(Logo)
NATIONAL
COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1997 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 22, 1997, at 3:30 P.M.,
Central Daylight Savings Time, at the Radisson Hotel South, 7800 Normandale
Boulevard, Bloomington, Minnesota for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To approve the 1997 Employee Stock Option Plan as adopted by the Board of
Directors.
3. To approve the 1997 Long-Term Incentive Plan as adopted by the Board of
Directors.
4. To approve appointment of Ernst & Young LLP as auditors for the year ending
January 31, 1998.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 24, 1997, 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 21, 1997
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 22, 1997, at 3:30 P.M., at the
Radisson Hotel South, 7800 Normandale Boulevard, Bloomington, 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 through 4 of the
notice. The Board of Directors recommends that stockholders vote in favor of
Items 1 through 4. 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 24, 1997, 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 15,100,941 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 nine persons named below as directors and for approval of the other matters
to be considered at the annual meeting. 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.
ELECTION OF DIRECTORS
At the meeting, the nine persons listed below will be nominated for election as
directors until the next annual meeting of stockholders and until their
successors have been elected. Mr. Joseph was elected as a director 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, 1997.
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> <C>
David C. Cox++o 59 President & Chief Executive Officer of Cowles 1983 14,200 (1) *
Media Company (diversified communications) for
more than five years.
Russell A. Gullotti 54 Chairman of the Board, President & Chief Executive 1994 133,890 (2) *
Officer of NCS since May, 1995. President & Chief
Executive Officer from October, 1994 to May, 1995
and prior to that held senior executive positions
in sales and marketing, services and
administration with Digital Equipment Corporation
(computer manufacturing and services) for more
than five years.
Moses S. Joseph+ 37 President & Chief Executive Officer of B-Tree -- -- *
Systems, Inc. (verification systems for embedded
computers) since November, 1995. Prior to that
Vice President-Marketing for Integrated Systems, Inc.
(embedded operating software) from November, 1992
to November, 1995 and Vice President-Marketing
and Sales for Lynx Real-Time, Inc. from May, 1989 to
November, 1992.
Jean B. Keffeler++ 51 Business and management consultant since 1993 6,700 (3) *
March, 1991. Prior to that held various
executive positions in the corporate and public
sectors.
Charles W. Oswald o 69 Private Investor. For more than five years, 1970 1,625,516 (4) 11 %
Chairman of the Board of NCS to May, 1995 and
Chief Executive Officer of NCS until October, 1994.
Stephen G. Shank + 53 President & Chief Executive Officer of Learning 1985 8,619 (1) *
Ventures International, Inc. (education programs
and services) since January, 1992. Prior to that
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++o 57 Chairman of Advanced Thermal Technologies, LLC 1991 13,000 (5) *
(industrial and residential air quality and humidity
control systems) since December, 1996. Prior to that
Chairman & Chief Executive Officer of ALLTEL
Information Services, Inc. (information processing
management, outsourcing services and application
software) for more than five years prior to June,
1996.
Jeffrey E. Stiefler++ 50 Chairman of Pacific Advisors (management 1993 6,508 (3) *
advisory firm) since October, 1995; Operating
Partner of McCown DeLeeuw & Company (leveraged
buyout firm) since February, 1996, Chairman of Out-
sourcing Solutions, Inc.(receivables management firm)
since February, 1996 and Chairman & Chief Executive
Officer of International Data Response Corp.
(telemarketing firm) since July, 1996. Prior to that
President of American Express Company (travel and
financial services) from August, 1993 to September,
1995, Chief Executive Officer of American Express
Financial Advisors, Inc.(financial services) from
July, 1992 to August, 1993 and President from
September, 1990 to August, 1993.
John W. Vessey+ 74 Management consultant since October, 1985. 1986 8,400 (1) *
Prior to that Chairman, Joint Chiefs of Staff,
U.S. Department of Defense from June, 1982 to
October, 1985.
</TABLE>
+ Member of Audit Committee
++ Member of Compensation Committee
o Member of Governance/Nominating Committee
* Less than 1%.
