NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 26, 1994 at 3:30 P.M.
TO THE STOCKHOLDERS OF NATIONAL COMPUTER SYSTEMS, INC.:
The annual meeting of stockholders of National Computer Systems,
Inc. (NCS), a Minnesota corporation, will be held Thursday, May
26, 1994 at 3:30 P.M., Central Daylight Savings Time, at the
Lutheran Brotherhood Building (Auditorium-First Floor), 625 4th
Avenue South, Minneapolis, Minnesota for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To approve appointment of Ernst & Young as auditors for the
year ending January 31, 1995.
3. To transact such other business as may properly come before
the meeting.
Stockholders of record at the close of business on March 28,
1994, will be entitled to cast one vote on each proposal for each
share held of record at that time. A copy of the NCS annual
report is included in this mailing, first made on approximately
the date shown below.
DATED: April 20, 1994
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
STOCKHOLDERS UNABLE TO ATTEND THIS MEETING ARE URGED TO SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED.
<PAGE>
NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
PROXY STATEMENT
===============
The annual meeting of the stockholders of National Computer
Systems, Inc.(NCS or the Company) will be held on Thursday, May
26, 1994, at 3:30 P.M., at the Lutheran Brotherhood Building, 625
4th Avenue South, Minneapolis, Minnesota for the purposes set
forth in the accompanying notice. The only matters the Board of
Directors knows will be presented are those stated in items 1 and
2 of the notice. Should any other matter properly come before
the meeting, it is the intention of the named proxies to vote on
such matters in accordance with their best judgment.
OUTSTANDING SHARES AND VOTING RIGHTS
====================================
The Board of Directors has fixed the close of business on March
28, 1994, as the record date for the determination of the
stockholders entitled to notice of and to vote at the meeting.
The voting securities of NCS outstanding and entitled to vote on
that date were 15,014,617 shares of Common Stock. Each share is
entitled to cast one vote on each proposal before the meeting.
The enclosed proxy is solicited on behalf of the Board of
Directors for use at the annual meeting. If the proxy is
properly executed and returned, the shares represented will be
voted at the meeting and at all adjournments. Where specific
direction is given by the stockholder, the shares will be voted
in accordance with that direction. If no direction is given, the
proxy will be voted to elect the eight persons named below as
directors and for the other proposal set forth in the
accompanying notice. The proxy may be revoked at any time prior
to its exercise by filing written notice with the Secretary of
NCS.
Shares voted as abstentions on any matter (or a "withhold vote
for" as to directors) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of
a quorum at the annual meeting and as unvoted, although present
and entitled to vote, for purposes of determining the approval of
each matter as to which the stockholder has abstained. If a
broker submits a proxy which indicates that the broker does not
have discretionary authority as to certain shares to vote on one
or more matters, those shares will be counted as shares that are
present and entitled to vote for purposes of determining the
presence of a quorum at the annual meeting, but will not be
considered as present and entitled to vote with respect to such
matters.
<PAGE>
ELECTION OF DIRECTORS
=====================
At the meeting, the eight persons listed below will be nominated
for election as directors until the next annual meeting of
stockholders and until their successors have been elected. Of
the current directors, David C. Malmberg is resigning as a
director effective April 30, 1994 and William W. Chorske and
Robert F. Zicarelli have chosen not to stand for reelection at
this annual meeting. Ms. Keffeler and Mr. Stiefler were elected
as directors by the Board of Directors since the last annual
meeting of stockholders. Each nominee is presently available for
election. Should any nominee become unable to serve, the persons
voting the enclosed proxy may, in their discretion, vote for a
substitute.
Shown below is certain information about the nominees, as of
February 28, 1994. Each nominee has sole investment and voting
power of all shares of Common Stock shown (the only NCS equity
securities owned by the nominees), except as otherwise noted.
The election of each director requires the affirmative vote of a
majority of the shares present and entitled to vote at the
meeting.
<TABLE>
<CAPTION>
Principal Occupation Shares
and Director Beneficially Percent of
Name Age Business Experience Since Owned Outstanding
==== === ==================== ======== ============ ===========
<S> <C> <C> <C> <C> <C>
Charles W. Oswald* 66 Chairman & Chief Executive Officer of NCS 1970 1,947,352 <FN1> 13%
for more than five years.
