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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                ----------------


     (Mark One)

[X]  Annual Report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934
                                 [Fee Required]

                    For the fiscal year ended January 2, 2000

            Transition report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                                [No Fee Required]

            For the transition period from __________ to __________.

                         Commission File Number: 1-10079

                                ----------------


                        Cypress Semiconductor Corporation
             (Exact name of registrant as specified in its charter)

            Delaware                                          94-2885898
 (State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                           Identification No.)
                                                
            3901 North First Street, San Jose, California 95134-1599
              (Address of principal executive offices and zip code)

       Registrant's telephone number, including area code: (408) 943-2600

           Securities registered pursuant to Section 12(b) of the Act:

           Title of Each Class                          Name of Each Exchange
                                                          on Which Registered
       Common Stock, $.01 par value                     New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference in Part III of the Form 10-K or any amendment to this
form 10-K. [ ]

     At March 3, 2000,  registrant had outstanding  112,787,375 shares of Common
Stock.

     The market value of voting stock held by  non-affiliates of the registrant,
based upon the  closing  sale price of the Common  Stock on March 3, 2000 on the
New York Stock



<PAGE>


Exchange, was approximately $4,636,000,000.  Shares of Common Stock held by each
executive  officer  and  director  and by each person who owns 5% or more of the
outstanding  Common Stock have been  excluded in that such persons may be deemed
affiliates.  This  determination  of  affiliate  status  is  not  necessarily  a
conclusive determination for other purposes.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts  of  the  Proxy  Statement  for   Registrant's   2000  Annual  Meeting  of
Stockholders are incorporated by reference in Items 9, 10, 11 and 12 of Part III
of this 10-K Report.

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                                     Page 2

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                                     PART I


ITEM I.  BUSINESS

     This Item contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  Actual  results could differ  materially  from those  projected in the
forward-looking  statements  as a  result  of the  factors  set  forth  in "Risk
Factors" and elsewhere in this Report.

General

     Cypress  Semiconductor  Corporation  designs,  develops,  manufactures  and
markets a broad line of  high-performance  digital and  mixed-signal  integrated
circuits   for   a   range   of   markets,    including   data   communications,
telecommunications,  computers,  and instrumentation systems. We currently offer
approximately 500 products from our two business  segments;  memory products and
non-memory products. Our products are marketed worldwide through a network of 25
North  American  sales offices,  6 North  American  distributors,  26 U.S. sales
representative  firms,  7 European sales  offices,  2 Japanese sales offices,  2
Chinese sales offices, an office in Singapore,  an office in Korea, an office in
Taiwan, and 39 international sales representative firms. We sell our products to
a wide range of customers,  including Lucent Technologies Inc., Motorola,  Inc.,
Nortel  Networks   Corporation,   Seagate  Technology,   Inc.,  Compaq  Computer
Corporation, 3Com Corporation, IBM, Cisco Systems, Inc. and Sony Corporation. In
1999, international sales accounted for 51% of our total sales.

     Cypress  was  founded  in 1982  and our  initial  strategy  was to  provide
innovative  high-performance  complementary  metal-oxide silicon, referred to as
CMOS, integrated circuits to niche markets that were believed to be too small to
be targeted by the major established international semiconductor  manufacturers.
In 1992,  we modified  our strategy to focus on selected  high-volume  products,
particularly  memory  products,  which  could be brought to market  quickly  and
cost-effectively.  This  strategy  was  successful  until 1996 when the  average
selling  prices of memory  products  began to decline.  To offset the effects of
declining  average  selling  prices  and its  impact  on  revenues  from  memory
products,  we modified our strategy by diversifying  our product mix to focus on
non-memory  products.  We have also directed our sales and marketing  effort and
new product  development  resources,  more  towards the data  communication  and
telecommunication  end markets.  Because of the highly competitive nature of the
semiconductor  industry,  its cyclicality  and  anticipated  pressure on average
selling  prices  over  the  life  of any  particular  product,  our  ability  to
successfully implement this strategy and achieve our revenue, earnings and gross
margin  goals will depend upon a number of factors.  These  factors  include our
ability to:

     o    maintain our position in the high-performance markets;

     o    increase our presence in the more competitive high-volume markets;

     o    continue to  successfully  design and develop new  products  utilizing
          advanced  semiconductor  design and process  technologies  in a timely
          fashion;

     o    improve  manufacturing yields and reduce manufacturing costs and cycle
          time; and

     o    effectively  market  and sell  our  products  in light of  significant
          domestic and international competition.

     Cypress was incorporated in California in December 1982. The initial public
offering of our common stock occurred in May 1986 at which time our common stock
commenced   trading  on  the  Nasdaq  National  Market.  In  February  1987,  we
reincorporated  in Delaware  and on October 17, 1988,  began  listing our common
stock on the New York Stock Exchange.

Products

     We  concentrate  our efforts in two market  segments,  memory  products and
non-memory products. Our memory product segment manufactures integrated circuits
on silicon wafers using leading edge process  technology.  A significant portion
of  the  wafers  we  produce  for  memory   products  is   manufactured  at  our
technologically  advanced,  eight-inch  wafer  production  facility  located  in
Minnesota,  which  we refer  to as Fab 4.  Certain  memory  products  are  often
characterized as commodities, with high unit sales volume and significant shifts
in supply and demand;  these  factors  mean a  potentially  greater  exposure to
fluctuations in average selling price and gross margin. Sales of memory products
are generally  driven by higher  volumes and results of operations  are improved
through advancements in technology and attainment of lower manufacturing costs.


                                     Page 3

<PAGE>


     In contrast,  some  non-memory  products are  manufactured  utilizing  less
technologically advanced processes compared to memory products and are generally
design or  customer  solution  driven.  A majority  of the wafers we produce for
non-memory products are manufactured at our six-inch fab located in Texas, which
we refer to as Fab 2. In  addition,  we purchase  wafers  fabricated  at smaller
geometries from foundries.  Unit sales volume of certain non-memory  products is
generally lower than memory products,  but gross margin is higher.  Future sales
and results of operations of non-memory  products are driven by the introduction
of new  products,  design  wins and  improvements  in  technology.  Because  the
semiconductor industry is characterized by rapid technological change, resulting
in products with greater speed,  densities and performance  capabilities  and by
the continuing evolution of process  technologies,  our success will continue to
depend upon the timely  development,  introduction and market  acceptance of new
products in the non-memory products market segment.

     Please refer to our Note 11 to our annual financial  statements included in
this Report for detailed  information about the composition of revenues from our
memory and non-memory product market segments.

Memory Products

     Our memory  products,  which include static random access memory  products,
primarily  serve  the  data  communications,   telecommunications  and  personal
computer markets.

     Static RAM (Static Random Access Memory).  Static RAMs are used for storage
and retrieval of data in data  communication,  telecommunication,  computers and
other electronic systems. Common networking applications include hubs, switches,
routers,  test and measurement  instrumentation,  video and simulation.  Telecom
applications  include  cellular  phones,   pagers,  radios,  global  positioning
satellite systems and cellular base stations.

     The  static  RAM  market  is  characterized  by the  requirements  for many
different densities (number of bits per memory circuit),  organizations  (number
of bits available to the user in a single access of the RAM) and levels of power
consumption  (low power and  ultra-low-power  devices are  required for portable
battery  operated  equipment).  In  addition,  the market is  divided  into fast
asynchronous, slow micro-power and synchronous segments. This differentiation of
the static RAM market when combined with the different RAM features incorporated
by various manufacturers, the need for military, industrial and commercial grade
products,  the need for different  package types,  and the grading of product by
speed and power, produces a complex market structure.

Non-Memory Products

     Non-memory  products  include a variety  of  products  that  serve the data
communications,  telecommunications,  personal computer, PC peripheral, military
and consumer markets.  Non-memory  products include  programmable logic products
and  programming  software,   programmable-skew   clocking,  data  communication
products, computer products, including clocks and universal serial bus, referred
to as USB, microcontrollers and non-volatile memory products.

     PLDs  (Programmable  Logic  Devices).  The  logic in an  electrical  system
performs the non-memory  functions,  such as  floating-point  mathematics or the
organization  and  routing  of  signals  throughout  a  computer  system.   This
constitutes  a  significant  portion  of  the  circuitry  in  most  systems.  We
manufacture   several  families  of  programmable  logic  circuits,   which  are
programmable by the user. PLDs facilitate the replacement of many standard logic
devices with a single device,  thus reducing  package count and cost,  improving
performance and allowing  miniaturization.  Our PLD portfolio consists of a wide
variety of devices  ranging  from  simple PLDs such as the Flash  22V10,  to the
very-high-density  complex  PLDs such as the  Cypress  Ultra37000  and Delta 39K
families.  All our products are  supported  by the Warp(TM)  software  tool set,
which enables  design  description  in either VHDL (very  high-speed  integrated
circuit  hardware  description  language),  an industry  standard  developed  by
Cypress or in Verilog, another industry standard.

     PROMs (Programmable  Read-Only Memories).  Read-only memory, referred to as
ROM, is a memory in which the data is fixed even when the power is off. ROMs are
used to provide  start up data to  computers  when they are turned on. PROMs are
blank ROMs that can be  customized by the customer to fit specific  needs.  They
are used in computer-peripherals, telecommunications systems and instrumentation
equipment which store fixed data that is not to be altered during normal machine
operations.  We have been a supplier of high-performance  CMOS PROMs since 1984.
These early  devices  were the first to combine  the fast memory  access of PROM
with the low power  consumption of CMOS  technology.  We offer a broad family of
high performance  PROMs ranging in density from 4K to 256K bits,  available in a
variety of standard and proprietary user interfaces.


                                     Page 4

<PAGE>


     First-in,  First-out  ("FIFOs").  FIFOs  are used as an  elasticity  buffer
between systems operating at different frequencies.  We offer FIFO memories in a
variety  of  high-bandwidth  synchronous  and  asynchronous  architectures  with
industry-standard  pinouts.  We have  recently  added  32 new x36  FIFOs  to our
portfolio.

     Multi-port Memories. Dual-port and QuadPortTM RAMs are memories that can be
accessed  by  two  or  four  different  processors  or  busses   simultaneously.
Multi-ports  are  ideal  memory  solutions  for   shared-memory   and  switching
applications, including networking switches and routers, cellular base stations,
mass storage devices, and telecommunication equipment. Our family of synchronous
and  asynchronous  multi-port RAMs range in density from 8 Kbit to 1 Mbit in x8,
x9,  x16,  x18,  and x36  configurations.  We further  enhanced  our  leadership
position in multi-ports by introducing the world's first x36 dual-port (FLEx36TM
Dual-port) and the world's first high-density (1-megabit) / high-performance (10
Gbps) QuadPort RAM.

     RoboClock.  Our RoboClock  family of high  performance  programmable  clock
buffers offer very high performance  specifications (i.e. zero propagation delay
and 50/50 duty cycle) and  programmable  features  (i.e.  programmable  skew and
multiple/divide  functions)  allowing  customers to  compensate  for clock skews
arising  from varying  circuit  board trace  lengths and device  set-up and hold
times.

     HOTLink   (High-speed   Optical   Transceiver  Link).  Our  HOTLink  serial
transceivers are the industry  standard products for moving serial data at rates
from 50-400Mbps. These products support a variety of applications and industrial
protocols  including fibre channel,  enterprise system connection,  asynchronous
transfer mode, digital video broadcast,  Advanced Micro Devices, Inc.'s TAXIChip
protocol, generic backplane and point-to-point applications.

     WAN  (Wide  Area   Network)  Our  family  of   high-performance   SONET/SDH
(Synchronous Optical  Network/Synchronous  Digital Hierarchy)  transceivers move
SONET or SDH frames  between  equipment at the SONET/SDH data rates of 51.85Mbps
(OC-1) and 155.52Mbps (OC-3).  Our recent acquisition of Arcus Technology,  Inc.
enhanced our expertise in PDH  (Plesiochronous  Digital Hierarchy) and SONET/SDH
technology and E1-3 mapper products that are currently shipping for revenue.

     Programmable Clocks. We are a leader in the timing technology device market
primarily due to our clocks and clock distribution  circuits.  Clocks' frequency
synthesizers  integrate  essentially all clock  requirements of a microprocessor
based system, thus reducing size, power, consumption and cost. These devices are
widely used in personal  computers,  disk drives,  modems,  digital video disks,
video CD players and home video games.  We are the only  supplier  offering true
field-programmable   clocks,   and  all  our  clock  outputs  have  the  desired
characteristics of high drive, low jitter, low EMI, and low skew.

     FCTs  (Fast  CMOS  Technology).  We offer a full  complement  of FCTs  with
standard logic and bus interface functions in a variety of formats.  FCT devices
are used in a wide  variety of  applications  whenever  the need arises for very
high-speed logic functions.  FCT logic is used in almost all types of high-speed
systems for data/bus management,  buffering, and a variety of other simple logic
functions.  Our logic  choices  include 3.3- and 5-V  products;  high-drive  and
balance  drive  strengths;  8- and 16-bit  organizations,  and numerous  package
options.

     USB (Universal Serial Bus). USB is a four-wire  connection between a PC and
its peripherals  (such as keyboards,  mice,  printers,  joysticks,  scanners and
modems), facilitating an easy-to-use architecture known as "plug and play." This
new standard has been supported by Microsoft Corporation,  Intel Corporation and
other large original equipment  manufacturers,  referred to as OEMs. In 1997, we
entered  into a  strategic  alliance  with  Microsoft  to produce  our first USB
product,  an 8-bit,  RISC-based  microcontroller  for  Microsoft's  new Internet
mouse. In 1999 we acquired Anchor Chips, Inc. to expand our high performance USB
product line.  Also in 1999, we acquired the license to manufacture  Intel's USB
products,  further  expanding  the  USB  product  portfolio.  We  now  make  USB
microcontrollers for a broad range of peripherals from personal computers,  mice
and  keyboards  to high  performance  devices  such as DSL  modems  and  digital
cameras, giving us the broadest USB product portfolio in the industry.

Research and Development

     We place great  emphasis on research  and  development.  This is  partially
reflected by our commitment of significant  management resources to continuously
improve process and product design  development  cycle time. Our current product
strategy  requires rapid  development  of new products  using  emerging  process
technologies  while  minimizing  research  and  development  costs.  We  perform
research and  development  at two levels:  research and  development  related to
process  technology  is  managed  at  the  corporate  level;  and  research  and
development  related to new product design is managed at the operating level, in
concert with our new product design organization.


                                     Page 5

<PAGE>


     The  major  focus of our  process  technology  research  is the  continuous
migration  to  smaller  geometries.   Currently,   we  are  in  the  process  of
transitioning from 0.25-micron to 0.16-micron fabrication  technology.  We began
selling 0.25-micron Static RAM products during the fourth quarter of 1998.

     Our wafer  fabrication  facility  located in San Jose, which we refer to as
Fab 1, is utilized for  research and  development  programs  focusing  mainly on
continuous migration to smaller geometries. Development programs for 0.16-micron
technologies  are  currently in progress in Fab 1. Fab 1 also  develops  process
enhancements  to current  generation  technology.  In fiscal 1999,  we began the
process  of  converting  Fab 1 from  a  six-inch  facility  into  an  eight-inch
facility. This conversion is expected to be completed by June 2000.

    We have a central  design  group  that  focuses  on new  product  design and
improvement of design  methodologies.  This group has ongoing  efforts to reduce
design cycle time and increase first pass yield through  structured re-use of IP
Blocks  from  a  controlled   intellectual  property  library,   development  of
computer-aided design tools and improved design business processes. We currently
have 48 design  teams in place  working  on new  product  designs.  Design  work
primarily occurs at design centers located in: Colorado Springs,  Colorado;  San
Jose, California; San Diego, California;  Woodinville,  Washington; Bloomington,
Minnesota;  Austin,  Texas;  Starkville,  Mississippi;  Nashua,  New  Hampshire;
Bangalore,  India; Basingstoke,  United Kingdom; and Cork, Ireland. In addition,
we have software development teams in: Beaverton,  Oregon;  Lexington,  Kentucky
and San Jose, California

Manufacturing

     In 1999, we continued to manufacture our products at three sub-micron wafer
fabrication facilities located in California, Minnesota and Texas, the principal
facilities  being the latter  two.  These  fabrication  facilities  utilize  our
proprietary  0.25,  0.35,  0.5, 0.65 and  0.8-micron  CMOS,  0.8 and  0.5-micron
BiCMOS, and 0.65-micron Flash technologies. To enhance our competitive position,
we emphasized  programs to reduce  manufacturing  cycle times,  reduce die size,
improve  labor  productivity,   improve  efficient  use  of  capital  resources,
eliminate  manufacturing  steps,  improve defect  densities,  improve yields and
ultimately  lower  manufacturing  costs.  We invested  $57.4  million in 1999 to
increase the capacity and  capability of our primary wafer  fabrication  plants,
Fab 2 and Fab 4. We have also continued to utilize various  foundries to augment
production  output to respond to  increasing  market demand and focus on RAM and
BiCMOS technologies in our own wafer fabrication plants.

     A significant  portion of our assembly and test  operations is performed by
our highly  automated  assembly  and test  facility  in the  Philippines,  which
accounted   for  46%  of  our  1999  output,   and  through   various   offshore
subcontractors.  Our Philippines facility focuses its investments in high volume
products and packages where our ability to significantly  leverage manufacturing
costs is high. The Philippines plant currently has capability for numerous types
of packaging and will be developing capability for several other packages in the
near  future.  In 1999,  we  invested  $17.6  million  in  capital to expand our
Philippines'  manufacturing  capability with  state-of-the  art equipment.  When
fully  utilized,  this plant is  expected  to provide  approximately  65% of our
assembly and test manufacturing capacity.

     The complicated  nature of our wafer fabrication  process often resulted in
certain   wafers  being   rejected  or  individual  die  on  each  wafer  to  be
non-functional,  adversely affecting  manufacturing yields. Similar yield losses
may be  experienced  in the  assembly  and  test  phase  of  manufacturing.  Our
philosophy  is to prevent the yield loss and/or  quality  problems to the extent
possible through analytical and statistical  manufacturing controls. We test our
products at various stages in the fabrication,  assembly and test processes.  We
perform  high  temperature  burn-in  testing as well as  continuous  reliability
monitoring on all products,  and conduct  numerous  quality control  inspections
throughout the entire production flow using quality-control  analytic equipment.
This combination of manufacturing controls,  product testing and quality control
inspections  is intended  to reduce  costs while  maintaining  an  uninterrupted
supply of product.

Marketing and Sales

     We use four  channels to sell our  products:  direct OEM sales by our sales
force;  direct OEM sales by manufacturing  representative  firms;  sales through
domestic  distributors;  and sales through  international  trading companies and
representative  firms. Our marketing and sales efforts are organized around four
regions: North America, Europe, Japan and Asia/Pacific. We also have a strategic
accounts  group,  which is  responsible  for specific  customers  with worldwide
operations.  We augment our sales effort with field application  engineers,  who
are specialists in our product  portfolio and work with customers to "design in"
our  products  for  their  systems.  Field  application  engineers  also help us
identify emerging markets and new products.


                                     Page 6

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     International  revenues  accounted  for 51% of our total  revenues  in 1999
compared to 45% in 1998 and 39% in 1997,  respectively.  Please refer to Note 11
to our annual  financial  statements  included  with this Report for  additional
information on geographic distribution of our revenues.

     We  typically  warrant  our  products  against  defects  in  materials  and
workmanship  for a period of one year and that  product  warranty  is  generally
limited to a refund of the original purchase price of the product.

Backlog

     Our sales are  typically  made  pursuant  to standard  purchase  orders for
delivery of catalog products.  Generally, customer relationships are not subject
to long-term contracts.  Products to be delivered and delivery schedules,  under
purchase orders outstanding from time to time, are frequently revised to reflect
changes in customer needs. For these reasons, our backlog at any particular date
is not  representative  of actual sales for any succeeding period and we believe
that our backlog is not a meaningful indicator of future revenues.

Competition

     We face  competition  from  other  domestic  and  foreign  high-performance
integrated  circuit  manufacturers,  many of which have  advanced  technological
capabilities  and have increased their  participation in the markets in which we
operate.  We  compete  with  a  large  number  of  companies  primarily  in  the
telecommunications,  data communications,  personal computer,  personal computer
peripheral and military  markets.  Competitors,  including  Altera  Corporation,
Hitachi, Integrated Device Technology, Inc., Integrated Silicon Solutions, Inc.,
Motorola,  Inc., Samsung, Texas Instruments Incorporated and Xilinx, Inc, target
certain markets and compete directly with our products.  Competition is based on
various factors that can vary among products and markets.  These factors include
design and quality of the products, product performance, price and service.

     The  semiconductor   industry  is  intensely   competitive.   This  intense
competition results in a difficult  operating  environment for most companies in
the industry, including Cypress. This environment is characterized by erosion of
product sale prices over the lives of each product,  rapid technological change,
limited product life cycles and strong domestic and foreign  competition in many
markets.  Our  ability  to  compete  successfully  in a  rapidly  evolving  high
performance  end  of the  semiconductor  technology  spectrum  depends  on  many
factors, including:

o    our success in developing new products and manufacturing technologies;

o    the delivery performance, quality and price of our products;

o    the diversity of our product line;

o    the  cost  effectiveness  of our  design,  development,  manufacturing  and
     marketing efforts;

o    the pace at which  customers  incorporate  our products into their systems,
     and

o    the number and nature of our competitors and general economic conditions.

     We believe that we currently compete  effectively in the above areas to the
extent  they are within our  control,  however,  given the pace at which  events
change in the  industry,  our current  abilities  are not a guarantee  of future
success.  If we are not able to compete  successfully in this  environment,  our
business, operating results and financial condition will be adversely affected.

Patents and Licenses

     We  currently  have 368 patents and  approximately  330  additional  patent
applications on file with the United States Patent and Trademark  Office and are
preparing  to file more patent  applications.  In  addition  to factors  such as
innovation,  technological  expertise and experienced personnel, we believe that
patents  are  becoming  increasingly  important  to  remain  competitive  in the
industry and we have an active  program to acquire  additional  patent and other
intellectual property protection.

     We have, and in the future may continue to, enter into  technology  license
agreements  with third  parties that give those parties the right to use patents
and other technology  developed by us. Some of these agreements also give us the
right to use patents and other  technologies  developed  by such other  parties,
some of which involve payment of royalties.


                                     Page 7

<PAGE>


     There can be no assurance that patents owned by us will not be invalidated,
circumvented or challenged,  or that the rights granted  thereunder will provide
competitive  advantage  to us. We are,  and may in the  future be,  involved  in
litigation  with respect to alleged  infringement  or involved in  litigation to
enforce our intellectual  property  rights.  There can also be no assurance that
license  agreements  will  continue  to  be  available  to  us  on  commercially
reasonable terms in the future.

Employees

     As of  January  2,  2000,  we and our  subsidiaries  had  3,810  employees,
compared to 3,030 at the end of fiscal 1998.  In 1998, we laid-off 363 employees
located  in Fab 2 in  Texas,  Fab 3 in  Minnesota  and our  test  operations  in
Thailand  in  conjunction  with our  1998  restructuring  activity.  None of our
employees are represented by a collective bargaining agreement, nor have we ever
experienced any work stoppages.

Risk Factors

     Except for the historical  information  contained herein, the discussion in
this 10-K  report  contains  forward-looking  statements  within the  meaning of
Section  27A of the  Securities  Act of 1933,  as  amended,  including,  but not
limited to,  statements as to the future  operating  results and business plans,
that  involve  risks  and  uncertainties.  We use such  words as  "anticipated,"
"believes,"  "expects," "future," "intends," and similar expressions to identify
forward-looking  statements.  Our actual  results could differ  materially  from
those anticipated in these forward-looking  statements for any reason, including
the  risks  described  below and  elsewhere  in this  Form  10-K.  If any of the
following risks actually occur, our business,  financial condition and operating
results could be seriously harmed.

Our future operating results are unusually likely to fluctuate and therefore may
fail to meet expectations.

     Our  operating  results have varied  widely in the past and may continue to
fluctuate in the future.  In addition,  our operating results may not follow any
past trends.  Our future  operating  results will depend on many factors and may
fluctuate and fail to meet our  expectations or those of others for a variety of
reasons, including the following:

o    the intense competitive pricing pressure to which our products are subject,
     which can lead to rapid and unexpected declines in average selling prices;

o    the complexity of our  manufacturing  processes and the  sensitivity of our
     production  costs to declines  in  manufacturing  yields,  which make yield
     problems both possible and costly when they occur; and

o    the need for constant,  rapid, new product  introductions  which present an
     ongoing  design and  manufacturing  challenge,  which can be  significantly
     impacted by even relatively minor errors,  and which may result in products
     never achieving expected market demand.

     As a result  of  these  or other  factors  we  could  fail to  achieve  our
expectations as to future revenues, gross profit and income from operations. Any
downward  fluctuation  or failure to meet  expectations  will  likely  adversely
affect the value of your investment in Cypress.

     In  addition,  because we  recognize  revenues  from sales to our  domestic
distributors  only when  these  distributors  make a sale to  customers,  we are
highly  dependent on the accuracy of their resale  estimates.  The occurrence of
inaccurate  estimates  also  contributes  to the  difficulty in  predicting  our
quarterly revenue and results of operations.

We face  periods  of  industry-wide  semiconductor  over-supply  that  harm  our
results.

     The  semiconductor  industry has  historically  been  characterized by wide
fluctuations   in  the  demand  for,  and  supply  of,   semiconductors.   These
fluctuations  have  helped  produce  many  occasions  when supply and demand for
semiconductors  have not  been in  balance.  In the  past,  these  industry-wide
fluctuations  in  demand,  which  have  resulted  in  under-utilization  of  our
manufacturing  capacity,  have  harmed our  operating  results.  In some  cases,
industry downturns with these  characteristics  have lasted more than a year. If
these  cycles  continue,  they  will  seriously  harm  our  business,  financial
condition and results of operations.

Our financial  results could be seriously harmed if the markets in which we sell
our products do not grow.


                                     Page 8

<PAGE>


     Our  continued  success  depends in large part on the  continued  growth of
various  electronics  industries  that  use our  semiconductors,  including  the
following industries:

o    data communications and telecommunications equipment;

o    computers and computer related peripherals;

o    automotive electronics;

o    industrial controls; and

o    customer electronics equipment and military equipment.

     A  significant   portion  of  our  products  is   incorporated   into  data
communications and  telecommunications  end-products.  Any decline in the demand
for networking  applications,  mass storage,  telecommunications,  cellular base
stations,  cellular  handsets  and other  personal  communication  devices  that
incorporate our products could seriously harm our business,  financial condition
and  operating  results.  In addition,  certain of our  products,  including USB
microcontrollers,  high-frequency  clocks and static RAMs, are incorporated into
computer and  computer-related  products,  which have  historically  experienced
significant  fluctuations in demand.  We may also be seriously  harmed by slower
growth in the other markets in which we sell our products.

We are affected by a general pattern of product price decline and  fluctuations,
which can harm our business.

     Even in the absence of an industry downturn,  the average selling prices of
our products have  historically  decreased  during the products'  lives,  and we
expect  this trend to  continue.  In order to offset the average  selling  price
decreases,  we attempt to decrease  manufacturing costs of our products,  and to
introduce new, higher priced products that  incorporate  advanced  features.  If
these efforts are not successful or do not occur in a timely  manner,  or if our
newly introduced products do not gain market acceptance, our business, financial
condition and results of operations could be seriously harmed.

     In addition to following the general pattern of decreasing  average selling
prices, the selling prices for certain products,  particularly  commodity static
RAM products,  fluctuate  significantly  with real and perceived  changes in the
balance of supply and demand for these products.  Growth in the worldwide supply
of static  RAMs in recent  periods  resulted  in a decrease  in average  selling
prices  for such  products.  In the  event we are  unable to  decrease  per unit
manufacturing  costs at a rate equal to or faster than the rate at which average
selling  prices  continue to decline,  our  business,  financial  condition  and
results of  operations  will be  seriously  harmed.  Furthermore,  we expect our
competitors  to invest in new  manufacturing  capacity  and achieve  significant
manufacturing  yield  improvements  in  the  future.  These  developments  could
dramatically  increase the worldwide supply of static RAM products and result in
associated downward pressure on prices.

We may be unable to protect our intellectual property rights adequately, and may
face significant expenses as a result of ongoing or future litigation.

     Protection of our intellectual  property rights is essential to keep others
from  copying  the  innovations  that are  central  to our  existing  and future
products.  Consequently,  we may become  involved in  litigation  to enforce our
patents or other intellectual  property rights, to protect our trade secrets and
know-how,  to  determine  the  validity  or scope of the  proprietary  rights of
others,  or to defend against claims of invalidity.  This type of litigation can
be expensive, regardless of whether we win or lose.

     Also, we are now and may again become  involved in  litigation  relating to
alleged  infringement  by us of others' patents or other  intellectual  property
rights.  This type of  litigation  is  frequently  expensive to both the winning
party and the losing party and takes up significant amounts of management's time
and attention.  In addition, if we lose such a lawsuit, a court could require us
to pay substantial  damages and/or royalties or prohibit us from using essential
technologies.  For these  and  other  reasons,  this  type of  litigation  could
seriously  harm our business,  financial  condition  and results of  operations.
Also,  although  we  may  seek  to  obtain  a  license  under  a  third  party's
intellectual  property  rights  in order to bring an end to  certain  claims  or
actions  asserted  against  us, we may not be able to obtain  such a license  on
reasonable terms or at all.

     We have entered into technology  license agreements with third parties that
give those  parties the right to use patents and other  technology  developed by
us, and that give us the right to use patents and other technology  developed by
them. We anticipate that we will continue to enter into these kinds of licensing
arrangements in the future. It is possible  however,  that licenses we want will
not be available to us on  commercially  reasonable  terms.  If we lose existing
licenses to key  technology,  or are unable to enter into new licenses  which we
deem  important,  our  business,  financial  condition and results of operations
could be seriously harmed.


                                     Page 9

<PAGE>


     It is critical to our success that we be able to prevent  competitors  from
copying our innovations,  we therefore intend to continue to seek patent,  trade
secret   and  mask  work   protection   for  our   semiconductor   manufacturing
technologies.  The  process  of  seeking  patent  protection  can  be  long  and
expensive,  and we  cannot  be  certain  that any  currently  pending  or future
applications  will actually result in issued  patents,  or that, even if patents
are issued,  they will be of sufficient scope or strength to provide  meaningful
protection or any commercial  advantage to us.  Furthermore,  others may develop
technologies that are similar or superior to our technology or design around the
patents we own.

     We also rely on trade secret protection for our technology, in part through
confidentiality  agreements  with our employees,  consultants and third parties.
However, these parties may breach these agreements, and we may not have adequate
remedies for any breach.  Also,  others may come to know about or determine  our
trade  secrets  through a variety of methods.  In addition,  the laws of certain
territories  in which we  develop,  manufacture  or sell  our  products  may not
protect our  intellectual  property rights to the same extent as the laws of the
United States.

Our  financial  results  could  be  adversely  impacted  if we fail to  develop,
introduce   and  sell  new  products  or  fail  to  develop  and  implement  new
manufacturing technologies.

     Like many  semiconductor  companies,  which frequently  operate in a highly
competitive,  quickly  changing  environment  marked  by rapid  obsolescence  of
existing  products,  our future  success  depends on our  ability to develop and
introduce new products that  customers  choose to buy. We introduce  significant
numbers of product each year,  which are an important  source of revenue for us.
If we fail to compete and  introduce  new product  designs in a timely manner or
are  unable to  manufacture  products  according  to the  requirements  of these
designs  (discussed  more  below),  or if  our  customers  do  not  successfully
introduce new systems or products  incorporating  ours, or market demand for our
new products does not exist as anticipated,  our business,  financial  condition
and results of operations could be seriously harmed.

     For Cypress and many other  semiconductor  companies,  introduction  of new
products  is a major  manufacturing  challenge.  The  new  products  the  market
requires  tend to be  increasingly  complex,  incorporating  more  functions and
operating at faster speeds than prior products.  Increasing complexity generally
requires smaller features on a chip. This makes manufacturing new generations of
products  substantially  more  difficult  than  prior  generations.  Ultimately,
whether we can  successfully  introduce these and other new products  depends on
our ability to develop and implement new ways of  manufacturing  semiconductors.
If we are unable to design, develop,  manufacture,  market and sell new products
successfully,  our business, financial condition and results of operations would
be seriously harmed.

Interruptions  in the  availability  of raw  materials  can  seriously  harm our
financial performance.

     Our semiconductor  manufacturing operations require raw materials that must
meet exacting  standards.  We generally have more than one source  available for
these  materials,  but there are only a limited  number of suppliers  capable of
delivering  certain raw  materials  that meet our  standards.  If we need to use
other companies as suppliers,  they must go through a qualification  process. In
addition,  the raw  materials we need for our business  could become  scarcer as
worldwide demand for  semiconductors  increases.  Interruption of our sources of
raw materials could seriously harm our business, financial condition and results
of operations.

Problems  in the  performance  of other  companies  we hire to  perform  certain
manufacturing tasks can seriously harm our financial performance.

     A high percentage of our products are assembled, packaged and tested at our
manufacturing  facility  located  in the  Philippines.  We rely  on  independent
subcontractors to assemble,  package and test the balance of our products.  This
reliance involves certain risks, because we have less control over manufacturing
quality and delivery  schedules,  whether these companies have adequate capacity
to meet our needs and  whether or not they  discontinue  or  phase-out  assembly
processes  we  require.  We cannot be  certain  that these  subcontractors  will
continue  to  assemble,  package  and  test  products  for us,  and it  might be
difficult for us to find alternatives if they do not do so.

The complex nature of our manufacturing  activities makes us highly  susceptible
to  manufacturing  problems  and these  problems can have  substantial  negative
impact on us when they occur.

     Making  semiconductors  is a highly complex and precise process,  requiring
production  in  a  tightly  controlled,  clean  environment.   Even  very  small
impurities in our manufacturing materials, difficulties in the wafer fabrication
process, defects in the masks used to print circuits on a wafer or other factors
can cause a substantial percentage of wafers to be rejected or numerous chips on
each wafer to


                                    Page 10

<PAGE>


be nonfunctional.  We may experience problems in achieving an acceptable success
rate  in  the  manufacture  of  wafers,   and  the  likelihood  of  facing  such
difficulties  is higher in connection  with the transition to new  manufacturing
methods.  The  interruption  of wafer  fabrication  or the  failure  to  achieve
acceptable  manufacturing  yields at any of our facilities  would seriously harm
our  business,  financial  condition  and  results  of  operations.  We may also
experience manufacturing problems in our assembly and test operations and in the
introduction of new packaging materials.

We may not be able to use all of our existing or future manufacturing  capacity,
which can negatively impact our business.

     We have  spent,  and expect to continue  to spend,  significant  amounts of
money  to  upgrade  and  increase  our  wafer  fabrication,  assembly  and  test
manufacturing  capability and capacity.  If we do not need some of this capacity
and capability for any of a variety of reasons, including inadequate demand or a
significant  shift in the mix of product orders that makes our existing capacity
and capability  inadequate or in excess of our actual needs, our fixed costs per
semiconductor  produced will increase,  which will harm us. In addition,  if the
need for more advanced products requires accelerated  conversion to technologies
capable of manufacturing semiconductors having smaller features, or requires the
use of larger wafers,  we are likely to face higher  operating  expenses and may
need to write-off capital equipment made obsolete by the technology  conversion,
either of which could seriously harm our business and results of operations.

Our operations and financial results could be severely harmed by certain natural
disasters.

     Our  headquarters and some  manufacturing  facilities and some of our major
vendors'  facilities  are  located  near  major  earthquake  faults.  If a major
earthquake or other natural disaster occurs,  we could suffer damages that could
seriously harm our business, financial condition and results of operations.

Our business,  results of operations  and financial  condition will be seriously
harmed if we fail to successfully compete in our highly competitive industry and
markets.

     The  semiconductor   industry  is  intensely   competitive.   This  intense
competition results in a difficult  operating  environment for us and most other
semiconductor companies that is marked by erosion of average selling prices over
the lives of each product,  rapid  technological  change,  limited  product life
cycles and strong  domestic and foreign  competition in many markets.  A primary
cause of this highly competitive environment is the strength of our competitors.
The  industry  consists  of  major  domestic  and  international   semiconductor
companies,  many of  which  have  substantially  greater  financial,  technical,
marketing, distribution and other resources than we do. We face competition from
other domestic and foreign  high-performance  integrated circuit  manufacturers,
many of which have advanced technological  capabilities and have increased their
participation  in markets that are  important to us. If we are unable to compete
successfully in this environment,  our business, operating results and financial
condition will be seriously harmed.

     Our  ability  to  compete   successfully  in  the  rapidly   evolving  high
performance  portion of the  semiconductor  technology  industry depends on many
factors, including:

o    our success in developing new products and manufacturing technologies;

o    the quality and price of our products;

o    the diversity of our product line; o the cost  effectiveness of our design,
     development, manufacturing and marketing efforts;

o    the pace at which  customers  incorporate  our products into their systems,
     and

o    the number and nature of our competitors and general economic conditions.

     Although we believe we currently compete  effectively in the above areas to
the  extent  they are  within  our  control,  given  the pace of  change  in the
industry, our current abilities are not a guarantee of future success.

We must  build  semiconductors  based on our  forecasts  of  demand,  and if our
forecasts are inaccurate, we may have large amounts of unsold products or we may
not be able to fill all orders.

     We order materials and build semiconductors based primarily on our internal
forecasts, and secondarily on existing orders, which may be cancelled under many
circumstances.  Consequently,  we depend on our forecasts to determine inventory
levels for our products and the amount of  manufacturing  capacity that we need.
Because our markets are  volatile and subject to rapid  technological  and price
changes,  our  forecasts  may be  wrong,  and we may make too many or too few of
certain products or have too much or too little  manufacturing  capacity.  Also,
our  customers  frequently  place  orders  requesting  product  delivery  almost
immediately  after the order is


                                    Page 11

<PAGE>


made,  which makes  forecasting  customer demand even more difficult.  The above
factors also make it difficult to forecast quarterly  operating  results.  If we
are unable to predict  accurately the appropriate  amount of product required to
meet  customer  demand,  our  business,   financial  condition  and  results  of
operations could be seriously harmed.

We must spend  heavily on equipment to stay  competitive,  and will be adversely
impacted if we are unable to secure financing for such investments.

     In order to remain competitive  semiconductor  manufacturers generally must
spend  heavily on equipment to maintain or increase  manufacturing  capacity and
capability. We have budgeted for approximately $250.0 million in expenditures on
equipment in 2000 and anticipate  significant continuing capital expenditures in
subsequent  years. In the past, we have reinvested a substantial  portion of our
cash flow from  operations  in  capacity  expansion  and  improvement  programs.
However,  our cash flows from  operations  depend  primarily on average  selling
prices,  which  generally  decline over time,  and on the  per-unit  cost of our
products.

     If we are unable to decrease  costs for our  products at a rate at least as
fast as the rate of the decline in selling prices for such products,  we may not
be able to  generate  enough cash flow from  operations  to maintain or increase
manufacturing capability and capacity as necessary. In such a situation we would
need  to  seek  financing  from  external  sources  to  satisfy  our  needs  for
manufacturing equipment and, if cash flow from operations declines too much, for
operational cash needs as well. Such financing, however, may not be available on
terms  which  are  satisfactory  to us or at all,  in which  case our  business,
financial condition and results of operations will be seriously harmed.

We compete with others to attract and retain key personnel,  and any loss of, or
inability to attract, such personnel would harm us.

     To a greater degree than most  non-technology  companies,  we depend on the
efforts and abilities of certain key  management  and technical  personnel.  Our
future success depends, in part, upon our ability to retain such personnel,  and
to attract and retain other highly qualified personnel, particularly product and
process  engineers.  We compete  for these  individuals  with  other  companies,
academic institutions, government entities and other organizations.  Competition
for  such  personnel  is  intense  and we may not be  successful  in  hiring  or
retaining new or existing  qualified  personnel.  If we lose existing  qualified
personnel or are unable to hire new qualified personnel as needed, our business,
financial condition and results of operations could be seriously harmed.

We face additional  problems and  uncertainties  associated  with  international
operations that could seriously harm us.

     International  sales  represented  approximately 51% of our revenues during
fiscal 1999 and  approximately  45% of our  revenues  during  fiscal  1998.  Our
offshore assembly and test operations,  as well as our international sales, face
risks frequently associated with foreign operations, including:

o    currency exchange fluctuations,

o    political instability,

o    changes in local economic conditions,

o    the devaluation of local currencies,

o    import and export controls, and

o    changes in tax laws, tariffs and freight rates.

     To the extent any such risks materialize, our business, financial condition
and results of operations could be seriously harmed.

