SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Check the appropriate box:
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Power Integrations, Inc.
(Name of Registrant as Specified In Its Charter)
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POWER INTEGRATIONS, INC.
5245 Hellyer Avenue
San Jose, California 95138
May 2, 2001
To our stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Power Integrations, Inc. on June 7, 2001 at 5245 Hellyer Avenue, San Jose, CA
95138 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 2000 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
Chief Executive Officer
POWER INTEGRATIONS, INC.
5245 Hellyer Avenue
San Jose, California 95138
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 7, 2001
Dear Stockholder:
You are invited to attend the annual meeting of stockholders of Power
Integrations, Inc., which will be held on June 7, 2001, at 1:00 p.m. Pacific
Daylight Time at 5245 Hellyer Avenue, San Jose, CA 95138, for the following
purposes:
1. To elect two (2) Class I directors to hold office for a three-year term
and until their successors are elected and qualified.
2. To approve an amendment to our 1997 Stock Option Plan which provides
that effective January 1, 2002, 685,000 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.
3. To ratify the appointment of Arthur Andersen LLP as our independent
auditors for the fiscal year ending December 31, 2001.
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on April 18, 2001, 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/ John M. Cobb
John M. Cobb
Secretary
San Jose, California
May 2, 2001
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.
POWER INTEGRATIONS, INC.
5245 Hellyer Avenue
San Jose, California 95138
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 7, 2001, 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, 2001, 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, 2000, is
enclosed with this proxy statement.
Voting Securities. Only stockholders of record as of the close of business
on April 18, 2001, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 27,592,579 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
5245 Hellyer Avenue, San Jose, California, 95138, 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.
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 2003, 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 2001 annual meeting of
stockholders to Class III of the board of directors are R. Scott Brown and
Steven J. Sharp. If elected, each nominee will serve as a director until Power
Integrations' annual meeting of stockholders in 2004, 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 I nominees to be elected at this meeting.
Director
Name Principal occupation with Power Integrations Age since
---- -------------------------------------------- --- --------
Class I directors whose terms expire at the 2001 annual meeting of
stockholders:
R. Scott Brown Director 60 1999
Steven J. Sharp Director 59 1988
Class II nominee to be elected at the 2002 annual meeting of stockholders:
E. Floyd Kvamme Director 63 1989
Nicholas E. Brathwaite Director 42 2000
Class III directors whose terms expire at the 2003 annual meeting of
stockholders:
Howard F. Earhart Chairman of the Board and Chief Executive Officer 61 1995
Alan D. Bickell Director 64 1999
Howard F. Earhart has served as our chief executive officer and as a
director since January 1995. He also served as our president from January 1995
through April 2001. Mr. Earhart brings more than 30 years of executive
management experience to Power Integrations. His management experience
includes photographic film products at Eastman Kodak and consumer products at
Memorex Corporation where he was president of Consumer Products Group. Mr.
Earhart also served as the CEO of Lin Data Corp. and Information Magnetics
Corporation; both companies manufacture semiconductor-based components for the
disk drive industry.
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, 2000, the board of directors held nine
(9) 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 2000 were Alan Bickell, Nicholas Brathwaite and Floyd Kvamme. During
2000, the audit committee held three (3) meetings.
All members of the audit committee are "independent" in accordance with the
National Association of Securities Dealers, Inc. ("NASD") Rules
4310(c)(26)(B)(i) and 4200(a)(15) that are currently applicable to Power
Integrations. For additional information concerning the audit committee, see
"REPORT OF THE AUDIT COMMITTEE."
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 2000 were Alan
Bickell, Floyd Kvamme and R. Scott Brown During 2000, 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 I directors receiving the highest number of votes will
be elected. Abstentions and broker non-votes will each be counted as present
for purposes of determining the presence of a quorum. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED ABOVE.
