of
common stock.
5. To approve an increase in the number of shares reserved for issuance under
our 1997 Outside Directors Stock Option Plan from 400,000 to 800,000 shares
of common stock.
6. To ratify the appointment of Arthur Andersen LLP as our independent
auditors for the fiscal year ending December 31, 2000.
7. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on April 19, 2000, are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at our principal offices.
By order of the board of directors,
/s/ Robert G. Staples
Robert G. Staples
Secretary
Sunnyvale, California
May 2, 2000
STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. PROXIES ARE REVOCABLE, AND
ANY STOCKHOLDER MAY WITHDRAW HIS OR HER PROXY PRIOR TO THE TIME IT IS VOTED, OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
POWER INTEGRATIONS, INC.
477 N. Mathilda Avenue
Sunnyvale, California 94086
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the board of directors of Power
Integrations, Inc., a Delaware corporation, for use at the annual meeting of
stockholders to be held June 6, 2000, or any adjournment thereof for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The date of this proxy statement is May 2, 2000, the approximate date on
which this proxy statement and the accompanying form of proxy were first sent or
given to stockholders.
GENERAL INFORMATION
Annual Report. An annual report for the year ended December 31, 1999, is
enclosed with this proxy statement.
Voting Securities. Only stockholders of record as of the close of business
on April 19, 2000, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 27,226,231 shares of our common stock, par
value $.001 per share, issued and outstanding. Stockholders may vote in person
or by proxy. Each stockholder of shares of common stock is entitled to one vote
for each share of stock held on the proposals presented in this proxy statement.
Our bylaws provide that a majority of all of the shares of our capital stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.
Solicitation of Proxies. Power Integrations will bear the cost of
soliciting proxies. We will solicit stockholders by mail through our regular
employees, and will request banks and brokers, and other custodians, nominees
and fiduciaries, to solicit their customers who have our stock registered in the
names of such persons and will reimburse them for their reasonable, out-of-
pocket costs. We may use the services of our officers, directors and others to
solicit proxies, personally or by telephone, without additional compensation.
In addition, we have engaged the services of Corporate Investor Communications,
Inc., a proxy solicitation firm. We will pay approximately $4,500 for these
services and will reimburse Corporate Investor Communications for its
reasonable, out-of-pocket expenses.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by delivery to the Secretary
of Power Integrations at our principal offices at 477 N. Mathilda Avenue,
Sunnyvale, California 94086, of a written instrument revoking the proxy or a
duly executed proxy with a later date, or by attending the meeting and voting in
person.
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PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Power Integrations has a classified board of directors which currently
consists of six (6) directors: two (2) of whom are Class I directors, two (2)
of whom are Class II directors, and two (2) of whom are Class III directors.
Class I, Class II and Class III directors serve until the annual meeting of
stockholders to be held in 2001, 2002 and 2000, respectively, and until their
respective successors are duly elected and qualified. Directors in a class are
elected for a term of three years to succeed the directors in that class whose
terms expire at such annual meeting.
Management's nominees for election at the 2000 annual meeting of
stockholders to Class III of the board of directors are Howard F. Earhart and
Alan D. Bickell. If elected, each nominee will serve as a director until Power
Integrations' annual meeting of stockholders in 2003, and until his successor is
elected and qualified. If the nominee declines to serve or becomes unavailable
for any reason, or if a vacancy occurs before the election (although management
knows of no reason to anticipate that this will occur), the proxies may be voted
for a substitute nominee as the board of directors may designate.
The table below sets forth the names and certain information of our
directors, including the Class III nominees to be elected at this meeting.
<TABLE>
<CAPTION>
Principal occupation with Power Integrations Age Director
Name Integration since
- ------------------------------------------- ------------------------------------------------- -------- --------
Class I directors whose terms expire at the 2001 annual meeting of stockholders:
<S> <C> <C> <C>
R. Scott Brown Director 59 1999
Steven J. Sharp Director 58 1988
Class II nominee to be elected at the 2002 annual meeting of stockholders:
E. Floyd Kvamme Director 62 1989
Nicholas E. Brathwaite Director 41 2000
Class III directors whose terms expire at the 2000 annual meeting of stockholders:
Howard F. Earhart Chairman of the Board, President and Chief 60 1995
Executive Officer
Alan D. Bickell Director 63 1999
</TABLE>
Howard F. Earhart has served as our president, chief executive officer and
as a director since January 1995. From July 1994 to March 1995, Mr. Earhart
served as chief executive officer of Co-Active Computing, a personal computer
peer-to-peer network adapter company. From July 1994 to January 1995, Mr.
Earhart served as chief executive officer of Reach Software, a software company.
Alan D. Bickell has served as a member of the board of directors since
April 1999. Mr. Bickell retired in 1996 after more than 30 years with Hewlett
Packard, serving as a corporate senior vice president and managing director of
geographic operations since 1992.
Nicholas E. Brathwaite has served as a member of the board of
directors since January 2000. Mr. Brathwaite currently serves as senior vice
president and chief technology officer for Flextronics International, a provider
of engineering, advanced electronics manufacturing and logistical services, and
has held various engineering management positions with Flextronics since 1995.
From 1989 to 1995, Mr. Brathwaite held various management positions at nChip, a
multi-chip module company.
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R. Scott Brown has served as member of the board of directors since
July 1999. From 1985 to 1999, Mr. Brown served as senior vice president of
worldwide sales and support for Xilinx, Inc., a designer and developer of
complete programmable logic solutions for use by electronic equipment
manufacturers.
E. Floyd Kvamme has served as a member of the board of directors since
September 1989. Mr. Kvamme has been a general partner of Kleiner Perkins
Caufield & Byers, a venture capital company, since 1984. Mr. Kvamme also serves
on the boards of Brio Technology, Harmonic, National Semiconductor, Photon
Dynamics and several private companies.
Steven J. Sharp is one of our founders and has served as a member of the
board of directors since our inception. Mr. Sharp has served as president, chief
executive officer and chairman of the board of TriQuint Semiconductor, a
manufacturer of gallium arsenide integrated circuits, since September 1991.
Board of director's committees and meetings
During the year ended December 31, 1999, the board of directors held five
(5) meetings. Each incumbent director attended at least 75% of the aggregate of
such meetings of the board and any committee of the board on which he served.
The board of directors has established an audit committee and a compensation
committee.
The audit committee's function is to:
. review with the independent auditors and management of Power
Integrations the annual financial statements and independent auditors' opinion,
. review the scope and results of the examination of our financial
statements by the independent auditors,
. approve all professional services and related fees performed by the
independent auditors,
. recommend the retention of the independent auditors to the board,
subject to ratification by the stockholders, and
. periodically review our accounting policies and internal accounting and
financial controls.
The audit committee also oversees actions taken by our independent
auditors and recommends the engagement of auditors. The members of the audit
committee during 1999 were Dr. Edward C. Ross and Mr. E. Floyd Kvamme. Dr. Ross
resigned from the board on April 21, 1999. The vacancy in the audit committee
created by Dr. Ross' resignation has been filled by Mr. Alan D. Bickell. During
1999, the audit committee held two (2) meetings.
The compensation committee's function is to make decisions concerning
salaries and incentive compensation for executive officers of Power
Integrations. The members of the compensation committee during 1999 were Dr.
Ross, Mr. Kvamme and Dr. Davidow. Dr. Davidow resigned from the board on July
23, 1999. The vacancy in the compensation committee created by Dr. Ross'
resignation has been filled by Mr. Bickell and the vacancy created by Dr.
Davidow's resignation has been filled by Mr. R. Scott Brown. During 1999, the
compensation committee did not meet, but instead acted by written consent and
the board of directors in its entirety performed the functions noted above. For
additional information concerning the compensation committee, see "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION."
Vote required and board of directors' recommendation
If a quorum is present and voting at the annual meeting of stockholders,
the nominees for Class III directors receiving the highest number of votes will
be elected. Abstentions and broker non-votes will each be counted as
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present for purposes of determining the presence of a quorum. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
4
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PROPOSAL NUMBER TWO
APPROVAL OF AMENDMENT TO RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
On March 17, 2000, the board of directors authorized an amendment to Power
Integrations' Certificate of Incorporation to increase the number of authorized
shares of common stock by 100,000,000 from 40,000,000 shares to 140,000,000
shares. A copy of the amendment is attached hereto as Appendix A. Our
----------
Certificate of Incorporation currently authorizes the issuance by Power
Integrations of up to 40,000,000 shares of common stock and 3,000,000 shares of
preferred stock, $0.001 par value per share (the "Preferred Shares"). As of
January 31, 2000, there were approximately 26,633,592 shares of common stock
issued and outstanding, approximately 9,532,489 shares of common stock reserved
for issuance under various stock plans, of which options for 7,925,623 shares
have been granted, and approximately 1,606,866 shares of common stock available
for future issuance. No preferred shares are issued or outstanding. There are
no preemptive rights with respect to our common stock.
During the past year, the market price of our common stock was at
historically high levels. As a result, we effected a two-for-one stock split in
the form of a stock dividend for holders of record at the close of business on
November 8, 1999. Due to this stock split, we now have a very limited number of
authorized shares of common stock remaining that are not issued or reserved for
issuance. The board of directors believes that the proposed increase is
desirable so that, as the need may arise, we will have more flexibility to issue
shares of common stock in connection with future opportunities for expanding our
business through investments or acquisitions, possible future stock dividends or
stock splits, possible increases in the share reserves under our stock plan, and
for other general corporate purposes. Other than as outlined above, we have no
specified use planned for the additional shares being proposed for authorization
under this proposal.
Authorized but unissued shares of our common stock may be issued at such
times, for such purposes and for such consideration as the board of directors
may determine to be appropriate without further authority from our stockholders,
except as otherwise required by applicable law or Nasdaq Stock Market policies.
The increase in authorized common stock will not have any immediate effect on
the rights of existing stockholders. Furthermore, if the additional authorized
shares are issued in connection with a stock dividend, they will not affect the
existing stockholders' percentage equity ownership of Power Integrations.
However, to the extent that the additional authorized shares are issued in the
future, they will decrease the existing stockholders' percentage equity
ownership; depending upon the price at which they are issued, they could be
either dilutive or nondilutive to the existing stockholders.
The increase in the authorized number of shares of common stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of Power Integrations without further action by
the stockholders. Shares of authorized and unissued common stock could (within
the limits imposed by applicable law) be issued in one or more transactions
which would make a change in control of Power Integrations more difficult, and
therefore less likely. Any such issuance of additional stock could have the
effect of diluting the earnings per share and book value per share of
outstanding shares of common stock, and such additional shares could be used to
dilute the stock ownership or voting rights of a person seeking to obtain
control of Power Integrations. The proposal to increase the authorized common
stock of Power Integrations is not in response to any offer, solicitation or
proposal to merge, combine or otherwise acquire control by a third party.
Vote required and board of directors' recommendation
The affirmative vote of a majority of all outstanding shares of common
stock of Power Integrations is required for approval of this proposal.
Abstentions and broker non-votes will each have the same effect as a negative
vote on this proposal. THEREFORE, FOR THE REASONS STATED ABOVE, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT OF POWER
INTEGRATIONS' RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF POWER INTEGRATIONS' COMMON STOCK.
5
<PAGE>
PROPOSAL NUMBER THREE
APPROVAL OF AMENDMENT OF
1997 STOCK OPTION PLAN
The board of directors adopted the 1997 Stock Option Plan, also referred to
as the 1997 Plan, on June 3, 1997. Currently, the 1997 Plan provides that the
maximum number of shares issuable under the 1997 Plan will automatically be
increased on the first day of each fiscal year beginning on or after January 1,
2000 by an amount equal to 5% of the number of shares of our common stock which
was issued and outstanding on the last day of the preceding fiscal year.
However, to comply with the Internal Revenue Code of 1986 (the "Code"), the 1997
Plan provides that the number of shares which may cumulatively be available for
issuance upon the exercise of incentive stock options, or ISOs, within the
meaning of Section 422 of the Code, will remain fixed at 6,704,454 shares (the
"ISO Issuance Limit"). Because the use of ISOs is an important factor in
attracting and retaining qualified employees, the board of directors has amended
the 1997 Plan, subject to stockholder approval, to increase the ISO Issuance
Limit by 662,000 shares, to 7,366,454 shares, effective as of January 1, 2001.
The increase in the ISO Issuance Limit contemplated by this amendment will NOT
increase the total number of shares issuable under the 1997 Plan.
The stockholders are now being asked to approve the increase in the ISO
Issuance Limit from 6,704,454 shares to 7,366,454 shares. The board of
directors believes that approval of this amendment is in the best interests of
Power Integrations and our stockholders because the ability to grant ISOs is an
important factor in attracting, motivating and retaining qualified officers and
employees essential to our success and in aligning their long-term interests
with those of the stockholders.
Summary of the provisions of the 1997 Plan
The following summary of the 1997 Plan is qualified in its entirety by the
specific language of the 1997 Plan, a copy of which is available to any
stockholder upon request.
General. The 1997 Plan provides for the grant of ISOs and nonstatutory
stock options. As of March 31, 2000, Power Integrations had outstanding options
under the 1997 Plan to purchase an aggregate of 1,772,384 shares at a weighted
average exercise price of $14.1599 per share. As of the same date, options to
purchase 837,294 shares of common stock granted pursuant to the 1997 Plan had
been exercised, and there were 1,452,350 shares of common stock available for
future grants under the 1997 Plan. As of the same date, options to purchase
349,967 shares of common stock were outstanding under our 1988 Stock Option
Plan. Shares subject to outstanding options granted pursuant to the 1988 Plan,
when canceled, become available for grant under the 1997 Plan. From the
inception of the 1997 Plan to March 31, 2000, options to purchase 72,733 such
shares have been canceled.
