<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:
[_] 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 (S)240.14a-11(c) or (S)240.14a-12
NATURAL MICROSYSTEMS CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NATURAL MICROSYSTEMS CORPORATION
------------------------------------------------
(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>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
March 19, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Natural MicroSystems Corporation (the "Company"), which will be held on April
16, 1998 at 1:00 p.m. at its corporate offices at 100 Crossing Boulevard,
Framingham, 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,
/s/ Robert P. Schechter
Robert P. Schechter
President and Chief Executive
Officer
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 16, 1998
The Annual Meeting of Stockholders of Natural MicroSystems Corporation (the
"Company") will be held at its corporate offices at 100 Crossing Boulevard,
Framingham, Massachusetts on April 16, 1998 at 1:00 p.m., for the following
purposes:
1. To elect two directors for a three-year term.
2. To approve a change in the Company's state of incorporation from
Delaware to Massachusetts.
3. To approve an amendment to the Company's 1993 Stock Option Plan
increasing the maximum number of shares issuable thereunder by 440,000.
4. To approve an amendment to the Company's 1993 Employee Stock Purchase
Plan increasing the maximum number of shares issuable thereunder by
200,000.
5. To approve an amendment to the Company's 1993 Non-Employee Directors'
Stock Option Plan to provide for the vesting of shares upon a change-in-
control.
6. To ratify the Board of Directors' selection of Coopers & Lybrand LLP
as the Company's independent auditors for the year ending December 31,
1998.
7. 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 6, 1998 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 19, 1998
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>
NATURAL MICROSYSTEMS CORPORATION
100 CROSSING BOULEVARD
FRAMINGHAM, MASSACHUSETTS 01702
(508) 620-9300
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 16, 1998 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 23, 1998. The Company's Annual
Report to Stockholders for 1997 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 6, 1998 (the "record date") will be
entitled to vote at the meeting and at any adjournment thereof. There were
10,846,163 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, at which
a quorum is present, is required for the election of directors. The
affirmative vote of a majority of the shares outstanding as of the close of
business on the record date is required to approve the change in the state of
incorporation. Approval of the other matters which are before the meeting will
require the affirmative vote at the meeting, at which a quorum is present, of
the holders of a majority of votes cast with respect to such matters. Votes
will be tabulated by the Company's transfer agent, subject to the supervision
of persons designated by the Board of Directors as inspectors.
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 except with respect to the proposed change in the
state of incorporation. It is the position of the Securities and Exchange
Commission (the "SEC"), however, that, for purposes of approval pursuant to
Rule 16b-3 under the Securities Exchange Act of 1934 (the "1934 Act") of the
third, fourth and fifth proposals listed on the Notice of Annual Meeting,
abstentions will be deemed the equivalent of negative votes.
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 6, 1998 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, based on information provided to the
Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED(1) OUTSTANDING SHARES
---- --------------------- ------------------
<S> <C> <C>
Zenas W. Hutcheson, III(2)........... 82,268 *
Ronald W. White...................... 7,553 *
W. Frank King Ph. D.................. 6,950 *
Pamela D. A. Reeve................... *
Robert P. Schechter.................. 241,806 2.2
Charles T. Foskett................... 164,634 1.5
George D. Kontopidis, Ph. D.......... 38,962 *
Allen P. Carney...................... 40,617 *
Ronald J. Bleakney................... 21,096 *
Nicholas Applegate Capital
Management(3)........................ 744,700 6.8
600 West Broadway
Suite 2900
San Diego, CA 92101
Essex Investment Management
Company(4)............................ 732,060 6.8
125 High Street
Boston, MA 02110
All directors and executive officers
as a group (14 persons)(2).......... 839,766 7.7
</TABLE>
- --------
*Less than 1%.
(1) Includes 416,950 shares which may be acquired within sixty days after
March 6, 1998 by exercise of stock options by the directors and executive
officers as follows: Mr. White, 6,705, Mr. Hutcheson, 37,356, Dr. King,
4,950, Mr. Schechter 237,000, Mr. Foskett, 50,341, Dr. Kontopidis, 34,661,
Mr. Bleakney, 5,937, Mr. Carney, 40,000, and all directors and executive
officers as a group, 434,481.
(2) Includes 34,912 shares held in trust for Mr. Hutcheson's children, as to
which shares Mr. Hutcheson disclaims beneficial ownership.
(3) Consists of shares held by registered investment companies and other
advisory clients of Nicholas Applegate Capital Management ("NACM"). NACM
may be deemed to have shared voting power as to 512,300 and shared
investment power as to all such shares. This information is based solely
on a filing of Schedule 13G with the SEC.
(4) Consists of shares held by registered investment companies and other
advisory clients of Essex Investment Management Company ("EIM"). EIM may
be deemed to have shared voting power as to 592,725 and shared investment
power as to all such shares. This information is based solely on a filing
of Schedule 13G with the SEC.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 OF NOTICE)
There are currently seven members of the Board of Directors, divided into
three classes with terms expiring respectively at the 1998, 1999 and 2000
annual meetings of stockholders. The Board has fixed the number of directors
for the ensuing year at six and nominated Ms. Reeve and Dr. King, 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
2001 and when their successors are elected and qualified. The shares
represented by the enclosed proxy will be voted to elect each nominee unless
such authority is withheld by marking the proxy to that effect. Each nominee
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.
