<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NATURAL MICROSYSTEMS CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________
(3) Filing Party:
________________________________________________________________________
(4) Date Filed:
________________________________________________________________________
<PAGE>
PRELIMINARY PROXY MATERIALS
NATURAL MICROSYSTEMS CORPORATION
EIGHT ERIE DRIVE
NATICK, MASSACHUSETTS 01760
(508) 650-1300
March 14, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Natural MicroSystems Corporation (the "Company"), which will be held on
Thursday, April 17, 1997 at 1:00 p.m., at the offices of Choate, Hall & Stewart,
36th Floor, Exchange Place, 53 State Street, Boston, Massachusetts.
The following Notice of Annual Meeting of Stockholders and Proxy
Statement describe the items to be considered by the stockholders and contain
certain information about the Company and its directors and officers.
Please sign and return the enclosed proxy card as soon as possible in
the envelope provided so that your shares can be voted at the meeting in
accordance with your instructions. Even if you plan to attend the meeting, we
urge you to sign and promptly return the proxy card. You can revoke it at any
time before it is exercised at the meeting or vote your shares personally if you
attend.
We look forward to seeing you.
Sincerely,
Robert P. Schechter
President and Chief Executive Officer
<PAGE>
PRELIMINARY PROXY MATERIALS
NATURAL MICROSYSTEMS CORPORATION
EIGHT ERIE DRIVE
NATICK, MASSACHUSETTS 01760
(508) 650-1300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 17, 1997
The Annual Meeting of Stockholders of Natural MicroSystems Corporation
(the "Company") will be held at the offices of Choate, Hall & Stewart, 36th
Floor, Exchange Place, 53 State Street, Boston, Massachusetts on Thursday, April
17, 1997 at 1:00 p.m., for the following purposes:
1. To elect two directors for a three-year term.
2. To approve an amendment to the Certificate of Incorporation of the
Company to increase the number of authorized shares of Common Stock
from 15,000,000 to 45,000,000.
3. To ratify the Board of Directors' selection of KPMG Peat Marwick
LLP as the Company's independent auditors for 1997.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Stockholders of record at the close of business on March 10, 1997 will
be entitled to notice of and to vote at the meeting and any adjournments
thereof.
By Order of the Board of Directors
R. N. Hoehn
Secretary
Dated: March 14, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES.
<PAGE>
PRELIMINARY PROXY MATERIALS
NATURAL MICROSYSTEMS CORPORATION
EIGHT ERIE DRIVE
NATICK, MASSACHUSETTS 01760
(508) 650-1300
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of common stock, $.01
par value ("Common Stock"), of Natural MicroSystems Corporation, a Delaware
corporation (the "Company"), in connection with the solicitation of proxies for
use at the Annual Meeting of Stockholders to be held on April 17, 1997 and at
any adjournment of that meeting. The enclosed proxy is solicited on behalf of
the Board of Directors of the Company. Each properly signed proxy will be voted
in accordance with the instructions contained therein and, if no choice is
specified, the proxy will be voted in favor of the proposals set forth in the
Notice of Annual Meeting.
A person giving the enclosed proxy has the power to revoke it by
written notice to the Secretary of the Company, by giving a later-dated proxy,
or by revoking it in person at the meeting.
The approximate date on which this Proxy Statement and the enclosed
proxy will first be sent to stockholders is March 18, 1997. The Company's
Annual Report to Stockholders for 1996 is being mailed together with this Proxy
Statement.
Only holders of Common Stock of record on the stock transfer books of
the Company at the close of business on March 10, 1997 (the "record date") will
be entitled to vote at the meeting and at any adjournment thereof. There were
________________ shares of Common Stock outstanding at the close of business on
the record date.
