COMPUTRAC, INC.
222 Municipal Drive
Richardson, TX 75080
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held July 15, 1997
To the Stockholders of CompuTrac, Inc:
Notice is hereby given that the 1997 Annual Meeting of
Stockholders of CompuTrac, Inc., a Texas corporation (the "Company"),
will be held on Tuesday, July 15, 1997, at the Company's offices, 222
Municipal Drive, Richardson, Texas 75080 beginning at 2:00 p.m. local
time for the following purposes:
1. To elect five (5) persons to the Company's Board of Directors
to hold office until their terms shall expire and until their
successors are duly elected and qualified.
2. To approve and ratify the Company's 1990 Stock Option Plan,
as amended.
3. To transact such other business as may properly come before
the meeting and any adjournment(s) thereof.
Stockholders of record at the close of business on May 28,
1997, are entitled to notice of, and to vote at, the Annual Meeting and
any adjournment(s) thereof.
You are cordially invited to attend the meeting. Whether or
not you expect to be present at the meeting, please date and sign the
enclosed Proxy and return it promptly in the enclosed envelope.
Returning the proxy will not affect your right to revoke it and vote
your shares in person if you attend the meeting.
By Order of the Board of Directors
/s/ Dana E. Margolis
Dana E. Margolis
Secretary and Treasurer
Richardson, Texas
June 9, 1997
<PAGE>
COMPUTRAC, INC.
222 Municipal Drive
Richardson, TX 75080
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of CompuTrac, Inc., a Texas
corporation (the "Company"), of proxies from the holders of the
Company's Common Stock, par value $.01 per share (the "Common Stock"),
for use at the 1997 Annual Meeting of Stockholders to be held on
Tuesday, July 15, 1997, at the Company's offices, 222 Municipal Drive,
Richardson, Texas 75080, beginning at 2:00 p.m. local time.
The approximate date that this Proxy Statement and the enclosed
form of Proxy are first being sent to stockholders is June 9, 1997.
Stockholders should review the information provided herein in
conjunction with the Company's Annual Report as filed with the
Securities and Exchange Commission (exhibits excluded) for the fiscal
year ended January 31, 1997 which accompanies this Proxy Statement. The
Annual Report does not form a part of this Proxy Statement and is not
intended to serve as soliciting material for the Proxy.
INFORMATION CONCERNING PROXY
The solicitation is made on behalf of the Board of Directors of the
Company. By executing and returning the enclosed Proxy card, you
authorize the persons named in the Proxy to represent you and vote your
shares in connection with the purposes set forth in the Notice of Annual
Meeting.
All shares represented by a valid Proxy received prior to the
meeting will be voted in accordance with any specification made on such
Proxy. Any stockholder giving a Proxy has the power to revoke it at any
time before it is exercised by submitting a notice of revocation to the
Company or by attending the meeting and voting in person.
The cost of preparing, assembling and mailing the enclosed material
will be borne by the Company. In addition to solicitation by mail,
employees of the Company may, without additional compensation, solicit
Proxies on behalf of the Board of Directors by telephone, telegraph or
personal interview. The Company may make arrangements with banks,
brokerage houses and other custodians, nominees and fiduciaries to send
Proxies and Proxy material to their principals and to request authority
for the execution of Proxies. The Company may reimburse such persons
for their expenses in so doing.
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will consider and
vote upon the following matters:
1. The election of five (5) persons to the Company's Board of
Directors to hold office until their terms shall expire or
until their successors are duly elected and qualified.
2. To approve and ratify the Company's 1990 Stock Option Plan,
as amended.
3. Such other business as may properly come before the meeting,
including any adjournment or postponements thereof.
Unless contrary instructions are indicated on the enclosed Proxy,
all shares represented by valid Proxies received pursuant to this
solicitation (and which have not been revoked in accordance with the
procedures set forth above) will be voted for the election of the five
nominees for director named below and for the approval and verification
of the amended 1990 Stock Option Plan. In the event a stockholder
specifies otherwise by means of the enclosed Proxy, those shares will be
voted in accordance with the specification so made.