We are subject to many different environmental regulations,  and compliance with
them may be costly.

     We are subject to many different  governmental  regulations  related to the
storage,  use, discharge and disposal of toxic,  volatile or otherwise hazardous
chemicals used in our manufacturing  process.  Compliance with these regulations
can be costly.  In addition,  over the last several years, the public has paid a
great deal of  attention to the  potentially  negative  environmental  impact of
semiconductor  manufacturing  operations.  This  attention and other factors may
lead to changes in  environmental  regulations  that could  force us to purchase
additional equipment or comply with other potentially costly requirements. If we
fail  to  control  the use of,  or to  adequately  restrict  the  discharge  of,
hazardous  substances  under  present  or  future  regulations,  we  could  face
substantial liability or suspension of our manufacturing operations, which could
seriously harm our business, financial condition and results of operations.


                                    Page 12

<PAGE>


We depend on third  parties to  transport  our  products  and could be harmed if
these parties experience problems.

     We rely on  independent  carriers and freight  haulers to move our products
between  manufacturing  plants and our customers.  We have limited  control over
these  parties;  however,  any transport or delivery  problems  because of their
errors,  or because  of  unforeseen  interruptions  in their  activities  due to
factors such as strikes, political instability, natural disasters and accidents,
could seriously harm our business, financial condition and results of operations
and ultimately impact our relationship with our customers.

We may fail to integrate our business and  technologies  with those of companies
that we have recently acquired and that we may acquire in the future.

     We completed four  acquisitions  in calendar 1999,  recently  announced the
pending acquisition of Galvantech,  Inc. and may pursue additional  acquisitions
in  the  future.  If  we  fail  to  successfully  or  properly  integrate  these
businesses,   our  quarterly  and  annual  results  may  be  seriously   harmed.
Integrating  additional  businesses,  products and services  could be expensive,
time-consuming and a strain on our resources.  Specific issues that we face with
regard to prior and future acquisitions include:

o    the difficulty of integrating acquired technology or products;

o    the difficulty of assimilating the personnel of the acquired companies;

o    the difficulty of  coordinating  and integrating  geographically  dispersed
     operations;

o    our ability to retain customers of the acquired company;

o    the  potential  disruption  of our  on-going  business and  distraction  of
     management;

o    the maintenance of brand recognition of acquired businesses;

o    the  failure  to  successfully  develop  acquired  in-process   technology,
     resulting in the impairment of amounts currently  capitalized as intangible
     assets;

o    unanticipated expenses related to technology integration;

o    the  maintenance  of  uniform  standards,   corporate  cultures,  controls,
     procedures and policies;

o    the impairment of relationships with employees and customers as a result of
     any integration of new management personnel; and

o    the potential unknown liabilities associated with acquired businesses.

We face a number of unknown risks associated with year 2000 problems.

     The year 2000  computer  issue  creates a variety of risks for us. The year
2000 computer problem refers to the potential for system and processing failures
of date-related data as a result of computer-controlled systems using two digits
rather than four to define the applicable year. For example,  computer  programs
that have  time-sensitive  software may recognize a date  represented as "00" as
the year 1900 rather than the year 2000.  This could result in a system  failure
or  miscalculations  causing  disruptions of operations,  including  among other
things,   interruptions  in  manufacturing,   design  and  process   development
operations,  disruptions in processing business transactions, and disruptions in
other  normal  business  activities.  Issues  related to the year 2000  computer
problem could still arise. The risks involve:

o    potential  warranty or other claims by customers  with respect to errors in
     our products;

o    errors in systems we use to run our business;

o    errors in systems used by our suppliers;

o    errors in systems used by customers; and


                                    Page 13

<PAGE>


o    potential  reduced  spending by  customers  as a result of  concerns  about
     potential year 2000 problems.

     We have  designed  most of our products to be year 2000  compliant and have
developed  corrective  measures  for other  products  that  were not  originally
designed to be year 2000 compliant. However, our products may be integrated into
or used in  conjunction  with  products  supplied  by other  vendors.  We cannot
evaluate  whether all of the products of other vendors are year 2000  compliant.
We may face claims based on year 2000 problems in other  companies'  products or
based on issues arising from the integration or use of multiple products. We may
in the future be required  to defend our  products  in legal  proceedings  which
could be expensive regardless of the merits of these claims.

     If our suppliers,  vendors, partners,  customers and service providers fail
to  correct  their  year  2000  problems,  these  failures  could  result  in an
interruption in, or a failure of, our normal business  activities or operations.
If a year 2000 problem  occurs,  it may be difficult to determine  which party's
products have caused the problem.  These failures could interrupt our operations
and damage our  relationships  with  customers.  Due to the general  uncertainty
inherent in the year 2000 problem  resulting  from the readiness of  third-party
suppliers  and  vendors,  we are  unable  to  determine  at  this  time  whether
third-party  year 2000 failures  could harm our business,  results of operations
and financial condition.

EXECUTIVE OFFICERS OF THE REGISTRANT

    Certain  information  regarding each of Cypress's current executive officers
is set forth below:

                                                                       Executive
                                                                        Officer
        Name         Age                Position                         Since
------------------   ---  -------------------------------------------   -------
T. J. Rodgers        52   President and Chief Executive Officer            1982

Antonio R. Alvarez   43   Executive  Vice  President,  Memory  Products    1993
                          Division and Research and Development

Emmanuel Hernandez   44   Executive   Vice   President,   Finance   and    1993
                          Administration, Chief Financial Officer

J. Daniel McCranie   56   Executive Vice President, Marketing and Sales    1993


     Except as set forth below,  each of Cypress's  executive  officers has been
engaged in his principal  occupation described above during the past five years.
There is no family  relationship  between any director or  executive  officer of
Cypress.

     T.J. Rodgers is a co-founder of Cypress  Semiconductor  Corporation and has
been its president and chief executive officer since 1982. Mr. Rodgers serves as
a director of C-Cube Corporation.

     Antonio  R.  Alvarez  joined  Cypress  in May  1987 as a  senior  technical
engineer.  Mr. Alvarez was  transferred to Cypress's  former  subsidiary,  Aspen
Semiconductor Corporation, in April 1988 as the manager of BiCMOS technology. In
October 1989, Mr. Alvarez  returned to the corporate  office as Vice  President,
Research and Development.  In February 1993, Mr. Alvarez also became responsible
for Fab I when it was merged with the research and development department. Prior
to joining  Cypress in 1987,  Mr.  Alvarez  worked in  various  engineering  and
management  positions at Motorola  Corporation  from September 1979 through July
1987.  His last  position at Motorola  was as a senior  member of the  technical
staff.

     Emmanuel Hernandez joined Cypress in June 1993 as Corporate Controller.  In
January  1994,  Mr.  Hernandez  was  promoted  to Vice  President,  Finance  and
Administration,  and Chief  Financial  Officer.  Prior to joining  Cypress,  Mr.
Hernandez  held  various   financial   positions  with  National   Semiconductor
Corporation from 1976 through 1993.

     J. Daniel  McCranie  joined  Cypress in October  1993 as Vice  President of
Marketing and Sales.  Prior to joining  Cypress,  Mr. McCranie was President and
CEO of SEEQ  Technology  from 1989  through  1993.  Mr.  McCranie  also held the
position of Vice  President of Sales and Marketing for SEEQ for five years prior
to becoming President and CEO. Previously, he held marketing and sales positions
at Harris Semiconductor, AMD, American Microsystems and Signetics.


                                    Page 14

<PAGE>



I
TEM 2.  PROPERTIES

     Our executive offices,  engineering and research and development facilities
are located in an  approximately  60,000  square-foot  building at 195  Champion
Court,  San Jose,  California,  under a lease that will expire in 2004.  Located
immediately  adjacent to our executive  offices is one of our wafer  fabrication
facilities  (Fab 1), which is  primarily  utilized  for R & D  operations.  This
facility is located in an approximately  61,000  square-foot  leased building at
3901 North First  Street,  San Jose,  California.  The current  lease expires in
2004. The lease rates for these  facilities  are subject to variations  based on
the London interbank offering rate (LIBOR) and a requirement to sell, extend the
lease,  or acquire the  property at the end of the lease term (see Note 9 of the
Consolidated Financial Statements).

     Research and development and other Cypress staff functions also are located
at the San Jose building complex. This office space is composed of approximately
75,000 square feet in a building  located at 4001 North First Street,  San Jose,
California  under a lease which  expires in 2001.  In  addition,  we have leased
75,000  square feet of additional  office space at 3939 North First Street,  San
Jose,  California.  This  building was occupied in 1997 and is currently  leased
until 2001. As described above, the lease rates for these facilities are subject
to  variations  based on LIBOR and we are required to sell,  extend the lease or
acquire the property at the end of the lease term.

     We also have a 36,000 square feet office facility  located at 101 Nicholson
Lane,  San Jose,  California  under a lease that  expires  in 2003.  We have the
option to extend the lease for three  additional  years after the original lease
term expires.  The lease rate  increases 3% to 4% each year over the life of the
lease.

     In December  1988,  we purchased  the two  undeveloped  industrial  lots on
either side of our headquarters building. These similarly sized lots, comprising
a total of approximately 8.5 acres, will be retained for future expansion of the
San Jose building complex.  In the third quarter of 1996, we began operations in
a new 162,000-square foot highly automated assembly and test manufacturing plant
in Cavite,  the Philippines.  We own an approximately  100,000 square foot wafer
fabrication facility, referred to as Fab 2 in Round Rock, Texas. In addition, we
also own an  approximately  170,000  square  foot  wafer  fabrication  facility,
referred to as Fab 3, and we lease an  approximately  100,000  square foot wafer
fabrication  facility,  referred to as Fab 4 on 18 acres of land in Bloomington,
Minnesota.  The Fab 4 lease rate is subject to  variations  based on LIBOR and a
requirement to sell, extend the lease, or acquire the property at the end of the
lease  term  in  December  2004  (see  Note  9  of  the  Consolidated  Financial
Statements).

     In November 1997, we purchased real estate comprised of  approximately  3.5
acres of land and 58,000-square feet of building in Woodinville, Washington. The
property is the new primary  location of our  interface  products  organization,
previously located in a leased facility in Kirkland, WA.

     We lease  additional  space  for  domestic  sales  and  design  centers  in
Huntsville,   Alabama;   Irvine,  San  Diego,  San  Jose,  and  Woodland  Hills,
California;  Denver  and  Colorado  Springs,  Colorado;  Clearwater,   Altamonte
Springs,  and Pompano Beach,  Florida;  Roswell,  Georgia;  Palatine,  Illinois;
Lexington,  Kentucky; Columbia,  Maryland;  Minnetonka,  Minnesota;  Starkville,
Mississippi;  Nashua, New Hampshire;  Laurence Harbor and Ridgewood, New Jersey;
Northport and Oyster Bay, New York; Raleigh, North Carolina;  Beaverton, Oregon;
Elkins  Park and  Trevose,  Pennsylvania;  and Austin,  Houston and  Richardson,
Texas.  We lease  international  sales,  representative  and  design  centers in
Antwerp and Waterloo,  Belgium; Toronto, Ontario, Canada; Le Ulis Cedex, France;
Cork, Ireland; Milan and Orbassano, Italy; Tokyo and Osaka, Japan; Taby, Sweden;
Cheshire,  Basingstoke and Hertfordshire,  United Kingdom;  Zorneding,  Germany;
Singapore;  Taipei,  Taiwan;  Seoul,  Korea;  Hong  Kong  and  Shanghai,  China;
Lehdokkitie, Finland and Bangalore, India.

     As of the end of fiscal year 1999,  current  properties  are  suitable  for
immediate needs. There are no plans to re-locate or expand current facilities at
this time. Two undeveloped industrial lots at our headquarters are available for
future expansion.


ITEM 3.  LEGAL PROCEEDINGS:

     The  semiconductor   industry  has  experienced  a  substantial  amount  of
litigation regarding patent and other intellectual property rights. From time to
time, we have received, and may receive in the future,  communications  alleging
that our products or our processes may infringe on product or process technology
rights held by others.  We are currently,  and may in the future be, involved in
litigation  with  respect  to  alleged  infringement  by us of  another  party's
patents. In the future, we may be involved with litigation to:

o    enforce our patents or other intellectual property rights;

o    protect our trade secrets and know-how;


                                    Page 15

<PAGE>


o    determine the validity or scope of the proprietary rights of others; and

o    defend against claims of infringement or invalidity.

     Such  litigation  has  in the  past  and  could  in the  future  result  in
substantial costs and diversion of management  resources.  Such litigation could
also result in payment of substantial  damages and/or  royalties or prohibitions
against utilization of essential technologies, and could have a material adverse
effect on our business, financial condition and results of operations.

     During 1998, EMI Group of North America,  Inc. filed suit against us in the
Federal  Court in Delaware,  claiming that we infringed on four patents owned by
EMI. Cypress and EMI entered into a license  agreement in February 1999, for one
of the four  patents in the  lawsuit.  EMI withdrew two of the four patents from
the lawsuit,  including the patent related to the licensing agreement.  The case
involving  the two  remaining  patents went to trial in October  1999.  The jury
ruled in favor of us claiming that none of the patent claims was infringed by us
and  that  each  asserted  claim  was  invalid  due to  prior  art and  physical
impossibility (i.e., the patents require a step that is physically impossible to
perform).  EMI may file an appeal,  although no such appeal has been filed as of
March 9, 2000. Should EMI appeal the decision of the Federal Court, we intend to
defend  ourselves  vigorously.  However,  should the  outcome of this  action be
unfavorable,  our business,  financial condition and results of operations could
be materially and adversely affected.

     In January 1998, an attorney representing the estate of Mr. Jerome Lemelson
contacted  us and  charged  that  we  infringed  certain  patents  owned  by Mr.
Lemelson.  On February 26, 1999,  the  Lemelson  attorneys  sued us and 87 other
companies for infringement of 16 patents.  We have reviewed and investigated the
allegations in the complaint and we believe that the suits are without merit. We
will vigorously defend ourselves in this matter. While no assurance can be given
regarding  the outcome of this action,  we believe that the final outcome of the
matter will not have a material effect on our consolidated financial position or
results of operations. However, because of the nature and inherent uncertainties
of  litigation,  should the  outcome of this  action be  unfavorable,  we may be
required to pay damages and other expenses,  which could have a material adverse
effect on our financial position and results of operations.

     In June 1997,  we  commenced a  declaratory  judgment  action in the United
States  District  Court for the District of Nevada  against the Li Second Family
Trust. In this action, we asked for declaratory relief to the effect that a U.S.
patent  relating to a part of the process for  manufacturing  semiconductors  is
unenforceable,  invalid and not  infringed by us. The Trust has  counter-claimed
for  patent  infringement  on the  same  patent,  alleging  such  patent  covers
oxide-isolated  integrated circuits.  In May 1999, in a related case, the United
States District Court for the Eastern District of Virginia ruled that the patent
is  unenforceable  due to  inequitable  conduct by Dr. Li and his  attorneys  in
obtaining  the  patent.  We believe  that we have  meritorious  defenses  to the
counter-claim and intends to defend ourselves vigorously. While no assurance can
be given regarding the outcome of this action, we believe that the final outcome
of the matters  will not have a material  effect on our  consolidated  financial
position or results of operations. However, should the outcome of this action be
unfavorable,  our business,  financial condition and results of operations could
be materially and adversely affected.

     On October 2, 1997, we filed an action against Kevin Yourman, Joseph Weiss,
and their associated law offices in the Superior Court of California  ("Superior
Court") in Santa Clara County for malicious civil  prosecution in the underlying
securities  fraud actions  initiated by Messrs.  Yourman and Weiss in 1992.  The
underlying  securities fraud actions were dismissed because the court found that
none of our officers  made any  actionable  false or  misleading  statements  or
omissions. An appeal affirmed the lower court's finding that Messrs. Yourman and
Weiss failed to put forth  evidence  showing a genuine issue of fact with regard
to any statements by our officers.  On May 4, 1999, the Superior Court granted a
summary  judgment  motion by Messrs.  Yourman and Weiss,  holding  that  Messrs.
Yourman and Weiss had probable cause to bring the underlying litigation.  We are
appealing  the   decision.   Even  though,   the  results  of   litigation   are
unpredictable, we believe that this action, regardless of its outcome, will have
little,  if any,  effect on our  consolidated  financial  position or results of
operations.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters  were  submitted to a vote of the  security  holders  during the
quarter ended January 2, 2000.


                                    Page 16

<PAGE>



                                     PART II


ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     Our Common Stock is listed on the New York Stock Exchange under the trading
symbol "CY". The following table sets forth, for the periods indicated, the low,
high and closing price for the common stock. We have not paid cash dividends and
have no present  plans to do so. At  January  2, 2000  there were  approximately
42,000 holders of record of our Common Stock.


                                                PRICE RANGE OF COMMON STOCK ($)
                                                --------------------------------
                                                   LOW       HIGH       CLOSE
                                                   ---       ----       -----
Fiscal Year ended January 2, 2000:
  First Quarter .............................      7.38      10.38       9.31
  Second Quarter ............................      9.31      18.31      18.00
  Third Quarter .............................     17.06      28.94      23.38
  Fourth Quarter ............................     21.31      33.50      32.38
Fiscal Year ended January 3, 1999:
  First Quarter .............................      8.06      11.00      10.00
  Second Quarter ............................      7.38      10.69       8.25
  Third Quarter .............................      5.50       9.31       9.06
  Fourth Quarter ............................      8.00      12.00       8.31



ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                                    Year ended(1)
                                           ---------------------------------------------------------
                                           1999         1998          1997         1996         1995
                                           ----         ----          ----         ----         ----
                                              (Dollars in thousands, except per share amounts)
                 Operating results:
<S>                                    <C>          <C>           <C>          <C>          <C>       
  Revenues .........................   $  705,487   $  554,891    $  598,485   $  569,941   $  636,108
  Restructuring and other
      non-recurring costs ..........       33,812       60,737         9,882       10,932       17,800
  Operating Income (loss) ..........       52,823     (120,521)        8,508       54,110      162,966
  Income (loss) before tax .........       95,871     (118,441)       13,139       55,584      164,201
  Net income (loss) ................       91,054     (104,918)        7,526       25,108      104,995
  Net income (loss) per share
     Basic .........................   $     0.87   $    (1.03)   $     0.08   $     0.28   $     1.18

     Diluted .......................   $     0.81   $    (1.03)   $     0.07   $     0.26   $     1.02

  Weighted average common and common
     equivalent shares outstanding
     Basic .........................      104,703      101,944       100,137       90,247       89,321
     Diluted .......................      111,735      101,944       107,866       95,555      106,253
Balance sheet data:
  Cash and short-term investments ..   $  270,556   $  160,561    $  203,870   $   95,699   $  165,363
  Working capital ..................      344,630      236,081       309,661      125,746      195,131
  Total assets .....................    1,117,224      823,996       978,466      834,931      791,491
  Long term debt and capital lease
     obligations (excluding current
     portion) ......................      226,484      211,305       224,412      135,266      123,171
  Stockholders' equity .............      697,975      498,723       644,632      512,116      492,394
</TABLE>



(1)  We operate on a 52- or 53-week fiscal year.  Fiscal year 1999 was a 52-week
     fiscal year ending on the Sunday closest to December 31. 1998 was a 53-week
     fiscal year ending on the Sunday  closest to December 31.  Fiscal year 1997
     was a 52-week fiscal year ending on the Monday closest to December 31.


                                    Page 17

<PAGE>



ITEM 7.  Management's  Discussion  and  Analysis  of  Operations  and  Financial
         Condition

     This report may contain forward-looking  statements,  within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange  Act  of  1934,  about  the  prospects  for  Cypress  as  well  as  the
semiconductor industry more generally, including without limitation,  statements
about  increases in gross  margin,  rate of growth of research  and  development
expenditures  as a percent of revenues,  rate of growth of selling,  general and
administrative expenses,  profitability goals, revenue goals, growth rate goals,
market  share   goals,   market  size  and  growth   projections,   new  product
introductions,  planned manufacturing  capacity,  and efficiency and cost goals.
Actual   results   could  differ   materially   from  those   described  in  the
forward-looking  statements as a result of various  factors  including,  but not
limited  to,  the  factors  identified  in the  Letter to  Shareholders  and the
Management's  Discussion and Analysis section,  particularly  "Factors Affecting
Future Results," as well as the following:

     (1)  increased  competition  which  could  result  in lost  sales  or price
          erosion;

     (2)  changes  in  product  demand  by  the  electronics  and  semiconductor
          industries,  which are noted for rapidly changing needs,  coupled with
          an  inability  by  Cypress to  generate  product  enhancements  or new
          product  introductions  which  keep  pace with or meet  those  rapidly
          changing needs;

     (3)  failure by Cypress to develop or introduce  successfully  new products
          in areas of expected  new or  increased  demand,  or  development  and
          introduction of superior new products serving those areas by others;

     (4)  failure of expected  growth in demand  for,  or areas of expected  new
          demand for, semiconductor products to materialize;

     (5)  failure  to  successfully   bring  on  line  and  utilize   additional
          manufacturing  capacity,  or to  transition  existing  capacity to new
          uses;

     (6)  inability  to  develop   and/or  adopt  more  advanced   manufacturing
          technology;

     (7)  inability of Cypress's patents or other  proprietary  rights to ensure
          adequate  protection against  encroachment on Cypress's  technology by
          competitors; and

     (8)  failure to attract and/or retain key personnel.

Overview

     Revenues for Cypress  increased 27.1% to $705.5 million in fiscal 1999 from
$554.9  million in fiscal  1998.  Net income for fiscal  1999 was $91.1  million
compared to a net loss of $104.9 million in fiscal 1998. The net loss for fiscal
1998 included a  restructuring  charge of $60.7 million and other  non-recurring
charges totaling $27.3 million.  Excluding the  restructuring  and non-recurring
charges,  the net loss for fiscal 1998 was $26.9  million.  Cypress earned $0.81
per share, on a diluted basis, during fiscal 1999 compared to a diluted net loss
of $1.03 per share in fiscal 1998.

     On March 2, 2000,  Cypress  completed  the  merger  with  Galvantech,  Inc.
("Galvantech"),  which  will be  accounted  for as a pooling of  interests.  The
agreement provides for Cypress to issue up to 3.6 million shares in exchange for
all outstanding stock and options of Galvantech. The fiscal years of Cypress and
Galvantech  were  different  and  Galvantech  has changed its fiscal  periods to
coincide  with that of  Cypress.  Galvantech  specializes  in niche,  ultra-high
performance memories for data communications applications.

     On January 31, 2000, Cypress filed a universal shelf registration statement
with the Securities and Exchange  Commission.  The registration  statement which
was  effective  February  8, 2000 will  allow  Cypress  to market and sell up to
$400.0  million  of its  securities.  The shelf  registration  statement  allows
Cypress flexibility to raise funds from the offering of debt securities,  common
stock,  or a combination  thereof,  subject to market  conditions  and Cypress's
capital needs.

     On   January   19,    2000,    Cypress    completed   a   $283.0    million
registered-placement of 5-year convertible subordinated notes. The notes are due
in the year 2005, with a coupon rate of 4.00% and an initial  conversion premium
of 28.5%.  The notes are convertible  into  approximately  6.1 million shares of
common stock and are callable by Cypress no earlier than  February 5, 2003.  Net
proceeds were $275.2 million, after issuance costs of $7.8 million.


                                    Page 18

<PAGE>


     On October  5,  1999,  Cypress  announced  that it has signed a  definitive
agreement  with  Altera  Corporation  ("Altera")  to acquire  Altera's  MAX 5000
Programmable  Logic  Device  ("PLD")  product  line and its equity  interest  in
Cypress's  wafer  fabrication  facility  in Round  Rock,  Texas  ("Fab  II") for
approximately $13.0 million in cash. The acquisition has been accounted for as a
purchase. In 1988, Altera licensed its MAX 5000 family of products to Cypress in
consideration  of  manufacturing  capacity.  Altera later  acquired a 17% equity
interest in the Round Rock wafer  fabrication  facility.  By acquiring  Altera's
equity  interest  in  October  1999,  Fab II is now 100% owned by  Cypress. 

     On June 30, 1999, Cypress acquired all of the outstanding  capital stock of
Arcus Technology (USA), Inc. and the assets of Arcus Technology  (India) Limited
(referred  to   collectively  as  "Arcus").   Arcus   specializes  in  new  data
communications  arenas including dense wave multiplexing  (which allows multiple
signals to be  transmitted  over a single fiber optic cable) and "IP over SONET"
(the technology  needed to code and decode Internet  traffic to send it over the
telephone  system).  The  acquisition  was  accounted  for as a purchase and the
estimated fair value of assets acquired and liabilities assumed were included in
Cypress's  consolidated balance sheet as of June 30, 1999, the effective date of
the purchase. The results of operations were included from the date of purchase.
Cypress  acquired Arcus for $17.7  million,  including cash of $11.5 million and
stock of $6.2 million,  excluding direct  acquisition  costs of $0.8 million for
legal and accounting fees.

     On May 25, 1999,  Cypress acquired all of the outstanding  capital stock of
Anchor   Chips,   Inc.   ("Anchor"),   a  company   that   designs  and  markets
microcontroller  chips to support the Universal  Serial Bus. The acquisition was
accounted for as a purchase and the estimated fair value of assets  acquired and
liabilities assumed were included in Cypress's consolidated financial statements
as of May  25,  1999,  the  effective  date  of the  purchase.  The  results  of
operations were included from the date of purchase.  Cypress paid  approximately
$15.0 million in cash  excluding  direct  acquisition  costs of $0.7 million for
investment banking, legal and accounting fees.

     On April 1, 1999,  Cypress  completed a merger  with IC WORKS  Incorporated
("ICW"),  which was accounted for as a pooling of  interests.  The  consolidated
financial statements and the notes to the consolidated financial statements give
effect to the merger for all periods presented.  The fiscal years of Cypress and
ICW were different. ICW has changed its fiscal year-end to coincide with that of
Cypress.  Cypress's consolidated  statements of operations for the periods ended
January  3,  1999  and  December  27,  1997,   have  been  combined  with  ICW's
consolidated statements of operations for the corresponding twelve month periods
ended December 28, 1998 and March 28, 1998. During fiscal 1999, Cypress recorded
merger-related  transaction  costs of $3.7 million related to the acquisition of
ICW.  These  charges,  which consist  primarily of investment  banking and other
professional  fees, have been included under acquisition and merger costs in the
Consolidated Statements of Operations.

Results of Operations

Revenues

     Revenues for fiscal 1999 were $705.5 million, an increase of $150.6 million
or 27.1% versus  revenues for fiscal 1998,  and an increase of $107.0 million or
17.9%  compared to revenues for fiscal 1997.  Cypress  derives its revenues from
the sale of Memory Products and Non-memory  Products,  primarily targeted to the
data communications and computation markets.

     Revenues from the sale of Memory  Products for 1999 increased $73.8 million
or 37.6% over  revenues  from the sale of these  products  for  fiscal  1998 and
increased  $43.1 million,  or 19.0% compared to fiscal 1997. From fiscal 1998 to
fiscal 1999, sales of Static Random Access Memories products ("SRAM") grew $74.9
million or 40.3%. Revenues from SRAMs during fiscal 1999 increased $52.3 million
or 25.1% compared to fiscal 1997. The increase in Memory  Product  revenues,  as
compared to fiscal  1998,  resulted  from both  higher  average  selling  prices
("ASPs")  and an  increase  in unit  sales.  ASPs grew 16.7% from fiscal 1998 to
fiscal 1999 and unit sa1es increased 17.9% over the same period. The increase in
unit  sales  in  fiscal  1999  can  be  attributed  to  new  product   revenues,
particularly in the 4meg  synchronous,  the No Bus Latency  ("NoBL"),  the 2 meg
More Battery Life ("MoBL") and the 1 meg x16 micropower family of products.  The
synchronous  and NoBL demand was driven by the surge in the  networking  market,
while sales for MoBL and  micropower  were driven by the cellular  phone market.
Unit sales volume of Memory Products  increased  16.2% comparing  fiscal 1999 to
fiscal 1997, while ASPs remained relatively constant.

     Non-memory Products include programmable logic products, data communication
devices, computer products and non-volatile memory products. Non-memory products
also include foundry  revenues.  Foundry revenue  represents  sales of wafers to
customers. Revenues from the sale of Non-memory Products increased $76.8 million
or 21.4%  comparing  fiscal  1999 to  fiscal  1998 and $63.9 


                                    Page 19

<PAGE>


million,  or 17.2%  compared to fiscal 1997.  The  increase in revenues  related
primarily to the sale of computer  products,  which include  programmable  clock
products and universal  serial bus ("USB")  products,  and from the sale of data
communication devices.

     In fiscal 1999, revenues from the sale of computer products increased $54.7
million, or 36.9% and $86.5 million, or 74.2%, respectively,  compared to fiscal
1998 and fiscal 1997,  respectively.  The revenue growth in programmable  clocks
can  be  attributed  to  higher  unit  sales,  primarily  as  a  result  of  the
introduction of the BX clock chip in 1999 and greater  acceptance of other clock
products.  Also in fiscal 1999, revenues for USB products grew, in comparison to
fiscal 1998 and 1997,  primarily as a result of an increase in the adoption rate
of USB  products in the market  place,  particularly  in the  personal  computer
market.  USB  revenues in fiscal 1999 also  benefited  from the  acquisition  of
Anchor in May 1999. ASPs remained  relatively  stable  comparing  fiscal 1999 to
fiscal 1998.

     Revenues  generated from the sale of data  communication  devices in fiscal
1999,  increased  $22.7  million  or 18.3%  compared  to  fiscal  1998 and $20.0
million, or 15.8% compared to fiscal 1997. The revenue growth in fiscal 1999 was
the result of higher unit sales as units sold in fiscal 1999 increased 20.0% and
18.9%   compared   to  fiscal   1998  and  fiscal   1997,   respectively.   Data
communication's  revenue  growth  can be  attributed  to their  ability to align
themselves  with several key customers in the Storage Area  Network,  Local Area
Network and Wide Area Network markets.  Contributions  were primarily from the 1
Megabit Dual Port Ram,  HotLink  Transceivers  and  RoboClock  Skew Clock Buffer
family of  products.  The  increase  in unit sales more than  offset the minimal
decline in ASPs, comparing the same periods.

     Revenues from the sale of programmable  logic products in fiscal year 1999,
increased  $3.3  million or 7.9%  compared to fiscal 1998,  however,  decreasing
$14.7  million  or 24.8%  compared  to fiscal  1997.  In fiscal  1999,  revenues
increased,  compared to fiscal 1998,  due to the ramp up of sales in the 37K and
FLASH  family of  products.  The revenue  growth in the 37K and FLASH  family of
products more than offset  declining  sales in the more mature MAX and Small PLD
family of products.  Non-volatile  memory product revenues  remained  relatively
constant in fiscal 1999  decreasing  $0.8 million  compared to fiscal  1998.  In
1997,  Cypress  decided to cease selling  certain  non-volatile  memory devices,
Erasable  Programmable  Read-only  Memory  ("EPROM").  As a result,  the sale of
non-volatile  memory products  decreased $13.1 million or 31.7% from fiscal 1999
to fiscal 1997.

     As is typical in the  semiconductor  industry,  ASPs of products  generally
decline over the lifetime of the products.  To increase revenues,  Cypress seeks
to expand its market share in the markets it  currently  serves and to introduce
and sell new products with higher ASPs.  Cypress will seek to remain competitive
with respect to its pricing to prevent a further decline in sales.

Cost of Revenues

     Cost of revenues for fiscal 1999 were 54.4% of revenues,  compared to 73.7%
of revenues  for fiscal  1998 and 65.8% of  revenues  during  fiscal  1997.  The
decrease in cost of revenues as a percent of  revenues  was  primarily  due to a
significant increase in unit sales,  resulting in lower fixed cost per unit sold
and the introduction of new products with higher margins. In order to offset the
decrease in ASPs,  Cypress  must  continue  to find ways to lower  manufacturing
costs  and  introduce  new  products  with  higher  margins  in order to  remain
competitive in the marketplace.

     Cost of revenues for fiscal 1998 included  one-time  non-recurring  charges
totaling $21.7  million.  These charges  included  $15.8 million  related to the
write-down of inventory,  $3.8 million for the write-off of pre-operating  costs
and $2.1  million for the  write-off  of certain  equipment.  The $15.8  million
charge  for  incremental  inventory  reserves  arose  due to  market  conditions
resulting in the ongoing,  over-supply  and continued  inventory  corrections by
end-user customers.

     The  write-off of  pre-operating  costs  included  $2.9 million  related to
Cypress's wafer fabrication operation in Bloomington, Minnesota and $0.9 million
related to its assembly and test operations in the  Philippines.  As a result of
the  restructuring  activities,  Cypress  wrote off its  previously  capitalized
pre-operating costs as an impaired asset due to uncertainties  surrounding their
future economic benefits.  The pre-operating costs totaling $3.8 million, net of
accumulated amortization were included in other assets at December 29, 1997.

     The write-off of equipment was related to equipment  identified as obsolete
during Cypress's  periodic review of equipment and no longer considered  usable.
Excluding these one-time non-recurring charges, cost of revenues as a percent of
revenues for fiscal 1998 would have been 69.8%.

     Cypress  continues  to  introduce  new products and new methods of reducing
manufacturing  costs in order to mitigate the effects of  declining  ASPs on its
gross margin. In March 1998, Cypress announced restructuring  activities for its
domestic  wafer  fabrication  facilities  and  offshore  back-end  manufacturing
operations.  Activities completed to date have increased Cypress's manufacturing


                                    Page 20

<PAGE>


efficiencies  and as a result,  its gross margin has been  increasing  since the
first   quarter  of  fiscal  1998.   Cypress   expects  to  benefit  from  these
restructuring activities in the future.

Research and Development

     Research and development  ("R&D")  expenditures for fiscal 1999 were $129.3
million or 18.3% of revenues,  compared with $114.6 million or 20.6% of revenues
for fiscal 1998 and $104.3  million or 17.4% of revenues  for fiscal  1997.  R&D
expenditures  in fiscal 1999 increased $14.8 million or 12.9% compared to fiscal
1998 and $25.0  million  or 24.0%  compared  to fiscal  1997.  R&D  expenditures
increased from fiscal 1997 through  fiscal 1999 as Cypress  continued its effort
to  accelerate  the  development  of new products  and migrate to more  advanced
process technologies.  In 1999, spending in Cypress's design centers grew due to
increased  headcount and additional  spending from design centers  acquired with
the purchase of Arcus and Anchor.  During 1998, Cypress began utilizing the 0.25
micron  process  technology for  manufacturing  purposes,  and in 1999,  started
development  of 0.16 micron  process  technologies.  Cypress  believes  that its
future  success will depend on its ability to develop and introduce new products
that will compete  effectively on the basis of price and  performance,  and will
address  customer  needs.  In fiscal  2000,  Cypress is expecting to continue to
increase spending in R&D in order to improve its design and process technologies
in an effort to increase  revenues and reduce costs. As part of this effort,  in
fiscal 2000, Cypress expects to complete the conversation its San Jose R&D wafer
fab from a  six-inch  facility  into an  eight-inch  facility.  This  will  make
Cypress's R&D fab more compatible with its  technologically  advanced wafer fabs
in Minnesota. This conversion is expected to be completed in June 2000.

Selling, General and Administrative

     Selling,  general and administrative ("SG&A") expenses for fiscal 1999 were
$105.9  million  or 15.0% of  revenues,  compared  to $91.0  million or 16.4% of
revenues for fiscal 1998 and $82.0 million or 13.7% of revenues for fiscal 1997.
SG&A expenses for fiscal 1999 increased by $14.9 million or 16.3% as compared to
fiscal 1998 and by $23.9  million or 29.1% when  compared to fiscal  1997.  SG&A
spending  increased  in from  fiscal 1997 to fiscal 1998 and from fiscal 1998 to
fiscal  1999  principally  because of higher  sales and  marketing  expenditures
related to salesmen and rep commissions,  a new sales force training program and
higher  marketing  communication  expenditures.  In fiscal  1999,  Cypress  also
incurred higher legal costs, primarily associated with its successful defense of
the EMI patent  infringement  lawsuit.  With the exception of variable spending,
such as incentive bonuses,  salary adjustments and commissions,  Cypress expects
to keep SG&A  spending  as a percent of revenues  relatively  constant in fiscal
2000.

1999 Restructuring, Merger and Acquisition, and Other Non-Recurring Costs

     During fiscal 1999,  Cypress recorded a net $33.8 million in restructuring,
merger  and  acquisition,   and  other  non-recurring   costs.  These  one-time,
non-recurring   costs   included  a  $12.3   million   write-off  of  a  certain
manufacturing  asset that will not be  utilized  and an $11.9  million  one-time
compensation  charge.  In the first  quarter of fiscal  1999,  Cypress  recorded
one-time charges of $3.7 million associated with the merger with IC Works. These
charges were for investment  banking fees and other  professional  fees. Cypress
also recorded $8.8 million in costs  associated  with the purchase of Anchor and
Arcus  comprising of $4.0 million for  in-process  technology,  $1.6 million for
transaction costs and $3.2 million in amortization of intangible assets.  During
the  fourth  quarter  of  fiscal  1999,   Cypress  acquired  Altera's  MAX  5000
Programmable  Logic  Device  ("PLD")  product  line and its equity  interest  in
Cypress's  wafer  fabrication  facility  in Round  Rock,  Texas.  As part of the
transaction,  Cypress  recorded  intangible  assets  associated with the product
rights and incurred  $0.3  million for the  amortization  of these  intangibles.
These  non-recurring  charges  were offset by a reversal of $3.1  million of the
1998  restructuring  reserve.  The reversed  charges  related to $2.2 million of
severance and other employee  related charges and $0.3 million for the provision
for phase-down and completion of the Alphatec restructuring activities.  Cypress
also  reversed  $0.5 million of the 1998  restructuring  reserve for other fixed
asset related charges that were no longer  considered  necessary.  During fiscal
1999, Cypress reversed $0.7 million of the 1996 restructuring reserve related to
fixed asset de-installation charges that were no longer required.

1998 Restructuring and Other Non-Recurring Costs

     During  1998,  Cypress  implemented  an  overall  cost  reduction  plan and
recorded a $58.9 million restructuring reserve. The restructuring entailed:

     o    The  shutdown  of  Fab  3,  located  in  Bloomington,   Minnesota  and
          consolidation  of parts of Fab 3 operations  with other  operations of
          Cypress.


                                    Page 21

<PAGE>


     o    The  discontinuance  of the 0.6 micron 256k SRAM  production  in Fab 2
          located in Texas.

     o    The conversion of an existing  research and development fab located in
          San Jose (Fab 1) to  eight-inch  capability  in order to be compatible
          with the state of the art eight-inch Minnesota manufacturing facility.

     o    The  transfer of Cypress's  test  operations  from its  subcontractor,
          Alphatec,   in  Thailand  to  Cypress's  production  facility  in  the
          Philippines.

     o    The restructuring  activities  described above include the termination
          of approximately  850 manufacturing  employees  primarily from Cypress
          and Alphatec.

     FAB 3 -- The charge related to the shutdown of Fab 3 was $30.2 million.  Of
this amount, $26.0 million related to the write-down of equipment held for sale,
$1.7 million of other fixed asset related  charges for  incremental  third party
costs  expected to be incurred in the eventual  physical  removal of the written
down assets,  $1.1 million related to severance and other employee related costs
and $1.4 million related to inventory.

     Fab 3 assets, which were not upgradable to 8-inch capability,  were written
down based on the estimated  useful lives of the assets and the salvage value of
the assets.  The estimated useful lives were generally two months as a result of
the  decision  to  discontinue  production  in Fab 3 and the  salvage  value was
determined based on the estimated sales value of used  semiconductor  equipment.
Non-upgradable  Fab 3 assets were depreciated down to their salvage value during
the production  phase-down period. Fab 3 assets, which were upgradable to 8-inch
capability,  were  transferred  to Fab 4 production  during the third quarter of
1998.

     In accordance with the restructuring plan, Fab 3 production was phased down
beginning in the second quarter of 1998 and ceased in July 1998. From this time,
Cypress has held the  non-upgradable  equipment for sale. As of January 2, 2000,
some of the equipment  still has not been sold.  Cypress  expects to recover the
originally  determined salvage value for such equipment,  however,  no assurance
can be given as to the amount of proceeds that will ultimately be collected.

     FAB 2 --  The  decision  to  discontinue  manufacturing  SRAM  products  on
Cypress's 0.6 micron 256K SRAM process in Texas resulted in excess equipment and
employee redundancy.  Charges with this decision totaled $21.3 million, of which
$18.0 million  related to the write-down of equipment,  $0.3 million  related to
the  write-down  of  inventory,  $1.7  million  related to  severance  and other
employee related costs and $1.3 million of other fixed asset related charges for
incremental  third party  costs for the  physical  removal of the  written  down
assets and the resolution of certain related tax matters.

