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EXHIBIT 10.5
CYPRESS SEMICONDUCTOR CORPORATION
1998 KEY EMPLOYEE BONUS PLAN (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 30, 1997 for the plan period
of fiscal year 1998. The plan period for fiscal year 1998 covers December 30,
1997 to December 28, 1998.
ARTICLE 3 - ELIGIBILITY FOR PLAN PARTICIPATION
3.1 Prior to or shortly after 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 or shortly after 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
at the next regularly scheduled Board meeting or by Unanimous Written Consent.
3.3 Participants will be notified of their eligibility at the beginning of each
plan period or shortly thereafter.
3.4 Newly hired employees may be added as participants during the plan period.
Other key 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.
3.5 Changes in plan participants require the approval of the President/CEO.
Changes in incentive levels for current 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.
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 1998 (Sales factor)
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b. Total Company EPS performance for 1998 (EPS factor)
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c. Performance against individual CSFs (Score for each quarter)
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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 20% PLAN 30% PLAN 50% PLAN 80% PLAN
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Total CY 1998 Sales (Sales factor) 10% 20% 20% 25%
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Total CY 1998 EPS (EPS factor) 10% 20% 20% 25%
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Individual CSFs 80% 60% 60% 50%
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Total Plan Factors Weights 100% 100% 100% 100%
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4.4 Sales Factor: Scoring for the sales factor will be dependent on Cypress'
performance against the 1998.2 plan. The zero point for Sales is the prior
year's actual Sales. The zero point yields a sales factor of zero. Sales at 100%
of the plan yields a sales factor 1.0. Sales performance between the zero point
and the 100% point of the plan is ratably scored between 0 and 1.0. Sales
greater than 100% of the 1998 plan yields a sales factor greater than 1.0
ratably scored with no maximum. The graph below depicts the sales factor at
different sales levels. THE 1998.2 SALES PLAN IS $590M. SALES FACTOR IS ZERO IF
1998 SALES IS LOWER THAN $544.4M.
[PERFORMANCE GRAPH]
4.5 EPS Factor: Scoring for the EPS factor will be dependent on Cypress'
performance against the 1998 plan. The zero point for EPS is the prior year's
actual EPS. The zero point yields an EPS factor of zero. EPS at 100% of the plan
yields an EPS factor 1.0. EPS performance between the zero point and the 100%
point of the plan is ratably scored between 0 and 1.0. EPS greater than 100% of
the 1998 plan yields a EPS factor greater than 1.0 ratably scored with no
maximum.
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4.6 The factor of Cypress' revenue growth versus competitors' growth
shall be calculated as Cypress' 1998 Sales versus 1997 and shall use for
comparison the most current In-Stat reported Industry growth rate as of the
earnings announcement date of Cypress for the year just ended. 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 1998 Sales The most current In-Stat 2
------------------------- divided by reported Industry growth = Growth Factor
CY 1997 Sales rate
4.7 The overall bonus calculation shall be as follows for the different
bonus plans, where: B = base salary E = EPS Factor CSF = score per
quarter S = Sales Factor G = Growth Factor
SALES AND EPS PORTIONS OF THE BONUS:
KEBP = B x 20% x ((S x 10%) + (E x 10%)) * G
CSF PORTION OF THE BONUS:
KEBP = B x 20% x (CSF x 80%)
ARTICLE 5 - BONUS PLAN TERMS
5.1 CSF Portion of the Bonus.
5.1.1 Plan payout calculation for the CSF portion of the bonus will be
based on the plan participant's base salary at the end of the quarter
being measured and not the base salary at the time the CSF portion of
the bonus is paid.
5.1.2 For participants added to the KEBP program during the plan year,
eligibility for the CSF portion of the bonus shall commence at the
beginning of the immediately following quarter and will be rated in full
quarter basis only. This condition applies to new hires that are offered
KEBP participation as part of the employment offer.
5.1.3 In the event a participant's incentive level is changed during the
quarter (i.e. movement from 20% incentive level to 30%); the new
incentive level will be effective at the beginning of the immediately
following quarter. The participant's CSF payout for the current quarter
shall be based on the incentive level in effect at the beginning of that
quarter.