David P. Campbell++ 60 Smith Richardson Senior Fellow, Center for 1969 8,218 <FN2> <FN3>
Creative Leadership (educational/research
programs in creativity and leadership) and
consultant to NCS for more than five years.
David C. Cox*++ 56 President & Chief Executive Officer of Cowles 1983 11,200 <FN4> <FN3>
Media Company (diversified communications) for
more than five years.
Jean B. Keffeler+ 48 Business and Management Consultant, The 1993 1,500 <FN3>
Keffeler Company since March, 1991 and Senior
Executive Officer, West Region, HealthOne
Corporation (health care) from March, 1989 to
March, 1991.
Stephen G. Shank* + 50 President & Chief Executive Officer of Learning 1985 5,619 <FN4> <FN3>
Ventures, Inc. (education programs and services)
since January, 1992 and Chairman & Chief
Executive Officer of Tonka Corporation
(manufacturer and marketer of toy products) for
more than five years prior to September, 1991.
John E. Steuri++ 54 Chairman & Chief Executive Officer of Systematics 1991 10,000 <FN5> <FN3>
Information Services, Inc. (information processing,
outsourcing services and application software) for
more than five years.
Jeffrey E. Stiefler++ 47 President of American Express Company (travel 1993 900 <FN3>
and financial services) since August, 1993,
President & Chief Executive Officer of IDS
Financial Corporation (financial services)
from September, 1990 to August, 1993 and
Executive Vice President-Sales and Marketing
for IDS Financial Corporation from June,
1987 to September, 1990.
John W. Vessey+ 71 Management consultant since October, 1985 and 1986 5,400 <FN4> <FN3>
prior to that Chairman, Joint Chiefs of Staff,
U.S. Department of Defense from June, 1982 to
October, 1985.
<FN>
* Member of Executive Committee
+ Member of Audit Committee
++ Member of Compensation Committee
<FN1> The shares listed for Mr. Oswald include 32,500 shares
issued pursuant to the NCS Long-Term Incentive Plan (L-TIP) which
are subject to forfeiture, 886 shares allocated to him pursuant
to the NCS Employee Stock Ownership Plan (ESOP) and 35,900 shares
that may be acquired within 60 days upon exercise of outstanding
stock options. The shares listed do not include 25,000 shares
owned by Mr. Oswald's wife, as to which Mr. Oswald disclaims
beneficial ownership.
<FN2> The shares listed for Dr. Campbell include 2,200 shares that
may be acquired within 60 days upon exercise of outstanding stock
options.
<FN3> Less than 1%.
<FN4> The shares listed for Messrs. Cox, Shank and Vessey include
5,000 shares that may be acquired within 60 days upon exercise of
outstanding stock options.
<FN5> The shares listed for Mr. Steuri include 3,000 shares that
may be acquired within 60 days upon exercise of outstanding stock
options.
</FN>
</TABLE>
<PAGE>
Mr. Oswald is also a director of ADC Telecommunications, Inc.;
Mr. Cox is also a director of The NWNL Companies, Inc. and
Tennant Company; Mr. Shank is also a director of Advance
Circuits, Inc.; Mr. Steuri is also a director of ALLTEL
Corporation; Mr. Stiefler is also a director of American Express
Company; and General Vessey is also a director of Martin Marietta
Corp.
Mr. Chorske is a member of the Audit Committee and Mr. Zicarelli
is a member of the Compensation Committee.
On January 28, 1994, the Company sold the assets of its Catalog
Card Division to Sagebrush Technologies, Inc. (STI), a
substantially wholly-owned subsidiary of Rotherwood Corporation
(Rotherwood). Mr. Oswald owns substantially all of the
outstanding stock and is President of Rotherwood. In addition,
the son of Mr. Zicarelli, a current director of NCS, is President
of STI. In consideration for the assets acquired, STI is
required to pay NCS a total of $2,350,000. Of this amount,
$500,000 was paid in cash at closing and the balance is payable
in quarterly installments, including interest at 7%, of $50,000,
$100,000, $125,000, $87,500, $75,000 and $25,000 during the first
through sixth years, respectively, following the sale. The terms
of the sale were negotiated by officers of NCS other than Mr.