Each share of Common Stock is entitled to one vote. The affirmative
vote of the holders of a plurality of the shares represented at the meeting is
required for the election of directors. The affirmative vote of a majority of
all shares outstanding on the record date is required to approve the amendment
to the Certificate of Incorporation increasing the authorized shares of Common
Stock. The affirmative vote of a majority of all shares voting thereon is
required to ratify the selection of independent auditors. Votes will be
tabulated by the Company's transfer agent, subject to the supervision of persons
designated by the Board of Directors as inspectors.
No votes may be taken at the meeting, other than to adjourn, unless a
quorum has been constituted. Under the Company's By-Laws, a quorum at the
meeting will consist of a majority of the outstanding shares of Common Stock as
of the record date. Shares voted to abstain or to withhold as to a particular
matter (including shares as to which a nominee, such as a broker holding shares
in street name for a beneficial owner, has no voting authority in respect of
such matter) will be deemed represented for quorum purposes but will not be
deemed to be voting on such matters and, therefore, will not be the equivalent
of negative votes as to such matters.
1
<PAGE>
STOCK OWNERSHIP OF DIRECTORS
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of March 5, 1997 by (a)
each director of the Company, (b) each of the executive officers named in the
Summary Compensation Table below, (c) all directors and executive officers as a
group and (d) each person known to the Company to own beneficially 5% or more of
its Common Stock. Except as otherwise indicated, each such person has sole
investment and voting power with respect to the shares shown as being
beneficially owned by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) OUTSTANDING SHARES
- ---- --------------------- ------------------
<S> <C> <C>
Zenas W. Hutcheson, III(2) 86,568 *
C. William McDaniel 12,000 *
David F. Millet 16,202 *
Ronald W. White 17,938 *
Robert P. Schechter 151,026 1.5
Charles T. Foskett 135,157 1.3
Ronald J. Bleakney 25,850 *
R. Brough Turner (3) 159,361 1.6
John F. Kennedy 57,764 *
Pilgrim Baxter & Associates, Ltd.(4) 979,600 9.6
1255 Drummers Lane
Suite 300
Wayne, PA 19087
First Union Corporation (5) 908,783 8.9
One First Union Center
Charlotte, NC 28288
Putnam Investments, Inc. (6) 640,000 6.3
One Post Office Square
Boston, Massachusetts 02109
Wellington Management Co. LLP (7) 539,200 5.3
75 State Street
Boston, MA 02109
All directors and executive officers as a
group ( 12 persons) (2)(3) 726,138 6.9
- ------------
</TABLE>
* Less than 1%.
(1) Includes 291,301 shares which may be acquired within sixty days after March
5, 1997 by exercise of stock options by the directors and executive officers
as follows: Mr. Hutcheson, 49,656; Mr. McDaniel, 12,000; Mr. Millet, 9,000;
Mr. White, 12,000; Mr. Schechter, 147,000; Mr. Foskett, 27,670; Mr.
Bleakney, 4,858; Mr. Turner, 23,464; Mr. Kennedy, 5,653; and all directors
and executive officers as a group, 348,065.
(2) Includes 34,912 shares held in trust for Mr. Hutcheson's children, as to
which shares Mr. Hutcheson disclaims beneficial ownership.
(3) Includes 10,908 shares held by Mr. Turner jointly with his wife.
(4) Consists of shares held by registered investment companies and other
advisory clients of Pilgrim Baxter & Associates, Ltd., which has shared
voting power and sole investment power as to all such shares. This
information is based solely on a filing on Schedule 13G with the Securities
and Exchange Commission ("SEC").
2
<PAGE>
(5) Consists of shares held by registered investment companies and other
advisory clients of Keystone Investment Management Company ("Keystone") and
by First Union National Bank of North Carolina ("FUNB") in a fiduciary
capacity for customers. Keystone and FUNB are both subsidiaries of First
Union Corporation. This information is based solely on a filing on Schedule
13G with the SEC.
(6) Consists of shares held by registered investment companies and other
advisory clients of Putnam Investments, Inc. ("PII"). PII and one of its
subsidiaries may be deemed to have sole investment power as to all such
shares; neither PII nor its subsidiaries has any voting power with respect
to any of such shares. PII is a subsidiary of Marsh & McLennan Companies,
Inc. This information is based solely on a filing on Schedule 13G with the
SEC.
