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Intersil Corp/DE – ‘PRE 14A’ for 10/6/09

On:  Thursday, 8/6/09, at 1:59pm ET   ·   For:  10/6/09   ·   Accession #:  1193125-9-166912   ·   File #:  0-29617

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/06/09  Intersil Corp/DE                  PRE 14A    10/06/09    1:729K                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PRE 14A     Preliminary Proxy Statement                         HTML    640K 

Table of Contents

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant x                            Filed by a Party other than the Registrant ¨

Check the appropriate box:

INTERSIL CORPORATION

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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DEAR FELLOW SHAREHOLDER:

Intersil Corporation, a Delaware corporation (“Intersil” or the “Company”), will hold a Special Meeting of Shareholders (the “Special Meeting”), at Intersil’s corporate headquarters located at 1001 Murphy Ranch Road, Milpitas, CA 95035 on October 6, 2009 at 8:00 a.m. Pacific Time. At this meeting you will be asked to vote on two proposals which were unanimously approved by Intersil’s Board of Directors.

The first proposal is to approve an amendment to Intersil’s 2008 Equity Compensation Plan to increase the number of shares authorized for issuance under the plan. The increase in the number of shares available under the plan is necessary in order to ensure we have enough shares available to issue to new hires and key employees during the next two years.

The second proposal is critical for Intersil to retain key employees that are necessary for us to meet future business goals. This proposal is to approve an offer to eligible Intersil employees (excluding Intersil’s Board of Directors and executive officers) to exchange stock options that have a strike price substantially above Intersil’s current stock price for new stock options covering a smaller number of shares and having a strike price equal to Intersil’s stock price on the date the new options are granted. We believe that the proposed stock option exchange program will retain and motivate key employees throughout the company, and will align our employees’ interests with those of our shareholders. In addition, the stock option exchange program will reduce outstanding stock option “overhang” and allow the company to recapture value from accounting compensation costs.

Intersil has become one of the fastest growing high performance analog companies in the semiconductor industry. Consequently, it is vital that we continue to utilize equity grants with retention value to motivate our engineering, operations and sales teams to design, manufacture and sell high performance analog products that build upon our exceptional track record.

In this proxy statement, you will find more information regarding Intersil’s proposals which I highlighted above. Our Board of Directors and I encourage you to vote to approve the proposals. The approval of the proposals will enable Intersil to maintain a workforce which has the competencies necessary to succeed in this increasingly competitive industry.

Your vote is important. Please review the instructions on each of your voting options described in this Proxy Statement as well as in the Notice you received in the mail. Please bear in mind that the proposals specified above are not considered routine matters, and, consequently, if your shares are held by your broker in “street name” and you do not instruct your broker how to vote your shares, your broker will not be able to vote your shares at this meeting.

We look forward to seeing you at the Special Meeting and we appreciate your support and continued interest in Intersil Corporation.

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

Purpose of the Meeting:

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Whether or not you plan to attend the Special Meeting, please cast your vote as instructed in the Notice of Availability of Proxy Materials.

You are entitled to vote if you were a shareholder at the close of business on August 14, 2009.

Your vote is important. Whether or not you plan to attend the Special Meeting, we hope that you will vote as soon as possible. You may vote over the Internet, by telephone, or by requesting and mailing a proxy card. Voting by proxy will ensure your representation at the Special Meeting if you do not attend in person. Please review the instructions on the Notice of Availability of Proxy Materials concerning each of these voting options. Should you receive more than one Notice of Availability of Proxy Materials, please be sure to vote in response to each proposal so that all your shares will be voted. If your shares are held of record by a broker, bank, or other nominee, you will not be able to vote in person at the Special Meeting unless you first obtain a ballot issued in your name from the record holder which you may receive by declaring your intention to vote in person on the website designated in the Notice of Internet Availability of Proxy Materials.

If you are not certain that you will attend the Special Meeting in person, please promptly complete the proxy online, or by telephone, or request and complete and return a paper proxy, each in accordance with the instructions provided in the Notice of Availability of Proxy Materials. If you decide to attend the Special Meeting and wish to change your proxy vote, you may do so simply by voting in person at the Special Meeting.

By Order of the Board of Directors

Admittance to the Special Meeting will be limited to shareholders eligible to vote or their authorized representative(s). Beneficial owners holding shares through an intermediary such as a bank or broker will be admitted only upon proof of ownership.

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INTERSIL CORPORATION

1001 MURPHY RANCH ROAD

MILPITAS, CA 95035

PROXY STATEMENT

The Notice of Availability of Proxy Materials is being mailed, beginning on or about August 27, 2009, to owners of shares of Intersil Class A Common Stock in connection with the solicitation of proxies by the Board of Directors for the Special Meeting. This Proxy Statement and an online voting mechanism are being published on the Internet on the same date. This proxy procedure is necessary to permit all Class A Common Stock shareholders, many of whom live throughout the United States and in foreign countries and are unable to attend the Special Meeting, to vote. The Board of Directors encourages you to read this document thoroughly and to take this opportunity to vote on the matters to be decided at the Special Meeting.

The enclosed proxy is being solicited by the Company upon the order of the Board of Directors and the costs incurred in conjunction with such solicitation will be borne by the Company. The costs of solicitation include the charges of brokerage houses and their custodians, nominees or fiduciaries for forwarding documents to shareholders. The Company also intends to hire a proxy solicitation firm at a standard industry rate. In addition, proxies may be solicited by mail, in person, by telephone or fax by certain of our officers, directors and regular employees.

CONTENTS

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VOTING PROCEDURES

Your vote is very important. Your shares can only be voted at the Special Meeting if you are present or represented by proxy. Whether or not you plan to attend the Special Meeting, you are encouraged to vote by proxy to assure that your shares will be represented. Most shareholders have a choice of voting by means of the Internet, by using a toll-free telephone number or by requesting and completing a proxy card and mailing it in the postage-paid envelope provided. Please refer to your Notice of Availability of Proxy Materials as was forwarded by your bank, broker or other holder of record to see which options are available to you. Proxies submitted by telephone or the Internet must be received by 12:00 midnight, EDT, on Monday, October 5, 2009.

You may revoke your proxy at any time before it is voted at the Special Meeting by (a) giving written notice to the Secretary of the Company, (b) submitting a proxy bearing a later date, or (c) casting a ballot at the Special Meeting. Properly executed proxies that are received before the Special Meeting’s adjournment will be voted in accordance with the directions provided. If you submit a proxy without providing directions, your shares will be voted by one of the individuals named on your proxy card as recommended by the Board of Directors. If you wish to give a proxy to someone other than those named on the proxy card, you should cross out those names and insert the name(s) of the person(s), not more than three, to whom you wish to give your proxy.

Who can vote? Shareholders of record as of the close of business on August 14, 2009 are entitled to vote. On that day, [            ] shares of Class A Common Stock were outstanding and eligible to vote. A list of shareholders eligible to vote will be available at the headquarters of Intersil Corporation, located at 1001 Murphy Ranch Road, Milpitas, CA, 95035, beginning September 22, 2009. Shareholders may examine this list during normal business hours for any purpose relating to the Special Meeting.

How does the Board recommend I vote? The Board recommends a vote “FOR” the approval of an amendment to the Company’s 2008 Equity Compensation Plan to increase the number of shares authorized for issuance to 17,300,000, an increase of 5,000,000 shares (Proposal 1) and “FOR” the approval of an employee stock option exchange program and an amendment to the Company’s 2008 Equity Compensation Plan to permit the stock option exchange program (Proposal 2).

What shares are included in the proxy card? The proxy card represents all the shares of Class A Common Stock registered to your account. Each share is entitled to one vote on each matter presented at the Special Meeting.

Can I vote if my shares are held in “street name”? If the shares you own are held in “street name” by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the directions your bank or brokerage firm provides you. Many banks and brokerage firms also offer the option of voting over the Internet or by telephone, so you should review the vote instruction form sent to you by your bank or brokerage firm to find a method of providing your voting instructions that is convenient for you. If your bank or brokerage firm does not receive voting instructions from you on how to vote your shares on the proposals, your bank or broker will not be allowed to vote your shares because the proposals are “non-routine matters.”

What constitutes a “quorum”? The Special Meeting will be held if a quorum, consisting of a majority of the outstanding shares of common stock entitled to vote, is represented. Abstentions will be counted for purposes of determining whether a quorum has been reached. Shares held by banks or brokerage firms will not be counted for purposes of determining whether a quorum has been reached if the bank or brokerage firm does not vote “FOR,” “AGAINST” or “ABSTAIN.” If a quorum is not present, the meeting may be adjourned until a quorum is obtained.

What is the voting requirement to approve the proposals? The affirmative vote of the majority of shares present, in person or by proxy, and entitled to vote at the Special Meeting is required to approve the proposals.

How are the votes counted? Each share of common stock will be counted as one vote on each matter properly brought before the meeting. Abstentions are counted in tabulations of the votes cast by shareholders on the proposals and will have the effect of a negative vote.

Who will count the vote? Broadridge Financial Solutions, Inc. will tally the vote, which will be certified by an Inspector of Elections.

Is my vote confidential? Proxies, ballots and voting tabulations are available for examination only by the Inspector of Elections and tabulators. Your vote will not be disclosed to the Board of Directors or to our management other than the Inspector of Elections and except as may be required by law.

Why am I being asked to review materials on-line? In accordance with the SEC’s rules, the Company is furnishing proxy materials to our shareholders on the Internet, rather than mailing printed copies of those materials to each shareholder. Because you received a Notice of Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice of Availability of Proxy Materials will instruct you as to how you may access and review the proxy materials on the Internet. If you received a Notice of Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice of Availability of Proxy Materials. We anticipate that the Notice of Availability of Proxy Materials will be mailed to shareholders on or about August 27, 2009.

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PROPOSAL 1—APPROVAL OF AN AMENDMENT TO THE INTERSIL CORPORATION 2008 EQUITY

COMPENSATION PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE TO 17,300,000

SHARES, AN INCREASE OF 5,000,000 SHARES.

The Board of Directors has approved, subject to shareholder approval, an amendment to increase the number of shares of Common Stock authorized for issuance under the Intersil Corporation 2008 Equity Compensation Plan, as amended and restated from time to time (the “2008 Plan”) by 5,000,000 shares to a total of 17,300,000 shares. As of the date of this Proxy Statement, 12,300,000 shares are reserved for issuance under the 2008 Plan and approximately              of these shares remain available for future awards. If this Proposal is approved by our shareholders, approximately              shares will be available for awards under the 2008 Plan. The 2008 Plan was approved by the Board of Directors on February 20, 2008 and by our shareholders on May 7, 2008. The affirmative vote of the majority of shares present, in person or by proxy, and entitled to vote on this Proposal is required for its approval.

A summary description of the 2008 Plan, as well as the federal income tax consequences of participating in the 2008 Plan, are included below in Proposal 2. The summary of the 2008 Plan is qualified in its entirety by the full text of the 2008 Plan, a copy of which is attached to this Proxy Statement as Exhibit A.

In addition to the shares being requested in this Proposal 1, if Proposal 2 is approved there will be an additional 2,989,114 shares available for grant under the 2008 Plan. Such additional shares, however, will be used solely in connection with the Option Exchange Program (as defined in Proposal 2 below) and, to the extent not used (or if forfeited), will be cancelled and will not be available for future grant under the 2008 Plan.

