UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.              )

NATIONAL SEMICONDUCTOR CORPORATION
2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Friday, September 28, 2007

10:00 a.m.

Building E, National Semiconductor Corporation Headquarters

2900 Semiconductor Drive

Santa Clara, California 95051

To the owners of common stock of National Semiconductor Corporation:

The annual meeting of stockholders of National Semiconductor Corporation, a Delaware corporation, will be held on Friday, September 28, 2007 at 10:00 a.m. Pacific Daylight Time in Building E of National’s headquarters located at 2900 Semiconductor Drive, Santa Clara, California, for the following purposes:

1.                To elect a Board of nine directors;

2.                To ratify the appointment of KPMG LLP as the independent auditors of the Company;

3.                To approve the adoption of the 2007 Employees Equity Plan;

4.                To approve the 2005 Executive Officer Equity Plan, as amended; and

5.                To conduct any other business properly raised at the meeting or at any adjournment of the meeting.

The record date for the meeting is the close of business on August 1, 2007 and only the holders of the common stock on that date will be entitled to vote at the meeting or at any adjournment of the meeting. All stockholders are invited to attend the meeting in person. Any stockholder attending the meeting may vote in person even if the stockholder previously returned a proxy.

Please return your signed proxy card

IMPORTANT: PLEASE COMPLETE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET, BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD. IF YOU VOTE BY TELEPHONE OR INTERNET, YOU DO NOT HAVE TO MAIL IN YOUR PROXY CARD. VOTING IN ADVANCE BY MAIL, TELEPHONE OR INTERNET WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE MEETING, BUT IT WILL HELP TO ENSURE A QUORUM AND AVOID ADDED COSTS.

PROXY STATEMENT

Table of Contents

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NATIONAL SEMICONDUCTOR CORPORATION

2900 Semiconductor Drive, P.O. Box 58090
Santa Clara, California 95052-8090

PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 2007

GENERAL INFORMATION

This proxy statement is provided to you by the Board of Directors of National Semiconductor Corporation, which is asking for your proxy to be used at the annual meeting of stockholders on September 28, 2007, or at any adjournment of the meeting. Our annual report on Form 10-K, which includes our audited financial statements for the fiscal year ended May 27, 2007, has been mailed to you with or shortly before this proxy statement. The report also contains details on our operations and other relevant information. This proxy statement and proxy card will first be sent to stockholders on approximately August 24, 2007.

Proxy Voting Procedures

You may vote in person at the meeting or by proxy. We recommend you vote by proxy even if you plan to attend the meeting. You can always change your vote at the meeting. Giving us your proxy means you authorize us to vote your shares at the meeting in the manner you direct. You may vote for or against each of our director candidates. You may also vote for or against the other proposals or abstain from voting.

If your shares are held in your name, you can vote by proxy in three convenient ways:

·       Via Internet: go to http://www.investorvote.com and follow the instructions. You will need to enter the control number printed on your proxy card.

·       By Telephone: call toll-free 1-800-652-VOTE (8683) and follow the instructions. You will need to enter the control number printed on your proxy card.

·       In Writing: Complete, sign, date and return your proxy card in the enclosed envelope.

Your proxy card shows all shares registered in your name. If you hold shares through someone else, such as a stockbroker, you may receive material from the brokerage firm asking how you want to vote. Check the voting form used by that firm to see if it offers Internet or telephone voting.

If you give us your signed proxy, but do not specify how to vote, we will vote your shares in favor of each of our director candidates, in favor of the proposal to ratify the appointment of KPMG LLP as our independent auditors, in favor of the proposal to approve the adoption of the 2007 Employees Equity Plan and in favor of the proposal to approve the 2005 Executive Officer Equity Plan, as amended. If any other matters of which we were not notified by July 15, 2007 are raised at the meeting, we will use our best judgment to vote your proxy. At the time this proxy statement was printed, we were not aware of any other matters to be voted upon.

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You may revoke your proxy at any time before it is voted by (1) submitting a new proxy with a later date, including a proxy given via the Internet or by telephone; (2) notifying National’s Secretary in writing before the meeting; or (3) voting in person at the meeting.

Solicitation Costs

We pay the cost of soliciting proxies, including the preparation, printing, assembly and mailing of this proxy statement, the proxy cards and any other information provided to stockholders. Stockholders who own stock through brokers or other intermediaries, and not directly through ownership of stock certificates, are considered beneficial owners. Copies of the proxy solicitation materials will be provided to brokers, fiduciaries and custodians to forward to beneficial owners of stock held in their names. National’s directors, officers or employees may solicit proxies in person, by telephone, by fax or electronically. We have paid Georgeson Shareholder Communications, Inc., 17 State Street, New York, New York, 10004 a basic retainer fee of $8,500, plus reimbursement of expenses, to help solicit proxies from brokers and nominees. We have also paid Computershare Trust Company, N.A., P.O. Box 43078, Providence, R.I. 02940-3078 a fee of $5,000, plus expenses, to help count proxies.

Attending in Person

IMPORTANT! Only stockholders of record on August 1, 2007 and invited guests may attend the meeting. If you own your shares directly and are listed as a stockholder of record on August 1, 2007, you will be admitted to the meeting with proof of identification. If your shares are held in the name of your broker, bank or other nominee, you must bring to the meeting either a copy of the voting instruction card provided by your nominee or an account statement or other letter from the nominee indicating you were the beneficial owner of the shares on August 1, 2007.

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CORPORATE GOVERNANCE, BOARD MEETINGS AND COMMITTEES

Our Board of Directors believes National has implemented effective corporate governance policies and observes good corporate governance procedures and practices. We have formal principles of corporate governance, charters of our standing Board committees, a Code of Business Conduct and Ethics and procedures for reporting stock trades and other transactions by directors and executive officers. We have reviewed our corporate governance practices and we believe that our existing governance structure, policies and procedures comply with the rules and accepted practices of the SEC and the New York Stock Exchange. All of our Board committee charters, our Code of Business Conduct and Ethics and our corporate governance policies are available, free of charge, on our website at http://www.national.com/invest. They are also available in print free of charge to any stockholder who requests them. Requests for print copies should be sent to: Investor Relations, Mail Stop G2-397, National Semiconductor Corporation, 2900 Semiconductor Drive, P.O. Box 58090, Santa Clara, California 95052-8090.

Code of Business Conduct and Ethics

We have a Code of Business Conduct and Ethics, which we believe satisfies the SEC and the New York Stock Exchange rules. The Code applies to our non-employee directors and to all our employees, including our chief executive officer, our chief financial officer and our principal accounting officer. Our Code of Business Conduct and Ethics is available, free of charge, on our website at http://www.national.com/invest.

Meetings

The Board of Directors held six meetings during the fiscal year ended May 27, 2007 (fiscal 2007). All of the directors attended 75% or more of the meetings of the Board of Directors and the Committees of the Board on which they served during fiscal 2007.

Our corporate governance guidelines require the non-management directors to meet regularly in executive session. The Board has appointed Mr. McCracken to serve as the Lead Independent Director and, in that capacity, he coordinates the activities of non-management directors, serves as the principal liaison between the non-management directors and the chairman, and presides over the executive sessions of the non-management directors.

We invite our Board members to and expect them to attend the annual stockholders meeting, it being understood that sometimes a director may have to miss the meeting for a valid reason. All of our directors except one attended our 2006 annual meeting of stockholders.

Director Independence

New York Stock Exchange rules require a majority of our Board of Directors to be independent of the Company and its management. The Board of Directors is required under these rules to make affirmative independence determinations based on all relevant facts and circumstances as well as under specific rules established by the New York Stock Exchange. Our Board has affirmatively determined that all of its members are independent under these rules, except for Mr. Halla, who is an employee of the Company. In making these determinations, the Board reviewed organizations with which each director has an affiliation and examined all facts and circumstances that might bear on the materiality of a director’s relationship with the Company.

