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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[_] Preliminary Proxy Statement [_] Confidential, for Use of the
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Power Integrations, Inc.
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(Name of Registrant as Specified In Its Charter)
Power Integrations, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
POWER INTEGRATIONS, INC.
477 N. Mathilda Avenue
Sunnyvale, California 94086
April 21, 1999
To our stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Power Integrations, Inc. on June 3, 1999 at 477 N. Mathilda Avenue, Sunnyvale,
California 94086 at 1:00 p.m., Pacific Daylight Time.
The matters expected to be acted upon at the meeting are described in
detail in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement. Also enclosed is a copy of the 1998 Power Integrations, Inc. Annual
Report, which includes audited financial statements and certain other
information.
It is important that you use this opportunity to take part in the affairs
of Power Integrations, Inc. by voting on the business to come before this
meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. Returning the proxy does not deprive you of your right to attend the
meeting and vote your shares in person.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Howard F. Earhart
Howard F. Earhart
President and Chief Executive Officer
POWER INTEGRATIONS, INC.
477 N. Mathilda Avenue
Sunnyvale, California 94086
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 3, 1999
Dear Stockholder:
You are invited to attend the annual meeting of stockholders of Power
Integrations, Inc., which will be held on June 3, 1999, at 1:00 p.m. Pacific
Daylight Time at 477 N. Mathilda Avenue, Sunnyvale, California 94086, for the
following purposes:
1. To elect one (1) Class II director to hold office for a three-year term
and until his successor is elected and qualified.
2. To approve an amendment to our 1997 Stock Option Plan which provides
that effective January 1, 2000, 620,000 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 approve an increase in the number of shares reserved for issuance
under our 1997 Employee Stock Purchase Plan from 250,000 to 500,000
shares of common stock.
4. To ratify the appointment of Arthur Andersen LLP as our independent
auditors for the fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on April 12, 1999, are
entitled to notice of, and to vote at, this meeting and any adjournments
thereof. For ten days prior to the meeting, a complete list of the stockholders
entitled to vote at the meeting will be available for examination by any
stockholder for any purpose relating to the meeting during ordinary business
hours at our principal offices.
By order of the board of directors,
/s/ Robert G. Staples
Robert G. Staples
Secretary
Sunnyvale, California
April 21, 1999
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.
477 N. Mathilda Avenue
Sunnyvale, California 94086
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
The accompanying proxy is solicited by the board of directors of Power
Integrations, Inc., a Delaware corporation, for use at the annual meeting of
stockholders to be held June 3, 1999, 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 April 21, 1999, 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, 1998, is
enclosed with this proxy statement.
Voting Securities. Only stockholders of record as of the close of business
on April 12, 1999, will be entitled to vote at the meeting and any adjournment
thereof. As of that date, there were 12,770,326 shares of our common stock, par
value $.001 per share, issued and outstanding. Stockholders may vote in person
or by proxy. Each stockholder of shares of common stock is entitled to one vote
for each share of stock held on the proposals presented in this proxy statement.
Our bylaws provide that a majority of all of the shares of our capital stock
entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting.
Solicitation of Proxies. Power Integrations will bear the cost of
soliciting proxies. We will solicit stockholders by mail through our regular
employees, and will request banks and brokers, and other custodians, nominees
and fiduciaries, to solicit their customers who have our stock registered in the
names of such persons and will reimburse them for their reasonable, out-of-
pocket costs. We may use the services of our officers, directors and others to
solicit proxies, personally or by telephone, without additional compensation.
In addition, we have engaged the services of Corporate Investor Communications,
Inc., a proxy solicitation firm. We will pay approximately $4,500 for these
services and will reimburse Corporate Investor Communications for its
reasonable, out-of-pocket expenses.
Voting of Proxies. All valid proxies received prior to the meeting will be
voted. All shares represented by a proxy will be voted, and where a stockholder
specifies by means of the proxy a choice with respect to any matter to be acted
upon, the shares will be voted in accordance with the specification so made. If
no choice is indicated on the proxy, the shares will be voted in favor of the
proposal. A stockholder giving a proxy has the power to revoke his or her
proxy, at any time prior to the time it is voted, by delivery to the Secretary
of Power Integrations at our principal offices at 477 N. Mathilda Avenue,
Sunnyvale, California 94086, of a written instrument revoking the proxy or a
duly executed proxy with a later date, or by attending the meeting and voting in
person.
1
PROPOSAL NUMBER ONE
ELECTION OF DIRECTOR
Power Integrations has a classified board of directors which currently
consists of five (5) directors: two (2) of whom are Class I directors, one (1)
of whom is a Class II director, 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, 1999 and 2000, respectively, and until their
respective successors are duly elected and qualified. Directors in a class are
elected for a term of three years to succeed the directors in that class whose
terms expire at such annual meeting.
Management's nominee for election at the 1999 annual meeting of
stockholders to Class II of the board of directors is E. Floyd Kvamme. If
elected, the nominee will serve as a director until Power Integrations' annual
meeting of stockholders in 2002, 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 II nominee to be elected at this meeting.
Principal occupation with Power Director
Name Integrations Age since
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Class I directors whose terms expire at the 2001 annual meeting of stockholders:
Dr. William Davidow Director 65 1988
Steven J. Sharp Director 57 1988
Class II nominee to be elected at the 1999 annual meeting of stockholders:
E. Floyd Kvamme Director 61 1989
Class III directors whose terms expire at the 2000 annual meeting of stockholders:
Howard F. Earhart Director, President and 59 1995
Chief Executive Officer
Alan D. Bickell Director 62 1999
Howard F. Earhart has served as President, Chief Executive Officer and as a
director of Power Integrations since January 1995. From 1993 to 1995 Mr.
Earhart served as an interim Chief Executive Officer for various high technology
companies including those discussed below. From July 1994 to March 1995, Mr.
Earhart served as Chief Executive Officer of Co-Active Computing, Inc., a
personal computer peer-to-peer network adapter company. From July 1994 to
January 1995, Mr. Earhart served as Chief Executive Officer of Reach Software, a
software company. From December 1993 to April 1994, Mr. Earhart served as Chief
Executive Officer of Quorum Software, a software company. From August 1993 to
September 1994, Mr. Earhart served as acting Chief Executive Officer of Digital-
F/X, a hardware and software company. Mr. Earhart also serves as a director of
Camstar Systems, Inc.
Dr. William Davidow has served as a director of Power Integrations since
our inception. Dr. Davidow has been a general partner of Mohr, Davidow
Ventures, a venture capital company, since 1985. Dr. Davidow also serves as a
director of six public companies, Rambus, Inc., The Vantive Corporation, Viant,
Form Factor, Numerical Technologies and Lightspeed.
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Steven J. Sharp is a founder of Power Integrations and has served on our
board of directors since our inception. Mr. Sharp has served as President,
Chief Executive Officer and Chairman of the board of TriQuint Semiconductor
since September 1991.
E. Floyd Kvamme has served as a director of Power Integrations 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
as a director of five public companies, TriQuint Semiconductor, Harmonic
Lightwaves, Photon Dynamics, Prism Solutions and National Semiconductor, as well
as several privately held companies.
Alan D. Bickell has served as a director of Power Integrations since April
1999. Mr. Bickell retired from Hewlett-Packard Co. in November 1996 following a
32 year career with that company, serving for the last six years as a corporate
senior vice president and managing director of geographic operations.
Board of director's committees and meetings
During the year ended December 31, 1998, the board of directors held seven
(7) 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
with the exception of Dr. William Davidow, who missed two (2) board meetings and
the meeting of the compensation committee. 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, recommends the engagement of auditors and reviews our internal audits.
The members of the audit committee during 1998 were Dr. Edward C. Ross and Mr.
E. Floyd Kvamme. Dr. Ross resigned from the board on April 21, 1999. The
vacancy in the audit committee created by Dr. Ross' resignation has been filled
by Mr. Alan D. Bickell. During 1998, the audit committee did not meet, but
instead the board of directors in its entirety perfomed the functions noted
above.
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 1998 were Dr.
Ross, Mr. Kvamme and Dr. Davidow. The vacancy in the compensation committee
created by Dr. Ross' resignation has been filled by Mr. Bickell. During 1998,
the compensation committee held one (1) meeting. 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 nominee for Class II director 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 NOMINEE 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 2,732,227 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 620,000 shares, to 3,352,227 shares, effective as of January 1, 2000.
The increase in the ISO Issuance Limit contemplated by this amendment will be
effected without an increase in the total number of shares issuable under the
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1997 Plan.
The stockholders are now being asked to approve the increase in the ISO
Issuance Limit from 2,732,227 shares to 3,352,227 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 April 12, 1999, Power Integrations had outstanding options
under the 1997 Plan to purchase an aggregate of 529,619 shares at a weighted
average exercise price of $12.7695 per share. As of the same date, options to
purchase 272,389 shares of common stock granted pursuant to the 1997 Plan had
been exercised, and there were 538,102 shares of common stock available for
future grants under the 1997 Plan. As of the same date, options to purchase
372,784 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 April 12, 1999, options to purchase 21,875 such
shares have been canceled.