David F. Millet, whose term expires at the annual meeting of stockholders in
1998, is not standing for re-election.
The following information is furnished with respect to each nominee for
election as a director and for each director whose term of office will
continue after the meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE AS OF DIRECTOR EXPERIENCE DURING LAST FIVE YEARS;
MARCH 6, 1998 SINCE DIRECTORSHIPS OF PUBLIC COMPANIES
------------------ -------- ----------------------------------
<S> <C> <C>
NOMINEES FOR REELECTION FOR TERMS EXPIRING IN 2001
W. Frank King, Ph. D.,
57..................... 1997 Dr. King has been, since October 1996, Presi-
dent, Chief Executive Officer and a director
of PSW Technology, Inc., a provider of soft-
ware and systems integration. From 1992 to
October 1996, Dr. King was president of PSW
Technologies (formerly Pencom Systems), which
was the software and systems integration di-
vision of Pencom Systems Incorporated. From
1988 to 1992 Dr. King was Senior Vice Presi-
dent of the software business group of Lotus
Development Corporation and for the previous
19 years served in various positions with IBM
Corporation, including his last position as
Vice President of Development for the per-
sonal computing division. He is also a direc-
tor of Excalibur Technologies Corporation, a
developer of document management software,
State of the Art, Inc., a developer and manu-
facturer of network file/data servers, and
SystemSoft, Inc. a provider of software for
desktop and mobile personal computer
manufacturers.
Pamela D. A. Reeve, 48.. 1997 Pamela D. A. Reeve has been, since September
1993, Chief Executive Officer and a director
and from 1989 to September 1993, President,
Chief Operating Officer and a director of
Lightbridge, Inc., a provider of products and
services which enable wireless telecommunica-
tions carriers to improve customer acquisi-
tion and retention processes. From 1978 to
1989, Ms. Reeve was a consultant for The Bos-
ton Consulting Group, a management consulting
firm. Ms. Reeve is a director of PageMart
Wireless, Inc., a provider of wireless
messaging services.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME AND AGE AS OF DIRECTOR EXPERIENCE DURING LAST FIVE YEARS;
MARCH 6, 1998 SINCE DIRECTORSHIPS OF PUBLIC COMPANIES
------------------ -------- ----------------------------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Zenas W. Hutcheson, III,
44..................... 1989 Mr. Hutcheson has been, since June 1990, a
General Partner of St. Paul Venture Capital,
a venture capital firm. From 1982 to 1997,
Mr. Hutcheson was president of Hutcheson &
Co., Inc., a management consulting firm.
Charles T. Foskett, 54.. 1983 A co-founder of the Company, Mr. Foskett has
been its Senior Vice President of Interna-
tional Market Development since January 1998.
From May 1995 to December 1997, he was Senior
Vice President of International Operations,
from July 1991 to April 1995 he was Chairman
of the Board of Directors and Vice President
of International Operations, and from 1984 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 manufac-
tures analytical and biomedical instruments,
serving as its president from 1977 to 1983.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Robert P. Schechter,
49..................... 1995 Mr. Schechter has served as Chairman of the
Board, President and Chief Executive Officer
of the Company since April 1995. From 1987 to
1994, Mr. Schechter held various senior exec-
utive positions with Lotus Development Corpo-
ration 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, and Infinium Software,
Inc., a developer of enterprise-level busi-
ness software applications.
Ronald W. White, 57..... 1988 Mr. White has been, since October 1997, a
partner of GSM Capital, a venture capital
fund focused on wireless technology. Since
1983, Mr. White has been a partner of Ad-
vanced Technology Development Fund, a venture
capital firm. Mr. White is also a director of
Preferred Networks, Inc. a provider of paging
services.
</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. King and Millet. The Audit Committee held two meetings during
1997.
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 three times during 1997.
During 1997, the Board of Directors of the Company held four 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 or
she served.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued for services
rendered in 1997, 1996 and 1995 to the chief executive officer and the other
four most highly compensated executive officers of the Company (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
SHARES UNDER
NAME OPTION OTHER COMPEN-
AND PRINCIPAL POSITION YEAR SALARY ($) COMMISSION ($) BONUS ($) AWARDS (#) SATION ($)(3)
---------------------- ---- ---------- -------------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Schechter..... 1997 250,000 254,000 5,371
President and Chief 1996 225,000 112,500 90,000 2,793
Executive Officer 1995 104,616(1) 53,335 350,000
Ronald J. Bleakney...... 1997 170,000 129,172 24,000 5,343
Sr. Vice President of 1996 145,000 99,975 14,500 30,000 6,111
Sales 1995 120,000 59,773 10,000 65,000 2,364
Charles T. Foskett...... 1997 155,000 109,951 15,500 5,371
Sr. Vice President of 1996 145,000 54,931 14,500 15,000 6,359
International Operations 1995 120,000 59,773 10,000 60,000 2,317
Allen P. Carney......... 1997 155,000 107,750 621
Vice President of 1996 94,808(2) 59,812 100,000 425
Marketing 1995
George D. Kontopidis,
Ph.D................... 1997 155,000 100,000 4,491
Vice President of 1996 135,000 54,000 25,000 4,893
Engineering 1995 110,000 33,000 30,000 2,174
</TABLE>
- --------
(1) Mr. Schechter joined the Company in April 1995.
