(Logo)
NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2000, 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 25, 2000, at 3:30 P.M.,
Central Daylight Savings Time, at the Hotel Sofitel, 5601 West 78th Street,
Bloomington, Minnesota for the following purposes:
1. To elect a Board of Directors for the ensuing year.
2. To approve appointment of Ernst & Young LLP as auditors for the year ending
February 3, 2001.
3. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 27, 2000, 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 25, 2000
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
STOCKHOLDERS WHO ARE 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 25, 2000, at 3:30 P.M., at the
Hotel Sofitel, 5601 West 78th Street, Bloomington, Minnesota for the purposes
set forth in the accompanying notice. These are the only matters the Board of
Directors knows will be presented. The Board of Directors recommends that
stockholders vote in favor of Items 1 and 2. Should any other matter properly
come before the meeting, the named proxies intend to use their best judgment to
vote on those matters.
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors has fixed the close of business on March 27, 2000, as the
record date to determine the stockholders entitled to notice and to vote at the
meeting. The voting securities of NCS outstanding and entitled to vote on that
date were 32,453,001 shares of Common Stock. Each share is entitled to cast one
vote on each proposal at 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 all adjournments. Where specific
direction is given by the stockholder, the shares will be voted in accordance
with that direction. If no direction is given, the proxy will be voted to elect
the eight persons named below as directors and for approval of Ernst & Young LLP
as the Company's auditors 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 to vote shares 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 on such matters.
ELECTION OF DIRECTORS
At the meeting, the eight persons listed below will be nominated for election as
directors until the next annual meeting of stockholders and until their
successors have been elected. Mr. Rando 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 information about the nominees as of February 29, 2000. Each
nominee has sole investment and voting power of all shares of Common Stock shown
(the only NCS equity securities owned by the nominees). 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>
William J. Cadogan ++ 51 Chairman of the Board, President & Chief Executive 1998 3,500 (1) *
Officer of ADC Telecommunications, Inc. (manu-
facturer, marketer and distributor of broadband
telecommunications equipment) for more than
five years.
David C. Cox++o 62 Retired since March, 1998. Prior to that President 1983 43,182 (1) *
& Chief Executive Officer of Cowles Media Company
(now McClatchy Newspapers, Inc.) for more than
five years.
Delores M. Etter+ 52 Deputy Under Secretary of Defense for Science and 1998 3,000 (1) *
Technology, U.S. Department of Defense since
June, 1998. Prior to that Professor of Electrical and
Computer Engineering, University of Colorado, Boulder
for more than five years.
Russell A. Gullotti 57 Chairman of the Board, President & Chief Executive 1994 388,229 (2) 1.2%
Officer of NCS since May, 1995. President & Chief
Executive Officer from October, 1994 to May, 1995.
Jean B. Keffeler+ 54 Private investor since 1995. Business and 1993 26,886 (1) *
management consultant since March, 1991.
Prior to that held various executive positions in
the corporate and public sectors.
John J. Rando++ 48 Chairman of the Board of @Stake, Inc. (information 1999 4,399 (1) *
technology consulting) and ecora.com (information
technology knowledge management) since January,
2000. Partner and Advisor of NewcoGen Group,
LLC since November, 1999. Prior to that Senior
Vice President, Group General Manager of Compaq
Computer Corporation from June, 1998 to July,
1999, and previously Senior Vice President, Group
General Manager of Digital Equipment Corporation
for more than five years.
Stephen G. Shank+o 56 Chairman of the Board, President & Chief Executive 1985 30,541 (1) *
Officer of Capella Education Company (accredited on-
line university) since September, 1998. Prior to that
President and Chief Executive Officer of Capella
for more than five years.
John E. Steuri++o 60 Chairman of Advanced Thermal Technologies, Inc. 1991 35,011 (1) *
(commercial air quality and dehumidification systems)
since December, 1996. Prior to June, 1996, Chairman
& Chief Executive Officer of ALLTEL Information
Services, Inc. (information processing management,
outsourcing services and application software)
for more than five years.
+ Member of Audit Committee
++ Member of Compensation Committee
o Member of Governance Committee
* Less than 1%.
<FN>
(1) The shares listed for Directors Cadogan, Cox, Etter, Keffeler, Shank and
Steuri include 3,500, 25,500, 3,000, 17,500, 23,500 and 13,500 shares,
respectively, which may be acquired within 60 days upon exercise of
outstanding stock options.