(1) The shares listed for Messrs. Cox, Shank and Vessey include 8,000
shares that may be acquired within 60 days upon exercise of outstanding
stock options.
(2) The shares listed for Mr. Gullotti include 275 shares allocated to him
pursuant to the NCS Employee Stock Ownership Plan (ESOP), 82,600 shares
issued under the NCS Long-Term Incentive Plan (L-TIP), and 45,000
shares that may be acquired within 60 days upon exercise of outstanding
stock options.
(3 The shares listed for Ms. Keffeler and Mr. Stiefler include 3,000
shares that may be acquired within 60 days upon exercise of outstanding
stock options.
(4) The shares listed for Mr. Oswald include 63,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(5) The shares listed for Mr. Steuri include 6,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
Mr. Cox is also a director of ReliaStar Financial Corp. and Tennant Company; Mr.
Gullotti is also a director of GenRad, Inc. and MTS Systems Corporation; Ms.
Keffeler is also a director of American Paging Company, Inc. and the American
Express Financial Corporation Strategist Fund Group; Mr. Oswald is also a
director of ADC Telecommunications, Inc.; Mr. Shank is also a director of
Polaris Industries, Inc. and Mr. Steuri is also a trustee of Northwestern Mutual
Life Insurance Company.
The Board of Directors held five meetings during the fiscal year ended January
31, 1997 (fiscal 1996). All Board committees are comprised of only outside
directors. 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
four meetings. The Compensation Committee of the Board of Directors reviews the
Company's compensation and personnel processes and programs. During the last
fiscal year, the Compensation Committee held six meetings. The
Governance/Nominating Committee assesses Board effectiveness, recommends the
slate of Board nominees, recommends candidates to fill Board vacancies and
recommends corporate governance policies and practices. The
Governance/Nominating Committee meets informally as required. During the last
fiscal year each director attended 75% or more of all Board of Directors
meetings and meetings of Board Committees on which each served.
Outside directors receive fees of $3,000 per quarter ($3,750 for Committee
Chairpersons) and participation fees of $1,250 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 day.
NCS has a Non-Employee Director Stock Option Plan under which each director who
is not an employee of NCS is 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 (2,500 shares effective March 3, 1997).
During fiscal 1996, all non-employee directors as a group were granted options
to purchase 7,000 shares at a per share option price of $24.00. None of the
options granted under the Plan have been exercised.
PROPOSAL TO APPROVE THE NCS 1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors recommends stockholder approval of the NCS 1997 Employee
Stock Option Plan (1997 Plan), covering up to 300,000 shares of Common Stock.
The 1997 Plan was adopted by the Board of Directors on March 3, 1997, subject to
stockholder approval. NCS has four other employee stock option plans which were
approved in 1984, 1986, 1990 and 1995. As of February 28, 1997, there were
227,000 shares reserved and available for issuance under these plans. No options
have been granted under the 1997 Plan. Approval of the 1997 Plan will require
the affirmative vote of a majority of the shares of outstanding Common Stock
present and entitled to vote at the meeting.
In the opinion of the Board of Directors, the 1997 Plan is beneficial to NCS as
it will provide key employees an opportunity to invest in the Common Stock of
NCS with the increased personal interest in the continued success of NCS and
alignment with long-term interests of stockholders that stock ownership can
produce.
Persons eligible to receive options under the 1997 Plan are key employees of NCS
or its wholly-owned subsidiaries. The 1997 Plan is administered by the
Compensation Committee of the Board of Directors. No employee may be granted any
options under the 1997 Plan for more than 100,000 shares in the aggregate in any
calendar year. No option may be granted after January 31, 2007.
The option price shall not be less than 100% of the fair market value of NCS
Common Stock on the date of grant of the option. No option granted under the
1997 Plan shall have a term in excess of ten years or shall be less than one
year. Options are exercisable only while the optionee is an employee of NCS or
one of its subsidiaries or within three months after termination of employment.
The legal representative of a deceased optionee may exercise the option within
one year after the death of the optionee or until the earlier expiration of the
option. Options are nontransferable except by will or the laws of descent and
distribution. Option shares must be paid for in cash and in full at the time an
option is exercised; provided, however, in lieu of cash an optionee may exercise
an option by tendering to the Company Common Stock owned by the optionee which
has a fair market value equal to the cash exercise price of the shares being
purchased.