Shares subject to the 1997 Plan. The initial maximum share reserve of the
1997 Plan was 4,264,454 shares, which amount is increased annually on the first
day of our fiscal year, January 1, by a number of shares equal to 5% of the
number of shares of our issued and outstanding common stock on the preceding
December 31. The latest annual increase on January 1, 2000 was equal to
1,323,413 shares, resulting in a maximum reserve of 6,837,573 shares. However,
the number of shares available for grant at any time under the 1997 Plan is
reduced by the number of shares which remain subject to options granted under
our 1988 Plan plus the number of shares subject to options granted under the
1988 Plan that have been exercised after June 3, 1997, and as of March 31, 2000,
such total was 2,834,479 shares.
Currently, the ISO Issuance Limit is 6,704,454 shares and this limit does
not automatically increase each year. Subject to stockholder approval, the
board of directors has amended the 1997 Plan to increase the ISO Issuance Limit
to 7,366,454 shares, effective January 1, 2001. Under the Code, the number of
ISOs that may be granted under a plan must be an amount that is determinable on
the date that the stockholders approve the plan. Because the 1997 Plan's share
reserve increases each year and the amount of the increase is not determinable
in advance, the ISO Issuance Limit was approved as a fixed number. Thus,
although the total number of shares issuable under the 1997 Plan automatically
increases each fiscal year, the ISO Issuance Limit remains fixed. In order to
allow Power Integrations to continue to grant ISOs to its employees, the board
approved the increase in the ISO Issuance Limit. The proposed increase in the
ISO Issuance Limit will not increase the total number of shares
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<PAGE>
issuable under the 1997 Plan, but will allow Power Integrations to grant more
ISOs to employees from the 1997 Plan's share reserve.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in our
capital structure, appropriate adjustments will be made to the shares subject to
the 1997 Plan, the ISO Issuance Limit, the limit of options for no more than
400,000 shares to any employee in any fiscal year, and to outstanding options.
To the extent any outstanding option under the 1997 Plan expires or terminates
prior to exercise in full or if we repurchase shares issued upon exercise of an
option, the shares of common stock for which that option is not exercised or the
repurchased shares are returned to the 1997 Plan and will again be available for
issuance under the 1997 Plan.
In addition to the 1997 Plan, Power Integrations maintains the 1998
Nonstatutory Stock Option Plan, also referred to as the 1998 Plan, pursuant to
which an aggregate of 1,000,000 shares of common stock may be issued. The 1998
Plan provides for the grant of nonstatutory stock options to employees and
consultants of Power Integrations or any parent or subsidiary corporation of
Power Integrations (excluding officers and directors), and as of March 31, 2000,
options to purchase 144,866 shares of common stock granted pursuant to the 1998
Plan had been exercised, options to purchase an aggregate of 854,999 shares were
outstanding, and 135 shares of common stock remained available for future grants
under the 1998 Plan.
Administration. The board of directors or a duly appointed committee of
the board may administer the 1997 Plan. With respect to the participation of
individuals whose transactions in Power Integrations' equity securities are
subject to Section 16 of the Securities Exchange Act of 1934, the 1997 Plan must
be administered in compliance with the requirements, if any, of Rule 16b-3 under
the Exchange Act. Subject to the provisions of the 1997 Plan, the board
determines the persons to whom options are to be granted, the number of shares
to be covered by each option, and all other terms and conditions of the options.
The 1997 Plan also provides, subject to certain limitations, that Power
Integrations will indemnify any director, officer or employee against all
reasonable expenses, including attorneys' fees, incurred in connection with any
legal action arising from that person's action or failure to act in
administering the 1997 Plan. The board will interpret the 1997 Plan and options
granted thereunder, and all determinations of the board will be final and
binding on all persons having an interest in the 1997 Plan or any option under
that plan.
Eligibility. Generally, all employees, directors and consultants of Power
Integrations or of any present or future parent or subsidiary corporations of
Power Integrations are eligible to participate in the 1997 Plan. In addition,
the 1997 Plan also permits the grant of options to prospective employees,
consultants and directors in connection with written offers of employment or
engagement. As of April 1, 2000, Power Integrations had approximately 235
employees, including 9 executive officers and 6 directors. Any person eligible
under the 1997 Plan may be granted a nonstatutory option. However, only
employees may be granted ISOs and no employee may be granted options for more
than 400,000 shares during any fiscal year.
Terms and conditions of options. Each option granted under the 1997 Plan
is evidenced by a written agreement between Power Integrations and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the 1997 Plan.
The exercise price per share must equal at least the fair market value of a
share of Power Integrations' common stock on the date of grant of an ISO and at
least 85% of the fair market value of a share of the common stock on the date of
grant of a nonstatutory stock option. The exercise price of any ISO granted to
a person who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Power Integrations or any
parent or subsidiary corporation of Power Integrations (a "10% Stockholder")
must be at least 110% of the fair market value of a share of Power Integrations'
common stock on the date of grant. The fair market value of Power Integrations'
common stock is based on the trading price of Power Integrations' shares on the
Nasdaq National Market.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of Power Integrations' common stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or a loan with respect to some or all of
the shares of common stock being acquired upon the exercise of the option, by
means of a promissory note, by any lawful method approved by
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the board or by any combination of these. The board may nevertheless restrict
the forms of payment permitted in connection with any option grant.
The board will specify when options granted under the 1997 Plan will become
exercisable and vested. Generally, options granted under the 1997 Plan are
exercisable on and after the date of grant, subject to the right of Power
Integrations to reacquire, at the optionee's exercise price, any unvested shares
that the optionee holds upon termination of employment or service or if the
optionee attempts to transfer any unvested shares. Shares subject to options
generally vest in installments, subject to the optionee's continued employment
or service. The maximum term of ISOs granted under the 1997 Plan is ten years,
except that an ISO granted to a 10% Stockholder may not have a term longer than
five years. The 1997 Plan authorizes the board to grant nonstatutory stock
options having a term in excess of ten years. Options are nontransferable by
the optionee other than by will or by the laws of descent and distribution and
are exercisable during the optionee's lifetime only by the optionee.
Change in control. The 1997 Plan provides that a "change in control"
occurs in the event of:
. a sale or exchange by the stockholders of more than 50% of Power
Integrations' voting stock,
. a merger or consolidation involving Power Integrations,
. the sale, exchange or transfer of all or substantially all of the assets
of Power Integrations, or
. a liquidation or dissolution of Power Integrations,
wherein, upon any such event, the stockholders of Power Integrations immediately
before such event do not retain direct or indirect beneficial ownership of at
least 50% of the total combined voting power of the voting stock of Power
Integrations, its successor, or the corporation to which the assets of Power
Integrations were transferred.
Upon a change in control, the board may arrange for the acquiring or
successor corporation to assume or substitute new options for the options
outstanding under the 1997 Plan. To the extent that the options outstanding
under the 1997 Plan are not assumed, substituted for, or exercised prior to such
event, they will terminate.
Termination or amendment. Unless sooner terminated, no ISOs may be granted
under the 1997 Plan after June 2, 2007. The board may terminate or amend the
1997 Plan at any time, but, without stockholder approval, the board may not
adopt an amendment to the 1997 Plan which would increase the total number of
shares of common stock reserved for issuance thereunder, change the class of
persons eligible to receive ISOs, or require stockholder approval under any
applicable law, regulation or rule. No amendment may adversely affect an
outstanding option without the consent of the optionee, unless the amendment is
required to preserve the option's status as an ISO or is necessary to comply
with any applicable law.
Summary of federal income tax consequences of the 1997 Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
1997 Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
ISOs. An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of an ISO qualifying under
Section 422 of the Code. Optionees who do not dispose of their shares for two
years following the date the option was granted or within one year following the
exercise of the option will normally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale price and the purchase price
of the shares. If an optionee satisfies such holding periods upon a sale of the
shares, Power Integrations will not be entitled to any deduction for federal
income tax purposes. If an optionee disposes of shares within two years after
the date of grant or within one year from the date of exercise, referred to as a
disqualifying disposition, the difference between the fair market value of the
shares on the determination date, which is discussed in more detail below under
- -- "Nonstatutory stock options," and the option exercise price, not to exceed
the gain realized on the sale if the disposition is a transaction with respect
to which a loss, if sustained, would be recognized,
8
<PAGE>
will be taxed as ordinary income at the time of disposition. Any gain in excess
of that amount will be a capital gain. If a loss is recognized, there will be no
ordinary income, and such loss will be a capital loss. A capital gain or loss
will be long-term if the optionee's holding period is more than 12 months.
Generally, for federal income tax purposes, Power Integrations should be able to
deduct any ordinary income recognized by the optionee upon the disqualifying
disposition of the shares, except to the extent the deduction is limited by
applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the determination date of an ISO is an adjustment in computing
the optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if the tax exceeds the regular tax for the
year. Special rules may apply with respect to certain subsequent sales of the
shares in a disqualifying disposition, certain basis adjustments for purposes of
computing the alternative minimum taxable income on a subsequent sale of the
shares and certain tax credits which may arise with respect to optionees subject
to the alternative minimum tax.
Nonstatutory stock options. Options not designated or qualifying as ISOs
will be nonstatutory stock options. Nonstatutory stock options have no special
tax status. An optionee generally recognizes no taxable income as the result of
the grant of such an option. Upon exercise of a nonstatutory stock option, the
optionee normally recognizes ordinary income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares on the determination date. If the optionee is an employee, the ordinary
income generally is subject to withholding of income and employment taxes. The
determination date is the date on which the option is exercised unless the
shares are subject to a substantial risk of forfeiture and are not transferable,
in which case the determination date is the earlier of the date on which the
shares are transferable or the date on which the shares are not subject to a
substantial risk of forfeiture. If the determination date is after the exercise
date, the optionee may elect, pursuant to Section 83(b) of the Code, to have the
exercise date be the determination date by filing an election with the Internal
Revenue Service not later than 30 days after the date the option is exercised.
Upon the sale of stock acquired by the exercise of a nonstatutory stock option,
any gain or loss, based on the difference between the sale price and the fair
market value on the determination date, will be taxed as capital gain or loss.
A capital gain or loss will be long-term if the optionee's holding period is
more than 12 months. No tax deduction is available to Power Integrations with
respect to the grant of a nonstatutory option or the sale of the stock acquired
pursuant to that grant. Power Integrations generally should be entitled to a
deduction equal to the amount of ordinary income recognized by the optionee as a
result of the exercise of a nonstatutory option, except to the extent the
deduction is limited by applicable provisions of the Code or the regulations
thereunder.
Vote required and board of directors' recommendation
The affirmative vote of a majority of the votes cast on the proposal at the
annual meeting of stockholders, at which a quorum representing a majority of all
outstanding shares of Power Integrations' common stock is present, either in
person or by proxy, is required for approval of this proposal. Votes for and
against, abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. However, abstentions and
broker non-votes will have no effect on the outcome of this vote.
The board of directors believes that approval of the increase in the ISO
Issuance Limit is in the best interests of Power Integrations and its
stockholders. THEREFORE, FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF AN INCREASE IN THE ISO ISSUANCE
LIMIT.
9
<PAGE>
PROPOSAL NUMBER FOUR
INCREASE IN NUMBER OF SHARES RESERVED
FOR ISSUANCE PURSUANT TO THE 1997 EMPLOYEE STOCK PURCHASE PLAN
Power Integrations currently maintains the 1997 Employee Stock Purchase
Plan, also referred to as the Purchase Plan, which permits employees to purchase
shares of common stock through payroll deductions.
Power Integrations' stockholders have previously approved the reservation
of 1,000,000 shares of common stock for purchase by employees under the Purchase
Plan. To provide a reasonable reserve of shares to permit Power Integrations to
continue offering employees a stock purchase opportunity, the board has
unanimously adopted, subject to stockholder approval, an amendment to increase
the number of shares of common stock reserved for issuance under the Purchase
Plan by 500,000 shares, to a total of 1,500,000 shares. As of March 31, 2000, a
total of 271,077 shares remain available for future purchases, without giving
effect to the proposed amendment.
Because benefits under the Purchase Plan will depend on employees'
elections to participate and the fair market value of Power Integrations' common
stock at various future dates, it is not possible to determine the dollar value
of benefits that will be received by executive officers and other employees if
the proposed amendment to the Purchase Plan is approved by the stockholders.
Nonemployee directors are not eligible to participate in the Purchase Plan.
The stockholders are now being asked to approve the increase in the share
reserve of the Purchase Plan by 500,000 shares. The board believes that the
amendment is in the best interests of Power Integrations and its stockholders
because the availability of an adequate reserve of shares available for issuance
under the Purchase Plan will enable Power Integrations to continue to attract,
motivate and retain valued employees.
Summary of the provisions of the Purchase Plan
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to any
stockholder upon request.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each offering under the plan the right to
purchase through accumulated payroll deductions up to a number of shares of our
common stock determined on the first day of the offering. This right to
purchase stock is automatically exercised on the last day of each purchase
period within the offering unless the participant has withdrawn from
participation in the offering or in the Purchase Plan prior to that date.
Shares subject to the Purchase Plan. A maximum of 1,000,000 of our
authorized but unissued or reacquired shares of common stock may be issued under
the Purchase Plan, subject to appropriate adjustment in the event of a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in our capital structure or in the event of
any merger, sale of assets or other reorganization of Power Integrations.
Subject to stockholder approval, the board has amended the Purchase Plan to
increase the share reserve to 1,500,000 shares. If any right to purchase stock
expires or terminates, the shares subject to the unexercised portion of that
right will again be available for issuance under the Purchase Plan.
