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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(Rule 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant x

Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

¨		Preliminary Proxy Statement
¨		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x		Definitive Proxy Statement
¨		Definitive Additional Materials
¨		Soliciting Material Pursuant to §240.14a-12

SPANSION INC.

 

(Name of Registrant as Specified in its Charter)

 

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

x		No fee required.
¨		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:
		(2)		Aggregate number of securities to which transaction applies:
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
		(4)		Proposed maximum aggregate value of transaction:
		(5)		Total fee paid:
¨		Fee paid previously with preliminary materials.
¨		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

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TO THE STOCKHOLDERS OF CYPRESS SEMICONDUCTOR CORPORATION AND SPANSION INC. — MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT

February 6, 2015

Dear stockholders,

The boards of each of Cypress Semiconductor Corporation (“Cypress”) and Spansion Inc. (“Spansion”) have unanimously approved the merger of a wholly owned subsidiary of Cypress with and into Spansion, with Spansion surviving as a wholly owned subsidiary of Cypress. If the proposed merger is completed, Spansion stockholders will receive 2.457 shares of Cypress common stock for each share of Spansion common stock they own immediately prior to the effective time of the merger, and Cypress stockholders will continue to own their existing shares, which will not be adjusted by the merger.

Cypress stockholders, on the one hand, and former Spansion stockholders, on the other hand, are each expected to hold approximately 50% of the fully diluted shares of Cypress common stock following the completion of the merger based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of Spansion’s exchangeable 2.00% senior notes. Following the merger, T.J. Rodgers, the current President and Chief Executive Officer of Cypress, will be the President and Chief Executive Officer of the combined company. The Cypress board will consist of four directors from the current Cypress board, including Mr. Rodgers and Eric Benhamou, and four directors from the current Spansion board, including John H. Kispert and Raymond Bingham, the Spansion chairman, who will serve as the non-executive chairman of the Cypress board. The combined company will continue to be called Cypress Semiconductor Corporation.

Cypress common stock trades on the Nasdaq Global Select Market under the ticker symbol “CY.” As of February 5, 2015, the last trading day before the date of this joint proxy statement/prospectus, the last reported sales price of Cypress common stock at the end of regular trading hours, as reported on the Nasdaq Global Select Market, was $14.22.

Spansion common stock trades on the New York Stock Exchange under the ticker symbol “CODE.” As of February 5, 2015, the last trading day before the date of this joint proxy statement/prospectus, the last reported sales price of Spansion common stock at the end of regular trading hours, as reported on the New York Stock Exchange, was $34.35.

Cypress and Spansion cannot complete the merger unless Cypress stockholders approve the issuance of shares of Cypress common stock in connection with the merger and Spansion stockholders adopt the merger agreement and approve the transactions contemplated by the merger agreement. The obligations of Cypress and Spansion to complete the merger are also subject to the satisfaction or waiver of several other conditions to the merger. More information about Cypress, Spansion and the merger is contained in this joint proxy statement/prospectus. We encourage you to read carefully this joint proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus.

After careful consideration, the boards of each of Cypress and Spansion have unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the Cypress and Spansion stockholders, respectively, and the board of each of Cypress and Spansion has approved the merger agreement.

The Cypress board unanimously recommends that Cypress stockholders vote “FOR” the proposal to approve the issuance of shares of Cypress common stock in the merger and “FOR” the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan. The Spansion board unanimously recommends that Spansion stockholders vote “FOR” the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

The proposals are being presented to the respective stockholders of each company at their special meetings. The dates, times and places of the meetings are as follows:

 

Your vote is very important. Whether or not you plan to attend your respective company’s meeting, please take the time to vote by completing and returning the enclosed proxy card to your respective company or, if the option is available to you, by granting your proxy electronically over the Internet or by telephone. If your shares are held in “street name,” you must instruct your broker in order to vote.

Sincerely,

 

None of the Securities and Exchange Commission, any state securities regulator or any regulatory authority has approved or disapproved of these transactions or the securities to be issued under this joint proxy statement/prospectus or determined if the disclosure in this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated February 6, 2015, and is first being mailed to stockholders of Cypress and Spansion on or about February 10, 2015.

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Cypress Semiconductor Corporation

198 Champion Court

San Jose, California 95134

(408) 943-2600

NOTICE OF SPECIAL MEETING OF CYPRESS STOCKHOLDERS

To the Stockholders of Cypress Semiconductor Corporation:

Cypress Semiconductor Corporation will hold its special meeting of stockholders at Cypress’ principal executive offices located at 198 Champion Court, San Jose, California, on March 12, 2015 at 8:00 a.m., local time. Cypress is holding the meeting to consider the proposal to approve the issuance of shares of Cypress common stock in connection with the merger of Mustang Acquisition Corporation, a wholly owned subsidiary of Cypress, with and into Spansion, with Spansion surviving as a wholly owned subsidiary of Cypress, as contemplated by the Agreement and Plan of Merger and Reorganization, dated as of December 1, 2014 (which we refer to as the merger agreement), by and among Cypress, Spansion and Mustang Acquisition Corporation.

The Cypress board has approved the merger agreement and the transactions contemplated by the merger agreement by unanimous vote, and unanimously recommends that you vote “FOR” the proposal to issue shares of Cypress common stock in connection with the merger and “FOR” the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan, which are described in detail in the joint proxy statement/prospectus.

Holders of record of Cypress common stock at the close of business on February 5, 2015, are entitled to vote at the meeting. A list of stockholders eligible to vote at the Cypress special meeting will be available for inspection at the special meeting and at the offices of Cypress in San Jose, California, during regular business hours for a period of no less than 10 days prior to the special meeting.

You can vote your shares by completing and returning a proxy card. Most stockholders can also vote over the Internet or by telephone. If Internet and telephone voting are available to you, you can find voting instructions in the materials accompanying the joint proxy statement/prospectus. You can revoke a proxy at any time prior to its exercise at the meeting by following the instructions in the enclosed joint proxy statement/prospectus. Even if you plan to attend the Cypress special meeting in person, Cypress requests that you sign and return the enclosed proxy, or vote over the internet or by telephone, to ensure that your shares will be represented at the Cypress special meeting if you are unable to attend.

 

February 6, 2015

San Jose, California

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Spansion Inc.

915 DeGuigne Drive

P.O. Box 3453

Sunnyvale, California 94088

NOTICE OF SPECIAL MEETING OF SPANSION STOCKHOLDERS

To the Stockholders of Spansion Inc.:

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Spansion Inc., a Delaware corporation, will be held on March 12, 2015, at 8:00 a.m., local time, at 915 DeGuigne Drive, Sunnyvale, California 94085 to consider the following matters:

 

1.

to adopt the Agreement and Plan of Merger and Reorganization, dated as of December 1, 2014 (which we refer to as the merger agreement), by and among Spansion, Cypress Semiconductor Corporation and Mustang Acquisition Corporation, and approve the transactions contemplated by the merger agreement;

 

2.

to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger; and

 

3.

to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

Any action on the items of business described above may be considered at the special meeting at the time and on the date specified above or at any time and date to which the special meeting may be properly adjourned or postponed.

After careful consideration, the Spansion board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the Spansion stockholders and has unanimously approved the merger agreement. The Spansion board unanimously recommends that the Spansion stockholders vote “FOR” the merger proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

You are entitled to vote at and attend the special meeting only if you were a Spansion stockholder as of the close of business on February 5, 2015 or hold a valid proxy for the special meeting.

The special meeting will begin promptly at 8:00 a.m., local time. Check-in will begin at 7:30 a.m., local time, and you should allow ample time for the check-in procedures.

Your vote is very important. Whether or not you plan to attend the special meeting, you are encouraged to read the joint proxy statement/prospectus and submit your proxy or voting instructions for the special meeting as soon as possible. You may submit your proxy or voting instructions for the special meeting by completing,

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signing, dating and returning the proxy card or voting instruction card in the pre-addressed envelope provided. Even if you plan to attend the Spansion special meeting in person, Spansion requests that you sign and return the enclosed proxy, or vote over the Internet or by telephone, to ensure that your shares will be represented at the Spansion special meeting if you are unable to attend. For specific instructions on how to vote your shares, please refer to the section entitled “The Spansion Special Meeting” beginning on page 52 of the joint proxy statement/prospectus.

 

February 6, 2015

Sunnyvale, California

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TABLE OF CONTENTS

 

		Page
ADDITIONAL INFORMATION			iv
QUESTIONS AND ANSWERS ABOUT THE MERGER			v
General Questions and Answers			v
Questions and Answers for Cypress Stockholders			vii
Questions and Answers for Spansion Stockholders			ix
SUMMARY			1
Treatment of Spansion Securities			1
Information about the Companies			1
Market Price of Cypress and Spansion Common Stock			2
The Special Meeting of Cypress Stockholders			2
The Special Meeting of Spansion Stockholders			3
The Merger			4
The Merger Agreement			7
Additional Information—Certain Litigation Relating to the Merger			10
SELECTED HISTORICAL FINANCIAL DATA OF CYPRESS			11
SELECTED HISTORICAL FINANCIAL DATA OF SPANSION			13
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF CYPRESS AND SPANSION			16
UNAUDITED COMPARATIVE PER SHARE DATA			17
COMPARATIVE PER SHARE MARKET PRICE DATA			18
RECENT DEVELOPMENTS			19
RISK FACTORS			21
Risk Factors Relating to the Merger			21
Risk Factors Relating to the Combined Company Following the Merger			25
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION			28
Operating Factors			28
Transaction-Related Factors			28
INFORMATION ABOUT THE COMPANIES			30
THE CYPRESS SPECIAL MEETING			32
Date, Time and Place of Cypress Special Meeting			32
Purpose of Cypress Special Meeting			32
Who Can Vote at the Cypress Special Meeting			32
Vote Required for Approval			32
Adjournments			33
Share Ownership of Directors and Executive Officers of Cypress			33
Voting Procedures			33
Revoking Proxies or Voting Instructions			34
Shares Held in “Street Name”			34
Tabulation of Votes			34
How You Can Reduce the Number of Copies of Cypress’ Proxy Materials You Receive			34
Cost of Proxy Distribution and Solicitation			34
CYPRESS PROPOSAL 1: THE MERGER AGREEMENT AND THE MERGER			35
CYPRESS PROPOSAL 2: AMENDMENT AND RESTATEMENT OF CYPRESS’ 2013 STOCK PLAN			36
Overview			36
Vote Required and Cypress Board Recommendation			37
Why Cypress Stockholders Should Vote for the Amended Cypress Stock Plan			37
Summary Description of the Amended Cypress Stock Plan			43

 

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THE SPANSION SPECIAL MEETING			52
Date, Time and Place of Spansion Special Meeting			52
Purpose of Spansion Special Meeting			52
Who Can Vote at the Spansion Special Meeting			52
Vote Required for Approval			53
Adjournments			53
Share Ownership of Directors and Executive Officers of Spansion			54
Voting Procedures			54
Revoking Proxies or Voting Instructions			55
Shares Held in “Street Name”			55
Tabulation of Votes			55
How You Can Reduce the Number of Copies of Spansion’s Proxy Materials You Receive			55
Cost of Proxy Distribution and Solicitation			56
SPANSION PROPOSAL 1: THE MERGER AGREEMENT AND THE MERGER			57
SPANSION PROPOSAL 2: ADVISORY VOTE TO APPROVE MERGER-RELATED COMPENSATION FOR SPANSION NAMED EXECUTIVE OFFICERS			57
SPANSION PROPOSAL 3: POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY OR APPROPRIATE			58
THE MERGER			59
Background of the Merger			59
Reasons for the Merger			69
Overview			69
Recommendation of the Cypress Board			69
Opinion of the Cypress’ Financial Advisor			72
Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor			77
Interests of the Directors and Executive Officers of Cypress in the Merger			81
Cypress Executive Compensation Payable in Connection with the Merger			81
Cypress Golden Parachute Compensation			82
Recommendation of the Spansion Board; Spansion’s Reasons for the Merger			82
Opinion of Spansion’s Financial Advisor			86
Certain Prospective Financial Information Reviewed by the Spansion Board and Spansion’s Financial Advisor			94
Interests of the Directors and Executive Officers of Spansion in the Merger			97
Stock Options, Restricted Stock Units and Performance Stock Units			97
Recent Equity Awards			99
Change of Control Severance Agreements			100
Indemnification of Directors and Officers; Directors’ and Officers’ Insurance			102
Board of the Combined Company			103
Spansion Executive Compensation Payable in Connection with the Merger			103
Spansion Golden Parachute Compensation			103
Litigation Relating to the Merger			106
THE MERGER AGREEMENT			107
The Merger			107
Closing and Effective Time of the Merger			107
Treatment of Securities			108
Representations and Warranties			111
Conduct of Business before Completion of the Merger			112
Cypress and Spansion are Required to Terminate Any Existing Discussions with Third Parties and are Prohibited from Soliciting Other Offers			115
Obligations of each of the Cypress and Spansion Boards with Respect to its Recommendation and Holding a Meeting of its Stockholders			117

 

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Joint Proxy Statement/Prospectus			119
Efforts to Complete and Regulatory Matters			119
Public Announcements			120
Spansion Employee Benefits; 401(k) Plans			120
Indemnification and Insurance			120
Listing of Cypress Common Stock			121
Takeover Statutes			121
Cypress and Spansion Insiders			121
Tax Matters			121
Cypress Governance Matters after the Merger			122
Conditions to Obligations to Complete the Merger			122
Material Adverse Effect			124
Termination; Fees and Expenses			125
Material United States Federal Income Tax Consequences of the Merger			129
Accounting Treatment of the Merger			131
Regulatory Filings and Approvals Required to Complete the Merger			131
Listing of Shares of Cypress Common Stock Issued in the Merger on the Nasdaq Global Select Market			132
Delisting and Deregistration of Spansion Common Stock After the Merger			132
Registration of Shares of Cypress Common Stock Received in the Merger			132
No Appraisal Rights			132
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			133
DESCRIPTION OF CYPRESS CAPITAL STOCK			149
CYPRESS EXECUTIVE OFFICER AND DIRECTOR COMPENSATION			157
Cypress Compensation Discussion and Analysis			157
Executive Compensation Tables			177
Director Compensation			183
SPANSION EXECUTIVE OFFICER AND DIRECTOR COMPENSATION			185
Spansion Compensation Discussion and Analysis			185
Executive Compensation Tables			200
Director Compensation			207
FUTURE STOCKHOLDER PROPOSALS			209
LEGAL MATTERS			210
EXPERTS			210
WHERE YOU CAN FIND MORE INFORMATION			210
ANNEX A: AGREEMENT AND PLAN OF MERGER AND REORGANIZATION			A-1
ANNEX B: QATALYST PARTNERS FAIRNESS OPINION			B-1
ANNEX C: MORGAN STANLEY & CO. LLC FAIRNESS OPINION			C-1
ANNEX D: CYPRESS SEMICONDUCTOR CORPORATION AMENDED AND RESTATED 2013 STOCK PLAN			D-1

 

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ADDITIONAL INFORMATION

This accompanying joint proxy statement/prospectus incorporates by reference important business and financial information about Cypress and Spansion from documents that are not included in or delivered with this joint proxy statement/prospectus. You can obtain the documents incorporated by reference in the joint proxy statement/prospectus free of charge by requesting them in writing or by telephone from the appropriate company at the addresses and telephone numbers listed below. To obtain timely delivery, you must request the information no later than five business days before you must make your investment decision.

 

Cypress Semiconductor Corporation 198 Champion Court San Jose, California 95134 Attention: Investor Relations (408) 943-2656 http://investors.cypress.com/contactus.cfm		Spansion Inc. 915 DeGuigne Drive P.O. Box 3453 Sunnyvale, California 94088 Attention: Investor Relations (408) 962-2500 investor.relations@spansion.com

In addition, if you have questions about the merger or the special meetings, or if you need to obtain copies of the accompanying joint proxy statement/prospectus, proxy cards, election forms or other documents incorporated by reference in the joint proxy statement/prospectus, you may contact the appropriate contact listed above. You will not be charged for any of the documents you request.

In order for you to receive timely delivery of the documents in advance of the Cypress special meeting, Cypress should receive your request no later than March 5, 2015.

In order for you to receive timely delivery of the documents in advance of the Spansion special meeting, Spansion should receive your request no later than March 5, 2015.

For a listing of documents incorporated by reference into this joint proxy statement/prospectus, please see the section entitled “Where You Can Find More Information” beginning on page 210 of this joint proxy statement/prospectus.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

General Questions and Answers

The following questions and answers briefly address some commonly asked questions about the Cypress special meeting, the Spansion special meeting and the merger. These questions and answers may not include all the information that is important to stockholders of Cypress and Spansion. Cypress and Spansion urge stockholders to read carefully this entire joint proxy statement/prospectus, including the annexes and the other documents referred to herein. Page references are included in this summary to direct you to more detailed discussions elsewhere in this joint proxy statement/prospectus.

 

Q:	Why am I receiving this joint proxy statement/prospectus?

 

A:	Cypress and Spansion have agreed to combine their businesses in accordance with terms of a merger agreement that is described in this joint proxy statement/prospectus. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Annex A.

In order to complete the merger, Cypress stockholders must approve the issuance of shares of Cypress common stock in connection with the merger and Spansion stockholders must adopt the merger agreement and approve the transactions contemplated by the merger agreement. Cypress will hold a special meeting of its stockholders and Spansion will hold a special meeting of its stockholders to obtain these approvals. Each of Cypress and Spansion is also asking its stockholders to approve other matters in connection with its special meeting that are described in this joint proxy statement/prospectus. This joint proxy statement/prospectus contains important information about the merger and the stockholder meetings of each of Cypress and Spansion, and you should read it carefully. For Cypress stockholders, the enclosed voting materials for the Cypress special meeting allow Cypress stockholders to vote shares of Cypress common stock without attending the Cypress special meeting. For Spansion stockholders, the enclosed voting materials for the Spansion special meeting allow Spansion stockholders to vote shares of Spansion common stock without attending the Spansion special meeting.

Stockholder votes are important. Cypress and Spansion encourage stockholders of each company to vote as soon as possible. For more specific information on how to vote, please see the questions and answers for each of the Cypress and Spansion stockholders below.

 

Q	Why are Cypress and Spansion proposing the merger? (see page 69)

 

A:	After reviewing strategic alternatives to address the opportunities and challenges facing our companies, the boards of both Cypress and Spansion reached the same conclusion — this merger represents the best strategic alternative for our respective companies.

Specifically, Cypress and Spansion believe the merger will provide certain strategic and financial benefits, including the following:

 

•

a reduction in costs and other synergies;

 

•

an increase in product development capabilities;

 

•

greater depth of relationships with customers and a broader portfolio of complementary products;

 

•

enhanced opportunities for growth and innovation; and

 

•

creating a company that would be a leading provider of microcontrollers and specialized memory chips for embedded systems.

 

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Q:	When do Cypress and Spansion expect to complete the merger?

 

A:	Cypress and Spansion currently expect to complete the merger in the first half of 2015. However, neither Cypress nor Spansion can predict the exact timing of the completion of the merger because the merger is subject to governmental and regulatory review processes and other conditions.

 

Q:	What effects will the proposed merger have on Cypress and Spansion?

 

A:

Upon completion of the proposed merger, Spansion will cease to be a publicly traded company and will be wholly owned by Cypress, which means that Cypress will be the only stockholder of Spansion. As a result, Spansion stockholders will own shares in Cypress only and will not directly own any shares in Spansion and Cypress stockholders will continue to own their Cypress shares. Following completion of the merger, the registration of Spansion’s common stock and its reporting obligations with respect to its common stock under the Securities Exchange Act of 1934 will be terminated. In addition, upon completion of the proposed merger, shares of Spansion common stock will no longer be quoted on the New York Stock Exchange or any other stock exchange or quotation system.

 

Q:	What happens if the merger is not completed?

 

A:

If the merger is not completed for any reason, Spansion stockholders will not receive any shares of Cypress common stock for their shares of Spansion common stock pursuant to the merger agreement or otherwise. Instead, Cypress and Spansion will remain separate public companies, and each company expects that its common stock will continue to be registered under the Securities Exchange Act of 1934 and traded on their applicable exchanges. In specified circumstances, either Cypress or Spansion may be required to pay to the other party a termination fee, as described in “The Merger Agreement — Termination; Fees and Expenses” beginning on page 125 of this joint proxy statement/prospectus.

 

Q:	How do the Cypress and Spansion boards recommend that I vote? (see pages 35, 36, 57 and 58)

 

A:	The Cypress board unanimously recommends that Cypress stockholders vote “FOR” the proposal to issue shares of Cypress common stock in connection with the merger and “FOR” the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan.

The Spansion board unanimously recommends that Spansion stockholders vote “FOR” the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement, “FOR” the proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger and “FOR” the proposal to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

 

Q:	Are the Cypress stockholders or Spansion stockholders entitled to appraisal rights?

 

A:	No — neither Cypress stockholders nor Spansion stockholders are entitled to appraisal rights for their shares under Delaware law in connection with the merger.

 

Q:	What should I do now?

 

A:	Please review this joint proxy statement/prospectus carefully and vote as soon as possible. Most Cypress and Spansion stockholders may vote over the Internet or by telephone. Stockholders may also vote by signing, dating and returning each proxy card and voting instruction card received.

 

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Q:	What should I do if I receive more than one set of voting materials?

 

A:

Please vote each proxy card and voting instruction card that you receive. You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account will receive a separate voting instruction card for each brokerage account in which shares are held. If shares are held in more than one name, stockholders will receive more than one proxy or voting instruction card. In addition, if you are a stockholder of both Cypress and Spansion, you may receive one or more proxy cards or voting instruction cards for Cypress and one or more proxy cards or voting instruction cards for Spansion. If you are a stockholder of both Cypress and Spansion, please note that a vote for the issuance of shares in connection with the merger for the Cypress special meeting will not constitute a vote for the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement for the Spansion special meeting, and vice versa. Therefore, please vote each proxy and voting instruction card you receive, whether from Cypress or Spansion.

Questions and Answers for Cypress Stockholders

 

Q:	When and where is the Cypress special meeting?

 

A:	The special meeting of Cypress stockholders will be held at 8:00 a.m., local time, on March 12, 2015, at Cypress’ principal executive offices located at 198 Champion Court, San Jose, California 95134. Check-in will begin at 7:30 a.m., local time. Please allow ample time for the check-in procedures.

 

Q:	How can I attend the Cypress special meeting?

 

A:

Cypress stockholders as of the close of business on February 5, 2015, and those who hold valid proxies for the special meeting are entitled to attend the Cypress special meeting. Cypress stockholders should be prepared to present photo identification for admittance. In addition, names of record holders will be verified against the list of record holders on the record date prior to being admitted to the meeting. Cypress stockholders who are not record holders but who hold shares through a broker or nominee (i.e., in “street name”), should provide proof of beneficial ownership on the record date, such as a letter from their broker reflecting their stock ownership as of the record date, which is February 5, 2015. If Cypress stockholders do not provide photo identification or do not comply with the other procedures outlined above upon request, they will not be admitted to the Cypress special meeting.

 

Q:	What matters will Cypress stockholders vote on at the special meeting?

 

A:	Cypress stockholders will vote on the proposal to approve the issuance of shares of Cypress common stock in connection with the merger and on the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan.

 

Q:	How many votes are needed for the proposal considered by Cypress stockholders at the Cypress special meeting?

 

A:

Assuming a quorum of Cypress stockholders are present at the Cypress special meeting, an affirmative vote of the majority of shares present in person or represented by proxy at the Cypress special meeting is required to approve the issuance of shares of Cypress common stock in connection with the merger and the amendment and restatement of Cypress’ 2013 Stock Plan. Thus, the failure to submit a proxy card or attend the meeting in person will have no effect on these proposals. Any abstentions or “broker non-votes,” i.e. the failure to instruct your bank or broker how to vote if you hold your shares in “street name,” will have the effect of a vote against these proposals.

 

Q:	What is the quorum requirement for the Cypress special meeting?

 

A:	A quorum of Cypress stockholders will be present at the Cypress special meeting if holders of a majority of Cypress stock issued and outstanding and entitled to vote are present in person or represented by proxy.

 

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Your shares will be counted towards such quorum only if you submit a valid proxy (or one is submitted on your behalf by your bank or broker) or if you attend the Cypress special meeting in person. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the Cypress special meeting or holders of a majority of the votes present at the Cypress special meeting may adjourn the Cypress special meeting to another time or date. If you do not attend the meeting or submit a proxy, it will be more difficult for Cypress to obtain the necessary quorum to approve the proposal to be considered by Cypress stockholders at the Cypress special meeting.

 

Q:	As a Cypress stockholder, how can I vote?

 

A:

Stockholders of record as of the record date may vote in person by attending the Cypress special meeting or by mail by completing, signing and dating a proxy card or, if you hold your shares in “street name,” a voting instruction form. Proxies and voting instruction forms submitted by mail must be received no later than March 11, 2015, at 11:59 p.m. Eastern Time to be voted at the Cypress special meeting. Most stockholders can also vote over the Internet or by telephone. Cypress stockholders can find voting instructions in the materials accompanying this joint proxy statement/prospectus. The Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on March 11, 2015. Please be aware that Cypress stockholders who vote over the Internet may incur costs such as telephone and Internet access charges for which they will be responsible.

The method by which Cypress stockholders vote will in no way limit the right to vote at the meeting if you later decide to attend in person. If shares are held in “street name,” Cypress stockholders must obtain a proxy, executed in their favor, from their broker or other holder of record, to be able to vote at the meeting.

All shares entitled to vote and represented by properly completed proxies received prior to the Cypress special meeting and not revoked will be voted at the meeting in accordance with your instructions. If a signed proxy card is returned without indicating how shares should be voted on a matter and the proxy is not revoked, the shares represented by such proxy will be voted as the Cypress board unanimously recommends and therefore “FOR” the issuance of shares in connection with the merger and “FOR” the amendment and restatement of Cypress’ 2013 Stock Plan.

For a more detailed explanation of the voting procedures, please see the section entitled “The Cypress Special Meeting — Voting Procedures” beginning on page 33 of this joint proxy statement/prospectus.

 

Q:	As a Cypress stockholder, may I change my vote after I have submitted a proxy card or voting instruction card?

 

A:	Yes. Cypress stockholders may revoke a previously granted proxy or voting instruction at any time prior to the closing of the polls at the special meeting by:

 

•

signing and returning a later dated proxy or voting instruction card for the Cypress special meeting;

 

•

voting again online or by telephone, as more fully described on your notice or proxy card; or

 

•

attending the Cypress special meeting and voting in person, as described in the section entitled “The Cypress Special Meeting” beginning on page 32 of this joint proxy statement/prospectus.

If your shares are held by a bank or broker, you may change your vote by submitting new voting instructions to your bank, broker, trustee or agent, or, if you have obtained a legal proxy from your bank or broker giving you the right to vote your shares, by attending the Cypress special meeting and voting in person.

Only the last submitted proxy or voting instruction card will be considered. Please submit a proxy or voting instruction card for the Cypress special meeting as soon as possible.

 

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Q:	What do Cypress stockholders need to do now?

 

A:

Carefully read and consider the information contained in and incorporated by reference into this joint proxy statement/prospectus, including its annexes. In order for Cypress shares to be represented at the special meeting, Cypress stockholders can (1) vote through the Internet or by telephone by following the instructions included on their proxy card, (2) indicate on the enclosed proxy card how they would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope, or (3) attend the Cypress special meeting in person.

 

Q:	Who can answer questions?

 

A:	Cypress stockholders with questions about the merger or the proposal to be voted on at the Cypress special meeting or who desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:

Okapi Partners LLC

437 Madison Avenue, 28th Floor

New York, New York

Banks and brokerage firms: (212) 297-0720

Stockholders and all others, toll-free: (877) 566-1922

Email: info@okapipartners.com

If you need additional copies of this joint proxy statement/prospectus or voting materials, contact Okapi Partners LLC as described above or Cypress Investor Relations at http://investors.cypress.com/contactus.cfm or by telephone at (408) 943-2656.

Questions and Answers for Spansion Stockholders

 

Q:	Why are Spansion stockholders receiving this joint proxy statement/prospectus?

 

A:

In order to complete the merger, Spansion stockholders must adopt the merger agreement and approve the transactions contemplated by the merger agreement. This joint proxy statement/prospectus contains important information about the proposed merger, the merger agreement and the Spansion special meeting, which should be read carefully. The enclosed voting materials allow Spansion stockholders to vote shares without attending the Spansion special meeting. The vote of Spansion stockholders is very important. Spansion stockholders are encouraged to vote as soon as possible.

 

Q:	What will Spansion stockholders receive in the merger?

 

A:

If the proposed merger is completed, at the effective time of the merger, Spansion stockholders will be entitled to receive 2.457 shares of Cypress common stock for each share of Spansion common stock that they own. Cypress will not issue any fractional shares of common stock in connection with the merger. Instead, each Spansion stockholder who would otherwise be entitled to receive a fraction of a share of Cypress common stock will receive (after aggregating all fractional shares of Cypress common stock that otherwise would be received by such Spansion stockholder) an amount of cash (rounded down to the nearest whole cent), without interest, equal to the amount obtained by multiplying such fraction of a share by the average of the closing sale prices for one share of Cypress common stock as quoted on the Nasdaq Global Select Market for the 10 consecutive trading days ending on the second trading day immediately preceding the completion of the merger. Cypress stockholders, on the one hand, and former Spansion stockholders, on the other hand, are each expected to own approximately 50% of the fully diluted shares of Cypress common stock following the completion of the merger based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes.

 

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Q:	What if I have Spansion stock options?

 

A:

Each outstanding option to purchase shares of Spansion common stock, whether or not exercisable, will be converted into an option to acquire Cypress common stock, on the same terms and conditions as were applicable to such Spansion stock option prior to the effective time of the merger, except that the number of shares for which such option is or may become exercisable (rounded down to the nearest whole shares of Cypress common stock) and the exercise price of the option will be adjusted to reflect the exchange ratio (which price per share will be rounded up to the nearest whole cent).

 

Q:	What if I have Spansion restricted stock units?

 

A:

Each Spansion restricted stock unit award and performance stock unit award will be converted into an award to receive shares of Cypress common stock on the same terms and conditions that were applicable to such Spansion restricted stock unit award or performance stock unit award prior to the effective time of the merger, except that the number of shares subject to the award will be adjusted to reflect the exchange ratio (rounded down to the nearest whole share of Cypress common stock).

 

Q:	What are the material United States federal income tax consequences of the merger to Spansion stockholders?

 

A:

The transaction is intended to be a tax-free reorganization for United States federal income tax purposes. If the merger qualifies as a reorganization, Spansion stockholders will not recognize any gain or loss, for federal income tax purposes, with respect to the shares of Cypress common stock they receive in the merger. However, Spansion stockholders will recognize gain or loss on any fractional shares of Cypress common stock for which cash is received in lieu of a fractional share.

 

Q:	When and where is the Spansion special meeting?

 

A:	The special meeting of Spansion stockholders will be held at 8:00 a.m., local time, on March 12, 2015, at 915 DeGuigne Drive, Sunnyvale, California 94085. Check-in will begin at 7:30 a.m., local time. Please allow ample time for the check-in procedures.

 

Q:	How can I attend the Spansion special meeting?

 

A:

Spansion stockholders as of the close of business on February 5, 2015 and those who hold a valid proxy for the special meeting are entitled to attend the Spansion special meeting. Spansion stockholders should be prepared to present photo identification for admittance. In addition, names of record holders will be verified against the list of record holders on the record date prior to being admitted to the meeting. Spansion stockholders who are not record holders but who hold shares through a broker or nominee (i.e., in “street name”) should provide proof of beneficial ownership on the record date, such as a letter from their broker reflecting their stock ownership as of the record date, which is February 5, 2015. If Spansion stockholders do not provide photo identification or comply with the other procedures outlined above upon request, they will not be admitted to the Spansion special meeting.

 

Q:	What matters will Spansion stockholders vote on at the special meeting?

 

A:	Spansion stockholders will vote on the following proposals:

 

•

to adopt the merger agreement and approve the transactions contemplated by the merger agreement;

 

•

to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger; and

 

•

to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

 

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Q:	How many votes are needed for the proposals considered by Spansion stockholders at the Spansion special meeting?