<PAGE>
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on May 28,
1997 as the record date (the "Record Date") for determining stockholders
of the Company entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, there were 6,279,355 shares of the Company's $.01
par value Common Stock issued and outstanding, all of which are entitled
to vote at the Annual Meeting. Only stockholders of record at the close
of business on the Record Date are entitled to vote at the meeting or
any adjournment thereof, each share being entitled to one (1) vote on
each matter to be voted on at the Annual Meeting. All shares of Common
Stock will vote as a single class and there are no cumulative voting
rights.
The attendance, in person or by proxy, of the holders of a majority
of the outstanding shares of Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum. If less than a majority of
outstanding shares entitled to vote are represented at the Annual
Meeting, a majority of the shares so represented may adjourn the Annual
Meeting to another date, time or place, and notice need not be given of
the new date, time or place if the new date, time or place is announced
at the meeting before an adjournment is taken.
Prior to the Annual Meeting, the Company will select one or more
inspectors of election for the meeting. Such inspector(s) shall
determine the number of shares of Common Stock represented at the
meeting, the existence of a quorum and the validity and effect of
proxies, and shall receive, count and tabulate ballots and votes and
determine the results thereof. Abstentions will be considered as shares
present and entitled to vote at the Annual Meeting, but will not be
counted as votes cast for or against any given matter. However, since
the proposal to approve and ratify the 1990 Stock Option Plan, as
amended, requires the affirmative vote of a majority of the shares
present or represented and entitled to vote at the Annual Meeting,
abstentions will have the same effect as votes against such proposal.
The inspector or inspectors of election will treat shares referred
to as "broker or nominee non-votes" (shares held of record by brokers or
nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and which the broker or
nominee has not voted because it does not have discretionary voting
power on a particular matter) as shares that are present for purposes of
determining the presence of a quorum. For purposes of determining the
outcome of any matter as to which the proxies reflect broker or nominee
non-votes, shares represented by such proxies will be treated as not
entitled to vote on that matter and therefore will not be considered by
the inspectors when counting votes cast on the matter (even though those
shares are considered present for quorum purposes and may be entitled to
vote on other matters). Such non-votes, therefore, will have no effect
on the proposal to approve and ratify the 1990 Stock Option Plan, as
amended.
Directors will be elected by a plurality of the votes cast by
holders of shares of Common Stock represented in person or by proxy at
the Annual Meeting. Thus, any abstentions or broker or nominee non-
votes will have no effect on the outcome of the election of directors.
<PAGE>
SECURITY OWNERSHIP
The following table sets forth, as of May 28, 1997, information
with respect to the beneficial ownership of the Common Stock of the
Company by (a) the Company's Chief Executive Officer and each of the
other "Named Executive Officers" (as defined below in "Executive
Compensation - Summary Compensation Table"), (b) each person known by
the Company to own beneficially 5% or more of such outstanding Common
Stock, (c) each director or nominee who owns any shares, and (d) all
current executive officers and directors of the Company as a group.
Name and Address of Amount and Nature of Percent
Beneficial Owner (1) Beneficial Ownership (2) of Class
Harry W. Margolis (3) 2,012,177 31.1
Dana E. Margolis (4) 28,217 (5)
George P. McGraw (6) 104,503 1.6
Bruce E. Staffin (7) 352,810 5.6
c/o CompuTrac, Inc.
222 Municipal Drive
Richardson, TX 75080
Gerald D. Harris (8) 12,000 (5)
Kenneth R. Nicholas (9) 12,000 (5)
William Harris Investors, Inc. (10) 463,300 7.4
Two North LaSalle Street
Suite 505
Chicago, IL 60602-3703
All current directors and executive 2,327,272 34.7
officers (12 persons) as a
group (11)
____________________________
(1) Unless otherwise indicated, each person's address is 222 Municipal
Drive, Richardson, TX 75080.