(2) Mr. Carney joined the Company in April 1996.
(3) Includes, for each of the Named Executive Officers, Company contributions
to the Company's 401(k) retirement plan and premiums paid by the Company
for term life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock option grants to the Named Executive Officers during
1997.
5
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, for the Named Executive Officers, the number
of shares for which stock options were exercised in 1997, the realized value
or spread (the difference between the exercise price and market value on the
date of exercise) and the number and unrealized spread of the unexercised
options held by each at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OPTIONS AT FY-END AT FY-END
OF SHARES (ALL EXERCISABLE) (ALL EXERCISABLE)($)
ACQUIRED ON VALUE ------------------------ ------------------------------
NAME EXERCISE(1) REALIZED($) VESTED UNVESTED TOTAL VESTED UNVESTED TOTAL
---- ----------- ----------- ------- -------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert P. Schechter..... 57,500 1,676,838 142,000 232,500 374,500 5,250,812 8,230,125 13,480,937
Ronald J. Bleakney...... 59,857 1,543,056 11,875 52,188 64,063 310,937 1,491,582 1,802,519
Charles T. Foskett...... 103,063 2,499,507 44,091 36,250 80,341 1,576,871 1,110,312 2,687,183
Allen P. Carney......... 5,000 113,875 35,000 60,000 95,000 1,096,250 1,792,500 2,888,750
George D. Kontopidis,
Ph.D................... 7,238 124,615 31,536 30,000 61,536 1,109,169 800,937 1,910,106
</TABLE>
- --------
(1) Does not include shares purchased by the Named Executive Officers during
1997 under the Company's 1993 Employee Stock Purchase Plan, as follows:
800 Shares by each of Messrs. Schechter, Bleakney, Foskett and Kontopidis,
and 617 shares by Mr. Carney.
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. In addition, non-employee
directors are entitled to certain option grants under the Company's 1993 Non-
Employee Directors Stock Option Plan. See "1993 Non-Employee Directors Stock
Option Plan" below.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administrated 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 that reflect the financial performance
of the Company and the performance of the individual, including leadership and
the achievement of corporate objectives.
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.
6
<PAGE>
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 by the Company under Section 162(m) of the
Internal Revenue Code of 1986. Certain performance-based compensation is not
subject to the limitation on deductibility. It is the policy of the Committee
to preserve the deductibility of the compensation to the extent compatible
with other compensation objectives but, if required by such other objectives,
to authorize benefits and compensation which may exceed the deduction
limitation. The Compensation Committee does not expect compensation in 1998 to
its Chief Executive Officer or any other executive officer will exceed the
deduction limitation.
BASE SALARY
The Compensation Committee sets the base salary for executives by reviewing
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. The Compensation Committee utilizes salary surveys for reference
purposes but its salary determinations are not subject to specific criteria.
In addition, executive officers whose primary responsibilities are in the area
of sales and marketing are entitled to receive commissions based primarily on
the Company's revenues or a specific portion of these revenues. In 1997, the
base salaries of the executive officers were increased, based in part on the
individual contributions of the executives, at an average rate of 11%.
MERIT BONUS PROGRAM
Each year the Compensation Committee adopts a management incentive plan
which reflects the Compensation Committee's belief that a significant 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 1997
Management Incentive Plan (the "1997 Incentive Plan") set operating profit
goals and merit bonus goals based on the 1997 operating plan approved by the
Board of Directors. In addition, the 1997 Incentive Plan prescribed both an
increase and a decrease in the merit bonus goals as a function of the
Company's actual operating profit and the fulfillment of the specific
management objectives for each executive. At the end of the year, the
Compensation Committee allocated bonuses to individual executives based on the
executive's performance relative to his or her performance objectives. Under
the 1997 Incentive Plan, executive officers were entitled to receive an
average bonus of 40% of base salary if the Company achieved its profit goals
for 1997 and the individual executive met or exceeded his or her objectives.
Based on his individual performance with respect to his objectives, Mr.
Schechter received a bonus under the 1997 Incentive Plan equal to 102% of his
base salary. All other executive officers received bonuses equal to
approximately 46% of their base salaries.
STOCK-BASED COMPENSATION
Awards of stock options under the Company's stock option plans are designed
to more 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 140,000 shares were
granted to executive officers in 1998 to reward the executive officers for
their performance in 1997 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. The Committee utilized
the 1997 Incentive Plan to tie Mr. Schechter's compensation to
7
<PAGE>
shareholder value by encouraging him to lead the Company to meet its operating
profit goals. The Compensation Committee also took into consideration Mr.