Administration. The Purchase Plan is administered by the board. Subject
to the provisions of the Purchase Plan, the board determines the terms and
conditions of the rights to purchase stock granted under the plan. The board
will interpret the Purchase Plan and the rights granted thereunder, and all
determinations of the board will be final and binding on all persons having an
interest in the Purchase Plan or any rights to buy stock under the Purchase
Plan. The Purchase Plan provides, subject to certain limitations, that Power
Integrations will indemnify any director, officer or employee against all
reasonable expenses, including attorney's fees, incurred in connection with any
legal action arising from that person's action or failure to act in
administering the plan.
Eligibility. Any employee of Power Integrations or of any present or
future parent or subsidiary corporation of Power Integrations designated by the
board for inclusion in the Purchase Plan is eligible to participate
10
<PAGE>
in an offering to purchase stock under the Purchase Plan so long as the employee
is customarily employed for at least 20 hours per week and 5 months per calendar
year. However, no employee who owns or holds options to purchase, or as a result
of participation in the Purchase Plan would own or hold options to purchase,
five percent or more of the total combined voting power or value of all classes
of stock of Power Integrations or of any parent or subsidiary corporation of
Power Integrations is entitled to participate in the Purchase Plan.
Offerings. Generally, each offering of common stock under the Purchase
Plan is for a period of twenty-four months. Offering periods under the Purchase
Plan are overlapping, with a new offering period beginning every six months.
However, employees may only participate in one offering at a time. Offering
periods will generally commence on the first days of February and August of each
year and end on the last days of the second following January and July,
respectively. However, the first offering period commenced on December 12,
1997, the effective date of the Company's registration of its common stock with
the Securities and Exchange Commission (the "Effective Date") and ended on
January 31, 2000. Each offering period will generally be comprised of four six-
month purchase periods, although the first purchase period of the first offering
period commenced on the Effective Date and ended on July 31, 1998. Shares are
purchased on the last day of each purchase period. The Board may establish a
different term for one or more offerings or purchase periods or different
commencement or ending dates for an offering or a purchase period.
Participation and purchase of shares. Participation in the Purchase Plan
is limited to eligible employees who authorize payroll deductions prior to the
start of an offering period. Payroll deductions may not exceed 15% (or such
other rate as the board determines) of an employee's compensation for any pay
period during the offering period. Once an employee becomes a participant in
the Purchase Plan, that employee will automatically participate in each
successive offering period until such time as that employee withdraws from the
Purchase Plan, becomes ineligible to participate in the Purchase Plan, or
terminates employment.
Subject to certain limitations, each participant in an offering has a
purchase right equal to the lesser of that number of whole shares determined by
dividing $50,000 by the fair market value of a share of common stock on the
first day of the offering period or 5,000 shares, provided that these dollar and
share amounts will be prorated for any offering period that is other than 24
months in duration. No participant may purchase under the Purchase Plan shares
of Power Integrations' common stock having a fair market value exceeding $25,000
in any calendar year. This dollar amount is measured using the fair market
value of Power Integrations' common stock on the first day of the offering
period in which the shares are purchased.
At the end of each purchase period, Power Integrations issues to each
participant the number of shares of common stock determined by dividing the
amount of payroll deductions accumulated for the participant during that
purchase period by the purchase price, limited in any case by the number of
shares subject to the participant's Purchase Right for that Offering. The price
per share at which shares are sold at the end of a purchase period generally
equals 85% of the lesser of the fair market value per share of Power
Integrations' common stock on the first day of the offering period or the
purchase date. The fair market value of the common stock on any relevant date
generally will be the closing price per share on such date as reported on the
Nasdaq National Market. Any payroll deductions under the Purchase Plan not
applied to the purchase of shares will be returned to the participant, unless
the amount remaining is less than the amount necessary to purchase a whole share
of common stock, in which case the remaining amount may be applied to the next
purchase period or offering period.
A participant may withdraw from an offering at any time without affecting
his or her eligibility to participate in future offerings. However, once a
participant withdraws from an offering, that participant may not again
participate in the same offering.
Change in control. The Purchase Plan provides that in the event of a
change in control, the acquiring or successor corporation may assume Power
Integrations' rights and obligations under the Purchase Plan or substitute
substantially equivalent purchase rights for such corporation's stock. If the
acquiring or successor corporation elects not to assume or substitute for the
outstanding purchase rights, the board may adjust the last day of the offering
period to a date on or before the date of the change in control. Any purchase
rights that are not assumed, substituted for, or exercised prior to the change
in control will terminate.
11
<PAGE>
Termination or amendment. The Purchase Plan will continue until terminated
by the Board or until all of the shares reserved for issuance under the plan
have been issued. The board may at any time amend or terminate the Purchase
Plan. However, the approval of Power Integrations' stockholders is required
within twelve months of the adoption of any amendment that increases the number
of shares authorized for issuance under the Purchase Plan or changes the
definition of the corporations which may be designated by the board as
corporations whose employees may participate in the Purchase Plan.
Summary of federal income tax consequences of the Purchase Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
A participant recognizes no taxable income either as a result of commencing
to participate in the Purchase Plan or purchasing shares of the common stock
under the terms of the Purchase Plan.
If a participant disposes of shares purchased under the Purchase Plan
within two years from the first day of the applicable offering period or within
one year from the purchase date, known as a disqualifying disposition, the
participant will realize ordinary income in the year of such disposition equal
to the amount by which the fair market value of the shares on the purchase date
exceeds the purchase price. The amount of the ordinary income will be added to
the participant's basis in the shares, and any additional gain or resulting loss
recognized on the disposition of the shares will be a capital gain or loss. A
capital gain or loss will be long-term if the participant's holding period is
more than twelve months.
If the participant disposes of shares purchased under the Purchase Plan at
least two years after the first day of the applicable offering period and at
least one year after the purchase date, the participant will realize ordinary
income in the year of disposition equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition over the purchase
price or (ii) 15% of the fair market value of the shares on the first day of the
applicable offering period. The amount of any ordinary income will be added to
the participant's basis in the shares, and any additional gain recognized upon
the disposition after such basis adjustment will be a long-term capital gain.
If the fair market value of the shares on the date of disposition is less than
the purchase price, there will be no ordinary income and any loss recognized
will be a long-term capital loss.
If the participant still owns the shares at the time of death, the lesser
of the excess of the fair market value of the shares on the date of death over
the purchase price or 15% of the fair market value of the shares on the first
day of the offering period in which the shares were purchased will constitute
ordinary income in the year of death.
Power Integrations should be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed to Power Integrations.
Vote required and board of directors' recommendation
The affirmative vote of a majority of the votes cast on the proposal at the
annual meeting of stockholders, at which a quorum representing a majority of all
outstanding shares of Power Integrations common stock is present, either in
person or by proxy, is required for approval of this proposal. Votes for and
against, abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. However, abstentions and
broker non-votes will have no effect on the outcome of this vote.
The board of directors believes that approval of the increase in the
Employee Stock Purchase Plan share reserve is in the best interests of Power
Integrations and its stockholders. THEREFORE, FOR THE REASONS STATED ABOVE, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF AN INCREASE
IN THE EMPLOYEE STOCK PURCHASE PLAN SHARE RESERVE.
12
<PAGE>
PROPOSAL NUMBER FIVE
APPROVAL OF AMENDMENT OF 1997 OUTSIDE DIRECTORS PLAN
Power Integrations currently maintains the 1997 Outside Directors Plan,
also referred to as the Directors Plan, which provides for the automatic grant
of nonstatutory stock options to our nonemployee directors.
Power Integrations' stockholders have previously approved the reservation
of 400,000 shares of common stock for issuance under the Directors Plan. To
provide a reasonable reserve of shares to permit Power Integrations to continue
offering nonemployee directors a stock purchase opportunity, the board has
unanimously adopted, subject to stockholder approval, an amendment to increase
the number of shares of common stock reserved for issuance under the Directors
Plan by 400,000 shares, to a total of 800,000 shares. As of March 31, 2000, a
total of 136,668 shares remain available for future grants, without giving
effect to the proposed amendment.
The stockholders are now being asked to approve the increase in the share
reserve of the Directors Plan by 400,000 shares. The board believes that the
amendment is in the best interests of Power Integrations and its stockholders
because the availability of an adequate reserve of shares available for issuance
under the Purchase Plan will enable Power Integrations to continue to attract
and retain valued directors.
Summary of the Provisions of the Directors Plan
The following summary of the Directors Plan is qualified in its entirety by
the specific language of the Directors Plan, a copy of which is available to any
stockholder upon request.
General. The Directors Plan provides for the automatic grant of
nonstatutory stock options to nonemployee directors of the Company.
Shares Subject to Plan. A maximum of 400,000 shares of our authorized but
unissued or reacquired shares of common stock may be issued upon the exercise of
options granted pursuant to the Directors Plan, subject to appropriate
adjustment in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in our
capital structure. Subject to stockholder approval, the board has amended the
Directors Plan to increase the share reserve to 800,000 shares. To the extent
any outstanding option under the Directors Plan expires or terminates prior to
exercise in full or if Power Integrations repurchases shares issued upon
exercise of an option, the shares of common stock for which that option is not
exercised or the repurchased shares are returned to the Directors Plan and will
again be available for issuance under the Directors Plan.
Administration. The Directors Plan is administered by the board. The
Directors Plan provides, subject to limitations set forth in the Directors Plan,
for indemnification by Power Integrations of any director, officer or employee
against all reasonable expenses, including attorneys' fees, incurred in
connection with any legal action arising from the person's action or failure to
act in administering the Directors Plan. The board is authorized to interpret
the Directors Plan and options granted thereunder, and all determinations of the
board will be final and binding on all persons having an interest in the
Directors Plan or any option.
Eligibility. Only directors of Power Integrations who are not employees at
the time of the grant are eligible to participate in the Directors Plan.
Currently, we have five (5) nonemployee, or outside, directors.
Automatic Grant of Options. The Directors Plan provides that each outside
director who is first elected or appointed as an outside director automatically
will be granted an option to purchase 30,000 shares of common stock on the date
of that initial election or appointment. The Directors Plan also provides for
the annual automatic grant of an additional option to purchase 10,000 shares of
common stock, on each anniversary of (a) December 12, 1997, the effective date
of adoption of the Directors Plan, for outside directors holding office on that
date, or (b) the date of initial election or appointment to the Board, for
outside directors first elected or appointed after that date, provided that the
person remains an outside director on the anniversary date.
13
<PAGE>
Terms and Conditions of Options. Each option granted under the Directors
Plan is evidenced by a written agreement between Power Integrations and the
outside director specifying the number of shares subject to the option and the
other terms and conditions of the option, consistent with the requirements of
the Directors Plan. The exercise price per share must equal the fair market
value, as determined pursuant to the plan, of a share of Power Integrations'
common stock on the date of grant. The fair market value of the common stock
will be the closing price per share on the date of grant as reported on the
Nasdaq National Market. All options granted under the Directors Plan will
expire 10 years after the date that option is granted, subject to earlier
termination in the event the outside directors' service with Power Integrations
ends or in the event of a change in control, as discussed below. As described
above, each outside director receives an initial grant at the time that director
begins service with Power Integrations. One-third of the shares subject to that
option will vest and become exercisable one year after the date of grant, and
the remaining shares will vest and become exercisable in equal monthly
installments over the following 24 months. Each annual grant will vest and
become exercisable in twelve monthly installments, with the first installment
vesting 25 months after the date of grant.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of Power Integrations' common stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of common stock being acquired upon the exercise of the option, or by any
combination of these. During the lifetime of the optionee, the option may be
exercised only by the optionee. An option may not be transferred or assigned,
except by will or by the laws of descent and distribution.
Upon a change in control, all outstanding options will become immediately
exercisable and vested as of the date ten (10) days prior to the change in
control. In addition, the acquiring or successor corporation may assume Power
Integrations' rights and obligations under the Directors Plan or substitute
substantially equivalent options for the options outstanding under the Directors
Plan. Any options that are not assumed, substituted for, or exercised prior to
the change in control will terminate.
Termination or Amendment. The Directors Plan will continue until
terminated by the board or until all of the shares reserved for issuance under
the plan have been issued. The board may terminate or amend the Directors Plan
at any time. However, without the approval of Power Integrations' stockholders,
the board may not amend the Directors Plan to increase the total number of
shares of common stock reserved for issuance or adopt any other amendment that
would require approval of the stockholders under any applicable law, regulation
or rule. No termination or amendment of the Directors Plan may adversely affect
an outstanding option without the consent of the optionee, unless the
termination or amendment is necessary to comply with any applicable law.
Summary of Federal Income Tax Consequences of the Directors Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Directors Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.
A participant in the Directors Plan receives nonstatutory options, which
have no special tax status. An optionee generally recognizes no taxable income
as the result of the grant of such an option. Upon exercise of a nonstatutory
stock option, the optionee normally recognizes ordinary income in an amount
equal to the difference between the option exercise price and the fair market
value of the shares on the exercise date. Upon the sale of stock acquired by
the exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the exercise
date, will be taxed as capital gain or loss. A capital gain or loss will be
long-term if the optionee's holding period is more than 12 months. No tax
deduction is available to Power Integrations with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to that grant.
Power Integrations generally should be entitled to a deduction equal to the
amount of ordinary income recognized by the optionee as a result of the exercise
of a nonstatutory option, except to the extent the deduction is limited by
applicable provisions of the Code or the regulations thereunder.
14
<PAGE>
Vote required and board of directors' recommendation
The affirmative vote of a majority of the votes cast on the proposal at the
annual meeting of stockholders, at which a quorum representing a majority of all
outstanding shares of Power Integrations common stock is present, either in
person or by proxy, is required for approval of this proposal. Votes for and
against, abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. However, abstentions and
broker non-votes will have no effect on the outcome of this vote.