(2) Unless otherwise indicated, each person has sole voting and
investment power with respect to such shares.
(3) Includes 198,000 shares Mr. Margolis has the right to acquire
through the exercise of options. Mr. Margolis may be deemed to be
the beneficial owner of the shares owned by his wife, Dana E.
Margolis.
(4) Dana E. Margolis may be deemed to be the beneficial owner of the
shares owned by her husband, Harry W. Margolis.
(5) Beneficial ownership is less than one percent (1%) of the Company's
outstanding shares.
(6) Includes 81,000 shares Mr. McGraw has the right to acquire through
the exercise of options.
(7) Bruce E. Staffin was an employee of the Company from 1977 until
1991.
(8) Represents 12,000 shares Mr. Harris has the right to acquire
through the exercise of options.
(9) Represents 12,000 shares Mr. Nicholas has the right to acquire
through the exercise of options.
(10) Information obtained from a Schedule 13G filed with the Company by
the beneficial owner dated February 3, 1997. The Schedule 13G
states that the holder is an investment advisor that shares with
its clients voting power, and has sole dispositive power, with
respect to all the shares.
(11) Includes 433,188 shares the directors and executive officers have
the right to acquire through the exercise of options.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more
than ten percent of the Company's outstanding Common Stock, to file with
the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock. Such
persons are required by SEC regulations to furnish the Company with
copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies
of such reports furnished to the Company during the Company's last
fiscal year, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have
been complied with.
ELECTION OF DIRECTORS
Directors are to be elected at the Annual Meeting to hold office
until the next Annual Meeting of Stockholders and until their successors
have been duly elected and qualified. The Company's Articles of
Incorporation provide that the number of directors constituting the
Company's Board of Directors shall not be less than two, but will be
fixed as determined in the manner provided by the Company's Bylaws. The
Company's Bylaws provide that the number of directors shall be fixed
from time to time by action of the Company's Board of Directors. The
Board of Directors has fixed the number of directors at five for the
ensuing year.
It is intended that the shares represented by the Proxies will be
voted for the election of the Company's nominees except where authority
to so vote is withheld. Each of the five current members of the Board
of Directors has been nominated by the Company to be reelected as a
director at the Annual Meeting. All of the nominees for directorship
have agreed to serve if elected. Should any of such nominees become
unwilling or unable to accept nomination or election, the shares
represented by the Proxies solicited hereby will be voted for any
substitute nominee or nominees designated by the present Board of
Directors.
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company at May 28, 1997
are as follows:
Position(s) Held
Name Age With the Company
Harry W. Margolis 54 Chairman of the Board &
Chief Executive Officer
Dana E. Margolis 52 Secretary, Treasurer &
Director
George P. McGraw 49 President
Cheri L. White 43 Vice President - Finance
and Chief Financial
Officer
Deborah S. Greening 46 Vice President - Operations
Lynda K. Thomas 51 Vice President _
Administration
David D. Hester 41 Vice President - CT Labs
Irwin S. Arnstein 38 Vice President - LFMS
Support and Development
Michael R. Mueller 45 Vice President _
Dimension Development
Kenneth R. Nicholas 55 Director
Cesar L. Alvarez 49 Director
Gerald D. Harris 41 Director
Harry W. Margolis is a co-founder of the Company and has served as
Chairman of the Board of the Company since its organization in 1977.
After graduating from U.C.L.A. in 1964 with a degree in Political
Science, Mr. Margolis attended Southern Methodist University Law School
and upon graduation in 1967, placed first in the Bar Examination
administered in the State of Texas. Mr. Margolis founded his own law
firm in 1967, which increased to eight members through internal growth
and by merger with an older firm, and practiced law until the Company
was organized in 1977.
Dana E. Margolis, a director since 1983, served as office manager
of the Company performing its accounting and purchasing functions from
1980 until 1983. In January 1984, Mrs. Margolis assumed the
responsibilities of Secretary and Treasurer of the Company. Mrs.