Schechter's leadership in 1997 in gaining market share, improving operating
margins, developing the Company's management team and positioning the Company
to meet its long term strategic objectives in awarding Mr. Schechter a bonus
of 102% of his base salary and granting him stock options for 40,000 shares in
1998.
Compensation Committee
Ronald W. White
Zenas W. Hutcheson, III
8
<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, 1997 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.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
2/17/94 12/31/94 12/31/95 12/31/96 12/31/97
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NATURAL MICROSYSTEMS CORPORATION 100 111.58 256.84 530.53 783.16
- ----------------------------------------------------------------------------------------------------
INDUSTRY INDEX 100 112.02 167.64 196.34 255.80
- ----------------------------------------------------------------------------------------------------
BROAD MARKET 100 100.72 138.58 170.39 227.24
- ----------------------------------------------------------------------------------------------------
</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.
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving on the Compensation Committee at any time during 1997 was
a present or former officer or employee of the Company or any of its
subsidiaries. During 1997, no executive officer of the Company served as a
member of the board of directors or compensation committee (or other board
committee performing equivalent functions) of another entity one of whose
executive officers served on the Company's Board of Directors or Compensation
Committee.
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 solely 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 1997,
except for late filings of Form 4 in September and October by Ronald W. White,
a director of the Company.
CHANGE OF STATE OF INCORPORATION
(ITEM 2 OF NOTICE)
The Board of Directors of the Company has resolved, subject to stockholder
approval, to change the state of the Company's incorporation from Delaware to
Massachusetts by merging the Company into a wholly-owned subsidiary
incorporated in Massachusetts. Under Delaware law, the merger requires the
approval of a majority of the outstanding shares of the Company. The Board,
for the reasons set forth below, believes that the change to Massachusetts is
in the best interests of the Company and its stockholders and recommends
approval.
PURPOSE OF RECOMMENDED CHANGE
The Company was organized as a Delaware corporation in 1983 in order to be
governed by the General Delaware Corporation Law (the "Delaware Law"), which
was and continues to be regarded as the most widely known and extensively
defined and interpreted corporate law in the United States. The continuing
cost of being incorporated in Delaware is an annual franchise tax of up to
$150,000 determined under either of two alternative methods, one based solely
upon the number of authorized shares and the other (usually resulting in a
lower tax) based upon a combination of authorized shares, issued shares and
gross assets. Until 1995, the annual franchise tax payable to Delaware by the
Company had never exceeded $20,000. Due primarily to the increase in the
number of outstanding shares resulting from the two-for-one split in 1997, the
public offering of shares in 1996, several acquisitions in which the
consideration was primarily stock, and the exercise of stock options, the
Delaware franchise tax increased to $22,020 in 1996 and $41,786 in 1997 and is
expected to be, if the proposed change to Massachusetts is not effected,
approximately $100,000 for 1998. If the Company were to change its state of
incorporation to Massachusetts, on the other hand, there would be initial
incorporation and related expenses of approximately $50,000 and an $85 annual
fee thereafter.
The Board of Directors of the Company believes that, although not as well
known or extensively defined and interpreted as the Delaware Law, the
Massachusetts Business Corporation Law (the "Massachusetts Law") is a modern
corporation statute which will provide the Company with a comprehensive and
flexible legal structure under which to operate. The Board has therefore
determined that the savings of $100,000 or more per year which would result
from the change to Massachusetts outweighs any possible advantage of operating
under the Delaware Law.
THE MERGER
The proposed change of state of incorporation will be effected by merging
the Company into a wholly-owned subsidiary incorporated in Massachusetts
solely for the purpose of the proposed change. Prior to the
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merger, the subsidiary will not have any assets, liabilities or operating
history. The charter and by-laws of the resulting Massachusetts corporation
will be substantially unchanged from the charter and by-laws of the Delaware
corporation. The change of state of incorporation will not result in any
change in the name, business, assets, liabilities, operating history,
directors, officers, or places of business of the Company. Each outstanding
share of the Company's common stock will automatically be converted into one
share of common stock of the Massachusetts corporation, and each outstanding
certificate for shares of the Company will continue to represent the same
number of shares of the Massachusetts corporation. The stock of the
Massachusetts corporation will continue to trade on the Nasdaq Stock Market
under the same symbol. The only changes of substance resulting from the change
of state of incorporation will be due to certain differences in stockholder's
rights under the corporation laws of Delaware and Massachusetts, as described
below.
COMPARISON OF STOCKHOLDERS RIGHTS
General
If the proposed change is effected, the Company will be governed by the
Massachusetts Law, which differs in some respects from the Delaware Law.
Although it is impractical to note all of such differences, the following is a
summary of certain differences which may affect the rights and interests of
the Company's stockholders. Except as set forth below, the Board does not
believe that the change would materially affect the rights of the stockholders
of the Company.