3
PROPOSAL NUMBER TWO
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, 1999 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 7,366,454
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 685,000 shares, to 8,051,454 shares, effective as of
January 1, 2002. 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 7,366,454 shares to 8,051,454 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, 2001, Power Integrations had outstanding
options under the 1997 Plan to purchase an aggregate of 2,605,137 shares at a
weighted average exercise price of $15.4585 per share. As of the same date,
options to purchase 999,254 shares of common stock granted pursuant to the
1997 Plan had been exercised, and there were 1,829,241 shares of common stock
available for future grants under the 1997 Plan. As of the same date, options
to purchase 167,457 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, 2001, options to purchase
76,923 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, 2001 was equal
to 1,371,518 shares, resulting in a maximum reserve of 8,209,091 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, 2001, such total was 2,830,289 shares.
Currently, the ISO Issuance Limit is 7,366,454 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 8,051,454 shares, effective January 1, 2002. 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
4
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 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,
2001, options to purchase 266,063 shares of common stock granted pursuant to
the 1998 Plan had been exercised, options to purchase an aggregate of 692,989
shares were outstanding, and 40,948 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, 2001, Power Integrations had approximately 259
employees, including 9 executive officers and six (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.
5
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 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
6
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, 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.
7
PROPOSAL NUMBER THREE
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, 2001. 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, 2001.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to Power
Integrations for the fiscal year ended December 31, 2000 by its principal
accounting firm, Arthur Andersen LLP.
Audit Fees......................................................... $180,000
Financial Information Systems Design and Implementation Fees....... $ 0
All Other Fees..................................................... $144,075
Power Integrations did not engage Arthur Andersen LLP to provide advice
regarding financial information systems design and implementation during the
year ended December 31, 2000.
Fees billed to Power Integrations by Arthur Andersen LLP during the year
ended December 31, 2000 for all other non-audit services included accounting
advice and tax services. The audit committee has determined that the provision
of non-audit services by Arthur Andersen LLP is compatible with maintaining
its independence with Power Integrations.
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 1, 2001,
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, 2001 exceeded $100,000, also referred to as the
"Named Executive Officers," and
. all executive officers and directors of Power Integrations as a group.
Shares owned(1)
--------------------
Number of
Name and address of beneficial owners shares Percentage
------------------------------------- --------- ----------
5% Stockholders
Franklin Resources, Inc.(2)............................. 1,627,000 5.9%
777 Mariners Island Blvd. 6th Floor
San Mateo, CA 94404
Kopp Investment Advisors, Inc.(3)....................... 1,449,701 5.3%
7701 France Avenue So., Suite 500
Edina, MN 55435
RS Investment Management Co. LLC(4)..................... 3,095,250 11.2%
388 Market Street, Suite 200
San Francisco, CA 94111
Executive officers and directors
Howard F. Earhart(5).................................... 684,682 2.5
Balu Balakrishnan(6).................................... 423,458 1.5
Vladimir Rumennik(7).................................... 391,389 1.4
Daniel M. Selleck(8).................................... 250,897 *
Roderick D. Davies(9)................................... 135,000 *
Alan D. Bickell(10)..................................... 50,500 *
Nicholas E. Brathwaite (11)............................. 40,000 *
R. Scott Brown(12)...................................... 50,000 *
E. Floyd Kvamme(13)..................................... 192,640 *
Steven J. Sharp(14)..................................... 115,292 *
All executive officers and directors as a group (14
persons)(15)........................................... 2,867,541 9.8
- --------
* 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 27,555,241 shares of common stock outstanding on February 1, 2001.
(2) Based on a Schedule 13G/A filed with the SEC on February 9, 2001,
Franklin Resources, Inc. has sole dispositive power of no shares and sole
voting power over no shares.
9
(3) Based on Schedule 13G filed with the SEC on January 30, 2001, Kopp
Investment Advisors, Inc. has sole voting power over 150,000 shares and
shared dispositive power over 1,449,701 shares.
(4) Based on a Schedule 13G/A filed with the SEC on February 15, 2001, RS
Investment Management Co. LLC has shared voting and dispositive power
over 3,095,250 shares. RS Investment Management Co. LLC is the general
partner of RS Investment Management, L.P., a registered investment
adviser.