The grant of an option is not expected to result in any taxable income to the
optionee. Options under the 1997 Plan may be intended to qualify as Incentive
Stock Options (ISOs) under the Internal Revenue Code of 1986, as amended (the
Code). An optionee generally will have no taxable income upon exercising an ISO
(except that a liability may arise pursuant to the alternative minimum tax), and
the Company will not be entitled to a tax deduction when an ISO is exercised.
Upon exercising non-qualified options (NQOs), the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares of
Common Stock acquired on the date of exercise over the exercise price, and the
Company will be entitled at that time to a tax deduction for the same amount.
The tax consequences to an optionee upon a disposition of shares acquired
through the exercise of an option will depend on how long the shares have been
held and upon whether such shares were acquired upon the exercise of an ISO or a
NQO.
PROPOSAL TO APPROVE THE NCS 1997 LONG-TERM INCENTIVE PLAN
The Board of Directors recommends stockholder approval of the NCS 1997 Long-Term
Incentive Plan (Incentive Plan), covering up to 300,000 shares of Common Stock.
The Plan was adopted by the Board of Directors on March 3, 1997, subject to
stockholder approval. Approval of the Incentive Plan will require the
affirmative vote of a majority of the shares voting on the matter.
The purpose of the Incentive Plan is to promote the interests of NCS by
enhancing its ability to attract, motivate and retain its key employees, to
provide incentives for such employees to remain with NCS, to increase their
identification with the interests of the NCS stockholders and to afford them an
opportunity to acquire a proprietary interest in NCS based on the financial
success of the Company. Eligible participants are key employees, including
salaried officers and directors who are employees, as approved by the
Compensation Committee of the Board of Directors. No further awards will be made
under the prior L-TIP.
The Incentive Plan has three features. It provides for the grant of stock
options, conditional cash bonuses or restricted stock awards as long-term
incentives.
Options under the Incentive Plan may be intended to qualify as ISOs. The option
price for an ISO shall not be less than 100% of the fair market value of NCS
Common Stock on the date of grant of the option. The option price for options
granted under the Incentive Plan which do not qualify as ISOs will be determined
by the Committee. No ISO granted shall exceed ten years. A NQO shall not have a
term exceeding fifteen years. ISOs are exercisable only while the optionee is an
employee of NCS or its affiliates or within three months after termination of
employment. The legal representative of a deceased optionee or an optionee who
terminates due to becoming disabled may exercise the option within one year
after the death or disability of the employee or until the expiration of the
option. NQOs may be exercisable at such times as the Committee may determine.
Options are nontransferable except by will or the laws of descent and
distribution. Option shares must be paid for in cash and in full at the time an
option is exercised; provided, however, in lieu of cash an optionee may exercise
an option by tendering to the Company Common Stock owned by the optionee which
has a fair market value equal to the cash exercise price of the shares being
purchased.
Conditional cash bonuses or restricted stock awards under the Incentive Plan
shall be for an amount of cash or a number of shares of NCS Common Stock
determined by the Committee and set forth in an agreement containing the terms
of such award. If the Committee so determines, the restrictions may lapse during
the restricted period in installments with respect to specified portions of the
shares or cash bonus covered by the award. The agreement relating to an award
may, in the discretion of the Committee, set forth performance and other
conditions that will subject the Common Stock or cash to forfeiture and transfer
restrictions. The Committee may, at its discretion, waive all or any part of the
restrictions applicable to any or all outstanding awards, whether or not a
restriction period has expired or other specific conditions have been met.
For tax consequences relating to options granted under the Incentive Plan, see
"Proposal To Approve the NCS 1997 Employee Stock Option Plan" above. The
recipient of a restricted stock award must, unless a special election is made
under the Code, recognize ordinary income equal to the fair market value of the
shares of Common Stock received (determined as of the first time the shares
become transferable or no longer have a substantial risk of forfeiture,
whichever occurs earlier), and the Company will be entitled at that time to a
tax deduction for the same amount.
