(Logo)
NATIONAL COMPUTER SYSTEMS, INC.
11000 Prairie Lakes Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999, 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 27,1999, 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 the 1999 Employee Stock Option Plan as adopted by the Board of
Directors.
3. To approve the 1999 Non-Employee Director Stock Option Plan as adopted by the
Board of Directors.
4. To approve appointment of Ernst & Young LLP as auditors for the year ending
January 29, 2000.
5. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on March 29, 1999, 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 26, 1999
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.
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 27, 1999, 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 through 4. 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 29, 1999, 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 31,551,732 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 the other matters
to be proposed 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. Cadogan and Dr. Etter were elected directors
by the Board of Directors since the last annual meeting of stockholders. Each
nominee is presently available for election. Should any nominee become unable to
serve, the persons voting the enclosed proxy may, in their discretion, vote for
a substitute.
Shown below is information about the nominees as of February 28, 1999. 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.
Principal Occupation Shares
and Director Beneficially Percent of
Name Age Business Experience Since Owned Outstanding
- ------------------- --- -------------------- -------- ------------ -----------
William J. Cadogan ++ 50 Chairman of the Board, President & Chief Executive 1998 - *
Officer of ADC Telecommunications, Inc. (manu-
facturer, marketer and distributor of broadband tele-
communications equipment)for more than five years.
David C. Cox++o 61 Retired since March, 1998. Prior to that President 1983 38,879 (1) *
& Chief Executive Officer of Cowles Media Company
(now McClatchy Newspapers, Inc.) for more than
five years.
Delores M. Etter+ 51 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 56 Chairman of the Board, President & Chief Executive 1994 280,526 (2) *
Officer of NCS since May, 1995. President & Chief
Executive Officer from October, 1994 to May,
1995. 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+ 39 Chairman of the Board & Chief Executive Officer 1997 8,811 (1) *
of Anila Systems (computer systems design) since
May, 1998. Prior to that President & Chief Executive
Officer of B-Tree Systems, Inc. (verification systems
for embedded computers) from February, 1996 to
February, 1998 and Vice President-Marketing for
Integrated Systems, Inc. (embedded operating
software) from November, 1992 to February, 1996.
Jean B. Keffeler+ 53 Business and management consultant since 1993 22,691 (1) *
March, 1991. Prior to that held various
executive positions in the corporate and public
sectors.
Stephen G. Shank+o 55 Chairman of the Board, President & Chief Executive 1985 26,899 (1) *
Officer of Learning Ventures International, Inc.
(on-line learning programs and services) since
September,1998. Prior to that President and Chief
Executive Officer of LVI for more than five years.
John E. Steuri++o 59 Chairman of Advanced Thermal Technologies, LLC 1991 32,576 (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.
<FN>
+ Member of Audit Committee
++ Member of Compensation Committee
o Member of Governance Committee
* Less than 1%.
</FN>
(1) The shares listed for Directors Cox, Etter, Joseph, Keffeler, Shank and
Steuri include 24,000, 3,000, 8,000, 14,000, 20,000 and 20,000 shares,
respectively, which may be acquired within 60 days upon exercise of
outstanding stock options.
The shares listed for Directors Cox, Joseph, Keffeler, Shank and Steuri
also include 2,479, 811, 761, 2,247 and 2,576 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 70,000 shares which may be
acquired within 60 days upon exercise of outstanding stock options, 1,104
shares allocated to him pursuant to the NCS Employee Stock Ownership Plan
(ESOP) and 6,250 shares issued under an NCS Long-Term Incentive Plan
(L-TIP) which are subject to forfeiture.
Mr. Cadogan is also a director of Pentair, Inc. 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 the Strategist Fund Group (a
subsidiary of American Express Financial Corporation); Mr. Shank is also a
director of Polaris Industries, Inc.; and Mr. Steuri is also a director of
Intelligroup, Inc. and a trustee of Northwestern Mutual Life Insurance Company.
The Board of Directors held four meetings during the fiscal year ended January
31, 1999 (fiscal 1998). 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 fiscal 1998,
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 1998. During
fiscal 1998, 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, each time that he or she is
elected or reelected as a director of NCS by the stockholders, an option to
acquire 3,000 shares (3,500 beginning in 1999) of Common Stock. During fiscal
1998, all non-employee directors as a group were granted options to purchase
18,000 shares at a per share option exercise price of $21.50. During fiscal
1998, 18,000 shares were exercised at an average exercise price of $6.49.
Mr. Shank is a director of and owns a 40% 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. In June,
1998, NCS acquired 1,022,222 shares (19% of voting shares outstanding) of Class
D Convertible Preferred Shares of LVI for $4,600,000.
PROPOSAL TO APPROVE 1999 EMPLOYEE STOCK OPTION PLAN
The Board of Directors recommends stockholder approval of the NCS 1999 Employee
Stock Option Plan (1999 Plan), covering up to 1,400,000 shares of Common Stock.
The 1999 Plan was adopted by the Board of Directors on March 2, 1999, subject to
stockholder approval. No options have been granted under the 1999 Plan. NCS has
four other employee stock option plans which were approved in 1986, 1990, 1995
and 1997. As of February 28, 1999, there were 278,780 shares reserved and
available for issuance under these plans. The remaining shares available under
these plans will not be sufficient to meet anticipated fiscal 1999 stock option
grants. Approval of the 1999 Plan will require the affirmative vote of a
majority of the shares of outstanding Common Stock present and entitled to vote
at the meeting.
