(Logo)
NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998 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 21, 1998, 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 1998 Employee Stock Purchase Plan as adopted by the Board of
Directors.
3. To approve appointment of Ernst & Young LLP as auditors for the year ending
January 31, 1999.
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 26, 1998, 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, 1998
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 21, 1998, 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 3 of the
notice. The Board of Directors recommends that stockholders vote in favor of
Items 1 through 3. 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 26, 1998, 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 31,014,626 shares of Common Stock. Shares and price per
share amounts throughout this proxy statement have been adjusted to give effect
to the March, 1998 2-for-1 stock split of the Company's 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 six 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 six persons listed below will be nominated for election as
directors until the next annual meeting of stockholders and until their
successors have been elected. All of the nominees are currently directors of the
Company. The Company's two other current directors, Charles W. Oswald and John
W. Vessey, will not stand for re-election in accordance with the Company's
retirement policy for directors. 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, 1998.
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 60 President & Chief Executive Officer of Cowles 1983 34,980 (1)(6) *
Media Company (diversified communications) for
more than five years.
Russell A. Gullotti 55 Chairman of the Board, President & Chief Executive 1994 314,474 (2) 1%
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+ 38 President & Chief Executive Officer of B-Tree 1997 5,000 (3) *
Systems, Inc. (verification systems for embedded
computers) from February, 1996 to February, 1998.
Prior to that Vice President-Marketing for
Integrated Systems, Inc. (embedded operating
software) from November, 1992 to February, 1996.
Jean B. Keffeler++ 52 Business and management consultant since March, 1991. 1993 18,930 (4) *
Prior to that held various executive positions in the
corporate and public sectors.
Stephen G. Shank + 54 President & Chief Executive Officer of Learning 1985 23,310 (1)(6) *
Ventures International, Inc. (education programs
and services) for more than five years.
John E. Steuri++o 58 Chairman of Advanced Thermal Technologies, LLC 1991 32,580 (5)(6) *
(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.
<FN>
+ Member of Audit Committee
++ Member of Compensation Committee
o Member of Governance/Nominating Committee
* Less than 1%.
</FN>
</TABLE>
(1) The shares listed for each of Messrs. Cox and Shank include 21,000
shares that may be acquired within 60 days upon exercise of outstanding
stock options.
(2) The shares listed for Mr. Gullotti include 842 shares allocated to him
pursuant to the NCS Employee Stock Ownership Plan (ESOP), 93,750 shares
issued under an NCS Long-Term Incentive Plan (L-TIP) which are subject
to forfeiture, and 154,000 shares that may be acquired within 60 days
upon exercise of outstanding stock options.
(3) The shares listed for Mr. Joseph include 5,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(4) The shares listed for Ms. Keffeler include 11,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(5) The shares listed for Mr. Steuri include 17,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(6) The shares listed for Messrs. Cox, Shank and Steuri also include 1,580,
1,072 and 1,580 shares, respectively, accrued pursuant to the National
Computer Systems, Inc. Directors' Deferred Compensation Plan (Deferred
Compensation Plan). The Deferred Compensation Plan became effective
February 1, 1997 and allows directors to defer payment of fees until
future dates with payout to be in the form of cash or NCS stock.
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. 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, 1998 (fiscal 1997). 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 four 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 did not hold any formal meetings in fiscal 1997
but met informally when required. During fiscal 1997, each incumbent 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 beginning in
1998 that he or she is elected or reelected as a director of NCS by the
stockholders, an option to acquire 3,000 shares of Common Stock. During fiscal
1997, all non-employee directors as a group were granted options to purchase
40,000 shares at an average per share option exercise price of $13.03. None of
the options granted under the Plan have been exercised.
Mr. Shank is a director of and owns a 50% equity interest in Learning Ventures
International, Inc. (LVI). In September, 1997, LVI acquired Aprisa Multimedia,
Inc. (Aprisa), a company in which NCS owned a minority equity interest. As
consideration for the purchase of NCS' Aprisa shares, LVI issued Class C
Preferred Stock of LVI, with a redemption value of $165,000, to NCS.