Shares subject to the 1997 Plan. The 1997 Plan's share reserve is composed
of two parts. The first is the number of shares subject to outstanding options
under our 1988 Plan, originally 1,438,845 shares. The second is a number of
additional shares which were reserved upon approval of the 1997 Plan, originally
693,382 shares. The 1997 Plan's original reserve was therefore 2,132,227 shares.
As options under the 1988 Plan are exercised, the number of shares subject to
outstanding options under our 1988 Plan decreases, thus decreasing the total
reserve under the 1997 Plan as well. From the adoption of the 1997 Plan through
April 12, 1999, 1,044,186 shares subject to outstanding options under our 1988
Plan were exercised, reducing the 1997 Plan reserve by that same number. The
1997 Plan reserve also increases 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
common stock issued and outstanding on the last day of the prior fiscal year,
December 31. This increase was equal to 624,853 shares on January 1, 1999. Given
these adjustments to the 1997 Plan reserve, as of April 12, 1999 the 1997 Plan's
share reserve was 1,712,894 shares.
Currently, the ISO Issuance Limit is 2,732,227 shares. Subject to
stockholder approval, the board of directors has amended the 1997 Plan to
increase the ISO Issuance Limit to 3,352,227 shares, effective January 1, 2000.
Under the Code, the number of ISOs that may be granted under a plan must be an
amount that is determinable on the date that the stockholders approve the plan.
Because the 1997 Plan's share reserve increases each year and the amount of the
increase is not determinable in advance, the ISO Issuance Limit was approved as
a fixed number. Thus, although the total number of shares issuable under the
1997 Plan automatically increases each fiscal year, the ISO Issuance Limit
remains fixed. In order to allow Power Integrations to continue to grant ISOs
to its employees, the board approved the increase in the ISO Issuance Limit.
The proposed increase in the ISO Issuance Limit will not increase the total
number of shares issuable under the 1997 Plan, but will allow Power Integrations
to grant more ISOs to employees from the 1997 Plan's share reserve.
4
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of Power Integrations, 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 200,000 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 Power Integrations
repurchases shares issued upon exercise of an option, the shares of common stock
for which that option is not exercised or the repurchased shares are returned to
the 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 500,000 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 April 12, 1999,
options to purchase 12,160 shares of common stock granted pursuant to the 1998
Plan had been exercised, options to purchase an aggregate of 395,028 shares were
outstanding, and 92,812 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, whether an option is to be an ISO or a
nonstatutory stock option, the terms of vesting and exercisability of each
option, including the effect thereon of an optionee's termination of service,
the type of consideration to be paid to Power Integrations upon exercise of an
option, the duration of 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 21, 1999, Power Integrations had approximately 175
employees, including 8 executive officers and 5 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 200,000 shares during any fiscal year.
Terms and conditions of options. Each option granted under the 1997 Plan
is evidenced by a written agreement between Power Integrations and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the 1997 Plan.
The exercise price per share must equal at least the fair market value of a
share of Power Integrations' common stock on the date of grant of an ISO and at
least 85% of the fair market value of a share of the common stock on the date of
grant of a nonstatutory stock option. The exercise price of any ISO granted to
a person who at the time of grant owns stock possessing more than 10% of the
total combined voting power of all classes of stock of Power Integrations or any
parent or subsidiary corporation of Power Integrations (a "10% Stockholder")
must be at least 110% of the fair market value of a share of Power Integrations'
common stock on the date of grant. The fair market value of Power Integrations'
common stock is based on the trading price of Power Integrations' shares on the
Nasdaq National Market.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of Power Integrations' common stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or a loan with respect to some or all of
the shares of common stock being acquired upon the exercise of the option, by
means of a promissory note, by any lawful method
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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 with Power
Integrations or if the optionee attempts to transfer any unvested shares.
Shares subject to options generally vest in installments, subject to the
optionee's continued employment or service. The maximum term of ISOs granted
under the 1997 Plan is ten years, except that an ISO granted to a 10%
Stockholder may not have a term longer than five years. The 1997 Plan
authorizes the board to grant nonstatutory stock options having a term in excess
of ten years. Options are nontransferable by the optionee other than by will or
by the laws of descent and distribution and are exercisable during the
optionee's lifetime only by the optionee.
Change in control. The 1997 Plan provides that a "change in control"
occurs in the event of:
. a sale or exchange by the stockholders of more than 50% of Power
Integrations' voting stock,
. a merger or consolidation involving Power Integrations,
. the sale, exchange or transfer of all or substantially all of the assets
of Power Integrations, or
. a liquidation or dissolution of Power Integrations,
wherein, upon any such event, the stockholders of Power Integrations immediately
before such event do not retain direct or indirect beneficial ownership of at
least 50% of the total combined voting power of the voting stock of Power
Integrations, its successor, or the corporation to which the assets of Power
Integrations were transferred.
Upon a change in control, the board may arrange for the acquiring or
successor corporation to assume or substitute new options for the options
outstanding under the 1997 Plan. To the extent that the options outstanding
under the 1997 Plan are not assumed, substituted for, or exercised prior to such
event, they will terminate.
Termination or amendment. Unless sooner terminated, no ISOs may be granted
under the 1997 Plan after June 2, 2007. The board may terminate or amend the
1997 Plan at any time, but, without stockholder approval, the board may not
adopt an amendment to the 1997 Plan which would increase the total number of
shares of common stock reserved for issuance thereunder, change the class of
persons eligible to receive ISOs, or require stockholder approval under any
applicable law, regulation or rule. No amendment may adversely affect an
outstanding option without the consent of the optionee, unless the amendment is
required to preserve the option's status as an ISO or is necessary to comply
with any applicable law.
Summary of federal income tax consequences of the 1997 Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
1997 Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
ISOs. An optionee recognizes no taxable income for regular income tax
purposes as the result of the grant or exercise of an ISO qualifying under
Section 422 of the Code. Optionees who do not dispose of their shares for two
years following the date the option was granted or within one year following the
exercise of the option will normally recognize a long-term capital gain or loss
equal to the difference, if any, between the sale price and the purchase price
of the shares. If an optionee satisfies such holding periods upon a sale of the
shares, Power Integrations will not be entitled to any deduction for federal
income tax purposes. If an optionee disposes of shares within two years after
the date of grant or within one year from the date of exercise, referred to as a
disqualifying disposition, the difference between the fair market value of the
shares on the determination date, which is discussed in more detail below under
- -- "Nonstatutory stock options," and the option exercise price, not to exceed
the gain
6
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
INCREASE IN NUMBER OF SHARES RESERVED
FOR ISSUANCE PURSUANT TO THE 1997 EMPLOYEE STOCK PURCHASE PLAN
Power Integrations currently maintains the 1997 Employee Stock Purchase
Plan, also referred to as the Purchase Plan, which permits employees to purchase
shares of common stock through payroll deductions.
Power Integrations' stockholders have previously approved the reservation
of 250,000 shares of common stock for purchase by employees under the Purchase
Plan. To provide a reasonable reserve of shares to permit Power Integrations to
continue offering employees a stock purchase opportunity, the board has
unanimously adopted, subject to stockholder approval, an amendment to increase
the number of shares of common stock reserved for issuance under the Purchase
Plan by 250,000 shares, to a total of 500,000 shares. As of April 12, 1999, a
total of 74,471 shares remain available for future purchases, without giving
effect to the proposed amendment.
Because benefits under the Purchase Plan will depend on employees'
elections to participate and the fair market value of Power Integrations' common
stock at various future dates, it is not possible to determine the dollar value
of benefits that will be received by executive officers and other employees if
the proposed amendment to the Purchase Plan is approved by the stockholders.
Nonemployee directors are not eligible to participate in the Purchase Plan.
The stockholders are now being asked to approve the increase in the share
reserve of the Purchase Plan by 250,000 shares. The board believes that the
amendment is in the best interests of Power Integrations and its stockholders
because the availability of an adequate reserve of shares available for issuance
under the Purchase Plan will enable Power Integrations to continue to attract,
motivate and retain valued employees.
Summary of the provisions of the Purchase Plan
The following summary of the Purchase Plan is qualified in its entirety by
the specific language of the Purchase Plan, a copy of which is available to any
stockholder upon request.
General. The Purchase Plan is intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Each participant in the Purchase
Plan is granted at the beginning of each offering under the plan the right to
purchase through accumulated payroll deductions up to a number of shares of our
common stock determined on the first day of the offering. This right to
purchase stock is automatically exercised on the last day of each purchase
period within the offering unless the participant has withdrawn from
participation in the offering or in the Purchase Plan prior to that date.
Shares subject to the Purchase Plan. A maximum of 250,000 of our
authorized but unissued or reacquired shares of common stock may be issued under
the Purchase Plan, subject to appropriate adjustment in the event of a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in our capital structure or in the event of
any merger, sale of assets or other reorganization of Power Integrations. If
any right to purchase stock expires or terminates, the shares subject to the
unexercised portion of that right will again be available for issuance under the
Purchase Plan.