The Board of Directors believes that the adoption of a new stock option plan is
in the best interests of the Company. The purpose of the l999 Plan is to
encourage ownership of the Company's Common Stock by employees who are in a
position to make contributions to the Company's progress and to provide them
with an incentive to put forth maximum effort for the Company's success. NCS
believes that stock options provide the strongest link possible between key
employees and the interests of stockholders. The Board of Directors believes
that approval of the 1999 Plan is necessary for the Company to continue to
attract and retain effective and capable employees.
Persons eligible to receive options under the 1999 Plan are key employees of NCS
or its wholly-owned subsidiaries. It is intended that, after fiscal 1999, stock
options issued as part of the Company's long-term incentive programs for
executive officers will be issued under the 1999 Plan rather than a separate
L-TIP as was previously the case.
No employee may be granted any options under the 1999 Plan for more than 100,000
shares in the aggregate in any calendar year. No option may be granted after
January 31, 2009. The option price shall not be less than 100% of the fair
market value of NCS Common Stock on the date of grant of the option. No option
granted under the 1999 Plan shall have a term in excess of ten years or shall be
less than one year. Options are exercisable only while the optionee is an
employee of NCS or one of its subsidiaries or within three months (or a longer
period if the Compensation Committee in its discretion determines it to be
appropriate) after termination of employment.
The legal representative of a deceased optionee may exercise the option within
one year after the death of the optionee or until the earlier expiration of the
option. Options cannot be transferred except by will or the laws of descent and
distribution. Option shares must be paid for in cash and in full at the time an
option is exercised; provided, however, in lieu of cash an optionee may exercise
an option by tendering to the Company Common Stock which has a fair market value
equal to the cash exercise price of the shares being purchased plus withholding
taxes, if applicable.
The grant of an option is not expected to result in any taxable income to the
optionee. Options under the 1999 Plan may be intended to qualify as Incentive
Stock Options (ISOs) under the Internal Revenue Code of 1986, as amended (the
Code). An optionee generally will have no taxable income upon exercising an ISO
(except that a liability may arise pursuant to the alternative minimum tax), and
the Company will not be entitled to a tax deduction when an ISO is exercised.
Upon exercising non-qualified options (NQOs), the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares of
Common Stock acquired on the date of exercise over the exercise price, and the
Company will be entitled at that time to a tax deduction for the same amount.
The tax consequences to an optionee upon a disposition of shares acquired
through the exercise of an option will depend on how long the shares have been
held and upon whether such shares were acquired upon the exercise of an ISO or a
NQO.
The 1999 Plan is administered by the Compensation Committee of the Board of
Directors. The Board of Directors may amend or discontinue the Plan at any time
subject to applicable law and stock exchange regulations.
PROPOSAL TO APPROVE 1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Board of Directors recommends stockholder approval of the NCS Non-Employee
Director Stock Option Plan (Director Option Plan), covering up to 100,000 shares
of Common Stock of NCS. The Director Option Plan was adopted by the Board of
Directors on March 2, 1999, subject to stockholder approval. No options have
been granted under the Director Option Plan. Approval of the Director Option
Plan will require the affirmative vote of a majority of the shares of
outstanding Common Stock present and entitled to vote at the meeting.
The purpose of the Director Option Plan is to promote the interests of NCS by
enhancing its ability to attract and retain the services of experienced and
knowledgeable non-employee directors and by providing additional incentive for
such directors to increase their interest in the Company's success and progress.
The Plan will be beneficial to the Company and its stockholders by giving
non-employee directors a greater personal financial stake in the Company through
ownership of Common Stock in addition to underscoring their common interest with
stockholders in increasing the value of the Company's stock over the long term.
The Director Option Plan provides that each director who is not an employee of
NCS shall automatically be granted, on each date that he or she is elected or
reelected as a director of NCS, an option to acquire 3,500 shares of Common
Stock.
The option price for all options granted under the Director Option Plan will be
the fair market value of NCS Common Stock on the date of grant. Options will
expire ten years after date of grant and are 100% exercisable during their term
beginning six months after the date of grant. Options may be transferred only to
immediate family members, to trusts or partnerships for the exclusive benefit of
immediate family members or by will or the laws of descent and distribution. The
legal representative of a deceased optionee may exercise the option within one
year after the death of the optionee or the earlier expiration of the option.
Option shares must be paid for in cash, by delivering NCS Common Stock already
owned by the optionee which has a fair market value equal to the cash exercise
price of the shares being purchased, or a combination thereof.
Options granted under the Director Option Plan shall be NQOs that do not qualify
as ISOs under the Code. On the exercise of a NQO, the optionee will recognize
ordinary income in the amount by which the fair market value of NCS Common Stock
exceeds the option price. NCS is allowed an income tax deduction in the amount
that the optionee recognizes as ordinary income. When an optionee sells shares
acquired by the exercise of an option granted under the Plan, the difference
between the amount received and the tax basis of the shares will be gain or
loss.
The Director Option Plan is administered by the Compensation Committee of the
Board of Directors. The Board of Directors may amend or discontinue the Plan at
any time subject to applicable law and stock exchange regulations.
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
January 29, 2000.
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 27, 1999, 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.