The Board of Directors believes that the proposed amendment to the 2008 Plan will permit the Company to continue to offer a competitive compensation package.

The Board of Directors recommends that the shareholders vote “FOR” the amendment to

the Intersil Corporation 2008 Equity Compensation Plan.

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PROPOSAL 2—APPROVAL OF AN EMPLOYEE STOCK OPTION EXCHANGE PROGRAM AND AN AMENDMENT

TO THE COMPANY’S 2008 EQUITY COMPENSATION PLAN TO PERMIT THE EMPLOYEE STOCK OPTION

EXCHANGE PROGRAM

Overview

On June 17, 2009, the Board of Directors granted to the Compensation Committee of the Board of Directors (the “Compensation Committee”) the authority to implement, subject to shareholder approval at this Special Meeting, an employee stock option exchange program (the “Option Exchange Program”). Our executive officers who are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended (the “executive officers”) and our Board of Directors are not eligible to participate in the Option Exchange Program.

Highlights of the Option Exchange Program are described in the table below. A more detailed description of each aspect of the program follows this table:

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Under the Option Exchange Program, each eligible employee of the Company who holds an option (an “Old Option”) to purchase the Company’s Common Stock issued under the Company’s 1999 Equity Compensation Plan, as amended and restated from time to time (the “1999 Plan”), or the Company’s 2008 Equity Compensation Plan, as amended and restated from time to time (the “2008 Plan”), and together with the 1999 Plan, (the “Plans”) that has a strike price equal to or greater than the “Threshold Price” defined below, may surrender Old Options in exchange for a new option (the “New Option”) covering a smaller number of shares of Common Stock (as determined in accordance with the exchange ratios established by the Compensation Committee) with a strike price equal to the closing price of a share of the Company’s Common Stock on the NASDAQ Global Select Market on the date the New Option is granted. The “Threshold Price,” which is the lowest exercise price at which Old Options will be eligible for exchange, is expected to be $18.00, and in no event will be less than the highest closing price of the Company’s Common Stock on the NASDAQ Global Select Market during the 52-week period preceding the date the exchange period commences. An expected threshold price of $18.00 was chosen because it represents approximately a 30% premium over the closing price of the company’s Common Stock as of the date immediately prior to this Proxy Statement, which ensures that only Old Options with strike prices that significantly exceed the value of our Common Stock will be eligible to be exchanged. The closing sales price for the Company’s Common Stock on the date immediately prior to this Proxy Statement was $            .

The New Options will be granted on a date that will be determined by the Compensation Committee and is expected to be within seven calendar days following the last day of the exchange period under the Option Exchange Program. All New Options will have a term of seven years from the date of grant and will become vested and exercisable according to one of two vesting schedules, depending on the vesting status of the Old Options for which they were exchanged. New Options received in exchange for Old Options that are either fully vested or are scheduled to be fully vested within one year after the grant date of the New Options will vest over three years at the rate of one-third on the first anniversary of the grant date and then in equal quarterly installments over the remaining two year vesting term of the New Option. New Options received in exchange for Old Options that are not scheduled to be fully vested within one year after the grant date of the New Options will vest over four years at the rate of one-fourth on the first anniversary of the grant date and then in equal quarterly installments over the remaining three year vesting term of the New Option.

For example, if an eligible employee receives a New Option covering 120 shares on November 1, 2009 in exchange for Old Options that are fully vested when the exchange period commences, the New Option will become vested and exercisable with respect to:

As of the record date of this Proxy Statement, approximately     % of the options eligible to participate in the Option Exchange Program are either fully vested or are scheduled to be fully vested within one year after the expected grant date of the New Options, and approximately     % of the options eligible to participate in the Option Exchange Program are not scheduled to be fully vested within one year after the expected grant date of the New Options.

No shares underlying Old Options that are cancelled in connection with the Option Exchange Program will be returned to the Plans or made available for future grants.

The Option Exchange Program is designed so that the fair value of the New Options received will equal approximately the fair value of the Old Options for which they were exchanged. To the extent that the value of the New Options received exceeds the value of the Old Options for which they were exchanged, the Company will recognize an additional expense on its financial statements for stock-based compensation. While it is our goal for the Option Exchange Program to be value neutral from an accounting perspective, we expect to recognize a small accounting charge in connection with the Option Exchange Program (which we anticipate will total less than 1% of the overall annual stock-based compensation expenses that we will recognize over the service period of the New Options. We expect to recognize this expense because the accounting value of the Old Options, within each of the three exchange tiers that will be used (each of which is described below), may vary slightly due to certain factors such as strike price and expiration dates, while all Old Options within the same exchange tier will be subject to the same exchange ratio. The difference in value between Old Options within an exchange tier is minimal, but is expected to result in the recognition of a small amount of additional stock-based compensation expense over the service term of the New Options. The exchange ratios will be based on the strike price of the Old Options and will be as follows:

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These exchange ratios will not be altered unless a dramatic change in our stock price occurs between the date of this Proxy Statement and the commencement of the Option Exchange Program. In such an event, the exchange ratios will be modified so that the value of New Options received will equal approximately the value of the Old Options for which they were exchanged.

To the extent that an eligible employee would otherwise be entitled to receive a New Option covering a fraction of a share, the number of shares underlying the New Option will be rounded down to the nearest whole number.

Old Options with a strike price equal to or greater than $36.00 will be excluded from the Option Exchange Program because these options have little value and are set to expire within one year after the expected grant date of the New Options. In addition, the Compensation Committee may decide to exclude employees residing outside of the United States from participating in the Option Exchange Program, depending on the tax and securities laws of their home country, as well as the number of option holders in such country. This determination will be made by the Compensation Committee prior to the commencement of the exchange period.

Approval of this Proposal will also constitute an approval of an amendment to the 2008 Plan to increase the number of shares authorized for issuance under the 2008 Plan by an additional 2,989,114 shares, which is the maximum number of shares that may be issued in connection with New Options (assuming a Threshold Price of $18.00 and that all eligible Old Options are cancelled in connection with the Option Exchange Program). These shares will be available for use only in connection with the Option Exchange Program, and if not used, will be cancelled and unavailable for future issuance.

Shareholder approval is required for this Proposal under the NASDAQ Global Select Market rules, as well as by the terms of the Plans. The affirmative vote of the majority of shares present, in person or by proxy, and entitled to vote on this Proposal is required for its approval. If approved by the shareholders, the Option Exchange Program will commence at a time determined by the Compensation Committee, but no later than twelve months after the date of shareholder approval. Even if this Proposal is approved by our shareholders, the Compensation Committee will retain the authority, in its discretion, not to commence the Option Exchange Program or to terminate or postpone the Option Exchange Program at any time prior to the expiration of the exchange period under the Option Exchange Program. If the Company’s shareholders do not approve this Proposal, the Option Exchange Program will not take place.

As of August 14, 2009, approximately     %, or              options, of the outstanding stock options held by our current employees (other than executive officers and directors, who will not be eligible to participate in the Option Exchange Program) were “underwater”, meaning that the options had exercise prices greater than our stock price on such date. Of these options, approximately     %, or              options, are eligible for exchange in the Option Exchange Program. The weighted average exercise price of these eligible underwater options was $             per share as compared to a $             closing sales price of our Common Stock on the NASDAQ Global Select Market on August 14, 2009. These eligible underwater stock options create an equity award overhang to our shareholders of              shares and do not provide meaningful retention or incentive value to our employees.

The Board of Directors believes that the Option Exchange Program will enhance long-term shareholder value by improving our ability to retain and provide incentives to our non-executive officer employees. Stock options have been, and continue to be, a key part of our employee compensation and incentive programs and are designed to motivate and reward employee performance and results.

If our shareholders do not approve the Option Exchange Program, the Old Options will remain outstanding in accordance with their existing terms. The Company will continue to recognize compensation expense for the Old Options to the extent they are unvested even though such Old Options may have little or no retention or incentive value.

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Reasons for the Option Exchange Program

The global economic downturn has impacted Intersil’s revenues and profitability and the broader semiconductor industry as a whole. However, we have taken several steps to help manage our costs and ultimately, increase our stock price. Actions taken include:

Our equity program is intended to attract, retain and motivate key employees. Despite our efforts to manage costs, our stock price has experienced a significant decline since the third quarter of 2008 which has resulted in our employees holding a substantial number of underwater stock options, limiting the retention value of the overall program. For example, the closing price of our Common Stock on the NASDAQ Global Select Market on August 14, 2009 was $            , whereas, the weighted average strike price of all outstanding options held by our employees was $            . As of August 14, 2009, approximately     % of outstanding stock options held by our employees were underwater. These underwater stock options have many negative effects on the Company and on our equity compensation program, including limiting the retention and incentive value of the overall program. Additionally, even though many of these stock options may never be exercised because they are significantly underwater, we must continue to recognize an expense for them to the extent they are unvested.

The Option Exchange Program is designed to increase the retentive and incentive value of our equity compensation program without incurring significant additional stock-based compensation expense as we have structured the exchange program to balance both shareholder and employee interests. We believe the Option Exchange Program will enhance the retentive value of our employee equity awards by providing employees with options with market value strike prices. We believe shareholders also benefit because the retention of key employees positively impacts the company’s growth, operations and ability to meet future business goals. Additionally, exchange ratios are structured such that employees have to turn in more options than they receive in return which will reduce our overall dilution, which also benefits our shareholders.

By implementing the Option Exchange Program, we will be able to grant New Options with a market value exercise price that will help retain and motivate our current employees and align their interests with those of our shareholders. In addition, we will be able to cancel surrendered Old Options that are not providing any meaningful retention or incentive value.

Alternatives Considered

When considering how best to continue to motivate, retain and reward our employees who have underwater options, we considered the following alternatives:

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The Option Exchange Program

We also considered implementing a program to exchange underwater options for replacement options and determined this to be the most favorable choice for employees, the company and shareholders. We determined that a program under which our employees could exchange stock options with higher strike prices for a lesser number of stock options with a market value strike price was the most attractive alternative for a number of reasons, including the following:

Overall, we believe that this Option Exchange Program will be favorable for both the Company and our shareholders; however, there are some potentially negative effects. For example, although the Option Exchange Program is designed so that the value of the New Options received will equal the value of the Old Options for which they were exchanged, we expect to recognize an insignificant amount of additional stock-based compensation expense as a result of the Option Exchange Program. This compensation expense will vary depending on a number of factors, including the number of Old Options exchanged for New Options and the strike price of the New Options, but is expected to be less than 1% of our annual stock-based compensation expense recognized over the lesser of the requisite service period or the vesting period of the New Options (assuming that all eligible Old Options are exchanged and that the

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per share exercise price of New Options is not greater than $18.00). We believe that the incremental stock-based compensation expense recognized in connection with the Option Exchange Program will be less than the stock-based compensation expense the Company would recognize if it had decided to grant a meaningful number of additional stock options to those employees currently holding eligible Old Options. Additionally, the likelihood that the New Options will be exercised will increase because the New Options will be issued at a current market price, which could have the effect of greater dilution of shares for our shareholders. Finally, we will incur legal and accounting expenses to undertake the Option Exchange Program.