(5) Includes 330,000 shares issuable upon exercise of options which vest over
time.
(6) Includes 160,000 shares issuable upon exercise of options which vest over
time.
(7) Includes 170,000 shares issuable upon exercise of options which vest over
time.
(8) Includes 175,000 shares issuable upon exercise of options which vest over
time.
(9) Includes 135,000 shares issuable upon exercise of options which vest over
time.
(10) Includes 50,000 shares issuable upon exercise of options.
(11) Includes 40,000 shares issuable upon exercise of options.
(12) Includes 50,000 shares issuable upon exercise of options.
(13) Includes 60,000 shares issuable upon exercise of options.
(14) Includes 4,234 shares held by Sutro & Co. Keough Custodian FBO Steven
Sharp. Also includes 60,000 shares issuable upon exercise of options.
(15) See footnotes 5 through 14. Includes 1,621,923 shares issuable upon
exercise of options which vest over time.
10
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, 2000, 1999 and 1998:
Summary Compensation Table
Long term
compensation
Annual Compensation awards
----------------------- ------------
No. of
securities
Name and principal underlying All other
position Year Salary(1) Bonus(1) options compensations(2)
------------------ ---- --------- -------- ------------ ----------------
Howard F. Earhart......... 2000 $270,000 $ 27,365 80,000 $867
President and Chief
Executive Officer 1999 $270,000 $204,300 150,000 $891
1998 $210,000 $190,800 100,000 $737
Balu Balakrishnan......... 2000 $221,923 $ 29,051 80,000 $867
Vice President,
Engineering and New
Business 1999 $200,769 $119,300 80,000 $891
Development 1998 $175,000 $111,300 60,000 $737
Vladimir Rumennik......... 2000 $211,539 $ 15,051 40,000 $867
Vice President,
Technology Development 1999 $209,519 $104,400 80,000 $891
1998 $165,000 $ 95,400 50,000 $737
Daniel M. Selleck......... 2000 $215,015 $ 15,051 45,000 $867
Vice President, Worldwide
Sales 1999 $214,631 $115,800 80,000 $891
1998 $160,000 $111,300 50,000 $737
Roderick D. Davies(3)..... 2000 $197,002 $ 15,051 30,000 $867
Vice President,
Operations 1999 $ 78,801 $ 71,200 120,000 $361
- --------
(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) Roderick D. Davies joined Power Integrations as our Vice President,
Operations in August 1999.
11
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, 2000 to the Named Executive Officers:
Individual grants in fiscal 2000
Potential
realizable value at
% of total assumed annual
options rates of stock
granted to price appreciation
employees for option term(4)
Options in fiscal Exercise Expiration -------------------
Name granted(1) year(2) price(3) date 5% 10%
- ---- ---------- ---------- -------- ---------- -------- ----------
Howard F. Earhart....... 80,000 5.53 15.0625 4/14/2010 $757,818 $1,920,460
Balu Balakrishnan....... 80,000 5.53 15.0625 4/14/2010 $757,818 $1,920,460
Vladimir Rumennik....... 40,000 2.77 15.0625 4/14/2010 $378,909 $ 960,229
Daniel M. Selleck....... 45,000 3.11 15.0625 4/14/2010 $426,273 $1,080,259
Roderick D. Davies...... 30,000 2.08 15.0625 4/14/2010 $284,182 $ 720,172
- --------
(1) Options granted in fiscal 2000 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 Two--Approval of Amendment of 1997 Stock Option Plan"
for a description of the material payment terms of the options.
(2) Based on a total of 1,445,585 options granted to all employees and
consultants during fiscal 2000.
(3) All options were granted at an exercise price equal to the fair market
value of Power Integrations' stock on April 14, 2000.
(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.