Administration. The Purchase Plan is administered by the board. Subject
to the provisions of the Purchase Plan, the board determines the terms and
conditions of the rights to purchase stock granted under the plan. The board
will interpret the Purchase Plan and the rights granted thereunder, and all
determinations of the board will be final and binding on all persons having an
interest in the Purchase Plan or any rights to buy stock under the Purchase
Plan. The Purchase Plan provides, subject to certain limitations, that Power
Integrations will indemnify any director, officer or employee against all
reasonable expenses, including attorney's fees, incurred in connection with any
legal action arising from that person's action or failure to act in
administering the plan.
Eligibility. Any employee of Power Integrations or of any present or
future parent or subsidiary corporation of Power Integrations designated by the
board for inclusion in the Purchase Plan is eligible to
8
participate in an offering to purchase stock under the Purchase Plan so long as
the employee is customarily employed for at least 20 hours per week and 5 months
per calendar year. However, no employee who owns or holds options to purchase,
or as a result of participation in the Purchase Plan would own or hold options
to purchase, five percent or more of the total combined voting power or value of
all classes of stock of Power Integrations or of any parent or subsidiary
corporation of Power Integrations is entitled to participate in the Purchase
Plan.
Offerings. Generally, each offering of common stock under the Purchase
Plan is for a period of twenty-four months. Offering periods under the Purchase
Plan are overlapping, with a new offering period beginning every six months.
However, employees may only participate in one offering at a time. Offering
periods will generally commence on the first days of February and August of each
year and end on the last days of the second following January and July,
respectively. However, the first offering period commenced on December 12,
1997, the effective date of the Company's registration of its common stock with
the Securities and Exchange Commission (the "Effective Date") and will end on
January 31, 2000. Each offering period will generally be comprised of four six-
month purchase periods, although the first purchase period of the first offering
period commenced on the Effective Date and ended on July 31, 1998. Shares are
purchased on the last day of each purchase period. The Board may establish a
different term for one or more offerings or purchase periods or different
commencement or ending dates for an offering or a purchase period.
Participation and purchase of shares. Participation in the Purchase Plan
is limited to eligible employees who authorize payroll deductions prior to the
start of an offering period. Payroll deductions may not exceed 15% (or such
other rate as the board determines) of an employee's compensation for any pay
period during the offering period. Once an employee becomes a participant in
the Purchase Plan, that employee will automatically participate in each
successive offering period until such time as that employee withdraws from the
Purchase Plan, becomes ineligible to participate in the Purchase Plan, or
terminates employment.
Subject to certain limitations, each participant in an offering has a
purchase right equal to the lesser of that number of whole shares determined by
dividing $50,000 by the fair market value of a share of common stock on the
first day of the offering period or 5,000 shares, provided that these dollar and
share amounts will be prorated for any offering period that is other than 24
months in duration. No participant may purchase under the Purchase Plan shares
of Power Integrations' common stock having a fair market value exceeding $25,000
in any calendar year. This dollar amount is measured using the fair market
value of Power Integrations' common stock on the first day of the offering
period in which the shares are purchased.
At the end of each purchase period, Power Integrations issues to each
participant the number of shares of common stock determined by dividing the
amount of payroll deductions accumulated for the participant during that
purchase period by the purchase price, limited in any case by the number of
shares subject to the participant's Purchase Right for that Offering. The price
per share at which shares are sold at the end of a purchase period generally
equals 85% of the lesser of the fair market value per share of Power
Integrations' common stock on the first day of the offering period or the
purchase date. The fair market value of the common stock on any relevant date
generally will be the closing price per share on such date as reported on the
Nasdaq National Market. Any payroll deductions under the Purchase Plan not
applied to the purchase of shares will be returned to the participant, unless
the amount remaining is less than the amount necessary to purchase a whole share
of common stock, in which case the remaining amount may be applied to the next
purchase period or offering period.
A participant may withdraw from an offering at any time without affecting
his or her eligibility to participate in future offerings. However, once a
participant withdraws from an offering, that participant may not again
participate in the same offering.
Change in control. The Purchase Plan provides that in the event of a
change in control, the acquiring or successor corporation may assume Power
Integrations' rights and obligations under the Purchase Plan or substitute
substantially equivalent purchase rights for such corporation's stock. If the
acquiring or successor corporation elects not to assume or substitute for the
outstanding purchase rights, the board may adjust the last day of the offering
period to a date on or before the date of the change in control. Any purchase
rights that are not assumed, substituted for, or exercised prior to the change
in control will terminate.
9
Termination or amendment. The Purchase Plan will continue until terminated
by the Board or until all of the shares reserved for issuance under the plan
have been issued. The board may at any time amend or terminate the Purchase
Plan. However, the approval of Power Integrations' stockholders is required
within twelve months of the adoption of any amendment that increases the number
of shares authorized for issuance under the Purchase Plan or changes the
definition of the corporations which may be designated by the board as
corporations whose employees may participate in the Purchase Plan.
Summary of federal income tax consequences of the Purchase Plan
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
Purchase Plan and does not attempt to describe all possible federal or other tax
consequences of such participation or tax consequences based on particular
circumstances.
A participant recognizes no taxable income either as a result of commencing
to participate in the Purchase Plan or purchasing shares of the common stock
under the terms of the Purchase Plan.
If a participant disposes of shares purchased under the Purchase Plan
within two years from the first day of the applicable offering period or within
one year from the purchase date, known as a disqualifying disposition, the
participant will realize ordinary income in the year of such disposition equal
to the amount by which the fair market value of the shares on the purchase date
exceeds the purchase price. The amount of the ordinary income will be added to
the participant's basis in the shares, and any additional gain or resulting loss
recognized on the disposition of the shares will be a capital gain or loss. A
capital gain or loss will be long-term if the participant's holding period is
more than twelve months.
If the participant disposes of shares purchased under the Purchase Plan at
least two years after the first day of the applicable offering period and at
least one year after the purchase date, the participant will realize ordinary
income in the year of disposition equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition over the purchase
price or (ii) 15% of the fair market value of the shares on the first day of the
applicable offering period. The amount of any ordinary income will be added to
the participant's basis in the shares, and any additional gain recognized upon
the disposition after such basis adjustment will be a long-term capital gain.
If the fair market value of the shares on the date of disposition is less than
the purchase price, there will be no ordinary income and any loss recognized
will be a long-term capital loss.
If the participant still owns the shares at the time of death, the lesser
of the excess of the fair market value of the shares on the date of death over
the purchase price or 15% of the fair market value of the shares on the first
day of the offering period in which the shares were purchased will constitute
ordinary income in the year of death.
Power Integrations should be entitled to a deduction in the year of a
disqualifying disposition equal to the amount of ordinary income recognized by
the participant as a result of the disposition, except to the extent such
deduction is limited by applicable provisions of the Code or the regulations
thereunder. In all other cases, no deduction is allowed to Power Integrations.
Vote required and board of directors' recommendation
The affirmative vote of a majority of the votes cast on the proposal at the
annual meeting of stockholders, at which a quorum representing a majority of all
outstanding shares of Power Integrations common stock is present, either in
person or by proxy, is required for approval of this proposal. Votes for and
against, abstentions and broker non-votes will each be counted as present for
purposes of determining the presence of a quorum. However, abstentions and
broker non-votes will have no effect on the outcome of this vote.
The board of directors believes that approval of the increase in the
Employee Stock Purchase Plan share reserve is in the best interests of Power
Integrations and its stockholders. THEREFORE, FOR THE REASONS STATED ABOVE, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF AN INCREASE
IN THE EMPLOYEE STOCK PURCHASE PLAN SHARE RESERVE.
10
PROPOSAL NUMBER FOUR
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, 1999. 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, 1999.
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of February 12,
1999, 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 five other highest compensated
executive officers of Power Integrations whose salary and bonus for the
year ended December 31, 1998 exceeded $100,000, also referred to as the
"Named Executive Officers," and
. all executive officers and directors of Power Integrations as a group.
Name and address of beneficial owners Shares owned(1)
- ------------------------------------------------------------------------- ------------------------------------
Number of
shares Percentage
--------------- -------------
5% Stockholders
Driehaus Capital Management, Inc.
25 East Erie Street
Chicago, Illinois 60611............................................... 883,128 (2) 6.93%
Executive officers and directors
Howard F. Earhart(3).................................................. 367,561 2.88%
Balu Balakrishnan(4).................................................. 248,968 1.96%
Clements E. Pausa..................................................... 62,390 *
Vladimir Rumennik(5).................................................. 179,323 1.41%
Daniel M. Selleck(6).................................................. 134,560 1.06%
Robert G. Staples(7).................................................. 103,006 *
Clifford J. Walker(8)................................................. 83,462 *
Dr. Edward C. Ross(9)................................................. 166,132 1.30%
Dr. William Davidow(10)............................................... 149,931 1.18%
E. Floyd Kvamme(11)................................................... 72,987 *
Steven J. Sharp(12)................................................... 34,313 *
All executive officers and directors as a group (11 persons)(13)...... 1,602,633 12.21%
- -----------------------
* 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. Percentages are based on. 12,646,428 shares of common stock
outstanding on February 12, 1999.