The board of directors believes that approval of the increase in the
Directors Plan share reserve is in the best interests of Power Integrations and
its stockholders. THEREFORE, FOR THE REASONS STATED ABOVE, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF AN INCREASE IN THE
DIRECTORS PLAN SHARE RESERVE.
15
<PAGE>
PROPOSAL NUMBER SIX
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors has selected Arthur Andersen LLP as independent
auditors to audit our financial statements for the fiscal year ending December
31, 2000. Arthur Andersen LLP has acted in such capacity since its appointment
during the fiscal year ended December 31, 1990. A representative of Arthur
Andersen LLP is expected to be present at the annual meeting of stockholders
with the opportunity to make a statement if the representative desires to do so,
and is expected to be available to respond to appropriate questions.
Vote required and board of directors' recommendation
The affirmative vote of a majority of the votes cast at the annual meeting
of stockholders, at which a quorum representing a majority of all outstanding
shares of Power Integrations common stock is present and voting, either in
person or by proxy, is required for approval of this proposal. Abstentions and
broker non-votes will each be counted as present for purposes of determining the
presence of a quorum, but will not be counted as having been voted on the
proposal. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS POWER INTEGRATIONS' INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 19,
2000, with respect to the beneficial ownership of Power Integrations' common
stock by:
. each person known by Power Integrations to be the beneficial owner of
more than 5% of our common stock,
. each director and director nominee of Power Integrations,
. the Chief Executive Officer, and the four other highest compensated
executive officers of Power Integrations whose salary and bonus for the
year ended December 31, 1999 exceeded $100,000, plus one additional
individual who would have been one of the four highest compensated
executive officers but for the fact that the individual was not serving
as an executive officer of Power Integrations on December 31, 1999, also
referred to as the "Named Executive Officers," and
. all executive officers and directors of Power Integrations as a group.
<TABLE>
<CAPTION>
Name and address of beneficial owners Shares owned/(1)/
- ------------------------------------------------------------------------- ------------------------------
Number of
shares Percentage
------------- ---------------
<S> <C> <C>
5% Stockholders
Capital Research and Management Company/(2)/............................... 3,830,000 14.3%
333 South Hope Street
Los Angeles, CA 90071
Nicholas-Applegate Capital Management/(3)/................................. 1,739,520 6.5
600 West Broadway, 29th Floor
San Diego, CA 92101
Putnam Investments, Inc./(4)/.............................................. 1,202,960 4.5
One Post Office Square
Boston, Massachusetts 02109
RS Investment Management Co. LLC/(5)/...................................... 1,544,050 5.8
388 Market Street, Suite 200
San Francisco, CA 94111
Executive officers and directors
Howard F. Earhart/(6)/..................................................... 624,684 2.3
Balu Balakrishnan/(7)/..................................................... 342,873 1.3
Clements E. Pausa/(8)/..................................................... 43,890 *
Vladimir Rumennik/(9)/..................................................... 350,936 1.3
Daniel M. Selleck/(10)/.................................................... 205,639 *
Clifford J. Walker/(11)/................................................... 179,900 *
Alan D. Bickell............................................................ - *
Nicholas E. Brathwaite..................................................... - *
R. Scott Brown............................................................. - *
E. Floyd Kvamme/(12)/...................................................... 155,973 *
Steven J. Sharp/(13)/...................................................... 78,625 *
All executive officers and directors as a group (14 persons)/(14)/......... 2,387,537 8.5
</TABLE>
17
<PAGE>
____________________
* Less than 1%
(1) Except as indicated in the footnotes to this table, Power Integrations
believes that the persons named in the table have sole voting and
dispositive power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws, where
applicable. A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days upon the exercise of
options. Options held by executive officers are immediately exercisable
but are subject to vesting which lapses over time. Percentages are based
on 26,831,692 shares of common stock outstanding on February 19, 2000.
(2) Based on a Schedule 13G/A filed with the SEC on March 10, 2000, Capital
Research and Management Company has sole dispositive power of 3,830,000
shares and sole voting power over no shares. SmallCap World Fund, Inc.,
an investment company advised by Capital Research and Management Company
has sole voting power over 1,710,000 shares and sole dispositive power over
no shares.
(3) Based on Schedule 13G filed with the SEC on February 11, 2000, Nicholas-
Applegate Capital Management has sole voting power over 1,273,120 shares
and sole dispositive power over 1,739,520 shares.
(4) Based on a Schedule 13G/A filed with the SEC on February 17, 2000, Putnam
Investments, Inc. owns two registered investment advisers, Putnam
Investment Management, Inc. and The Putnam Advisory Company Inc. Putnam
Investments, Inc. is deemed to have shared voting power over 161,200 shares
and shared dispositive power over 1,202,960 shares through these companies.
(5) Based on a Schedule 13G filed with the SEC on February 15, 2000, RS
Investment Management Co. LLC has shared voting and dispositive power over
1,544,050 shares. RS Investment Management Co. LLC is the general partner
of RS Investment Management, L.P., a registered investment adviser.
(6) Includes 335,884 shares issuable upon exercise of options which vest over
time.
(7) Includes 67,353 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 80,000 shares issuable
upon exercise of options which vest over time.
(8) As of August 30, 1999. Mr. Pausa resigned from Power Integrations on
August 15, 1999.
(9) Includes 182,806 shares issuable upon exercise of options which vest over
time
(10) Includes 9,314 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 130,000 shares issuable
upon exercise of options which vest over time.
(11) Includes 8,334 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 112,400 shares issuable
upon exercise of options which vest over time.
(12) Includes 23,333 shares issuable upon exercise of options.
(13) Includes 4,234 shares held by Sutro & Co. Keough Custodian FBO Steven
Sharp. Also includes 23,333 shares issuable upon exercise of options.
(14) See footnotes 6 through 13. Includes 193,580 shares subject to rights of
repurchase in favor of Power Integrations which lapse over time, and
1,258,766 shares issuable upon exercise of options which vest over time.
18
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the total
compensation of the Named Executive Officers for the fiscal years ended December
31, 1999, 1998 and 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Long term
compensation
Annual Compensation awards
--------------------------------------- ------------
No. of
securities
underlying All other
Name and principal position Year Salary(1) Bonus(1) options compensations(2)
- ---------------------------------------- ---------- ---------------- ------------ ------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Howard F. Earhart........................ 1999 $270,000 $204,300 150,000 $891
President and Chief Executive Officer 1998 $210,000 $190,800 100,000 $737
1997 $180,000 $237,600 147,058 $660
Balu Balakrishnan........................ 1999 $200,769 $119,300 80,000 $891
Vice President, Engineering and New 1998 $175,000 $111,300 60,000 $737
Business Development 1997 $155,000 $147,600 44,116 $660
Clements E. Pausa(3)..................... 1999 $142,347 $115,200 -0- $594
Vice President, Operations 1998 $180,000 $127,200 -0- $737
1997 $ 86,671 $ 63,334 154,410 $330
Vladimir Rumennik........................ 1999 $209,519 $104,400 80,000 $891
Vice President, Technology Development 1998 $165,000 $ 95,400 50,000 $737
1997 $145,000 $118,500 44,116 $660
Daniel M. Selleck........................ 1999 $214,631 $115,800 80,000 $891
Vice President, Worldwide Sales 1998 $160,000 $111,300 50,000 $737
1997 $140,000 $138,000 44,116 $660
Clifford J. Walker....................... 1999 $178,173 $102,150 62,400 $891
Vice President, Corporate Development 1998 $140,000 $ 95,400 50,000 $737
1997 $120,000 $118,000 44,116 $660
</TABLE>
_________________
(1) Amounts shown are on a full year basis and include cash and noncash
compensation earned by executive officers.
(2) Represents premiums paid by Power Integrations for life insurance coverage.
(3) Mr. Pausa joined Power Integrations on June 16, 1997. He left Power
Integrations on August 15, 1999.
19
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning options to
purchase Power Integrations' common stock granted during the year ended December
31, 1999 to the Named Executive Officers:
Individual grants in fiscal 1999
<TABLE>
<CAPTION>
% of total
options Potential realizable value at
granted to assumed annual rates of
employees stock price appreciation for
Options in fiscal Exercise Expiration option term(4)
---------------------------------
Name granted(1) year(2) price(3) date 5% 10%
- ------------------------------- ---------- ------------- ----------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Howard F. Earhart.............. 150,000 8.80 14.2188 4/20/2009 $1,341,319 $3,399,166
Balu Balakrishnan.............. 80,000 4.69 14.2188 4/20/2009 715,370 1,812,888
Clements E. Pausa.............. -0- -0- N/A N/A -0- -0-
Vladimir Rumennik.............. 80,000 4.69 14.2188 4/20/2009 715,370 1,812,888
Daniel M. Selleck.............. 80,000 4.69 14.2188 4/20/2009 715,370 1,182,88
Clifford J. Walker............. 62,400 3.66 14.2188 4/20/2009 557,989 1,414,053
</TABLE>
________________
(1) Options granted in fiscal 1999 are immediately available and generally vest
fully within four years from the grant date. Power Integrations has a
repurchase right for unvested shares. Under the terms of the 1997 Plan,
the administrator retains discretion, subject to the 1997 Plan limits, to
modify the terms of outstanding options and to reprice outstanding options.
The options have a term of 10 years, subject to earlier termination in
certain situations related to termination of employment. See "Proposal
Number Three -- Approval of Amendment of 1997 Stock Option Plan" and
"Proposal Number Four -- Increase in Number of Shares Reserved for Issuance
Pursuant to the 1997 Employee Stock Purchase Plan" for a description of the
material payment terms of the options.
(2) Based on a total of 1,704,875 options granted to all employees and
consultants during fiscal 1999.
(3) All options were granted at an exercise price equal to the fair market
value of Power Integrations' stock on April 20, 1999.
(4) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with rules of the Securities and Exchange Commission
and do not represent Power Integrations' estimate or projection of the
future common stock price. Actual gains, if any, on stock option exercises
are dependent on the future performance of the common stock, overall market
conditions and the option holders' continued employment through the vesting
period. This table does not take into account any appreciation in the
price of the common stock from the date of grant to date.
20
<PAGE>
AGGREGATE OPTION EXERCISES FOR FISCAL 1999 AND FISCAL 1999 YEAR-END VALUES
The following table provides certain information concerning exercises of
options to purchase Power Integrations' common stock during the year ended
December 31, 1999, and unexercised options held as of December 31, 1999, by the
Named Executive Officers:
Aggregated option exercises
and fiscal year-end values
<TABLE>
<CAPTION>
Number of securities Value of unexercised in-
uunderlying unexercised the-money options at
Shares options at 12/31/99 12/31/99(1)
acquired on Value ------------------------------- ------------------------------
Name exercise realized(2) Vested Unvested Vested Unvested
- ------------------------ --------------- ---------------- ---------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Howard F. Earhart....... 60,000 689,700 85,884 250,000 4,095,164 9,414,055
Balu Balakrishnan....... -0- -0- -0- 140,000 -0- 5,311,246
Clements E. Pausa....... -0- -0- -0- -0- -0- -0-
Vladimir Rumennik....... 55,358 1,204,323 33,101 149,705 1,560,793 5,804,080
Daniel M. Selleck....... 20,316 267,315 -0- 130,000 -0- 4,875,621
Clifford J. Walker...... 36,764 469,942 -0- 112,400 -0- 4,282,172
</TABLE>
_______________
(1) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1999 of $47.9375 per share, as reported as
the closing price on the Nasdaq Stock Market, minus the aggregate exercise
price.
(2) Fair market price on date of exercise, less exercise price.
The options in the table above are immediately exercisable in full at the
date of grant, but shares purchased on exercise of unvested options are subject
to a repurchase right in favor of Power Integrations which lapses ratably over
50 months for our 1988 Stock Option Plan or 48 months for our 1997 Plan and
entitles Power Integrations to repurchase unvested shares at their original
issuance price.
No compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during fiscal 1999 to any Named Executive Officer. Power
Integrations does not have any defined benefit or actuarial plan under which
benefits are determined primarily by final compensation or average final
compensation and years of service with any of the Named Executive Officers.
Compensation of directors
Directors of Power Integrations receive $3,750 per quarter for services
provided as a director and $1,000 for each meeting they attend. Directors are
reimbursed for all travel and related expenses incurred in connection with
attending board and committee meetings. Directors who are not employees of Power
Integrations receive yearly grants of options to purchase common stock under the
1997 Outside Directors Stock Option Plan. During 1999, Messrs. Bickell, Brown,
Kvamme and Sharp were each granted an option to purchase up to 10,000 shares of
Power Integrations common stock under this plan. Mr. Bickell was granted an
option to purchase up to 30,000 shares of Power Integrations common stock under
this plan when he joined Power Integrations in April 1999. Mr. Brown was
granted an option to purchase up to 30,000 shares of Power Integrations common
stock under this plan when he joined Power Integrations in July 1999. Mr.
Brathwaite was granted an option to purchase up to 30,000 shares of Power
Integrations common stock under this plan when he joined Power Integrations in
January 2000.
Employment contracts and termination of employment and change-in-control
arrangements
None.
21
<PAGE>
Compensation committee interlocks and insider participation in compensation
decisions
The compensation committee is composed of Mr. Brown, Mr. Kvamme and Mr.
Bickell. No interlocking relationships exist between any member of our
compensation committee and any member of any other company's board of directors
or compensation committee. The compensation committee makes recommendations
regarding our employee stock plans and makes decisions concerning salaries and
bonus compensation for executive officers of Power Integrations.
