<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NATIONAL SEMICONDUCTOR CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
[LOGO]
NATIONAL SEMICONDUCTOR CORPORATION
2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090
SANTA CLARA, CALIFORNIA 95052-8090
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 26, 1997
NOTICE is hereby given that the Annual Meeting of Stockholders of NATIONAL
SEMICONDUCTOR CORPORATION, a Delaware corporation (the "Company"), will be held
at 10:00 A.M., California time, on September 26, 1997, in the Grand Ballroom of
the Sofitel Hotel, 223 Twin Dolphin Drive, Redwood City, California, for the
following purposes:
1.To elect a Board of eight Directors;
2.To approve amendments to the Director Stock Plan;
3.To approve the adoption of the Director Stock Option Plan; and
4.To transact such other business as may properly come before such meeting
or any adjournments thereof.
The record date for the meeting is the close of business on August 1, 1997
and only the holders of Common Stock of the Company on that date will be
entitled to vote at such meeting or any adjournment thereof.
By Order of the Board of Directors
[SIG]
JOHN M. CLARK III
SECRETARY
August 15, 1997
PLEASE RETURN YOUR SIGNED PROXY
PLEASE COMPLETE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. THIS
WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING. IT WILL, HOWEVER,
HELP ASSURE A QUORUM AND AVOID ADDED PROXY SOLICITATION COSTS.
<PAGE>
[LOGO]
NATIONAL SEMICONDUCTOR CORPORATION
2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090
SANTA CLARA, CALIFORNIA 95052-8090
PROXY STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 26, 1997
SOLICITATION OF PROXY AND REVOCABILITY
This Proxy Statement is furnished to stockholders of NATIONAL SEMICONDUCTOR
CORPORATION (the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies to be used at the 1997 Annual Meeting of
Stockholders of the Company to be held on September 26, 1997 or any adjournments
thereof. Proxies in the form enclosed, which are properly executed by
stockholders, returned to management, and not revoked, will be voted at such
meeting and, where specification is made on the ballot, will be so voted.
Proxies received without specification, unless revoked, will be voted for
management's proposals.
Any person giving a proxy in the form accompanying this statement has the
power to revoke it at any time prior to its exercise. A proxy may be revoked by
filing with the Secretary of the Company an instrument of revocation or a duly
executed proxy bearing a later date. It may also be revoked by attendance at the
meeting and the election to vote in person.
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the
proxies, and any additional material which may be furnished to stockholders.
Copies of solicitation material will be furnished to brokerage houses,
fiduciaries, and custodians to forward to beneficial owners of stock held in
their names. Proxies may be solicited by directors, officers, or regular
employees of the Company in person or by telephone or telegraph. The Company has
retained Corporate Investor Communications, Inc., 111 Commerce Rd., Carlstadt,
New Jersey 07072-2586 to assist in the solicitation of proxies from brokers and
nominees for a fee of approximately $6,500 plus out-of-pocket expenses, and
Boston EquiServe, L.P., P.O. Box 1628, Boston, Massachusetts 02105-9903 to
assist in the counting of proxies for a fee of approximately $3,850 plus
out-of-pocket expenses. August 15, 1997 is the approximate date this Proxy
Statement and accompanying proxy first will be sent to stockholders of the
Company.
<PAGE>
ELECTION OF DIRECTORS
It is recommended that the Board of Directors for the ensuing year consist
of the eight directors who presently constitute the Board. Directors elected at
the meeting will be elected to serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualified. If any nominee
is unable or declines to serve as a director at the time of the Annual Meeting,
proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or unwilling to serve as a director.
The following table indicates the age, principal occupation or employment of
each nominee and the year in which each nominee became a director of the
Company.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS AGE(1) SINCE
- ------------------------------ -------------------------------------------------- ------ ---------
<S> <C> <C> <C>
Brian L. Halla................ Chairman of the Board, President and Chief 50 1996
Executive Officer of the Company(2)
Gary P. Arnold................ Chairman, President and Chief Executive Officer of 55 1989
Analogy, Inc.(3)
Robert Beshar................. Attorney -- self-employed 69 1972
Modesto A. Maidique........... President, Florida International University(4) 57 1993
Edward R. McCracken........... Chairman and Chief Executive Officer of Silicon 53 1995
Graphics, Inc.(5)
J. Tracy O'Rourke............. Chairman and Chief Executive Officer of Varian 62 1992
Associates, Inc.(6)
Charles E. Sporck............. Retired(7) 69 1967
Donald E. Weeden.............. Chairman of the Board of Weeden Securities 66 1962
Corporation(8)
</TABLE>
- ------------------------
(1) Age is at May 25, 1997, the last day of the Company's fiscal year.
(2) Mr. Halla joined the Company in May 1996. Prior to joining the Company, he
was Executive Vice President of LSI Logic Products at LSI Logic Corporation
and held positions at LSI Logic Corporation as Senior Vice President and
General Manager, Microprocessor/DSP Products Group and Vice President and
General Manager, Microprocessor Products Group.
(3) Mr. Arnold was Vice President and Chief Financial Officer of Tektronix, Inc.
until October, 1992. Mr. Arnold also served as Vice President, Finance and
Chief Financial Officer of the Company from 1983 to 1990. Mr. Arnold is a
director of Analogy, Inc.
(4) Dr. Maidique is a director of Carnival Corporation.
(5) Mr. McCracken is a director of Silicon Graphics, Inc. and Minnesota Mining
and Manufacturing Company.
(6) Mr. O'Rourke is a director of Varian Associates, Inc. and NextLevel Systems,
Inc.
(7) Mr. Sporck was the President and Chief Executive and Operating Officer of
the Company until retirement in June 1991. Mr. Sporck is a director of
Analogy, Inc.
2
<PAGE>
(8) Mr. Weeden retired as Chief Executive of Weeden & Co., L.P., security
dealers in April 1995. Mr. Weeden is a director of UAS Automation Systems,
Inc. and JMC Group Inc.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During fiscal year 1997, the Board of Directors held seven meetings and
acted twice by consent without a meeting. All nominees for director attended
more than 75% of the aggregate number of meetings of the Board and committees of
the Board on which they served during the year.
During fiscal 1997, the Audit Committee of the Board met four times. This
committee has the responsibility to review and approve the scope of the annual
audit; to recommend to the Board the appointment of the independent public
accountants; to interview the independent public accountants for review and
analysis of the Company's financial staff, systems, and adequacy of controls;
and to review any non-audit services of the independent public accountants.
Current members of the Audit Committee are Messrs. Arnold, Beshar, McCracken and
Weeden.
The Stock Option and Compensation Committee of the Board, which held eight
meetings and acted once by consent without a meeting during fiscal 1997, has the
responsibility for administering the Company's various stock option plans,
reviewing and evaluating the Company's compensation programs and plans, and
establishing and administering the compensation policy and executive pay
programs of the Company for the Company's executive officers, including setting
compensation, base salary, bonuses and other incentive awards. This committee
also has the responsibility to make recommendations to the Board concerning
amendments to the stock option plans and certain other compensation plans and,
in certain instances, to make amendments to such plans. The current members of
this committee are Messrs. Maidique, O'Rourke and Weeden.
The Director Affairs Committee of the Board, which held four meetings during
fiscal 1997, has the responsibility to make recommendations to the Board on
nominees to be designated by the Board for election as directors, and to review
and make recommendations to the Board concerning corporate governance policies
and procedures. The members of this committee are Messrs. Arnold, Beshar,
Maidique, O'Rourke and Sporck. Any stockholder who wishes to recommend a
prospective nominee for the Board for the Director Affairs Committee's
consideration may write: Brian L. Halla, Chairman, President and CEO, National
Semiconductor Corporation, 1090 Kifer Road, M/S 16-100, Sunnyvale, California
94086-3737.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the current members of the Stock Option and Compensation
Committee are Messrs. Maidique, O'Rourke and Weeden. The members of the Stock
Option and Compensation Committee do not have any compensation committee
interlocks or insider participation and there are no other interlocks or insider
participation to report.
DIRECTOR COMPENSATION
Each non-employee director receives an annual fee of $20,000, $1,000 for
each Board meeting attended, and $1,000 for each committee meeting attended.
Committee chairmen receive an additional annual chairman's fee of $5,000. In
addition, each director is reimbursed for expenses incurred in connection with
these meetings. During fiscal 1997, Mr. Beshar also received an additional fee
of $12,000 for legal services provided to the Board.