12
AGGREGATE OPTION EXERCISES FOR FISCAL 2000 AND FISCAL 2000 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, 2000, and unexercised options held as of December 31, 2000, by
the Named Executive Officers:
Aggregated option exercises and fiscal year-end values
Number of securities
underlying Value of unexercised
unexercised options in-the-money options at
Shares at 12/31/00 12/31/00(1)
acquired on Value --------------------- -----------------------
Name exercise realized(2) Vested Unvested Vested Unvested
- ---- ----------- ------------- --------- ----------- ----------- -----------
Howard F. Earhart....... 85,884 $1,674,308.58 97,222 232,778 $603,644.25 $108,855.75
Balu Balakrishnan....... 60,000 $1,931,250.00 8,887 151,113 $ 0.00 $ 0.00
Vladimir Rumennik....... 52,806 $1,159,201.32 23,263 146,737 $165,748.87 $190,501.12
Daniel M. Selleck....... 0 $ 0.00 24,929 150,071 $165,748.87 $190,501.12
Davies, Rick D.......... 15,000 $ 338,718.00 29,999 105,001 $ 0.00 $ 0.00
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 2000 of $11.50 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 2000 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 2000, Messrs.
Bickell, Brathwaite, 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. Brathwaite was granted an option to purchase up to 30,000 shares of
Power Integrations common stock under this plan when he became a director of
Power Integrations in January 2000.
Employment contracts and termination of employment and change-in-control
arrangements
None.
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
13
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 2000, 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 the
occurrence of certain events. The loan was secured by 147,058 shares of common
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.
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 year 2000, except that Mr. Nicholas Brathwaite and Mr. Richard Fassler
each filed a late Form 3, an Initial Statement of Beneficial Ownership of
Securities.
14
NEW PLAN BENEFITS
The following table sets forth grants of stock options received under the
1997 Plan during the fiscal year ended December 31, 2000 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.
Exercise No. of
Name and position price shares
- ----------------- -------- -------
Howard F. Earhart.............................................. $15.0625 80,000
President and Chief Executive Officer
Balu Balakrishnan.............................................. $15.0625 80,000
Vice President, Engineering and New Business Development
Vladimir Rumennik.............................................. $15.0625 40,000
Vice President, Technology Development
Daniel M. Selleck.............................................. $15.0625 45,000
Vice President, Worldwide Sales
Clifford J. Walker............................................. $15.0625 30,000
Vice President, Corporate Development
Executive group (9 persons).................................... $19.5417 480,000
Non-executive director group (5 persons)....................... $ 0 0
Non-executive officer employee group........................... $16.8537 814,224
- --------
(1) Only employees are eligible to participate in the 1997 Plan.
(2) Average exercise price of options granted to non-executive officer
employees under the 1997 Plan.
15
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
On December 31, 2000, Alan D. Bickell, E. Floyd Kvamme and R. Scott Brown
were members of the compensation committee. Each member of the compensation
committee is a non-employee member of our board of directors. For fiscal year
ended 2000, all decisions concerning executive compensation were made by the
compensation committee as constituted on December 31, 2000. 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 2000 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 2000, the President and Chief 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.
16
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 2000
compensation, including a base salary of $270,000, in fiscal 1999. 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 2000 was $27,365. In addition, the
board of directors granted Mr. Earhart options to purchase 80,000 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 2000 COMPENSATION COMMITTEE
Alan D. Bickell
R. Scott Brown
E. Floyd Kvamme
17
REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect to our
audited financial statements for the fiscal year ended December 31, 2000. The
Audit Committee has reviewed and discussed our audited financial statements
with management. The Audit Committee has discussed with Arthur Andersen LLP,
our independent accountants, the matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards) which includes, among other
items, matters related to the conduct of the audit of our financial
statements. The committee has also received written disclosures and the letter
from Arthur Andersen LLP required by Independence Standards Board Standard No.
1 (which relates to the accountant's independence from Power Integrations and
its related entities) and has discussed with our independent auditors their
independence from Power Integrations.
The Audit Committee acts pursuant to the Audit Committee Charter that has
been adopted by the board of directors, a copy of which is attached to this
Proxy Statement as Appendix A. Each of the members of the Audit Committee
qualifies as an "independent" director under the current listing standards of
the National Association of Securities Dealers.