Margolis attended San Diego State University and is the wife of Harry W.
Margolis.
George P. McGraw joined the Company as Director of Customer Support
in March 1985, was elected Vice President of Customer Support in
December 1987, and was elected Executive Vice President in May 1990.
Mr. McGraw has served as President and General Manager of the Company's
Legal Division since November 1993 and was elected President of the
Company in May 1996. Mr. McGraw is a 1970 graduate of the electrical
engineering department of Rochester Institute of Technology. Prior to
joining the Company, Mr. McGraw was self-employed. From 1979 until 1982
he held a number of marketing and financial positions with Phillips
Information Systems, Inc. Prior to that time, he held similar positions
with the Xerox Corporation.
Cheri L. White was elected Vice President of Finance in October
1993 and Chief Financial Officer in February 1995. Ms. White joined the
Company in February 1984, and served as the Company's Director of
Finance and Controller. Ms. White is also on the Board of Directors
for the Richardson Development Center for Children and serves as its
Treasurer. Ms. White is a graduate of Christopher Newport University
and is a Certified Public Accountant in the State of Texas.
Deborah S. Greening was named Vice President of Operations in 1995.
Ms. Greening joined the Company in 1983 as Regional Sales Manager and
<PAGE>
has held subsequent management positions in marketing, sales, support
and product development. Her previous experience included product
marketing, support and sales of word processing equipment at Xerox
Corporation and Phillips Information Systems. Ms. Greening is currently
on the Board of Directors of Richardson Development Center for Children
and served as its President during 1995. She attended the University of
Wisconsin and completed the SMU Mid-Management Program.
Lynda K. Thomas was elected Vice President of Administration in
December 1987. Ms. Thomas joined the Company in September 1981 as
executive assistant to the president and served as the Company's
business manager from August 1983 until her election to Vice President.
Previously, she was a corporate officer and director of public relations
for Republic Gypsum Company, a Dallas based manufacturer and supplier of
building materials. She attended the University of North Texas
(formerly North Texas State University), majoring in elementary
education.
David D. Hester has served as the Company's senior computer
programmer since June 1979 and has been responsible for the Company's
major software research and development efforts. He was elected Vice
President of the Company's CT Labs department in April 1996. Previously
he served as an assembly-language programmer for General Computer
Systems, a division of Telex. Mr. Hester attended the University of
Texas at Arlington and is an honor graduate of Control Data Institute.
Irwin S. Arnstein was elected Vice President of LFMS Support and
Development of the Company in May 1996 and is responsible for the
design, implementation and support of the Company's Law Firm Management
System product line. Mr. Arnstein holds a 1981 Bachelor of Arts of
Computer Science degree from the University of Texas. Mr. Arnstein
began his career with the Company 16 years ago as a Software Engineer
and has served as a Project Leader on several significant software
projects leading up to his 1995 promotion to Director of LFMS
Development.
Michael R. Mueller joined the Company in October 1984 as a support
programmer and was elected Vice President of Dimension Development in
May 1996. He has been involved in the development of four of the
Company's six generations of Law Firm Management Systems. Prior to
joining the Company, Mr. Mueller graduated from Texas A&M University
majoring in Computer Science with a minor in Accounting.
Kenneth R. Nicholas, a director of the Company since 1995, has been
the Managing Director of Nicholas, Flanagan & Bard, P.C., a Certified
Public Accounting firm in Dallas, Texas since January, 1987. Prior to
that time, Mr. Nicholas spent 22 years with Deloitte Haskins & Sells
(now Deloitte & Touche), including over ten years as a partner and seven
years as partner-in-charge of the Dallas tax practice. Mr. Nicholas
graduated from Southern Methodist University in 1964.
Cesar L. Alvarez, a director of the Company since 1986, has been a
director of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.,
a law firm in Miami, Florida, since January 1983. Mr. Alvarez also
serves on the Board of Directors of FDP Corporation and Cosmo
Communications Corporation.