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, 1999, 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 o
Name and Address Owned Outstanding
---------------------------------------------------------------------------
Charles W. Oswald 1,913,261 (1) 6.1 %
7601 France Avenue South
Edina, MN 55435
Russell A. Gullotti 280,526 *
Clive M. Hay-Smith 26,422 (2) *
Michael A. Morache 14,045 (3) *
David W. Smith 72,388 (4) *
Jeffrey W. Taylor 71,456 (5) *
All Directors and Executive
Officers as a Group (19 persons) 930,458 (6) 2.9 %
* Less than 1%
(1) The shares listed for Mr. Oswald include 7,000 shares that may be
acquired within 60 days upon exercise of an outstanding stock option.
(2) The shares listed for Mr. Hay-Smith include 15,600 shares that may be
acquired within 60 days upon exercise of outstanding stock options.
(3) The shares listed for Mr. Morache include 542 shares allocated to him
pursuant to the ESOP and 10,000 shares that may be acquired within 60
days upon exercise of outstanding stock options.
(4) The shares listed for Mr. Smith include 2,781 shares allocated to him
pursuant to the ESOP and 25,600 shares that may be acquired within 60
days upon exercise of outstanding stock options.
(5) The shares listed for Mr. Taylor include 2,546 shares allocated to him
pursuant to the ESOP and 24,000 shares that may be acquired within 60
days upon exercise of outstanding stock options.
(6) Includes 20,878 shares allocated pursuant to the ESOP and 332,200
shares that may be acquired within 60 days upon exercise of
outstanding stock options.
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 general industry survey data from 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 and performance-based cash awards; and various
benefits including 401(k), supplemental deferred compensation, 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 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 1998, 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.
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 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 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 1998, 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, 2003. Full or partial vesting may be accelerated if
prescribed cumulative total earnings per share (EPS) amounts during the three
fiscal years ending January 27, 2001 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%-120% based 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 ended January 27, 2001. The total
calculated number of option shares cannot exceed the number of stock options
awarded.
In fiscal 1998, 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 31,
1999. If the annual prescribed minimum EPS amount was not achieved, the annual
cash bonus would have been lost. For the year ended January 31, 1999, 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 described in the preceding paragraph would result in
the calculated number of option shares to be in excess of 100% of the stock
options granted. The excess number of shares is multiplied by the difference
between the average last trade price for the 20 business days 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 $485,000 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 1998, a bonus of $525,000 ($467,500
under the MIP and $48,500 under the L-TIP) was accrued for Mr. Gullotti. Mr.
Gullotti was granted options during the year to purchase 77,000 shares of the
Company's Common Stock (40,000 under an employee stock option plan and 37,000
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.
On February 1, 1997, Mr. Gullotti was granted a restricted stock award of
100,000 shares of the Company's Common Stock. The award vested in 25% increments
on the attainment of prescribed stock price goals for the Company's Common
Stock. Two 25% increments vested in fiscal 1997 and two in fiscal 1998. At each
vesting date, a replenishment restricted share award of 25,000 shares was made
which vested in 25% increments upon achievement of prescribed stock price goals.
Of all replenishment awards, 6,250 shares remain unvested. All shares vest five
years from the date of grant if not earlier. These awards were 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 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 $1,000,000 limit on deductible
compensation under Section 162(m). The Committee has not formulated a policy
with respect to qualifying other executive compensation for deductibility under
Section 162(m).
David C. Cox, Chairman William J. Cadogan John E. Steuri
Members of the Compensation Committee
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and the four next most highly compensated executive officers of the
Company.
Annual Compensation Long-Term Compensation
------------------------------------------ -----------------------
Other Restricted Securities All Other
Annual Stock Under- Compensation
Fiscal Compen- Awards lying -----------------
Name and Principal Position Year Salary Bonus(1) sation ($) (2) Options ESP(3) ESOP(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Russell A. Gullotti, Chairman, 1998 $478,333 $525,000 $ 0 $1,054,688 77,000 $5,167 $9,740
President and Chief 1997 440,000 481,000 958 2,078,906 147,200 4,800 5,031
Executive Officer (4) 1996 418,750 304,780 1,614 0 60,000 3,750 3,421
Clive M. Hay-Smith 1998 198,676 145,839 0 0 21,200 0 0
Vice President 1997 178,901 130,922 0 0 44,800 0 0
1996 165,921 70,504 0 0 15,000 0 0
Michael A. Morache 1998 204,167 160,166 0 0 22,200 5,043 9,740
Vice President 1997 187,500 139,203 0 0 46,200 4,433 4,893
1996 122,475 61,586 0 39,414 16,000 0 0
David W. Smith 1998 207,500 136,910 1,260 0 22,200 5,044 9,740
Vice President 1997 191,250 118,756 1,217 0 47,600 4,794 5,514
1996 175,750 97,813 1,573 0 16,000 3,750 3,641
Jeffrey W. Taylor, Vice 1998 205,000 140,243 0 0 21,000 5,035 9,740
President and Chief 1997 191,750 127,725 0 0 44,800 4,788 5,445
Financial Officer 1996 179,000 80,404 0 0 17,000 3,750 3,617
(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 1998 financial performance, annual cash
awards under the L-TIP of $48,500, $19,500, $20,700, $21,000 and $20,700
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 number and fair market value of unvested restricted stock held by
Mr. Gullotti at January 31, 1999, was 6,250 shares ($239,063). 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 $75,000. Reduced amounts would be paid on retirement
between ages 55 and 65. Benefits payable under the SERP are unfunded and
will be paid only from the general assets of the Company. NCS has agreed
with Mr. Gullotti that if his employment with the Company is
involuntarily terminated for other than cause, he will receive a
severance package equal to two years base salary.