Certain relationships and related transactions
Since January 1999, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which Power Integrations
was or is to be a party in which the amount involved exceeds $60,000, and in
which any director, executive officer or holder of more than 5% any class of
voting securities of Power Integrations and members of such person's immediate
family had or will have a direct or indirect material interest other than the
transactions described below.
On July 25, 1997, in connection with the purchase of common stock upon
exercise of stock options granted to Howard F. Earhart, Power Integrations
loaned to Mr. Earhart, a director and our Chief Executive Officer, $125,000, at
an interest rate of 6.65% pursuant to a Promissory Note and Pledge Agreement due
on July 25, 2002 or at Power Integrations' option upon:
. termination of Mr. Earhart's employment with Power Integrations,
. a default in the payment of any installment or principal and/or interest
when due,
. a sale of the Pledged Stock, as defined below, or
. acceleration being reasonably necessary for Power Integrations to comply
with any regulations promulgated by the Board of Governors of the
Federal Reserve System affecting the extension of credit in connection
with Power Integrations' securities.
The loan is secured by 147,058 shares of common stock (the "Pledged
Stock"). This loan was repaid on February 8, 2000.
On August 25, 1999, Power Integrations loaned to The Davies Family Living
Trust dated August 14, 1999, of which Mr. Roderick Davies, our Vice President of
Operations, is a trustee, $200,000, at an interest rate of 7.5% pursuant to a
Note Secured by Deed of Trust due upon the earlier of
. five (5) years from the date Mr. Davies is last employed by Power
Integrations;
. thirty (30) days after the date of the sale or transfer of the property
mortgaged to secure the loan; or
. an event of default.
The loan is secured by a security interest in and lien on Mr. Davies'
house.
22
<PAGE>
Section 16(a) beneficial ownership reporting compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Power
Integrations' executive officers, directors and persons who beneficially own
more than 10% of our common stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
These persons are required by SEC regulations to furnish Power Integrations with
copies of all Section 16(a) forms that they file.
Based solely on our review of the forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and persons who
beneficially own more than 10% of our common stock were complied with in fiscal
1999, except that Mr. R. Scott Brown filed a late Form 3, an Initial Statement
of Beneficial Ownership of Securities, and each of the following executive
officers and directors filed one late Form 5, an Annual Statement of Changes in
Beneficial Ownership:
. Balu Balakrishnan, one transaction.
. Alan Bickell, one transaction
. Howard F. Earhart, one transaction.
. Joyce Engberg, one transaction.
. Floyd Kvamme, one transaction.
. Vladmir Rumenick, one transaction.
. Daniel Selleck, one transaction.
. Steven Sharp, one transaction.
. Robert Staples, one transaction.
. Clifford Walker, one transaction.
23
<PAGE>
NEW PLAN BENEFITS
The following table sets forth grants of stock options received under the
1997 Plan and the Directors Plan and shares purchased pursuant to the Purchase
Plan during the fiscal year ended December 31, 1999 by:
. the Named Executive Officers;
. all current executive officers as a group;
. all current directors who are not executive officers as a group; and
. all employees, who are not executive officers, as a group.
<TABLE>
<CAPTION>
1997 Plan/(1)/ Purchase Plan/(1)/ Directors/(1)/
-------------------------------------------------------------------------------------------
Name and position Exercise price No. of shares Exercise price No. of shares Exercise price No. of shares
- ---------------------------------- -------------- ------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Howard F. Earhart................. $14.2188 150,000 $ 3.40 6,320 N/A 0
President and Chief Executive
Officer
Balu Balakrishnan................. 14.2188 80,000 3.40 2,780 N/A 0
Vice President, Engineering and
New Business Development
Clements E. Pausa................. -0- -0- 3.40 6,444 N/A 0
Vice President, Operations
Vladimir Rumennik................. 14.2188 80,000 3.40 2,798 N/A 0
Vice President, Technology
Development
Daniel M. Selleck................. 14.2188 80,000 3.40 3,526 N/A 0
Vice President, Worldwide Sales
Clifford J. Walker................ 14.2188 62,400 3.40 3,782 N/A 0
Vice President, Corporate
Development
Executive group (9 persons)....... 15.8463 747,300 3.6972 33,600 N/A 0
Non-executive director group (5
persons)......................... N/A -0- N/A -0- $30.1688 100,000
Non-executive officer employee
group............................ 19.2208 515,700 3.6081 316,916 N/A 0
</TABLE>
________________
(1) Only employees are eligible to participate in the 1997 Plan and the
Purchase Plan. Only outside directors are eligible to participate in the
Directors Plan.
(2) Average exercise price of options granted to non-executive officer
employees under the 1997 Plan.
24
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
On December 31, 1999, Alan D. Bickell, E. Floyd Kvamme and R. Scott Brown
were members of the compensation committee. Dr. Edward C. Ross resigned from
the board of directors and the compensation committee effective as of April 21,
1999. The vacancy created by Dr. Ross' resignation was filled by Mr. Alan D.
Bickell. Dr. William Davidow resigned from the board of directors and the
compensation committee effective as of July 23, 1999. The vacancy created by
Dr. Davidow's resignation was filled by Mr. R. Scott Brown. Each member of the
compensation committee is a non-employee member of our board of directors. For
fiscal year ended 1999, all decisions concerning executive compensation were
made by the compensation committee as constituted on December 31, 1999. This
committee is responsible for setting and administering the policies governing
annual compensation of the executive officers of Power Integrations. The
compensation committee reviews the President's recommendations regarding the
performance and compensation levels for executive officers other than Power
Integrations' President and Chief Executive Officer.
Overview
The goals of Power Integrations' executive officer compensation policies
are to attract, retain and reward executive officers who contribute to our
success, to align executive officer compensation with Power Integrations'
performance and to motivate executive officers to achieve Power Integrations'
business objectives. Power Integrations uses salary, bonus compensation and
option grants to attain these goals. The compensation committee reviews
compensation surveys and other data to enable the committee to compare Power
Integrations' compensation package with that of similarly-sized high technology
companies in Power Integrations' geographic area.
Salary
Base salaries of executive officers are reviewed annually, and if deemed
appropriate, adjustments are made based on individual executive officer
performance, scope of responsibilities and levels paid by similarly-sized high
technology companies in Power Integrations' geographic area. Commencing with
the 1999 fiscal year, in determining the salaries of the executive officers, the
compensation committee considered information provided by Power Integrations'
Chief Financial Officer, as well as salary surveys and similar data prepared by
AON Consulting Radford Division, an employment compensation consulting firm.
The President and Chief Executive Officer is responsible for evaluating the
performance of all other executive officers and recommends salary adjustments
which are reviewed and approved by the compensation committee. In addition to
considering the performance of individual executive officers and information
concerning competitive salaries, significant weight is placed on the financial
performance of Power Integrations in considering salary adjustments.
Bonus compensation
Cash bonuses for each executive officer are set annually by the
compensation committee and are specifically weighted for identified financial,
management, strategic and operational goals. The committee determines quarterly
and annually performance against the established goals and, based on its
determination, the committee approves payment of appropriate bonuses. In
addition to quarterly and annual bonus compensation, executive officers may earn
additional bonus awards for patent applications or publications.
Stock options
Power Integrations strongly believes that equity ownership by executive
officers provides incentives to build stockholder value and align the interests
of executive officers with the stockholders. The size of an initial option
grant to an executive officer has generally been determined with reference to
similarly-sized high technology companies in Power Integrations' geographic area
for similar positions, the responsibilities and future contributions of the
executive officer, as well as recruitment and retention considerations. In
fiscal 1999, the President and Chief
25
<PAGE>
Executive Officer recommended to the board of directors, and the board of
directors approved, stock option grants under the 1997 Plan to certain of the
executive officers.
Compensation of Chief Executive Officer
Howard F. Earhart has served as our president and chief executive officer
since January 1995. The compensation committee set Mr. Earhart's fiscal 1999
compensation, including a base salary of $270,000, in fiscal 1998. The
compensation committee reviewed Mr. Earhart's performance with regard to
quarterly performance objectives, weighted among specific personal and corporate
objectives, in determining his eligibility for bonus compensation. Mr.
Earhart's bonus compensation for fiscal 1999 was $204,300. In addition, the
board of directors granted Mr. Earhart options to purchase 150,000 shares of
Power Integrations' common stock based on attainment of predetermined financial
and other corporate goals.
Deductibility of executive compensation
Power Integrations has considered the provisions of the Code and the
related regulations of the Internal Revenue Service which restrict deductibility
of executive compensation paid to each of the five most highly compensated
executive officers at the end of any fiscal year to the extent the compensation
exceeds $1,000,000 for any of those officers in any year and does not qualify
for an exception under the statute or regulations. Income from options granted
under the 1988 Plan and 1997 Plan should qualify for an exemption from these
restrictions. The compensation committee does not believe that other components
of Power Integrations' compensation will be likely to exceed $1,000,000 for any
executive officer in the foreseeable future and therefore concluded that no
further action with respect to qualifying this compensation for deductibility
was necessary at this time. In the future, the compensation committee will
continue to evaluate the advisability of qualifying its executive compensation
for deductibility of such compensation. The compensation committee's policy is
to qualify its executive compensation for deductibility under applicable tax
laws as practicable.
THE 1999 COMPENSATION COMMITTEE
Alan D. Bickell
R. Scott Brown
E. Floyd Kvamme
26
<PAGE>
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the annual percentage change in
the cumulative total return on Power Integrations' common stock with the
cumulative total return of the CRSP Total Return Index for the Nasdaq Stock
Market (U.S. Companies) ("Nasdaq US") and the CRSP Index for Nasdaq Electronic
Components Stocks ("Nasdaq Electronic Components") for the period commencing on
December 12, 1997 and ending on December 31, 1999.(1)
Comparison of cumulative total return from December 12, 1997 through December
31, 1999
Power Integrations, Inc., Nasdaq Stock Market - US Index and the CRSP Index for
Nasdaq
Electronic Components Stocks
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
December 12, December 31, December 31, December 31,
1997 1997 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Power Integrations, Inc. $100.00 $113.85 $308.46 $1,180.00
Nasdaq US $100.00 $102.31 $144.14 $ 262.01
Nasdaq Electronic Components $100.00 $101.47 $156.84 $ 307.47
</TABLE>
_____________
(1) Assumes that $100.00 was invested on December 12, 1997 in Power
Integrations' common stock at the closing price of $4.00 and at the closing
sales price for each index on that date and that any dividends were
reinvested. No dividends have been declared on the common stock.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
27
<PAGE>
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 477 N. Mathilda Avenue, Sunnyvale, California 94086, not later
than December 22, 2000, and satisfy the conditions established by the Securities
and Exchange Commission for stockholder proposals to be included in Power
Integrations' proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this proxy statement, the only business which the board of
directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By order of the board of directors
/s/ Robert G. Staples
Robert G. Staples
Secretary
May 2, 2000
28
<PAGE>
APPENDIX A
Amendment to Restated Certificate of Incorporation
Power Integrations, Inc., a Delaware corporation (the "Corporation"),
hereby certifies:
1. That the Corporation's Board of Directors has duly adopted the following
resolution:
RESOLVED, that the text of section FOURTH of the Restated Certificate of
------
Incorporation is hereby amended to read in full as follows:
FOURTH: STOCK
-------
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The
total number of shares of Preferred Stock the Corporation shall have
authority to issue is 3,000,000, $0.001 par value per share, and the
total number of shares of Common Stock the Corporation shall have
authority to issue is 140,000,000, $0.001 par value per share. The
shares of Preferred Stock shall initially be undesignated as to
series.
The Board of Directors is hereby authorized, within the limitations
and restrictions stated herein, to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon a
wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of
them; and to increase or decrease the number of shares constituting
any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to
the issue of shares of that series, but, in respect of decreases, not
below the number of shares of such series then outstanding. In case
the number of shares of any series should be so decreased, the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolutions originally fixing the number
of shares of such series.
2. That the proposed amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation law of the State of
Delaware and that notice of the taking of such action by written consent has
been given as provided in Section 228 of the General Corporation Law of the
State of Delaware.
The Corporation has caused this Certificate of Amendment of Restated
Certificate of Incorporation to be signed by its President and Chief Executive
Officer and attested to by its Secretary this __ day of June 2000.
POWER INTEGRATIONS, INC.
By:__________________________________
Howard F. Earhart, President and Chief
Executive Officer
ATTEST:
____________________________________
Robert G. Staples, Secretary
29
<PAGE>
ANNEX A
POWER INTEGRATIONS, INC.
1997 STOCK OPTION PLAN
(As Amended Through June 6, 2000)
1. Establishment, Purpose And Term of Plan.
---------------------------------------
1.1 Establishment. The Power Integrations, Inc. 1997 Stock Option
Plan (the "Plan") is hereby established effective as of June 3, 1997 (the
"Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed. However, all Incentive Stock Options shall
be granted, if at all, within ten (10) years from the Effective Date.
2. Definitions And Construction.
----------------------------
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below :
(a) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "Company" means Power Integrations, Inc., a Delaware
corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
1
<PAGE>
(f) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "Disability" means the inability of the Optionee, in the
opinion of a qualified physician acceptable to the Company, to perform the major
duties of the Optionee's position with the Participating Company group because
of the sickness or injury of the Optionee.
(h) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(k) "Incentive Stock Option" means an Option intended to be (as
set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "Insider" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "Nonstatutory Stock Option" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
2
<PAGE>
(n) "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "Optionee" means a person who has been granted one or more
Options.
(q) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "Section 162(m)" means Section 162(m) of the Code.
(v) "Securities Act" means the Securities Act of 1933, as
amended.