3
<PAGE>
Under the Director Stock Plan, non-employee directors automatically receive
1,000 shares of the Company's Common Stock (i) upon their date of appointment to
the Board; and (ii) on the date of each subsequent reelection to the Board by
the stockholders. During fiscal 1997, non-employee directors each were issued
1,000 shares of the Company's Common Stock on September 27, 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10 percent of the Company's Common Stock are
subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, which require them to file reports with respect to their
ownership of and transactions in the Company's securities, and furnish the
Company copies of all such reports they file. Based upon the copies of those
reports furnished to the Company, and written representations that no other
reports were required to be filed, the Company believes that all reporting
requirements under Section 16(a) for the fiscal year ended May 25, 1997 were met
in a timely manner by its executive officers, Board members and greater than 10
percent stockholders, with the exception of the late filing by Mr. Weeden, a
director of the Company, of one Form 4 reporting the acquisition of Common Stock
of the Company and the late filing by Mr. Sporck, a director of the Company, of
one Form 4 reporting the disposition of the Common Stock of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES NAMED HEREIN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
WILL BE VOTED FOR THE ELECTION AS DIRECTORS OF SUCH NOMINEES. IN ORDER TO BE
ELECTED, A NOMINEE FOR DIRECTOR MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF AT
LEAST A MAJORITY OF THE SHARES PRESENT AND ENTITLED TO VOTE.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock (its only class of equity securities outstanding) as of June 22,
1997 by each director and nominee, the individuals named in the Summary
Compensation Table, and all directors and executive officers as a group:
COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ---------------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Brian L. Halla........................................................ 1,177,527(1) *
Gary P. Arnold........................................................ 5,000 *
Robert Beshar......................................................... 140,260(2) *
Modesto A. Maidique................................................... 4,000 *
Edward R. McCracken................................................... 38,000 *
J. Tracy O'Rourke..................................................... 5,500 *
Charles E. Sporck..................................................... 91,847 *
Donald E. Weeden...................................................... 8,500(3) *
Patrick J. Brockett................................................... 43,383(4) *
Donald Macleod........................................................ 129,728(5) *
Douglas M. McBurnie................................................... 56,635(6) *
Robert M. Penn........................................................ 41,659(7) *
Kirk P. Pond.......................................................... 170,186(8) *
All directors and executive officers as a group....................... 2,085,736(9) 1.43%
</TABLE>
- ------------------------
* Less than 1 percent
(1) Includes 150,000 shares of restricted stock held by Mr. Halla and 1,000,000
shares which Mr. Halla has the right to acquire within 60 days through the
exercise of stock options.
(2) Includes 24,510 shares owned by Mr. Beshar's adult children in respect of
which Mr. Beshar disclaims beneficial ownership.
(3) Includes 3,500 shares held by a trust of which Mr. Weeden is a beneficiary.
(4) Includes 258 shares held by a trust of which Mr. Brockett is a beneficiary
and 43,125 shares which Mr. Brockett has the right to acquire within 60 days
through the exercise of stock options.
(5) Includes 890 shares owned by a trust of which Mr. Macleod is a beneficiary
and 107,425 shares which Mr. Macleod has the right to acquire within 60 days
through the exercise of stock options.
(6) Includes 135 shares owned by a trust of which Mr. McBurnie is a beneficiary
and 56,500 shares which Mr. McBurnie has the right to acquire within 60 days
through the exercise of stock options.
(7) Includes 159 shares owned by a trust of which Mr. Penn is a beneficiary and
41,500 shares which Mr. Penn has the right to acquire within 60 days through
the exercise of stock options.
(8) Includes 3,000 shares owned by the estate of Mr. Pond's wife and 148,000
shares which Mr. Pond has the right to acquire within 60 days through the
exercise of stock options.
(9) Includes 434 shares owned by spouses, 3,000 shares owned by the estates of
deceased spouses, 24,510 shares owned by adult children in respect of which
beneficial ownership is disclaimed, 8,857 shares owned by trusts of which
the officer and/or director is a beneficiary and 1,518,425 shares which can
be acquired within 60 days through the exercise of stock options.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries, to or on
behalf of the Company's Chief Executive Officer, the Company's four other most
highly compensated executive officers during fiscal 1997, and one other
executive officer who is no longer with the Company (collectively hereinafter
referred to as the named executive officers) for the last three fiscal years
ended May 28, 1995, May 26, 1996 and May 25, 1997:
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS
----------------------------
ANNUAL COMPENSATION SECURITIES
---------------------------------- RESTRICTED UNDERLYING
NAME AND SALARY BONUS STOCK AWARDS OPTIONS
PRINCIPAL POSITION YEAR ($) ($)(2) ($) (#)(3)
- ------------------------------ ---- ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Brian L. Halla 1997 $ 632,500 $ 1,000,000 500,000
Chairman, President and 1996 40,000 $3,250,000(7) 500,000
CEO(6) 1995
Patrick J. Brockett 1997 322,289 255,000 100,000
Executive Vice President, 1996 299,241 99,128 27,000
Worldwide Sales, Marketing 1995 270,217 206,256 13,000
Donald Macleod 1997 316,440 370,000 100,000
Executive Vice President, 1996 289,419 97,502 13,000
Finance and Chief Financial 1995 267,236 206,256 13,000
Officer
Douglas M. McBurnie 1997 303,268 322,000 100,000
Senior Vice President and 1996 250,580 90,750 54,000
General Manager, 1995 208,468 147,000(9) 26,000
Communications and Consumer
Group(8)
Robert M. Penn 1997 276,889 330,000 100,000
Senior Vice President and 1996 228,964 78,402 24,000
General Manager, Analog Group 1995 186,709 95,000 6,000
Kirk P. Pond 1997 424,131 3,000,000(11) 100,000
President and CEO, Fairchild 1996 414,521 146,300 18,000
Semiconductor(10) 1995 400,009 350,000 20,000
<CAPTION>
PAYOUTS
------------- ALL OTHER
NAME AND LTIP PAYOUTS COMPENSATION
PRINCIPAL POSITION ($)(4) ($)(5)
- ------------------------------ ------------- ----------------
<S> <C> <C>
Brian L. Halla $ 25,858
Chairman, President and
CEO(6)
Patrick J. Brockett 23,273
Executive Vice President, $248,951 21,442
Worldwide Sales, Marketing 311,702 21,733
Donald Macleod 22,708
Executive Vice President, 248,951 20,708
Finance and Chief Financial 302,111 21,349
Officer
Douglas M. McBurnie 15,016
Senior Vice President and 12,963
General Manager, 14,113
Communications and Consumer
Group(8)
Robert M. Penn 13,555
Senior Vice President and 12,707
General Manager, Analog Group 13,458
Kirk P. Pond 770,407
President and CEO, Fairchild 311,190 34,292
Semiconductor(10) 407,610 35,081
</TABLE>
- ------------------------
(1) As to the columns omitted, the answer is none.
(2) Bonuses paid under the Company's Executive Officer Incentive Plan or the Key
Employee Incentive Plan, except as noted.
(3) Options granted under the Stock Option Plan. Excludes options and purchase
rights granted under the Employees Stock Purchase Plan.
6
<PAGE>
(4) LTIP Payouts are made under the Performance Award Plan, which had its first
payout at the end of fiscal 1995. Messrs. Halla, McBurnie and Penn were not
participants in the Performance Award Plan cycles that paid out at the end
of fiscal 1995 and 1996 and there was no payout at the end of fiscal 1997.
Awards are paid partly in cash and partly in stock and the payout amount
shown is a total of the fair market value of the stock on the payout date
plus the cash portion of the award. The Company has ceased to grant target
awards, which are expressed in Performance Award Plan units, under the
Performance Award Plan.
(5) Consists of the following:
(a) contributions and allocations to the Company's defined contribution
retirement plans:
<TABLE>
<CAPTION>
MR. HALLA MR. BROCKETT MR. MACLEOD MR. MCBURNIE MR. PENN MR. POND
----------- ------------ ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997....................... $ 25,164 $ 17,567 $ 16,976 $ 14,704 $ 13,269 $ 16,895
1996....................... 0 16,312 15,554 12,562 12,338 24,560
1995....................... 0 17,113 16,707 13,755 13,124 26,190
</TABLE>
(b) value of life insurance premiums paid by the Company for term life
insurance:
<TABLE>
<CAPTION>
MR. HALLA MR. BROCKETT MR. MACLEOD MR. MCBURNIE MR. PENN MR. POND
----------- ------------ ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997....................... $ 694 $ 5,706 $ 5,732 $ 312 $ 286 $ 10,758
1996....................... 0 5,130 5,154 401 369 9,732
1995....................... 0 4,620 4,642 358 334 8,891
</TABLE>
(c) For Mr. Pond only, includes $742,754 paid under his severance agreement.
(6) Mr. Halla joined the Company in May 1996.
(7) Value shown is based on the closing market price on date of grant. The total
number of shares of restricted stock held by Mr. Halla at the 1997 fiscal
year end was 150,000, valued at $4,200,000, based on the closing market
price on the last trading day of the fiscal year. 200,000 shares of
restricted stock were awarded in fiscal 1996 to Mr. Halla. The restrictions
on the restricted stock lapse in equal amounts of 50,000 shares over a
period of four years on each anniversary of the grant date, commencing May
3, 1997. Although the Company has never paid dividends on its common stock,
if any dividends are paid, they will be paid on the restricted stock.
(8) Mr. McBurnie left the Company in August 1997.
(9) Includes $50,000 paid to Mr. McBurnie as a sign-on bonus.
(10) Mr. Pond left the Company in March 1997 upon completion of the disposition
of the Fairchild Semiconductor ("Fairchild") organization.
(11) Bonuses paid under Mr. Pond's retention agreement. Excludes $461,138 in
bonus paid under the Company's Executive Officer Incentive Plan, liability
for which was assumed by Fairchild.