Implementing the Option Exchange Program

We have not commenced the Option Exchange Program and will not do so unless our shareholders approve this Proposal. If we receive shareholder approval of this Proposal, the Option Exchange Program will commence at a time determined by the Compensation Committee with terms materially similar to those described in this Proposal, but no later than twelve months after the date of shareholder approval. However, even if this Proposal is approved by our shareholders, the Compensation Committee will retain the authority, in its discretion, not to commence the Option Exchange Program or to terminate or postpone the Option Exchange Program at any time prior to the expiration of the exchange period under the Option Exchange Program. It is currently anticipated that the Option Exchange Program will commence as promptly as practicable following approval of this Proposal by our shareholders.

If the Option Exchange Program commences, eligible employees holding eligible Old Options would receive written materials (the “Offer to Exchange”) explaining the precise terms and timing of the Option Exchange Program. Employees would be given at least 20 business days (or such longer period as the Compensation Committee chooses to keep the Offer to Exchange open) to elect to exchange some or all of their eligible Old Options for New Options on an option-by-option basis based on the strike price of the Old Options. Eligible employees will not be permitted to exchange a portion of a given eligible grant (instead of all). However, eligible employees will be permitted to exchange some, but not all, of their eligible grants. Eligible employees will make this election by completing an online election form. Instructions on how to access this form will be provided to them as part of the Offer to Exchange. Employees will be required to make this electronic election prior to the expiration of the exchange period under the Option Exchange Program.

After the Offer to Exchange is closed, eligible Old Options that were surrendered for exchange will be cancelled, and on the New Option grant date, the Compensation Committee will approve grants of New Options to participating employees in accordance with the applicable exchange ratios. All shares underlying surrendered Old Options will be cancelled and no such shares will be available for future grant. All New Options will be issued under the 2008 Plan and will be subject to the terms of such plan, as well as the terms of the option grant.

At or before commencement of the Option Exchange Program, we will file the Offer to Exchange with the SEC as part of a tender offer statement on Schedule TO. Employees, as well as shareholders and members of the public, will be able to obtain the Offer to Exchange and other documents we file with the SEC free of charge from the SEC’s website at www.sec.gov or from the Company’s website at www.intersil.com.

If you are both a shareholder and an eligible employee holding eligible Old Options, please note that voting to approve the Option Exchange Program does not constitute an election to participate in the Option Exchange Program.

Key Terms of the Option Exchange Program

Eligible Employees. All employees of the Company, other than our executive officers, are “eligible employees” for the purposes of the Option Exchange Program. The Option Exchange Program will not be available to our Board members, consultants or former employees. In addition, the Compensation Committee may decide to exclude employees outside of the United States from participating in the Option Exchange Program, depending on the tax and securities laws of their home countries, as well as the number of option holders in such countries. This determination will be made by the Compensation Committee prior to the commencement of the exchange period. As of August 14, 2009, we have approximately          eligible employees holding eligible Old Options, assuming a Threshold Price of $18.00.

Individuals who are Company employees on the date that the Option Exchange Program is commenced will be eligible to participate, but they will need to remain continuously employed by the Company through the New Option grant date if they are to receive New Options. If an employee has elected to participate in the Option Exchange Program but is no longer an employee (for any reason) on the New Option grant date, then he or she will not receive New Options and the tendered Old Options will be returned to the employee and will remain subject to the terms of the applicable Plan and option grant.

Eligible Options. To be eligible for exchange under the Option Exchange Program, an Old Option must be outstanding and have a per share strike price equal to or greater than the Threshold Price, which is expected to be $18.00, and in no event will be less than the highest closing price of the Company’s Common Stock on the NASDAQ Global Select Market during the 52-week period preceding the date the exchange period commences, but less than $36.00.

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Exchange Ratio. Three different exchange ratios will be utilized in connection with the Option Exchange Program, based on the exercise price of the Old Options. The exchange ratios were designed so that the value of the New Options received will equal approximately the value of the Old Options for which they were exchanged. In determining the exchange ratios, the Company utilized valuation models to calculate the estimated value of Old Options and the estimated value of New Options after the exchange. The valuation models took into account various factors, including the current and estimated future fair market value of our Common Stock, the weighted average exercise price of the eligible Old Options, the estimated weighted average remaining terms of the eligible Old Options and New Options, prevailing interest rates and the historical volatility of the Company’s stock price. The exchange ratios will be as follows:

The exchange ratios described above were designed to reflect the relatively lower value of eligible Old Options with strike prices significantly above current market value, and the correspondingly higher value of eligible Old Options with a lower strike price. Since an eligible Old Option with a high strike price is worth less than an Old Option with a strike price closer to the current trading price of our Common Stock (assuming a corresponding expiration date), an eligible Old Option with a high strike price is exchangeable for a New Option covering relatively fewer shares than an eligible Old Option with a low exercise price.

The following table summarizes information regarding the Old Options eligible for exchange in the Option Exchange Program, as of August 14, 2009, and assumes a Threshold Price of $18.00:

Election to Participate. Participation in the Option Exchange Program will be voluntary. As described under the heading “Implementing the Option Exchange Program”, eligible employees will be permitted to exchange some or all of their eligible Old Options for New Options on an option-by-option basis based on the strike prices of the Old Options being exchanged.

Strike Price of New Options. All New Options will be granted with a strike price equal to the closing sale price of the Company’s Common Stock on the New Option grant date as reported by the NASDAQ Global Select Market.

Term. Each New Option will have a term of seven years from the date of grant.

Vesting Schedule. The New Options will vest over three or four years, depending on the vesting status of the Old Options for which they were exchanged. New Options received in exchange for Old Options that were either fully vested or are scheduled to be

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fully vested within one year after the grant date of the New Options will vest over three years at the rate of one-third on the first anniversary of the grant date and then in equal quarterly installments over the remaining two year vesting term of the New Option. New Options received in exchange for Old Options that are not scheduled to be fully vested within one year after the grant date of the New Options will vest over four years at the rate of one-fourth on the first anniversary of the grant date and then in equal quarterly installments over the remaining three year vesting term of the New Option.

Treatment of Cancelled Options. All shares underlying Old Options that are cancelled in connection with the Option Exchange Program will be cancelled and none of these shares will be available for future grants.

Summary of U.S. Federal Income Tax Consequences of the Option Exchange. The following is a summary of the anticipated material U.S. federal income tax consequences of participating in the Option Exchange Program. A more detailed summary of the applicable tax considerations to participating employees will be provided in the Offer to Exchange. We believe the exchange of eligible Old Options for New Options pursuant to the Option Exchange Program should be treated as a non-taxable exchange and neither we nor any of our participating employees should recognize any income or loss for U.S. federal income tax purposes upon the surrender of eligible Old Options and the grant of New Options. However, the tax consequences of the Option Exchange Program are not entirely certain, and the Internal Revenue Service is not precluded from adopting a contrary position. The law and regulations themselves are also subject to change. All holders of eligible Old Options are urged to consult their own tax advisors regarding the tax treatment of participating in the Option Exchange Program under all applicable laws prior to participating in the Option Exchange Program.

Accounting Treatment. Under SFAS No. 123(R), the exchange of options under the Option Exchange Program is treated as a modification of the existing options. Accordingly, we will be required to recognize in our financial statements the “incremental compensation cost”, if any, of the New Options. The “incremental compensation cost”, if any, will be measured as the excess, if any, of the fair value of the New Options granted to employees in exchange for surrendered Old Options, measured as of the date such New Options are granted, over the fair value of the Old Options surrendered in exchange for such New Options, measured immediately before the exchange. The Option Exchange Program has been designed so the value of New Options received approximately equals the value of the Old Options for which they were exchanged. As such, we expect that the incremental compensation cost that we will recognize for financial reporting purposes as a result of the Option Exchange Program will be insignificant, totaling less than 1% of the stock-based compensation expenses that we will recognize over the lesser of the requisite service period or the vesting period of the New Options (assuming that all eligible Old Options are exchanged and that the per share strike price of New Options is not greater than $18). The incremental and remaining compensation expense associated with the Option Exchange Program will be recognized over the service period of the New Options. Generally, if any portion of the New Option awards granted is forfeited prior to the completion of the service condition due to termination of employment, the compensation cost for the forfeited portion of the New Option award will not be recognized.

Potential Modification to Option Exchange Program

The terms of the Option Exchange Program will be described in an Offer to Exchange that will be filed with the SEC. Although we do not anticipate that the SEC would require us to modify the terms materially, it is possible that we will need to alter the terms of the Option Exchange Program to comply with comments from the SEC. Changes in the terms of the Option Exchange Program also may be required for tax purposes for participants in the United States or outside of the United States, as the tax treatment of the Option Exchange Program is not entirely certain. In addition, although the Compensation Committee reserves the right to amend the terms of the Option Exchange Program to take into account a change in circumstances, it will not change the material terms of the Option Exchange Program (e.g., the term, vesting schedule and exercise price of New Options, the treatment of shares underlying cancelled Old Options, excluding executive officers and directors from participating, utilizing a Threshold Price that is above the highest closing price of the Company’s Common Stock on the NASDAQ Global Select Market during the 52-week period preceding the date the exchange period commences or utilizing exchange ratios that are designed to be expense neutral to our shareholders).

New Plan Benefits

Because an eligible employee’s decision as to whether to participate in the Option Exchange Program is completely voluntary and subject to a number of factors outside our control, such as fluctuations in the Company’s stock price, we are not able to predict who or how many employees will elect to participate, how many Old Options will be surrendered for exchange or the number of New Options that may be issued if this Proposal is adopted and the Option Exchange Program is implemented. Based on the assumptions described above, including an assumed Threshold Price of $18.00, the maximum number of shares underlying Old Options that could be cancelled is 8,397,252 shares and the maximum number of shares underlying New Options that would be granted in exchange for these cancelled options is 2,989,114 shares. In addition, because the Compensation Committee has the discretion to grant awards under the 2008 Plan, it is not possible as of the date of this Proxy Statement to determine future awards that will be received by executive officers, employees and directors under the 2008 Plan.

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Shareholder Considerations

We are unable to predict the precise impact of the Option Exchange Program on our shareholders because we are unable to predict how many employees or which employees will exchange their eligible Old Options. The Option Exchange Program was designed to be expense-neutral (see “Accounting Treatment” above) to our shareholders while reducing the potential dilution in ownership from outstanding equity awards (i.e., equity award overhang). The following table summarizes the estimated effect of the Option Exchange Program, as of August 14, 2009, assuming all eligible Old Options are exchanged and that the Threshold Price is $18.00.

Amounts shown in this table assume that Proposal 1 is adopted, which would increase the number of shares available for grant under the 2008 Plan by 5,000,000 shares.

Amendment to the 2008 Plan

The Compensation Committee has recommended, and the Board of Directors has approved, an amendment to the 2008 Plan, subject to approval of the amendment by the Company’s shareholders, that would permit the Company to implement the Option Exchange Program.

The amendment would add a new paragraph to the end of Section 14 of the 2008 Plan, which would read as follows:

Employee Stock Option Exchange Program. Notwithstanding any other provision of the Plan to the contrary, upon approval of the Company’s shareholders, the Committee may provide for, and the Company may implement, a stock option exchange program, pursuant to which certain outstanding stock options granted pursuant to the Plan and the Company’s 1999 Equity Compensation Plan, as amended and restated from time to time (the “1999 Plan”), could, at the election of the person holding such stock options, be tendered to the Company for cancellation in exchange for the issuance of a smaller number of Options with a lower exercise price, provided that such stock option exchange offer is commenced within twelve months after the date of such shareholder approval (the “Exchange”). Approval of the Exchange by the shareholders will also constitute approval of an increase in the number of shares authorized for issuance under Section 5.1 of the Plan by 2,989,114 shares; provided, however, that such additional shares may be used solely in connection with the Exchange and, to the extent not used will be cancelled and will not be available for future grant. All Shares underlying stock options (whether granted under the 2008 Plan or the 1999 Plan) that are cancelled in connection with the Exchange will be cancelled and no such Shares will be made available for future grant.

