Transaction Premia in Public Semiconductor
Company Deals with Over $1 Billion Enterprise Value since 2014
The pending Merger had
important effects on our outstanding equity-based awards and how we chose to pay out incentive-plan awards previously granted to
our executive officers that related to fiscal 2019 performance periods, as described below.
The Merger Agreement negotiated
between Infineon and Cypress treats all employees’ equity awards under the same set of rules; no distinctions are made beween executives
and employees. In general, these rules provide as follows:
The Merger Agreement
further provides so-called “double-trigger” termination protection for the cash-based awards in that any unvested
cash-based awards will accelerate in full if, after the Closing, the holder’s employment is (a) terminated
by the Company for any reason other than for “cause” or (b) terminated by the holder for “good
reason” (as such terms are defined in the Merger Agreement).
As a result of the above
rules, our executives’ PSUs were expected to convert into cash-based awards at the maximum level in the Merger and, for executives
whose employment would not continue with Infineon, to accelerate in full upon their post-closing terminations.
Such accelerations, however,
create tax risk for the continuing company in that, under Section 280G of the Internal Revenue Code of 1986, as amended (the “Tax
Code”), the corporation is denied an income tax deduction for any “excess parachute payments” to executives in connection
with a merger. The full definitions are complex and technical, but in general if an executive receives any compensatory payment
that is contingent upon a change-in-control and that, when aggregated with other such contingent payments, exceeds three times
the executive’s average annual income from the Company over the prior five calendar years or over such lesser period that the executive
was employed by the Company (such average, the “Base Amount”), then the executive’s “excess parachute payment”
is the portion of such aggregate that exceeds one times the Base Amount.
Excess parachute payments
have negative implications both for the Company, which is denied any federal income tax deduction for the payments as mentioned
above, and for the executives, who are subject to a 20% federal excise tax under Tax Code Section 4999 in addition to income tax
on the excess payments.
The Merger Agreement therefore
provided an opportunity for tax planning. The schedules to the agreement provided that if the Merger was expected to close in 2020,
the Company could accelerate into December 2019 the vesting or payment of compensation that was scheduled to vest or be paid prior
to April 1, 2020 (including by paying in 2019 annual bonuses in respect of 2019 that would ordinarily be paid in 2020). By so doing,
the Company would raise the Base Amount and reduce the contingent payments, thereby reducing the likelihood that any remaining
portion of the contingent payments would be considered an excess parachute payment. The Merger Agreement also provided that any
such accelerated amounts must be subject to clawback or repayment in the event the recipient voluntarily resigns or is terminated
for cause prior to the originally scheduled vesting or payment date.
Accordingly, our Board
sought expert advice from a specialized Section 280G firm. After receiving a detailed Section 280G analysis from such firm, on
December 12, 2019 our Board (a) accelerated into December 2019 the vesting of all equity awards that were otherwise scheduled to
vest or be paid to the Named Executive Officers in January or February of 2020 and (b) accelerated into December payment of annual
bonuses for 2019 to the Named Executive Officers. The Board approved the PSU acceleration at the maximum achievement levels and
the bonus payment at target achievement levels. The PSUs were otherwise expected to vest above target but at less than maximum,
and the annual bonus was otherwise expected to be paid below target.
The Board approved these
accelerations at levels in excess of what otherwise would have vested or been paid in 2020 for the following reasons:
Because determination of
the accelerated bonus amount was a discretionary decision of the Board, rather than being pursuant to the original incentive plan
design, the accelerated bonus amount is reported in the Summary Compensation Table under “Bonus” rather than under “Non-Equity
Incentive Plan Compensation.” In connection with the bonus and equity accelerations, each Named Executive Officer entered
into a recoupment (or “clawback”) letter agreement with the Company. For more information on the accelerated payments,
including the terms of the clawback, see “Executive Compensation Tables—Narrative Disclosure to Summary Compensation
Table and Grants of Plan Based Awards Table—Modifications to Equity Awards and Non-Equity Incentive Plan Awards.”
The Merger Agreement also
allowed for equity grants to executives in the first quarter of fiscal 2020 consistent with past practice, provided such awards
were not performance based. Accordingly, the equity awards we granted to the Named Executive Officers in early 2020 consisted entirely
of service-based RSUs, with each executive’s grant-date value approximately 21% below his or her 2019 award value. For more information
on these grants, see “—Material Compensation Actions for 2020,” below.
In the event the Merger
does not close, the Compensation Committee will consider how best to implement robust performance-based incentives for the Named
Executive Officers in 2020.
When determining executive
compensation, the Compensation Committee considers the results of the annual advisory “say-on-pay” vote cast by stockholders.
At our 2019 Annual Meeting of stockholders, 97% of the votes cast (representing nearly 73% of our outstanding shares) were in favor
of our executive compensation program. The Compensation Committee believes this result reflects stockholders’ strong support for
our approach to executive compensation.
The Compensation Committee
also considered it important to solicit stockholder input to ensure our compensation philosophy and practices remain in sync with
stockholder preferences. Accordingly, we maintained a formal stockholder outreach program to solicit feedback on executive compensation
and governance. (The program was suspended upon signing the Merger Agreement.) In response to stockholder input and monitoring
of best practices:
Our Compensation Committee’s
overarching philosophy is to maintain an executive compensation program that emphasizes pay for performance, drives business growth,
and links stockholder value and executive performance. As explained below, the core goals of our executive compensation philosophy
are to:
See “Determining Compensation
Levels” below for a discussion of the general factors we take into account when determining specific compensation levels.
However, the Compensation
Committee provides oversight (and reserves discretion) to ensure payouts are consistent with the Committee’s assessment of the
Company’s performance. The Committee (sitting as part of the full Board) exercised such discretion in the extraordinary circumstances
of 2019, when merger bids were received and a merger agreement was negotiated after annual goals had already been established.
As described in detail above, the Board appreciated the attractive merger premium negotiated by management, and recognized the
necessity of managing the Company for the Merger in the second half of the year in a tough market environment. Accordingly, for
2019, the Board determined to modify performance-based equity awards and to authorize cash bonus payouts that were based in part
on the Committee’s assessment of management’s performance in the changed circumstances of the pending Merger rather than according
to the pre-established performance goals.
Our compensation consultant,
Compensia, is independent from Cypress’s management, has not provided any services to Cypress other than to the Compensation Committee,
and receives compensation from Cypress only for services provided to the Compensation Committee. The Compensation Committee evaluated
Compensia’s independence as required by applicable SEC rules and NASDAQ listing standards and determined that work performed by
Compensia does not give rise to any conflicts of interest.
As of mid-2018 when this
peer group was selected, Cypress ranked at the 49th percentile among these peers in revenue (over the prior twelve months), at
the 44th percentile in market capitalization, and at the 50th percentile in number of employees.
Elements of Compensation
The key components of Cypress’s executive compensation
program are described below.
|
Compensation
|
Objectives
|
Key Features
|
|
Base Salary
|
Provides a fixed level of compensation to reward demonstrated experience, skills and competencies relative to the market value of the job.
|
Generally targeted at or below the 50th percentile for comparable positions among Cypress’s peer group (but actual base salary of our NEOs relative to similar positions at peer companies may vary based on each NEO’s skills, experience and other factors). Adjustments are considered annually based on individual performance, level of pay relative to the market, and internal pay fairness.
|
|
Short-Term Incentive (Cash Bonus) Plan
|
Rewards achievement of strategic corporate objectives and individual milestones based on a balanced scorecard.
|
Bonus opportunities are generally targeted at or below the 50th
percentile for comparable positions among Cypress’s peer group.
100% at-risk based on company and individual performance.
Funding is generally based on Cypress meeting revenue and pre-tax
profit margin targets, so the plan pays out only in profitable periods.
|
|
Long-Term Incentive (Equity Award) Program
|
Aligns with stockholder interests by giving executives an equity stake in Cypress’s success.
|
Typically, equity awards make up the greatest portion of an executive’s target total direct compensation opportunity.
|
|
● Service-Based
Restricted Stock Units (RSUs)
|
Promote retention and provide a reliable opportunity for wealth creation over time.
|
Vesting occurs over time as long as the executive remains employed with the Company.
|
|
● Performance-Based
Stock Units (PSUs)
|
Align executive and stockholder interests by linking vesting to long-term corporate performance.
|
Vesting requires both goal achievement and continued employment through scheduled vesting date.
|
|
Other Compensation
|
Ensure the health, welfare, and security of our workforce.
|
We provide health and welfare plans, and retirement savings plans.
Severance benefits for key executives.
We do not provide pensions or other material perquisites to our
Named Executive Officers.
|
Determining Compensation Levels
In setting specific salary, target cash
bonus, and equity award levels for each Named Executive Officer and our other senior officers, the Compensation Committee considers
and assesses, among other factors it may consider relevant:
|
|
●
|
The compensation levels for comparable positions at our peer companies (or with respect to executives whose roles are not semiconductor
specific (such as the chief financial officer and the chief legal and human resources officer) a broader range of high-tech industry
companies in the Company’s revenue range);
|
|
|
●
|
Various subjective factors relating to the individual recipient—the executive’s scope of responsibility, prior
experience, past performance, advancement potential, impact on results, and compensation level relative to other Cypress executives;
and
|
|
|
●
|
As to long-term incentive equity awards, individual performance, level of pay relative to the market, and internal pay fairness.
|
The Compensation Committee gives no single
factor any specific weight. Each executive’s compensation level, as well as the appropriate mix of equity award types and
other compensation elements, ultimately reflects the Compensation Committee’s business judgment in consideration of these
factors and stockholder interests.
2019 EXECUTIVE COMPENSATION
2019
Base Salaries
In February 2019, as part of its annual
review of executive compensation, the Compensation Committee reviewed the base salaries of all of our Named Executive Officers
and approved the increases shown below to remain competitive with peer group salaries and based on the Committee’s assessment
of the factors identified under “Determining Compensation Levels” above. The Committee’s recommendation regarding
the CEO’s salary was approved by the Board.
|
Name
|
Initial
Base Salary Rate
(Jan–May)
|
Increase(1)
|
Adjusted
Base Salary Rate
(June–Dec)
|
Actual Base Salary
Earned
in 2019(2)
|
|
Hassane El-Khoury
|
$700,000
|
7.1%
|
$750,000
|
$726,923
|
|
Thad Trent
|
$435,000
|
3.5%
|
$450,000
|
$443,077
|
|
Sam Geha
|
$350,000
|
7.1%
|
$375,000
|
$363,462
|
|
Sudhir Gopalswamy
|
$354,000
|
15.8%
|
$410,000
|
$384,154
|
|
Pamela L. Tondreau
|
$385,000
|
2.6%
|
$395,000
|
$390,385
|
|
|
(1)
|
Base salary increases were effective in June 2019.
|
|
|
(2)
|
These amounts appear in the “Salary” column of the Summary Compensation Table.
|
2019 Short-Term Incentive Plan (Cash
Bonus) Compensation
In January 2019, in keeping with Cypress’s
performance-based compensation philosophy, the Compensation Committee approved the Named Executive Officers’ continued participation
for 2019 in our short-term incentive cash bonus program, which we call the Cypress Incentive Plan (or “CIP”).
For 2019, the CIP featured a single annual
performance measurement period for our Named Executive Officers. This represents a change from 2018, when the CIP featured five
performance measurement periods, namely each of our four fiscal quarters and our full fiscal year with targets set at the beginning
of the year for all periods. In 2018, a cash bonus could be separately earned for each of the five periods (with the fourth quarter
and full year bonuses paid concurrently).
For 2019, the Committee decided to move
to a single annual performance period to ensure that quarter-to-quarter seasonality would not skew the aggregate payouts and to
mitigate any ultra-short term incentives for earnings management
or related issues that can arise in a quarterly plan. The change to a single, annual performance period was made on the advice
of the compensation consultant and in response to stockholder feedback.
Most of the Company’s workforce participates
in the CIP—executives and employees alike—and, apart from the Named Executive Officers, most employees continued to
work under a quarterly bonus structure in 2019. Indeed, the CEO and other Named Executive Officers continued to be assigned quarterly
goals (subject to Committee oversight) which cascaded down through their respective organizations. However, under the new 2019
CIP design for the Named Executive Officers, the Company funding percentage and individual goal achievement percentages that determine
year-end bonuses are designed to be measured based solely on Company performance and individual performance, respectively, against
annual goals.
Under the CIP, as applicable to each
Named Executive Officer, the cash bonus payout for the year is determined by multiplying the executive’s target bonus
for the year by a Company funding factor (the “Funding Percentage”) and by an individual goal achievement factor
as shown below:
Cypress Incentive Plan (Cash Bonus)
Formula
There is no minimum bonus payment guaranteed
under the CIP, and the Compensation Committee has discretion under the plan to increase or decrease (including to $0) the amount
of any bonus otherwise payable to a participant based on performance. We believe that Compensation Committee discretion is appropriate
to help mitigate the risks associated with the short-term nature of this bonus plan. Each executive’s maximum bonus under
the CIP is capped at 250% of his or her target bonus amount.
Target
Bonus Amount. The Compensation Committee assigns each Senior Executive a target incentive expressed as a percentage
of his or her annualized base salary rate. In January 2019, the Compensation Committee reviewed the target incentive levels of
the Named Executive Officers and approved the increases shown below. The Committee’s recommendation regarding the CEO’s
target incentive was approved by the Board. Under the CIP, the target bonus amount, in dollars, is determined by applying the target
incentive percentage to the base salary rate in effect at year-end. The Compensation Committee determined in its judgment that
these target incentive levels were appropriate based on its assessment of the factors identified under “Determining Compensation
Levels” above, and in particular to move each executives’ total cash compensation opportunity closer to the 50th percentile
among our market peers.
|
Name
|
2018
Target Incentive
|
2019
Target Incentive
|
|
Hassane El-Khoury
|
140%
|
150%
|
|
Thad Trent
|
70%
|
85%
|
|
Sam Geha
|
70%
|
75%
|
|
Sudhir Gopalswamy
|
70%
|
75%
|
|
Pamela L. Tondreau
|
70%
|
75%
|
Funding
Percentage. In January 2019, the Compensation Committee decided that the Funding Percentage under the plan
would be determined after year-end 2019 within a range of 0% to 200% based on the Company’s attainment of financial
goals for 2019 as well as the Committee’s discretionary assessment of the Company’s operational performance. The
financial performance measures selected by the Compensation Committee for 2019 were as follows:
|
|
●
|
revenue as determined under GAAP (or “revenue”) adjusted to exclude revenue from the NAND flash-memory business
we divested in April 2019 (“revenue ex-NAND”); and
|
|
|
●
|
non-GAAP pre-tax profit (“Profit Before Tax” or “PBT”) margin calculated before bonus payments (“pre-bonus
PBT”).
|
Revenue and PBT are both key metrics used
by our management to measure the performance of the business and are reported by the Company in its quarterly earnings release.
The Compensation Committee believed it was appropriate to use revenue as a financial metric to maintain management’s focus
on increasing market share. The Compensation Committee chose to use profit as a financial metric to align the plan with stockholder
interests and help ensure that revenue growth was not pursued to the detriment of earnings. Non-GAAP pre-tax profit margin is also
a metric the Company reports in its earnings materials and is calculated as PBT divided by revenue and otherwise according to the
non-GAAP adjustments described in the Appendix (which is the same manner in which this measure is calculated for external reporting
purposes in the Company’s quarterly earnings press releases). For purposes of calculating both the revenue measure and the
PBT margin measure, the Committee provided for revenue to be determined excluding revenue from NAND flash-memory products because as announced
on October 25, 2018 we had agreed to contribute our NAND flash business to a non-consolidated joint venture (which transaction
ultimately closed on April 1, 2019) and therefore NAND flash was not part of our annual operating plan for 2019. The Committee
provided for profit to be determined on a non-GAAP basis because our non-GAAP adjustments generally relate to matters not included
in our annual operating plan and over which management may be considered to have less control. The Committee provided for profit
to be determined on a pre-tax basis because the Company’s tax liability is determined by a variety of factors, such as prior
year net operating loss carryforwards, the results of audit examinations, and changing tax laws, which are not directly related
the operational excellence the Committee was seeking to incentivize. The Committee provided for profit to be determined before
payment of the bonus, in order to avoid circularity in the formula inasmuch as the cash bonus plan can be viewed as distributing
a share of profit to the workforce. Rather than setting dollar-based targets for PBT, the Committee set relative targets (i.e.,
relative to revenue) in the form of pre-bonus PBT margin. The Committee believed such relative PBT targets (in conjunction
with dollar-based revenue targets) would be more likely to remain relevant, challenging, and motivating for our workforce regardless
of the macro-economic revenue environment.