Special Meetings of Stockholders
The Massachusetts Law provides that, upon application by holders of not less
than 40% of the voting shares of a corporation, a court, for good cause shown,
may order a special meeting of stockholders. The Delaware Law has no
equivalent provision.
Anti-takeover Provisions
BUSINESS COMBINATION STATUTE
Delaware's "business combination" statute is substantially similar to
Massachusetts' business combination statute. However, while the Delaware
statute provides that, if a person acquires 15% or more of the stock of a
Delaware corporation without the approval of the board of directors of that
corporation (an "interested stockholder"), he may not engage in certain
transactions with the corporation for a period of three years, the
Massachusetts statute has lowered the 15% threshold to 5% with certain persons
excluded. Both the Delaware and Massachusetts statutes include certain
exceptions to this prohibition; for example, if the board of directors
approves the acquisition of stock or the transaction prior to the time that
the person became an interested stockholder, or if the interested stockholder
acquires 85% (in the Delaware statute) or 90% (in the Massachusetts statute)
of the voting stock of the corporation (excluding voting stock owned by
directors who are also officers and certain employee stock plans) in one
transaction, or if the transaction is approved by the board of directors and
by the affirmative vote of two-thirds of the outstanding voting stock which is
not owned by the interested stockholder.
CONTROL SHARE ACQUISITION STATUTE
Under the Massachusetts Control Share Acquisition statute for Massachusetts
corporations, a person (hereinafter, the "acquiror") who makes a bona fide
offer to acquire, or acquires, shares of stock of a corporation that when
combined with shares already owned, would increase the acquiror's ownership to
at least 20%, 33 1/3%, or a majority of the voting stock of the corporation,
must obtain the approval of a majority of shares held by all stockholders
except the acquiror and the officers and inside directors of the corporation,
in order to vote the shares acquired. The statute does not require the
acquiror to consummate the purchase before the stockholder vote is taken. The
Control Share Acquisition statute permits a Massachusetts corporation to elect
not to be governed by these provisions by including such an election in its
articles of organization or by-laws. The
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Massachusetts corporation By-laws state that the Control Share Acquisition
statute shall not apply to the Massachusetts corporation. Delaware does not
have a Control Share Acquisition statute.
Exculpation of Directors
The Delaware Law and the Massachusetts Law have substantially similar
provisions relating to exculpation of directors. Each state's law permits, and
the Company's and the Massachusetts corporation's charters provide, that no
director shall be personally liable to the Company and the Massachusetts
corporation, respectively, or their respective stockholders for monetary
damages for breaches of fiduciary duty except where such exculpation is
expressly prohibited by law. The circumstances under which exculpation is
prohibited are substantially similar in Delaware and Massachusetts, except
that in Massachusetts, a director is not exculpated from liability under
provisions of the Massachusetts Law relating to unauthorized distributions and
loans to insiders, while in Delaware, a director is not exculpated from
liability under provisions of the Delaware Law relating to unlawful payments
of dividends, any unlawful stock purchases or redemptions. Both laws also
contain certain enumerated circumstances in which exculpation is not
permissible.
Indemnification of Directors, Officers and Others
Both the Delaware Law and the Massachusetts Law generally permit
indemnification of directors and officers for expenses incurred by them by
reason of their position with the corporation if the director or officer has
acted in good faith and with the reasonable belief that his conduct was in the
best interest of the corporation. However, the Delaware Law, unlike the
Massachusetts Law, does not permit a corporation to indemnify persons against
judgments in actions brought by or in the right of the corporation (although
it does permit indemnification in such situations if approved by the Delaware
Court of Chancery and for expenses of such actions).
Payment of Dividends
Under the Delaware Law, a corporation may generally pay dividends out of
surplus or, if there is no surplus, out of the net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year, unless the
capital of the corporation has been diminished by depreciation in the value of
its property, losses or otherwise to an amount less than the aggregate amount
of the capital represented by issued outstanding stock of all classes having a
preference upon the distribution of assets. Under the Massachusetts Law, the
payment of dividends is generally permissible if such actions are not taken
when the corporation is insolvent, do not render the corporation insolvent,
and do not violate the corporation's articles of organization.
Appraisal Rights
Dissenting stockholders have the right to obtain the fair value of their
shares (so-called "appraisal rights") in more circumstances under the
Massachusetts Law than under the Delaware Law. Under the Delaware Law,
appraisal rights are available in connection with a statutory merger or
consolidation in certain specified situations. Appraisal rights are not
available when a corporation is to be the surviving corporation and no vote of
its stockholders is required to approve the merger. In addition, unless
otherwise provided in the charter, no appraisal rights are available to
holders of shares of any class of stock which is either: (a) listed on a
national securities exchange or designated as a national market system
security on an inter-dealer quotation system by the National Association of
Securities Dealers, Inc. or (b) held of record by more than 2,000
stockholders, unless such stockholders are required by the terms of the merger
to accept anything other than: (i) shares of stock of the surviving
corporation; (ii) shares of stock of another corporation which are or will be
so listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by Nasdaq or held of record
by more than 2,000 stockholders; (iii) cash in lieu of fractional shares of
such stock; or (iv) any combination thereof.