(2) Driehaus Capital Management, Inc. has sole voting power with respect to
370,122 shares.
12
(3) Includes 87,647 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 132,942 shares issuable
upon exercise of options.
(4) Includes 36,246 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 30,000 shares issuable
upon exercise of options.
(5) Includes 28,204 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 79,082 shares issuable
upon exercise of options.
(6) Includes 29,061 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 39,058 shares issuable
upon exercise of options.
(7) Includes 29,641 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 43,382 shares issuable
upon exercise of options.
(8) Includes 28,219 shares subject to a right of repurchase in favor of Power
Integrations which lapses over time. Also includes 38,419 shares issuable
upon exercise of options.
(9) Includes 92,490 shares issuable upon exercise of options. Dr. Ross
resigned from the board of directors on April 21, 1999.
(10) Includes 6,667 shares issuable upon exercise of options.
(11) Includes 6,667 shares issuable upon exercise of options.
(12) Includes 2,117 shares held by Sutro & Co. Keough Custodian FBO Steven
Sharp. Also includes 6,667 shares issuable upon exercise of options.
(13) See footnotes 3 through 12. Includes 239,018 shares subject to rights of
repurchase in favor of Power Integrations which lapse over time, and
480,337 shares issuable upon exercise of options. Does not include 15,000
shares issuable upon exercise of options granted to Mr. Alan D. Bickell on
April 21, 1999, the date Mr. Bickell joined the board of directors.
13
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, 1998, 1997 and 1996:
Summary Compensation Table
Long term
compensation
Annual Compensation awards
-------------------------------- -------------------
No. of securities
underlying All
Name and principal position Year Salary(1) Bonus(1) options other compensation(2)
- ------------------------------------------- ----- --------- ---------- ------------------- --------------------
Howard F. Earhart.......................... 1998 $210,000 $190,800 50,000 $737
President and Chief Executive Officer 1997 $180,000 $237,600 73,529 $660
1996 $180,000 $120,000 -0- $536
Clements E. Pausa.......................... 1998 $180,000 $127,200 -0- $737
Vice President, Operations (3) 1997 $ 86,671 $ 63,334 77,205 $330
1996 $ 0 $ 0 -0- $ 0
Balu Balakrishnan.......................... 1998 $175,000 $111,300 30,000 $737
Vice President, Engineering and New 1997 $155,000 $147,600 22,058 $660
Business Development 1996 $155,000 $ 77,500 -0- $536
Vladimir Rumennik.......................... 1998 $165,000 $ 95,400 25,000 $737
Vice President, Technology 1997 $145,000 $118,500 22,058 $660
Development 1996 $145,000 $ 60,000 7,352 $536
Daniel M. Selleck.......................... 1998 $160,000 $111,300 25,000 $737
Vice President, Worldwide Sales 1997 $140,000 $138,000 22,058 $660
1996 $140,000 $ 72,000 22,058 $536
Robert G. Staples.......................... 1998 $140,000 $ 95,400 25,000 $737
Chief Financial Officer, Vice President, 1997 $120,000 $118,000 14,705 $660
Finance and Administration and Secretary 1996 $120,000 $ 48,000 18,382 $536
Clifford J. Walker......................... 1998 $140,000 $ 95,400 25,000 $737
Vice President, Corporate Development 1997 $120,000 $118,000 25,735 $660
1996 $120,000 $ 48,000 18,382 $536
- -----------------------
(1) Amounts shown are on a full year basis and include cash and noncash
compensation earned by executive officers.
(2) Represents premiums paid by Power Integrations for life insurance coverage.
(3) Mr. Pausa joined Power Integrations on June 16, 1997.
14
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, 1998 to the Named Executive Officers:
Individual grants in fiscal 1998
Potential realizable value
% of total at assumed annual rates
options of stock price
granted to appreciation for
employees option term(4)
Options in fiscal Exercise Expiration ---------------------------
Name granted(1) year(2) price(3) date 5% 10%
- --------------------------- ------------ ------------- ----------- ------------ ---------- -----------
Howard F. Earhart.......... 50,000 7.59% $8.75 7/2/08 $275,141 $697,262
Balu Balakrishnan.......... 30,000 4.55% $8.75 7/2/08 $165,085 $418,357
Clements E. Pausa.......... -0- 0% N/A N/A N/A N/A
Vladimir Rumennik.......... 25,000 3.79% $8.75 7/2/08 $137,571 $348,631
Daniel M Selleck........... 25,000 3.79% $8.75 7/2/08 $137,571 $348,631
Robert G. Staples.......... 25,000 3.79% $8.75 7/2/08 $137,571 $348,631
Clifford J. Walker......... 25,000 3.79% $8.75 7/2/08 $137,571 $348,631
- -----------------------
(1) Options granted in fiscal 1998 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" and
"Proposal Number Three -- Increase in Number of Shares Reserved for
Issuance Pursuant to the 1997 Employee Stock Purchase Plan" for a
description of the material payment terms of the options.
(2) Based on a total of 658,650 options granted to all employees and
consultants during fiscal 1998.
(3) All options were granted at an exercise price equal to the fair market
value of Power Integrations' stock on July 2, 1998.
(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.
15
AGGREGATE OPTION EXERCISES FOR FISCAL 1998 AND FISCAL 1998 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, 1998, and unexercised options held as of December 31, 1998, by the
Named Executive Officers:
Aggregated option exercises
and fiscal year-end values
Number of securities
underlying unexercised Value of unexercised in-the-
Shares options at 12/31/98 money options at 12/31/98(1)
acquired on Value ------------------------- ------------------------------
Name exercise realized(2) Vested Unvested Vested Unvested
- --------------------------- ------------- -------------- ---------- ------------ -------------- --------------
Howard F. Earhart......... 30,000 $432,200 41,765 71,177 $1,046,735 $1,783,874
Balu Balakrishnan......... 0 $ 0 0 30,000 $ 0 $ 751,875
Clements E. Pausa......... 0 $ 0 0 0 $ 0 $ 0
Vladimir Rumennik......... 0 $ 0 25,874 53,208 $ 648,467 $1,333,526
Daniel M. Selleck......... 11,900 $128,826 893 34,265 $ 22,381 $ 858,767
Robert G. Staples......... 0 $ 0 10,661 32,721 $ 267,191 $ 820,070
Clifford J. Walker........ 0 $ 0 10,661 32,721 $ 267,191 $ 820,070
- --------------------------
(1) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1998 of $25.0625 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 1998 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.
16
Compensation of directors
Directors of Power Integrations do not receive cash for services provided
as a director. 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 1998, Messrs. Kvamme and Sharp, and Drs. Davidow and Ross were each
granted an option to purchase up to 5,000 shares of Power Integrations common
stock under this plan. Mr. Bickell was granted an option to purchase up to
15,000 shares of Power Integrations common stock under this plan when he joined
Power Integrations in April 1999.
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 Dr. Davidow, Mr. Kvamme and Mr.
Bickell. No interlocking relationships exist between any member of our
compensation committee and any member of any other company's board of directors
or compensation committee. The compensation committee makes recommendations
regarding our employee stock plans and makes decisions concerning salaries and
bonus compensation for executive officers of Power Integrations.
Certain relationships and related transactions
Since January 1998, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which Power Integrations
was or is to be a party in which the amount involved exceeds $60,000, and in
which any director, executive officer or holder of more than 5% any class of
voting securities of Power Integrations and members of such person's immediate
family had or will have a direct or indirect material interest other than the
transactions described below.
On July 25, 1997, in connection with the purchase of common stock upon
exercise of stock options granted to Howard F. Earhart, Power Integrations
loaned to Mr. Earhart, a director and our Chief Executive Officer, $125,000, at
an interest rate of 6.65% pursuant to a Promissory Note and Pledge Agreement due
on July 25, 2002 or at Power Integrations' option upon:
. termination of Mr. Earhart's employment with Power Integrations,
. a default in the payment of any installment or principal and/or interest
when due,
. a sale of the Pledged Stock, as defined below, or
. acceleration being reasonably necessary for Power Integrations to comply
with any regulations promulgated by the Board of Governors of the
Federal Reserve System affecting the extension of credit in connection
with Power Integrations' securities.
The loan is secured by 73,529 shares of common stock (the "Pledged Stock").
On July 28, 1997, in connection with the purchase of common stock upon
exercise of stock options granted to Clements Edward Pausa, our Vice PrePower
Integrations loaned to Mr. Pausa $131,250, at an interest rate of 6.65% pursuant
to a Promissory Note and Pledge Agreement due on July 28, 2002 or at Power
Integrations' option upon:
. the termination of Mr. Pausa's employment with Power Integrations,
17
. a default in the payment of any installment or principal and/or interest
when due,
. a sale of the Pledged Stock, as defined below or,
. acceleration being reasonably necessary for Power Integrations to comply
with any regulations promulgated by the Board of Governors of the
Federal Reserve System affecting the extension of credit in connection
with Power Integrations' securities.