PROPOSAL FOR 1998 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors recommends stockholder approval of the NCS 1998 Employee
Stock Purchase Plan (1998 Purchase Plan), covering up to 500,000 shares of
Common Stock of NCS. The 1998 Purchase Plan was adopted by the Board of
Directors on March 3, 1998, subject to stockholder approval. Approval of the
1998 Purchase Plan will require the affirmative vote of a majority of the shares
present and entitled to vote at the meeting.
In the opinion of the Board of Directors, the 1998 Purchase Plan is beneficial
to NCS as it gives employees an opportunity to share in the ownership of NCS
through a regular and systematic purchase program from current income by payroll
deduction. The Company has had similar plans in place since 1977. The remaining
shares authorized for issuance under the 1992 Employee Stock Purchase Plan will
not be sufficient to meet future requirements.
All regular employees (approximately 3,500) are eligible to participate in the
1998 Purchase Plan. Employees may authorize NCS to deduct from 2% to 10% of
gross earnings in any fiscal quarter (Purchase Period). At the end of each
Purchase Period, employees will purchase the largest possible number of whole
shares of NCS Common Stock from amounts withheld during the Purchase Period at a
price equal to 85% of the fair market value at the end of the first business day
or the last business day of the Purchase Period, whichever is lower.
Participation in the 1998 Purchase Plan terminates upon the termination of
employment. The 1998 Purchase Plan will terminate on January 31, 2008, unless
extended for one or more additional five-year periods by the Board of Directors.
The 1998 Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code. As such, shares issued
under the 1998 Purchase Plan qualify for special tax treatment. When shares are
purchased at a 15% discount (85% of the fair market value at the beginning or
the end of the Purchase Period, whichever is lower) and held for a specified
period, the discount is taxed as ordinary income (but not until the shares are
actually sold) and any further gain is taxed as capital gain. NCS cannot take a
business deduction from its taxable income to account for the 15% discount
unless an employee disposes of shares before the specified period (in which case
the employee generally will have adverse tax consequences).
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, 1999.
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 21, 1998 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, 1998, 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.
Shares
Beneficially Percent of
Name and Address Owned Outstanding
- ---------------- ------------ -----------
Charles W. Oswald 2,906,392 (1) 9.4 %
7601 France Avenue South
Edina, MN 55435
Royce and Associates, Inc., 1,797,446 (2) 5.8 %
Royce Management Company and
Charles M. Royce
1414 Avenue of the Americas
New York, NY 10010
Russell A. Gullotti 314,474 1.0 %
Robert C. Bowen 129,052 (3) *
Michael A. Morache 6,592 (4) *
David W. Smith 60,678 (5) *
Jeffrey W. Taylor 59,664 (6) *
All Directors and Executive
Officers as a Group (17 persons) 3,829,430 (7) 12.3 %
* Less than 1%
(1) The shares listed for Mr. Oswald include 67,000 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(2) Charles M. Royce is deemed to be a controlling person of Royce &
Associates, Inc. (Royce) and Royce Management Company (RMC), and is
therefore deemed to beneficially own the shares beneficially owned by
Royce and RMC. Mr. Royce does not own any shares except through Royce
and RMC and disclaims beneficial ownership of shares held through Royce
and RMC.
(3) The shares listed for Mr. Bowen include 10,800 shares issued pursuant
to an L-TIP which are subject to forfeiture, 2,834 shares allocated to
him pursuant to the ESOP and 43,200 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(4) The shares listed for Mr. Morache include 284 shares allocated to him
pursuant to the ESOP and 3,200 shares that may be acquired within 60
days upon exercise of outstanding stock options.
(5) The shares listed for Mr. Smith include 4,200 shares issued pursuant to
an L-TIP which are subject to forfeiture, 2,506 shares allocated to him
pursuant to the ESOP and 15,200 shares that may be acquired within 60
days upon exercise of outstanding stock options.