Using those metrics, in January 2019 the
Compensation Committee approved a funding formula (in the form of a two dimensional matrix), while retaining the right to make
upward or downward adjustments to the formulaic result to ensure funding is consistent with the Committee’s discretionary
assessment of the Company’s operating performance. The annual funding matrix set a revenue ex-NAND target of $2.4 billion
for 2019, representing 3.5% growth over the Company’s 2018 revenue ex-NAND result, and a pre-bonus PBT margin target of 22.3%,
down slightly from the Company’s pre-bonus PBT margin of 23.6% for 2018, which included the profit contribution of the NAND
business. These target levels corresponded to the Company’s Board-approved annual operating plan for 2019.
In prior years, the funding formula had
additionally provided for zero bonus if revenues came in below a specified threshold level (e.g., 7% or more below target); however,
such threshold was eliminated for 2019 because the Committee did not want to eliminate employee CIP bonuses entirely (and the formula
approved for the Named Executive Officers was intended to apply to rank and file employees in the CIP as well, after adjusting
from annual to quarterly levels). Rather than imposing a revenue threshold, the Committee required that sufficient PBT margin be
achieved, at any given revenue level, before funding would be available. This approach was designed to reward executives (and employees)
for keeping the Company profitable while ensuring that bonus payments would not erode non-GAAP operating margins below acceptable
levels or divert cash needed for debt principal payments, dividends, taxes, and capital expenditures.
Individual
Goal Achievement Percentage. The final element of the 2019 CIP was the achievement of individual goals (also called
performance “milestones”), measured on an annual basis. The individual milestones were approved in advance. The milestones
varied by individual and were a mix of short- and long-term goals that focused on factors critical to the success of Cypress, including
financial goals (revenue, gross margin, operating margin, free cash flow, etc.) and operational goals (relating to our internet
of things (or “IoT”) initiatives, our customer experience initiative, our innovation initiative, employee engagement,
and product quality improvements, among many other individual goals. The milestones were scored on a scale of 0% to 100%, with
each milestone weighted by a specific point value based on its importance to Cypress and/or its level of difficulty. Specific scoring
parameters to be used to determine whether the milestone had been achieved were also identified in advance in writing.
2019
Cash Bonus Payouts. On December 12, 2019, for the reasons explained in the section “Effect of Pending
Merger on 2019 Compensation Payouts,” above, our Board of Directors approved accelerated payment of 2019 CIP bonuses at each
individual’s target level. The payments were made on December 20, 2019 as shown below. Because the acceleration was discretionary
rather than pursuant to the terms of the incentive plan, the final bonus amounts are reported in the Summary Compensation Table under “Bonus”
rather than under “Non-Equity Incentive Plan Compensation.”
|
Name
|
Base Salary
Rate
|
Target
Incentive
|
Target
Bonus
|
Final
Bonus(1)
|
|
Hassane El-Khoury
|
$750,000
|
150%
|
$1,125,000
|
$1,125,000
|
|
Thad Trent
|
$450,000
|
85%
|
$382,500
|
$382,500
|
|
Sam Geha
|
$375,000
|
75%
|
$281,250
|
$281,250
|
|
Sudhir Gopalswamy
|
$410,000
|
75%
|
$307,500
|
$307,500
|
|
Pamela L. Tondreau
|
$395,000
|
75%
|
$296,250
|
$296,250
|
|
|
(1)
|
Each Named Executive Officer’s final bonus payment appears in the “Bonus” column of the Summary Compensation
Table.
|
Long-Term Incentive (Equity Award) Compensation
2019 Long-Term Incentive
Program
In February 2019, the Compensation Committee
approved equity award grants to the Named Executive Officers as part of our Long-Term Incentive (or “LTI”) program
for 2019. The Committee’s recommendations regarding the CEO’s grants were approved by the Board. The awards were granted
under the Company’s 2013 Stock Plan. At the same time, the Committee set the performance goals (or “milestones”)
under which our executives would be eligible to earn their shares. Each executive received two awards: a performance-based PSU
award and a service-based RSU award. The Committee weighted the grants toward performance-based awards in keeping with our pay-for-performance philosophy.
|
|
●
|
For the CEO, approximately 65% of the total units granted (at target) were allocated to the performance-based award and approximately
35% of the total units granted were allocated to the service-based award.
|
|
|
●
|
For our other Named Executive Officers, the ratio was approximately 55% performance-based to 45% service-based.
|
The service-based RSUs were scheduled to
vest, according to their terms, in three annual installments on each of the first three anniversaries of the date of grant, subject
to continued employment with the Company through each scheduled vesting date.
The performance-based PSUs were eligible
to vest, according to their terms, only if and to the extent that performance goals (which are also called performance “milestones”)
established by the Compensation Committee are satisfied. For each milestone, the Committee established a payout scale to translate
performance levels into vesting results. Exact achievement of the performance goal generally translates into earning 100% of the
target number of shares, with lesser earnings provided for lesser performance and greater earnings provided for greater performance.
For 2019, the performance-based equity structure
differed slightly from the past. The 2019 award featured two near-term milestones with longer-term upside opportunities based
on the Company’s total stockholder return (TSR) relative to the S&P Semiconductors Select Industry Index (the “S&P
Semiconductors Index”). The two near-term performance milestones—non-GAAP operating margin (weighted 60%) and customer
experience (weighted 40%)—both related to the fiscal 2019 performance period. Shares subject to the award could be earned
up to 150% of target based on achievement on those two milestones in 2019. However, unlike prior years, shares earned for 2019
performance would be divided into three portions that would be scheduled to vest over three years, on the last trading day of February
in 2020, 2021, and 2022, respectively. Each of those three vesting tranches would be subject to an additional upside multiplier—ranging
from 1.0x to 1.5x—based on Cypress’s relative TSR over the prior one, two, or three years, as applicable.
Therefore, the maximum possible vesting would be 225% of target (i.e., the 2019 earned percentage of up to 150% × a TSR multiplier
of up to 1.5x).
As described above, the new structure of
the 2019 LTI program featured performance vesting opportunities each year for the next three years. This represented a change
from the 2018 LTI program which featured bi-modal performance vesting opportunities concentrated after years one and three. In
the Compensation Committee’s view, the bi-modal allocation did not provide sufficient retention and had created planning
and communication complexities that outweighed its benefits. In order
to smooth the transition back to annual performance vesting, each executive’s LTI awards for 2019 were increased by 21.2%
compared to the levels that otherwise would have been approved and the CEO’s PSU/RSU mix was changed from 70/30 (the prior
year’s grant ratio) to 65/35 (this 2019 grant ratio). When the Committee approved the Special 2019 Increase, the Committee
determined that equity award grants in 2020 should be reduced by the same percentage. In that respect the increase was intended
to shift equity award value from 2020 grants to 2019 grants, but not to materially affect the aggregate grant value each executive
would receive over the two year period 2019-2020.4
The Special 2019 Increase units were allocated
among award years one, two, and three and between PSUs and RSUs in a manner that helped smooth out each executive’s year-to-year
combined vesting opportunities under the two structures. Notably, the 2018 structure had not provided any performance-vesting
opportunity with respect to 2019 performance; therefore the 2019 awards were weighted toward 2019 (i.e., disproportionately scheduled
to vest shortly after 2019 (year one) as compared to shortly after 2020 (year two) or 2021 (year three)).
|
|
●
|
For our CEO: the service-based RSUs granted in 2019 were scheduled to vest 50% after year one, and 25% after each of years
two and three; while the performance-based PSUs (at target) were scheduled to vest approximately 36% after year one and 32% after
each of years two and three.
|
|
|
●
|
For our other Named Executive Officers: the service-based RSUs granted in 2019 were scheduled to vest approximately 42% after
year one, and 29% after each of years two and three; while the performance-based PSUs (at target) were scheduled to vest approximately
40% after year one and 30% after each of years two and three.
|
Each PSU is subject to both performance-based
and service-based vesting requirements to provide additional retention of our executives. This means that, for an executive’s
PSUs to vest, the executive must (x) satisfy performance-based requirements and (y) remain continuously employed with the Company
through the vesting date specified in the award agreement, which is generally the last trading day of February after completion
of the applicable year.
The table below presents the number of shares
of our common stock underlying each type of award (at target), showing the year-by-year vesting opportunity allocations.
Vesting Schedule (at Target) of Long-Term Incentive (LTI)
Program Equity Awards Granted in 2019
|
Name
|
Annual Allocation of Newly Granted
Performance-Based Units (PSUs)
|
Annual Allocation of Newly Granted
Service-Based Units (RSUs)
|
Total LTI
Award Units
|
|
|
2019*
|
2020*
|
2021*
|
2019*
|
2020*
|
2021*
|
Granted
|
|
Hassane
El-Khoury
|
98,393
|
86,102
|
86,103
|
73,134
|
36,567
|
36,567
|
416,866
|
|
Thad
Trent
|
34,046
|
24,961
|
24,962
|
29,795
|
20,315
|
20,315
|
154,394
|
|
Sam Geha
|
27,235
|
19,970
|
19,970
|
23,836
|
16,252
|
16,252
|
123,515
|
|
Sudhir Gopalswamy
|
32,343
|
23,714
|
23,714
|
28,305
|
19,299
|
19,300
|
146,675
|
|
Pamela L. Tondreau
|
28,087
|
20,593
|
20,594
|
24,581
|
16,760
|
16,760
|
127,375
|
|
|
*
|
Units allocated to each year were scheduled to vest shortly
after the end of such year. For example, PSUs allocated to 2019 were scheduled to vest on February 28, 2020 and RSUs allocated
to 2019 were scheduled to vest on February 15, 2020.
|
|
|
4.
|
Ultimately, when 2020 grants were made, the value of
each executive’s LTI award approved in February 2020 was equal to what the value of his or her February 2019 grant would
have been excluding the Special 2019 Increase. See “—Material Compensation Actions for 2020,” below.
|
The
performance milestones, performance periods, targets, and payout scales for each performance-based award were as follows:
Performance
Milestone
(and Weighting)
|
Performance
Period
|
Target
|
Payout
Scale or Result(1)
|
Non-GAAP
Operating Margin(2)
(60% weight)
|
2019
|
21%
|
● achievement
≤ 15%: 0% credited
● achievement
= 21%: 100% credited
● achievement
≥ 25%: 150% credited
|
Customer
Experience Plan Achievement
(40% weight)
|
2019
|
90%
|
● achievement
≤ 50%: 0% credited
● achievement
= 90%: 100% credited
● achievement
≥ 100%: 150% credited
|
Cypress’s
TSR relative to the companies
in the S&P Semiconductors Index
(TSR multiplier)
|
One,
Two, or
Three Years(3)
|
50th
percentile
|
● 50th
percentile or below: 1.0x
● 75th
percentile or above: 1.5x
|
|
|
(1)
|
For
achievement between the stated levels, crediting or vesting is determined by linear interpolation.
|
|
|
(2)
|
This
milestone is calculated on a non-GAAP basis using the same non-GAAP adjustments we make
for external reporting purposes as described in the Appendix.
|
|
|
(3)
|
The
TSR multiplier provides upside potential to the two 2019 goals (non-GAAP operating margin
and customer experience plan achievement, together the “2019 Performance Milestones”).
As the award is designed, the Company’s achievement on these two performance goals
would be assessed after the end of 2019 and a weighted average crediting score would
be determined (from 0% to 150% as shown above). That crediting percentage would apply
to all three of the award’s tranches, scheduled to vest shortly after 2019, 2020,
and 2021 respectively. The vesting of each tranche would be further subject to the TSR
multiplier, as measured over the prior one, two, or three years as applicable. In other
words:
|
|
|
●
|
the
TSR performance period for the multiplier to be applied to the first vesting tranche
runs from the start of fiscal 2019 to the end of fiscal 2019;
|
|
|
●
|
the
TSR performance period for the multiplier to be applied to the second vesting tranche
runs from the start of fiscal 2019 to the end of fiscal 2020; and
|
|
|
●
|
the
TSR performance period for the multiplier to be applied third vesting tranche runs from
the start of fiscal 2019 to the end of fiscal 2021.
|
The
maximum vesting of each tranche is 225% of target (calculated as the 2019 Performance Milestones’ weighted average
percentage of up to 150% × a TSR multiplier of up to 1.5x).
Each
performance milestone is further described below.
|
|
●
|
Non-GAAP
Operating Margin. Non-GAAP operating margin is a metric we report in our quarterly
earnings release, defined as non-GAAP operating income divided by revenue. This is a
key metric used by management to measure the performance of our business. The Compensation
Committee chose an income metric as a milestone because remaining profitable and growing
income is a critical imperative for our Company. The Committee chose operating income
(rather than net income, for example) because operating income more closely relates to
the operational variables that executives can control (as compared to net income which
additionally reflects tax effects and the performance of our third-party equity investees,
for example). The Compensation Committee weighted this metric at 60% in order to emphasize
the importance of financial results. The Compensation Committee set the target performance
level at 21%, which is approximately equal to the level called for by the Company’s
annual financial plan approved by the Board. Rather than setting a dollar- based goal
for operating income, the Committee set a relative goal (i.e., operating income relative
to revenue) in the form of operating margin. The Committee believed a relative goal would
be more likely to remain relevant, challenging, and motivating for our executives regardless
of the macro-economic environment.
|
|
|
●
|
Customer
Experience Plan Achievement. One of the Company’s key operational initiatives
in 2019 was to focus on improving customer experience as a means of increasing revenue
over the long-term. The initiative included 38
specific “voice of the customer” projects (or “tracks”), ranging from developing new ways to solicit customer
feedback such as web pages and in-product surveys, designing new dashboards to measure and report progress, and implementing new
feedback loops to ensure customer insights are used to inform and improve product design and service delivery. The Compensation
Committee recognized the value in making Cypress an easy company with which to do business, both for attracting new customers
and selling new products to established customers, and so chose to incentivize management with this milestone. Specifically, the
Compensation Committee set a target of completing 34 of the 38 tracks (90%), with the 0% to 150% payout range corresponding to
achievement of 19 tracks (i.e., 50% of the 38 tracks) on the low end and all 38 tracks (i.e. 100% of the tracks) on the high end.
|
|
|
●
|
Relative
Total Stockholder Return (TSR) Milestone (an upside multiplier): Total stockholder
return (or TSR) means the stock price appreciation generated by an investment in a company’s
common stock held for a specified period and is generally calculated as the percentage
change in the market price of the stock at the end of the period (plus reinvested dividends)
compared to its beginning price. This milestone provides an upside multiplier to the
shares otherwise earned based on the above two performance milestones. As per the award’s
design, the Company’s achievement of those two performance goals would be assessed
after the end of 2019 and a weighted average crediting score for the performance metrics
would be determined (from 0% to 150% as shown in the table above). That crediting percentage
would apply to all three of the award’s tranches, which were scheduled to vest
shortly after 2019 (the “first tranche”), 2020 (the “second tranche”),
and 2021 (the “third tranche”), respectively. The vesting of each tranche
would be further subject to the TSR multiplier. For this purpose, TSR is measured over
the period beginning on the first day of fiscal 2019 (December 31, 2018) and ending on
(a) the final day of fiscal 2019, with respect to the first tranche, (b) the final day
of fiscal 2020, with respect to the second tranche, and (c) the final day of fiscal 2021
with respect to the third tranche. TSR is calculated assuming reinvestment of dividends
at the closing price on the ex-dividend date. Beginning price and ending price are defined
as the trailing 20 trading-day average closing price. Cypress’s one-, two-, or
three- year TSR (as applicable) is ranked against the TSRs of each of the other companies
in the S&P Semiconductors Select Industry Index (the “S&P Semiconductors
Index”) over the same period and this milestone’s vesting percentage is based
on our percentile rank within that group according to the payout scale shown above. The
minimum multiplier is 1.0x, which applies to 50th percentile TSR performance or
below, and the maximum multiplier is 1.5x, which applies to 75th percentile TSR
performance or above. For achievement between those two levels, the multiplier is determined
by linear interpolation. The Compensation Committee chose relative TSR as a milestone
to align compensation with stockholder interests and in response to stockholder input.