Oswald. Messrs. Oswald and Zicarelli did not participate in
Board deliberations concerning, or vote upon, the sale of assets
to STI. The remaining directors of NCS determined that the terms
of the sale were fair and reasonable to NCS and approved the
transaction with STI.
The Board of Directors held five meetings during the fiscal year
ended January 31, 1994 (fiscal 1993). The Audit Committee of the
Board of Directors reviews the audited financial statements with
the independent auditors and the Company's accounting and
reporting practices. During the last fiscal year, the Audit
Committee held five meetings. The Compensation Committee of the
Board of Directors reviews the Company's compensation and
personnel policies and programs. During the last fiscal year,
the Compensation Committee held four meetings. There is no
nominating committee of the Board of Directors. Directors
attended 75% or more of all Board of Directors and Committee
meetings, except Mr. Chorske who attended three of five Board
meetings.
Outside directors receive fees of $3,000 per quarter ($3,375 for
each Committee Chairperson) and participation fees of $1,000 for
each Board meeting attended. A fee of $750 is paid for any
Committee meeting held on any day other than a scheduled Board
meeting.
During the year ended January 31, 1994, NCS paid Dr. Campbell
$30,000 in consulting fees and $67,800 as royalties relating to
tests developed by Dr. Campbell for which NCS is the exclusive
perpetual licensee.
NCS has a Non-Employee Director Stock Option Plan under which
each director who is not an employee of NCS will be automatically
granted, on each date that he or she is elected or reelected as a
director of NCS by the stockholders, an option to acquire 1,000
shares of Common Stock. During fiscal 1993, all non-employee
directors as a group were granted options to purchase 6,000
shares at a per share option price of $16.00. None of the
options have been exercised.
<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
===================================
Subject to ratification by the stockholders at this annual
meeting, the Audit Committee has recommended to the Board of
Directors, and the Board of Directors has approved, the selection
of the certified public accounting firm of Ernst & Young as the
Company's independent auditors for the fiscal year ending January
31, 1995.
Ernst & Young has regularly audited the Company's consolidated
financial statements since 1972. A representative of Ernst &
Young is expected to be present at the annual meeting of
stockholders on May 26, 1994 and will be offered the opportunity
to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
<PAGE>
OWNERSHIP OF NCS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS AND
EXECUTIVE OFFICERS
==============================================================
Information as to the persons or groups known by NCS to be the
beneficial owners of 5% or more of the outstanding shares of NCS
Common Stock (NCS' only voting security), the executive officers
of the Company included in the Summary Compensation Table and all
directors and executive officers as a group as of February 28,
1994, is shown below. Except as otherwise indicated, the
stockholders listed in the table have sole voting power and
investment power with respect to the Common Stock owned by them.
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name and Address Owned Outstanding
================ ============ ===========
<S> <C> <C>
Charles W. Oswald 1,947,352 13%
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
David C. Malmberg 277,709 <FN1> 2%
Robert C. Bowen 35,281 <FN2> <FN7>
Norman A. Cocke 18,213 <FN3> <FN7>
David W. Smith 14,582 <FN4> <FN7>
Philip W. Arneson 10,454 <FN5> <FN7>
All Directors and Executive
Officers as a Group (20 persons) 2,511,217 <FN6> 17%
<FN>
<FN1> The shares listed for Mr. Malmberg include 27,000 shares
issued pursuant to the L-TIP which are subject to forfeiture, 874
shares allocated to him pursuant to the ESOP and 6,800 shares
that may be acquired within 60 days upon exercise of outstanding
stock options.
<FN2> The shares listed for Mr. Bowen include 18,000 shares issued
pursuant to the L-TIP which are subject to forfeiture, 774 shares
allocated to him pursuant to the ESOP and 10,600 shares that may
be acquired within 60 days upon exercise of outstanding stock
options.
<FN3> The shares listed for Mr. Cocke include 10,000 shares issued
pursuant to the L-TIP which are subject to forfeiture, 213 shares
allocated to him pursuant to the ESOP and 8,000 shares that may
be acquired within 60 days upon exercise of outstanding stock
options.