7
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options in fiscal 1997 to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
SHARES
UNDERLYING % OF TOTAL
OPTIONS OPTIONS GRANTED EXERCISE OR GRANT DATE
GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE ($)(4)
- -------------------------------------------- ----------- ----------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Brian L. Halla.............................. 500,000 6.81 $ 16.25 5-27-06 $ 4,965,188
Patrick J. Brockett......................... 100,000 1.36 15.50 7-9-06 879,935
Donald Macleod.............................. 100,000 1.36 15.50 7-9-06 879,935
Douglas M. McBurnie......................... 100,000 1.36 15.50 7-9-06 879,935
Robert M. Penn.............................. 100,000 1.36 15.50 7-9-06 879,935
Kirk P. Pond................................ 100,000 1.36 15.75 6-19-06 894,128
</TABLE>
- ------------------------
(1) Options granted under the Stock Option Plan during fiscal 1997. Options are
granted at fair market value at date of grant exercisable over the
optionee's period of service with the Company, measured from the grant date,
from six months to four years after the date of grant. Each option has a
maximum term of ten years and one day, subject to earlier termination in the
event of the optionee's termination of employment with the Company.
(2) A total of 7,343,045 options were granted to employees, including executive
officers, during fiscal 1997.
(3) The exercise price may be paid in cash, in shares of common stock valued at
fair market value on the exercise date or in a combination of cash and
stock. The Stock Option and Compensation Committee (the "Committee") permits
payment of all or part of applicable withholding taxes due upon exercise of
the option by withholding of shares, valued at the fair market value of the
Company's Common Stock on the date of exercise, otherwise issuable upon
exercise of the option.
(4) Represents grant date valuation computed under the Black-Scholes option
pricing model adapted for use in valuing stock options. The actual value, if
any, that may be realized will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so there can be no
assurance that the value realized will be at or near the value estimated by
the Black-Scholes model. Grant date values were determined based in part on
the following assumptions: risk free rate of return of 6.25%, no dividend
yield, time of exercise of ten years, discount for vesting restrictions of
0%-3% per year, and annualized volatility of 37.6% (based on historical
stock prices for five years preceding the grant date).
8
<PAGE>
OPTION EXERCISES
The following table provides information with respect to the named executive
officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FY-END (#) AT FY-END ($)(3)
VALUE ------------------- ------------------------
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(2) UNEXERCISABLE UNEXERCISABLE
- --------------------------------- --------------- ------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
Brian L. Halla................... 0 $ 0 1,000,000/0 $11,750,000/0
Patrick J. Brockett.............. 47,250 1,075,969 18,125/128,375 138,438/1,405,313
Donald Macleod................... 0 0 82,425/117,875 1,623,963/1,343,438
Douglas M. McBurnie.............. 0 0 26,500/153,500 193,500/1,570,000
Robert M. Penn................... 0 0 16,500/123,500 123,813/1,368,438
Kirk P. Pond..................... 50,000 1,192,750 174,000/0 2,010,250/0
</TABLE>
- ------------------------
(1) Excludes any shares that can be acquired under the Company's Employees Stock
Purchase Plan.
(2) Market value of the underlying shares based on the opening price of the
Company's Common Stock on the date of exercise less the exercise price.
(3) Represents the difference between $28.00, the market price of the Company's
Common Stock at fiscal year end, and the exercise price.
9
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has traditionally not used employment contracts for its
executive officers or entered into special compensatory plans or arrangements
for compensation of executive officers upon termination of employment or change
in control of the Company. Upon termination of employment, executive officers
are entitled to receive the same benefits as any other terminating employee,
including payment of accrued vacation. Executive officers whose employment is
terminated by the Company by reason of reduction-in-force have received under
Company practice salary and benefits for six months to one year after the date
of termination. In addition, the Company has a program to provide medical and
dental coverage for one retired director and certain other retired officers at
the vice president or higher level appointed by the Board, with the amounts paid
by the Company for coverage treated as income to the recipient.
The Board has adopted a retirement policy for members of the Board of
Directors providing for the payment of the annual director's fee (currently
$20,000 per year) for a period of one half of the number of years the director
served on the Board, with such payments limited to a maximum of twelve years.
One retired director is currently receiving payments under this policy. The
Company also has entered into a ten year consulting agreement with Peter J.
Sprague, who retired from the Board of Directors and his position as Chairman of
the Board in 1995 after thirty years of service, providing for the payment of
$250,000 per year. In conjunction with the adoption of the Director Stock Option
Plan discussed below, the Board terminated the retirement policy for all current
directors who have served for less than six years and all future directors.
In July 1996, the Company entered into a Retention Agreement with Kirk P.
Pond, which assigned to Mr. Pond full management responsibility for the
Company's logic and memory product lines, including the manufacturing operations
related thereto, which comprised a substantial portion of the Fairchild
organization. As amended during the fiscal year, the Retention Agreement
provided that compensation for this assignment was Mr. Pond's salary at the rate
of $418,000 per annum, a stock option for 100,000 shares, vesting for which was
accelerated upon completion of the Fairchild disposition, an incentive under the
Executive Officer Incentive Plan based on the cash flow generated by the logic
and memory business units, and an incentive based on the value received by the
Company upon the sale or other disposal of Fairchild. In addition, Mr. Pond
agreed to enter into a severance agreement providing for certain payments upon
completion of the Fairchild transaction and crediting of additional service
towards any payout on two cycles on the Performance Award Plan, the Company's
long term incentive plan then in effect. The incentives paid Mr. Pond under the
Retention Agreement totalled $3,461,138, $461,138 of which was paid by Fairchild
after the Fairchild transaction was completed, and amounts paid Mr. Pond under
the severance agreement totalled $724,754.
10
<PAGE>
STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee (the "Committee") of the Board
of Directors has furnished the following report on executive compensation:
COMPENSATION PHILOSOPHY
Under the supervision of the Committee, the Company has implemented
compensation policies, plans and programs designed to enhance the Company's
profitability and stockholder value by seeking to align the financial interests
of the Company's senior managers with those of its stockholders. As a general
rule, base salaries are set at levels competitive to the electronics industry as
a whole. Annual and long term incentive compensation are used to attract and
retain executive officers and other key employees and to motivate them to
perform to the full extent of their ability. Both types of incentive
compensation are variable and structured to encourage a continuing focus on
profitability and stockholder value.
Compensation for each of the officers identified in the proxy statement
("Named Officers"), as well as other individuals designated by the Board as
officers subject to Section 16 of the Securities and Exchange Act of 1934
("Executive Officers"), consists of a base salary and annual and long-term
incentive compensation. Base salaries are fixed to be competitive in the
electronics industry. Annual and long term incentive compensation is more
variable and closely tied to performance for the fiscal years in question. As a
general rule, incentives paid in the past are not considered in setting current
incentive targets or determining incentive amounts. More specific information on
each of these compensation elements follows.
SALARIES
It is the Committee's objective to fix base salaries at levels that are
competitive (what is perceived to be the middle of the range) to those paid to
senior executives with comparable qualifications, experience and
responsibilities at other companies in the electronics industry, including those
companies making up the semiconductor manufacturers in the peer group line of
the stock performance graph. The Committee believes that this is necessary to
attract and retain the executive talent required to lead the Company as the
Company competes with a large number of companies in the electronics industry,
including semiconductor manufacturers, for executive talent. At the end of each
fiscal year, each Executive Officer (excluding the President and CEO) is
reviewed by the President and CEO and, where applicable, his or her manager,
using the same review standards applied to all employees in the Company. The
review made in fiscal 1997 for performance in fiscal year 1996 covered results
achieved on specific performance objectives and evaluation of position
performance characteristics and peer, subordinate and internal customer
feedback. Specific performance objectives vary depending on the Executive
Officer's position and responsibilities (i.e., an operations manager may be
given an objective of achieving a certain profit target for the manager's
business unit while the chief financial officer may be given an objective of
implementing certain financial control systems). Position performance
characteristics reviewed in fiscal 1997 included technical/functional skills;
execution/productivity; customer focus/quality; communications/ interpersonal
skills; team participation; innovation/problem solving; leadership/employee
development; and other position-specific characteristics identified by the
appropriate manager, with each position performance characteristic weighted
equally. Peer, subordinate and internal customer feedback was also considered in
the review process. The CEO then made a recommendation to the Committee as to
salary, including salary increases, based on his judgment of the Executive
Officer's performance. The Committee reviewed independently these
recommendations and approved, with any modifications it deemed appropriate, the
annual salary, including salary increases, for
11
<PAGE>
the Executive Officers (other than the President and CEO). Industry, peer group
and national survey results were also considered in making salary determinations
to maintain parity of the Company's pay practices within the electronics
industry.
With respect to the salary for the President and CEO, the Committee did not
give a salary increase to Mr. Halla during fiscal 1997. Mr. Halla joined the
Company as President and CEO shortly before the end of fiscal 1996. The base
salary for Mr. Halla was set at that time at a competitive level for the
electronics industry. Since Mr. Halla was with the Company for less than four
weeks of the 1996 fiscal year, the Committee did not believe it appropriate to
grant a salary increase in fiscal 1997. The Committee expects to make a
performance assessment of Mr. Halla for fiscal 1997 and consider a salary
increase for him in fiscal 1998.