(7) Consists of shares held by Vanguard Explorer Fund, Inc. ("Explorer") and
other advisory clients of Wellington Management Co. LLP ("WMC"). WMC may be
deemed to have shared voting power with respect to 19,200 of such shares and
shared investment power with respect to all of such shares. Explorer may be
deemed to have shared voting and investment powers with respect to 520,000
of such shares. This information is based solely on filings on Schedule 13G
with the SEC.
ELECTION OF DIRECTORS
(ITEM 1 OF NOTICE)
There are currently six members of the Board of Directors, divided
into three classes with terms expiring respectively at the 1997, 1998 and 1999
annual meetings of stockholders. The Board has fixed the number of directors
for the ensuing year at six and nominated Mr. Schechter and Mr. White, whose
terms are expiring, for reelection. Directors elected at the meeting will serve
a three-year term expiring at the time of the annual meeting of stockholders in
2000 and when their successors are elected and qualified. The shares
represented by the enclosed proxy will be voted to elect the two nominees unless
such authority is withheld by marking the proxy to that effect. Each of the
nominees has agreed to serve, but in the event a nominee becomes unavailable for
any reason, the proxy, unless authority has been withheld as to such nominee,
may be voted for the election of a substitute.
C. William McDaniel, whose term expires at the time of the annual
meeting of stockholders in 1998, has resigned from the board effective as of the
time of the 1997 annual meeting. Pursuant to the Certificate of Incorporation
of the Company, vacancies in the office of director arising by reason of
resignation may be filled by the remaining directors. It is expected that the
remaining directors will elect W. Frank King to fill the vacancy for the
remainder of the term.
The following information is furnished with respect to each nominee
for election as a director and for each director, including Dr. King, whose term
of office will continue after the meeting.
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
BUSINESS EXPERIENCE DURING
NAME AND AGE DIRECTOR LAST FIVE YEARS;
AS OF MARCH 5, 1997 SINCE DIRECTORSHIPS OF PUBLIC COMPANIES
- ------------------- -------- ---------------------------------
<S> <C> <C>
NOMINEE FOR ELECTION FOR TERMS OF THREE YEARS EXPIRING IN 2000
Robert P. Schechter, 48 1995 Mr. Schechter has been President and Chief Executive
Officer since April 1995 and Chairman of the Board of
Directors of the Company since March 1996. From 1987 to
1994, Mr. Schechter held various senior executive
positions with Lotus Development Corporation and from
1980 to 1987 he was a partner of Coopers and Lybrand
LLP. Mr. Schechter is also a director of MRS Technology,
Inc., a developer and manufacturer of steppers for flat
panel displays, Software 2000, Inc., a developer of
enterprise-level business software applications, and
Raptor Systems, Inc., a developer of Internet security
systems.
Ronald W. White, 56 1988 Since 1983, Mr. White has been a partner of
Advanced Technology Development Fund, a
venture capital firm. Mr. White is also a director
of Preferred Networks, Inc. a provider of paging
services.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
W. Frank King, Ph. D. Since 1992, Dr. King has served as President
and Chief Executive Officer and a director of
PSW, , and its predecessor, Pencom's
software division. From ____ to 1992 Dr. King
was Senior Vice President of the software
business group of Lotus Development
Corporation and for the previous 19 years was
with IBM Corporation in various positions, the
last being Vice President of Development for the
personal computing division.