<FN4> The shares listed for Mr. Smith include 7,000 shares issued
pursuant to the L-TIP which are subject to forfeiture and 623
shares allocated to him pursuant to the ESOP.
<FN5> The shares listed for Mr. Arneson include 854 shares
allocated to him pursuant to the ESOP and 9,600 shares that may
be acquired within 60 days upon exercise of outstanding stock
options.
<FN6> Includes 144,900 shares issued pursuant to the L-TIP which
are subject to forfeiture, 6,509 shares allocated pursuant to the
ESOP and 123,300 shares that may be acquired within 60 days upon
exercise of outstanding stock options. Mr. Chorske and Mr.
Zicarelli beneficially owned 3,000 and 18,000 shares of NCS
Common Stock, respectively, as of February 28, 1994 and of these
shares, 3,000 and 5,000 shares, respectively, are shares which
may be acquired within 60 days upon exercise of outstanding stock
options.
<FN7> Less than 1%.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
======================
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors
(Compensation Committee) is composed of directors who review the
Company's compensation and personnel policies and programs. They
approve and make recommendations with regard to those policies
and programs. In addition, the Compensation Committee determines
on an annual basis the compensation to be paid to the Chief
Executive Officer and senior executive officers of the Company.
The Compensation Committee has access to outside consultants and
independent compensation data.
The objectives of the Company's executive compensation program
are to:
- - Support the goal of increasing stockholder value,
- - Provide compensation that will attract and retain superior
talent and reward performance, and
- - Align each executive officer's interests with the success of
the Company by making a portion of compensation dependent on
business unit and corporate earnings growth.
The executive compensation program provides an overall level of
compensation opportunity that is competitive with peer companies
as well as with a general group of comparably-sized companies.
The peer group consists of companies in the computer,
electronics, software and related services industry, both
nationally and locally. National compensation survey data is
obtained from an outside consultant and industry associations.
Data on approximately 125 companies which are of a size and
complexity comparable to the Company is utilized. Local
compensation survey data is obtained from a group of
approximately 15 national and international companies
headquartered in the Minneapolis-St. Paul metro area that are
selected by the Company. The general comparative group consists
of companies of comparable size included in nation-wide, general
industrial survey data obtained from three major management
consulting firms. Actual total compensation levels may be
greater or less than average competitive levels in surveyed
companies based on annual and long-term Company performance as
well as individual performance. The Compensation Committee uses
its discretion to set executive compensation where, in its
judgment, external, internal or an individual's circumstances
warrant it.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is comprised
of base salary; annual cash incentive compensation; long-term
incentive compensation in the form of stock options and
performance based cash and restricted stock awards; and various
health and other benefits.
Base Salary
Base salary levels for the Company's executive officers are
viewed as one part of a comprehensive annual cash compensation
program and are set relative to the peer and other comparable
companies in the groups described above. Generally, it is
intended that salary levels, when combined with annual
performance based amounts, will result in compensation in the 50-
75th percentile of amounts paid for comparable job functions by
the peer and other companies described above. In determining
salaries, the Compensation Committee also takes into account
individual experience, job responsibility, performance and any
other issues relevant to the Company.
Performance Based Compensation
The Management Incentive Plan (MIP) is the Company's annual
incentive program for executive officers and key managers. The
purpose of the Plan is to provide direct financial incentives in
the form of annual cash bonuses to executives to achieve their
business units' goals, the Company's annual goals and individual
achievement goals. Threshold, target and maximum goals for
Company and business unit performance are set at the beginning of
the year with 70% of individual bonus amounts based on achieving
corporate and business unit operating income goals and 30% based
on achievement of pre-defined personal goals. Generally, it is
intended that achievement of the target goals will result in
annual bonuses which, when combined with base salary, will result
in compensation in the 50-75th percentile of amounts paid for
comparable job functions by the peer and other comparable
companies described above. The Compensation Committee also gives
consideration to issues which they deem specific to the Company.
During the last fiscal year, the corporate operating income goal
was not met. Bonuses, if any, were paid under the MIP based on
achievement of business unit operating goals and personal goals.
In addition to cash bonuses paid under the MIP, the Compensation
Committee may grant discretionary one-time cash bonuses when
specific individual performance exceeds established performance
goals.