    Excess  equipment in Fab 2 was written down based on the useful lives of the
assets and the estimated  salvage  value of the assets.  Cypress had the ability
and intention to sell all the equipment immediately but due to the semiconductor
industry slow-down,  Cypress recognized immediate sale of the equipment would be
difficult.  The  equipment  was kept in the fab,  ready  for  demonstration  and
testing by a willing  buyer.  Cypress used the equipment  during the  production
phase-down period through May 1998.

    As of January  2,  2000,  some of this  equipment  remains on hand.  Cypress
expects to recover the originally  determined  salvage value for such equipment,
however,  no  assurance  can be given as to the  amount  of  proceeds  that will
ultimately be collected.

     FAB 1 and San  Jose  Operations  -- The  restructuring  plan  included  the
upgrade  of  Fab  1 to an  eight-inch  facility  to  ensure  compatibility  with
Cypress's Fab 4 manufacturing facility in Minnesota.  Fab 1 is used for research
and development  purposes.  The plan assumed commencement of Fab 1 restructuring
activities during the middle of 1998 with completion by the end of January 1999.
The  plan  included  the  disposal  and  write-down  of  six-inch  manufacturing
equipment  that was not upgradable to eight-inch  capability.  The remaining net
book value of such assets was written off over the estimated useful life through
January 1999.  Incremental  depreciation  charges, to reflect the revised useful
lives of this  equipment,  were included in research and  development  costs for
1998 and January 1999.  Cypress also  reserved  $1.0 million to  write-down  the
value of certain other  equipment and reserved $1.3 million related to severance
and other employee related costs. In fiscal 2000, Cypress expects to convert its
San Jose R&D wafer fab from a six-inch  facility  into an  eight-inch  facility.
This  will  make  Cypress's  R&D fab more  compatible  with its  technologically
advanced wafer fabs in Minnesota. This conversion is expected to be completed in
June 2000.

     ALPHATEC -- Cypress reserved $5.1 million to provide for the  consolidation
of  Thailand  test  activities  from  Alphatec,  Cypress's  subcontractor,  with
Cypress's  Philippines  facility. Of this $5.1 million reserve, $1.5 million was
related to production  inventories  which were no longer  useable as a result of
this  consolidation,  $1.3  million  was  related  to  severance  costs  at  the
subcontractor and


                                    Page 22

<PAGE>


$2.3 million was related to excess  equipment and leasehold  improvements  which
were no longer used. The assets were  considered  held for sale and were written
down to their revised  carrying value.  The transfer of production from Alphatec
to the  Philippines  facility  began  during the second  quarter of 1998 and was
completed in January 1999, one month later than originally planned.

     OTHER --  Separate  from the  restructuring  charge,  Cypress  recorded  an
additional  charge of $27.3 million,  which was recorded as operating  expenses.
The charges  were for  inventory  reserves  ($15.8  million),  the  write-off of
pre-operating costs ($3.8 million),  the write-off of an equity investment ($3.1
million),  costs  incurred to reimburse a customer  for  expenses  incurred as a
consequence of Cypress's  defective products ($2.5 million) and the write-off of
obsolete equipment in Fab 4 ($2.1 million). The write-down of inventory was made
to establish  incremental reserves for excess inventory and was recorded as cost
of revenues.

     The  write-off of  pre-operating  costs  included  $2.9 million  related to
Cypress's wafer fabrication operation in Bloomington, Minnesota and $0.9 million
related to its assembly and test  operation in the  Philippines.  As a result of
restructuring   activities,   Cypress  wrote  off  its  previously   capitalized
pre-operating costs as an impaired asset due to uncertainties  surrounding their
future  economic  benefits and accordingly the costs were written off to cost of
sales.  There were no capitalized  pre-operating  costs  subsequent to the first
quarter of 1998.

     The $3.1 million  write-off  of the  investment  was  recorded  against net
interest  and other  income to  reflect  the  decline  in the value of a certain
investment.  Selling, general and administrative costs included the write-off of
$2.5  million in costs  incurred  to  reimburse a customer  for certain  product
expenses incurred. During Cypress's periodic review of equipment, some equipment
was  identified  as  obsolete  and $2.1  million was charged to cost of sales to
write-off the obsolete equipment.

1997 Restructuring Costs - Cypress (ICW)

     In  fiscal  1997,  Maxim  Integrated  Products,  Inc.  ("Maxim")  agreed to
purchase wafer fabrication  assets from Cypress and its Fab Partners to purchase
certain  equipment from Cypress lessors thereby relieving Cypress of significant
future equipment lease obligations. Maxim also acquired the property that housed
the fab from Samsung  Semiconductor,  Inc. as part of the same transaction.  The
remaining  assets to be disposed at the end of fiscal year 1997 were  liquidated
between  April 1998 and June 1998  (including  at an  equipment  auction in June
1998). Due to the lack of any meaningful sale of assets at the June auction, the
actual liquidation of substantially all of the remaining assets was completed in
November 1998. In May 1998,  Maxim purchased  approximately  $0.5 million of the
assets to be disposed of in another  asset sale  transaction  separate  from the
November 1997 transaction.

     Cypress entered into the following material  agreements related to the sale
of its fab assets to Maxim in November 1997:

1.   Asset purchase agreements -- related to the purchase of assets from each of
     the respective owners of assets. (Fab Partners,  lessors, and Cypress.) The
     loss incurred by the Company as a result of these agreements is included as
     part of the restructuring costs in the accompanying financial statements.

2.   Loan  agreement  --  related to a loan by Maxim to Cypress in the amount of
     $2.0  million.  Recorded as long-term  debt in March 1998 and is payable at
     the earlier of an IPO, change in control, or four years.

3.   Foundry  agreement  -- related to  Cypress  agreement  for Maxim to provide
     BiCMOS foundry services to Cypress . This agreement  terminated in December
     1998. No effect on financials.

4.   Operating  agreement  -- related to sharing of the fab between  Cypress and
     Maxim for a period of up to seven  months from close  (actual  duration was
     four months). Specifics of the agreements include how costs are shared, who
     has control and when the fab transfers  sequentially from Cypress to Maxim,
     the basis for one party billing the other for its manufacturing  activities
     within the fab during the period of sharing the fab, and an agreement  with
     Maxim that they will hire substantially all the wafer fab-related employees
     based on a prescribed  schedule.  The operating agreement was substantially
     completed in March 1998.

     Cypress and Maxim also entered into an operating  agreement  that  outlined
the  utilization  of and  cost-sharing  for the  facility  during the  six-month
transition period following the sale of the fab assets to Maxim.


                                    Page 23

<PAGE>


     While Maxim had  acquired  most of Cypress  owned and leased fab assets and
certain  related assets,  Cypress still owned or leased other wafer  fabrication
assets that were not purchased by Maxim. As such, in connection with the exit of
the  wafer  fabrication  business,  Cypress  recorded  a  restructure  charge of
approximately  $9.9 million  related to impairment of assets sold to Maxim ($2.2
million),  impairment  of assets held for sale ($1.8  million),  refinancing  of
lease agreements ($3.6 million),  employee  severance ($0.2 million),  and other
transaction  costs ($2.2  million).  These  agreements  with Maxim resulted in a
reduction of headcount of approximately 113 foundry employees (most of whom were
hired by Maxim).  The total  expected  cash  outlay  related to this  charge was
approximately  $6.7 million at December 29, 1997,  of which the  remaining  $4.1
million was paid in 1999.

     In November  1997,  Cypress  also  borrowed  $2.0  million  from Maxim with
interest accruing at 6% per annum. The note and interest are to be repaid at the
earlier of: a majority sale of Cypress, the consummation of a public offering of
Cypress common stock,  or four years from the date of the note (November  2001).
In addition,  Cypress  entered into a wafer  purchase  agreement with Maxim that
allows Cypress to buy BiCMOS wafers from Maxim for a period of up to two years.

     On the closing date of the transaction,  November 20, 1997, Maxim purchased
Cypress six-inch wafer  fabrication  leasehold  improvements  and  manufacturing
equipment  as well as  certain  five-inch  wafer  fabrication  equipment,  which
Cypress owned or acquired  through  capital  leases.  The carrying  value of the
six-inch and five-inch  fabrication assets were $14.25 million and $0.4 million,
respectively.  Proceeds of the sale of these assets to Maxim were $12.5  million
to Cypress.  Substantially  all the assets  held at December  29, 1997 were sold
prior to January 3, 1999.

Interest Expense

     Interest  expense  was $9.6  million  for fiscal  1999,  compared  to $11.3
million  for fiscal  1998 and $8.5  million for fiscal  1997.  Interest  expense
incurred during fiscal 1999 is primarily  associated  with the 6.0%  Convertible
Subordinated Notes, which were issued in September 1997 and are due in 2002. The
decrease in fiscal 1999 is primarily  attributable  to the  retirement  of $15.0
million of these Notes towards the end of 1998.  Interest incurred during fiscal
1997 also included expenses from the convertible bond redeemed in March 1997 and
a revolving line of credit.

Interest and Other Income, Net

     Net interest and other income was $52.7 million for fiscal 1999 compared to
$13.4  million for fiscal 1998 and $13.1  million for fiscal 1997.  Net interest
and other income for fiscal 1999  included a $36.2 million gain from the sale of
a certain  investment  and $17.8 million of interest  income.  Offsetting  other
income was $1.0 million  related to the  amortization of bond issuance costs. In
fiscal 1998,  net interest and other income  included  interest  income of $15.2
million,  a $1.7  million  pre-tax net gain related to the  retirement  of $15.0
million of Cypress's 6.0%  Convertible  Subordinated  Notes and foreign exchange
gains of $0.5 million.  The 1998  interest and other income,  net is offset by a
non-recurring, pre-tax charge of $3.1 million recorded to reflect the decline in
value of a certain  investment and $1.0 million in amortization of bond issuance
costs.  Interest  and other  income,  net for fiscal 1997  relates  primarily to
interest  income of $10.5  million  and a $3.8  million  gain from the sale of a
certain investment. .

Taxes

     Cypress's  effective  tax rates for fiscal  years 1999,  1998 and 1997 were
5.0%, 11.4% and 42.7%, respectively. A tax benefit of $13.5 million was realized
during fiscal 1998 compared to expenses of $4.8 million and $5.6 million  during
fiscal  1999  and  fiscal  1997,  respectively.  The  benefit  was  attributable
primarily to the utilization of loss carrybacks, the utilization of research and
development tax credits and non-U.S. income taxed at lower tax rates compared to
U.S. tax rates, principally related to Cypress's operations in the Philippines.

     During  1998,  the  United  States   Internal   Revenue  Service  began  an
examination of tax returns for fiscal years 1994 through 1996.  The  examination
is expected to continue through May 2000.  Management  believes that the outcome
of the  examination  will not have a material  effect on Cypress's  consolidated
financial position or results of operations.

Earnings Before Goodwill

     Cypress  reported basic earnings before  goodwill  ("EBG") and diluted EBG.
EBG refers to earnings  excluding pretax  acquisition and restructuring  related
charges and credits,  in-process  research and  development  costs,  transaction
costs and amortization of intangible  assets, net of tax. EBG for the year ended
January 2, 2000 also excluded the  one-time,  pre-tax gain of $36.2 million from
the sale of a certain  investment.  These  charges and credits are excluded from
the computation of EBG and are collectively  referred to 


                                    Page 24

<PAGE>


as goodwill  by Cypress.  Cypress  presented  EBG as a measure of our  operating
results,  however, EBG is not intended to replace operating income or net income
as an indicator of operating performance or to replace cash-flow as a measure of
liquidity  because  EBG is not a concept  under  generally  accepted  accounting
principles.  Also,  our  calculation  of EBG  may  not be  comparable  to EBG as
calculated by other companies.  The table below reconciles basic and diluted net
income (loss) per share to basic and diluted earnings (loss) before goodwill per
share, respectively.

Reconciliation of basic net income (loss) per share to basic earnings (loss) per
share before goodwill:


<TABLE>
<CAPTION>
                                                                     Years ended
                                                            Jan. 2,    Jan. 3,    Dec. 29,
                                                             2000       1999         1997
                                                            -----       -----       -----
<S>                                                         <C>         <C>         <C>  
Basic net income (loss) per share ....................      $ 0.87      $(1.03)     $0.08
Goodwill net of taxes per share ......................      $ 0.01      $  --       $  --
Restructuring costs (credits) net of taxes per share .      $(0.03)     $ 0.53      $0.05
                                                                        -----       -----
Basic earnings (loss) before goodwill per share ......      $ 0.85      $(0.50)     $0.13
                                                            -----       -----       -----
</TABLE>



Reconciliation of diluted net income (loss) per share to diluted earnings (loss)
per share before goodwill:


<TABLE>
<CAPTION>
                                                                   Years ended
                                                          Jan. 2,     Jan. 3,    Dec. 29,
                                                           2000        1999        1997
                                                           -----       -----       -----
<S>                                                        <C>         <C>         <C>  
Diluted net income (loss) per share .................      $0.81       $(1.03)     $0.07

Goodwill net of taxes per share .....................      $0.01       $  --       $  --

Restructuring costs (credits) net of taxes per share       $(0.03)     $0.53       $0.05
                                                           -----       -----       -----

Diluted earnings (loss) before goodwill per share ...      $0.79       $(0.50)     $0.12
                                                           -----       -----       -----
</TABLE>



Stock Based Compensation

     Cypress  accounts for stock-based  compensation  arrangements in accordance
with provision of APB No. 25,  "Accounting for Stock Issued to Employees"  ("APB
25") and  discloses  pro forma  information  regarding  net  income  (loss)  and
earnings  (loss) per share as allowed by Statement of  Accounting  Standards No.
123 (SFAS  123).  Under APB 25,  compensation  cost is  recognized  based on the
difference, if any, between the fair market price of Cypress's stock on the date
of grant and the amount an employee must pay to acquire the stock.  As permitted
by SFAS 123,  Cypress  discloses  pro-forma  net income (loss) and pro-forma net
income (loss) per share as if it had recorded  compensation  cost. The pro-forma
effect on net  income  (loss)  and net  income  (loss) per share is based on the
estimated grant date fair value, as defined by SFAS 123 for awards granted under
the Cypress's  1994 and 1999 Stock Option Plans and its Employee  Stock Purchase
Plan.  Inclusive of the pro-forma effect, basic and diluted net income was $58.8
for fiscal  1999 and basic and  diluted  net loss was $135.9  million  and $17.5
million for fiscal years 1998 and 1997, respectively. Pro-forma basic net income
per share was $0.56 and diluted net income per share was $0.53 for fiscal  1999.
Pro-forma  basic and  diluted  net loss per share was  ($1.34)  and  ($0.18) for
fiscal years 1998 and 1997,  respectively.  The pro-forma effect may be impacted
by various factors including re-pricing of existing options.

     In January  1998,  substantially  all  outstanding  stock  options  with an
exercise price in excess of $9.75 per share were cancelled and replaced with new
options  having an exercise  price of $9.75 per share,  the fair market value on
the date that the employees accepted the repricing. A total of 10,464,000 shares
were  repriced.  This  repricing  excluded  the  Board of  Directors,  the Chief
Executive Officer and the Executive staff of Cypress.

Liquidity and Capital Resources

     Cypress's cash, cash equivalents and short-term  investments totaled $270.6
million at the end of fiscal year 1999, a $110.0  million  increase from the end
of 1998.

     On January 31, 2000, Cypress filed a universal shelf registration statement
with the Securities and Exchange  Commission (SEC). The registration  statement,
which was effective  February 8, 2000,  will allow Cypress to market and sell up
to $400.0 million of its securities. The shelf registration statement will allow
Cypress flexibility to raise funds from the offering of debt securities,  common
stock,  or a combination  thereof,  subject to market  conditions  and Cypress's
capital needs.

     During fiscal 1999, Cypress filed a registration statement on Form S-3 with
the Securities and Exchange Commission.  Under this shelf registration,  Cypress
could  through March 2001 sell any  combination  of debt  securities,  preferred
stock and common  stock in one or more  offerings up to a total amount of $300.0
million dollars.  The full amount of this shelf registration  statement has been
used


                                    Page 25

<PAGE>


by the transactions  described in this paragraph.  On January 19, 2000,  Cypress
completed  a  $283.0   million   registered-placement   of  5-year   convertible
subordinated  notes.  The notes are due in the year 2005,  with a coupon rate of
4.00% and an initial conversion premium of 28.5%. The notes are convertible into
approximately  6.1 million shares of common stock and are callable by Cypress no
earlier than February 5, 2003. Net proceeds were $275.2 million,  after issuance
costs of $7.8 million.  Pursuant to the shelf  registration,  on March 29, 1999,
Cypress sold 7.2 million shares of common stock. Cypress received  approximately
$33.8 million in proceeds, net of issuance costs, from the sale of these shares.
The remaining 2.5 million shares were sold by selling stockholders.  Cypress did
not receive any proceeds from the shares sold by the selling stockholders.

     During 1999, Cypress purchased $114.1 million in capital equipment, a $31.2
million  increase from the $82.9 million  purchased in 1998, and a $29.7 million
decrease from the $143.8 million purchased in 1997. Cypress purchased  equipment
for its domestic wafer fabrication plants, its test and assembly facility in the
Philippines,  its  backend  manufacturing  subcontractors  and  its  design  and
technology groups. Equipment purchased for its fabs is expected to improve wafer
manufacturing  capacity and capabilities as Cypress implements new technologies,
including  its 0.16 and 0.25  micron  processes.  A  majority  of the  equipment
purchased  was for Fab 4a located in  Minnesota  to increase  its  capacity  and
capability.  Equipment  purchased for the Philippines and its subcontractors was
used to increase manufacturing capacity and tool certain packaging capabilities.
Capital equipment purchases for the technology group are expected to enhance and
accelerate research and development  capabilities.  Capital expenditures in 2000
are expected to be  significantly  higher compared to 1999 as Cypress  continues
its efforts to increase  its wafer  manufacturing  capabilities  and capacity by
purchasing  more  equipment  for Fab 4a and by  constructing  Fab 4b and Fab 4c,
located  on the  same  site as Fab 4a in  Minnesota.  Cypress  also  expects  to
continue upgrading its research and development fab in San Jose from six-inch to
eight-inch to ensure compatibility with Cypress's wafer manufacturing facilities
in Minnesota.  The conversion is expected to be completed by June 2000.  Cypress
will also  continue  to  purchase  new  software  and  equipment  to enhance its
research  and  development  capabilities.  In fiscal  2000,  Cypress  expects to
purchase approximately $250.0 million in capital equipment.

     In March 1999,  Cypress announced a program whereby all U.S. employees were
offered  loans to  facilitate  the exercise of vested stock  options.  Under the
terms of the  program,  only  options  which were vested as of March 1, 1999 and
whose  exercise  price was less than or equal to $9.75 could qualify for a loan.
The loans,  including  interest,  are due at the earlier of three days following
the sale of the shares,  within thirty days of the date the individual ceases to
be an employee of Cypress or 3 years from the grant date of the loan.  The loans
bear interest at a rate of 4.71% and are secured by Cypress  common  shares.  At
January 2, 2000, amounts receivable under this program totaled $8.2 million.

     In 1998,  Cypress retired a total of $15.0 million  principal of its $175.0
million, 6.0% convertible  subordinated notes for $12.9 million,  resulting in a
pre-tax net gain of $1.7  million.  The net gain was  recorded  as interest  and
other income. The notes, which were issued in September 1997, are due October 1,
2002 and  contain a coupon rate of 6.0%.  The  remaining  outstanding  notes are
convertible into approximately 6,772,000 shares of common stock and are callable
by Cypress on or after October 2, 2000. A portion of the proceeds from the notes
were used to repay the $49.0  million  balance  outstanding  under the revolving
credit  facility,  acquire  equipment,   purchase  a  building  in  Woodinville,
Washington and for stock  repurchases in 1997. The remaining  proceeds have been
invested in interest-bearing  investment grade securities and have been used for
general corporate purposes,  including capital expenditures to add manufacturing
capacity and capability,  development and commercialization of products, working
capital and strategic acquisitions or investments.

     During  fiscal  1997,  Cypress  entered  into an  agreement  to borrow $2.0
million from a third party with  interest  accruing at 6.0% per annum.  The loan
was repaid in April 1999. Also during 1997,  Cypress issued  promissory notes to
three  significant  customers for $2.0  million,  $1.4 million and $0.3 million,
bearing interest at 6.0%, 10.0% and 7.5%,  respectively and due in October 2000,
August 2000 and July 1999, respectively.  As of January 2, 2000, a total of $0.7
million was payable under the notes.

     In fiscal  years  1997 and  1998,  the Board of  Directors  authorized  the
repurchase  of up to 14.0 million  shares of  Cypress's  common  stock.  Through
January 3, 1999,  8.1  million  shares had been  repurchased  under this  entire
program  for $67.5  million.  On  February  25,  1999,  the  Board of  Directors
terminated the stock repurchase program.  The unsold repurchased shares were and
are expected to continue to be used for option  exercises  under  Cypress's 1994
Stock Option Plan and stock  purchases  under the Employee  Stock Purchase Plan.
During  1998,  Cypress  reissued  1.8 million  shares of common stock under such
plans.  During fiscal 1999,  Cypress  reissued a total of 8.3 million  shares in
relation to the stock offering  described above and in conjunction with the 1994
Stock Option Plan and Employee  Purchase Plan. Such shares had been  repurchased
under the 1997/1998 plan and repurchase programs prior to 1997.


                                    Page 26

<PAGE>


     In  February  1997,  Cypress  called  for  redemption  of all of the  3.15%
Convertible  Subordinated Notes which was effective as of March 26, 1997. At the
time of conversion,  approximately  85% of the holders  elected to convert their
notes  into  Cypress's  common  stock,  increasing  the  amount of common  stock
outstanding  by 6.8 million  shares.  As a result of holders  electing  the cash
settlement, Cypress paid out $14.3 million.

     In April 1997,  Cypress sold  capital  equipment  located in its  Minnesota
wafer   fabrication   facility  to  Fleet   Capital   Leasing   ("Fleet")  in  a
sale-leaseback  agreement.  In  October  1997,  Cypress  entered  into a similar
agreement with Comdisco,  Inc.  ("Comdisco") for other capital equipment located
in Minnesota.  Cypress received a total of $28.2 million from Fleet and Comdisco
in  exchange  for the  capital  equipment  and as a result of the  transactions,
recorded an immaterial gain that will be amortized over the life of the leases.

     In 1994 and 1995,  Cypress entered into three  operating  lease  agreements
with  respect  to its  office  and  manufacturing  facilities  in San  Jose  and
Minnesota.  In 1999,  the lease  related to the San Jose office and research and
development  facilities  expired. In October 1999, Cypress re-entered into a new
operating lease agreement with the same leasor for the same facilities. In April
1996,  Cypress  entered  into an  additional  lease  agreement  for  two  office
facilities  in San Jose.  These  agreements  require  that  Cypress  maintain  a
specific  level of restricted  cash or  investments  to serve as collateral  for
these leases and maintain compliance with certain financial covenants. Cypress's
restricted  investment  balance as of  January  2, 2000 and  January 3, 1999 was
$61.2 million and $59.7 million,  respectively,  and is recorded as other assets
on the Balance Sheet. Cypress was in compliance with its covenants at January 2,
2000.

     In  1997,  Cypress  established  a  revolving  line of  credit  with a bank
totaling up to $6.5 million. Cypress cancelled this line of credit in June 1999.
In  July  1996,  Cypress  established  a  three-year  $100.0  million  unsecured
revolving  credit  facility  with Bank of  America  National  Trust and  Savings
Association as agent on behalf of certain banks.  During 1998, Cypress cancelled
this line of credit.

     Cypress  believes  that existing  cash and cash  equivalents  and cash from
operations  will be sufficient to meet present and  anticipated  working capital
requirements  and other cash needs for at least the next twelve  months.  Beyond
twelve  months,  changes in market  demand  and the  possible  need to  increase
manufacturing  capacity and  capability,  may cause Cypress to raise  additional
capital through debt or equity financing.  Although additional  financing may be
required,  there can be no  assurance  that it would be  available to Cypress or
available at terms Cypress deems satisfactory.


I
tem 7A. Quantitative and Qualitative Disclosure About Market Risk

     Cypress is exposed to financial market risks, including changes in interest
rates and foreign  currency  exchange  rates.  To mitigate these risks,  Cypress
utilizes  derivative  financial  instruments.  Cypress  does not use  derivative
financial instruments for speculative or trading purposes.

     The fair value of Cypress's  investment  portfolio or related  income would
not be  significantly  impacted by either a 100 basis point increase or decrease
in interest  rates due mainly to the  short-term  nature of the major portion of
Cypress's  investment  portfolio.  An  increase  in  interest  rates  would  not
significantly  increase  interest  expense due to the fixed  nature of Cypress's
debt obligation.

     A majority of Cypress's  revenue and capital spending is transacted in U.S.
dollars.   However,   Cypress  does  enter  into  these  transactions  in  other
currencies,  primarily  Japanese yen and certain other European  currencies.  To
protect  against  reductions  in value and the  volatility  of future cash flows
caused by changes in foreign exchange rates, Cypress has established revenue and
balance sheet hedging programs.  Cypress's  hedging programs reduce,  but do not
always  eliminate,  the  impact of foreign  currency  rate  movements.  Based on
Cypress's  overall  currency  rate  exposure at January 2, 2000, a near-term 10%
appreciation or depreciation in the U.S. dollar would have an immaterial  effect
on Cypress's financial  position,  results of operations and cash flows over the
next fiscal year.

     All of the potential changes noted above are based on sensitivity  analyses
performed on Cypress's balances as of January 2, 2000.


                                    Page 27

<PAGE>



ITEM 8. Financial Statements and Supplementary Data


                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per-share amounts)



<TABLE>
<CAPTION>
                                     ASSETS
                                                                     January 2,      January 3,
                                                                        2000           1999
                                                                     -----------    -----------
<S>                                                                  <C>            <C>        
Current assets:
  Cash and cash equivalents ......................................   $   155,011    $   142,102
  Short-term investments .........................................       115,545         18,459
                                                                     -----------    -----------
          Total cash, cash equivalents and short-term 
               investments .......................................       270,556        160,561

  Accounts receivable, net (Note 2) ..............................       100,114         68,955
  Inventories (Note 2) ...........................................        89,432         65,096
  Other current assets ...........................................        77,293         55,437
                                                                     -----------    -----------
          Total current assets ...................................       537,395        350,049
                                                                     -----------    -----------
Property, plant and equipment, net (Note 2) ......................       357,183        348,936
Other assets (Note 2) ............................................       222,646        125,011
                                                                     -----------    -----------
                                                                     $ 1,117,224    $   823,996
                                                                     ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable ...............................................   $    99,549    $    53,932
  Accrued compensation and employee benefits .....................        32,428         20,293
  Other accrued liabilities (Note 2)..............................        19,717         12,852
  Deferred income on sales to distributors .......................        20,760         13,300
  Income taxes payable ...........................................        20,311         13,591
                                                                     -----------    -----------
          Total current liabilities ..............................       192,765        113,968
                                                                     -----------    -----------
Convertible subordinated notes ...................................       160,000        160,000
Deferred income taxes ............................................        56,100         41,065
Other long-term liabilities ......................................        10,384         10,240
                                                                     -----------    -----------
          Total liabilities ......................................       419,249        325,273
                                                                     -----------    -----------
Commitments and contingencies (Note 9)
Stockholders' equity:
  Preferred stock, $.01 par value, 5,000 shares authorized; none .            --             --
     issued and outstanding
  Common stock, $.01 par value, 250,000 shares authorized;
     115,496 and 110,753 issued; 110,516 and 97,465 outstanding at
     January  2, 2000 and January 3, 1999 ........................         1,155          1,107
  Additional paid-in-capital .....................................       534,225        482,781
  Notes receivable from stockholders .............................        (8,186)            --
  Deferred compensation ..........................................          (484)        (1,152)
  Retained earnings ..............................................       243,989        180,625
                                                                     -----------    -----------
                                                                         770,699        663,361
  Less: shares of common stock held in treasury, at cost;
      4,980 shares at January 2, 2000 and 13,288
      shares at January 3, 1999 ..................................       (72,724)      (164,638)
                                                                     -----------    -----------
          Total stockholders' equity .............................       697,975        498,723
                                                                     -----------    -----------
                                                                     $ 1,117,224    $   823,996
                                                                     ===========    ===========
</TABLE>



             The accompanying notes form an integral part of these
                       Consolidated Financial Statements.


                                    Page 28

<PAGE>


                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per-share amounts)



<TABLE>
<CAPTION>
                                                                   Year Ended
                                                     -------------------------------------
                                                     January 2,   January 3,   December 29,
                                                        2000         1999         1997
                                                     ---------    ---------    -----------
<S>                                                  <C>          <C>          <C>      
Revenues .........................................   $ 705,487    $ 554,891    $ 598,485
                                                     ---------    ---------    ---------
Cost of revenues .................................     383,639      409,108      393,769
Research and development .........................     129,331      114,551      104,300
Selling, general and administrative ..............     105,882       91,016       82,026
Acquisition and other non-recurring costs, net ...      37,623           --           --
Restructuring costs ..............................      (3,811)      60,737        9,882
                                                     ---------    ---------    ---------
          Total operating costs and expenses .....     652,664      675,412      589,977
                                                     ---------    ---------    ---------
Operating income (loss) ..........................      52,823     (120,521)       8,508
Interest expense .................................      (9,617)     (11,276)      (8,461)
Interest income and other, net ...................      52,665       13,356       13,092
                                                     ---------    ---------    ---------
Income (loss) before income taxes ................      95,871     (118,441)      13,139
(Provision) benefit for income taxes .............      (4,817)      13,523       (5,613)
                                                     ---------    ---------    ---------
Net income (loss) ................................   $  91,054    $(104,918)   $   7,526
                                                     =========    =========    =========
Net income (loss) per share:
  Basic ..........................................   $    0.87    $   (1.03)   $    0.08
  Diluted ........................................   $    0.81    $   (1.03)   $    0.07
Weighted average common and common
  equivalent shares outstanding:
  Basic ..........................................     104,703      101,944      100,137
  Diluted ........................................     111,735      101,944      107,866
</TABLE>



              The accompanying notes form an integral part of these
                       Consolidated Financial Statements.


                                    Page 29

<PAGE>


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                           Notes
                                          Common Stock      Additional   Receivable                                         Total
                                       -------------------   Paid-In       From       Deferred    Retained   Treasury  Stockholders'
                                       Shares      Amount    Capital   Stockholders  Compensation Earnings     Stock       Equity
                                     ---------   ---------  ---------  ------------  ----------- ---------    ---------  ---------
<S>                                    <C>          <C>      <C>         <C>           <C>       <C>          <C>          <C>     
Balances at December 30, 1996 ....      91,104      $1,014   $344,533         --       $(621)    $284,033    $(116,843)    $512,116
Re-issuance of treasury
  shares under employee
  stock plans and other ..........       5,556          22     36,980         --          --           --           --       37,002
Premiums received from put
  option issuances ...............          --          --      2,760         --          --           --           --        2,760
Tax benefit resulting from stock
  option transactions ............          --          --      6,959         --          --           --           --        6,959
Issuance of common stock
  from the conversion of the
  convertible debt ...............       6,789          67     83,036         --          --           --           --       83,103
Repurchase of common stock
  under stock repurchase program .        (516)         --         --         --          --           --       (5,288)      (5,288)
Adjustment to deferred
  compensation ...................          --          --         --         --         454           --           --          454
Net income for the year ..........          --          --         --         --          --        7,526           --        7,526
                                     ---------   ---------  ---------   --------    --------    ---------    ---------    ---------
Balances at December 29, 1997 ....     102,933       1,103    474,268         --        (167)     291,559     (122,131)     644,632
Cypress (ICW) activities for the .          --          --         --         --          --        1,622           --        1,622
Quarter ended March 28, 1999
Re-issuance of treasury
  shares under employee
  stock plans and other ..........       2,139           4      1,893         --          --       (7,638)      19,767       14,026
Premiums received from put
  option issuances ...............          --          --      6,620         --          --           --           --        6,620
Repurchase of common stock
  under stock repurchase program .      (7,607)         --         --         --          --           --      (62,274)     (62,274)
Adjustment to deferred
  compensation ...................          --          --         --         --        (985)          --           --         (985)
Net loss for the year ............          --          --         --         --          --     (104,918)          --     (104,918)
                                     ---------   ---------  ---------   --------    --------    ---------    ---------    ---------
Balances at January 3, 1999 ......      97,465       1,107    482,781         --      (1,152)     180,625     (164,638)     498,723
Re-issuance of treasury shares and
  issuance of common stock under .      13,051          48     37,438         --          --      (27,690)      91,914      101,710
  employee stock plans and other
Tax benefit resulting from stock
  option transactions ............          --          --     13,772         --          --           --           --       13,772
Notes receivable from stockholders          --          --         --     (8,186)         --           --           --       (8,186)

Compensation expense to outside
  consultants ....................          --          --        234         --          --           --           --          234
Adjustment to deferred
  compensation ...................          --          --         --         --         668           --           --          668
Net income for the year ..........          --          --         --         --          --       91,054           --       91,054
                                     ---------   ---------  ---------   --------    --------    ---------    ---------    ---------
Balances at January 2, 2000 ......     110,516      $1,155   $534,225    $(8,186)      $(484)    $243,989     $(72,724)    $697,975
                                     ---------   ---------  ---------   --------    --------    ---------    ---------    ---------
</TABLE>


              The accompanying notes form an integral part of these
                       Consolidated Financial Statements.


                                    Page 30

<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)



<TABLE>
<CAPTION>
                                                                      Year Ended
                                                          ------------------------------------
                                                          January 2,  January 3,  December 29,
                                                             2000         1999         1997
                                                          ---------    ---------    ---------
<S>                                                         <C>        <C>             <C>   
Cash flow from operating activities:
  Net income (loss) ...................................     $91,054    $(104,918)      $7,526
  Adjustments to reconcile net income (loss) to net
cash
     generated by operating activities:
  Depreciation and amortization .......................     107,423      114,598      114,013
  Acquired in-process research and development ........       4,019           --           --
  Non-cash interest and amortization of debt issuance
     costs ............................................       1,034        1,034        3,978
  Net gain on early retirement of debt ................          --       (1,734)          --
  Loss on sale of fixed assets ........................          --        1,069           --
  Loss on write down of fixed assets ..................      10,336           --           --
  Deferred gain on sale of fixed assets ...............      (3,959)          --       (3,431)
  Gain on sale of investment ..........................     (36,237)          --           --
  Restructuring costs (credits) .......................      (3,811)      60,737        4,952
  Other non-recurring costs ...........................          --        8,827           --
  Deferred income taxes ...............................      (9,971)        (797)      14,782
  Changes in operating assets and liabilities:
     Receivables ......................................     (30,282)       9,332        4,191
     Inventories ......................................     (22,788)      18,013      (25,895)
     Other assets .....................................     (10,577)      35,298         (152)
     Accounts payable and accrued liabilities .........      55,280      (14,862)     (16,695)
     Deferred income ..................................       7,460        2,445       (5,266)
     Income taxes payable .............................       6,720      (22,770)      15,870
                                                          ---------    ---------    ---------
Net cash flow generated from operating activities .....     165,701      106,272      113,873
                                                          ---------    ---------    ---------
Cash flow from investing activities:
  Purchase of investments .............................    (218,236)    (110,718)    (112,185)
  Sale or maturities of investments ...................      66,872      127,195       93,870
  Acquisition of property, plant and equipment ........    (114,120)     (82,929)    (143,803)
  Acquisition of Anchor ...............................     (14,956)          --           --
  Acquisition of Arcus ................................      (9,883)          --           --
  Acquisition of technology rights ....................      (4,700)          --           --
  Acquisition of product rights and equity interest ...     (12,187)          --           --
from Altera
  Proceeds from sale of investment ....................      36,237           --           --
  Proceeds from sale of equipment .....................      15,179        6,551       40,789
                                                          ---------    ---------    ---------
Net cash flow used for investing activities ...........    (255,794)     (59,901)    (121,329)
                                                          ---------    ---------    ---------
Cash flow from financing activities:
  Repayment of line of credit .........................          --       (3,369)     (49,249)
  Repayment of debt ...................................      (2,653)          --           --
  Repayment of notes payable ..........................          --       (1,186)      (5,780)
  Issuance of convertible subordinated notes, net of
     issuance costs ...................................          --           --      170,187
  Redemption of convertible debt ......................          --           --      (14,331)
  Early retirement of debt ............................          --      (12,916)          --
  Restricted investments related to building lease
     agreements .......................................          --           --          601
  Repurchase of common stock ..........................          --      (62,274)      (5,288)
  Re-issuance of treasury shares and issuance of
common
    stock .............................................     113,444       12,470       41,173
  Issuance of notes to stockholders ...................      (8,186)          --           --
  Premiums received from put options ..................          --        6,620        2,760
  Other long-term liabilities, including minority
     interest .........................................         397       (1,082)        (615)
                                                          ---------    ---------    ---------
Net cash flow generated (used) for financing activities     103,002      (61,737)     139,458
                                                          ---------    ---------    ---------

  Cypress (ICW) net change in cash during the quarter
     ended March 28, 1999 .............................          --        3,434           --
Net increase (decrease) in cash and cash equivalents ..      12,909      (11,932)     132,002
Cash and cash equivalents, beginning of year ..........     142,102      154,034       22,032
                                                          ---------    ---------    ---------
Cash and cash equivalents, end of year ................    $155,011     $142,102     $154,034
                                                          =========    =========    =========
Supplemental disclosures:
  Cash paid during the year for:
     Interest .........................................      $9,600      $10,092       $5,707
     Income taxes .....................................      $3,546         $452       $1,550
</TABLE>


              The accompanying notes form an integral part of these
                       Consolidated Financial Statements.


                                    Page 31

<PAGE>


Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

     Cypress -- Cypress Semiconductor Corporation ("Cypress") designs, develops,
manufactures  and  markets  a  broad  line  of   high-performance   digital  and
mixed-signal  integrated circuits for a range of markets,  including  computers,
data communications, telecommunications and instrumentation systems.

     Cypress's operations outside of the U.S. expanded in 1996 with the addition
of its test and  assembly  plant in the  Philippines.  Cypress's  other  foreign
operations  include  several sales offices and design centers located in various
parts of the world. Revenues to international customers were 51%, 45% and 39% of
total revenues in 1999, 1998 and 1997, respectively.

     In 1999,  Cypress  purchased from Altera  Corporation,  Altera's 17% equity
interest  in  Cypress  Semiconductor  (Texas)  Inc.  ("CTI"),   Cypress's  wafer
fabrication  facility in Texas.  As a result of this purchase,  all of Cypress's
subsidiaries were wholly owned at January 2, 2000 (See Note 4).

     The consolidated  financial  statements include the accounts of Cypress and
all of its  subsidiaries.  Intercompany  transactions  and  balances  have  been
eliminated in consolidation.

     Fiscal Year -- Beginning  with its 1998 fiscal year end,  Cypress ended its
fiscal months, quarters and years on Sundays, rather than Mondays,  bringing its
fiscal  period ends in line with  predominant  industry  practice.  Fiscal years
1999,  1998 and 1997 ended  January 2, 2000,  January 3, 1999 and  December  29,
1997,  respectively.  Fiscal  year 1999 was a 52-week  year ending on the Sunday
closest to December 31, fiscal year 1998 was a 53-week year ending on the Sunday
closest to  December  31 and fiscal  year 1997 was a 52-week  year ending on the
Monday closest to December 31.  Operating  results for the additional  week were
considered immaterial to Cypress's  consolidated  operating results for the year
ended January 3, 1999.

     Management   Estimates  --  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates,  although  such  differences  are not  expected to be material to the
financial statements.

     Reclassifications  -- Certain  prior year  amounts  have been  adjusted  to
conform to current year presentation.

     Fair Value of Financial  Instruments -- For certain of Cypress's  financial
instruments,  including cash and cash equivalents, accounts receivable, accounts
payable and other current  liabilities,  the carrying amounts  approximate their
fair value due to the relatively  short  maturity of these items.  The estimated
fair market value of Cypress's investments reasonably estimate their fair values
based on market information. At January 2, 2000, the estimated fair value of the
Convertible Subordinated Notes was $234.2 million.

     The estimated fair values have been determined by Cypress,  using available
market information.  However, considerable judgement is required in interpreting
market data to develop the estimates of fair value.  Accordingly,  the estimates
presented  are not  necessarily  indicative  of the amounts that  Cypress  could
realize in a current market exchange.  The use of different  market  assumptions
and/or  estimation  methodologies  could have a material effect on the estimated
fair value amounts.