 

A:

The proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement requires the affirmative vote of the holders of at least a majority of the shares of Spansion common stock outstanding on the record date. Approval of the compensation proposal and the adjournment proposal each requires the affirmative vote of a majority of the votes cast by the holders of shares of Spansion common stock present in person or represented by proxy at the Spansion special meeting and entitled to vote on the proposal.

 

Q:	What is the quorum requirement for the Spansion special meeting?

 

A:

A quorum of Spansion stockholders will be present at the Spansion special meeting if holders of a majority of Spansion common stock issued and outstanding and entitled to vote thereat are present in person or represented by proxy. Your shares will be counted towards such quorum only if you submit a valid proxy (or one is submitted on your behalf by your bank or broker) or if you vote in person at the Spansion special meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the Spansion board or holders of a majority of the votes present at the Spansion special meeting may adjourn the Spansion special meeting to another time or date. If you do not vote, it will be more difficult for Spansion to obtain the necessary quorum to approve the proposals to be considered by Spansion stockholders at the Spansion special meeting.

 

Q:	As a Spansion stockholder, how can I vote?

 

A:

Stockholders of record as of the record date may vote in person by attending the Spansion special meeting or by mail by completing, signing and dating a proxy card or, if you hold your shares in “street name,” a voting instruction form. Proxies and voting instruction forms submitted by mail must be received no later than March 11, 2015, at 11:59 p.m. Eastern Time to be voted at the Spansion special meeting.

Most stockholders can also vote over the Internet or by telephone. The availability of Internet and telephone voting for shares held in “street name” will depend on the voting processes of your broker or other nominee. If Internet and telephone voting are available, Spansion stockholders can find voting instructions in the materials accompanying this joint proxy statement/prospectus. The Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on March 11, 2015. Please be aware that Spansion stockholders who vote over the Internet may incur costs such as telephone and Internet access charges for which they will be responsible.

The method by which Spansion stockholders vote will in no way limit the right to vote at the meeting if you later decide to attend in person. If shares are held in “street name,” Spansion stockholders must obtain a proxy, executed in their favor, from their broker or other holder of record, to be able to vote at the meeting.

Failure by a Spansion stockholder to submit a proxy, or instruct a broker or nominee to vote, as the case may be, will have the effect of a vote against the merger proposal, but it will have no effect on the compensation proposal or the adjournment proposal, assuming a quorum is present.

All shares entitled to vote and represented by properly completed proxies received prior to the Spansion special meeting and not revoked will be voted at the meeting in accordance with your instructions. If a signed proxy card is returned without indicating how shares should be voted on a matter and the proxy is not revoked, the shares represented by such proxy will be voted as the Spansion board unanimously recommends and therefore “FOR” the merger proposal, the compensation proposal and the adjournment proposal.

For a more detailed explanation of the voting procedures, please see the section entitled “The Spansion Special Meeting — Voting Procedures” beginning on page 54 of this joint proxy statement/prospectus.

 

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Q:	As a Spansion stockholder, what happens if I do not vote?

 

A:

Failure to vote or give voting instructions to your broker or nominee for the Spansion special meeting could make it more difficult to meet the voting requirement that the total votes cast on the merger proposal represent over 50% of the outstanding shares of Spansion common stock entitled to vote thereon. Therefore, Spansion urges Spansion stockholders to vote.

 

Q:	As a Spansion stockholder, may I change my vote after I have submitted a proxy card or voting instruction card?

 

A:	Yes. Spansion stockholders may revoke a previously granted proxy or voting instruction at any time prior to the special meeting by:

 

•

signing and returning a later dated proxy or voting instruction card for the Spansion special meeting; or

 

•

attending the Spansion special meeting and voting in person, as described in the section entitled “The Spansion Special Meeting” beginning on page 52 of this joint proxy statement/prospectus.

Only the last submitted proxy or voting instruction card will be considered. Please submit a proxy or voting instruction card for the Spansion special meeting as soon as possible.

 

Q:	Should Spansion stock certificates be sent in now?

 

A:	No. If the merger is completed, Spansion stockholders will receive written instructions for sending in any stock certificates they may have.

 

Q:	What do Spansion stockholders need to do now?

 

A:

Carefully read and consider the information contained in and incorporated by reference into this joint proxy statement/prospectus, including its annexes. In order for Spansion shares to be represented at the special meeting, Spansion stockholders can (1) vote through the Internet or by telephone by following the instructions included on their proxy card, (2) indicate on the enclosed proxy card how they would like to vote and return the proxy card in the accompanying pre-addressed postage paid envelope, or (3) attend the Spansion special meeting in person.

 

Q:	Who can answer questions?

 

A:	Spansion stockholders with questions about the merger or the other matters to be voted on at the Spansion special meeting or who desire additional copies of this joint proxy statement/prospectus or additional proxy cards should contact:

Alliance Advisors, LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

Telephone: (973) 873-7700

Facsimile: (973) 338-1430

www.allianceadvisorsllc.com

If you need additional copies of this joint proxy statement/prospectus or voting materials, contact Alliance Advisors, LLC as described above or Spansion Investor Relations at investor.relations@spansion.com or by telephone at (408) 962-2500.

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in, and found in the annexes attached to, this joint proxy statement/prospectus, including the matters addressed under the section entitled “Cautionary Statement Regarding Forward-Looking Information” beginning on page 28 of this joint proxy statement/prospectus, Cypress stockholders should carefully consider the following risks before deciding whether to vote for approval of the issuance of the shares of Cypress common stock in connection with the merger and whether to vote to approve the amended Cypress stock plan, and Spansion stockholders should carefully consider the following risks before deciding whether to vote for adoption of the merger agreement and approval of the transactions contemplated by the merger agreement. In addition, stockholders of Cypress and Spansion should read and consider the risks associated with each of the businesses of Cypress and Spansion because these risks will relate to the combined company. Certain of these risks can be found in Cypress’ annual report on Form 10-K for the fiscal year ended December 29, 2013, and in Cypress’ quarterly report on Form 10-Q for the period ended September 28, 2014, each of which is incorporated by reference into this joint proxy statement/prospectus, and in Spansion’s annual report on Form 10-K for the fiscal year ended December 29, 2013, and in Spansion’s quarterly report on Form 10-Q for the period ended September 28, 2014, each of which is incorporated by reference into this joint proxy statement/prospectus. You should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 210 of this joint proxy statement/prospectus.

Risk Factors Relating to the Merger

Spansion stockholders will receive a fixed ratio of 2.457 shares of Cypress common stock for each share of Spansion common stock regardless of any changes in market value of Spansion common stock or Cypress common stock before the completion of the merger.

At the effective time of the merger, each share of Spansion common stock will be converted into the right to receive 2.457 shares of Cypress common stock. There will be no adjustment to the exchange ratio (except for adjustments to reflect the effect of any stock split, reverse stock split, stock dividend, reorganization, recapitalization, reclassification or other like change with respect to Cypress common stock or Spansion common stock), and the parties do not have a right to terminate the merger agreement based upon changes in the market price of either Cypress common stock or Spansion common stock. Accordingly, the dollar value of Cypress common stock that Spansion stockholders will receive upon completion of the merger will depend upon the market value of Cypress common stock at the time of completion of the merger, which may be different from, and lower or higher than, the closing price of Cypress common stock on the last full trading day preceding the public announcement on December 1, 2014, that Cypress and Spansion entered into the merger agreement, the last full trading day prior to the date of this joint proxy statement/prospectus or the last full trading day prior to the date of the stockholder meetings. Moreover, completion of the merger may occur some time after the requisite stockholder approvals have been obtained. The market values of Cypress common stock and Spansion common stock have varied since Cypress and Spansion entered into the merger agreement and will continue to vary in the future due to changes in the business, operations or prospects of Cypress and Spansion, market assessments of the merger, regulatory considerations, market and economic considerations, and other factors both within and beyond the control of Cypress and Spansion.

The issuance of shares of Cypress common stock to Spansion stockholders in the merger will substantially reduce the percentage interests of Cypress stockholders.

If the merger is completed, Cypress and Spansion expect that (i) approximately 156.6 million shares of Cypress common stock would be issued to Spansion stockholders (including holders of shares subject to a repurchase option or obligation, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with Spansion) and (ii) upon exercise or settlement of assumed equity awards, up to approximately 18.7 million shares will be issued to holders of assumed options, restricted stock units and performance stock units.

 

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Cypress stockholders on the one hand, and former Spansion stockholders, on the other hand, are each expected to own approximately 50% of the fully diluted shares of Cypress common stock following the completion of the merger based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes. The issuance of shares of Cypress common stock to Spansion stockholders in the merger and the assumption by Cypress of Spansion options, restricted stock units and performance stock units will cause a significant reduction in the relative percentage interest of current Cypress stockholders in earnings, voting, liquidation value and book and market value.

Failure to successfully integrate the businesses of Cypress and Spansion in the expected time-frame may adversely affect the combined company’s future results.

Cypress and Spansion entered into the merger agreement with the expectation that the merger will result in various benefits, including certain cost savings and operational efficiencies or synergies. To realize these anticipated benefits, the businesses of Cypress and Spansion must be successfully integrated. Historically, Cypress and Spansion have been independent companies, and they will continue to be operated as such until the completion of the merger. The integration may be complex and time consuming and may require substantial resources and effort. The management of the combined company may face significant challenges in consolidating the operations of Cypress and Spansion, integrating the two companies’ technologies, procedures, and policies, as well as addressing the different corporate cultures of the two companies. If the companies are not successfully integrated, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected.

Customer uncertainties related to the merger could adversely affect the businesses, revenues and gross margins of Cypress, Spansion and the combined company.

In response to the announcement of the merger or due to ongoing uncertainty about the merger, customers of Cypress or Spansion may delay or defer purchasing decisions or elect to switch to other suppliers. In particular, prospective customers could be reluctant to purchase the products and services of Cypress, Spansion or the combined company due to uncertainty about the direction of the combined company’s offerings and willingness to support existing products. To the extent that the merger creates uncertainty among those persons and organizations contemplating purchases such that customers delay, defer or change purchases in connection with the planned merger, the revenues of Cypress, Spansion or the combined company would be adversely affected. Customer assurances may be made by Cypress and Spansion to address their customers’ uncertainty about the direction of the combined company’s product and related support offerings, which may result in additional obligations of Cypress, Spansion or the combined company. As a result of any of these actions, quarterly revenues and net earnings of Cypress, Spansion or the combined company could be substantially below expectations of market analysts and a decline in the companies’ respective stock prices could result.

Certain directors and executive officers of Cypress and Spansion have interests in the merger that may be different from, or in addition to, the interests of Cypress stockholders and Spansion stockholders.

Executive officers of Cypress and Spansion negotiated the terms of the merger agreement under the direction of the boards of Cypress and Spansion, respectively. The board of Cypress unanimously approved the merger agreement, unanimously approved the amendment and restatement of Cypress’ 2013 Stock Plan subject to the approval of the Cypress stockholders and unanimously recommends that Cypress stockholders vote in favor of the amendment and restatement of Cypress’ 2013 Stock Plan and in favor of the issuance of shares of Cypress common stock in connection with the merger, and the board of Spansion unanimously approved the merger agreement and the transactions contemplated thereby and unanimously recommended that Spansion stockholders vote in favor of the of the adoption of the merger agreement and the transactions contemplated thereby. These directors and executive officers may have interests in the merger that are different from, or in addition to, or may be deemed to conflict with, yours. These interests include the continued employment of certain executive officers of Cypress and Spansion by Cypress, the continued positions of certain directors of

 

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Cypress and Spansion as directors of the combined company and the indemnification of former Cypress and Spansion directors and officers by the combined company. With respect to Spansion directors and executive officers, these interests also include the treatment in the merger of employment agreements, change of control and severance agreements, restricted stock units, stock options and other rights held by these directors and executive officers, including the right to vesting acceleration upon a change of control under various equity awards and agreements. Cypress stockholders should be aware of these interests when they consider the Cypress board’s recommendation that Cypress stockholders vote in favor of the proposal to issue shares of Cypress common stock in the merger and in favor of the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan, and Spansion stockholders should be aware of these interests when they consider the Spansion board’s recommendation that they vote in favor of the proposal to adopt the merger agreement and approve the transactions contemplated thereby. For a discussion of the interests of directors and executive officers in the merger, see “The Merger — Reason for the Merger — Interests of the Directors and Executive Officers of Spansion in the Merger” beginning on page 97 of this joint proxy statement/prospectus.

Provisions of the merger agreement may deter alternative business combinations and could negatively impact the stock prices of Cypress and Spansion if the merger agreement is terminated in certain circumstances.

In connection with the execution and delivery of the merger agreement, each of Spansion and Cypress agreed to immediately cease all existing activities, discussions or negotiations with any persons previously conducted with respect to certain acquisition proposals and acquisition transactions relating to Spansion and Cypress. The merger agreement prohibits Cypress and Spansion from soliciting, initiating, or knowingly encouraging or facilitating certain acquisition proposals with any third party, subject to exceptions set forth in the merger agreement. The merger agreement also provides for the payment by Cypress or Spansion of a termination fee of $60 million if the merger agreement is terminated in certain circumstances in connection with a competing third party acquisition proposal for one of the companies. See the section entitled “The Merger Agreement — Cypress and Spansion Are Required to Terminate any Existing Discussions with Third Parties and are Prohibited from Soliciting Other Offers” beginning on page 115 and “The Merger Agreement — Termination; Fees and Expenses” beginning on page 125 of this joint proxy statement/prospectus. These provisions limit Cypress’ and Spansion’s ability to pursue offers from third parties that could result in greater value to Cypress stockholders or Spansion stockholders, as the case may be. The obligation to pay the termination fee also may discourage a third party from pursuing an acquisition proposal. If the merger is terminated and Cypress or Spansion determine to seek another business combination, neither Cypress nor Spansion can assure its stockholders that they will be able to negotiate a transaction with another company on terms comparable to the terms of the merger, or that they will avoid incurrence of any fees associated with the termination of the merger agreement.

In the event the merger is terminated by Cypress or Spansion in circumstances that obligate either party to pay the termination fee to the other party, including where either party terminates the merger agreement because the other party’s board withdraws its support of the merger, Cypress’ and/or Spansion’s stock prices may decline.

Cypress, Spansion and, following the merger, the combined company, must continue to retain, recruit, and motivate executives and other key employees, and failure to do so could negatively affect the combined company.

For the merger to be successful, both Cypress and Spansion must continue to retain, recruit, and motivate executives and other key employees during the period before the merger is completed. Further, the combined company must be successful at retaining, recruiting, and motivating key employees following the completion of the merger in order for the benefits of the transaction to be fully realized. Employees of both Cypress and Spansion may experience uncertainty about their future roles with the combined company until, or even after, strategies with regard to the combined company are announced and executed. The potential distractions related to the merger may adversely affect the ability of Cypress, Spansion and, following completion of the merger, the combined company, to keep executives and other key employees focused on business strategies and goals, to

 

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address other important personnel matters and to retain them at all. A failure by Cypress, Spansion or, following the completion of the merger, the combined company, to attract, retain, and motivate executives and other key employees during the period prior to or after the completion of the merger could have a negative impact on their respective businesses.

The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus may not be indicative of what the combined company’s actual financial position or results of operations would have been.

The unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus is presented solely for illustrative purposes and is not necessarily indicative of what the combined company’s actual financial position or results of operations would have been had the merger been completed on the dates indicated. This unaudited pro forma condensed combined financial information reflects adjustments that were developed using preliminary estimates based on available information and various assumptions, and may be revised as additional information becomes available. Accordingly, the final acquisition accounting adjustments may differ materially from the pro forma adjustments reflected in this joint proxy statement/prospectus.

If the proposed merger is not completed, Cypress and Spansion will have incurred substantial costs that may adversely affect Cypress’ and Spansion’s financial results and operations and the market price of Cypress and Spansion common stock.

If the merger is not completed, the prices of Cypress common stock and Spansion common stock may decline to the extent that the current market prices of Cypress common stock and Spansion common stock reflect a market assumption that the merger will be completed. In addition, Cypress and Spansion have incurred and will incur substantial costs in connection with the proposed merger. These costs are primarily associated with the fees of attorneys, accountants and Cypress’ and Spansion’s financial advisors. In addition, Cypress and Spansion have each diverted significant management resources in an effort to complete the merger and are each subject to restrictions contained in the merger agreement on the conduct of their respective businesses during the pendency of the merger. If the merger is not completed, Cypress and Spansion will have received little or no benefit in respect of such costs incurred. Also, if the merger is not completed under certain circumstances specified in the merger agreement, Cypress or Spansion may be required to pay a termination fee to the other of $60 million. See the section entitled “The Merger Agreement — Termination; Fees and Expenses” beginning on page 125 of this joint proxy statement/prospectus.

Further, if the merger is not completed, Cypress and Spansion may experience negative reactions from the financial markets and Cypress’ and Spansion’s suppliers, customers and employees. Each of these factors may adversely affect the trading price of Cypress and/or Spansion common stock and Cypress’ and/or Spansion’s financial results and operations.

The merger is subject to the receipt of consents and approvals from governmental entities that may impose conditions that could have an adverse effect on Cypress or Spansion or could cause a termination of the merger agreement prior to completion of the merger.

Completion of the merger is conditioned upon the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and also review by foreign governmental authorities and requires pre-merger notification and the observance of an applicable waiting period in certain countries, including Germany and Japan. Certain of these reviews will involve the relevant governmental entity’s consideration of the effect of the merger on competition in various jurisdictions. Cypress and Spansion have determined that such approval is not required in China.

On January 14, 2015, Cypress and Spansion received notice of the early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and Cypress and

 

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Spansion have also received notification from the German Federal Cartel Office that the acquisition has been cleared to proceed. Cypress and Spansion received notice of early termination of the waiting period and clearance of the transaction from the Japan Fair Trade Commission on February 3, 2015. Other reviewing governmental authorities may not permit the merger at all or may impose restrictions or conditions on the merger that may seriously harm the combined company if the merger is completed. These conditions could include a complete or partial license, divestiture, spin-off or the holding separate of assets or businesses. Any delay in the completion of the merger could diminish the anticipated benefits of the merger or result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the transaction.

Cypress and Spansion also may agree to restrictions or conditions imposed by governmental authorities in order to obtain regulatory approval, and these restrictions or conditions could harm the combined company’s operations. No additional stockholder approvals are expected to be required for any decision by Cypress or Spansion, after the special meeting of Spansion stockholders and the special meeting of Cypress stockholders, to agree to any terms and conditions necessary to resolve any regulatory objections to the merger.

In addition, during or after the statutory waiting periods, and even after completion of the merger, governmental authorities could seek to block or challenge the merger as they deem necessary or desirable in the public interest. In addition, in some jurisdictions, a competitor, customer or other third party could initiate a private action under the antitrust laws of such jurisdiction challenging or seeking to enjoin the merger, before or after it is completed. Cypress, Spansion or the combined company may not prevail, or may incur significant costs, in defending or settling any action under antitrust laws. See “The Merger Agreement — Conditions to Obligations to Complete the Merger” beginning on page 122 and “The Merger Agreement — Regulatory Filings and Approvals Required to Complete the Merger” beginning on page 131 of this joint proxy statement/prospectus.

Risk Factors Relating to the Combined Company Following the Merger

The market price for shares of the combined company’s common stock may be affected by factors different from those affecting the market price for shares of Cypress common stock and Spansion common stock prior to the merger.

Although in operating in the semiconductor industry the combined company will generally be subject to the same risks that each of Cypress and Spansion currently face, those risks may affect the results of operations of the combined company differently than they could affect the results of operations of each of Cypress and Spansion as separate companies. Additionally, the results of operations of the combined company may be affected by additional or different factors than those that currently affect the results of operations of Cypress and Spansion, including, but not limited to, complexities associated with managing the larger, more complex, combined business; integrating personnel from the two companies while maintaining focus on providing products and services; and potential performance shortfalls resulting from the diversion of management’s attention caused by integrating the companies’ operations.

For a discussion of the businesses of Cypress and Spansion and of various factors to consider in connection with those businesses, see the documents incorporated by reference in this joint proxy statement/prospectus and referred to under the section entitled “Where You Can Find More Information” beginning on page 210 of this joint proxy statement/prospectus.

Volatility in supply and demand conditions for the combined company’s products could materially and negatively impact the business of the combined company.

The semiconductor industry has historically been characterized by wide fluctuations in the demand for, and supply of, semiconductors. Demand for products of the combined company will depend in large part on the continued growth of various electronics industries that use their products, including, but not limited to:

 

•

consumer electronics, including mobile handsets, tablets, and notebook PC’s;

 

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•

automotive electronics and industrial controls;

 

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wireless telecommunications equipment;

 

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computers and computer-related peripherals;

 

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memory products; and

 

•

networking equipment.

Any downturn, shift in product launch schedules or reduction in the growth of these industries could seriously harm the business, financial condition and results of operations of the combined company.

The combined company may not be able to adequately protect or enforce its intellectual property rights, which could harm its competitive position.

The combined company’s success and future revenue growth will depend, in part, on its ability to protect its intellectual property. The combined company will primarily rely on patent, copyright, trademark and trade secret laws, as well as nondisclosure agreements and other methods, to protect its proprietary technologies and processes. It is possible that competitors or other unauthorized third parties may obtain, copy, use or disclose proprietary technologies and processes, despite efforts by the combined company to protect its proprietary technologies and processes. While the combined company will hold a significant number of patents, there can be no assurances that any additional patents will be issued. Even if new patents are issued, the claims allowed may not be sufficiently broad to protect the combined company’s technology. In addition, any of Cypress’ or Spansion’s existing patents, and any future patents issued to the combined company, may be challenged, invalidated or circumvented. As such, any rights granted under these patents may not provide the combined company with meaningful protection. Cypress and Spansion may not have, and in the future the combined company may not have, foreign patents or pending applications corresponding to its U.S. patents and applications. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. If the combined company’s patents do not adequately protect its technology, competitors may be able to offer products similar to the combined company’s products. The combined company’s competitors may also be able to develop similar technology independently or design around its patents.

Failure to develop, introduce and sell new products or failure to develop and implement new technologies, could adversely impact the financial results of the combined company.

The semiconductor industry is a highly competitive, quickly changing environment marked by rapid obsolescence of existing products. Success of the combined company will depend on its ability to develop and introduce new products and software platforms that customers choose to buy. The new products the market requires tend to be increasingly complex, incorporating more functions and operating at faster speeds than old products. Increasing complexity generally requires smaller features on a chip, making manufacturing new generation products substantially more difficult as compared to prior generations. If the combined company fails to introduce new product designs or technologies in a timely manner or if customers do not successfully introduce new systems or products incorporating products of the combined company, the business, financial condition and results of operations of the combined company could be materially harmed.

Dependency upon third parties to manufacture, distribute and generate a significant portion of product sales could seriously harm financial performance of the combined company.

Cypress and Spansion currently rely on independent contractors to manufacture and assemble many of their products. A shortage in foundry manufacturing capacity could hinder the combined company’s ability to meet demand for its products or result in wafer price increases, both of which could adversely affect the combined company’s operating results. Additionally, a significant portion Cypress’ and Spansion’s sales are through independent distributors. The combined company may rely on many distributors to assist in creating customer

 

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demand, providing technical support, filling customer orders, stocking products and other value-added services to its customers. The combined company may face ongoing business risks due to reliance on such distributors to create and maintain customer relationships where the combined company has a limited or no direct relationship.

The semiconductor industry is prone to intellectual property litigation.

As is typical in the semiconductor industry, each of Cypress and Spansion is frequently involved in disputes regarding patent and other intellectual property rights. Each of Cypress and Spansion has in the past received, and the combined company may in the future receive, communications from third parties asserting that certain of its products, processes or technologies infringe upon their patent rights, copyrights, trademark rights or other intellectual property rights, and the combined company may also receive claims of potential infringement if it attempts to license intellectual property to others. Defending these claims may be costly and time consuming, and may divert the attention of management and key personnel from other business issues. Claims of intellectual property infringement also might require the combined company to enter into costly royalty or license agreements. The combined company may be unable to obtain royalty or license agreements on acceptable terms. Resolution of whether any of the products or intellectual property of the combined company has infringed on valid rights held by others could adversely affect the results of operations or financial position and may require material changes in production processes and products.

General economic weakness and geopolitical factors may harm the combined company’s operating results and financial condition.

The results of operations of the combined company will be dependent to a large extent upon the global economy. Geopolitical factors such as terrorist activities, armed conflict or global health conditions that adversely affect the global economy may adversely affect the operating results and financial condition of the combined company.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This joint proxy statement prospectus contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including with respect to the anticipated timing, completion and effects of the proposed merger between Cypress and Spansion. These statements are based on management’s current expectations and beliefs, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements include statements about future financial and operating results; benefits of the transaction to customers, stockholders and employees; potential synergies; the ability of the combined company to drive growth and expand customer and partner relationships; statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings and approvals related to the merger or the closing of the merger; statements regarding future economic conditions or performance; and other statements regarding the proposed transaction. Forward-looking statements may contain words such as “will be,” “will,” “expect,” “anticipate,” “continue,” “project,” “believe,” “plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “pursue,” “should,” “target” or similar expressions, and include the assumptions that underlie such statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

Operating Factors:

 

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fluctuations in Cypress’ and Spansion’s operating results, which may be influenced by, among other things, changes in semiconductor industry conditions;

 

•

Cypress’ and Spansion’s inability to accurately predict market needs, failure to achieve design wins with customers, or the market’s failure to accept Cypress’ and Spansion’s new products and technologies and the products of our respective customers;

 

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Cypress’ and Spansion’s inability to achieve, maintain or improve manufacturing yields and margins or to increase utilization levels of our manufacturing capacities;

 

•

customer concentration risks, including the gain or loss of significant customers;

 

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risks associated with Cypress’ and Spansion’s reliance on certain suppliers;

 

•

downward pressure on average selling prices of Cypress’ and Spansion’s products;

 

•

results in pending and future litigation or other proceedings that would subject us to significant monetary damages or penalties and/or require us to change our business practices, or the costs incurred in connection with those proceedings;

 

•

Cypress’ and Spansion’s inability to effectively execute on strategic transactions, or to integrate or achieve anticipated benefits from any acquired businesses;

 

•

the ability to retain key employees, customers and suppliers; and

 

•

the impact of global economic conditions, fluctuations in exchange rates, labor relations, competitive actions taken by other semiconductor businesses or other competitors, terrorist attacks or natural disasters.

Transaction-Related Factors:

 

•

occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement or the failure to satisfy the closing conditions;

 

•

possibility that the consummation of the proposed transactions is delayed or does not occur, including the failure of the Cypress stockholders to approve the issuance of shares of Cypress common stock in

 

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connection with the merger or the failure of the Spansion stockholders to adopt the merger agreement and approve the transactions contemplated by the merger agreement;

 

•

uncertainty as to whether Cypress and Spansion will be able to complete the merger on the terms set forth in the merger agreement;

 

•

ability to obtain regulatory approvals required to complete the transactions contemplated by the merger agreement, and the timing and conditions for such approvals;

 

•

taking of governmental action (including the passage of legislation) to block the transactions contemplated by the merger agreement or otherwise adversely affecting Cypress and Spansion;

 

•

outcome of any legal proceedings that have been or may be instituted against Cypress, Spansion or others following announcement of the transactions contemplated by the merger agreement;

 

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challenges, disruptions and costs of closing, integrating, restructuring and achieving anticipated synergies, or that such synergies will take longer to realize than expected; and

 

•

uncertainty as to the long-term value of Cypress common stock.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors set forth in this joint proxy statement/prospectus beginning on page 21 of this joint proxy statement/prospectus and the risk factors included in Cypress’ and Spansion’s most recent reports on Form 10-K and Form 10-Q and other documents of Cypress and Spansion on file with the Securities and Exchange Commission and incorporated by reference herein. Any forward-looking statements made in this joint proxy statement/prospectus are qualified in their entirety by the cautionary statements contained or referred to in this section, and there is no assurance that the actual results or developments anticipated by us will be realized or that, even if substantially realized, they will have the expected consequences to, or effects on, us or our businesses or operations. All subsequent written and oral forward-looking statements concerning Cypress, Spansion, the transactions contemplated by the merger agreement or other matters attributable to Cypress or Spansion or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements above. Except to the extent required by applicable law, Cypress and Spansion are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.

 

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INFORMATION ABOUT THE COMPANIES

Cypress Semiconductor Corporation

198 Champion Court

San Jose, California 95134

(408) 943-2600

Cypress Semiconductor Corporation, a Delaware corporation and referred to in this joint proxy statement/prospectus as “Cypress,” delivers high-performance, mixed-signal programmable solutions that provide customers with rapid time-to-market and exceptional system value. Cypress offerings include the flagship PSoC^® 1, PSoC 3, PSoC 4, and PSoC 5LP programmable system-on-chip families. Cypress is the world leader in capacitive user interface solutions including CapSense^® touch sensing, TrueTouch^® touchscreens, and trackpad solutions for notebook PCs and peripherals. Cypress is a world leader in USB controllers, which enhance connectivity and performance in a wide range of consumer and industrial products. Cypress is also the world leader in SRAM and nonvolatile RAM memories. Cypress serves numerous major markets, including consumer, mobile handsets, computation, data communications, automotive, industrial, and military. Cypress was founded in California in 1982.

Cypress was incorporated in California in December 1982. The initial public offering took place in May 1986, at which time Cypress’ common stock commenced trading on the Nasdaq National Market. On September 26, 1986, Cypress was reincorporated in Delaware. Cypress’ stock is listed on the Nasdaq Global Select Market under the ticker symbol “CY.”

Cypress’ corporate headquarters are located at 198 Champion Court, San Jose, California 95134, and Cypress’ main telephone number at that location is (408) 943-2600. Cypress’ home page on the Internet is www.cypress.com. The contents of Cypress’ website are not incorporated into, or otherwise to be regarded as part of, this joint proxy statement/prospectus.

Spansion Inc.

915 DeGuigne Drive

Sunnyvale, California 94085

(408) 962-2500

Spansion Inc., a Delaware corporation and referred to in this joint proxy statement/prospectus as “Spansion,” is a global leader in embedded systems solutions. Spansion’s flash memory, microcontrollers, analog and mixed-signal products drive the development of faster, intelligent, secure and energy efficient electronics. Spansion is at the heart of electronic systems, connecting, controlling, storing and powering everything from automotive electronics and industrial systems to the highly interactive and immersive consumer devices that are enriching people’s daily lives. Spansion is headquartered in Silicon Valley in California, with research and development, manufacturing, assembly and sales operations in the United States, Asia, Europe and the Middle East.

Shares of Spansion common stock are traded on the New York Stock Exchange under the symbol “CODE.”

Spansion was incorporated in Delaware on November 22, 2005. The principal executive offices of Spansion are located at 915 DeGuigne Drive, Sunnyvale, California 94085, and Spansion’s main telephone number at that location is (408) 962-2500. Spansion maintains a website at www.spansion.com. The contents of Spansion’s website are not incorporated into, or otherwise to be regarded as part of, this joint proxy statement/prospectus. Additional information about Spansion and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 210 of this joint proxy statement/prospectus.

 

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Mustang Acquisition Corporation

198 Champion Court

San Jose, California 95134

(408) 943-2600

Mustang Acquisition Corporation, a newly formed, wholly owned subsidiary of Cypress, is a Delaware corporation formed on November 20, 2014 for the sole purpose of effecting the merger. In the merger, Mustang Acquisition Corporation will merge with and into Spansion, the separate corporate existence of Mustang Acquisition Corporation will cease and Spansion will survive the merger as a wholly owned subsidiary of Cypress. Mustang Acquisition Corporation has not conducted and will not conduct any business during any period of its existence, other than those that are incidental to its formation and the matters contemplated by the merger agreement, including the preparation of applicable regulatory filings in connection with the merger.

 

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THE CYPRESS SPECIAL MEETING

Date, Time and Place of Cypress Special Meeting

The Cypress special meeting is scheduled to be held at Cypress’ principal executive offices located at 198 Champion Court, San Jose, California 95134, on March 12, 2015, at 8:00 a.m., local time.