Stock Option and Long-Term Incentive Programs
The stock option plans and the Long-Term Incentive Plan (L-TIP)
are the Company's long-term incentive plans for executive
officers. The objectives of the plans are to promote the long-
term interests of the Company by enhancing its ability to
attract, motivate and retain its key executives and increase
their identification with the long-term interests of NCS
stockholders through cash and stock ownership incentives based on
long-term financial performance. The stock option plans and the
L-TIP enable executives to develop and maintain a significant,
long-term stock ownership position in the Company's Common Stock.
The Company's stock option plans are administered by the Board of
Directors. Stock options for executive officers are generally
granted annually at option prices equal to the fair market value
of the Company's Common Stock on the date of grant. The options
granted have five-year terms and vest at the rate of 20% after
12, 24, 36, 48 and 58 months. The amounts to be granted to
executive officers are recommended by the Compensation Committee
using relevant survey data, consideration of the value of Company
stock and the total number of shares and option shares
outstanding, competitive employment factors and performance of
the individual.
The L-TIP has two features designed to reward participants for
contributing to the achievement of performance goals over the
long term. The cash compensation feature will result in the
payment of cash bonuses to participants when the performance goal
is attained and the restricted stock feature provides for awards
of restricted NCS Common Stock that will vest if the participant
is employed by NCS after 10 years from award date, or earlier if
the prescribed performance goal is achieved. If the goal is
achieved, the cash and stock awards are paid out over a three-
year period: 40% as of the end of the year of achievement and 30%
at the end of each of the next two succeeding years. The
performance goal contained in currently outstanding L-TIP awards
is the achievement of a 20% return on equity in any fiscal year.
The cash compensation payout is based on a percentage (not to
exceed 30%) of the participant's total compensation over the
three-year period ending with the year in which the performance
goal is achieved. The currently outstanding awards were granted
to eligible executive officers based on survey data, anticipated
growth in the value of the Company stock and competitive
employment factors at the time of award.
Benefits
The Company provides various employee benefit programs to its
executive officers, including medical and life insurance
benefits, an employee stock ownership plan, an employee stock
purchase plan and an employee savings plan with 401(k) features.
These benefit programs are generally available to all employees
of the Company.
Chief Executive Officer Compensation
Mr. Oswald's annual cash and long-term incentive compensation
programs are established in the same manner as those for the
Company's other executive officers described above. Mr. Oswald's
base salary throughout fiscal 1993 was $390,000, an amount the
Compensation Committee determined based on its review at the
beginning of the fiscal year would, when added to potential
performance based compensation if established goals were met,
result in compensation in the 50-75th percentile of similar
amounts paid to chief executive officers by the peer and general
comparative group companies described above. During the year, no
bonus was accrued for Mr. Oswald under the MIP because of overall
Company performance. Mr. Oswald was granted an option, during
the year, to purchase 12,000 shares of the Company's Common
Stock. The Compensation Committee determined the amount of the
option to be granted in the same manner as described above for
other executive officers. As in the case of other executive
officers, Mr. Oswald has not started to receive a cash or stock
payout under the L-TIP.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended,
should not affect the deductibility of compensation paid to the
Company's executive officers for the foreseeable future.
Accordingly, the Committee has not formulated a policy with
respect to qualifying such compensation for deductibility under
Section 162(m).