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Summary of the 2008 Plan

We adopted the 2008 Plan on February 20, 2008 and our shareholders approved the 2008 Plan at our Annual Meeting held on May 7, 2008. The following is a summary of the material terms of the 2008 Plan as proposed to be amended and is qualified in its entirety by reference to the 2008 Plan, a copy of which is attached to this Proxy Statement as Exhibit A.

Purpose. The Company’s Board of Directors adopted the 2008 Plan to enable key employees, directors and consultants of the Company and its subsidiaries and affiliates to participate in the equity ownership of the Company through awards of options, restricted stock, stock appreciation rights, deferred stock units and phantom shares under the 2008 Plan. The purpose of the 2008 Plan is to (i) align the interests of the eligible individuals with the interests of the Company’s shareholders, (ii) provide incentives for eligible individuals to exert maximum efforts for the success of the Company and its subsidiaries, (iii) attract and retain the best available talent, and (iv) reward key personnel for their part in increasing the value of the Company.

Effective Date and Termination. The 2008 Plan became effective on May 7, 2008 and will terminate on May 7, 2018, unless earlier terminated by the Board of Directors.

Administration. The 2008 Plan is administered by the Compensation Committee of the Board of Directors (the “Committee”). The Committee is currently composed of three members, each of whom is a member of the Board of Directors, a “non-employee director” as defined under Rule 16b-3(b)(3) promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and an “outside director” as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder. The Committee also has one additional member that is a member of the Board of Directors but is not an “outside director” as defined under Section 162(m) of the Code. The Board of Directors has also designated members or officers of the Company to serve as a Secondary Committee and has delegated to the Secondary Committee authority to grant awards to eligible individuals who are not subject to the requirements of Rule 16b-3 under the Exchange Act or section 162(m) of the Code. The Secondary Committee has the same authority with respect to selecting the individuals to whom awards are granted and establishing the terms and conditions of awards as the Committee has under the terms of the 2008 Plan.

The Committee has the following powers and authority with regard to the 2008 Plan:

Participation. All consultants, directors and key employees of the Company are eligible to participate in the 2008 Plan.

Shares of Stock Available for Grant. Up to 12,300,000 shares are authorized to be issued under the 2008 Plan; provided that each share issued pursuant to an award other than a stock option or stock appreciation right (“SAR”) will reduce the number of shares available for issuance by 2.33 shares. For example, if all awards under the 2008 Plan are made in the form of restricted stock grants, 5,278,970 shares will be available for issuance pursuant to such grants. The shares may be treasury shares or authorized but unissued shares. The maximum number of shares of Common Stock that may be granted to any one individual may not exceed 666,667 during any calendar year, or in the case of awards payable in cash, $2,000,000. As of the date of this Proxy Statement, a total of             shares have been issued under the 2008 Plan. If Proposal 1 is approved, then the number of shares authorized for issuance under the 2008 Plan will be increased by 5,000,000 to a total of 17,300,000 shares. In addition, if proposal 2 is approved, an additional             shares will be made available for grant under the 2008 Plan; provided, however, that such additional shares may be used solely in connection with the Option Exchange Program and, to the extent not used, will be cancelled and will not be available for future grant.

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Term of Awards. The maximum term of any award granted under the 2008 Plan is seven years from the date of grant.

Changes in Capital Structure. In the event of certain changes in our capital structure, such as a merger, consolidation, reorganization, share exchange, sale of substantially all of our assets or stock, stock dividend, stock split or other similar event, the Committee will make appropriate adjustments in the number and kind of shares authorized by the 2008 Plan and other adjustments to outstanding awards as it deems appropriate.

Change of Control. In the event of a change in control of the Company, the Committee may, at its discretion (i) cancel any outstanding vested options and SARs in exchange for a cash payment of an amount equal to the difference between the then fair market value of the award less the exercise price of the award, (ii) after having given the award holder a chance to exercise any outstanding options, terminate any or all of the award holder’s unexercised options, (iii) where the Company is not the surviving corporation, cause the surviving corporation to assume or replace all outstanding options or SARs with awards involving the common stock of the successor corporation on terms necessary to preserve the rights of award holders, (iv) accelerate the vesting of options, SARs, restricted stock and other awards made under the 2008 Plan, or (v) take any other actions it deems appropriate.

Amendment and Termination of the 2008 Equity Plan. The Board of Directors (or the Committee, if such power is so delegated by the Board) may amend, modify, suspend or terminate the 2008 Plan, provided that shareholder approval of any amendment is obtained as required by applicable laws or regulations. The Committee may also amend any outstanding award without a participant’s consent, but an amendment to a participant’s award may not adversely impact the participant without his or her consent unless the amendment is required by law.

Performance Goals. Awards may be granted or vested contingent upon attaining goals related to our performance or the performance of any of our affiliates or business units. Performance goals will be based upon one or more of the following: revenue growth; earnings before interest, taxes, depreciation and amortization (“EBITDA”); operating income; net operating income after tax; pre- or after-tax income; cash flow; cash flow per share; net earnings; earnings per share; return on equity; return on capital employed; return on assets; economic value added (or an equivalent metric); share price performance; total shareholder return; improvement in or attainment of expense levels; improvement in or attainment of working capital levels; or debt reduction.

Options. The Committee may grant options that are intended to be incentive stock options under Section 422 of the Code and non-qualified stock options. The price per share at which Common Stock may be purchased upon exercise of an option may not be less than the fair market value of a share of Common Stock on the date of grant (or 110% of the fair market value of a share of Common Stock on the date of grant in the case of an incentive stock option granted to a more than 10% shareholder of the Company). The option price of an option awarded under the 2008 Plan may not be reduced after the grant of such option except in the case of a change in the Company’s capital structure, unless the reduction is approved by a majority of the shares present and voted at a duly called meeting of the shareholders. The maximum term of an option is seven years from the date of grant (or 5 years from the date of grant in the case of an incentive stock option granted to a more than 10% shareholder of the Company).

A participant may pay the option price: (i) in cash or with a certified or bank cashier’s check at the time of exercise, (ii) with the consent of the Committee, by delivery of an assignment of a sufficient amount of the proceeds from the sale of shares of Common Stock to be acquired pursuant to such exercise, or (iii) with the consent of the Committee, in whole or in part in Common Stock held by the participant and valued at their fair market value on the date of exercise. The ability of a participant to exercise his or her options following termination of employment is addressed in the relevant award agreements.

The Committee may include in an option agreement a provision enabling the participant to exercise shares subject to options prior to the full vesting of the option. Any shares so acquired will remain subject to the vesting schedule of the underlying option and, prior to the time those shares become vested and following the participant’s termination of employment, the Company will be permitted to repurchase any shares so acquired for an amount equal to the lesser of the exercise price paid or the fair market value of the shares on the date of the repurchase.

Stock Appreciation Rights. An SAR allows a recipient to receive, upon exercise of the right, the increase in the fair market value of a specified number of shares of Common Stock from the date of grant to the date of exercise. Payment upon exercise of a SAR may be made in cash or Common Stock (including restricted stock). The ability of a participant to exercise his or her SARs following termination of employment is addressed in the relevant award agreements.

Restricted Stock. In a restricted stock award, the Committee grants to a participant shares of Common Stock that are subject to forfeiture upon specified events and/or the failure to achieve specified performance goals during a specified restriction period. During the restriction period, holders of restricted stock have the right to receive dividends from and to vote the shares of restricted stock. Unless otherwise determined by the Committee, shares of restricted stock that have not yet become vested will be forfeited when a participant’s service with the Company is terminated by the Company for cause or by the participant for any reason and shares of restricted stock will fully vest when a participant’s service with the Company is terminated by the Company without cause or ends due to death or disability.

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Phantom Shares. The award of a phantom share gives a participant the right to receive payment of the fair market value of a share of Common Stock. The Committee establishes the terms and conditions of a phantom share award in an award agreement at the time the award is granted, including when such shares vest and are payable. Phantom shares will generally be paid upon a participant’s separation from service with the Company, either in cash or shares of Common Stock. Payment will generally be made in a single lump sum, except that the Committee may allow a participant to elect to receive payment in installments over a period not to exceed 10 years. Unless otherwise determined by the Committee, phantom shares that are not vested upon a participant’s separation from service will be forfeited.

Deferred Stock Units. In a deferred stock unit (“DSU”) award, the Company will deliver, subject to certain conditions, a fixed number of shares of Common Stock to the participant at the end of a vesting period, or if elected by the participant, at the end of a deferral period which occurs after the award has vested. During the vesting and deferral period(s), the participant has no voting rights with respect to any shares deliverable in connection with the DSU. Amounts equal to any dividends declared prior to vesting, and post-vesting during the deferral period(s), will be paid to the participant, without interest, at the time when the shares are no longer subject to vesting or a deferral period(s). Unless otherwise determined by the Committee, all unvested DSUs will be forfeited upon a participant’s separation from service.

New Plan Benefits. Individuals who will participate in the 2008 Plan in the future, and the amounts of their awards, are to be determined by the Committee subject to the restrictions outlined above. Since no such determinations have yet been made, it is not possible to state the terms of any individual awards which may be issued under the 2008 Plan or the names or positions of, or respective amounts payable or allocable to, any individuals who may participate in the 2008 Plan.

Summary of U.S. Federal Income Tax Consequences

The following discussion is a summary of certain federal income tax considerations that may be relevant to participants in the Plans. The discussion is for general informational purposes only and does not purport to address specific federal income tax considerations that may apply to a participant based on his or her particular circumstances, nor does it address state or local income tax or other tax considerations that may be relevant to a participant.

PARTICIPANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE

PARTICULAR FEDERAL INCOME TAX CONSEQUENCES TO THEM OF PARTICIPATING IN THE PLANS, AS

WELL AS WITH RESPECT TO ANY APPLICABLE STATE OR LOCAL INCOME TAX OR OTHER TAX

CONSIDERATIONS.

Incentive Stock Options

Upon the grant of an incentive stock option, the option holder will not recognize any income. In addition, no income for regular income tax purposes will be recognized by an option holder upon the exercise of an incentive stock option if the requirements of the Plans and the Code are satisfied, including the requirement that the option holder remain employed by the Company or a subsidiary during the period beginning on the date of grant and ending on the day three months (or, in the case of the option holder’s disability, one year) before the date the option is exercised. If an option holder has not remained an employee of the Company or a subsidiary during the period beginning on the date of grant of an incentive stock option and ending on the day three months (or one year in the case of the option holder’s disability) before the date the option is exercised, the exercise of such option will be treated as the exercise of a non-qualified stock option and will have the tax consequences described below in the section entitled “Non-Qualified Stock Options.”

The federal income tax consequences of a subsequent disposition of the shares of Common Stock acquired pursuant to the exercise of an incentive stock option depends upon when the disposition of such shares occurs and the type of such disposition.