The shares listed for Directors Cox, Keffeler, Rando, Shank and Steuri
also include 3,282, 1,456, 199, 2,389 and 3,411 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 Common Stock.
(2) Shares listed for Mr. Gullotti include 161,200 shares which may be
acquired within 60 days upon exercise of outstanding stock options and
1,306 shares allocated to him pursuant to the NCS Employee Stock
Ownership Plan (ESOP).
</FN>
</TABLE>
<PAGE>
Mr. Cadogan is also a director of Pentair, Inc., Ceridian Corporation and ADC
Telecommunications, Inc.; 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 four investment
companies advised by American Express Financial Corporation; Mr. Rando is also a
director of Banyan Systems Incorporated and Yankee Energy Systems, Inc.; Mr.
Shank is also a director of Polaris Industries, Inc.; and Mr. Steuri is also a
director of Superior Financial Corporation and a trustee of Northwestern Mutual
Life Insurance Company.
The Board of Directors held five meetings during the fiscal year ended January
29, 2000 (fiscal 1999). 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 determines
compensation to be paid to senior executive officers and reviews the Company's
compensation and personnel processes and programs. During fiscal 1999, the
Compensation Committee held four meetings. The Governance 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 Committee held two meetings in fiscal 1999. During
fiscal 1999, each incumbent director attended 75% or more of all Board of
Directors meetings and meetings of Board committees on which each served, except
Mr. Cadogan attended three of five Board Meetings and Mr. Cox attended one of
two Governance Committee meetings.
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, each time that he or she is
elected or reelected as a director of NCS by the stockholders, an option to
acquire 3,500 shares of Common Stock. During fiscal 1999, all non-employee
directors as a group were granted options to purchase 21,000 shares at a per
share option exercise price of $32.56. During fiscal 1999, 30,000 shares were
exercised at an average exercise price of $7.15.
Mr. Shank is a director of and owns a 42% equity interest in Capella Education
Company (Capella). In September, 1997, Capella acquired Aprisa Multimedia, Inc.
(Aprisa), a company in which NCS owned a minority equity interest. As
consideration for the purchase of NCS' Aprisa shares, Capella issued Class C
Preferred Stock of Capella, with a redemption value of $165,000 and mandatory
redemption in 2000, to NCS. In June, 1998, NCS acquired 1,022,222 shares (19% of
voting shares outstanding) of Class D Convertible Preferred Shares of Capella
for $4,600,000.
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders at the 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
February 3, 2001.
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 25, 2000, and will be
offered the opportunity to make a statement if he or she desires to do that and
will be available to respond to appropriate questions.
<PAGE>
OWNERSHIP OF NCS COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND EXECUTIVE OFFICERS
Information as to the persons or groups known by NCS to be the beneficial owners
of 5% or more of the outstanding shares of NCS Common Stock (NCS' only voting
security), the executive officers of the Company included in the Summary
Compensation Table below and all directors and executive officers as a group as
of February 29, 2000, 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> <C>
Kopp Investment Advisors, Inc. 2,371,525 (1) 7.3 %
7701 France Avenue South
Edina, MN 55435
FMR Corp. 2,000,100 (2) 6.2 %
82 Devonshire Street
Boston, MA 02109
Russell A. Gullotti 388,229 (3) 1.2 %
Clive M. Hay-Smith 71,022 (4) *
Michael A. Morache 51,841 (5) *
David W. Smith 99,485 (6) *
Jeffrey W. Taylor 109,925 (7) *
All Directors and Executive
Officers as a Group (18 persons) 1,196,201 (8) 3.7 %
* Less than 1%
<FN>
(1) Kopp Investment Advisors, Inc. is a wholly owned subsidiary of Kopp Holding
Company, which is wholly owned by LeRoy C. Kopp. Kopp Investment Advisors,
Inc. has sole voting power with respect to 443,200 shares, sole investment
power with respect to 250,000 shares and shared investment power with
respect to 2,121,525 shares.
(2) Includes 1,727,500, 231,700 and 40,900 shares beneficially owned by
Fidelity Management & Research Company, Fidelity Management Trust Company
and Fidelity International Limited, respectively. Each of these entities is
a wholly owned subsidiary of FMR Corp. Of the total shares reported, FMR
Corp. has sole investment power with respect to 2,000,100 shares and sole
voting power with respect to 272,600 shares. Members of the family of
Edward C. Johnson may be deemed a controlling group with respect to FMR
Corp.