The Compensation Committee will have full power and authority, subject to
applicable law, in its discretion, to make final determinations regarding this
Incentive Plan and to determine the terms and conditions of all stock options,
conditional cash bonuses and restricted stock awards granted pursuant to this
Incentive Plan.
The stock option feature of the Incentive Plan will initially provide
non-qualified stock options to participants at an option price of $24.50 per
share, the fair market value of the Common Stock on date of grant. Options for
48,600, 15,000, 15,000, 14,800, 13,400 and 161,500 shares have been granted to
Messrs. Gullotti, Bowen, Poss, Smith, and Taylor and all executive officers as a
group, respectively, subject to stockholder approval of the Incentive Plan.
Options will vest in sixty-six months or earlier on achievement of an
established cumulative earnings per share goal for the three years ending
January 31, 2000. Vesting is further adjusted based on last trade prices of NCS
Common Stock for 20 trading days following announcement of earnings for the
third year of the measurement period.
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 LLP as the Company's independent auditors for the fiscal year ending
January 31, 1998.
Ernst & Young LLP has regularly audited the Company's consolidated financial
statements since 1972. A representative of Ernst & Young LLP is expected to be
present at the annual meeting of stockholders on May 22, 1997 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.
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 below and all directors and executive officers as a group as
of February 28, 1997, is shown below. Except as otherwise indicated, the
stockholders listed in the table below 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 1,625,516 11%
3800 West 80th Street
Bloomington, Minnesota 55431
Russell A. Gullotti 133,890 *
Robert C. Bowen 68,232 (1) *
Richard L. Poss 47,787 (2) *
David W. Smith 30,276 (3) *
Jeffrey W. Taylor 31,679 (4) *
All Directors and Executive
Officers as a Group (18 persons) 2,083,966 (5) 14%
* Less than 1%
</TABLE>
(1) The shares listed for Mr. Bowen include 27,600 shares issued pursuant
to the L-TIP which are subject to forfeiture, 1,255 shares allocated to
him pursuant to the ESOP and 20,000 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(2) The shares listed for Mr. Poss include 22,500 shares issued pursuant to
the L-TIP which are subject to forfeiture, 1,165 shares allocated to
him pursuant to the ESOP and 15,500 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(3) The shares listed for Mr. Smith include 14,500 shares issued pursuant
to the L-TIP which are subject to forfeiture, 1,094 shares allocated to
him pursuant to the ESOP and 2,400 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(4) The shares listed for Mr. Taylor include 13,200 shares issued pursuant
to the L-TIP which are subject to forfeiture, 979 shares allocated to
him pursuant to the ESOP and 10,700 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(5) Includes 201,500 shares issued pursuant to the L-TIP which are subject
to forfeiture, 7,351 shares allocated pursuant to the ESOP and 208,500
shares that may be acquired within 60 days upon exercise of outstanding
stock options.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (Compensation Committee) is
composed entirely of outside directors who review the Company's compensation
processes and programs. They approve and make recommendations with regard to
those processes 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
revenue and 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 peer group
companies which are of a size and complexity comparable to the Company is
utilized. The general comparative group consists of companies of comparable size
included in nationwide, 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 that is competitive with 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 or business unit revenue and earnings
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 that is
competitive with the peer and other comparable companies described above. The
Compensation Committee also gives consideration to issues which it deems
specific to the Company. During fiscal 1996, bonuses were paid under the MIP
based on achievement of corporate and business unit revenue and earnings 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.
<PAGE>
Stock Option and Long-Term Incentive Programs
The Company's stock option plans and its 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 to
help ensure an on-going alignment with stockholder interests.
The Company's stock option plans are administered by the Compensation Committee.
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 60 or 63 month terms and vest at the rate of
20% after 12, 24, 36, 48 and 58 or 60 months. The amounts to be granted to
executive officers are determined using relevant compensation survey data,
consideration of the value of the Company's Common Stock and the total number of
shares and option shares outstanding, competitive employment factors and
performance of the individual.
