Proposed Tactics Seek to Further Entrench Current Board of DirectorsSAN JOSE, Calif., Feb. 23, 2017 — (PRNewswire) — T.J. Rodgers, founder and former CEO, President and Director of Cypress Semiconductor Corp. (NASDAQ: CY) ("Cypress" or "the Company") and the Company's largest individual stockholder, and semiconductor industry veterans Dan McCranie and Camillo Martino, whom Rodgers has nominated to serve on Cypress's Board of Directors in the election of directors at the 2017 Annual Meeting of Stockholders, today delivered a letter to the Cypress Board of Directors regarding the Board's entrenchment tactics, erroneously promoted as "actions to strengthen corporate governance." The full text of the letter concerning the Cypress Board's continuing refusal to address its egregious corporate governance deficiencies reads as follows:
To the Board of Directors of Cypress Semiconductor Corporation
198 Champion Street
San Jose, California 95134
Attn: Corporate Secretary
Board's Coercive Actions Inconsistent with Good Corporate Governance
Proposed Tactics Seek to Further Entrench Current Board of Directors
We continue to be deeply troubled by the Cypress Board's inaction in the face of serious conflicts of interest and violations of Cypress's Code of Business Conduct and Ethics. As we have pointed out on many occasions, the Company's Executive Chairman, Ray Bingham faces an irreconcilable conflict of interest due to his leadership position at Canyon Bridge Capital Partners, which U.S. Rep. Robert Pittenger described as a "shell venture capital firm with Chinese state ties,"1 and which competes directly with Cypress in M&A within the semiconductor industry. Mr. Bingham also receives excessive and unnecessary compensation for his role as Executive Chairman, including nearly $900,000 combined in yearly salary and bonus, almost 18 times the annual retainer fee of one of Cypress's outside directors. As part of his agreement to be Executive Chairman, Mr. Bingham also received or will receive equity grants worth $4.5 million, more than 22 times the annual equity award granted to one of the Company's outside directors.
These serious issues are why we filed a lawsuit in Delaware, why we nominated two highly qualified director candidates, Dan McCranie and Camillo Martino, for election to the Board, and why we entered into negotiations in good faith with the goal of reaching a mutually agreeable resolution peacefully and in private to spare Cypress stockholders the cost and distraction of a contested proxy contest. Rather than address these serious issues, you chose to break off negotiations last week with no notice and issue a combative press release consistent with your pattern of casually dismissing the serious ethical issues we have raised. We believe these issues are of major concern to all Cypress stockholders and they may well wonder why a Board whose members have only negligible investment in Cypress (in stark contrast to T.J. Rodgers, who owns or controls the right to vote almost 3 percent of the Company's stock and is the Company's largest individual stockholder) has not worked harder to avert an entirely avoidable proxy contest.
Ill-Advised Consent Solicitation Illustrates Deep Disregard for Best Interest of Cypress Stockholders
We were surprised and disappointed that last week you decided to initiate a consent solicitation seeking to change the process for director elections only AFTER the deadline for nomination of directors had passed. If the Board were truly committed to what it calls "best-in-class corporate governance practices," you would not seek to change the rules at such a late stage in the process. Furthermore, a Board that genuinely wished to "strengthen its corporate governance" would never make proxy access conditional on the stockholders agreeing to give up their right to cumulative voting through the consent process.
As you certainly know, "proxy access" (which gives stockholders the ability to include stockholder nominated directors on the Company's proxy materials) could be implemented through Board action without the expense of a consent solicitation, so there is no need to tie it to the removal of cumulative voting. Your attempt to remove cumulative voting appears to be solely and specifically motivated by the realization that Cypress stockholders, including the Company's largest individual stockholder, could collectively use the cumulative voting mechanism to cause one or more of you to lose your seat on the Cypress Board. Essentially, you're trying to coerce the stockholders into helping you entrench yourselves by dangling in front of them the illusion of improved corporate governance.
This manipulative tactic suggests that you chose to ignore the current corporate governance environment, in which stockholders generally support cumulative voting provisions, and believe that constructive debate and dissent in the boardroom is healthy. For that reason, many stockholders have a policy of voting against proposals that seek to remove cumulative voting. Your ill-advised consent solicitation that is designed to entrench the current Board illustrates your deep disregard for adhering to corporate governance best practices or advocating for the best interest of Cypress stockholders.
Our Vote: Independent Stockholders Will Decide Whether Or Not to Eliminate Cumulative Voting; Our Shares Will Be Voted Proportionally to All Other Stockholders
Unlike the Board, we have attempted to look at the situation from the perspective of what is right for the stockholders of Cypress. And from that perspective, we believe it is right for stockholders to decide for themselves whether to approve the removal of cumulative voting without paying attention to its effect on the upcoming contested election for directors. While we will certainly point out – and ask you to correct – certain deficiencies in your proposals for proxy access, we intend to make no recommendation as to how other stockholders should vote their shares on this issue. In addition, we intend to vote our shares in the consent solicitation proportionately with the vote of all other stockholders in order to have our vote align completely with their wishes.
As to the deficiencies of your proxy access proposal, they include your decision to limit both the number of proxy access candidates and the qualifications of the stockholders who nominate them in a manner inconsistent with best practices. We think it is the Board's duty to ensure that, in all cases, a minimum of two proxy access candidates are allowed. Similarly, we believe there is no logical reason why an activist or someone who has previously conducted a proxy contest should be barred from utilizing proxy access, as you propose. This proposal seems like it is designed to prevent any stockholder from enhancing the Board through election of a minority slate, rather than to implement corporate governance best practices. In other words, its aim is to entrench incumbent directors. We encourage you to correct these deficiencies before a vote is taken and to provide proxy access regardless of whether the stockholders approve or reject your proposed elimination of cumulative voting.
Candidates McCranie and Martino Nominated to Replace Conflicted Bingham and Benhamou
Finally, we note that if the removal of cumulative voting is approved by the stockholders, we would pursue the election of our nominees in the manner that we believe is ultimately most appropriate, by seeking to specifically replace Ray Bingham and Eric Benhamou, who stubbornly refuse to address these governance problems, with our highly qualified nominees, Dan McCranie and Camillo Martino, who believe in and practice the Cypress Code of Business Conduct and Ethics. Under the current system of cumulative voting, even if we were successful in the election of our nominees, the Board of Cypress would have been in a position to cumulate its vote to assure that Mr. Bingham and Mr. Benhamou were re-elected.
Mr. Benhamou, in his role as Lead Director, has repeatedly failed to address or even acknowledge these problems. Instead, Mr. Bingham and Mr. Benhamou continue to ignore our concerns, fight us in court and in public at stockholder expense, and stubbornly maintain that the Company has taken " the appropriate steps to guard against conflicts of interest, " without providing the slightest evidence of any action to correct what appear to be an executive chairman who also runs a competing firm and a lead director who does nothing about it.