(3) Shares listed for Mr. Gullotti include 1,306 shares allocated to him
pursuant to the ESOP and 161,200 shares which may be acquired within 60
days upon exercise of outstanding stock options.
(4) The shares listed for Mr. Hay-Smith include 54,200 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(5) The shares listed for Mr. Morache include 741 shares allocated to him
pursuant to the ESOP and 47,200 shares that may be acquired within 60 days
upon exercise of outstanding stock options.
(6) The shares listed for Mr. Smith include 2,994 shares allocated to him
pursuant to the ESOP and 59,800 shares that may be acquired within 60 days
upon exercise of outstanding stock options.
(7) The shares listed for Mr. Taylor include 2,758 shares allocated to him
pursuant to the ESOP and 59,000 shares that may be acquired within 60 days
upon exercise of outstanding stock options.
(8) Includes 20,071 shares allocated pursuant to the ESOP and 624,100 shares
that may be acquired within 60 days upon exercise of outstanding stock
options.
</FN>
</TABLE>
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (Compensation Committee) is
composed 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 the other 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 information regarding companies in the computer, electronics,
communications, software and related services industries. Other surveys consist
of data from companies of comparable size in a variety of industries. 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 and performance-based cash awards; and other various
benefits including 401(k), supplemental deferred compensation and health
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 based on
the achievement of the Company's financial goals, business units' 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 as described above. The
Compensation Committee also gives consideration to issues which it deems
specific to the Company. During fiscal 1999, bonuses were accrued under the MIP
for the Company's executive officers 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. In fiscal 1999, the Company did not grant any of
these one-time bonuses to the executive officers named in the Summary
Compensation Table below.
Stock Option and Long-Term Incentive Programs
The Company's stock option plans and its Long-Term Incentive Plan (L-TIP) are
the Company's extended term incentive programs 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 long-term incentive program 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 63 and 120 month terms and vest at the rate of 20% after
12, 24, 36, 48 and 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 1999, 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 72-month terms and
vest 100% in August, 2004. Full or partial vesting may be accelerated if
prescribed cumulative total earnings per share (EPS) amounts during the three
fiscal years ending February 2, 2002 are achieved. Based on EPS results, the
number of option shares subject to accelerated vesting is determined. The result
is then modified by a factor of 80% to 120% depending on the average of the last
trade price of NCS Common Stock as reported by The Nasdaq Stock Market(R) for
each day during the 20 business days beginning the day following the public
release of NCS' financial results for the fiscal year ending February 2, 2002.
The total calculated number of option shares cannot exceed the number of stock
options awarded.
In fiscal 1999, the executive officers were also granted conditional cash bonus
awards under the L-TIP. These awards included two elements: an annual component
and a long-term component. The annual cash compensation component was based on
achievement of prescribed minimum EPS for the fiscal year ending January 29,
2000. If the annual prescribed minimum EPS amount had not been achieved, the
annual cash bonus would have been lost. For the year ending January 29, 2000,
the annual EPS goal was achieved, and a cash bonus payment equal to 10% of base
salary was made subsequent to year end. The long-term component provides for a
cash bonus payment when the formula for the three fiscal years ending February
2, 2002 would result in the calculated number of option shares to be in excess
of 100% of the stock options granted. To determine the amount of the bonus, the
excess number of shares is multiplied by the difference between the average last
trade price for the 20 business days described in the preceeding paragraph and
the fair market value on the date of grant of the award.
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. Vesting in
the shares awarded and the cash awards are contingent on continued employment.
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, a supplemental deferred
compensation 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 $510,000 which, when added to potential
performance based compensation, was an amount the Compensation Committee
determined to be marketplace competitive and to result in compensation in the
same range as similar amounts paid to chief executive officers by the comparable
companies described above. During fiscal 1999, a bonus of $650,000 ($599,000
under the MIP based on achieving maximum goals for revenue and earnings and
exceeding personal goals and $51,000 under the L-TIP) was accrued for Mr.
Gullotti. Mr. Gullotti was granted options during the year to purchase 70,000
shares of the Company's Common Stock (45,000 under an employee stock option plan
and 25,000 under the L-TIP). The Compensation Committee determined the size of
the options granted in the same manner as described above for other executive
officers.