(w) "Service" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either upon
an actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
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(x) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(y) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(z) "Ten Percent Owner Optionee" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination 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, determination or election.
3.2 Administration with Respect to Insiders. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 Powers of the Board. In addition to any other powers set forth in
the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
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(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.4 Committee Complying with Section 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued
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under the Plan shall be the sum of (a) 1,386,764 shares, and (b) the number of
shares of Stock, as of the Effective Date, subject to outstanding options
granted pursuant to the Company's 1988 Stock Option Plan (the "Prior Plan"),
which amount is 2,877,690 (the "Prior Plan Options"), resulting in an aggregate
total of 4,264,454, increased on the first day of each fiscal year of the
Company beginning on or after January 1, 1999 by a number of shares equal to
five percent (5%) of the number of shares of Stock issued and outstanding on the
last day of the preceding fiscal year (the "Share Reserve"). The Share Reserve
shall consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. Notwithstanding the foregoing, the Share Reserve,
determined at any time, shall be reduced by the number of shares remaining
subject to outstanding Prior Plan Options. In addition, except as adjusted
pursuant to Section 4.2, in no event shall more than 6,704,454 shares of Stock
be cumulatively available for issuance pursuant to the exercise of Incentive
Stock Options (the "ISO Share Issuance Limit"); provided, however, that the ISO
Share Issuance Limit shall be increased to 7,366,454 shares of Stock effective
as of January 1, 2001. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan, in the ISO Share Issuance Limit set forth in Section 4.1, the
Section 162(m) Grant Limit set forth in Section 5.4 and to any outstanding
Options and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 8.1) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. Eligibility and Option Limitations.
----------------------------------
5.1 Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
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5.2 Option Grant Restrictions. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 Fair Market Value Limitation. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
5.4 Section 162(m) Grant Limit. Subject to adjustment as provided in
Section 4.2, at any such time as a Participating Company is a "publicly held
corporation" within the meaning of Section 162(m), no Employee shall be granted
one or more Options within any fiscal year of the Company which in the aggregate
are for the purchase of more than four hundred thousand (400,000) shares of
Stock (the "Section 162(m) Grant Limit"). An Option which is canceled in the
same fiscal year of the Company in which it was granted shall continue to be
counted against the Section 162(m) Grant Limit for such period.
6. Terms and Conditions of Options.
-------------------------------
Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock
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<PAGE>
Option shall be not less than eighty-five percent (85%) of the Fair Market Value
of a share of Stock on the effective date of grant of the Option, and (c) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 Exercise Period. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences Service with a Participating Company.
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of 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 exercise price, (iii) by the assignment of the
proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (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) (a
"Cashless Exercise"), (iv) by the Optionee's promissory note in a form approved
by the Company, (v) by such other consideration as may be approved by the Board
from time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been
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<PAGE>
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note shall be
permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its sole discretion, the Company shall have the right to require
the Optionee, through payroll withholding, cash payment or otherwise, including
by means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock or to release shares of
Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 Repurchase Rights. Shares issued under the Plan may be subject to
a right of first refusal, one or more repurchase options, or other conditions
and restrictions as determined by the Board in its sole discretion at the time
the Option is granted. The Company shall have the right to assign at any time
any repurchase right it may have, whether or not such right is then exercisable,
to one or more persons as may be selected by the Company. Upon request by the
Company, each Optionee shall execute any agreement evidencing such transfer
restrictions prior to the receipt of shares of Stock hereunder and shall
promptly present to the Company any and all certificates representing shares of
Stock acquired hereunder for the placement on such certificates of appropriate
legends evidencing any such transfer restrictions.
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6.6 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service with the
----------
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer or shorter period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "Option Expiration Date").
(ii) Death. If the Optionee's Service with the
-----
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer or shorter period of time as determined by the Board, in
its sole discretion) after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(iii) Other Termination of Service. If the Optionee's
----------------------------
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such longer or shorter
period of time as determined by the Board, in its sole discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 12 below, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
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<PAGE>
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. Standard Forms Of Option Agreement.
----------------------------------
7.1 Incentive Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Incentive Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.3 Standard Term of Options. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4 Authority to Vary Terms. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement
shall be in accordance with the terms of the Plan. Such authority shall include,
but not by way of limitation, the authority to grant Options which are not
immediately exercisable.
8. Change In Control.
-----------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
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(b) A "Change in Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 Effect of Change in Control on Options. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "Acquiring Corporation"),
may either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Change in Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised as
of the date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement. Furthermore, notwithstanding the foregoing, if the
corporation the stock of which is subject to the outstanding Options immediately
prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the outstanding Options shall not terminate unless the Board
otherwise provides in its sole discretion.
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9. Provision Of Information.
------------------------
Each Optionee shall be given access to information concerning the
Company equivalent to that information generally made available to the Company's
common stockholders.
10. Nontransferability Of Options.
-----------------------------
During the lifetime of the Optionee, an Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative. No
Option shall be assignable or transferable by the Optionee, except by will or by
the laws of descent and distribution.
11. Compliance With Securities Law.
------------------------------
The grant of Options and the issuance of shares of Stock upon exercise
of Options shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. Options 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, no Option may be exercised
unless (a) a registration statement under the Securities Act shall at the time
of exercise of the Option be in effect with respect to the shares issuable upon
exercise of the Option or (b) in the opinion of legal counsel to the Company,
the shares issuable upon exercise of the Option may be issued in accordance with
the terms of an applicable exemption from the registration requirements of the
Securities Act. The 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 hereunder 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 any Option, the Company may require the
Optionee to satisfy any qualifications that may be necessary or appropriate, to
evidence compliance with any applicable law or regulation and to make any
representation or warranty with respect thereto as may be requested by the
Company.
12. Indemnification.
---------------
In addition to such other rights of indemnification as they may have
as members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in
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duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
13. Termination Or Amendment Of Plan.
--------------------------------
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
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ANNEX B
POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
(As Amended Through June 6, 2000)
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Power Integrations, Inc. 1997 Employee Stock
Purchase Plan (the "Plan") is hereby established effective as of the effective
date of the initial registration by the Company of its Stock under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of
Company and its stockholders by providing an incentive to attract, retain and
reward Eligible Employees of the Participating Company Group and by motivating
such persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides such Eligible Employees with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock. The
Company intends that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 Term of Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "Committee" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
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(d) "Company" means Power Integrations, Inc., a Delaware
corporation, or any successor corporation thereto.
(e) "Compensation" means, with respect to any Offering Period,
base wages or salary, commissions, overtime, bonuses, annual awards, other
incentive payments, shift premiums, and all other compensation paid in cash
during such Offering Period before deduction for any contributions to any plan
maintained by a Participating Company and described in Section 401(k) or Section
125 of the Code. Compensation shall not include reimbursements of expenses,
allowances, long-term disability, workers' compensation or any amount deemed
received without the actual transfer of cash or any amounts directly or
indirectly paid pursuant to the Plan or any other stock purchase or stock option
plan, or any other compensation not included above.
(f) "Eligible Employee" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "Employee" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is on
any military leave, sick leave, or other bona fide leave of absence approved by
the Company of ninety (90) days or less. In the event an individual's leave of
absence exceeds ninety (90) days, the individual shall be deemed to have ceased
to be an Employee on the ninety-first (91st) day of such leave unless the
individual's right to reemployment with the Participating Company Group is
guaranteed either by statute or by contract. The Company shall determine in good
faith and in the exercise of its discretion whether an individual has become or
has ceased to be an Employee and the effective date of such individual's
employment or termination of employment, as the case may be. For purposes of an
individual's participation in or other rights, if any, under the Plan as of the
time of the Company's determination, all such determinations by the Company
shall be final, binding and conclusive, notwithstanding that the Company or any
governmental agency subsequently makes a contrary determination.
(h) "Fair Market Value" means, as of any date, if there is then
a public market for the Stock, the closing price of a share of Stock (or the
mean of the closing bid and asked prices if the Stock is so quoted instead) as
quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other
national or regional securities exchange or market system constituting the
primary market for the Stock, as reported in The Wall Street Journal or such
-----------------------
other source as the Company deems reliable. If the relevant date does not fall
on a day on which the Stock has traded on such securities exchange or market
system, the date on which the Fair Market Value shall be established shall be
the last day on which the Stock was so traded prior to the relevant date, or
such other appropriate day as shall be determined by the Board, in its sole
discretion. If there is then no public market for the Stock, the Fair Market
Value on any relevant date shall be as determined by the Board. Notwithstanding
the foregoing, the Fair Market Value per share of Stock on the Effective Date
shall be deemed to be the public offering price set forth in the final
prospectus filed with the Securities and Exchange Commission in connection with
the initial public offering of the Stock.
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(i) "Offering" means an offering of Stock as provided in Section
6.
(j) "Offering Date" means, for any Offering, the first day of
the Offering Period with respect to such Offering.
(k) "Offering Period" means a period established in accordance
with Section 6.1.
(l) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "Participant" means an Eligible Employee who has become a
participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan. The
Board shall have the sole and absolute discretion to determine from time to time
which Parent Corporations or Subsidiary Corporations shall be Participating
Companies.
(o) "Participating Company Group" means, at any point in time,
the Company and all other corporations collectively which are then Participating
Companies.
(p) "Purchase Date" means, for any Purchase Period, the last day
of such period.
(q) "Purchase Period" means a period established in accordance
with Section 6.2.
(r) "Purchase Price" means the price at which a share of Stock
may be purchased under the Plan, as determined in accordance with Section 9.
(s) "Purchase Right" means an option granted to a Participant
pursuant to the Plan to purchase such shares of Stock as provided in Section 8,
which the Participant may or may not exercise during the Offering Period in
which such option is outstanding. Such option arises from the right of a
Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.
(t) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
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(u) "Subscription Agreement" means a written agreement in such
form as specified by the Company, stating an Employee's election to participate
in the Plan and authorizing payroll deductions under the Plan from the
Employee's Compensation.
(v) "Subscription Date" means the last business day prior to the
Offering Date of an Offering Period or such earlier date as the Company shall
establish.
(w) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be administered by
the Board. All questions of interpretation of the Plan, of any form of agreement
or other document employed by the Company in the administration of the Plan, or
of any Purchase Right shall be determined by the Board and shall be final and
binding upon all persons having an interest in the Plan or the Purchase Right.
Subject to the provisions of the Plan, the Board shall determine all of the
relevant terms and conditions of Purchase Rights granted pursuant to the Plan;
provided, however, that all Participants granted Purchase Rights pursuant to the
Plan shall have the same rights and privileges within the meaning of Section
423(b)(5) of the Code. All expenses incurred in connection with the
administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any officer of the Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election that is the responsibility of or that is
allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 Policies and Procedures Established by the Company. The Company
may, from time to time, consistent with the Plan and the requirements of Section
423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements
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of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be one million five hundred thousand
(1,500,000) and shall consist of authorized but unissued or reacquired shares of
Stock, or any combination thereof. If an outstanding Purchase Right for any
reason expires or is terminated or canceled, the shares of Stock allocable to
the unexercised portion of such Purchase Right shall again be available for
issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "New Shares"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. Eligibility.
-----------
5.1 Employees Eligible to Participate. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
5.2 Exclusion of Certain Stockholders. Notwithstanding any provision
of the Plan to the contrary, no Employee shall be granted a Purchase Right under
the Plan if,
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immediately after such grant, such Employee would own or hold options to
purchase stock of the Company or of any Parent Corporation or Subsidiary
Corporation possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of such corporation, as determined in
accordance with Section 423(b)(3) of the Code. For purposes of this Section 5.2,
the attribution rules of Section 424(d) of the Code shall apply in determining
the stock ownership of such Employee.
6. Offerings.
---------
6.1 Offering Periods. Except as otherwise set forth below, the Plan
shall be implemented by sequential Offerings of approximately twenty-four (24)
months duration (an "Offering Period"); provided, however, that the first
Offering Period shall commence on the Effective Date and end on January 31, 2000
(the "Initial Offering Period"). Subsequent Offerings shall commence on the
first day of February and August of each year and end on the last day of the
second January and July, respectively, occurring thereafter. Notwithstanding the
foregoing, the Board may establish a different duration for one or more future
Offering Periods or different commencing or ending dates for such Offering
Periods; provided, however, that no Offering Period may have a duration
exceeding twenty-seven (27) months. If the first or last day of an Offering
Period is not a day on which the national securities exchanges or Nasdaq Stock
Market are open for trading, the Company shall specify the trading day that will
be deemed the first or last day, as the case may be, of the Offering Period.
6.2 Purchase Periods. Each Offering Period shall consist of four (4)
consecutive Purchase Periods of approximately six (6) months duration, or such
other number or duration as the Board shall determine. The Purchase Period
commencing on the Offering Date of the Initial Offering Period shall end on July
31, 1998. A Purchase Period commencing on or about February 1 shall end on or
about the next July 31. A Purchase Period commencing on or about August 1 shall
end on or about the next January 31. Notwithstanding the foregoing, the Board
may establish a different duration for one or more future Purchase Periods or
different commencing or ending dates for such Purchase Periods. If the first or
last day of a Purchase Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall specify
the trading day that will be deemed the first or last day, as the case may be,
of the Purchase Period.
7. Participation in the Plan.
-------------------------
7.1 Initial Participation. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not deliver
a properly completed Subscription Agreement to the Company's designated office
on or before the Subscription Date for an Offering Period shall not participate
in the Plan for that Offering Period or for any subsequent Offering Period
unless such Eligible Employee subsequently delivers a properly completed
Subscription Agreement to the appropriate office of the Company on or before the
Subscription Date for such subsequent Offering Period. An Employee who becomes
an Eligible Employee after the Offering Date of an Offering Period
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shall not be eligible to participate in such Offering Period but may participate
in any subsequent Offering Period provided such Employee is still an Eligible
Employee as of the Offering Date of such subsequent Offering Period.