INCENTIVE COMPENSATION
EXECUTIVE OFFICER INCENTIVE PLAN
Annual incentive compensation for fiscal 1997 was awarded under the
Executive Officer Incentive Plan ("EOIP"). The EOIP, in which only Executive
Officers may participate, is modeled on the Company's Key Employee Incentive
Plan which has been in effect for several years and is still available for key
employees who are not Executive Officers of the Company. Under the EOIP,
incentive awards are calculated at the end of the fiscal year, with the amount
of the award based upon achievement of financial and other performance goals
based on business criteria specified in the EOIP. At the beginning of the fiscal
year, the Committee reviewed and approved, making such modifications as it
deemed necessary, the recommendations of Mr. Halla and the Company's finance
department for the financial and other performance goals and the specific
weights assigned to the performance goals. To foster teamwork, all EOIP
participants other than Mr. Pond were given the same financial performance goals
relating to profit before tax (exclusive of extraordinary items). In addition,
Mr. Halla and Mr. Macleod were given financial cash flow management goals. With
the exception of Mr. Pond, whose goals were solely financial relating to cash
flow from operations for which he was responsible, financial goals accounted for
50% of the total weight of each participant's goals. In contrast to prior years,
when all EOIP participants had the same strategic and management goals and
weightings, strategic and management goals for each participant and their
weightings varied, depending on the participant's position and areas of
responsibility. For example, division managers were given goals relating to the
number of products introduced by the division during the year and manufacturing
managers were given goals relating to improvements in process technology. This
was done to ensure accountability by the participant for the performance of the
participant's staff and operations. Mr. Halla's strategic goals were as follows:
progress on the Company's strategic imperatives relating to process technology,
time to market development methodology, and world class manufacturing (10%),
communication of new products and the Company's market position (10%),
completion of the Fairchild Semiconductor transaction (10%), increases in
employee retention (10%), and cost reductions (10%). Numerical measurements of
goal performance were also specified for each goal.
At the start of the fiscal year, the Committee also set target incentive
levels which established the expected value, as a percentage of base salary, of
an EOIP award at a performance rating of 100%. Those target incentive levels
were set for the Executive Officers at levels that would be expected to bring
total annual cash compensation (salary and EOIP award paid out at a 150%
performance rating) to the level that is perceived to be the top quarter of the
range for senior executives at electronics manufacturers in general (again, a
group that is considerably larger than the semiconductor manufacturers included
in the peer group line in the stock performance graph). Actual awards can range
from 0% to 200% of the target incentive. At
12
<PAGE>
the end of the fiscal year, the Committee reviewed the performance of each
Executive Officer against the assigned goals, and the results of this review
process were used by the Committee to determine the total performance score for
each Executive Officer.
The fiscal year 1997 EOIP performance rating was over 100% for each
Executive Officer. The performance rating on the profit before tax goals was
over 150%, and the rating on the cash flow goals was over 200%. The individual
awards for fiscal 1997 (which appear as "Bonus" in the Summary Compensation
table) were calculated by applying the target incentive level to the performance
rating of each participant. The Committee assessed Mr. Halla's performance
rating at 154%, resulting in an EOIP award for fiscal 1997 of $1,000,000. This
award exceeded the level of award guaranteed to Mr. Halla upon his joining the
Company in May 1996.
PERFORMANCE AWARD PLAN
The Performance Award Plan ("Performance Plan"), which was first adopted
during fiscal 1993, provides for the award of stock and/or cash based on
performance units assigned to participants at the start of Performance Plan
cycles running from three to five fiscal years and the achievement of
performance goals during that cycle. The Committee is responsible for the
administration of the Performance Plan. Although awards, expressed in a number
of performance units, were given in each year for fiscal 1993 through 1996, the
Committee chose not to make any target awards for fiscal 1997. The primary
purpose of this change was to bring compensation of the Company's Executive
Officers in line with the compensation of other senior management. In addition,
the Committee felt that the Performance Plan was not as effective as stock
options in linking executive renumeration to the performance of the stock and
stockholder interests. In prior years, the number of performance units assigned
to each Executive Officer had been based on a calculation of salary multiples
and a desired stock price, with the intention that a certain portion of the
compensation package should be paid in stock. Performance goals and triggering
performance goals were also set for each Performance Plan cycle. The triggering
performance goal would "trigger" the payout of the award if the goal was met in
either the third or fourth year of the five year Performance Plan cycle. At the
time awards were determined, the number of performance units actually received,
as a percentage of the target award, was calculated by the Company's actual
performance against the stated goals. No participant could receive more than
200% of the number of target award performance units.
The Committee has the sole power and discretion to pay Performance Plan
awards in Company Common Stock, or as a combination of stock and cash, with the
cash portion not to exceed 50% of the total award unless the Committee
determines, due to extenuating circumstances, that it is more appropriate to pay
awards entirely in cash. At the end of fiscal 1997, the triggering performance
goals set in fiscal 1995 for Cycle III of the Performance Plan, which were based
on cumulative average growth rate and average normalized return on equity, had
not been met and no award was paid. It is possible that Performance Plan awards
for Cycle III may be paid in the future.
STOCK OPTIONS
For many years, the Company has provided stock options as an incentive to
its executives and key employees to promote the growth and profitability of the
Company. Stock options have always been viewed as a major means to attract and
retain highly qualified executives and key personnel and have always been a
major component of the compensation package, consistent with practices
throughout the electronics and semiconductor industries.
13
<PAGE>
The Committee is responsible for the administration of the Company's stock
option programs. Option grants are made under the Stock Option Plan, as amended,
at the fair market price on date of grant and expire up to ten years and one day
after the date of the grant. The Committee believes stock options are a
competitive necessity in the electronics industry, particularly in the
semiconductor portion thereof.
Options are viewed as long term incentive compensation. As a general rule,
the Committee believes that a certain portion of the compensation package for
all Executive Officers, including the President and CEO, should be based on long
term incentives. In fiscal 1997, the Committee determined not to make target
awards under the Performance Plan and to focus long term incentives solely on
stock options. As noted in the discussion on the Performance Plan, SUPRA, the
Committee felt that options would more effectively focus the Executive Officers
on stock performance and align the interests of the Executive Officers with the
Company's stockholders. As a result, the Committee chose to make substantially
larger grants of options to Executive Officers than it had in the past few
years.
In fixing the grants of stock options to Executive Officers, including the
Named Officers other than the President and CEO, the Committee reviewed with the
President and CEO the recommended individual awards, taking into account the
respective scope of accountability, strategic and operational goals, anticipated
performance requirements and contributions of each Executive officer. With
respect to the option granted to the President and CEO during fiscal 1997, the
Committee granted Mr. Halla an option for 500,000 shares, which is the maximum
number of shares that may be granted during a fiscal year to any one individual
under the Company's Stock Option Plan. This option grant had been part of the
compensation package made available to Mr. Halla as an incentive for him to join
the Company in May 1996.
CEO COMPENSATION
As noted above, Mr. Halla joined the Company near the end of fiscal 1996.
The compensation package made available to Mr. Halla was heavily weighted in
stock and stock options in an effort to align his interests with those of the
Company's stockholders and to compensate him for the significant value in
unvested stock options granted by his prior employer forfeited by him in order
to join the Company. In addition to a base salary viewed as competitive by the
Committee, Mr. Halla was guaranteed an EOIP award for fiscal 1997 at a 100%
target incentive level, granted an option for 500,000 shares in both fiscal 1996
and 1997, and awarded in 1996 a special one-time grant of 200,000 shares of
restricted stock. The restrictions on the restricted stock expire in four equal
annual installments, and the restricted stock award to Mr. Halla is shown for
1996 in the Summary Compensation Table.
PACKAGE MADE AVAILABLE TO MR. POND
In July 1996, the Committee approved a Retention Agreement with Mr. Pond,
which assigned to Mr. Pond full management responsibility for the Company's
logic and memory product lines, including the manufacturing operations related
thereto, which comprised a substantial portion of the Fairchild Semiconductor
organization ("Fairchild"). Under the Retention Agreement, Mr. Pond agreed to
use his best efforts to sell or otherwise dispose of the Fairchild businesses
and their related assets on terms favorable to the Company. Compensation under
the Retention Agreement was an annual salary of $418,000, a stock option grant
of 100,000 shares, an EOIP incentive based on cash flows from the logic and
memory product lines (as noted in "Executive Officer Incentive Plan" SUPRA) and
an incentive based on the value received by the Company upon any sale or other
disposal of Fairchild. In addition, Mr. Pond agreed to enter into a negotiated
severance agreement providing for benefits upon termination of employment with
the Company, including termination upon the sale of Fairchild. The Committee
felt that it was necessary to enter into these
14
<PAGE>
arrangements with Mr. Pond to ensure he would exert his best efforts to achieve
maximum value for the Company in the disposition of Fairchild and continue to
manage Fairchild in a way that would not impair or limit its value. Upon
completion of the Fairchild transaction, in addition to the incentive due for
the closing of the transaction, Mr. Pond received under the severance agreement
a lump sum amount representing one year's salary, four weeks vacation, and an
incentive calculated at seventy percent (70%) of annual salary. In addition,
vesting of all options previously granted to Mr. Pond was accelerated and he was
given until June 1998 to exercise the options.