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 employee stock option plans and the L-TIP comply
with Section 162(m) so that compensation relating to stock options granted under
the plans will not be counted toward the $1,000,000 limit on deductible
compensation under Section 162(m). The Company has adopted a policy with respect
to IRS Code Section 162(m) whereby cash compensation exceeding 162(m)
limitations must be deferred to the Company's Supplemental Deferred Compensation
Plan.
David C. Cox, Chairman William J. Cadogan John J. Rando John E. Steuri
Members of the Compensation Committee
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and the four next most highly compensated executive officers of the
Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
__________________________________________ ________________________
Other Restricted Securities
Annual Stock Under- All Other
Fiscal Compen- Awards lying Compensation
Name and Principal Position Year Salary Bonus(1) sation ($) (2) Options ESP(3) ESOP(3)
___________________________ ______ ______ ________ _______ __________ __________ ______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti, Chairman, 1999 $496,372 $650,000 $1,395 $ 0 70,000 $4,941 $6,721
President and Chief 1998 478,333 525,000 0 1,054,688 77,000 5,167 9,740
Executive Officer (4) 1997 440,000 481,000 958 2,078,906 147,200 4,800 5,031
Clive M. Hay-Smith 1999 215,255 161,298 0 0 19,500 0 0
Vice President 1998 198,676 145,839 0 0 21,200 0 0
1997 178,901 130,922 0 0 44,800 0 0
Michael A. Morache 1999 221,891 200,100 2,723 0 20,000 5,013 6,721
Vice President 1998 204,167 160,166 0 0 22,200 5,043 9,740
1997 187,500 139,203 0 0 46,200 4,433 4,893
David W. Smith 1999 226,465 179,773 1,237 0 20,000 5,020 6,721
Vice President 1998 207,500 136,910 1,260 0 22,200 5,044 9,740
1997 191,250 118,756 1,217 0 47,600 4,794 5,514
Jeffrey W. Taylor, Vice 1999 221,891 200,100 0 0 19,000 5,015 6,721
President and Chief 1998 205,000 140,243 0 0 21,000 5,035 9,740
Financial Officer 1997 191,750 127,725 0 0 44,800 4,788 5,445
<FN>
(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 1999 financial performance, annual cash awards under the
L-TIP of $51,000, $21,951, $23,000, $23,500 and $23,000 were accrued for
Messrs. Gullotti, Hay-Smith, 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 value of the restricted stock award shown in the table above is
determined by multiplying the fair market value of the Company's Common
Stock on the date of award by the number of 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 the last day of the Plan year.
(4) The Company has provided Mr. Gullotti with a supplemental executive
retirement plan (SERP) which, on retirement at age 65, would provide an
annual benefit of $75,000. Reduced amounts would be paid on retirement
between ages 55 and 65. Benefits payable under the SERP are unfunded and
will be paid only from the general assets of the Company. NCS has agreed
with Mr. Gullotti that if his employment with the Company is involuntarily
terminated without cause, he will receive a severance package equal to two
years base salary and bonus amounts.
</FN>
</TABLE>
The Company has entered into severance agreements with Messrs. Gullotti,
Hay-Smith, Morache, Smith and Taylor. Pursuant to such agreements, each would
receive a payment equal to twice his annual salary and bonus amounts plus excise
tax imposed on the payment in the event he is terminated following a "change in
control" of the Company (as defined in the agreements). In such event, any stock
options or restricted stock awards granted to the executive officer would be
immediately vested in full. The agreements, except for Mr. Gullotti's agreement,
are terminable on each January 31 upon six months prior notice by the Company.
<PAGE>
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal 1999 to
or by the executive officers named in the Summary Compensation Table above, and
the value of the options held by such persons at the end of fiscal 1999.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1999
Individual Grants
________________________________________________
# of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates of Stock Price
Underlying Granted to or Base Appreciation for Option Term (3)
Options Employees in Price Expiration ______________________________________
Name Granted Fiscal 1999 ($/Sh) Date 0% 5% 10%
_____ __________ ____________ ________ __________ ___ ___ ____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 25,000 (1) 4 % $32.63 3/02/05 0 $277,433 $ 629,401
45,000 (2) 7 32.56 5/27/09 0 921,456 2,335,151
Clive M. Hay-Smith 8,000 (1) 1 32.63 3/02/05 0 88,779 201,408
11,500 (2) 2 32.56 5/27/09 0 235,483 596,761
Michael A. Morache 8,000 (1) 1 32.63 3/02/05 0 88,779 201,408
12,000 (2) 2 32.56 5/27/09 0 245,722 622,707
David W. Smith 8,000 (1) 1 32.63 3/02/05 0 88,779 201,408
12,000 (2) 2 32.56 5/27/09 0 245,722 622,707
Jeffrey W. Taylor 7,500 (1) 1 32.63 3/02/05 0 83,230 188,820
11,500 (2) 2 32.56 5/27/09 0 235,483 596,761
<FN>
(1) Options were awarded in fiscal 1999 under an L-TIP and vest in accordance
with the discussion set forth in the Compensation Committee's Report on
Executive Compensation.