Appraisal rights are not available under the Delaware Law in the event of
the sale, lease, or exchange of all or substantially all of a corporation's
assets or the adoption of an amendment to its certificate of incorporation,
unless such rights are granted in the corporation's certificate of
incorporation. The Company's charter does not grant such rights.
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Under the Massachusetts Law, a dissenting stockholder is entitled to receive
the appraised value of his shares when the corporation votes (i) to sell,
lease, or exchange all or substantially all of its property and assets, (ii)
to adopt an amendment to its articles of organization which adversely affects
the rights of the stockholder, or (iii) to merge or consolidate with another
corporation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The change to Massachusetts is intended to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"), and no gain or loss will be recognized by stockholders of the Company
upon conversion of their shares into shares of the Massachusetts corporation.
The basis of the shares of the Massachusetts corporation received by the
stockholders of the Company will be the same as the basis of the shares of the
Company. The holding period of the Massachusetts corporation will include the
period during which the Company were held, provided that the shares of the
Company were held as a capital asset at the time of the change. The foregoing
discussion of federal income tax consequences is included herein for
informational purposes only. Each stockholder should consult his or her tax
adviser regarding the specific tax consequences of the merger, including the
application and effect of state and local tax laws.
SECURITIES ACT CONSEQUENCES
The shares of the Massachusetts corporation to be issued in exchange for
shares of the Company are not being registered under the Securities Act of
1933, as amended (the "1933 Act"), in reliance on Rule 145(a)(2) under the
1933 Act, which provides that a merger which has as its sole purpose a change
in the domicile of the corporation within the United States does not involve
the sale of securities for purposes of the 1933 Act. After the merger, the
Massachusetts corporation will be a publicly held company, its shares will be
traded on the Nasdaq Stock Market and it will file with the SEC and provide to
its stockholders the same type of information that the Company has previously
filed and provided. Stockholders whose stock in the Company is freely tradable
before the merger will continue to have freely tradable shares of the
Massachusetts corporation. Stockholders holding restricted securities of the
Company will be subject to the same restrictions on transfer as those to which
their present shares of stock in the Company are subject.
ABANDONMENT
Notwithstanding approval of the stockholders, the Company reserves the right
by action of the Board of Directors to abandon the proposed change prior to
its effectiveness if it determines that such abandonment is in the best
interests of the Company. The Board of Directors has made no determination as
to any circumstances which may prompt a decision to abandon the proposed
reincorporation.
AMENDMENT TO THE 1993 STOCK OPTION PLAN
(ITEM 3 OF NOTICE)
On March 4, 1998, the Board of Directors of the Company adopted an amendment
to the 1993 Stock Option Plan (the "Stock Option Plan") to increase the
maximum aggregate number of shares available for issuance thereunder by
440,000, from 1,460,000 to 1,900,000 shares. The purpose of the increase in
the maximum aggregate number of shares available for issuance is to permit the
continuing grant of stock options, which the Board of Directors believes is
necessary to continue to attract and retain key personnel.
Approval by stockholders of the amendments to the Stock Option Plan is
sought in order to meet the stockholder approval requirements of (i) Section
422 of the Code, which requires stockholder approval of any increase in the
number of shares which may be issued under an incentive stock option plan,
(ii) Rule 16b-3 under the 1934 Act, which, in the case of certain option plans
that have been approved by stockholders, prevents the grant of options to
directors, executive officers and certain other affiliates from being deemed
"purchases" for purposes of the profit recapture provisions of Section 16(b)
of that Act, (iii) Section 162(m) of the Code,
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which among other qualifications requires stockholder approval of any option
plan to exempt the spread (the difference between the exercise price and the
market value at the time of exercise) of options from the limitation on
deductibility under that section, and (iv) the rules applicable to companies
whose shares are traded on the Nasdaq Stock Market.
The Stock Option Plan currently provides for the issuance of a maximum of
1,460,000 shares of Common Stock pursuant to the grant of incentive stock
options ("ISOs") to employees and the grant of non-qualified stock options
("NQSs") to employees and consultants. Options for all but 23,283 of the
maximum number of shares have been granted.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors, which consists of members of the Board who are
"disinterested persons" and "outside directors" within the meaning of the 1934
Act and the Code, respectively. Current members are Ronald W. White and Zenas
Hutcheson III. Subject to the provisions of the Stock Option Plan itself, the
Compensation Committee has the authority to select the recipients of options
and determine the terms of the options granted, including: (i) the number of
shares; (ii) the exercise period (which may not exceed ten years); (iii)
vesting provisions; (iv) the exercise or purchase price; (v) the type and
duration of transfer or other restrictions; and (vi) the time and form of
payment upon exercise of options. In 1996 the Directors adopted amendments to
the plan which require that vesting of grants not be greater than 12.5% per
quarter and that all exercise prices be at fair market value at the date of
grant. To date the Company has not repriced any of its option grants.