Gerald D. Harris, a director of the Company since 1994, is the
owner and operator of Harris Typesetting Services, a graphics design and
printing business located in Plano, Texas. Prior to beginning his
business in 1990, Mr. Harris was the head golf professional at the
prestigious Stonebriar Country Club in Frisco, Texas. Mr. Harris
attended the University of Oklahoma majoring in finance.
<PAGE>
Meetings of the Board of Directors
During the fiscal year ended January 31, 1997, the Board of
Directors held one meeting. No director attended less than 75% of the
aggregate of (a) the number of Board meetings held during the fiscal
year, and (b) the number of meetings of committees of the Board held
during the period he served on such committees.
Committees of the Board of Directors
The Company's Board of Directors has Compensation and Audit
Committees. The Compensation Committee consists of Messrs. Nicholas and
Alvarez. The Compensation Committee administers the Company's 1990
Stock Option and Stock Purchase Plans, and makes recommendations to the
Board with respect to changes in officers' compensation and similar
matters. The Compensation Committee met once during fiscal year 1997.
The Company's Audit Committee consists of Messrs. Harris and
Nicholas. The Audit Committee reviews the Company's significant
accounting policies and operating controls, recommends independent
external auditors, and reviews audit reports prepared by the external
auditors. The Audit Committee met three times during fiscal year 1997.
The Company does not have a standing nominating committee.
Director Compensation
The Company pays directors who are not executive officers of the
Company $750.00 for attendance at each meeting of the Board of Directors
and $300.00 for each committee meeting attended. Directors who are also
executive officers of the Company do not receive any meeting fees or
other remuneration for their services as directors.
Directors are also eligible to be granted stock options under the
Company's 1990 Stock Option Plan. See _Proposal to Approve and Ratify
the 1990 Stock Option Plan, as Amended_ below for a description of the
terms of the Plan. No options were granted to directors under this Plan
during fiscal year 1997.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate compensation paid to
the Company's Chief Executive Officer and the only other executive
officer whose total annual salary and bonus for the 1997 fiscal year was
$100,000 or more (the Chief Executive Officer and such other executive
officer are sometimes referred to herein as the "Named Executive
Officers") with respect to each of the three fiscal years in the period
ended January 31, 1997.
<TABLE>
Annual Long-Term
Compensation (1) Compensation Awards
Number of Securities All
Underlying Options Other
Name and Principal Fiscal Compen-
Position Year Salary ($) Bonus ($) Granted sation($)
<S> <C> <C> <C> <C> <C>
Harry W. Margolis 1997 528,300 - - 5,756(2)
Chairman of the 1996 503,000 - 225,000 22,203
Board and Chief
Executive Officer 1995 490,000 - - 6,413
George P. McGraw 1997 121,096 - - 4,018(3)
President 1996 113,526 - - 1,443
1995 106,964 5,000 55,000 -
</TABLE>
_________________
(1) The column for "Other Annual Compensation" has been omitted because
there is no compensation required to be reported in such column.
The aggregate amount of perquisites and other personal benefits
provided to each Named Executive Officer is less than the lesser of
$50,000 or 10% of the total of annual salary and bonus of such
officer.
(2) Includes $5,756 attributable to the economic value of split-dollar
life insurance policies paid for by the Company naming Mr.
Margolis' estate as the beneficiary.
(3) Amount represents the Company's contribution to Mr. McGraw for
Company Common Stock purchases during the 1997 fiscal year pursuant
to the Company's Employee Stock Purchase Plan.
Aggregated Fiscal Year-End Option Value Table
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of the
end of the 1997 fiscal year. No stock options were exercised by either
of the Named Executive Officers during the 1997 fiscal year.
Number of Securities Value of Unexercised
Underlying Unexercised In the Money Options
Options at 1997 Fiscal at 1997 Fiscal Year-End
Year-End Exercisable (E) Exercisable (E)
Name Unexercisable (U) Unexercisable (U)
Harry W. Margolis 198,000 (E) $95,040(E)
27,000 (U) 12,960(U)
George P. McGraw 81,000 (E) $60,650(E)
<PAGE>
Long-term Incentive and Pension Plans
The Company does not have any long-term incentive or pension
plans.