The Company has entered into severance agreements with Messrs. Gullotti,
Hay-Smith, Morache, Smith and Taylor. Pursuant to such agreements, each would
receive a payment equal to twice his annual salary and bonus amounts plus excise
tax imposed on the payment in the event he is terminated following a "change in
control" of the Company (as defined in the agreements). In such event, any stock
options or restricted stock awards granted to the executive officer would be
immediately vested in full. The agreements, except for Mr. Gullotti's agreement,
are terminable on each January 31 upon six months prior notice by the Company.
STOCK OPTIONS
The following tables summarize option grants and exercises during fiscal 1998 to
or by the executive officers named in the Summary Compensation Table above, and
the value of the options held by such persons at the end of fiscal 1998.
Option Grants in Fiscal 1998
Individual Grants
-------------------------------------------------------
# of % of Total Potential Realizable Value
Securities Options Exercise at Assumed Annual Rates
Uderlying Granted to or Base of Stock Price
Options Employees in Price Expiration Appreciation for
Name Granted Fiscal 1998 ($/Sh) Date Option Term (3)
- -------------------- ---------- ------------ ------- ---------- ------------------------------------
0% 5% 10%
----- ----- -----
Russell A. Gullotti 37,000 (1) 6 % $20.00 3/02/04 0 $251,671 $570,955
40,000 (2) 7 21.50 8/21/03 0 251,184 558,715
Clive M. Hay-Smith 10,200 (1) 2 20.00 3/02/04 0 69,380 157,398
11,000 (2) 2 21.50 8/21/03 0 69,075 153,647
Michael A. Morache 11,200 (1) 2 20.00 3/02/04 0 76,181 172,830
11,000 (2) 2 21.50 8/21/03 0 69,075 153,647
David W. Smith 11,200 (1) 2 20.00 3/02/04 0 76,181 172,830
11,000 (2) 2 21.50 8/21/03 0 69,075 153,647
Jeffrey W. Taylor 11,000 (1) 2 20.00 3/02/04 0 74,821 169,743
10,000 (2) 2 21.50 8/21/03 0 62,796 139,679
(1) Shares were awarded in fiscal 1998 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 (SEC) and therefore are not intended to forecast possible
future appreciation, if any, of the price of the Company's Common Stock.
Aggregated Option Exercises in Fiscal 1998 and
Value of Options at End of Fiscal 1998
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 1998 Fiscal 1998
Exercise (1) Exercisable/Unexercisable Exercisable/Unexercisable (1)
-------- -------- ------------------------- -----------------------------
Russell A. Gullotti 158,000 $4,157,754 70,000 / 314,200 $1,934,200 /$7,791,450
Clive M. Hay-Smith 0 0 21,600 / 77,400 613,152 / 1,840,678
Michael A. Morache 0 0 10,000 / 74,400 261,440 / 1,740,090
David W. Smith 4,000 57,010 23,200 / 83,800 657,732 / 2,012,578
Jeffrey W. Taylor 23,000 606,625 20,000 / 82,800 549,732 / 2,009,728
(1) Value based on market value of the Company's Common Stock at date of
exercise or end of fiscal 1998, 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, 1994 and reinvestment of all dividends).
1/31/94 1/31/95 1/31/96 1/31/97 1/31/98 1/31/99
------- ------- ------- ------- ------- -------
NCS 100.0 134.9 176.8 216.8 307.6 692.6
Index for
Nasdaq Computer
& Data Processing
Stocks (1) 100.0 112.5 173.6 236.1 286.0 577.1
S&P 500 Index (2) 100.0 100.6 139.8 176.9 224.8 298.6
- ------------------------
(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.
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 31, 1999, all executive officers except Mr.
Robert C. Bowen, directors and greater than ten-percent beneficial owners
complied with all applicable Section 16(a) filing requirements. Mr. Bowen failed
to file, on a timely basis, 16 reports on Form 4 covering 16 broker-initiated
quarterly open market purchases of NCS Common Stock totaling 1,866 shares.
STOCKHOLDER PROPOSALS
Any proposal by a stockholder intended to be included in the proxy statement for
the 2000 Annual Meeting of Stockholders must be received at the Company's
executive offices no later than December 27, 1999. In addition, notice of any
proposal to be made at that meeting must be received by the Company no later
than February 25, 2000.
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, 1999, 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 26, 1999
BY ORDER OF THE BOARD OF DIRECTORS
J. W. Fenton, Jr., Secretary
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 27, 1999, at 3:30 P.M., and at any adjournments
thereof, upon any and all matters which may properly be brought before said
meeting or adjournment. This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder. If no direction is made,
this proxy will be voted FOR items 1 through 4.
1. ELECTION OF DIRECTORS
O FOR all nominees listed below O WITHHOLD AUTHORITY
(Except as marked to the to vote for all nominees
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 Moses S. Joseph O John E. Steuri
O Delores M. Etter O Jean B. Keffeler
2. PROPOSAL TO APPROVE 1999 EMPLOYEE STOCK OPTION PLAN
O FOR O AGAINST O ABSTAIN
3. PROPOSAL TO APPROVE 1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
O FOR O AGAINST O ABSTAIN
4. APPOINTMENT OF AUDITORS - Ernst & Young
O FOR O AGAINST O ABSTAIN
5. On any other matters which may properly come before the meeting, the named
proxies are authorized to vote on such matters in accordance with their best
judgment.