David F. Millet, 52 1988 Since 1988, Mr. Millet has been an executive
officer of Chatham Venture Corporation, a
private investment firm that serves as an advisor
to Japhet U. S. Venture Capital Fund, Ltd, a
venture capital firm. Since 1994, he has served
as President and a director of Thomas Emery's
Sons, L.L.C., an investment company. Since
1996, he has been president and chief executive
officer of Holographix, Inc. a privately held
manufacturer of holographic optical components
and systems. Mr. Millet is also a director of
Wall Data Incorporated, a supplier of
connectivity software.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
<S> <C> <C>
Charles T. Foskett, 53 1983 A co-founder of the Company, Mr. Foskett has
been its Sr. Vice President of International
Operations since May 1995. From July 1991 to
May 1995, he was Chairman of the Board of
Directors and Vice President of International
Operations. From 1983 to 1991, he was
President and Chief Executive Officer of the
Company. From 1970 to 1983, he held various
positions at DigiLab, a division of Bio-Rad
Laboratories, Inc., which manufactures
analytical and biomedical instruments, serving as
its president from 1977 to 1983.
Zenas W. Hutcheson, III, 43 1989 Since 1982, Mr. Hutcheson has been president
of Hutcheson & Co., Inc., a management
consulting firm.
</TABLE>
BOARD OF DIRECTORS AND COMMITTEE MEETINGS
The Board of Directors has Audit and Compensation Committees. It does
not have a nominating or similar committee.
The Audit Committee reviews the internal accounting procedures of the
Company and consults with and reviews the services provided by the Company's
independent auditors. The directors currently serving on the Audit Committee
are Messrs. McDaniel and Millet. The Audit Committee met 3 times during 1996.
The Compensation Committee reviews and recommends to the Board the
compensation and benefits of all officers of the Company and reviews general
policy relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the issuance of stock options. The
directors currently serving on the Compensation Committee are Messrs. White and
Hutcheson. The Compensation Committee met 4 times during 1996.
During 1996, the Board of Directors of the Company held 4 meetings.
Each incumbent director attended at least 75% of the aggregate number of
meetings of the Board and the meetings of the committees of the Board on which
he served.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by the
Company for services rendered in 1996, 1995 and 1994 to the person who served as
chief executive officer during 1996 and the other four most highly compensated
persons who were serving as executive officers on December 31, 1996 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------
LONG-TERM
COMPENSATION
---------------- OTHER
SHARES UNDER COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMMISSIONS ($) BONUS ($) OPTIONS AWARDS (#) SATION (2)
- --------------------------- ---- ---------------------- --------------- --------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Schechter 1996 225,000 112,500 90,000 2,793
President and Chief Executive
Officer (1) 1995 104,616 53,335 350,000 1,075
1994
Ronald J. Bleakney 1996 145,000 99,975 14,500 30,000 6,111
Senior Vice President of Sales 1995 120,000 59,773 10,000 65,000 3,761
1994 101,000 53,589 8,500 30,000
Charles T. Foskett 1996 145,000 54,931 14,500 15,000 6,359
Senior Vice President of 1995 120,000 556,892 10,000 60,000 3,637
International Operations 1994 109,000 42,898 7,650 10,000
R. Brough Turner 1996 137,500 55,000 20,000 4,832
Senior Vice President of Technology 1995 120,000 36,000 30,000 1,632
1994 105,000 26,156 10,000
John F. Kennedy 1996 135,000 54,000 15,000 5,617
Chief Financial Officer 1995 115,000 34,500 35,000 2,748
1994 94,000 22,658 20,000
</TABLE>
(1) Mr. Schechter joined the Company in April 1995.
(2) Includes for each of the Named Executive Officers Company contributions
to the Company's 401(k) retirement plan and premiums paid by the Company for
term life insurance.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all stock option grants to the Named Executive
Officers during 1996.