Certain Relationships and Related Party Transactions

We review all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a

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direct or indirect material interest. As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed in the proxy statement. In addition, the Audit Committee reviews and approves or ratifies any related person transaction that is required to be disclosed. In accordance with Audit Committee policy, in the course of its review and ratification of a disclosable related party transaction, the Committee considers:

a.                 the nature of the related person’s interest in the transaction;

b.                the material terms of the transaction;

c.                 the significance of the transaction to the related person;

d.                the significance of the transaction to the Company;

e.                 whether the transaction would impair the judgment of a director or executive officer to act in the best interests of the Company; and

f.                   any other matters the Committee deems appropriate.

During fiscal 2007, there were no related party transactions between the Company and our directors, executive officers or their immediate family members.

Board Committees

We have three standing Board Committees: Audit, Compensation, and Governance. More information on each Committee is presented below:

Audit Committee

The Audit Committee’s primary function is to assist the Board in its oversight of the integrity of Company’s financial systems, including the Company’s accounting, auditing, and financial reporting and disclosure processes, internal controls over financial reporting and internal control systems. The Audit Committee meets with management and our independent and internal auditors to consider the adequacy of the Company’s internal controls and other financial reporting and disclosure matters. As required by the Sarbanes-Oxley Act and implementing rules of the Securities and Exchange Commission, the Audit Committee is directly responsible for the engagement of, including the appointment, compensation, retention and oversight of the work of, the Company’s independent auditors, and the independent auditors report directly to the Audit Committee. The Committee discusses with the independent auditors their audit procedures, including the proposed scope of their audit, the audit results and the accompanying management letters and, in connection with determining their independence, reviews the services performed by the independent auditors. The Audit Committee held eight meetings during fiscal 2007. Mr. Frankenberg is Chairman of the Audit Committee and the other members are Mr. Arnold, Mr. Danzig and Mr. Dickson. Our Board has determined that all members of the Audit Committee satisfy both New York Stock Exchange and SEC standards for independence and are considered to be financially literate. The Board has also determined that Mr. Arnold qualifies as an “audit committee financial expert” under the rules of both the Securities and Exchange Commission and the New York Stock Exchange. The Audit Committee’s Charter can be found on our website at http://www.national.com/invest.

We have instituted procedures for employees to submit, anonymously and confidentially, concerns regarding questionable accounting or auditing matters and other legal compliance concerns. These procedures are outlined in our Code of Business Conduct and Ethics, which is available on our website at http://www.national.com/invest.

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Compensation Committee

The Compensation Committee is responsible for administering stock compensation plans, reviewing and evaluating compensation programs and plans, and establishing and administering compensation policy and executive pay programs for the executive officers, including setting compensation, base salary, and incentive awards. A narrative description of processes and procedures used in the determination of executive compensation can be found in the Compensation Discussion and Analysis beginning on page 46. The Compensation Committee is also responsible for recommending amendments to the stock compensation plans and certain other compensation plans and, in some cases, amending these plans. The Compensation Committee met five times during fiscal 2007. Mr. Appleton is Chairman of the Compensation Committee and the other members are Dr. Maidique and Mr. McCracken. The Board has determined that all members of the Compensation Committee meet the independence standards set by the New York Stock Exchange. The Compensation Committee’s Charter can be found on our website at http://www.national.com/invest.

Governance Committee

The Governance Committee recommends director candidates, reviews corporate governance policies and procedures, reviews non-employee director compensation, reviews the general responsibilities and functions of the Board and oversees the evaluation of the Board. Mr. Danzig is Chairman of the Governance Committee and the other members are Mr. Appleton, Mr. Arnold, Mr. Dickson, Mr. Frankenberg, Dr. Maidique and Mr. McCracken. The Board has determined that all members of the Governance Committee meet the independence standards set by the New York Stock Exchange. This Committee met four times during fiscal year 2007. The Governance Committee’s Charter is available on our website at http://www.national.com/invest.

Stock Ownership Requirements

We have stock ownership guidelines for directors to ensure that they have a meaningful economic stake in the Company. The Governance Committee reviews the guidelines regularly and, during fiscal 2007, used the services of Mercer Human Resources as a consultant to assist in evaluating the guidelines in view of market practices. At the end of fiscal 2007, each director was in compliance with the guidelines.

Stockholder Recommendations for Director Candidates

The Governance Committee will consider director candidates recommended by stockholders of the Company. Any stockholder who wishes to recommend a prospective Board nominee for the Committee to consider can write the Chairman of the Governance Committee, c/o Brian L. Halla, Chairman and CEO, National Semiconductor Corporation, P.O. Box 58090, 2900 Semiconductor Drive, M/S G3-100, Santa Clara, CA 95052-8090. Recommendations will be referred to the Governance Committee. Any formal nominations of director candidates should be addressed to the Secretary of National Semiconductor Corporation at P.O. Box 58090, 2900 Semiconductor Drive, M/S G3-135, Santa Clara, CA 95052-8090, and must also comply with the applicable provisions of National’s Bylaws.

The Governance Committee evaluates candidates, whether or not recommended by stockholders, with a goal of bringing to the Board the best qualified individuals. Evaluation criteria considered include: education, background and experience; familiarity with National, the semiconductor industry and international business matters; appreciation of the relationship of the Company’s business to the changing needs of our society; and willingness to devote the time required to serve on the Board, including attending meetings, reviewing meeting materials in advance and serving all Board functions in a professional manner. One or more of these factors may be given more weight in a particular case and no single factor

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will be viewed as determinative. The Governance Committee may use professional recruiters to identify candidates and, in addition to evaluating candidates recommended by stockholders, considers recommendations from other Board members, personal contacts and industry sources. The Governance Committee did not use any such recruiters in fiscal 2007.

Communications with the Board

Stockholders and interested parties may communicate with the Board, its Committees, and the non-management directors as a group regarding any matter by addressing communications to the Lead Independent Director, c/o Brian L. Halla, Chairman and CEO, National Semiconductor Corporation, P.O. Box 58090, 2900 Semiconductor Drive, M/S G3-100, Santa Clara, CA 95052-8090. All communications from stockholders should identify the amount and nature of the stockholder’s ownership of National stock. The Company Secretary will review all communications prior to delivery to confirm that none of the communications contain any threats of physical harm or violence to either National or our officers, employees or directors and that stockholder communications are from bona fide stockholders.

Compensation Committee Interlocks and Insider Participation

None of our non-employee directors have any material business relationships with us and none of our directors have loans from us. As noted above, the current members of the Compensation Committee are Messrs. Appleton, Maidique, and McCracken. During fiscal year 2007, no member of this Committee was an officer or employee of National or its subsidiaries. No member of this Committee has been an officer of National or had any other relationship we are required to disclose under SEC rules and all members are independent under the standards set by the New York Stock Exchange. No executive officer of National served as a member of the Compensation Committee of, or as a director of, any company where an executive officer of that company was a member of our Board or this Committee. We therefore do not have any Compensation Committee interlocks or insider participation we are required to report under SEC rules.

Director Compensation

Director compensation is reviewed by the Governance Committee which then makes recommendations to the full Board of Directors. The Board of Directors is responsible for establishing the final terms of director compensation.

We pay directors who are not employees of National an annual fee of $50,000, plus fees of $1,500 for each Committee meeting attended. We pay the Lead Independent Director, the Chairman of the Governance Committee and the Chairman of the Compensation Committee each an additional annual fee of $7,500, while the Chairman of the Audit Committee receives an additional annual fee of $12,500. Directors who are not employees are also reimbursed for actual expenses to attend meetings. The retainer and meeting fees appear in the Director Compensation Table under “Fees Earned or Paid in Cash”; totals in this column include the value of retainer fees that the director elected to take in stock.

