UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☐ Filed by a Party other than the Registrant ☒
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| ☐ | | Preliminary Proxy Statement |
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| ☐ | | Definitive Proxy Statement |
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| ☒ | | Definitive Additional Materials |
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| ☐ | | Soliciting Material Under Rule 14a-12 |
Cypress Semiconductor Corporation
(Name of Registrant as Specified In Its Charter)
T.J. Rodgers
J. Daniel McCranie
Camillo Martino
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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T.J. Rodgers, J. Daniel McCranie and Camillo Martino (collectively, “CypressFirst”) have filed a definitive proxy statement and an accompanying GOLD proxy card with the Securities and Exchange Commission to be used to solicit votes for the election of CypressFirst’s two director nominees at the 2017 annual meeting of stockholders of Cypress Semiconductor Corporation (the “Company”).
On May 24, 2017, CypressFirst mailed the following letter to stockholders of the Company.
May 24, 2017
This Election Contest is about Ethics, Good Governance and “Doing What’s Right for Cypress”
—and Its Stockholders
Dear Fellow Cypress Stockholder:
Only a few weeks remain before the Cypress Annual Meeting of Stockholders on June 8, at which you will have the choice to replace Ray Bingham, the executive chairman, and Eric Benhamou, the lead director, with two better-qualified directors, both of whom are semiconductor veterans, having held between them three CEO positions and 12 directorships. The purpose of this letter is to step back from the fray of the election and examine a few, simple facts that show why the Cypress Board needs change.
Cypress and its stockholders deserve better than Bingham and Benhamou. Cypress should not be forced to compete with its own executive chairman, who has received a compensation package from Cypress worth $5.38 million in cash and stock, and also stands to make millions more from his second job at Canyon Bridge, a private equity firm funded by the Chinese government, whose stated purpose is to acquire semiconductor companies—making it a direct Cypress competitor.
Cypress also deserves a lead director who holds the Board accountable to the Company’s clear ethical standards on conflict of interest. While Benhamou defends Bingham publicly, he privately emailed to another Cypress director that Canyon Bridge was “ripe for conflicts on interest” (sic) in a document just unsealed by the Delaware Court of Chancery.
Cypress stockholders have the power to rectify these problems of excess compensation and conflict of interest by voting theGOLD Proxy FOR Dan McCranie and Camillo Martino to replace Ray Bingham and Eric Benhamou.
We fully support CEO Hassane El-Khoury and his management team—they are not the problem. But we do believe that Cypress and its stockholders urgently need two new directors who have strong ethical principles and extensive governance experience—directors who will follow, rather than evade, the Company’s Code of Business Conduct and Ethics. As new directors, Dan McCranie and Camillo Martino would work diligently and creatively—without millions of dollars in excessive compensation—to assist management not only in bringing better governance to Cypress, but also in solving its chronic problem of low gross margin.
Ray Bingham, whom we are seeking to replace, took control of Cypress on April 28, 2016, and thus has been the top executive of the company for over a year without making any progress on improving gross margin. Indeed, in the most recent quarter, gross margin declined by nearly 1% to 39.3%. Better results are promised by the end of 2017 and in 2018—but without substantial gross margin improvement, Cypress will not be able to pay down its debt, increase its dividend, or improve its bottom line and thus share price. Which directors do you believe can better help CEO El-Khoury and the management team in addressing low gross margin: Dan McCranie and Camillo Martino, both of whom have semiconductor operational experience—or Ray Bingham and Eric Benhamou, neither of whom has any prior semiconductor operational experience?
Cypress Should Not Tolerate an Executive Chairman Who Serves Two Masters
The Cypress Board’s strident attacks are an attempt to divert your attention from Bingham’s critical conflict of interest and overcompensation problems with irrelevant attacks on our motives. We focus here on the conflict of interest problem and two simple and undeniable underlying facts:
| | ● | | Cypress and Canyon Bridge compete for potential M&A candidates every day. |
| | ● | | Bingham cannot simultaneously serve two masters who have the same objectives. This conflict of interest problem will fester until he decides—or the stockholders decide for him—which of his competing jobs he will leave. |
Despite the Board’s diversionary claims, the ongoing conflict of interest problem has never been about the Lattice Semiconductor acquisition by Canyon Bridge; rather, it has always been about the direct,head-to-head competition between Canyon Bridge and Cypress to find and acquire semiconductor companies. This situation is untenable because of Ray Bingham’s employment by both companies.How can Cypress stockholders be properly served by an executive chairman who, upon learning of a new M&A opportunity, must decide which of his two masters to serve?