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If a participant is subject to the Alternative Minimum Tax (“AMT”), the tax consequences to the participant may differ than provided above. Under the AMT, a taxpayer will be required to pay an alternative minimum tax if the taxpayer’s “tentative minimum tax” (as defined in Section 55 of the Code) exceeds his or her regular tax for the year in question. For purposes of calculating the AMT, upon the exercise of an incentive stock option, a taxpayer is required to include in his “alternative minimum taxable income” (as defined in Section 55 of the Code) for the taxable year in which such exercise occurs an amount equal to the amount of income the taxpayer would have recognized if the option had not been an incentive stock option (i.e., the difference between the fair market value of the shares of Common Stock on the date of exercise and the option price). As a result, unless the shares of Common Stock acquired upon the exercise of the incentive stock option are disposed of in a taxable transaction in the same year in which such option is exercised, the option holder may incur AMT as a result of the exercise of an incentive stock option.

Except as provided in the paragraph immediately below, if an option holder elects to tender shares of Common Stock in partial or full payment of the option price for shares to be acquired upon the exercise of an incentive stock option, the option holder will not recognize any gain or loss on such tendered shares. No income will be recognized by the option holder in respect of the shares received by the option holder upon the exercise of the incentive stock option if the requirements of the Plans and the Code described above are met. The number of shares received equal to the number of shares surrendered will have a tax basis equal to the tax basis of the surrendered shares. Shares of Common Stock received in excess of the number of shares surrendered will have a tax basis of zero. The holding period of the shares received equal to the number of shares tendered will be the same as such tendered shares’ holding period, and the holding period for the excess shares received will begin on the date of exercise. Solely for purposes of determining whether a Disqualifying Disposition has occurred with respect to such shares received upon the exercise of the incentive stock option, all shares are deemed to have a holding period beginning on the date of exercise.

If an option holder tenders shares of Common Stock that were previously acquired upon the exercise of an incentive stock option in partial or full payment of the option price for shares to be acquired upon the exercise of another incentive stock option, and each such exercise occurs within two years after the date of grant of such incentive stock option or within one year after such shares were transferred to the option holder, the tender of such shares will be a Disqualifying Disposition with the tax consequences described above regarding Disqualifying Dispositions. The shares of Common Stock acquired upon such exercise will be treated as shares of Common Stock acquired upon the exercise of an incentive stock option and the holding period of such shares for capital gains purposes will begin on the date of exercise.

Non-Qualified Stock Options

An option holder will not recognize taxable income, and the Company (or a subsidiary or affiliate, as applicable) is not entitled to a deduction, when a non-qualified stock option is granted. Upon the exercise of a non-qualified stock option, an option holder will recognize compensation taxable as ordinary income equal to the excess of the fair market value of the shares received over the option price of the non-qualified stock option and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. An option holder’s tax basis in the shares of Common Stock received upon the exercise of a non-qualified stock option will be equal to the fair market value of such shares on the exercise date, and the option holder’s holding period for such shares will begin at that time. Upon the subsequent sale of the shares received in exercise of a non-qualified stock option, the option holder will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares and the option holder’s tax basis in such shares.

If a non-qualified stock option is exercised in whole or in part with shares of Common Stock held by the option holder, the option holder will not recognize any gain or loss on such tendered shares. The number of shares received by the option holder upon such an exchange that are equal in number to the number of tendered shares will retain the tax basis and the holding period of the tendered shares for capital gain purposes. The option holder will recognize compensation taxable as ordinary income in an amount equal to the fair market value of the number of shares received upon such exercise that is in excess of the number of tendered shares, less any cash paid by the option holder. Subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. The fair market value of such excess number of shares will then become the tax basis for those shares and the holding period of such shares will begin on the exercise date.

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Stock Appreciation Rights

A participant will recognize no taxable income, and the Company or a subsidiary or affiliate, as applicable, is not entitled to a deduction, when a stock appreciation right is granted. Upon exercise or settlement of a stock appreciation right, a participant will recognize compensation taxable as ordinary income in an amount equal to the cash or the fair market value of the shares received and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. A participant’s tax basis in shares of Common Stock received upon the exercise of a stock appreciation right will be equal to the fair market value of such shares on the exercise date, and the participant’s holding period for such shares will begin at that time. Upon the sale of shares of Common Stock received in exercise of a stock appreciation right, the participant will recognize short-term or long-term capital gain or loss, depending on whether the shares have been held for more than one year. The amount of such gain or loss will be equal to the difference between the amount realized in connection with the sale of the shares and the participant’s tax basis in such shares.

Restricted Stock

Restricted stock will be considered subject to a substantial risk of forfeiture for federal income tax purposes. If a participant who receives such restricted stock does not make the election described below, the participant does not recognize any taxable income upon the receipt of restricted stock and the Company or a subsidiary or affiliate, as applicable, is not entitled to a deduction at such time. When the forfeiture restrictions with respect to the restricted stock lapse, the participant will recognize compensation taxable as ordinary income equal to the fair market value of the shares at that time, less any amount paid for the shares and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. A participant’s tax basis in restricted stock will be equal to the fair market value of such restricted stock when the forfeiture restrictions lapse, and the participant’s holding period for the shares will begin on such date. Upon a subsequent sale of the shares, the participant will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the participant’s hands.

Participants receiving restricted stock may make an election under Section 83(b) of the Code to recognize compensation taxable as ordinary income with respect to the shares when such shares are received rather than at the time the forfeiture restrictions lapse. The amount of such compensation income will be equal to the fair market value of the shares when the participant receives them (valued without taking into account restrictions other than restrictions that by their terms will never lapse), less any amount paid for the shares. Subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction at that time. By making a Section 83(b) election, the participant will recognize no additional ordinary compensation income with respect to the shares when the forfeiture restrictions lapse, and will instead recognize short-term or long-term capital gain or loss with respect to the shares when they are sold, depending upon whether the shares have been held for more than one year at the time of sale. The participant’s tax basis in the shares with respect to which a Section 83(b) election is made will be equal to their fair market value when received by the participant, and the participant’s holding period for such shares will begin at that time. If the shares are subsequently forfeited, the participant will not be entitled to a deduction as a result of such forfeiture, but will be entitled to claim a short-term or long-term capital loss (depending upon whether the shares have been held for more than one year at the time of forfeiture) with respect to the shares to the extent of the consideration paid by the participant for such shares.

Generally, during the restriction period, dividends and distributions paid with respect to restricted stock will be treated as compensation taxable as ordinary income (not dividend income) received by the participant and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will receive a corresponding deduction. Dividend payments received with respect to shares of restricted stock for which a Section 83(b) election has been made or which are paid after the restriction period lapses generally will be treated and taxed as dividend income.

Deferred Stock Units

A participant will recognize no taxable income when a deferred stock unit award is granted, and the Company, or a subsidiary or affiliate, as applicable, is not entitled to a deduction upon such grant. When the deferral period for the Award ends and the Participant receives shares of Common Stock, the participant will recognize compensation taxable as ordinary income equal to the fair market value of the shares at that time and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. A participant’s tax basis in shares of Common Stock received at the end of a deferral period will be equal to the fair market value of such shares when the participant receives them, and the participant’s holding period will begin on such date. Upon the sale of such shares, the participant will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the participant’s hands. Dividend equivalents will be taxable to participants upon distribution as compensation, and accordingly, the participant will recognize ordinary income (not dividend income) in such amount and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will receive a corresponding deduction. In addition, as discussed below, some deferred stock unit awards may be considered deferred compensation and must comply with the requirements of Section 409A of the Code in order to avoid early income inclusion and tax penalties.

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Phantom Shares

Participants recognize no taxable income when a phantom share award is granted, and the Company or a subsidiary or affiliate, as applicable, is not entitled to a deduction upon such grant. When a participant receives payment of a phantom share award (which may occur on the vesting date or a later date), the participant will have compensation taxable as ordinary income in an amount equal to the cash or fair market value of the shares received and, subject to Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, will be entitled to a corresponding deduction. If a participant receives shares of Common Stock in settlement of phantom shares, the participant will have a tax basis in such shares equal to their fair market value on the date of settlement and the participant’s holding period with respect to such shares will begin on such date. Upon the sale of shares received by the participant in settlement of phantom shares, the participant will recognize short-term or long-term capital gain or loss, depending upon whether the shares have been held for more than one year at the time of sale. Such gain or loss will be equal to the difference between the amount realized upon the sale of the shares and the tax basis of the shares in the participant’s hands. In addition, as discussed below, some phantom share awards may be considered deferred compensation and must comply with the requirements of Section 409A of the Code in order to avoid early income inclusion and tax penalties.

Section 162(m)

Under Section 162(m) of the Code, the Company or a subsidiary or affiliate, as applicable, generally may not deduct remuneration paid to the chief executive officer of the Company and the three next highest paid executive officers other than the chief financial officer (as disclosed on the Company’s proxy statement) to the extent that such remuneration exceeds $1,000,000, unless such remuneration is performance-based compensation. Under the Plans, the Committee may, in its discretion, grant awards that are intended to qualify as performance-based compensation.

Section 409A

Section 409A of the Code contains certain restrictions on the ability to defer receipt of compensation to future tax years. Any award that provides for the deferral of compensation, such as phantom shares or deferred stock units that are settled more than two and one-half months after the end of the year in which they vest, must comply with Section 409A of the Code. If the requirements of Section 409A of the Code are not met, all amounts deferred under the Plans during the taxable year and all prior taxable years (to the extent not already included in gross income) will be included in the participant’s taxable income in the later of the year in which such violation occurs or the year in which such amounts are no longer subject to a substantial risk of forfeiture, even if such amounts have not been actually received. In addition, such violation will result in an additional tax to the participant of 20% of the deferred amount plus applicable interest computed from the date the award was earned, or if later, the date on which it vested. Participants are urged to consult their tax advisors to determine if Code Section 409A has any impact on their awards.

Section 280G

If the vesting and/or payment of an Award made to a “disqualified individual” (as defined in Section 280G of the Code) occurs in connection with a change in control of the Company, such vesting and/or payment, either alone or when combined with other compensation payments which such disqualified individual is entitled to receive, may result in an “excess parachute payment” (as defined in Section 280G of the Code). Section 4999 of the Code generally imposes a 20% excise tax on the amount of any such “excess parachute payment” received by such “disqualified individual” and Section 280G of the Code would prevent the Company or a subsidiary or affiliate, as applicable, from deducting such “excess parachute payment.”

Securities Authorized for Issuance Under Equity Compensation Plans

The following table gives information about the Common Stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of August 14, 2009:

[Insert Equity Compensation Plan Information required by Item 201(d)]

The Board of Directors recommends that the shareholders vote “FOR” the stock option exchange program for employees and

the amendment to the 2008 Plan authorizing the stock option exchange program.

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SUBMISSION OF SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

The annual shareholder meeting for the next fiscal year will be held on or about May 5, 2010. Shareholders wishing to have a proposal included in the Company’s 2010 Proxy Statement must submit the proposal so that the Secretary of the Company receives it no later than November 30, 2009. The SEC rules set forth standards as to what shareholder proposals are required to be included in a proxy statement.