Stockholder and shares of record covered by this proxy are shown on reverse
side.
PLEASE DATE AND SIGN exactly as name appears to the left indicating, where
proper, official position or representative capacity. For joint accounts, each
joint owner should sign.
DATED__________________________, 1999
__________________________
(Signature)
__________________________
(Signature, if held jointly)
PLEASE NOTE THE ABOVE SIGNATURE BOX
RETURN IN ENVELOPE PROVIDED
NATIONAL COMPUTER SYSTEMS, INC.
1999 EMPLOYEE STOCK OPTION PLAN
(1,400,000 shares authorized)
1. Objectives of Plan.
This 1999 Employee Stock Option Plan (the "Plan") has been adopted by the
Board of Directors of National Computer Systems, Inc., a Minnesota
corporation (herein called the "Company"), to secure the advantages of
stock ownership on the part of its present and future key employees,
including salaried officers and directors, and including salaried
officers and directors of any one or more subsidiary corporations wholly
owned by it (herein called "related companies"), and to provide
incentives for such individuals to remain with the Company or related
companies and to devote their energies to strengthen and maintain the
continued success of the Company through stock ownership. Options granted
under this Plan may be either incentive stock options ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or options which do not qualify as
Incentive Stock Options.
2. Administration of Plan.
(A) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the
"Board"). The Committee shall be composed of not less than such
number of directors as shall be required to permit the Plan to
qualify under Section 16b-3 ("Section 16b-3") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Each member
of the Committee shall be a "disinterested person" with respect to
the Plan within the meaning of Section 16b-3 and shall be an
"outside director" within the meaning of Section 162(m) of the
Code.
(B) Subject to the provisions of the Plan, the Committee shall have
authority, in its discretion:
(1) To construe and interpret the Plan and all options granted
hereunder, and to determine the terms and provisions (and
amendments thereof) of the options granted under the Plan
(which need not be identical).
(2) To determine individuals to whom and the time or times at
which options shall be granted, the number of shares to be
subject to each option, the option price, and the duration
of leaves of absence which may be granted to participants
without constituting a termination of their employment for
the purposes of the Plan.
(3) To adopt, amend and rescind rules and regulations relating
to administration of the Plan and make all determinations
necessary or advisable for the administration of the Plan,
which shall be binding and conclusive on all participants in
the Plan and on their legal representatives and
beneficiaries.
(4) To determine and accelerate the time at which all or any
part of an option may be exercised.
3. Participants.
Options may be granted under the Plan to such key full or part time
executive, administrative, supervisory, technical, or professional
employees (including salaried officers and directors) of the Company, or
related companies including related companies which become such after
adoption of the Plan, in such amounts as shall be determined from time to
time by the Committee.
In determining the persons to whom options shall be granted and the
number of shares subject to each option, the Committee may take into
account the nature of services rendered by the proposed grantees, their
past, present and potential contributions to the success of the Company,
and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under this Plan may be
granted an additional option or options under the Plan if the Committee
shall so determine; provided, however, that to the extent that the
aggregate fair market value, determined at the time an Incentive Stock
Option is granted, of the stock with respect to which all Incentive Stock
Options owned by a Participant are exercisable for the first time by such
optionee during any calendar year under all plans of the employer
corporation and its parent and subsidiary corporations exceeds $100,000,
such options shall be treated as options that do not qualify as Incentive
Stock Options. No person may be granted options under the Plan for more
than 100,000 shares in the aggregate in any calendar year.
4. Number of Shares Available for Options.
Under this Plan, options may be granted for shares of the Company's
Common Stock, $.03 per value. The Common Stock subject to options shall
be authorized but unissued shares. Subject to the provisions of paragraph
5 hereof, the number of shares of Common Stock that may be made the
subject of options shall not exceed the aggregate of 1,400,000 shares. In
the event that any outstanding option under the Plan for any reason
expires or is terminated unexercised, the common shares allocable to the
unexercised portion of such option may again be subject to an option
under the Plan.
5. Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split or other change in the capitalization or corporate structure of the
Company, the Committee shall make appropriate adjustments in the Plan and
any options outstanding under the Plan. Such adjustments shall include,
where appropriate, changes in the aggregate number of shares subject to
the Plan and such changes in the number of shares and the price per share
subject to outstanding options as are necessary in order to prevent
dilution or enlargement of option rights.
6. Term of Plan.
No option shall be granted pursuant to this Plan later than January 31,
2009, but options theretofore granted may extend beyond that date in
accordance with their terms.
7. Terms and Conditions of Options.
Options granted hereunder shall be evidenced by a written notice from the
Company to the participant evidencing the granting of an option
hereunder, or shall be evidenced by an agreement in such form as the
Committee shall from time to time require. Said notice or agreement shall
refer to this Plan, and make acceptance thereof by a participant subject
to the provisions hereof. Such option shall comply with and be subject to
the following terms and conditions:
(A) Number of Shares. Each option shall state the number of shares to
which it pertains.
(B) Option Price. Each option shall state the option price, which
shall not be less than 100% of the fair market value of the shares
of the Common Stock of the Company on the date of the granting of
the option. The fair market value per share shall be the "last
trade price" of the Common Stock as reported by The Nasdaq Stock
Market (R). If the Common Stock is listed on a national stock
exchange or exchanges, such fair market value shall be deemed to
be the highest closing price of the Common Stock on such stock
exchange or exchanges on the date the option is granted. If on the
date as of which the fair market value is being determined, the
Common Stock is not publicly traded, then the next preceding day
on which there was a sale of such stock will be used. Subject to
the foregoing, the Committee in fixing the option price shall have
full authority and discretion and be fully protected in doing so.