The loan was secured by 77,205 shares of common stock (the "Pledged
Stock"). Mr. Pausa repaid the loan on November 3, 1998.
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
1998, except that each of the following executive officers or members of our
board of directors filed one late Form 4, a Statement of Changes in Beneficial
Ownership, for the month and the number of transactions given after each
person's name:
. Balu Balakrishan, three transactions in the month of August;
. Howard F. Earhart, five transactions in the month of August;
. Dr. Edward C. Ross, one transaction in the month of July;
. Vladimir Rummenik, two transactions in the month of August;
. Daniel Selleck, nine transactions in the month of August;
. Steven J. Sharp, one transaction in the month of June;
. Robert G. Staples, two transactions in the month of August; and
. Clifford Walker, two transactions in the month of August.
18
NEW PLAN BENEFITS
The following table sets forth grants of stock options received under the
1997 Plan and shares purchased pursuant to the Purchase Plan during the fiscal
year ended December 31, 1998 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.
1997 Plan (1) Purchase Plan (1)
--------------------------------------- -----------------------------------
Name and position Exercise price No. of shares Exercise price No. of shares
- -------------------------------------------- ------------------ ---------------- ----------------- ---------------
Howard F. Earhart......................... $ 8.75 50,000 $6.80 2,048
President and Chief Executive Officer
Balu Balakrishnan......................... $ 8.75 30,000 $6.80 3,818
Vice President, Engineering and New
Business Development
Clements E. Pausa......................... N/A 0 $6.80 1,796
Vice President, Operations
Vladimir Rumennik......................... $ 8.75 25,000 $6.80 3,809
Vice President, Technology
Development
Daniel M. Selleck......................... $ 8.75 25,000 $6.80 3,445
Vice President, Worldwide Sales
Robert G. Staples......................... $ 8.75 25,000 $6.80 1,758
Chief Financial Officer, Vice President,
Finance and Administration and
Secretary
Clifford J. Walker........................ $ 8.75 25,000 $6.80 2,968
Vice President, Corporate
Development
Executive group (7 persons)............... $ 8.75 180,000 $6.80 19,642
Non-executive director group (4 persons).. N/A 0 N/A 0
Non-executive officer employee group...... $11.118(2) 105,000 $6.80 71,111
- -----------------------
(1) Only employees are eligible to participate in the 1997 Plan and the
Purchase Plan.
(2) Average exercise price of options granted to non-executive officer
employees under the 1997 Plan.
19
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
On December 31, 1998, Dr. William Davidow, E. Floyd Kvamme and Dr. Edward
C. Ross were members of the compensation committee. Dr. Ross resigned from the
board of directors and the compensation committee effective as of April 21,
1999. The vacancy created by Dr. Ross' resignation was filled by Mr. Alan D.
Bickell. Each member of the compensation committee is a non-employee member of
our board of directors. For fiscal year ended 1998, all decisions concerning
executive compensation were made by the compensation committee as constituted on
December 31, 1998. This committee is responsible for setting and administering
the policies governing annual compensation of the executive officers of Power
Integrations. The compensation committee reviews the President's
recommendations regarding the performance and compensation levels for executive
officers other than Power Integrations' President and Chief Executive Officer.
Overview
The goals of Power Integrations' executive officer compensation policies
are to attract, retain and reward executive officers who contribute to our
success, to align executive officer compensation with Power Integrations'
performance and to motivate executive officers to achieve Power Integrations'
business objectives. Power Integrations uses salary, bonus compensation and
option grants to attain these goals. The compensation committee reviews
compensation surveys and other data to enable the committee to compare Power
Integrations' compensation package with that of similarly-sized high technology
companies in Power Integrations' geographic area.
Salary
Base salaries of executive officers are reviewed annually, and if deemed
appropriate, adjustments are made based on individual executive officer
performance, scope of responsibilities and levels paid by similarly-sized high
technology companies in Power Integrations' geographic area. Commencing with the
1999 fiscal year, in determining the salaries of the executive officers, the
compensation committee will consider 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 1998, the President and Chief
20
Executive Officer recommended to the board of directors, and the board of
directors approved, stock option grants under the 1997 Plan to certain of the
executive officers.
Compensation of Chief Executive Officer
Howard F. Earhart has served as the President and Chief Executive Officer
of Power Integrations since January 1995. The compensation committee set Mr.
Earhart's fiscal 1998 compensation, including a base salary of $210,000, in
fiscal 1997. 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 1998 was $190,800. In addition, the
board of directors granted Mr. Earhart options to purchase 50,000 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 1998 COMPENSATION COMMITTEE
Dr. William Davidow
E. Floyd Kvamme
Dr. Edward C. Ross
21
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 Hambrecht & Quist Technology Index
("H&Q Index") for the period commencing on December 12, 1997 and ending on
December 31, 1998.(1)
Comparison of cumulative total return from December 12, 1997 through December
31, 1998
Power Integrations, Inc., Nasdaq Stock Market - US Index and Hambrecht & Quist
Technology Index
[ COMPARISON CHART HERE ]
December 12, 1997 December 31, 1997 December 31, 1998
---------------------- ---------------------- ----------------------
Power Integrations, Inc. $100.00 $116.00 $308.46
Nasdaq US $100.00 $102.32 $144.18
H&Q Index $100.00 $101.47 $156.93
- -----------------------
(1) Assumes that $100.00 was invested on December 12, 1997 in Power
Integrations' common stock at the closing price of $8.00 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.
22
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of the stockholders of the Company must be received by the Company at
its offices at 477 N. Mathilda Avenue, Sunnyvale, California 94086, not later
than December 23, 1999, and satisfy the conditions established by the Securities
and Exchange Commission for stockholder proposals to be included in Power
Integrations' proxy statement for that meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this proxy statement, the only business which the board of
directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By order of the board of directors
/s/ Robert G. Staples
Robert G. Staples
Secretary
April 21, 1999
23
APPENDIX A
POWER INTEGRATIONS, INC.
1997 STOCK OPTION PLAN
POWER INTEGRATIONS, INC.
1997 STOCK OPTION PLAN
(As Amended Through June 3, 1999)
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; 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.
(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;
(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) Six Hundred Ninety-Three
Thousand Three Hundred Eighty-Two (693,382) 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 One Million Four Hundred Thirty-Eight Thousand Eight Hundred Forty-
Five (1,438,845) (the "Prior Plan Options"), resulting in an aggregate total of
Two Million One Hundred Thirty-Two Thousand Two Hundred Twenty-Seven
(2,132,227), 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 Two Million Seven Hundred
Thirty-Two Thousand Two Hundred Twenty-Seven (2,732,227) 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 Three Million Three Hundred Fifty-Two
Thousand Two Hundred Twenty-Seven (3,352,227) shares of Stock effective as of
January 1, 2000. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, in the ISO Share Issuance Limit set forth in Section 4.1,
the Section 162(m) Grant Limit set forth in Section 5.4 and to any outstanding
Options and in the exercise price per share of any outstanding Options. If a
majority of the shares which are of the same class as the shares that are
subject to outstanding Options are exchanged for, converted into, or otherwise
become (whether or not pursuant to an Ownership Change Event, as defined in
Section 8.1) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the outstanding Options to provide that such Options are
exercisable for New Shares. In the event of any such amendment, the number of
shares subject to, and the exercise price per share of, the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option. The adjustments determined by
the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. Eligibility and Option Limitations.
----------------------------------
5.1 Persons Eligible for Options. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
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 two hundred thousand (200,000) shares of Stock
(the "Section 162(m) Grant Limit"). An Option which is canceled in the same
fiscal year of the Company in which it was granted shall continue to be counted
against the Section 162(m) Grant Limit for such period.
6. Terms and Conditions of Options.
-------------------------------
Options shall be evidenced by Option Agreements specifying the number
of shares of Stock covered thereby, in such form as the Board shall from time to
time establish. No Option or purported Option shall be a valid and binding
obligation of the Company unless evidenced by a fully executed Option Agreement.
Option Agreements may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock 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.
(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
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Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer or shorter period of time as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "Option Expiration Date").
(ii) Death. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer or shorter period of time as determined by the Board, in
its sole discretion) after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date. The Optionee's
Service shall be deemed to have terminated on account of death if the Optionee
dies within three (3) months after the Optionee's termination of Service.
(iii) Other Termination of Service. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within three (3) months (or such longer or shorter
period of time as determined by the Board, in its sole discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.6(a) is prevented by the provisions of Section 12 below, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. Standard Forms of Option Agreement.
----------------------------------
7.1 Incentive Stock Options. Unless otherwise provided by the Board
at the time the Option is granted, an Option designated as an "Incentive Stock
Option" shall comply with and be subject to the terms and conditions set forth
in the form of Immediately Exercisable Incentive Stock Option Agreement adopted
by the Board concurrently with its adoption of the Plan and as amended from time
to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "Nonstatutory
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Immediately Exercisable Nonstatutory Stock Option Agreement
adopted by the Board concurrently with its adoption of the Plan and as amended
from time to time.