(6) The shares listed for Mr. Taylor include 3,240 shares issued pursuant
to an L-TIP which are subject to forfeiture, 2,274 shares allocated to
him pursuant to the ESOP and 28,800 shares that may be acquired within
60 days upon exercise of outstanding stock options.
(7) Includes 124,440 shares issued pursuant to an L-TIP which are subject
to forfeiture, 17,958 shares allocated pursuant to the ESOP and 469,500
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 executive
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, motivate 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/or
corporate revenue and earnings growth.
The executive compensation program is designed to provide an overall level of
compensation opportunity that is competitive with comparably-sized companies
nationwide. National compensation survey data is obtained from four major
management consulting firms and industry associations. One survey utilized
consists of companies in the computer, electronics, communications, software and
related services industries. Other surveys consist of general industry survey
data of companies of comparable size. Actual total compensation levels for
senior executive officers 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, performance-based cash awards 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
other comparable companies as described above. Generally, it is intended that
base salary levels will result in annual cash compensation in the 50th to 75th
percentile of amounts paid for similar job functions at comparable companies
nationwide. 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 Incentive Compensation
The Management Incentive Plan (MIP) is the Company's annual incentive program
for executive officers and key senior 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 bonus compensation in the 50th to 75th percentile of amounts
paid for comparable job functions at the other companies described above. The
Compensation Committee also gives consideration to issues which it deems
specific to the Company. During fiscal 1997, bonuses were accrued 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 significantly exceeds established performance
goals.
Stock Option and Long-Term Incentive Programs
The Company's stock option plans and its long-term incentive plans are the
Company's extended term incentive programs for executive officers. The
objectives of the plans are to promote the longer 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 long-term incentive plans 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 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 option 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 1997, stock options for executive officers
were granted at option prices equal to the fair market value of the Company's
Common Stock on the date of grant. The options granted have 67 to 72 month terms
and vest 100% in August, 2002. Full or partial vesting may be accelerated if
prescribed cumulative total earnings per share (EPS) amounts during the three
fiscal years ending January 31, 2000 are achieved and the fair market value of
the Company's Common Stock during the 20 business days prior to vesting is at
required levels.
In fiscal 1997, the executive officers were also granted conditional cash bonus
awards under the L-TIP. An annual cash compensation element was based on
achievement of prescribed minimum EPS amounts in the fiscal year ending January
31, 1998. If the annual prescribed minimum EPS amount is not achieved, a cash
payout equal to 10% of base salary is lost. For the year ended January 31, 1998,
the annual EPS goal was achieved and the cash payout was made subsequent to year
end. A long-term element provides for a cash bonus payment based on a formula
which first calculates the number of shares which would have been earned in
excess of 100% of the stock options granted because of over-achievement of
prescribed cumulative total EPS amounts during the three years ending January
31, 2000 as modified by the fair market value of the Company's Common Stock
during the 20 business days prior to the accelerated vesting date. The
calculated number of shares is then multiplied by the difference between the
fair market value of the Company's Common Stock during the 20 business days
prior to vesting less the fair market value on the date of grant of the award.
Vesting in the shares awarded and the cash awards are contingent on 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 $445,000 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 same range as similar amounts paid to chief executive
officers by the comparable companies described above. During fiscal 1997, a
bonus of $481,000 ($436,500 under the MIP and $44,500 under an L-TIP) was
accrued for Mr. Gullotti. Mr. Gullotti was granted options during the year to
purchase 147,200 shares of the Company's Common Stock (50,000 under an employee
stock option plan and 97,200 under an L-TIP). The Compensation Committee
determined the size of the options 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 100,000
restricted shares of the Company's Common Stock. The award vests in 25%
increments on the attainment of prescribed stock price goals for the Company's
Common Stock. At each vesting date, a replenishment restricted share award of
25,000 shares is made which vests in 25% increments upon achievement of
prescribed stock price goals. Two 25% increments vested in fiscal 1997. 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.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code (the Code) should not affect the
deductibility of compensation paid to the Company's executive officers for the
foreseeable future. The NCS 1995 and 1997 Employee Stock Option Plans and the
1997 Long-Term Incentive Plan comply with Section 162(m) so that compensation
relating to stock options granted under the plans will not be counted toward the
$1,000,000 limit on deductible compensation under Section 162(m). The Committee
has not formulated a policy with respect to qualifying other executive
compensation for deductibility under Section 162(m).