Employment Agreements
On December 1, 1992, the Company entered into an Employment
Agreement with Harry W. Margolis, its Chairman of the Board and Chief
Executive Officer, which expires on January 31, 1998. Pursuant to the
Employment Agreement, Mr. Margolis was paid an annual base salary of
$528,300 during fiscal year 1997. Mr. Margolis is entitled to receive
minimum annual raises equivalent to any annual increase in the
Consumer Price Index for Dallas, Texas during the previous year. In
addition, at the discretion of the Compensation Committee of the Board
of Directors of the Company, Mr. Margolis may receive an annual bonus
in an amount that does not exceed his salary. No bonuses were granted
to Mr. Margolis during fiscal 1997. Additionally, the Company
furnishes Mr. Margolis with certain fringe benefits, including the use
of an automobile and a membership in a country club. The Company is
obligated to provide Mr. Margolis and his family with health and
dental benefits and has purchased split-dollar life insurance policies
insuring Mr. Margolis' life and naming his estate as the beneficiary.
In the event that Mr. Margolis becomes disabled or is otherwise
incapacitated, the Company will be entitled to reduce his pay to 50%
of his base salary (less certain insurance proceeds) for the remainder
of the term of the Employment Agreement or until such earlier time
that he is able to resume his full duties under the agreement. In the
event of Mr. Margolis' death, his estate or designated beneficiary is
entitled to receive 50% of his annual salary, less any insurance
payments made to the estate or designated beneficiary from the above-
referenced life insurance policies, for the remaining term of the
agreement. Mr. Margolis is subject to certain restrictive covenants
under the agreement, including a noncompetition clause which extends
eighteen months beyond any termination of his employment other than
termination by Mr. Margolis for "Good Reason" (as defined in the
agreement) or termination due to the expiration of the agreement. The
Company may at any time terminate the Employment Agreement for "Cause"
(as defined in the agreement) with thirty days written notice, and, in
the event that the Company fails to earn a certain specified minimum
rate of return on equity for any fiscal years ending on or after
January 31, 1995, the Company's Board of Directors may reduce the term
of the agreement to a date which is no earlier than one year from the
date Mr. Margolis receives written notice of such term reduction. If
Mr. Margolis' employment is terminated (a) other than for Cause,
disability, death or the expiration of the agreement, including a
termination attributable to a "Change in Control" (as defined in the
agreement), or (b) by Mr. Margolis for Good Reason, including any
intentional failure by the Company to comply with the agreement, Mr.
Margolis will be entitled to (i) a lump sum payment of three times (or
two times if termination occurs during the last year of the agreement)
the sum of his base salary and highest bonus paid during either of the
prior two years, (ii) all compensation earned or deferred through the
date of termination (including a pro-rated bonus, determined as a
percentage of the prior year's bonus) and (iii) continue to
participate in the Company's benefit plans for the remainder of the
term of the agreement, as if the agreement had not terminated.
On February 1, 1992, the Company entered into a one year employment
agreement with George P. McGraw, its President, which renews
automatically and extends for successive one year terms, each February
1. This agreement provided for an initial base salary of $102,500 and
includes provisions for annual base compensation and eligibility
requirements for any bonus programs, all of which were directly tied
to the financial performance of the Company. In conjunction with the
Company's fourth quarter fiscal 1994 reorganization, Mr. McGraw
accepted a base salary reduction from $109,172 in fiscal 1994 to
$106,964 in fiscal 1995. During fiscal year 1997, Mr. McGraw was paid
an annual base salary of $113,526. Additionally, the agreement
contains certain restrictive covenants governing events upon the
executive's termination from the Company, including non-compete, non-
disclosure, and non-solicitation clauses. The agreement may be
terminated by the Company for "Cause" (as defined in the agreement),
as a result of the executive's inability to perform all or any
material portion of his responsibilities as a result of mental or
physical incapacity, illness or disability, or otherwise with written
notice to the executive.