Purpose of Cypress Special Meeting

At the Cypress special meeting, Cypress stockholders will be asked to consider and vote on a proposal to approve the issuance of shares of Cypress common stock in connection with the merger of Mustang Acquisition Corporation with and into Spansion as contemplated by the merger agreement and to consider and vote on a proposal to approve the amended Cypress stock plan, which would increase the number of shares issuable under the current Cypress stock plan by 29.3 million shares to a total of 174,495,220 shares.

The Cypress board has unanimously approved the merger agreement and the transactions contemplated by the merger agreement and unanimously recommends that you vote “FOR” the proposal to issue shares of Cypress common stock in connection with the merger and “FOR” the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan, which are described in detail in the joint proxy statement/prospectus.

Who Can Vote at the Cypress Special Meeting

Only Cypress stockholders of record at the close of business on February 5, 2015, the record date for the Cypress special meeting, will be entitled to notice of, and to vote at, the Cypress special meeting.

On the record date, there were 165,314,233 shares of Cypress common stock outstanding, par value $0.01 per share. Each share of common stock is entitled to one vote on each matter properly brought before the meeting. Shares that are held in Cypress’ treasury are not considered outstanding or entitled to vote at the Cypress special meeting.

In accordance with Delaware law, a list of stockholders entitled to vote at the meeting will be available at the meeting, and for 10 days prior to the meeting, at 198 Champion Court, San Jose, California 95134, between the hours of 9:00 a.m. and 4:00 p.m., local time.

Cypress stockholders will be admitted to the Cypress special meeting beginning at 7:00 a.m., local time, on March 12, 2015. If you are a stockholder of record the Inspector of Elections will have your name on a list, and you will be able to gain entry to the special meeting with any form of government-issued photo identification, such as a driver’s license, state-issued identification card, or passport. If you hold stock in a brokerage account or in “street name” and wish to attend the special meeting in person, you will also need to bring a letter from your broker reflecting your stock ownership as of the record date, which is February 5, 2015.

Vote Required for Approval

Quorum

A quorum will be present if at least a majority of the outstanding shares are represented by proxy or by stockholders present and entitled to vote at the special meeting. Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your bank or broker) or if you attend the special meeting in person. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the special meeting or holders of a majority of the votes present at the special meeting may adjourn the special meeting to another time or date.

Required Vote

Assuming a quorum of Cypress stockholders are present at the Cypress special meeting, an affirmative vote of the majority of shares present in person or represented by proxy at the Cypress special meeting are required to approve the issuance of shares of Cypress common stock and the amendment and restatement of the Cypress stock plan.

 

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Effect of Not Voting and Abstentions

The failure to submit a proxy card or vote in person, by telephone, or through the Internet, will have no effect on the proposal to approve the issuance of shares of Cypress common stock in connection with the merger or the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan. Any abstentions or broker non-votes will have the effect of a vote against these proposals.

Adjournments

If there is no quorum, the chairman of the Cypress special meeting or holders of a majority of the votes present at the Cypress special meeting may adjourn the special meeting to another time or date.

Share Ownership of Directors and Executive Officers of Cypress

At the close of business on the record date for the Cypress special meeting, directors and executive officers of Cypress beneficially owned and were entitled to vote approximately 6.12% of the shares of Cypress common stock outstanding on that date. Simultaneously with the execution and delivery of the merger agreement, each of the directors and executive officers of Cypress, in their respective capacities as stockholders of Cypress, entered into support agreements with Spansion pursuant to which such individuals agreed, among other things, to vote their respective shares of Cypress common stock for the approval of the issuance of shares pursuant to the merger agreement.

Voting Procedures

You can vote your shares by mail by completing, signing and dating each proxy card received and returning it in the prepaid envelope, by telephone or online by following the instructions provided in the proxy card or in person at the special meeting. If you vote by mail, your proxy card must be received no later than March 11, 2015, at 11:59 p.m. Eastern Time to be voted at the Cypress special meeting. Online and telephone voting are available 24 hours a day, and votes submitted by telephone or online must be received by 11:59 p.m. Eastern Time on March 11, 2015. Even if you plan to attend the Cypress special meeting, Cypress recommends that you also submit your proxy card or voting instructions, or vote by telephone or online by the applicable deadline so that your vote will be counted if you later decide not to attend the Cypress special meeting. If you are the beneficial owner of shares held in “street name,” you should have received the notice and voting instructions from the bank or broker holding your shares. You should follow the instructions in the notice and voting instructions to instruct your bank or broker on how to vote your shares. The availability of telephone and online voting for shares held in “street name” will depend on the voting process of the bank or broker. Shares held beneficially in “street name” may be voted in person at the Cypress special meeting only if you obtain a legal proxy from the bank or broker in advance of the Cypress special meeting giving you the right to vote your shares.

The method by which you vote will in no way limit your right to vote at the meeting if you later decide to attend in person. If you are the beneficial owner of your shares, you must obtain a proxy, executed in your favor, from your broker or other holder of record, to be able to vote at the meeting.

You may vote all shares you own as of the close of business on the record date for the Cypress special meeting, which is February 5, 2015. You may cast one vote per share of common stock for the proposal.

Any Cypress stockholder who has a question about the proposals or how to vote or revoke a proxy, or who wishes to obtain additional copies of this joint proxy statement/prospectus, should contact:

Okapi Partners LLC

437 Madison Avenue, 28th Floor

New York, New York

Banks and brokerage firms: (212) 297-0720

Stockholders and all others, toll-free: (877) 566-1922

Email: info@okapipartners.com

 

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If you need additional copies of this joint proxy statement/prospectus or voting materials, you should contact Okapi Partners LLC as described above or Cypress Investor Relations at http://investors.cypress.com/contactus.cfm or by telephone at (408) 943-2656.

Revoking Proxies or Voting Instructions

If you are a stockholder of record, you have the right to revoke your proxy and change your vote at any time before the Cypress special meeting by (i) returning a later-dated proxy card or (ii) voting again online or by telephone, as more fully described on your notice or proxy card. You may also revoke your proxy and change your vote by voting in person at the Cypress special meeting. Attendance at the Cypress special meeting will not cause your previously granted proxy to be revoked unless you specifically so request or vote again at the Cypress special meeting.

If your shares are held by a bank or broker, you may change your vote by submitting new voting instructions to your bank, broker, trustee or agent, or, if you have obtained a legal proxy from your bank or broker giving you the right to vote your shares, by attending the Cypress special meeting and voting in person.

Shares Held in “Street Name”

If you own shares of Cypress common stock through a broker, bank or other nominee and attend and vote at the Cypress special meeting, you should bring a letter from your broker, bank or other nominee reflecting your stock ownership as of the record date for the Cypress special meeting.

Tabulation of Votes

Representatives of Broadridge Financial Solutions, Cypress’ mailing agent and tabulation service, will count the votes and act as the Inspector of Elections. The procedures to be used by the Inspector of Elections are consistent with Delaware law concerning the voting of shares, determination of a quorum and the vote required to take stockholder action.

How You Can Reduce the Number of Copies of Cypress’ Proxy Materials You Receive

The Securities and Exchange Commission has rules that permit Cypress to deliver a single copy of its proxy statement to stockholders sharing the same address. To reduce the expenses of delivering duplicate proxy materials, Cypress is taking advantage of the Securities and Exchange Commission’s “householding” rules that permit Cypress to deliver only one set of proxy materials to stockholders who share an address, unless otherwise requested by the stockholders.

Cost of Proxy Distribution and Solicitation

The cost of soliciting your vote in connection with this joint proxy statement/prospectus has been, or will be, borne by the party incurring those expenses and is expected to cost approximately $350,000. Cypress has retained Okapi Partners LLC to assist it in the solicitation of proxies for approximately $14,000, plus reasonable out-of-pocket expenses. Cypress has also requested that banks, brokers and other custodians, agents and fiduciaries send these proxy materials to the beneficial owners of Cypress’ common stock they represent and secure their instructions as to the voting of such shares. Cypress may reimburse such banks, brokers and other custodians, agents and fiduciaries representing beneficial owners of Cypress’ common stock for their expenses in forwarding solicitation materials to such beneficial owners. Certain of Cypress’ directors, officers or employees may also solicit proxies in person, by telephone, or by electronic communications, but they will not receive any additional compensation for doing so.

 

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PROPOSAL 1.

THE MERGER AGREEMENT AND THE MERGER

As discussed elsewhere in this joint proxy statement/prospectus, Cypress stockholders are considering and voting to approve the issuance of shares of Cypress common stock in connection with the merger of Mustang Acquisition Corporation with and into Spansion as contemplated by the merger agreement. Cypress stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the merger. In particular, Cypress stockholders are directed to the merger agreement which is attached as Annex A to this joint proxy statement/prospectus.

The Cypress board unanimously recommends a vote “FOR” the proposal to issue shares of Cypress common stock in connection with the merger.

 

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PROPOSAL 2

AMENDMENT AND RESTATEMENT OF CYPRESS’ 2013 STOCK PLAN

As discussed elsewhere in this joint proxy statement/prospectus, Cypress stockholders are considering and voting to approve the amendment and restatement of Cypress’ 2013 Stock Plan (which we refer to as the amended Cypress stock plan), which would increase the number of shares issuable under Cypress’ 2013 Stock Plan (which we refer to as the current Cypress stock plan) by 29.3 million shares that could be issued as stock options and/or stock appreciation rights (but if awards are granted only in the form of restricted stock units or other full value awards, this increase in shares would allow for the issuance of only up to approximately 15.6 million shares), to a total of approximately 31 million reserved but unissued shares (excluding any additional shares that may become available for issuance due to the expiration or forfeiture of previously-granted awards). We consider the addition of these shares to the Cypress stock plan to be very important to the future of Cypress. As described in more detail below, the number of employees and other service providers eligible for the Cypress stock plan immediately following the merger is expected to approximately double. We believe that the current share reserves in the plan will not be sufficient to provide meaningful equity incentives to this expanded population so that we may continue to compete successfully and achieve our goals.

Cypress is not asking its stockholders to approve any other amendment to the current Cypress stock plan. Other than the share increase, the amended Cypress stock plan has not been amended in any material way since Cypress stockholders last approved the current Cypress stock plan in 2013. Cypress stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the proposal to approve the amended Cypress stock plan. Additionally, Cypress stockholders are directed to the full amended Cypress stock plan, which is attached as Annex D to this joint proxy statement/prospectus. Any summary of the amended Cypress stock plan is qualified in its entirety by reference to the amended Cypress stock plan.

Overview

The current Cypress stock plan allows Cypress to grant equity compensation awards to employees (including officers), consultants and non-employee directors of Cypress and the employees and consultants of its parent or subsidiaries. The current Cypress stock plan permits Cypress to grant service-based awards and performance-based awards, including under the performance accelerated restricted stock program (which we refer to as PARS) that Cypress adopted in 2007 to retain and incentivize key employees. As of December 28, 2014, the current Cypress stock plans had approximately 1.7 million shares remaining available for grant. Cypress is asking its stockholders to approve adding 15.6 million full-value awards (29.3 million shares) to the current Cypress stock plan in order to allow for the granting of future equity compensation awards to Cypress and Spansion service providers following the completion of the merger.

Subject to approval by Cypress stockholders, on January 22, 2015, the Cypress board unanimously approved the amended Cypress stock plan and is asking Cypress stockholders to approve the amended Cypress stock plan to allow for the granting of future equity compensation awards to Cypress and Spansion service providers following the completion of the merger.

If Cypress’ stockholders do not approve this proposal, Cypress may not be able to continue to offer competitive equity packages to retain current Cypress employees, the employees of Spansion who will be joining Cypress, and employees hired in 2015 and later. We would also lose a major tool in aligning the interests of executives and employees with those of Cypress’ stockholders. Immediately following the completion of the merger, the total number of individuals eligible for the Cypress stock plan is expected to more than double, to approximately 7,400 individuals (officers, employees, directors and other service providers). As of December 28, 2014, approximately 3,500 individuals (current service providers of Cypress) were eligible under the Cypress stock plan.

 

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As of December 17, 2014, Spansion had approximately 3,900 service providers. Following the completion of the merger, Spansion will become a wholly owned subsidiary of Cypress and as a result, all of the Spansion service providers at that time will become eligible under the Cypress stock plan. Thus, the number of individuals eligible for the Cypress stock plan likely will be more than double. We are concerned that the current share reserves in the Cypress stock plan will be insufficient to fund Cypress’ equity incentive program and to continue to provide equity incentives to Cypress and Spansion employees at a competitive level. Therefore, the Cypress board unanimously recommends that Cypress’ stockholders approve the amended Cypress stock plan, which would reserve an additional 29.3 million shares that could be issued as stock options and/or stock appreciation rights (but if awards are granted only in the form of restricted stock units or other full value awards, this increase in shares would allow for the issuance of only up to approximately 15.6 million shares), under the current Cypress stock plan, to bring the total number of shares available for issuance under the current Cypress stock plan to approximately 31 million that would be available for new grants (plus any additional shares that return to the plan due to the expiration or forfeiture of currently outstanding awards). The current Cypress stock plan contains a share fungibility provision whereby each share subject to a full-value award, such as restricted stock units (which we refer to as RSUs), issued from the current Cypress stock plan results in decreasing the current Cypress stock plan share reserve by 1.88 shares. Thus, if this proposal is approved, the approximately 29.3 million total shares that would be available for immediate issuance would translate to a maximum of approximately 15.6 million shares that could be issued as RSUs or other full-value awards.

In the event Cypress stockholders do not approve the amended Cypress stock plan to increase the share reserve, the proposed amendment will not take effect and the current Cypress stock plan will continue to be administered in its current form without any increase in the current Cypress stock plan’s share reserve.

Vote Required and the Cypress Board Recommendation

Assuming a quorum of Cypress stockholders are present at the Cypress special meeting, an affirmative vote of the majority of shares present in person or represented by proxy at the Cypress special meeting is required to approve the amendment and restatement of Cypress’ 2013 Stock Plan and approve its material terms. Thus, the failure to submit a proxy card or attend the meeting in person will have no effect on this proposal, assuming a quorum is present at the meeting. Any abstentions or “broker non-votes,” i.e. the failure to instruct your bank or broker how to vote if you hold your shares in “street name,” will have the effect of a vote against this proposal. The Cypress board believes that the approval of the amended Cypress stock plan is in Cypress’ and Cypress stockholders’ best interests and unanimously recommends that Cypress stockholders for “FOR” the proposal to approve the amendment and restatement of the plan.

Why Cypress Stockholders Should Vote for the Amended Cypress Stock Plan

The following summarizes why Cypress stockholders should approve this proposal. It also describes the major features of the amended Cypress stock plan, but this description is qualified in its entirety by reference to the actual text of the amended Cypress stock plan, attached as Annex D to this joint proxy statement/prospectus.

Equity Compensation Awards Allow Cypress to Implement its Philosophy of Pay for Performance

Cypress’ employee equity granting practices are significantly directed at using pay-for-performance. Cypress equity awards were granted to approximately 95% of Cypress’ total employees and approximately 96% of the Cypress equity awards granted since 2007 (the first year that Cypress granted performance based equity) to its executive officers were eligible to vest only if performance milestones are achieved. If Cypress stockholders approve the amended Cypress stock plan, Cypress will be able to continue to use equity awards to emphasize the achievement of important business objectives of Cypress and, consistent with its pay-for-performance compensation philosophy, directly link employee pay with performance.

 

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The Cypress Stock Plan is a Critical Element of Cypress’ Compensation Policy

Employees are Cypress’ most valuable asset. Accordingly, the approval of the amended Cypress stock plan is in the best interest of Cypress stockholders, as equity awards granted under the current Cypress stock plan help Cypress to:

 

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attract, motivate, and retain talented employees, consultants and non-employee directors;

 

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align employee and stockholder interests;

 

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link employee compensation with company performance; and

 

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maintain a culture based on employee stock ownership.

If Cypress stockholders do not approve the amended Cypress stock plan, Cypress’ plans for the merged company’s growth could be significantly hampered and its ability to operate its business could be adversely affected. As described above, the number of service providers eligible under the Cypress stock plan likely will increase by more than 100% immediately following the completion of the merger. If we do not have sufficient shares in the plan to provide meaningful equity incentives, Cypress may be compelled to instead offer material cash-based incentives to compete for talent, which could have a significant effect upon its quarterly results of operations, its cash flow which is used to fund Cypress’ dividend, and its balance sheet. Moreover, this would not be competitive with most other technology companies.

Cypress’ success over the next few years will be largely due to its highly talented employee base which will increase significantly upon the completion of the merger with Spansion. It will depend heavily on its ability to attract and retain high caliber employees, consultants and board members. The ability to grant equity awards is a necessary and powerful recruiting and retention tool for Cypress to hire and motivate the quality personnel it needs to move its business forward.

Broadening markets for Cypress products and services, the broadening customer base, the geographic diversity and increasing product complexity all drive requirements for a different skill set of employees and consultants that are in high demand, including: design engineers, software engineers, analog engineers, system engineers, and technical sales personnel. Cypress faces intense competition in attracting these professionals from traditional semiconductor to start-up companies as well as internet and media companies. Equity compensation is an integral part of the compensation offered by these firms. The competition for talent is particularly intense in Silicon Valley. In 2014, 46% of Cypress’ new hires were in technical positions, where it competes with a wide range of companies who offer equity awards as an integral part of their hiring programs. This influx of new talent is essential to expand the skills required to accelerate the design, manufacture and marketing of Cypress’ higher value added products, software and solutions.

The Current and Amended Cypress Stock Plans Conform to Best Practices

The current and amended Cypress plans are designed to conform to best practices in equity incentive plans. For example, the current and amended Cypress stock plans:

 

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prohibit equity award re-pricing without stockholder approval;

 

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permit a maximum term for options and stock appreciation rights of only eight years;

 

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permit the granting of full-value awards such as restricted stock and restricted stock units, which can be granted in lieu of stock options to reduce the total number of shares necessary to grant competitive equity awards; and

 

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apply a fungible share design whereby each full-value award issued results in reducing the share pool by 1.88 shares.

 

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A High Proportion of Our Chief Executive Officer’s Equity Awards are Performance-Based

A high proportion of the equity awards granted to T.J. Rodgers, our president and chief executive officer, have been conditioned on achievement of performance goals. These performance goals are more fully described at in the section entitled “Cypress Executive Officer and Director Compensation—Cypress Compensation Discussion and Analysis” beginning on page 157 of this joint proxy statement/prospectus. For example, in 2014, 80% of Mr. Rodgers’ equity awards were conditioned on achievement of performance goals and in 2013 and 2012, 100% of Mr. Rodgers’ equity awards were conditioned on achievement of performance goals.

Clawback Policy

Cypress has adopted a clawback policy that requires the return of incentive compensation payments to Cypress, including equity award distributions, by any executive engaged in (i) fraud, theft or dishonesty, (ii) intentional misconduct related to Cypress’ financial statements, or (iii) in the event of a material negative revision of any financial or operating measure on which incentive compensation was paid out to such executive. In all circumstances, the compensation committee of the Cypress board will have the ability to exercise discretion with respect to all reimbursements by executives under the clawback policy.

Stock Compensation Metrics

Dilution

Dilution is a concept that may be used to measure the long-term effect of a company’s equity compensation programs. There are various methods to calculate and determine dilution. This discussion is based on the methodology employed by Institutional Shareholder Services, or ISS, an independent proxy advisory firm. Dilution has been calculated by dividing the total shares underlying all outstanding equity-based compensation (including 1.7 million shares, as of December 28, 2014, which are available for grant but not outstanding) by Cypress’ total number of shares outstanding. This calculation includes all outstanding options (whether or not “in the money”) and full value awards that may or may not vest because they are not yet earned or because performance criteria may not be achieved. As of December 28, 2014, Cypress had approximately 14.5 million stock options outstanding and approximately 7.8 million unvested awards outstanding, of which approximately 3.3 million are unvested performance-based awards. Using the foregoing calculation, Cypress’ dilution as of December 28, 2014 was approximately 14.7%, a 55% improvement over the three-year period. The dilution for each of the three-years ended with fiscal year 2014 is set forth below.

Burn Rate

Burn rate measures the effect of equity compensation on a company over a specified time. To monitor Cypress’ burn rate, the Cypress board uses various independent burn rate calculation methodologies including those developed and employed by ISS. The ISS annual burn rate is determined by dividing the sum of the number of stock options granted and full value shares awarded (restricted stock units and delivered performance-based restricted stock units) during a given year by Cypress’ weighted average common shares outstanding. This methodology ignores the impact of cancellations, which is usually significant. Under this methodology, the ISS applies a 2x multiplier to make an adjustment to account for full value awards. The ISS has set industry standard burn rates for our global industry classification standard at 6.9% for shareholder meetings occurring after February 1, 2015. Using this methodology, Cypress’ one year ISS burn rate for 2014 was 7% (an 18% improvement in the one-year burn rate over the three-year period) and its average burn rate for the three-year period 2012 through 2014 was 7.7%. Cypress’ burn rates for the three-year period ended with fiscal year 2014 are set forth below.

The Cypress board also considers Cypress’ net burn rate. Net burn rate adds an additional perspective in that it allows direct insight into the real impact Cypress’ stock compensation programs have on dilution by considering the rate at which cancellations impact the true burn rate. Cancellations usually occur when an

 

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employee terminates or a performance target is not met. At termination, any unvested or underwater awards are returned to the share reserve pool and are eligible for re-granting. Cypress’ one year net burn rate for 2014 was 2.7% (a 43% improvement in the one-year burn rate over the three-year period) and its average burn rate for the three-year period 2012 through 2014 was 3.4%, both of which are below the ISS industry standard burn rate discussed above. The Cypress board is committed to manage Cypress’ net burn rate to less than 3% of outstanding shares. Cypress’ net burn rates for the three-year period ended with fiscal year 2014 are set forth below.

The SunPower Spin-Off Greatly Increased Cypress’ Outstanding Equity Awards

On September 29, 2008, Cypress distributed 100% of its ownership in the shares of its publicly held subsidiary SunPower, to Cypress stockholders. The SunPower shares had a distribution day value of approximately $2.6 billion—which was approximately 76% of the fully diluted market capitalization of Cypress at the time of the distribution. The value of each SunPower class B common share distributed on September 29, 2008, was $59.86. Each Cypress common stockholder as of the record date for the spin-off received 0.27 shares of SunPower class B shares of common stock for each Cypress share they owned.

The holders of awards under Cypress’s equity plans did not receive any SunPower shares as part of the distribution. Instead these equity awards were equitably adjusted. As is common in most of these types of transactions, outstanding Cypress equity awards were adjusted by a factor to compensate each equity award holder for the value lost as a consequence of the distribution. The outstanding Cypress equity awards were multiplied by a distribution ratio of 4.12 to preserve the pre-distribution intrinsic value of the equity awards.

The distribution adjustment caused an immediate, substantial increase in the number of shares subject to outstanding Cypress equity awards. As a result of the distribution adjustment, these equity awards immediately increased by more than 87.2 million shares.

Over the years Cypress has initiated board-approved share repurchase programs to help mitigate the dilutive effect of the SunPower spin-off in 2008 which added over 87 million shares to its outstanding equity based plans and ongoing equity programs. Since 2008, Cypress has repurchased approximately 81 million shares. During 2012 through 2014, Cypress repurchased approximately 18.5 million shares of its common stock. The impact of share repurchases serves to exaggerate the dilutive and burn rate impact of Cypress’ equity programs.

 

 

 

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		2012				2013				2014
Dilution (1)			32.4	%			23.1	%			14.7	%
1YR Burn Rate (1)			8.7	%			7.4	%			7.0	%
3YR Burn Rate (1)			7.8	%			8.1	%			7.7	%
ISS Industry Standard Burn Rate			6.6	%			6.7	%			6.9	%
1YR Net Burn Rate			4.5	%			3.0	%			2.7	%
3YR Net Burn Rate			3.5	%			3.5	%			3.4	%

 

(1)	Using ISS burn rate calculation methodology described above

Performance Grant Activity (2)

 

		2010				2011				2012				2013				2014
Granted			0.6				0.5				4.0				4.7				3.5
Released			-2.0				-4.5				-3.2				-1.1				-2.4
Net			-1.4				-4.0				0.8				3.6				1.1

 

(2)	In millions, included in burn rate calculations above

Consistent with the methodologies employed by ISS, burn rate includes total grants made in a year with full value awards adjusted by a 2x multiplier, but does not include cancellations in that year. Net burn rate includes total grants made in a year net of cancellations in that year.

Increase in Employee Base

As of December 28, 2014, the number of employees, consultants and non-employee directors of Cypress and its subsidiaries (whom we collectively refer to as “service providers”) who were eligible to participate in the current Cypress stock plan was approximately 3,500 service providers. As of the same date, Spansion had approximately 3,900 service providers. Upon the completion of the merger, Spansion will become a wholly owned subsidiary of Cypress and consequently, its service providers will become eligible to participate in the current Cypress stock plan. As a result of the merger, the number of service providers eligible to participate in the current Cypress stock plan will increase significantly. Prior to the merger, Spansion’s practice was to grant employee equity to approximately 30% of their service providers.

For the merger to be successful and the benefits of the merger to be fully realized, Cypress and Spansion must continue to retain, recruit and motivate its employees. Equity awards are an important component of compensation for Cypress and Spansion’s key employees. If the amended Cypress plan is not approved by Cypress stockholders, Cypress may not be able to continue to offer competitive equity packages to retain current Cypress employees and the employees of Spansion, who will be joining Cypress, and to recruit and retain Cypress and Spansion employees hired in 2015 and later. The failure to attract, retain, and motivate employees of Cypress and Spansion following the merger could have a negative impact on our businesses.

Retentive Power of Existing Awards Held by Spansion Employees

In connection with the merger, unless prohibited by local laws of a particular foreign country, Cypress will assume outstanding Spansion options, restricted stock units and performance stock units. However, in connection with the merger, a substantial portion of these Spansion awards will accelerate vesting. Prior to May 2014 and in limited circumstances thereafter, Spansion historically had granted all Spansion options, restricted stock units and performance stock units with full acceleration rights in the event of a “change in control” (as defined in Spansion’s 2010 Equity Incentive Award Plan). The merger will constitute a change in control for purposes of the Spansion equity awards. As a result, outstanding and unvested Spansion awards granted prior to May 2014 and certain other Spansion awards granted thereafter will accelerate vesting upon the completion of the merger.

 

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Many of the key employees of Spansion who hold Spansion equity awards that provide for this accelerated vesting will hold significantly less unvested equity awards following the merger. The reduced retentive power of the outstanding equity awards due to this accelerated vesting could affect Cypress and Spansion’s ability to retain these employees following the merger. If Cypress stockholders do not approve the amended Cypress plan, Cypress and Spansion may not be able to continue to offer competitive equity packages to retain the Spansion employees who join Cypress upon completion of the merger. In such event, Cypress’ plans for the newly merged company’s growth could be significantly hampered and its ability to operate its business could be adversely affected.

Forecasted Grants

The Cypress board anticipates that the proposed share increase to the current Cypress plan, based on currently projected share use, will be sufficient for the granting of equity awards through approximately 2017. The forecast is based on the expectations that, on an annual basis for the next three years, (i) Cypress will grant options and restricted stock units covering approximately 34.1 million shares; and (ii) approximately 5.5 million shares will be cancelled or forfeited under outstanding options and restricted stock units. The net grants (that is, grants less cancellations and forfeitures) during the next three years will be approximately 28.6 million shares. As a result, the Cypress board anticipates that Cypress will be requesting additional shares under the current Cypress plan for 2018. Despite the projected share use described above, future circumstances and business needs may dictate a different result.

The proposed share increase was determined by the Cypress board after evaluating Cypress’ future needs considering the following factors:

 

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implementation of expected merger synergies totaling $135 million will take three years;

 

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Cypress’ employee population will more than double as a result of the merger;

 

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Spansion’s stock compensation practices do not align with Cypress’;

 

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Spansion’s equity program contained significant acceleration clauses upon a change in control while Cypress’ equity program does not contain automatic acceleration clauses;

 

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short term retention requirements will require one time grants exacerbating year one burn rates; and

 

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burn rate objectives.

The results of the Cypress board’s evaluation of the above factors determined that the proposed share increase should be 15.6 million full-value awards (29.3 million shares) which are expected to last for three years. This share increase is expected to result in the following three year average burn rates:

 

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net burn rate of 2.8%;

 

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burn rate as calculated using ISS methodology of 6.8%; and

 

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ISS Standard Industry Burn Rate (as published by the ISS for shareholder meetings occurring after February 1, 2015) of 6.9%.

After considering the above factors, including the fact that Cypress’ expected three-year average burn rate (as we believe would be calculated by ISS at the end of the next three years), is expected to meet the ISS standard Industry Burn Rate, the Cypress board unanimously approved the share increase.

Cypress Awards to be Granted to Certain Individuals and Groups

The actual number of awards (if any) that an employee or consultant of Cypress or its parent or subsidiaries or a non-employee director of Cypress may receive under the amended Cypress stock plan is at the discretion of the compensation committee of the Cypress board and therefore cannot be determined in advance. The following table sets forth certain information relating to awards granted in fiscal year 2014 under the current Cypress stock plan to the listed persons and groups. As of February 5, 2015, the closing price of a share of Cypress’ common stock on the Nasdaq Global Select Market was $14.22 per share.

 

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Cypress Semiconductor Corporation 2013 Stock Plan

 

Name and Position		Number of Shares Granted Under Cypress Options				Weighted Average Per Share Exercise Price ($)				Number Of Full Value Cypress Awards Granted				Grant Date Value Of Full Value Cypress Awards ($)
T.J. Rodgers President, Chief Executive Officer and Director			0								370,000			$	3,718,500
Brad W. Buss (1) Former Executive Vice President, Finance and Administration, Chief Financial Officer			0								50,000			$	468,250
Paul D. Keswick Executive Vice President, Marketing & IT			0								200,000			$	2,010,000
J. Daniel McCranie Executive Vice President, Sales & Applications			0								300,000			$	3,039,000
Dana C. Nazarian Executive Vice President, Memory Products Division			0								200,000			$	2,010,000
Thad Trent Executive Vice President, Finance and Administration, Chief Financial Officer			0								60,000			$	589,300
All current executive officers as a group			0								2,095,000			$	21,065,050
All current directors who are not executive officers as a group			0								128,947			$	1,224,997
All employees who are not current executive officers as a group			522,111			$	10.24				4,119,445			$	42,160,789

 

(1)

Mr. Buss’ employment with Cypress terminated in June 2014. He currently provides transition services as a non-employee advisor to Cypress’ board and the chief executive officer of Cypress. Due to his current status as a service provider to Cypress, he remains eligible to participate in the current Cypress stock plan.

Summary Description of the Amended Cypress Stock Plan

The following is a summary of the principal features of the amended Cypress stock plan and its operation. However, the summary is qualified in its entirety by reference to the amended Cypress stock plan, which is attached as Annex D.

Background and Purpose of the Amended Cypress Stock Plan

The amended Cypress stock plan is intended to (i) promote the long-term success of the Company’s business, (ii) attract and retain the best available personnel for positions of substantial responsibility, and (iii) provide long-term incentive to employees, consultants, and non-employee directors that are aligned with the long-term interest of all stockholders.

 

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Types of Awards Granted Under the Amended Cypress Stock Plan

The amended Cypress stock plan will permit the grant of the following types of awards (which we refer to collectively as the Cypress awards):

 

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incentive stock options;

 

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nonstatutory stock options;

 

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restricted stock and restricted stock units (which we refer to as full value awards); and

 

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stock appreciation rights.

Administration of the Amended Cypress Stock Plan

The compensation committee of the Cypress board (which we refer to as the Cypress compensation committee) administers the current Cypress stock plan and will continue to administer the amended Cypress stock plan. To make grants to certain of Cypress’ officers and key employees, the members of the Cypress compensation committee must qualify as “non-employee” directors under Rule 16b-3 of the Securities Exchange Act of 1934, and/or as “outside directors” under Section 162(m) of the Internal Revenue Code of 1986, as amended (so that Cypress can receive a federal tax deduction for certain compensation paid under the amended Cypress stock plan).