7.3 Standard Term of Options. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
7.4 Authority to Vary Terms. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are not immediately
exercisable.
8. Change in Control.
-----------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(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.
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.
APPENDIX B
POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
POWER INTEGRATIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
(As Amended Through June 3, 1999)
1. Establishment, Purpose and Term of Plan.
---------------------------------------
1.1 Establishment. The Power Integrations, Inc. 1997 Employee
Stock Purchase Plan (the "Plan") is hereby established effective as of the
effective date of the initial registration by the Company of its Stock under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Effective
Date").
1.2 Purpose. The purpose of the Plan is to advance the interests
of Company and its stockholders by providing an incentive to attract, retain
and reward Eligible Employees of the Participating Company Group and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group. The Plan provides such Eligible Employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of Stock. The Company intends that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code (including any amendments
or replacements of such section), and the Plan shall be so construed.
1.3 Term of Plan. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. Definitions and Construction.
----------------------------
2.1 Definitions. Any term not expressly defined in the Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. Whenever used herein, the following terms shall have their respective
meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the
Plan, "Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "Committee" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified
by the Board. Unless the powers of the Committee have been specifically
limited, the Committee shall have all of the powers of the Board granted
herein, including, without limitation, the power to amend or terminate the
Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law.
(d) "Company" means Power Integrations, Inc., a Delaware
corporation, or any successor corporation thereto.
(e) "Compensation" means, with respect to any Offering
Period, base wages or salary, commissions, overtime, bonuses, annual awards,
other incentive payments, shift premiums, and all other compensation paid in
cash during such Offering Period before deduction for any contributions to any
plan maintained by a Participating Company and described in Section 401(k) or
Section 125 of the Code. Compensation shall not include reimbursements of
expenses, allowances, long-term disability, workers' compensation or any
amount deemed received without the actual transfer of cash or any amounts
directly or indirectly paid pursuant to the Plan or any other stock purchase
or stock option plan, or any other compensation not included above.
(f) "Eligible Employee" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the
Plan.
(g) "Employee" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while such individual is
on any military leave, sick leave, or other bona fide leave of absence
approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall
be deemed to have ceased to be an Employee on the ninety-first (91st) day of
such leave unless the individual's right to reemployment with the
Participating Company Group is guaranteed either by statute or by contract.
The Company shall determine in good faith and in the exercise of its
discretion whether an individual has become or has ceased to be an Employee
and the effective date of such individual's employment or termination of
employment, as the case may be. For purposes of an individual's participation
in or other rights, if any, under the Plan as of the time of the Company's
determination, all such determinations by the Company shall be final, binding
and conclusive, notwithstanding that the Company or any governmental agency
subsequently makes a contrary determination.
(h) "Fair Market Value" means, as of any date, if there is
then a public market for the Stock, the closing price of a share of Stock (or
the mean of the closing bid and asked prices if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market
or such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
---------------
Journal or such other source as the Company deems reliable. If the relevant
- -------
date does not fall on a day on which the Stock has traded on such securities
exchange or market system, the date on which the Fair Market Value shall be
established shall be the last day on which the Stock was so traded prior to
the relevant date, or such other appropriate day as shall be determined by the
Board, in its sole discretion. If there is then no public market for the
Stock, the Fair Market Value on any relevant date shall be as determined by
the Board. Notwithstanding the foregoing, the Fair Market Value per share of
Stock on the Effective Date shall be deemed to be the public offering
price set forth in the final prospectus filed with the Securities and Exchange
Commission in connection with the initial public offering of the Stock.
(i) "Offering" means an offering of Stock as provided in
Section 6.
(j) "Offering Date" means, for any Offering, the first day
of the Offering Period with respect to such Offering.
(k) "Offering Period" means a period established in
accordance with Section 6.1.
(l) "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "Participant" means an Eligible Employee who has become
a participant in an Offering Period in accordance with Section 7 and remains a
participant in accordance with the Plan.
(n) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation designated by the Board as a corporation
the Employees of which may, if Eligible Employees, participate in the Plan.
The Board shall have the sole and absolute discretion to determine from time
to time which Parent Corporations or Subsidiary Corporations shall be
Participating Companies.
(o) "Participating Company Group" means, at any point in
time, the Company and all other corporations collectively which are then
Participating Companies.
(p) "Purchase Date" means, for any Purchase Period, the
last day of such period.
(q) "Purchase Period" means a period established in
accordance with Section 6.2.
(r) "Purchase Price" means the price at which a share of
Stock may be purchased under the Plan, as determined in accordance with
Section 9.
(s) "Purchase Right" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided
in Section 8, which the Participant may or may not exercise during the
Offering Period in which such option is outstanding. Such option arises from
the right of a Participant to withdraw any accumulated payroll deductions of
the Participant not previously applied to the purchase of Stock under the Plan
and to terminate participation in the Plan at any time during an Offering
Period.
(t) "Stock" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(u) "Subscription Agreement" means a written agreement in
such form as specified by the Company, stating an Employee's election to
participate in the Plan and authorizing payroll deductions under the Plan from
the Employee's Compensation.
(v) "Subscription Date" means the last business day prior
to the Offering Date of an Offering Period or such earlier date as the Company
shall establish.
(w) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context
clearly requires otherwise.
3. Administration.
--------------
3.1 Administration by the Board. The Plan shall be administered
by the Board. All questions of interpretation of the Plan, of any form of
agreement or other document employed by the Company in the administration of
the Plan, or of any Purchase Right shall be determined by the Board and shall
be final and binding upon all persons having an interest in the Plan or the
Purchase Right. Subject to the provisions of the Plan, the Board shall
determine all of the relevant terms and conditions of Purchase Rights granted
pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any officer of the Company shall have
the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election that is the responsibility of or
that is allocated to the Company herein, provided that the officer has
apparent authority with respect to such matter, right, obligation,
determination or election.
3.3 Policies and Procedures Established by the Company. The
Company may, from time to time, consistent with the Plan and the requirements
of Section 423 of the Code, establish, change or terminate such rules,
guidelines, policies, procedures, limitations, or adjustments as deemed
advisable by the Company, in its sole discretion, for the proper
administration of the Plan, including, without limitation, (a) a minimum
payroll deduction amount required for participation in an Offering, (b) a
limitation on the frequency or number of changes permitted in the rate of
payroll deduction during an Offering, (c) an exchange ratio applicable to
amounts withheld in a currency other than United States dollars, (d) a payroll
deduction greater than or less than the amount designated by a Participant in
order to adjust for the Company's delay or mistake in processing a
Subscription Agreement or in otherwise
effecting a Participant's election under the Plan or as advisable to comply
with the requirements of Section 423 of the Code, and (e) determination of the
date and manner by which the Fair Market Value of a share of Stock is
determined for purposes of administration of the Plan.
4. Shares Subject to Plan.
----------------------
4.1 Maximum Number of Shares Issuable. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be five hundred thousand (500,000) and
shall consist of authorized but unissued or reacquired shares of Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires
or is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 Adjustments for Changes in Capital Structure. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of
the Company, or in the event of any merger (including a merger effected for
the purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall
be made in the number and class of shares subject to the Plan and each
Purchase Right and in the Purchase Price. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Purchase
Rights are exchanged for, converted into, or otherwise become (whether or not
pursuant to an Ownership Change Event) shares of another corporation (the "New
Shares"), the Board may unilaterally amend the outstanding Purchase Rights to
provide that such Purchase Rights are exercisable for New Shares. In the event
of any such amendment, the number of shares subject to, and the Purchase Price
of, the outstanding Purchase Rights shall be adjusted in a fair and equitable
manner, as determined by the Board, in its sole discretion. Notwithstanding
the foregoing, any fractional share resulting from an adjustment pursuant to
this Section 4.2 shall be rounded down to the nearest whole number, and in no
event may the Purchase Price be decreased to an amount less than the par
value, if any, of the stock subject to the Purchase Right. The adjustments
determined by the Board pursuant to this Section 4.2 shall be final, binding
and conclusive.
5. Eligibility.
-----------
5.1 Employees Eligible to Participate. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be
deemed an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
5.2 Exclusion of Certain Stockholders. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation
or Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.
6. Offerings.
---------
6.1 Offering Periods. Except as otherwise set forth below, the
Plan shall be implemented by sequential Offerings of approximately twenty-four
(24) months duration (an "Offering Period"); provided, however, that the first
Offering Period shall commence on the Effective Date and end on January 31,
2000 (the "Initial Offering Period"). Subsequent Offerings shall commence on
the first day of February and August of each year and end on the last day of
the second January and July, respectively, occurring thereafter.
Notwithstanding the foregoing, the Board may establish a different duration
for one or more future Offering Periods or different commencing or ending
dates for such Offering Periods; provided, however, that no Offering Period
may have a duration exceeding twenty-seven (27) months. If the first or last
day of an Offering Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall
specify the trading day that will be deemed the first or last day, as the case
may be, of the Offering Period.