(C) Option Period and Exercise of Option.
(1) No option period shall exceed ten years, and except as
otherwise provided in sections (D), (E) and (F) hereof, no
option period shall be for less than one year.
(2) Any option granted under the Plan may be exercised by
notifying the Company in writing of such exercise prior to
the termination of such option. The option price for the
number of shares of Common Stock for which the option is
exercised shall become immediately due and payable;
provided, however, that in lieu of cash an optionee may
exercise an option by tendering to the Company shares of the
Common Stock of the Company already owned by the optionee
and with the certificates therefor registered in the
optionee's name, having a fair market value equal to the
cash exercise price of the shares being purchased.
(3) During the lifetime of the optionee, the option shall be
exercisable only by the optionee and shall not be assignable
or transferable, and no other person shall acquire any
rights therein. Except as provided in Subdivisions (D) and
(F) hereof, no option may be exercised at any time unless
the holder thereof is then an employee of the Company or a
related company.
(4) In order to comply with all applicable federal and state
income tax laws or regulations, the Company may take such
action as it deems appropriate to ensure that all applicable
federal and state payroll, withholding, income or other
taxes, which are the sole and absolute responsibility of an
optionee, are withheld or collected from such optionee. In
order to assist an optionee in paying all minimum federal
and state taxes required to be withheld or collected upon
exercise of an option which does not qualify as an Incentive
Stock Option hereunder, the Company shall, in lieu of cash,
permit the optionee to satisfy all or part of such tax
obligation by (i) electing to have the Company withhold a
portion of the shares otherwise to be delivered upon
exercise of the option with a fair market value, determined
in accordance with subsection 7(B), equal to such taxes or
(ii) delivering to the Company common shares, other than the
shares issuable upon exercise of such option, with a fair
market value, determined in accordance with subsection 7
(B), equal to such taxes.
(D) Termination of Employment Except Due to Gross and Willful
Misconduct, Death or Disability. In the event an optionee shall
cease to be employed by the Company or a related company for any
reason other than gross and willful misconduct, death or
disability, then, and in that event, but subject to the condition
that no option shall be exercisable after its expiration date,
such optionee shall have the right to exercise the option at any
time within three months (or such longer period as the Committee
in its discretion shall determine to be appropriate) after such
termination of employment, to the extent the optionee's right to
exercise same shall accrue pursuant to such optionee's option
granted and had not previously been exercised. Whether authorized
leaves of absence or absence because of military or governmental
service shall constitute termination of employment, for the
purpose of the Plan, shall be determined by the Committee, which
determination shall be final and conclusive.
(E) Termination Due to Gross and Willful Misconduct. In the event that
an optionee shall cease to be employed by the Company or a related
company by reason of gross and willful misconduct during the
course of employment, including but not limited to wrongful
appropriation of funds of the Company or a related company or the
commission of a gross misdemeanor or felony, the option shall be
terminated as of the date of the misconduct.
(F) Disability and Death of Optionee and Transfer of Option. If any
optionee shall die while in the employ of the Company or a related
company, or within a period of three months (or such longer period
as the Committee in its discretion shall determine to be
appropriate) after the termination of employment or the optionee's
employment is terminated because optionee has become disabled
(within the meaning of Code Section 22 (e)(3)) while in the employ
of the Company or related companies and shall not have fully
exercised the option, said option may be exercised (subject to the
condition that no option shall be exercisable after its expiration
date), to the extent that the optionee's right to exercise such
option had accrued pursuant to such optionee's option granted (i)
at the time of optionee's disability and had not previously been
exercised, at any time within one year after the optionee's
disability, by the optionee or a duly appointed guardian of the
optionee; or (ii) at the time of death and had not previously been
exercised, at any time within one year after the optionee's death,
by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from
the optionee by bequest or inheritance. No option shall be
transferable by the optionee otherwise than by will or by the laws
of descent and distribution.
(G) 10 - Percent Shareholder Rule. Notwithstanding any other provision
in the Plan, if at the time an Option is otherwise to be granted
pursuant to the Plan, the optionee owns directly or indirectly
(within the meaning of Section 424 (d) of the Code) Common Stock
of the Company possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its parent
or subsidiary corporations, if any (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be
granted to such optionee pursuant to the Plan shall satisfy the
requirements of Section 422(c)(5) of the Code, and the option
price shall be not less than 110% of the fair market value of the
Common Stock of the Company on the date of grant, determined as
described herein, and such option by its terms shall not be
exercisable after the fifth anniversary of the date of grant.
(H) Rights as a Shareholder. An optionee or a transferee of an option
shall have no rights as a shareholder with respect to any shares
covered by an option until the date of the issuance of a stock
certificate for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary whether in cash, securities
or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued,
except as provided in Article 5 hereof.
(I) Discontinuance and Amendment of the Plan. The Board may, from time
to time, alter, amend, suspend, or discontinue the Plan; provided,
however, that, notwithstanding any other provision of the Plan or
any award agreement, without the approval of the shareholders of
the Company, no such amendment, alteration, suspension,
discontinuation or termination shall be made that: (i) requires
the approval of the Company's shareholders under any rules or
regulations of the Nation Association of Securities Dealers, Inc.
or any securities exchange that are applicable to the Company; or
(ii) requires the approval of the Company's shareholders under the
Code in order (a) to permit Incentive Stock Options to be granted
under the Plan or (b) to permit any compensation expense resulting
from the grant or exercise of stock options issued hereunder to be
deductible under Section 162(m) of the Code.