5.2 Sales and EPS Portions of the Bonus.
5.2.1 Plan payout calculation for the Sales and EPS portions of the
bonus will be based on the plan participant's base salary at the end of
the plan period and not the base salary at the time the Sales and EPS
portions of the bonus are paid.
5.2.2 For participants added to the KEBP program during the plan year,
eligibility for the Sales and EPS portions of the bonus shall commence
at the beginning of the immediately following month and calculation will
be prorated for the number of months they participated in the plan. This
condition applies to new hires that are offered KEBP participation as
part of the employment offer.
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5.2.3 In the event a participant's incentive level is changed during the
plan period, (i.e. movement from 20% incentive level to 30%) as a result
of a promotion, demotion or significant change in responsibility, the
Sales and EPS portions of the bonus shall be calculated based on the
participant's incentive level at the end of the plan period.
ARTICLE 6 - CSF ACHIEVEMENT
6.1 CSF attainment for the completed quarter and proposed CSFs for the next
quarter are reviewed at the end of each quarter pursuant to the HR published due
dates (typically no later than the fourth Thursday of the first month of the new
quarter).
6.2 In setting CSFs, a 0% threshold must be defined for each CSF. This
threshold, which could be timing and/or deliverable-based, is a point at which a
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 110%. The score for a
particular CSF cannot exceed 110%.
ARTICLE 7 - PAYMENT OF BONUS EARNED
7.1 Bonus payments are made in two separate processes:
7.1.1 At the end of each quarter, the actual CSF achievement for each
individual will be calculated. The CSF payments are made quarterly
within 30 days of the end of each quarter.
7.1.2 At the end of the plan period, the CEO will present the calculated
bonus for Sales and EPS to the Compensation Committee of the Board for
their approval. The Sales and EPS payments are made 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)
7.2 Actual bonuses for each participant will be calculated using the formulas in
para 4.7.
ARTICLE 8 - ELIGIBILITY FOR PAYMENT
8.1 To be eligible for any portion of the 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.
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8.2 Disability: If a participant is disabled, i.e. unable 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 a bonus calculated as follows: for the portion based on CSF completion,
the quarter in which the disability begins will be considered a completed
quarter and the CSF portion of the bonus for that quarter will be paid as though
CSF attainment was 100%. Thereafter, quarterly participation ceases. For the
portion of the bonus based on Sales and EPS, the number of days the employee
worked in the plan period will be used to pro-rate the amount which will be paid
at the end of 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 a bonus calculated as follows: for the
portion based on CSF completion, the quarter in which the retirement begins will
be considered a completed quarter and the CSF portion of the bonus for that
quarter will be paid as though CSF attainment was 100%. Thereafter, quarterly
participation ceases. For the portion of the bonus based on Sales and EPS, the
number of days the employee worked in the plan period will be used to pro-rate
the amount which will be paid at the end of 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 bonus will be calculated as
follows: for the portion based on CSF completion, the quarter in which death
occurred will be considered a completed quarter and the CSF portion of the bonus
for that quarter will be paid as though CSF attainment was 100%. Thereafter,
quarterly participation ceases. For the portion of the bonus based on Sales and
EPS, the number of days the employee worked in the plan period will be used to
pro-rate the amount which will be paid at the end of the plan period.
8.5 Lay-off: If a participant is terminated by lay-off during the plan period,
no bonus will be awarded for the Sales and EPS portion of the bonus. The
calculation for the CSF portion of the bonus will be: the quarter in which the
lay-off occurred will be considered a completed quarter and the CSF portion of
the bonus for that quarter will be paid as though CSF attainment was 100%.
Thereafter, quarterly participation ceases. If a participant is terminated by
lay-off after the plan period but prior to a scheduled bonus payment, it will be
at the discretion of the CEO to pay the bonus.
8.6 No bonus will be paid to employees who are terminated for cause.
8.7 All qualified bonus payments including future scheduled payments pursuant to
para 8.2, 8.3, and 8.4 will be paid in lump-sum.
8.8 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.
9.3 Participation in the plan in a particular plan period is not a guarantee to
participation in subsequent plan periods.
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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:
TO BE DETERMINED.
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