Based on the review and discussions referred to above, the committee
recommended to our board of directors that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
THE 2000 AUDIT COMMITTEE
Alan D. Bickell
Nicholas Brathwaite
E. Floyd Kvamme
18
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 29, 2000.(1)
Comparison of cumulative total return from December 12, 1997 through December
31, 2000
Power Integrations, Inc., Nasdaq Stock Market--US Index and the CRSP Index for
Nasdaq Electronic Components Stocks
[PERFORMANCE GRAPH APPEARS HERE]
December 31,
-----------------------------
1997 1998 1999 2000
------ ------ -------- ------
Power Integrations, Inc.......................... $113.8 $308.5 $1,180.0 $283.1
Nasdaq US........................................ $102.3 $144.3 $ 268.1 $161.3
Nasdaq Electronic Components..................... $101.5 $156.7 $ 291.5 $238.3
- --------
(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.
19
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 5245 Hellyer Avenue, San Jose, California, 95138, not later
than December 21, 2001, 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/ John M. Cobb
-------------------------------------
John M. Cobb
Secretary
May 2, 2001
20
APPENDIX A
POWER INTEGRATIONS, INC.
Charter for the Audit Committee
of the Board of Directors
Purpose
The purpose of the Audit Committee is to make such examinations as are
necessary to monitor the corporate financial reporting and the internal and
external audits of the Company and its subsidiaries; to provide to the Board
of Directors the results of its examinations and recommendations; to outline
to the Board improvements made, or to be made, in internal accounting
controls; to nominate independent auditors; and to provide the Board with any
additional information and materials it may deem necessary to make the Board
aware of significant financial matters which require Board attention. The
Audit Committee will undertake those specific duties and responsibilities
listed below.
Membership
The Audit Committee will consist of at least three (3) members of the Board
and shall be composed of directors who are independent of the management of
the Company and are free of any relationship that, in the opinion of the Board
of Directors, would interfere with their exercise of independent judgement as
committee members. Each member will be an "independent director" as defined in
the listing standards for The Nasdaq Stock Market; each member will be able to
read and understand fundamental financial statements, including a balance
sheet, income statement and cash flow statement; and at least one member will
have past employment experience in finance or accounting, requisite
professional certification in accounting or other comparable experience or
background resulting in the individual's financial sophistication, including
being or having been a chief executive, chief financial or other senior
officer with financial oversight responsibilities. The members of the Audit
committee will be appointed by and will serve at the discretion of the Board
of Directors.
Meetings
The Audit Committee will meet at least annually in addition to the
following:
The Audit Committee will meet separately with the Chief Executive Officer
and the Chief Financial Officer of the Company at least once each year to
review the financial affairs of the Company.
The Audit Committee will meet with the independent auditors of the Company
upon the completion of the annual audit, and will meet at any other times it
deems appropriate to review the independent auditors' quarterly or annual
examinations, management reports or other matters relating to the independent
auditors' audits and reviews.
Responsibilities
The responsibilities of the Audit Committee shall include:
1. Evaluating and recommending the reappointment or replacement of the
independent auditors, considering independence and effectiveness, and
evaluating and selecting an alternate should it be determined that the
current auditors should be replaced.
2. Reviewing the nature and scope of other professional services provided
to the Company by the independent auditors and considering the
relationship to the auditors' independence, including obtaining from the
independent auditors a formal written statement delineating all
relationships between the auditor and the Company, and discussing with
the auditor any disclosed relationships or services that may impact
auditor objectivity and independence (consistent with Independence
Standards Board Standard No. 1), and taking appropriate action to
oversee the independence of the outside auditor.
A-1
3. Meeting with the independent auditors and financial management of the
Company to review 1.) the scope of the proposed audit for the current
year, 2.) the audit procedures to be utilized, and 3.) the adequacy of
the independent auditor's compensation.
4. Reviewing and reassessing the Audit Committee Charter periodically, as
conditions dictate.