LIMITATION ON DEDUCTIBILITY OF CERTAIN COMPENSATION FOR FEDERAL INCOME TAX
PURPOSES
The Omnibus Budget Reconciliation Act of 1993 (the "1993 Act") precludes the
Company from taking a deduction for compensation in excess of $1 million for the
Named Officers. Certain performance-based compensation, however, is specifically
exempt from the deduction limit. The Committee believes that the EOIP, the Stock
Option Plan and the Performance Plan all qualify as performance-based
compensation under the regulations issued under the 1993 Act, allowing the
Company to deduct compensation paid to Executive Officers under these plans.
However, the restricted stock issued to Mr. Halla in fiscal 1996 is not
considered performance based, and, as such, to the extent that compensation from
salary and restricted stock together exceed $1,000,000, it is not deductible.
The Committee believes that this is justified because it was essential to
include the restricted stock in Mr. Halla's compensation package in order to
attract him to the Company.
The deductibility limitations in the 1993 Act also apply to certain of the
amounts paid Mr. Pond under the Retention and Severance Agreements discussed
above. Specifically, salary amounts, all amounts paid under the Severance
Agreement, and the incentive due upon the sale of Fairchild do not qualify as
performance-based compensation under regulations issued under the 1993 Act, and
may not be deductible to the extent the $1,000,000 amount is exceeded. The
Committee also believes this is justified because the Retention and Severance
Agreements were necessary to ensure Mr. Pond's best efforts to achieve maximum
value for the Fairchild businesses.
Submitted by members of the Stock Option and Compensation Committee:
J. Tracy O'Rourke -- Chairman
Modesto A. Maidique Donald E. Weeden
15
<PAGE>
AMENDMENT OF THE DIRECTOR STOCK PLAN
The Company's Director Stock Plan ("Director Plan") has been in effect since
1992. The Director Plan provides for the automatic issuance of the Company's
Common Stock to the Company's directors at certain specified times. The Director
Plan was first adopted by the Company's Board of Directors on August 20, 1992
and approved by the stockholders on October 30, 1992. The Company's Board of
Directors, subject to stockholder approval, has amended the Director Plan to
permit the directors to take their annual cash retainer fees in stock instead of
cash and to extend its termination date to June 26, 2007. The Company believes
that the amendments will permit directors further opportunities to increase
their ownership of Company stock, as well as promoting the recruiting and
retention of highly qualified individuals to serve as directors and
strengthening the commonality of interest between directors and stockholders.
The full text of the Director Plan as amended appears as Exhibit A hereto.
The principal features of the Director Plan are outlined below and should be
read in conjunction with Exhibit A.
DESCRIPTION OF THE DIRECTOR PLAN
The Director Plan authorizes the issuance of up to 200,000 shares of the
Company's $.50 par value Common Stock to eligible non-employee directors of the
Company. The Director Plan provides that stock is issued automatically to all
eligible directors as follows: (i) on the date of approval of the Director Plan
by the Company's stockholders in 1992, each eligible director was issued 1,000
shares of Common Stock; (ii) each person who becomes an eligible director after
the date of stockholder approval of the Director Plan is issued 1,000 shares of
Common Stock on the date of appointment to the Board; and (iii) each eligible
director is issued 1,000 shares of Common Stock on the date of each subsequent
election to the Board by the stockholders. As amended, the Director Plan would
permit directors to also make an irrevocable election at the time of initial
appointment to the Board and each subsequent election by the stockholders to
receive the full value of the director's annual cash retainer fees for Board
membership and Committee chairmanship in Common Stock. The number of shares to
be issued would be determined by dividing the retainer fee by the opening price
of the Common Stock on the New York Stock Exchange on the initial appointment
date or subsequent reelection by the stockholders, as applicable. As amended,
the Director Plan would permit directors making the election to receive more
than the 1,000 shares issued annually, although the number of additional shares
would depend on the stock price and the size of the retainer fee.
Common Stock issued under the Director Plan is restricted from sale,
assignment or other transfer for a period of six months from the date of
issuance. In the event any recipient ceases to act as a director prior to the
expiration of six months from the date of issuance, all rights in and to the
Common Stock issued under the Director Plan revert to the Company.
In the event of any change in the shares of the Company through the
declaration of a stock dividend or a stock split-up or through recapitalization
resulting in share split-ups, or combination or exchanges of shares, or
otherwise, the number of shares available for issuance under the Director Plan,
as well as the number of shares to be issued pursuant to the terms of the
Director Plan, will be proportionately adjusted.
The Director Plan is administered by the Board. The Board's construction and
interpretation of the terms and provisions of the Director Plan are final and
conclusive. Issuance of stock under the Director Plan and the amount, timing and
terms as to eligibility are specified by the terms of the Director Plan.
The Board may amend, modify, suspend or terminate the Director Plan for the
purpose of meeting or addressing any changes in legal requirements or any other
purpose permitted by law but may not amend the
16
<PAGE>
Director Plan more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act, or the rules
thereunder. Stockholder approval will be sought for Director Plan amendments if
it is determined to be required or advisable under Securities and Exchange
Commission or Internal Revenue Service Regulations, applicable stock exchange
rules, or other applicable laws or regulations.
The Company is required to record director compensation expense in
connection with the Director Plan.
SUMMARY OF BENEFITS UNDER THE DIRECTOR PLAN
The Director Plan is only available to directors who are not employees of
the Company. In fiscal 1997, each director received 1,000 shares of Common Stock
at the time of the stockholder's meeting in September 1996. If the amendments to
the Director Plan had been in effect in fiscal 1997, and each director had
elected to receive his annual retainer and chairman fees in stock, each eligible
director would also have received the following additional shares:
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE(1)
---------- ------------
<S> <C> <C>
Gary P. Arnold................................................................. 958 $ 19,998.25
Robert Beshar.................................................................. 958 $ 19,998.25
Modesto A. Maidique............................................................ 1197 $ 24,987.38
Edward R. McCracken............................................................ 1197 $ 24,987.38
J. Tracy O'Rourke.............................................................. 1197 $ 24,987.38
Charles E. Sporck.............................................................. 958 $ 19,998.25
Donald E. Weeden............................................................... 958 $ 19,998.25
</TABLE>
- ------------------------
(1) value is based on $20.875, the opening price of the Common Stock on the date
of the 1996 Annual Meeting of Stockholders. The value of any fractional
shares would be paid in cash. The total number of the additional shares that
might be issued and value of shares will vary depending on the price of the
Common Stock.
The Company believes the amendment to the Director Plan will result in
increased ownership of the Company's Common Stock by the directors and increased
commonality of interests by the directors with the Company's stockholders.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE DIRECTOR PLAN AS AMENDED.
AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES PRESENT AND ENTITLED TO
VOTE IS NECESSARY FOR APPROVAL.
17
<PAGE>
ADOPTION OF THE DIRECTOR STOCK OPTION PLAN
The Company's Board of Directors, subject to stockholder approval, has
adopted the National Semiconductor Corporation Director Stock Option Plan
("Option Plan") which provides for grants of stock options to non-employee
members of the Board of Directors of the Company. For several years, the Company
has provided stock options as an incentive to its executives and key employees
to promote the growth and profitability of the Company. The Company views stock
options as a major means to attract and retain highly qualified executives and
key personnel upon whose judgment, skill, and initiative the Company's success
is largely dependent. As with stock option plans maintained for employees, the
Company believes that the Option Plan will promote the recruiting and retention
of highly qualified individuals to serve as directors and will also strengthen
the commonality of interest between directors and stockholders.
The full text of the Option Plan appears as Exhibit B hereto. The principal
features of the Plan are outlined below and should be read in conjunction with
Exhibit B.
DESCRIPTION OF THE OPTION PLAN
The Option Plan authorizes the grant of options to purchase up to 1,000,000
shares of the Company's $0.50 par value Common Stock to eligible non-employee
directors of the Company. The Option Plan was initially adopted by the Company's
Board of Directors on June 26, 1997. As detailed more fully below, the Option
Plan provides for automatic grants of stock options at certain specified times.
No options can be granted under the Option Plan until it has been approved by
the Company's stockholders.
The Option Plan is administered by the Board. Although the Board's
construction and interpretation of the terms and provisions of the Option Plan
are final and conclusive, grants of options under the Option Plan and the amount
and nature of the awards to be granted are automatic and non-discretionary in
accordance with the terms of the Option Plan. The purchase price under each
option granted shall in no instance be less than 100% of the fair market value
of the Common Stock on the date of grant. Options may be granted only to
non-employee directors. Options granted are not transferable except by will or
the laws of descent and distribution, and during the lifetime of a person to
whom an option is granted, he alone may exercise it.
Options granted under the Option Plan are non-qualified or non-statutory
stock options and not incentive stock options as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"). The shares issued upon
the exercise of options granted may be previously unissued shares, reacquired
shares or shares bought on the market. The purchase price for all shares
purchased pursuant to options exercised must be either paid in full in cash, or
paid in full in Common Stock of the Company valued at fair market value on the
date of exercise or a combination of cash and Common Stock.
The Option Plan provides that options are granted automatically to all
eligible directors as follows: (i) on the date of adoption of the Option Plan by
the Company's stockholders, each eligible director will be granted an option to
purchase 10,000 shares of Common Stock; (ii) each person who becomes an eligible
director after the date of the adoption of the Option Plan is granted an option
to purchase 10,000 shares of Common Stock on the date of appointment to the
Board; and (iii) each eligible director is granted an additional option to
purchase 5,000 shares of Common Stock on the date of each subsequent election to
the Board by the stockholders.