David C. Cox, Chairman Jean B. Keffeler John E. Steuri
Members of the Compensation Committee
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and the four next most highly compensated executive officers of the
Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------------- ----------------------
Other Restricted Securities All Other
Annual Stock Under- Compensation
Fiscal Compen- Awards lying -----------------
Name and Principal Position Year Salary Bonus(1) sation ($) (2) Options ESP(3) ESOP(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti, Chairman, 1997 $440,000 $481,000 $ 958 $2,078,906 147,200 $4,800 $5,031
President and Chief 1996 418,750 304,780 1,614 0 60,000 3,750 3,421
Executive Officer (4) 1995 388,702 253,333 2,358 594,950 60,000 3,750 2,733
Robert C. Bowen, Senior 1997 215,750 110,486 15,243 0 52,000 4,800 5,583
Vice President (5) 1996 209,000 54,035 0 0 16,000 3,750 3,690
1995 206,750 43,380 1,609 175,200 20,000 3,750 3,224
Michael A. Morache 1997 187,500 139,203 0 0 46,200 4,430 4,893
Vice President 1996 122,475 61,586 0 39,414 16,000 0 0
David W. Smith 1997 191,250 118,756 1,217 0 47,600 4,800 5,514
Vice President 1996 175,750 97,813 1,573 0 16,000 3,750 3,641
1995 161,000 56,962 0 136,875 14,000 3,750 3,150
Jeffrey W. Taylor, Vice 1997 191,750 127,725 0 0 44,800 4,800 5,445
President and Chief 1996 179,000 80,404 0 0 17,000 3,750 3,617
Financial Officer 1995 167,500 65,025 0 142,350 16,000 3,750 3,085
</TABLE>
(1) Executive officers participate in the Company's MIP and 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 1997 financial performance, annual cash
awards under the L-TIP of $44,500, $21,800, $19,000, $19,500 and
$19,500 were accrued for Messrs. Gullotti, Bowen, Morache, Smith and
Taylor, respectively. The remainder of the bonus amounts were accrued
under the MIP. Incentive payment amounts are shown in the fiscal year
accrued.
(2) The number and fair market value of unvested restricted stock holdings
at January 31, 1998, were 93,750 shares ($1,605,469), 10,800 shares
($184,950), 4,200 ($71,925), and 3,240 ($55,485) for Messrs. Gullotti,
Bowen, 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, 71% of
the original award vested with two-thirds vesting on January 31, 1997
and one-third vesting on January 31, 1998.
(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 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.
(5) In fiscal 1997, Mr. Bowen was reimbursed for expenses totaling $96,669,
of which $70,984 was for reimbursement of relocation expenses and
$14,285 was for reimbursement of taxes paid relating to such relocation
expenses.
The Company has entered into severance agreements with Messrs. Gullotti, Bowen,
Morache, Smith and Taylor. Pursuant to such agreements, each would receive a
payment equal to twice his annual salary and bonus amounts in the event he is
terminated following a "change in control" of the Company (as defined in the
agreements). In such event, any stock options or restricted stock awards granted
to such executive officer would be immediately vested in full. The agreements
are terminable upon six months prior notice by the Company, and payments
thereunder are limited to the amount that may be paid without penalty under
Section 280G of the Code.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal 1997 to
or by the executive officers named in the Summary Compensation Table above, and
the value of the options held by such persons at the end of fiscal 1997.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1997
----------------------------
Individual Grants
-------------------------------------------------------
Potential Realizable Value
# of % of Total at Assumed Annual Rates
Securities Options Exercise of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees in Price Expiration Option Term (3)
Name Granted Fiscal 1997 ($/Sh) Date 0% 5% 10%
---- ---------- ------------ -------- ---------- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 97,200 (1) 12 % $12.25 3/03/03 0 $404,739 $ 918,147
50,000 (2) 6 13.13 8/22/02 0 191,674 426,345
Robert C. Bowen 30,000 (1) 4 12.25 3/03/03 0 124,919 283,379
22,000 (2) 3 13.13 8/22/02 0 84,336 187,592
Michael A. Morache 28,200 (1) 4 12.25 3/03/03 0 117,424 266,376
18,000 (2) 2 13.13 8/22/02 0 69,002 153,484
David W. Smith 29,600 (1) 4 12.25 3/03/03 0 123,254 279,600
18,000 (2) 2 13.13 8/22/02 0 69,002 153,484
Jeffrey W. Taylor 26,800 (1) 3 12.25 3/03/03 0 111,595 253,152
18,000 (2) 2 13.13 8/22/02 0 69,002 153,484
</TABLE>
(1) Shares were awarded in fiscal 1997 under an L-TIP and vest in
accordance with the discussion set forth in the Compensation
Committee's Report on Executive Compensation.