The Compensation Committee designed the award so that the TSR milestone provides upside
to the performance milestones (but cannot reduce the shares otherwise earned for performance).
In the Committee’s view this design strikes an appropriate balance between rewarding
executives for the performance metrics they can more directly control, while providing
an extra market-based incentive to more closely align with stockholder interests.
|
The
Compensation Committee intended the performance goals to be challenging but achievable.
The
Compensation Committee provided for operating margin to be determined on a non-GAAP basis, consistent with the non-GAAP adjustments
we make for external reporting purposes as described in the Appendix. Determining this milestone on a non-GAAP basis is appropriate,
in the Committee’s view, because the Company’s non-GAAP adjustments generally relate to matters not included in the
Company’s annual financial plan and over which management may be considered to have less control. The Committee further
provided for this milestone to be adjusted for certain mergers, acquisitions, or divestitures occurring after the grant date
that were not contemplated by the Board-approved annual operating plan. The purpose of all of these adjustments is to mitigate
extraordinary events that may occur during the performance period and align payouts with measures that reflect management’s
actual performance over the period.
On
December 12, 2019, for the reasons explained in the section “Effect of Pending Merger on 2019 Compensation Payouts,”
above, our Board of Directors approved accelerated payment of the first tranche of the 2019 LTI award (which was otherwise scheduled
to vest on February 28, 2020). The acceleration occurred on December 16, 2019 at the tranche’s maximum vesting level, rather
than based on achievement of the performance goals specified in the award agreement.
Shares
Allocated to 2019 Performance under our 2017 Multi-Year Performance Accelerated Restricted Stock (PARS) Program
In
March 2017, each of the Named Executive Officers received an award of performance-based stock units under our long-term
incentive program for 2017, which we called the “PARS” program. The 2017 PARS program is described in detail in
the CD&A section of the proxy statement we filed with the SEC on March 29, 2018 under the caption “2017 Multi-Year
Performance Accelerated Restricted Stock (PARS) Program.” Those 2017 grants had two milestones with 2019 performance
periods and, accordingly, in 2019 our Named Executive Officers had an opportunity to earn that portion of their 2017 PARS
awards. Vesting of these 2019 performance units was scheduled for February 28, 2020.
The
table below shows the number of shares (at target) underlying each PARS milestone with a 2019 performance period:
|
Name
|
2019 Cypress Revenue
Growth Relative to
Semi Market Growth
(over 2016 base year)
(shares)
|
2019 Profit-Before-Tax
(PBT) Growth
(over 2017 base year)
(shares)
|
Total
(shares)
|
|
Hassane
El-Khoury
|
31,710
|
31,710
|
63,420
|
|
Thad
Trent
|
11,499
|
11,499
|
22,998
|
|
Sam
Geha
|
10,454
|
10,454
|
20,908
|
|
Sudhir
Gopalswamy
|
10,454
|
10,454
|
20,908
|
|
Pamela
L. Tondreau
|
9,408
|
9,408
|
18,816
|
The
performance milestones, performance periods, targets, and payout scales (as established by the Compensation Committee in March
2017) for each of those PARS components were as follows:
Performance
Milestone(1)
|
Performance
Period
|
Target
|
Payout
Scale(2)
|
|
Cypress Revenue Growth
relative to Semi Market Growth
(each over 2016 base year)
|
2019
|
1.2x
|
●
achievement ≤ 0.8x: 0% vest
●
achievement = 1.2x: 100% vest
●
achievement ≥ 1.6x: 200% vest
|
Profit-Before-Tax
(PBT) Growth
(2019 PBT over 2017 PBT)
|
2019
|
3%
growth
|
●
achievement ≤ 0% growth: 0% vest
●
achievement = 3% growth: 100% vest
●
achievement ≥ 8% growth: 200% vest
|
|
|
(1)
|
All
milestones are calculated on a non-GAAP basis consistent with the non-GAAP adjustments
we make for external reporting purposes as described in the Appendix.
|
|
|
(2)
|
For
achievement between the stated levels, vesting is determined by linear interpolation.
|
These
2019 performance milestones are described below.
|
|
●
|
2019
Cypress Revenue Growth Relative to Semiconductor Market Growth (over 2016 Base Year):
The Compensation Committee chose revenue growth as a milestone because an essential
step of the Cypress 3.0 strategy is increasing market share in our key automotive, industrial,
and Internet of Things target markets. The Committee selected the year of Mr. El-Khoury’s
appointment as CEO (2016) as the base year in order to measure our performance under
his leadership. The Committee set the multi-year goal on a relative basis (compared to
semiconductor market growth over the same period) because the Committee believed a relative
goal would be more likely to remain relevant, challenging, and motivating for our executives
regardless of the macro-economic environment in future years. The Committee defined semiconductor
market size as the mean of the estimates published by Gartner and WSTS. For both the
Company and the market, the Committee provided for revenue growth to be calculated excluding
DRAM because we do not compete in that segment. The Committee also provided in the award
agreement for results to be adjusted for divestitures, and in May 2019 the Committee
confirmed such an adjustment should be made (for both the Company and the market data)
to exclude NAND, as a result of the April 1, 2019 contribution of our NAND business to
a non-consolidated joint venture controlled by our third-party venture partner.
|
|
|
●
|
Profit-Before-Tax
Growth (2019 over 2017): Profit Before Tax, or PBT, is a key metric used by our management
to measure the performance of the business and is reported by the Company in its quarterly
earnings releases (where it is called non-GAAP pre-tax profit). The Compensation Committee
chose to use profit as a financial metric to align with stockholder interests and help
ensure that revenue growth was not pursued to the detriment of earnings. The Committee
provided for profit to be determined on a non-GAAP basis because our non-GAAP adjustments
generally relate to matters not included in our annual operating plan and over which
management may be considered to have less control. The Committee provided for profit
to be determined on a pre-tax basis because the company’s tax liability is determined
by a variety of factors, such as prior year net operating loss carryforwards, the results
of audit examinations, and changing tax laws, which are not directly related the operational
excellence the Committee was seeking to incentivize. The Committee provided for the PBT
goal to be measured as growth over 2017 because 2017 was the year we announced our Cypress
3.0 strategy (at our 2017 Analyst Day), so this goal can be seen as incentivizing the
success of our Cypress 3.0 initiatives.
|
On
December 12, 2019, for the reasons explained in the section “Effect of Pending Merger on 2019 Compensation Payouts,”
above, our Board of Directors approved accelerated payment of the 2019 tranches of the 2017 PARS award (which were otherwise scheduled
to vest on February 28, 2020). The acceleration occurred on December 16, 2020 at the maximum vesting levels applicable to the
2019 tranches, rather than based on achievement of the performance goals specified in the award agreement.
Other
Compensation/Benefits/Perquisites
Non-Qualified
Deferred Compensation Plans. Cypress maintains unfunded, non-qualified deferred compensation plans. Each year, these plans
allow eligible participants, including our Named Executive Officers, voluntarily to defer receipt of a percentage of up to 75%
of their base salary and up to 90% of their cash bonus payments, as the case may be, earned in such year until the date or dates
elected by the participants, thereby allowing participating executives to defer taxation on such amounts. There are two non-qualified
deferred compensation plans available. Plan I offers a choice of 68 mutual funds in which to invest deferred compensation and,
for participants who enrolled prior to December 31, 2015, pays a death benefit equal to two times the participant’s contributions
to the plan through such date. Plan II offers a vast array of broker-assisted investment options. In other respects, the two plans
are generally identical. All eligible employees have the option to choose one plan in which to participate. We do not make any
company-paid contributions to the deferred compensation plans and we do not guarantee returns on the investments. Withdrawals
and other distributions are subject to the requirements of Section 409A of the Tax Code. Participant deferrals and investment
gains and losses are liabilities of the Company and the underlying assets are subject to the claims of our general creditors.
None of our Named Executive Officers contributed to either plan in 2019, but prior contribution balances remain invested. Please
refer to “Executive Compensation Tables—Non-Qualified Deferred Compensation Table” for a summary of investment
performance in fiscal year 2019.
Other
Programs Open to All Employees. The Named Executive Officers are also eligible to participate in the health and welfare
programs and other benefit programs that the Company makes available to its employees generally, including the following programs
that resulted in Summary Compensation Table entries for 2019:
|
|
●
|
Group
Term Life Insurance. The Company provides group term life insurance coverage
to all employees, including the Named Executive Officers, with a death benefit equal
to three times annual base salary. The value of the premiums paid by the Company for
the benefit of each executive appear as “Other Compensation” in the Summary
Compensation Table.
|
|
|
●
|
401(k)
Plan. The Company’s 401(k) plan provides for Company-paid matching contributions
of up to $2,000 per year (matching 50% of the employee’s contributions up to $4,000).
All of our Named Executive Officers received the maximum matching payment in 2019, which
appear as “Other Compensation” in the Summary Compensation Table.
|
|
|
●
|
Health
Savings Accounts. Each of the Company’s high-deductible health plans is
offered in tandem with a tax-advantaged health savings account (or “HSA”)
and provides for Company-paid contributions to participants’ HSAs in an amount
equal to half of the participant’s deductible. Messrs. El-Khoury, Trent, and Geha
and Ms. Tondreau received Company-paid HSA contributions under this program in 2019,
which appear as “Other Compensation” in the Summary Compensation Table.
|
|
|
●
|
Patent
Bonus Program. The Company’s patent bonus program rewards employees who
are named as inventors in patents newly issued to the Company. Employee inventors share
a $3,000 bonus per patent. Mr. El-Khoury received $333 under this program in 2019 for
being one of nine inventors named in a patent newly issued to the Company, which appears
as “Bonus” in the Summary Compensation Table.
|
|
|
●
|
Employee
Recognition Program. The Company’s Proactive Problem Solutions (or PROPS)
program allows employees to nominate peers for outstanding performance and provides for
automatic rewards upon certain milestones. Reward vouchers can be redeemed for merchandise
and the program provides a tax gross-up to recipients. In 2019, Ms. Tondreau received
an automatic 5-year service reward voucher for $250 (and a corresponding tax gross-up
of $213) under this program, which amounts are included in the “All Other Compensation”
column of the Summary Compensation Table.
|
We
do not provide other material perquisites to our executive officers.
Severance
and Change of Control Severance Arrangements
The
Compensation Committee believes that providing our Senior Executives with specified benefits in the event of a termination of
employment by Cypress without “cause” (or by the executive for “good reason” in certain circumstances)
is consistent with competitive practices. It also helps us retain executives and maintain leadership stability. Furthermore, the
Compensation Committee believes that adopting uniform terms, as reflected in the severance arrangements described below, helps
to ensure that our executives are treated fairly and consistently, and helps the Company avoid the need to separately negotiate
severance in connection with each individual termination of employment.
Accordingly,
in 2018 we entered into agreements with our Senior Executives (including each of the Named Executive Officers) to provide severance
if their employment terminates in certain circumstances. Mr. El-Khoury’s severance arrangements are set forth in his employment
agreement and our other Senior Executives’ arrangements are set forth in separate Change of Control Severance Agreements.
We refer to these agreements as our “Severance Arrangements”; they are described in detail in the section of this
Amendment captioned “Executive Compensation Tables—Potential Payments Upon Termination or Change of Control.”
As
described in that section, among other matters the Severance Arrangements provide an approach for acceleration of outstanding
performance-based awards that will apply in the event of a double-trigger termination5 unless the terms of the
pertinent performance-based award provide an alternate severance acceleration formula (in which case such alternate formula
shall control). In the case of the LTI PSUs granted in 2019, the Committee included an alternate acceleration formula (the
“Alternate Acceleration Formula”) in the award letter. As explained above (see “—2019 Long Term
Incentive Program”), the 2019 LTI PSUs’ performance goals feature a set of performance milestones applicable to
fiscal 2019 only (namely, non-GAAP operating margin and customer experience) with a weighted payout (ranging from 0% to 150%)
based on such 2019 milestones that will apply to all three of the award’s annual vesting tranches, and with further
multipliers (ranging from 1.0x to 1.5x) that will apply to each of the three annual vesting tranches based on
Cypress’s relative TSR percentile over the prior one, two, or three years as applicable. The Committee’s Alternate
Acceleration Formula for this award provides that in the event of a double-trigger termination5 (a) the 2019
performance milestones will be deemed to have been met at target (i.e., at 100%) in the case of a change of
control5 before the end of fiscal 2019, or at the actual performance level in the case of a change of
control5 at or after the end of fiscal 2019, and (b) any TSR performance period in progress will end on the date
of the change of control5 and the Company’s relative TSR over such period will be calculated with the
Company’s ending price deemed to be the merger consideration per share received by our stockholders, rather than our
trailing 20 trading day average closing market price6 and otherwise according to the payout scale in the award
agreement. Any as yet outstanding tranche would then accelerate upon the double-trigger termination5 based on
target shares multiplied by such 2019 payout percentage and such TSR multiplier. The Committee included the Alternate
Acceleration Formula because it wanted any change-of-control acceleration to depend, in part, on the actual merger
consideration received by stockholders, in order to incentivize management to negotiate the best possible sale
price.
The
Severance Arrangements with our Senior Executives have not been amended since 2018. However, the Merger Agreement negotiated with
Infineon provides certain additional benefits, including the following:
|
|
5.
|
Or,
for Mr. El-Khoury, any termination by the Company without “cause” or by Mr.
El-Khoury for “good reason,” as such terms are defined under his Severance
Arrangement.
|
|
|
6.
|
In
the case of a qualifying termination of Mr. El-Khoury not in connection with a change
in control, the Company’s relative TSR over such period will be calculated for
the Company in the same manner as for the other index companies (i.e., with ending price
defined as the trailing 20 trading day average closing market price).
|
|
|
●
|
Single-Trigger
Acceleration of 50% of Service-Based RSUs – The Merger Agreement provides that,
immediately prior to the Closing, any outstanding service based RSUs that were granted
prior to the June 3, 2019 Merger announcement will be accelerated as to 50% of each outstanding
vesting tranche (with the accelerated portion paid out based on the Merger consideration
of $23.85 per unit). This is in contrast to our prior Severance Arrangements, which do
not provide any benefits—commonly called “single-trigger” benefits—that
would become payable upon a change of control alone (i.e., without any related termination of the executive’s employment).
The Merger Agreement provides that the remaining 50% of such RSUs (along with all outstanding RSUs granted after June 3, 2019)
will convert at Closing into cash-based awards that entitle the holder to $23.85 per unit, subject to continued employment through
the predecessor RSU’s originally scheduled vesting date.
|
|
|
●
|
2019
LTI PSU Conversion Level – In the case of the 2019 LTI PSU, the Merger Agreement
provides that upon the Closing the 2019 LTI PSUs will convert into cash-based awards,
with the number of cash-based units being equal to the number of shares that would accelerate
vesting in the event of a double-trigger termination under the Alternate Acceleration
Formula described above, except that the 2019 performance goals will be deemed to have
been met at the maximum level of 150% (rather than the actual performance level of approximately
121% as would have been the case under our prior Severance Arrangements). Based on prevailing
market prices as of April 1, 2020, the formula in the Merger Agreement is expected to
result in conversion of the 2019 LTI award at its overall maximum level (of 225% of target)
at the Closing. Each cash-based award will entitle the holder to $23.85 per unit, subject
to continued employment through the predecessor PSU’s originally scheduled vesting
date.
|
|
|
●
|
Other
PSUs’ Conversion Level – The Merger Agreement provides for all other
outstanding PSUs at Closing to convert into a number of cash-based units at the predecessor
PSUs’ maximum achievement level.
|
|
|
●
|
Double-Trigger
Acceleration of Cash-Based Units – The Merger Agreement further provides so-called
“double-trigger” protection that will cause all of the holder’s cash-based
awards (received at Closing upon conversion of his or her stock-based RSUs and PSUs,
as described above) to accelerate payment if, after the Closing, the holder’s employment
is (a) terminated by the Company for any reason other than for “cause” or
(b) terminated by the holder for “good reason” (as such terms are defined
in the Merger Agreement). In the case of executives with pre-existing Severance Arrangements,
the Merger Agreement defines “cause” and “good reason” by reference
to the definitions used in the Severance Arrangements. The effect of these provisions
is that a Senior Executive who experiences a double-trigger termination after the Closing
will receive cash value for his or her PSUs based on their maximum achievement level.