(J) Compliance with Laws Relating to Sale of Securities.
Notwithstanding any other provisions contained herein, the Company
shall have the right, in its exclusive discretion, to withhold the
issuance of any certificates for shares of stock in respect of
which any option has been exercised until, in the opinion of
counsel for the Company, any applicable registration requirements
of the Securities Act of 1933, as amended, any applicable listing
requirements of any national securities exchange on which the
stock may then be listed, and any other requirements of law or of
any regulatory bodies having jurisdiction over such issuance and
delivery, shall have been duly complied with. Pending the receipt
of such opinion of counsel for the Company, the Company may issue
certificates for such stock provided they contain a legend
indicating that said stock represented thereby is not registered
and may not be sold except in compliance with applicable law or
the release of said restrictions by the Company, and, in such
event, the Company shall have the right to instruct the transfer
agent and registrar of its common shares to effect "stop-transfer"
procedures with respect to such shares.
Until the shares reserved for options are registered and/or
listed, if required by law, the Committee may condition the
delivery of any certificate for option shares upon the receipt of
a written representation from the participant that at the time of
exercising such option the participant intends to acquire the
shares being purchased for investment and not for resale or
further distribution.
(K) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions as the Committee shall deem
advisable.
8. Notification of Disposition.
If an optionee shall dispose of any of the shares of Common Stock of the
Company acquired pursuant to the exercise of an Incentive Stock Option
issued pursuant to the Plan within two years from the date said option
was granted or within one year after the transfer of any such shares to
the optionee upon exercise of said option, then, in order to provide the
Company with the opportunity to claim the benefit of any income tax
deduction which may be available to it under the circumstances, the
optionee shall promptly notify the Company of the dates of acquisition
and disposition of such shares, the number of shares so disposed of, and
the consideration, if any, received for such shares. The Company may take
such action as it deems appropriate to insure notice to the Company of
any disposition of the Common Stock of the Company within the time
periods described above.
9. Reliance on Information.
Each member of the Committee and the Board and each officer and employee
of the Company shall be fully justified in relying or acting upon any
information furnished in connection with the administration of the Plan
by any other person or persons. In no event shall any person who is or
shall have been a member of the Committee or of the Board or an officer
or employee of the Company, be liable for any determination made or other
action taken or omission to act in reliance upon any such information or
for any action (including the furnishing of information) taken or any
failure to act, if in good faith.
10. Application of Funds.
The proceeds received by the Company from the sale of its Common Stock
pursuant to options will be used for general corporate purposes.
11. No Obligation to Exercise Option.
The granting of an option hereunder shall impose no obligation upon the
optionee to exercise such option, nor shall it be deemed to or construed
to impose any obligation on the Company or any related company to retain
the optionee in its employ for any period of time.
12. Compliance with Section 16b-3.
The Plan is intended to comply with all applicable conditions of Section
16b-3 or its successors. All transactions involving persons subject to
Section 16(b) of the Exchange Act ("Insider-Participants") are subject to
such conditions regardless of whether the conditions are expressly set
forth in the Plan and any provision of the Plan that is contrary to the
conditions of Section 16b-3 shall not apply to Insider- Participants.
- ---------------------------
Original Plan - Approved by the Board on March 2, 1999
- Approved by the Company's Shareholders on _______________
NATIONAL COMPUTER SYSTEMS, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose of Plan
This plan shall be known as the "National Computer Systems,
Inc. 1999 Non-Employee Director Stock Option Plan" and is hereinafter referred
to as the "Plan." The purpose of the Plan is to promote the interests of
National Computer Systems, Inc., a Minnesota corporation (the "Company"), by
enhancing its ability to attract and retain the services of experienced and
knowledgeable non-employee directors and by providing additional incentive for
such directors to increase their interest in the Company's long-term success and
progress. Options granted under this Plan shall be nonqualified stock options
which do not qualify as incentive stock options within the meaning of Section
422A of the Internal Revenue Code of 1986, as amended (the "Code").
2. Stock Subject to Plan
Under this Plan, options may be granted for shares of the
Company's Common Stock, $.03 par value. The Common Stock subject to options
shall be authorized but unissued shares. Subject to the adjustment as provided
in Section 10 hereof, the maximum number of shares of Common Stock on which
options may be exercised under this Plan shall be 100,000 shares. If an option
under the Plan expires, or for any reason is terminated or unexercised with
respect to any shares, such shares shall again be available for options
thereafter granted during the term of the Plan.
3. Administration of Plan
The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall have the authority, in its discretion, subject to the express
provisions of this Plan, to interpret the Plan, to prescribe, amend, and rescind
rules and regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations on the foregoing matters shall be final and conclusive.
4. Eligibility
Upon approval of the Plan by the Board, but subject to
approval of the Plan by shareholders of the Company pursuant to Section 12
hereof, each director of the Company who is not otherwise an employee of the
Company or any subsidiary of the Company (an "Eligible Director") shall
automatically be granted, on each date (beginning with the date of the annual
meeting of shareholders in May, 2000), that he or she is elected or reelected as
a director of the Company, an option to acquire 3,500 shares of Common Stock
under the Plan.