Subject to the terms of the amended Cypress stock plan, the Cypress compensation committee has the sole discretion to select the employees, consultants, and non-employee directors who will receive discretionary Cypress awards, determine the terms and conditions of such Cypress awards (for example, the exercise price and vesting schedule), and interpret the provisions of the amended Cypress stock plan and outstanding Cypress awards. The Cypress compensation committee also has the authority to amend outstanding Cypress awards, including the authority to accelerate vesting or to extend an option’s post-termination exercise period (but not beyond the original option term). The Cypress board or the Cypress compensation committee may delegate any part of its authority and powers under the amended Cypress stock plan to one or more committees, subject to the requirements of applicable law.

No Re-pricing Without Stockholder Approval

The Cypress compensation committee may not permit the re-pricing, including by way of exchange, of any Cypress award, without receiving prior approval from Cypress stockholders.

Shares Under the Amended Cypress Stock Plan

As of December 28, 2014, the maximum aggregate number of shares of Cypress’ common stock authorized for issuance under the current Cypress stock plan was 145,195,220. This number includes all the shares that have been allocated to the current Cypress stock plan since it was first created in 1994, of which approximately 1.7 million shares remained available for issuance as of the same date. If the proposal to approve the amended Cypress stock plan is approved, the number of shares authorized under the amended Cypress stock plan will be increased by 29.3 million, and the maximum aggregate number of shares authorized under the amended Cypress stock plan will be 174,495,220. However, because of prior issuances that have occurred under the current Cypress stock plan, only a total of approximately 31 million shares actually would be available for immediate issuance (excluding any shares that return to the Cypress stock plan in the future from Cypress awards that expire or are forfeited). The shares may be authorized, but unissued, or reacquired common stock of Cypress. Any shares of restricted stock or restricted stock units with a per share or unit purchase price lower than 100% of fair market value on the date of grant will be counted against the numerical limits of the amended Cypress stock plan’s share reserve pool as 1.88 shares for every one share subject thereto.

 

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Cypress Awards that Expire or Are Forfeited

Subject to the terms of the amended Cypress stock plan, if a Cypress award (or any option or stock appreciation right granted under a terminated plan) terminates or is forfeited without having been fully exercised or vested, the unvested or forfeited shares generally will be returned to the available pool of shares reserved for issuance under the amended Cypress stock plan. To the extent that a share that was subject to a Cypress award that counted as 1.88 shares against the current Cypress stock plan’s share reserve pool is returned to the amended Cypress stock plan, the amended Cypress stock plan’s share reserve pool will be credited with 1.88 shares.

Eligibility to Receive Cypress Awards

The Cypress compensation committee will select the employees and consultants of Cypress or its parent or subsidiaries, and non-employee directors of the Cypress board who will be granted Cypress awards; provided that only employees of Cypress or its parent or subsidiaries may receive incentive stock options. The actual number of individuals who will be granted Cypress awards cannot be determined in advance because the Cypress compensation committee has the discretion to select the participants. As of December 28, 2014, approximately 3,500 service providers (including executive officers, consultants and non-employee directors of Cypress and its subsidiaries) were eligible to participate in the current Cypress stock plan. As of the same date, Spansion had approximately 3,900 service providers (including employees and executive officers). Upon the completion of the merger, Spansion will become a wholly owned subsidiary of Cypress and all of Spansion’s employees and consultants will become eligible to participate in the amended Cypress stock plan.

Stock Options and Stock Appreciation Rights

A stock option is the right to acquire shares at a fixed exercise price for a fixed period of time. Under the amended Cypress stock plan, the Cypress compensation committee may grant nonstatutory stock options and/or incentive stock options. Stock appreciation rights (which we refer to as SARs) are Cypress awards that grant the participant the right to receive an amount (in the form of cash, shares of equal value, or a combination thereof, as determined by the Cypress compensation committee) equal to the excess of (x) the fair market value of the common stock covered by the exercised portion of the SAR, as of the date of such exercise, over (y) the fair market value of the common stock covered by the exercised portion of the SAR, as of the date on which the SAR was granted; provided, however, that the Cypress compensation committee may place limits on the amount that may be paid upon exercise of a SAR. As of December 28, 2014, approximately 14.5 million stock options were outstanding under the Cypress stock plans and the outstanding stock options had a weighted average exercise price of $9.24, with individual exercise prices ranging from $2.72 to $23.23.

Share Limits

The Cypress compensation committee will determine the number of shares covered by each option or SAR award, but during any fiscal year of Cypress, no participant may be granted options and SARs covering more than 3 million shares in the aggregate.

Exercise Price

The exercise price of the shares subject to each option or SAR award is set by the Cypress compensation committee, but cannot be less than 100% of the fair market value (on the date of grant) of the shares covered by the Cypress award.

Incentive Stock Options

The exercise price of an incentive stock option must be at least 110% of fair market value if (on the grant date) the participant owns stock possessing more than 10% of the total combined voting power of all classes of stock of Cypress or any parent or subsidiary. The aggregate fair market value of the shares (determined on the

 

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grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year also may not exceed $100,000. Any shares in excess of this limit will be treated as a nonstatutory stock option. If the employee holds more than one incentive stock option, the incentive stock options are considered in the order in which they were granted.

Term and Vesting

The Cypress compensation committee will establish the vesting schedule of each option or SAR award at the time of grant. Options and SARs granted under the amended Cypress stock plan will expire at the times established by the Cypress compensation committee, but not later than eight years after the grant date (such term is limited to five years in the case of an incentive stock option granted to a participant who owns stock possessing more than 10% of the total combined voting power of all classes of stock of Cypress).

Exercise of the Option or SAR Award

An option or SAR award granted under the amended Cypress stock plan will be exercised by giving written or electronic notice to Cypress, specifying the number of shares to be purchased and, for options, tendering full payment of the exercise price to Cypress. The Cypress compensation committee may permit payment for options through the tender of shares that are already owned by the participant, or by any other means that the Cypress compensation committee determines to be consistent with the purpose of the amended Cypress stock plan. The participant must pay any taxes that Cypress is required to withhold at the time of exercise.

Termination of Participant

In the event a participant’s continuous status as an employee, director, or consultant terminates for any reason other than upon the participant’s death or disability, the options and SARs held by the participant under the amended Cypress stock plan will be exercisable (to the extent the Cypress award was exercisable on the date of service termination) within such period of time as is specified in the applicable Cypress award agreement. In the absence of a specified period of time in the Cypress award agreement, the vested portion of the option or SAR award will remain exercisable for a period of 30 days following the date of such termination. In the event a participant’s continuous status as an employee, director, or consultant terminates as a result of the participant’s disability, the options and SARs held by the participant under the amended Cypress stock plan will be exercisable (to the extent the award was exercisable on the date of service termination) for a period of six months following the date of such disability or such longer period of time not exceeding 12 months, as specified in the applicable Cypress award agreement. In the event a participant’s continuous status as an employee, director, or consultant terminates as a result of the participant’s death, the options and SARs held by the participant under the amended Cypress stock plan will be exercisable for a period of six months after death (to the extent the Cypress award would have become exercisable had the participant continued living and remained in continuous status as an employee, director, or consultant for an additional 12 months). If the participant dies within 30 days after his or her termination of continuous status as an employee, director, or consultant, the options and SARs held by the participant under the amended Cypress stock plan may be exercised within six months following the date of such death (to the extent the Cypress award was exercisable on the date of service termination). However, in no event may the period of exercisability extend beyond the expiration date of the option or SAR award, as applicable.

Restricted Stock and Restricted Stock Units

Cypress awards of restricted stock are shares that will vest in accordance with the terms and conditions established by the Cypress compensation committee. Cypress awards of RSUs are rights to acquire shares that will vest in accordance with the terms and conditions established by the Cypress compensation committee. The Cypress compensation committee will determine the terms and conditions of restricted stock and RSUs granted under the amended Cypress stock plan, including the number of shares of restricted stock or RSUs granted to any employee, consultant, or non-employee director and whether the Cypress award will be in the form of restricted stock or RSUs; provided that during any fiscal year of Cypress, no participant may be granted Cypress awards of restricted stock or RSUs that cover more than 1.5 million shares in the aggregate.

 

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In determining whether a Cypress award of restricted stock or RSUs should be made, and/or the vesting schedule for any such Cypress award, the Cypress compensation committee may impose whatever conditions to vesting as it determines to be appropriate. For example, the Cypress compensation committee may determine to grant a Cypress award of RSUs that will vest only if the participant satisfies performance goals established by the Cypress compensation committee.

Until the stock certificate evidencing the shares is issued (which certificate generally will be issued only after the restricted stock or RSUs vest), no rights to vote or receive dividends or any other rights as a stockholder will exist with respect to the restricted stock or RSU award.

Grants to Non-Employee Directors

Under the amended Cypress stock plan, Cypress’ non-employee directors will be eligible to receive grants of Cypress awards on the date of his or her initial election and annually thereafter on the date of the annual stockholder meeting (so long as the non-employee director has been serving as such for at least three months), in an amount determined by the Cypress compensation committee in its sole discretion (which we refer to as recurring Cypress awards). Such recurring Cypress awards will be subject to vesting, payment, and other terms and conditions as may be determined by the Cypress compensation committee. Non-employee directors also will be eligible to receive other discretionary Cypress awards under the amended Cypress stock plan.

Non-Employee Director Award Limitations

No non-employee director may be granted, in any fiscal year of Cypress, Cypress awards with a grant date fair value (determined in accordance with either GAAP or IASB principles) of more than $500,000, increased to $750,000 in connection with a non-employee director’s initial service.

Exercise of Options

The exercise price of an option granted under the amended Cypress stock plan to a non-employee director may be paid in the form of cash, check, other shares of Cypress common stock previously owned by him or her with a fair market value on the date of surrender equal to the aggregate exercise price of the exercised shares, or any combination of such methods. For any options granted after Cypress’ 2004 annual stockholder meeting, the option additionally may be exercised and the consideration paid by the delivery of an exercise notice together with other documentation as the Cypress compensation committee and broker, if applicable, requires to effect the exercise of the option and the delivery to Cypress of the sale or loan proceeds required to pay the exercise price (or any combination of the above payment methods).

Termination of Non-employee Director’s Service

In the event a non-employee director ceases to serve as a Cypress board member other than due to his or her death or disability, the options held by him or her under the amended Cypress stock plan that are recurring Cypress awards will be exercisable (to the extent the option was exercisable on the date of termination) within 90 days, or for options that are recurring Cypress awards granted on or after Cypress’ 2004 annual stockholder meeting, within one year, after the date of termination of board service. In the event the non-employee director ceases to serve as a Cypress board member due to disability, the options held by the non-employee director under the amended Cypress stock plan will be exercisable (to the extent exercisable on the date of service termination) for a period of six months, or for options granted on or after Cypress’ 2004 annual stockholder meeting, within one year after the date of service termination. In the event of the non-employee director’s death while a Cypress board member, the options held by him or her under the amended Cypress stock plan will be exercisable for a period of six months, or for options granted on or after Cypress’ 2004 annual stockholder meeting, for a period of one year, after the date of such death (to the extent that the option would have become exercisable had the director continued living and remained in continuous service as a director for an additional 12 months). If the

 

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non-employee director dies within 30 days after the termination of his or her continuous service as a Cypress board member, his or her options under the amended Cypress stock plan may be exercised within six months following the date of such death (to the extent the option was exercisable on the date of service termination).

Certain Performance-based Awards

The amended Cypress stock plan is designed to permit (but not require) Cypress to issue Cypress awards intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (which we refer to as Section 162(m)). Thus, the Cypress compensation committee may require achievement of specified levels of performance with respect to performance goals, in order for a Cypress award to vest. In granting restricted stock or RSUs that are intended to qualify under Section 162(m), the Cypress compensation committee will follow any procedures determined necessary or appropriate to ensure qualification of the award under Section 162(m).

With respect to any Cypress awards intended to qualify as performance-based compensation under Section 162(m), at the Cypress compensation committee’s discretion, one or more of the following performance goals may apply: cash flow (including operating cash flow or free cash flow), revenue (on an absolute basis or adjusted for currency effects), gross margin, operating expenses or operating expenses as a percentage of revenue, earnings (which may include earnings before interest and taxes, earnings before taxes and net earnings), earnings per share, stock price, return on equity, total stockholder return, growth in stockholder value relative to the moving average of the S&P 500 Index, the Philadelphia Semiconductor Sector Index or another index, return on capital, return on assets or net assets, return on investment, economic value added, operating profit or net operating profit, operating margin, market share, contract awards or backlog, overhead or other expense reduction, credit rating, objective customer indicators, new product invention or innovation, attainment of research and development milestones, improvements in productivity, attainment of objective operating goals, and objective employee metrics. The performance goals may be applied to Cypress as a whole or, except with respect to stockholder return metrics, to a region, business unit, affiliate or business segment, and measured either on an absolute basis or relative to a pre-established target, to a previous period’s results or to a designated comparison group, and, with respect to financial metrics, which may be determined in accordance with U.S. GAAP or IASB, or which may be adjusted when established to exclude any items otherwise includable under GAAP or IASB, or include any items otherwise excludable under GAAP or IASB.

Transfers or Leave of Absence

Unless otherwise determined by the Cypress compensation committee, and subject to applicable laws, the vesting of awards granted under the amended Cypress stock plan will cease during any unpaid leave of absence. Moreover, unless otherwise determined by the Cypress compensation committee, any employee who transfers his or her employment to a subsidiary and receives an equity incentive covering such subsidiary’s equity securities in connection with such transfer, will cease vesting in his or her awards granted under the amended Cypress stock plan, until such time (if at all) the employee transfers from the employment of the subsidiary or another subsidiary back to the employ of Cypress.

Changes in Capitalization

If Cypress experiences a stock split, reverse stock split, stock dividend, combination or reclassification of Cypress shares, or any other increase or decrease in the number of issued shares of Cypress common stock effected without its receipt of consideration (except for certain conversions of convertible securities), proportionate adjustments will be made by the Cypress board subject to any required action by Cypress’ stockholders, to the number of shares available for issuance under the amended Cypress stock plan but as to which no Cypress awards have yet been granted or which have been returned to the amended Cypress stock plan, the number of shares covered by each outstanding Cypress award, the price per share, if any, of each outstanding Cypress award, and the per-person limits on Cypress awards, as appropriate to reflect the stock dividend or other change.

 

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Similarly, if Cypress experiences a spin-off, split-off, or similar transaction involving equity of a subsidiary or former subsidiary, then subject to any required action by Cypress stockholders, the number and/or type of shares covered by each outstanding award, the number and/or type of shares which have been authorized for issuance under the amended Cypress stock plan but as to which no Cypress awards have yet been granted or which have been returned to the amended Cypress stock plan, the price per share of each such outstanding Cypress award, and the per-person limits on Cypress awards will be appropriately and proportionately adjusted to account for any increase or decrease in value resulting from such transaction.

Corporate Transactions

In the event of Cypress’ merger with or into another corporation or the sale of substantially all of its assets, the successor corporation (or its parent or subsidiary) will assume or substitute for equal value each outstanding Cypress award. With respect to Cypress awards other than recurring Cypress awards granted to non-employee directors, including Cypress awards providing for performance-based vesting criteria, the Cypress compensation committee may, in its sole discretion, fully accelerate such Cypress awards in lieu of assumption or substitution. In such event, the Cypress compensation committee will notify all holders of options and SARs that their options and SARs under the amended Cypress stock plan will be fully exercisable for a period of 30 days from the date of such notice and the Cypress award will terminate upon the expiration of such period.

With respect to recurring Cypress awards granted to non-employee directors, in the event the successor corporation does not agree to assume or substitute for such Cypress awards, each outstanding recurring Cypress award granted to a non-employee director will become fully vested and exercisable (if applicable), unless the Cypress board, in its discretion, determines otherwise.

In the event of a proposed dissolution or liquidation of Cypress, the Cypress board may provide that Cypress awards (other than Cypress awards granted to non-employee directors) will terminate as of a date determined by the Cypress board, allow participants to exercise any such options and SAR Cypress awards including shares that otherwise would not be exercisable, and accelerate the vesting of any such restricted stock and RSU Cypress awards.

Amendment and Termination of the Amended Cypress Stock Plan

The Cypress board generally may amend, alter, suspend, or terminate the amended Cypress stock plan at any time, except that certain amendments may require stockholder approval or the consent of participants in the amended Cypress stock plan. Adding shares to the amended Cypress stock plan requires stockholder approval, except in the case of adjustments due to a stock split or similar change in capitalization effected without the receipt of consideration by us. The current Cypress stock plan is scheduled to expire on January 15, 2024.

Limited Transferability of Awards

Cypress awards granted under the amended Cypress stock plan generally may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the applicable laws of descent and distribution. During the participant’s lifetime, only the participant may exercise the Cypress award. If the Cypress compensation committee makes a Cypress award under the amended Cypress stock plan transferable, such Cypress award will contain such additional terms and conditions as the Cypress compensation committee deems appropriate.

Federal Tax Aspects

The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and Cypress of Cypress awards granted under the amended Cypress stock plan, based upon the provisions of the Internal Revenue Code of 1986, as amended, as in effect on the date of this joint proxy statement/prospectus, current regulations and existing administrative rulings of the Internal Revenue Service. However, it does not purport to be complete and does not discuss the provisions of the income tax laws of any municipality, state or foreign country in which the participant may reside. Tax consequences for any particular individual may be different.

 

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Nonstatutory Stock Options

No taxable income is reportable when a nonstatutory stock option is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss.

Incentive Stock Options

No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax). If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option.

Stock Appreciation Rights

No income will be recognized by a recipient in connection with the grant of a stock appreciation right. When the stock appreciation right is exercised, the award holder generally will be required to include as taxable ordinary income in the year of exercise an amount equal to the sum of the amount of any cash received and the fair market value of any common stock or other property received upon the exercise. Any additional gain or loss recognized upon any later disposition of the shares of common stock or other property would be treated as long-term or short-term capital gain or loss, depending on the holding period.

Restricted Stock/Restricted Stock Units

A participant will not have taxable income upon grant unless he or she elects to be taxed at that time pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (except no such election is available for restricted stock units). Instead, he or she will recognize ordinary income at the time of vesting equal to the fair market value (on the vesting date) of the shares received minus any amount paid for the shares.

Tax Effect for Cypress

Cypress generally will be entitled to a tax deduction in connection with a Cypress award made to U.S. employees, consultants and directors under the amended Cypress stock plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonstatutory stock option). Special rules limit the deductibility of compensation paid to certain of Cypress’ executive officers. Under Section 162(m) of the Internal Revenue Code of 1986, as amended, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1 million. However, Cypress can preserve the deductibility of certain compensation in excess of $1 million if the conditions of Section 162(m) are met. These conditions include stockholder approval of the amended Cypress stock plan, setting limits on the number of Cypress awards that any individual may receive, and for Cypress awards other than certain stock options, establishing performance criteria that must be met before the Award actually will vest or be paid. The amended Cypress stock plan has been designed to permit the Cypress compensation committee to grant Cypress awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting Cypress to continue to receive a federal income tax deduction in connection with such Cypress awards.

 

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Section 409A

Section 409A of the Internal Revenue Code of 1986, as amended (which we refer to as Section 409A) provides certain requirements for non-qualified deferred compensation arrangements with respect to an individual’s deferral and distribution elections and permissible distribution events. Cypress awards granted under the amended Cypress stock plan with a deferral feature will be subject to the requirements of Section 409A. If a Cypress award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Cypress award may recognize ordinary income on the amounts deferred under the Cypress award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if a Cypress award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

The Cypress board unanimously recommends a vote “FOR” the proposal to approve the amendment and restatement of Cypress’ 2013 Stock Plan.

 

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THE SPANSION SPECIAL MEETING

Date, Time and Place of Spansion Special Meeting

The Spansion special meeting is scheduled to be held at 8:00 a.m., local time, on March 12, 2015, at 915 DeGuigne Drive, Sunnyvale, California 94085.

Check-in will begin at 7:30 a.m. and Spansion stockholders should allow ample time for the check-in procedures.

Purpose of Spansion Special Meeting

At the Spansion special meeting, Spansion stockholders will be asked to consider and vote on:

 

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a proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement;

 

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a proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger; and

 

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a proposal to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

Spansion currently does not contemplate that any other matters will be presented at the Spansion special meeting.

After careful consideration, the Spansion board unanimously determined that the merger agreement and the transactions contemplated by the merger agreement are advisable and in the best interests of the Spansion stockholders and has unanimously approved the merger agreement.

The Spansion board unanimously recommends that the Spansion stockholders vote: “FOR” the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement. The Spansion board also unanimously recommends that Spansion stockholders vote “FOR” the proposal to approve on an advisory (non-binding) basis the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger and “FOR” the proposal to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

Who Can Vote at the Spansion Special Meeting

Only Spansion stockholders of record at the close of business on February 5, 2015, the record date for the Spansion special meeting, and other persons holding valid proxies for the special meeting will be entitled to attend the Spansion special meeting.

On the record date, there were 63,176,537 shares of Spansion common stock outstanding, par value $0.001 per share. Each share of common stock is entitled to one vote on each matter properly brought before the meeting.

In accordance with Delaware law, a list of stockholders entitled to vote at the meeting will be available at the meeting, and for 10 days prior to the meeting, at 915 DeGuigne Drive, Sunnyvale, California 94085, between the hours of 9:00 a.m. and 4:00 p.m., local time.

 

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Spansion stockholders and their proxies will be admitted to the Spansion special meeting beginning at 7:00 a.m., local time, on March 12, 2015. Spansion stockholders and their proxies should be prepared to present a form of government-issued photo identification, such as a driver’s license, state-issued identification card, or passport. In addition, Spansion stockholders who are record holders will have their ownership verified against the list of record holders as of the record date prior to being admitted to the meeting. Spansion stockholders who are not record holders but hold shares through a broker or nominee (i.e., in “street name”) should provide proof of beneficial ownership on the record date, such as a letter from their broker or nominee reflecting their stock ownership as of the record date for the meeting. Anyone who does not provide photo identification or comply with the other procedures outlined above upon request will not be admitted to the special meeting.

Vote Required for Approval

Quorum

A quorum will be present if at least a majority of the outstanding shares are represented by proxy or by Spansion stockholders present and entitled to vote at the Spansion special meeting. Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your bank or broker) or if you vote in person at the Spansion special meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the chairman of the board or holders of a majority of the votes present at the Spansion special meeting may adjourn the special meeting to another time or date.

Required Vote

Approval of the merger proposal requires the affirmative vote of holders of a majority of the outstanding shares of Spansion common stock entitled to vote thereon. Approval of the compensation proposal and the adjournment proposal each requires the affirmative vote of a majority of the votes cast by holders of shares of Spansion common stock present in person or represented by proxy at the Spansion special meeting and entitled to vote on the proposal.

Effect of Not Voting and Abstentions

Abstentions and broker “non-votes” count as present for establishing the quorum described above. A broker “non-vote” may occur on an item when a broker is not permitted to vote on that item without instructions from the beneficial owner of the shares, and such instructions have not been provided by the beneficial owner.

Under the applicable rules of the New York Stock Exchange, brokers and other nominees are prohibited from giving a proxy to vote their customers’ shares with respect to the proposals to be voted on at the Spansion special meeting in the absence of instructions from their customers. Failure by a Spansion stockholder to submit a proxy or instruct a broker or nominee to vote will have the effect of a vote against the merger proposal, but it will have no effect on the compensation proposal or the adjournment proposal, assuming a quorum is present. Abstentions will have the effect of a vote against the merger proposal, the compensation proposal and the adjournment proposal.

Adjournments

If there is no quorum, the chairman of the Spansion board or holders or a majority of the votes present at the Spansion special meeting may adjourn the special meeting to another time or date.

Even if a quorum is present, the Spansion special meeting could be adjourned in order to provide more time to solicit additional proxies in favor of adoption of the merger agreement and approval of the transactions contemplated by the merger agreement if sufficient votes are cast in favor of the adjournment proposal. If the adjournment is for more than 30 days or if after the adjournment a new record date is set for the adjourned meeting, a notice of the adjourned meeting must be given to each stockholder of record entitled to vote at the Spansion special meeting.

 

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Share Ownership of Directors and Executive Officers of Spansion

At the close of business on the record date for the Spansion special meeting, directors and executive officers of Spansion beneficially owned and were entitled to vote approximately 0.84% of the shares of Spansion common stock outstanding on that date. Simultaneously with the execution and delivery of the merger agreement, each of the directors and executive officers of Spansion, in their respective capacities as stockholders of Spansion, entered into support agreements with Cypress pursuant to which such individuals agreed, among other things, to vote their respective shares of Spansion common stock for the approval and adoption of the merger agreement.

Voting Procedures

Method of Voting

Spansion stockholders are being asked to vote both shares held directly in their name as stockholders of record and any shares they hold in “street name” as beneficial owners. Shares held in “street name” are shares held in a stock brokerage account or shares held by a bank or other nominee. The method of voting differs for shares held as a record holder and shares held in street name. Record holders will receive proxy cards. Holders of shares in street name will receive voting instruction cards from their brokers or nominees seeking instruction as to how to vote.

Proxy cards and voting instruction cards are being solicited on behalf of the Spansion board from Spansion stockholders in favor of approval of the merger proposal, the compensation proposal and the adjournment proposal.

Submitting Proxies or Voting Instructions

Whether Spansion stockholders hold shares of Spansion common stock directly as stockholders of record or in street name, Spansion stockholders may direct the voting of their shares without attending the Spansion special meeting. Spansion stockholders may vote by granting proxies or, for shares held in street name, by submitting voting instructions to their brokers or nominees.

Record holders of shares of Spansion common stock may submit proxies by completing, signing and dating their proxy cards for the Spansion special meeting and mailing them in the accompanying preaddressed envelopes. Spansion stockholders who hold shares in street name may vote by mail by completing, signing and dating the voting instruction cards for the Spansion special meeting provided by their brokers or nominees and mailing them in the accompanying pre-addressed envelopes. Proxies and voting instruction forms submitted by mail must be received no later than March 11, 2015 at 11:59 p.m. Eastern Time to be voted at the Spansion special meeting. Spansion stockholders may also submit proxies over the Internet at the web address shown on the proxy card. Spansion stockholders who live in the United States or Canada may submit proxies by calling the telephone number shown on the proxy card. The Internet and telephone voting facilities will close at 11:59 p.m., Eastern Time, on March 11, 2015. The availability of Internet and telephone voting for shares held in street name will depend on the voting processes of your broker or other nominee.

If Spansion stockholders of record do not include instructions on how to vote their properly signed proxy cards for the Spansion special meeting, their shares will be voted “FOR” the merger proposal, the compensation proposal and the adjournment proposal, and in the discretion of the proxy holders on any other business that may properly come before the Spansion special meeting.

If Spansion stockholders holding shares of Spansion common stock in “street name” do not provide voting instructions, their shares will not be considered to be votes cast on the merger proposal, the compensation proposal or the adjournment proposal.

Stockholders of record of Spansion common stock may also vote in person at the Spansion special meeting by attending the meeting and submitting their proxy cards or by filling out a ballot at the special meeting.

 

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If shares of Spansion common stock are held by Spansion stockholders in street name, those Spansion stockholders may not vote their shares in person at the Spansion special meeting unless they bring a signed proxy from the record holder giving them the right to vote their shares and fill out a ballot at the special meeting.

Contact for Questions and Assistance in Voting

Any Spansion stockholder who has a question about the proposals or how to vote or revoke a proxy, or who wishes to obtain additional copies of this joint proxy statement/prospectus, should contact:

Alliance Advisors, LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

Telephone: (973) 873-7700

Facsimile: (973) 338-1430

www.allianceadvisorsllc.com

If you need additional copies of this joint proxy statement/prospectus or voting materials, you should contact Alliance Advisors, LLC as described above or Spansion Investor Relations at investor.relations@spansion.com or by telephone at (408) 962-2500.

Revoking Proxies or Voting Instructions

Spansion stockholders may change their votes at any time prior to the vote at the Spansion special meeting. Spansion stockholders of record may change their votes by granting new proxies bearing a later date (which automatically revoke any the earlier proxy) or by attending the Spansion special meeting and voting in person. Attendance at the Spansion special meeting will not cause previously granted proxies to be revoked, unless the Spansion stockholder specifically so requests.

For shares held in “street name,” Spansion stockholders may change their votes by submitting new voting instructions to their brokers or nominees or by attending the Spansion special meeting and voting in person, provided that they have obtained a signed proxy from the record holder giving them the right to vote their shares.

Shares Held in “Street Name”

Spansion stockholders who own shares of Spansion common stock through a broker, bank or other nominee and attend and vote at the Spansion special meeting, should bring proof of beneficial ownership on the record date, such as a letter from their broker, bank or other nominee reflecting their stock ownership as of the record date for the Spansion special meeting.

Tabulation of Votes

Representatives of Computershare Trust Company, N.A., Spansion’s mailing agent and tabulation service, will count the votes and act as the Inspector of Elections. The procedures to be used by the Inspector of Elections are consistent with Delaware law concerning the voting of shares, determination of a quorum and the vote required to take stockholder action.

How You Can Reduce the Number of Copies of Spansion’s Proxy Materials You Receive

The Securities and Exchange Commission has rules that permit Spansion to deliver a single copy of its proxy statement to stockholders sharing the same address. To reduce the expenses of delivering duplicate proxy materials, Spansion is taking advantage of the Securities and Exchange Commission’s “householding” rules that permit Spansion to deliver only one set of proxy materials to stockholders who share an address, unless otherwise requested by the stockholders.

 

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Cost of Proxy Distribution and Solicitation

Spansion is soliciting proxies for the Spansion special meeting from Spansion stockholders and Cypress is soliciting proxies for the Cypress special meeting from its stockholders. Each company will bear its own fees and costs associated with printing and filing this joint proxy statement/prospectus and the registration statement on Form S-4, of which it forms a part. Other than the costs shared with Cypress, the cost of soliciting proxies from Spansion stockholders will be paid by Spansion. Spansion has retained Alliance Advisors, LLC to assist it in the solicitation of proxies for approximately $20,000, plus reasonable out-of-pocket expenses. Spansion has also requested that banks, brokers and other custodians, agents and fiduciaries send these proxy materials to the beneficial owners of Spansion’s common stock they represent and secure their instructions as to the voting of such shares. Spansion may reimburse such banks, brokers and other custodians, agents and fiduciaries representing beneficial owners of Spansion’s common stock for their expenses in forwarding solicitation materials to such beneficial owners. Certain of Spansion’s directors, officers or employees may also solicit proxies in person, by telephone, or by electronic communications, but they will not receive any additional compensation for doing so.

 

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PROPOSAL 1.

THE MERGER AGREEMENT AND THE MERGER

As discussed elsewhere in this joint proxy statement/prospectus, Spansion stockholders are considering and voting to adopt the merger agreement and approve the transactions contemplated by the merger agreement. Spansion stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the merger. In particular, Spansion stockholders are directed to the merger agreement which is attached as Annex A to this joint proxy statement/prospectus.

The Spansion board unanimously recommends a vote “FOR” the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

PROPOSAL 2.

ADVISORY VOTE TO APPROVE MERGER-RELATED COMPENSATION FOR SPANSION NAMED EXECUTIVE OFFICERS

Under Section 14A of the Securities Exchange Act of 1934 and the applicable Securities and Exchange Commission rules issued thereunder, Spansion is required to submit a proposal to its stockholders for a non-binding, advisory vote to approve certain compensation that may become payable to Spansion named executive officers in connection with the completion of the merger. This proposal, which is referred to as the “compensation proposal,” gives Spansion stockholders the opportunity to vote, on an advisory (non-binding) basis, on the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger. This compensation is summarized in the table captioned “Spansion Golden Parachute Compensation” in the section entitled “The Merger—Spansion Executive Compensation Payable in Connection with the Merger” beginning on page 103 of this joint proxy statement/prospectus, including the footnotes to the table and narrative disclosures set forth in the section. The Spansion board encourages you to review carefully the named executive officer merger-related compensation information disclosed in this joint proxy statement/prospectus. The Spansion board unanimously recommends that Spansion stockholders approve, by advisory vote, the compensation that may become payable to Spansion named executive officers in connection with the completion of the merger. The vote on the compensation proposal is a vote separate and apart from the vote on the merger proposal. Accordingly, you may vote to approve the merger proposal and vote not to approve the compensation proposal and vice versa. Because the vote on the compensation proposal is advisory only, it will not be binding on either Spansion or Cypress. Accordingly, if the transaction agreement is adopted and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the vote on the compensation proposal. Approval of the compensation proposal requires the affirmative vote of the holders of a majority of the shares of Spansion common stock present or represented by proxy at the special meeting and entitled to vote thereon. If you fail to submit a proxy or fail to instruct your broker or nominee to vote, it will have no effect on the compensation proposal, assuming a quorum is present. If you mark your proxy or voting instructions to abstain, it will have the effect of a vote against the compensation proposal.