This is in contrast to our prior Severance Arrangements, which generally provided for
acceleration of PSUs at target level.7
|
The
events leading up to the negotiation of the Merger Agreement are described in detail under the caption “The Merger—Background
of the Merger” in the Company’s definitive proxy statement soliciting stockholders’ approval of the Merger,
which was filed with the SEC on July 16, 2019. The treatment of equity awards in connection with the pending Merger and the benefits
that may become payable to each Named Executive Officer if his or her employment terminates in specified circumstances after the
Closing are described in detail in that same filing under the caption “The Merger—Interests of Cypress’s Executive
Officers and Directors in the Merger.”
In
the event the Merger Agreement is terminated before any Closing, the additional severance benefits listed above will cease to
apply.
RISK
CONSIDERATIONS
Risk
Assessment
The
Compensation Committee regularly considers the risks associated with Cypress’s compensation policies and practices for employees,
including those related to executive compensation programs. As part of the risk assessment, the Compensation Committee reviews
Cypress’s compensation programs to avoid certain design features that have the potential to encourage excessive risk-taking.
|
|
7.
|
The
only exceptions to this generalization are (a) with respect to the 2019 LTI PSU award,
as described above, and (b) with respect to PSUs granted prior to December 3, 2018 to
Mr. El-Khoury, of which only the 2018 LTI PSU remains outstanding as of the filing of
this Amendment. For such latter category (b), the terms of Mr. El-Khoury’s applicable
agreement provide that “all vesting … shall be accelerated in full”
in the event of a termination without cause or a resignation for good reason. For purposes
of preparing our compensation-related disclosures, we interpret such phrase to provide
for acceleration of such PSUs at the maximum level.
|
Material
risk in our compensation program design is mitigated in several ways, including:
|
|
●
|
we
have an appropriate mix of pay elements, with compensation well-balanced between fixed
and variable elements, and short-term and long-term incentives;
|
|
|
●
|
base
salaries are intended to constitute a sufficient component of total compensation to discourage
undue risk taking in order to meet incentive goals;
|
|
|
●
|
incentive
plans are designed with goals that are intended to result in long-term value to our stockholders;
|
|
|
●
|
financial
and earnings goals and opportunities in our incentive programs are at levels intended
to be attainable without the need to take inappropriate risks;
|
|
|
●
|
bonus
and incentive opportunities are capped so that the upside potential is not so large as
to encourage undue risk taking;
|
|
|
●
|
many
of our equity incentives vest or are earned over a multi-year period, which requires
the executive to bear the economic risk of the award over the vesting or performance
period;
|
|
|
●
|
our
incentive plans define a range of performance over which payouts may be earned, including
at levels below target achievement, rather than an “all-or-nothing” approach;
|
|
|
●
|
we
generally use different performance measures in different incentive programs, which provides
balance and reduces the potential for taking undue risks to meet a single goal;
|
|
|
●
|
the
stock components of our long-term incentive program, combined with our stock ownership
guidelines, align the interests of our executives with long-term preservation and appreciation
of stockholder value;
|
|
|
●
|
we
prohibit pledging of, and hedging against losses in, Cypress securities by our executives;
|
|
|
●
|
incentive
payments and awards are subject to clawback in the event of a material restatement of
our financial results;
|
|
|
●
|
our
Compensation Committee retains a compensation consultant for independent advice and objective
market data; and
|
|
|
●
|
the
Compensation Committee considers information from peer companies in evaluating compensation
levels (annual review) and incentive plan designs (periodic review), thereby avoiding
unusually high pay opportunities and unusual pay structures relative to the Company’s
peers.
|
The
Compensation Committee, with assistance from its independent compensation consultant, has reviewed compensation related risks
and does not believe Cypress’s compensation programs encourage excessive or inappropriate risk taking or create risks that
are reasonably likely to have a material adverse effect on Cypress. The Compensation Committee, with the assistance of its compensation
consultant, intends to continue to take risk considerations into account when designing executive compensation programs.
Stock
Ownership Requirements
Our
Named Executive Officers are subject to stock ownership requirements. Our CEO is required to hold Cypress stock with a value of
six times his base salary and each other Named Executive Officer is required to hold Cypress stock with a value of four times
his or her base salary. All of our Named Executive Officers are in compliance with these requirements as of April 1, 2020. For
more information, see “Director Compensation—Stock Ownership Requirements,” above.
Policy
Against Hedging and Pledging
The
Company recognizes that hedging against losses in shares of our common stock may undermine the alignment between stockholders
and executives that the Company’s stock ownership policy and equity awards are intended to build. Accordingly, the
Company has incorporated prohibitions on various hedging activities within its corporate governance guidelines and insider
trading policy (the “Insider Trading policy”), which applies to our directors and officers, our employees, and
our representatives and independent contractors, as well as the immediate families of such persons (collectively,
“Insiders”). All Insiders are prohibited from engaging in short sales of Company securities and trading in
derivatives (such as put and call options, straddles, prepaid variable forward contracts, equity swaps, collars, and exchange
funds) that relate to Company securities. Our Insiders are further prohibited from pledging Company securities as collateral
for a loan, purchasing Company securities on margin, and holding Company securities in a margin account.
As
of April 1, 2020, our Named Executive Officers do not hold any Cypress securities that are pledged (whether pursuant to a margin
account, as security for a loan, or otherwise).
Grant
Practices
The
Compensation Committee generally holds four in-person meetings per year, with additional telephonic meetings as required. Each
year, equity awards to the Senior Executives (i.e., our Named Executive Officers and other executives who report directly to the
CEO) are approved (or, in the case of grants to the CEO, recommended to the Board) by the Compensation Committee, generally at
an in-person meeting held in February. Such grants are generally approved by reference to specified dollar amounts, which are
converted into share-based amounts using the per-share closing market price of our common stock on the grant date. The grant date
is generally specified as the first trading day after the date of the Committee’s meeting (which allows time for Board approval
of the Committee’s recommendation, in the case of grants to the CEO). This schedule is designed so that awards are not granted
to Senior Executives during our Insider Trading Policy’s quarterly blackout period (which typically commences 16 days before the
end of each fiscal quarter and ends 24 hours after our quarterly earnings release).
The
Compensation Committee has delegated to our chief legal and human resources officer the authority to approve equity awards to
employees below the Senior Executive level, but only within Committee-approved guidelines (which establish dollar-based
ranges for various job-types and seniority levels, as well as an overall annual grant limit). The chief legal and human
resources officer’s general practice is to approve awards to new hires on the eighth day of the month following their
month of hire (or on the next business day, if such eighth day is not a business day). In the second half of 2019, we added a
second grant date per month, in order to more efficiently utilize capacity under the monthly grant limits imposed by the
Merger Agreement and as agreed with Infineon.
Clawback
Policy
Cypress’s
clawback policy requires the return of performance-based compensation payments to Cypress (i) by any executive engaged in (a)
fraud, theft, misappropriation, embezzlement or dishonesty, or (b) intentional misconduct related to Cypress’s financial
reporting, or (ii) in the event of a material negative revision of any financial or operating measure on which performance-based
compensation was paid out to such executive.
MATERIAL
COMPENSATION ACTIONS FOR 2020
2020
Peer Group Companies
In
August 2019, the Compensation Committee revised our peer group for 2020 to account for mergers and acquisitions within our industry
and otherwise as recommended by the independent compensation consultant. Specifically, the Committee removed Integrated Device
Technology (which had been acquired by Renesas Electronics in March 2019) and Synaptics Incorporated (which was significantly
below the Company’s market capitalization range). The Committee resolved to keep Mellanox Technologies in the peer group, despite
its pending acquisition by Nvidia, as it had already filed its annual compensation disclosures, which were therefore available
to provide another point of insight into market practice. The resulting peer group, which was used for purposes of the comparative
review that informed the Committee’s compensation decisions made to date in 2020, is as listed below:
|
2020
Peer Group Companies
|
|
Advanced
Micro Devices, Inc.
|
Microchip
Technology Inc.
|
|
Cirrus
Logic, Inc.
|
ON
Semiconductor Corp.
|
|
Cree,
Inc.
|
Qorvo,
Inc.
|
|
Diodes
Incorporated
|
Silicon
Laboratories, Inc.
|
|
Marvell
Technology Group Ltd.
|
Skyworks
Solutions, Inc.
|
|
Maxim
Integrated Products Inc.
|
Xilinx,
Inc.
|
|
Mellanox
Technologies, Ltd.
|
|
As
of mid-2019 when this peer group was selected, Cypress ranked at the 42nd percentile among the peers in revenue (over the prior
four quarters), at the 40th percentile in market capitalization, at the 37th percentile in number of employees, at the 53rd percentile
in revenue growth (3-year CAGR), at the 47th percentile in operating income, and at the 67th percentile in net income.
2020
Base Salaries and Short-Term Incentive (Cash Bonus) Plan
In
February 2020, the Compensation Committee reviewed the annual base salaries and target bonus incentives for our Named Executive
Officers and decided to leave them unchanged for 2020. At the same time, the Compensation Committee approved the Named Executive
Officers’ continued participation in our short-term incentive (cash bonus) plan, the Cypress Incentive Plan (or CIP), for another
year. These Committee actions with regard to the CEO were confirmed by the Board.
The
fiscal 2020 CIP will be structured similarly to 2019. Bonus payments under the CIP for the Named Executive Officers will continue
to be calculated and paid on an annual basis. The Company Funding Percentage for 2020 will continue to be determined by a combination
of revenue and non-GAAP pre-tax profit margin targets, subject to the Compensation Committee’s discretionary evaluation of the
Company’s operational performance for the year. Individual performance factors will continue to be determined based on the achievement
of individual milestones, which vary by individual and are focused on factors critical to our success, including financial targets,
and initiatives relating to the internet of things, new product development, and customer experience, among many other topics.
The
Committee’s salary and bonus participation decisions were based on a review of each Named Executive Officer’s compensation
compared to the compensation of his or her applicable counterparts at our peer group companies and each executive’s performance,
as well as the other factors listed in “Determining Compensation Levels” above. The Merger Agreement also prohibits
us (absent Infineon’s consent) from altering any compensation plan or making salary or bonus adjustments for anyone whose annual
base salary exceeds $300,000.
2020
Long-Term Incentive (Equity Award) Program
In
February 2020, the Compensation Committee approved grants of RSUs (confirmed by the Board, in the case of the grant to our CEO)
as part of our Long-Term Incentive Program for 2020. The Merger Agreement permitted us to make such grants provided that all grants
were subject only to service-based vesting (so performance-based units (PSUs) could not be granted).
When
the prior year’s LTI awards were approved (in February 2019), the Committee had applied a Special 2019 Increase to the amounts
that otherwise would have been approved for 2019 and the Committee had further determined that equity award grants in 2020 should
be discounted by the same percentage. In that respect the Special 2019 Increase was originally intended to shift equity award
value from 2020 grants to 2019 grants. (See “— 2019 Long-Term Incentive Program,” above, for a further explanation
of the Special 2019 Increase.) When the 2020 grants were approved, however, the Committee determined not to apply any such
discount for 2020. The Committee believed the Merger Agreement’s prohibition of PSU grants had already reduced the Senior Executives’
upside opportunity and that a further reduction of RSU value would not be appropriate. In addition, the Merger Agreement required
each Senior Executive’s grant value to be consistent with his or her 2019 grant.
Accordingly,
the 2020 LTI awards approved by the Committee (and confirmed by the Board for the CEO) consisted only of service-based RSU awards,
scheduled to vest in three equal annual installments. The 2020 LTI awards do not qualify for the 50% acceleration of vesting upon
Closing under the terms of the Merger Agreement but will vest upon a double-trigger termination following the Closing. The grant
value approved by the Committee for each Senior Executive (and confirmed by the Board for the CEO) was equal to the approved value
of his or her 2019 LTI award, as adjusted to exclude the Special 2019 Increase (but without application of any further discount).
As directed by the Committee, the grant date for these awards was Sunday, March 1, 2020 and approved values were translated into
numbers of units using the Friday, February 28, 2020 closing market price for our common stock. The 2020 LTI grants to our Named
Executive Officers are shown below:
|
Name
|
2020 LTI Equity Award (3-Year, Service-Based)
|
|
Approved Value
|
Number of RSUs
|
|
Hassane El-Khoury
|
$5.4 million
|
233,867
|
|
Thad Trent
|
$2.0 million
|
86,617
|
|
Sudhir Gopalswamy
|
$1.9 million
|
82,286
|
|
Pamela L. Tondreau
|
$1.65 million
|
71,459
|
|
Sam Geha
|
$1.6 million
|
69,294
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During
fiscal year 2019, the following directors were members of our Compensation Committee: Camillo Martino, Jeffrey J. Owens, Jeannine
P. Sargent, and Michael S. Wishart. None of the Compensation Committee members is or has at any time been an officer or employee
of Cypress.
None
of Cypress’s executive officers serves, or in the past fiscal year served, as a member of the board of directors or compensation
committee of any entity that has one or more of its named executive officers serving on Cypress’s Board or Compensation
Committee.
COMPENSATION
COMMITTEE REPORT
We
have reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this
report. Based on this review and discussion, we have recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Annual Report.
COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
Camillo
Martino, Chairman
Jeffrey J. Owens
Jeannine
P. Sargent
Michael S. Wishart
EXECUTIVE
COMPENSATION TABLES
The
tables on the following pages present compensation information for:
|
|
●
|
Hassane
El-Khoury, our president and chief executive officer;
|
|
|
●
|
Thad
Trent, our executive vice president, finance and administration, and chief financial
officer;
|
|
|
●
|
Sam
Geha, our executive vice president, memory products division;
|
|
|
●
|
Sudhir
Gopalswamy, our executive vice president, microcontroller & connectivity division;
and
|
|
|
●
|
Pamela
L. Tondreau, our executive vice president, chief legal and human resources officer, and
corporate secretary.
|
These
five individuals are our “Named Executive Officers” (or NEOs). During fiscal 2019, we did not have any other executive
officers (as such term is defined by the SEC in Rule 3b-7 under the Exchange Act).