For any proposal that is not submitted for inclusion in next year’s Proxy Statement (as described above) but is instead sought to be presented directly at next year’s Annual Meeting, SEC rules permit management to vote proxies in its discretion if (a) the Company receives notice of the proposal before the close of business on February 8, 2010 and advises shareholders in next year’s Proxy Statement about the nature of the matter and how management intends to vote on such matter, or (b) the Company does not receive notice of the proposal prior to the close of business on February 8, 2010. Notices of intention to present proposals at the 2010 Annual Meeting should be addressed to the Senior Vice President, General Counsel and Secretary of Intersil Corporation.

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Discussion and Analysis—This Compensation Discussion and Analysis (“CD&A”) provides an overview of the Company’s executive compensation programs together with a description of the material factors underlying the decisions which resulted in the 2008 compensation provided to the Company’s Named Executive Officers as presented in the tables which follow this CD&A.

Role of Committee. The Compensation Committee of the Board of Directors is responsible for developing the Company’s executive compensation philosophy. In addition, the Compensation Committee establishes, oversees and directs the Company’s executive compensation programs and policies and administers the 2008 Equity Compensation Plan (“2008 Equity Plan”). The Compensation Committee seeks to align executive compensation with competitive survey data and the Company’s financial performance in order to enhance shareholder value. The Compensation Committee consists of four Outside Directors. The Compensation Committee consists of James A. Urry, Gary Gist, Gregory Lang and James V. Diller.

The Compensation Committee reviews and approves salary and other compensation, which includes base salary and incentive pay of officers and other key executives and administers certain benefit plans and compensation of the Board of Directors. The Compensation Committee also has the authority to administer, grant and make awards under the Company’s equity compensation plan. Annually and again at mid-year, the overall business plan for the Company is approved by the Board of Directors. The Compensation Committee considers our business plan information when approving compensation and equity plans. The performance goals that are approved by a special sub-committee of the Compensation Committee and ratified by the Board of Directors each year reflect corporate market focus, strategic initiatives, financial targets and other Key Results Expected (KREs). The Compensation Committee receives advice from an outside advisor, Radford Surveys and Consulting (“Radford”), which reports to management and to the Compensation Committee. The Compensation Committee considers Radford information and recommendations when making compensation decisions. Radford is a recognized leader in compensation market intelligence. Radford provides strategic guidance and acts as an outside advisor to the Compensation Committee by leveraging its extensive database and significant industry expertise. Through Radford’s services, management and the Compensation Committee are able to not only compare the Company’s practices with the high-tech industry but can specifically use their data and expertise to compare Intersil’s compensation practices with an identified list of peer semiconductor industry companies. For fiscal 2008, the Compensation Committee engaged an independent compensation consultant, Compensia, Inc. (“Compensia”) to advise the Compensation Committee directly and to review the compensation approach and data used by management’s consultant, Radford Surveys and Consulting (“Radford”). Compensia acts as an independent advisor and only performs duties at the direction of the Committee and does not perform any duties for Company management. Radford provides the Company with competitive market data and strategic guidance, which the Compensation Committee considers when making compensation decisions.

In 2008, the Compensation Committee met ten (10) times with management. Generally, management, consisting of the Senior Vice President of Human Resources, the Corporate Compensation Director and the Chief Executive Officer reviews data from Radford and prepares recommendations for the Compensation Committee related to cash and equity compensation for executives as well as for the overall employee population. The Compensation Committee, management and Radford then meet together to discuss these recommendations or specific compensation issues. Final decisions on compensation matters are made by the Compensation Committee. In addition to the ten meetings mentioned above, the Compensation Committee held some “pre-meetings” in advance of regularly scheduled meetings to review compensation information and discuss topics that would be covered at the next regularly scheduled Compensation Committee meeting at which approval of various recommendations were required. The Compensation Committee, at times, met in executive sessions without management. At some of these executive sessions, Compensia, the

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independent advisor, was present. The Committee also met regularly with Radford and key executives from the Company, such as the Senior Vice President, Human Resources and the Corporate Compensation Director, to review best practices and marketplace trends in order to remain educated on compensation issues. Each year, management works with the Chairman of the Compensation Committee to establish a full annual calendar for the following year which is approved by the Compensation Committee.

Compensation Philosophy and Objectives—The Compensation Committee believes it is important to place a greater percentage of senior executives’ compensation at risk than that of non-executives. Thus, a significant portion of senior executives’ compensation is tied directly to the performance of the business and value of the Company’s common stock. To achieve these objectives, the Compensation Committee considers the business performance of the Company, including the impact on growth, profitability and market position. Accordingly, executive compensation consists primarily of annual base salary, incentives linked to the performance of the Company and long-term, equity-based compensation. The Compensation Committee’s compensation philosophy consists of developing programs and practices that:

The Company engages in significant market analysis to determine what the appropriate market compensation is in the semiconductor and high technology industries. Radford and the Company use a comparative framework to define specific peer companies and utilize data sources to be used to assist in the assessment of job levels and compensation programs and practices. This framework includes considering information primarily from the semiconductor industry but also considering a broader base from the overall high technology industries when appropriate. Additionally, the Company reviews information from Radford which Radford obtains from their extensive survey network as well as public filings for peer companies regarding executive pay. This information is then presented to the Compensation Committee as well as the list of peer companies which is then reviewed and approved by the Compensation Committee. Consideration is given to company revenue, typically considering companies in the $500M – $2.5B range, company size, typically 500 – 4,000 employees, company products, specifically if there is a significant analog chip component to their business, and if Intersil, at times, competes with the company for labor, when establishing a group of peer companies within the semiconductor industry to compare compensation, benefits and equity information. These companies have revenue and employee populations smaller and larger than the Company and are companies Intersil would typically compete with for talent, making them appropriate for measuring compensation practices. In 2008, our peer group included the following companies:

Compensation Components

The Company believes that there should be three main components to compensation: base pay, incentive pay and equity compensation. A component of the overall Company compensation philosophy is to pay base salary at market and provide above market total cash earning opportunities for executives and employees when individual and Company performance meets or exceeds targets. This philosophy is applied consistently across the Company to executives and non-executives alike. In addition to comparing to our peer group, an individual’s cash and equity compensation is based upon individual and Company performance for a defined performance period.

The Company’s equity compensation philosophy also takes into account factors such as employee participation rate, performance and retention. Equity compensation is distributed to a majority of the Company’s exempt employees and to a limited number of non-exempt employees. Grants are intended to reward performance, and as a result, emphasis is placed on distributing the appropriate amount of grants to high performers in the organization. The Company believes this approach to equity reflects our commitment to rewarding a combination of short and long term individual and Company performance. Particular attention is given to the number of grants required to attract and/or retain talent necessary to execute our business plans. Generally, the Company aims to deliver equity compensation at the 60^th to 65^th percentile of market to executives. Market position of executive compensation may fluctuate based on individual and Company performance while still taking into consideration competitive market data. Below is a further explanation of the components of compensation for Named Executive Officers.

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Total compensation for senior executives is structured to deliver competitive pay, balanced between three primary components: annual base salary, annual incentive compensation and equity compensation.

Base Salary. The annual base salaries of the Company’s senior executives, like other key employees in the Company, are set at levels designed to attract and/or retain exceptional individuals by rewarding them for individual and Company achievements. Senior executives’ base salaries are reviewed annually and may be adjusted in accordance with the following;

In 2009, none of the Named Executive Officers received a base salary increase. Jonathan Kennedy received an increase to his base salary in April, 2009 associated with his promotion from “Interim CFO” to Senior Vice President and Chief Financial Officer.

Annual Cash Incentive. The Company’s compensation philosophy supports that a portion of the executives’ annual compensation should be tied to the financial results of the Company in order to reward individual performance and overall Company success. Annual incentive compensation for Named Executive Officers is delivered through the Company’s shareholder-approved Executive Incentive Plan (“EIP”). Cash incentive payout targets are established for six-month performance periods during each calendar year based upon financial targets, such as revenue, operating income, return on capital or other financial metrics and, at times, possibly strategic and organizational objectives. The performance objectives and targets are approved by a Sub-Committee of the Compensation Committee (the “Sub-Committee”) near the beginning of each performance period and performance against the objectives is measured at the end of each performance period. Incentive payouts are approved in accordance with the terms of the EIP. Based upon the Company’s financial performance, the actual payouts can range from 0% – 200% of target. In 2008, the EIP targets were based 60% on revenue targets and 40% on operating income targets. Specifically, for the year, executives earned a blended payout equal to 55.507% of their target cash incentive. The revenue and operating income targets are based not only on the absolute growth of the Company but also financial performance relative to our peers in the semiconductor industry. The 2008 payout of 55.507% represented revenue of $769.1M which represented 2% growth over 2007 and lower operating margins year over year. Rewarding executives based upon these metrics ensures that executive incentive pay is in line with overall Company financial performance and achievement of the Company’s overall business plan.

In 2009, none of the Named Executive Officers have received a payment in connection with the Executive Incentive Plan. Jonathan Kennedy received an increase to his target incentive in April 2009 associated with his promotion from “Interim CFO” to Senior Vice President and Chief Financial Officer.

Total Cash Compensation. The Company’s philosophy is to pay executive cash compensation at the 50^th percentile for base salary and at the 60^th percentile for total cash compensation. In 2008, our Named Executive Officers were all paid at or very close to the 50^th percentile for base pay and at or slightly under the 60^th percentile for total cash. We expect to continue with this general philosophy for base salary and total compensation in 2009.

Discretionary Bonus. Discretionary bonuses are intended to reward certain senior executives, for achieving individual performance objectives or recognizing an increase in scope of responsibilities. In 2008, three Named Executive Officers received discretionary bonuses in recognition of excellent Company performance and individual contributions. Management and the Compensation Committee felt that the cash compensation of these individuals did not fully reflect the contributions they made in a very successful year. Hence, Mr. Tokos received a discretionary bonus in the amount of $7,500 and Mr. Oaklander and Mr. Zinsner each received discretionary bonuses in the amount of $15,000. Discretionary bonuses are generally paid in cash in an amount reviewed and approved by the Compensation Committee and ordinarily are paid in a single installment.

In 2009, none of the Named Executive Officers have received a discretionary bonus, except for Jonathan Kennedy who received a $35,000 discretionary bonus in recognition of his performance while in the “Interim CFO” position.

Long Term Incentive Program. The Compensation Committee believes that long-term performance is supported through an equity ownership culture which utilizes the use of stock option grants, and performance-based and time-based equity awards to encourage sustained performance by the Company’s executive officers. Our equity program for executives is a combination of Deferred Stock Units (“DSUs”), Performance-Based Deferred Stock Units (“PDSUs”) and Restricted Stock Units (“RSUs”) and employee stock options under the shareholder approved 2008 Equity Plan. In 2008, shares were granted under both the 2008 and 1999 Equity Plans.

Equity. The Sub-Committee authorizes the issuance of equity grants and awards under the 2008 Equity Plan. Awards under the 2008 Equity Plan may be in the form of, but not limited to, stock options, DSUs, PDSUs, RSUs or stock appreciation rights. Stock options, which have a strike price equal to the closing price of the Company’s common stock on the date of grant, and typically vest over a four-year period, were granted to senior executives and other key employees. Similar to base salary considerations, the

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Company considers market data, an internal review of the executive’s overall equity compensation, and the performance of the executive and Company when determining the number of equity awards granted each year. Generally, the Company aims to deliver equity compensation to executives at the 60^th to 65^th percentile versus the peer group and overall industry market described above. An executive’s equity compensation may fluctuate based on individual and Company performance while still taking into consideration competitive market data.