7.2 Continued Participation. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement. Eligible
Employees may not participate simultaneously in more than one Offering.
8. Right to Purchase Shares.
------------------------
8.1 Grant of Purchase Right. Except as set forth below, on the
Offering Date of each Offering Period, each Participant in such Offering Period
shall be granted automatically a Purchase Right consisting of an option to
purchase the lesser of (a) that number of whole shares of Stock determined by
dividing Fifty Thousand Dollars ($50,000) by the Fair Market Value of a share of
Stock on such Offering Date or (b) five thousand (5,000) shares of Stock. No
Purchase Right shall be granted on an Offering Date to any person who is not, on
such Offering Date, an Eligible Employee.
8.2 Pro Rata Adjustment of Purchase Right. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period of any
duration other than twenty-four months, then (a) the dollar amount in Section
8.1 shall be determined by multiplying $2,083.33 by the number of months
(rounded to the nearest whole month) in the Offering Period and rounding to the
nearest whole dollar, and (b) the share amount in Section 8.1 shall be
determined by multiplying 208.33 shares by the number of months (rounded to the
nearest whole month) in the Offering Period and rounding to the nearest whole
share.
8.3 Calendar Year Purchase Limitation. Notwithstanding any provision
of the Plan to the contrary, no Participant shall be granted a Purchase Right
which permits his or her right to purchase shares of Stock under the Plan to
accrue at a rate which, when aggregated with such Participant's rights to
purchase shares under all other employee stock purchase plans of a Participating
Company intended to meet the requirements of Section 423 of the Code, exceeds
Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other
limit, if any, as may be imposed by the Code) for each calendar year in which
such Purchase Right is outstanding at any time. For purposes of the preceding
sentence, the Fair Market Value of shares purchased during a given Offering
Period shall be determined as of the Offering Date for such Offering Period. The
limitation described in this Section 8.3 shall be applied in conformance with
applicable regulations under Section 423(b)(8) of the Code.
7
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9. Purchase Price.
--------------
The Purchase Price at which each share of Stock may be acquired in an
Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period or
(b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering Period,
the Purchase Price for that Offering Period shall be eighty-five percent (85%)
of the lesser of (a) the Fair Market Value of a share of Stock on the Offering
Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on
the Purchase Date.
10. Accumulation of Purchase Price through Payroll Deduction.
--------------------------------------------------------
Shares of Stock acquired pursuant to the exercise of all or any
portion of a Purchase Right may be paid for only by means of payroll deductions
from the Participant's Compensation accumulated during the Offering Period for
which such Purchase Right was granted, subject to the following:
10.1 Amount of Payroll Deductions. Except as otherwise provided
herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by the
Participant's Subscription Agreement. The Subscription Agreement shall set forth
the percentage of the Participant's Compensation to be deducted on each payday
during an Offering Period in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering) or more
than fifteen percent (15%). Notwithstanding the foregoing, the Board may change
the limits on payroll deductions effective as of any future Offering Date.
10.2 Commencement of Payroll Deductions. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
herein.
10.3 Election to Change or Stop Payroll Deductions. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company's
designated office an amended Subscription Agreement authorizing such change on
or before the "Change Notice Date." The "Change Notice Date" shall be a date
prior to the beginning of the first pay period for which such election is to be
effective as established by the Company from time to time and announced to the
Participants. A Participant who elects to decrease the rate of his or her
payroll deductions to zero percent (0%) shall nevertheless remain a Participant
in the current Offering Period unless such Participant withdraws from the Plan
as provided in Section 12.1.
10.4 Administrative Suspension of Payroll Deductions. The Company
may, in its sole discretion, suspend a Participant's payroll deductions under
the Plan as the Company
8
<PAGE>
deems advisable to avoid accumulating payroll deductions in excess of the amount
that could reasonably be anticipated to purchase the maximum number of shares of
Stock permitted during a calendar year under the limit set forth in Section 8.3.
Payroll deductions shall be resumed at the rate specified in the Participant's
then effective Subscription Agreement at the beginning of the next Purchase
Period the Purchase Date of which falls in the following calendar year.
10.5 Participant Accounts. Individual bookkeeping accounts shall be
maintained for each Participant. All payroll deductions from a Participant's
Compensation shall be credited to such Participant's Plan account and shall be
deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
10.6 No Interest Paid. Interest shall not be paid on sums deducted
from a Participant's Compensation pursuant to the Plan.
10.7 Voluntary Withdrawal from Plan Account. A Participant may
withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company's designated office a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the entire
remaining balance credited to his or her Plan account shall be deemed to have
withdrawn from the Plan in accordance with Section 12.1. Amounts withdrawn shall
be returned to the Participant as soon as practicable after the withdrawal and
may not be applied to the purchase of shares in any Offering under the Plan. The
Company may from time to time establish or change limitations on the frequency
of withdrawals permitted under this Section, establish a minimum dollar amount
that must be retained in the Participant's Plan account, or terminate the
withdrawal right provided by this Section.
11. Purchase of Shares.
------------------
11.1 Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and whose
participation in the Offering has not terminated before such Purchase Date shall
automatically acquire pursuant to the exercise of the Participant's Purchase
Right the number of whole shares of Stock determined by dividing (a) the total
amount of the Participant's payroll deductions accumulated in the Participant's
Plan account during the Offering Period and not previously applied toward the
purchase of Stock by (b) the Purchase Price. However, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated before such Purchase
Date.
11.2 Pro Rata Allocation of Shares. In the event that the number of
shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable
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and as the Company shall determine to be equitable. Any fractional share
resulting from such pro rata allocation to any Participant shall be disregarded.
11.3 Delivery of Certificates. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 Return of Cash Balance. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as practicable after such Purchase Date. However, if the
cash to be returned to a Participant pursuant to the preceding sentence is an
amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the purchase
of shares of Stock in the subsequent Purchase Period or Offering Period, as the
case may be.
11.5 Tax Withholding. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.6 Expiration of Purchase Right. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which the Purchase Right relates shall expire immediately upon the end of the
Offering Period.
11.7 Reports to Participants. Each Participant who has exercised all
or part of his or her Purchase Right shall receive, as soon as practicable after
the Purchase Date, a report of such Participant's Plan account setting forth the
total payroll deductions accumulated prior to such exercise, the number of
shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the cash balance, if any, remaining immediately after such purchase
that is to be refunded or retained in the Participant's Plan account pursuant to
Section 11.4. The report required by this Section may be delivered in such form
and by such means, including by electronic transmission, as the Company may
determine.
12. Withdrawal from Offering or Plan.
--------------------------------
12.1 Voluntary Withdrawal from the Plan. A Participant may withdraw
from the Plan by signing and delivering to the Company's designated office a
written notice of withdrawal on a form provided by the Company for such purpose.
Such withdrawal may be elected at any time prior to the end of an Offering
Period; provided, however, that if a Participant
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withdraws from the Plan after the Purchase Date of a Purchase Period, the
withdrawal shall not affect shares of Stock acquired by the Participant on such
Purchase Date. A Participant who voluntarily withdraws from the Plan is
prohibited from resuming participation in the Plan in the same Offering from
which he or she withdrew, but may participate in any subsequent Offering by
again satisfying the requirements of Sections 5 and 7.1. The Company may impose,
from time to time, a requirement that the notice of withdrawal from the Plan be
on file with the Company's designated office for a reasonable period prior to
the effectiveness of the Participant's withdrawal.
12.2 Automatic Withdrawal from an Offering. If the Fair Market Value
of a share of Stock on a Purchase Date of an Offering Period (other than the
final Purchase Date of such offering) is less than the Fair Market Value of a
share of Stock on the Offering Date for such Offering Period, then every
Participant shall automatically be (a) withdrawn from such Offering Period after
the acquisition of shares of Stock on the Purchase Date and (b) enrolled in the
new Offering Period effective on its Offering Date. A Participant may elect not
to be automatically withdrawn from an Offering Period pursuant to this Section
12.2 by delivering to the Company's designated office not later than the close
of business on Offering Date new Offering Period a written notice indicating
such election.
12.3 Return of Payroll Deductions. Upon a Participant's voluntary
withdrawal from the Plan pursuant to Sections 12.1 or automatic withdrawal from
an Offering pursuant to Section 12.2, the Participant's accumulated payroll
deductions which have not been applied toward the purchase of shares of Stock
(except, in the case of an automatic withdrawal pursuant to Section 12.2, for an
amount necessary to purchase an additional whole share as provided in Section
11.4) shall be refunded to the Participant as soon as practicable after the
withdrawal, without the payment of any interest, and the Participant's interest
in the Plan or the Offering, as applicable, shall terminate. Such accumulated
payroll deductions to be refunded in accordance with this Section may not be
applied to any other Offering under the Plan.
13. Termination of Employment or Eligibility.
----------------------------------------
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. Change in Control.
-----------------
14.1 Definitions.
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(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 Effect of Change in Control on Purchase Rights. In the event of
a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), may assume the Company's rights and obligations under the Plan.
If the Acquiring Corporation elects not to assume the Company's rights and
obligations under outstanding Purchase Rights, the Purchase Date of the then
current Purchase Period shall be accelerated to a date before the date of the
Change in Control specified by the Board, but the number of shares of Stock
subject to outstanding Purchase Rights shall not be adjusted. All Purchase
Rights which are neither assumed by the Acquiring Corporation in connection with
the Change in Control nor exercised as of the date of the Change in Control
shall terminate and cease to be outstanding effective as of the date of the
Change in Control.
15. Nontransferability of Purchase Rights.
-------------------------------------
A Purchase Right may not be transferred in any manner otherwise than
by will or the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant.
16. Compliance with Securities Law.
------------------------------
The issuance of shares under the Plan shall be subject to compliance
with all applicable requirements of federal, state and foreign law with respect
to such securities. A Purchase Right may not be exercised if the issuance of
shares upon such exercise would
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constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any securities exchange
or market system upon which the Stock may then be listed. In addition, no
Purchase Right may be exercised unless (a) a registration statement under the
Securities Act of 1933, as amended, shall at the time of exercise of the
Purchase Right be in effect with respect to the shares issuable upon exercise of
the Purchase Right, or (b) in the opinion of legal counsel to the Company, the
shares issuable upon exercise of the Purchase Right may be issued in accordance
with the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to be
necessary to the lawful issuance and sale of any shares under the Plan shall
relieve the Company of any liability in respect of the failure to issue or sell
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of a Purchase Right, the Company may require the
Participant to satisfy any qualifications that may be necessary or appropriate,
to evidence compliance with any applicable law or regulation, and to make any
representation or warranty with respect thereto as may be requested by the
Company.
17. Rights as a Stockholder and Employee.
------------------------------------
A Participant shall have no rights as a stockholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. Legends.
-------
The Company may at any time place legends or other identifying symbols
referencing any applicable federal, state or foreign securities law restrictions
or any provision convenient in the administration of the Plan on some or all of
the certificates representing shares of Stock issued under the Plan. The
Participant shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section. Unless otherwise specified by the Company, legends
placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
13
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REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY
NOMINEE)."
19. Notification of Sale of Shares.
------------------------------
The Company may require the Participant to give the Company prompt
notice of any disposition of shares acquired by exercise of a Purchase Right
within two years from the date of granting such Purchase Right or one year from
the date of exercise of such Purchase Right. The Company may require that until
such time as a Participant disposes of shares acquired upon exercise of a
Purchase Right, the Participant shall hold all such shares in the Participant's
name (or, if elected by the Participant, in the name of the Participant and his
or her spouse but not in the name of any nominee) until the lapse of the time
periods with respect to such Purchase Right referred to in the preceding
sentence. The Company may direct that the certificates evidencing shares
acquired by exercise of a Purchase Right refer to such requirement to give
prompt notice of disposition.
20. Notices.
-------
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. Indemnification.
---------------
In addition to such other rights of indemnification as they may have
as members of the Board or officers or employees of the Participating Company
Group, members of the Board and any officers or employees of the Participating
Company Group to whom authority to act for the Board or the Company is delegated
shall be indemnified by the Company against all reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
22. Amendment or Termination of the Plan.
------------------------------------
The Board may at any time amend or terminate the Plan, except that (a)
such termination shall not affect Purchase Rights previously granted under the
Plan, except as
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<PAGE>
permitted under the Plan, and (b) no amendment may adversely affect a Purchase
Right previously granted under the Plan (except to the extent permitted by the
Plan or as may be necessary to qualify the Plan as an employee stock purchase
plan pursuant to Section 423 of the Code or to obtain qualification or
registration of the shares of Stock under applicable federal, state or foreign
securities laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares than are
authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies.
15
<PAGE>
POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print): __________________________________________________________
(Last) (First) (Middle)
I hereby elect to withdraw from the Offering under Power Integrations, Inc.
1997 Employee Stock Purchase Plan (the "Plan") which began on
_________________________, 19____ and in which I am currently participating (the
"Current Offering").
Elect either A or B below:
[_] A. I elect to terminate immediately my participation in the Current
Offering and in the Plan.
I request that the Company cease all further payroll deductions from
my Compensation under the Plan (provided that I have given sufficient
notice prior to the next payday). I request that all payroll
deductions credited to my account under the Plan (if any) not
previously used to purchase shares under the Plan shall not be used to
---
purchase shares on the next Purchase Date of the Current Offering.
Instead, I request that all such amounts be paid to me as soon as
practicable. I understand that this election immediately terminates
my interest in the Current Offering and in the Plan.