Under the L-TIP awards made in fiscal 1990, as revised by the Compensation
Committee in 1996 to delete the cash element of the awards, restricted shares
vested if the participant was employed by NCS after 10 years from award date, or
earlier if the prescribed performance goal was achieved. If the goal was
achieved, the restricted shares vested 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 was attained on the achievement of a 20%
return on equity in any fiscal year. The performance goal was achieved as of
January 31, 1997 and, thus, shares awarded will vest over the ensuing three-year
period with continued employment.
Under the L-TIP awards made in fiscal 1995, as revised by the Compensation
Committee in 1996 to reduce the term and the number of shares of the awards, the
restricted shares vested when the prescribed cumulative total earnings per share
(EPS) were achieved for the two fiscal years ending January 31, 1997. Provision
was made in the fiscal 1995 awards whereby participant awards could be modified
in a range of 85-115% based on actual revenue for fiscal 1996 and up to 200% for
overachievement of cumulative EPS goals. An annual cash compensation element was
based on achievement of prescribed minimum EPS amounts in each of the fiscal
years ending January 31, 1996 and 1997. If the annual prescribed minimum EPS
amount was not achieved, that year's cash payout of 10% of base salary was lost.
For the year ended January 31, 1997, the annual EPS goal was achieved and the
cash payout was made subsequent to year-end; and, the cumulative EPS and revenue
goals were achieved, which will cause the restricted shares to vest over a two
year period: 67% as of January 31, 1997 and 33% as of January 31, 1998 with
continued employment.
The L-TIP awards were granted to eligible executive officers based on
compensation survey data, anticipated growth in the value of the Company's
Common 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. Gullotti's annual base salary is $425,000 which, when added to potential
performance based compensation if established goals are met, was an amount the
Compensation Committee determined was marketplace competitive and resulted in
compensation in the market range for similar amounts paid to chief executive
officers by the peer and general comparative group companies described above.
During fiscal 1996, a bonus of $304,780 ($262,280 under the MIP and $42,500
under the L-TIP) was accrued for Mr. Gullotti. Mr. Gullotti was granted an
option during the year to purchase 30,000 shares of the Company's Common Stock.
The Compensation Committee determined the size of the option granted in the same
manner as described above for other executive officers.
On February 1, 1997, Mr. Gullotti was granted an L-TIP award of 50,000
restricted shares of the Company's Common Stock. The award will vest in 25%
increments on the Company attaining prescribed NCS stock price goals. At each
vesting date, a replenishment restricted share award of 12,500 shares will be
made which will vest in 25% increments upon achievement of prescribed stock
price goals. All unvested shares, whether part of the original grant or one of
the replenishment grants, vest five years from the date of grant. Consistent
with the purpose of the L-TIP, this award is intended to both provide Mr.
Gullotti with an additional incentive to achieve success for the Company on
behalf of the stockholders and to retain Mr. Gullotti's continued service to
NCS.
<PAGE>
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. The NCS 1997 Employee Stock Option Plan,
when approved by stockholders, will comply with Section 162(m) so that
compensation relating to stock options granted under the 1997 Plan will not be
counted toward the $1,000,000 limit on deductible compensation under Section
162(m). Similarly, compensation expense related to options granted under the
Company's 1995 Employee Stock Option Plan will also be deductible under Section
162(m). The Committee has not formulated a policy with respect to qualifying
other executive compensation for deductibility under Section 162(m).