David C. Cox, Chairman
David P. Campbell Jeffrey E. Stiefler
John E. Steuri Robert F. Zicarelli
Members of the Compensation Committee
<PAGE>
SUMMARY COMPENSATION TABLE
==========================
The following table sets forth the cash and noncash compensation
for each of the last three fiscal years awarded to or earned by
the Chief Executive Officer of the Company, the four other most
highly compensated executive officers of the Company and one
additional person who would have been included except for the
fact that the individual was not serving as an executive officer
at the end of the last completed fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Compensation Awards
================================== =======================
Other
Annual Restricted Securities Compensation<FN3>
Name and Principal Position Year Salary Bonus<FN1> sation Awards<FN2> Options ESP ESOP
=========================== ====== ====== ======== ====== ========== ========== ===== ======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles W. Oswald, Chairman and 1993 $390,000 $ 0 $ 0 $ 0 12,000 $ 4,505 $ 2,736
Chief Executive Officer <FN4> 1992 386,250 91,834 0 0 12,000 4,384 3,442
1991 362,500 187,500 0 0 15,000 3,915 3,250
David C. Malmberg, Vice 1993 $295,000 $ 0 $ 2,490 $ 0 10,000 $ 4,505 $ 2,733
Chairman and President, 1992 292,500 55,572 1,062 0 10,000 4,768 3,438
NCS Technology <FN5> 1991 281,250 102,600 0 0 12,000 4,281 3,243
Robert C. Bowen, Senior Vice 1993 $200,000 $ 25,193 $ 1,315 $ 0 10,000 $ 4,503 $ 2,705
President and President, 1992 197,500 44,708 1,332 0 8,000 3,950 3,406
NCS Education 1991 187,500 69,539 2,397 0 10,000 3,750 3,086
Norman A. Cocke, Senior Vice 1993 $180,000 $ 5,184 $ 0 $ 0 8,000 $ 4,503 $ 2,551
President and Chief Financial 1992 161,250 63,408 32,624 157,500 20,000 3,225 0
Officer <FN6> 1991 0 0 0 0 0 0 0
David W. Smith, Vice 1993 $153,750 $ 28,754 $ 0 $ 0 5,000 $ 3,290 $ 1,910
President and President, 1992 148,500 10,740 0 0 5,000 2,980 2,737
NCS Assessments 1991 144,500 34,389 0 0 1,000 2,890 2,263
Phillip W. Arneson <FN7> 1993 $200,000 $ 0 $ 1,310 $ 0 10,000 $ 0 $ 2,728
1992 197,500 57,502 912 0 8,000 0 3,432
1991 187,500 72,316 389 0 10,000 0 3,231
<FN>
<FN1> Executive officers participate in the Management Incentive
Plan. Under the Plan, cash incentive payments are made, based on
NCS' financial performance, business unit and individual
performance criteria and the officer's base salary, following the
fiscal year end. Incentive payment amounts are shown in the
fiscal year accrued.
<FN2> The value of the restricted stock awards was determined by
multiplying the fair market value of the Company's Common Stock
on the date of grant by the number of shares awarded. Dividends
are paid on shares awarded. As of January 31, 1994, the number
and value of aggregate restricted stock award holdings were
32,500 shares ($390,000); 27,000 shares ($324,000); 18,000
($216,000); 10,000 shares ($120,000); and 7,000 ($84,000) for
Messrs. Oswald, Malmberg, Bowen, Cocke and Smith, respectively.
<FN3> Compensation reported represents Company contributions under
the NCS 401(k) Employee Savings Plan (ESP) and the NCS Employee
Stock Ownership Plan (ESOP). The value of the ESOP contribution
was calculated based on the number of shares allocated to the
participant valued at the fair market value of the shares on date
of allocation.
<FN4> NCS has an agreement with Mr. Oswald whereby, should he die
while employed by NCS, his beneficiaries would receive $250,000
payable in equal $25,000 installments over 10 years.
<FN5> NCS has an agreement with Mr. Malmberg whereby, following
his retirement as an employee, NCS will pay him $100,000 per year
in quarterly installments of $25,000 over 10 years and maintain
medical benefits for him and his spouse for such period. Mr.
Malmberg has agreed that during the 10 year period following
retirement, he will not compete against the Company. Mr.
Malmberg has notified the Company that he will retire as an
employee effective April 30, 1994.
<FN6> Mr. Cocke was employed by the Company in March, 1992. Of
Other Annual Compensation, $25,000 was reimbursement of
relocation expense.
<FN7> Mr. Arneson ceased being a Senior Vice President and
President, NCS Financial on August 4, 1993. Since 1991, NCS made
loans to Mr. Arneson in the maximum aggregate principal amount of
$495,000. On June 29, 1992, Mr. Arneson filed a petition under
Chapter 7 of the Federal Bankruptcy Code and, on October 14,
1992, a notice of discharge was issued. On October 7, 1992, Mr.