The term of each option is ten years and one day and an option may not be
exercised under any circumstance, including death, unless the director has
remained as a director for six months following the option grant date. After the
six-month period, options granted under the Option Plan are fully exercisable.
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<PAGE>
Each option granted under the Option Plan is to be evidenced by a stock
option agreement between the Company and the director. In the event of any
change in the shares of the Company through the declaration of a stock dividend
or a stock split-up or through recapitalization resulting in share split-ups, or
combinations or exchanges of shares, or otherwise, the number of shares
available for grant of options, as well as the shares subject to any outstanding
option and the exercise price thereof, shall be appropriately adjusted.
Under the Option Plan, a director may, upon termination of his status as a
director for any reason other than retirement, permanent disability, or death,
exercise an option at any time within three months after such termination to the
extent such director was entitled to exercise the option at the date of
termination, but not after expiration of the option term. In the event of
termination of his status as director by retirement or permanent disability, the
option may be exercised in accordance with its terms at any time within five
years after the termination, but not after expiration of the option term. In the
event a director dies while still a director of the Company, the director's
legal representative may exercise the option in accordance with its terms and
conditions at any time within five years after the director's death, but not
after expiration of the option term. If the director dies during the three
months following termination for any reason other than retirement or permanent
disability, the director's legal representative may exercise the option at any
time within a period of one year after the director's death to the extent that
the director was entitled to exercise the option at date of death, but not after
expiration of the option term.
The Board may amend, modify or terminate the Option Plan for the purpose of
meeting or addressing any changes in legal requirements or any other purpose
permitted by law but may not amend provisions of the Option Plan relating to
terms of options or the formula for granting of options more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder. Stockholder approval will be
sought for Option Plan amendments if it is determined to be required or
advisable under Securities and Exchange Commission or Internal Revenue Service
Regulations, applicable stock exchange rules, or other applicable laws or
regulations.
TAX CONSEQUENCES OF THE OPTION PLAN
Options granted under the Option Plan are non-qualified or non-statutory
stock options and are not incentive stock options within the meaning of Section
422 of the Code ("non-qualified stock options").
A director will not be deemed to have received any compensation for Federal
income tax purposes upon the grant of a non-qualified stock option but will
realize taxable ordinary income at the time of exercise in the amount of the
excess, if any, of the fair market value of the Common Stock on the date of
exercise over the exercise price. The basis for determination of gain or loss
upon any subsequent disposition of shares acquired upon the exercise of a
non-qualified stock option will be the amount paid for such shares, plus any
ordinary income recognized as a result of the exercise of such option. If the
director holds such shares for the long term capital gain holding period
following the date taxable income is realized as a result of the exercise of the
option, any gain realized upon disposition will be taxed to the director as
long-term capital gain. If a director exercises a non-qualified stock option and
makes payment with shares of the Company's Common Stock, the director will not
recognize gain or loss for the number of shares equally exchanged at the time of
exercise. However, the additional shares transferred to the director will cause
him to realize, at the time of exercise, taxable ordinary income in an amount
equal to the fair market value of the additional shares transferred to him less
any cash paid by him. The Company will be entitled to a deduction for Federal
income tax purposes in an amount equal to the ordinary income, if any,
recognized by the director upon the exercise of the option. Although the Tax
Reform Act of 1986 eliminated the special long-term capital gain deduction
19
<PAGE>
so that the entire gain on disposition of stock acquired under the Option Plan
would be taxed at ordinary income tax rates, 1990 amendments to the Code have
made 28% the maximum tax rate applicable to net capital gains, and 1997
amendments to the Code reduce the maximum tax rate to 20%.
SUMMARY OF BENEFITS UNDER THE OPTION PLAN
The Option Plan is only available to directors who are not employees of the
Company. If the Option Plan had been in effect during fiscal 1997, each of
Messrs. Arnold, Beshar, Maidique, McCracken, O'Rourke, Sporck and Weeden would
have received an option for 10,000 shares each in September 1996 with an option
exercise price of $20.875. The options would have been fully exercisable in
March 1997.
The following table sets forth the number of options non-employee directors
will receive on September 26, 1997 if the Option Plan is approved:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS(1)
-------------------
<S> <C>
Gary P. Arnold...................................................................... 10,000
Robert Beshar....................................................................... 10,000
Modesto A. Maidique................................................................. 10,000
Edward R. McCracken................................................................. 10,000
J. Tracy O'Rourke................................................................... 10,000
Charles E. Sporck................................................................... 10,000
Donald E. Weeden.................................................................... 10,000
</TABLE>
- ------------------------
(1) Exercise price will be the opening price on the New York Stock Exchange on
September 26, 1997. Options will vest completely on March 26, 1998.
The Company believes that the addition of stock options to the non-employee
director compensation package will promote the recruiting and retention of
highly qualified individuals to serve as directors and will further strengthen
the commonality of interest between the directors and the Company's
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE DIRECTOR STOCK OPTION
PLAN. AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES PRESENT AND
ENTITLED TO VOTE IS NECESSARY FOR APPROVAL.
20
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Standard & Poor's 500 Stock Index and
Standard & Poor's Electronics (Semiconductors) Industry Index for the five years
ending May, 1997. The total stockholder return assumes $100 invested at the
beginning of the period in the Company's Common Stock, the Standard & Poor's 500
Stock Index and Standard & Poor's Electronics (Semiconductors) Industry Index.
It also assumes reinvestment of all dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG NSC,
S&P 500 INDEX AND S&P ELECTRONICS (SEMICONDUCTORS) INDUSTRY INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NSC PEER GROUP S&P 500
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 139.29 203.94 111.59
1994 184.52 235.26 116.35
1995 288.10 370.10 139.84
1996 154.76 413.55 179.61
1997 267.86 774.12 232.56
</TABLE>
- ------------------------
* $100 invested on 5/31/92 in stock or index, including reinvestment of
dividends.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this Proxy Statement,
in whole or in part, the preceding Stock Option and Compensation Committee
Report on Executive Compensation and the preceding Company Stock Price
Performance Graph shall not be incorporated by reference into any such filings;
nor shall such Report or Graph be incorporated by reference into any future
filings.
21
<PAGE>
OUTSTANDING CAPITAL STOCK, QUORUM AND VOTING
The Common Stock of the Company is its only class of voting Capital Stock.
The Company's Common Stock is traded on the New York Stock Exchange and the
Pacific Exchange. The record date for stockholders entitled to vote at the
meeting is the close of business on August 1, 1997. At the close of business on
that date, the Company had issued and outstanding 146,638,128 shares of Common
Stock, $.50 par value and the closing price of the Company's Common Stock as
reported in the Wall Street Journal composite transactions was $31.4375.
The following table sets forth the known ownership of more than 5% of the
Company's outstanding Common Stock as of June 22, 1997:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- -------------------------------------------------- --------------- -----------
<S> <C> <C>
The Equitable Companies Incorporated............ 8,340,186(1) 5.73
787 Seventh Avenue
New York, NY 10019
The Capital Group Companies, Inc................ 9,800,330(2) 6.73
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ------------------------
(1) Includes 8,220,486 shares of which The Equitable Companies Incorporated has
sole voting power, 5,800 shares of which The Equitables Companies
Incorporated has shared voting power, 8,339,686 shares of which The
Equitable Companies Incorporated has sole dispositive power, and 500 shares
of which The Equitable Companies Incorporated has shared dispositive power.
The information concerning shares owned is from a Schedule 13-G dated
February 12, 1997 filed jointly by The Equitable Companies Incorporated on
behalf of itself, AXA, a French company owning a majority interest in The
Equitable Companies Incorporated, and five French mutual insurance companies
collectively known as Mutuelles AXA, the owners of a majority interest in
AXA.
(2) The Capital Group Companies, Inc. disclaim beneficial ownership pursuant to
Rule 13d-4 of the Securities and Exchange Act of 1934 on the basis that the
shares are owned by accounts under discretionary investment management.
Includes 1,194,900 shares of which The Capital Group Companies, Inc. has
sole voting power and 9,800,330 shares of which The Capital Group Companies,
Inc. has sole dispositive power and 8,292,930 shares of which Capital
Research and Management Company, a subsidiary of The Capital Group
Companies, Inc., has sole dispositive power. The information concerning the
shares owned is from a Schedule 13-G dated February 12, 1997 filed jointly
by The Capital Group Companies, Inc. on behalf of itself and six investment
management companies, including Capital Research and Management Company,
owned by it.
-------------------
The presence, in person or by proxy, of the holders of a majority of the
issued and outstanding shares of the Common Stock of the Company is necessary to
constitute a quorum at the 1997 Annual Meeting of Stockholders. Each holder of
Common Stock is entitled to one vote for each share held. Unless authority to
vote for any director is withheld in the proxy, votes will be cast in favor of
election of all nominees. Proxies which withhold authority to vote as to
specific directors shall be deemed to cast votes for those directors not so
specified. If no vote is marked with respect to any matter, the shares will be
voted in accordance with the
22
<PAGE>
Board of Directors' recommendations. Abstentions and broker non-votes are
included in the determination of a quorum but neither abstentions nor broker
non-votes are counted in determining the number of shares voted on proposals
presented to stockholders.