     Cash  Equivalents--  Highly liquid  investments  purchased with an original
maturity of ninety days or less are considered to be cash equivalents.

     Investments --All Cypress investments are classified as available-for-sale.
Investments  in  available-for-sale  securities  are reported at fair value with
unrealized gains and losses, net of related tax, if any, included as a component
of stockholders' equity.  Unrealized gains and losses net of related taxes, were
not material for the year ended January 2, 2000 or cumulatively.

     In fiscal  1998,  Cypress  recorded a $3.0  million  writedown of a certain
investment  that was  believed to be  permanently  impaired.  In 1999,  due to a
resurgence in the semiconductor business, the value of the investment increased.
In fiscal 1999,  Cypress sold the investment,  recording a pre-tax gain of $36.2
million, which is included in interest and other income, net.


                                    Page 32

<PAGE>


     Inventories -- Inventories  are stated at the lower of standard cost (which
approximates  actual cost on a first-in,  first-out basis) or market.  Market is
based on estimated net realizable value.

     Property,  Plant and Equipment -- Property,  plant and equipment are stated
at cost, less accumulated  depreciation.  Depreciation is computed for financial
reporting  purposes  using the  straight-line  method over the estimated  useful
lives of the assets as presented  below.  Leasehold  improvements  and leasehold
interests  are amortized  over the shorter of the estimated  useful lives of the
assets or the  remaining  term of the lease.  Accelerated  methods of  computing
depreciation are used for tax purposes.

                                               Useful Lives
                                                 in Years
                                                 --------
   Equipment...............................       3 to 7
   Buildings and leasehold improvements....      7 to 10
   Furniture and fixtures..................            5

     Pre-operating  Costs --  Incremental  costs  incurred  in  connection  with
developing major production  capability at new manufacturing  plants,  including
depreciation, amortization and cost of qualification of equipment and production
processes were  capitalized up to December  1997.  Pre-operating  costs totaling
$3.8 million,  net of accumulated  amortization were included in other assets at
December 29,  1997.  Such costs were being  amortized  over five years at a rate
based on estimated units to be manufactured  during that period. In fiscal 1998,
these costs were written off and at January 2, 2000, no pre-operating  costs are
remaining.

     Long-Lived  Assets  --  Long-lived  assets  held  and used by  Cypress  are
reviewed for  impairment  whenever  events or  circumstances  indicate  that the
carrying amount of an asset may not be recoverable.  In addition, all long-lived
assets to be  disposed of are  reported at the lower of carrying  amount or fair
market value, less expected selling costs.

     Revenue Recognition -- Revenues from product sales are generally recognized
upon  shipment and a reserve is provided  for  estimated  returns.  A portion of
Cypress's sales are made to domestic  distributors  under agreements which allow
certain rights of return and price protection on products  unsold.  Accordingly,
Cypress  defers  recognition  of  revenues  and profit on such sales until these
distributors resell the products.

     Cypress sells to certain  international  distributors  with a provision for
price  adjustments on certain  products.  Cypress  reserves for all  anticipated
price  adjustments.  No  rights  of  return  exist  on  sales  to  international
distributors. Accordingly, sales are recognized upon shipment.

     Cypress  also  has  inventory,  which  is held by  certain  customers  on a
consignment basis. Revenues are recorded when title transfers as defined per the
respective consignment agreements.

     Income Taxes -- Cypress  follows the  liability  method of  accounting  for
income taxes which requires  recognition of deferred tax  liabilities and assets
for the expected future tax  consequences of temporary  differences  between the
financial   statement   carrying  amounts  and  the  tax  bases  of  assets  and
liabilities.

     Earnings Per Share -- In accordance  with Statement of Accounting  Standard
No. 128 ("SFAS 128"), Cypress reports Earnings Per Share ("EPS"), both basic and
diluted EPS on the income  statement.  Basic EPS is based upon  weighted-average
common shares  outstanding.  Diluted EPS is computed using the weighted  average
common shares outstanding plus any potentially dilutive securities,  except when
their effect is  anti-dilutive.  Dilutive  securities  include stock options and
convertible debt.

     Translation  of Foreign  Currencies -- Cypress uses the U.S.  dollar as its
functional currency for all foreign subsidiaries.  Accordingly, gains and losses
from translation of foreign currency financial  statements into U.S. dollars are
included in results of operations.  Sales to customers are primarily denominated
in U.S. dollars. All foreign currency translation gains and losses have not been
material in any year.

     Concentration  of Credit Risk --  Financial  instruments  that  potentially
subject Cypress to concentrations  of credit risk are primarily  investments and
trade accounts receivable. Cypress's investment policy requires cash investments
to be placed with  high-credit  quality  institutions and to limit the amount of
credit from any one issuer.

     Cypress  sells  its  products  to  original  equipment   manufacturers  and
distributors  throughout the world.  Cypress performs ongoing credit evaluations
of its customers'  financial  condition  whenever deemed necessary and generally
does not  require  collateral.  Cypress  maintains  an  allowance  for  doubtful
accounts  receivable  based upon the  expected  collectibility  of all  accounts
receivable.


                                    Page 33

<PAGE>


     No one end user accounted for greater than 10% of revenues in 1999, 1998 or
1997. Sales to one distributor  accounted for greater than 10% of total revenues
in 1999, 1998 and 1997.

     Accounting for Stock-Based  Compensation -- Cypress  accounts for its stock
option plans and its employee stock purchase plan in accordance  with provisions
of the Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees".  In accordance with Statement of Financial  Accounting  Standards
No.  123  ("SFAS  123"),  "Accounting  for  Stock-Based  Compensation",  Cypress
provides additional pro-forma disclosures in Note 7.

     Comprehensive  Income -- In 1998, Cypress adopted SFAS No. 130,  "Reporting
Comprehensive  Income."  Comprehensive income is defined as the change in equity
of  a  company  during  a  period  from   transactions   and  other  events  and
circumstances,  excluding  transactions resulting from investments by owners and
distributions to owners.  Cypress did not have a material difference between net
income  and  comprehensive  income  for  the  year  ended  January  2,  2000  or
cumulatively.

     Segment Reporting -- In fiscal 1998, Cypress adopted Statement of Financial
Accounting  Standards No. 131,  "Disclosures about Segments of an Enterprise and
Related   Information"  ("SFAS  131")."  SFAS  131  establishes   standards  for
disclosures  about products and services,  geographic areas and major customers.
(See Note 11).

     Recent Accounting  Pronouncements -- In June 1999, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial  Accounting Standards No.
137 ("SFAS 137"),  "Accounting for Derivative Instruments and Hedging Activities
- Deferral of the  Effective  Date of FASB  Statement  No. 133." SFAS 137 amends
Statement of Financial  Accounting  Standards No. 133 ("SFAS 133"),  "Accounting
for Derivative  Instruments and Hedging Activities," to defer its effective date
to all fiscal  quarters of all fiscal years  beginning after June 15, 2000. SFAS
133 establishes  accounting and reporting  standards for derivative  instruments
including  standalone  instruments,  such as forward currency exchange contracts
and  interest  rate  swaps or  embedded  derivatives  and  requires  that  these
instruments  be  marked-to-market  on  an  ongoing  basis.  These  market  value
adjustments are to be included either in the income  statement or  stockholders'
equity, depending on the nature of the transaction. Cypress is required to adopt
SFAS 133 in the first quarter of its fiscal year 2001.The  effect of SFAS 133 is
not expected to be material to the Cypress's financial statements.

Note 2: Balance Sheet Components

Available-For-Sale Securities

     Cypress's  portfolio  of  available-for-sale  securities  consists  of  the
following:

                                                          January 2,  January 3,
                                                             2000         1999
                                                          ---------    ---------
                                                               (In thousands)
Corporate debt securities ............................     $175,510     $101,042
State and municipal obligations ......................       77,902       73,607
Money markets ........................................       69,755           --
Other ................................................       39,811       23,341
                                                           --------     --------
          Total available-for-sale securities ........     $362,978     $197,990
                                                           ========     ========

At January 2, 2000 and January 3, 1999,  the net  unrealized  holding  gains and
losses on  securities  were  immaterial.  The  securities at January 2, 2000 and
January 3, 1999 by contractual maturity are shown below.

                                                          January 2,  January 3,
                                                             2000        1999
                                                           --------    --------
                                                                (In thousands)
Due in one year or less ..............................     $251,654     $140,944
Due after one year through two years .................      111,324       57,046
                                                           --------     --------
          Total available-for-sale  securities .......     $362,978     $197,990
                                                           ========     ========


                                    Page 34

<PAGE>


Accounts Receivable, Net
                                                     January 2,       January 3,
                                                        2000             1999
                                                     ---------        ---------
                                                            (In thousands)
Accounts receivable, gross ...................        $103,098          $72,005
Allowance for doubtful accounts and
customer returns .............................          (2,984)          (3,050)
                                                     ---------        ---------
           Accounts receivable, net ..........        $100,114          $68,955
                                                     =========        =========

Inventories, Net

                                                    January 2,        January 3,
                                                      2000               1999
                                                    ----------        ----------
                                                          (In thousands)
Raw materials ..........................             $13,360              $8,939
Work-in-process ........................              45,247              37,087
Finished goods .........................              30,825              19,070
                                                     -------             -------
          Total ........................             $89,432             $65,096
                                                     =======             =======

Property, Plant and Equipment

                                                         January 2,   January 3,
                                                           2000           1999
                                                        -----------    ---------
                                                              (In thousands)
Land .............................................       $13,829        $13,533
Equipment ........................................       733,581        623,393
Buildings and leasehold improvements .............       101,976         96,825
Furniture and fixtures ...........................         8,449          6,656
                                                       ---------      ---------
Total property, plant and equipment ..............       857,835        740,407
Accumulated depreciation andamortization .........      (500,652)      (391,471)
                                                       ---------      ---------
          Net property, plant and equipment ......      $357,183       $348,936
                                                       =========      =========

Other Assets

                                                     January 2,       January 3,
                                                        2000             1999
                                                     ---------         ---------
                                                             (In thousands)
Restricted investments ...................            $61,198            $59,742
Long-term investments ....................            111,324             57,046
Other, principally purchased intangibles..             50,124              8,223
                                                     --------           --------
          Total ..........................           $222,646           $125,011
                                                     ========           ========

     In September  1999,  Cypress  acquired the rights and patents  covering the
Silicon Oxide Nitride Oxide Silicon  ("SONOS")  non-volatile  memory  technology
from NVX Corporation for $4.7 million.  These intangible  assets are included in
Other Assets on the  Consolidated  Balance  Sheet and are being  amortized  over
their useful life.

Other Accrued Liabilities

                                                        January 2,    January 3,
                                                           2000          1999
                                                         ---------     ---------
                                                             (In thousands)
Sales commissions ................................         $3,031         $3,290
Restructuring reserves ...........................          2,313          8,070
Warranty reserve .................................          2,672             --
Other ............................................         11,701          1,492
                                                          -------        -------
          Other accrued liabilities ..............        $19,717        $12,852
                                                          =======        =======

Note 3: Acquisitions

Acquisition of Arcus Technology Companies

     On June 30, 1999, Cypress acquired all of the outstanding  capital stock of
Arcus Technology (USA), Inc. and the assets of Arcus Technology  (India) Limited
(referred  to as  "Arcus"  on a  combined  basis).  Arcus  specializes  in  data
communications  technologies  including  dense wave  multiplexing  (which allows
multiple signals to be transmitted over a single fiber optic cable) and "IP over
SONET" (the technology used to code and decode Internet  traffic to send it over
the  telephone  system).  The  acquisition  was  accounted  for  using  purchase
accounting.  Accordingly,  the  estimated  fair  value of  assets  acquired  and
liabilities  assumed were 


                                    Page 35

<PAGE>


included in Cypress's condensed  consolidated balance sheet as of and since June
30, 1999, the effective date of the purchase. The results of operations of Arcus
are included in Cypress's  consolidated  results of operations during the second
half of Cypress's fiscal year 1999.

     Cypress  acquired  Arcus  for  a  total  consideration  of  $17.7  million,
including  cash of $11.5  million and stock of $6.2 million,  (excluding  direct
acquisition  costs of $0.8  million  for legal  and  accounting  fees).  Through
December  31, 1999  Cypress paid $9.9 million in cash and issued $2.3 million in
stock. The remaining $1.6 million in cash and $3.9 million in stock are expected
to be paid and  issued by future  installments.  The  total  purchase  price was
allocated to the estimated fair value of assets acquired and liabilities assumed
at the time of the  acquisition  based on independent  appraisals and management
estimates as follows:


                                 (In thousands)
          Fair value of tangible net assets ......................      $391
          In-process research and development ....................     2,500
          Current technology .....................................     4,400
          Assembled workforce ....................................     1,600
          Deferred compensation ..................................     5,553
          Excess of purchase price over net assets acquired ......     3,264
                                                                     -------
                                                                     $17,708
                                                                     =======

     The valuation method used to value the in-process  technology of Arcus is a
form of  discounted  cash  flow  method  commonly  known as the  "percentage  of
completion"  approach  whereby  the cash flow  derived  from the  technology  is
multiplied by the  percentage of completion of the in-process  technology.  This
approach is a widely  recognized  appraisal method and is commonly used to value
technology  assets.  The  value  of the  in-process  technology  of Arcus is the
discounted expected future cash flow attributable to the in-process  technology,
taking into  consideration  the  percentage of completion of products  utilizing
this technology,  utilization of pre-existing  technology,  the risks related to
the  characteristics  and  applications of the  technology,  existing and future
markets,  and the technological  risk associated with completing the development
of the technology. The cash flow derived from the in-process technology projects
was discounted  using a discount rate of 32.5%,  which was  appropriate  for the
risk  of  this  technology  for  which  commercial   feasibility  had  not  been
established.  The  percentage  of  completion  for each  in-process  project was
determined by identifying  milestones of completed  project steps as compared to
the  remaining  milestones to be completed to bring the project to technical and
commercial feasibility.  Milestones were based on management's estimate of tasks
completed,  value added and degree of  difficulty  of the portion of the project
completed  as of the  acquisition  date,  in  comparison  with  the  tasks to be
completed  to bring the  project to  technical  and  commercial  feasibility.  A
deduction of 7.5% to 12.0% of expected  future  revenue was made in  calculating
future  cash flows from  in-process  technology  and  attributed  to  previously
existing technology.

     The value of current  technology  was  determined by estimating  the future
cash flows to be derived from products based on existing  commercially  feasible
technologies at the date of the  acquisition,  and  discounting  associated cash
flow using a discount  rate of 25.0%,  which was  appropriate  for the  business
risks inherent in manufacturing and marketing these products. Factors considered
in  estimating  the future cash flow to be derived from the existing  technology
include risks related to the characteristics and applications of the technology,
existing and future markets,  and assessment of the age of the technology within
its life span.

     The value of the assembled workforce is based on estimated costs to replace
the existing  staff  including  recruiting,  hiring and  training  costs for all
categories of employee to fully deploy a work force of similar size and skill to
the same level of productivity as the existing work force. Deferred compensation
value is the cash and stock consideration to be paid by future installments.

     Development of in-process  technology remains a substantial risk to Cypress
due to  many  factors  including  the  remaining  effort  to  achieve  technical
feasibility, rapidly changing customer requirements and competitive threats from
other  companies  and  technologies.   Additionally,  the  value  of  the  other
intangible  assets  acquired may become  impaired.  The in-process  research and
development  valuation as well as the valuation of other  intangible  assets was
prepared by an independent  appraiser of technology assets, based on inputs from
Cypress and Arcus management, utilizing valuation methods that are recognized by
the Securities and Exchange Commission ("SEC") staff.  However,  there can be no
assurance  that the SEC staff will not take issue with any  assumptions  used in
the  appraiser's  valuation  model and  require  Cypress  to revise  the  amount
allocated to in-process research and development.

     The amounts  allocated  to current  technology,  assembled  workforce,  and
residual  goodwill are being amortized over their  respective  estimated  useful
lives  between six and ten years using the  straight-line  method.  The deferred
compensation is being amortized on a straight line basis over two years.


                                    Page 36

<PAGE>


Acquisition of Anchor Chips, Inc.

     On May 25, 1999,  Cypress acquired all of the outstanding  capital stock of
Anchor   Chips,   Inc.   ("Anchor"),   a  company   that   designs  and  markets
micro-controller  chips that  support  Universal  Serial Bus  applications.  The
acquisition  was  accounted  for using  purchase  accounting.  Accordingly,  the
estimated fair value of assets acquired and liabilities assumed were included in
Cypress's condensed consolidated balance sheet as of and since May 25, 1999, the
effective  date of the  purchase.  The  results  of  operations  of Anchor  were
included in Cypress's  consolidated  results of  operations  as of and since the
effective date of the purchase.

     Cypress paid  approximately  $15.0 million in cash,  which excludes  direct
acquisition costs of $0.7 million for investment  banking,  legal and accounting
fees. In addition Cypress assumed net liabilities of approximately $0.9 million.
The total purchase consideration of $15.9 million was allocated to the estimated
fair value of assets  acquired  and  liabilities  assumed  based on a  valuation
completed  by  management,  using a valuation  methodology  commonly  applied by
independent appraisers, as follows:


                                 (In thousands)
          Fair value of tangible net liabilities ................    $(919)
          In-process research and development ...................    1,519
          Assembled workforce ...................................    1,320
          Current technology ....................................   13,036
                                                                  --------
                                                                   $14,956
                                                                   =======

     The valuation method used to value the in-process technology of Anchor is a
form of  discounted  cash  flow  method  commonly  known as the  "percentage  of
completion"  approach  whereby  the cash flow  derived  from the  technology  is
multiplied by the  percentage of completion of the in-process  technology.  This
approach is a widely  recognized  appraisal method and is commonly used to value
technology  assets.  The  value of the  in-process  technology  of Anchor is the
discounted expected future cash flow attributable to the in-process  technology,
taking into  consideration  the  percentage of completion of products  utilizing
this technology,  utilization of pre-existing  technology,  the risks related to
the  characteristics  and  applications of the  technology,  existing and future
markets,  and the technological  risk associated with completing the development
of the technology. The cash flow derived from the in-process technology projects
was discounted  using a discount rate of 32.5%,  which was  appropriate  for the
risk  of  this  technology  for  which  commercial   feasibility  had  not  been
established.  The  percentage  of  completion  for each  in-process  project was
determined by identifying  milestones of completed  project steps as compared to
the  remaining  milestones to be completed to bring the project to technical and
commercial feasibility.  Milestones were based on management's estimate of tasks
completed,  value added and degree of  difficulty  of the portion of the project
completed  as of the  acquisition  date,  in  comparison  with  the  tasks to be
completed  to bring the  project to  technical  and  commercial  feasibility.  A
deduction of 7.5% to 12.0% of expected  future  revenue was made in  calculating
future  cash flows from  in-process  technology  and  attributed  to  previously
existing technology.

     The value of the assembled workforce is based on estimated costs to replace
the existing  staff  including  recruiting,  hiring and  training  costs for all
categories of employee to fully deploy a work force of similar size and skill to
the same level of productivity as the existing work force.

     The value of current  technology  was  determined by estimating  the future
cash flows to be derived from products based on existing  commercially  feasible
technologies at the date of the  acquisition,  and  discounting  associated cash
flow using a discount  rate of 25.0%,  which was  appropriate  for the  business
risks inherent in manufacturing and marketing these products. Factors considered
in  estimating  the future cash flow to be derived from the existing  technology
include risks related to the characteristics and applications of the technology,
existing and future markets,  and assessment of the age of the technology within
its life span.

     Development of in-process  technology remains a substantial risk to Cypress
due to  many  factors  including  the  remaining  effort  to  achieve  technical
feasibility, rapidly changing customer requirements and competitive threats from
other  companies  and  technologies.   Additionally,  the  value  of  the  other
intangible  assets  acquired may become  impaired.  The in-process  research and
development  valuation as well as the valuation of other  intangible  assets was
prepared by management,  utilizing  valuation methods that are recognized by the
Securities  and Exchange  Commission  ("SEC")  staff.  However,  there can be no
assurance  that the SEC staff will not take issue with any  assumptions  used in
the  valuation  model and  require  Cypress to revise the  amount  allocated  to
in-process research and development.

     The amounts allocated to current  technology,  and assembled  workforce are
being  amortized  over their  estimated  useful  lives of five -years  using the
straight-line  method.  There was no goodwill associated with the acquisition of
Anchor.


                                    Page 37

<PAGE>


Acquisition from Altera

     On October  5,  1999,  Cypress  announced  that it has signed a  definitive
agreement  with  Altera  Corporation  ("Altera")  to acquire  Altera's  MAX 5000
Programmable  Logic  Device  ("PLD")  product  line and its equity  interest  in
Cypress's  wafer  fabrication  facility  in Round  Rock,  Texas  ("Fab  II") for
approximately  $13.0  million in cash.  The  acquisition  was accounted for as a
purchase. In 1988, Altera licensed its MAX 5000 family of products to Cypress in
consideration  of  manufacturing  capacity.  Altera later  acquired a 17% equity
interest in the Round Rock wafer  fabrication  facility.  By acquiring  Altera's
equity interest in October 1999, Fab II is now 100% owned by Cypress.

Merger with IC WORKS Incorporated

     On April 1, 1999,  Cypress  completed a merger  with IC WORKS  Incorporated
("ICW"),  which was  accounted  for as a pooling  of  interests.  The  condensed
consolidated  financial  statements and the notes to the condensed  consolidated
financial  statements give effect to the merger for all periods  presented.  The
fiscal  years of Cypress  and ICW were  different.  ICW has  changed  its fiscal
year-end to coincide with that of Cypress.  Cypress's consolidated statements of
operations  for the periods  ended  January 3, 1999 and December 27, 1997,  have
been  combined  with  ICW's  consolidated   statements  of  operations  for  the
corresponding twelve month periods ended December 28, 1998 and March 28, 1998.

     During fiscal 1999,  Cypress recorded  merger-related  transaction costs of
$3.7 million  related to the  acquisition of ICW.  These charges,  which consist
primarily of investment  banking and other professional fees, have been included
under acquisition and merger costs in the Consolidated Statements of Operations.

Note 4: Restructuring and Other Non-Recurring Costs

1999 Restructuring, Merger and Acquisition, and Other Non-Recurring Costs

     During fiscal 1999,  Cypress recorded a net $33.8 million in restructuring,
merger  and  acquisition,   and  other  non-recurring   costs.  These  one-time,
non-recurring   costs   included  a  $12.3   million   write-off  of  a  certain
manufacturing  asset that is not in service  and will be  scrapped  and an $11.9
million one-time  compensation  charge associated with retention and performance
payments to key employees in December 1999. In the first quarter of fiscal 1999,
Cypress  recorded  one-time  charges of $3.7 million  associated with the merger
with IC  Works.  These  charges  were for  investment  banking  fees  and  other
professional  fees.  Cypress also recorded $8.8 million in costs associated with
the  purchases of Anchor and Arcus  comprising  of $4.0  million for  in-process
technology,  $1.6 million for transaction costs and $3.2 million in amortization
of intangible assets. During the fourth quarter of fiscal 1999, Cypress acquired
Altera's MAX 5000 Programmable  Logic Device ("PLD") product line and its equity
interest in Cypress's wafer  fabrication  facility in Round Rock, Texas. As part
of the  transaction,  Cypress  recorded  intangible  assets  associated with the
product  rights  and  incurred  $0.3  million  for  the  amortization  of  these
intangibles.  These  non-recurring  charges  were  offset by a reversal  of $3.0
million of the 1998 restructuring  reserve. The reversed charges related to $2.2
million of severance and other employee related charges and $0.3 million for the
provision  for  phase-down   and   completion  of  the  Alphatec   restructuring
activities. Cypress also reversed $0.5 million of the 1998 restructuring reserve
for other fixed asset related charges that were no longer considered  necessary.
During  fiscal 1999,  Cypress  reversed  $0.7 million of the 1996  restructuring
reserve  related  to fixed  asset  de-installation  charges  that were no longer
required.

1998 Restructuring and Other Non-Recurring Costs

     During  1998,  Cypress  implemented  an  overall  cost  reduction  plan and
recorded a $58.9 million restructuring reserve. The restructuring entailed:

o    The shutdown of Fab 3, located in Bloomington,  Minnesota and consolidation
     of parts of Fab 3 operations with other operations of Cypress.

o    The  discontinuance of the 0.6 micron 256k SRAM production in Fab 2 located
     in Texas.


                                    Page 38

<PAGE>


o    The conversion of an existing  research and  development fab located in San
     Jose (Fab 1) to eight-inch  capability  in order to be compatible  with the
     state of the art eight-inch Minnesota manufacturing facility.

o    The transfer of Cypress's test operations from its subcontractor, Alphatec,
     in Thailand to Cypress's production facility in the Philippines.

     The  restructuring  activities  described above included the termination of
approximately 850 employees,  primarily from manufacturing,  both at Cypress and
at Alphatec.

     Separate from the restructuring charge, Cypress recorded additional charges
of $27.3 million, which were recorded as operating expenses in the first quarter
of 1998.  These  charges  were  for  inventory  reserves  ($15.8  million),  the
write-off of  pre-operating  costs ($3.8  million),  the  write-off of an equity
investment  ($3.1  million),  costs incurred to reimburse a customer for certain
product expenses incurred ($2.5 million) and the write-off of obsolete equipment
in Fab 4 ($2.1  million).  The  write-down  of  inventory  was made to establish
incremental reserves for excess inventory and was recorded as cost of revenues.

     The  write-off of  pre-operating  costs  included  $2.9 million  related to
Cypress's wafer fabrication operation in Bloomington, Minnesota and $0.9 million
related to its assembly and test  operation in the  Philippines.  As a result of
restructuring   activities,   Cypress  wrote  off  its  previously   capitalized
pre-operating costs as an impaired asset due to uncertainties  surrounding their
future  economic  benefits.  These costs were  written off to cost of  revenues.
There were no capitalized pre-operating costs subsequent to the first quarter of
1998.

     The $3.1 million  write-off of the equity  investment was recorded  against
net  interest  and  other  income  to  reflect  the  decline  in the value of an
investment.  Selling, general and administrative costs included the write-off of
$2.5  million in costs  incurred  to  reimburse a customer  for certain  product
expenses incurred. During Cypress's periodic review of equipment, some equipment
was  identified  as obsolete and $2.1 million was charged to cost of revenues to
write-off the obsolete equipment.

     The following  tables sets forth  charges taken against the reserve  during
fiscal  1999 and  restructuring  expense  and  charges  taken  from the date the
restructuring commenced through January 2, 2000.


<TABLE>
<CAPTION>
                                                     Balance                                  Balance
                                                   January 3,                               January 2,
                                                      1999      Utilized         Other          2000
                                                     -------    --------        -------       -------
                                                                    (In thousands)
<S>                                                   <C>         <C>           <C>           <C>   
Severance and other employee related charges(1)      $ 2,309      $   (54)      $(2,255)      $    --
Other fixed asset related charges(1) ..........        3,030         (703)         (520)        1,807
Provision for phase-down and consolidation of
manufacturing  facilities(1) ..................          339           --          (339)           --
                                                     -------      -------       -------       -------
          Total ...............................      $ 5,678      $  (757)      $(3,114)      $ 1,807
                                                     =======      =======       =======       =======
</TABLE>




<TABLE>
<CAPTION>
                                                     1998                                     Balance
                                                 Restructuring                              January 2,
                                                    Expense     Utilized         Other          2000
                                                    -------     --------        -------       -------
                                                                     (In thousands)  
<S>                                                  <C>          <C>           <C>           <C>   
Write-down of inventory(1) ....................      $ 3,250      $(3,250)      $    --       $    --
Severance and other employee related charges(2)        5,334       (2,234)       (3,100)           --
Other fixed asset related charges(1) ..........        3,030         (703)         (520)        1,807
Provision for phase-down and consolidation of
manufacturing facilities(1) ...................          976         (637)         (339)           --
                                                     -------      -------       -------       -------
          Total ...............................      $12,590      $(6,824)      $(3,959)      $ 1,807
                                                     =======      =======       =======       =======
</TABLE>


----------
(1)  Classified on the Balance Sheet as part of accrued liabilities.

(2)  The amount  utilized  represents  cash  payments  related to  severance  of
     approximately 850 employees.

     During fiscal 1999,  Cypress  reversed $3.7 million of previously  provided
restructuring  costs.  $2.2  million of  severance  and other  employee  related
charges and $0.3 million for the provision for phase-down and  consolidation  of
manufacturing facilities were reversed in conjunction with the completion of the
Alphatec  restructuring  activities.  $0.5  million was reversed for other fixed
asset  related  charges based on the  determination  that a portion of the fixed
asset removal costs accrual would not be required.  These  reversals  related to
Cypress's 1998  restructuring  activities.  Cypress also reversed a $0.7 million
reserve for fixed asset  installation  costs  related to its 1996  restructuring
activities which was no longer required.  In fiscal 1999,  Cypress utilized $0.8
million, primarily


                                    Page 39

<PAGE>


associated  with  the  removal  cost  of  equipment  identified  as  part of the
restructuring.

     Restructuring activities associated with Fabs 2 and 3 were completed in May
and July 1998,  respectively,  consistent with Cypress's  restructuring schedule
except for the disposal of equipment.  Fab 1 restructuring  was not completed in
January 1999 as originally  planned.  Cypress has initiated plans to convert its
R&D wafer facility in San Jose to eight-inch  capability and expects to have the
conversion  completed  by June 2000.  The  Alphatec  consolidation  and transfer
activity was completed in January 1999, one month later than originally planned.

1997 Restructuring Costs - Cypress (ICW)

     During the fiscal 1997,  Cypress made a decision to shut down its wafer fab
located in San Jose. In connection with the shut down of the wafer fab,  Cypress
recorded a  restructuring  charge of $9.9 million  related to the  impairment of
assets  ($3.9  million),   non-cancelable   operating  lease  commitments  ($3.6
million),  costs  associated  with a reduction in work force ($0.2  million) and
other  transaction  costs ($2.2 million).  The other  transaction  costs related
primarily to inventory write-offs, expenses incurred to remove and return leased
equipment  and  brokerage  and  professional  fees.  The actual  liquidation  of
substantially  all of the impaired  assets was completed in November  1998.  The
balance of the reserve  remaining  is expected to be utilized by March 2000 when
the operating lease commitment ends.

     The following  tables sets forth  charges taken against the reserve  during
fiscal  1999 and  restructuring  expense  and  charges  taken  from the date the
restructuring commenced through January 2, 2000.

                                        Balance                        Balance
                                       January 3,                    January 2,
                                         1999          Utilized         2000
                                        -------        --------      ----------
                                                   (In thousands)
Operating lease costs .........         $ 2,332         $(1,826)       $   506
Severance costs ...............              60             (60)            --
                                        -------         -------        -------
     Total ....................         $ 2,392         $(1,886)       $   506
                                        =======         =======        =======


                                           1997                        Balance
                                       Restructuring                  January 2,
                                          Expense      Utilized         2000
                                          -------      --------       ---------
                                                     (In thousands)
Operating lease costs ............        $ 3,615        $(3,109)     $   506
Severance costs ..................            207           (207)          --
Transaction and other costs ......          2,164         (2,164)          --
                                          -------        -------      -------
     Total .......................        $ 5,986        $(5,480)     $   506
                                          =======        =======      =======

     In November  1997,  Cypress  also  borrowed  $2.0  million  from Maxim with
interest accruing at 6% per annum. The note and interest are to be repaid at the
earlier of: a majority sale of Cypress, the consummation of a public offering of
Cypress common stock,  or four years from the date of the note (November  2001).
In addition,  Cypress  entered into a wafer  purchase  agreement with Maxim that
allows Cypress to buy BiCMOS wafers from Maxim for a period of up to two years.

     On the closing date of the transaction,  November 20, 1997, Maxim purchased
Cypress six-inch wafer  fabrication  leasehold  improvements  and  manufacturing
equipment  as well as  certain  five-inch  wafer  fabrication  equipment,  which
Cypress owned or acquired  through  capital  leases.  The carrying values of the
six-inch and five-inch  fabrication assets were $14.25 million and $0.4 million,
respectively.  Proceeds of the sale of these assets to Maxim were $12.5  million
to Cypress.

     The  following  table  summarizes  the  disposition  of  the  six-inch  and
five-inch fabrication assets held by Cypress through December 29, 1997.

                                                  Six-inch     Five-inch
                                                   Assets        Assets
                                                  --------     ---------
                                                      (In thousands)
  Carrying value of assets prior to
  recognition of impairment loss ...............    $29,500      $6,000

  Recognition of impairment ....................    (15,250)     (3,896)
  Sale of assets to Maxim ......................    (14,250)       (400)
  Addition asset impairment ....................         --        (551)
                                                   --------    --------
      Total assets..............................   $     --      $1,153
                                                   ========    ========

Substantially  all the  assets  held at  December  29,  1997 were sold  prior to
January 2, 2000.


                                    Page 40

<PAGE>


Note 5: Equity and Debt Transactions

     During fiscal 1999, Cypress filed a registration statement on Form S-3 with
the Securities and Exchange Commission.  Under this shelf registration,  Cypress
could  through March 2001 sell any  combination  of debt  securities,  preferred
stock and common  stock in one or more  offerings up to a total amount of $300.0
million dollars. The entire amount of this shelf registration statement has been
used by the  transactions  described  in this  paragraph.  On January 19,  2000,
Cypress completed a $283.0 million  registered-placement  of 5-year  Convertible
Subordinated  Notes.  The notes are due in the year 2005,  with a coupon rate of
4.00% and an initial conversion premium of 28.5%. The notes are convertible into
approximately  6.1 million shares of common stock and are callable by Cypress no
earlier than February 5, 2003. Net proceeds were $275.2 million,  after issuance
costs of $7.8 million.  Pursuant to the shelf  registration,  on March 29, 1999,
Cypress sold 7.2 million shares of common stock. Cypress received  approximately
$33.8 million in proceeds, net of issuance costs, from the sale of these shares.
The remaining 2.5 million shares were sold by selling stockholders.  Cypress did
not receive any proceeds from the shares sold by the selling stockholders.

     In March 1999,  Cypress announced a program whereby all U.S. employees were
offered  loans to  facilitate  the exercise of vested stock  options.  Under the
terms of the  program,  only  options  which were vested as of March 1, 1999 and
whose  exercise  price was less than or equal to $9.75 could qualify for a loan.
The loans,  including  interest,  are due at the earlier of three days following
the sale of the shares,  within thirty days of the date the individual ceases to
be an employee of Cypress or 3 years from the grant date of the loan.  The loans
bear  interest  and are  secured by full  recourse.  At  January 2, 2000,  loans
receivable and accrued interest under this program totaled $8.2 million.

     In fiscal  years  1997 and  1998,  the Board of  Directors  authorized  the
repurchase  of up to 14.0 million  shares of  Cypress's  common  stock.  Through
January 3, 1999,  8.1  million  shares had been  repurchased  under this  entire
program  for $67.5  million.  On  February  25,  1999,  the  Board of  Directors
terminated the stock repurchase program.  The unsold repurchased shares were and
are expected to continue to be used for option  exercises  under  Cypress's 1994
Stock Option Plan and stock  purchases  under the Employee  Stock Purchase Plan.
During  1998,  Cypress  reissued  1.8 million  shares of common stock under such
plans.  During fiscal 1999,  Cypress  reissued a total of 8.3 million  shares in
relation to the stock offering  described above and in conjunction with the 1994
Stock Option Plan and Employee  Purchase Plan. Such shares had been  repurchased
under the 1997/1998  repurchase programs as well as repurchase programs prior to
1997.

Convertible Subordinated Notes

     In 1998,  Cypress retired a total of $15.0 million  principal of its $175.0
million,  6.0%  Convertible  Subordinated  Notes  ("Notes")  for $12.9  million,
resulting  in a pre-tax  net gain of $1.7  million.  The gain was  offset by the
write-off of bond  issuance  costs of $0.4 million  (pre-tax).  The net gain was
recorded as interest and other income. The Notes, which were issued in September
1997,  are due  October 1, 2002 and contain a coupon rate of 6.0% and an initial
conversion  premium of 48.2%.  The remaining  outstanding  Notes are convertible
into approximately  6,772,000 shares of common stock and are callable by Cypress
on or after October 2, 2000. The Notes are unsecured subordinated obligations.

     In  February  1997,  Cypress  called  for  redemption  of all of the  3.15%
Convertible  Subordinated Notes which was effective as of March 26, 1997. At the
time of conversion,  approximately  85% of the holders  elected to convert their
notes  into  Cypress's  common  stock,  increasing  the  amount of common  stock
outstanding  by  6,789,013  shares.  As a result of  holders  electing  the cash
settlement, Cypress paid out $14.3 million.

Notes Payable


                                    Page 41

<PAGE>


     During 1997,  Cypress entered into an agreement to borrow $2.0 million from
a third party with interest  accruing at 6.0% per annum.  The loan was repaid in
April  1999.  Also  during  1997,  Cypress  issued  promissory  notes  to  three
significant customers for $2.0 million,  $1.4 million and $0.3 million,  bearing
interest at 6.0%, 10.0% and 7.5%,  respectively and due in October 2000,  August
2000 and July 1999, respectively. As of January 2, 2000, a total of $0.7 million
was payable under the notes.

Line of Credit

     In  1997,  Cypress  established  a  revolving  line of  credit  with a bank
totaling up to $6.5 million. Cypress cancelled this line of credit in June 1999.

     In July 1996,  Cypress  established a three-year  $100.0 million  unsecured
revolving  credit  facility  with Bank of  America  National  Trust and  Savings
Association as agent on behalf of certain banks. In 1998, Cypress cancelled this
line of credit.

Note 6: Earnings (Loss) Per Share

     As required by SFAS 128,  following is a  reconciliation  of the numerators
and the  denominators  of the  basic  and  diluted  earnings  (loss)  per  share
computation:



<TABLE>
<CAPTION>
                                   1999                              1998                               1997
                       -----------------------------     -----------------------------    -----------------------------
                                            Per-Share                         Per-Share                       Per-Share
                        Income      Shares   Amount      Loss       Shares     Amount     Income     Shares     Amount
                        ------      ------   ------      ----       ------     ------     ------     ------     ------
                                                  (In thousands, except per-share amounts)
<S>                   <C>           <C>       <C>     <C>            <C>       <C>      <C>           <C>       <C>  
Basic EPS:
  Net income (loss)   $  91,054     104,703   $0.87   $(104,918)     101,944   $(1.03)  $   7,526     100,137   $0.08
                                              =====                            ======                           =====
Effects of dilutive
securities:
  Stock options ...          --       7,032                  --           --                   --       7,729         
                      ---------     -------           ---------      -------        -   ---------     -------           
Diluted EPS:
  Net income (loss)   $  91,054     111,735   $0.81   $(104,918)     101,944   $(1.03)  $   7,526     107,866   $0.07
                      =========     =======   =====   =========      =======   ======   =========     =======   =====
</TABLE>


     At January  2, 2000,  January 3, 1999 and  December  29,  1997,  options to
purchase 47,000, 24,774,000 and 5,696,000 shares, respectively,  of common stock
were  outstanding,  but were excluded in the computation of diluted EPS as their
effect was anti-dilutive. Convertible debentures outstanding at January 2, 2000,
January 3, 1999 and December 29, 1997  convertible  to 6,772,000,  6,772,000 and
7,408,000 shares, respectively,  of common stock were also excluded from diluted
EPS as their effect was anti-dilutive.

Note 7: Common Stock Option and Other Employee Benefit Plans

1999 and 1994 Stock Option Plans

     In 1999, Cypress adopted the 1999 Stock Option Plan ("The Plan"). Under the
terms of the Plan,  options may be granted to  qualified  employees  of acquired
companies and consultants of Cypress or its majority-owned subsidiaries. Options
become exercisable over a vesting period as determined by the Board of Directors
and expire over terms not exceeding ten years from the date of grant. The option
price for shares granted,  under the Plan, is typically equal to the fair market
value of the common stock at the date of grant.

     In 1994,  Cypress  adopted  the 1994  Stock  Option  Plan,  which  replaced
Cypress's 1985 Incentive Stock Option Plan and the 1988 Directors'  Stock Option
Plan (the  "Terminated  Plans") with respect to future option grants.  Under the
terms of the 1994  Stock  Option  Plan,  options  may be  granted  to  qualified
employees,  consultants, officers and directors of Cypress or its majority-owned
subsidiaries.  Options become exercisable over a vesting period as determined by
the Board of Directors and expire over terms not exceeding twenty years from the
date of grant. The option price for shares granted,  under the 1994 Stock Option
Plan,  is  typically  equal to the fair market  value of the common stock at the
date of  grant.  The 1994  Stock  Option  Plan  includes  shares  that  remained
available  under the  Terminated  Plans and provides  for an annual  increase in
shares available for issuance  pursuant to non-statutory  stock options equal to
4.5% of Cypress's outstanding common stock at the end of each fiscal year.