We also pay a portion of director compensation in stock. Under the terms of the stockholder approved Director Stock Plan, each non-employee director receives 12,000 shares of stock when first elected or appointed to the Board and an additional 12,000 shares on the date of each subsequent re-election by the stockholders. Non-employee directors may also elect to take their annual retainer fees in

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stock. Restrictions on the stock issued in lieu of retainer fees expire six months after issuance. Restrictions on the 12,000 shares issued automatically expire thirty-six months after issuance. During fiscal 2007, a total of 103,096 shares was issued to non-employee directors under the Director Stock Plan. The compensation expense recognized during the 2007 fiscal year associated with the shares issued under the Director Stock Plan is shown in the Director Compensation Table under “Stock Awards”. Dividends paid on shares issued under the Director Stock Plan that are still subject to restriction at the time the dividend was paid are shown in the Director Compensation Table under “All Other Compensation”.

Below is a table showing the compensation received by our non-employee directors during fiscal 2007:

Director Compensation(1)

       (1) Non-employee directors only.

       (2) Includes annual retainer fees, committee chairmanship fees and meeting fees, as well as cash retainer fees forgone at the election of director in exchange for shares issued under the Director Stock Plan. The dollar amount of cash retainer fees forgone during the fiscal year in exchange for shares under the Director Stock Plan was: Mr. Appleton: $57,497; Mr. Kvamme: $49,988; and Mr. McCracken: $57,497.

       (3) Stock awards represent the compensation expense associated with shares issued under the Director Stock Plan that was recognized for financial statement reporting purposes during the fiscal year. Amounts vary depending on whether the director has elected to take annual retainer fees in stock and whether the director is eligible for retirement treatment under the Director Stock Plan. As of our fiscal year end, all of our directors except Mr. Dickson are eligible for retirement treatment; Mr. Appleton became eligible for retirement treatment during the fiscal year. Restrictions on the stock awards expire between 6 - 36 months after issuance. The total grant date fair value for the shares subject to this expense (which may include shares issued in a prior fiscal year), based on the opening price on the date of issuance was: Mr. Appleton: $644,297; Mr. Arnold: $279,000; Mr. Danzig: $279,000; Mr. Dickson: $613,200; Mr. Frankenberg: $279,000; Mr. Kvamme: $328,988; Dr. Maidique: $279,000; Mr. McCracken: $336,497.

       (4) Aggregate number of shares issued under Director Stock Plan that are still subject to restriction at end of fiscal 2007 (includes shares issued in prior fiscal years that are still subject to restriction at fiscal year end): Mr. Appleton: 24,000; Mr. Arnold: 24,000; Mr. Danzig: 24,000; Mr. Dickson: 24,000; Mr. Frankenberg: 24,000; Mr. Kvamme: 24,000; Dr. Maidique: 24,000; Mr. McCracken: 24,000.

Aggregate number of options held by each of the directors at fiscal year end: Mr. Appleton: 30,000; Mr. Arnold: 0; Mr. Danzig: 90,000; Mr. Dickson: 0; Mr. Frankenberg: 130,000; Mr. Kvamme: 140,000; Dr. Maidique: 40,000; Mr. McCracken: 90,000. We ceased granting options to directors in fiscal 2006.

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       (5) This column represents dividends paid on shares issued under the Director Stock Plan, including shares issued in prior fiscal years, that are subject to restriction at the time the dividend was paid during the 2007 fiscal year. Dividends are not factored into the grant date fair valuation of shares issued under the Director Stock Plan. The incremental cost to the Company of perquisites in fiscal 2007 for each of the directors did not exceed $10,000.

Director Retirement and Termination Benefits

Except as described below, we do not have any director termination or retirement benefits.

In 1994, the Board adopted a policy providing for a retirement benefit for Board members consisting of the payment of the annual retainer fee (currently $50,000 per year) for a period of one half of the number of years the director served on the Board, with these payments limited to a maximum of twelve years. The policy has been terminated, although we are currently making payments under this policy to three retired directors and one current director is eligible for benefits under this policy upon his retirement.

Upon a termination of service as a director by reason of death, disability or retirement, the restrictions on the shares issued to directors under the Director Stock Plan expire provided the director has completed a minimum of six months of service. Directors are eligible for these retirement provisions once they have either completed at least five years of service or have reached the mandatory retirement age of 70.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, as well as persons owning over 10% of our stock, to file reports of ownership and changes in ownership of National stock with the SEC. Copies of these reports must also be provided to us. Based upon our review of the copies of these reports provided to us, and written representations that no other reports were required to be filed, we believe that all reporting requirements under Section 16(a) for executive officers, directors and those stockholders owning over 10% of the common stock were complied with during fiscal year 2007 except for one report filed late by Edward J. Sweeney, Senior Vice President, Human Resources, reporting the disposition of shares from his 401(k) plan account in the Retirement and Savings Program.

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REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors has provided the following report:

The Audit Committee’s primary function is to assist the Board of Directors in its oversight of the integrity of the Company’s financial systems, including the Company’s accounting, auditing, and financial reporting and disclosure processes, internal controls over financial reporting and internal control systems. The Audit Committee is responsible for the appointment, compensation, retention and oversight of the work of the Company’s independent auditors; oversees the Company’s internal audit function and the Company’s compliance with legal and regulatory requirements; establishes procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls, or auditing matters; and otherwise discharges Audit Committee functions imposed by regulatory requirements. The Audit Committee specifically approves all audit and non-audit services performed by the independent auditor. The Committee’s responsibilities are more fully described in its Charter which has been adopted by the Board of Directors and is available on the Company’s website at http://www.national.com/invest. As required by the Charter, the Committee reviews and assesses the adequacy of its Charter on an annual basis.

The Audit Committee is composed of four non-employee members, each of whom is independent of the Company, as defined under the New York Stock Exchange listing standards. The Audit Committee also includes at least one independent director who is determined by the Board to have the qualifications of an “audit committee financial expert” in accordance with SEC rules. Mr. Arnold has been designated by the Board of Directors as the audit committee financial expert.

The Audit Committee held 8 meetings during fiscal year 2007.

Management is responsible for the preparation, integrity, objectivity and public reporting of the Company’s consolidated financial statements. It also has responsibility for maintaining accounting and financial reporting principles and internal controls and procedures designed to reasonably assure compliance with accounting standards and applicable laws and regulations. KPMG LLP, our independent auditor, is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the fairness and conformity of those financial statements to generally accepted accounting principles. KPMG LLP is also responsible for expressing an opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting. KPMG LLP will also express its own opinion on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee’s responsibility is to monitor and oversee those processes. As required by the Audit Committee Charter, the Audit Committee has:

·       reviewed and discussed the audited consolidated financial statements and internal controls over financial reporting with management;

·       discussed with KPMG LLP the results of its integrated audit, including the matters required to be discussed by Statement on Auditing Standards No. 61, “Communications with Audit Committees”;

·       received the written disclosures and the letter from KPMG LLP regarding auditor independence required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”;

·       discussed with KPMG LLP the accounting firm’s independence from the Company; and

·       considered whether KPMG LLP’s provision of non-audit services to the Company is compatible with maintaining the accounting firm’s independence from the Company.

Based on its review and discussions with management and KPMG LLP, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended May 27, 2007. The Audit Committee has also approved, subject to ratification by the stockholders, the reappointment of KPMG LLP as our independent auditors for fiscal year 2008.

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SECURITY OWNERSHIP OF MANAGEMENT

The following table shows the number of shares of National common stock (our only class of equity securities outstanding) beneficially owned as of August 1, 2007 by each director, by the executive officers named in the Summary Compensation Table, and by all directors and executive officers as a group:

Common Stock

                 *  Less than 1 percent.

       (1)  Includes 671 shares owned by a trust of which Mr. Halla is a beneficiary and 6,502,916 shares which Mr. Halla has the right to acquire within 60 days through the exercise of stock options.