<PAGE>
PROPOSAL TO APPROVE AND RATIFY
THE 1990 STOCK OPTION PLAN, AS AMENDED
General
The 1990 Stock Option Plan (the "Plan") was originally adopted by
the Board of Directors of the Company in 1990 and approved by
stockholders at the 1991 annual meeting of stockholders. The Board
recently amended the Plan, subject to stockholder approval at the 1997
annual meeting of stockholders, to increase from 500,000 to 800,000
the aggregate number of shares of Common Stock that may be issued or
delivered pursuant to options granted under the Plan (the
"Amendment"). The affirmative vote of the holders of a majority of
the shares of Common Stock present or represented and entitled to vote
at the 1997 annual meeting is required to approve the proposal to
approve and ratify the Plan as amended. See _Outstanding Voting
Securities and Voting Rights_ above. If the Plan as amended is not
approved by the requisite stockholder vote, the Plan will continue in
force without giving effect to the Amendment.
The purpose of the Plan is to advance the interests of the
Company by providing additional incentive to attract and retain
qualified and competent employees, officers and directors, upon whose
efforts and judgment the success of the Company is largely dependent,
through the encouragement of stock ownership in the Company by such
persons.
Reasons for the Amendment
As of May 28, 1997, the Plan had 5,000 shares of Common Stock
available for grants of options. The purpose of increasing the number
of shares of Common Stock available under the Plan by 300,000 shares
in the aggregate is to permit the continued use of a long-term equity
component in the Company's compensation program. If the Plan as
amended is approved and ratified by the stockholders, the employees,
officers and directors of the Company eligible to participate therein
could receive more benefits under the Plan than are currently
available to them.
Description of the Plan
The material features of the Plan, without giving effect to the
Amendment, are described below:
General. The Plan provides for the grant of (i) incentive stock
options under Section 422 of the Code and (ii) nonstatutory stock
options. The Plan provides that an aggregate of 500,000 shares of
Common Stock may be issued or delivered upon exercise of stock options
and that options may be granted to any regular employee of the
Company, including officers, and to any director, whether or not an
employee, of the Company, except that incentive stock options may not
be granted to a director who is not also an employee of the Company or
a subsidiary. No incentive stock option may be granted under the Plan
more than ten years after May 30, 1990, the effective date of the
Plan, and no nonstatutory stock option may be granted after the
expiration of the Plan, which will occur, unless the Plan is sooner
terminated by the Company, on May 30, 2020. Authorized but unissued
or reacquired shares may be issued or delivered pursuant to the Plan.
In the event that any outstanding stock option terminates,
expires or is cancelled or surrendered without having been exercised
in full, the shares of Common Stock not purchased under the stock
option are again available for purposes of the Plan. The Plan also
contains anti-dilution provisions which provide in certain events for
proportionate adjustments in the number of shares of Common Stock
subject to, and the exercise prices of, outstanding options and the
number of shares of Common Stock which may be offered under the Plan.
Administration. The Plan is administered by a Compensation
Committee consisting of one or more members of the Board of Directors
(or if none is established, by the Board of Directors).
<PAGE>
Subject to the provisions of the Plan, the Compensation Committee
has discretion to grant incentive stock options or nonstatutory stock
options under the Plan and to determine the directors and employees to
whom each grant is made and the number of shares covered thereby. In
granting options, the Compensation Committee considers the
contribution the person has made to the success of the Company or a
subsidiary and such other factors as the Compensation Committee
determines, which may include the recommendations of officers or other
Company personnel.
The Compensation Committee also has the power to interpret the
Plan and to prescribe such rules and regulations as it deems necessary
and advisable for carrying out the purposes of the Plan.