5. Reviewing the quarterly and annual financial statements and audit
results prior to the filing of the Company's Form 10-Qs and Form 10-Ks
with management and the independent auditors to determine that the
independent auditors are satisfied with the disclosure and content of
the financial statements to be presented to the stockholders and to
discuss the matters required to be discussed by Statement of Auditing
Standards No. 61, as amended. These meetings should include a
discussion of the independent auditors judgment, quality of the
Company's accounting and any uncorrected misstatements as a result of
the auditor's quarterly review, as well as significant adjustments,
management judgments and accounting estimates, significant new
accounting policies and disagreements with management.
6. Determining whether to recommend to the Board that the Company's
audited financial statements be included in the Company's Annual Report
on Form 10-K for filing with the SEC.
7. Reviewing the regular Management Letter to management prepared by the
independent auditors and management's response.
8. Verifying with the independent auditors the adequacy of the Company's
system of internal controls and internal reconciliation and reviewing
the integrity of the Company's financial reporting process, both
internal and external.
9. Overseeing compliance with SEC requirements regarding disclosure of
auditor's services and independent status and each audit committee
member's independence and activities and preparing a report for
inclusion in the Company's annual proxy statement as required by the
SEC.
10. Providing oversight and review of the Company's asset management
policies, including an annual review of the company's investment
policies and performance for cash and short-term investments.
11. Performing other oversight functions as requested by the full Board of
Directors.
12. Providing sufficient opportunity for the independent auditors to meet
with the members of the Audit Committee without members of the
Company's management present.
13. Report the results of the annual audit to the Board of Directors. If
requested by the Board, invite the independent auditors to attend the
full Board of Directors meeting to assist in reporting the results of
the annual audit or to answer other directors' questions.
14. In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors delegates to it.
Reports
The Audit Committee will, to the extent deemed appropriate, record its
summaries of recommendations to the Board in written form that will be
incorporated as a part of the minutes of the Board of Directors meeting at
which those recommendations are presented.
Minutes
The Audit Committee will maintain written minutes of its meetings and those
minutes will be filed with the minutes of the meetings of the Board of
Directors.
*****
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EXHIBIT A
POWER INTEGRATIONS, INC.
1997 STOCK OPTION PLAN
(As Amended Through June 7, 2001)
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.
(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;
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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.
(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.
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(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.
(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;
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(c) to determine the Fair Market Value of shares of Stock or other
property;
(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 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
8,051,454 shares of Stock effective as of January 2, 2002. 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.
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4.1 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.
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.
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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 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 owned by the Optionee for more than six (6) months or were not
acquired, directly or indirectly, from the Company.
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(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.
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
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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 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;
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(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of
the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event or a
series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction
do not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership
of more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations
to which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation,
an interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to
determine whether multiple sales or exchanges of the voting stock of the
Company or multiple Ownership Change Events are related, and its
determination shall be final, binding and conclusive.
8.2 Effect of Change in Control on 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.
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.
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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 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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PROXY
POWER INTEGRATIONS, INC.
Proxy for the Annual Meeting of Stockholders
To be held on June 7, 2001
Solicited by the Board of Directors
The undersigned hereby appoints Howard F. Earhart and John M. Cobb, 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 5245 Hellyer Avenue,
San Jose, California 95138 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, 2001 (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 AND 3.
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
- ----------------- ----------------
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!
------------------------------
Do not return your Proxy Card if you are voting by Telephone or Internet
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[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 I directors to
hold office for a three-year term and until their successors are
elected and qualified:
Nominee: R. Scott Brown
[_]1 FOR [_]2 WITHHELD
Nominee: Steven J. Sharp
[_]3 FOR [_]4 WITHHELD
2) To approve an amendment to the Company's 1997 Stock Option
Plan which provides that effective January 1, 2002, 685,000 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.
[_]5 FOR [_]6 AGAINST [_]7 ABSTAIN
3) 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, 2001.
[_]8 FOR [_]9 AGAINST [_]10 ABSTAIN
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MARK HERE FOR [_] MARK HERE IF [_]
ADDRESS CHANGE YOU PLAN TO
AND NOTE BELOW ATTEND THE
MEETING
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.
3