Options granted are not transferable by the optionee except by will or by
the laws of descent and distribution, and each option may be exercised during
the optionee's lifetime only by him or her. Also, generally, no option may be
exercised more than three months following termination of employment. Options
granted under the Stock Option Plan are generally exercisable in a 25%
increment on the first anniversary of grant and in equal quarterly
installments for the three years thereafter.
For federal tax purposes, no taxable income is recognized by the optionee
upon grant of any option. No taxable income is recognized by the optionee upon
exercise of an ISO so long as the shares acquired are held for at least two
years from the date of grant and one year from the date of exercise and,
correspondingly, there is no compensation deductible by the Company. Upon sale
of the shares by the optionee after such holding periods, any gain or loss
over the exercise price is long-term capital gain or loss. Long term capital
gain realized by an individual U.S. optionee will generally be subject to a
maximum tax rate of 28% in respect of property held for a period exceeding one
year but not exceeding 18 months and to a maximum rate of 20% in respect of
property held for a period exceeding 18 months. In the case of NSOs, ordinary
compensation income is recognized by the optionee upon exercise in the amount
of any excess of the then fair market value over the exercise price, and the
Company is entitled to a corresponding deduction. In the event an optionee
disposes of shares purchased under an ISO before the holding periods referred
to above are met, the disposition is treated similarly to the exercise of an
NSO.
At March 6, 1998, there were outstanding under the Stock Option Plan options
held by employees of the Company to purchase an aggregate of 1,084,817 shares
of Common Stock. The exercise prices of options granted to date range from
$3.00 to $26.75 per share, and such options expire between March 2004 and
March 2007. Approximately 310 employees are eligible to receive options under
the Stock Option Plan. However, it is the current policy of the Compensation
Committee to grant options under the Stock Option Plan only to officers of the
Company, of which there are 13. During 1997, under the plan, no options were
granted to the Named Executive Officers, options for 65,000 shares were
granted to other executive officers, and no options were granted to non-
executive officer employees.
The Board of Directors recommends approval of the amendment increasing the
number of shares because it believes that the continuing availability of
grants under the Stock Option Plan is a very important factor in the Company's
ability to attract and retain experienced key personnel. The ability to grant
stock options is a critical
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component in recruiting and retaining such personnel. Substantially all of the
companies with which the Company competes for such personnel routinely offer
stock options to prospective and current employees, and accordingly the
Company views the ability to grant options to key personnel as essential to
maintaining its competitive position.
AMENDMENT TO THE 1993 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 4 OF NOTICE)
On March 4, 1998, the Board of Directors of the Company adopted amendments
to the 1993 Employee Stock Purchase Plan (the "Stock Purchase Plan") to
increase the number of shares issuable thereunder from 200,000 to 400,000
shares. The purpose of the increase is to permit the Company to continue to
provide its employees with an opportunity to participate in the growth of the
Company through the purchase of Common Stock at a discount from market value.
Approval by stockholders of this increase is required in order to meet the
stockholder approval requirements of (i) Section 423 of the Code, which
governs stock purchase plans, (ii) Rule 16b-3 under the 1934 Act, and (iii)
the rules applicable to Companies whose shares are traded on the Nasdaq Stock
Market.
The Stock Purchase Plan currently provides for the issuance of a maximum of
200,000 shares of Common Stock, of which all but 28,219 have been issued or
reserved for issuance pursuant to the current offering under the plan.
The Stock Purchase Plan is intended to provide employees of the Company with
an opportunity to participate in the growth of the Company through the
purchase of Common Stock at a discount from market value. All employees of the
Company whose customary employment is in excess of 20 hours per week and more
than five months per year, other than those employees who own 5% or more of
the stock of the Company, are eligible to participate in the Stock Purchase
Plan. The Stock Purchase Plan is implemented by offerings which to date have
been and are expected to be six months in duration. An eligible employee
participating in an offering is able to purchase Common Stock at a price equal
to the lesser of (i) 85% of its fair market value at the commencement of the
offering period and (ii) 85% of its fair market value on the last day of the
offering period. Payment for Common Stock purchased under the Stock Purchase
Plan is through regular payroll deductions or lump sum cash payment, or both,
as determined by the Compensation Committee. The maximum value of Common Stock
an employee may purchase during an offering period is 10% of the employee's
base compensation during such period, calculated on the basis of the
employee's compensation rate on the date the employee elects to participate in
the offering. All of the Company's employees are eligible to participate in
the Stock Purchase Plan if they are employees as of the opening of any
offering period.
The following table sets forth the number of shares purchased during 1997
under the Stock Purchase Plan by the Named Executive Officers, the current
executive officers as a group, and the non-executive officer employees.