       (2)  Includes 30,000 shares which Mr. Appleton has the right to acquire within 60 days through the exercise of stock options.

       (3)  Includes 90,000 shares which Mr. Danzig has the right to acquire within 60 days through the exercise of stock options.

       (4)  Includes 130,000 shares which Mr. Frankenberg has the right to acquire within 60 days through the exercise of stock options.

       (5)  Includes 140,000 shares which Mr. Kvamme has the right to acquire within 60 days through the exercise of stock options.

       (6)  Includes 20,000 shares which Dr. Maidique has the right to acquire within 60 days through the exercise of stock options.

       (7)  Includes 90,000 shares which Mr. McCracken has the right to acquire within 60 days through the exercise of stock options.

       (8)  Includes 2,356 shares held by a trust of which Mr. Macleod is a beneficiary and 2,640,416 shares which Mr. Macleod has the right to acquire within 60 days through the exercise of stock options.

       (9)  Includes 500 shares held by a trust of which Mr. Chew is a beneficiary and 1,379,791 shares which Mr. Chew has the right to acquire within 60 days through the exercise of stock options.

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(10)  Includes 99 shares held by a trust of which Mr. Kunz is a beneficiary and 535,040 shares which Mr. Kunz has the right to acquire within 60 days through the exercise of stock options.

(11)  Includes 1,031 shares owned by a trust of which Mr. Parulekar is a beneficiary and 355,207 shares which Mr. Parulekar has the right to acquire within 60 days through the exercise of stock options.

(12)  Includes 868 shares owned by spouses, 11,505 shares owned by trusts of which the officer and/or director is a beneficiary and 12,823,887 shares which can be acquired within 60 days through the exercise of stock options.

None of the shares owned by our directors and executive officers are pledged as security for any purpose.

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PROPOSALS TO BE VOTED ON AT THE MEETING

PROPOSAL 1. ELECTION OF DIRECTORS

Our Board has nominated the nine director candidates named below. Personal information on each of our director candidates is also provided below. All of our nominees currently serve as directors. None of our directors, except Brian L. Halla, CEO of National, are employed by National. All directors are elected for one year terms. Directors cannot stand for reelection after they have reached age 70. If a director nominee becomes unavailable before the meeting, your proxy authorizes the persons named as proxies to vote for a replacement nominee. We do not expect any nominee to be unable or unwilling to serve as a director.

The following table shows basic information about each nominee:

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*                    Age at May 27, 2007, the last day of our 2007 fiscal year.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF ELECTING THE NOMINEES LISTED ABOVE AS DIRECTORS. UNLESS YOU INDICATE OTHERWISE ON YOUR PROXY, YOUR SHARES WILL BE VOTED FOR THE ELECTION OF EACH OF THESE NOMINEES AS DIRECTORS. IN ORDER TO BE ELECTED, EACH DIRECTOR MUST RECEIVE A MAJORITY OF VOTES CAST WITH RESPECT TO THAT DIRECTOR.

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PROPOSAL 2. RATIFICATION OF APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY

Unless you indicate otherwise, your proxy will be voted FOR the ratification of the appointment of KPMG LLP as our independent auditors for the fiscal year ending May 25, 2008. The Audit Committee has reappointed KPMG LLP as our independent auditors and has recommended that the appointment be ratified by stockholders. KPMG LLP has been our independent auditor since we were incorporated in 1959 and has offices or affiliates in most localities throughout the world where we have operations.

The Audit Committee meets with KPMG LLP several times a year. At these meetings, the Committee reviews audit and non-audit services performed by KPMG LLP, as well as the fees charged for these services. Among other things, the Committee examines the effect that the performance of non-audit services may have on the independence of the auditors. Additional information concerning the Audit Committee and its activities can be found in sections of this proxy statement titled “Corporate Governance, Board Meetings and Committees” and “Report of the Audit Committee.”  A copy of the Audit Committee Charter can be found on our website at http://www.national.com/invest.

A representative of KPMG LLP is expected to attend the meeting and will be available to answer stockholders’ questions or have the opportunity to make a statement if he or she wishes to do so.

Fees Paid to KPMG LLP

The following table sets forth the fees paid or accrued for audit and other services provided by KPMG LLP during the last two fiscal years:

       (1) Includes fees billed for each of the last two fiscal years for professional services rendered in connection with the audit of the annual financial statements, audit of internal control over financial reporting, review of financial statements included in the 10-Q filings, and for services provided for statutory and regulatory filings or engagements for those fiscal years.

       (2) Includes fees billed in each of the last two fiscal years for assurance and audit related services.

       (3) Includes fees billed in each of the last two fiscal years for international tax compliance, tax advice, and tax planning.

       (4) Consists of fees for the license of tax compliance software.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services

Under its Charter, the Audit Committee must pre-approve the audit services and permitted non-audit services to be rendered by the independent auditors before they may be engaged to render such services. The Charter allows the Audit Committee to delegate its authority to pre-approve services to the Audit Committee Chairman, who must present any such delegated approvals to the full Committee at the next Committee meeting. In practice, the Audit Committee has delegated this pre-approval authority to be used to approve services (other than the basic audit services) of a non-routine nature that need to commence before the Committee is next able to meet. During fiscal 2007, all audit and permissible non-audit services were approved in accordance with the requirements of the Charter.

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THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO RATIFY THE SELECTION OF KPMG LLP AS OUR INDEPENDENT AUDITORS FOR FISCAL YEAR 2008. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL BE VOTED “FOR” RATIFICATION. A MAJORITY OF THE SHARES PRESENT AND ENTITLED TO VOTE IS NECESSARY FOR APPROVAL.

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EQUITY PLAN PROPOSALS—GENERAL

We are submitting two equity plans to stockholders for approval. The 2007 Employees Equity Plan (“EEP”) is a new plan that is intended to replace the Company’s existing compensation plans providing for equity based awards to the Company’s non-executive employees. The 2005 Executive Officer Equity Plan (“EOEP”) is a performance share unit and option plan approved by stockholders in October 2004 that provides equity based compensation to the Company’s executive officers which has been amended to increase the number of shares available for issuance under it. Equity continues to be an integral part of compensation for both executives and employees in the semiconductor industry. As a result, we believe that both these plans are necessary to attract, motivate and retain key talent and encourage stock ownership, while also aligning the long-term interests of the participants in the plans with those of our stockholders.

Since the EEP is designed to replace two of the Company’s existing compensatory plans, approval of the EEP by the Company’s stockholders will result in the following:

·       All equity compensation plans will have been approved by stockholders;

·       The 1997 Employees Stock Option Plan (“1997 Plan”) and the Restricted Stock Plan (“Restricted Plan”) will be frozen and no further awards will be made under those plans;

·       The 38.7 million shares available under these two existing plans and not yet subject to awards will not be used and any shares which are forfeited, cancelled or expire will not be reissued; and

·       Awards that are outstanding under the plans that are to be frozen will remain outstanding and will be administered under their original terms.

Following is a brief summary of each equity plan that we are submitting to stockholders for approval:

The EEP will be the sole plan for providing equity compensation awards to non-executive employees. The plan authorizes up to 14,000,000 shares for equity based awards in the form of stock options, restricted stock and restricted stock units. Up to 1,000,000 shares may be issued in connection with restricted stock and restricted stock units. More specific detail on the EEP is provided in “Proposal 3: Approval of the Adoption of the 2007 Employees Equity Plan” beginning on page 25.

The EOEP is the plan we use to provide equity based compensation to our executive officers. The EOEP focuses on performance by placing more emphasis on performance share units. The EOEP was approved by stockholders in fiscal 2005 and we are asking stockholders to approve the addition of 3,000,000 shares to the EOEP. Up to 1,500,000 of these new shares may be used as full-value performance shares. More specific detail on the EOEP is provided in “Proposal 4: Approval of the 2005 Executive Officer Equity Plan, as amended,” beginning on page 30.