Ray Bingham, Eric Benhamou and the Cypress Board have resisted all of our efforts to learn about and disclose to stockholders the true story of Bingham’s involvement with Canyon Bridge. They continue to misrepresent and omit facts in their communications to stockholders, despite rulings by the Delaware Chancery Court that forced them to turn over relevant documents. They are still fighting us—document by document—to prevent you from receiving that relevant information. What have they got to hide? If Cypress has “effective conflict of interest policies at every level,” as the Board claims, why do they continue to fight at your expense in the Delaware Court?
The fact that Ray Bingham’s two employers compete with each other, and have glaring conflicts on opportunities, is as plain as day for all to see—except for Bingham, Benhamou and the Board.
Another diversionary tactic used by the Cypress Board is to illogically insist that Canyon Bridge is not a Cypress competitor because Cypress did not attempt to buy Lattice after the companies’ latest discussions in 2016. The fact that both Cypress and Canyon Bridge were at times interested in acquiring the same company simply illustrates that a structural conflict of interest exists.What acquisition opportunities does Ray Bingham know about—right now—that he has not passed on to Cypress? If there are any, he would be in violation of one of his fiduciary duties as a Cypress director.
Consider the following facts:
| | ● | | Canyon Bridge states in an SEC filing1 that it “focuses on acquiring interests in companies in the technology sector (specifically, companies in the semi-conductor industry).” |
| | ● | | Cypress has acquired 32 semiconductor companies—about one per year over its history. Furthermore, well over 50% of Cypress’s revenue today comes from acquired businesses. |
| | ● | | Cypress’s recent successes, proudly touted as part of “Cypress 3.0,” are heavily dependent on prior acquisitions. Where would Cypress be today if its M&A efforts had not been successful in these three critical market segments: Automotive (Fujitsu and Spansion acquisitions); Communications (Broadcom’s IoT Group acquisition); and USBType-C (three USB acquisitions)? |
| 1. | Source: SEC Form ADV Part 2 Brochure: “Canyon Bridge Management Corp.,” 5/22/17 |
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Lead Director Benhamou Must Share the Blame
As lead director, Mr. Benhamou has a duty not to turn a blind eye on this conflict of interest problem, but rather to enforce within the Board the Cypress Code of Ethics, which establishes these principles:
| | ● | | “Conflict of interest: A conflict of interest exists where the interests of one person or entity conflict with the interests or benefits of the Company (Cypress).” |
| | ● | | “Our policiesprohibit any employee from acceptingsimultaneousemployment of any kind without written permission of the Company, and prohibit any employee from accepting simultaneous employment with a Company supplier, customer, developer or competitor.” |
| | ● | | “It is aconflictofinteresttoserveasadirectorofanycompanythatcompetes with the Company.” |
| | ● | | “Although you may serve as a director of another company, our policy requires that youfirstobtainapprovalfromtheCompany’sChiefFinancialOfficer before accepting a directorship.” |
| | ● | | “Additionally, you must disclose to the Company any interest that you have that may conflict with the business of the Company.” |
| | ● | | “Employees, agents, or contractors should always try toavoideventheappearanceofimpropriety.” [emphasis added] |
Why do Eric Benhamou, Ray Bingham and the Board desperately want to convince you that Canyon Bridge and Cypress don’t compete? Given that Bingham is obviously violating the Company’s Code of Ethics, the Board needs a reason to justify never having held him to these standards.