Summary
Compensation Table — 2017-2019
The
following table presents summary compensation information for fiscal years 2019, 2018, and 2017:
|
Name
and Principal Position
|
Year
|
Salary(1)
($)
|
Bonus(2)
($)
|
Stock
Awards(3)
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation(4)
($)
|
All
Other
Compensation(5)
($)
|
Total
Compensation
($)
|
|
Hassane
El-Khoury(6)
President,
Chief Executive Officer, and Director
|
2019
|
726,923
|
1,125,333
|
8,714,980
|
—
|
—
|
4,622
|
10,571,858
|
|
2018
|
676,923
|
500
|
5,385,541
|
—
|
950,875
|
4,043
|
7,017,882
|
|
2017
|
650,000
|
500
|
4,852,323
|
—
|
923,599
|
3,024
|
6,429,446
|
|
Thad
Trent(7)
Executive
Vice President, Finance & Administration, Chief Financial Officer
|
2019
|
443,077
|
382,500
|
3,134,876
|
—
|
—
|
4,764
|
3,965,217
|
|
2018
|
418,846
|
—
|
1,957,463
|
—
|
325,962
|
3,911
|
2,706,182
|
|
2017
|
398,077
|
—
|
1,759,615
|
—
|
342,239
|
2,760
|
2,502,691
|
|
Sam
Geha(8)
Executive
Vice President, Memory Products Division
|
2019
|
363,462
|
281,250
|
2,522,892
|
—
|
—
|
4,554
|
3,172,158
|
|
2018
|
345,385
|
—
|
1,738,043
|
—
|
262,327
|
3,700
|
2,349,455
|
|
2017
|
338,631
|
—
|
1,599,650
|
—
|
269,690
|
2,385
|
2,210,356
|
|
Sudhir
Gopalswamy(9)
Executive
Vice President, Microcontroller & Connectivity Division
|
2019
|
384,154
|
307,500
|
2,972,502
|
—
|
—
|
3,151
|
3,667,307
|
|
2018
|
347,538
|
—
|
2,031,338
|
—
|
186,843
|
3,125
|
2,568,844
|
|
2017
|
337,961
|
—
|
1,599,650
|
—
|
235,862
|
1,460
|
2,174,933
|
|
Pamela
L. Tondreau(10)
Executive
Vice President, Chief Legal and Human Resources Officer
|
2019
|
390,385
|
296,250
|
2,585,310
|
—
|
—
|
5,073
|
3,277,018
|
|
2018
|
373,461
|
—
|
1,689,152
|
—
|
267,133
|
3,770
|
2,333,516
|
|
2017
|
359,154
|
—
|
1,439,685
|
—
|
323,882
|
—
|
2,112,721
|
|
|
(1)
|
Includes
amounts (if any) electively deferred by Named Executive Officers participating in the
Cypress Semiconductor Corporation Non-Qualified Deferred Compensation Plan. For more
information, see the Non-Qualified Deferred Compensation Table below and “CD&A—Other
Compensation/Benefits/Perquisites” above.
|
|
|
(2)
|
Mr.
El-Khoury received a $333 bonus in August 2019 under the Company’s patent bonus program
(which is open to all full-time employees) for being among the inventors named in a patent
issued to the Company in 2019.
|
For
2019, amounts in the “Bonus” column also include the bonus paid for 2019 under the Cypress Incentive Plan (or “CIP”).
Payment of 2019 CIP bonuses to the NEOs were accelerated by the Board at the target level in December 2019. Because the acceleration
was discretionary rather than pursuant to the terms of the incentive plan, the accelerated amounts are reported under “Bonus”
rather than under “Non-Equity Incentive Plan Compensation.”
|
|
(3)
|
In
2019 our Named Executive Officers each received one service-based RSU award and one performance-based PSU award.
|
Please
note that the “Stock Award” values in the table above do not present the value of the stock that vested
to our Named Executive Officers in the years shown. Instead, as required by SEC rules, the
Stock Awards column presents the grant date fair value of the equity awards that were granted to
each executive in the years shown (as computed for accounting purposes in accordance with FASB ASC 718 and SEC rules). Accordingly,
for 2019 this column includes the aggregate grant date fair value of the 2019 RSU and PSU grants. This column also includes the
incremental fair value, computed in accordance with FASB ASC 718 and SEC rules, of the December 2019 modifications (see “—Modifications
to Equity Awards and Non-Equity Incentive Plan Awards,” below).
For
more information on the 2019 awards’ vesting schedules and performance conditions, please see “CD&A—2019 Long-Term
Incentive Program.” For more information about the component values included in the Stock Awards column, see the “Grants
of Plan-Based Awards Table,” below. For the value of stock awards that actually vested in 2019, see the “Option Exercises
and Stock Vested Table” below.
As
mentioned above, values in the “Stock Awards” column present grant date fair value (as computed for accounting
purposes in accordance with FASB ASC 718 and SEC rules). As required by SEC and accounting rules, we calculated each PSU’s
grant date fair value based on the performance outcome we judged to be probable when the award was granted. The PSUs granted
in 2019 can vest up to 225 percent of target, according to their terms, with the ultimate vesting level depending on our
achievement of performance goals established by the Compensation Committee. For performance goals involving financial or
operational measures, at the time of grant we generally considered target performance to be probable, so the grant date fair
values included in the table above are based on our expectation that the portions of the awards subject to financial or
operational milestones would be achieved at target. For performance goals (such as relative TSR) that involve future market
prices of common stock, we determined the fair value using a Monte Carlo simulation model. The following table presents the
grant date fair values of the PSUs granted in 2019 under two sets of assumptions: (a) assuming that the performance goals
would be achieved at the probable level and (b) assuming that the highest level of performance vesting would be
achieved.
|
Name
|
Grant
Date Fair Value
of PSUs Granted in 2019
|
Based
on
Probable Outcome
($)
|
Based
on
Maximum Performance
($)
|
|
Hassane
El-Khoury
|
5,093,880
|
7,640,802
|
|
Thad
Trent
|
1,582,750
|
2,374,116
|
|
Sam
Geha
|
1,266,195
|
1,899,284
|
|
Sudhir
Gopalswamy
|
1,503,621
|
2,255,421
|
|
Pamela
L. Tondreau
|
1,305,760
|
1,958,621
|
For
purposes of presenting FASB ASC 718 grant date fair value in our director and officer compensation tables, as required by SEC
rules we have excluded any impact of estimated forfeitures related to service-based vesting conditions. For information on other
assumptions used in our grant date fair value computations, refer to Note 11—“Employee Stock Plans and Stock-Based
Compensation” in the Notes to Consolidated Financial Statements in the Original Filing of our 2019 Form 10-K.
|
|
(4)
|
For
2017 and 2018, the “Non-Equity Incentive Plan Compensation” column presents
bonus amounts earned under the Cypress Incentive Plan (or CIP) for performance during
the specified year (even if paid out early in the following year). For 2019, CIP bonuses
are reported under “Bonus” as described in Note (2) above.
|
|
|
(5)
|
“All
Other Compensation” amounts for 2019 include:
|
|
|
●
|
for
Mr. El-Khoury: Company-paid matching contributions of $2,000 under our 401(k) plan (open
to all U.S. employees), premiums for group term life insurance (provided to all U.S.
employees) valued at $1,872, and Company-paid contributions of $750 to his health savings
account (HSA) under our health benefit program open to all U.S. employees;
|
|
|
●
|
for
Mr. Trent: 401(k) matching contributions of $2,000, Company-paid HSA contributions of
$1,500, and group term life insurance premiums valued at $1,264;
|
|
|
●
|
for
Mr. Geha: 401(k) matching contributions of $2,000, Company-paid HSA contributions of
$1,500, and group term life insurance premiums valued at $1,054;
|
|
|
●
|
for
Mr. Gopalswamy: 401(k) matching contributions of $2,000 and group term life insurance
premiums valued at $1,151; and
|
|
|
●
|
for
Ms. Tondreau: 401(k) matching contributions of $2,000, Company-paid HSA contributions
of $1,500, group term life insurance premiums valued at $1,110, a voucher redeemable
for $250 of merchandise automatically awarded in December 2019 under the Company’s employee
recognition program (open to all employees) upon Ms. Tondreau’s completion of five years
of service at Cypress, and a “gross-up” payment of $213 to eliminate the adverse
tax consequences of receiving such voucher and gross-up.
|
Cypress
is not the beneficiary of the life insurance policies. Our Named Executive Officers participate in the same group term life insurance
program as other Cypress employees. The policies pay out at three times the employee’s annual base salary if the employee
dies during the coverage period.
|
|
(6)
|
Mr.
El-Khoury’s annual salary rate was increased from $650,000 to $700,000 effective June 4, 2018, and to $750,000 effective June
3, 2019.
|
|
|
(7)
|
Mr.
Trent’s annual salary rate was increased from $400,000 to $435,000 effective June 4, 2018, and to $450,000 effective June 3, 2019.
|
|
|
(8)
|
Mr.
Geha was promoted to Executive Vice President, Memory Products Division in February 2018. Previously, he served as our Senior
Vice President of the Memory Products Division. Mr. Geha’s annual salary rate was increased from $340,000 to $350,000 effective
June 4, 2018, and to $375,000 effective June 3, 2019.
|
|
|
(9)
|
Mr.
Gopalswamy was promoted to Executive Vice President, Microcontroller & Connectivity Division in February 2018. Previously,
he served as our Senior Vice President of the Microcontroller & Connectivity Division. Mr. Gopalswamy’s annual salary rate
was increased from $340,000 to $354,000 effective June 4, 2018, and to $410,000 effective June 3, 2019.
|
|
|
(10)
|
Ms.
Tondreau was promoted to Executive Vice President, and Chief Legal and Human Resources Officer in February 2018. Previously, she
served as our Senior Vice President, and Chief Legal and Human Resources Officer. Ms. Tondreau’s annual salary rate was increased
from $360,000 to $385,000 effective June 4, 2018, and to $395,000 effective June 3, 2019.
|
Grants
of Plan-Based Awards Table—2019
The
following table presents all plan-based awards granted to our Named Executive Officers during fiscal year 2019.
|
Name
and
Award Type
|
Grant
Date
|
Date
of
Compensation Committee Approval
|
Estimated
Possible Payouts Under Non-Equity Incentive Plan Awards(1)
|
Estimated
Future Payouts Under Equity Incentive Plan Awards(3)
|
All
Other Stock Awards: Number of Shares of Stock or Units (#)(5)
|
Grant
Date Fair Value of Stock and Option Awards ($)(6)
|
|
Threshold
($)(2)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)(4)
|
Target
(#)
|
Maximum
(#)
|
|
Hassane
El-Khoury
|
|
Cash
Bonus Opportunity(7)
|
|
1/29/2019
|
|
1,125,000
|
2,812,500
|
|
|
|
|
|
|
RSU
Award(8)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
|
|
146,268
|
2,187,058
|
|
PSU
Award(9)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
270,598
|
608,844
|
|
5,093,880
|
|
Modification
of PSU Award(10)
|
3/16/2017
|
12/12/2019
|
|
|
|
|
|
|
|
379,669
|
|
Modification
of PSU Award(11)
|
2/15/2019
|
12/12/2019
|
|
|
|
|
|
|
|
1,054,374
|
|
Name
and
Award Type
|
Grant
Date
|
Date
of
Compensation Committee Approval
|
Estimated
Possible Payouts Under Non-Equity Incentive Plan Awards(1)
|
Estimated
Future Payouts Under Equity Incentive Plan Awards(3)
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)(5)
|
Grant
Date Fair Value of Stock and Option
Awards ($)(6)
|
|
Threshold
($)(2)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)(4)
|
Target
(#)
|
Maximum
(#)
|
|
Thad
Trent
|
|
Cash
Bonus Opportunity(7)
|
|
1/29/2019
|
|
382,500
|
956,250
|
|
|
|
|
|
|
RSU
Award(12)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
|
|
70,425
|
1,049,621
|
|
PSU
Award(13)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
83,969
|
188,929
|
|
1,582,750
|
|
Modification
of PSU Award(10)
|
3/16/2017
|
12/12/2019
|
|
|
|
|
|
|
|
137,679
|
|
Modification
of PSU Award(11)
|
2/15/2019
|
12/12/2019
|
|
|
|
|
|
|
|
364,825
|
|
Sam
Geha
|
|
Cash
Bonus Opportunity(7)
|
|
1/29/2019
|
|
281,250
|
703,125
|
|
|
|
|
|
|
RSU
Award(12)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
|
|
56,340
|
839,697
|
|
PSU
Award(13)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
67,175
|
151,142
|
|
1,266,195
|
|
Modification
of PSU Award(10)
|
3/16/2017
|
12/12/2019
|
|
|
|
|
|
|
|
125,167
|
|
Modification
of PSU Award(11)
|
2/15/2019
|
12/12/2019
|
|
|
|
|
|
|
|
291,833
|
|
Sudhir
Gopalswamy
|
|
Cash
Bonus Opportunity(7)
|
|
1/29/2019
|
|
307,500
|
768,750
|
|
|
|
|
|
|
RSU
Award(12)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
|
|
66,904
|
997,144
|
|
PSU
Award(13)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
79,771
|
179,483
|
|
1,503,621
|
|
Modification
of PSU Award(10)
|
3/16/2017
|
12/12/2019
|
|
|
|
|
|
|
|
125,167
|
|
Modification
of PSU Award(11)
|
2/15/2019
|
12/12/2019
|
|
|
|
|
|
|
|
346,570
|
|
Pamela
Tondreau
|
|
Cash
Bonus Opportunity(7)
|
|
1/29/2019
|
|
296,250
|
740,625
|
|
|
|
|
|
|
RSU
Award(12)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
|
|
58,101
|
865,943
|
|
PSU
Award(13)
|
2/15/2019
|
2/14/2019
|
|
|
|
|
69,274
|
155,865
|
|
1,305,760
|
|
Modification
of PSU Award(10)
|
3/16/2017
|
12/12/2019
|
|
|
|
|
|
|
|
112,643
|
|
Modification
of PSU Award(11)
|
2/15/2019
|
12/12/2019
|
|
|
|
|
|
|
|
300,963
|
|
|
(1)
|
Amounts in the
“Non-Equity Incentive Plan” columns represent cash bonus opportunities under our short-term incentive (cash
bonus) plan, the Cypress Incentive Plan (or CIP). As the CIP is designed, the CIP’s performance period is the fiscal
year, corporate and individual goals are set early in the year, and any cash bonus earned is paid out upon Compensation
Committee approval shortly after the end of the year. Under the CIP, our Compensation Committee assigns an incentive target
to each NEO expressed as a percentage of base salary. For 2019, the incentive target for Mr. El-Khoury was 150%, the
incentive target for Mr. Trent was 85%, and the incentive target for each of Mr. Geha, Mr. Gopalswamy, and Ms. Tondreau was
75%. Each executive’s target bonus is shown in the “Target” column above, calculated as his or her annual
incentive target multiplied by his or her annualized base salary rate at the end of the year. Under the CIP design, the
actual bonus for the year is determined by multiplying the Named Executive Officer’s target bonus by (a) a Company
funding percentage that may range from 0% to 200% and (b) an individual goal achievement percentage that may range from 0% to
100% (or up to 125% in the case of special “stretch” goals). The Company funding percentage for the year is
determined by the Compensation Committee after year-end based on (x) the Company’s performance relative to financial
goals for such period established by the Committee early in the year and (y) the Committee’s discretionary assessment
of the Company’s operational performance for the year. For 2019, the funding goal metrics were revenue and non-GAAP
pre-tax profit margin. Each NEO’s individual goal achievement percentage was designed to be determined by the
Compensation Committee after year-end based on the Committee’s assessment of his or her performance for the year,
particularly with respect to his or her Critical Success Factor goals (or “CSFs”) for the year. CSFs were
assigned to each participant shortly after the start of the year by the Compensation Committee, in the case of Mr.