David C. Cox, Chairman John E. Steuri
Jean B. Keffeler Jeffrey E. Stiefler
Members of the Compensation Committee
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and the four next most highly compensated executive officers of the
Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------ ------------------------
Other Restricted Securities All Other
Annual Stock Under- Compensation
Fiscal Compen- Awards lying -----------------
Name and Principal Position Year Salary Bonus(1) sation ($) (2) Options ESP(3) ESOP(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti, Chairman, 1996 $418,750 $304,780 $1,614 $ 0 30,000 $3,750 3,421
President and Chief 1995 388,702 253,333 2,358 594,950 30,000 3,750 2,733
Executive Officer (4) 1994 126,500 62,500 0 0 100,000 1,560 0
Robert C. Bowen, Senior 1996 209,000 54,035 0 0 8,000 3,750 3,690
Vice President 1995 206,750 43,380 1,609 175,200 10,000 3,750 3,224
1994 200,000 45,850 1,561 0 10,000 3,000 2,749
Richard L. Poss, Senior 1996 211,250 46,333 1,625 0 10,000 3,750 3,910
Vice President 1995 183,333 109,886 1,111 146,000 9,500 3,750 3,176
1994 168,333 74,887 0 0 10,000 3,000 2,702
David W. Smith, 1996 175,750 97,813 1,573 0 8,000 3,750 3,641
Vice President 1995 161,000 56,962 0 136,875 7,000 3,750 3,150
1994 155,000 24,824 0 0 6,000 0 2674
Jeffrey W. Taylor, Vice 1996 179,000 80,404 0 0 8,500 3,750 3,617
President and Chief 1995 167,500 65,025 0 142,350 8,000 3,750 3,085
Financial Officer 1994 146,042 30,682 0 62,500 10,000 3,000 2,620
</TABLE>
(1) Executive officers participate in the Company's MIP and its L-TIP.
Under these plans, cash incentive payments are made, based on NCS'
financial performance, business unit performance and individual
performance criteria and the officer's base salary, following the
fiscal year end. Based on the Company's fiscal 1996 EPS performance,
annual cash awards under the L-TIP of $42,500, $20,900, $21,500,
$18,000 and $18,200 were accrued for Messrs. Gullotti, Bowen, Poss,
Smith and Taylor, respectively. The remainder of the bonus amount was
accrued under the MIP. Incentive payment amounts are shown in the
fiscal year accrued.
(2) The number and fair market value of aggregate restricted stock holdings
at January 31, 1997, were 32,600 shares ($796,663), 27,600 shares
($674,475), 22,500 ($549,844), 14,500 ($354,344) and 13,200 ($322,575)
for Messrs. Gullotti, Bowen, Poss, Smith and Taylor, respectively. The
value of the restricted stock awards shown in the table above is
determined by multiplying the fair market value of the Company's Common
Stock on date of award by the number of shares awarded. In fiscal 1996,
the L-TIP awards made in fiscal 1995 were amended to reduce the term
and number of shares. Performance objectives were met in fiscal 1996
and, accordingly, approximately 71% of the holdings at January 31, 1997
will vest in 1997 and 1998 with the remainder forfeited. Dividends are
paid on shares awarded.
(3) Compensation reported represents Company contributions under the NCS
401(k) Employees 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.
(4) Mr. Gullotti joined the Company as President and Chief Executive
Officer on October 1, 1994. In fiscal 1994, Mr. Gullotti was paid
$225,000 cash as compensation for lost benefits from his prior employer
and $38,130 for reimbursement of relocation expenses. In fiscal 1995,
he was paid $33,386 for reimbursement of relocation expenses. The
Company provided Mr. Gullotti a supplemental executive retirement plan
(SERP) which, on retirement at age 65, would provide an annual benefit
of $75,000. Reduced amounts would be paid on retirement between ages 55
and 65. Benefits payable under the SERP are unfunded and will be paid
only from the general assets of the Company. NCS has agreed with Mr.
Gullotti that if his employment with the Company is involuntarily
terminated for other than cause, he will receive a severance package
equal to two years base salary.
The Company has entered into severance agreements with Messrs. Gullotti, Bowen,
Poss, Smith and Taylor. Pursuant to such agreements, each would receive a
payment equal to twice his annual salary and bonus amounts in the event he is
terminated following a "change in control" of the Company (as defined in the
agreements). In such event, any stock options or restricted stock awards granted
to such executive officer would be immediately vested in full. The agreements
are terminable upon six months prior notice by the Company, and payments
thereunder are limited to the amount that may be paid without penalty under
Section 280G of the Code.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal 1996 to
or by the executive officers named in the Summary Compensation Table above, and
the value of the options held by such persons at the end of fiscal 1996.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1996
----------------------------
Individual Grants Potential Realizable Value
------------------------------------------------- at Assumed Annual Rates
# of % of Total of Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term (2)
Options Employees in Price Expiration ---------------------------------
Name Granted(1) Fiscal 1996 ($/Sh) Date 0% 5% 10%
- ----------------- --------- ------------ -------- ---------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 30,000 14 % $24.00 8/23/01 0 $210,293 $467,761
Robert C. Bowen 8,000 4 24.00 8/23/01 0 56,078 124,736
Richard L. Poss 10,000 5 24.00 8/23/01 0 70,098 155,920
David W. Smith 8,000 4 24.00 8/23/01 0 56,078 124,736
Jeffrey W. Taylor 8,500 4 24.00 8/23/01 0 59,583 132,532
</TABLE>
(1) Options vest at the rate of 20% after 12, 24, 36, 48 and 60 months.