Both the EEP and the EOEP contain a number of provisions that we believe are consistent with the interests of stockholders and sound corporate governance practices, including:

Reasonable Limitation on Shares Issued.   A combined total of 17,000,000 newly authorized shares of common stock will be authorized for issuance under the two plans. This represents a reduction of approximately 22,000,000 million shares from the current number of shares authorized for our employee equity plans. In keeping with our recent history of equity compensation use, we expect to manage the administration of the plans so that the EEP will provide for awards to non-executive employees for two fiscal years and the EOEP will provide for awards to executives for three fiscal years.

Substantially all the newly authorized shares can only be issued to non-executive level employees.   As noted earlier, 14,000,000 shares of the 17,000,000 newly authorized shares can only be issued to non-executive employees.

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No Stock Option Repricings.   Both the EEP and the EOEP prohibit repricing, regrants, exchanges and modifications of awards made under the applicable plan.

No Discount Stock Options.   All stock options must have an exercise price equal to the closing market price of the common stock on the date of grant.

Service-Based Awards Vest at Least Three Years.   Service-based awards granted under both the EEP and the EOEP must vest over a period of not less than three years of employment.

Minimum Two Year Performance Period for Performance Share Units.   The performance share units in the EOEP must have a minimum two year performance period.

Restrictions on Reuse of Shares.   The EEP and EOEP both prohibit the reuse of shares tendered, surrendered, or withheld to pay an exercise price or tax obligation.

No Award Transferability for Consideration.   Both the EEP and the EOEP strictly prohibit the transfer of awards to independent third parties for cash consideration without stockholder approval.

EOEP Fosters Stock Ownership for Executives.   Awards granted under the EOEP align the interests of executives with the interests of other stockholders, and provide a vehicle to assist executives in achievement of the Company’s stock ownership guidelines.

Plans Include Incentive Recoupment (Clawback) Clause.   Both the EEP and the EOEP include a “clawback” provision under which a grantee forfeits his right to awards if he engages in misconduct as defined in the applicable plan. In the event of misconduct by the grantee, the Company may also demand repayment of awards made previously to the grantee.

Independent Committee.   Both plans will be administered by the Compensation Committee. All members of the Compensation Committee qualify as “independent” under the New York Stock Exchange rules and as “outside” directors under Section 162(m) of the Internal Revenue Code.

Responsible Use of Equity.   The “run rate” of awards granted is managed to levels we believe are reasonable while ensuring that the overall compensation program is competitive, relevant, and motivational. We also strive to maintain a competitive level of dilution and annual share usage. Moreover, the number of equity based awards granted to executive officers as a percentage of the total shares outstanding has been substantially reduced in the last few years.

The following table sets forth information regarding awards granted, the run rate for each of the last three fiscal years and the average run rate over the last three fiscal years. The regular annual long-term incentive awards are made in July. The last column reflects awards made since the end of the 2007 fiscal year under existing plans as part of the 2008 fiscal year equity compensation program.

RUN RATE FOR EMPLOYEES AND OFFICERS (shares in millions)

       (1) Run rate includes the sum of all stock option grants, restricted stock grants, performance-based and time-based restricted stock units, and performance share units in a fiscal year divided by the common shares outstanding at the end of that fiscal year.

       (2) Net run rate reflects forfeitures and cancellations.

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Equity Compensation Plans

The following table summarizes share and exercise price information about our equity compensation plans as of May 27, 2007, the end of our 2007 fiscal year.

Equity Compensation Plan Information

       (1) Includes shares to be issued upon exercise of options under the Stock Option Plan, Executive Officer Stock Option Plan and Director Stock Option Plan. The Director Stock Option Plan has been frozen and no further awards can be made under this plan.

       (2) Includes shares to be issued upon the exercise of options and/or stock appreciation rights, as well as shares issued upon payment of performance share awards. If the amended EOEP is approved, stock appreciation rights will no longer be granted under this plan.

       (3) Includes shares to be issued upon exercise of options under the 1997 Plan.

       (4) Includes shares to be issued upon vesting of restricted stock units.

       (5) Assumes target award of performance share units and performance based restricted stock units paid at 150%.

Information about our Equity Compensation Plans not Approved by Stockholders

The 1997 Plan provides for the grant of non-qualified stock options to employees who are not executive officers of the Company. Options are granted at the closing market price on the date of grant and can expire up to a maximum of six years and one day after grant or three months after termination of employment (up to five years after termination due to death, disability or retirement), whichever occurs first. Options can begin to vest after six months; all options granted in the last three fiscal years begin to vest after one year, with vesting completed on a monthly basis ratably over the next three years. This plan will be frozen if the EEP is approved by stockholders and no further awards will be made under this plan.

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The Restricted Plan authorizes issuance of restricted stock to employees who are not officers of the Company. The plan has been made available to employees with skills and technical expertise considered important to us. The plan also allows for the issuance of stock upon expiration of restrictions imposed on restricted stock units. Restricted stock units that have been granted with time based restrictions vest over time, ranging from one to six years after issuance. Restricted stock units that have been granted with performance based restrictions vest upon satisfaction of the performance conditions at the completion of a minimum two-year performance period. This plan will be frozen if the EEP is approved by stockholders and no further awards will be made under this plan.

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Following is an update on our Equity Compensation Plan Information as of August 1, 2007.

       (1) The Director Stock Option Plan has been frozen and no further awards can be made under this plan.

       (2) Includes shares to be issued upon the exercise of options and/or stock appreciation rights, as well as shares issued upon payment of performance share awards. If the amended EOEP is approved, stock appreciation rights will no longer be granted under this plan.

       (3) Includes 650,000 performance shares awarded (at target) for performance periods not yet completed.

       (4) Includes shares to be issued upon exercise of options under the 1997 Plan.

       (5) Includes shares to be issued upon vesting of restricted stock units.

       (6) Assumes target award of performance share units and performance based restricted stock units paid at 100%.

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If the new plans are approved, the following are the total number of shares that will be available for future grant to employees and officers (the Director Stock Plan and the Employee Stock Purchase Plan remain in effect and are not included below):

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PROPOSAL 3. APPROVAL OF THE ADOPTION OF THE 2007 EMPLOYEES EQUITY PLAN.

We are submitting the 2007 Employees Equity Plan to stockholders for approval. This is a new plan that is intended to replace our existing compensation plans that provide equity based awards to our non-executive employees. If it is approved, the 2007 Employees Equity Plan, which we refer to in this discussion as the “EEP”, will be the sole plan for providing equity compensation to non-executive employees. The plan authorizes 14,000,000 shares for equity based awards in the form of stock options, restricted stock and restricted stock units. Up to 1,000,000 of the shares may be issued in connection with restricted stock and restricted stock units. In keeping with our recent history of equity compensation use, we expect to manage the administration of the EEP to provide awards to non-executive employees for two fiscal years.

We currently make equity awards to non-executive employees in the form of options under the 1997 Plan and in the form of restricted stock and restricted stock units under the Restricted Plan. If the EEP is approved by stockholders, the 1997 Plan and the Restricted Plan will be frozen and no further awards will be made under those plans. In addition, the 38.7 million shares currently available under these two plans that are not yet subject to awards will not be used and any shares currently subject to awards under these plans which are forfeited, cancelled or expired will also not be used.

The EEP contains a number of provisions that we believe are consistent with the interests of stockholders and sound corporate governance practices. A summary of those provisions appears on pages 19-20. The full text of the EEP appears in Appendix A. The principal features of the EEP are outlined below and should be reviewed along with Appendix A.