El-Khoury’s goals, or by the CEO subject to Committee oversight, in the case of the other NEOs’ goals. CIP
bonuses cannot exceed 250 percent of target. The “maximum” column presents each NEO’s maximum possible CIP
bonus for 2019 (250% of the target amount).
|
On
December 12, 2019, the Board of Directors accelerated payment of the 2019 CIP bonus at the target level for each NEO, and such
bonuses were paid on December 20, 2019. The acceleration was approved primarily to preserve compensation-related corporate income
tax deductions for Cypress that might otherwise be disallowed through the operation of Section 280G of the Tax Code,
in connection with the Merger. Because the acceleration was discretionary rather than pursuant to the terms of the incentive plan
design, the accelerated amounts are reported in the “Bonus” column of the Summary Compensation Table. There were no
other payouts to the NEOs in connection with the 2019 CIP.
|
|
(2)
|
There was no
threshold bonus under the CIP for 2019. The Company funding percentage for the year was subject to two performance measures,
revenue and non-GAAP pre-tax profit margin, with goal levels for each measure arranged on a two dimensional matrix. The
funding percentage would be zero if the Company did not achieve The non-GAAP pre-tax profit margin measure’s minimum
performance level, subject to Compensation Committee discretion to override the performance-determined result. If the Company
performed above minimum levels but less than the next higher goal level, the funding percentage would be
determined by linear interpolation between 0% and the funding percentage for such next higher level.
|
|
|
(3)
|
Amounts
in the “Equity Incentive Plan” columns represent performance-based PSU awards granted under the Company’s 2013 Stock
Plan as part of our Long-Term Incentive (LTI) Program. Each PSU is subject to both performance-based and service-based vesting
requirements. This means that, in addition to satisfying the performance-based requirements, the grantee must also remain continuously
employed with the Company through the vesting date specified in the award agreement for the grantee’s PSUs to vest. As described
in the CD&A, the goals for the PSUs granted in 2019 relate to the Company’s 2019 non-GAAP operating income, 2019 achievement
of customer experience plan goals, and the Company’s total stockholder return (TSR) over one-, two-, and three-year periods relative
to that of the other companies in the S&P Semiconductors Index for the same periods.
|
|
|
(4)
|
There
was no vesting threshold for the PSUs granted in 2019. The vesting for each PSU is subject to various performance measures as
listed in Note (3) above. The portion of each PSU allocated to each measure will not vest if the Company does not achieve that
measure’s minimum performance level. If the Company performs above that measure’s minimum level but less than 100
percent of its target level, the portion of the PSU allocated to that measure would vest between zero percent and 100 percent.
|
|
|
(5)
|
Amounts
in the “All Other Stock Awards” column represent service-based RSU awards granted as part of our LTI Program.
|
|
|
(6)
|
This
column presents the aggregate grant date fair value of the awards computed in accordance with FASB ASC 718 and SEC rules. These
amounts do not reflect whether the recipient has actually realized a financial benefit from the awards (such as by vesting in
stock). The reported grant date fair value of our RSU awards (as calculated under FASB ASC 718) is less than the market
value of the underlying shares on the grant date primarily because the awards are not entitled to dividends prior to vesting (the
“dividend discount”), and we have a regular history of paying dividends on our shares. The reported grant date fair
value of our PSU awards (as calculated under FASB ASC 718) is greater than the market value of the underlying shares (at
target) on the grant date based on the valuation analysis performed using a Monte Carlo simulation, partially offset by the dividend
discount. In the case of the modifications, as required by SEC rules this column presents the incremental fair value of the modified
awards computed as of the modification date, as compared to the fair value of the awards immediately prior to the modification,
in accordance with FASB ASC 718. For information on the assumptions used in our fair value computations, refer to Note 11—“Employee
Stock Plans and Stock-Based Compensation” in the Notes to Consolidated Financial Statements in the Original Filing of our
2019 Form 10-K.
|
|
|
(7)
|
This
row represents a cash bonus opportunity under the Company’s short-term incentive program, the Cypress Incentive Plan, as further
described in footnotes (1) and (2) above. For more information, see “CD&A—2019 Short-Term Incentive Plan (Cash
Bonus) Compensation.”
|
|
|
(8)
|
This
row represents a service-based RSU award granted to the CEO under the Company’s LTI Program. This grant was recommended by the
Compensation Committee on February 14, 2019 and approved by the Board of Directors on February 15, 2019. This award was scheduled
to vest in three annual installments, with 50% of the units vesting on February 15, 2020, 25% of the units vesting on February
15, 2021, and 25% of the units vesting on February 15, 2022. For more information, see “CD&A—2019 Long-Term Incentive
Program.”
|
|
|
(9)
|
This
row represents a performance-based PSU award granted to the CEO under the Company’s LTI Program. This grant was recommended by
the Compensation Committee on February 14, 2019 and approved by the Board of Directors on February 15, 2019. This award was scheduled
to vest in three annual installments; with 36% of the units eligible to vest on February 28, 2020, 32% of the units eligible to
vest on February 26, 2021, and 32% of the units eligible to vest on February 28, 2022 (percentages calculated based on target
vesting levels). For more information, see “CD&A—2019 Long-Term Incentive Program.”
|
|
|
(10)
|
On
December 12, 2019, the Board of Directors modified the terms of the PSUs granted on March 16, 2017 under our Performance Accelerated
Restricted Stock (or PARS) Program by accelerating the final annual vesting tranche, which had been scheduled to vest on February
28, 2020. The acceleration was approved primarily to preserve compensation-related corporate income tax deductions for Cypress
that might otherwise be disallowed through the operation of Section 280G of the Tax Code in connection with the Merger. As directed
by the Board, the acceleration occurred on December 16, 2019 at the maximum vesting level. To the extent that some of the PSUs
were otherwise expected to vest at less than maximum, the acceleration caused some shares to vest that otherwise would not have
vested. This row reports the incremental fair value of the modified awards computed as of the modification date, as compared to
the fair value of the awards immediately prior to the modification, in accordance with FASB ASC 718 and SEC rules. For more information
on the modification, see “—Modifications to Equity Awards and Non-Equity Incentive Plan Awards,” below, and “CD&A—Effect
of Pending Merger on 2019 Compensation Payouts,” above.
|
|
|
(11)
|
On
December 12, 2019, the Board of Directors modified the terms of the PSUs granted on February 15, 2019 under our LTI Program by
accelerating the first annual vesting tranche, which had been scheduled to vest on February 28, 2020. The acceleration was approved
primarily to preserve compensation-related corporate income tax deductions for Cypress that might otherwise be disallowed through
the operation of Section 280G of the Tax Code in connection with the Merger. As directed by the Board, the acceleration occurred
on December 16, 2019 at the maximum vesting level. To the extent that some of the PSUs were otherwise expected to vest at less
than maximum, the acceleration caused some shares to vest that otherwise would not have vested. This row reports the incremental
fair value of the modified awards computed as of the modification date, as compared to the fair value of the awards immediately
prior to the modification, in accordance with FASB ASC 718 and SEC rules. For more information on the modification, see “—Modifications
to Equity Awards and Non-Equity Incentive Plan Awards,” below, and “CD&A—Effect of Pending Merger on 2019
Compensation Payouts,” above.
|
|
|
(12)
|
This
row represents a service-based RSU award under the Company’s LTI Program. Each of the 2019 RSU awards to Named Executive Officers
other than the CEO were scheduled to vest in three annual installments, with 42% of the units vesting on February 15, 2020, 29%
of the units vesting on February 15, 2021, and 29% of the units vesting on February 15, 2022. For more information, see “CD&A—2019
Long-Term Incentive Program.”
|
|
|
(13)
|
This
row represents a performance-based PSU award under the Company’s LTI Program. Each of the 2019 PSU awards to Named Executive Officers
other than the CEO was scheduled to vest in three annual installments; with approximately 40% of the units eligible to vest on
February 28, 2020, 30% of the units eligible to vest on February 26, 2021, and 30% of the units eligible to vest on February 28,
2022 (percentages calculated based on target vesting levels). For more information, see “CD&A—2019 Long-Term Incentive
Program.”
|
Narrative
Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Employment
Agreements
Hassane
El-Khoury. On December 3, 2018, the Company entered into an amended and restated employment agreement with Mr.
El-Khoury to serve as our president and chief executive officer. The employment agreement has no specified term, and Mr.
El-Khoury’s employment with the Company is on an at-will basis. The employment agreement provides that Mr. El-Khoury
will receive an annual base salary of no less than $700,000. He will also be eligible to participate in the Company’s
cash bonus plan, the Cypress Incentive Plan, with a target incentive of 140% effective June 2018. Base salary will be subject
to increase, but not decrease, at the sole discretion of the Board and payment of any bonus will be in the sole discretion of
the Board. Mr. El-Khoury is also eligible to participate in the benefit programs generally available to executive officers of
the Company. The provisions of Mr. El-Khoury’s amended and restated employment agreement relating to severance benefits
are described below in the section “Potential Payments Upon Termination or Change of Control” as well as above in
“CD&A—Severance and Change of Control Severance Arrangements.”
Thad
Trent. On September 20, 2005, the Company entered into an employment offer letter with Mr. Trent. The letter has no specified
term. The letter provides that Mr. Trent will receive an annual base salary of $180,000 and will be eligible to participate in
the Company’s cash bonus plan with a target incentive of 30%. Mr. Trent will also be eligible to participate in the Company’s
employee fringe benefit programs, stock purchase, new product bonus, and 401(k) plans.
Sam
Geha, Ph.D. On October 27, 1995, the Company entered into an employment offer letter with Mr. Geha. The letter has no
specified term. The letter provides that Mr. Geha will be eligible to participate in the Company’s employee fringe benefit programs,
stock purchase, profit sharing, and 401(k) plans.
Sudhir
Gopalswamy. On February 26, 2008, the Company entered into an employment offer letter with Mr. Gopalswamy. The letter
has no specified term, and Mr. Gopalswamy’s employment with the Company is on an at-will basis. The letter provides that Mr.
Gopalswamy will receive an annual base salary of $200,000 and will be eligible to participate in the Company’s cash bonus plan
with a target incentive of 30%. Mr. Gopalswamy will also be eligible to participate in the Company’s employee fringe benefit programs,
stock purchase, new product bonus, and 401(k) plans.
Pamela
L. Tondreau. On January 15, 2015, the Company entered into an employment offer letter with Ms. Tondreau to serve as our
general counsel. The letter has no specified term, and Ms. Tondreau’s employment with the Company is on an at-will basis. The
letter provides that Ms. Tondreau will receive an annual base salary of $260,000 and will be eligible to participate in the Company’s
cash bonus plan with a target incentive of 50%. Ms. Tondreau will also be eligible to participate in the Company’s employee fringe
benefit programs, stock purchase, and 401(k) plans.
Equity
Awards and Non-Equity Incentive Plan Awards
Each
of the “non-equity incentive plan awards” reported in the Grants of Plan-Based Awards Table above was granted under,
and is subject to the terms of, the Cypress Incentive Plan. Please see the discussion in the CD&A under the heading “2019
Executive Compensation—2019 Short-Term Incentive (Cash Bonus) Compensation” for a description of the material terms
of awards granted under the Cypress Incentive Plan for 2019.
Each
of the “equity incentive plan awards” and “other stock awards” reported in the Grants of Plan-Based Awards
Table above was granted as part of our Long-Term Incentive Program and is subject to the terms of our 2013 Stock Plan. Please
see the discussion in the CD&A under the heading “Long-Term Incentive (Equity Award) Compensation—2019 Long-Term
Incentive Program” for a description of the material terms of the equity awards granted to our named executive officers
in 2019.
Modifications
to Equity Awards and Non-Equity Incentive Plan Awards
On
December 12, 2019, the Board of Directors modified the terms of some equity awards by accelerating into December 2019 the vesting
of all equity awards that were otherwise scheduled to vest to the Named Executive Officers in January or February of 2020. This
was done primarily to preserve compensation-related corporate income tax deductions for Cypress that might otherwise be disallowed
through the operation of Section 280G of the Tax Code in connection with the Merger. Specifically:
|
|
●
|
The
Board modified the terms of the performance-based PSUs granted on March 16, 2017 under our Performance Accelerated Restricted
Stock (or PARS) Program by accelerating the final annual vesting tranche, which had been scheduled to vest on February 28, 2020,
with the acceleration occurring at the maximum achievement level provided in the award agreement.
|
|
|
●
|
The
Board modified the terms of the performance-based PSUs granted on February 15, 2019 under our LTI Program by accelerating the
first annual vesting tranche, which had also been scheduled to vest on February 28, 2020, with the acceleration occurring at the
maximum achievement level provided in the award agreement.
|
|
|
●
|
The Board modified the terms of the service-based RSUs held by Named Executive Officers by accelerating the vesting of any units that were otherwise scheduled to vest in January or February of 2020.
|
The accelerated equity award vesting
was approved by the Board on December 12, 2019 and, as directed by the Board, occurred on December 16, 2019. To the extent
that some of the performance-based units (PSUs) were otherwise expected to vest at less than the maximum achievement
level, the acceleration caused some shares to vest that otherwise would not have vested. The modification entries in the
Grants of Plan Based Awards Table (which are also included under “Stock Awards” in the Summary Compensation
Table) report the incremental fair value of the modified awards computed as of the modification date (December 12, 2019), as
compared to the fair value of the awards immediately prior to the modification, in accordance with FASB ASC 718 and SEC
rules. The service-based unit (RSU) accelerations did not cause any shares to vest that otherwise would not have
vested, did not result in any incremental fair value charge under FASB ASC 718, and therefore do not appear in the Grants of
Plan Based Awards Table (nor in the Summary Compensation Table) above.
Concurrently with these equity award accelerations,
on December 12, 2019 the Board approved accelerated payment of 2019 Cypress Incentive Plan bonuses to the Named Executive Officers
at their bonus target levels. The bonuses were otherwise expected to be earned below target (absent any exercise of upward discretion
by the Compensation Committee). The accelerated bonuses were paid on December 20, 2019.
In addition to preserving compensation-related
corporate income tax deductions for Cypress that might otherwise be disallowed through the operation of Section 280G, these equity
and bonus accelerations are expected to mitigate or eliminate the amount of excise tax that may be payable by the Named Executive
Officers pursuant to Sections 280G and 4999 of the Tax Code in connection with so called “excess parachute payments”
they may receive at or after the closing of the Merger. For more information on the Board’s rationale for these modifications,
see “CD&A—Effect of Pending Merger on 2019 Compensation Payouts.”
The accelerated amounts were as follows:
|
|
●
|
With respect to Mr. El-Khoury, the Board approved the accelerated vesting of (a) 52,859 RSUs that were scheduled to vest on February 3, 2020, (b) 73,134 RSUs that were scheduled to vest on February 15, 2020, (c) 32,198 RSUs that were scheduled to vest on February 16, 2020, and (d) an aggregate of 348,224 PSUs that were scheduled to vest on February 28, 2020, calculated by assuming that the applicable performance goals were achieved at maximum performance. The value of Mr. El-Khoury’s accelerated RSUs and PSUs was $11,839,983, based upon the number of shares vested multiplied by the closing price of Cypress’s common stock on December 16, 2019 of $23.38 per share (the “December 16 Closing Price”). In addition, the Board approved the accelerated payment of his CIP bonus in the amount of $1,125,000, calculated by assuming that the applicable performance goals were achieved at 100% of target.
|
|
|
●
|
With respect to Mr. Trent, the Board approved the accelerated vesting of (a) 19,169 RSUs that were scheduled to vest on February 3, 2020, (b) 29,795 RSUs that were scheduled to vest on February 15, 2020, (c) 16,737 RSUs that were scheduled to vest on February 16, 2020, and (d) 122,599 PSUs that were scheduled to vest on February 28, 2020, calculated by assuming that the applicable performance goals were achieved at maximum performance. The value of Mr. Trent’s accelerated RSUs and PSUs was $4,402,454, based upon the number of shares vested multiplied by the December 16 Closing Price. In addition, the Board approved the accelerated payment of his CIP bonus in the amount of $382,500, calculated by assuming that the applicable performance goals were achieved at 100% of target.
|
|
|
●
|
With respect to Mr. Geha, the Board approved the accelerated vesting of (a) 17,425 RSUs that were scheduled to vest on February 3, 2020, (b) 23,836 RSUs that were scheduled to vest on February 15, 2020, (c) 14,861 RSUs that were scheduled to vest on February 16, 2020, and (d) an aggregate of 103,094 PSUs that were scheduled to vest on February 28, 2020, calculated by assuming that the applicable performance goals were achieved at maximum performance. The value of Mr. Geha’s accelerated RSUs and PSUs was $3,722,470, based upon the number of shares vested multiplied by the December 16 Closing Price. In addition, the Board approved the accelerated payment of his CIP bonus in the amount of $281,250, calculated by assuming that the applicable performance goals were achieved at 100% of target.
|
|
|
●
|
With respect to Mr. Gopalswamy, the Board approved the accelerated vesting of (a) 17,425 RSUs that were scheduled to vest on February 3, 2020, (b) 28,305 RSUs that were scheduled to vest on February 15, 2020, (c) 17,368 RSUs that were scheduled to vest on February 16, 2020 and (d) an aggregate of 114,587 PSUs that were scheduled to vest on February 28, 2020, calculated by assuming that the applicable performance goals were achieved at maximum performance. The value of Mr. Gopalswamy’s accelerated RSUs and PSUs was $4,154,275, based upon the number of shares vested multiplied by the December 16 Closing Price. In addition, the Board approved the accelerated payment of his CIP bonus in the amount of $307,500, calculated by assuming that the applicable performance goals were achieved at 100% of target.
|
|
|
●
|
With respect to Ms. Tondreau, the Board approved the accelerated vesting of (a) 18,000 RSUs that were scheduled to vest on January 22, 2020, (b) 15,685 RSUs that were scheduled to vest on February 3, 2020, (c) 24,581 RSUs that were scheduled to vest on February 15, 2020, (d) 14,443 RSUs that were scheduled to vest on February 16, 2020 and (e) an aggregate of 100,827 PSUs that were scheduled to vest on February 28, 2020, calculated by assuming that the applicable performance goals were achieved at maximum performance. The value of Ms. Tondreau’s accelerated RSUs and PSUs was $4,057,272, based upon the number of shares vested multiplied by the December 16 Closing Price. In addition, the Board approved the accelerated payment of her CIP bonus in the amount of $296,250, calculated by assuming that the applicable performance goals were achieved at 100% of target.
|
In connection with the bonus payment and
accelerated equity vesting, each Named Executive Officer entered into a recoupment (or “clawback”) letter agreement
with the Company. Each letter agreement provides that, with respect to his or her accelerated RSUs and PSUs, if the executive is
terminated for cause or voluntarily resigns prior to the originally scheduled vesting date for such RSUs or PSUs, the executive
will automatically forfeit the net (after tax) shares he or she received in settlement of such RSUs or PSUs for no consideration.