The 2008 Equity Plan authorizes the Company to grant stock options to purchase shares of common stock to our employees, directors and consultants. The Compensation Committee is the administrator of the 2008 Equity Plan. Stock option grants are made at the commencement of employment, during the annual performance review cycle and, occasionally, following a significant change in job responsibilities or to address employee retention or excellent job performance. The Sub-Committee reviews and approves stock option grants to executive officers based upon a review of competitive compensation data, its assessment of individual performance and Company performance, a review of each executive’s existing long-term incentives, and retention considerations. Stock options granted by the Sub-Committee have a strike price equal to the fair market value of our common stock on the date of grant, typically cliff vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter based upon continued employment over a four year period, and generally expire seven years after the date of grant. In 2006, the Company changed its practice with regard to the annual grant cycle. Prior to 2006, annual grants were granted in four installments on the first trading day of each quarter beginning with the second quarter of the year. Beginning in 2006, the Company decided to issue annual grants in one grant on the first trading day of the second quarter of the year. The new practice is more consistent with our peer analog semiconductor companies and helps ensure our competitiveness. The Compensation Committee approves the pool of stock options to be distributed to all employees, including executives during the course of the fiscal year in the form of annual, recognition, promotion, and new hire grants. Annually, the Compensation Committee reviews and approves specific guidelines under which grants can be made. The Committee also receives a quarterly summary of stock options or awards granted during the quarter. The Compensation Committee delegates some responsibility to a Secondary Committee which is made up of the CEO and Senior Vice President, Human Resources to approve stock option grants to employees below the CEO and executive staff level as long as approval is within the aforementioned guidelines. The Compensation Committee retains authority for all grants made to Named Executive Officers, other executives reporting to the CEO and grants to newly appointed vice presidents. The Sub-Committee approves equity grants and performance standards for performance-based compensation given to the executive staff and CEO. The Sub-Committee currently consists of Messrs. Urry, Gist, and Lang. Mr. Diller is a member of the Compensation Committee, but not of the Sub-Committee because he does not qualify as an “outside director” under certain Treasury regulations issued under Section 162(m) of the Internal Revenue Code due to his previous service as an officer of Elantec Semiconductor, Inc., an affiliate of the Company.

Timing of awards—Senior executives’ annual grants, whether stock options or stock awards, are typically awarded at the same time that annual grants are distributed to non-executive employees unless the award is connected to another significant event such as new hire, recognition, promotion or contractual agreement. Annual grants for all employees are awarded during our annual performance management and salary review cycle which typically occurs in the March/April timeframe.

Executive Ownership Requirements—In 2003, consistent with the Compensation Committee’s philosophy to enhance the alignment of interests between shareholders and the Named Executive Officers, the Compensation Committee established minimum ownership requirements for certain senior executives. In the table below are the ownership requirements, expressed as a multiple of base salary that must be attained by the senior executive within a 5-year period. Executive ownership is calculated using the fair value of DSUs granted (vested and unvested), the cost basis of shares purchased through option exercise or shares purchased through the ESSP or in the open market. Consideration is given to the current value (number of shares owned multiplied by the current price at ownership implementation) for shares owned. In 2007, ownership requirements were reviewed and revised as shown below:

A recent review of the executives named above and their ownership attainment revealed that each is on track to meeting the goal within the timeframe indicated. In order to further ensure that the financial interests of the Named Executive Officers are aligned with the interests of the Company’s shareholders, the Company has a policy that prohibits Named Executive Officer and other employees from taking a short position in the Company’s stock, and which also prohibits them from trading the Company’s stock during certain periods of time associated with earnings or other significant announcements.

Performance-Based Deferred Stock Units. To reinforce our high-performance, results-oriented culture, in 2006, the Company started issuing PDSUs. These PDSUs are subject to performance targets based upon the Company’s performance in revenue growth and operating profit growth compared to a peer group of companies. The PDSUs issued in 2006 cliff vest after three years and the actual number of PDSUs distributed is based on the Company’s financial performance (operating income growth and revenue growth) compared to the peer group of companies. The measurement of the growth in operating profit is inclusive of the impact of equity compensation. In selecting the peer group of companies, consideration is given to company revenue, typically considering companies in the $500M – $2.5B range, company size, typically 500 – 4,000 employees, company products, specifically if there is a significant analog chip component to their business, and if Intersil, at times, competes with the company for labor. Additionally, for PDSUs, the Company considers companies that represent significant competition for market share. In 2008, the peer group of companies was:

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The actual number of shares ultimately issued as PDSUs may range from 0 – 150% of the original grant based upon the Company’s performance. Recipients may elect to defer receipt of the common stock represented by the PDSU award for five-year deferral periods, subject to the terms and conditions of the award. Dividend equivalents will accrue during the vesting and/or deferral period and be paid out following the vesting date or the expiration of the deferral period. Since these are PDSUs, the plan has been designed to be in compliance with the provisions of Section 409A of the Code.

Restricted Stock Units. The Company has and may in the future elect to issue RSU awards to our senior executives or specific key employees. In 2008, four Named Executive Officers received time-based restricted stock awards. Mr. Zinsner received 7,000 RSUs, and Mr. Tokos received 4,000 RSUs. Ms. Hardman received 4,200 RSUs as part of her promotion to Senior Vice President, Analog and Mixed Signal Products Group and Mr. Oaklander received 8,000 as part of his promotion to Senior Vice President, Power Management Products Group. Mr. Zinsner also received 10,000 RSUs as part of a retention package. These RSUs vest annually at 25% per year beginning on the first anniversary of the date of grant and become fully vested in 4 years. In 2008, we used a mix of equity instruments for both executives and non-executives. The use of RSUs was incorporated into our overall equity compensation philosophy and practices for stock eligible employees across the Company. During the annual review of executive compensation, the Compensation Committee reviews the mix of time-based and performance-based equity as a part of the normal course of evaluating the Company’s equity program. The Company’s overall approach to equity compensation for executives still relies on performance-based vehicles, but time-based awards will be issued on a selected basis to executives. Awards of DSUs, PDSUs or RSUs to executive officers must be approved by the Sub-Committee.

In 2009, each of the Named Executive Officers received a grant of options and PDSUs in accordance with our regular annual grant cycle in April. Mr. Bell received 240,000 options and 120,000 PDSUs. Ms. Hardman received 60,000 options and 30,000 PDSUs, Mr. Oaklander received 64,000 options and 32,000 PDSUs and Mr. Tokos received 40,000 options and 20,000 PDSUs. Mr. Kennedy received 30,000 options and 15,000 PDSUs for his annual grant and received an additional grant for his promotion to CFO of 60,000 options and 13,333 PDSUs. All options granted to Named Executive Officers in 2009 cliff vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter based upon continued employment over a four year period, and expire seven years after the date of grant. All of the PDSUs granted to Named Executive Officers in 2009 cliff vest after three years and the actual number of PDSUs distributed is based on the Company’s financial performance (operating income growth and revenue growth) compared to the peer group of companies.

Equity Run Rate. The Compensation Committee periodically reviews both the gross and the net run rate for equity, compared to both our peer group and the broader industry practices as summarized by Radford. The Company understands that certain shareholder advisory organizations consider equity run rate when advising their clients on whether to support Company proposals in the proxy statement. The Committee monitors the Company’s equity run rate and takes into consideration the Company’s equity run rate compared to peer companies and the broader industry averages when reviewing recommendations for the annual stock pool to be distributed to employees.

The gross run rate is determined taking the full value shares granted multiplied by 2.5 – a multiple determined by our stock volatility and the total options granted divided by the total number of shares of common stock issued and outstanding. During 2008, options issued totaled 2,311,560. In addition, 1,027,960 deferred stock/restricted stock units were issued. Of the 3,339,520 total options/units issued, 214,500 were performance-based DSUs which have not yet vested or been earned. The Company had basic weighted average shares outstanding for 2008 of 124,572,203. The Company understands that some shareholder advisory organizations do not count unvested or unearned performance-based restricted stock units in their run rate calculations until the awards are vested or earned, thus, the issuance of performance-based restricted stock units initially has a positive impact on the Company’s run rate in certain years as viewed by certain shareholder advisory organizations and shareholders.

Other Compensation—The Company’s executive officers who were parties to employment agreements will continue to be parties to such employment agreements in their current form until such time as the Compensation Committee determines in its discretion that revisions to such employment agreements are advisable.

401(k)—In 2008, executives were able to participate in the Intersil Corporation Retirement Plan (the “401(k) Plan”). All participants in the 401(k) Plan may begin participation on their first day of employment with the Company; however, Company

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matching contributions do not begin until an individual has reached his or her one-year anniversary with the Company. For those that reach their one-year anniversary, the Company begins to match 100% of contributions on the first 6% of compensation deferred under the 401(k) Plan. Company matching contributions are subject to a five-year vesting schedule based upon an individual’s tenure with the Company. The 401(k) Plan also has an after-tax provision for all employees that allows additional after-tax dollars to be contributed to the 401(k) Plan.

Non-Qualified Deferred Compensation Plan—The Company has made available a Non-Qualified Deferred Compensation Plan (“DCP”) which allows executives and directors in the Company who earn compensation greater than $150,000 per year to defer up to 100% of their base salary and up to 100% of their cash incentive bonus on a pre-tax basis. The Company adopted a new non-qualified deferred compensation plan effective January 1, 2008, the Intersil Corporation Deferred Compensation Plan (the “New Deferral Plan”), which provides benefits that are substantially similar to the plans previously in force. Upon enrollment, participants select from a number of publicly available investment choices chosen by the Company’s Retirement Committee, and the investment performance of the selected funds, net of fees, is thereafter credited to the participant’s account. Under the New Deferral Plan, the Company has the option to make discretionary contributions to the accounts of the participants which shall vest on such schedule as the Compensation Committee may determine at the time such contributions are made. In 2008, the Company made no discretionary contributions to the plan.

Benefits under the DCP will be paid no earlier than the month following the participant’s termination or retirement from the Company subject to any requirement of Section 409A of the Internal Revenue Code. However, the Retirement Committee of the Company can, in its sole discretion, pay the benefit in cash in the event of an unforeseen financial hardship. Benefits can be received in a lump sum or annual installments as elected by the participant. In the event of death, the benefits will be paid as soon as practical to the participant’s beneficiary. In 2008, there were 34 participants in this plan. The New Deferral Plan is funded by the company through the use of mutual funds and corporate owned life insurance (COLI).

Under the New Deferral Plan, participants can elect to receive in-service distributions no earlier than two years from the beginning of the plan year in which deferrals are made. Subject to Section 409A, participants can also elect to receive lump sum or annual installments in the event of termination, death, or change in control.

Perquisites—The Company wants to ensure that its executives have the best information available to them to maintain their health. To that end, the Named Executive Officers are also eligible to receive an annual executive physical. The Named Executive Officers were eligible for reimbursement up to a maximum of $2,500 for executive physical examinations. The Named Executive Officers were also eligible for reimbursement for personal tax preparation up to a maximum reimbursement of $3,000. Consistent with the Company’s compensation philosophy, we intend to continue to maintain our current benefits and perquisites for our executive officers; however, the Compensation Committee in its discretion may revise, amend or add to the officer’s executive benefits and perquisites if it deems it advisable. The Company believes these benefits and perquisites are competitive with peer companies. The Company currently has no plans to change either the employment agreements (except as required by law or as required to clarify the benefits to which our executive officers are entitled as set forth herein) or levels of benefits and perquisites provided hereunder.