     In January  1998,  substantially  all  outstanding  stock  options  with an
exercise price in excess of $9.75 per share were cancelled and replaced with new
options  having an exercise  price of $9.75 per share,  the fair market value on
the date that the employees accepted the repricing. A total of 10,464,000 shares
were  repriced.  This  repricing  excluded  the  Board of  Directors,  the Chief
Executive Officer and the Executive staff of Cypress.


                                    Page 42

<PAGE>


     The following table summarizes  Cypress's stock option activity and related
weighted average exercise price for each category for the years ended January 2,
2000, January 3, 1999 and December 29, 1997. The weighted average exercise price
for each category presented is also shown in the table below.

Shares Under the 1994 and 1999 Stock Option Plan



<TABLE>
<CAPTION>
                                                            1999                  1998                1997
                                                      -----------------     ----------------    ----------------
                                                       Shares     Price     Shares     Price    Shares     Price
                                                       ------     -----     ------     -----    ------     -----
                                                                 (In thousands except per-share amounts)
<S>                                                     <C>        <C>      <C>         <C>     <C>         <C> 
Options outstanding, beginning of year..............    26,515    $ 8.29    23,923    $ 9.27    22,172    $ 8.54
Options cancelled ..................................    (2,011)     9.99   (13,862)    11.24    (1,903)     8.83
Options granted ....................................     8,626     17.48    17,593      9.12     6,618     10.73
Options exercised ..................................    (7,766)     7.62    (1,139)     5.30    (2,964)     7.18
                                                        ------             -------              ------
Options outstanding, end of year ...................    25,364     11.48    26,515      8.32    23,923      9.27
                                                       =======    ======   =======    ======   =======    ======
Options exercisable at January 2, 2000 .............     9,574    $ 8.57
                                                       =======    ======
</TABLE>



     All options were granted at an exercise  price equal to the market value of
Cypress's stock at the date of grant. The weighted average  estimated fair value
at the date of grant,  as defined by SFAS 123, for options granted in 1999, 1998
and 1997 was $8.98,  $3.61 and $5.06 per  option,  respectively.  The  estimated
grant  date  fair  value  is  calculated  using  the  Black-Scholes  model.  The
Black-Scholes  model,  as well as  other  currently  accepted  option  valuation
models,  was  developed  to estimate  the fair value of freely  tradable,  fully
transferable  options without vesting  restrictions,  which significantly differ
from Cypress's stock option awards.  These models also require highly subjective
assumptions,  including  future stock price  volatility  and expected time until
exercise, which greatly affect the calculated grant date fair value.

     The following  weighted  average  assumptions are included in the estimated
grant date fair value calculations for Cypress's stock option awards:

                                        1999       1998       1997
                                        ----       ----       ----
             Expected life .........   7 years   7 years   6 years
             Risk-free interest rate     5.76%     5.41%     6.63%
             Volatility ............    .5668     .5467     .5529
             Dividend yield ........     0.00%     0.00%     0.00%

     Significant option groups outstanding as of January 2, 2000 and the related
weighted  average  exercise  price  and  contractual  life  information,  are as
follows:

                               Outstanding         Exercisable         
   Options with exercise   ------------------    ---------------      Remaining
     prices range from     Shares      Price     Shares    Price    Life (years)
     -----------------     ------      -----     ------    -----    ------------
                                      (In thousands except per-share amounts)
 $ 1.00-- $ 8.25..........  4,239     $ 4.45    2,600     $ 4.40      5.57
 $ 8.26-- $ 9.00..........  4,277     $ 8.51    1,769     $ 8.50      7.64
 $ 9.01-- $ 9.74..........  1,610     $ 9.39      315     $ 9.28      7.89
 $ 9.75-- $ 9.75..........  5,748     $ 9.75    3,344     $ 9.75      6.73
 $ 9.76-- $17.50..........  4,345     $11.94    1,327     $11.63      7.22
 $17.51-- $29.25..........  5,145     $21.95      219     $21.21      9.72


Employee Qualified Stock Purchase Plan

     In 1986,  Cypress  approved  an  Employee  Qualified  Stock  Purchase  Plan
("ESPP"),  which allows  eligible  employees of Cypress and its  subsidiaries to
purchase shares of common stock through payroll deductions. The ESPP consists of
consecutive 24-month offering periods composed of four 6-month exercise periods.
The shares can be  purchased at the lower of 85% of the fair market value of the
common stock at the date of commencement of this two-year  offering period or at
the last day of each 6-month exercise period. Purchases are limited to 10% of an
employee's  eligible   compensation,   subject  to  a  maximum  annual  employee
contribution  limited to a $25,000  market value  (calculated  as the employee's
enrollment  price  multiplied  by  the  number  of  purchased  shares).  Of  the
11,373,000  shares  authorized  under the ESPP,  7,320,000  shares  were  issued
through 1999 including  953,000,  890,000 and 541,000 shares in 1999,  1998, and
1997, respectively.


                                    Page 43

<PAGE>


    Compensation  costs  (included  in pro forma net  income  and net income per
share  amounts)  for the grant date fair  value,  as defined by SFAS 123, of the
purchase rights granted under the ESPP were calculated  using the  Black-Scholes
model. The following weighted average  assumptions are included in the estimated
grant date fair value calculations for rights to purchase stock under the ESPP:

                                      1999        1998         1997
                                      ----        ----         ----
     Expected life.............     6 months    6 months     6 months
     Risk-free interest rate...        5.94%      5.94%       5.80%
     Volatility................       .5773      .5773       .5861
     Dividend yield............        0.00%      0.00%       0.00%

     The weighted  average  estimated  grant date fair value, as defined by SFAS
123, or rights to purchase  stock under the ESPP granted in 1999,  1998 and 1997
were $7.50, $2.56 and $5.49 per share, respectively.

Pro Forma Net Income (Loss) and Net Income (Loss) Per Share

     If Cypress had recorded  compensation  costs based on the  estimated  grant
date fair value, as defined by SFAS 123, for awards granted under its 1994 Stock
Option Plan,  its 1999 Stock Option Plan and its Employee  Stock  Purchase Plan,
Cypress's pro forma net income (loss) and earnings per share for the years ended
January  2,  2000,  January  3, 1999 and  December  29,  1997 would have been as
follows:

                                           1999           1998          1997
                                           ----           ----          ----
                                       (In thousands, except per-share amounts)
Pro forma net income (loss):
  Basic ..............................  $    58,849  $  (135,907)   $   (17,545)
  Diluted ............................  $    58,849  $  (135,907)   $   (17,545)
Pro forma net income (loss) per share:
  Basic ..............................  $      0.56  $     (1.34)   $     (0.18)
  Diluted ............................  $      0.53  $     (1.34)   $     (0.18)

     The pro forma effect on net income  (loss) and net income  (loss) per share
for 1999,  1998 and 1997 is not  representative  of the pro forma  effect on net
income in the future years because it does not take into consideration pro forma
compensation expense related to grants prior to 1995.

Deferred Compensation

     Cypress  recorded a provision for deferred  compensation  of  approximately
$1,638,000 for the difference between the grant or issuance price and the deemed
fair value for  financial  reporting  purposes of certain  Cypress  common stock
options  granted or common  stock  issued in fiscal year ended  January 3, 1999.
These  amounts are being  amortized  over the vesting  period of the  individual
stock options or stock,  generally a period of four to five years.  The deferred
compensation  expense provision was reduced by approximately  $263,000 in fiscal
1997,  representing  an unvested  portion of deferred  compensation  expense for
wafer  fabrication  employees  terminated in fiscal 1998 upon the sale to Maxim.
Deferred  compensation  expense,  which was  recognized,  totaled  approximately
$668,000,   $653,000  and  $191,000  in  fiscal  years  1999,   1998  and  1997,
respectively.

Other Employee Benefit Plans

     Cypress also  maintains a Section  401(k) Plan, New Product Bonus Plan, Key
Employee  Bonus Plan and Deferred  Compensation  Plan.  The 401(k) Plan provides
participating  employees with an opportunity to accumulate  funds for retirement
and hardship.  Eligible  participants may contribute up to 15% of their eligible
earnings to the Plan Trust. Cypress does not make contributions to the plan.

     Under the New Product  Bonus Plan,  which  started in 1997,  all  qualified
employees are provided bonus payments based on Cypress  attaining certain levels
of new product revenue, plus attaining certain levels of profitability. In 1999,
1998 and 1997, $6.9 million,  $0.7 million and $0.5 million,  respectively  were
charged to operations in connection with the New Product Bonus Plan.

     In 1994,  a Key Employee  Bonus Plan was  established,  which  provides for
bonus  payments to selected  employees upon  achievement of certain  Cypress and
individual  performance  targets.  In 1999 and  1998,  $4.9  and  $4.1  million,
respectively,  were charged to operations in connection with this Plan. In 1997,
there were no charges to  operations  in  connection  with this Plan.  Employees
eligible  under the Key  Employee  Bonus  Plan can elect to  participate  in the
Deferred  Compensation  Plan,  which  allows  


                                    Page 44

<PAGE>


eligible  employees to defer their  salary,  bonus and other  related  payments.
Costs incurred by Cypress for the Deferred Compensation Plan during fiscal years
1999, 1998 and 1997 were insignificant.

Note 8: Income Taxes

     The  components  of the provision  for income taxes are  summarized  below.
Income before taxes is principally attributed to domestic operations.

Components of the Provision for Income Taxes

   
                                         January 2,     January 3,  December 29,
                                            2000          1999          1997
                                          ---------    ---------    ---------
                                                     (In thousands)
Income (loss) before provision
  for taxes ..........................  $  95,871     $(118,441)    $  13,139
                                        ---------     ---------     ---------
Current tax expense:
  U.S. Federal .......................     13,913     $ (13,237)    $ (10,483)
  State and local ....................        115            --         1,418
  Foreign ............................        760           511           500
                                        ---------     ---------     ---------
     Total current ...................     14,788       (12,726)       (8,565)
                                        ---------     ---------     ---------
Deferred tax expense (benefit):
  U.S. Federal .......................     (9,971)       (4,210)       16,033
  State and local ....................         --         3,413        (1,855)
                                        ---------     ---------     ---------
     Total deferred ..................     (9,971)         (797)       14,178
                                        ---------     ---------     ---------
          Total ......................  $   4,817     $ (13,523)    $   5,613
                                        =========     =========     =========

     The tax provision  (benefit)  differs from the amounts obtained by applying
     the statutory U.S. Federal Income Tax Rate to income before taxes as shown
below.

Tax Provision Difference


<TABLE>
<CAPTION>
                                                            January 2,    January 3,   December 29,
                                                              2000           1999         1997
                                                            ----------    ----------   ------------
                                                                     (In thousands)
<S>                                                         <C>          <C>          <C>     
Statutory rate ..........................................         35%          35%          35%
Tax at U.S. statutory rate ..............................   $ 33,554     $(41,454)    $  4,599
Foreign earnings ........................................    (11,442)      (4,153)      (1,151)
State income taxes, net of federal benefit ..............        114        3,413          922
Tax credits .............................................     (9,568)      (3,700)      (2,274)
Net Foreign Sales Corporation (FSC) benefit .............       (265)          --          (78)
Benefit of tax free investments .........................        (80)        (350)        (482)
Current year loss with no benefit .......................         --       18,498        3,812
Utilization of net operating loss .......................     (8,968)      (1,740)          --
Future benefits not recognized ..........................         --       15,900           --
Acquisition costs .......................................      4,324           --           --
Income of acquired companies previously taxed ...........     (2,611)          --           --
Other, net ..............................................       (241)        (805)         265
F/S discrepancy .........................................         --          868           --
                                                            --------     --------     --------
  Total .................................................   $  4,817     $(13,523)    $  5,613
                                                            ========     ========     ========
</TABLE>



     The  components  of the net  deferred  tax  assets at  January  2, 2000 and
January 3, 1999, under SFAS 109 were as follows:


<TABLE>
<CAPTION>
                                                                     January 2,   January 3,
                                                                        2000         1999
                                                                     ---------    ---------
                                                                            (In thousands)
<S>                                                                  <C>          <C>      
Deferred tax assets:
  Deferred income on sales to distributors .......................   $  16,185    $  11,024
  Inventory reserves and basis differences .......................       7,136       15,928
  Restructuring and legal reserves ...............................      22,804        2,161
  Asset valuation and other reserves .............................      10,562       26,564
  State tax, net of federal tax ..................................         (48)         420
  Research and development tax credits ...........................      25,702        9,204
  Net operating loss .............................................       4,839       41,330
  Intangibles arising from acquisitions ..........................      12,093           --
  Other, net .....................................................       5,931        1,942
                                                                     ---------    ---------
     Total deferred tax assets ...................................     105,204      108,573
                                                                     ---------    ---------
Deferred tax liabilities:
  Excess of tax over book depreciation ...........................     (43,900)     (39,856)
  Intangibles arising from acquisitions ..........................     (12,093)          --
  Other, net .....................................................        (107)      (1,209)
                                                                     ---------    ---------
     Total deferred tax liabilities ..............................     (56,100)     (41,065)
                                                                     ---------    ---------
Net deferred tax asset ...........................................      49,104    $  67,508
Valuation allowance ..............................................     (39,133)     (67,508)
                                                                     ---------    ---------
Net deferred tax assets (liabilities) after valuation
  allowance ......................................................   $   9,971    $      --
                                                                     =========    =========
</TABLE>



                                    Page 45

<PAGE>


     A $13.8 million tax benefits associated with disqualifying  dispositions of
stock  options and  employee  stock  purchase  plan shares was realized in 1999.
There were no tax benefits  associated with disqualifying  dispositions of stock
options or employee stock purchase plan shares realized in 1998.

     During  1998,  the  United  States   Internal   Revenue  Service  began  an
examination of tax returns for fiscal years 1994 through 1996.  The  examination
is expected to continue through May 2000.  Management  believes that no material
adjustments will ultimately result from this examination.

     Other current assets include  current  deferred tax assets of $10.0 million
at January 2, 2000.  Other assets include deferred tax assets of $9.8 million at
January 2, 2000. There were no deferred tax assets as of January 3, 1999.

Note 9: Commitments and Contingencies

Operating Lease Commitments

     Cypress  leases  most of its  manufacturing  and  office  facilities  under
non-cancelable  operating lease  agreements that expire at various dates through
2012.  These leases require  Cypress to pay taxes,  insurance,  and  maintenance
expenses,  and provide for renewal  options at the then fair market rental value
of the property.

     In April 1997,  Cypress sold  capital  equipment  located in its  Minnesota
wafer   fabrication   facility  to  Fleet   Capital   Leasing   ("Fleet")  in  a
sale-leaseback  agreement.  In  October  1997,  Cypress  entered  into a similar
agreement with Comdisco,  Inc.  ("Comdisco") for other capital equipment located
in Minnesota.  Cypress received a total of $28.2 million from Fleet and Comdisco
in  exchange  for the  capital  equipment  and as a result of the  transactions,
recorded an immaterial gain that is being amortized over the life of the leases.

     In 1994 and 1995,  Cypress entered into three  operating  lease  agreements
with  respect  to its  office  and  manufacturing  facilities,  in San  Jose and
Minnesota, respectively. In April 1996, Cypress entered into an additional lease
agreement related to two office facilities in San Jose. These agreements require
quarterly  payments  that  vary  based on the  London  Interbank  Offering  Rate
("LIBOR"),  plus a spread.  All leases provide Cypress with the option of either
acquiring  the property at its original cost or arranging for the property to be
acquired  at the end of the  respective  lease  terms.  Cypress is  contingently
liable under  certain  first-loss  clauses for up to $52.7 million at January 3,
1999.  First loss  clauses  state that  Cypress  is  potentially  liable for any
decline in the value of the property up to a specified percentage.  The purchase
option then permits Cypress to acquire the property at the lower value. Based on
management's  estimate of the fair value of the  properties,  no  liability  was
required  to be recorded  at January 2, 2000,  January 3, 1999 or  December  29,
1997.  Furthermore,  Cypress  is  required  to  maintain  a  specific  level  of
restricted  cash or  investments  to serve as  collateral  for these  leases and
maintain compliance with certain financial covenants. As of January 2, 2000, the
amount  of  restricted  investments  recorded  was  $61.2  million,  which is in
compliance  with these  agreements.  These  restricted  cash or investments  are
classified as non-current on the balance sheet.

     The aggregate  annual rental  commitments  under  non-cancelable  operating
leases as of January 2, 2000 are as follows:

                           Fiscal Year (In thousands)
                         2000 ..............   $23,892
                         2001 ..............    11,168
                         2002 ..............     8,333
                         2003 ..............     8,093
                         2004 ..............     4,730
                         2005 and thereafter        --
                                               -------
                           Total ...........   $56,216
                                               =======

     Rental expense was  approximately  $18.0 million in 1999,  $21.9 million in
1998 and $17.2 million in 1997.


                                    Page 46

<PAGE>


Litigation and Asserted Claims

     The  semiconductor   industry  has  experienced  a  substantial  amount  of
litigation regarding patent and other intellectual property rights. From time to
time,  Cypress  has  received,  and may  receive in the  future,  communications
alleging  that its products or its  processes may infringe on product or process
technology  rights held by others.  Cypress is currently,  and may in the future
be,  involved in litigation  with respect to alleged  infringement by Cypress of
another party's patents. In the future,  Cypress may be involved with litigation
to:

o    Enforce its patents or other intellectual property rights.

o    Protect its trade secrets and know-how.

o    Determine the validity or scope of the proprietary rights of others.

o    Defend against claims of infringement or invalidity.

     Such  litigation  has  in the  past  and  could  in the  future  result  in
substantial costs and diversion of management  resources.  Such litigation could
also result in payment of substantial  damages and/or  royalties or prohibitions
against utilization of essential technologies, and could have a material adverse
effect on Cypress's business, financial condition and results of operations.

     During 1998,  EMI Group of North America,  Inc.  ("EMI") filed suit against
Cypress in the Federal  Court in Delaware,  claiming  that Cypress  infringed on
four patents owned by EMI.  Cypress and EMI entered into a license  agreement in
February 1999, for one of the four patents in the lawsuit. EMI then withdrew two
of the four  patents  from the  lawsuit,  including  the  patent  related to the
licensing agreement.  The case involving the remaining two patents went to trial
in October  1999.  The jury ruled in favor of Cypress,  finding that none of the
patent claims was infringed by Cypress and that each asserted  claim was invalid
due to  physical  impossibility  (i.e.,  the  patents  require  a step  that  is
physically  impossible to perform) and prior art (i.e.,  assuming it is possible
to perform the impossible step, the prior art would have also performed it). EMI
may file an appeal,  although no such  appeal has been filed as of February  25,
2000.  Should EMI appeal the decision of the Federal Court,  Cypress  intends to
defend  itself  vigorously.  However,  should  the  outcome  of this  action  be
unfavorable,  Cypress's business,  financial condition and results of operations
could be materially and adversely affected.

     In January 1998, an attorney representing the estate of Mr. Jerome Lemelson
contacted  Cypress and charged that Cypress  infringed  certain patents owned by
Mr. Lemelson.  On February 26, 1999, the Lemelson  attorneys sued Cypress and 87
other  companies  for  infringement  of 16  patents.  Cypress has  reviewed  and
investigated  the  allegations  in the complaint  and Cypress  believes that the
suits are without merit.  Cypress will vigorously  defend itself in this matter.
While no assurance can be given  regarding  the outcome of this action,  Cypress
believes that the final outcome of the matter will not have a material effect on
Cypress's  consolidated  financial  position or results of operations.  However,
because of the nature  and  inherent  uncertainties  of  litigation,  should the
outcome of this  action be  unfavorable,  Cypress may be required to pay damages
and other  expenses,  which could have a material  adverse  effect on  Cypress's
financial position and results of operations.

     In June 1997, Cypress commenced a declaratory judgment action in the United
States  District  Court for the District of Nevada  against the Li Second Family
Trust ("the Trust"). In this action, Cypress asked for declaratory relief to the
effect that a U.S.  patent  relating to a part of the process for  manufacturing
semiconductors is unenforceable, invalid and not infringed by Cypress. The Trust
has counter-claimed  for patent  infringement on the same patent,  alleging such
patent  covers  oxide-isolated  integrated  circuits.  In May 1999, in a related
case,  the United  States  District  Court for the Eastern  District of Virginia
ruled that the patent is unenforceable due to inequitable  conduct by Dr. Li and
his  attorneys  in obtaining  the patent.  Cypress  believes it has  meritorious
defenses to the counter-claim and intends to defend itself vigorously.  While no
assurance  can be given  regarding  the final  outcome of this  action,  Cypress
believes that the final  outcome of the matters will not have a material  effect
on Cypress's consolidated financial position or results of operations.  However,
should the outcome of this action be unfavorable,  Cypress's business, financial
condition and results of operations could be materially and adversely affected.

     On October 2, 1997,  Cypress filed an action against Kevin Yourman,  Joseph
Weiss,  and their  associated  law offices in the Superior  Court of  California
("Superior  Court") in Santa Clara County for malicious civil prosecution in the
underlying  securities fraud actions  initiated by Messrs.  Yourman and Weiss in
1992. The underlying  securities fraud actions were dismissed because no officer
of Cypress made any actionable false or misleading  statements or omissions.  An
appeal affirmed the lower court's finding that Messrs.  Yourman and Weiss failed
to put  forth  evidence  showing  a  genuine  issue of fact  with  regard to any
statements by Cypress's  officers.  On May 4, 1999, the Superior Court granted a
summary  judgment  motion by Messrs.  Yourman and Weiss,  holding  that  Messrs.
Yourman and Weiss had probable cause to bring the underlying litigation. Cypress
is appealing the decision. However, the results of litigation are unpredictable.
Cypress believes that this action,  regardless of its outcome, will have little,
if any effect on Cypress's


                                    Page 47

<PAGE>


consolidated financial position or results of operations.

Purchase Commitments

     At January 2, 2000,  Cypress had purchase  commitments  aggregating  $192.0
million,   principally  for  manufacturing   equipment  and  facilities.   These
commitments  relate to purchases to be made in 2000 and beyond.  Commitments for
2000  purchases  will  be  funded  through  a  combination  of  cash  resources,
retirement of investments and the $283.0 million 4.0%  Convertible  Subordinated
Notes (See Note 12).

Note 10: Related Parties

     Between 1992 and 1995,  Cypress made  cost-basis  investments in QuickLogic
Corporation  ("QuickLogic") Series D and Series E preferred stock. In June 1996,
Cypress received $4.5 million from QuickLogic,  the original intent of which was
to obtain a minority  interest  in CTI and to secure  guaranteed  fab  capacity.
Cypress  classified  the $4.5 million as other  long-term  liabilities  in 1996,
awaiting final negotiation of the terms and transaction approval from Altera, an
existing  minority  interest  shareholder.  In  March  1997,  Cypress  signed  a
definitive  agreement with QuickLogic  Corporation  involving  termination of an
existing joint  development,  licensing and foundry agreement for antifuse Field
Programmable  Gate Array  ("FPGA")  products and the  execution of a new foundry
agreement.  Under the new agreement,  Cypress ceased development,  marketing and
selling  of  antifuse-based  FPGA  products.  In  return,  QuickLogic  paid $4.5
million,  which  represented  $3.5 million of NRE revenue related to the sale of
technology  rights and $1.0  million of  compensation  for  inventory  and other
assets,  and issued shares of QuickLogic  common stock that increased  Cypress's
equity position in the  privately-held  QuickLogic to greater than 20%.  Cypress
also entered into a five-year wafer-supply agreement to provide FPGA products to
QuickLogic.  Revenues and net income contributed by the FPGA product line during
1997 and was not significant.

     In the first  quarter of 1998,  due to  QuickLogic's  history of  recording
losses,  Cypress  determined  that its  investment in QuickLogic had declined in
value and the decline in value was not temporary. Accordingly, Cypress wrote-off
its investment in QuickLogic to reflect this decline.  During the second half of
1998 and throughout 1999, due to the resurgence in the  semiconductor  industry,
QuickLogic began recording profits.  In October 1999,  QuickLogic  announced its
initial  public  offering.  Cypress sold its investment in QuickLogic in October
1999 and as a result, recorded a $36.2 million gain.

     Cypress  recorded  sales to QuickLogic  of $7.1  million,  $2.3 million and
$11.7 million in 1999, 1998 and 1997, respectively. At fiscal year-ends 1999 and
1998,  Cypress had a receivable  due from  QuickLogic  of $0.9 and $0.6 million,
respectively.

     During  1990,  Cypress  made a  cost-basis  investment  of $1.0  million in
Vitesse  Semiconductor  stock. Cypress sold its remaining investment in February
1997 and recorded a gain of $3.8 million in other income.

Note 11: Segment Information

     Cypress  has  two  reportable  segments,  Memory  Products  and  Non-memory
Products.  The Memory  Products  segment  includes Static Random Access Memories
("SRAMs")  and multichip  modules.  The  Non-memory  Products  segment  includes
programmable  logic products,  data  communication  devices,  computer products,
non-volatile memory products and wafers manufactured by the foundry.

     The accounting  policies of the segments are the same as those described in
the summary of significant  accounting  policies (see Note 1). Cypress evaluates
the  performance  of its two  segments  based on profit or loss from  operations
before income taxes, excluding nonrecurring gains and losses.

     Cypress's  reportable  segments  are  strategic  business  units that offer
different products.  Products that fall under the two segments differ in nature,
are  manufactured   utilizing  different   technologies  and  have  a  different
end-purpose.  As  such,  they  are  managed  separately.   Memory  Products  are
characterized  more as a commodity,  which is depicted by high unit sales volume
and lower gross  margins.  These products are  manufactured  using more advanced
technology. A significant portion of the wafers produced for Memory Products are
manufactured at Cypress's technologically advanced,  eight-inch wafer production
facility  located in Minnesota (Fab 4). Memory Products are used by a variety of
end-users but the product is used  specifically for the storage and retrieval of
information.  In contrast to Memory Products,  unit sales of non-Memory Products
are generally lower than Memory Products, but sell at higher gross margins. Some
Non-memory  Products are manufactured  utilizing less  technologically  advanced
processes. A majority of wafers for


                                    Page 48

<PAGE>


Non-memory Products are manufactured at Cypress's less technologically  advanced
six-inch  Fab  located  in Texas (Fab 2).  Products  in the  Non-memory  segment
perform  non-memory  functions such as floating-point  mathematics,  store fixed
data  that is not to be  altered  during  normal  machine  operations  and  data
transfer and routing functions of signals throughout a computer system.

     The tables below set forth  information  about the reportable  segments for
fiscal years 1999,  1998 and 1997.  Cypress  does not  allocate  income taxes or
non-recurring items to segments.  In addition,  segments do not have significant
non-cash items other than  depreciation  and  amortization in reported profit or
loss.

Business Segment Net Revenues

                                             1999           1998          1997
                                            --------      --------      --------
                                                      (In thousands)
Memory ...............................      $269,686      $195,929      $226,566
Non-memory ...........................       435,801       358,962       371,919
                                            --------      --------      --------
  Total consolidated revenues ........      $705,487      $554,891      $598,485
                                            ========      ========      ========

Business Segment Profit (Loss)


                                             1999           1998           1997
                                           ---------      ---------    ---------
                                                         (In thousands)
Memory ...............................    $ (21,691)    $ (94,781)    $ (35,742)
Non-memory ...........................      108,326        34,997        54,132
Restructuring and other
  non-recurring (costs) benefits .....      (33,812)      (60,737)       (9,882)
Interest income and other ............       52,665        13,356        13,092
Interest expense .....................       (9,617)      (11,276)       (8,461)
                                          ---------     ---------     ---------
Income (loss) before provision
  for income taxes ...................    $  95,871     $(118,441)    $  13,139
                                          =========     =========     =========

Business Segment Depreciation

     Depreciation by segment for the respective years was:

                                                1999         1998         1997
                                              --------     --------     --------
                                                      (In thousands)
Memory ..................................     $ 66,164     $ 86,905     $ 77,420
Non-memory ..............................       41,259       27,693       36,593
                                              --------     --------     --------
  Total consolidated depreciation .......     $107,423     $114,598     $114,013
                                              ========     ========     ========

Geographic Area

     Revenues  are  attributed  to  countries  based on the  customer  location.
Revenues by geographic locations were:

                                                    1999       1998         1997
                                                  --------   --------   --------
                                                      (In thousands)
United States .................................   $345,185   $307,938   $363,709
Europe ........................................    130,484     91,544     99,051
Japan .........................................     67,603     51,902     53,701
Other foreign countries .......................    162,215    103,507     82,024
                                                  --------   --------   --------
  Total revenues ..............................   $705,487   $554,891   $598,485
                                                  ========   ========   ========

     Assets by geographic locations were:

                                            1999           1998           1997
                                          --------       --------       --------
                                                     (In thousands)
United States .....................       $275,553       $276,770       $373,273
Philippines .......................         77,426         69,996         67,629
Other foreign countries ...........          4,204          2,170          2,877
                                          --------       --------       --------
  Total assets ....................       $357,183       $348,936       $443,779
                                          ========       ========       ========


                                    Page 49

<PAGE>


Note 12: Subsequent Events

     On March 2, 2000,  Cypress  completed  the  merger  with  Galvantech,  Inc.
("Galvantech"),  which  will be  accounted  for as a pooling of  interests.  The
agreement provides for Cypress to issue up to 3.6 million shares in exchange for
all outstanding stock and options of Galvantech. The fiscal years of Cypress and
Galvantech  were  different  and  Galvantech  has changed its fiscal  periods to
coincide  with that of  Cypress.  Galvantech  specializes  in niche,  ultra-high
performance memories for data communications applications.

     On January 31, 2000, Cypress filed a universal shelf registration statement
with the Securities and Exchange  Commission (SEC). The registration  statement,
when  effective,  will allow Cypress to market and sell up to $400.0  million of
its securities.  The shelf registration statement will allow Cypress flexibility
to  raise  funds  from the  offering  of debt  securities,  common  stock,  or a
combination thereof, subject to market conditions and Cypress's capital needs.


                                    Page 50

<PAGE>


 
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of Cypress Semiconductor Corporation.


     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated statements of operations, stockholders' equity, and of cash
flows  present  fairly,  in all material  respects,  the  financial  position of
Cypress  Semiconductor  Corporation and its  subsidiaries at January 2, 2000 and
January 3, 1999,  and the results of their  operations  and their cash flows for
each of the three years in the period ended January 2, 2000, in conformity  with
accounting  principles  generally accepted in the United States. These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing standards generally accepted in the United States which require that we
plan and  perform the audit to obtain  reasonable  assurance  about  whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for the opinion expressed above.


PricewaterhouseCoopers LLP
San Jose, California
January 26, 2000,

except as to Note 12 which is as of March 2, 2000





                                    Page 51

<PAGE>



                            Quarterly Financial Data
                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                Three Months Ended

                             Jan. 2,          Oct 3,         July 4,          Apr. 4,
                              2000            1999            1999            1999
                         -------------   -------------   -------------   -------------
<S>                      <C>             <C>             <C>             <C>          
Revenues .............   $     207,876   $     184,497   $     161,523   $     151,591
                         =============   =============   =============   =============
Gross Profit .........   $     101,798   $      85,969   $      71,293   $      62,788
                         =============   =============   =============   =============
Net income ...........   $      47,473   $      26,417   $       8,480   $       8,684
                         =============   =============   =============   =============

Net income per share:
Basic ................   $        0.43   $        0.25   $        0.08   $        0.09
                         =============   =============   =============   =============
Diluted ..............   $        0.39   $        0.23   $        0.08   $        0.09
                         =============   =============   =============   =============

<CAPTION>

                                                Three Months Ended

                             Jan. 3,        Sept. 28,       June 29,       Mar. 30,
                              1999            1998            1998           1998
                         -------------   -------------   -------------   -------------
<S>                      <C>             <C>             <C>             <C>          
Revenues .............   $     145,570   $     143,791   $     133,376   $     132,154
                         =============   =============   =============   =============
Gross Profit .........   $      49,948   $      47,213   $      41,629   $       6,993
                         =============   =============   =============   =============
Net income (loss) ....   $      (1,751)  $       1,649   $      (9,221)  $     (95,595)
                         =============   =============   =============   =============

Net income (loss) per share:
Basic ................   $       (0.02)  $        0.02   $       (0.09)  $       (0.92)
                         =============   =============   =============   =============

Diluted ..............   $       (0.02)  $        0.02   $       (0.09)  $       (0.92)
                         =============   =============   =============   =============
</TABLE>



                                    Page 52

<PAGE>



                                    PART III

     Certain  information  required  by Part III is omitted  from this Report in
that  the  registrant  will  file  a  definitive  proxy  statement  pursuant  to
Regulation 14A (the "Proxy  Statement") not later than 120 days after the end of
the fiscal year covered by this Report, and certain information included therein
is incorporated herein by reference.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information   required  by  this  item  concerning  our  directors  is
incorporated by reference to the information set forth in the sections  entitled
"Proposal  One-Election of Directors" and "Compliance  with Section 16(a) of the
Exchange Act" in our Proxy Statement for the 2000 Annual Meeting of Stockholders
to be filed with the  Commission  within 120 days after the end of the Company's
fiscal year ended January 2, 2000, except that the information  required by this
item  concerning the executive  officers of Cypress is incorporated by reference
to the information set forth in the section entitled  "Executive Officers of the
Registrant" at the end of Part I of this Report on Form 10-K.


ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by this item is incorporated by reference to our
Proxy Statement.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this item is incorporated by reference to our
Proxy Statement.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this item is incorporated by reference to our
Proxy Statement.

                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section 16(a) of the Securities  Exchange Act of 1934 requires our officers
and directors,  and persons who own more than ten percent of a registered  class
of our equity  securities  to file reports of ownership on Form 3 and changes in
ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC")
and the National Association of Securities Dealers. Such officers, directors and
10% stockholders are also required by SEC rules to furnish us with copies of all
Section 16(a) forms that they file.

     Based  solely on its review of the copies of such forms  received by us, we
believe that,  during the fiscal year ended  January 2, 2000,  all Section 16(a)
filing requirements  applicable to our officers,  directors and 10% stockholders
were satisfied.


                                    Page 53

<PAGE>



                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  The following documents are filed as a part of this report:

                                                                            PAGE
                                                                            ----
(1)  FINANCIAL STATEMENTS

     Consolidated Balance Sheets at January 2, 2000 and January 3, 1999....   28
     Consolidated Statements of Operations for the three years 
       ended January 2, 2000 ..............................................   29
     Consolidated Statements of Stockholders' Equity for the three years
       ended January 2, 2000...............................................   30
     Consolidated Statements of Cash Flows for the three years ended 
       January 2, 2000.....................................................   31
     Notes to Consolidated Financial Statements............................   32
     Report of Independent Accountants.....................................   51

(2)  FINANCIAL STATEMENT SCHEDULE

     Schedule II-Valuation and qualifying accounts and reserves............   58


     All other  schedules  are omitted  because they are not  applicable  or the
required information is shown in the financial statements or notes thereto.

(3)  EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             DESCRIPTION
-------------     -------------------------------------------------------------------------------------------------
<S>               <C>
2.1  (1)          Amendment and Plan of Reorganization by and among Cypress Semiconductor Corporation, CY Acquisition
                  Corporation and IC WORKS.

2.2  (2)          Amendment and Plan of Reorganization by and among Cypress Semiconductor Corporation, CE Acquisition
                  Corporation and Galvantech, Inc.

3.1  (3)          Restated Certificate of Incorporation, as amended.

3.2  *            Certificate of Amendment dated May 13, 1992 to Restated Certificate of Incorporation.

3.3  *            Certificate of Amendment dated October 23, 1995 to Restated Certificate of Incorporation, as amended.

3.4  (3)          Bylaws, as amended.

4.1  (4)          Lease dated April 12, 1996 between Cypress Semiconductor Corporation and BNP Leasing Corporation.

4.2  (5)          Subordinated Indenture relating to our 6.0% convertible subordinated notes due 2002, and dated as of
                  September 15, 1997, between Cypress Semiconductor Corporation and State Street Bank and Trust Company of
                  California, N.A., as Trustee, including the form of note.

4.3  (6)          Subordinated Indenture relating to our 4.0% convertible subordinated notes due 2005, and dated as of
                  January 15, 2000, between Cypress Semiconductor Corporation and State Street Bank and Trust Company of
                  California, N.A., as Trustee, including the form of note.

4.4  *            Supplemental Trust Indenture relating to our 4.0% convertible subordinated notes due 2005, and dated a
                  of January 15, 2000, between Cypress Semiconductor Corporation and State Street Bank and Trust Company of
                  California, N.A., as Trustee, including the form of note.

10.1 (3) (7)      Form of Indemnification Agreement.

10.2 (7)  *       Cypress Semiconductor Corporation 1994 Stock Option Plan.

10.3 (7) (8)      Cypress Semiconductor Corporation Employee Qualified Stock Purchase Plan, as amended.

10.4 (7) (9)      Consulting Agreement between Fred Bialek and Cypress Semiconductor Corporation.

10.5 (7)  *       Cypress Semiconductor Corporation 1999 Key Employee Bonus Plan
                  Agreement.

10.6 (7) (10)     Cypress Semiconductor Corporation 1999 Non-statutory Stock Option Plan
</TABLE>



                                    Page 54

<PAGE>


21.1  *           Subsidiaries of Cypress Semiconductor Corporation.

23.1  *           Consent of Independent Accountants.

24.1  *           Power of Attorney (see page 57).

27.1  *           Financial Data Schedule.


----------

(1)  Previously  filed as an  exhibit  to our  current  report on Form 8-K dated
     February 12, 1999.

(2)  Previously  filed as an exhibit to our  current  report on Form 8-K,  dated
     January 18, 2000.

(3)  Previously  filed as an exhibit to our  registration  statement on Form S-1
     which was declared effective on March 4, 1987 (SEC file number 33-12153).

(4)  Previously  filed as an exhibit  to our annual  report on Form 10-K for the
     fiscal year ended December 30, 1996.

(5)  Previously  filed as an exhibit to our  registration  statement on Form S-3
     dated December 19, 1997 (SEC file number 333-42829).

(6)  Previously filed as an exhibit to our registration statement on Form S-3/A,
     dated March 24, 1999 (SEC file number 333-67203).

(7)  Management compensatory plan, contract or arrangement.

(8)  Previously  filed as an exhibit to our  registration  statement on Form S-8
     dated December 10, 1998 (SEC file number 333-68703).

(9)  Previously  filed as an exhibit  to our annual  report on Form 10-K for the
     fiscal year ended January 3, 1999.

(10) Previously  filed as an exhibit to our  registration  statement on Form S-8
     dated April 20, 1999 (SEC file number 333-76665).

*    Filed as an exhibit to this annual report.

(b)  Reports on Form 8-K:

     1. On December 8, 1999 we filed a report on Form 8-K,  which reported under

Item 5, that  pursuant  to our  acquisition  of IC WORKS,  Incorporated,  we had
changed the fiscal year of IC WORKS,  Incorporated  to  correspond to our fiscal
year.  Pursuant to Item 7, we attached  the  financial  statements  of IC WORKS,
Incorporated, reflecting the resultant changes.


                                    Page 55

<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the  registrant,  Cypress  Semiconductor  Corporation,  a
corporation organized and existing under the laws of the State of Delaware,  has
duly caused this  Annual  Report to be signed on its behalf by the  undersigned,
thereto duly authorized,  in the City of San Jose,  State of California,  on the
8th day of March 2000.