6.2 Purchase Periods. Each Offering Period shall consist of four
(4) consecutive Purchase Periods of approximately six (6) months duration, or
such other number or duration as the Board shall determine. The Purchase
Period commencing on the Offering Date of the Initial Offering Period shall
end on July 31, 1998. A Purchase Period commencing on or about February 1
shall end on or about the next July 31. A Purchase Period commencing on or
about August 1 shall end on or about the next January 31. Notwithstanding the
foregoing, the Board may establish a different duration for one or more future
Purchase Periods or different commencing or ending dates for such Purchase
Periods. If the first or last day of a Purchase Period is not a day on which
the national securities exchanges or Nasdaq Stock Market are open for trading,
the Company shall specify the trading day that will be deemed the first or
last day, as the case may be, of the Purchase Period.
7. Participation in the Plan.
-------------------------
7.1 Initial Participation. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the office designated by the Company not later than
the close of business for such office on the Subscription Date established by
the Company for such Offering Period. An Eligible Employee who does not
deliver a properly completed Subscription Agreement to the Company's
designated office on or before the Subscription Date for an Offering Period
shall not participate in the Plan for that Offering Period or for any
subsequent Offering Period unless such Eligible Employee
subsequently delivers a properly completed Subscription Agreement to the
appropriate office of the Company on or before the Subscription Date for such
subsequent Offering Period. An Employee who becomes an Eligible Employee after
the Offering Date of an Offering Period shall not be eligible to participate
in such Offering Period but may participate in any subsequent Offering Period
provided such Employee is still an Eligible Employee as of the Offering Date
of such subsequent Offering Period.
7.2 Continued Participation. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering
Date of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 12.1 or (b) terminated employment as provided in Section
13. A Participant who may automatically participate in a subsequent Offering
Period, as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new
Subscription Agreement for a subsequent Offering Period in accordance with the
procedures set forth in Section 7.1 if the Participant desires to change any
of the elections contained in the Participant's then effective Subscription
Agreement. Eligible Employees may not participate simultaneously in more than
one Offering.
8. Right to Purchase Shares.
------------------------
8.1 Grant of Purchase Right. Except as set forth below, on the
Offering Date of each Offering Period, each Participant in such Offering
Period shall be granted automatically a Purchase Right consisting of an option
to purchase the lesser of (a) that number of whole shares of Stock determined
by dividing Fifty Thousand Dollars ($50,000) by the Fair Market Value of a
share of Stock on such Offering Date or (b) five thousand (5,000) shares of
Stock. No Purchase Right shall be granted on an Offering Date to any person
who is not, on such Offering Date, an Eligible Employee.
8.2 Pro Rata Adjustment of Purchase Right. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period of any
duration other than twenty-four months, then (a) the dollar amount in Section
8.1 shall be determined by multiplying $2,083.33 by the number of months
(rounded to the nearest whole month) in the Offering Period and rounding to
the nearest whole dollar, and (b) the share amount in Section 8.1 shall be
determined by multiplying 208.33 shares by the number of months (rounded to
the nearest whole month) in the Offering Period and rounding to the nearest
whole share.
8.3 Calendar Year Purchase Limitation. Notwithstanding any
provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock
under the Plan to accrue at a rate which, when aggregated with such
Participant's rights to purchase shares under all other employee stock
purchase plans of a Participating Company intended to meet the requirements of
Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in
Fair Market Value (or such other limit, if any, as may be imposed by the Code)
for each calendar year in which such Purchase Right is outstanding
at any time. For purposes of the preceding sentence, the Fair Market Value of
shares purchased during a given Offering Period shall be determined as of the
Offering Date for such Offering Period. The limitation described in this
Section 8.3 shall be applied in conformance with applicable regulations under
Section 423(b)(8) of the Code.
9. Purchase Price.
--------------
The Purchase Price at which each share of Stock may be acquired in
an Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period
or (b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering
Period, the Purchase Price for that Offering Period shall be eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock
on the Offering Date of the Offering Period, or (b) the Fair Market Value of a
share of Stock on the Purchase Date.
10. Accumulation of Purchase Price through Payroll Deduction.
--------------------------------------------------------
Shares of Stock acquired pursuant to the exercise of all or any
portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period for which such Purchase Right was granted, subject to the following:
10.1 Amount of Payroll Deductions. Except as otherwise provided
herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period shall be determined by
the Participant's Subscription Agreement. The Subscription Agreement shall set
forth the percentage of the Participant's Compensation to be deducted on each
payday during an Offering Period in whole percentages of not less than one
percent (1%) (except as a result of an election pursuant to Section 10.3 to
stop payroll deductions made effective following the first payday during an
Offering) or more than fifteen percent (15%). Notwithstanding the foregoing,
the Board may change the limits on payroll deductions effective as of any
future Offering Date.
10.2 Commencement of Payroll Deductions. Payroll deductions
shall commence on the first payday following the Offering Date and shall
continue to the end of the Offering Period unless sooner altered or terminated
as provided herein.
10.3 Election to Change or Stop Payroll Deductions. During an
Offering Period, a Participant may elect to increase or decrease the rate of
or to stop deductions from his or her Compensation by delivering to the
Company's designated office an amended Subscription Agreement authorizing such
change on or before the "Change Notice Date." The "Change Notice Date" shall
be a date prior to the beginning of the first pay period for which such
election is to be effective as established by the Company from time to time
and announced to the Participants. A Participant who elects to decrease the
rate of his or her payroll deductions to zero
percent (0%) shall nevertheless remain a Participant in the current Offering
Period unless such Participant withdraws from the Plan as provided in Section
12.1.
10.4 Administrative Suspension of Payroll Deductions. The
Company may, in its sole discretion, suspend a Participant's payroll
deductions under the Plan as the Company deems advisable to avoid accumulating
payroll deductions in excess of the amount that could reasonably be
anticipated to purchase the maximum number of shares of Stock permitted during
a calendar year under the limit set forth in Section 8.3. Payroll deductions
shall be resumed at the rate specified in the Participant's then effective
Subscription Agreement at the beginning of the next Purchase Period the
Purchase Date of which falls in the following calendar year.
10.5 Participant Accounts. Individual bookkeeping accounts shall
be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan
account and shall be deposited with the general funds of the Company. All
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose.
10.6 No Interest Paid. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
10.7 Voluntary Withdrawal from Plan Account. A Participant may
withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company's designated office a written notice on a form
provided by the Company for such purpose. A Participant who withdraws the
entire remaining balance credited to his or her Plan account shall be deemed
to have withdrawn from the Plan in accordance with Section 12.1. Amounts
withdrawn shall be returned to the Participant as soon as practicable after
the withdrawal and may not be applied to the purchase of shares in any
Offering under the Plan. The Company may from time to time establish or change
limitations on the frequency of withdrawals permitted under this Section,
establish a minimum dollar amount that must be retained in the Participant's
Plan account, or terminate the withdrawal right provided by this Section.
11. Purchase of Shares.
------------------
11.1 Exercise of Purchase Right. On each Purchase Date of an
Offering Period, each Participant who has not withdrawn from the Plan and
whose participation in the Offering has not terminated before such Purchase
Date shall automatically acquire pursuant to the exercise of the Participant's
Purchase Right the number of whole shares of Stock determined by dividing (a)
the total amount of the Participant's payroll deductions accumulated in the
Participant's Plan account during the Offering Period and not previously
applied toward the purchase of Stock by (b) the Purchase Price. However, in no
event shall the number of shares purchased by the Participant during an
Offering Period exceed the number of shares subject to the Participant's
Purchase Right. No shares of Stock shall be purchased on a Purchase Date on
behalf of a Participant whose participation in the Offering or the Plan has
terminated before such Purchase Date.
11.2 Pro Rata Allocation of Shares. In the event that the number
of shares of Stock which might be purchased by all Participants in the Plan on
a Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
11.3 Delivery of Certificates. As soon as practicable after each
Purchase Date, the Company shall arrange the delivery to each Participant, as
appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of
the Participant. Shares to be delivered to a Participant under the Plan shall
be registered in the name of the Participant, or, if requested by the
Participant, in the name of the Participant and his or her spouse, or, if
applicable, in the names of the heirs of the Participant.
11.4 Return of Cash Balance. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to
the Participant as soon as practicable after such Purchase Date. However, if
the cash to be returned to a Participant pursuant to the preceding sentence is
an amount less than the amount that would have been necessary to purchase an
additional whole share of Stock on such Purchase Date, the Company may retain
such amount in the Participant's Plan account to be applied toward the
purchase of shares of Stock in the subsequent Purchase Period or Offering
Period, as the case may be.
11.5 Tax Withholding. At the time a Participant's Purchase Right
is exercised, in whole or in part, or at the time a Participant disposes of
some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount
necessary to meet such withholding obligations.
11.6 Expiration of Purchase Right. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the
Offering Period to which the Purchase Right relates shall expire immediately
upon the end of the Offering Period.