(2) Options 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
(SEC) and therefore are not intended to forecast possible future
appreciation, if any, of the price of the Company's Common Stock.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1999 and
Value of Options at End of Fiscal 1999
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 1999 Fiscal 1999
Exercise (1) Exercisable/Unexercisable Exercisable/Unexercisable (1)
________ ________ _________________________ _____________________________
<S> <C> <C> <C> <C> <C> <C>
Russell A. Gullotti 88,000 $2,776,200 64,000 / 302,200 $1,441,400 / $5,208,538
Clive M. Hay-Smith 6,000 151,095 27,400 / 85,100 657,277 / 1,471,135
Michael A. Morache 0 0 19,000 / 85,400 432,664 / 1,453,732
David W. Smith 7,200 197,100 30,200 / 89,600 731,252 / 1,559,836
Jeffrey W. Taylor 4,000 109,500 32,200 / 85,600 786,077 / 1,495,281
<FN>
(1) Value based on market value of the Company's Common Stock at date of
exercise or end of fiscal 1999, minus the exercise price.
</FN>
</TABLE>
<PAGE>
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, 1995 and reinvestment of all dividends).
<TABLE>
<CAPTION>
GRAPH PLOTTED TO THE FOLLOWING POINTS:
1/95 1/96 1/97 1/98 1/99 1/00
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
NCS 100.0 131.0 160.7 228.0 513.2 486.7
Nasdaq (1) 100.0 154.3 209.9 254.3 510.9 807.6
S&P 500 (2) 100.0 138.8 175.6 223.1 296.6 318.9
- ------------------------
<FN>
(1) The Index for Nasdaq Computer and Data Processing Stocks (SIC 737) is
maintained by CRSP.
(2) Total return calculations for the S&P 500 Index were performed 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
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 stockholders 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 29, 2000, all executive 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 included in the proxy statement for
the 2001 Annual Meeting of Stockholders must be received at the Company's
executive offices no later than December 27, 2000. In addition, notice of any
proposal to be made at that meeting must be received by the Company no later
than February 26, 2001.
<PAGE>
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 29, 2000, 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 25, 2000
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
(Logo)
National Computer Systems, Inc.
11000 Prairie Lakes Drive, P.O. Box 9365, Mpls., MN 55440
The undersigned hereby appoints 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 Hotel Sofitel, 5601 West 78th Street,
Bloomington, Minnesota, on May 25, 2000, at 3:30 P.M., and at any adjournments
thereof, upon any and all matters which may properly be brought before said
meeting or adjournment. This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder. If no direction is made,
this proxy will be voted FOR items 1 and 2.
1. ELECTION OF DIRECTORS
O FOR all nominees listed below O WITHHOLD AUTHORITY
(Except as marked to 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 William J. Cadogan O Russell A. Gullotti O Stephen G. Shank
O David C. Cox O Jean B. Keffeler O John E. Steuri
O Delores M. Etter O John J. Rando
2. APPOINTMENT OF AUDITORS - Ernst & Young
O FOR O AGAINST O ABSTAIN
3. On any other matters which may properly come before the meeting, the named
proxies are authorized to vote on such matters in accordance with their best
judgment.
Stockholder and shares of record covered by this proxy are shown on reverse
side.
<PAGE>
PLEASE DATE AND SIGN exactly as name appears below indicating, where proper,
official position or representative capacity. For joint accounts, each joint
owner should sign.
DATED___________________________, 2000
_______________________________
(Signature)
_______________________________
(Signature, if held jointly)
PLEASE NOTE THE ABOVE SIGNATURE BOX
RETURN IN ENVELOPE PROVIDED