Whyhas this all happened—and why is the Cypress Board resisting our reasonable settlement proposals and fighting to prevent disclosures to its own stockholders? If you look past the diversionary attacks, we think that the answers are simple and obvious:
| | ● | | RayBinghamwantstowear “twohats.” He wants to be paid millions as the part-time executive chairman of Cypress, and millions more as an owner andco-founder of Canyon Bridge. |
| | ● | | According to the Canyon Bridge SEC filing1, the Canyon Bridge Management Corp., which is owned by just four individuals—Ray Bingham, Benjamin Chow, Hong John Kao and Peter Chin Kuo—will receive a 2% “management fee” every year on total invested funds, currently $1.515 billion. |
| | ● | | That adds up to $30 million per year. The Chinese investors have already paid $6 million in management fees for just the lastten-and-one-half weeks of 2016, and a further $30 million in advance for 2017 management fees. |
| | ● | | In addition, Ray Bingham and his three partners are also the owners of another corporation, Canyon Bridge Capital Partners, LLC, which will receive a “carried interest” of 20% of the fund’s profits.2 We believe this data helps answer the prior question ofwhich master Bingham will serve. We are worried it will be the one who pays millions in management fees, plus 20% of the profits, not Cypress. |
Given these newly uncovered facts, do you really want Mr. Bingham as your executive chairman—or even as a member of the Cypress Board?
| 2. | From dispositions of investments made by the Fund after the return of invested capital and preferred returns to the limited partners. |
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Eric Benhamou also does not deserve your support:
| | ● | | He was the Chairman of the Compensation Committee that created and locked in Bingham’s egregious executive chairman compensation package. |
| | ● | | Stockholders can rightly ask to see Benhamou’s claimed study by compensation experts that justified an $877,500 annual salary plus target bonus for a job to which Bingham shows up just two days per week. And how is it remotely rational that Bingham should be paid $4.5 million in RSUs with three-year time vesting for his “transitionary” role to mentor Hassane El-Khoury? |
| | ● | | Benhamou allowed Bingham to become theonly Cypress executive whose equity compensation is not performance-based. |
| | ● | | Finally, Benhamou, as lead director, is responsible for making sure that you as stockholders were given all the facts in the Proxy Materials dealing with the election of directors.You were not. That’s why Cypress was forced to file a “Supplement to the Proxy Statement” on May 17. |
In its May 15, 2017 letter, the Board now publiclyadmitsthatBingham’sexecutivechairmanrole shouldend,spinning it as, “The Company will transition away from the executive chairman structure by the end of the current year.”
| | ● | | We believe the “transition” should be now, and remind stockholders that their vote can cause that transition to happen now. |
| | ● | | Why wouldn’t Cypress give stockholders a break and end Bingham’s make-work job on June 8? |
| | ● | | Or, will the Board quietly arrange for Bingham to get all of his unvested and unearned RSUs? |
Eric Benhamou should be leading the effort to return Ray Bingham’s unnecessary $4.5 million equity package to stockholders.
Eric Benhamou should also be held accountable as lead director for the Board’scover-up of Bingham’s conflicted employment. Contrary to his Proxy statements to stockholders, in an email to Cypress director Wilbert van den Hoek unsealed by the Delaware Court, Benhamou wrote this about Bingham’s conflicted employment: “there is bound to be some overlaps. This is ripe for conflicts on interest…” (sic).
It’s also time for the Cypress Board to “Do What’s Right for Cypress” and allow full disclosure of all the facts to stockholders.
We continue to offer a solution that will end the proxy contest, lawsuits and festering governance problems: We will accept enlarging the Cypress Board to nine directors, if Dan McCranie and Camillo Martino are added to the Cypress Board under acceptable terms and with acceptable committee assignments, and if Mr. Bingham returns to receiving normal Cypress directors’ pay on June 8. If our offer is accepted, we will not seek to replace Bingham and Benhamou at the Annual Meeting.
Finally, if our offer is rejected again by the Board, remember that you, the stockholders, have the power to end this conflict, restore good governance and send a clear message to the Cypress Board that you will not tolerate self-enrichment at the stockholders’ expense.
We appreciate your support and strongly recommend that you elect our two new, superlatively qualified directors, Dan McCranie and Camillo Martino, to the Cypress Board byvotingFOR on theGOLD Proxy.
Sincerely,
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| J. Daniel McCranie | | Camillo Martino | | T.J. Rodgers |