(2) Shares were issued under the Company's employee stock option plans and
vest at the rate of 20% after 12, 24, 36, 48 and 60 months.
(3) 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.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1997 and
Value of Options at End of Fiscal 1997
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 1997 Fiscal 1997
Exercise (1) Exercisable/Unexercisable Exercisable/Unexercisable (1)
-------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 0 $ 0 154,000 / 311,200 $1,501,990 / $2,056,500
Robert C. Bowen 16,000 84,000 39,200 / 88,800 357,900 / 520,740
Michael A. Morache 0 0 3,200 / 59,000 17,904 / 281,001
David W. Smith 2,000 10,120 13,200 / 75,600 106,250 / 420,510
Jeffrey W. Taylor 6,000 31,500 27,400 / 77,400 251,025 / 450,035
</TABLE>
(1) Value based on market value of the Company's Common Stock at date of
exercise or end of fiscal 1997, minus the exercise price.
COMPARABLE 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, 1993 and reinvestment of all dividends).
GRAPH PLOTTED TO THE FOLLOWING POINTS:
<TABLE>
<CAPTION>
1/31/93 1/31/94 1/31/95 1/31/96 1/31/97 1/31/98
<S> <C> <C> <C> <C> <C> <C>
NCS 100.0 79.4 107.1 140.3 172.1 244.1
S&P 500 (1) 100.0 112.6 113.3 157.4 199.2 253.2
Nasdaq (2) 100.0 106.8 120.1 185.4 252.2 305.8
<FN>
- ------------------------
(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.
</FN>
</TABLE>
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, 1998, 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 1999 Annual
Meeting of Stockholders must be received at the Company's executive offices no
later than December 21, 1998.
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, 1998, 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 20, 1998
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 21, 1998, 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 3.
1. ELECTION OF DIRECTORS
O FOR all nominees listed below O WITHHOLD AUTHORITY
(Except as marked to the to vote for all nominees
contrary below) listed 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 Moses S. Joseph O Stephen G. Shank
O Russell A. Gullotti O Jean B. Keffeler O John E. Steuri
2. PROPOSAL TO APPROVE 1998 EMPLOYEE STOCK PURCHASE PLAN
O FOR O AGAINST O ABSTAIN
3. APPOINTMENT OF AUDITORS - Ernst & Young
O FOR O AGAINST O ABSTAIN
4. 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____________________________ , 1998
____________________________
(Signature)
____________________________
(Signature, if held jointly)
PLEASE NOTE THE ABOVE SIGNATURE BOX
RETURN IN ENVELOPE PROVIDED
<PAGE>
APPENDIX TO PROXY STATEMENT
NATIONAL COMPUTER SYSTEMS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
-------------------------------
Section 1. Purpose
- ---------- -------
1.1 The purpose of the National Computer Systems, Inc. 1998 Employee
Stock Purchase Plan is to give employees an opportunity to share in
the ownership of National Computer Systems, Inc. through a regular
and systematic purchase program from current income by payroll
deduction.