                                        CYPRESS SEMICONDUCTOR CORPORATION

                                    By: /s/ Emmanuel Hernandez
                                    --------------------------------------------
                                        Emmanuel Hernandez,
                                        Chief Financial Officer, Vice President,
                                        Finance and Administration



                                       56

<PAGE>

                                POWER OF ATTORNEY

     Each of the officers and  directors  of Cypress  Semiconductor  Corporation
whose signature  appears below hereby  constitutes and appoints T.J. Rodgers and
Emmanuel Hernandez and each of them, their true and lawful attorneys-in-fact and
agents,  with full power of substitution,  each with power to act alone, to sign
and execute on behalf of the  undersigned  any  amendment or  amendments to this
report on Form 10-K,  and to perform any acts  necessary  to be done in order to
file such amendment,  and each of the undersigned does hereby ratify and confirm
all that said  attorneys-in-fact and agents, or their or his substitutes,  shall
do or cause to be done by virtue hereof.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated:

         SIGNATURE                         TITLE                       DATE
---------------------------     -----------------------------      -------------
/s/ T.J. Rodgers                President, Chief Executive
---------------------------     Officer and Director               March 7, 2000
         T. J. Rodgers          (Principal Executive Officer)

/s/ Emmanuel Hernandez          Chief Financial Officer
---------------------------     Vice President, Finance and        March 7, 2000
         Emmanuel Hernandez     Administration (Principal
                                Financial and Accounting
                                Officer)
/s/ Eric Benhamou
---------------------------     Chairman of the Board of           March 7, 2000
         Eric Benhamou          Directors

/s/ Fred B. Bialek
---------------------------     Director                           March 7, 2000
         Fred B. Bialek

/s/ John C. Lewis
---------------------------     Director                           March 7, 2000
         John C. Lewis

/s/ Al Shugart
---------------------------     Director                           March 7, 2000
         Al Shugart


                                    Page 57

<PAGE>


                                                                     SCHEDULE II

                        CYPRESS SEMICONDUCTOR CORPORATION

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



<TABLE>
<CAPTION>
                                                             Charged to       Charged to
                                              Beginning        Costs            Other                            Ending
Description                                    Balance      and Expenses       Accounts        Deductions        Balance
-----------                                  -----------     ----------       -----------     -----------      -----------
<S>                                          <C>             <C>              <C>             <C>              <C>        
1997
Allowance for sales returns and doubtful
accounts ...............................     $ 4,742,000     $         --     $   502,000     $(1,134,000)     $ 4,110,000

1998
Allowance for sales returns and doubtful
accounts ...............................     $ 4,110,000     $         --     $ 1,917,000     $(2,977,000)     $ 3,050,000

1999
Allowance for sales returns and doubtful
accounts ...............................     $ 3,050,000     $         --     $        --     $   (66,000)     $ 2,984,000
</TABLE>



                                       58






                            CERTIFICATE OF AMENDMENT

                                       OF

                    THE RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                        CYPRESS SEMICONDUCTOR CORPORATION


     Cypress  Semiconductor  Corporation,  a corporation  organized and existing
under and by virtue of the  General  Corporation  Law of the State of  Delaware,
certifies as follows:

     1.  That the  Board  of  Directors  of  Cypress  Semiconductor  Corporation
unanimously  approved  the  adoption of a  resolution  setting  forth a proposed
amendment of the Restated  Certificate  of  Incorporation  of this  corporation,
declaring said amendment to be advisable and authorizing the solicitation of the
stockholders  of said  corporation  for  consideration  thereof.  The resolution
setting forth the proposed amendment is as follows:

     RESOLVED:  That Section 4. (a) of the Restated Certificate of Incorporation
     of this corporation shall be amended to read in its entirety as follows:

     "4. (a) The  Corporation is authorized to issue two classes of shares to be
     designated, respectively,  "Preferred Stock" and "Common Stock." The number
     of shares  of  Preferred  Stock  authorized  to be  issued is five  million
     (5,000,000)  and the  number of shares of  Common  Stock  authorized  to be
     issued is seventy-five  million  (75,000,000).  The Preferred Stock and
 the
     Common Stock shall each have a par value of $.01 per share.  The  aggregate
     par value of all shares of Preferred Stock is $50,000 and the aggregate par
     value of all shares of Common Stock is $750,000."

     2.  That  pursuant  to  the  resolution  of its  Board  of  Directors,  the
corporation  obtained, as required by Section 228 of the General Corporation Law
of the State of Delaware,  the necessary number of shares required by statute as
were voted in favor of the amendment.

     3. That said  amendment was duly adopted in accordance  with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.




<PAGE>




     IN WITNESS WHEREOF, this Certificate of Amendment is executed this 13th day
of May, 1992.

                                    CYPRESS SEMICONDUCTOR CORPORATION


                                    /s/ T.J. Rodgers
                                    ------------------------------------
                                    T.J. Rodgers
                                    President



ATTEST:  /s/ Kenneth Goldman
         ------------------------------
         Kenneth A. Goldman
         Secretary




                                      -2-





                            CERTIFICATE OF AMENDMENT
                                       OF
                          CERTIFICATE OF INCORPORATION
                                       OF
                        CYPRESS SEMICONDUCTOR CORPORATION



     CYPRESS  SEMICONDUCTOR  CORPORATION,  a corporation  organized and existing
under the laws of the State of  Delaware  (the  "Corporation"),  pursuant to the
provisions of the General Corporation Law of the State of Delaware, (the "GCL"),
DOES HEREBY CERTIFY as follows:

     FIRST:  The  Certificate  of  Incorporation  of the  Corporation  is hereby
amended by deleting  the second,  third and fourth  sentences of Section 4(a) of
the Certificate of Incorporation in its present form and substituting therefor a
new second sentence of Section 4(a) in the following form:

     "The total  number of shares of all classes of stock which the  Corporation
     has  authority to issue is Two Hundred  Fifty Five  Million  (255,000,000),
     consisting  of Two Hundred  Fifty  Million  (250,000,000)  shares of Common
     Stock, $0.01 par value (the "Common Stock"),  and Five Million  (5,000,000)
     shares of Preferred Stock, $0.01 par value (the "Preferred Stock")."

     SECOND:   The  amendment  to  the  Certificate  of   Incorporation  of  the
Corporation set forth in this  Certificate of Amendment has been duly adopted in
accordance  with  the  provisions  of  Section  242 of the GCL (a) the  Board of
Directors of the Corporation
 having duly adopted a resolution setting forth such
amendment and declaring its  advisability  and submitting it to the stockholders
of  the  Corporation  for  their  approval,  and  (b)  the  stockholders  of the
Corporation  having duly  adopted  such  amendment by a vote of the holders of a
majority of the outstanding stock entitled to vote thereon by written consent of
the stockholders.

     IN WITNESS  WHEREOF,  the  Corporation  has caused its corporate seal to be
hereunto  affixed and this  Certificate  of  Amendment  to be signed by Emmanuel
Hernandez, its Chief Financial Officer this 23rd day of October, 1995.



                                             CYPRESS SEMICONDUCTOR CORPORATION




                                             BY:      /s/ Emmanuel Hernandez
                                                  ------------------------------
[Corporate Seal]



================================================================================




                        Cypress Semiconductor Corporation

                                       and

             State Street Bank and Trust Company of California, N.A.
                                     Trustee


                          Supplemental Trust Indenture

                          Dated as of January 15, 2000

                           Supplementing that certain

                             Subordinated Indenture

                          Dated as of January 15, 2000


                    Authorizing the Issuance and Delivery of

                          Subordinated Debt Securities

                   4% Convertible Subordinated Notes due 2005


================================================================================


<PAGE>



                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----

ARTICLE ONE ISSUANCE OF NOTES..................................................2

         Section 101       Issuance of Notes; Principal Amount; Maturity.......2
         Section 102       Interest on the Notes; Payment of Interest..........2

ARTICLE TWO CERTAIN DEFINITIONS................................................3

         Section 201       Certain Definitions.................................3

ARTICLE THREE CERTAIN COVENANTS................................................4

         Section 301       Registration and Listing............................4

ARTICLE FOUR REDEMPTION OF NOTES...............................................4

         Section 401       Right of Redemption.................................4
         Section 402       Conversion Arrangement on Call for Redemption.......4

ARTICLE FIVE CONVERSION OF NOTES...............................................5

         Section 501       Conversion Privilege and Conversion Price...........5
         Section 502       Adjustment of Conversion Price......................6
         Section 503       No Adjustment......................................11

ARTICLE SIX REDEMPTION AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL..........11

         Section 601       Purchase of Securities at Option of the Holder 
                              Upon Change in Control..........................11
         Section 602       Effect of Change in Control Purchase Notice........14
         Section 603       Deposit
 of Change in Control Purchase Price........15
         Section 604       Notes Purchased In Part............................15
         Section 605       Compliance With Securities Laws Upon 
                              Purchase of Notes...............................15
         Section 606       Repayment to the Company...........................15
         Section 607       Successive Consolidations, Mergers, Etc............16

ARTICLE SEVEN MISCELLANEOUS...................................................16

         Section 701       Consent of Holders Required........................16
         Section 702       Applicability of Certain Indenture Provisions......16
         Section 703       Reference to and Effect on the Indenture...........17
         Section 704       Supplemental Indenture May be Executed 
                              In Counterparts.................................17
         Section 705       Effect of Headings.................................17
         Section 706       Separability.......................................17



                                       -i-


<PAGE>




     This  Supplemental  Trust  Indenture,  dated as of  January  15,  2000 (the
"Supplemental   Indenture"),   between  Cypress  Semiconductor   Corporation,  a
corporation  duly organized and existing under the laws of the State of Delaware
(the "Company"), and State Street Bank and Trust Company of California,  N.A., a
national banking association organized and existing under the laws of the United
States of  America,  as Trustee  (the  "Trustee"),  supplementing  that  certain
Subordinated  Indenture,  dated as of January 15, 2000,  between the Company and
the Trustee (such Indenture,  as supplemented by this Supplemental Indenture for
this series of Securities, being referred to herein as the "Indenture").

                                    Recitals

     A. The  Company  has duly  authorized  the  execution  and  delivery of the
Indenture  heretofore  executed and  delivered to provide for the issuance  from
time  to  time  of its  unsecured  debentures,  notes,  or  other  evidences  of
indebtedness to be issued in one or more series as provided for in the Indenture
heretofore executed and delivered.

     B. The  Indenture  heretofore  executed  and  delivered  provides  that the
Securities  of each series shall be in  substantially  the form set forth in the
Indenture  heretofore  executed and  delivered,  or in such other form as may be
established by or pursuant to a Board Resolution or in one or more  supplemental
indentures  thereto, in each case with such appropriate  insertions,  omissions,
substitutions,  and  other  variations  as  are  required  or  permitted  by the
Indenture, and may have such letters,  numbers, or other marks of identification
and such  legends or  endorsements  placed  thereon as may be required to comply
with the rules of any securities exchange or as may,  consistently  herewith, be
determined  to be  required  by  the  officers  executing  such  securities,  as
evidenced by their execution thereof.

     C. The Company and the Trustee have agreed that the Company shall issue and
deliver,  and  the  Trustee  shall  authenticate,   Securities  denominated  "4%
Convertible  Subordinated Notes due 2005" (the "Notes") pursuant to the terms of
this  Supplemental  Indenture and  substantially in the form set forth below, in
each case with such appropriate insertions, omissions,  substitutions, and other
variations as are required or permitted by the Indenture heretofore executed and
delivered and this Supplemental  Indenture,  and with such letters,  numbers, or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any  securities  exchange or as may,
consistently  herewith, be determined by the officers executing such Securities,
as evidenced by their execution of such Securities. 


<PAGE>


                                  ARTICLE ONE
                                ISSUANCE OF NOTES

Section 101 Issuance of Notes; Principal Amount; Maturity.

     (a) On  January  25,  2000,  the  Company  shall  issue and  deliver to the
Trustee, and the Trustee shall authenticate, Notes substantially in the form set
forth in Annex 1, in each  case  with such  appropriate  insertions,  omissions,
substitutions and other variations as are required or permitted by the Indenture
and this Supplemental Indenture, and with such letters,  numbers, or other marks
of  identification  and such legends or  endorsements  placed  thereon as may be
required  to  comply  with  the  rules  of any  Securities  exchange  or as may,
consistently  herewith,  be determined by the officers  executing such Notes, as
evidenced by their execution of such Notes.

     (b) There is hereby  authorized a series of  Securities  designated  the 4%
Convertible  Subordinated  Notes  due  2005,  which  may  be  authenticated  and
delivered under the Indenture in an unlimited  principal amount. The Notes shall
mature on February 1, 2005, which shall be the Stated Maturity.

Section 102 Interest on the Notes; Payment of Interest.

     (a) The Notes shall bear  interest at the rate of 4% per annum from January
25, 2000 and to and including February 1, 2005. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.

     (b) The interest so payable,  and punctually  paid or duly provided for, on
any Interest  Payment Date shall, as provided in such Indenture,  be paid to the
Person  in whose  name a Note is  registered  at the  close of  business  on the
Regular Record Date for such interest,  which shall be the January 15 or July 15
(whether  or not a  Business  Day),  as the case  may be,  next  preceding  such
Interest Payment Date.

     (c) Payment of the principal of (and  premium,  if any) and any interest on
the Notes  shall be made at the office or agency of the Company  maintained  for
that  purpose in the Borough of  Manhattan,  The City of New York  (which  shall
initially  be State  Street Bank and Trust  Company,  N.A.,  an affiliate of the
Trustee,  as agent of the  Trustee)  or at the  Corporate  Trust  Office  of the
Trustee in such coin or currency of the United  States of America as at the time
of payment is legal  tender for payment of public and private  debts;  provided,
however,  that at the option of the Company  payment of interest  may be made by
check  mailed to the  address of the  Person  entitled  thereto as such  address
appears in the  Security  Register;  provided  that a Holder  with an  aggregate
principal  amount in  excess  of  $2,000,000  will be paid by wire  transfer  in
immediately available funds at the election of such Holder.

     The  Company  hereby  initially  designates  the  Trustee as Paying  Agent,
Security  Registrar,  Custodian and conversion  agent, and each of the Corporate
Trust  Office of the  Trustee  and the office 



                                      -2-

<PAGE>

of the Trustee in the Borough of  Manhattan,  The City of New York (which  shall
initially  be State  Street Bank and Trust  Company,  N.A.,  an affiliate of the
Trustee,  as agent of the Trustee located at 61 Broadway,  15th floor, New York,
New York, 10006, Attn:  Corporate Trust  Administration  (Cypress  Semiconductor
Corporation 4%  Convertible  Subordinated  Notes due 2005)),  one such office or
agency of the Company for each of the aforesaid purposes.


                                  ARTICLE TWO
                               CERTAIN DEFINITIONS

Section 201 Certain Definitions.

     The terms defined in this Section 201 (except as herein otherwise expressly
provided  or  unless  the  context  of  this  Supplemental  Indenture  otherwise
requires) for all purposes of this  Supplemental  Indenture and of any indenture
supplemental  hereto have the respective meanings specified in this Section 201.
All other  terms used in this  Supplemental  Indenture  that are  defined in the
Indenture or the Trust Indenture Act,  either  directly or by reference  therein
(except as herein  otherwise  expressly  provided  or unless the context of this
Supplemental  Indenture  otherwise  requires),   have  the  respective  meanings
assigned to such terms in the Indenture or the Trust  Indenture Act, as the case
may be, as in force at the date of this  Supplemental  Indenture  as  originally
executed.

     "Capital  Stock" or "capital stock" of any person means any and all shares,
interests,  partnership interests,  participations,  rights or other equivalents
(however designated) of such person's equity interest (however designated).

     "Interest  Payment Dates" with respect to the Notes shall be February 1 and
August 1.

     "Principal Amount" of a Security means the principal amount as set forth on
the face of the Security.

     "Regular  Record  Dates" with  respect to the Notes shall be January 15 and
July 15.

     "Trading Day" means each Monday,  Tuesday,  Wednesday,  Thursday and Friday
other than any day on which the Common Stock is not traded on the New York Stock
Exchange,  or if the Common Stock is not traded on the New York Stock  Exchange,
on the  principal  exchange  or market on which  the  Common  Stock is traded or
quoted.

     "Voting  Stock"  means any class or classes of Capital  Stock  pursuant  to
which the holders thereof under ordinary circumstances have the power to vote in
the election of the board of  directors,  managers or trustees of any Person (or
other persons performing similar functions),  irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency.

     The definitions of other terms are specified in Articles Five and Six.



                                      -3-

<PAGE>

                                 ARTICLE THREE
                                CERTAIN COVENANTS

     The  following  covenant  shall be applicable to the Company for so long as
any of the Notes are outstanding.

Section 301 Registration and Listing.

     The  Company  (i) will  effect  all  registrations  with,  and  obtain  all
approvals  by, all  governmental  authorities  that may be  necessary  under any
United States Federal or state law  (including the Securities  Act, the Exchange
Act and state  securities  and Blue Sky laws)  before the shares of Common Stock
issuable upon  conversion  of Notes may be lawfully  issued and  delivered,  and
thereafter  publicly  traded,  and qualified or listed as contemplated by clause
(ii);  and (ii) will list the shares of Common  Stock  required to be issued and
delivered upon conversion of the Notes prior to such issuance or delivery on the
New York Stock  Exchange or such other  exchange or  automated  quotation as the
Common  Stock is then  listed  at such date of  conversion.  The  provisions  of
Section 1008 of the Indenture shall not apply to this Section 301.


                                  ARTICLE FOUR
                               REDEMPTION OF NOTES

Section  401 Right of  Redemption.  The Notes will not be subject to  redemption
prior to February 5, 2003 and will be  redeemable  on and after such date at the
option of the Company,  in whole or in part, upon not less than 20 nor more than
60 days'  notice  to the  Holders,  at the  Redemption  Prices  (expressed  as a
percentage of principal amount) set forth below.

     The Redemption Price (expressed as a percentage of principal  amount) is as
follows:

   Year                                                         Redemption Price
   ----                                                         ----------------

   Beginning on February 5, 2003 and ending on January 31, 2004       101%
   Beginning on February 1, 2004 and thereafter                       100%

in each case together with accrued and unpaid  interest to, but  excluding,  the
Redemption Date;  provided,  however,  that interest  installments  whose Stated
Maturity  is on such  Redemption  Date will be  payable  to the  Holders of such
Notes, or one or more Predecessor Securities, of record at the close of business
on the relevant Record Dates referred to on the face hereof,  all as provided in
the Indenture.

     The Notes are not subject to  redemption  through  operation of any sinking
fund.

Section 402 Conversion Arrangement on Call for Redemption.



                                      -4-

<PAGE>

     In connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other  purchasers  to purchase such Notes by paying to the Trustee in
trust for the Holders, on or before the date fixed for redemption, an amount not
less than the applicable  Redemption  Price,  together with interest  accrued to
(but  excluding) the date fixed for redemption,  of such Notes.  Notwithstanding
anything to the contrary  contained herein, the obligation of the Company to pay
the  Redemption  Price of such Notes,  together  with  interest  accrued to (but
excluding) the Redemption  Date,  shall be deemed to be satisfied and discharged
to the extent such amount is so paid by such purchasers. If such an agreement is
entered  into,  a copy of which  will be filed  with  the  Trustee  prior to the
Redemption  Date, any Notes not duly  surrendered  for conversion by the Holders
thereof  may, at the option of the  Company,  be deemed,  to the fullest  extent
permitted  by  law,   acquired  by  such   purchasers   from  such  Holders  and
(notwithstanding  anything to the contrary contained herein) surrendered by such
purchasers for conversion,  all as of immediately prior to the close of business
on the  Redemption  Date  (and the  right to  convert  any such  Notes  shall be
extended  through  such  time),  subject  to  payment  of the  above  amount  as
aforesaid.  At the direction of the Company,  the Trustee shall hold and dispose
of any such amount paid to it in the same  manner as it would  monies  deposited
with it by the Company for the redemption of Notes.  Without the Trustee's prior
written consent,  no arrangement between the Company and such purchasers for the
purchase and conversion of any Notes shall  increase or otherwise  affect any of
the powers, duties,  responsibilities or obligations of the Trustee as set forth
in this  Indenture,  and the Company  agrees to indemnify the Trustee from,  and
hold it harmless  against,  any loss,  liability or expense arising out of or in
connection  with any such  arrangement  for the purchase and  conversion  of any
Notes  between  the  Company  and such  purchasers  to which the Trustee has not
consented in writing,  including  the costs and expenses,  including  reasonable
legal fees,  incurred  by the  Trustee in the defense of any claim or  liability
arising out of or in connection  with the exercise or  performance of any of its
powers, duties, responsibilities or obligations under this Indenture.

                                  ARTICLE FIVE
                               CONVERSION OF NOTES

Section 501 Conversion Privilege and Conversion Price

     Subject to and upon compliance with the provisions of this Article,  at the
option of the  Holder  thereof,  any Note may be  converted  into fully paid and
nonassessable  shares of Common  Stock of the Company at the  Conversion  Price,
determined as hereinafter  provided,  in effect at the time of conversion.  Such
conversion  right shall  commence on January 25, 2000 and expire at the close of
business on  February 1, 2005,  subject,  in the case of the  conversion  of any
Global  Security,  to any  applicable  book-entry  procedures of the  Depositary
therefor.  In  case a Note is  called  for  redemption  at the  election  of the
Company,  such conversion right in respect of the Note shall expire at the close
of business on the Business Day next  preceding the  Redemption  Date. A Note in
respect of which a Holder is exercising its option to require  redemption upon a
Change in Control may be converted only if such Holder withdraws its election to
exercise  its  option  in  accordance  with  Article  Six of  this  Supplemental
Indenture.

                                      -5-

<PAGE>

         The initial Conversion Price of the Notes is $46.25 per share of Common
Stock,  and shall be adjusted in certain  instances  as provided in this Article
Five.

Section 502 Adjustment of Conversion Price

     The Conversion  Price shall be adjusted from time to time by the Company as
follows:

     (a) In case the  Company  shall (i) pay a dividend  on its Common  Stock in
shares of Common Stock,  (ii) make a distribution  on its Common Stock in shares
of Common Stock,  (iii)  subdivide its  outstanding  Common Stock into a greater
number of shares,  or (iv) combine its  outstanding  Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior thereto shall
be  adjusted  so that the  Holder of any  Security  thereafter  surrendered  for
conversion  shall be entitled to receive  that number of shares of Common  Stock
which it would have owned had such Note been converted  immediately prior to the
happening of such event.  An  adjustment  made pursuant to this  subsection  (a)
shall  become  effective  immediately  after  the  record  date in the case of a
dividend  or  distribution  and shall  become  effective  immediately  after the
effective date in the case of subdivision or  combination.  The Company will not
pay any dividend on or make any  distribution on shares of its Common Stock held
in the treasury of the Company.

     (b)  In  case  the  Company  shall  issue  rights  or  warrants  to  all or
substantially  all  holders of its  Common  Stock  entitling  them (for a period
commencing no earlier than the record date described below and expiring not more
than 60 days after such record  date) to  subscribe  for or  purchase  shares of
Common Stock (or securities  convertible into Common Stock) at a price per share
(or having a conversion  price per share) less than the current market price per
share of Common Stock (as determined in accordance  with  subsection (e) of this
Section 502) on the record date for the  determination of shareholders  entitled
to receive such rights or warrants,  the Conversion Price in effect  immediately
prior  thereto  shall be  adjusted  so that  the  same  shall  equal  the  price
determined by multiplying the Conversion  Price in effect  immediately  prior to
such  record date by a fraction  of which the  numerator  shall be the number of
shares of Common Stock outstanding on such record date plus the number of shares
which the aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate  conversion price of the convertible  securities so
offered, which shall be determined by multiplying the number of shares of Common
Stock issuable upon conversion of such convertible  securities by the conversion
price per  share of  Common  Stock  pursuant  to the  terms of such  convertible
securities)  would purchase at the current market price per share (as defined in
subsection  (e) of this  Section 502) of Common Stock on such record date and of
which the denominator  shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock offered
(or into which the  convertible  securities  so offered are  convertible).  Such
adjustment shall be made  successively  whenever any such rights or warrants are
issued, and shall become effective immediately after such record date. If at the
end of the period during which such rights or warrants are  exercisable  not all
rights or warrants  shall have been  exercised,  the adjusted  Conversion  Price
shall be immediately readjusted to what it would have been based upon the number
of additional shares of Common Stock actually issued (or


                                      -6-

<PAGE>

the number of shares of Common Stock  issuable upon  conversion  of  convertible
securities actually issued).

     (c) In case  the  Company  shall  distribute  to all or  substantially  all
holders of its Common Stock any shares of capital stock (other than dividends or
distributions  of Common Stock on Common Stock to which Section 502(a)  applies)
of the  Company,  or  evidences  of  indebtedness  or  other  assets  (including
securities  of any  person  other  than  the  Company,  but  excluding  all-cash
distributions  to which 502(d) applies or any rights or warrants  referred to in
502(b)),  then in each such case the Conversion  Price shall be adjusted so that
the same shall equal the price determined by multiplying the current  Conversion
Price by a fraction of which the numerator shall be the current market price per
share (as defined in subsection  (e) of this Section 502) of the Common Stock on
the record date  mentioned  below less the fair market value on such record date
(as  determined  by  the  Board  of  Directors,  whose  determination  shall  be
conclusive evidence of such fair market value and which shall be evidenced by an
Officers'  Certificate  delivered  to the Trustee) of the portion of the capital
stock,  evidences of  indebtedness or other non-cash assets so distributed or of
such rights or warrants  applicable to one share of Common Stock  (determined on
the basis of the  number of shares of Common  Stock  outstanding  on the  record
date) and of which the  denominator  shall be the current market price per share
(as defined in  subsection  (e) of this Section 502) of the Common Stock on such
record  date.  Such  adjustment  shall be made  successively  whenever  any such
distribution  is made and shall become  effective  immediately  after the record
date  for  the   determination   of   shareholders   entitled  to  receive  such
distribution.

     In the event that the Company  implements a stockholder  rights plan,  such
rights plan shall provide, subject to customary exceptions, that upon conversion
of the Notes the Holders will receive,  in addition to the Common Stock issuable
upon such conversion,  the rights issued under such rights plan (notwithstanding
the occurrence of an event causing such rights to separate from the Common Stock
at or prior to the time of conversion).  Any  distribution of rights or warrants
pursuant to a stockholder  rights plan complying with the requirements set forth
in the immediately  preceding  sentence of this paragraph shall not constitute a
distribution of rights or warrants for the purposes of this Section 502(c).

     Rights or  warrants  distributed  by the  Company to all  holders of Common
Stock  entitling the holders  thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights  or  warrants,  until  the  occurrence  of a  specified  event or  events
("Trigger  Event"):  (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable;  and (iii) are also issued in respect of future
issuances  of Common  Stock,  shall be deemed not to have been  distributed  for
purposes of this Section 502(c) (and no adjustment to the Conversion Price under
this  Section  502(c) will be  required)  until the  occurrence  of the earliest
Trigger Event.  If such right or warrant is subject to subsequent  events,  upon
the  occurrence  of which such  right or warrant  shall  become  exercisable  to
purchase  different  securities,  evidences of  indebtedness  or other assets or
entitle the holder to purchase a different  number or amount of the foregoing or
to  purchase  any of the  foregoing  at a  different  purchase  price,  then the
occurrence  of each such event  shall be deemed to be the date of  issuance  and
record  date  with  respect  to a new right or  warrant  (and a  termination  or
expiration  of the  existing  right or warrant  without  exercise  by 


                                      -7-

<PAGE>

the holder  thereof).  In addition,  in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto, that resulted in
an adjustment to the Conversion Price under this Section 502(c), (1) in the case
of any such rights or warrants which shall all have been redeemed or repurchased
without  exercise  by  any  holders  thereof,  the  Conversion  Price  shall  be
readjusted  upon such final  redemption  or  repurchase  to give  effect to such
distribution  or  Trigger  Event,  as the case may be,  as though it were a cash
distribution,  equal to the per share redemption or repurchase price received by
a holder of Common Stock with respect to such rights or warrants  (assuming such
holder had  retained  such  rights or  warrants),  made to all holders of Common
Stock as of the date of such  redemption or  repurchase,  and (2) in the case of
such  rights or  warrants  all of which  shall have  expired or been  terminated
without exercise, the Conversion Price shall be readjusted as if such rights and
warrants had never been issued.

     (d) (1) In case the Company  shall,  by dividend or otherwise,  at any time
distribute (a "Triggering  Distribution") to all or substantially all holders of
its Common Stock all cash  distributions in an aggregate  amount that,  together
with  the  aggregate  amount  of (A) any  cash and the  fair  market  value  (as
determined by the Board of Directors,  whose  determination  shall be conclusive
evidence  thereof  and which  shall be  evidenced  by an  Officers'  Certificate
delivered to the Trustee) of any other  consideration  payable in respect of any
tender  offer by the Company or a  Subsidiary  of the  Company for Common  Stock
consummated within the 12 months preceding the date of payment of the Triggering
Distribution and in respect of which no Conversion Price adjustment  pursuant to
this  Section 502 has been made and (B) all other cash  distributions  to all or
substantially  all  holders  of its  Common  Stock  made  within  the 12  months
preceding the date of payment of the Triggering  Distribution  and in respect of
which no Conversion Price adjustment pursuant to this Section 502 has been made,
exceeds an amount  equal to 10% of the product of the current  market  price per
share of Common Stock (as determined in accordance  with  subsection (e) of this
Section  502)  on  the  Business  Day  (the  "Determination  Date")  immediately
preceding  the day on which such  Triggering  Distribution  is  declared  by the
Company  multiplied by the number of shares of Common Stock  outstanding  on the
Determination  Date (excluding shares held in the treasury of the Company),  the
Conversion  Price  shall be  reduced  so that the same  shall  equal  the  price
determined by multiplying such Conversion Price in effect  immediately  prior to
the Determination Date by a fraction of which the numerator shall be the current
market price per share of the Common Stock (as  determined  in  accordance  with
subsection  (e) of this Section 502) on the  Determination  Date less the sum of
the aggregate amount of cash and the aggregate fair market value  (determined as
aforesaid)  of any such  other  consideration  so  distributed,  paid or payable
within  such  12  months   (including,   without   limitation,   the  Triggering
Distribution)  applicable to one share of Common Stock  (determined on the basis
of the number of shares of Common Stock outstanding on the Determination  Date),
and of which the denominator shall be such current market price per share of the
Common Stock (as  determined in accordance  with  subsection (e) of this Section
502) on the Determination  Date, such reduction to become effective  immediately
prior to the  opening of  business  on the day  following  the date on which the
Triggering  Distribution is paid; provided that, in the event the portion of the
cash so  distributed  applicable  to one  share of  Common  Stock is equal to or
greater than such current market price per share of the Common Stock, in lieu of
the  foregoing,  an  adequate  adjustment  provision  shall be made so that each
holder of Notes shall have the right to


                                      -8-

<PAGE>

receive upon  conversion  the amount of cash such holder would have received had
such holder converted each Note immediately prior to such distribution.

     (2) In case any tender offer made by the Company or any of its Subsidiaries
for  Common  Stock  shall  expire and such  tender  offer (as  amended  upon the
expiration  thereof) shall involve the payment of aggregate  consideration in an
amount  (determined as the sum of the aggregate amount of cash consideration and
the aggregate fair market value (as determined by the Board of Directors,  whose
determination  shall be conclusive evidence thereof and which shall be evidenced
by an  Officers'  Certificate  delivered  to the Trustee  thereof ) of any other
consideration)  that, together with the aggregate amount of (A) any cash and the
fair market value (as determined by the Board of Directors,  whose determination
shall  be  conclusive  evidence  thereof  and  which  shall be  evidenced  by an
Officers'  Certificate  delivered  to the  Trustee)  of any other  consideration
payable in respect of any other tender  offers by the Company or any  Subsidiary
of the Company for Common Stock  consummated  within the 12 months preceding the
date of the  Expiration  Date (as  defined  below)  and in  respect  of which no
Conversion Price  adjustment  pursuant to this Section 502 has been made and (B)
all cash  distributions to all or substantially  all holders of its Common Stock
made within the 12 months  preceding the Expiration Date and in respect of which
no  Conversion  Price  adjustment  pursuant  to this  Section 502 has been made,
exceeds an amount  equal to 10% of the product of the current  market  price per
share of Common Stock (as determined in accordance  with  subsection (e) of this
Section 502) as of the last date (the "Expiration Date") tenders could have been
made  pursuant  to such tender  offer (as it may be  amended)  (the last time at
which such tenders could have been made on the  Expiration  Date is  hereinafter
sometimes  called the "Expiration  Time")  multiplied by the number of shares of
Common Stock  outstanding  (including  tendered  shares but excluding any shares
held in the treasury of the Company) at the Expiration Time,  then,  immediately
prior to the  opening of  business  on the day after the  Expiration  Date,  the
Conversion  Price  shall be  reduced  so that the same  shall  equal  the  price
determined by multiplying the Conversion  Price in effect  immediately  prior to
close of business on the  Expiration  Date by a fraction of which the  numerator
shall be the  product  of the  number  of shares  of  Common  Stock  outstanding
(including  tendered shares but excluding any shares held in the treasury of the
Company) at the Expiration Time multiplied by the current market price per share
of the Common Stock (as  determined in accordance  with  subsection  (e) of this
Section 502) on the Trading Day next  succeeding  the  Expiration  Date,  and of
which  the  denominator  shall  be the  sum of (x) the  aggregate  consideration
(determined as aforesaid) payable to stockholders based on the acceptance (up to
any maximum  specified in the terms of the tender  offer) of all shares  validly
tendered  and not  withdrawn  as of the  Expiration  Time (the shares  deemed so
accepted,  up to any such maximum,  being referred to as the "Purchased Shares")
and (y) the product of the number of shares of Common  Stock  outstanding  (less
any  Purchased  Shares and  excluding  any shares  held in the  treasury  of the
Company) at the Expiration Time and the current market price per share of Common
Stock (as determined in accordance  with  subsection (e) of this Section 502) on
the Trading Day next  succeeding the Expiration  Date,  such reduction to become
effective  immediately prior to the opening of business on the day following the
Expiration  Date. In the event that the Company is obligated to purchase  shares
pursuant to any such tender offer,  but the Company is permanently  prevented by
applicable  law  from  effecting  any or all such  purchases  or any or all such
purchases are rescinded,  the Conversion Price shall again be adjusted to be the
Conversion Price which would have been in


                                      -9-

<PAGE>

effect based upon the number of shares actually purchased. If the application of
this  Section  502(d)(2)  to any tender  offer would result in a decrease in the
Conversion  Price, no adjustment  shall be made for such tender offer under this
Section 502(d)(2).

     (3) For purposes of this Section 502(d), the term "tender offer" shall mean
and  include  both  tender  offers  and  exchange  offers,   all  references  to
"purchases" of shares in tender offers (and all similar  references)  shall mean
and include both the purchase of shares in tender offers and the  acquisition of
shares pursuant to exchange offers, and all references to "tendered shares" (and
all similar  references)  shall mean and include shares  tendered in both tender
offers and exchange offers.

     (e) For the purpose of any computation  under  subsections (b), (c) and (d)
of this Section  502, the current  market price per share of Common Stock on any
date shall be deemed to be the  average of the daily  closing  prices for the 30
consecutive  Trading  Days  ending on the last full  Trading  Day before (i) the
Determination  Date or the Expiration  Date, as the case may be, with respect to
distributions  or tender offers under subsection (d) of this Section 502 or (ii)
the  record  date with  respect  to  distributions,  issuances  or other  events
requiring such computation  under subsection (b) or (c) of this Section 502. The
closing price for each day shall be the last reported sales price or, in case no
such reported sale takes place on such date, the average of the reported closing
bid and asked prices in either case on the New York Stock  Exchange (the "NYSE")
or, if the Common Stock is not listed or admitted to trading on the NYSE, on the
principal  national  securities  exchange on which the Common Stock is listed or
admitted to trading  or, if not listed or  admitted  to trading on any  national
securities exchange, the last reported sales price of the Common Stock as quoted
on NASDAQ (the term  "NASDAQ"  shall  include,  without  limitation,  the Nasdaq
National  Market) or, in case no reported sales takes place,  the average of the
closing bid and asked prices as quoted on NASDAQ or any comparable system or, if
the Common Stock is not quoted on NASDAQ or any comparable  system,  the closing
sales price or, in case no reported sale takes place, the average of the closing
bid  and  asked  prices,  as  furnished  by any  two  members  of  the  National
Association  of  Securities  Dealers,  Inc.  selected  from  time to time by the
Company for that purpose.  If no such prices are  available,  the current market
price per share shall be the fair value of a share of Common Stock as determined
by the Board of Directors (which shall be evidenced by an Officers'  Certificate
delivered to the Trustee).

     (f) In any case in which this Section 502 shall  require that an adjustment
be made following a record date or a Determination  Date or Expiration  Date, as
the case may be,  established  for purposes of this Section 502, the Company may
elect to defer (but only until five  Business  Days  following the filing by the
Company  with the Trustee of the  certificate  described  in Section 1405 of the
Indenture) issuing to the Holder of any Note converted after such record date or
Determination  Date or  Expiration  Date the  shares of  Common  Stock and other
capital stock of the Company  issuable upon such  conversion  over and above the
shares of Common Stock and other capital stock of the Company issuable upon such
conversion only on the basis of the Conversion  Price prior to adjustment;  and,
in lieu of the shares the  issuance of which is so deferred,  the Company  shall
issue or cause its  transfer  agents  to issue  due  bills or other  appropriate
evidence  prepared by the Company of the right to receive  such  shares.  If any
distribution  in  respect  of which an  adjustment  to the  


                                      -10-

<PAGE>

Conversion  Price is required to be made as of the record date or  Determination
Date or Expiration  Date therefor is not thereafter  made or paid by the Company
for any reason, the Conversion Price shall be readjusted to the Conversion Price
which  would  then be in effect if such  record  date had not been fixed or such
effective date or Determination Date or Expiration Date had not occurred.

     (g) The  Company  may make such  reductions  to the  Conversion  Price,  in
addition to those  required by Article  Five,  as the board of  directors of the
Company considers to be advisable to avoid or diminish any income tax to holders
of Common Stock or rights to purchase  Common Stock  resulting from any dividend
or  distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes.

     To the extent  permitted  by  applicable  law, the Company may from time to
time  reduce  the  Conversion  Price by any amount for any period of time if the
period is at least 20 days, the reduction is  irrevocable  during the period and
the board of directors of the Company shall have made a determination  that such
reduction  would be in the best  interests of the Company,  which  determination
shall be conclusive.  Whenever the Conversion  Price is reduced  pursuant to the
preceding sentence, the Company shall mail to the holders of record of the Notes
a notice of reduction at least 15 days prior to the date the reduced  Conversion
Price takes effect, and such notice shall state the reduced Conversion Price and
the period during which it will be in effect. 

Section 503 No Adjustment.

     No  adjustment  in the  Conversion  Price  shall  be  required  unless  the
adjustment  would  require  an  increase  or  decrease  of at  least  1% in  the
Conversion Price as last adjusted; provided, however, that any adjustments which
by reason of this  Section  503 are not  required  to be made  shall be  carried
forward and taken into account in any subsequent  adjustment.  All  calculations
under  this  Article  4  shall  be made to the  nearest  cent or to the  nearest
1/1000th of a share, as the case may be.

                                   ARTICLE SIX
            REDEMPTION AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL

Section  601  Purchase  of  Securities  at Option of the Holder  Upon  Change in
Control.

     (a) If at any time that Notes remain outstanding there shall occur a Change
in Control, Notes shall be purchased by the Company at the option of the Holders
thereof  as of the date that is 30  Business  Days after the  occurrence  of the
Change in Control (the "Change in Control  Purchase  Date") at a purchase  price
equal to the principal amount of the Notes, plus accrued and unpaid interest to,
but  excluding,  the Change in  Control  Purchase  Date (the  "Change in Control
Purchase  Price"),  subject to satisfaction by or on behalf of any Holder of the
requirements set forth in subsection (c) of this Section 601.

     A  "Change  in  Control"  shall be deemed  to have  occurred  if any of the
following occurs after the date hereof:



                                      -11-

<PAGE>

     (1) any "person" or "group" (as such terms are defined below) is or becomes
the "beneficial owner" (as defined below), directly or indirectly,  of shares of
Voting Stock of the Company  representing  50% or more of the total voting power
of all  outstanding  classes  of Voting  Stock of the  Company or has the power,
directly  or  indirectly,  to elect a  majority  of the  members of the Board of
Directors of the Company; or

     (2) the Company  consolidates  with, or merges with or into, another Person
or the Company sells, assigns, conveys,  transfers, leases or otherwise disposes
of all  or  substantially  all of the  assets  of  the  Company,  or any  Person
consolidates with, or merges with or into, the Company,  in any such event other
than pursuant to a transaction  in which the Persons that  "beneficially  owned"
(as  defined  below),  directly  or  indirectly,  shares of Voting  Stock of the
Company  immediately  prior to such transaction  "beneficially  own" (as defined
below),  directly  or  indirectly,   shares  of  Voting  Stock  of  the  Company
representing  at least a majority of the total voting  power of all  outstanding
classes of Voting Stock of the surviving or transferee Person; or

     (3) there shall occur the liquidation or dissolution of the Company.

For the purpose of the  definition  of "Change in  Control",  (i)  "person"  and
"group" have the meanings  given such terms under Section 13(d) and 14(d) of the
Exchange Act or any successor provision to either of the foregoing, and the term
"group"  includes  any group  acting for the  purpose of  acquiring,  holding or
disposing  of  securities  within  the  meaning  of Rule  13d-5(b)(1)  under the
Exchange Act (or any successor  provision  thereto),  (ii) a "beneficial  owner"
shall be determined in accordance  with Rule 13d-3 under the Exchange Act, as in
effect on the date of this Indenture, except that the number of shares of Voting
Stock of the Company shall be deemed to include,  in addition to all outstanding
shares of Voting Stock of the Company and Unissued  Shares  deemed to be held by
the  "person" or "group" (as such terms are defined  above) or other Person with
respect to which the Change in Control determination is being made, all Unissued
Shares deemed to be held by all other Persons, and (iii) the terms "beneficially
owned"  and  "beneficially  own"  shall  have  meanings  correlative  to that of
"beneficial  owner". The term "Unissued Shares" means shares of Voting Stock not
outstanding  that are  subject  to  options,  warrants,  rights to  purchase  or
conversion privileges exercisable within 60 days of the date of determination of
a Change in Control.