If the executive has sold such shares, he or she must pay Cypress an amount equal to the gross proceeds he or she received in such
sale. However, in the event the Closing of the Merger occurs prior to the applicable originally scheduled vesting date for the
accelerated RSUs, the clawback will cease to apply to 50% of the net (after tax) shares each executive received in settlement of
such RSUs. In addition, in the event the Closing occurs prior to any originally scheduled vesting date and the executive is terminated
prior to the originally scheduled vesting date, the clawback will cease to apply on the date of such termination if the executive
would be entitled to accelerated vesting of equity awards under the Merger Agreement in connection with such termination. If the
Merger Agreement is terminated without the Merger closing and Cypress determines that the number of PSUs that would have vested
on February 28, 2020 based on the actual level at which the applicable performance goals are achieved is less than the number that
vested assuming maximum performance (such difference, the “Delta Amount”), then the excess shares equal to the Delta
Amount will be subject to a lapsing forfeiture right based on the following terms: (a) on the last day of the calendar month in
which the Merger Agreement is terminated and on the last day of each subsequent calendar month through February 2021, a pro-rata
portion of the Delta Amount will no longer be subject to the lapsing forfeiture right and (b) the lapsing forfeiture right will
expire in full and terminate on February 28, 2021. If the preceding sentence applies and, before February 28, 2021, the executive’s
employment is terminated by Cypress for cause or by the executive without good reason, he or she will forfeit the excess shares
equal to the portion of the Delta Amount then subject to the lapsing forfeiture provision (or, if the executive has sold such excess
shares, he or she must pay Cypress an amount equal to the gross proceeds he or she received in such sale).
Outstanding Equity Awards at Fiscal
Year End Table—2019
The following table presents all equity
awards held by our Named Executive Officers at the end of fiscal year 2019:
|
Name
|
Option
Awards
|
Stock
Awards
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying Unexercised/
Unearned
Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Service-Based
Awards:
|
Equity
Incentive Plan
Awards:
|
|
Number
of
Shares or
Units of Stock
that Have Not Vested(1)(2)
(#)
|
Market
Value
of Shares or
Units of Stock
that Have
Not
Vested(3)
($)
|
Number
of
Unearned
Shares, Units
or Other
Rights that
Have Not
Vested(1)(4)
(#)
|
Market
or
Payout Value
of Unearned
Shares, Units
or Other
Rights that
Have Not
Vested(3)
($)
|
|
Hassane El-Khoury
|
|
|
|
|
|
73,134(5)
|
1,713,530
|
|
|
|
|
|
|
|
|
|
|
208,050(6)
|
4,874,612
|
|
|
|
|
|
|
32,198(7)
|
754,399
|
|
|
|
|
|
|
|
|
|
|
112,692(8)
|
2,640,374
|
|
Name
|
Option
Awards
|
Stock
Awards
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying Unexercised/
Unearned
Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration
Date
|
Service-Based
Awards:
|
Equity
Incentive Plan
Awards:
|
|
Number
of
Shares or
Units of Stock
that Have Not Vested(1)(2)
(#)
|
Market
Value
of Shares or
Units of Stock
that Have
Not
Vested(3)
($)
|
Number
of
Unearned
Shares, Units
or Other
Rights that
Have Not
Vested(1)(4)
(#)
|
Market
or
Payout Value
of Unearned
Shares, Units
or Other
Rights that
Have Not
Vested(3)
($)
|
|
Thad Trent
|
|
|
|
|
|
40,630(5)
|
951,961
|
|
|
|
|
|
|
|
|
|
|
60,314(6)
|
1,413,157
|
|
|
|
|
|
|
16,737(7)
|
392,148
|
|
|
|
|
|
|
|
|
|
|
30,684(9)
|
718,926
|
|
Sam Geha
|
|
|
|
|
|
32,504(5)
|
761,569
|
|
|
|
|
|
|
|
|
|
|
48,252(6)
|
1,130,544
|
|
|
|
|
|
|
14,861(7)
|
348,193
|
|
|
|
|
|
|
|
|
|
|
27,244(9)
|
638,327
|
|
|
|
|
|
|
1,084(10)
|
25,398
|
|
|
|
Sudhir Gopalswamy
|
|
|
|
|
|
38,599(5)
|
904,375
|
|
|
|
|
|
|
|
|
|
|
57,300(6)
|
1,342,539
|
|
|
|
|
|
|
17,369(7)
|
406,956
|
|
|
|
|
|
|
|
|
|
|
31,842(9)
|
746,058
|
|
|
|
|
|
|
6,400(11)
|
149,952
|
|
|
|
Pamela L. Tondreau
|
|
|
|
|
|
33,520(5)
|
785,374
|
|
|
|
|
|
|
|
|
|
|
49,759(6)
|
1,165,853
|
|
|
|
|
|
|
14,443(7)
|
338,399
|
|
|
|
|
|
|
|
|
|
|
26,478(9)
|
620,380
|
|
|
(1)
|
Awards are generally subject to forfeiture in connection with any termination of the award holder’s employment with Cypress, subject however to any vesting acceleration to which the award holder may be entitled in the circumstances of the termination as described below in the section “Potential Payments Upon Termination or Change of Control.”
|
|
|
(2)
|
Entries in this column represent unvested service-based RSUs, (i.e., stock awards that are scheduled to vest after year-end 2019 based on the executive’s continued service with Cypress through the scheduled vesting dates).
|
|
|
(3)
|
Market value is based on the $23.43 closing price per share of Cypress common stock on December 27, 2019 (the final trading day of fiscal year 2019) multiplied by the number of unvested units.
|
|
|
(4)
|
Entries in this column represent unvested performance-based PSUs (i.e., stock awards that are scheduled to vest after year-end 2020 and 2021 based primarily on the achievement of performance goals (which may include market conditions), in addition to the executive’s continued service with Cypress through the scheduled vesting dates). The number of unvested units presented in the table has been calculated based on actual achievement levels with respect to performance periods that were completed as of year-end 2019, and based on target achievement levels with respect to performance periods that extend beyond 2019.
|
|
|
(5)
|
These RSUs will vest in two equal installments on February 15, 2021 and February 15, 2022.
|
|
|
(6)
|
This is a performance-based award. The amount shown in the table is based on actual performance levels for performance periods that were completed as of the end of fiscal 2019 and target performance levels for performance periods that extend beyond the end of 2019. These PSUs will vest in two equal (at target) installments on February 26, 2021 and February 28, 2022. Each installment is eligible to vest up to 150% of the amount shown in the table based on our TSR relative to that of the companies in the S&P Semiconductors Index over the prior two or three fiscal years, respectively.
|
|
|
(7)
|
These RSUs will vest on February 16, 2021.
|
|
|
(8)
|
These PSUs will be eligible to vest on February 26, 2021 at up to 200% of the target amount shown in the table based on relative attainment of performance goals relating to our 2020 non-GAAP pre-tax profit margin, our three-year TSR 2018-2020 relative to that of the companies in the S&P Semiconductors Index, and the revenue growth that we achieve in 2020 over the 2016 base year relative to semiconductor market growth (excluding DRAM) for the same period.
|
|
|
(9)
|
These PSUs will be eligible to vest on February 26, 2021 at up to 200% of the target amount shown in the table based on relative attainment of performance goals relating to our 2020 non-GAAP pre-tax profit margin and our three-year TSR 2018-2020 relative to that of the companies in the S&P Semiconductors Index.
|
|
|
(10)
|
These RSUs will vest on June 22, 2020.
|
|
|
(11)
|
These RSUs will vest in two equal installments on May 30, 2020 and May 30, 2021.
|
Option Exercises and Stock Vested Table—2019
The following table shows how many stock options our Named Executive
Officers exercised, and how many shares of stock vested for them, during 2019. This table also presents the aggregate value our
Named Executive Officers realized from such option exercises and vesting events.
|
|
Option
Awards
|
Stock
Awards
|
|
Name
|
Number
of Shares
Acquired on Exercise
(#)(1)
|
Value
Realized
on Exercise
($)(2)
|
Number
of Shares
Acquired on Vesting
(#)(1)
|
Value
Realized
on Vesting
($)(3)
|
|
Hassane El-Khoury
|
4,300
|
29,369
|
929,242
|
18,470,989
|
|
Thad Trent
|
53,003
|
588,273
|
327,147
|
6,534,765
|
|
Sam Geha
|
—
|
—
|
286,870
|
5,705,963
|
|
Sudhir Gopalswamy
|
6,598
|
51,676
|
323,357
|
6,446,005
|
|
Pamela L. Tondreau
|
—
|
—
|
308,631
|
6,085,667
|
|
|
(1)
|
Number of shares acquired is the total number of shares exercised or vested, as applicable (before any deduction for payment of taxes or exercise price).
|
|
|
(2)
|
In the case of options, “value realized” equals the difference between the exercise price and the market price of our common stock at exercise, multiplied by the number of exercised options.
|
|
|
(3)
|
In the case of stock awards, “value realized” equals the closing price of our common stock on the vesting date (or the prior trading day, in the case of weekend or holiday vesting events), as reported by Nasdaq, multiplied by the total number of vested shares (including shares withheld by us to cover tax withholding).
|
Non-Qualified Deferred Compensation
Table—2019(1)
The following table presents the contributions
and withdrawals that our Named Executive Officers made to or from our non-qualified deferred compensation plans in fiscal 2019,
along with the aggregate earnings (or losses) in their plan accounts for the year, and their plan balances at the end of fiscal
2019.
|
Name
|
Executive
Contributions
in the Last
Fiscal Year(2)
($)
|
Registrant
Contributions
in the Last
Fiscal Year(3)
($)
|
Aggregate
Earnings (Losses)
in the Last
Fiscal
Year(4)
($)
|
Aggregate
Withdrawals/
Distributions(2)
($)
|
Aggregate
Balance at Last
Fiscal Year End(5)
($)
|
|
Hassane El-Khoury
|
—
|
—
|
—
|
—
|
—
|
|
Thad Trent
|
—
|
—
|
147,830
|
—
|
804,120
|
|
Sam Geha
|
—
|
—
|
41,566
|
—
|
556,466
|
|
Sudhir Gopalswamy
|
—
|
—
|
—
|
—
|
—
|
|
Pamela L. Tondreau
|
—
|
—
|
—
|
—
|
—
|
|
|
(1)
|
Cypress’s two deferred compensation plans provide certain eligible employees, including the Named Executive Officers, with the opportunity to defer the receipt of compensation in order to accumulate funds for retirement on a tax-deferred basis. Each participant in Cypress’s deferred compensation plans may elect to defer a percentage of his or her compensation (annual base salary, cash bonuses and any cash sales commissions) and invest such deferral in the plans’ available investment options. Cypress does not make contributions to the employees’ deferred compensation plans and does not guarantee returns on the investments. Participant deferrals and net investment gains remain as Cypress liabilities and the underlying assets are subject to the claims of Cypress’s general creditors. Withdrawals and other distributions are subject to the requirements of Section 409A of the Tax Code. See “CD&A—Other Compensation/Benefits/Perquisites” above for additional information about deferral limits and terms of each plan.
|
|
|
(2)
|
During fiscal 2019, our Named Executive Officers did not make any contributions to nor any withdrawals from our deferred compensation plans.
|
|
|
(3)
|
The deferred compensation plans do not provide for, and we do not make, any registrant contributions to the plans.
|
|
|
(4)
|
None of the aggregate earnings (losses) in the non-qualified deferred compensation plans are reported in the Summary Compensation Table.
|
|
|
(5)
|
The aggregate balance amounts under the deferred compensation plans include deferrals made in prior fiscal years. For individuals who were named executive officers for the fiscal years in which the deferrals were made, the amount of the deferred compensation was included in such individuals’ compensation as reported in the Summary Compensation Tables that were included in the proxy statements for such fiscal years.
|
Potential Payments Upon Termination
or Change of Control
The following sections describe the benefits
that may become payable to our Named Executive Officers in connection with a termination of their employment with the Company and/or
a change of control of the Company under arrangements in effect at the end of fiscal 2019.
Infineon Merger Agreement
The Merger Agreement provides for potential
payments upon termination or change of control that are different from, or in addition to, the payments our Named Executive Officers
would be entitled to receive in the absence of the Merger Agreement upon a hypothetical termination or change of control.
The treatment of equity awards in connection
with the Merger and the benefits that may become payable to each Named Executive Officer if his or her employment terminates in
specified circumstances after the Closing are described in detail under the caption “The Merger—Interests of Cypress’s
Executive Officers and Directors in the Merger” in the Company’s definitive proxy statement soliciting stockholders’
approval of the Merger, which was filed with the SEC on July 16, 2019.
The remainder of this section describes
the potential payments our Named Executive Officers would be entitled to receive upon a hypothetical termination or in connection
with a hypothetical change of control (i.e., due to an acquiror other than Infineon) under arrangements in effect at the end of
fiscal 2019.
Severance Provisions of our Amended
and Restated CEO Employment Agreement
Effective December 3, 2018, the Company
entered into an Amended and Restated Employment Agreement with Mr. El-Khoury (the “Current Agreement”) which amends his
Employment Agreement dated as of November 30, 2016 (the “Original Agreement”) and includes severance provisions as summarized
below.
Pursuant to the Current Agreement, if Mr.
El-Khoury’s employment is terminated involuntarily by the Company other than for “cause,” death, or disability, or by
Mr. El-Khoury pursuant to a “voluntary termination for good reason” (as such terms are defined in the Current Agreement),
then Mr. El-Khoury will be entitled to receive the following compensation and benefits:
|
|
●
|
a lump-sum severance payment (less applicable withholdings) equal to twenty-four (24) months of Mr. El-Khoury’s base salary plus twenty-four (24) months of his annual target bonus;
|
|
|
●
|
payments by the Company on Mr. El-Khoury’s behalf of (or, at the Company’s option, reimbursement of Mr. El-Khoury for) the premium costs incurred by Mr. El-Khoury and his dependents for continued health, dental, vision, and employee assistance program coverage under the applicable plans maintained by the Company for a coverage period of twenty-four (24) months following the effective date of the employment termination;
|
|
|
●
|
accelerated vesting and extended exercisability of Mr. El-Khoury’s then-outstanding equity-based awards as follows:
|
|
|
○
|
awards
granted prior to the Current Agreement’s Effective Date of December 3, 2018 shall become vested to the extent provided
in the Original Agreement, which provides that “[a]ll vesting for … equity and equity equivalent awards granted under
any equity plan of the Company or affiliate of the Company then held by Executive shall be accelerated in full”;
|
|
|
○
|
awards
granted after the Effective Date shall accelerate vesting as to 100% of their unvested shares; in the case of performance-based
awards such acceleration shall occur assuming attainment of the underlying performance targets at the 100% target level (or at
the greater of actual performance levels or 100% of target levels if the termination occurs following the completion of the relevant
performance period but before the relevant vesting date), unless the terms of such performance-vesting awards provide for different
severance acceleration terms (in which case such different terms shall control); and
|
|
|
○
|
all
of Mr. El-Khoury’s vested options (including any options accelerated as above) shall be exercisable for up to twelve (12) months
following the employment termination date (or, if earlier, until the option’s original expiration date or the cancellation of
the option pursuant to the terms of the plan under which it was granted).
|
The above benefits are subject to Mr. El-Khoury
signing and not revoking a general release of claims in a form satisfactory to the Company such that the release becomes irrevocable
no later than 60 days following the termination of employment.