Section 2. Definitions
- ---------- -----------
2.1 For the purpose of the Plan, the following terms will have the
meanings set forth below:
a. Plan. The term "Plan" shall mean the National Computer Systems,
Inc. 1998 Employee Stock Purchase Plan, the terms and
provisions of which are set forth herein.
b. NCS. The term "NCS" will mean National Computer Systems, Inc.,
a Minnesota corporation, and all wholly-owned subsidiaries.
c. Stock. The term "Stock" shall mean the common stock of National
Computer Systems, Inc.
d. Participant. The term "Participant" shall mean an employee of
NCS who has authorized payroll deductions in the manner set
forth in the Plan. Each Participant shall have the same rights
and privileges as every other Participant.
e. Current Compensation. The term "Current Compensation" shall
mean gross earnings of each Participant paid by NCS to such
Participant before any withholding deductions have been made.
f. Purchase Period. The term "Purchase Period" shall mean any
fiscal quarter ending on April 30, July 31, October 31 and
January 31.
g. Enrollment Form. The term "Enrollment Form" shall mean the
Employee Stock Purchase Enrollment Form which an eligible
employee uses to elect to participate in the Plan and to
authorize payroll deductions.
h. Fair Market Value. The term "Fair Market Value" shall be the
last sale price on any business day as reported by NASDAQ.
i. Stock Purchase Account. The term "Stock Purchase Account' shall
mean the individual account established by NCS to which payroll
deductions are credited under the Plan.
j. Regular Employee. The term "Regular Employee" means all
employees of NCS (including officers and directors who are also
employees), except employees who are classified by NCS as
temporary employees whose customary employment is for not more
than 5 months in any calendar year.
Section 3. Eligible Employees
- ---------- ------------------
3.1 All Regular Employees of NCS shall be eligible to participate in
the Plan on employment by NCS.
3.2 No employee shall be granted any option hereunder if such employee,
immediately after the option is granted, would own stock possessing
5% or more of the total combined voting power or value of all
classes of stock of NCS or of its parent or subsidiary corporation.
Section 4. Election to Participate
- ---------- -----------------------
4.1 An eligible employee may elect to participate in this Plan by
completing an Enrollment Form and submitting it to the NCS
Corporate Secretary.
4.2 Participation in the Plan will begin as soon as practicable after
receipt of the Enrollment Form by the NCS Corporate Secretary.
4.3 Participation in the Plan on the part of the Participant is
voluntary and such participation is not a condition of employment,
nor does participation in the Plan entitle a Participant to be
retained as an employee.
Section 5. Purchase Price
- ---------- --------------
5.1 The purchase price for each share of Stock will be the lesser of
the following:
a. 85% of Fair Market Value on the first business day of each
Purchase Period; or
b. 85% of Fair Market Value on the last business day of each
Purchase Period.
Section 6. Payroll Deductions
- ---------- ------------------
6.1 A Participant may elect payroll deductions in whole percentages
from two to ten percent of Current Compensation.
6.2 A Participant may elect at any time, but only once in any six-month
period, to increase or reduce the amount of the payroll deduction
within the limitations of Section 6.1 by submitting a new
Enrollment Form with the payroll deduction portion completed. The
effective date of the change will be as soon as practicable after
receipt of the Enrollment Form by the NCS Corporate Secretary.
6.3 Payroll deductions will be credited to the Participant's Stock
Purchase Account on each payroll payment date.
Section 7. Stock Purchase Account
- ---------- ----------------------
7.1 All funds withheld from a Participant's Current Compensation in
accordance with the payroll authorization shall be credited to the
Participant's Stock Purchase Account. A Participant may not make
any separate cash payments into the Participant's Stock Purchase
Account.
7.2 At the end of each Purchase Period, the largest whole number of
shares of Stock that can be purchased will be purchased for each
Participant who has not withdrawn from the Plan. The purchase
amount, calculated in accordance with Section 5.1, will be charged
to the Participant's Stock Purchase Account.
7.3 Excess funds remaining in a Participant's Stock Purchase Account
after purchase of Stock because the amount of such excess is
insufficient to purchase one whole share of Stock will remain in
the Stock Purchase Account. Excess funds remaining in the
Participant's Stock Purchase Account for any other reason will be
returned to the Participant after the end of each Purchase Period,
but in no case more than thirty days after the end of the Purchase
Period.