     Notwithstanding  anything to the  contrary in this Section 601, a Change in
Control shall not be deemed to have occurred if either (i) the closing price (as
defined in Section  502(e)) of the Common Stock for any five Trading Days during
the ten Trading  Days  immediately  preceding  the Change in Control is at least
equal to 105% of the Conversion Price in effect on such day; or (ii) in the case
of a merger or consolidation,  all of the consideration  excluding cash payments
for fractional shares in such merger or consolidation constituting the Change in
Control  consists of common stock traded on a United States national  securities
exchange  or quoted on NASDAQ (or which will be so traded or quoted  when issued
or exchanged in connection  with such Change in Control) and as a result of such
transaction or transactions the Notes become convertible solely into such common
stock.

     (b) Within 10 Business  Days after the  occurrence  of a Change in Control,
the Company shall mail a written  notice of the Change in Control to the Trustee
and to each Holder (and to 


                                      -12-

<PAGE>

beneficial  owners as required by applicable law) and shall cause a copy of such
notice to be published in a daily newspaper of national circulation.  The notice
shall include the form of a Change in Control Purchase Notice to be completed by
the Holder and shall state:

          (1) the date of such  Change  in  Control  and,  briefly,  the  events
     causing such Change in Control;

          (2) the date by which the Change in Control  Purchase  Notice pursuant
     to this Section 601 must be given;

          (3) the Change in Control Purchase Date;

          (4) the Change in Control Purchase Price;

          (5) briefly, the conversion rights of the Notes;

          (6) the name and address of each Paying Agent and Conversion Agent;

          (7) the Conversion Price and any adjustments thereto;

          (8) that  Notes as to which a Change in  Control  Purchase  Notice has
     been given may be converted  into Common Stock pursuant to Article 5 of the
     Supplemental  Indenture  only to the  extent  that the  Change  in  Control
     Purchase  Notice has been  withdrawn in  accordance  with the terms of this
     Indenture;

          (9) the  procedures  that the Holder must  follow to  exercise  rights
     under this Section 601;

          (10) the  procedures  for  withdrawing  a Change in  Control  Purchase
     Notice, including a form of notice of withdrawal; and

          (11) that the Holder must  satisfy the  requirements  set forth in the
     Securities in order to convert the Securities.

     If any of the Notes is in the form of a Global  Security,  then the Company
shall modify such notice to the extent  necessary to accord with the  procedures
of the Depositary applicable to the repurchase of Global Securities.

     (c) A Holder may exercise its rights  specified in  subsection  (a) of this
Section 601 upon delivery of a written  notice (which shall be in  substantially
the form  included  in  Exhibit A hereto and which may be  delivered  by letter,
overnight courier, hand delivery, facsimile transmission or in any other written
form and, in the case of Global Securities,  may be delivered  electronically or
by other means in accordance with the Depositary's  customary procedures) of the
exercise  of such rights (a "Change in Control  Purchase  Notice") to any Paying
Agent  at any time  prior to the  close of  business  on the  Business  Day next
preceding the Change in Control Purchase Date.



                                      -13-

<PAGE>

     The  delivery  of such  Security  to any Paying  Agent  (together  with all
necessary  endorsements) at the office of such Paying Agent shall be a condition
to the receipt by the Holder of the Change in Control Purchase Price therefor.

     The  Company  shall  purchase  from the Holder  thereof,  pursuant  to this
Section  601, a portion  of a Note if the  Principal  Amount of such  portion is
$1,000 or an integral multiple of $1,000. Provisions of the Indenture that apply
to the purchase of all of a Note pursuant to Sections 601 through 606 also apply
to the purchase of such portion of such Note.

     Notwithstanding anything herein to the contrary, any Holder delivering to a
Paying  Agent  the  Change  in  Control  Purchase  Notice  contemplated  by this
subsection (c) shall have the right to withdraw such Change in Control  Purchase
Notice in whole or in a portion thereof that is a Principal  Amount of $1,000 or
in an  integral  multiple  thereof at any time prior to the close of business on
the Business Day next preceding the Change in Control  Purchase Date by delivery
of a written notice of withdrawal to the Paying Agent in accordance with Section
602.

     A Paying  Agent shall  promptly  notify the Company of the receipt by it of
any Change in Control Purchase Notice or written withdrawal thereof.

     Anything  herein  to the  contrary  notwithstanding,  in the case of Global
Securities,  any Change in Control Purchase Notice may be delivered or withdrawn
and such  Securities  may be surrendered or delivered for purchase in accordance
with the applicable procedures of the Depositary as in effect from time to time.

Section 602 Effect of Change in Control Purchase Notice.

     Upon receipt by any Paying Agent of the Change in Control  Purchase  Notice
specified  in  Section  601(c),  the Holder of the Note in respect of which such
Change in Control Purchase Notice was given shall (unless such Change in Control
Purchase  Notice is  withdrawn  as specified  below)  thereafter  be entitled to
receive the Change in Control  Purchase  Price with  respect to such Note.  Such
Change in Control Purchase Price shall be paid to such Holder promptly following
the later of (a) the Change in Control  Purchase  Date with respect to such Note
(provided the conditions in Section 601(c) have been satisfied) and (b) the time
of delivery  of such  Security  to a Paying  Agent by the Holder  thereof in the
manner required by Section 601(c). Notes in respect of which a Change in Control
Purchase  Notice has been given by the Holder  thereof may not be converted into
shares of Common  Stock on or after the date of the  delivery  of such Change in
Control  Purchase Notice unless such Change in Control Purchase Notice has first
been validly withdrawn.

     A Change in Control  Purchase Notice may be withdrawn by means of a written
notice  (which may be delivered by letter,  overnight  courier,  hand  delivery,
facsimile  transmission  or in any other written form and, in the case of Global
Securities, may be delivered electronically or by other means in accordance with
the Depositary's  customary procedures) of withdrawal delivered by the Holder to
a Paying  Agent at any time prior to the close of business on the  Business  Day
immediately  preceding  the  Change in Control  Purchase  Date,  specifying  the
Principal  Amount of the Security or portion 


                                      -14-

<PAGE>

thereof (which must be a Principal  Amount of $1,000 or an integral  multiple of
$1,000 in excess  thereof)  with respect to which such notice of  withdrawal  is
being submitted.

Section 603 Deposit of Change in Control Purchase Price.

     On or  before  11:00  a.m.  New York City  time on the  Change  in  Control
Purchase Date, the Company shall deposit with the Trustee or with a Paying Agent
(other than the Company or an  Affiliate  of the Company) an amount of money (in
immediately available funds if deposited on such Business Day) sufficient to pay
the  aggregate  Change in Control  Purchase  Price of all the Notes or  portions
thereof that are to be purchased as of such Change in Control Purchase Date. The
manner in which the deposit  required by this Section 603 is made by the Company
shall be at the option of the Company,  provided that such deposit shall be made
in a manner  such that the  Trustee or a Paying  Agent  shall  have  immediately
available funds on the Change in Control Purchase Date.

     If a Paying  Agent  holds,  in  accordance  with the  terms  hereof,  money
sufficient to pay the Change in Control  Purchase  Price of any Note for which a
Change in  Control  Purchase  Notice  has been  tendered  and not  withdrawn  in
accordance  with this  Indenture  then, on the Change in Control  Purchase Date,
such Note will cease to be  outstanding  and the rights of the Holder in respect
thereof shall  terminate  (other than the right to receive the Change in Control
Purchase Price as aforesaid).  The Company shall publicly announce the Principal
Amount of Notes purchased as a result of such Change in Control on or as soon as
practicable after the Change in Control Purchase Date.

Section 604 Notes Purchased In Part.

     Any Note that is to be purchased  only in part shall be  surrendered at the
office of a Paying Agent and promptly after the Change in Control  Purchase Date
the Company shall execute and the Trustee shall  authenticate and deliver to the
Holder of such  Note,  without  service  charge,  a new Note or  Notes,  of such
authorized  denomination or denominations as may be requested by such Holder, in
aggregate  Principal  Amount  equal to, and in exchange  for, the portion of the
Principal Amount of the Note so surrendered that is not purchased.

Section 605 Compliance With Securities Laws Upon Purchase of Notes.

     In connection with any offer to purchase or purchase of Notes under Section
601,  the  Company  shall  (a)  comply  with Rule  13e-4 and Rule  14e-1 (or any
successor to either such Rule), if applicable,  under the Exchange Act, (b) file
the  related  Schedule  13E-4 (or any  successor  or similar  schedule,  form or
report) if required  under the Exchange Act, and (c)  otherwise  comply with all
federal and state  securities laws in connection  with such offer,  all so as to
permit the rights of the Holders and  obligations  of the Company under Sections
601 through 604 to be exercised in the time and in the manner specified therein.

Section 606 Repayment to the Company.

     To the extent that the  aggregate  amount of cash  deposited by the Company
pursuant to Section 603 exceeds the aggregate  Change in Control  Purchase Price
together with interest,  if any,  


                                      -15-

<PAGE>

thereon  of the Notes or  portions  thereof  that the  Company is  obligated  to
purchase, then promptly after the Change in Control Purchase Date the Trustee or
a Paying Agent, as the case may be, shall return any such excess to the Company.

Section 607 Successive Consolidations, Mergers, Etc.

     In the case of  consolidation,  merger,  conveyance,  transfer  or lease to
which  Section 1409 of the Indenture  applies,  in which the Common Stock of the
Company is changed or  exchanged  as a result  into the right to receive  equity
securities,  cash or other property which includes shares of common Stock of the
Company or another Person that are, or upon issuance will be, traded on a United
States  national  securities  exchange or approved for trading on an established
automated  over-the-counter  trading market in the United States and such shares
constitute  at the time such change or exchange  becomes  effective in excess of
50% of the  aggregate  fair  market  value of such  securities,  cash and  other
property (as determined by the Company,  which determination shall be conclusive
and binding),  then the Person formed by such  consolidation,  or resulting from
such merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a  supplemental  indenture  (which  shall comply with the
Trust  Indenture  Act as in force at the date of execution of such  supplemental
indenture)  modifying the  provisions  of the  Indenture  and this  Supplemental
Indenture,  as applicable,  relating to the right of the Holders of the Notes to
cause the Company to redeem the Notes  following a Change in Control,  including
without limitation the applicable  provisions of this Article Six, as determined
in good  faith by the  Company  (which  determination  shall be  conclusive  and
binding),  to make  such  provisions  apply to the  common  stock of the  issuer
thereof if  different  from the Company and the Common  Stock of the Company (in
lieu of Common Stock of the Company).

                                 ARTICLE SEVEN
                                  MISCELLANEOUS

Section 701 Consent of Holders Required.

     In addition to those  modifications or amendments  requiring the consent of
the Holder of each Outstanding Note effected thereby specified in Section 902 of
the Indenture,  there can be no  modification or amendment that would change the
obligation  of the Company to redeem any Note upon the  happening of a Change in
Control in a manner  adverse to the Holder of Notes  without  the consent of the
Holder of each outstanding Note effected thereby.

Section 702 Applicability of Certain Indenture Provisions.

     Each of the  defeasance  and  covenant  defeasance  provisions  of  Article
Thirteen of the Indenture shall apply to the Notes; provided,  however, that the
Company  will not be able to defease  the right of the  Holders  to convert  the
Notes pursuant to Article Fourteen of the Indenture.



                                      -16-

<PAGE>

Section 703 Reference to and Effect on the Indenture.

     This  Supplemental  Indenture  shall be  construed as  supplemental  to the
Indenture and all the terms and conditions of this Supplemental  Indenture shall
be deemed to be part of the terms and conditions of the Indenture. Except as set
forth  herein,  the  Indenture  heretofore  executed  and  delivered  is  hereby
ratified,  approved and confirmed. The provisions of this Supplemental Indenture
shall for the purposes of this series of Securities  supersede the provisions of
the Indenture  heretofore  executed and  delivered to the extent such  Indenture
heretofore  executed and delivered is inconsistent  herewith.  This Supplemental
Indenture is subject to the provisions of the Trust Indenture Act, and shall, to
the extent applicable, be governed by such provisions.

Section 704 Supplemental Indenture May be Executed In Counterparts.

     This  instrument  may be  executed in any number of  counterparts,  each of
which shall be an original;  but such counterparts shall together constitute but
one and the same instrument. 

Section 705 Effect of Headings.

     The Article and Section  headings herein are for convenience only and shall
not affect the construction hereof.

Section 706       Separability

     In case any one or more of the  provisions  contained in this  Supplemental
Indenture or in the Notes shall for any reason be held to be invalid, illegal or
unenforceable in any respect,  such invalidity,  illegality or  unenforceability
shall not effect any other provisions of this  Supplemental  Indenture or of the
Notes,  but this  Supplemental  Indenture and the Notes shall be construed as if
such  invalid or illegal or  unenforceable  provision  had never been  contained
herein or therein.


                                      -17-

<PAGE>

     IN WITNESS  WHEREOF,  the parties  hereto  have  caused  this  Supplemental
Indenture to be duly executed all as of the day and year first above written.

                                          CYPRESS SEMICONDUCTOR CORPORATION




                                          By:  /s/ Emmanuel Hernandez
                                               ---------------------------------
                                          Name: Emmanuel Hernandez
                                          Title:   Vice President and CFO







                                          STATE STREET BANK AND TRUST COMPANY OF
                                          CALIFORNIA, N. A., AS TRUSTEE




                                          By: /s/ Paula Oswald
                                              ----------------------------------
                                          Name:  Paula M. Oswald
                                          Title:  Vice President




<PAGE>





                                     Annex 1

                           [Form of Face of Security]

[If the  Security  is a Global  Security,  insert -- THIS  SECURITY  IS A GLOBAL
SECURITY  WITHIN THE  MEANING OF THE  INDENTURE  HEREINAFTER  REFERRED TO AND IS
REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE  THEREOF.  THIS SECURITY MAY
NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED,  AND NO TRANSFER
OF THIS  SECURITY  IN  WHOLE OR IN PART  MAY BE  REGISTERED,  IN THE NAME OF ANY
PERSON OTHER THAN SUCH  DEPOSITARY OR A NOMINEE  THEREOF,  EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.]

                        CYPRESS SEMICONDUCTOR CORPORATION

                    4% Convertible Subordinated Note due 2005

No. _________                                                     $_____________

CUSIP:

     Cypress  Semiconductor   Corporation,  a  corporation  duly  organized  and
existing under the laws of Delaware  (herein  called the  "Company,"  which term
includes any successor Person under the Indenture  hereinafter referred to), for
value  received,  hereby  promises  to pay to  ________________,  or  registered
assigns,  the principal sum of  ___________________  Dollars on February 1, 2005
and to pay  interest  thereon  from  January  25,  2000 or from the most  recent
Interest  Payment  Date to which  interest has been paid or duly  provided  for,
semi-annually  on  February 1 and August 1 in each  year,  commencing  August 1,
2000, at the rate of 4% per annum,  until the  principal  hereof is paid or made
available  for payment.  The interest so payable,  and  punctually  paid or duly
provided for, on any Interest  Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this  Security  (or one or more  Predecessor
Securities)  is registered  at the close of business on the Regular  Record Date
for such  interest,  which  shall be the January 15 or July 15 (whether or not a
Business Day), as the case may be, next  preceding  such Interest  Payment Date.
Any such  interest not so punctually  paid or duly  provided for will  forthwith
cease to be payable to the Holder on such Regular  Record Date and may either be
paid to the  Person in whose  name  this  Security  (or one or more  Predecessor
Securities)  is registered at the close of business on a Special Record Date for
the  payment  of such  Defaulted  Interest  to be fixed by the  Trustee,  notice
whereof  shall be given to Holders of Securities of this series not less than 10
days  prior to such  Special  Record  Date,  or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities  exchange
on which the  Securities  of this series may be listed,  and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.

     Payment of the principal of (and premium,  if any) and any interest on this
Security will be made at the office or agency of the Company maintained for such
purpose in the Borough of



<PAGE>

Manhattan,  The  City  of New  York,  or at the  option  of the  Holder  of this
Security,  at the Corporate Trust Office, in such coin or currency of the United
States of  America as at the time of  payment  is legal  tender  for  payment of
public and private debts;  provided,  however, that at the option of the Company
payment of  interest  may be made by check  mailed to the  address of the Person
entitled  thereto  as  such  address  shall  appear  in the  Security  Register;
provided, further, that a Holder with an aggregate principle amount in excess of
$2,000,000  will be paid by wire transfer in immediately  available funds at the
election  of such  Holder.  Interest  will be computed on the basis of a 360-day
year comprised of twelve 30-day months.

     Reference  is hereby made to the further  provisions  of this  Security set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

     Unless the  certificate of  authentication  hereon has been executed by the
Trustee  referred to on the reverse  hereof by manual  signature,  this Security
shall  not be  entitled  to any  benefit  under  the  Indenture  or be  valid or
obligatory for any purpose.

     IN WITNESS  WHEREOF,  the Company has caused this  instrument  to be signed
manually or by facsimile by their duly authorized  officers and by its corporate
seal to be affixed or imported hereon.

Dated:     January 25, 2000             CYPRESS SEMICONDUCTOR
                                        CORPORATION

                                        By: ________________________________
                                           Title:

Attest:

By: ___________________________________
      Title:

     The Trustee's  certificates of authentication shall be in substantially the
following form:

     This is one of the Securities of the series  designated  herein referred to
in the within-mentioned Indenture.

                                         STATE STREET BANK AND TRUST COMPANY OF
                                         CALIFORNIA, N.A.
                                         As Trustee


                                         By: _______________________________
                                              Authorized Signatory


                                      -21-

<PAGE>

                           Form of Reverse of Security

     This  Security  is one of a duly  authorized  issue  of  securities  of the
Company (herein called the "Securities"), issued and to be issued in one or more
series  under a  Subordinated  Indenture,  dated as of January 15, 2000  (herein
called the "Indenture," which term shall have the meaning assigned to it in such
instrument),  between  the Company  and State  Street Bank and Trust  Company of
California,  N.A., as Trustee (herein called the "Trustee,"  which term includes
any successor trustee under the Indenture),  and reference is hereby made to the
Indenture  and  all  indentures  supplemental  thereto  for a  statement  of the
respective rights,  limitations of rights,  duties and immunities  thereunder of
the Company,  the Trustee, the holders of Senior Indebtedness and the Holders of
the Securities  and of the terms upon which the  Securities  are, and are to be,
authenticated  and delivered.  This Security is one of the series  designated on
the face  hereof  and is  issued  pursuant  to a  Supplemental  Trust  Indenture
supplementing  the Indenture,  dated as of January 15, 2000, from the Company to
Trustee relating to the issuance of the "4% Convertible  Notes due 2005" of this
series (the "Supplemental Indenture").

     The Securities will not be subject to redemption  prior to February 5, 2003
and will be redeemable  on and after such date at the option of the Company,  in
whole or in part,  upon not less  than 20 nor more  than 60 days'  notice to the
Holders,  at the  Redemption  Prices  (expressed  as a  percentage  of principal
amount) set forth below.

     The Redemption Price (expressed as a percentage of principal  amount) is as
follows:

   Year                                                         Redemption Price
   ----                                                         ----------------

   Beginning on February 5, 2003 and ending on January 31, 2004       101%
   Beginning on February 1, 2004 and thereafter                       100%

in each case together with accrued and unpaid  interest to, but  excluding,  the
Redemption Date;  provided,  however,  that interest  installments  whose Stated
Maturity  is on such  Redemption  Date will be  payable  to the  Holders of such
Securities,  or one or more  Predecessor  Securities,  of record at the close of
business on the  relevant  Record Dates  referred to on the face hereof,  all as
provided in the Indenture.

     The  Securities  are not subject to  redemption  through  operation  of any
sinking fund.

     In the event of redemption of this Security in part only, a new Security or
Securities of this series and of like tenor for the  unredeemed  portion  hereof
will be issued in the name of the Holder hereof upon the cancellation hereof.

If a Change in Control (as defined in the Supplemental  Indenture) occurs at any
time prior to February 1, 2005,  the  Securities  will be redeemable on the 30th
day after notice thereof at the option 


                                      -22-

<PAGE>

of the  Holder.  Such  payment  shall be made at a purchase  price  equal to the
principal  amount of the  Security  plus  accrued  and unpaid  interest  to, but
excluding,  the Change in Control  Purchase Date (as defined in the Supplemental
Indenture).  The Company shall mail to all Holders a notice of the occurrence of
a Change in Control and of the  redemption  right arising as a result thereof on
or before the 10th Business Day after the  occurrence of such Change in Control.
For a Security  to be so repaid at the option of the Holder,  the  Company  must
receive at the office or agency of the Company  maintained  for that  purpose in
the Borough of Manhattan, the City of New York, or, at the option of the Holder,
the Corporate Trust Office of the Trustee,  such Security with the form entitled
"Option to Elect  Redemption  Upon a Change in Control"  on the reverse  thereof
duly completed,  together with such Securities duly endorsed for transfer, on or
before the 30th day after the date of such  notice (or if such 30th day is not a
Business Day, the immediately succeeding Business Day).

     The  indebtedness  evidenced by this  Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior  Indebtedness  of the Company,  and this
Security is issued  subject to such  provisions  of the  Indenture  with respect
thereto.  Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
or her  behalf  to take  such  action  as may be  necessary  or  appropriate  to
effectuate the  subordination so provided and (c) appoints the Trustee as his or
her attorney-in-fact for any and all such purposes.

     The Indenture contains  provisions for defeasance at any time of the entire
indebtedness  of this  Security or certain  restrictive  covenants and Events of
Default with respect to this Security, in each case upon compliance with certain
conditions set forth in the Indenture,  except that the Company will not be able
to defease the right of the Holders to convert this Security pursuant to Article
Fourteen of the Indenture.

     Subject to the provisions of the Indenture,  the Holder of this Security is
entitled, at its option, at any time on or before February 1, 2005 (except that,
in case this Security or any portion hereof shall be redeemed,  such right shall
terminate with respect to this Security or portion  hereof,  as the case may be,
so redeemed at the close of business on the first  Business  Day next  preceding
the date fixed for redemption as provided in the  Indenture,  unless the Company
defaults  in making  the  payment  due upon  redemption  or except as  otherwise
provided in the Indenture), to convert the principal amount of this Security (or
any portion hereof which is $1,000 or an integral  multiple  thereof) into fully
paid and  non-assessable  shares of the  Common  Stock of the  Company,  as said
shares shall be constituted at the date of conversion, at the initial Conversion
Price of $46.25  or at the  adjusted  Conversion  Price in effect at the date of
conversion determined as provided in the Supplemental Indenture,  upon surrender
of this Security,  together with the conversion notice hereon duly executed,  to
be accompanied  (if so required by the Company) by  instruments of transfer,  in
form satisfactory to the Company and to the Trustee, duly executed by the Holder
or by its duly  authorized  attorney in writing.  Such surrender  shall, if made
during any period  beginning  at the close of business on a Regular  Record Date
and  ending  at the  opening  of  business  on the  Interest  Payment  Date next
following  such Regular  Record Date (unless this  Security or the portion being
converted  shall have been called for redemption on a Redemption Date during the
period beginning at the close of business on a Regular Record Date and ending at
the  opening of  business on the first 


                                      -23-

<PAGE>

Business  Day  after  the next  succeeding  Interest  Payment  Date,  or if such
Interest Payment Date is not a Business Day, the second such Business Day), also
be accompanied by payment in funds  acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the principal amount of
this Security then being  converted.  Subject to the aforesaid  requirement  for
payment  and, in the case of a  conversion  after the  Regular  Record Date next
preceding any Interest Payment Date and on or before such Interest Payment Date,
to the right of the Holder of this  Security  (or any  Predecessor  Security) of
record at such Regular  Record Date to receive an  installment of interest (with
certain  exceptions  provided in the Indenture),  no adjustment is to be made on
conversion  for  interest  accrued  hereon or for  dividends on shares of Common
Stock  issued on  conversion.  The Company is not  required to issue  fractional
shares upon any such conversion,  but shall make adjustment therefor as provided
in the Indenture.  The Conversion  Price is subject to adjustment as provided in
the  Indenture.  In the event of conversion of this Security in part only, a new
Security or Securities for the unconverted portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.

     If an Event of Default  with  respect to  Securities  of this series  shall
occur and be  continuing,  the principal of the Securities of this series may be
declared  due and  payable in the manner  and with the  effect  provided  in the
Indenture.

     The Indenture  permits,  with certain  exceptions as therein provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Company  and the rights of the  Holders of the  Securities  of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of more than 50% in principal  amount of the  Outstanding
Securities of each series to be affected. The Indenture also contains provisions
permitting  the Holders of  specified  percentages  in  principal  amount of the
Securities of each series at the time  Outstanding,  on behalf of the Holders of
all Securities of such series,  to waive  compliance by the Company with certain
provisions of the  Indenture  and certain past defaults  under the Indenture and
their  consequences.  Any such consent or waiver by the Holder of this  Security
shall be conclusive  and binding upon such Holder and upon all future Holders of
this  Security  and of any  Security  issued upon the  registration  of transfer
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.

     As provided in and subject to the provisions of the  Indenture,  the Holder
of this  Security  shall not have the right to  institute  any  proceeding  with
respect to the Indenture or for the  appointment of a receiver or trustee or for
any other remedy thereunder,  unless such Holder shall have previously given the
Trustee  written  notice of a  continuing  Event of Default  with respect to the
Securities of this series,  the Holders of not less than 25% in principal amount
of the Securities of this series at the time Outstanding shall have made written
request to the  Trustee  to  institute  proceedings  in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity, and the Trustee
shall not have  received  from the Holders of a majority in principal  amount of
Securities of this series at the time Outstanding a direction  inconsistent with
such  request,  and shall have failed to institute any such  proceeding,  for 60
days after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit  instituted  by the Holder of this  Security for the

                                      -24-

<PAGE>

enforcement of any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.

     No reference  herein to the  Indenture and no provision of this Security or
of the Indenture  shall alter or impair the obligation of the Company,  which is
absolute and unconditional, to pay the principal of and any premium and interest
on this  Security  at the times,  place and rate,  and in the coin or  currency,
herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth,  the transfer of this Security is registrable  in the Security  Register,
upon  surrender of this Security for  registration  of transfer at the office or
agency of the  Company in any place where the  principal  of and any premium and
interest on this  Security are payable,  duly endorsed by, or  accompanied  by a
written  instrument  of  transfer  in form  satisfactory  to the Company and the
Security  Registrar  duly  executed by, the Holder  hereof or its attorney  duly
authorized in writing,  and thereupon one or more new  Securities of this series
and of like  tenor,  of  authorized  denominations  and for the  same  aggregate
principal amount, will be issued to the designated transferee or transferees.

     The Securities of this series are issuable only in registered  form without
coupons  in  denominations  of $1,000  and any  integral  multiple  thereof.  As
provided in the Indenture and subject to certain  limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of  Securities  of this  series  and of like  tenor  of a  different  authorized
denomination, as requested by the Holder surrendering the same.

     No service  charge shall be made for any such  registration  of transfer or
exchange,  but the Company may require  payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     Prior to due presentment of this Security for registration of transfer, the
Company,  the  Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this  Security is  registered  as the owner  hereof for all
purposes,  whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

     This  Security  shall be deemed to be a contract made under the laws of New
York and for all purposes shall be construed in accordance  with the laws of New
York, without regard to principles of conflicts of laws.

     All terms used in this Security  which are defined in the  Indenture  shall
have the meanings assigned to them in the Indenture.



                                      -25-

<PAGE>

                                  Abbreviations

     The following  abbreviations,  when used in the  inscription of the face of
this  Security,  shall be  construed  as though  they were  written  out in full
according to applicable laws or regulations:


TEN COM  - as tenants in common              UNIF GIFT MIN ACT - ________
TEN ENT  - as tenants by the entireties
           (Cust)
JT TEN   - as joint tenants with right of    Custodian ___________ under Uniform
           survivorship and not as tenants              (Minor)
           in common                         Gifts to Minors Act _______________
                                                                    (State)

     Additional abbreviations may also be used though not in the above list.



                                Conversion Notice

     To Cypress Semiconductor Corporation:

     The  undersigned  owner of this Security hereby  irrevocably  exercises the
option to  convert  this  Security,  or  portion  hereof  (which is $1,000 or an
integral multiple thereof) below designated,  into shares of Common Stock of the
Company  in  accordance  with the  terms of the  Indenture  referred  to in this
Security,  and  directs  that  the  shares  issuable  and  deliverable  upon the
conversion,  together  with any check in payment for  fractional  shares and any
Securities  representing any unconverted  principal amount hereof, be issued and
delivered  to the  registered  Holder  hereof  unless a different  name has been
indicated  below. If this Notice is being delivered on a date after the close of
business  on a Regular  Record  Date and prior to the opening of business on the
related Interest Payment Date (unless this Security or the portion thereof being
converted has been called for redemption on a Redemption Date after the close of
business  on a Regular  Record  Date and prior to the opening of business on the
first Business Day after the next succeeding  Interest  Payment Date, or if such
Interest  Payment Date is not a Business Day, the next such Business Day),  this
Notice is  accompanied  by payment,  in funds  acceptable to the Company,  of an
amount  equal to the  interest  payable  on such  Interest  Payment  Date of the
principal of this  Security to be  converted.  If shares are to be issued in the
name of a  person  other  than the  undersigned,  the  undersigned  will pay all
transfer taxes payable with respect  hereto.  Any amount  required to be paid by
the undersigned on account of interest accompanies this Security.



                                      -26-

<PAGE>

   Principal Amount to be Converted
(in an integral multiple of $1,000, if less 
               than all)
            $_____________
                                       Owner:

Dated: ____________                           __________________________________

                                              __________________________________
                                                                        
                                              Signature(s) must be guaranteed by
                                              a qualified guarantor  institution
                                              with  membership  in  an  approved
                                              signature     guarantee    program
                                              pursuant to Rule 17Ad-15 under the
                                              Securities Exchange Act of 1934 if
                                              shares of  Common  Stock are to be
                                              delivered,  or  Securities  to  be
                                              issued,  other  than to and in the
                                              name of the registered owner.


                                              __________________________________
                                              Signature Guaranty

     Fill in for  registration  of shares of Common  Stock and Security if to be
issued otherwise than to the registered Holder.



____________________________________          __________________________________
(Name)                                        Social Security or Other Taxpayer
                                              Identification Number
____________________________________
(Address)

____________________________________


                                      -27-

<PAGE>

                           OPTION TO ELECT REDEMPTION
                            UPON A CHANGE OF CONTROL

To:      Cypress Semiconductor Corporation

     The  undersigned  registered  owner  of this  Security  hereby  irrevocably
acknowledges  receipt of a notice from Cypress  Semiconductor  Corporation  (the
"Company")  as to the  occurrence  of a Change in  Control  with  respect to the
Company and requests and  instructs  the Company to redeem the entire  principal
amount of this Security,  or the portion thereof (which is $1,000 or an integral
multiple  thereof)  below  designated,  in  accordance  with  the  terms  of the
Indenture  referred to in this Security at the redemption  price,  together with
accrued interest to, but excluding, such date, to the registered Holder hereof.

Dated: ____________                         ____________________________________


                                            ____________________________________
                                            Signature(s)

                                                                    
                                            Signature(s) must be guaranteed by a
                                            qualified guarantor institution with
                                            membership in an approved  signature
                                            guarantee  program  pursuant to Rule
                                            17Ad-15    under   the    Securities
                                            Exchange Act of 1934.

                                            ____________________________________
                                            Signature Guaranty

Principal amount to be redeemed
(in an integral multiple of $1,000, if less than all):

___________________________________

NOTICE:  The signature to the foregoing  Election must correspond to the Name as
written upon the face of this Security in every particular,  without  alteration
or any change whatsoever.


                                      -28-


                                     SUMMARY

                 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
               COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER
                     THE SECURITIES ACT OF 1933, AS AMENDED.


                        CYPRESS SEMICONDUCTOR CORPORATION
                             1994 STOCK OPTION PLAN

       (As amended and Restated on January 25, 1996 and November __, 1996)

1.   Purposes of the Plan. The purposes of this Stock Option Plan are:

     o    to attract and retain the best  available  personnel  for positions of
          substantial responsibility;

     o    to  provide   additional   incentive  to   Employees,   Directors  and
          Consultants and Outside Directors; and

     o    to promote the success of the Company's business.

2.   Components of the Plan. The Plan provides for:

     o    the  discretionary  granting of Options to  Employees,  Directors  and
          Consultants,  which Options may be either  Incentive  Stock Options or
          Nonstatutory Stock Options,  as determined by the Administrator at the
          time of grant; and

     o    the grant of Nonstatutory  Stock Options to Outside Directors pursuant
          to an automatic, non-discretionary formula.

3.   Definitions. As used herein, the following definitions shall apply:

     (a)  "Administrator"  means the Board or any of its  Committees as shall be
administering the Plan, in accordance with Section 5 of the Plan.

     (b)  "Applicable  Laws"  means  the  legal
  requirements  relating  to  the
administration  of stock  option plans under U.S.  state  corporate  laws,  U.S.
Federal and state  securities  laws,  the Code,  any stock exchange or quotation
system on which the common stock is listed or quoted and the applicable  laws of
any foreign country or jurisdiction where options are, or will be, granted under
the Plan.

     (c) "Board" means the Board of Directors of the Company. 


<PAGE>



     (d) "Code" means the Internal Revenue Code of 1986, as amended.

     (e) "Committee" means a Committee appointed by the Board in accordance with
Section 5 of the Plan.

     (f) "Common Stock" means the Common Stock of the Company.

     (g)  "Company"  means  Cypress   Semiconductor   Corporation,   a  Delaware
corporation.

     (h)  "Consultant"  means any person,  including an advisor,  engaged by the
Company or a Parent or Subsidiary to render services to such entity.

     (i) "Continuous Status as a Director" means that the Director  relationship
is not interrupted or terminated.

     (j)  "Continuous  Status  as an  Employee  or  Consultant"  means  that the
employment  or  consulting  relationship  with  the  Company  or any  Parent  or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered  interrupted in the case of: (i) any leave of
absence  approved by the Company,  including sick leave,  military leave, or any
other personal leave;  provided,  however,  that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract  (including  certain  Company
policies) or statute; provided,  further, that on the ninety-first (91st) day of
any such leave (where reemployment is not guaranteed by contract or statute) the
Optionee's  Incentive  Stock  Option  shall cease to be treated as an  Incentive
Stock  Option and will be  treated  for tax  purposes  as a  Nonstatutory  Stock
Option;  or (ii)  transfers  between  locations  of the  Company or between  the
Company, its Parent, its Subsidiaries or its successor.

     (k) "Director" means a member of the Board.

     (l) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.

     (m) "Employee" means any person, including Officers and Directors, employed
by the Company or any Parent or Subsidiary of the Company.  Neither service as a
Director nor payment of a director's  fee by the Company  shall be sufficient to
constitute "employment" by the Company.

     (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (o) "Existing Directors" means members of the Board on October 12, 1988.


                                       -2-


<PAGE>



     (p) "Fair Market  Value" means,  as of any date,  the value of Common Stock
determined as follows:

          (i) If the Common Stock is listed on any established stock exchange or
     a national market system,  including without limitation the National Market
     System of the National  Association of Securities  Dealers,  Inc. Automated
     Quotation  ("NASDAQ")  System,  the Fair Market  Value of a Share of Common
     Stock  shall be the  closing  sale price for such stock (or the mean of the
     closing bid and asked prices, if no sales were reported), as quoted on such
     exchange  (or the exchange  with the  greatest  volume of trading in Common
     Stock) or system on the date of such  determination  (or, in the event such
     date is not a trading day, the trading day immediately prior to the date of
     such  determination),  as reported in The Wall Street Journal or such other
     source as the Administrator deems reliable; or

          (ii) If the Common  Stock is quoted on the NASDAQ  system  (but not on
     the National Market System thereof) or is regularly  quoted by a recognized
     securities  dealer but  selling  prices are not  reported,  the Fair Market
     Value of a Share of Common  Stock  shall be the mean of the closing bid and
     asked prices for such stock on the date of such  determination  (or, in the
     event such date is not a trading day, the trading day immediately  prior to
     the date of such determination),  as reported in The Wall Street Journal or
     such other source as the Administrator deems reliable; or

          (iii) In the absence of an  established  market for the Common  Stock,
     the  Fair  Market  Value  shall  be   determined   in  good  faith  by  the
     Administrator.

     (q)  "Incentive  Stock  Option"  means an Option  intended to qualify as an
incentive  stock  option  within the  meaning of Section 422 of the Code and the
regulations promulgated thereunder.

     (r) "Nonstatutory  Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.

     (s) "Notice of Grant" means a written notice  evidencing  certain terms and
conditions  of an individual  Option  grant.  The Notice of Grant is part of the
Option Agreement.

     (t)  "Officer"  means a person who is an officer of the Company  within the
meaning  of  Section  16 of the  Exchange  Act and  the  rules  and  regulations
promulgated thereunder.

     (u)  "Option"  means a stock  option  granted  pursuant  to the Plan or the
Terminated Plans.

     (v) "Option Agreement" means a written agreement between the Company and an
Optionee  evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.


                                       -3-


<PAGE>



     (w) "Option Exchange Program" means a program whereby  outstanding  options
are surrendered in exchange for options with a lower exercise price.

     (x)  "Optioned  Stock"  means  the  Common  Stock  subject  to  an  Option.

     (y) "Optionee" means an Employee,  Consultant or Outside Director who holds
an outstanding Option.

     (z)  "Outside  Director"  means  a  Director  who  is not  an  Employee  or
Consultant.

     (aa)  "Parent"  means a  "parent  corporation",  whether  now or  hereafter
existing, as defined in Section 424(e) of the Code.

     (bb) "Plan" means this 1994 Stock Option Plan, as amended.

     (cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any  successor to
Rule 16b-3,  as in effect when discretion is being exercised with respect to the
Plan.

     (dd) "Share" means a share of the Common  Stock,  as adjusted in accordance
with Section 14 of the Plan.

     (ee)  "Subsidiary"  means  a  "subsidiary  corporation",   whether  now  or
hereafter existing, as defined in Section 424(f) of the Code.

     (ff)  "Terminated  Plans" means the Company's 1985  Incentive  Stock Option
Plan and 1988 Directors'  Stock Option Plan,  which are terminated upon adoption
of,  and  superseded  by,  this Plan;  however,  outstanding  Options  under the
Terminated  Plans  shall  continue  in full  force  in  effect,  subject  to the
provisions of such Options and this Plan.

     4. Stock Subject to the Plan.  Subject to Section 14 of the Plan, the total
number of Shares reserved and available for issuance under the Plan is 3,455,791
Shares (pre-split)  (including 455,791 Shares (pre-split)  previously authorized
but  unissued  under the  Terminated  Plans),  plus  shares  subject  to options
outstanding  under the  Terminated  Plans at the time of  adoption  of this plan
which are subsequently forfeited in connection with termination of employment or
other failure to exercise, increased on the first day of each new fiscal year of
the Company from and  including the 1995 fiscal year by a number of Shares equal
to  4.5% of the  number  of  Shares  outstanding  as of the  last  business  day
preceding  each such first day of each new fiscal year.  However,  the number of
Shares  available  for issuance  pursuant to Incentive  Stock  Options shall not
include  the  foregoing  annual  increase,   which  shall  be  used  solely  for
Nonstatutory Stock Options.

     Subject to Section 14 of the Plan,  if any Shares  that have been  optioned
under an Option (whether granted under this Plan or the Terminated  Plans) cease
to be subject to such Option (other than through exercise of the Option),  or if
any Option granted hereunder or thereunder is forfeited, or any Option otherwise
terminates prior to the issuance of Common Stock to the

                                       -4-


<PAGE>



participant,  the  Shares  that  were  subject  to such  Option  shall  again be
available for  distribution  in connection  with future  Options under the Plan.
Shares that have  actually been issued under the Plan upon exercise of an Option
shall not in any event be  returned  to the Plan and shall not become  available
for future distribution under the Plan.

     5. Administration of the Plan.

     (a) Procedure.

          (i) Multiple  Administrative  Bodies.  The Plan may be administered by
     different  Committees  with  respect  to.  Different  groups of  Employees,
     Consultants and Directors.