5. Price
The option price for all options granted under the Plan shall
be the fair market value of the shares covered by the option on the date the
option is granted. For purposes of this Plan, the fair market value of the
Common Stock on a given date shall be (i) the last trade price of the Common
Stock as reported on The Nasdaq Stock Market on such date, if the Common Stock
is then quoted on The Nasdaq Stock Market; or (ii) the closing price of the
Common Stock on such date on a national securities exchange, if the Common Stock
is then being traded on a national securities exchange. If on the date as of
which the fair market value is being determined, the Common Stock is not
publicly traded, then the next preceding date on which there was a trade will be
used.
6. Term
Each option and all rights and obligations thereunder shall,
subject to the provisions of Section 8 herein, expire ten years from the date of
granting of the option.
7. Exercise of Option
(a) Options granted under the Plan shall not be exercisable
for a period of six months after date of grant, or until shareholder approval of
the Plan has been obtained, whichever occurs later, but thereafter will be
exercisable in full at any time or from time to time during the term of the
option, subject to the provisions of Section 8 hereof.
(b) The exercise of any option granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Common Stock pursuant to such exercise will not violate
any state or federal securities or other laws. An optionee desiring to exercise
an option may be required by the Company, as a condition of the effectiveness of
any exercise of an option granted hereunder, to agree in writing that all Common
Stock to be acquired pursuant to such exercise shall be held for his or her own
account without a view to any further distribution thereof, that the
certificates for such shares shall bear an appropriate legend to that effect and
that such shares will not be transferred or disposed of except in compliance
with applicable federal and state securities laws.
(c) An optionee electing to exercise an option shall give
written notice to the Company of such election and of the number of shares
subject to such exercise. The full purchase price of such shares shall be
tendered with such notice of exercise. Payment shall be made to the Company
either (i) in cash (including check, bank draft or money order), or (ii) by
delivering the Company's Common Stock already owned by the optionee having a
fair market value on the date of exercise equal to the full purchase price of
the shares, or (iii) by any combination of cash and the method specified in (ii)
of this sentence. For purposes of the preceding sentence, the fair market value
of Common Stock tendered shall be determined as provided in Section 5 hereof as
of the date of exercise. Until such person has been issued a certificate or
certificates for the shares subject to such exercise, he or she shall possess no
rights as a shareholder with respect to such shares.
8. Effect of Termination of Directorship or Death
(a) In the event that an optionee shall cease to be a director
of the Company for any reason other than his or her gross and willful misconduct
or his or her death, such optionee shall have the right to exercise the option
at any time within the remaining term of the option.
(b) In the event that an optionee shall cease to be a director
of the Company by reason of his or her gross and willful misconduct during the
course of his or her service as a director of the Company, including but not
limited to wrongful appropriation of funds of the Company or the commission of a
gross misdemeanor or felony, any unexercised option granted pursuant to the Plan
shall be terminated as of the date of the misconduct.
(c) If the optionee shall die and such optionee shall not have
fully exercised any option granted under the Plan, such option may be exercised
at any time within twelve months after his or her death by the personal
representatives, administrators or, if applicable, by any person or persons to
whom the option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares he or she was entitled
to purchase under the option on the date of death, and subject to the condition
that no option shall be exercisable after the expiration of the term of the
option.
(d) Nothing in this Plan or in any agreement hereunder shall
confer on any optionee any right to continue as a director of the Company or
affect in any way any legal rights with respect to termination of such
directorship or removal of such optionee as a director.
9. Transferability
(a) No options granted under the Plan shall be transferable by
optionee, other than as provided in Section 8(c) or in Section 9(b) herein.
(b) During the lifetime of an optionee, an outstanding option
may be transferred to (i) the spouse, children, grandchildren, nieces or nephews
of the optionee ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Immediate Family Members, or (iii) a partnership in
which such Immediate Family Members are the only partners, provided that (a)
there may be no consideration for any such transfer and (b) subsequent transfers
of transferred options shall be prohibited except for transfers required by will
or the laws of descent and distribution. Following transfer, such options shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer; provided that for purposes of each option
agreement, the term "optionee" shall be deemed to refer to the transferee.
10. Dilution or Other Adjustments
If there shall be any change in the Common Stock through
merger, consolidation, reorganization, recapitalization, stock dividend (of
whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made. In
the event of any such changes, adjustments shall include, where appropriate,
changes in the aggregate number of shares subject to the Plan, the number of
shares subject to outstanding options and the exercise prices thereof in order
to prevent dilution or enlargement of option rights.
11. Amendment or Discontinuance of Plan
The Board may amend, alter, suspend, discontinue or terminate
the Plan; provided, however, that, notwithstanding any other provision of the
Plan or any award agreement, without the approval of the shareholders of the
Company, no such amendment, alteration, suspension, discontinuation or
termination shall be made that requires the approval of the Company's
shareholders under any rules or regulations of the National Association of
Securities Dealers, Inc. or any securities exchange that are applicable to the
Company. The Board shall not alter or impair any option theretofore granted
under the Plan without the consent of the holder of the option.
12. Effective Date and Termination of Plan
(a) The Plan was approved by the Board on March 2, 1999, and
shall be approved by shareholders of the Company within 12 months thereafter.
(b) Unless the Plan shall have been discontinued as provided
in Section 11 hereof, the Plan shall terminate on January 31, 2009. No option
may be granted after such termination, but termination of the Plan shall not
without consent of the optionee, alter or impair any rights or obligations under
any option theretofore granted.
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Plan approved by stockholders on May __, 1999.