<TABLE>
<CAPTION>
Individual Grants
-----------------
% of Total Potential Realizable $
Options Value at Assumed Annual
Number of Granted Rates of Stock Price
Shares to Appreciation for Option
Underlying Employees Exercise Term(1)
Options in Fiscal Price Expiration
Name Granted Year ($/sh) Date 5% 10%
- ---- ------- ---------- ------ --------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Robert P. Schechter 50,000 7.8 13.88 7/23/2006 436,453 1,106,057
40,000 6.2 26.75 12/18/2006 672,917 1,705,304
Ronald J. Bleakney 30,000 4.7 26.50 12/16/2006 438,306 1,267,025
Charles T. Foskett 15,000 2.3 26.50 12/16/2006 249,986 633,513
R. Brough Turner 20,000 3.1 26.50 12/16/2006 333,314 844,683
John F. Kennedy 15,000 2.3 26.50 12/16/2006 249,986 633,513
</TABLE>
_____________
(1) As required by the rules of the Securities and Exchange Commission,
potential values are stated based on the prescribed assumption that Common
Stock will appreciate in value from the date of grant to the end of the
option term at the indicated rates (compounded annually) and therefore are
not intended to forecast possible future appreciation, if any, in the price
of Common Stock.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for the Named Executive Officers, the
number of shares for which stock options were exercised in 1996, the realized
value or spread (the difference between the exercise price and market value on
the date of exercise) and the number and unrealized spread of the unexercised
options held by each at fiscal year-end.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SHARES IN-THE-MONEY
UNDERLYING OPTIONS
UNEXERCISED AT FY-END
NUMBER OF OPTIONS AT FISCAL (ALL EXERCISABLE)
SHARES YEAR END -------------------
ACQUIRED (ALL EXERCISABLE)
ON VALUE -----------------
NAME EXERCISE(1) REALIZED $ VESTED UNVESTED TOTAL VESTED UNVESTED TOTAL
- ---- ------------ --------- ------ --------- ----- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Schechter 8,000 142,980 89,500 350,500 440,000 2,136,813 7,290,438 9,427,251
Ronald J. Bleakney 6,572 76,283 37,356 86,564 123,920 900,628 1,376,369 2,276,997
Charles T. Foskett 123,346 60,058 183,404 3,610,052 1,041,434 4,651,486
R. Brough Turner 20,000 326,700 94,633 45,371 140,004 2,808,007 658,790 3,466,797
John F. Kennedy 8,000 114,125 40,236 56,530 96,766 1,075,635 1,071,564 2,147,199
- -------------
</TABLE>
(1) Does not include shares purchased by the Named Executive Officers during
1996 under the Company's 1993 Employee Stock Purchase Plan, as follows:
Mr. Schechter, 2,026; Mr. Bleakney, 1,756; Mr. Foskett 1,478, Mr. Turner,
1,308; and Mr. Kennedy, 274 shares.
7
<PAGE>
DIRECTOR COMPENSATION
Each director of the Company who is not also an employee is paid
$2,500 per quarter and is reimbursed for reasonable out-of-pocket expenses
incurred in attending meetings. Non-employee directors serving on committees of
the Board also receive $250 per committee meeting attended. Under the Company's
1993 Non-Employee Directors Stock Option Plan, each non-employee director
currently receives (1) upon first being elected to the board, an option for
7,500 shares which vests over three years and (ii) annually at the time of the
annual meeting, an option for 2,500 shares which vests in one year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors, which is comprised of two non-
employee directors. The Compensation Committee works with management to develop
compensation plans for the Company and is responsible for determining the
compensation of each executive officer and recommending such compensation to the
Board of Directors.
The Company's executive compensation program is designed to align
executive compensation with the Company's business objectives and the
executive's individual performance and to enable the Company to attract, retain
and reward executive officers who contribute, and are expected to continue to
contribute, to the Company's long-term success. In establishing executive
compensation, the Compensation Committee is guided by the following principals:
(i) the total compensation payable to executive officers should be sufficiently
competitive with the compensation paid by other high growth companies in the
telecommunications industry for officers in comparable positions so that the
Company can attract and retain qualified executives and (ii) individual
compensation should include components which reflect both the financial
performance of the Company and the performance of the individual.