The Spansion board unanimously recommends a vote “FOR” the approval, on an advisory (non-binding) basis, of the compensation that may be paid or become payable to Spansion named executive officers that is based on or otherwise relates to the merger agreement and merger.

 

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PROPOSAL 3.

POSSIBLE ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES,

IF NECESSARY OR APPROPRIATE

The Spansion special meeting may be adjourned to another time and place to permit further solicitation of proxies, if necessary or appropriate, to obtain additional proxies if there are not sufficient votes to approve the merger proposal.

Spansion is asking you to authorize the holder of any proxy solicited by the Spansion board to vote in favor of any adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the merger proposal.

The Spansion board unanimously recommends a vote “FOR” the proposal to approve the adjournment of the Spansion special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement and approve the transactions contemplated by the merger agreement.

 

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THE MERGER

The following is a description of the material aspects of the merger, including the merger agreement. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire joint proxy statement/prospectus, including the merger agreement attached to this joint proxy statement/prospectus as Annex A, for a more complete understanding of the merger.

Background of the Merger

Spansion and Cypress are both participants in the semiconductor industry and are familiar with each other’s business. Each of them routinely evaluates business alternatives and strategic opportunities as part of their ongoing evaluation of developments in the marketplace and participates in discussions with third parties regarding possible commercial arrangements, partnerships and transactions.

The Cypress board and management have a robust process in place for the periodic and ongoing review of strategic opportunities. This process is led by the chief technology officer (CTO) with the direct involvement of the chief executive officer (CEO), executive vice president business leads and the chief financial officer of Cypress (executive management). The process involves the analysis of potential acquisitions of companies or product lines of other companies, collaborations with other companies and other business combinations.

In 2013 Cypress analyzed 12 strategic opportunities. These opportunities began with extensive evaluation by executive management, including the CEO. The majority of these opportunities were analyzed, reviewed and discussed over the course of several months and helped Cypress develop and refine its strategic focus for 2014.

In 2014 Cypress evaluated an additional eight strategic opportunities, including an acquisition of Spansion. Executive management conducted various levels of discussions with 5 specific parties and Spansion. The discussions with each of the parties evolved over a period of months and included meetings with CEOs, executive management, bankers, the exchange of due diligence information necessary to analyze the opportunities, and in-person meetings (including outside the U.S.), and led Cypress to the view that a merger with Spansion was the best strategic opportunity for the shareholders of Cypress.

The Spansion board and management periodically review strategic opportunities for Spansion, including potential acquisitions of companies or their product lines, collaborations with other companies and other business combinations. Such periodic reviews led to Spansion’s acquisition of the microcontroller and analog business of Fujitsu in August 2013 and, in early 2014, to the investigation of other potentially complementary acquisitions. In July 2014, Spansion engaged Jefferies LLC, referred to as Jefferies, as financial advisor to assist with the investigation of an opportunity for Spansion to acquire a strategic party, referred to as Party A.

In furtherance of Spansion’s strategy to acquire complementary businesses and product lines from third parties, John H. Kispert, the chief executive officer of Spansion, met with the management of a strategic party, referred to as Party B, in January 2014, to discuss the potential acquisition of a portion of Party B’s business.

In early 2014, Mr. Kispert also met with the management of a strategic party, referred to as Party C, to follow up on discussions that had taken place over the course of the previous several years regarding the potential acquisition by Spansion of a portion of Party C’s business. During the course of such discussions, Party C expressed unsolicited interest in acquiring Spansion, but the pricing terms of a potential acquisition were not discussed at that time. Nonetheless, Spansion’s management believed that discussions regarding such potential acquisition by Party C or regarding a potential acquisition of a business unit of Party C by Spansion could be worthwhile.

On April 2, 2014, Spansion entered into a mutual nondisclosure agreement with Party C for the purpose of evaluating a potential acquisition of Spansion or other strategic transaction.

 

 

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Also in April 2014, representatives of a strategic party, referred to as Party D, met with Spansion’s senior management to discuss a potential acquisition of a particular business unit of Spansion. In April 2014 and May 2014, Spansion engaged in discussions with Party D to explore signing a mutual nondisclosure agreement regarding such a potential acquisition of a particular business unit of Spansion, or other strategic transaction.

At a meeting of the Spansion board on April 27, 2014, Mr. Kispert updated the board on the inquiries from Party C and Party D. At this meeting, the Spansion board requested that Spansion’s management update its three-year operating plan in order to provide a basis against which the board could evaluate any transaction proposal that might be received from Party C or any other party. The board also recommended that Spansion’s management engage Morgan Stanley & Co. LLC, referred to as Morgan Stanley, as financial advisor to assist with the process of updating Spansion’s three-year operating plan, potentially responding to Party C’s interest in an acquisition of Spansion and evaluating any other potential strategic alternatives or proposals.

On May 7, 2014, Party D informed Spansion that it was not comfortable agreeing to a standstill provision in the mutual nondisclosure agreement that Party D and Spansion were negotiating.

On May 16, 2014, Spansion indicated to Party D that it would not be able to provide all of the information that Party D was requesting without a standstill provision, but offered to meet with Party D during the week of May 19, 2014 to provide limited due diligence information.

At a meeting on May 16, 2014, Spansion’s board discussed the interest of Party C in an acquisition of Spansion.

On May 23, 2014, Party D informed Spansion that, due to other strategic priorities, it would not pursue a strategic transaction of the type previously discussed with Spansion at that time.

On June 9, 2014, Spansion entered into an amended mutual nondisclosure agreement with Party C to clarify the parties’ respective obligations concerning the disclosure of certain confidential information.

On June 12, 2014, representatives of Spansion and representatives of Party C met at the offices of Fenwick & West LLP, referred to as Fenwick, Spansion’s outside legal counsel, to discuss a potential acquisition of Spansion or other strategic transaction.

From June 2014 through August 2014, Spansion and Party C continued to have conversations regarding a potential acquisition of Spansion by Party C, and Spansion continued to provide information to Party C.

On July 25, 2014, a strategic party, referred to as Party E, contacted Spansion’s management to discuss strategic opportunities between the two companies, including an acquisition of Spansion. Although Spansion’s board and management had concerns with respect to Party E’s ability to fund an acquisition of Spansion independently or obtain access to sufficient financing resources as would be required to complete such a transaction, on July 28, 2014, Spansion entered into a mutual nondisclosure agreement with Party E for the purpose of further exploring strategic options with Party E.

On August 15, 2014, Morgan Stanley discussed several topics with Spansion’s board, including a preliminary view of Spansion’s valuation based on management’s three-year operating plan and a range of strategic alternatives for Spansion, including strategic acquisitions, the sale of a business unit, a sale of the entire company and continuing to operate the company on a standalone basis. At the August 15, 2014 meeting, the Spansion board also discussed the potential acquisition by Spansion of Party A.

During the week of August 18, 2014, Mr. Kispert attended a meeting with representatives of Cypress, during which the Cypress representatives indicated that Cypress was potentially interested in a strategic transaction with Spansion in which Cypress and Spansion would combine, with T.J. Rodgers, the chief executive officer of Cypress, being the chief executive officer of the combined company.

 

 

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Over the course of August 2014 and September 2014, Spansion provided due diligence information to Party E.

In September 2014, Party B contacted Spansion’s management and expressed interest in acquiring Spansion. The Spansion board and management considered the potential financial synergies of a business combination transaction and Party B’s ability to finance an acquisition.

On September 8, 2014, a representative of Spansion indicated to a representative of Party E that Spansion could not provide certain information that Spansion considered to be commercially sensitive unless Party E made a proposal to acquire Spansion. Later in the week of September 8, 2014, Party E terminated discussions with Spansion.

On September 9, 2014, Spansion entered into a mutual nondisclosure agreement with Party B for the purpose of allowing Party B to evaluate a potential acquisition of Spansion.

On September 12, 2014, representatives of Spansion met with a representative of Cypress to discuss Cypress’ potential interest in a strategic transaction.

On September 15, 2014, Cypress discussed with Qatalyst Partners LP, referred to as Qatalyst Partners, whether Qatalyst Partners would act as its financial advisor with respect to a potential business combination with Spansion.

During the week of September 15, 2014, representatives of Morgan Stanley and Jefferies engaged in conversations with representatives of Qatalyst Partners, in which Qatalyst Partners indicated that Cypress was considering making a proposal for an all stock merger of equals. Representatives of Qatalyst Partners advised that Cypress was not yet prepared to offer further details as to the valuation of a potential transaction.

On September 18, 2014, Party B submitted a preliminary, non-binding proposal to acquire Spansion for $27.30 per share in an all-cash transaction.

In light of these events, the Spansion board convened later on September 18, 2014. Representatives of Fenwick attended the meeting. Mr. Kispert briefed the board on the recent proposal that Spansion had received from Party B and the inquiries that Spansion had received from Cypress with respect to a strategic transaction, as well as the status of the potential acquisition by Spansion of Party A. Representatives from Fenwick presented to the board regarding its fiduciary duties in evaluating acquisition proposals and strategic combinations. The Spansion board then resolved to create a special M&A committee of the board to appropriately and efficiently supervise and advise management in the process of exploring and evaluating a potential change of control of Spansion or strategic combination with a third party. The board appointed three of its directors, Raymond Bingham, Michael Wishart and William Mitchell, to serve as the members of the M&A committee. Members of the board also recommended that Spansion engage Morgan Stanley as well as Jefferies to serve as financial advisors to Spansion in connection with evaluating potential acquisitions of Spansion and other strategic alternatives.

On September 18, 2014, following the meeting of the Spansion board, the M&A committee convened. Representatives of Morgan Stanley and Fenwick attended the meeting. The M&A committee engaged in a lengthy discussion regarding the various unsolicited inquires received by Spansion’s management, including the preliminary, all-cash, non-binding acquisition proposal received from Party B and the preliminary verbal indication of interest by Cypress. Representatives of Morgan Stanley discussed a range of strategic alternatives available to the Company, various preliminary valuation scenarios and preliminary examples of potential synergies that might be realized as a consequence of a strategic transaction. The M&A committee, management and representatives of Morgan Stanley and Fenwick discussed the parameters of an appropriate market check process. As part of a market check process the M&A committee directed management to follow up with Party C, Cypress and Party E and to engage with Party B to seek a higher valuation and test the level of Party B’s board

 

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support for its proposal. The M&A committee also engaged in an extensive discussion of several other parties that might be approached in a market check process, including the M&A committee’s and Morgan Stanley’s perception of each such party’s ability to effect a strategic transaction using either cash, stock or a combination thereof. Morgan Stanley commented on each such party and a discussion ensued. Among several factors that the committee considered with respect to each party were the strength of each such party’s balance sheet and its financing capacity. Synergies (and potential negative synergies) with such parties were also discussed. Following the discussion, the M&A committee instructed management to initiate contact with several specific parties about their possible interest in a potential strategic transaction.

Shortly following the September 18, 2014 Spansion M&A committee meeting, Spansion management contacted Party C and three new strategic parties, referred to as Party F, Party G and Party H, to gauge each such party’s interest in an acquisition of Spansion. Party F and Party G each stated that it was not interested in pursuing an acquisition of Spansion.

On September 25, 2014, Spansion and Cypress executed a mutual nondisclosure agreement in order to facilitate their consideration of a potential business combination.

On September 26, 2014, representatives of Spansion attended a meeting with members of Party H’s management to have a preliminary discussion about Spansion’s business and the possibility of an acquisition of Spansion by Party H, or other strategic transaction. At the conclusion of the meeting, Party H’s management requested an additional meeting during the week of either September 29, 2014 or October 6, 2014.

On September 26, 2014, Party C indicated that it was not prepared at that time to make a proposal to acquire Spansion.

On September 27, 2014, Mr. Kispert and other representatives of Spansion participated in a day-long senior management presentation to the management of Party B.

The M&A committee of the Spansion board reconvened on September 29, 2014 to consider the status of discussions with various parties. Spansion management and representatives of Morgan Stanley, Jefferies and Fenwick attended the meeting. The M&A committee considered and discussed the responses received from Cypress, Party C, Party E, Party F, Party G and Party H since its September 18, 2014 meeting, as well as the management presentations to Party H on September 26, 2014 and to Party B on September 27, 2014. Representatives of Morgan Stanley and Jefferies reported to the M&A committee that Party C, Party D, Party E, Party F and Party G were not interested in submitting a proposal to acquire Spansion.

Morgan Stanley and Jefferies then outlined a potential timeline for a strategic transaction and recommended that all interested parties be asked to submit indications of interest by October 6, 2014, which the M&A committee approved. Morgan Stanley then discussed with the M&A committee various preliminary valuation scenarios, taking into consideration possible synergies. Following Morgan Stanley’s and Jefferies’ presentation, the M&A committee discussed the status of the potential acquisition by Spansion of Party A. The M&A committee then authorized management to formally engage Morgan Stanley and Jefferies to serve as financial advisors to Spansion in connection with a possible acquisition or strategic transaction.

On October 1, 2014, Spansion entered into formal engagement agreements with each of Morgan Stanley and Jefferies as financial advisors in connection with a possible acquisition of Spansion or another strategic transaction.

On October 3, 2014, members of Spansion’s management met with representatives of Cypress to discuss Spansion’s business and a potential business combination transaction. The parties also discussed Cypress and its vision for the combined company.

On October 6, 2014, Party B verbally reaffirmed its proposal of $27.30 per share in cash and requested three to five weeks to continue business and financial due diligence and to prepare a definitive acquisition agreement.

 

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Also on October 6, 2014, Spansion entered into a mutual nondisclosure agreement with Party H.

Also on October 6, 2014, representatives of Qatalyst Partners contacted Spansion’s financial advisors by telephone and indicated that Cypress would need seven to ten additional days to refine its analysis of the potential synergies of a stock transaction.

On October 7, 2014, Mr. Rodgers called Mr. Kispert and stated that Cypress would provide a proposal for a business combination with Spansion no later than October 17, 2014, possibly as soon as October 15, 2014.

Later on October 7, 2014, Mr. Kispert and other representatives of Spansion provided a 90-minute presentation to Party H. Following this presentation, Party H indicated that it would not make a proposal to acquire Spansion at that time.

Later on October 7, 2014, the M&A committee of the Spansion board convened to discuss the status of discussions with Cypress, Party B and Party H. Spansion management and representatives of Morgan Stanley, Jefferies and Fenwick attended the meeting. The committee was informed of Party H’s decision not to make a proposal to acquire Spansion.

At its October 7, 2014 meeting, the M&A committee of the Spansion board also discussed the potential acquisition by Spansion of Party A. The committee considered the potential near-term reaction of the stock market to Spansion’s announcement of such an acquisition, the potential interest of Cypress and Party B in Party A’s product portfolio, the increased size of Spansion if it consummated an acquisition of Party A, the requirement for Cypress and Party B to perform due diligence regarding Party A if such an acquisition were consummated and Cypress or Party B continued to be interested in acquiring Spansion and the potential benefits of the acquisition of Party A to Spansion’s standalone strategy if a business combination involving Spansion was not consummated.

On October 9, 2014, October 10, 2014 and October 12, 2014, representatives of Cypress and Spansion participated in due diligence calls to discuss finance matters and Spansion’s flash, microcontroller and analog product lines.

On October 13, 2014, members of Spansion’s management attended a follow-up due diligence session with members of management of Party B.

On October 14, 2014, Spansion provided access to a virtual data room to Party B and began responding to Party B’s due diligence requests.

On October 14, 2014, the Cypress board held a special meeting. Members of the Cypress management team, representatives of Qatalyst Partners and representatives of Wilson Sonsini Goodrich & Rosati, Professional Corporation, referred to as Wilson Sonsini, outside counsel to Cypress, attended the meeting. Mr. Rodgers and representatives of Qatalyst Partners updated the Cypress board with respect to the ongoing discussions with Spansion, Spansion’s response to Cypress’ preliminary proposal and the results of the meetings between Cypress and Spansion on October 3, 2014. Cypress’ management reported to the board on its diligence findings from its October 9, 2014, October 10, 2014 and October 12, 2014 diligence calls regarding Spansion’s flash, microcontroller and analog product lines. After discussion, the Cypress board authorized Mr. Rodgers to deliver to Spansion a written non-binding proposal for an all-stock business combination of Cypress and Spansion.

On October 15, 2014, Cypress delivered to Spansion a non-binding proposal for an all-stock business combination of Cypress and Spansion. The Cypress proposal provided for an exchange ratio reflecting a 12% premium to the ratio of the two companies’ stock trading prices to be determined based on the 15-day average of their trading prices up to five days prior to signing a definitive agreement. The proposal indicated that the exchange ratio would be subject to a lower limit of 1.718 and an upper limit of 2.4.

 

 

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On October 16, 2014, Spansion’s financial advisors had a conversation with Party B’s financial advisor, during which Party B’s financial advisor indicated that Party B was not prepared to increase its offer of $27.30 per share. Party B’s financial advisor noted that Spansion’s stock price had declined to $16.27 per share (down from $23.58 per share on the date of Party B’s October 6, 2014 non-binding proposal) and that Party B’s stock price (and a number of other semiconductor companies’ stock prices) had also declined in the same period due to market concerns about a downturn in the semiconductor industry. Party B’s financial advisor also expressed concern about the increasing cost of obtaining debt financing that would be necessary to consummate an acquisition of Spansion. As a result of these market conditions and developments, Party B’s financial advisor indicated that Party B would wait to re-engage with Spansion until after Spansion completed its earnings announcement for the third quarter of fiscal 2014.

Also on October 16, 2014, representatives of a new strategic party located outside of the United States, referred to as Party J, contacted Mr. Kispert to express interest in acquiring Spansion. Mr. Kispert had contacted representatives of Party J over the course of the prior year regarding a potential acquisition by Spansion of Party J, which had not been consummated. Mr. Kispert invited the Party J representatives to contact Morgan Stanley and Jefferies to discuss Party J’s interest in acquiring Spansion.

On October 17, 2014, Spansion’s financial advisors had a conversation with Party B’s financial advisor, during which Party B’s financial advisor indicated that, as a result of the same market conditions and developments that Party B’s financial advisor had noted to Spansion’s financial advisors on October 16, 2014, Party B was no longer interested in acquiring Spansion.

On October 18, 2014, the full Spansion board met, together with management, to consider the status of discussions with various parties, including the proposal received from Cypress. Representatives of Morgan Stanley, Jefferies and Fenwick attended the meeting. At the meeting, representatives of Morgan Stanley and Jefferies noted for the board that Party J had expressed interest in an acquisition of Spansion. Morgan Stanley and Jefferies discussed various considerations relating to continued engagement with Cypress and Party J. At this meeting, the Spansion board also discussed the relative benefits of Spansion remaining as a standalone company, and Mr. Kispert provided an update regarding the potential acquisition by Spansion of Party A, including as to Spansion’s due diligence investigation of Party A.

On October 20, 2014, representatives of Spansion’s financial advisors contacted a new strategic party, referred to as Party I, to gauge Party I’s interest in an acquisition of Spansion. Party I indicated that it was not interested in such a transaction.

On October 22, 2014, Party J, along with a financial partner, referred to as Party K, submitted a non-binding proposal to acquire Spansion for $25.88 per share in an all-cash transaction. Party J and Party K indicated that an acquisition of Spansion would be financed through a combination of debt and equity capital. Later on October 22, 2014, representatives of Spansion delivered a draft nondisclosure agreement to the representatives of Party J and Party K.

Throughout the weeks of October 13, 2014 and October 20, 2014, Spansion and Cypress management continued to evaluate the details of Cypress’ October 15, 2014 proposal. Among other things, Spansion management indicated to representatives of Cypress its views that an appropriate exchange ratio would be higher than the range that Cypress had proposed and that governance matters such as board composition and officer designations would need to be discussed.

On October 22, 2014, Cypress held a due diligence session to present its business to Spansion’s management.

On October 31, 2014, Mr. Rodgers sent a letter to Mr. Kispert reiterating Cypress’ interest in consummating a strategic transaction with Spansion according to the terms presented in Cypress’ October 15, 2014 proposal. In his letter, Mr. Rodgers noted that, based on the current stock prices of Spansion and Cypress, Cypress’ proposal

 

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represented an exchange ratio of 2.326 and implied a valuation of $23.05 per share of Spansion common stock. Spansion determined that such a proposal implied that its stockholders would own approximately 49% of the combined company based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of Spansion’s exchangeable 2.00% senior notes. Mr. Rodgers also requested that Spansion enter into an exclusivity agreement with Cypress in order to continue negotiating the proposed transaction.

On November 3, 2014, the Spansion board held a meeting to consider the status of discussions with various parties. Representatives of Morgan Stanley, Jefferies and Fenwick attended the meeting. At the meeting, representatives of Morgan Stanley and Jefferies discussed the proposal received on October 22, 2014 from Party J and its financial partner, Party K, and discussed the ability of Party J and Party K to consummate an acquisition of Spansion. Representatives of Morgan Stanley and Jefferies considered and discussed with the Spansion board publicly-available information concerning Party J’s revenues, the size and status of Party K’s fund, and the minimal U.S. acquisition experience of Party J and Party K. As a result of these factors, representatives of Morgan Stanley and Jefferies noted their assessments that the resources of Party K were insufficient to fund an acquisition of Spansion and that Party J would need additional financing to consummate such an acquisition, the sources of which were unknown (despite the fact that representatives of Morgan Stanley and Jefferies had requested clarity on these financing sources from Party J on several occasions). Further, representatives of Morgan Stanley and Jefferies noted that little information about Party J was publicly available, and that Party J and Party K had not provided comments to the draft nondisclosure agreement delivered to them on October 22, 2014 or delivered information regarding such parties’ financial wherewithal to timely consummate an acquisition of Spansion, which had been requested in earlier conversations. The Spansion board and its advisors also discussed concerns regarding the ability of Party J to obtain U.S. regulatory approvals required for the transaction, including under export control laws as well as laws regulating foreign investment in the U.S. The Spansion board considered all of these factors—the size of Party J’s revenues, the size and status of Party K’s fund, the U.S. acquisition experience of Party J and Party K, the paucity of publicly-available information concerning Party J, the uncertainty regarding the identity of Party J’s additional financing sources and the higher regulatory risk—and determined that the Cypress proposal presented a substantially more certain path to consummating an acquisition with more certain results for Spansion’s stockholders. Spansion’s financial advisors then gave a presentation regarding, and the board members discussed, the strategic rationale for the Cypress transaction, including the potential financial synergies that such a transaction could generate, and presented a detailed analytical framework for evaluating the Cypress proposal. Mr. Kispert also advised the board that Spansion had not been able to agree on a purchase price with respect to the acquisition by Spansion of Party A, and that Spansion was not likely to proceed with the acquisition of Party A in the near term.

Following the Spansion board meeting on November 3, 2014, a member of Spansion’s board spoke with a member of Cypress’ board by telephone regarding the details of Cypress’ proposal. The member of Spansion’s board reiterated Spansion’s belief that the exchange ratio offered in the Cypress proposal dated October 15, 2014 was too low and that Spansion stockholders should have a greater ownership percentage of the combined company than implied by Cypress’ proposal.

On November 3, 2014, representatives of Qatalyst Partners contacted Spansion’s financial advisors and discussed certain key deal terms. Representatives of Qatalyst Partners noted that, given the proposed all-stock merger of equals structure, it would be appropriate and consistent with other mergers of equals for the merger agreement to contain a provision that would require each party to hold a meeting of their respective stockholders to vote on the proposed merger, even if a party received an alternative proposal that the party’s board determined to be a superior proposal, to permit the stockholders to decide whether to consummate the merger. Spansion’s financial advisors advised Qatalyst Partners that Spansion was not prepared to agree to such a voting provision at that time.

During the course of the week of November 3, 2014, representatives of Party J and representatives of Spansion attempted to negotiate a mutual nondisclosure agreement. During that week, Spansion and its representatives also attempted to validate the sources of Party J’s financing.

 

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On November 4, 2014, the Cypress board held a special meeting. Members of the Cypress management team, representatives of Qatalyst Partners and representatives of Wilson Sonsini attended the meeting. The Cypress board discussed the prior day’s conversation with Spansion’s board member and representatives of Qatalyst Partners reported to the Cypress board the discussion that they had with Spansion’s financial advisors, also on November 3, 2014. The Cypress board considered Spansion’s request that its stockholders hold a larger percentage of the combined company. The Cypress board discussed a range of exchange ratios and representatives from Qatalyst Partners discussed with the board the ownership percentages that such exchange ratios would imply. Representatives of Wilson Sonsini reviewed for the Cypress board its fiduciary duties in an all-stock business combination transaction of the type proposed with Spansion. After a lengthy discussion of the foregoing matters and Spansion’s reaction to Cypress’ previous offer, relative valuation, current diligence findings and whether it would be appropriate to increase the exchange ratio, the Cypress board authorized Mr. Rodgers to deliver to Spansion a revised proposal reflecting a fixed exchange ratio of 2.457.

On November 4, 2014, Cypress delivered to Spansion a revised, non-binding proposal for an all-stock business combination of Cypress and Spansion, with a fixed exchange ratio of 2.457, which implied that Spansion stockholders would own approximately 50% of the combined company based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of Spansion’s exchangeable 2.00% senior notes. The revised proposal indicated that Mr. Rodgers would be the chief executive officer of the combined company, Eric A. Benhamou, the chairman of Cypress’ board, would be the chairman of the board of the combined company and the board of directors of the combined company would be comprised of eight members, four of whom would be current Spansion directors and four of whom would be current Cypress directors. Cypress also indicated that the proposal constituted its “best and final offer.”

On November 6, 2014, a member of Cypress’ board and a member of Spansion’s board discussed the revised Cypress proposal by telephone.

Later on November 6, 2014, the M&A committee of the Spansion board convened for the purpose of evaluating Cypress’ revised proposal and its request to enter into an exclusivity agreement. Representatives of Morgan Stanley and Jefferies attended the meeting and updated the committee as to the terms of the revised proposal. Representatives of Morgan Stanley then presented to the M&A committee regarding certain financial aspects of the proposed merger with Cypress. Representatives of Morgan Stanley and Jefferies then advised the M&A committee that, despite multiple attempts, they had been unable to validate the sources of Party J’s financing of a potential acquisition of Spansion. After a lengthy discussion, the M&A committee determined that Cypress was a more credible potential counterparty since Cypress did not have to obtain third-party financing to consummate the proposed merger, had expressed an unequivocal commitment to consummating an acquisition of Spansion, had a shared belief in the expected synergies as a result of the proposed transaction, had conducted considerable due diligence with the aid of its financial and legal advisors, and, in the M&A committee’s assessment, the proposed merger with Cypress posed no material regulatory challenges. As a result of these factors, the M&A committee authorized management to enter into an exclusivity agreement with Cypress and, subsequent to the M&A committee meeting, Spansion and Cypress entered into an exclusivity agreement providing for a 21 day exclusivity period. Spansion and its representatives then ceased discussions with Party J concerning a mutual nondisclosure agreement.

On November 7, 2014, representatives of the Spansion board met with Mr. Rodgers to discuss Cypress’ business, its succession plans regarding top management and its vision of the proposed combined company.

On November 17, 2014, Cypress formally engaged Qatalyst Partners as its financial advisor and Wilson Sonsini provided an initial draft of the merger agreement to Fenwick.

Spansion and its representatives reviewed the proposed merger agreement and the parties continued their respective ongoing due diligence investigations. On November 20, 2014 and November 21, 2014, Spansion and its representatives discussed key issues in connection with the merger, including (1) the stockholder voting provisions and board termination rights, and (2) governance provisions that related to the ongoing roles of

 

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Spansion’s management and directors in the combined company and their ability to help ensure that the combined company would achieve the anticipated benefits of the merger.

On November 21, 2014, the Cypress board held a regularly scheduled meeting. Members of the Cypress management team, representatives of Qatalyst Partners and representatives of Wilson Sonsini attended the meeting. Representatives of Wilson Sonsini reviewed in detail for the Cypress board the terms of the merger agreement that was delivered to Fenwick on November 17, 2014. The Cypress board asked questions about the merger agreement and discussion ensued.

On November 21, 2014, representatives of Morgan Stanley spoke to representatives of Qatalyst Partners regarding certain key issues in the merger agreement. Following such discussion, Fenwick delivered a revised draft of the merger agreement to Wilson Sonsini.

On November 22, 2014, the M&A committee of the Spansion board convened to discuss the key issues in the merger agreement. Spansion management and representatives of Morgan Stanley and Fenwick attended the meeting. Representatives of Morgan Stanley provided an update of its conversation with representatives of Qatalyst Partners to the M&A committee. Following a discussion, the M&A committee instructed management and Fenwick, with the aid of Morgan Stanley and Jefferies, to continue negotiating the merger agreement with Cypress and Wilson Sonsini.

On November 25, 2014, Wilson Sonsini delivered a revised draft of the merger agreement to Fenwick.

Later on November 25, 2014, the Spansion board convened to review Spansion’s third quarter results and to discuss the status of ongoing negotiations with Cypress, the results of Spansion’s due diligence investigation into Cypress and the prospects for arriving at mutually agreeable terms for a definitive agreement. Representatives of Morgan Stanley, Jefferies and Fenwick attended the meeting. Morgan Stanley, Jefferies and Fenwick presented to the Spansion board regarding the material financial and other terms of the proposed definitive agreement, and an outline of the remaining key issues. Morgan Stanley and Jefferies also reviewed for the Spansion board the strategic rationale for a combination with Cypress, including the potential financial synergies implied by such a combination being developed by management, and engaged the board in a discussion of Spansion’s and Cypress’ historical trading prices and financial projections developed by the management teams of the two companies.

Morgan Stanley also discussed other financial aspects of the proposed Cypress transaction and the board discussed the valuation of Spansion implied by the proposed Cypress transaction. Following this presentation, Fenwick advised the Spansion board concerning the regulatory requirements of the proposed combination, including the need to obtain regulatory approvals in the United States, Germany and other foreign jurisdictions. Fenwick then reviewed for the board its fiduciary duties in an all-stock merger of equals transaction and explained to the board that they would be asked to sign support agreements in their capacities as stockholders of Spansion. Following this discussion, the Spansion board instructed management and the representatives of Fenwick, with the aid of Morgan Stanley and Jefferies, to continue negotiating the merger agreement.

Later on November 25, 2014, representatives of Morgan Stanley and Jefferies participated in a telephonic discussion with representatives of Qatalyst Partners of certain key issues in the merger agreement.

On November 25, 2014 and November 26, 2014, Mr. Kispert received unsolicited emails from the management of Party J, in which Party J requested to meet with Mr. Kispert in December, to which Mr. Kispert did not respond because of the exclusivity agreement with Cypress.

On November 26, 2014, Fenwick reviewed the revised draft merger agreement with Spansion and its financial advisors and discussed the key issues. On the same day, the parties’ financial and outside legal advisors participated in telephonic discussions regarding key issues in the merger agreement and, following such discussions, Fenwick delivered a revised draft of the merger agreement to Wilson Sonsini.

On November 28, 2014, the Cypress board held a special meeting. Members of the Cypress management team, representatives of Qatalyst Partners and representatives of Wilson Sonsini attended the meeting.