Description of the EEP—General

The EEP features three types of equity compensation awards: stock options, restricted stock and restricted stock units. The EEP authorizes a total of 14,000,000 shares. Of this total, up to 1,000,000 of the shares may be issued in connection with restricted stock and restricted stock unit awards. Given our history of managing employee equity awards in the last few years, we expect the 14,000,000 shares will meet our needs for equity awards for our non-executive employees for two fiscal years. Any increase in the number of shares authorized for the EEP will require stockholder approval.

The shares issued under the EEP may be previously unissued shares, or shares acquired by us either on the market or otherwise. In the event there is any change in the shares of the Company through a stock dividend, stock split, reorganization, recapitalization or other similar events, the number of shares authorized for the plan, the number and price of shares of stock subject to outstanding awards and the numerical limits on the number of shares authorized for the different types of awards will be appropriately adjusted.

The EEP is administered by the Board’s Compensation Committee. Committee members are appointed by the Board and must be “non-employee” directors as defined by Rule 16b-3 of the Securities Exchange Act of 1934, “outside directors” under Section 162(m) of the Internal Revenue Code and “independent directors” as required by the listing standards of the New York Stock Exchange. Committee members are not eligible for awards under the plan. As part of its administrative duties, the Committee determines which employees may receive awards, prescribes the terms and conditions of the awards, interprets the plan and awards granted under it, adopts rules for the administration, interpretation and application of the plan and interprets, amends or revokes any of the rules it has adopted. The Committee may delegate its rights and duties under the plan to the CEO, provided the CEO is also a member of the Board of Directors.

Only employees who are not executive officers may receive awards under the plan. At our 2007 fiscal year end, we had 3,010 non-executive officer employees who were holding option grants, 66 non-executive officer employees who were holding grants of restricted stock, and 7 non-executive officer employees who

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were holding grants of restricted stock units. The Committee may not grant new options, restricted stock or restricted stock units in exchange for the cancellation of any other award made under this or any other plan. Other than in connection with a change in the Company’s capitalization, the exercise price of an option may not be reduced without the approval of stockholders. Moreover, no material amendments, including increasing the number of shares available for issuance under the plan, may be made to the EEP without the approval of stockholders. The price of the common stock at the close of business on August 1, 2007 was $26.16.

Performance conditions may be set as part of the restrictions imposed on the restricted stock and on restricted stock units but they are not required. Such performance conditions may be based on any performance criteria specified by the Committee.

The aggregate number of shares of stock subject to awards that may be granted to any single employee under the EEP during a fiscal year cannot exceed 250,000. No shares from any of our other equity plans are available for awards under the EEP. If an award is forfeited, cancelled, terminates, expires or lapses for any reason, the shares of stock subject to the award are available for further awards under the EEP. Shares exchanged or withheld as full or partial payment for awards or to satisfy tax withholding obligations related to an award are not available for subsequent awards.

In the event of a change-of-control (as defined in the plan), outstanding options become fully exercisable and vested, restrictions imposed on restricted stock lapse, and outstanding restricted stock units become fully vested and nonforfeitable. Acceleration of awards is not otherwise permitted under the plan.

The plan contains a recoupment (clawback) clause. An employee is required to forfeit rights to awards under the plan if the employee has engaged in misconduct. Repayment of awards may also be demanded in the event of misconduct.

The plan does not permit the granting of new awards in exchange for the cancellation of awards under the plan or any other plan. Transfer of awards to independent third parties without stockholder approval is also prohibited.

Terms and Conditions of Options

The plan authorizes up to 14,000,000 shares, of which up to 1,000,000 shares may be issued in connection with restricted stock and restricted stock units, and the remaining shares may be used in connection with options. The Committee determines which employees may receive options, whether they are transferable (only to family members and family trusts), the vesting terms, and the size of the option grant. The exercise price under each option granted is required to be the closing market price on the date of grant. Options cannot be granted in exchange for the cancellation of any other option or award and the exercise price of an option may not be reduced without the approval of stockholders (except as may occur automatically in connection with a change in the capitalization of National).

The terms of the plan relating to options are consistent with our existing stock option plans, policies and procedures. Options granted under the EEP are non-qualified and not incentive stock options within the meaning of the Internal Revenue Code. The purchase price for all shares purchased upon an option exercise must be either paid in full in cash, with National common stock valued at fair market value on the date of exercise or with a combination of cash and common stock. The term of each option can be no more than six years and one day, the minimum full vesting term is three years and an option may not be exercised unless the employee has been continuously employed for six months following the option grant date. The only exception to this would be if there is a change in control (as defined by the EEP) of the Company; in this instance, options would become exercisable even if the six month vesting requirement has not been met. Each option granted is evidenced by a stock option agreement specifying the terms and conditions of the option.

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Under the EEP, an employee or his transferee may, upon termination of the employee’s employment for any reason other than retirement, permanent disability, or death, exercise an option at any time within three months after termination to the extent he was entitled to exercise the option at the date of termination, but not after expiration of the option term. If the employee dies during the three months following termination, the person to whom his rights have passed may exercise the option at any time within a period of one year after his death to the extent that the employee was entitled to exercise the option at date of death, but not after expiration of the option term. In the event of termination of employment by retirement, permanent disability or death, the option may be exercised by the employee, the employee’s transferee, or the person to whom his rights have passed, in accordance with its terms at any time within five years after the termination, but not after the option term has expired. If the employee’s employment is terminated and he is then rehired within ninety days, the Committee may reinstate any portion of the option previously granted but not exercised.

Tax Consequences of Options.   The following tax description is required by SEC regulations. An employee will not be considered to have received any compensation for federal income tax purposes upon the grant of an option under the plan but will realize taxable ordinary income at the time of exercise in the amount of the excess, if any, of the fair market value of the common stock on the date of exercise over the exercise price. The basis for determination of gain or loss upon any subsequent disposition of shares acquired upon the exercise of the stock option will be the amount paid for the shares, plus any ordinary income recognized as a result of the exercise of such option. If the employee holds the shares for the long-term capital gain holding period following the date taxable income is realized as a result of the exercise of the option, any gain realized upon disposition will be taxed as long-term gain. If an employee exercises a stock option and makes payment with shares of the Company’s common stock, he will not recognize gain or loss for the number of shares equally exchanged at the time of exercise. However, the additional shares transferred to the employee will cause him to realize, at the time of exercise, taxable ordinary income in an amount equal to the fair market value of the additional shares transferred to him less any cash paid by him. The Company is entitled to a deduction for federal income tax purposes in an amount equal to the ordinary income, if any, recognized by the employee upon the exercise of the option.

Terms and Conditions of Restricted Stock and Restricted Stock Units

Restricted stock and restricted stock units may be issued to employees, subject to restrictions set by the Committee. No more than a total of 1,000,000 shares may be issued in connection with restricted stock and restricted stock units.

The Committee sets the number of shares of restricted stock that may be issued to employees. The shares are subject to restriction during the restriction period specified by the Committee. The Committee sets the restrictions, which may include performance conditions, that apply during the restriction period. The restriction period can vary from six months to six years and one day. The minimum total period for restrictions based exclusively on the passage of time and continued employment is no less than three years. Restricted stock may not be sold or transferred until the restrictions imposed during the restriction period terminate or expire. During the restriction period, the employee is entitled to receive dividends and vote the shares of restricted stock but is not able to sell, assign or otherwise transfer the shares. Once the restriction period is completed and, assuming applicable taxes have been paid, the employee receives the shares of stock and will be able to freely transfer them. Restricted stock is evidenced by an agreement that specifies the number of shares, the restrictions and the restriction period.