The compensation of the Company's executive officers consists of a
combination of base salary, bonuses and equity-based compensation. In general,
the Company's compensation program attempts to limit increases in salaries and
favors bonuses based on operating profit and individual merit. The Compensation
Committee believes that executive compensation should be designed to motivate
executives to increase shareholder value and further believes that executive
officers can best increase shareholder value by managing the operating profit of
the Company and by conceiving, developing and positioning the best products in
the Company's chosen markets.
Compensation payments in excess of $1 million to the Chief Executive
Officer or other four most highly compensated executive officers are subject to
a limitation of deductibility for the Company under Section 162(m) of the
Internal Revenue Code of 1986, as amended. Certain performance-based
compensation is not subject to the limitation on deductibility. The
Compensation Committee does not expect cash compensation in 1996 to its Chief
Executive Officer or any other executive officer in the foreseeable future to be
in excess of $1 million. Compensation to such persons relating to stock option
awards is expected to qualify for the performance-based exception to the $1
million limitation on deductibility of compensation payments.
BASE SALARY
The Compensation Committee sets the base salary for executives based
upon a review of the salaries for comparable positions in high-growth companies
in the Company's industry, the historical compensation levels of the Company's
executives, and the individual performance of the executives in the preceding
year. In 1996, the base salaries of the executive officers were increased at an
average rate of 22%. Executive officers whose primary responsibilities are in
the area of sales and marketing are also entitled to receive commissions based
primarily on the Company's revenues or a specific portion of these revenues.
8
<PAGE>
MERIT BONUS PROGRAM
Each year the Compensation Committee adopts a management incentive
plan which reflects the Compensation Committee's belief that a portion of each
executive officer's compensation should be tied to the achievement by the
Company of its profit goals and by each executive officer of his or her
individual objectives as determined by the Compensation Committee. The 1996
Management Incentive Plan (the "1996 Incentive Plan") set merit bonus goals
based on the 1996 operating plan approved by the Board of Directors. In
addition, the 1996 Incentive Plan prescribed adjustments in the merit bonus
goals based upon the Company's actual operating profit. At the end of the year,
the Compensation Committee allocated merit bonuses to individual executives
based on the executive's performance relative to his or her performance
objectives. Under the 1996 Incentive Plan, executive officers were entitled to
receive an average bonus of approximately 36% of base salary if the Company
achieved its profit goals for 1996 and the individual executive met or exceeded
his objectives.
STOCK-BASED COMPENSATION
Awards of stock options under the Company's stock option plans are
designed to closely tie the long-term interests of the Company's executives and
its shareholders and to assist in the retention of executives. The Compensation
Committee selects the executive officers, if any, to receive stock options and
determines the number of shares subject to each option. The Compensation
Committee's determination of the size of option grants is generally intended to
reflect an executive's position with the Company and his or her contributions to
the Company. Options generally have a four-year vesting period to encourage key
employees to continue in the employ of the Company. The Compensation Committee
reviews the outstanding unvested options of the key executives from time to time
and may grant additional options to encourage the retention of key executives.
Options for 295,000 shares were granted to executive officers in 1996 to reward
the executive officers for their performance in 1996 and to establish
appropriate incentives for these key executives.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Chief Executive Officer's compensation generally is based on the
same policies and criteria as the other executive officers. Mr. Schechter's base
salary for 1996 was increased by approximately 40% over his 1995 salary based
upon the extent to which the Company achieved its goals in 1995 and the
Compensation Committee's view of Mr. Schechter's role in that achievement. Mr.
Schechter's merit bonus in 1996 was equal to 50% of his base salary based upon
his individual performance with respect to his objectives. Mr. Schechter was
also awarded stock options for 50,000 shares in 1996 based upon his individual
performance in 1996 and to establish appropriate incentives for future
performance.
Compensation Committee
Zenas W. Hutcheson, III
Ronald W. White
9
<PAGE>
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN
The following performance graph assumes an investment of $100 on
February 17, 1994 (the effective date of the Company's initial public offering)
and compares the change to December 31, 1996 in the market price of the Common
Stock with a broad market index (S&P 500) and an industry index (S&P
Communication Equipment-Manufacturers). The Company paid no dividends during
the periods shown; the performance of the indexes is shown on a total return
(dividend reinvestment) basis. The graph lines merely connect the prices on the
dates indicated and do not reflect fluctuations between those dates.