 

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Representatives of Qatalyst Partners and Wilson Sonsini reviewed the key open issues in the merger agreement. Representatives of Qatalyst Partners reported to the Cypress board their discussion with Spansion’s financial advisors on November 25, 2014. Representatives of Wilson Sonsini reviewed with the Cypress board the revised draft of the merger agreement that Fenwick delivered on November 26, 2014. Representatives of Wilson Sonsini also again reviewed with the Cypress board its fiduciary duties in an all-stock business combination transaction of the type proposed with Spansion and discussed with the Cypress directors the support agreements that they would be asked to sign in connection with the transaction in their capacities as stockholders of Cypress. After lengthy discussion the Cypress board instructed Cypress management to continue to negotiate the merger agreement and resolve the remaining outstanding issues.

The parties continued to negotiate the merger agreement and finalize their due diligence investigations and related disclosure letters over the course of November 28, 2014, November 29, 2014 and November 30, 2014. On November 29, 2014, representatives of Fenwick and Wilson Sonsini held a telephonic discussion to resolve the remaining outstanding issues in the merger agreement. Following such discussion, each of Fenwick and Wilson Sonsini advised their respective clients as to the ongoing discussions concerning unresolved key issues.

On November 30, 2014, a member of Spansion’s board had a discussion with a representative of Wilson Sonsini to emphasize the importance of a balanced governance structure to reflect the merger of equals in which stockholders of each company would own approximately 50% of the combined company on a fully-diluted basis based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of Spansion’s exchangeable 2.00% senior notes, and help to achieve a successful integration of the businesses of Spansion and Cypress and the realization of the anticipated benefits of the merger for the stockholders of the combined company. It was subsequently agreed between the parties that Raymond Bingham, the chairman of Spansion’s board, would be chairman of the board of the combined company, that a current Spansion director would chair each of the combined company’s compensation committee and governance committee, that a current Cypress director would chair the combined company’s audit committee and that Mr. Kispert would chair the combined company’s operations committee that would oversee integration of the two organizations.

Later on November 30, 2014, the Spansion board met to discuss the status of negotiations with Cypress. Representatives of Morgan Stanley, Jefferies and Fenwick attended. At the meeting, representatives of Fenwick summarized the key terms of the merger agreement for the Spansion board, with observations made by Morgan Stanley, including the conditions under which the merger could be terminated by either party, the conditions under which a termination fee would be payable, the amount of the termination fee, Cypress’ insistence on the stockholder voting provision and results of the negotiations regarding governance structure. Representatives of Morgan Stanley discussed financial aspects of the proposed business combination with Cypress. A representative of Fenwick also summarized for the board its fiduciary duties in connection with the proposed acquisition. The Spansion board indicated that, in light of the agreed balanced governance structure, the approximately 50% ownership of the combined company that Spansion stockholders were expected to receive, the anticipated strategic and financial benefits of the merger and the mutuality of the terms of the merger agreement, the board would be willing to accept the stockholder voting provision, provided that the remaining other issues in the merger agreement were satisfactorily resolved.

Subsequently, later on November 30, 2014 and early in the morning of December 1, 2014, Mr. Kispert received unsolicited emails from the management of Party K, in which Party K requested to meet with Mr. Kispert to continue discussions from early November 2014.

On December 1, 2014, the Spansion board met for the purpose of reviewing the final terms of the proposed merger agreement. At this meeting, representatives of Fenwick reviewed the resolution of the remaining issues in the merger agreement, and the board accepted them and the stockholder voting provision requested by Cypress. Representatives of Morgan Stanley provided an update to their financial review of the proposed merger. At the conclusion of the financial review, Morgan Stanley rendered for the benefit of the Spansion board its oral opinion, subsequently confirmed in writing on December 1, 2014, that as of such date and based upon and

 

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subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to the holders of shares of Spansion common stock (other than the holders of the excluded shares). Following discussion, the Spansion board unanimously (1) approved the merger agreement and the transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement, (2) authorized management to submit the merger agreement to the Spansion stockholders for adoption at the Spansion stockholder meeting and (3) recommended that Spansion’s stockholders adopt the merger agreement and approve the transactions contemplated by the merger agreement. At the December 1, 2014 meeting, the Spansion board also determined that Mr. Kispert should not respond to the emails most recently received from Party J and Party K as a result of the board’s decision to approve the merger agreement with Cypress.

Later on December 1, 2014, the Cypress board met for the purpose of reviewing the final terms of the proposed merger agreement. At this meeting, representatives of Qatalyst Partners delivered to the Cypress board an oral opinion, which opinion was subsequently confirmed by delivery of a written opinion dated December 1, 2014, to the effect that, as of that date and based on and subject to the considerations, limitations and other matters set forth in the written opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Cypress. Following discussion by the Cypress board, the Cypress board unanimously (1) approved the merger agreement and the transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement, (2) authorized management to submit the issuance of Cypress shares in connection with the merger to the Cypress stockholders for approval and (3) recommended that the Cypress stockholders approve the issuance of Cypress shares pursuant to the merger.

Later on December 1, 2014, Fenwick and Wilson Sonsini finalized their due diligence investigations and related disclosure letters. Following the closing of trading on December 1, 2014, the parties executed the merger agreement.

Reasons for the Merger

Overview

The boards and management teams of both Cypress and Spansion believe that the proposed merger represents the best strategic alternative for delivering increased value to our respective stockholders.

Cypress and Spansion believe the merger presents a unique strategic opportunity to create a combined entity that will be a leading provider of microcontrollers and specialized memory chips for embedded systems, and that the merger should allow the combined company to deliver significant benefits to its customers, stockholders and employees. Cypress and Spansion further believe that the combined company will be able to achieve meaningful synergies. The Cypress and Spansion boards and their respective management teams each analyzed various strategic alternatives to address their respective risks and challenges as stand-alone entities. See the section entitled “Background of the Merger” beginning on page 59 of this joint proxy statement/prospectus. After reviewing and discussing their respective strategic alternatives and the opportunity for the combined company presented by the merger, as more fully described below, the Cypress and Spansion boards each determined to pursue the merger in lieu of the other alternatives because each believes the merger will create a combined company that will be able to achieve the strategic and financial benefits described below.

Recommendation of the Cypress Board

At a meeting held on December 1, 2014, among other things, the Cypress board unanimously:

 

•

determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are advisable and in the best interests of Cypress and its stockholders;

 

•

determined that the effective time of the merger and the other transactions contemplated by the merger agreement on the terms and conditions set forth in the merger agreement are advisable and in the best interests of Cypress and its stockholders;

 

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•

approved the merger agreement and authorized and directed the officers of Cypress to execute and deliver the merger agreement for and on behalf of Cypress;

 

•

authorized and directed the officers of Cypress, for and on behalf of Cypress, to take all actions necessary to list the shares of Cypress common stock to be issued in the merger pursuant to the merger agreement on the Nasdaq Global Select Market in order to proceed with the merger and the other transactions contemplated by the merger agreement; and

 

•

resolved to recommend that the stockholders of Cypress approve and vote “FOR” the proposal of the issuance of Cypress common stock in the merger pursuant to the terms of the merger agreement.

Accordingly, the Cypress board unanimously recommends that Cypress stockholders vote “FOR” the proposal of the issuance of Cypress common stock in the merger pursuant to the terms of the merger agreement.

Among other things considered by the Cypress board in making this recommendation, the Cypress board requested and considered the opinion of Qatalyst Partners, described below in the section entitled “—Opinion of Cypress’ Financial Advisor” beginning on page 72 of this joint proxy statement/prospectus, that as of December 1, 2014, and subject to the limitations, qualifications and assumptions set forth therein, the exchange ratio pursuant to the merger agreement is fair, from a financial point of view, to Cypress. Qatalyst Partners’ opinion addresses only the fairness of the exchange ratio pursuant to the merger agreement from a financial point of view to Cypress. The Cypress board has determined that the merger agreement and the transactions contemplated thereby are advisable and in the best interests of the Cypress stockholders, based in part upon its consideration of the Qatalyst Partners’ opinion, as well as numerous other factors described below.

In reaching its decision to approve the merger agreement, the Cypress board consulted with Cypress’ management regarding the strategic aspects of the merger, Cypress’ legal counsel regarding the legal terms of the merger and Cypress’ financial advisors regarding the financial aspects of the merger and the fairness, from a financial point of view, of the exchange ratio to Cypress.

The Cypress and Spansion boards each identified the following anticipated strategic and financial benefits of the merger:

 

•

Complementary Businesses. The products and development capabilities of the two companies are complementary, and should enable the combined company to compete more effectively in attractive markets. The combined company should be stronger than either company on its own, with greater breadth and depth in microcontrollers and specialized memory product offerings and a greater ability to develop new product offerings in these market segments.

 

•

Customers. The combined company will have deep relationships with many of the market-leading customers in our chosen market segments. Cypress expects the combined company to improve Cypress’ and Spansion’s existing ability to expand current customer relationships, and expect to increase the penetration of new customer accounts. Cypress believes that the combination of the two companies’ product lines and engineering resources should enable the combined company to meet customer needs more effectively and to deliver more complete solutions to our customers. In addition, Cypress believes the larger sales organization, greater marketing resources and financial strength of the combined company may lead to improved opportunities for marketing the combined company’s products.

 

•

Intellectual Property Portfolio. The combined company will have over 5,100 pending and issued U.S. patents, excluding pending and issued U.S. patents that have been abandoned, sold, or expired.

 

•

Synergies. The combined company is expected to realize more than $135 million in synergies on an annualized basis within three years of and to be accretive to non-GAAP earnings within the first full year after completing the merger due to increased operating efficiencies and leveraging economies of

 

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scale. Cypress expects the combined company to achieve such benefits from exercising greater purchasing power with its suppliers; consolidation and reduction of areas of overlap in operating and other expenses, including the expenses of maintaining two separate public companies.

 

•

Stronger Financial Position. The combined company will have greater scale and financial resources, including total cash and short term investments of approximately $447.1 million on a pro forma basis based on financial information available as of September 28, 2014. Cypress and Spansion expect that this stronger financial position will improve the combined company’s ability to support product development strategies; to respond more quickly and effectively to customer needs, technological change, increased competition and shifting market demand; and to pursue strategic growth opportunities in the future, including acquisitions.

 

•

Stock-for-Stock Transaction with Fixed Exchange Ratio. The fact that the merger consideration is based on a fixed exchange ratio provides certainty as to the number of shares of Cypress common stock that will be issued to Spansion stockholders.

There can be no assurance that the anticipated strategic and financial benefits of the merger will be achieved, including that the anticipated synergies resulting from the merger will be achieved and/or reflected in the trading price of Cypress common stock following the completion of the merger.

Additional factors that the Cypress board considered in reaching its determination included, but were not limited to, the following:

 

•

the strategic benefits of the merger, as described in the section entitled “—Reasons for the Merger” beginning on page 69 of this joint proxy statement/prospectus;

 

•

historical information concerning Cypress’ and Spansion’s respective businesses, prospects, financial performance and condition, operations, technology, management and competitive position, including public reports concerning results of operations during the most recent fiscal year and fiscal quarter for each company filed with the Securities and Exchange Commission;

 

•

management’s view of the financial condition, results of operations and businesses of Cypress and Spansion before and after giving effect to the merger;

 

•

current financial market conditions and historical market prices, volatility and trading information with respect to the common stock of Cypress and the common stock of Spansion;

 

•

the relationship between the market value of the common stock of Spansion and the consideration to be paid to stockholders of Spansion in connection with the merger;

 

•

the belief that the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable;

 

•

management’s view of the prospects of Cypress as an independent company;

 

•

other strategic alternatives for Cypress;

 

•

detailed financial analyses and pro forma and other information with respect to Cypress and Spansion presented by management and Qatalyst Partners, including Qatalyst Partners’ opinion to the effect that, as of the date of the opinion, and based upon and subject to the limitations, qualifications and assumptions set forth its opinion, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Cypress. A copy of Qatalyst Partners’ written opinion is attached to this joint proxy statement/prospectus as Annex B;

 

•

the impact of the merger on Cypress’ customers, suppliers and employees;

 

•

reports from management, legal and financial advisors as to the results of the due diligence investigation of Spansion;

 

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•

the belief that the merger represents a unique strategic opportunity to create a market leader in SRAM and NOR Flash memory and a leading global provider of microcontrollers;

 

•

the ability and likelihood of Cypress and Spansion to complete the merger, including their ability to obtain necessary stockholder and regulatory approvals;

 

•

the fact that T.J. Rodgers will be the president and chief executive officer of the combined company; and

 

•

the requirement that Cypress or Spansion compensate the other in some circumstances if the merger does not occur.

In addition, the Cypress board also identified and considered a variety of potentially negative factors in its deliberations concerning the merger, including, but not limited to:

 

•

the risk that the potential benefits sought in the merger, including anticipated synergies, might not be fully realized;

 

•

the possibility that the merger might not be completed, or that completion might be delayed;

 

•

the substantial charges to be incurred in connection with the merger, including costs of integrating Cypress and Spansion and transaction expenses arising from the merger;

 

•

the risk that despite the efforts of the combined company, key technical and management personnel might not remain employed by the combined company;

 

•

the risk of diverting management focus and resources from other strategic opportunities and operational matters while implementing the merger;

 

•

the restrictions on the conduct of Cypress’ business during the pendency of the merger;

 

•

the risk that either Cypress stockholders may fail to approve the issuance of the shares of Cypress common stock in connection with the merger or that Spansion stockholders may fail to adopt the merger agreement and approve the transactions contemplated by the merger agreement; and

 

•

various other risks associated with the merger and the businesses of Cypress and the combined company described in the section entitled “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus.

The Cypress board concluded, however, that these negative factors could be managed or mitigated by Cypress or by the combined company or were unlikely to have a material impact on the merger or the combined company, and that, overall, the potentially negative factors associated with the merger were outweighed by the potential benefits of the merger.

The above discussion of the material factors considered by the Cypress board is not intended to be exhaustive, but does set forth the principal factors considered by it. The Cypress board collectively reached the unanimous conclusion to approve the merger agreement, the merger and the transactions contemplated by the merger agreement in light of the various factors described above and other factors that each member of the Cypress board felt were appropriate. In view of the wide variety of factors considered by it in connection with its evaluation of the merger and the complexity of these matters, the Cypress board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, the Cypress board made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above and in making their determinations, individual directors may have given different weights to different factors.

Opinion of Cypress’ Financial Advisor

Cypress retained Qatalyst Partners to act as financial advisor to the Cypress board in connection with a potential transaction and to evaluate whether the exchange ratio pursuant to the merger agreement was fair, from

 

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a financial point of view, to Cypress. Cypress selected Qatalyst Partners to act as its financial advisor based on Qatalyst Partners’ qualifications, expertise, reputation and knowledge of the business and affairs of Cypress and the industry in which it operates. Qatalyst Partners has provided its written consent to the reproduction of the Qatalyst Partners’ opinion in this joint proxy statement/prospectus. At the meeting of the Cypress board on December 1, 2014, Qatalyst Partners rendered its oral opinion, that, as of such date and based upon and subject to the considerations, limitations and other matters set forth therein, the exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Cypress. Qatalyst Partners delivered its written opinion, dated December 1, 2014, to the Cypress board following the meeting of the Cypress board.

The full text of Qatalyst Partners’ written opinion, dated December 1, 2014, to the Cypress board, is attached hereto as Annex B and is incorporated by reference herein. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations and qualifications of the review undertaken by Qatalyst Partners in rendering its opinion. You should read the opinion carefully in its entirety. Qatalyst Partners’ opinion was provided to the Cypress board and addresses only, as of the date of the opinion, the fairness from a financial point of view, of the exchange ratio pursuant to the merger agreement, to Cypress, and it does not address any other aspect of the merger. It does not constitute a recommendation as to how any holder of shares of Cypress common stock or shares of Spansion common stock should vote with respect to the merger or any other matter and does not in any manner address the price at which the Cypress common stock or Spansion common stock will trade at any time. The summary of Qatalyst Partners’ opinion set forth herein is qualified in its entirety by reference to the full text of the opinion.

In arriving at its opinion, Qatalyst Partners reviewed the merger agreement, certain related documents and certain publicly available financial statements and other business and financial information of Spansion and Cypress. Qatalyst Partners also reviewed (i) certain forward-looking information relating to Spansion prepared by the managements of Spansion and Cypress, including financial projections and operating data of Spansion which we refer to as the “Spansion projections,” (ii) certain forward-looking information relating to Cypress prepared by the management of Cypress, including financial projections and operating data of Cypress, which we refer to as the “Cypress projections” and (iii) information relating to certain strategic, financial and operational benefits anticipated from the merger prepared by the managements of Cypress and Spansion, which we refer to as the “synergies,” each as described below in the section entitled “—Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor” beginning on page 77 of this joint proxy statement/prospectus. Additionally, Qatalyst Partners discussed the past and current operations and financial condition and the prospects of Spansion and Cypress with senior executives of Spansion and Cypress. Qatalyst Partners also reviewed the historical market prices and trading activity for the Spansion common stock and Cypress common stock and compared the financial performance of Spansion and Cypress and the prices and trading activity of the Spansion common stock and Cypress common stock with that of certain other selected publicly-traded companies and their securities. In addition, Qatalyst Partners performed such other analyses, reviewed such other information and considered such other factors as Qatalyst Partners deemed appropriate.

In arriving at its opinion, Qatalyst Partners assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to, or discussed with, Qatalyst Partners by Spansion and Cypress. With respect to the Spansion projections, Qatalyst Partners was advised by management teams of Spansion and Cypress, and Qatalyst Partners assumed, that the Spansion projections had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of Spansion and Cypress of the future financial performance of Spansion. With respect to the Cypress projections, Qatalyst Partners was advised by the management of Cypress, and Qatalyst Partners assumed, that the Cypress projections had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the future financial performance of Cypress. With respect to the synergies, Qatalyst Partners was advised by the management of Cypress, and Qatalyst Partners assumed, that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Cypress relating to the strategic, financial and operational benefits anticipated from the merger. Qatalyst Partners assumed that the

 

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merger will be consummated in accordance with the terms set forth in the merger agreement, without any modification, waiver or delay. In addition, Qatalyst Partners assumed, that in connection with the receipt of all the necessary approvals of the proposed merger, no delays, limitations, conditions or restrictions will be imposed that could have an adverse effect on Spansion, Cypress or the contemplated benefits expected to be derived in the proposed merger. Qatalyst Partners also assumed that the merger will qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended. Qatalyst Partners did not make any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Spansion or Cypress, nor was Qatalyst Partners furnished with any such evaluation or appraisal. In addition, Qatalyst Partners relied, without independent verification, upon the assessment of the managements of Spansion and Cypress as to (i) the existing and future technology and products of Spansion and Cypress and the risks associated with such technology and products, (ii) their ability to integrate the business of Spansion and Cypress and (iii) their ability to retain key employees of Spansion and Cypress. Qatalyst Partners’ opinion has been approved by Qatalyst Partners’ opinion committee in accordance with its customary practice.

Qatalyst Partners’ opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Events occurring after the date of the opinion may affect Qatalyst Partners’ opinion and the assumptions used in preparing it, and Qatalyst Partners has not assumed any obligation to update, revise or reaffirm its opinion. Qatalyst Partners’ opinion does not address the underlying business decision of Cypress to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to Cypress. Qatalyst Partners’ opinion is limited to the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement, to Cypress and Qatalyst Partners expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the officers, directors or employees of Cypress or Spansion, or any class of such persons, relative to such exchange ratio.

The following is a brief summary of the material analyses performed by Qatalyst Partners in connection with its opinion dated December 1, 2014. The analyses and factors described below must be considered as a whole; considering any portion of such analyses or factors, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Qatalyst Partners’ opinion. For purposes of its analyses, Qatalyst Partners utilized the Cypress Case 1, Cypress Case 2, Spansion Case 1 and Spansion Case 2 projections, as well as the estimated synergies, each described below in the section entitled “— Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor,” beginning on page 77 of this joint proxy statement/prospectus. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by Qatalyst Partners, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Qatalyst Partners’ financial analyses.

Illustrative Contribution Analysis

Qatalyst Partners calculated the equity ownership of the combined company that would be attributable to Cypress stockholders based on Cypress’ relative contribution to specific future financial metrics, namely revenue, gross profit, operating income and net income for Spansion and Cypress before taking into account the synergies that may be realized following the completion of the merger, for estimated years 2014 through 2017, using the Cypress projections and the Spansion projections. This analysis was undertaken to assist the Cypress board in understanding how Cypress stockholders’ ownership in the combined company implied by the exchange ratio (approximately 49.8% based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method based on trading prices at the time of announcement) and net share settlement of Spansion’s exchangeable 2.00% senior notes) compared with the implied equity ownership for Cypress based on its contribution to certain future financial metrics for Spansion and Cypress. Qatalyst Partners derived implied pro forma equity ownerships of Cypress from such illustrative pro forma revenue, gross profit, operating income

 

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and net income contributions based on the assumption that Spansion’s convertible debt would be treated as net share settled at prices above the applicable capped call price. The following table presents the results of this analysis:

 

		Cypress Case 1 and Spansion Case 1																Cypress Case 2 and Spansion Case 2
		CY14E				CY15E				CY16E				CY17E				CY14E				CY15E				CY16E				CY17E
Revenue			35.8	%			36.6	%			39.0	%			40.2	%			36.0	%			37.7	%			37.3	%			37.4	%
Gross Profit			46.8	%			46.4	%			48.7	%			49.4	%			47.1	%			48.2	%			46.7	%			46.6	%
Operating Income			58.2	%			50.0	%			51.5	%			51.7	%			59.8	%			58.6	%			52.4	%			53.4	%
Net Income			65.3	%			54.1	%			54.3	%			53.8	%			67.2	%			65.9	%			56.8	%			57.0	%

Illustrative Relative Discounted Cash Flow Analysis

Qatalyst Partners performed an illustrative discounted cash flow (which we refer to as DCF) analysis, which is designed to imply a potential, present value of share values for Spansion common stock and Cypress common stock as of December 31, 2014 by:

 

•

adding:

 

(1)

the implied net present value of the estimated future unlevered free cash flows of Spansion and Cypress, based on the Spansion projections and the Cypress projections, respectively, for fiscal year 2015 through fiscal year 2019 (which implied present value was calculated by using a range of discount rates of 8.5% to 12% for Spansion and 10% to 14% to Cypress, based on an estimated weighted average cost of capital for Spansion and Cypress, respectively); and

 

(2)

the implied net present value of a corresponding terminal value of Spansion and Cypress, respectively, calculated by multiplying the estimated net operating profit after tax (assuming, in the case of Spansion, an effective tax rate of 28%, which tax rate excludes the effect of Spansion’s estimated tax attributes, as such Spansion tax attributes were separately valued) (which we refer to as NOPAT), in fiscal year 2020, based on the Spansion projections and Cypress projections, respectively, by a range of multiples of terminal next-12-months NOPAT multiples of 11x to 16x for Spansion and 13x to 19x for Cypress, and discounted to present value using the same range of discount rates used in item (1) above;

 

•

adding, in the case of Spansion, the value associated with Spansion’s estimated tax attributes;

 

•

subtracting net debt of Spansion or Cypress, as applicable, estimated as of December 31, 2014, assuming in the case of Spansion that exchangeable debt would be treated as net share settled at prices above the applicable capped call price;

 

•

applying a dilution factor of 18.5% for Spansion and 17.2% for Cypress to reflect the dilution to current stockholders over the projection period due to the effect of future equity compensation grants projected by management of Spansion and Cypress, respectively; and

 

•

dividing the resulting amount for (i) Spansion by the number of fully-diluted shares of Spansion common stock outstanding, adjusted for stock options, restricted stock units and performance stock units, as estimated by Spansion’s management as of November 30, 2014, and assuming that Spansion’s exchangeable debt would be treated as net share settled at prices above the applicable capped call price and (ii) for Cypress by the number of fully-diluted shares of Cypress common stock outstanding, stock options, restricted stock awards, restricted stock units, performance stock units and performance accelerated restricted stock, as provided by Cypress’s management as of November 28, 2014.

Based on the calculations set forth above, Qatalyst Partners calculated the following implied exchange ratio reference ranges (the high end of each implied exchange ratio reference range was calculated by dividing the high end of Spansion’s implied per share price reference range by the low end of Cypress’ implied per share price reference range, the low end of each implied exchange ratio reference range was calculated by dividing the

 

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low end of Spansion’s implied per share price reference range by the high end of Cypress’ implied per share price reference range, and the indicated midpoint value of each implied exchange ratio reference range was calculated by dividing the midpoint of Spansion’s implied per share price reference range by the midpoint of Cypress’ implied per share price reference range):

 

Cypress Case 1 and Spansion Case 1		Cypress Case 2 and Spansion Case 2
1.606 – 3.804, implied midpoint: 2.465		1.615 – 3.696; implied midpoint: 2.428

Illustrative Incremental Value DCF Analysis

Qatalyst Partners also performed an illustrative pro forma discounted cash flow analysis with respect to Cypress, taking into account the proposed merger with Spansion, at the exchange ratio, based on the Unaudited Pro Forma Combined Forecasts, which are described below in the section entitled “— Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor” beginning on page 77 of this joint proxy statement/prospectus, to calculate indications of the implied pro forma present value of shares of Cypress common stock in the event the merger is completed and subtracted from such implied pro forma present value the implied present value per share of Cypress common stock on a standalone basis (calculated above) to calculate the illustrative incremental present value per share of Cypress common stock resulting from the merger. Qatalyst Partners calculated pro forma prices per share using the methodologies above and by applying a pro forma discount rate of 9% to 13%, based on an estimated weighted average cost of capital for Cypress in the event the merger is completed, and a pro forma terminal next-12-months NOPAT multiple of 13x to 17x, and applying a dilution factor of 16.7% to 17.5% as provided by Cypress management. This analysis resulted in the following implied ranges of illustrative incremental values per share of Cypress common stock:

 

Cypress Case 1 and Spansion Case 1		Cypress Case 1 and Spansion Case 2		Cypress Case 2 and Spansion Case 1		Cypress Case 2 and Spansion Case 2
$8.97 – $11.38		$4.45 – $5.73		$10.96 – $14.89		$6.82 – $8.77

Miscellaneous

In connection with the review of the merger by the Cypress board, Qatalyst Partners performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily amenable to a partial analysis or summary description. In arriving at its opinion, Qatalyst Partners considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Qatalyst Partners believes that selecting any portion of its analyses, without considering all analyses as a whole, could create a misleading or incomplete view of the process underlying its analyses and opinion. In addition, Qatalyst Partners may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Qatalyst Partners’ view of the actual value of Spansion and Cypress. In performing its analyses, Qatalyst Partners made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Spansion and Cypress. Any estimates contained in Qatalyst Partners’ analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Qatalyst Partners conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, of the exchange ratio pursuant to the merger agreement to Cypress, and in connection with the delivery of its opinion to the Cypress board. These analyses do not purport to be appraisals or to reflect the price at which the Spansion common stock or the Cypress common stock might actually trade.

Qatalyst Partners’ opinion and its presentation to the Cypress board were two of many factors considered by the Cypress board in deciding to approve the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Cypress board with respect to the exchange ratio

 

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pursuant to the merger agreement to Cypress or of whether the Cypress board would have been willing to agree to a different exchange ratio. The exchange ratio was determined through arm’s-length negotiations between Spansion and Cypress and was approved by the Cypress board. Qatalyst Partners provided advice to Cypress during these negotiations. Qatalyst Partners did not, however, recommend any specific exchange ratio to Cypress or that any specific consideration constituted the only appropriate consideration for the merger.

Qatalyst Partners provides investment banking and other services to a wide range of corporations and individuals, domestically and offshore, from which conflicting interests or duties may arise. In the ordinary course of these activities, affiliates of Qatalyst Partners may at any time hold long or short positions, and may trade or otherwise effect transactions in debt or equity securities or loans of Spansion, Cypress or certain of their respective affiliates. During the two year period prior to the date of Qatalyst Partners’ opinion, no material relationship existed between Qatalyst Partners or any of its affiliates and Spansion or Cypress pursuant to which compensation was received by Qatalyst Partners or its affiliates; however, Qatalyst Partners and/or its affiliates may in the future provide investment banking and other financial services to Spansion or Cypress or any of their respective affiliates for which it would expect to receive compensation.

Under the terms of its engagement letter, Qatalyst Partners provided Cypress with financial advisory services in connection with the proposed merger for which it will be paid $19 million, $150,000 of which was payable upon the execution of such engagement letter and $4 million of which was payable upon delivery of its opinion (regardless of the conclusion reached in the opinion), and the remaining portion of which will be paid upon, and subject to, consummation of the merger. Cypress has also agreed to reimburse Qatalyst Partners for its expenses incurred in performing its services. Cypress has also agreed to indemnify Qatalyst Partners and its affiliates, their respective members, directors, officers, partners, agents and employees and any person controlling Qatalyst Partners or any of its affiliates against certain liabilities, including liabilities under federal securities law, and certain expenses related to or arising out of Qatalyst Partners’ engagement.

Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor

Although Cypress has publicly issued limited projections concerning various aspects of its expected financial performance, Cypress does not make public disclosure of detailed forecasts or projections of its expected financial performance for extended periods because of, among other things, the inherent difficulty of accurately predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may prove incorrect.

In connection with the evaluation of the merger, however, Cypress management prepared unaudited prospective financial information for Cypress on a stand-alone basis, without giving effect to the merger, and on a combined basis, and estimated synergies arising in connection with the merger. Cypress is electing to provide the summary unaudited prospective financial information and the estimated synergies in this section of the joint proxy statement/prospectus to provide Cypress and Spansion stockholders access to certain non-public unaudited prospective financial information and estimated synergies that were made available to the Cypress board, and a portion of which were made available to the Spansion board as described in the section entitled “—Certain Prospective Financial Information Reviewed by the Spansion board and Spansion’s Financial Advisor” beginning on page 94 of this joint proxy statement/prospectus, for purposes of considering and evaluating the merger.

The unaudited prospective financial information and estimated synergies were also provided to the financial advisor of Cypress. See also the section entitled “—Opinion of Cypress’ Financial Advisor” beginning on page 72 of this joint proxy statement/prospectus. The unaudited prospective financial information and estimated synergies were not prepared with a view toward public disclosure and the inclusion of summary unaudited prospective financial information and estimated synergies below should not be regarded as an indication that any of Cypress, Spansion or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. None of Cypress, Spansion, or their respective affiliates or representatives assumes any responsibility to stockholders of Cypress or Spansion for the accuracy of this information.

 

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The unaudited prospective financial information and estimated synergies summarized below were not prepared for purposes of public disclosure, nor were they prepared on a basis designed to comply with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of projections. Neither Cypress’ independent registered public accounting firm, which is listed as an expert in the section entitled “Experts” on page 210 of this joint proxy statement/prospectus, nor any other independent accountants, compiled, examined or performed any procedures with respect to the projections or estimated synergies summarized below, and has not expressed any opinion or any other form of assurance on this information or its achievability, and assumes no responsibility for, and disclaims any association with, the unaudited prospective financial information and estimated synergies. The reports of the independent registered public accounting firms incorporated by reference in this joint proxy statement/prospectus relate to historical financial statements. They do not extend to any prospective financial information or the estimated synergies and should not be seen to do so.

Although presented with numerical specificity, the unaudited prospective financial information and estimated synergies were prepared in accordance with variables, estimates, and assumptions that are inherently uncertain and may be beyond the control of Cypress, and which may prove not to have been, or to no longer be, accurate. While in the view of Cypress’ management the unaudited prospective financial information and estimated synergies were prepared on a reasonable basis, the unaudited prospective financial information and estimated synergies are subject to many risks and uncertainties. Important factors that may affect actual results and cause actual results to differ materially from the unaudited prospective financial information and estimated synergies include risks and uncertainties relating to Cypress’ and Spansion’s businesses, industry performance, the regulatory environment, general business and economic conditions, market and financial conditions, various risks set forth in Cypress’ and Spansion’s reports filed with the Securities and Exchange Commission, and other factors described or referenced in the section entitled “Cautionary Statement Regarding Forward-Looking Information” on page 28 of this joint proxy statement/prospectus.