Arneson entered into an agreement with NCS reaffirming his
obligation to repay the loans obtained from NCS. The loans have
been restructured and collection of a portion of the loans
($295,000) has been permanently forgiven. In addition, NCS
guaranteed a bank loan in the original principal amount of
$275,000. The bank loan, guarantee and outstanding loans from
NCS are secured by mortgages on Mr. Arneson's home and an
assignment of life insurance proceeds. By agreement dated
December 3, 1993 and in consideration of certain commitments by
Mr. Arneson, NCS agreed to pay Mr. Arneson a total of $100,000 in
semi-monthly installments, less outstanding loan interest,
through July 31, 1994. All after-tax amounts from gains realized
on the sale of NCS Common Stock plus certain other contractual
amounts from NCS, if payable, will be applied to the loan balance
or forgiven amounts. The principal amount outstanding, with an
interest rate of 1% over the prime rate, under the loans is
$200,000 and the loans are current with respect to interest
payments.
</FN>
</TABLE>
STOCK OPTIONS
=============
The following tables summarize option grants and exercises during
fiscal 1993 to or by the executive officers named in the Summary
Compensation Table above, and the value of the options held by
such persons at the end of fiscal 1993.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1993
Individual Grants
==================================================== Potential Realizable Value
# of at Assumed Annual Rates
Securities % of Total of Stock Price
Underlying Options Exercise Appreciation for
Options Granted to or Base Option Term <FN2>
Granted Employees in Price Expiration =====================================
Name <FN1> Fiscal 1993 ($/Sh) Date 0% 5% 10%
====================== ========= ============ ======= ========== ===== ===== =====
<S> <C> <C> <C> <C> <C> <C> <C>
Charles W. Oswald 12,000 5% $17.60 5/20/98 $ 0 $ 33,846 $ 98,018
David C. Malmberg 10,000 4 16.00 5/20/98 0 44,205 97,682
Robert C. Bowen 10,000 4 16.00 5/20/98 0 44,205 97,682
Norman A. Cocke 8,000 3 16.00 5/20/98 0 35,364 78,145
David W. Smith 5,000 2 16.00 5/20/98 0 22,103 48,841
Phillip W. Arneson 10,000 4 16.00 5/20/98 0 44,205 97,682
<FN>
<FN1> All options vest at the rate of 20% after 12, 24, 36, 48 and
58 months.
<FN2> The dollar amounts under these columns are the result of
calculations at 0% and at the 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended
to forecast possible future appreciation, if any, of the price of
the Company's Common Stock.
</FN>
</TABLE>
<TABLE>
Aggregated Option Exercises in Fiscal 1993 and Value of Options
at End of Fiscal 1993
<CAPTION>
Number of Value of
Securities Underlying Unexercised In-
Shares Unexercised Options the-Money Options
Acquired at End of at End of
on Value Fiscal 1993 Fiscal 1993
Exercise Realized (#) ($)
(#) ($) <FN1> Exercisable/Unexercisable Exercisable/Unexercisable<FN1>
======== ======== ========================= =============================
<S> <C> <C> <C> <C> <C> <C>
Charles W. Oswald 0 $ 0 31,900 / 39,600 $ 21,900 / $ 14,600
David C. Malmberg 4,000 6,000 16,800 / 32,200 15,000 / 15,000
Robert C. Bowen 0 0 10,600 / 30,400 14,250 / 18,000
Norman A. Cocke 0 0 4,000 / 24,000 0 / 0
David W. Smith 4,700 12,575 0 / 11,600 0 / 3,750
Phillip W. Arneson 6,000 24,000 15,600 / 27,400 9,000 / 9,750
<FN>
<FN1> Value based on market value of the Company's Common Stock at
date of exercise or end of fiscal 1993, minus the exercise price.
</FN>
</TABLE>
COMPARATIVE STOCK PERFORMANCE
=============================
The graph below compares the cumulative total stockholder return
on the Common Stock of the Company for the last five fiscal years
with the cumulative total return of the S&P 500 Index and the
Center for Research in Security Prices (CRSP), University of
Chicago, Index for NASDAQ Computer and Data Processing Stocks (2)
(assuming the investment of $100 in the Company's Common Stock
and each Index on January 31, 1989 and reinvestment of all
dividends).
