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EXHIBIT 10.5
CYPRESS SEMICONDUCTOR CORPORATION
1997 KEY EMPLOYEE BONUS PLAN AGREEMENT (KEBP)
ARTICLE 1 - PLAN OBJECTIVE
1.1 The objective of this Key Employee Bonus Plan is to provide incentive to key
employees of the Company based on the Company's overall Sales and Earnings Per
Share (EPS) achievement, the Company's growth relative to selected competitors,
and the individual's performance against set individual Critical Success Factors
(CSFs).
ARTICLE 2 - EFFECTIVE DATE
2.1 This agreement will become effective December 31, 1996 for the plan period
of fiscal year 1997. The plan period for fiscal year 1997 covers December 31,
1996 to December 30, 1997.
ARTICLE 3 - ELIGIBILITY FOR PLAN PARTICIPATION
3.1 Prior to the commencement of each Plan Period, members of Cypress' Executive
Staff will recommend to the President/CEO for approval proposed participants for
the plan period and their incentive levels.
3.2 Prior to the commencement of each Plan Period, the CEO and his Executive
Staff's plan participation and their incentive levels will be presented to the
Compensation Committee of the Board of Directors for approval.
3.3 Participants are notified of their eligibility at the beginning of each plan
period.
3.4 Newly hired employees may be added as participants during the plan period.
Other employees who are currently not plan participants may be considered for
participation at the beginning of the plan period, provided however that they
have assumed greater responsibility or demonstrated greater contribution to the
company. Participants added during the plan period shall receive prorated awards
based on the number of months of participation in the plan with a minimum of six
months participation. Otherwise, eligibility will be deferred until the next
plan period. Exceptions are subject to CEO approval.
3.5 Changes in plan participants require the approval of the President/CEO.
ARTICLE 4 - BONUS PLANS AND CALCULATIONS
4.1 Each plan participant will be given an incentive level expressed as a
percent of Base Salary. This represents the target bonus. There are 3 incentive
levels in this program:
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LIKELY PARTICIPANTS INCENTIVE LEVELS
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CEO, Senior VPs 80% Plan
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VPs, Key Managers, Key Employees 30% Plan
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Other Key Employees 20% Plan
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4.2 The participant's actual bonus attainment is determined by the participants
score from the following factors:
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BONUS PLAN FACTORS
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a. Total Company Sales performance for 1997 (Sales factor)
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b. Total Company EPS performance for 1997 (EPS factor)
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c. Cypress' revenue growth vs. a select list of Competitors (Growth
Factor)
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d. Performance against individual CSFs (Avg of score for 4 quarters)
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NO BONUS WILL BE AWARDED UNLESS THE COMPANY ACHIEVES 90% OF IT'S EPS TARGET FOR
1997 PER THE 9612 PLAN.
4.3 The weight assigned to each of the plan factors depends on the participant's
bonus plan, as listed below:
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PLAN FACTORS 80%PLAN 30%PLAN 20%PLAN
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Total CY 1997 Sales (Sales 25% 20% 10%
factor)
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Total CY 1997 EPS (EPS factor) 25% 20% 10%
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Individual CSFs 50% 60% 80%
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Total Plan Factors Weights 100% 100% 100%
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4.4 Sales Factor: Scoring for the sales factor will be dependent on Cypress'
performance against the 9612 plan. Sales below 90% of the plan yields a sales
factor of zero. Sales at 90% of the plan, yields a sales factor of 0.9. Sales at
100% of the plan, yields a sales factor 1.0. Sales performance between 90%-100%
of the plan is ratably scored between .9 and 1.0. Sales at 120% or greater of
the 9612 plan yields a sales factor of 2.0. Performance between 100%-120% is
ratably scored between 1.0 and 2.0. The graph below depicts the sales factor at
different sales levels. The 9612 Sales Plan is $626.8M. Sales factor is zero if
1997 sales is lower than $564.1M.
4.5 EPS Factor: Scoring for the EPS factor will be dependent on Cypress'
performance against the 9612 plan. EPS below 90% of the plan yields an EPS
factor of zero. EPS at 90% of the plan, yields an EPS factor of 0.9. EPS at 100%
of the plan, yields an EPS factor 1.0. EPS performance between 90%-100% of the
plan is ratably scored between .9 and 1.0. EPS at 120% or greater of the 9612
plan yields an EPS factor of 2.0. Performance between 100%-120% is ratably
scored between 1.0 and 2.0. The graph in para 4.4 also depicts the EPS factor at
different EPS levels. The 9612 EPS plan is $0.60. EPS factor is zero if EPS is
lower than $0.54.
4.6 The factor of Cypress' revenue growth versus the select list of competitors
shall be calculated as Cypress' 1997 Sales versus 1996 and shall use the
competitor's equivalent fiscal quarters for 1997 and 1996 to match those of
Cypress'. The list of select competitors is shown in Exhibit A. The growth
factor shall be applied to the participant's Sales and EPS scores only as a
gross up or discount factor and won't apply to the participant's CSF attainment.
The revenue growth factor is calculated as:
CY 1997 Sales Competitors' 1997 Sales 2
------------------------- divided by -------------------------- = Growth Factor
CY 1996 Sales Competitors' 1996 Sales
4.7 The overall bonus calculation shall be as follows for the different
bonus plans, where:
B = base salary E = EPS Factor CSF = average for 4 qtrs
S = Sales Factor G = Growth Factor
80%KEBP = B x [(((S x 25%) + (E x 25%)) x G) + (CSF x 50%)]
30%KEBP = B x [(((S x 20%) + (E x 20%)) x G) + (CSF x 60%)]
20%KEBP = B x [(((S x 10%) + (E x 10%)) x G) + (CSF x 80%)]
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ARTICLE 5 - BONUS PLAN TERMS
5.1 For the purpose of the KEBP, EPS is defined as Earnings Per Share reported
by the company adjusted for extraordinary events not included in the fiscal
year's Plan, i.e. 96.12 Plan.