7.4 Each Participant will be provided an accounting of the
Participant's Stock Purchase Account as soon as practical after the
end of each Purchase Period, but in no case more than thirty days
after the end of the Purchase Period.
7.5 No Participant shall be permitted to purchase Stock under this Plan
(and any other employee stock purchase plan maintained by NCS and
its parent or subsidiary corporations, if any) at a rate which
exceeds $25,000 in Fair Market Value of capital Stock (determined
at the time the option is granted) for each calendar year in which
such option granted to such Participant is outstanding at any time.
Section 8. Stock Certificates
- ---------- ------------------
8.1 As soon as practical after the end of each Purchase Period, NCS
will deliver to Participants certificates representing the shares
of Stock purchased.
8.2 NCS will not be required to issue or deliver any certificate for
Stock purchased under this Plan prior to registration under the
Securities Act of 1933, or registration or filing under any state
law, if such registration or filing is required. NCS will use its
best efforts to accomplish such registrations or filings, including
amendments thereto, but delivery of Stock by NCS may be deferred
until required registrations or filings are accomplished.
8.3 A Participant shall have no interest in the Stock until
certificates for such Stock are issued.
8.4 All certificates issued under the Plan shall be registered in the
name of the Participant or jointly in the name of the Participant
and another person, as the Participant may direct by completing the
Enrollment Form.
Section 9. Withdrawal or Termination
- ---------- -------------------------
9.1 A Participant may at any time by written notice withdraw from the
Plan. Once a Participant withdraws from the Plan, that Participant
shall not be eligible to reenter the Plan for a period of six
months.
9.2 Payroll deductions will cease upon notice of withdrawal except that
a deduction will be made on the next unpaid payroll where the
withdrawal notice is received after the cut-off date for changes to
such payroll.
9.3 Participation under the Plan will cease upon the date of
termination from employment or death.
9.4 Funds accumulated in the Stock Purchase Account of a Participant
who has withdrawn from the Plan or has terminated participation
under the Plan, in accordance with Sections 9.2 and 9.3, will be
held in the Account until the end of the current Purchase Period.
At that time the funds will be paid to the Participant within
thirty days after the end of the Purchase Period; however, if a
Participant's withdrawal or termination is at the end of the
current Purchase Period so that funds were withheld from the last
payroll of the current Purchase Period, Stock will be purchased to
the extent possible in accordance with Section 7.2 before remaining
funds are paid to the Participant.
9.5 Approved leaves of absence shall not be deemed a termination of
employment for purposes of Section 9.
9.6 A Participant may designate in writing to the Corporate Secretary
the Beneficiaries to receive any distribution under the Plan in the
event of the Participant's death. If no beneficiary is named, the
distribution will be paid to the first of the following classes of
persons in which there is anyone living (and if there are more than
one living in such class, then in equal shares to them):
Participant's widow or widower
Participant's surviving issue (per stirpes and not per
capita) Participant's surviving parents Participant's
surviving brothers and sisters Executor or administrator
of Participant's estate
Section 10. Transferability
- ----------- ---------------
10.1 Any and all rights a Participant may have under this Plan may not
be assigned, transferred, pledged or hypothecated (whether by
operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation, other disposition of such rights,
or levy or attachment or similar process shall be null and void and
without effect. Only the Participant may purchase stock under the
Plan.
10.2 The funds accumulated in the Stock Purchase Account may not be
assigned, transferred, pledged or hypothecated in any way, and any
attempted assignment, transfer, pledge, hypothecation or other
disposition of the funds accumulated in the Stock Purchase Account
shall be null and void and without effect.
Section 11. Effective Date and Amendment or Termination of Plan
- ----------- ---------------------------------------------------
11.1 The Plan was adopted by the Board of Directors of NCS on March 3,
1998. The Plan must be approved by the Shareholders of NCS at their
Annual Meeting to be held on May 21, 1998. This 1998 Plan will
become effective for the Purchase Period beginning May 1, 1998.