Accounting and Tax Treatment.

Deductibility of Executive Compensation—As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code, which provides that the Company may not deduct compensation of more than $1,000,000 that is paid to certain individuals unless the compensation is performance-based. The Company believes that compensation paid under the management incentive plans is generally fully deductible for federal income tax purposes. However, in certain situations, the Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for its executive officers.

Non-Qualified Deferred Compensation—On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, adding Section 409A of the Code which changed the tax rules applicable to non-qualified deferred compensation arrangements. While the final Treasury regulations under Section 409A did not become effective until January 1, 2008, the Company believes it operated in good faith compliance with the provisions of Section 409A which became effective on January 1, 2005. A more detailed discussion of the Company’s non-qualified deferred compensation arrangement is provided under the “Other Compensation” section of this proxy.

Accounting for Stock-Based Compensation—Beginning on January 1, 2006, the Company began to amortize the fair value of all stock options, deferred and restricted stock units, over their vesting life in accordance with the Statement of Financial Accounting Standards No. 123R (“SFAS 123R”), and estimates prospective forfeitures as required under that pronouncement. Generally, the Company does not make compensation decisions based on the tax or accounting treatment of any particular form of compensation.

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EXECUTIVE COMPENSATION

The following table sets forth information regarding compensation for the 2006, 2007 and 2008 fiscal years for our Chief Executive Officer, Chief Financial Officer, and the other three most highly-compensated executive officers in the Company. The differential in the compensation for stock awards in 2008 represents the value of unvested Performance Based Deferred Stock Units originally issued in 2006, adjusted for performance and as of January 2, 2009, anticipating an actual distribution at the time of vesting of 200%.

Summary Compensation Table

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Grants of Plan Based Awards — the following table sets forth information regarding plan-based grants awarded to our Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers during 2008.

GRANTS OF PLAN BASED AWARDS

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Fiscal Year 2008 Chief Executive Officer and President. Mr. David Bell was President, Chief Executive Officer, and a Director of Intersil Corporation in 2008. On February 11, 2008, the Board of Directors appointed Mr. Bell to the position of Chief Executive Officer, effective February 13, 2008. On March 15, 2008, the Company entered into an employment agreement with Mr. Bell that provided for his employment as Chief Executive Officer of the Company through March 15, 2010, with renewal of the agreement for successive one-year periods unless six months’ notice was given by either the Company or Mr. Bell. Mr. Bell’s agreement provided that he would receive an annual base salary of $575,000, and would be eligible to receive an incentive bonus with a target payout of $575,000. Mr. Bell’s compensation could be reviewed and/or adjusted by the Compensation Committee on an annual basis and at its sole discretion. The contract also provided for Mr. Bell to participate in our executive benefit and incentive plans (including stock-based plans). Under this agreement, Mr. Bell was also granted certain stock option and performance share awards.

Mr. Bell’s cash compensation during fiscal year 2008 consisted of an annual base salary of $450,000 for a portion of the year and he received a merit increase to $575,000 in March 2008. He had a target annual incentive under the EIP of $575,000. Mr. Bell is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. For fiscal year 2008, Mr. Bell earned a total annual incentive payout under the EIP of $319,959, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. During fiscal year 2008, Mr. Bell also was granted stock options to purchase 180,000 shares of Intersil Class A common stock which vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. He was also granted 40,000 performance-based DSUs that cliff vest on the third anniversary of the date of the award and are earned only if specific Company financial targets are achieved. The use of stock options and deferred/restricted stock units as a portion of Mr. Bell’s compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

Fiscal Year 2008 Chief Financial Officer. Mr. David Zinsner served as the Senior Vice President, Finance and Chief Financial Officer of Intersil Corporation. Mr. Zinsner resigned from his position as Senior Vice President and Chief Financial Officer of the Company, effective December 1, 2008. Mr. Zinsner remained employed with the Company from December 1, 2008 through January 9, 2009 to work with management during this transition period. Mr. Zinsner’s cash compensation during fiscal year 2008 consisted of an annual base salary of $400,000 for a portion of the year and he received a merit increase to $412,000 in March 2008. He had a target annual incentive under the EIP of $255,000. Mr. Zinsner is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. For fiscal year 2008, Mr. Zinsner earned a total annual incentive payout under the EIP of $141,895, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. In addition, Mr. Zinsner received a $15,000 discretionary bonus. He also received a retention bonus in the amount of $100,000. During fiscal year 2008, Mr. Zinsner was also granted stock options to purchase 150,000 shares of Intersil’s Class A common stock which vests 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. He was also granted 10,000 performance-based DSUs that cliff vest on the third anniversary of the date of the award and are earned only if specific Company targets are achieved. In 2008, Mr. Zinsner also received an award of 10,000 RSUs that become fully vested on the first anniversary of the date of the award. Mr. Zinsner also received, as a result of his promotion, a grant of 7,000 RSUs which vest 25% per year beginning on the first anniversary of the date of the award and become fully vested in 4 years. The use of stock options and deferred/restricted stock units as a portion of Mr. Zinsner’s compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

Fiscal Year 2008 Interim Chief Financial Officer. Mr. Jonathan Kennedy, who served as the Corporate Controller of Intersil Corporation, was promoted to Interim Chief Financial Officer on December 3, 2008. Mr. Kennedy’s cash compensation during fiscal year 2008 consisted of an annual base salary of $153,000 for a portion of the year and he received a merit increase to $162,180 in March 2008. Upon his relocation to Intersil’s corporate headquarters in Milpitas, California, Mr. Kennedy received a base salary increase to $195,000 in June, 2008. He had a target annual incentive under the EIP of $45,000 for a portion of the year and received an increase to that target to $55,000 in June 2008, in conjunction with his relocation. Mr. Kennedy is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. For fiscal year 2008, Mr. Kennedy earned a total annual incentive payout under the EIP of $25,459, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. In addition, Mr. Kennedy received a $33,596 bonus for his performance prior to his relocation. He also received moving assistance valued at $26,651. During fiscal year 2008, Mr. Kennedy was also granted stock options to purchase 4,000 shares of Intersil’s common stock which vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. He was also granted 2,000 RSUs which vest 25% per year beginning on the first anniversary of the award and become fully vested in 4 years. In addition, Mr. Kennedy received, as a result of his relocation, a grant of 3,000 RSUs. The use of stock options and deferred/restricted stock units as a portion of Mr. Kennedy’s compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

Mr. Kennedy was promoted to Senior Vice President and Chief Financial Officer on April 18, 2009. His annual base pay increased from $195,000 to $300,000 at that time. His annual target incentive increased from $55,000 to $180,000. Mr. Kennedy received an annual grant of 30,000 options and 15,000 PDSUs and he received a grant of 60,000 options and 13,333 PDSUs associated with his promotion.

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Fiscal Year 2008 Senior Vice President, Power Management Products Group. Mr. Peter Oaklander, who served as the Senior Vice President, Worldwide Sales of Intersil Corporation, was promoted to Senior Vice President, Power Management Products Group in September 2008. Mr. Oaklander’s cash compensation during fiscal year 2008 consisted of an annual base salary of $310,000 for a portion of the year, he received a merit increase to $325,000 in March 2008 and he received a promotional increase to $355,000 in September 2008. He had a target annual incentive bonus under the EIP of $229,000 for a portion of the year and received an increase to his target annual incentive to $245,000 in September, 2008 when he was promoted. Mr. Oaklander is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. For fiscal year 2008, Mr. Oaklander earned a total annual incentive payout under the EIP of $127,427, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. In addition, Mr. Oaklander received a $15,000 discretionary bonus for his performance. During fiscal year 2008, Mr. Oaklander was also granted stock options to purchase 68,000 shares of Intersil’s common stock which vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. He was also granted 9,000 performance-based DSUs that cliff vest on the third anniversary of the date of the award and are earned only if specific Company targets are achieved. In addition, Mr. Oaklander received, as a result of his promotion, a grant of 8,000 RSUs which vest 25% per year beginning on the first anniversary of the date of the award and become fully vested in 4 years. The use of stock options and deferred/restricted stock units as a portion of Mr. Oaklander’s compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

Fiscal Year 2008 Senior Vice President, General Counsel. Mr. Thomas Tokos, who served as Vice President, General Counsel and Secretary of Intersil Corporation, was promoted to Senior Vice President, General Counsel and Secretary in September 2008. Mr. Tokos’ cash compensation during fiscal year 2008 consisted of an annual base salary of $276,900 for a portion of the year and he received a merit increase to $288,000 in March of 2008. He had a target annual incentive bonus under the EIP of $168,000. Mr. Tokos is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. For fiscal year 2008, Mr. Tokos earned a total annual incentive payout under the EIP of $93,484, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. In addition, Mr. Tokos received a $7,500 discretionary bonus for his performance. During fiscal year 2008, Mr. Tokos was also granted stock options to purchase 35,000 shares of Intersil’s common stock which vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. He was also granted 8,000 performance-based DSUs that cliff vest on the third anniversary of the date of the award and are earned only if specific Company targets are achieved. In addition, Mr. Tokos received, as a result of his promotion, a grant of 4,000 RSUs which vest 25% per year beginning on the first anniversary of the date of the award and become fully vested in 4 years. The use of stock options and deferred/restricted stock units as a portion of Mr. Tokos’ compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

Fiscal Year 2008, Senior Vice President, Analog and Mixed Signal Products Group. Ms. Susan Hardman, who served as Vice President/General Manager, Analog and Mixed Signal Products Group of Intersil Corporation, was promoted to Senior Vice President, Analog and Mixed Signal Products Group in September 2008. Ms. Hardman’s cash compensation during fiscal year 2008 consisted of an annual base salary of $285,000 for a portion of the year. She received a merit increase to $296,500 in March 2008 and she received a promotional increase to $310,000 in September 2008. She had a target annual incentive bonus under the EIP of $177,000 for a portion of the year and received an increase to her target annual incentive to $185,000 in September 2008. For fiscal year 2008, Ms Hardman earned a total annual incentive payout under the EIP of $98,492, based upon the accomplishment of Company financial performance goals determined by the Sub-Committee. Ms. Hardman is also eligible to receive stock options and deferred/restricted stock units at the discretion of the Sub-Committee. During fiscal year 2008, Ms. Hardman was granted stock options to purchase 52,500 shares of Intersil’s common stock which vest 25% on the first anniversary of the date of grant and 6.25% quarterly thereafter until fully vested. She was also granted 9,000 performance-based DSUs that cliff vest on the third anniversary of the date of the award and are earned only if specific Company targets are achieved. In addition, Ms. Hardman received, as a result of her promotion, a grant of 4,200 RSUs which vest 25% per year beginning on the first anniversary of the date of the award and become fully vested in 4 years. The use of stock options and deferred/restricted stock units as a portion of Ms. Hardman’s compensation accomplishes the Compensation Committee’s objective that a significant portion of our executives’ compensation be at risk and dependent upon our long-term stock performance.

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Outstanding Equity Awards Value at Fiscal Year-End Table

The following table includes certain information with respect to the value of all unexercised options previously awarded to the executive officers named above as of our fiscal year end, January 2, 2009.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

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