          (ii) Section 162(m). To the extent that the  Administrator  determines
     it  to   be   desirable   to   qualify   Options   granted   hereunder   as
     "performance-based  compensation"  within the meaning of Section  162(m) of
     the Code,  the Plan shall be  administered  by a  Committee  of two or more
     "outside directors" within the meaning of Section 162(m) of the Code.

          (iii) Rule  16b-3.  To the extent  desirable  to qualify  transactions
     hereunder  as  exempt  under  Rule  16b-3,  the  transactions  contemplated
     hereunder  shall be  structured to satisfy the  requirements  for exemption
     under Rule 16b-3.

          (iv) Other  Administration.  Other than as  provided  above,  the Plan
     shall be administered by (A) the Board or (B) a Committee,  which committee
     shall be constituted to satisfy Applicable Laws.

          (v)  Administration  With  Respect  to  Automatic  Grants  to  Outside
     Directors.  Automatic  Grants to Outside  Directors  shall be pursuant to a
     non-discretionary  formula as set forth in Section 11 hereof and  therefore
     shall not be subject to any discretionary administration.

     (b) Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a  Committee,  subject to the  specific  duties  delegated by the
Board to such  Committee,  the  Administrator  shall have the authority,  in its
discretion:

          (i) to  determine  the Fair  Market  Value  of the  Common  Stock,  in
     accordance with Section 3(p) of the Plan;

          (ii) to  select  the  Consultants,  Directors  and  Employees  to whom
     Options may be granted hereunder;

          (iii) to  determine  whether  and to what  extent  Options are granted
     hereunder;

          (iv) to  determine  the number of shares of Common Stock to be covered
     by each Option granted hereunder;


                                       -5-


<PAGE>



          (v) to approve forms of agreement for use under the Plan;

          (vi) to determine the terms and conditions,  not inconsistent with the
     terms  of the  Plan,  of any  Option  granted  hereunder.  Such  terms  and
     conditions include, but are not limited to, the exercise price, the time or
     times when  Options  may be  exercised  (which may be based on  performance
     criteria),  any vesting acceleration or waiver of forfeiture  restrictions,
     and any  restriction  or  limitation  regarding any Option or the shares of
     Common Stock  relating  thereto,  based in each case on such factors as the
     Administrator, in its sole discretion, shall determine;

          (vii) to reduce the  exercise  price of any Option to the then current
     Fair Market Value if the Fair Market  Value of the Common Stock  covered by
     such Option shall have declined since the date the Option was granted;

          (viii) to  construe  and  interpret  the terms of the Plan and Options
     granted pursuant to the Plan;

          (ix) to prescribe, amend and rescind rules and regulations relating to
     the Plan, including rules and regulations relating to sub-plans established
     for the purpose of qualifying for preferred tax treatment under foreign tax
     laws;

          (x) to modify or amend each Option  (subject  to Section  16(c) of the
     Plan);

          (xi) to allow  Optionees to satisfy  withholding  tax  obligations  by
     electing  to have the  Company  withhold  from the Shares to be issued upon
     exercise of an Option or Stock  Purchase Right that number of Shares having
     a Fair Market Value equal to the amount  required to be withheld.  The Fair
     Market Value of the Shares to be withheld  shall be  determined on the date
     that the amount of tax to be withheld is to be determined. All elections by
     an Optionee to have Shares  withheld for this purpose shall be made in such
     form and under such conditions as the  Administrator  may deem necessary or
     advisable;

          (xii) to authorize  any person to execute on behalf of the Company any
     instrument  required to effect the grant of an Option previously granted by
     the Administrator;

          (xiii) to institute an Option Exchange Program;

          (xiv) to determine the terms and  restrictions  applicable to Options;
     and

          (xv) to make all other  determinations  deemed  necessary or advisable
     for administering the Plan.

     (c) Effect of  Administrator's  Decision.  The  Administrator's  decisions,
determinations and  interpretations  shall be final and binding on all Optionees
and any other holders of Options.


                                       -6-


<PAGE>



     6. Eligibility.

     (a) Discretionary Stock Options.  Nonstatutory Stock Options may be granted
to Employees, Directors and Consultants.  Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option may be granted additional Options.

     (b) Outside  Director Stock Options.  Outside  Directors shall also receive
Nonstatutory Stock Options pursuant to Section 11 hereof.

     7. Limitations.

     (a) Each  Option  shall be  designated  in the  Notice  of Grant or  Option
Agreement as either an Incentive  Stock Option or a  Nonstatutory  Stock Option.
However,  notwithstanding  such  designations,  to the extent that the aggregate
Fair Market Value:

          (i) of Shares subject to an Optionee's incentive stock options granted
     by the Company, any Parent or Subsidiary, which

          (ii) become  exercisable  for the first time during any calendar  year
     (under all plans of the Company or any Parent or Subsidiary)

exceeds  $100,000,  such excess Options shall be treated as  Nonstatutory  Stock
Options.  For purposes of this Section  7(a),  incentive  stock options shall be
taken into account in the order in which they were granted,  and the Fair Market
Value of the Shares shall be determined as of the time of grant.

     (b) Neither the Plan nor any Option shall confer upon an Optionee any right
with respect to continuing the Optionee's employment or consulting  relationship
or tenure as a director  with the Company,  nor shall they  interfere in any way
with the Optionee's,  the Company's,  or the Company's  stockholders',  right to
terminate  such  employment or consulting  relationship  or tenure as a director
with the Company at any time, with or without cause.

     (c)  The  following  limitations  shall  apply  to  grants  of  Options  to
Employees:

          (i) No Employee  shall be granted,  in any fiscal year of the Company,
     Options to purchase more than 500,000 Shares.

          (ii) The foregoing  limitation  shall be adjusted  proportionately  in
     connection with any change in the Company's  capitalization as described in
     Section 14(a).

          (iii) If an  Option  is  canceled  (other  than in  connection  with a
     transaction  described in Section 14), the canceled  Option will be counted
     against the limit set forth in Section  7(c)(i).  For this purpose,  if the
     exercise price of an Option is reduced,  the transaction will be treated as
     a cancellation of the Option and the grant of a new Option.


                                       -7-


<PAGE>



     8. Term of Plan. The Plan shall become effective upon the date, in 1994, of
its approval by the stockholders of the Company. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

     9. Term of Option. The term of each Option shall be ten (10) years from the
date of grant or such  shorter term as may be provided in the Notice of Grant or
Option  Agreement.  In the  case of an  Incentive  Stock  Option  granted  to an
Optionee  who, at the time the  Incentive  Stock  Option is granted,  owns stock
representing  more than ten percent  (10%) of the voting power of all classes of
stock of the  Company or any  Parent or  Subsidiary,  the term of the  Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Notice of Grant or Option Agreement.

     10. Option Exercise Price and Consideration.

     (a)  Exercise  Price.  The per share  exercise  price for the  Shares to be
issued   pursuant  to  exercise  of  an  Option  shall  be   determined  by  the
Administrator, subject to the following:

          (i) In the case of an Incentive Stock Option

               (A) granted to an Employee who, at the time the  Incentive  Stock
          Option is granted, owns stock representing more than ten percent (10%)
          of the  voting  power of all  classes  of stock of the  Company or any
          Parent or  Subsidiary,  the per Share  exercise price shall be no less
          than 110% of the Fair Market Value per Share on the date of grant.

               (B) granted to any Employee  other than an Employee  described in
          paragraph (A) immediately above, the per Share exercise price shall be
          no less than one hundred  (100%) of the Fair Market Value per Share on
          the date of grant.

          (ii) In the  case  of a  Nonstatutory  Stock  Option,  the  per  Share
     exercise  price  shall be no less than  eighty-five  percent  (85%) of Fair
     Market Value per Share on the date of grant.  In the case of a Nonstatutory
     Stock Option intended to qualify as "performance-based compensation" within
     the meaning of Section  162(m) of the Code,  the per Share  exercise  price
     shall be no less than 100% of the Fair  Market  Value per Share on the date
     of grant.

     (b) Waiting  Period and Exercise  Dates.  At the time an Option is granted,
the Administrator  shall fix the period within which the Option may be exercised
and shall determine any conditions which must be satisfied before the Option may
be exercised.  In so doing, the Administrator may specify that an Option may not
be exercised until the completion of a service period.

     (c) Form of  Consideration.  Except with respect to automatic  stock option
grants to Outside  Directors,  the Administrator  shall determine the acceptable
form of consideration for exercising an Option, including the method of payment.
In the case of an Incentive Stock Option, the Administrator  shall determine the
acceptable form of consideration at the time of grant. Such 


                                       -8-


<PAGE>



form of  consideration  shall be set  forth  in the  Notice  of Grant or  Option
Agreement and may, as determined by the Administrator, consist entirely of:

          (i) cash;

          (ii) check;

          (iii) promissory note;

          (iv)  other  Shares  which  (A) in the case of  Shares  acquired  upon
     exercise of an option,  have been owned by the  Optionee  for more than six
     months on the date of  surrender,  and (B) have a Fair Market  Value on the
     date of surrender equal to the aggregate exercise price of the Shares as to
     which said Option shall be exercised;

          (v) delivery of a properly executed exercise notice together with such
     other  documentation as the  Administrator  and the broker,  if applicable,
     shall  require to effect an  exercise  of the Option  and  delivery  to the
     Company of the sale or loan proceeds required to pay the exercise price;

          (vi) any combination of the foregoing methods of payment; or

          (vii) such other  consideration and method of payment for the issuance
     of Shares to the extent permitted by Applicable Laws.

     11. Automatic Stock Option Grants to Outside Directors.

     (a)  Procedure  for  Grants.  All grants of  Options  to Outside  Directors
hereunder shall be automatic and non-discretionary and shall be made strictly in
accordance with the following provisions:

          (i) Each Outside Director shall be automatically  granted an Option to
     purchase  80,000  Shares (the "First  Option")  upon the date on which such
     person  first  becomes  a  Director,   whether  through   election  by  the
     stockholders  of the Company or  appointment  by the Board of  Directors to
     fill a vacancy.

          (ii) After the First Option has been  granted to an Outside  Director,
     such Outside Director shall  thereafter be automatically  granted an Option
     to purchase 20,000 Shares (a "Subsequent  Option") on a date one year after
     the date of grant of the  First  Option  and on the  same  date  each  year
     thereafter.

          (iii)  Notwithstanding  the provisions of  subsections  (ii) and (iii)
     hereof,  in the event that an  automatic  grant  hereunder  would cause the
     number of Shares subject to  outstanding  Options plus the number of Shares
     previously  purchased  upon  exercise  of  Options  to exceed the number of
     Shares  available  for issuance  under the Plan,  then each such  automatic
     grant shall be for


                                       -9-


<PAGE>



     that number of Shares  determined  by dividing  the total  number of Shares
     remaining  available  for grant by the number of Outside  Directors  on the
     automatic  grant date. Any further grants shall then be deferred until such
     time,  if any, as additional  Shares  become  available for grant under the
     Plan.

          (iv) The terms of an Option granted hereunder shall be as follows:

               (A) the term of the Option shall be ten (10) years.

               (B) the  Option  shall be  exercisable  only  while  the  Outside
          Director  remains a Director  of the  Company,  except as set forth in
          subsection (c) hereof.

               (C) the exercise price per Share shall be 100% of the fair market
          value per Share on the date of grant of the Option.

               (D) the Option shall become exercisable as follows:

                    (1) If it is a First  Option,  it shall  become  exercisable
               cumulatively  in installments of 16,000 Shares per year beginning
               on the date one year after such Director's  election to the Board
               of Directors.

                    (2)  If  it  is  a  Subsequent   Option,   it  shall  become
               exercisable cumulatively in installments of 4,000 Shares per year
               beginning  on the date one  year  after  the date on which it was
               granted.

     (b)  Consideration  for Exercising  Outside  Director  Stock  Options.  The
consideration  to be paid  for the  Shares  to be  issued  upon  exercise  of an
automatic Outside Director Option shall consist entirely of cash,  check,  other
Shares of Common Stock which (i) either have been owned by the Optionee for more
than six (6)  months  or were not  acquired,  directly  or  indirectly  from the
Company and (ii) have a fair market value on the date of surrender  equal to the
aggregate  exercise  price  of the  Shares  as to  which  said  Option  shall be
exercised, or any combination of such methods of payment.

     (c) Post-Directorship Exercisability.

          (i) Termination of Status as a Director. If an Outside Director ceases
     to serve as a Director,  he may, but only within ninety days (90) after the
     date he ceases to be a Director of the Company,  exercise his Option to the
     extent that he was entitled to exercise it at the date of such termination.
     To the extent that he was not entitled to exercise an Option at the date of
     such  termination,  or if he does not  exercise  such Option  (which he was
     entitled to exercise)  within the time specified  herein,  the Option shall
     terminate.

          (ii) Disability of Director. Notwithstanding the provisions of Section
     11(c)(i)  above,  in the event a Director is unable to continue his service
     as a Director with the Company as a result of his  Disability,  he may, but
     only within six (6) months from the date of


                                      -10-


<PAGE>



     termination,  exercise his Option to the extent he was entitled to exercise
     it at the date of such termination.  To the extent that he was not entitled
     to  exercise  the  Option  at the  date of  termination,  or if he does not
     exercise  such Option  (which he was entitled to exercise)  within the time
     specified herein, the Option shall terminate.

          (iii) Death of Director. In the event of the death of an Optionee:

               (A) during the term of the Option who is at the time of his death
          a Director of the Company and who shall have been in Continuous Status
          as a Director since the date of grant of the Option, the Option may be
          exercised,  at any time  within six (6) months  following  the date of
          death, by the Optionee's  estate or by a person who acquired the right
          to  exercise  the Option by bequest  or  inheritance,  but only to the
          extent  of the right to  exercise  that  would  have  accrued  had the
          Optionee continued living and remained in Continuous Status a Director
          for twelve (12) months after the date of death; or

               (B) within thirty (30) days after the  termination  of Continuous
          Status as a Director, the Option may be exercised,  at any time within
          six (6) months  following the date of death, by the Optionee's  estate
          or by a person  who  acquired  the  right to  exercise  the  Option by
          bequest  or  inheritance,  but  only to the  extent  of the  right  to
          exercise that had accrued at the date of termination.

     12. Exercise of Option.

     (a) Procedure for Exercise;  Rights as a  Stockholder.  Any Option  granted
hereunder  shall be  exercisable  according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
options granted hereunder shall be tolled during any unpaid leave or absence. An
Option may not be exercised for a fraction of a Share.

     An Option shall be deemed exercised when the Company receives:  (i) written
notice of exercise (in  accordance  with the Option  Agreement)  from the person
entitled  to  exercise  the  Option,  and (ii) full  payment for the Shares with
respect  to which the  Option is  exercised.  Full  payment  may  consist of any
consideration  and  method  of  payment  authorized  by  the  Administrator  and
permitted by the Option  Agreement and the Plan.  Shares issued upon exercise of
an Option  shall be issued in the name of the  Optionee  or, if requested by the
Optionee,  in the name of the  Optionee  and his or her spouse.  Until the stock
certificate  evidencing  such Shares is issued (as evidenced by the  appropriate
entry on the books of the Company or of a duly authorized  transfer agent of the
Company),  no  right to vote or  receive  dividends  or any  other  rights  as a
stockholder shall exist with respect to the Optioned Stock,  notwithstanding the
exercise of the Option.  The  Company  shall issue (or cause to be issued)  such
stock certificate promptly after the Option is exercised.  No adjustment will be
made for a dividend  or other  right for which the  record  date is prior to the
date the stock  certificate  is issued,  except as provided in Section 14 of the
Plan.


                                      -11-


<PAGE>



     Exercising  an Option in any  manner  shall  decrease  the number of Shares
thereafter  available,  both for  purposes  of the Plan and for sale  under  the
Option, by the number of Shares as to which the Option is exercised.

     (b) Termination of Employment or Consulting Relationship.  Upon termination
of an Optionee's Continuous Status as an Employee or Consultant, other than upon
the Optionee's  death or Disability,  the Optionee may exercise the Option,  but
only within such period of time as is specified in the Notice of Grant or Option
Agreement,  and only to the extent that the Optionee was entitled to exercise it
at the date of  termination  (but in no event later than the  expiration  of the
term of such Option as set forth in the Notice of Grant or Option Agreement). In
the absence of a specified time in the Notice of Grant or Option Agreement,  the
Option  shall  remain  exercisable  for three months  following  the  Optionee's
termination of Continuous Status as an Employee or Consultant. In the case of an
Incentive  Stock  Option,  such period of time shall not exceed three (3) months
from the date of termination;  in the case of a Nonstatutory Stock Option,  such
period of time  shall not  exceed  twenty-  four  (24)  months  from the date of
termination.  If, at the date of  termination,  the  Optionee is not entitled to
exercise the entire Option,  the Shares covered by the unexercisable  portion of
the Option shall revert to the Plan.  If, after  termination,  the Optionee does
not exercise the Option  within the time  specified  by the  Administrator,  the
Option shall  terminate,  and the Shares  covered by such Option shall revert to
the Plan.

     (c)  Disability  of Optionee.  In the event that an  Optionee's  Continuous
Status as an Employee or  Consultant  terminates  as a result of the  Optionee's
Disability,  the  Optionee may exercise his or her Option at any time within (i)
for discretionary stock options, six (6) months or such other period of time not
exceeding  twelve (12) months,  as is specified in the Notice of Grant or Option
Agreement,  or (ii) for automatic stock option grants to Outside Directors,  six
(6)  months  from the date of such  termination.  Any such  Options  may only be
exercised  to the extent that the  Optionee  was  entitled to exercise it at the
date of such  termination (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant or Option Agreement).  If, at
the date of  termination,  the  Optionee is not  entitled to exercise his or her
entire  Option,  the Shares covered by the  unexercisable  portion of the Option
shall revert to the Plan. If, after termination,  the Optionee does not exercise
his or her Option within the time specified herein,  the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.

     (d) Death of Optionee. In the event of the death of an Optionee:

          (i)  during  the term of the Option who is at the time of his death an
     of the Company and who shall have been in Continuous  Status as an Employee
     or  Consultant  since the date of grant of the  Option,  the  Option may be
     exercised,  at any time within six (6) months  following the date of death,
     by the Optionee's  estate or by a person who acquired the right to exercise
     the Option by bequest or  inheritance,  but only to the extent of the right
     to exercise that would have accrued had the Optionee  continued  living and
     remained in  Continuous  Status an Employee or  Consultant  for twelve (12)
     months after the date of death; or


                                      -12-


<PAGE>



          (ii)  within  thirty  (30) days after the  termination  of  Continuous
     Status as an Employee or  Consultant,  the Option may be exercised,  at any
     time within six (6) months  following the date of death,  by the Optionee's
     estate or by a person  who  acquired  the right to  exercise  the Option by
     bequest or  inheritance,  but only to the  extent of the right to  exercise
     that had accrued at the date of termination.

     13.  Non-Transferability  of Options.  Unless  determined  otherwise by the
Administrator,  an  Option  may not be sold,  pledged,  assigned,  hypothecated,
transferred,  or disposed of in any manner  other than by will or by the laws of
descent  or  distribution  and may be  exercised,  during  the  lifetime  of the
Optionee,   only  by  the  Optionee.   If  the  Administrator  makes  an  Option
transferable,  such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

     14. Adjustments Upon Changes in Capitalization,  Dissolution, Merger, Asset
Sale or Change of Control.

     (a)  Changes  in  Capitalization.  Subject  to any  required  action by the
stockholders  of the Company,  the number of shares of Common  Stock  covered by
each  outstanding  Option,  and the number of shares of Common  Stock which have
been  authorized for issuance under the Plan but as to which no Options have yet
been  granted  or which  have been  returned  to the Plan upon  cancellation  or
expiration of an Option,  as well as the price per share of Common Stock covered
by each such  outstanding  Option,  shall be  proportionately  adjusted  for any
increase or decrease in the number of issued  shares of Common  Stock  resulting
from a  stock  split,  reverse  stock  split,  stock  dividend,  combination  or
reclassification  of the Common Stock,  or any other increase or decrease in the
number  of  issued  shares  of  Common  Stock   effected   without   receipt  of
consideration  by  the  Company;  provided,  however,  that  conversion  of  any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of  consideration."  Such adjustment shall be made by the Board,
whose  determination  in that respect  shall be final,  binding and  conclusive.
Except as  expressly  provided  herein,  no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

     (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company,  with respect to discretionary Options granted under
the Plan (but not with  respect to Options  granted  to Outside  Directors)  the
Board may, in the exercise of its sole  discretion  in such  instances,  declare
that any such Option  shall  terminate  as of a date fixed by the Board and give
each  Optionee  the right to exercise his or her Option as to all or any part of
the Optioned Stock,  including Shares as to which the Option would not otherwise
be exercisable.

     (c) Merger or Asset Sale.  In the event of a merger of the Company  with or
into another corporation,  or the sale of substantially all of the assets of the
Company,  each outstanding Option shall be assumed or an equivalent option shall
be  substituted  by the successor  corporation  or a Parent or Subsidiary of the
successor corporation.  With respect to a discretionary Option granted under the
Plan (but not with  respect  to  Options  granted  to  Outside  Directors),  the
Administrator  may, 


                                      -13-


<PAGE>



in the  exercise  of its  sole  discretion  and in lieu of  such  assumption  or
substitution, provide for the Optionee to have the right to exercise such Option
as to all of  the  Optioned  Stock,  including  as to  Shares  which  would  not
otherwise be exercisable.  With respect to Options granted to Outside  Directors
on or after the  Effective  Date of the Plan,  in the event  that the  successor
corporation  does not agree to assume such Options or to  substitute  equivalent
options, each such outstanding Option shall become fully vested and exercisable,
including as to Shares as to which it would not otherwise be exercisable, unless
the Board,  in its  discretion,  determines  otherwise.  With respect to Options
granted to Outside  Directors  prior to the  Effective  Date of the Plan, in the
event that the successor corporation does not agree to assume such Options or to
substitute equivalent options, such Options shall terminate.

     If the Administrator makes a discretionary Option fully exercisable in lieu
of assumption or  substitution  in the event of a merger or sale of assets,  the
Administrator  shall  notify  the  Optionee  that  the  Option  shall  be  fully
exercisable  for a period of thirty (30) days from the date of such notice,  and
the Option will terminate upon the expiration of such period.

     For the purposes of this subsection, the Option shall be considered assumed
if,  following  the merger or sale of assets,  the option  confers  the right to
purchase,  for each Share of Optioned  Stock  subject to the Option  immediately
prior to the merger or sale of assets,  the consideration  (whether stock, cash,
or other  securities  or  property)  received in the merger or sale of assets by
holders  of  Common  Stock  for each  Share  held on the  effective  date of the
transaction (and if holders were offered a choice of consideration,  the type of
consideration  chosen by the holders of a majority of the  outstanding  Shares);
provided,  however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor  corporation  or its Parent,
the Administrator  may, with the consent of the successor  corporation,  provide
for the  consideration to be received upon the exercise of the Option,  for each
Share of Optioned Stock subject to the Option,  to be solely common stock of the
successor  corporation or its Parent equal in fair market value to the per share
consideration  received  by  holders  of Common  Stock in the  merger or sale of
assets.

     15. Option Date of Grant.  The date of grant of an Option shall be, for all
purposes,  the date on which the Administrator makes the determination  granting
such Option,  or such other later date as is  determined  by the  Administrator.
Notice  of the  determination  shall  be  provided  to each  Optionee  within  a
reasonable time after the date of such grant.

     16. Amendment and Termination of the Plan.

     (a)  Amendment  and  Termination.  The Board may at any time amend,  alter,
suspend or terminate the Plan.

     (b) Stockholder Approval.  The Company shall obtain stockholder approval of
any Plan  amendment  to the  extent  necessary  and  desirable  to  comply  with
Applicable Laws.

     (c)  Effect  of  Amendment  or  Termination.   No  amendment,   alteration,
suspension or  termination  of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise

                                      -14-


<PAGE>



between the Optionee and the  Administrator,  which agreement must be in writing
and signed by the Optionee and the Company.

     17. Conditions Upon Issuance of Shares.

     (a) Legal  Compliance.  Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of
such Shares shall comply with  Applicable  Laws and shall be further  subject to
the approval of counsel for the Company with respect to such compliance.

     (b)  Investment  Representations.  As a  condition  to the  exercise  of an
Option,  the Company may require the person  exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company,  such a representation  is
required.

     18. Liability of Company.

     (a) Inability to Obtain  Authority.  The inability of the Company to obtain
authority  from any  regulatory  body having  jurisdiction,  which  authority is
deemed by the Company's  counsel to be necessary to the lawful issuance and sale
of any Shares  hereunder,  shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

     19. Reservation of Shares. The Company,  during the term of this Plan, will
at all  times  reserve  and keep  available  such  number  of Shares as shall be
sufficient to satisfy the requirements of the Plan.


                                      -15-


<PAGE>



                        CYPRESS SEMICONDUCTOR CORPORATION
                             1994 STOCK OPTION PLAN
                                 NOTICE OF GRANT

     Unless otherwise  defined herein,  capitalized terms used herein shall have
the same meanings as set forth in the Plan.

[Optionee's Name and Address]

     You have been  granted an option to purchase  Common  Stock of the Company,
subject to the terms and  conditions of the Plan and this Option  Agreement,  as
follows:

         Grant Number                         _________________________

         Date of Grant                        _________________________

         Vesting Commencement Date            _________________________

         Exercise Price per Share             $________________________

         Total Number of Shares Granted       _________________________

         Total Exercise Price                 $_________________________

         Type of Option:                      ___  Incentive Stock Option

                                              ___  Nonstatutory Stock Option

         Term/Expiration Date:                _________________________

         Vesting Schedule:

     This Option may be exercised,  in whole or in part, in accordance  with the
following schedule:

     25% of the Shares  subject to the Option shall vest twelve months after the
Vesting  Commencement  Date,  and 1/48 of the Shares subject to the Option shall
vest each month thereafter.

     Termination Period:

     This  Option  may  be  exercised  for  30  days  after  termination  of the
Optionee's  employment or  consulting  relationship  with the Company.  Upon the
death or  Disability  of the  Optionee,  this Option may be  exercised  for such
longer period as provided in the Plan. In the event of the Optionee's  change in
status from  Employee to  Consultant  or  Consultant  to  Employee,  this Option
Agreement  shall  remain in effect.  In no event shall this Option be  exercised
later than the Term/Expiration Date as provided above.


<PAGE>



                        CYPRESS SEMICONDUCTOR CORPORATION
                             1994 STOCK OPTION PLAN
                                OPTION AGREEMENT


     Unless otherwise  defined herein,  capitalized terms used herein shall have
the same meanings as set forth in the Plan.

     1. Grant of Option.  The Plan Administrator of the Company hereby grants to
the Optionee  named in the Notice of Grant  attached as Part I of this Agreement
(the "Optionee"),  an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant,  at the exercise  price per share set forth in
the Notice of Grant (the "Exercise Price"),  subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(c)
of the Plan, in the event of a conflict  between the terms and conditions of the
Plan and the  terms  and  conditions  of this  Option  Agreement,  the terms and
conditions of the Plan shall prevail.

     If designated in the Notice of Grant as an Incentive  Stock Option ("ISO"),
this Option is intended to qualify as an Incentive  Stock  Option under  Section
422 of the Code.  However,  if this Option is intended to be an Incentive  Stock
Option,  to the extent that it exceeds the $100,000 rule of Code Section  422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").

     2. Exercise of Option.

     (a) Right to  Exercise.  This  Option  is  exercisable  during  its term in
accordance  with the  Vesting  Schedule  set out in the  Notice of Grant and the
applicable  provisions  of the Plan and this Option  Agreement.  In the event of
Optionee's death,  Disability or other  termination of Optionee's  employment or
consulting  relationship,  the  exercisability  of the Option is governed by the
applicable provisions of the Plan and this Option Agreement.

     (b) Method of  Exercise.  This  Option is  exercisable  by  delivery  of an
exercise  notice,  in the form  attached as Exhibit A (the  "Exercise  Notice"),
which shall state the election to exercise  the Option,  the number of Shares in
respect of which the Option is being  exercised (the  "Exercised  Shares"),  and
such other  representations  and  agreements  as may be  required by the Company
pursuant to the provisions of the Plan.  The Exercise  Notice shall be signed by
the  Optionee  and shall be  delivered  in person  or by  certified  mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate  Exercise Price as to all Exercised  Shares.  This Option shall be
deemed to be  exercised  upon  receipt by the  Company  of such  fully  executed
Exercise Notice accompanied by such aggregate Exercise Price.

     No Shares shall be issued  pursuant to the  exercise of this Option  unless
such issuance and exercise complies with all relevant  provisions of law and the
requirements  of any stock  exchange or quotation  service upon which the Shares
are then listed. Assuming such compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.



<PAGE>



     3. Method of Payment.  Payment of the aggregate  Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:

     (a) cash; or

     (b) check; or

     (c) delivery of a properly  executed  exercise  notice  together  with such
other  documentation as the Administrator  and the broker, if applicable,  shall
require to effect an exercise  of the Option and  delivery to the Company of the
sale or loan proceeds required to pay the exercise price; or

     (d) surrender of other Shares which (i) in the case of Shares acquired upon
exercise  of an option,  have been owned by the  Optionee  for more than six (6)
months on the date of  surrender,  and (ii) have a Fair Market Value on the date
of surrender equal to the aggregate Exercise Price of the Exercised Shares.

     4. Non-Transferability of Option. This Option may not be transferred in any
manner  otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee.  The terms of
the  Plan  and this  Option  Agreement  shall  be  binding  upon the  executors,
administrators, heirs, successors and assigns of the Optionee.

     5. Term of Option.  This Option may be  exercised  only within the term set
out in the  Notice  of  Grant,  and may be  exercised  during  such term only in
accordance with the Plan and the terms of this Option Agreement.

     6. Tax  Consequences.  Some of the federal and California tax  consequences
relating to this  Option,  as of the date of this  Option,  are set forth below.
THIS SUMMARY IS NECESSARILY  INCOMPLETE,  AND THE TAX LAWS AND  REGULATIONS  ARE
SUBJECT TO CHANGE.  THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE  EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.

     (a) Exercising the Option.

          (i) Nonstatutory  Stock Option. The Optionee may incur regular federal
     income tax and California  income tax liability upon exercise of a NSO. The
     Optionee will be treated as having received compensation income (taxable at
     ordinary income tax rates) equal to the excess,  if any, of the Fair Market
     Value of the Exercised  Shares on the date of exercise over their aggregate
     Exercise  Price.  If the  Optionee  is an  Employee,  the  Company  will be
     required to withhold from his or her  compensation or collect from Optionee
     and  pay  to  the  applicable  taxing  authorities  an  amount  equal  to a
     percentage of this compensation income at the time of exercise.

          (ii) Incentive Stock Option.  If this Option  qualifies as an ISO, the
     Optionee will have no regular  federal income tax or California  income tax
     liability upon its exercise,


                                       -2-


<PAGE>



     although  the excess,  if any, of the Fair  Market  Value of the  Exercised
     Shares on the date of exercise over their aggregate  Exercise Price will be
     treated as an adjustment to alternative  minimum taxable income for federal
     tax purposes and may subject the Optionee to alternative minimum tax in the
     year of  exercise.  In the event that the  Optionee  undergoes  a change of
     status from  Employee to  Consultant,  any  Incentive  Stock  Option of the
     Optionee  that remains  unexercised  shall cease to qualify as an Incentive
     Stock Option and will be treated for tax purposes as a  Nonstatutory  Stock
     Option on the ninety-first (91st) day following such change of status.

     (b) Disposition of Shares.

          (i) NSO. If the Optionee  holds NSO Shares for at least one year,  any
     gain  realized on  disposition  of the Shares will be treated as  long-term
     capital gain for federal income tax purposes.

          (ii) ISO. If the Optionee holds ISO Shares for at least one year after
     exercise  and two  years  after  the  grant  date,  any  gain  realized  on
     disposition  of the Shares will be treated as  long-term  capital  gain for
     federal income tax purposes.  If the Optionee disposes of ISO Shares within
     one year  after  exercise  or two  years  after the  grant  date,  any gain
     realized  on  such  disposition  will be  treated  as  compensation  income
     (taxable at ordinary income rates) to the extent of the excess,  if any, of
     the  lesser of (A) the  difference  between  the Fair  Market  Value of the
     Shares  acquired on the date of exercise and the aggregate  Exercise Price,
     or (B) the  difference  between  the  sale  price  of such  Shares  and the
     aggregate Exercise Price.

     (c) Notice of  Disqualifying  Disposition  of ISO Shares.  If the  Optionee
sells or otherwise  disposes of any of the Shares acquired pursuant to an ISO on
or  before  the later of (i) two years  after the grant  date,  or (ii) one year
after the exercise date, the Optionee  shall  immediately  notify the Company in
writing of such  disposition.  The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation  income  recognized
from such  early  disposition  of ISO  Shares by  payment  in cash or out of the
current earnings paid to the Optionee.


                                       -3-


<PAGE>



     By your signature and the signature of the Company's  representative below,
you and the Company  agree that this Option is granted under and governed by the
terms  and  conditions  of the Plan  and this  Option  Agreement.  Optionee  has
reviewed  the Plan and  this  Option  Agreement  in their  entirety,  has had an
opportunity  to obtain the  advice of counsel  prior to  executing  this  Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding,  conclusive and final all decisions
or  interpretations of the Administrator upon any questions relating to the Plan
and Option  Agreement.  Optionee  further  agrees to notify the Company upon any
change in the residence address indicated below.

OPTIONEE:                                  CYPRESS SEMICONDUCTOR
                                           CORPORATION



                                           By:
-----------------------------------           ----------------------------------
Signature

                                           Title:
-----------------------------------               ------------------------------
Print Name


-----------------------------------
Residence Address


-----------------------------------




                                CONSENT OF SPOUSE

     The  undersigned  spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option  Agreement.  In  consideration of the
Company's  granting his or her spouse the right to purchase  Shares as set forth
in the Plan and this  Option  Agreement,  the  undersigned  hereby  agrees to be
irrevocably  bound by the  terms  and  conditions  of the  Plan and this  Option
Agreement  and further  agrees that any  community  property  interest  shall be
similarly bound.  The undersigned  hereby appoints the  undersigned's  spouse as
attorney-in-fact  for the undersigned  with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.


                                             -----------------------------------
                                             Spouse of Optionee



                                       -4-


<PAGE>



                                    EXHIBIT A

                        CYPRESS SEMICONDUCTOR CORPORATION

                             1994 STOCK OPTION PLAN

                                 EXERCISE NOTICE




Cypress Semiconductor Corporation
3901 North First Street
San Jose, CA  95134
Attention:  Secretary

     1. Exercise of Option. Effective as of today, ________________,  199__, the
undersigned  ("Purchaser") hereby elects to purchase  ______________ shares (the
"Shares")  of  the  Common  Stock  of  Cypress  Semiconductor  Corporation  (the
"Company") under and pursuant to the 1994 Stock Option Plan (the "Plan") and the
Stock Option Agreement dated _________________,  19___ (the "Option Agreement").
The purchase price for the Shares shall be $______________________,  as required
by the Option Agreement.

     2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.

     3. Representations of Purchaser.  Purchaser acknowledges that Purchaser has
received,  read and understood  the Plan and the Option  Agreement and agrees to
abide by and be bound by their terms and conditions.

     4.  Rights  as  Shareholder.  Until  the  issuance  (as  evidenced  by  the
appropriate  entry on the books of the Company or of a duly authorized  transfer
agent of the Company) of the stock certificate  evidencing such Shares, no right
to vote or receive  dividends or any other rights as a  shareholder  shall exist
with respect to the Optioned Stock,  notwithstanding the exercise of the Option.
A share  certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment will
be made for a dividend  or other right for which the record date is prior to the
date the stock  certificate  is issued,  except as provided in Section 14 of the
Plan.

     5. Tax  Consultation.  Purchaser  understands  that  Purchaser  may  suffer
adverse tax  consequences as a result of Purchaser's  purchase or disposition of
the Shares.  Purchaser  represents  that  Purchaser has  consulted  with any tax
consultants  Purchaser  deems  advisable  in  connection  with the  purchase  or
disposition  of the Shares and that  Purchaser is not relying on the Company for
any tax advice.



<PAGE>


     6. Entire  Agreement;  Governing  Law.  The Plan and Option  Agreement  are
incorporated  herein  by  reference.  This  Agreement,  the Plan and the  Option
Agreement  constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Purchaser with
respect  to the  subject  matter  hereof,  and such  agreement  is  governed  by
California law except for that body of law pertaining to conflict of laws.


Submitted by:                               Accepted by:

PURCHASER:                                  CYPRESS SEMICONDUCTOR
                                            CORPORATION


                                            By:
------------------------------------              ------------------------------
Signature

                                            Its:
------------------------------------              ------------------------------
Print Name


Address:                                    Address:

------------------------------------
                                            3901 North First Street
------------------------------------        San Jose, CA  95134




                                       -2-




                                                                    Exhibit 21.1

                              List of Subsidiaries


                                                           Jurisdiction of
Name                                                       Incorporation
-------                                                    ------------------

Cypress Semiconductor (Minnesota) Inc. (CMI) ..........       Delaware
Cypress Semiconductor (Texas) Inc. (CTI) ..............       Delaware
Cypress Semiconductor Round Rock, Inc. ................       Delaware
Cypress Export, Inc. ..................................       Barbados
Cypress Investment Corporation ........................       Delaware
Cypress Semiconductor International, Inc. .............       Delaware
Cypress Semiconductor SARL ............................       France
Cypress Semiconductor GmbH ............................       Germany
Cypress Semiconductor India Private Limited ...........       India
Cypress Semiconductor Italia S.r.l. ...................       Italy
Cypress Semiconductor K.K. ............................       Japan
Cypress Semiconductor AB ..............................       Scandinavia
Cypress Semiconductor Limited .........................       UK
Cypress Semiconductor Singapore Pte. Ltd ..............       Singapore
Cypress Semiconductor Canada ..........................       Canada
Cypress Semiconductor Korea ...........................       Korea
Cypress Semiconductor Philippines Inc. (CSPI) .........       Philippines
Cyland Corporation ....................................       Philippines
Cypress Semiconductor (Thailand) Co., Ltd. ............       Thailand
Cypress Semiconductor World Trade Corporation .........       Cayman Islands
IC WORKS, Inc .........................................       California
Anchor Chips, Inc .....................................       Delaware
Cypress Microsystems, Inc. ............................       Delaware






                                                                    EXHIBIT 23.1

                       CONSENT OF INDEPENDENT ACCOUNTANTS

We  hereby  consent  to the  incorporation  by  reference  in  the  Registration
Statement on Form S-3 (No.  333-95711)  and in the  Registration  Statements  on
Forms S-8 (No. 333-76667, 333-76665, 333-93719, 333-93839, 333-79997, 333-68703,
333-52035, 333-24831, 333-00535, 033-59153) of Cypress Semiconductor Corporation
of our report dated January 26, 2000 relating to the  financial  statements  and
financial statement schedules, which appears in this Form 10-K.



/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP

San Jose, California
March 8, 2000






<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>      
This  schedule  contains  summary  financial   information  extracted  from  the
consolidated  financial  statements  for the year  ended  January 2, 2000 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>   1,000
       
<S>                                         <C>
<PERIOD-TYPE>                               YEAR
<FISCAL-YEAR-END>                           JAN-02-2000
<PERIOD-START>                              JAN-04-1999
<PERIOD-END>                                JAN-02-2000
<CASH>                                      155,011
<SECURITIES>                                115,545
<RECEIVABLES>                               100,114
<ALLOWANCES>                                2,984
<INVENTORY>                                 89,432
<CURRENT-ASSETS>                            537,395
<PP&E>                                      357,183
<DEPRECIATION>                              500,652
<TOTAL-ASSETS>                              1,117,224
<CURRENT-LIABILITIES>                       192,765
<BONDS>                                     160,000
<PREFERRED-MANDATORY>                       0
<PREFERRED>                                 0
<COMMON>                                    1,155
<OTHER-SE>                                  696,820
<TOTAL-LIABILITY-AND-EQUITY>                697,975
<SALES>                                     705,487
<TOTAL-REVENUES>                            705,487
<CGS>                                       383,639
<TOTAL-COSTS>                               383,639
<OTHER-EXPENSES>                            129,331
<LOSS-PROVISION>                            0
<INTEREST-EXPENSE>                          9,617
<INCOME-PRETAX>                             95,871
<INCOME-TAX>                                4,817
<INCOME-CONTINUING>                         91,054
<DISCONTINUED>                              0
<EXTRAORDINARY>                             0
<CHANGES>                                   0
<NET-INCOME>                                91,054
<EPS-BASIC>                                 0.87
<EPS-DILUTED>                               0.81

        

</TABLE>