(2) 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.
<PAGE>
Aggregated Option Exercises in Fiscal 1996 and
Value of Options at End of Fiscal 1996
<TABLE>
<CAPTION>
Number of Value of
Number of Securities Underlying Unexercised In-
Shares Unexercised Options the-Money Options
Acquired Value at end of at end of
on Realized Fiscal 1996 Fiscal 1996
Exercise (1) Exercisable/Unexercisable Exercisable/Unexercisable
-------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 1,000 $ 8,500 45,000 / 114,000 $479,730 / 846,360
Robert C. Bowen 8,000 82,000 18,400 / 27,600 171,696 / 175,544
Richard L. Poss 8,000 75,000 14,300 / 27,200 135,692 / 156,568
David W. Smith 3,400 27,700 1,400 / 20,200 9,016 / 108,888
Jeffrey W. Taylor 4,000 34,000 10,100 / 22,900 98,444 / 134,076
</TABLE>
(1) Value based on market value of the Company's Common Stock at date of
exercise or end of fiscal 1996, minus the exercise price.
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 (assuming the investment of $100 in the Company's Common Stock and each
Index on January 31, 1992 and reinvestment of all dividends).
<TABLE>
<CAPTION>
1/31/92 1/31/93 1/31/94 1/31/95 1/31/96 1/31/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NCS 100.0 102.2 81.1 109.4 143.3 175.8
S&P 500 INDEX 100.0 110.5 124.4 125.2 173.9 220.1
INDEX FOR NASDAQ COMPUTER
AND DATA PROCESSING STOCKS 100.0 105.5 112.7 126.7 195.6 266.3
</TABLE>
- ------------------------
(1) Total return calculations for the S&P 500 Index were performed by CRSP.
(2) The Index for NASDAQ Computer and Data Processing Stocks (SIC 737) is
maintained by CRSP.
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997, 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 1998 Annual
Meeting of Stockholders must be received at the Company's executive offices no
later than December 22, 1997.
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, 1997, as filed with the SEC, 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 21, 1997
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
<PAGE>
PROXY CARD:
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 Russell A. Gullotti and J. W. Fenton, Jr., 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 Radisson Hotel South, 7800 Normandale
Boulevard, Bloomington, Minnesota, on May 22, 1997, 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 through 4.
1. ELECTION OF DIRECTORS
O FOR all nominees listed below O WITHHOLD AUTHORITY
(Except as marked to the to vote for all nominees listed below
contrary below)
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
circle next to the nominee's name below.)
O David C. Cox O Jean B. Keffeler O John E. Steuri
O Russell A. Gullotti O Charles W. Oswald O Jeffrey E. Stiefler
O Moses Joseph O Stephen G. Shank O John W. Vessey
2. PROPOSAL TO APPROVE 1997 EMPLOYEE STOCK OPTION PLAN
O FOR O AGAINST O ABSTAIN
3. PROPOSAL TO APPROVE 1997 LONG-TERM INCENTIVE PLAN
O FOR O AGAINST O ABSTAIN
4. APPOINTMENT OF AUDITORS - Ernst & Young
O FOR O AGAINST O ABSTAIN
5. 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 ____________________________________ , 1997
____________________________________
(Signature)
____________________________________
(Signature, if held jointly)
PLEASE NOTE THE ABOVE SIGNATURE BOX
RETURN IN ENVELOPE PROVIDED