INDEPENDENT AUDITORS
The Board has selected the accounting firm of KPMG Peat Marwick to continue
to serve as the Company's independent auditors for the fiscal year ending May
31, 1998. Management has not followed the practice of presenting the selection
of auditors to the stockholders for approval. A representative of KPMG Peat
Marwick is expected to attend this meeting and will be available to respond to
stockholders' questions or make a statement if he or she desires to do so.
Audit services provided by KPMG Peat Marwick in fiscal 1997 included the
examination of the Company's consolidated financial statements for the year
ended May 25, 1997, the review of various filings with the Securities and
Exchange Commission, and statutory audits of certain foreign subsidiaries.
The audit services provided to the Company by KPMG Peat Marwick were
approved by the Audit Committee of the Board prior to being rendered. Other
specific services were approved by officers of the Company after a determination
that none of such services would affect KPMG Peat Marwick's independence as
auditors of the Company's financial statements based upon guidelines previously
approved by the Audit Committee.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the proxy statement and
form of proxy to be used in connection with the 1998 Annual Meeting of
Stockholders of the Company, provided that such proposals are received in
writing by the Company no later than April 15, 1998, and provided that such
proposals are otherwise in compliance with applicable law and regulations.
ANNUAL REPORT
This Proxy Statement has been preceded or accompanied by the Annual Report
for the fiscal year ended May 25, 1997. Stockholders are referred to such report
for financial and other information about the activities of the Company, but
except for those pages specifically incorporated in this Proxy Statement, such
report is not to be deemed a part of the proxy soliciting material.
FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF
THIS PROXY STATEMENT IS DELIVERED, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION (NOT INCLUDING EXHIBITS TO THE FORM 10-K). WRITTEN REQUESTS
FOR SUCH COPIES SHOULD BE DIRECTED TO INVESTOR RELATIONS, MAIL STOP 10-397,
NATIONAL SEMICONDUCTOR CORPORATION, 2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090,
SANTA CLARA, CALIFORNIA 95052-8090.
INCORPORATION BY REFERENCE
According to the provisions of Schedule 14A under the Securities Exchange
Act of 1934, the following document or portion thereof is incorporated by
reference: "Executive Officers of the Registrant" from Part I of the Company's
Annual Report on Form 10-K for the fiscal year ended May 25, 1997.
23
<PAGE>
OTHER MATTERS
Management knows of no other matters which will be brought before the
meeting. If any such matters are properly brought before the meeting, however,
the persons named in the enclosed form of proxy will vote in accordance with
their best judgment.
Whether or not you plan to attend the meeting, please date, sign and return
the enclosed proxy at your earliest convenience in the enclosed postpaid
envelope.
[SIG]
JOHN M. CLARK III
SECRETARY
August 15, 1997
24
<PAGE>
EXHIBIT A
NATIONAL SEMICONDUCTOR CORPORATION
DIRECTOR STOCK PLAN
AS AMENDED THROUGH JUNE 26, 1997
1. PURPOSE
The purposes of the Director Stock Plan (the "Plan") of National
Semiconductor Corporation (the "Corporation") are to promote the recruiting and
retention of highly qualified individuals to serve in the capacity of
non-employee directors of the Corporation and to strengthen the commonality of
interest between directors and stockholders.
2. STOCK SUBJECT TO THE PLAN
200,000 shares of the Corporation's $.50 par value Common Stock shall be
available for issuance under the Plan, subject to adjustment as provided in
Paragraph 6, which may be unissued shares, reacquired shares, or shares bought
on the market.
3. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Corporation,
whose construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. The amount of the Common Stock to be issued under
the Plan, the timing of the issuance of the Common Stock under the Plan, and
terms as to eligibility shall be in accordance with the terms of the Plan.
4. ELIGIBILITY
Common Stock issued under this Plan may be issued only to directors of the
Corporation who are not employees of the Corporation or its subsidiaries or
affiliates and have not been such employees for at least one year prior to
becoming eligible to receive benefits under this Plan.
5. TERMS OF STOCK AWARDS
(a) Common Stock shall be issued automatically to all eligible directors as
follows: (i) on the date of the approval of the Plan by the holders of a
majority of the shares represented at a meeting of the Corporation's
stockholders duly called and held in accordance with the Corporation's by-laws
and applicable law, each eligible director shall be issued 1,000 shares of
Common Stock; (ii) each person who becomes an eligible director after the date
of stockholder approval of the Plan shall be issued 1,000 shares of Common Stock
on the date of the appointment of such person to the Board of Directors; and
(iii) each eligible director shall be issued 1,000 shares of Common Stock on the
date of each subsequent election of such director to the Board of Directors by
the stockholders.
(b) Common Stock shall be issued to each eligible director who elects within
ten (10) days after the date of (i) initial appointment to the Board of
Directors, or (ii) each subsequent election to the Board of Directors by
stockholders, to receive the full value of the director's annual cash retainer
fees for Board membership and Committee chairmanship in Common Stock. The number
of shares to be issued shall be determined by dividing the retainer fee by the
opening price of the Common Stock on the New York Stock Exchange on the date of
initial appointment or the subsequent reelection by the stockholders, as
applicable.
1
<PAGE>
If there is no trading on such day, the opening price of the Common Stock on the
New York Stock Exchange on the first previous trading date shall be used.
Fractional shares shall not be issued and the value of any fractional shares
shall be paid in cash.
(c) Common Stock issued under the Plan, whether pursuant to Paragraph 5(a)
or 5(b), shall be restricted from sale, assignment or other transfer for a
period of six months from the date of issuance. In the event any recipient shall
cease to act as a Director prior to expiration of six months from the date of
issuance, all rights in and to the Common Stock so issued shall be forfeited and
shall revert to the Company. All Common Stock acquired by the Company in this
manner shall be retired and cancelled promptly after the acquisition thereof.
All such shares shall upon such cancellation become available for reissuance
under the Plan.
(d) While the Plan is in effect, the Corporation at all times will keep
available the number of shares of stock required to satisfy the terms of the
Plan.
(e) The Corporation will seek to obtain from each regulatory commission or
agency having jurisdiction such authority as may be required to issue shares of
stock under the Plan. Inability of the Corporation to obtain from any such
regulatory commission or agency authority which counsel for the Corporation
deems necessary for the lawful issuance of its stock under the Plan shall
relieve the Corporation from any liability for failure to issue such stock until
such time when such authority is obtained or is obtainable.
(f) Nothing in this Plan shall confer on any participant any right to
continue as a director of the Corporation.
6. ADJUSTMENT IN NUMBER OF SHARES
In the event there is any change in the shares of the Corporation through
the declaration of stock dividends or a stock split-up, or through
recapitalization resulting in share split-ups, or combinations or exchanges of
shares, or otherwise, the number of shares available for issuance, as well as
the number of shares to be issued pursuant to the terms of Paragraph 5 (a),
shall be proportionately adjusted, provided that the number of shares issuable
at any one time to any one participant shall always be a whole number.
7. PAYMENT OF WITHHOLDING TAXES
The payment of all or part of any applicable withholding taxes due upon
issuance of stock under the Plan, up to the highest marginal rates then in
effect, shall be made by the withholding of shares otherwise issuable. Shares
withheld in payment of such taxes shall be valued at the fair market value of
the Corporation's Common Stock on the date of issuance of stock under the Plan.
8. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
(a) The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law; provided, however, that the Plan may not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act, or the rules thereunder. The Board will seek stockholder approval
of an amendment if determined to be required by or advisable under regulations
of the Securities and Exchange Commission or the Internal Revenue Service, the
rules of any stock exchange on which the Corporation's stock is listed or other
applicable law or regulation.
2
<PAGE>
(b) The Plan, unless sooner terminated, shall terminate on June 26, 2007. No
stock may be issued under the Plan until the Plan is approved by stockholders or
while the Plan is suspended or after it is terminated.
9. EFFECTIVE DATE
The Plan shall become effective on August 20, 1992, subject to approval by
the stockholders of the Corporation within twelve months after such date.
3
<PAGE>
EXHIBIT B
NATIONAL SEMICONDUCTOR CORPORATION
DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purposes of the Director Stock Option Plan (the "Plan") of National
Semiconductor Corporation (the "Corporation") are to promote the recruiting and
retention of highly qualified individuals to serve in the capacity of
non-employee members of the Board of Directors of the Corporation ("Directors")
and to strengthen the commonality of interest between Directors and
stockholders.
2. NON-QUALIFIED OPTIONS
It is intended that options to purchase shares of the Corporation's $.50 par
value common stock (the "Common Stock") granted under this Plan shall constitute
non-qualified or non-statutory stock options, and not incentive stock options
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended.
3. STOCK SUBJECT TO THE PLAN
There will be reserved for issue upon the exercise of options granted under
the Plan 1,000,000 shares of the Corporation's Common Stock, subject to
adjustment as provided in Paragraph 7, which may be unissued shares, reacquired
shares, or shares bought on the market. If any option which shall have been
granted shall expire or terminate for any reason without having been exercised
in full, the unpurchased shares shall again become available for the purposes of
the Plan (unless the Plan shall have been terminated).
4. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Corporation,
whose construction and interpretation of the terms and provisions of the Plan
shall be final and conclusive. Grants of options under the Plan and the amount
and nature of the awards to be granted shall be automatic and non-discretionary
in accordance with Paragraph 6.
5. ELIGIBILITY
Options may be granted only to non-employee Directors.
6. TERMS OF OPTION AND OPTION AGREEMENTS
Each option shall be evidenced by a written agreement in such form as the
Board of Directors shall from time to time approve, which agreements shall
comply with and be subject to all of the applicable following provisions:
(a) The purchase price under each option granted shall be 100% of fair
market value on the date of grant. The fair market value on the date of grant
shall be the opening price of the Common Stock on the New York Stock Exchange on
such date (or if there shall be no trading on such date, then on the first
previous date on which there was such trading).
(b) Options shall be granted automatically and without further action by the
Board of Directors to all eligible Directors as follows: (i) on the date of the
adoption of the Plan by the Corporation's stockholders,
1
<PAGE>
each eligible Director shall be granted an option to purchase 10,000 shares of
Common Stock; (ii) each person who becomes an eligible Director after the date
of adoption of the Plan shall be granted an option to purchase 10,000 shares of
Common Stock on the date of the appointment of such person to the Board of
Directors; and (iii) each eligible Director shall be granted an additional
option to purchase 5,000 shares of Common Stock on the date of each subsequent
election of such person to the Board of Directors by the stockholders.
(c) The term of the non-qualified stock options granted under this Plan
shall be ten years and one day from the date the option was granted.
(d) Options shall become fully exercisable six months after the date of
grant.
(e) An option may not be exercised to any extent, either by the person to
whom it was granted, or by any person after his death, unless the person to whom
the option was granted has remained as a Director of the Corporation for not
less than six months from the date when the option was granted.
(f) The Corporation, during the terms of options granted under the Plan, at
all times will keep available the number of shares of stock required to satisfy
such options.
(g) The Corporation will seek to obtain from each regulatory commission or
agency having jurisdiction such authority as may be required to issue and sell
shares of stock to satisfy such options. Inability of the Corporation to obtain
from any such regulatory commission or agency authority which counsel for the
Corporation deems necessary for the lawful issuance and sale of its stock to
satisfy such options shall relieve the Corporation from any liability for
failure to issue and sell stock to satisfy such options pending the time when
such authority is obtained or is obtainable.
(h) Neither a person to whom an option is granted nor his legal
representative, heir, legatee, or distributee, shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such option unless and until he has exercised his option pursuant to the
terms thereof.
(i) An option shall not be transferable except by will or by the laws of
descent and distribution, and during the lifetime of the person to whom the
option is granted he alone may exercise it.
(j) An option shall terminate and may not be exercised if the person to whom
it is granted ceases to be a Director of the Corporation, except (subject
nevertheless to the last sentence of this subparagraph (j)): (1) if his status
as a Director is terminated for any reason other than (i) retirement, (ii)
permanent disability, or (iii) death, he may exercise his option to the extent
that he was entitled to exercise such option at the date of such termination at
any time within a period of three (3) months following the date of such
termination, or if he shall die within the period of three (3) months following
the date of such termination without having exercised such option, his option
may be exercised within a period of one year following his death by the person
or persons to whom his rights under the option pass by will or by the laws of
descent or distribution but only to the extent exercisable at the date of such
termination; or (2) if his status as a Director is terminated by (i) retirement,
(ii) permanent disability, or (iii) death, his option may be exercised in
accordance with its terms and conditions at any time within a period of five (5)
years following the date of such termination by him, or in the event of his
death, by the persons to whom his rights under the option shall pass by will or
by the laws of descent or distribution. Nothing contained in this subparagraph
(j) is intended to extend the stated term of the option and in no event may an
option be exercised by anyone after the expiration of its stated term.
2
<PAGE>
(k) Nothing in this Plan or in any option granted hereunder shall confer on
any optionee any right to continue as a Director of the Corporation.
(l) If an option agreement is not executed by the optionee and returned to
the Corporation on or prior to ninety (90) days after the date the option is
granted, such option shall terminate.
(m) The following definitions shall apply for purposes of this Plan:
(1) "retirement": termination as a Director after reaching age
sixty-five (65) or after reaching age fifty-five (55) and the optionee's age
plus years of service as a Director is sixty-five (65) or more;
(2) "permanent disability": a permanent and total incapacity to perform
any services as a Director.
7. ADJUSTMENT IN NUMBER OF SHARES AND IN OPTION PRICE
In the event there is any change in the shares of the Corporation through
the declaration of stock dividends or a stock split-up, or through
recapitalization resulting in share split-ups, or combinations or exchanges of
shares, or otherwise, the number of shares available for option, as well as the
shares subject to any option and the option price thereof, shall be
appropriately adjusted, provided that the number of shares subject to any option
shall always be a whole number.
8. PAYMENT OF PURCHASE PRICE AND WITHHOLDING TAXES
(a) The purchase price for all shares purchased pursuant to options
exercised must be either paid in full in cash, or paid in full in Common Stock
of the Corporation and valued at fair market value on the date of exercise or a
combination of cash and Common Stock. Fair market value on the date of exercise
is the opening price of the Common Stock on the New York Stock Exchange on such
date, or if there shall be no trading on such date, then on the first previous
date on which there was such trading.
(b) All or part of required withholding taxes that may be due upon the
exercise of an option, up to the highest marginal rates then in effect, may be
paid by the withholding of shares otherwise issuable upon exercise of the
option. Option shares withheld in payment of such taxes shall be valued at the
fair market value of the Corporation's Common Stock on the date of exercise as
defined herein.
9. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
(a) The Board may amend, modify, suspend or terminate the Plan for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law; provided, however, that the provisions of
Paragraphs 5, 6(a), 6(b), 6(c), 6(d), 6(e) and 6(j) of the Plan may not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act, or the rules thereunder. The Board will seek stockholder approval
of an amendment if determined to be required by or advisable under regulations
of the Securities and Exchange Commission or the Internal Revenue Service, the
rules of any stock exchange on which the Corporation's stock is listed or other
applicable law or regulation.
(b) The Plan shall continue in effect unless sooner terminated. An option
may not be granted while the Plan is suspended or after it is terminated.
3
<PAGE>
(c) Subject to the limitations of Paragraph 9, the rights and obligations
under any options granted while the Plan is in effect shall not be altered or
impaired by amendment, suspension or termination of the Plan, except with the
consent of the person to whom the option was granted or to whom rights under an
option shall have passed by will or by the laws of descent and distribution.
10. EFFECTIVE DATE
The Plan shall become effective on June 26, 1997, subject to approval by the
stockholders of the Corporation within twelve months after such date. No option
shall be granted under the Plan until the Plan has been approved by the
stockholders of the Corporation.
4
<PAGE>
PROXY NATIONAL SEMICONDUCTOR CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1997 ANNUAL MEETING OF STOCKHOLDERS, SEPTEMBER 26, 1997
The undersigned acknowledges receipt of (a) Notice of 1997 Annual Meeting
of the Stockholders of the Company to be held on September 26, 1997, (b)
accompanying Proxy Statement, and (c) Annual Report of the Company for its
fiscal year ended May 25, 1997. Brian L. Halla and John M. Clark III, or
either of them, with power of substitution and revocation, are hereby
appointed Proxies of the undersigned to vote all stock of National
Semiconductor Corporation (the "Company") which the undersigned is entitled
to vote at the 1997 Annual Meeting of Stockholders to be held in the Grand
Ballroom of the Sofitel Hotel, 223 Twin Dolphin Drive, Redwood City,
California on September 26, 1997 or any adjournment thereof, with all powers
which the undersigned would possess if personally present, upon such
business as may properly come before the meeting or any adjournment thereof.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A FOR VOTE ON EACH ITEM AND
SHARES WILL BE SO VOTED UNLESS OTHERWISE DIRECTED.
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE SEE REVERSE
SIDE
<PAGE>
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. ELECTION OF DIRECTORS. NOMINEES:
Brian L. Halla, Gary P. Arnold,
Robert Beshar, Modesto A. Maidique,
Edward R. McCracken, J. Tracy
O'Rourke, Charles E. Sporck, Donald
E. Weeden.
FOR WITHHELD
/ / / /
- ------------------------------------------------------------
Instruction: to withhold authority to vote for any individual
nominee, write that nominee's name in the space provided above.
2. To approve amendments to the Director Stock Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve the adoption of the Director Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED IN FAVOR OF EACH PROPOSAL.
IN THEIR DISCRETION THE PROXIES ARE MARK HERE
AUTHORIZED TO VOTE ON SUCH OTHER FOR ADDRESS / /
MATTERS AS MAY PROPERLY COME BEFORE CHANGE AND
THE MEETING OR ANY ADJOURNMENT NOTE AT LEFT
THEREOF.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS. IF ACTING AS
ATTORNEY, EXECUTOR, TRUSTEE OR IN REPRESENTATIVE
CAPACITY, SIGN NAME AND TITLE.
Signature: Date
------------------------------------ ----------------
Signature: Date
------------------------------------ ----------------