For restricted stock units, the Committee sets the number of restricted stock units that may be awarded to employees. The restricted stock units do not vest to the employee until the restrictions set by the Committee in the restriction period have lapsed. The Committee sets the restrictions, which may include performance conditions, that apply during the restriction period. As with restricted stock, the restriction period can vary from six months to six years and one day and the minimum total period for

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restrictions based exclusively on the passage of time and continued employment is no less than three years. For performance based restricted stock units, the number of shares actually issued upon completion of the restriction period will vary in accordance with the performance level achieved during the performance period, as determined by the Committee. Unlike restricted stock, employees who have been awarded restricted stock units do not have the right to receive dividends or vote shares during the restriction period. Restricted stock units are not transferable during the restriction period. Once the restriction period is completed and, assuming applicable taxes have been paid, the employee receives freely transferable shares of stock equivalent to the number of restricted stock units that have been awarded. Restricted stock units are evidenced by an agreement that specifies the number of units, the restrictions, and the restriction period.

As noted above, neither restricted stock nor restricted stock units can be transferred during the restriction period. If an employee terminates employment during a restriction period, the right to receive unrestricted shares of stock terminates upon termination of employment, but the Committee is allowed to make exceptions when termination of employment occurs during the restriction period by reason of death, permanent disability or retirement.

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Summary of Benefits Under the EEP

The plan is only available to employees who are not executive officers. We cannot predict the size of awards to any particular employee under the plan. We have not granted any awards under the plan. The following table provides information required by the SEC on option grants and restricted stock and restricted stock unit awards made in fiscal 2007 under the existing plans under which equity grants are made to non-executive employees. No information is provided on directors because they are not eligible to participate in the EEP.

(1)           As noted above, executive officers are not eligible to receive awards under the EEP. For information on equity grants made to executive officers, see the table on Summary of Benefits Under the EOEP on page 34.

(2)           Options were granted in fiscal 2007 to employees under the 1997 Plan and the Stock Option Plan.

(3)           Restricted stock and restricted stock units were granted in fiscal 2007 to employees under the Restricted Plan.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF THE 2007 EMPLOYEES EQUITY PLAN. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL BE VOTED “FOR” APPROVAL. AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES PRESENT AND ENTITLED TO VOTE IS NECESSARY FOR APPROVAL.

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PROPOSAL 4. APPROVAL OF THE 2005 EXECUTIVE OFFICER EQUITY PLAN, AS AMENDED

We are submitting the 2005 Executive Officer Equity Plan, as amended, to stockholders for approval. The 2005 Executive Officer Equity Plan (which we refer to in this discussion as the “EOEP”) was first approved by stockholders in October 2004 and is the primary source for providing equity compensation to executive officers under our executive compensation program. The EOEP is an integral part of our performance based compensation strategy.

The semiconductor industry continues to use equity as an integral part of total compensation for both executives and employees. As noted above, the EOEP is our primary plan for providing equity compensation to our executive officers and features an emphasis on performance. As with employees, we believe it is necessary to continue to use equity to motivate and reward our executive officers and provide incentives for them to exert maximum efforts for our success. It is necessary to amend the EOEP so that we can continue to provide equity compensation to our executive officers in future fiscal years. In keeping with our recent history of equity compensation use, we expect to manage the administration of the EOEP to provide awards to executive officers for three fiscal years.

As amended, the EOEP contains a number of provisions that we believe are consistent with the interests of stockholders and sound governance practices. A summary of those provisions appears on pages 19-20. The full text of the EOEP appears in Appendix B. The principal features of the EOEP are outlined below and should be reviewed along with Appendix B.

Description of the Plan—General

The EOEP features two types of equity compensation awards: stock options and performance share units. As initially approved by stockholders, the EOEP included stock appreciation rights. As amended, the EOEP does not include stock appreciation rights. The EOEP as approved by stockholders in fiscal 2005 authorized 3,000,000 shares that have been used over three fiscal years to make equity grants to our executive officers. As amended, the number of shares authorized for the EOEP will increase by 3,000,000, of which 1,500,000 can be used for performance share units. No shares from any of our other equity plans are available for awards under the EOEP. We expect the 3,000,000 new shares will meet our needs for equity awards for our executive officers for three fiscal years. Any increase in the number of shares authorized for the EOEP will require stockholder approval.

The shares issued under the EOEP may be previously unissued shares, or shares acquired by us either on the market or otherwise. In the event there is any change in the shares of the Company through a stock dividend, stock split, reorganization, recapitalization or other similar events, the number of shares authorized for the plan, the number and price of shares of stock subject to outstanding awards, and the numerical limits on the number of shares authorized for the different types of awards will be appropriately adjusted.

The EOEP is administered by the Board’s Compensation Committee, which is currently composed of Messrs. Appleton, Maidique and McCracken. Committee members are appointed by the Board and must be “non-employee directors” as defined by Rule 16b-3 of the Securities Exchange Act of 1934, “outside directors” under Section 162(m) of the Internal Revenue Code and “independent directors” as required by the listing standards of the New York Stock Exchange. Committee members cannot receive benefits under the plan. As part of its administrative duties, the Committee determines which executive officers may receive awards, prescribes the terms and conditions of the awards, interprets the plan and awards granted under it, adopts rules for the administration, interpretation and application of the plan and interprets, amends or revokes any of the rules it has adopted.

Only executive officers may receive awards under the plan; currently, we have nine executive officers. The Committee may not grant new options or performance share units in exchange for the cancellation of

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any other award made under this or any other plan. Other than in connection with a change in the Company’s capitalization, the exercise price of an option may not be reduced without the approval of stockholders. Moreover, no material amendments, including increasing the number of shares available for issuance under the plan, may be made to the EOEP without the approval of stockholders. The price of the Company’s common stock at the close of business on August 1, 2007 was $26.16.

Payment of performance share units requires achievement of performance conditions determined by the Committee. Performance conditions may also be set for the exercisability of stock options, but they are not required. Performance conditions may be based on the specific business criteria specified in Section 6 of the plan (which include, among other criteria, net income, return on invested capital, earnings per share, market share and expense management) or they may be based on achievement of other specific performance objectives.

No shares from any of our other equity plans are available for awards under the EOEP. If an award is forfeited, cancelled, terminates, expires or lapses for any reason, the shares of stock subject to the award are available for further awards under the EOEP. Shares exchanged or withheld as full or partial payment for awards or to satisfy tax withholding obligations related to an award are not available for subsequent awards.

In the event of a change-of-control (as defined in the plan), outstanding options become fully exercisable and vested and the performance conditions associated with performance share units lapse. Acceleration of awards is not otherwise permitted under the plan.

The plan contains a recoupment (clawback) clause. An executive officer is required to forfeit rights to awards under the plan if the executive officer has engaged in misconduct. Repayment of awards may also be demanded in the event of misconduct.

The plan does not permit the granting of new awards in exchange for the cancellation of awards under the plan or any other plan. Transfer of awards to independent third parties without stockholder approval is also prohibited.

Terms and Conditions of Options

As amended, the plan authorizes an additional 3,000,000 shares, of which up to 1,500,000 shares may be issued in connection with performance share units and the remaining shares may be used in connection with options. The Committee determines which executive officers may receive options, whether they are transferable (only to family members and family trusts), the vesting terms, and the size of the option grant. Since the EOEP was first approved in fiscal 2005, a total of 684,000 options have been granted under it to executive officers. The Committee may, but is not required to, set performance requirements for the exercisability of options. These performance requirements may be based on the performance goals specified in the plan or on other specific performance objectives. No officer may be granted more than 500,000 options during any one fiscal year. The exercise price for each option granted is required to be the closing market price of the common stock on the date of grant. Options cannot be granted in exchange for the cancellation of any other option or award and the exercise price of an option may not be reduced without the approval of stockholders (except as may occur automatically in connection with a change in the capitalization of National).

The terms of the plan relating to options are consistent with our existing stock option plans, policies and procedures. Options granted under the EOEP are non-qualified and not incentive stock options within the meaning of the Internal Revenue Code. The purchase price for all shares purchased upon an option exercise must be either paid in full in cash, with National common stock valued at fair market value on the date of exercise or with a combination of cash and common stock. The term of each option can be no more than six years and one day, the minimum full vesting term for service based options is three years and an

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option may not be exercised unless the executive officer has been continuously employed for six months following the option grant date. The only exception to this would be if there is a change in control (as defined by the EOEP) of the Company; in this instance, options would become exercisable even if the six month vesting requirement has not been met. Each option granted is evidenced by a stock option agreement specifying the terms and conditions of the option.