<TABLE>
<CAPTION>
2/17/94 12/31/94 12/31/95 12/31/96
------- -------- -------- --------
<S> <C> <C> <C> <C>
NATURAL MICROSYSTEMS CORPORATION 100 135.90 312.83 646.17
COMMUNICATION EQUIPMENT-500 100 107.30 160.58 188.06
S&P 500 INDEX 100 97.32 133.89 164.63
</TABLE>
THE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND THE
COMPARISON OF CUMULATIVE TOTAL STOCKHOLDER RETURN ABOVE SHALL NOT BE DEEMED
"SOLICITING MATERIAL" OR INCORPORATED BY REFERENCE INTO ANY OF THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
10
<PAGE>
SECTION 16 REPORTING
Section 16(a) of the 1934 Act requires the Company's directors and
officers and persons who own more than ten percent of the Common Stock to file
reports with the Securities and Exchange Commission disclosing their ownership
of stock in the Company and changes in such ownership. Copies of such reports
are also required to be furnished to the Company. Based on a review of the
copies of such reports received by it or a written representation from certain
reporting persons that no Form 5 was required for such person, the Company
believes that all required filings were timely made during 1996, except that Mr.
White filed a Form 4 late.
AMENDMENT TO CERTIFICATE OF
INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES
(ITEM 2 OF NOTICE)
Article Fourth of the Certificate of Incorporation of the Company
currently authorizes the issuance of 15,000,000 shares of Common Stock and
3,000,000 shares of preferred stock.
As of March 10, 1997, there were ____________ shares of Common Stock
issued and outstanding. Therefore, ________________ authorized shares of Common
Stock remained available for issuance without further action by the stockholders
of the Company, of which _____________ were reserved for issuance under the
various stock options and stock purchase plans. No shares of preferred stock
were outstanding.
On February ____, 1997, the Board of Directors of the Company voted to
declare advisable an amendment to the Certificate of Incorporation increasing
the authorized shares of Common Stock from 15,000,000 to 45,000,000. The
proposed amendment would have no effect upon the terms of the Common Stock.
The Board of Directors believes that the proposed increase in
authorized shares of Common Stock is desirable to enhance the Company's
flexibility in connection with possible future actions, such as stock splits,
financings, mergers or other corporate purposes. Having such authorized shares
available for issuance in the future would allow shares of Common Stock to be
issued for such purposes without the expense and delay of further stockholder
action.
The increased number of authorized shares could also be used to make
more difficult a change of control of the Company which the Board of Directors
determines not to be in the best interests of its stockholders. For instance,
such shares could be issued in public or private transactions to persons who
might side with the Board of Directors in opposing a takeover bid.
At the date of this Proxy Statement, the Company has no agreements,
commitments or plans with respect to the sale, issuance or other use of
additional shares of stock, except in connection with its stock option and
purchase plans. Furthermore, the Board of Directors is not currently aware of
any efforts by any person to gain control of the Company.
The Board of Directors recommends a vote "FOR" the proposal. If the
enclosed proxy card is returned, the shares represented by the proxy will be
voted to approve the proposed amendment unless the proxy indicates to the
contrary and may be voted in favor of adjournment of the meeting in order to
permit further solicitation of proxies with respect to the proposed amendment if
sufficient votes in favor of the proposed amendment have not been received. The
affirmative vote of majority of the outstanding shares of Common Stock is
required for approval of the amendment.
11
<PAGE>
RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
(ITEM 3 OF NOTICE)
On the recommendation of the Audit Committee, the Board of Directors
has selected KPMG Peat Marwick LLP, independent certified public accountants, as
auditors of the Company for the fiscal year ending December 31, 1997. The firm
has audited the accounts and records of the Company since 1992. A
representative of KPMG Peat Marwick LLP will be present at the Annual Meeting to
answer questions from stockholders and will have an opportunity to make a
statement if desired.