The Current Agreement provides that
any severance payment or other benefit payable to Mr. El-Khoury that constitutes a “parachute payment” within the
meaning of Section 280G of the Tax Code, shall be either: (i) delivered in full, or (ii) delivered as to such lesser extent
that would result in no portion of such payment being subject to excise tax under Section 4999 of the Tax Code. The estimates
included below in the section “Estimated Severance and Change-of-Control Benefits” are presented assuming that
no such reduction in benefits would be required. Mr. El-Khoury’s employment agreement does not provide for any tax
gross-up or other reimbursement payment in respect of so-called “golden parachute” excise tax payments.
Amended and Restated Change of Control
Severance Agreements with our Executive Vice Presidents
Effective December 3, 2018, the Company
entered into Amended and Restated Change of Control Severance Agreements with its executive vice presidents (each a “Covered
Officer”), including Mr. Trent, Mr. Geha, Mr. Gopalswamy, and Ms. Tondreau.
Pursuant to these agreements, if the Company
or any successor terminates the employment of a Covered Officer other than for “cause,” death or disability, or if a
Covered Officer voluntarily terminates his or her employment for “good reason” (as such terms are defined in the agreement),
in either case during the period (the “Change of Control Period”) beginning three (3) months prior to, and ending twenty-four
(24) months after, the occurrence of a “change of control” (as defined in the agreement), then the Covered Officer will
be entitled to receive the following compensation and benefits:
|
|
●
|
a lump-sum severance payment (less applicable withholdings) equal to eighteen (18) months of the Covered Officer’s annual base salary plus eighteen (18) months of the Covered Officer’s annual target bonus;
|
|
|
●
|
an additional lump-sum payment (less applicable withholdings) equal to the product of (x) eighteen (18) multiplied by (y) the monthly premium that would be required for the first month of the Covered Officer’s COBRA premium, calculated on the assumption that the premium includes coverage for the Covered Officer and the Covered Officer’s spouse and/or dependents; and
|
|
|
●
|
accelerated vesting of 100% of the unvested portion of the Covered Officer’s then-outstanding equity-based compensation; in the case of performance-based awards such acceleration shall occur assuming attainment of the underlying performance targets at the 100% target level (or at the greater of actual performance levels or 100% of target levels if the termination occurs following the completion of the relevant performance period but before the relevant vesting date), unless the terms of such performance-vesting awards provide for different severance acceleration terms (in which case such different terms shall control).
|
Outside the Change of Control Period, upon
an involuntary termination other than for cause, death, or disability, the Covered Officer shall be entitled to receive the following
severance benefits and payments:
|
|
●
|
a lump-sum severance payment (less applicable withholdings) equal to nine (9) months of the Covered Officer’s annual base salary, and
|
|
|
●
|
an additional lump-sum payment (less applicable withholdings) equal to the product of (x) nine (9) multiplied by (y) the monthly premium that would be required for the first month of the Covered Officer’s COBRA premium, calculated on the same assumptions as above.
|
The agreement also contains non-disparagement
and non-solicitation covenants, which apply if the Covered Officer receives severance benefits and run for nine (9) nine months
following a date of termination outside the Change of Control Period or eighteen (18) months following a date of termination within
the Change of Control Period.
The above benefits are also subject to
the Covered Officer signing and not revoking a standard release of claims in a form reasonably acceptable to the Company within
the time period specified in the release and in no event later than 60 days following the Covered Officer’s termination of
employment (the “Release Deadline Date”).
Severance payments under the agreements
are to be paid the first business day after the Release Deadline Date (but no later than March 15 of the next calendar year after
the employment termination), subject to a delay of up to six months as necessary in order to comply with Section 409A of the Tax
Code.
The agreements provide that any severance
payment or other benefit payable to a Covered Officer that constitutes a “parachute payment” within the meaning of Section
280G of the Tax Code, shall be either: (i) delivered in full, or (ii) delivered as to such lesser extent that would result in no
portion of such payment being subject to excise tax under Section 4999 of the Tax Code. The estimates included below in the section
“Estimated Severance and Change-of-Control Benefits” are presented assuming that no such reduction in benefits would
be required. The agreements do not provide for any tax gross-up or other reimbursement payment in respect of so-called “golden
parachute” excise tax payments.
The initial term of the agreements is two
years from December 3, 2018. At the expiration of the initial term and on each one year anniversary thereafter each agreement will
automatically renew for an additional one year term unless either party provides written notice of non-renewal to the other party
at least four months prior to the renewal date. If a change of control occurs while the agreement is in effect, the agreement’s
term will extend automatically through the date that is 24 months after the change of control.
The Closing of the Merger with Infineon
will constitute a change of control for purposes of these agreements.
2019 LTI PSU Award
The severance arrangements described above
provide an approach for acceleration of outstanding performance- based awards that will apply in the event of a double-trigger
termination8 unless the terms of the applicable performance-based award provide
an alternate severance acceleration formula (in which case such alternate formula shall control). In the case of the LTI PSUs
granted in 2019, the Committee included an alternate acceleration formula (the “Alternate Acceleration Formula”) in
the award letter. As explained above (see “CD&A—2019 Long Term Incentive Program”), the 2019 LTI PSUs’
performance goals feature a set of performance milestones applicable to fiscal 2019 only (namely, non-GAAP operating margin and
customer experience) with a weighted payout (ranging from 0% to 150%) based on such 2019 milestones that will apply to all three
of the award’s annual vesting tranches, and with further multipliers (ranging from 1.0x to 1.5x) that will
apply to each of the three annual vesting tranches based on Cypress’ relative TSR percentile over the prior one, two, or
three years, as applicable. The Committee’s Alternate Acceleration Formula for this award provides that in the event of
a double-trigger termination8 (a) the 2019 performance milestones will be deemed
to have been met at target (i.e., at 100%) in the case of a change of control8
before the end of fiscal 2019, or at the actual performance level in the case of a change of control8
at or after the end of fiscal 2019, and (b) any TSR performance period in progress will end on the date of the change
of control8 and the Company’s relative TSR over such period will be calculated
with the Company’s ending price deemed to be the merger consideration per share received by our stockholders, rather than
our trailing 20 trading day average closing market price9 and otherwise according
to the payout scale in the award agreement. Any as yet outstanding tranche would then accelerate upon the double-trigger termination8
based on target shares multiplied by such 2019 payout percentage and such TSR multiplier.
Estimated Severance
and Change-of-Control Severance Benefits
No Single-Trigger
Benefits upon a Change of Control. Except as provided in the Infineon Merger Agreement, none of the Company’s Named Executive
Officers are entitled to benefits (commonly called “single-trigger” benefits) that would become payable upon a change
of control alone (i.e., without any employment termination). The single-trigger benefits under the Infineon Merger Agreement apply
only in connection with the proposed Merger with Infineon, see “Infineon Merger Agreement,” above.
Severance Benefits
(Not in Connection with a Change of Control). The following table presents the Company’s estimate of the benefits
to which each of our Named Executive Officers would have been entitled if his or her employment had been terminated on December
27, 2019 (the final business day of fiscal 2019) by the Company without cause (or, in the case of Mr. El-Khoury, by the executive
for good reason), and not in connection with any change of control of the Company.
|
Name
|
Salary
Payments
($)
|
Bonus
Payments
($)
|
COBRA
Benefits
($)
|
Equity
Acceleration(1)
(2)
($)
|
Total
($)
|
|
Hassane El-Khoury
|
1,500,000
|
2,250,000
|
16,538
|
15,060,617(3)
|
18,827,155
|
|
Thad Trent
|
337,500
|
—
|
17,223
|
—
|
354,723
|
|
Sam Geha
|
281,250
|
—
|
17,479
|
—
|
298,729
|
|
Sudhir Gopalswamy
|
307,500
|
—
|
26,984
|
—
|
334,484
|
|
Pamela L. Tondreau
|
296,250
|
—
|
16,721
|
—
|
312,971
|
|
|
(1)
|
The value of equity award acceleration is based on the
$23.43 closing market price per share of the Company’s common stock on December 27, 2019, as reported on Nasdaq.
|
|
|
(2)
|
For purposes of calculating the value of the accelerated
2019 LTI PSU award, we assumed that the fiscal 2019 performance period would be deemed to be complete at the time of the hypothetical
December 27, 2019 termination of employment.
|
|
|
8.
|
Or, for Mr. El-Khoury, any termination by the Company
without “cause” or by Mr. El-Khoury for “good reason,” as such terms are defined under his Severance Arrangement.
|
|
|
9.
|
In the case of a qualifying termination of Mr. El-Khoury
not in connection with a change in control, the Company’s relative TSR over such period will be calculated for the Company in
the same manner as for the other index companies (i.e., with ending price defined as the trailing 20 trading day average closing
market price).
|
|
|
(3)
|
With respect to equity awards granted prior to December
3, 2018, the terms of Mr. El-Khoury’s applicable agreement provide that “all vesting … shall be accelerated in full”
in the event of a termination without cause or a resignation for good reason. For purposes of the table above, we have interpreted
such phrase to provide for acceleration of any such outstanding performance-based stock units at the maximum level.
|
Double-Trigger Change-of-Control
Severance Benefits. The following table presents the Company’s estimate of the severance benefits to which each of
our Named Executive Officers would have been entitled if his or her employment had been terminated on December 27, 2019 (the final
business day of fiscal 2019) by the Company without cause or by the executive for good reason, and assuming for purposes of this
illustration that such date was within 3 months before or 24 months after a hypothetical change of control of the Company (i.e.,
due to an acquiror other than Infineon).
|
Name
|
Salary
Payments
($)
|
Bonus
Payments
($)
|
COBRA
Benefits
($)
|
Equity
Acceleration(1)
(2)
($)
|
Total
($)
|
|
Hassane
El-Khoury(3)
|
1,500,000
|
2,250,000
|
16,538
|
15,060,617(4)
|
18,827,155
|
|
Thad Trent
|
675,000
|
573,750
|
34,447
|
4,182,794
|
5,465,991
|
|
Sam Geha
|
562,500
|
421,875
|
34,959
|
3,469,350
|
4,488,684
|
|
Sudhir Gopalswamy
|
615,000
|
461,250
|
53,968
|
4,221,149
|
5,351,367
|
|
Pamela L. Tondreau
|
592,500
|
444,375
|
33,443
|
3,492,968
|
4,563,286
|
|
|
(1)
|
The value of equity award acceleration is based on the
$23.43 closing market price per share of the Company’s common stock on December 27, 2019, as reported on Nasdaq.
|
|
|
(2)
|
For purposes of calculating the value of the accelerated
2019 LTI PSU award, we have assumed that the hypothetical change of control and employment termination occurred simultaneously
on December 27, 2019 and that the fiscal 2019 performance period would be deemed to be complete at that time, with the hypothetical
change-of-control transaction consideration per share received by stockholders being equal to the Company’s December 27, 2019
closing market price.
|
|
|
(3)
|
Mr. El-Khoury’s severance benefits become payable upon
any termination of employment without cause or resignation for good reason (regardless of whether in connection with a change
of control of the Company).
|
|
|
(4)
|
With respect to equity awards granted prior to December
3, 2018, the terms of Mr. El-Khoury’s applicable agreement provide that “all vesting … shall be accelerated in full”
in the event of a termination without cause or a resignation for good reason. For purposes of the table above, we have interpreted
such phrase to provide for acceleration of any such outstanding performance-based stock units at the maximum level.
|
CEO PAY RATIO
Pursuant to a mandate of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, companies are generally required to disclose the ratio of their
median employee’s annual total compensation to the annual total compensation of the chief executive officer (CEO). The Company’s
CEO is Hassane El-Khoury.
For purposes of making this
required disclosure in 2018, we undertook to identify Cypress’s median employee as of the final day of fiscal year 2017 (December
31, 2017). At that time, Cypress employed 6,589 persons of which 6,050 were regular full-time or part-time employees of Cypress
or its wholly-owned subsidiaries, 404 were employees of less-than-wholly-owned subsidiaries, and 135 were temporary or seasonal
workers. At that time, approximately 30.1% of our employees were in North America, 5.8% were in Europe, and 64.1% were in Asia.
From this population, we identified the median employee based on each employee’s total cash compensation in 2017. We did not make
any assumptions or adjustments (including cost-of-living adjustments) or use any estimates for purposes of determining total cash
compensation (except that local currencies were converted to U.S. Dollars using the exchange rates that we use for internal accounting
purposes). For simplicity, in determining our median employee, the value of the Company’s 401(k) plan, global pension plans
(where offered) and medical benefits provided was excluded because all employees, including the CEO, are generally offered comparable
benefits.
As of the final day of fiscal
year 2019 (December 29, 2019), Cypress employed 6,452 persons of which 5,871 are regular full-time or part-time employees of Cypress
or its wholly-owned subsidiaries, 392 are employees of less-than-wholly-owned subsidiaries, and 189 are temporary or seasonal
workers. Approximately 28.7% of our employees are in North America, 6.4% are in Europe, and 64.9% are in Asia.
SEC rules permit us to use
the median employee that was identified in connection with prior year disclosure for purposes of this year’s disclosure as well,
provided that no more than three years have elapsed since the median determination date and provided there have been no changes
to our employee population or employee compensation arrangements in the interim that we reasonably believe would significantly
affect our pay ratio disclosure. During 2018 and 2019 we did not make any material broad-based changes to our employee compensation
arrangements (salary structures, bonus arrangements, or equity grant patterns). As of the end of 2019, we conducted an analysis
to consider the likely impact that restructuring activities, attrition, and hiring patterns had on our employee population over
the course of the two-year period ended December 29, 2019. Based on that analysis, we believe there were no changes in 2018 or
2019 that would significantly impact the pay ratio disclosure. However, in connection with our 2018 pay ratio disclosure, we concluded
it would no longer be appropriate to use the employee identified in 2017 as the median employee for subsequent years because of
a change in the original median employee’s circumstances that makes such employee no longer a representative employee. Accordingly,
as permitted by SEC rules, for purposes of our 2018 pay ratio disclosure we identified another median employee for 2018 whose 2017
compensation was substantially similar to that of the original median employee based on the compensation analysis used to select
the original median employee. The new median employee identified for purposes of our 2018 disclosure continues to be representative
and is being utilized for purposes of these 2019 disclosures as well.
After identifying the median
employee for 2019 as described above, we calculated the annual total compensation for such employee using the same methodology
we use to determine the total compensation of our Named Executive Officers as set forth in the Summary Compensation Table included
in this Proxy Statement. Compensation was measured over our fiscal year 2019, beginning on December 31, 2018 and ending on December
29, 2019.
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Mr. El-Khoury’s annual total compensation for
fiscal 2019 was $10,571,858, as reported in the Summary Compensation Table included in this Proxy Statement.
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Our median employee’s annual total compensation
for fiscal 2019 was $54,343.
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For fiscal 2019, Mr. El-Khoury’s annual total
compensation was approximately 195 times that of our median employee.
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This ratio is a reasonable
estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described
above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s
annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable
estimates and assumptions that reflect their compensation practices. Therefore, the pay ratio reported by other companies might
not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices
and may use different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.