Under the EOEP, an executive officer or his transferee may, upon termination of the executive officer’s employment for any reason other than retirement, permanent disability, or death, exercise an option at any time within three months after termination to the extent he was entitled to exercise the option at the date of termination, but not after expiration of the option term. If the executive officer dies during the three months following termination, the person to whom his rights have passed may exercise the option at any time within a period of one year after his death to the extent that the executive officer was entitled to exercise the option at date of death, but not after expiration of the option term. In the event of termination of employment by retirement, permanent disability or death, the option may be exercised by the executive officer, the executive officer’s transferee, or the person to whom his rights have passed, in accordance with its terms at any time within five years after the termination, but not after the option term has expired. If the executive officer’s employment is terminated and he is then rehired within ninety days, the Committee may reinstate any portion of the option previously granted but not exercised.

Tax Consequences of Options.   The following tax description is required by SEC regulations. An executive officer will not be considered to have received any compensation for federal income tax purposes upon the grant of an option under the EOEP but will realize taxable ordinary income at the time of exercise in the amount of the excess, if any, of the fair market value of the common stock on the date of exercise over the exercise price. The basis for determination of gain or loss upon any subsequent disposition of shares acquired upon the exercise of the stock option will be the amount paid for the shares, plus any ordinary income recognized as a result of the exercise of such option. If the executive officer holds the shares for the long-term capital gain holding period following the date taxable income is realized as a result of the exercise of the option, any gain realized upon disposition will be taxed as long-term capital gain. If an executive officer exercises a stock option and makes payment with shares of the Company’s common stock, he will not recognize gain or loss for the number of shares equally exchanged at the time of exercise. However, the additional shares transferred to the executive officer will cause him to realize, at the time of exercise, taxable ordinary income in an amount equal to the fair market value of the additional shares transferred to him less any cash paid by him. The Company will be entitled to a deduction for federal income tax purposes in an amount equal to the ordinary income, if any, recognized by the executive officer upon the exercise of the option.

Terms and Conditions of Performance Share Units

Performance share units represent shares of stock that may ultimately be issued to the executive officer upon achievement of performance conditions. Up to 3,500,000 shares (consisting of 2,000,000 shares initially approved by stockholders in fiscal 2005 and 1,500,000 additional shares submitted for approval now) may be issued in connection with the payment of performance share units. The Committee sets targets for performance share units for those executive officers it has chosen to receive performance share units. No executive officer may have a target of more than 250,000 performance share units established in any one fiscal year. The Committee sets the terms and conditions of the performance share units, including the applicable performance conditions and performance period, which must run for a minimum of two years, and vesting period, which may or may not run concurrently with the performance period. Performance share units are evidenced by an agreement that specifies the target number of performance share units and the applicable performance conditions.

Performance share unit awards are determined at the end of the performance period. A threshold performance level of 50% must have been achieved before any awards are paid. The Committee

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determines the performance level achieved and certifies in writing that the performance ratings and other applicable conditions have been satisfied before awards are paid. The actual number of performance share units that may be earned may range from 50% to 150% of the established target and may not exceed 375,000 for any one performance period. Once the number of performance share units achieved is determined, the executive officer is paid in shares of stock equal to the number of performance share units that have been achieved, provided any applicable vesting periods have also been satisfied and applicable taxes have been paid. The only exception to this would be if there is a change in control (as defined by the EOEP) of National; in this instance, performance conditions will lapse and the executive officer would receive shares of stock equivalent to the target number of performance share units assigned to him.

Since the EOEP was first approved in fiscal 2005, we have had three performance periods. The first performance period began in fiscal 2006 and was completed at the end of fiscal 2007. The goals for the first performance period were based on achieving certain levels of return on invested capital (“ROIC”). Achievement was at the 150% level and shares were issued in payment of performance share units in July 2007 (actual awards paid to the named executive officers are shown in the “Stock Awards” column in the Table on Option Exercises and Stock Vested appearing on page 39). The second performance period began in fiscal 2007 and is still in process. The goals for the second performance period are based on achieving certain earnings per share targets while maintaining a certain level of minimum ROIC. The targets for the second performance cycle for the named executive officers are shown in the “Estimated Future Payouts under Equity Incentive Plan Awards” column in the Table on Grants of Plan-Based Awards appearing on page 36. The third performance period began in fiscal 2008, with goals based on ROIC. The third performance period will be completed at the end of fiscal 2009; information on targets set for the third performance period appears on page 34.

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Summary of Benefits Under the EOEP

The plan is only available to executive officers. We cannot predict the size of all future awards to executive officers under the plan. Following is information on option and performance share unit awards made to executive officers under the EOEP so far in fiscal 2008.

*                    Employees who are not executive officers and directors who are not employees are not eligible to participate in the EOEP.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE 2005 EXECUTIVE OFFICER EQUITY PLAN, AS AMENDED. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL BE VOTED “FOR” APPROVAL. AN AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE SHARES PRESENT AND ENTITLED TO VOTE IS NECESSARY FOR APPROVAL.

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EXECUTIVE COMPENSATION

Summary of Compensation

The following table shows information on compensation paid or accrued by National and our subsidiaries for our chief executive officer and the four other most highly compensated executive officers during fiscal 2007 (collectively referred to as the named executive officers) for the fiscal year ended May 27, 2007:

Summary Compensation Table

          (1) This column represents the dollar amount of compensation expense recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of performance share units granted in fiscal 2007 as well as prior fiscal years, in accordance with SFAS 123R. The performance share units are subject to performance conditions, as described in the Compensation Discussion and Analysis beginning on page 46. Performance conditions do not reduce the grant date fair value under SFAS 123R. Since the amounts in this column reflect the Company’s accounting expense for the performance share units, they do not correspond to the actual value which will be recognized by the officer, which depends solely on the achievement of specified performance objectives over the performance period. The grant date fair value of performance share units we used in fiscal 2007 to value the performance share units is the opening price of the stock on the date of grant.

          (2) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of stock options granted, in fiscal 2007 as well as prior fiscal years, to each of the named executives in accordance with SFAS 123R. Pursuant to the SEC rules, the amounts shown exclude the impact of estimated forfeitures relating to service-based vesting conditions. For those officers eligible for retirement, the fair value of awards that had been held for more than six months prior to the beginning of the 2007 fiscal year have already been fully expensed. For additional information on the valuation assumptions with respect to the fiscal 2007 grants, refer to note 1 of the financial statements in our Form 10-K for the fiscal year ended May 27, 2007 as filed with the SEC. See the Grants of Plans-Based Awards Table for information on options granted in fiscal 2007. Since these amounts reflect the Company’s accounting expense for these stock option awards, they do not correspond to the actual value that will be recognized by the named executives.

          (3) The column represents incentives earned in fiscal 2007 under the Executive Officer Incentive Plan.

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          (4) This column represents the aggregate change in the actuarial present value for the defined benefit pension plan made available to Mr. Kunz in connection with his prior service with our German subsidiary. Amount is based on exchange rate used by the Company as of the applicable financial statement reporting dates. We do not have above market or preferential earnings on our non-qualified deferred compensation plan made available to our executive officers and other highly compensated employees.

          (5) Consists of the following:

(a)             Contributions and allocations to defined contribution retirement plans

(b)            Value of life insurance premiums for term and whole life insurance

The incremental cost to the Company of perquisites in fiscal 2007 for each of the executive officers named in the table did not exceed $10,000.

Grants of Plan-Based Awards

The following table shows information concerning plan based awards in fiscal 2007 to the named executive officers:

Grants of Plan-Based Awards