11.7 Reports to Participants. Each Participant who has exercised
all or part of his or her Purchase Right shall receive, as soon as practicable
after the Purchase Date, a report of such Participant's Plan account setting
forth the total payroll deductions accumulated prior to such exercise, the
number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after
such purchase that is to be refunded or retained in the Participant's Plan
account pursuant to Section 11.4. The report required by this Section may be
delivered in such form and by such means, including by electronic
transmission, as the Company may determine.
12. Withdrawal from Offering or Plan.
--------------------------------
12.1 Voluntary Withdrawal from the Plan. A Participant may
withdraw from the Plan by signing and delivering to the Company's designated
office a written notice of withdrawal on a form provided by the Company for
such purpose. Such withdrawal may be elected at any time prior to the end of
an Offering Period; provided, however, that if a Participant withdraws from
the Plan after the Purchase Date of a Purchase Period, the withdrawal shall
not affect shares of Stock acquired by the Participant on such Purchase Date.
A Participant who voluntarily withdraws from the Plan is prohibited from
resuming participation in the Plan in the same Offering from which he or she
withdrew, but may participate in any subsequent Offering by again satisfying
the requirements of Sections 5 and 7.1. The Company may impose, from time to
time, a requirement that the notice of withdrawal from the Plan be on file
with the Company's designated office for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.2 Automatic Withdrawal from an Offering. If the Fair Market
Value of a share of Stock on a Purchase Date of an Offering Period (other than
the final Purchase Date of such offering) is less than the Fair Market Value
of a share of Stock on the Offering Date for such Offering Period, then every
Participant shall automatically be (a) withdrawn from such Offering Period
after the acquisition of shares of Stock on the Purchase Date and (b) enrolled
in the new Offering Period effective on its Offering Date. A Participant may
elect not to be automatically withdrawn from an Offering Period pursuant to
this Section 12.2 by delivering to the Company's designated office not later
than the close of business on Offering Date new Offering Period a written
notice indicating such election.
12.3 Return of Payroll Deductions. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Sections 12.1 or automatic
withdrawal from an Offering pursuant to Section 12.2, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock (except, in the case of an automatic withdrawal pursuant to
Section 12.2, for an amount necessary to purchase an additional whole share as
provided in Section 11.4) shall be refunded to the Participant as soon as
practicable after the withdrawal, without the payment of any interest, and the
Participant's interest in the Plan or the Offering, as applicable, shall
terminate. Such accumulated payroll deductions to be refunded in accordance
with this Section may not be applied to any other Offering under the Plan.
13. Termination of Employment or Eligibility.
----------------------------------------
Upon a Participant's ceasing, prior to a Purchase Date, to be an
Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the
Participant's Plan account since the last Purchase Date shall, as soon as
practicable, be returned to the Participant or, in the case of the
Participant's death, to the Participant's legal representative, and all of the
Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned pursuant to this Section 13. A Participant whose
participation has been so terminated
may again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. Change in Control.
-----------------
14.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent
(50%) of the voting stock of the Company; (ii) a merger or consolidation in
which the Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"Transaction") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting
stock immediately before the Transaction, direct or indirect beneficial
ownership of more than fifty percent (50%) of the total combined voting power
of the outstanding voting stock of the Company or the corporation or
corporations to which the assets of the Company were transferred (the
"Transferee Corporation(s)"), as the case may be. For purposes of the
preceding sentence, indirect beneficial ownership shall include, without
limitation, an interest resulting from ownership of the voting stock of one or
more corporations which, as a result of the Transaction, own the Company or
the Transferee Corporation(s), as the case may be, either directly or through
one or more subsidiary corporations. The Board shall have the right to
determine whether multiple sales or exchanges of the voting stock of the
Company or multiple Ownership Change Events are related, and its determination
shall be final, binding and conclusive.
14.2 Effect of Change in Control on Purchase Rights. In the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may assume the Company's rights and obligations
under the Plan. If the Acquiring Corporation elects not to assume the
Company's rights and obligations under outstanding Purchase Rights, the
Purchase Date of the then current Purchase Period shall be accelerated to a
date before the date of the Change in Control specified by the Board, but the
number of shares of Stock subject to outstanding Purchase Rights shall not be
adjusted. All Purchase Rights which are neither assumed by the Acquiring
Corporation in connection with the Change in Control nor exercised as of the
date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control.
15. Nontransferability of Purchase Rights.
-------------------------------------
A Purchase Right may not be transferred in any manner otherwise
than by will or the laws of descent and distribution and shall be exercisable
during the lifetime of the Participant only by the Participant.
16. Compliance with Securities Law.
------------------------------
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or
regulations or the requirements of any securities exchange or market system
upon which the Stock may then be listed. In addition, no Purchase Right may be
exercised unless (a) a registration statement under the Securities Act of
1933, as amended, shall at the time of exercise of the Purchase Right be in
effect with respect to the shares issuable upon exercise of the Purchase
Right, or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Purchase Right may be issued in accordance with
the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares under
the Plan shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not
have been obtained. As a condition to the exercise of a Purchase Right, the
Company may require the Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto as
may be requested by the Company.
17. Rights as a Stockholder and Employee.
------------------------------------
A Participant shall have no rights as a stockholder by virtue of the
Participant's participation in the Plan until the date of the issuance of a
certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
18. Legends.
-------
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares
of Stock issued under the Plan. The Participant shall, at the request of the
Company, promptly present to the Company any and all certificates representing
shares acquired pursuant to a Purchase Right in the possession of the
Participant in order to carry out the provisions of this Section. Unless
otherwise specified by the Company, legends placed on such certificates may
include but shall not be limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES
PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME
OF ANY NOMINEE)."
19. Notification of Sale of Shares.
------------------------------
The Company may require the Participant to give the Company prompt
notice of any disposition of shares acquired by exercise of a Purchase Right
within two years from the date of granting such Purchase Right or one year
from the date of exercise of such Purchase Right. The Company may require that
until such time as a Participant disposes of shares acquired upon exercise of
a Purchase Right, the Participant shall hold all such shares in the
Participant's name (or, if elected by the Participant, in the name of the
Participant and his or her spouse but not in the name of any nominee) until
the lapse of the time periods with respect to such Purchase Right referred to
in the preceding sentence. The Company may direct that the certificates
evidencing shares acquired by exercise of a Purchase Right refer to such
requirement to give prompt notice of disposition.
20. Notices.
-------
All notices or other communications by a Participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. Indemnification.
---------------
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or
in connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except
in relation to matters as to which it shall be adjudged in such action, suit
or proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60)
days after the institution of such action, suit or proceeding, such person
shall offer to the Company, in writing, the opportunity at its own expense to
handle and defend the same.
22. Amendment or Termination of the Plan.
------------------------------------
The Board may at any time amend or terminate the Plan, except that
(a) such termination shall not affect Purchase Rights previously granted under
the Plan, except as permitted under the Plan, and (b) no amendment may
adversely affect a Purchase Right previously granted under the Plan (except to
the extent permitted by the Plan or as may be necessary to qualify the Plan as
an employee stock purchase plan pursuant to Section 423 of the Code or to
obtain qualification or registration of the shares of Stock under applicable
federal, state or foreign securities laws). In addition, an amendment to the
Plan must be approved by the stockholders of the Company within twelve (12)
months of the adoption of such amendment if such amendment would authorize the
sale of more shares than are authorized for issuance under the Plan or would
change the definition of the corporations that may be designated by the Board
as Participating Companies.
PROXY
POWER INTEGRATIONS, INC.
Proxy for the Annual Meeting of Stockholders
To be held on June 3, 1999
Solicited by the Board of Directors
The undersigned hereby appoints Howard F. Earhart and Robert G. Staples,
and each of them, with full power of substitution, to represent the
undersigned and to vote all of the shares of stock in Power Integrations,
Inc., a Delaware corporation (the "Company"), which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held at 477 N. Mathilda Avenue, Sunnyvale, California 94086 at 1:00 p.m.,
local time, and at any adjournment or postponement thereof (i) as hereinafter
specified upon the proposals listed on the reverse side and as more
particularly described in the Proxy Statement of the Company dated April 21,
1999 (the "Proxy Statement"), receipt of which is hereby acknowledged, and
(ii) in their discretion upon such other matters as may properly come before
the meeting.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
1
Please mark
[X] 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 person as a Class II director to hold office
for a three-year term and until his successor is elected and qualified:
Nominee: E. Floyd Kvamme
[_] FOR [_] WITHHELD
[_] ______________________________________
For all nominees except as noted above
2. To approve an amendment to the Company's 1997 Stock Option Plan which
provides that effective January 1, 2000, 620,000 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.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve an amendment to the Company's 1997 Employee Stock Purchase
Plan which increases the number of shares reserved for issuance under such
plan by 250,000 shares of the Company's common stock, to a total of 500,000
such shares.
[_] FOR [_] AGAINST [_] ABSTAIN
4. 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, 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
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.
2