<TABLE>
PERFORMANCE GRAPH:
<CAPTION>
Index for
NASDAQ Computer and
Measurement Period S&P 500 Data Processing
(Fiscal Year Covered) NCS Index <FN1> Stocks <FN3>
===================== ===== =========== ===================
<S> <C> <C> <C>
Measurement Pt. 1/31/89 100 100 100
FYE 1/31/90 53 114 120
FYE 1/31/91 90 124 162
FYE 1/31/92 125 152 285
FYE 1/31/93 127 168 301
FYE 1/31/94 101 190 322
<FN>
________________________
<FN1> Total return calculations for the S&P 500 Index were
performed by CRSP.
<FN2> The Bridge Computer Software Services and Peripherals -
Listed Stocks Index maintained by Bridge Information Systems,
Inc. was used in the prior year. That index is no longer
available.
<FN3> The Index for NASDAQ Computer and Data Processing Stocks
(SIC 737) is maintained by CRSP.
</FN>
</TABLE>
SECTION 16(a) REPORTING
=======================
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons who own more
than ten percent of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the
Company during the fiscal year ended January 31, 1994, officers,
directors and greater than ten-percent beneficial owners complied
with all applicable Section 16(a) filing requirements.
STOCKHOLDER PROPOSALS
=====================
Any proposal by a stockholder intended to be presented at the
1995 Annual Meeting of Stockholders must be received at the
Company's executive offices no later than December 21, 1994.
GENERAL
=======
On written request, NCS will furnish without charge to each
person whose proxy is being solicited a copy of NCS' Annual
Report on Form 10-K for the fiscal year ended January 31, 1994,
as filed with the Securities and Exchange Commission, including
the financial statements and schedules thereto. NCS will furnish
to any such person any exhibit described in the list accompanying
the Form 10-K on payment, in advance, of reasonable fees related
to the furnishing of such exhibit. Requests for copies of such
reports and/or exhibits should be directed to Mr. J. W. Fenton,
Jr., Secretary/Treasurer, NCS, 11000 Prairie Lakes Drive, P.O.
Box 9365, Minneapolis, Minnesota 55440.
The cost of solicitation has been or will be paid by NCS. In
addition, arrangements may be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and
proxy material to their principals, and NCS will reimburse them
for their expense in so doing.
Dated: April 20, 1994
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(Logo)
National Computer Systems, Inc.
11000 Prairie Lakes Drive, P.O. Box 9365, Mpls., MN 55440
The undersigned hereby appoints Charles W. Oswald and Arthur E.
Weisberg, and each of them, proxies with full power of
substitution to represent and vote all the shares of Common Stock
which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of National
Computer Systems, Inc. (NCS), to be held at the Lutheran
Brotherhood Building, 625 4th Avenue South, Minneapolis,
Minnesota, on May 26, 1994, at 3:30 P.M., and at any adjournments
thereof, upon any and all matters which may properly be brought
before said meeting or adjournment. This proxy when properly
executed will be voted in the manner directed herein by the
undersigned stockholder. If no direction is made, this proxy
will be voted FOR items 1 and 2.
1. ELECTION OF DIRECTORS
O FOR all nominees listed below O WITHHOLD AUTHORITY
(Except as marked to to vote for all
the contrary below) nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual
nominee, mark the circle next to the nominee's name below.)
O Charles W. Oswald O Jean B. Keffeler O Jeffrey E. Stiefler
O David P. Campbell O Stephen G. Shank O John W. Vessey
O David C. Cox O John E. Steuri
2. APPOINTMENT OF AUDITORS - Ernst & Young:
O FOR O AGAINST O ABSTAIN
3. On any other matters which may properly come before the
meeting, the named proxies are authorized to vote on such
matters in accordance with their best judgment.
Stockholder and shares of record covered by this proxy are shown
on reverse side.
PLEASE DATE AND SIGN exactly as name appears to the left
indicating, where proper, official position or representative
capacity. For joint accounts, each joint owner should sign.
DATED: , 1994
- ---------------------------------------
(Signature)
- ---------------------------------------
(Signature, if held jointly)
PLEASE NOTE THE ABOVE SIGNATURE BOX
RETURN IN ENVELOPE PROVIDED