The unaudited prospective financial information and estimated synergies also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for Cypress’ and Spansion’s businesses, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the unaudited prospective financial information and estimated synergies were prepared. In addition, the unaudited prospective financial information and estimated synergies do not take into account any circumstances, transactions or events occurring after the date the unaudited prospective financial information and estimated synergies were prepared. Accordingly, actual results will likely differ, and may differ materially, from those contained in the unaudited prospective financial information and estimated synergies. We do not assure you that the financial results in the unaudited prospective financial information or the synergies set forth in the estimated synergies will be realized or that future financial results (including synergies) of Cypress or Spansion will not materially vary from those in the unaudited prospective financial information or the estimated synergies.

None of Cypress, Spansion, or their respective affiliates, officers, directors, or other representatives gives any stockholder of Cypress or Spansion, or any other person, any assurance that actual results will not differ materially from the unaudited prospective financial information or the estimated synergies, and, except as otherwise required by law, none of them undertakes any obligation to update or otherwise revise or reconcile the unaudited prospective financial information or the estimated synergies to reflect circumstances after the date the unaudited prospective financial information and estimated synergies were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions and estimates underlying the unaudited prospective financial information and estimated synergies are shown to be in error.

No one has made or makes any representation to any stockholder of Cypress or Spansion, or anyone else regarding, nor assumes any responsibility for the validity, reasonableness, accuracy or completeness of, the unaudited prospective financial information or the estimated synergies set forth below. You are cautioned not to rely on the unaudited prospective financial information or the estimated synergies. The inclusion of this

 

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information should not be regarded as an indication that the Cypress board, the Spansion board, any of their advisors or any other person considered, or now considers, it to be material or to be a reliable prediction of actual future results.

The unaudited prospective financial information and estimated synergies included below cover multiple years, and this information by its nature becomes subject to greater uncertainty with each successive year. The unaudited prospective financial information and estimated synergies should be evaluated, if at all, in conjunction with the historical financial statements and other information contained in Cypress’ and Spansion’s respective public filings with the Securities and Exchange Commission.

Cypress management made various assumptions when preparing the unaudited Cypress prospective financial information. The Cypress forecasts reflect in the first case, which we refer to as “Cypress Case 1,” Cypress’ internal five-year projections developed for internal review and financial prospects that are more positive than Cypress Case 2 but less positive than the “the 75th percentile” or “75%-ile” revenue forecast for the years 2015 through 2018 that Cypress published in its annual report for 2013. Cypress Case 1 reflects the management team’s view of the growth potential of each business unit. The forecast assumes that each of the core semiconductor businesses units will grow over the forecast period, supporting a CAGR of 8% from 2014 to 2020 for the combined revenue from those business units and a CAGR of 13% from 2014 to 2020 for overall Cypress revenue. The Cypress forecasts reflect in the second case, which we refer to as “Cypress Case 2,” the financial prospects associated with the “the 25th percentile” or “25%-ile” revenue forecast for the years 2015 through 2018 that Cypress published in its annual report for 2013. The Cypress revenue forecast for these years statistically combines the individual revenue forecasts for each of Cypress’ business units using Monte Carlo analysis to allow for the fact that success and failure could simultaneously occur in different groups. The assumptions support an overall Cypress revenue CAGR of 5% from 2014 to 2018, with only 2% CAGR in combined revenues from the core semiconductor business units of the Cypress Memory Products Division, Programmable Systems Division and Data Communications Division over the time period. The projections of 2019 and 2020 overall Cypress revenue assume that compound annual revenue growth over the period continues to be 5%. These assumptions supported a revenue CAGR of 5% to 14% from 2014 to 2018. The forecasts did not attempt to take into account a variety of detailed assumptions or other matters that have changed since the preparation of the forecasts, such as Cypress’ actual 2014 financial performance and changes to general economic conditions.

The following table presents summary selected unaudited Cypress prospective financial information for the calendar years ending 2015 through 2020 prepared by Cypress management in connection with the Cypress board’s evaluation of the merger (in millions):

 

		Cypress Case 1																								Cypress Case 2
		2015				2016				2017				2018				2019				2020				2015				2016				2017				2018				2019				2020
Revenue		$	816			$	955			$	1,067			$	1,233			$	1,380			$	1,495			$	780			$	794			$	827			$	894			$	950			$	987
Non-GAAP Operating Income		$	138			$	191			$	232			$	290			$	338			$	366			$	128			$	136			$	153			$	186			$	199			$	207
NOPAT		$	128			$	177			$	216			$	270			$	308			$	330			$	119			$	126			$	142			$	173			$	181			$	187
Unlevered Free Cash Flow		$	99			$	160			$	242			$	296			$	320			$	343			$	76			$	113			$	161			$	193			$	198			$	207

Non-GAAP Operating Income adjusts GAAP operating income to exclude costs associated with stock-based compensation, intangible amortization, restructuring charges, acquisition related expenses, inventory markup amortization, bankruptcy reserve reversal, litigation reserve, financing arrangements related costs and other non-cash or non-recurring adjustments, net. The Spansion and combined projections noted below include the impact of actual defensive litigation expense incurred and excludes the adjustments to the accrual for estimated defensive litigation costs for the next four quarters per Spansion policy.

Net Operating Profit After Tax, which we refer to as NOPAT, is the relevant company’s operating profits presented on a non-U.S. GAAP basis to exclude costs listed in the in Non-GAAP Operating Income, and tax-affected for a specific time period.

 

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Unlevered Free Cash Flow is a non-U.S. GAAP financial measure calculated by starting with non-U.S. GAAP operating income and subtracting taxes, capital expenditures, investments in working capital and investments in certain equity securities and then adding back depreciation and amortization expense. Pro Forma Combined Unlevered Free Cash Flow subtracts cash restructuring costs.

Due to the forward-looking nature of the selected unaudited prospective financial information, specific quantifications of the amounts that would be required to reconcile it to GAAP measures are not available. Cypress believes that there is a degree of volatility with respect to certain GAAP measures, and certain adjustments made to arrive at the relevant non-GAAP measures, which preclude Cypress from providing accurate forecasted non-GAAP to GAAP reconciliations.

In connection with Cypress’ consideration of the merger, Spansion’s management provided Cypress with summary selected unaudited prospective financial information for the calendar years 2014 through 2017. After review of this summary selected unaudited Spansion prospective financial information, Cypress’ management prepared two alternative versions of this unaudited Spansion prospective financial information, based on Cypress’ due diligence investigation of Spansion and assumptions deemed appropriate by Cypress’ management relating to Spansion’s business and operations for the years 2014 through 2017, as well as extrapolations of this alternative Spansion prospective financial information, based on assumptions deemed appropriate by Cypress’ management relating to Spansion’s business and operations for the years 2018, 2019 and 2020.

We refer to this alternative unaudited prospective financial information as the “adjusted Spansion forecasts.” The adjusted Spansion forecasts reflect in the first case, which we refer to as “Spansion Case 1,” a defensive litigation expense of $20 million in 2014 and $11 million in 2015 as well certain tax assumptions, and in the second case, which we refer to as “Spansion Case 2,” revise flash revenue downwards by approximately 8% to 12% per annum for the periods projected and accelerate licensing revenue decline. The forecasts did not attempt to take into account a variety of detailed assumptions or other matters that have changed since the preparation of the forecasts, such as Spansion’s actual 2014 financial performance and changes to general economic conditions. The following table presents the adjusted Spansion forecasts (in millions):

 

		Spansion Case 1																								Spansion Case 2
		2015				2016				2017				2018				2019				2020				2015				2016				2017				2018				2019				2020
Revenue		$	1,363			$	1,450			$	1,550			$	1,643			$	1,742			$	1,846			$	1,249			$	1,292			$	1,341			$	1,388			$	1,436			$	1,486
Non-GAAP Operating Income		$	138			$	180			$	218			$	269			$	316			$	369			$	93			$	124			$	135			$	153			$	173			$	193
NOPAT		$	100			$	130			$	157			$	194			$	228			$	266			$	67			$	90			$	97			$	110			$	124			$	139
Unlevered Free Cash Flow		$	100			$	138			$	130			$	178			$	216			$	251			$	90			$	95			$	77			$	98			$	115			$	133

In order to help the Cypress board analyze the merger, Cypress management prepared unaudited prospective financial information that combined the first and second Cypress projection cases described above and the two alternative versions of Spansion’s unaudited prospective financial information, taking into account estimated synergies, which we refer to as the “Unaudited Pro Forma Combined Forecasts.” The following table presents the Unaudited Pro Forma Combined Forecasts (in millions):

 

		Pro Forma Combined Including Synergies: Cypress Case 1 and Spansion Case 1																								Pro Forma Combined Including Synergies: Cypress Case 1 and Spansion Case 2
		2015				2016				2017				2018				2019				2020				2015				2016				2017				2018				2019				2020
Revenue		$	2,179			$	2,419			$	2,638			$	2,902			$	3,147			$	3,367			$	2,065			$	2,261			$	2,429			$	2,646			$	2,842			$	3,007
Non-GAAP Operating Income		$	291			$	457			$	596			$	726			$	823			$	904			$	246			$	402			$	513			$	610			$	679			$	728
NOPAT		$	266			$	421			$	549			$	669			$	748			$	816			$	220			$	369			$	473			$	565			$	619			$	658
Unlevered Free Cash Flow		$	202			$	363			$	554			$	669			$	757			$	815			$	178			$	321			$	476			$	561			$	628			$	665

 

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		Pro Forma Combined Including Synergies Cypress Case 2 and Spansion Case 1																								Pro Forma Combined Including Synergies Cypress Case 2 and Spansion Case 2
		2015				2016				2017				2018				2019				2020				2015				2016				2017				2018				2019				2020
Revenue		$	2,143			$	2,258			$	2,397			$	2,563			$	2,717			$	2,859			$	2,030			$	2,100			$	2,188			$	2,307			$	2,412			$	2,500
Non-GAAP Operating Income		$	282			$	403			$	517			$	621			$	685			$	745			$	236			$	347			$	434			$	505			$	541			$	570
NOPAT		$	257			$	371			$	476			$	572			$	622			$	673			$	211			$	318			$	399			$	468			$	493			$	515
Unlevered Free Cash Flow		$	180			$	312			$	482			$	571			$	636			$	680			$	156			$	270			$	405			$	464			$	507			$	529

In calculating estimated synergies, Cypress management made assumptions with respect to expenses including manufacturing, sales and marketing, product development, personnel, facilities, information technology infrastructure and administration. Assumptions include a reduction in redundant expenses, a reduction of duplicative operating resources, future headcount avoidance and severance costs to achieve synergies. The following table presents estimated synergies, excluding some amounts related to the pro forma tax structure of the combined business, prepared in connection with Cypress’ evaluation of the merger (in millions) for the years 2015 through 2020:

 

		2015				2016				2017				2018				2019				2020
Estimated Synergies		$	16			$	89			$	148			$	168			$	171			$	171

The adjusted Spansion forecasts were used to assist the Cypress board in its evaluation of the quantitative and strategic rationale for the merger. Cypress also provided the adjusted Spansion forecasts to its financial advisor for use in connection with the preparation of its financial analyses described in the section entitled “—Opinion of Cypress’ Financial Advisor” beginning on page  72 of this joint proxy statement/prospectus.

Interests of the Directors and Executive Officers of Cypress in the Merger

Immediately following the effective time of the merger, the Cypress board (the combined company) will have eight total members, four of whom will be from the current Cypress board, including T.J. Rodgers, Eric A. Benhamou and two others from the current Cypress board to be mutually agreed, and four of whom will be from the current Spansion board. Immediately following the effective time of the merger, the chairman of the Audit committee of the Cypress board will be one of the members of the Cypress board as of immediately prior to the effective time of the merger, the chairman of the operations committee, the nominating and governance committee and the compensation committee will in each case be one of the members of the Spansion board as of immediately prior to the effective time of the merger. Mr. Rodgers will be the chief executive officer of the combined company and Thad Trent will be the chief financial officer of the combined company. Before the effective time of the merger, Cypress will also purchase, for the benefit of the directors and officers of Cypress, liability insurance with a coverage limit of no less than $50 million, or such other amount as is mutually agreed by Spansion and Cypress.

Cypress Executive Compensation Payable in Connection with the Merger

As indicated by the following table which sets forth the information required by Item 402(t) of Regulation S-K promulgated by the Securities and Exchange Commission in this joint proxy statement/prospectus, none of Cypress’ named executive officers for fiscal year 2014 will receive compensation that is based on, or that otherwise relates to, the merger.

 

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Cypress Golden Parachute Compensation

 

Executive		Cash ($)				Equity ($)				Pension / NQDC ($)				Perquisites / Benefits ($)				Tax Reimbursement ($)				Other ($)				Total ($)
T.J. Rodgers			0				0				0				0				0				0				0
Thad Trent			0				0				0				0				0				0				0
Paul D. Keswick			0				0				0				0				0				0				0
J. Daniel McCranie			0				0				0				0				0				0				0
Dana C. Nazarian			0				0				0				0				0				0				0
Brad W. Buss			0				0				0				0				0				0				0

Recommendation of the Spansion Board; Spansion’s Reasons for the Merger

At a meeting held on December 1, 2014, the Spansion board unanimously (1) approved the merger agreement and the transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth in the merger agreement, (2) authorized management to submit the merger agreement to the Spansion stockholders for adoption at the Spansion stockholder meeting and (3) recommended that Spansion’s stockholders adopt the merger agreement and approve the transactions contemplated by the merger agreement.

Accordingly, the Spansion board unanimously recommends that Spansion stockholders vote “FOR” the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement at the Spansion stockholder meeting.

The Spansion board believes that the merger presents a strategic opportunity to create value for Spansion’s stockholders. In reaching its decision to approve the merger agreement and recommend the adoption of the merger agreement to its stockholders, the Spansion board consulted with management, as well as its legal advisors and financial advisors, and considered a number of factors, including, among others, the following:

 

•

the Spansion board’s evaluation of the significant strategic opportunities and benefits of the merger, including, among others, the following:

 

(1)

its belief that the merger represents a unique strategic opportunity to create a new market leader in SRAM and NOR Flash memory and a leading global provider of microcontrollers, well positioned for sustained growth and profitability across its geographies and business segments;

 

(2)

the expectation based on estimates by Spansion and Cypress management prior to the execution of the merger agreement that the merger will result in more than $135 million in synergies on an annualized basis within three years;

 

(3)

the expectation that the merger will be accretive to non-GAAP earnings per share in the first full year following the closing;

 

(4)

the value of the consideration to be received by Spansion stockholders as a result of the transaction and the relationship between the current and historical market values of Spansion common stock and Cypress common stock;

 

(5)

the fact that the exchange ratio represented a premium to the trading price of Spansion common stock at the time the merger agreement was signed that was significant for a merger of equals transaction;

 

(6)

its conclusion that the businesses of Spansion and Cypress are a complementary fit and that the merger will provide expanded product offerings, greater opportunities for innovation, synergy opportunities, scale advantages and enhanced opportunities for growth, including in the automotive, IoT, industrial and communications markets;

 

(7)

the potential to increase revenue through cross-selling to shared strategic customer accounts; and

 

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(8)

the expectation that Spansion stockholders will benefit from Cypress’ stated dividend policy upon effective time of the merger;

 

•

the Spansion board’s knowledge of Spansion’s business, financial and competitive position, and of Spansion’s operating plan for 2015 and its strategic plans for subsequent years;

 

•

the Spansion board’s understanding of Cypress’ business, financial and competitive position, and of Cypress’ operating plan for 2015 and its strategic plans for subsequent years;

 

•

current financial market conditions and historical market prices, volatility and trading information with respect to Spansion’s common stock and Cypress’ common stock;

 

•

current industry, economic and market conditions and the various alternatives to the merger, including Spansion continuing to operate as an independent enterprise or completing a business combination with another party and the benefits and risks associated with those alternatives;

 

•

the structure of the transaction as a “merger of equals” in which Spansion stockholders would have substantial participation in the future growth and value creation of the combined company and the expectation that the Spansion board and management would have a meaningful role in the management and governance of the combined company, including, among others, the following:

 

(1)

the fixed exchange ratio, which will not fluctuate as a result of changes in the market prices of shares of Spansion or Cypress, and which provides certainty that Spansion stockholders will own approximately 50.2% of the fully diluted shares of Cypress common stock following the completion of the merger based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes;

 

(2)

that upon closing the board of the combined company will consist of an equal number of directors selected by Spansion and by Cypress;

 

(3)

that Spansion’s non-executive chairman of the board, Raymond Bingham, will be appointed as the non-executive chairman of the board of the combined company;

 

(4)

that Spansion’s President and Chief Executive Officer, John H. Kispert, will be appointed as the chairman of the operations committee of the board of the combined company, and, in such capacity, will have the opportunity to help the combined company achieve anticipated synergies and manage integration;

 

(5)

that the chairman of the compensation committee of the Cypress board will be a current Spansion director;

 

(6)

that the chairman of the nominating and governance committee of the Cypress board will be a current Spansion director;

 

(7)

that the chairman of the audit committee of the Cypress board will be a current Cypress director; and

 

(8)

the continuity provided to the combined company provided by members of senior management of Spansion;

 

•

the perceived similarity in corporate cultures, which would facilitate integration and implementation of the merger;

 

•

the ability and likelihood of Spansion and Cypress to complete the merger, including their ability to obtain necessary regulatory approvals and the obligations to attempt to obtain those approvals, and measures taken by Spansion and Cypress to provide reasonable assurance to each other that the merger will occur, including the provisions of the merger agreement that require Spansion or Cypress to compensate the other in some circumstances if the merger does not occur;

 

•

the fact that the merger is not subject to any financing condition;

 

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•

the expectation that the transaction will be treated as a tax-free reorganization to Spansion and Cypress and their respective stockholders for U.S. federal income tax purposes;

 

•

the fact that the Cypress common stock that Spansion stockholders will receive pursuant to the merger will be registered and freely tradable following the merger;

 

•

its review and discussions with Spansion management concerning the due diligence examination of Cypress’ business, operations, financial condition and prospects;

 

•

the oral opinion of Morgan Stanley, subsequently confirmed in writing, rendered to the Spansion board that, as of December 1, 2014 and based upon and subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Spansion common stock other than the holders of excluded shares (see the section entitled “—Opinion of Spansion’s Financial Advisor” beginning on page 86 of this joint proxy statement/prospectus);

 

•

the terms and conditions of the merger agreement and the course of negotiations of the merger agreement, including, among other things, the ability of the Spansion board, if there is a superior offer or other specified intervening event, to withdraw or modify its recommendation to Spansion stockholders concerning the transactions contemplated by the merger agreement, as described under “The Merger Agreement—Obligations of each of the Cypress and Spansion Boards with Respect to its Recommendation and Holding a Meeting of its Stockholders” beginning on page 117 of this joint proxy statement/prospectus; and

 

•

other terms of the merger agreement, including the mutual representations, warranties and covenants, and the conditions to each party’s obligations to complete the merger.

The Spansion board also weighed the factors described above against certain factors and potential risks associated with entering into the merger agreement, including, among others, the following:

 

•

the difficulty inherent in integrating the businesses, assets and workforces of two large companies and the risk that the anticipated synergies and other benefits expected from the merger might not be fully realized;

 

•

the possibility of customer, supplier, management and employee disruption associated with the merger and integrating the operations of the companies;

 

•

the risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger;

 

•

the risk that the cultures of the two companies may not be as compatible as anticipated;

 

•

the fact that the exchange ratio is fixed, indicating that Spansion stockholders could be adversely affected by a decrease in the trading price of Cypress common stock during the pendency of the merger and the fact that the merger agreement does not provide Spansion with a price-based termination right or other similar protection;

 

•

the restrictions on the conduct of Spansion’s and Cypress’ businesses prior to the completion of the proposed merger, which may delay or prevent Spansion or Cypress from undertaking business opportunities that may arise or other actions either of them would otherwise take or refrain from taking with respect to the operations of Spansion and Cypress pending completion of the proposed merger which could be beneficial to the longer term prospects of Spansion as a stand-alone entity or of the combined entity following the merger;

 

•

the fact that the merger restricts Spansion from soliciting alternative business combination transactions and limits its ability to provide confidential due diligence information to, or engage in discussions with, a third party interested in pursuing an alternative business combination transaction (see the section

 

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entitled “The Merger Agreement—Cypress and Spansion are Required to Terminate Any Existing Discussions with Third Parties and are Prohibited from Soliciting Other Offers” beginning on page 115 of this joint proxy statement/prospectus);

 

•

the fact that the termination fee to be paid to Cypress under the circumstances specified in the merger agreement may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, Spansion (see the section entitled “The Merger Agreement—Termination; Fees and Expenses” beginning on page 125 of this joint proxy statement/prospectus);

 

•

the fact that Spansion must submit the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement to the Spansion stockholders even if the Spansion board changes its recommendation in favor of the merger, and the risk that such requirement may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, Spansion (see the section entitled “The Merger Agreement—Obligations of each of the Cypress and Spansion Boards with Respect to its Recommendation and Holding a Meeting of its Stockholders” beginning on page 117 of this joint proxy statement/prospectus);

 

•

the ability of the Cypress board, under specified circumstances, to withdraw or modify its recommendation to Cypress’ stockholders concerning the transactions contemplated by the merger agreement (see the section entitled “The Merger Agreement—Obligations of each of the Cypress and Spansion Boards with Respect to its Recommendation and Holding a Meeting of its Stockholders” beginning on page 117 of this joint proxy statement/prospectus of this joint proxy statement/prospectus);

 

•

the fact that Spansion’s President and Chief Executive Officer will not be the Chief Executive Officer of the combined company and that the merger agreement does not require that any Spansion officers will serve in similar capacities with the combined company;

 

•

the amount of time it could take to complete the merger, including the fact that completion of the merger depends on factors such as regulatory approvals that are outside Spansion’s control;

 

•

the risk that either Cypress stockholders may fail to approve the issuance of the shares of Cypress common stock that are issuable in connection with the merger or Spansion stockholders may fail to adopt the merger agreement and approve the transactions contemplated by the merger agreement;

 

•

the possibility of significant costs and delays resulting from seeking regulatory approvals necessary to complete the transactions contemplated by the merger agreement, the possibility that the transactions may not be completed if such approvals are not obtained, and the potential negative impacts on Spansion, its business and its stock price if such approvals are not obtained; and

 

•

the fact that if the proposed merger is not completed, Spansion will have expended significant human and financial resources on a failed transaction, and may also be required to pay a termination fee in various circumstances, as described under “The Merger Agreement—Termination; Fees and Expenses” beginning on page 125; and the risks described in the section entitled “Risk Factors—Risk Factors Relating to the Merger” beginning on page 21 of this joint proxy statement/prospectus.

In considering the recommendation of the Spansion board with respect to the proposal to adopt the merger agreement and approve the transactions contemplated by the merger agreement, you should be aware that some of Spansion’s directors and executive officers may have interests in the merger that are different from, or in addition to, yours. The Spansion board was aware of and considered these interests, among other matters, in evaluating the merger agreement and the transactions contemplated by the merger agreement, and in recommending that the merger agreement be adopted by Spansion stockholders. See the section entitled “—Interests of the Directors and Executive Officers of Spansion in the Merger” beginning on page 97 of this joint proxy statement/prospectus.

The foregoing discussion of the information and factors considered by the Spansion board in reaching its conclusions and recommendations is not intended to be exhaustive, but includes the material factors considered by the Spansion board. In view of the wide variety of factors considered in connection with its evaluation of the

 

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merger agreement and the transactions contemplated by the merger agreement, and the complexity of these matters, the Spansion board did not find it practicable to, and did not attempt to, quantify, rank or assign any relative or specific weights to the various factors considered in reaching its determination and making its recommendation. In addition, individual directors may have given different weights to different factors. The Spansion board considered all of the foregoing factors as a whole and based its recommendation on the totality of the information presented.

The foregoing discussion also contains forward-looking statements with respect to future events that may have an effect on Spansion’s financial performance or the future financial performance of the combined company. See the sections entitled “Cautionary Statement Regarding Forward-Looking Information” beginning on page 28 and “Risk Factors” beginning on page 21 of this joint proxy statement/prospectus.

Opinion of Spansion’s Financial Advisor

Spansion retained Morgan Stanley to act as financial advisor to Spansion’s board in connection with the proposed merger of Spansion and Cypress. Spansion’s board selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in the semiconductor industry, and its knowledge of Spansion’s business and affairs. At the meeting of Spansion’s board on December 1, 2014, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing, that as of such date, and based upon and subject to the various assumptions, procedures, matters, qualifications and limitations on the scope of the review undertaken by Morgan Stanley as set forth in the written opinion, the exchange ratio pursuant to the merger agreement was fair from a financial point of view to the holders of shares of Spansion common stock (other than the holders of the excluded shares). References to Spansion’s common stock in this description of Morgan Stanley’s opinion refer to Spansion’s Class A common stock.

The full text of the written opinion of Morgan Stanley, dated as of December 1, 2014, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion, is attached to this joint proxy statement/prospectus as Annex C. You are encouraged to read the entire opinion carefully and in its entirety. Morgan Stanley’s opinion was rendered for the benefit of Spansion’s board, in its capacity as such, and addressed only the fairness from a financial point of view of the exchange ratio pursuant to the merger agreement to the holders of shares of Spansion common stock (other than the holders of the excluded shares) as of the date of the opinion. Morgan Stanley’s opinion did not address any other aspect of the merger or related transactions, including the prices at which shares of Spansion common stock or Cypress common stock would trade at any time in the future, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any officer, director or employee of Spansion, or any class of such persons. The opinion was addressed to, and rendered for the benefit of, Spansion’s board and was not intended to, and does not, constitute advice or a recommendation to any holder of shares of Spansion common stock as to how to vote or act on any matter with respect to the merger or related transactions or any other action with respect to the transactions contemplated by the merger agreement.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

•

reviewed certain publicly available financial statements and other business and financial information of Spansion and Cypress, respectively;

 

•

reviewed certain internal financial statements and other financial and operating data concerning Spansion and Cypress, respectively;

 

•

reviewed certain financial projections prepared by the managements of Spansion and Cypress, respectively;

 

•

reviewed information relating to certain strategic, financial and operational benefits anticipated from the merger, prepared by the managements of Spansion and Cypress, respectively;

 

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•

discussed the past and current operations and financial condition and the prospects of Spansion, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Spansion;

 

•

discussed the past and current operations and financial condition and the prospects of Cypress, including information relating to certain strategic, financial and operational benefits anticipated from the merger, with senior executives of Cypress;

 

•

reviewed the pro forma impact of the merger on Cypress’ earnings per share, cash flow, financial ratios and consolidated capitalization;

 

•

reviewed the reported prices and trading activity for Spansion common stock and Cypress common stock;

 

•

compared the financial performance of Spansion and Cypress and the prices and trading activity of Spansion common stock and Cypress common stock with that of certain other publicly-traded companies comparable with Spansion and Cypress, respectively, and their securities;

 

•

reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;

 

•

participated in certain discussions and negotiations among representatives of Spansion and Cypress and their financial and legal advisors;

 

•

reviewed the merger agreement and certain related documents; and

 

•

performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied, or otherwise made available to Morgan Stanley by Spansion and Cypress, and formed a substantial basis for its opinion. With respect to the financial projections, including information relating to certain strategic, financial and operational benefits anticipated from the merger, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective managements of Spansion and Cypress of the future financial performance of Spansion and Cypress. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a tax-free reorganization, pursuant to the Internal Revenue Code of 1986, as amended. Morgan Stanley assumed that, in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley relied upon, without independent verification, the assessment by the managements of Spansion and Cypress, respectively, of: (i) the strategic, financial and other benefits expected to result from the merger; (ii) the timing and risks associated with the integration of Spansion and Cypress, (iii) their ability to retain key employees of Spansion and Cypress, respectively, and (iv) the validity of, and risks associated with, Spansion and Cypress’ existing and future technologies, intellectual property, products, services and business models. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of Spansion and Cypress and their advisors with respect to legal, tax, or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of Spansion’s officers, directors or employees, or any class of such persons, relative to the consideration to be received by the holders of shares of Spansion common stock in the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of Spansion or Cypress, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of December 1, 2014. Events occurring after December 1, 2014 may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

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Summary of Financial Analyses

The following is a brief summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion dated December 1, 2014. The following summary is not a complete description of Morgan Stanley’s opinion or the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. In connection with arriving at its opinion, Morgan Stanley considered all of its analyses as a whole and did not attribute any particular weight to any analysis described below. Considering any portion of such analyses and factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion. The various analyses summarized below were based on the closing price of $23.37 per share of Spansion common stock and of $10.60 per share of Cypress common stock as of November 28, 2014, the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.

In performing the financial analyses summarized below and in arriving at its opinion, Morgan Stanley utilized and relied upon certain financial projections provided by Spansion and Cypress’ managements and referred to below, including the management cases, which are described below. For further information regarding the financial projections, see the section entitled “—Certain Prospective Financial Information Reviewed by the Spansion Board and Spansion’s Financial Advisor” beginning on page 94 of this joint proxy statement/prospectus.

On December 1, 2014, Spansion and Cypress entered into the merger agreement pursuant to which each share of Spansion common stock (other than the excluded shares) would be exchanged for 2.457 shares of Cypress common stock. Based on the closing price of Cypress common stock on November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), this exchange ratio represented an implied price of $26.04 per share of Spansion common stock. Based on the exchange ratio and shares, restricted stock units, options and net share settlement of the Spansion exchangeable 2.00% senior notes outstanding on November 30, 2014, Morgan Stanley calculated that, as a result of the merger, Spansion’s stockholders would own approximately 50.2% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method), and the net share settlement of the Spansion exchangeable 2.00% senior notes, and Cypress’ shareholders would own the remaining approximately 49.8% of Cypress following completion of the merger pursuant to the merger agreement.

Historical Exchange Ratio Analysis

Morgan Stanley reviewed the range of the ratio of closing prices of Spansion common stock divided by the corresponding closing prices of Cypress common stock over various periods ended on November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby). For each of the periods reviewed, Morgan Stanley observed the relevant range of low and high exchange ratios.

 

Period Ending November 28, 2014		Range of Exchange Ratios				Implied Spansion Ownership
Last Three Years			0.45x – 2.31x				14.4% – 48.4%
Last 12 Months			1.25x – 2.31x				32.3% – 48.4%
Last 30 Days			1.74x – 2.20x				40.2% – 47.1%

 

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Morgan Stanley noted that the exchange ratio pursuant to the merger agreement was 2.457x, which implied Spansion stockholders ownership of approximately 50.2% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes outstanding and that based on the prices of shares of Spansion common stock and Cypress common stock on November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), an exchange ratio implied solely by such closing stock prices as of that date would be 2.20x, which would imply Spansion stockholders ownership of approximately 47.1% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes outstanding.

Equity Research Analysts’ Future Price Targets — Implied Exchange Ratio Analysis

Morgan Stanley reviewed and analyzed future public market trading price targets for Spansion common stock and Cypress common stock prepared and published by equity research analysts prior to November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby). These forward targets reflected each analyst’s estimate of the future public market trading price of Spansion common stock and Cypress common stock and were not discounted to reflect present values. Morgan Stanley compared the maximum and minimum price targets for both Spansion and Cypress to construct the exchange ratio range for its financial analysis.

The public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for Spansion common stock or Cypress common stock, and these estimates are subject to uncertainties, including the future financial performance of Spansion and Cypress, and future financial market conditions.

Spansion — Equity Research Analysts’ Future Price Targets

The range of undiscounted analyst price targets for Spansion common stock was $19.50 to $26.00 per share as of November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), and Morgan Stanley noted that the median undiscounted analyst price target was $24.00 per share.

Cypress — Equity Research Analysts’ Future Price Targets

The range of undiscounted analyst price targets for Cypress common stock was $8.00 to $13.00 per share as of November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), and Morgan Stanley noted that the median undiscounted analyst price target was $10.00 per share.