<TABLE>
<S> <C>
Robert P. Schechter................................................... 800
Ronald J. Bleakney.................................................... 800
Charles T. Foskett.................................................... 800
Allen P. Carney....................................................... 617
George D. Kontopidis, Ph. D........................................... 800
Current executive officers as a group (14 persons).................... 5,770
Non-executive officer employees....................................... 63,118
</TABLE>
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The Board of Directors recommends approval of the amendment increasing the
number of shares because it believes that the continuing availability of
shares under the Stock Purchase Plan is a very important factor in the
Company's ability to attract and retain experienced employees. The Company
needs to hire additional skilled personnel to support the continued growth of
its business, and the market for skilled personnel, especially those with the
technical abilities required by the Company, is currently very competitive.
This component of compensation is a important component in recruiting and
retaining such skilled personnel.
AMENDMENT TO THE 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
(ITEM 5 OF NOTICE)
On December 19, 1997, the Board of Directors of the Company adopted an
amendment to the 1993 Non-Employee Stock Option Plan (the "Directors' Plan")
to accelerate the vesting of all options granted under the Plan if a change-
in-control occurs. For purposes of the amendment, a change-in-control shall
mean (i) the direct or indirect acquisition by any person, entity or group
acting in concert of more than 35% of the aggregate voting power of the
outstanding securities of the Company having the right to vote at elections of
directors, (ii) a majority of the board of directors of the Company ceasing to
consist of individuals who are members of such board on December 19, 1997 or
for whose nomination for such membership a majority of such members voted in
favor, or (iii) the disposition by the Company of substantially all its
business, other than in connection with a mere change of place of
incorporation or similar mere change in form.
The purposes of the amendment is to more fully align the economic interest
of the directors with those of the stockholders in considering a transaction
involving a change-in-control. Stockholder approval of the amendment is sought
in order to meet the stockholder approval requirements of (i) Rule 16b-3 under
the 1934 Act and (ii) the rules applicable to companies whose shares are
traded on the Nasdaq Stock Market.
The Directors' Plan provides for the issuance of up to 120,000 shares of
Common Stock pursuant to the grant of non-qualified stock options to directors
who are not employees of the Company. On March 6, 1998, there were outstanding
options to purchase 60,705 shares of Common Stock at prices ranging from $4.88
to $49.25 per share. Under the Directors' Plan, each non-employee director
currently receives (i) upon first being elected to the board an option for
15,000 shares which vests over three years and (ii) annually at the time of
the annual meeting of stockholders an option for 5,000 shares which vests at
the time of the next annual meeting. For federal income tax purposes, ordinary
compensation income is recognized upon exercise by the optionee in the amount
of any excess of the then fair market value over the exercise price, and the
Company is entitled to a corresponding deduction.
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
(ITEM 6 OF NOTICE)
On the recommendation of the Audit Committee, the Board of Directors has
selected Coopers & Lybrand LLP, independent certified public accountants, as
auditors of the Company for the fiscal year ending December 31, 1998. This
firm has audited the accounts and records of the Company since 1997. A
representative of Coopers & Lybrand LLP is expected to 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.
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STOCKHOLDER PROPOSALS FOR 1998 MEETING
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received on or before November 19, 1998 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 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 19, 1998
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.
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NATURAL MICROSYSTEMS CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR ANNUAL MEETING ON APRIL 16, 1998
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 the name of the undersigned at the Annual
Meeting of Stockholders of Natural MicroSystems Corporation to be held at its
offices at 100 Crossing Boulevard, Framingham, Massachusetts on April 16, 1998
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" THE OTHER PROPOSALS. THE PROXY
WILL BE VOTED IN ACCORDANCE WITH THE HOLDER'S BEST JUDGMENT AS TO ANY OTHER
MATTERS.
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.
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PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED?
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
NATURAL MICROSYSTEMS CORPORATION
- --------------------------------------------------------------------------------
FOR ALL WITH- FOR ALL
1. Elect two Directors. NOMINEES HOLD EXCEPT
W. FRANK KING [_] [_] [_]
PAMELA D.A. REEVE
NOTE: If you do not wish your shares voted "For" a particular nominee, mark the
"For All Except" box and strike a line through the name(s) of the nominee(s).
Your shares will be voted for the remaining nominee(s).
RECORD DATE SHARES:
----------------------------
Date
Please be sure to sign and date this Proxy.
- --------------------------------------------------------------------------------
- -----------Stockholder sign here-----------------------Co-owner sign here-------
DETACH CARD
FOR AGAINST ABSTAIN
2. Approve a change in the Company's state of [_] [_] [_]
incorporation from Delaware to Massachusetts.
3. Approve amendments to the 1993 Stock Option [_] [_] [_]
Plan to increase the available number of
shares for issuance thereunder.
4. Approve amendments to the 1993 Non-Employee [_] [_] [_]
Director Stock Option Plan to increase the
available number of shares for issuance
thereunder.
5. Approve amendments to the 1993 Employee Stock [_] [_] [_]
Purchase Plan to provide for the vesting of
shares upon a change of control.
6. Ratify the selection of Coopers & Lybrand LLP [_] [_] [_]
as the Company's 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, 3, 4, 5 AND 6.
Mark box at right if an address change has been noted on the reverse [_]
side of this card.
DETACH CARD