[_] B. I elect to terminate my participation in the Current Offering and in
the Plan following my purchase of shares on next Purchase Date of the
Current Offering.
I request that the Company cease all further payroll deductions from
my Compensation under the Plan (provided that I have given sufficient
notice prior to the next payday). I request that all payroll
deductions credited to my account under the Plan (if any) not
previously used to purchase shares under the Plan shall be used to
purchase shares on the next Purchase Date of the Current Offering to
the extent permitted by the Plan. I understand that this election
will terminate my interest in the Current Offering and in the Plan
immediately following such purchase. I request that any cash balance
remaining in my account under the Plan after my purchase of shares be
paid to me as soon as practicable.
I understand that by making this election I am terminating my interest in
the Plan and that no further payroll deductions will be made (provided that I
have given sufficient notice prior to the next payday) unless I elect in
accordance with the Plan to become a participant in another Offering under the
Plan by filing a new Subscription Agreement with the Company.
Date:__________________________ Signature:________________________________
<PAGE>
ANNEX C
POWER INTEGRATIONS, INC.
1997 OUTSIDE DIRECTORS STOCK OPTION PLAN
(as amended through June 6, 2000)
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Power Integrations, Inc. 1997 Outside
Directors Stock Option Plan (the "Plan") is hereby established effective as of
the effective date of the initial registration by the Company of its Stock under
Section 12 of the Exchange Act (the "Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract and retain highly qualified persons to serve as Outside Directors of
the Company and by creating additional incentive for Outside Directors to
promote the growth and profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued and all restrictions on
such shares under the terms of the Plan and the agreements evidencing Options
granted under the Plan have lapsed.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "Committee" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law .
(d) "Company" means Power Integrations, Inc., a Delaware
corporation, or any successor corporation thereto.
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(e) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(f) "Director" means a member of the Board or the board of
directors of any other Participating Company.
(g) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(j) "Option" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan.
(k) "Optionee" means a person who has been granted one or more
Options.
(l) "Option Agreement" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
(m) "Outside Director" means a Director of the Company who is
not an Employee.
2
<PAGE>
(n) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(o) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.
(q) "Service" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(r) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(s) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3. Administration. The Plan shall be administered by the Board. All
--------------
questions of interpretation of the Plan or of any Option shall be determined by
the Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, determination 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,
determination or election.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be eight hundred thousand (800,000) and shall
consist of authorized but unissued shares or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
3
<PAGE>
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number and class of shares subject
to the Plan, to the "Initial Option" and "Annual Option" (as defined in Section
6.1), and to any outstanding Options, and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an "Ownership Change
Event" as defined in Section 8.1) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
exercise price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
5. Eligibility and Type of Options.
-------------------------------
5.1 Persons Eligible for Options. An Option shall be granted only to
a person who, at the time of grant, is an Outside Director.
5.2 Options Authorized. Options shall be nonstatutory stock options;
that is, options which are not treated as incentive stock options within the
meaning of Section 422(b) of the Code.
6. Terms and Conditions of Options. Options shall be evidenced by Option
-------------------------------
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 Automatic Grant of Options. Subject to execution by an Outside
Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(a) Initial Option. Each person who is (i) serving as an Outside
Director on the Effective Date, or (ii) first elected or appointed as an Outside
Director after the Effective Date shall be granted an Option to purchase thirty
thousand (30,000) shares of Stock on the Effective Date or the date of such
initial election or appointment, respectively (an "Initial Option").
Notwithstanding anything herein to the contrary, an Initial Option shall not be
granted to a Director of the Company who previously did not qualify as an
Outside Director but
4
<PAGE>
subsequently becomes an Outside Director as a result of the termination of his
or her status as an Employee.
(b) Annual Option. Each Outside Director (including any Director
who previously did not qualify as an Outside Director but who subsequently
becomes an Outside Director) shall be granted an Option to purchase ten thousand
(10,000) shares of Stock on each of his or her "Anniversary Dates", provided
such person remains an Outside Director on such Anniversary Date (an "Annual
Option"). The Anniversary Date for an Outside Director who was serving on the
Board on the Effective Date shall be the date which is twelve (12) months after
the Effective Date and successive anniversaries thereof. The Anniversary Date
for an Outside Director who is elected or appointed to the Board after the
Effective Date shall be the date which is twelve (12) months after such election
or appointment and successive anniversaries thereof.
(c) Right to Decline Option. Notwithstanding the foregoing, any
person may elect not to receive an Option by delivering written notice of such
election to the Board no later than the day prior to the date such Option would
otherwise be granted. A person so declining an Option shall receive no payment
or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.
6.2 Exercise Price. The exercise price per share of Stock subject to
an Option shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
6.3 Exercise Period. Each Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.4 Right to Exercise Options.
(a) Initial Options. Except as otherwise provided in the Plan or
in the Option Agreement, an Initial Option shall (i) first become exercisable on
the date which is one (1) year after the date on which the Initial Option was
granted (the "Initial Option Vesting Date"); and (ii) be exercisable on and
after the Initial Option Vesting Date and prior to the termination thereof in an
amount equal to the number of shares of Stock initially subject to the Initial
Option multiplied by the Vested Ratio as set forth below, less the number of
shares previously acquired upon exercise thereof. The Vested Ratio described in
the preceding sentence shall be determined as follows:
Vested Ratio
------------
Prior to Initial Option Vesting Date 0
On Initial Option Vesting Date, provided the Optionee's 1/3
Service has not terminated prior to such date
5
<PAGE>
Plus
----
For each full month of the Optionee's continuous 1/36
Service from the Initial Option Vesting Date until the
Vested Ratio equals 1/1, an additional
(b) Annual Options. Except as otherwise provided in the Plan or
in the Option Agreement, an Annual Option shall (i) first become exercisable on
the date which is twenty-five (25) months after the date on which the Annual
Option was granted (the "Annual Option Vesting Date"); and (ii) be exercisable
on and after the Annual Option Vesting Date and prior to the termination thereof
in an amount equal to the number of shares of Stock initially subject to the
Annual Option multiplied by the Vested Ratio as set forth below, less the number
of shares previously acquired upon exercise thereof. The Vested Ratio described
in the preceding sentence shall be determined as follows:
Vested Rat
Prior to Annual Option Vesting Date 0
On Annual Option Vesting Date, provided 1/12
the Optionee's Service is continuous from the date
of grant of the Annual Option until the
Annual Option Vesting Date
Plus
----
For each full month of the Optionee's continuous 1/12
Service from the Annual Option Vesting Date until the
Vested Ratio equals 1/1, an additional
6.5 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value not less than the exercise price, (iii) by
the assignment of the proceeds of a sale or loan with respect to some or all of
the shares being acquired upon the exercise of the Option (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) (a "Cashless Exercise"), or (iv) by any combination thereof.
(b) Tender of Stock. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been
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<PAGE>
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
6.6 Tax Withholding. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating Company Group with respect to such Option or the shares acquired
upon exercise thereof. Alternatively or in addition, in its sole discretion, the
Company shall have the right to require the Optionee to make adequate provision
for any such tax withholding obligations of the Participating Company Group
arising in connection with the Option or the shares acquired upon exercise
thereof. The Company shall have no obligation to deliver shares of Stock until
the Participating Company Group's tax withholding obligations have been
satisfied.
7. Standard Form of Option Agreement.
---------------------------------
7.1 General. Each Option shall comply with and be subject to the
terms and conditions set forth in the appropriate form of Nonstatutory Stock
Option Agreement adopted by the Board concurrently with its adoption of the Plan
and as amended from time to time.
7.2 Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.
8. Change in Control.
-----------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
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(iii) the sale, exchange, or change in all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 Effect of Change in Control on Options. In the event of a Change
in Control, any unexercisable or unvested portion of the outstanding Options
shall be immediately exercisable and vested in full as of the date ten (10) days
prior to the date of the Change in Control. The exercise or vesting of any
Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Change in Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "Acquiring Corporation"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall
be deemed assumed if, following the Change in Control, the Option confers the
right to purchase in accordance with its terms and conditions, for each share of
Stock subject to the Option immediately prior to the Change in Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Change in Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Change in Control nor exercised as
of the date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control. Notwithstanding the
foregoing, shares acquired upon exercise of an Option prior to the Change in
Control and any consideration received pursuant to the Change in Control with
respect to such shares shall continue to be subject to all applicable provisions
of the Option Agreement evidencing such Option except as otherwise provided in
such Option Agreement. Furthermore, notwithstanding the foregoing, if the
corporation the stock of which is subject to the outstanding Options immediately
prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a
Change in Control is the surviving or continuing corporation and immediately
after such Ownership Change Event less than fifty percent (50%) of the total
8
<PAGE>
combined voting power of its voting stock is held by another corporation or by
other corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section 1504(b)
of the Code, the outstanding Options shall not terminate.
9. Nontransferability of Options. During the lifetime of the Optionee,
-----------------------------
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10. Indemnification. In addition to such other rights of indemnification
---------------
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, or any right
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such person is liable for gross
negligence, bad faith or intentional misconduct in duties; provided, however,
that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity
at its own expense to handle and defend the same.
11. Termination or Amendment of Plan. The Board may terminate or amend the
--------------------------------
Plan at any time. However, subject to changes in applicable law, regulations or
rules that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no other amendment of the Plan that would require
approval of the Company's stockholders under any applicable law, regulation or
rule. In any event, no termination or amendment of the Plan may adversely affect
any then outstanding Option, or any unexercised portion thereof, without the
consent of the Optionee, unless such termination or amendment is necessary to
comply with any applicable law, regulation or rule.
9
<PAGE>
PROXY
POWER INTEGRATIONS, INC.
Proxy for the Annual Meeting of Stockholders
To be held on June 6, 2000
Solicited by the Board of Directors
The undersigned hereby appoints Howard F. Earhart and Robert G. Staples,
and each of them, with full power of substitution, to represent the undersigned
and to vote all of the shares of stock in Power Integrations, Inc., a Delaware
corporation (the "Company"), which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at 477 N. Mathilda
Avenue, Sunnyvale, California 94086 at 1:00 p.m., local time, and at any
adjournment or postponement thereof (i) as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Proxy Statement of the Company dated May 2, 2000 (the "Proxy Statement"),
receipt of which is hereby acknowledged, and (ii) in their discretion upon such
other matters as may properly come before the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5
AND 6.
<TABLE>
<CAPTION>
______________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
____________
<S> <C>
__________________ __________________
Vote by Telephone Vote by Internet
__________________ __________________
It's fast, convenient, and immediate! It's fast, convenient and your vote is
Call Toll-Free on a Touch-Tone Phone immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683).
- -------------------------------------------------------------------------------------------------------------------
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement/Prospectus and Proxy Card. Statement/Prospectus and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683) http://www.eproxyvote.com/powi.
3. Enter your 14-digit Voter Control Number 3. Enter your 14-digit Voter Control Number
located on your Proxy Card above your name. located on your Proxy Card above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
- -------------------------------------------------------------------------------------------------------------------
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/powi anytime!
------------------------------
</TABLE>
Do not return your Proxy Card if you are voting by Telephone or Internet
1
<PAGE>
[X] Please mark
votes as in
this example
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN AND PROMPTLY MAIL THIS PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK
MAY BE REPRESENTED AT THE MEETING.
A vote FOR the following proposals is recommended by the Board of
Directors:
1. To elect the following two persons as Class III directors to hold
office for a three-year term and until their successors are elected and
qualified:
Nominee: Howard F. Earhart
[ ]1 FOR [ ]2 WITHHELD
Nominee: Alan D. Bickell
[ ]3 FOR [ ]4 WITHHELD
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance by 100,000,000 shares, to a total of 140,000,000 shares.
[ ]5 FOR [ ]6 AGAINST [ ]7 ABSTAIN
3. To approve an amendment to the Company's 1997 Stock Option Plan which
provides that effective January 1, 2001, 662,000 shares which would otherwise
only be available for grant under such plan pursuant to nonstatutory stock
options may instead be granted pursuant to incentive stock options.
[ ]8 FOR [ ]9 AGAINST [ ]10 ABSTAIN
4. To approve an amendment to the Company's 1997 Employee Stock Purchase
Plan which increases the number of shares reserved for issuance under such plan
by 500,000 shares of the Company's common stock, to a total of 1,500,000 such
shares.
[ ]11 FOR [ ]12 AGAINST [ ]13 ABSTAIN
5. To approve an amendment to the Company's 1997 Outside Directors Plan
which increases the number of shares reserved for issuance under such plan by
400,000 shares of the Company's Common Stock, to a total of 800,000 shares.
[ ]14 FOR [ ]15 AGAINST [ ]16 ABSTAIN
6. To consider, approve and ratify the appointment of Arthur Andersen LLP
as independent public auditors for the Company for the fiscal year ending
December 31, 2000.
[ ]17 FOR [ ]18 AGAINST [ ]19 ABSTAIN
2
<PAGE>
MARK HERE FOR [ ] MARK HERE IF [ ]
ADDRESS CHANGE YOU PLAN TO
AND NOTE BELOW ATTEND THE
MEETING
<TABLE>
<S> <C> <C>
Please sign here. Sign exactly as your name(s) Signature: ____________________ Date: _______________________
appears on your stock certificate. If shares of
stock are held of record in the names of two or Signature: ____________________ Date: _______________________
more persons or in the name of husband and wife,
whether as joint tenants or otherwise, both or
all of such persons should sign the Proxy. If
shares of stock are held of record by a corporation,
the Proxy should be executed by the President or
Vice President and the Secretary or Assistant
Secretary. Executors or administrators or other
fiduciaries who execute the Proxy for a deceased
stockholder should give their full title. Please
date the Proxy.
</TABLE>
3