5.2 Plan payout will be based on the plan participant's base salary at the end
of the plan period.
5.3 Should an employee change jobs during the plan period, and the change result
in a change in incentive level either as a result of a promotion or demotion,
the new incentive level will be determined immediately and the employee will be
notified in writing. The final incentive level will be the one used to calculate
the employee's incentives for that year. In any case, changes in incentive level
require the approval of the CEO.
ARTICLE 6 - CSF ACHIEVEMENT
6.1 Quarterly, VPs will present their CSF achievement at the Executive Staff.
The CSF achievement of the direct reports to the VPs will be presented and
discussed at the first Operations Review of each quarter. Results for the prior
quarter and CSF plans for the current quarter are presented.
6.2 A 0% threshold will be defined for each CSF. This threshold, which could be
timing and/or deliverable-based, is a point at which CSF score starts to be
earned. If a participant does not reach/complete the minimum threshold, the CSF
will be scored 0% (zero). Progress beyond the threshold earns the participant a
pro-rated score up to 100%. Score for a particular CSF cannot exceed 110%.
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ARTICLE 7 - PAYMENT OF BONUS EARNED
7.1 At the end of the plan period, the CEO will present the calculated bonus to
the Compensation Committee of the Board for their approval.
7.2 Actual bonuses for each participant will be calculated using the formulas in
para 4.7.
7.3 Actual bonuses will be paid in three installments, defined as follows:
50% of bonus earned at the end of the plan period will be paid
after financial results are made public from the fiscal year
concluded, including competitive data used for growth factor
calculation. (Tentatively January 31st)
25% of bonus earned will be paid 6 months after the first
installment. (Tentatively July 31st)
25% of bonus earned will be paid in the following year coinciding
with that plan year's first 50% payout. (Tentatively January 31st)
On the basis of this schedule, 1st payout for 1997 plan period is
tentatively January 31, 1998.
ARTICLE 8 - ELIGIBILITY FOR PAYMENT
8.1 To be eligible for bonus payment, the participant must be employed by the
company at the scheduled payment date. A participant who terminates employment
prior to the payment date will forfeit the bonus including all future payment
schedules, except as otherwise provided in this article.
8.2 Disability: If a participant is disabled, i.e. inability to perform any
services for the company and eligible to receive disability benefits under the
standards used by the company's disability benefit plan, the participant will
receive an award representing a proration for each month of employment in the
plan period.
8.3 Retirement: If a participant retires, i.e. permanent termination of
employment with the company in accordance with the company's retirement
policies, the participant will receive an award representing a proration for
each month of employment in the plan period.
8.4 Death: If a participant dies, awards will be paid to the beneficiary
designated by the participant, otherwise, to the persons entitled thereto as
determined by a court of competent jurisdiction. The award will be a proration
of each month of employment in the plan period.
8.5 Lay-off: If a participant is terminated by lay-off during the plan period,
no bonus will be awarded. If a participant is terminated by lay-off after the
plan period but prior to a scheduled bonus payment, it will be the discretion of
the CEO to pay bonus in full or on a prorate basis. No bonus will be paid to
employees who are terminated for cause.
8.6 All qualified bonus payments including future schedule pursuant to para 8.2,
8.3 and 8.5 will be paid in lump-sum.
8.7 The CEO reserves the right to reduce the bonus award of a participant on a
pro-rata basis to reflect a participant's leave of absence during the plan
period.
ARTICLE 9 - MISCELLANEOUS
9.1 Unless as defined in article 8.4, no right or interest in this plan is
transferable or assignable except by will or laws of descent and distribution.
9.2 Participation in this plan does not guarantee any right to continued
employment with the Company.
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9.3 Participation in the plan in a particular plan period is not a guarantee to
participation in subsequent plan periods.
9.4 Management reserves the right to discontinue participation of any
participant in this plan, at any time, and for whatever reasons.
9.5 This plan is unfunded and the company does not intend to set up a sinking
fund. Consequently, payments arising out of bonus earned shall be paid out of
the company's general assets. Accounts recognized by the company for book
purposes is not an indication of funds set aside for payment. Plan participants
are considered as general creditors of the company and the obligation of the
company is purely contractual and is not secured by any particular company
asset.
9.6 The provision of this plan shall not limit the CEO and the Compensation
Committee of the Board of Directors to modify said plan, or adopt such other
plans on matters of compensation, bonus or incentive, which in its own judgment
it deems proper, at any time.
9.7 This agreement is construed to be in accordance with the laws of the State
of Delaware.
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ATTACHMENT A
COMPETITOR COMPANIES:
MPD business area: (weight 44.6%)
Motorola Semiconductor 10%
Micron 10%
Alliance 25%
IDT 30%
ISSI 25%
PLD/NVM business area: (weight 20.9%)
Xilinx 25%
Altera 25%
Atmel 10%
Lattice 45%
DCD business area: (weight 18.8%)
IDT 40%
Vitesse 20%
National 20%
AMD 20%
CPD business area: (weight 15.7%)
Opti 15%
ICS 70%
VLSI 15%
Note: Division weighting factors are per the 9612 plan.
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