The selection of independent auditors is not required to be submitted
to a vote of the stockholders. The Board believes, however, that it is
appropriate as a matter of policy to request that the stockholders ratify the
appointment. If the stockholders do not ratify the appointment, the Board will
reconsider its selection.
STOCKHOLDER PROPOSALS FOR 1998 MEETING
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received on or before November 18, 1997 for
inclusion in the proxy materials relating to that meeting. Any such proposals
should be sent to the Company at its principal offices and addressed to the
Chief Financial Officer. Other requirements for inclusion are set forth in Rule
14a-8 under the 1934 Act.
OTHER MATTERS
The Company has no knowledge of any matters to be presented for action
by the stockholders at the Annual Meeting other than as set forth above.
However, the enclosed proxy gives discretionary authority to the persons
named therein to act in accordance with their best judgment in the event that
any additional matters should be presented.
The Company will bear the cost of the solicitation of proxies,
including charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of Common Stock.
By order of the Board of Directors
R. N. Hoehn
Secretary
March 14, 1997
The Board of Directors hopes that stockholders will attend the
meeting. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A prompt
response will greatly facilitate arrangements for the meeting, and your
cooperation will be appreciated. Stockholders who attend the meeting may vote
their stock personally even though they have sent in their proxies.
12
<PAGE>
PRELIMINARY PROXY MATERIALS
NATURAL MICROSYSTEMS CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING ON APRIL 17, 1997
The undersigned stockholder of Natural MicroSystems Corporation hereby
acknowledges receipt of the Notice of Annual Meeting and related Proxy Statement
and appoints Robert P. Schechter, John F. Kennedy and Richard N. Hoehn, or any
one or more of them, attorneys and proxies for the undersigned with power of
substitution in each to act for and to vote, as designated below, with the same
force and effect as the undersigned, all shares of Natural MicroSystems
Corporation common stock standing in name of the undersigned at the Annual
Meeting of Stockholders of Natural MicroSystems Corporation to be held at the
offices of Choate, Hall & Stewart, 35th Floor, Exchange Place, 53 State Street,
Boston, Massachusetts on April 17, 1997 at 1:00 p.m., local time and any
adjournments thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY CARD
WILL BE VOTED "FOR" THE NOMINEES FOR DIRECTOR AND "FOR" OTHER PROPOSALS. THE
PROXY WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY
OTHER MATTER.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES.
- -------------------------------------------------------------------------------
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
Please sign this Proxy exactly as your name appears on the books of the
Corporation. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or
her title.
- -------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
With- For All
For hold Except
1.) Election of Directors: [ ] [ ] [ ]
Nominees:
ROBERT P. SCHECHTER AND
RONALD W. WHITE
If you wish to withhold authority for all
nominees, mark the "Withhold" box. If you
wish to withhold authority with respect
to certain nominee(s), mark the "For
All Except" box and strike a line through
the particular name(s).
RECORD DATE SHARES:
For Against Abstain
2.) Approve an amendment to the [ ] [ ] [ ]
Certificate of Incorporation
of the Company to increase
the number of authorized
shares of Common Stock.
For Against Abstain
3.) Ratify the selection of KPMG
Peat Marwick LLP as [ ] [ ] [ ]
independent auditors.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
--------------------------
Please be sure to sign and date this Proxy. Date
- -------------------------------------------------------------------------------
- ------Shareholder sign here-----------------Co-Owner sign here-----------------
Mark Box at right if comments or address change have
been noted on the reverse side of this card. [ ]
DETACH CARD
NATURAL MICROSYSTEMS CORPORATION
Dear Stockholder:
Please mark the boxes on the proxy card to indicate how your shares
should be voted, then sign and date the card, detach it and return it
in the enclosed postage paid envelope.
Sincerely,
Natural MicroSystems Corporation