Should approval not be granted this Plan will terminate and all
funds held in Stock Purchase Accounts will be refunded to
Participants.
11.2 The Plan shall automatically terminate on January 31, 2008 unless
extended by the Board of Directors. The Board of Directors may by
resolution extend the Plan for one or more additional periods of
five years each.
11.3 The Board of Directors may at any time terminate or amend the Plan
except that no amendment shall be made without prior approval by
the Shareholders which would authorize the sale of more than an
aggregate of 500,000 shares of Stock, (after giving effect to the
2-for-1 stock split effected in the form of an 100% stock dividend
as approved by the NCS Board of Directors on March 3, 1998), except
as provided in Section 13.
11.4 Upon termination of the Plan, the accumulated funds in each
Participant's Stock Purchase Account will be used to purchase the
largest number of whole shares of Stock possible. Any balance
remaining after said purchase shall be refunded to the Participant.
Section 12. Administration
- ----------- --------------
12.1 The Plan shall be administered by the NCS Board of Directors. In
administering the Plan, it will be necessary to follow various laws
and regulations. The Board of Directors may from time to time
interpret the Plan to conform with the law, to meet special
circumstances not anticipated or covered in the Plan, or to carry
on successful operations of the Plan. Determinations as to the
interpretation and operation of this Plan shall be final and
conclusive.
12.2 No charge will be made by NCS against the funds received from each
Participant for purchase of Stock under the Plan.
12.3 All expenses and fees incurred by NCS in the administration of this
Plan will be borne by NCS. However, all brokerage fees or other
expenses incurred by a Participant in selling or otherwise
transferring shares of Stock will be borne by the Participant.
Section 13. Adjustment in Shares Available under the Plan, Merger or
Consolidation
- ---------- --------------------------------------------------------
13.1 If the outstanding shares of Stock are increased, decreased,
changed into or exchanged for a different number or kind of shares
of securities of NCS, or shares of a different par value or without
par value, through split, amendment to NCS' Articles of
Incorporation, or reverse stock split, an appropriate or
proportionate adjustment shall be made in the maximum number and/or
kind of securities to be sold under this Plan with a corresponding
adjustment in the purchase price to be paid for each share to be
purchased under this Plan.
13.2 If NCS is merged into or consolidated with one or more corporations
during the term of the Plan, appropriate adjustments shall be made
to give effect thereto on an equitable basis in terms of issuance
of shares of the corporation surviving the merger or the
consolidated corporation, as the case may be.
Section 14. Stock to Be Sold
- ----------- ----------------
14.1 Stock to be issued and sold under the Plan will be unissued stock.
14.2 The number of shares of Stock to be sold under the Plan shall not
exceed 500,000 shares, except as provided in Section 13. If such
limitation would otherwise be exceeded at the end of a Purchase
Period the remaining shares of Stock will be allocated to
Participants pro-rata on the basis of the funds in each Stock
Purchase Account.
Section 15. Funds in Stock Purchase Account
- ----------- -------------------------------
15.1 The funds in the Participant's Stock Purchase Account, after
receipt by NCS, shall be under the direction of NCS and applied to
the payment of stock purchased or refunded to the Participant in
accordance with the Plan as set forth herein.
15.2 Funds held by NCS in the Stock Purchase Accounts are held for the
benefit of the Participants but may be commingled with other NCS
funds.
15.3 No interest will be accumulated or paid by NCS on funds held in the
Stock Purchase Accounts.
Section 16. Construction; Notices
- ----------- ---------------------
16.1 NCS intends that the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended, if approved by the NCS Shareholders; therefore, the Plan
shall be construed in a manner consistent therewith if so approved.
All Participants shall have the same rights and privileges
consistent with the terms of the Plan.
16.2 Notices to the Board of Directors shall be addressed as follows:
National Computer Systems, Inc.
Attention: Corporate Secretary
11000 Prairie Lakes Drive
P.O. Box 9365
Minneapolis, MN 55440