Implied Exchange Ratio based on Equity Research Analysts’ Future Price Targets

 

Research Estimates		Range of Exchange Ratios				Implied Spansion Ownership
As of November 28, 2014			1.50x – 3.25x				36.5% – 58.0%

 

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Relative Contribution Analysis

Morgan Stanley compared Spansion and Cypress stockholders’ respective percentage ownership of the combined company to Spansion’s and Cypress’ respective percentage contribution (and the implied ownership and the implied exchange ratio based on such contribution) to the combined company using estimated calendar year 2014 through calendar year 2017 earnings before interest taxes depreciation and amortization (which we refer to as EBITDA), EBITDA less capital expenditures (which we refer to as Capex), earnings before interest and taxes (which we refer to as EBIT) and non-GAAP net income based on estimates prepared by the managements of Spansion and Cypress, respectively, which we refer to as the “management cases” and as more fully described under the section entitled “—Certain Prospective Financial Information Reviewed by the Spansion Board and Spansion’s Financial Advisor” beginning on page 94 of this joint proxy statement/prospectus. The following table summarizes Morgan Stanley’s analysis:

Management Cases

 

Calendar Years 2014E — 2017E		Range of Implied Exchange Ratios				Implied Spansion Ownership
EBITDA			2.46x – 2.79x				50.2% – 53.8%
EBITDA — Capex			1.88x – 2.69x				42.4% – 52.8%
EBIT			2.31x – 2.64x				48.5% – 52.2%
Net Income			1.87x – 2.30x				42.3% – 48.4%

Morgan Stanley noted that the exchange ratio pursuant to the merger agreement was 2.457x, which implied Spansion stockholders ownership of approximately 50.2% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes and that based on the prices of shares of Spansion common stock and Cypress common stock on November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), an exchange ratio implied solely by such closing stock prices as of that date would be 2.20x, which would imply Spansion stockholders ownership of approximately 47.1% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes.

Analysis of Precedent Transactions

Morgan Stanley performed a precedent transactions analysis, which is designed to imply a value of a company based on publicly available financial terms and premiums applicable to selected transactions that share some characteristics with this merger.

In connection with its analysis, Morgan Stanley compared publicly available statistics for 43 selected merger of equals transactions with transaction values greater than $500 million from January 1, 2003 to November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), in which the consideration received was predominantly stock and the target’s representation on the board of the merged entity was equal to 50% or more. The following is a list of these transactions:

 

•

Abitibi Inc. / Bowater Inc.

 

•

Alliance Unichem plc / Boots UK Ltd

 

•

Arcelor S.A. / Mittal Steel Co, N.V.

 

•

Autostrade SpA / Abertis Infraestructuras S.A.

 

•

Avoca Resources Ltd. / Anatolia Minerals Development Ltd.

 

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•

Bank One Corp. / JPMorgan & Co. Inc.

 

•

Bergen Brunswig Corp. / Amerisource Corp.

 

•

Biogen Inc. / IDEC Corp.

 

•

bwin Interactive Entertainment AG / PartyGaming plc

 

•

Cable Design Technologies Corp. / Belden Inc.

 

•

Caremark Rx, LLC / CVS Health Corp.

 

•

Carphone Warehouse plc / Dixons Retail plc

 

•

ECCO S.A. / Adecco S.A.

 

•

Euronext N.V. / NYSE Group, Inc.

 

•

FNX Mining Company, Inc. / Quadra Mining Ltd.

 

•

Frontier Oil Corp. / Holly Corp

 

•

Gemplus International S.A. / Axalto International Ltd.

 

•

Global Marine Systems Ltd. / Santa Fe International Corp.

 

•

GulfTerra Energy Partners, LP / Enterprise Products Partners LP

 

•

Hanover Compressor Co. / Universal Compression Holdings, Inc.

 

•

IBERIA LAE S.A. / British Airways plc

 

•

Intentia, Inc. / Lawson Software, Inc.

 

•

Lucent Technologies, Inc. / Alcatel S.A.

 

•

Meiji Seika Kaisha Co., Ltd / Meiji Dairies Co., Ltd.

 

•

Metavante Technologies, Inc. / Fidelity National Information Services, Inc.

 

•

MindSpring Enterprises / EarthLink Holdings Corp.

 

•

Mirant Corp. / RRI Energy, Inc.

 

•

Molson Inc. / Coors Brewing Co.

 

•

Nextel Communications, Inc. / Sprint Corp.

 

•

OfficeMax Inc. / Office Depot, Inc.

 

•

Omnicom Group Inc. / Publicis Groupe S.A.

 

•

ProLogis, Inc. / AMB Property Corp.

 

•

Subsea 7 S.A. / Acergy S.A.

 

•

The Travelers Companies, Inc. / The St. Paul Companies, Inc.

 

•

Ticketmaster Entertainment, LLC / Live Nation Entertainment, Inc.

 

•

Tokyo Electron, Ltd / Applied Materials, Inc.

 

•

TransAtlantic Holdings Inc. / Allied World Assurance Company Holdings AG

 

•

TriQuint Semiconductor, Inc. / RF Micro Devices Inc.

 

•

Union Planters Corp. / Regions Financial Corp.

 

•

UniTAB Ltd. / Tattersalls Ltd.

 

•

UrAsia Energy Ltd. / sxr Uranium One Inc.

 

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•

Varco, Inc. / National Oilwell Inc.

 

•

XM Satellite Radio Holdings Inc. / Sirius Radio Inc.

For each transaction listed above, Morgan Stanley noted the board representation and senior executive management roles attributed to the smaller company (as measured by market capitalization) involved in the transaction, as provided for in the transaction’s definitive documentation. Morgan Stanley also noted the implied exchange ratio premium to the spot exchange ratio and the 30 trading day average exchange ratio, respectively, for the constituent companies, where available.

For the transactions listed above, Morgan Stanley selected a representative range of implied exchange ratio premiums to the spot and 30 trading day average exchange ratios and compared such representative ranges to the average exchange ratio of Spansion common stock and Cypress common stock over the respective periods ended November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby). The following table summarizes Morgan Stanley’s analysis:

 

Period Ending November 28, 2014

Reference Range

Range of Exchange Ratios

Implied Spansion Ownership

Spot Exchange Ratio Premium

(5%) –25%

2.09x – 2.76x

45.6% – 53.4%

30 Trading Day Average Exchange Ratio Premium

0% – 20%

1.99x – 2.39x

44.1% – 49.4%

Morgan Stanley noted that the exchange ratio pursuant to the merger agreement was 2.457x, which implied Spansion stockholders ownership of approximately 50.2% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes, and that based on the prices of shares of Spansion common stock and Cypress common stock on November 28, 2014 (the last full trading day prior to the meeting of Spansion’s board to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby), an exchange ratio implied solely by such closing stock prices as of that date would be 2.20x, which would imply Spansion stockholders ownership of approximately 47.1% of the fully diluted shares of Cypress common stock based on each of Cypress’ and Spansion’s fully diluted shares including equity awards (using the treasury method) and net share settlement of the Spansion exchangeable 2.00% senior notes.

No company or transaction utilized in the precedent transactions analysis is identical to Spansion, Cypress or the merger. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, regulatory, economic, market and financial conditions and other matters, which are beyond the control of Spansion and Cypress, such as the impact of competition on the business of Spansion, Cypress or the industry generally, industry growth and the absence of any material adverse change in the financial condition of Spansion, Cypress or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they were being compared.

Pro Forma Merger Analysis

Morgan Stanley analyzed the estimated pro forma impact of the merger on Spansion’s cash flow, financial ratios, consolidated capitalization and earnings per share for the fiscal years ending December 31, 2015 and December 31, 2016, excluding the impact of one-time and non-cash acquisition-related expenses. Morgan Stanley calculated the pro forma earnings per share on the basis of an assumed closing date for the merger of December 31, 2014, the transaction exchange ratio provided for in the merger agreement, Spansion management and Cypress management estimates of earnings per share for Spansion and Cypress as of November 28, 2014 and

 

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synergies resulting from the merger estimated by Spansion and Cypress. Morgan Stanley noted that on the basis of these assumptions the transaction would be accretive to Spansion’s earnings per share for fiscal years 2015 and 2016. For further information regarding these financial projections and estimated synergies, see the section entitled “—Certain Prospective Financial Information Reviewed by the Spansion Board and Spansion’s Financial Advisor” beginning on page 94 of this joint proxy statement/prospectus.

General

In connection with the review of the merger by Spansion’s board, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of Spansion or Cypress. In performing its analyses, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, regulatory, economic, market and financial conditions and other matters, which are beyond the control of Spansion or Cypress. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the exchange ratio pursuant to the merger agreement to the holders of shares of Spansion common stock (other than the holders of the excluded shares) and in connection with the delivery of its opinion, dated December 1, 2014, to Spansion’s board. These analyses do not purport to be appraisals or to reflect the prices at which shares of Spansion common stock or Cypress common stock might actually trade.

The exchange ratio was determined by Spansion and Cypress through arm’s length negotiations between Spansion and Cypress and was approved by Spansion’s board. Morgan Stanley provided advice to Spansion’s board during these negotiations. Morgan Stanley did not, however, recommend any specific exchange ratio to Spansion or Spansion’s board or that any specific exchange ratio constituted the only appropriate exchange ratio for the merger.

Morgan Stanley’s opinion and its presentation to Spansion’s board was one of many factors taken into consideration by Spansion’s board in deciding to approve and adopt the merger agreement, declare the advisability of the merger agreement and approve the transactions contemplated thereby. Consequently, the analyses as described above should not be viewed as determinative of the opinion of Spansion’s board with respect to the exchange ratio pursuant to the merger agreement or of whether Spansion’s board would have been willing to agree to a different exchange ratio. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with Morgan Stanley’s customary practice.

Morgan Stanley’s opinion was not intended to, and does not, constitute advice or a recommendation to any holder of shares of Spansion common stock as to how to vote or act on any matter with respect to the merger or related transactions or any other action with respect to the transactions contemplated by the merger agreement. Morgan Stanley’s opinion did not address any other aspect of the merger or related transactions, including the prices at which shares of Spansion common stock or Cypress common stock would trade at any time in the future, or any compensation or compensation agreements arising from (or relating to) the merger which benefit any officer, director or employee of Spansion, or any class of such persons.

 

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Spansion’s board retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or for the accounts of their customers, in debt or equity securities or loans of Spansion and Cypress or any other company, or any currency or commodity, that may be involved in the transactions contemplated by the merger agreement, or any related derivative instrument.

Under the terms of its engagement letter, Morgan Stanley provided Spansion with financial advisory services and a financial opinion in connection with the merger, described in this section and attached to this statement as Annex C, and Spansion has agreed to pay Morgan Stanley a fee of approximately $19.4 million for its services, $18.4 million of which is contingent upon the closing of the merger and $1 million of which was paid upon the delivery by Morgan Stanley of the financial opinion described in this paragraph. Spansion has also agreed to reimburse Morgan Stanley for its reasonable expenses, including reasonable fees of outside counsel and other professional advisors, incurred in connection with its engagement. In addition, Spansion has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each other person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses relating to or arising out of Morgan Stanley’s engagement. In the two years prior to the date of its opinion, Morgan Stanley and its affiliates have provided financing services to Spansion and Cypress and have received aggregate fees of approximately $2.8 million from Spansion and approximately $1.3 million from Cypress in connection with such services. Morgan Stanley may seek to provide financial advisory and financing services to Spansion and Cypress in the future and would expect to receive fees for the rendering of these services.

Certain Prospective Financial Information Reviewed by the Spansion Board and Spansion’s Financial Advisor

Although Spansion has publicly issued limited projections concerning certain aspects of its expected financial performance, Spansion does not make public disclosure of detailed forecasts or projections of its expected financial performance for extended periods because of, among other things, the inherent difficulty of accurately predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may prove incorrect.

In connection with the evaluation of the merger, however, Spansion management prepared the below table entitled “Spansion Financials” including unaudited prospective financial information for Spansion on a stand-alone basis, without giving effect to the merger, and prepared estimated synergies arising in connection with the merger. The Spansion board also reviewed the below table prepared by Cypress management entitled “Cypress Financials,” including unaudited prospective financial information for Cypress on a stand-alone basis, without giving effect to the merger. Spansion is electing to provide the summary unaudited prospective financial information and the estimated synergies in this section of the joint proxy statement/prospectus to provide Spansion and Cypress stockholders access to certain non-public unaudited prospective financial information and estimated synergies that were made available to the Spansion board, and to the Cypress board of directors as described under the section entitled “— Certain Prospective Financial Information Reviewed by the Cypress Board and Cypress’ Financial Advisor” beginning on page 77 of this joint proxy statement/prospectus, for purposes of considering and evaluating the merger.

The unaudited prospective financial information and estimated synergies were also provided to the financial advisor of Spansion. See also the section entitled “— Opinion of Spansion’s Financial Advisor” beginning on page 86 of this joint proxy statement/prospectus. The unaudited prospective financial information and estimated synergies were not prepared with a view toward public disclosure and the inclusion of summary unaudited prospective financial information and estimated synergies below should not be regarded as an indication that any

 

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of Spansion, Cypress or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. None of Spansion, Cypress, or their respective affiliates or representatives assume any responsibility to stockholders of Spansion or Cypress for the accuracy of this information.

The unaudited prospective financial information and estimated synergies summarized below were not prepared for purposes of public disclosure, nor were they prepared on a basis designed to comply with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of projections. Neither Spansion’s independent registered public accounting firm, which is listed as an expert in the section entitled “Experts” on page 210 of this joint proxy statement/prospectus, nor any other independent accountants, compiled, examined or performed any procedures with respect to the projections or estimated synergies summarized below, and has not expressed any opinion or any other form of assurance on this information or its achievability, and assumes no responsibility for, and disclaims any association with, the unaudited prospective financial information and estimated synergies. The reports of the independent registered public accounting firms incorporated by reference in this joint proxy statement/prospectus relate to historical financial statements. They do not extend to any prospective financial information or the estimated synergies and should not be seen to do so.

Although presented with numerical specificity, the unaudited prospective financial information and estimated synergies were prepared in accordance with variables, estimates, and assumptions that are inherently uncertain and may be beyond the control of Spansion, and which may prove not to have been, or to no longer be, accurate. While in the view of Spansion’s management the unaudited prospective financial information and estimated synergies were prepared on a reasonable basis, the unaudited prospective financial information and estimated synergies are subject to many risks and uncertainties. Important factors that may affect actual results and cause actual results to differ materially from the unaudited prospective financial information and estimated synergies include risks and uncertainties relating to Spansion’s and Cypress’ businesses, industry performance, the regulatory environment, general business and economic conditions, market and financial conditions, various risks set forth in Spansion’s and Cypress’ reports filed with the Securities and Exchange Commission, and other factors described or referenced in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Information” beginning on pages 21 and 28, respectively, of this joint proxy statement/prospectus

The unaudited prospective financial information and estimated synergies also reflect assumptions that are subject to change and are susceptible to multiple interpretations and to conditions, transactions or events that may occur and were not anticipated at the time the unaudited prospective financial information and estimated synergies were prepared. In addition, the unaudited prospective financial information and estimated synergies do not take into account any circumstances, transactions or events occurring after the date the unaudited prospective financial information and estimated synergies were prepared. Accordingly, actual results will likely differ, and may differ materially, from those contained in the unaudited prospective financial information and estimated synergies. We do not assure you that the financial results in the unaudited prospective financial information or the synergies set forth in the estimated synergies will be realized or that future financial results (including synergies) of Spansion or Cypress will not materially vary from those in the unaudited prospective financial information or the estimated synergies.

None of Spansion, Cypress, or their respective affiliates, officers, directors, or other representatives gives any stockholder of Spansion or Cypress, or any other person, any assurance that actual results will not differ materially from the unaudited prospective financial information or the estimated synergies, and, except as otherwise required by law, none of them undertakes any obligation to update or otherwise revise or reconcile the unaudited prospective financial information or the estimated synergies to reflect circumstances after the date the unaudited prospective financial information and estimated synergies were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions and estimates underlying the unaudited prospective financial information and estimated synergies are shown to be in error.

 

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No one has made or makes any representation to any stockholder of Spansion or Cypress, or anyone else regarding, nor assumes any responsibility for the validity, reasonableness, accuracy, or completeness of, the unaudited prospective financial information or the estimated synergies set forth below. You are cautioned not to rely on the unaudited prospective financial information or the estimated synergies. The inclusion of this information should not be regarded as an indication that the Spansion board of directors, the Cypress board of directors, any of their advisors or any other person considered, or now considers, it to be material or to be a reliable prediction of actual future results.

The unaudited prospective financial information and estimated synergies included below cover multiple years, and this information by its nature becomes subject to greater uncertainty with each successive year. The unaudited prospective financial information and estimated synergies should be evaluated, if at all, in conjunction with the historical financial statements and other information contained in Spansion’s and Cypress’ respective public filings with the Securities and Exchange Commission.

Due to the forward-looking nature of the selected unaudited prospective financial information, specific quantifications of the amounts that would be required to reconcile it to GAAP measures are not available. Spansion believes that there is a degree of volatility with respect to certain GAAP measures, and certain adjustments made to arrive at the relevant non-GAAP measures, which preclude Spansion from providing accurate forecasted non-GAAP to GAAP reconciliations.

The following tables present summary selected unaudited Spansion and Cypress prospective financial information for fiscal years 2014 through 2017 prepared by Spansion and Cypress management respectively in connection with the Spansion board of directors’evaluation of the merger (in millions, except per share information):

 

Projected Spansion Financials		CY2014E				CY2015E				CY2016E				CY2017E
Revenue		$	1,250.0			$	1,363.1			$	1,450.0			$	1,550.0
Non-GAAP EBIT		$	92.8			$	149.2			$	180.0			$	218.0
Non-GAAP EBITDA		$	151.4			$	205.4			$	235.9			$	274.9
Non-GAAP EBITDA, less Capital Expenditures		$	86.4			$	150.4			$	175.9			$	209.9
Non-GAAP Net Income		$	64.8			$	115.2			$	143.5			$	178.2
Non-GAAP EPS		$	0.98			$	1.72			$	2.08			$	2.51
Projected Cypress Financials		CY2014E				CY2015E				CY2016E				CY2017E
Revenue		$	723.9			$	815.5			$	954.9			$	1,067.3
Non-GAAP EBIT		$	98.5			$	138.0			$	190.5			$	231.7
Non-GAAP EBITDA		$	138.5			$	179.0			$	232.5			$	273.7
Non-GAAP EBITDA, less Capital Expenditures		$	115.3			$	136.0			$	204.5			$	250.7
Non-GAAP Net Income		$	88.3			$	123.0			$	170.3			$	207.6
Non-GAAP EPS		$	0.53			$	0.71			$	0.95			$	1.13

Non-GAAP EBIT excludes the estimated effects of: amortization of intangibles, amortization of the inventory mark-up relating to Spansion’s acquisition of its microcontroller and analog business in fiscal year 2013, equity compensation expense, acquisition related costs, litigation reserve expenses and restructuring and other costs. Non-GAAP Net Income and Non-GAAP EPS exclude the estimated effects of: amortization of intangibles, amortization of the inventory mark-up relating to Spansion’s acquisition of its microcontroller and analog business in fiscal year 2013, equity compensation expense, costs related to financing arrangements, the accretion of interest on Spansion’s exchangeable 2.00% senior notes outstanding on November 30, 2014, litigation reserve expenses, acquisition and integration related costs, reserve reversal on final settlement of bankruptcy claims and restructuring and other costs; and Non-GAAP EBITDA excludes the estimated effects of these items as well as interest income expense and other, net, provision for income taxes and depreciation.

 

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In calculating estimated synergies, Spansion management made assumptions with respect to expenses including manufacturing, sales and marketing, product development, personnel, facilities, information technology infrastructure and administration. Assumptions include a reduction in redundant expenses, a reduction of duplicative operating resources, future headcount avoidance and severance costs to achieve synergies. The following table presents estimated synergies, excluding some amounts related to the pro forma tax structure of the combined business, prepared in connection with Spansion’s evaluation of the merger (in millions) for the years 2015 through 2017.

 

		2015		2016		2017
Estimated Synergies		$53.1		$130.6		$168.9

Interests of the Directors and Executive Officers of Spansion in the Merger

In considering the recommendation of the Spansion board to adopt the merger agreement and approve the transactions contemplated by the merger agreement, Spansion stockholders should be aware that some of the Spansion directors and executive officers have interests in the merger and have arrangements that are different from, or in addition to, those of Spansion stockholders generally. These interests and arrangements may create potential conflicts of interest. The Spansion board was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement.

Stock Options, Restricted Stock Units and Performance Stock Units

When the merger is completed, Cypress will assume outstanding options to purchase shares of Spansion common stock, and such options will be automatically converted into options to purchase the number of shares of Cypress common stock equal to (x) the number of shares of Spansion common stock subject to the Spansion option immediately prior to the merger, multiplied by (y) 2.457, with such product rounded down to the nearest whole share of Cypress common stock. The exercise price per share for each assumed Spansion option will be equal to (x) the exercise price per share of the Spansion option divided by (y) 2.457, with such quotient rounded up to the nearest whole cent. Each assumed Spansion option otherwise will be subject to the same terms and conditions (including as to vesting and exercisability) as are applicable under the respective Spansion option immediately prior to the effective time of the merger. However, if a Spansion option is subject to the legal requirements of a non-U.S. jurisdiction and Cypress determines that the Spansion option may not be assumed under the legal requirements of the relevant non-U.S. jurisdiction, Cypress will, to ensure compliance with applicable non-U.S. law: (1) require that such outstanding unassumed non-U.S. Spansion options be accelerated and exercised only by a cashless exercise pursuant to which employees will authorize a broker to sell all shares that they are entitled to exercise immediately upon exercise and receive the difference between the fair market value of the shares at exercise and the exercise price in cash, (2) provide for conversion of the unassumed non-U.S. Spansion options into the right to receive, as soon as practicable after the effective time of the merger, an amount in cash equal to (x) the excess, if any, of (i) the average of the closing sale prices for one share of Cypress common stock as quoted on the Nasdaq Global Select Market for the 10 consecutive trading days ending on the second trading day immediately preceding the closing date of the merger, over (ii) the applicable exercise price of such unassumed non-U.S. Spansion option, multiplied by (y) the number of Spansion shares subject to such unassumed non-U.S. Spansion option, less all applicable deductions and withholdings required by applicable legal requirements to be withheld in respect of such payment, or (3) provide for such other treatment that is in compliance with applicable legal requirements and reasonably agreed upon by Cypress and Spansion at least 20 days prior to the effective time of the merger.

Cypress will also assume outstanding Spansion restricted stock units and performance stock units. Each assumed Spansion restricted stock unit award or performance stock unit award will be converted into an award to receive a number of shares of Cypress common stock equal to (x) the number of shares of Spansion common stock subject to the Spansion restricted stock unit award or performance stock unit award immediately prior to the

 

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effective time of the merger multiplied by (y) 2.457, with such product rounded down to the nearest whole share of Cypress common stock. Each assumed Spansion restricted stock unit award or performance stock unit award that was granted with a purchase price other than Spansion par value will have a purchase price per share equal to (x) the per share purchase price of Spansion common stock subject to such assumed Spansion restricted stock unit award or Spansion performance stock unit award, divided by (y) 2.457, with such quotient rounded up to the nearest whole cent. Each assumed Spansion restricted stock unit award or performance stock unit award otherwise will be subject to the same terms and conditions (including as to vesting and exercisability) as were applicable under the respective Spansion restricted stock unit award or performance stock unit award immediately prior to the effective time of the merger. However, if a Spansion restricted stock unit award or performance stock unit award is subject to the legal requirements of a non-U.S. jurisdiction and Cypress determines that the Spansion restricted stock unit award or performance stock unit award may not be assumed under the legal requirements of the relevant non-U.S. jurisdiction, Cypress will, to ensure compliance with applicable non-U.S. law: (1) provide for conversion of such unassumed non-U.S. Spansion restricted stock unit award or performance stock unit award into the right to receive, as soon as practicable after the effective time of the merger, an amount in cash equal to (x) the average of the closing sale prices for one share of Cypress common stock as quoted on the Nasdaq Global Select Market for the 10 consecutive trading days ending on the second trading day immediately preceding the closing date of the merger, multiplied by (y) the number of Spansion shares subject to such unassumed non-U.S. Spansion restricted stock unit award or performance stock unit award, less all applicable deductions and withholdings required by applicable legal requirements to be withheld in respect of such payment or (2) provide for such other treatment that is in compliance with applicable law and reasonably agreed upon by Cypress and Spansion at least 20 days prior to the effective time of the merger.

Prior to May 2014 and in limited circumstances during or after May 2014, the Spansion board had historically granted all options, restricted stock units and performance stock units with full acceleration rights in the event of a “change in control,” as such term is defined in the Spansion 2010 Equity Incentive Award Plan. A “change in control,” as such term is defined in the Spansion 2010 Equity Incentive Award Plan, includes a transaction whereby any person or group of persons directly or indirectly acquires beneficial ownership of securities of Spansion possessing more than 50% of the total combined voting power of Spansion’s securities outstanding immediately after such transaction, as well as a merger in which the holders of the voting securities of Spansion outstanding immediately before the merger fail to hold at least a majority of the combined voting power of the entity that will control Spansion after the merger, which in this case will be Cypress. The merger will constitute a change in control for purposes of the Spansion 2010 Equity Incentive Award Plan. In addition, the merger agreement provides that Cypress and Spansion agree the merger will constitute a change in control for the purposes of outstanding Spansion equity awards. Accordingly, the unvested options and restricted stock units that were granted with an acceleration feature triggered upon a change in control will accelerate vesting at the effective time of the merger, subject to the award holder’s continued service through the effective time of the merger.

 

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The Spansion directors and executive officers hold unvested options, restricted stock units and performance stock units that were granted prior to May 2014 and subject to the acceleration provisions described above. As required by applicable Securities and Exchange Commission rules, all amounts below determined using the per share value of Spansion common stock have been calculated based on a per share price of Spansion common stock of $29.116 (the average closing market price of Spansion common stock over the first five business days following the public announcement of the entry into the merger agreement on December 1, 2014). The following number of shares subject to options and restricted stock units granted to the following Spansion directors and executive officers will accelerate vesting upon the closing of the merger, subject to the award holder’s continued service through such date:

 

Executive Officer and/or Director		Shares Underlying all Unvested Spansion Stock Options				Aggregate Spread for all Unvested Spansion Stock Options ($)				Shares Underlying All Unvested Restricted Stock Units				Aggregate Value of All Unvested Restricted Stock Units ($)
John H. Kispert			38,889			$	685,068.62				379,792			$	11,058,023.87
Randy Furr			12,444			$	219,213.50				120,174			$	3,498,986.18
William Mitchell			3,000			$	50,928.00				18,220			$	532,560.75
Raymond Bingham			7,667			$	130,154.99				33,174			$	967,961.42
Keith Barnes			6,334			$	107,525.98				22,812			$	664,194.19
Hans Geyer			3,000			$	50,928.00				12,622			$	367,502.15
O.C. Kwon			0			$	0.00				9,112			$	265,304.99
Clifton Thomas Weatherford			6,334			$	107,525.98				22,812			$	664,194.19
Michael Wishart			8,168			$	137,924.84				19,955			$	581,009.78

The figures in the table above assume an effective date of the merger of May 31, 2015.

Paul Mercadante and Ajay Shah resigned from Spansion’s Board effective May 13, 2013. As a result, neither Mr. Mercadante nor Mr. Shah is eligible to receive vesting acceleration of their awards in connection with the merger.

Other than as described in the following section, Spansion granted no equity awards to its executive officers or directors after May 2014.

Recent Equity Awards

On November 14, 2014, the Spansion compensation committee approved the issuance of certain performance stock units (also referred to as performance based restricted stock units) to employees at the vice president level and above, which included Spansion’s executive officers, for retention purposes. In the event that Spansion meets or exceeds its financial performance target level of 100% on the 2014 annual bonus matrix as approved by the Spansion compensation committee and the employee remains a continuous service provider on the applicable vesting date, the performance stock units will vest in incremental percentages equal to 40% on January 30, 2015, 40% on January 30, 2016, and 20% on January 30, 2017. If the service provider is terminated by Spansion without “cause” and as long as the financial performance target applicable to the performance stock units have been met as of January 2014, that service provider’s performance stock units will accelerate in full on the date of such termination by Spansion. If the performance stock units are outstanding as of the effective time of the merger, then they shall be assumed by Cypress and converted into a restricted stock unit award in respect of the number of whole shares of Cypress common stock equal to 2.457 multiplied by the number of shares of Spansion common stock subject to the Spansion restricted stock unit award, with such product rounded down to the nearest whole share of Cypress common stock.

 

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The Spansion compensation committee approved the issuance of the following numbers of performance stock units to the following executive officers on November 14, 2014:

 

Executive Officer		Shares Underlying Performance Stock Units Issued on November 14, 2014				Aggregate Value of All Performance Stock Units Issued on November 14, 2014 (1) ($)
John H. Kispert			84,375			$	2,456,662.50
Randy Furr			26,400			$	768,662.40

 

(1)

All dollar amounts in the table above were determined using the per share price of Spansion common stock of $29.116 (the average closing market price of Spansion common stock over the first five business days following the public announcement of the entry into the merger agreement on December 1, 2014).

In addition, the Spansion board approved the issuance of certain restricted stock units to directors William Mitchell and Mr. Bingham on November 25, 2014 in recognition of their appointments in May 2014 to chair the compensation committee and nomination and corporate governance committee, respectively. The restricted stock units will vest in equal quarterly installments for three years from the grant date, subject to continued service through each applicable vesting date. In addition, in the event of a “change in control,” as such term is defined in the Spansion 2010 Equity Incentive Award Plan, and provided that the applicable director continues to provide service as a director of Spansion through the date of such change in control, the restricted stock units will accelerate vesting in full. A “change in control,” as such term is defined in the Spansion 2010 Equity Incentive Award Plan, includes a transaction whereby any person or group of persons directly or indirectly acquires beneficial ownership of securities of Spansion possessing more than 50% of the total combined voting power of Spansion’s securities outstanding immediately after such transaction, as well as a merger in which the holders of the voting securities of Spansion outstanding immediately before the merger fail to hold at least a majority of the combined voting power of the entity that will control Spansion after the merger, which in this case will be Cypress. The merger will constitute a change in control for purposes of the Spansion 2010 Equity Incentive Award Plan. In addition, the merger agreement provides that Cypress and Spansion agree that the merger will constitute a change in control for the purposes of outstanding Spansion equity awards. Accordingly the unvested restricted stock units that were granted to the Spansion directors on November 25, 2014 will accelerate at the effective time of the merger.

The Spansion board approved the issuance of the following numbers of restricted stock units to the following directors on November 25, 2014:

 

Director		Shares Underlying Restricted Stock Units Issued on November 25, 2014				Aggregate Value of All Restricted Stock Units Issued on November 25, 2014 (1) ($)
William Mitchell			3,403			$	99,081.75
Raymond Bingham			3,403			$	99,081.75

 

(1)

All dollar amounts in the table above were determined using the per share price of Spansion common stock of $29.116 (the average closing market price of Spansion common stock over the first five business days following the public announcement of the entry into the merger agreement on December 1, 2014).

Change of Control Severance Agreements

Spansion has entered into Change of Control Severance Agreements with certain employees, including its current executive officers, Mr. Kispert and Randy Furr. Under Spansion’s Change of Control Severance Agreements for Mr. Kispert and Mr. Furr, if the participating executive officer’s employment is terminated

 

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involuntarily by Spansion without “cause” or by the participating executive officer pursuant to a “voluntary termination for good reason” within 120 days prior to a “change of control” or 12 months following a “change of control,” then the executive officer is entitled to:

 

•

a lump sum payment in an amount equal to the sum of (1) 24 months of the participating executive officer’s base salary immediately prior to the termination and (2) two years of the participating executive officer’s target annual cash incentive opportunity;

 

•

full acceleration of all unvested outstanding options, restricted stock grants, and other equity and equity equivalents; and

 

•

at the election of the participating executive officer, either the payment or reimbursement of the cost of 24 months of premium costs associated with continued health coverage for the participating executive officer and such officer’s dependents.

Spansion’s Change of Control Severance Agreements require that in order to receive the severance benefits, the participating executive officer must agree to a release of claims in favor of Spansion and its affiliates. Further, under Spansion’s Change of Control Severance Agreements, the participating executive