Terms of Stock Options. The option price for each stock option
is determined by the Compensation Committee, provided that (i) the
option price of a nonstatutory stock option granted to a director and
of an incentive stock option granted to any person may not be less
than 100% of the fair market value (as defined) of the Common Stock on
the date of grant and (ii) the option price of an incentive stock
option granted to an employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company or any
subsidiary (a "Ten Percent Employee") may not be less than 110% of
such fair market value. As of May 28, 1997, the closing sales price
of a share of Common Stock of the Company as reported on the American
Stock Exchange (the "Exchange") was $1 9/16.
No stock option may be exercised after the expiration of ten
years from the date of grant (five years in the case of an incentive
stock option granted to a Ten Percent Employee). An exercisable stock
option may be exercised in whole or in part. Otherwise, stock options
may be exercised at such time, in such amounts and subject to such
restrictions as are determined in its discretion by the Compensation
Committee. The Compensation Committee may in its discretion
accelerate the vesting of any outstanding option.
The option price for each stock option is payable in full at the
time of exercise and, unless further limited by the Compensation
Committee in connection with any individual option, the option price
may be paid in cash, by certified or official bank check, by money
order, by delivery of already owned shares of Common Stock having a
fair market value equal to the exercise price or (in the discretion of
the Compensation Committee) by delivery of a personal check by the
optionee, or by a combination of the foregoing. In addition, the
Company in its sole discretion may, on an individual basis or pursuant
to a general program, lend money to an optionee, guaranty a loan to an
optionee or otherwise assist an optionee in obtaining funds necessary
to exercise all or a portion of an option or to pay any tax liability
attributable to the exercise of the option. Any promissory note of an
optionee accepted in whole or partial payment of the option price must
provide for full recourse to the maker, be collateralized by a pledge
of the shares purchased upon exercise of the option, bear interest at
a market rate and contain such other terms as the Board of Directors
may require.
Options otherwise qualifying as incentive stock options under the
Plan will not be treated as incentive stock options to the extent that
the aggregate fair market value (determined as of the time the
incentive stock options are granted) of the shares of Common Stock
with respect to which incentive stock options are exercisable for the
first time by an individual during any calendar year exceeds $100,000.
In addition to the limitations described above, the maximum
number of shares for which any one director may be granted options in
any calendar year may not exceed 10% of the total number of shares for
which options may be granted under the Plan and shares of Common Stock
acquired by a director upon exercise of an option may not be sold
prior to the expiration of six months from the date of grant of the
option.
Options granted under the Plan terminate upon termination of the
optionee's employment or service as a director, except that the vested
portion of options may continue to be exercisable during specified
grace periods following termination of employment or service in
certain circumstances.
No stock option granted under the Plan is transferable other than
by will or by the laws of descent and distribution, and a stock option
may be exercised during an optionee's lifetime only by the optionee.
<PAGE>
Miscellaneous. The Board of Directors or the Compensation
Committee may alter, amend or terminate the Plan at any time except
that the Plan may not be amended (a) without the approval of
stockholders, to (i) increase the total number of shares that may be
issued or delivered upon the exercise of options under the Plan, or
(ii) change the class of persons eligible to receive options; (b) to
permit the granting of options that expire beyond the maximum 10-year
exercise period; or (c) to extend the termination date of the Plan.
Moreover, except to the extent described under the heading "Additional
Rights in Certain Events" below, no amendment or termination of the
Plan or of any option issued under the Plan may substantially impair
any option previously granted to any optionee without the consent of
such optionee. Termination of the Plan would not terminate any
outstanding stock options previously granted under the Plan.
The Plan contains no provision prohibiting the grant of stock
options by the Compensation Committee upon the condition that
outstanding stock options granted at a higher option price be
surrendered for cancellation. Certain outstanding stock options
granted under the Plan may from time to time have option prices in
excess of the market price per share of the Common Stock. The
Compensation Committee has granted, and may in the future grant stock
options under the Plan with option prices established in accordance
with the Plan on the condition that outstanding stock options with a
higher option price be surrendered for cancellation.
Additional Rights in Certain Events. The Plan provides for
immediate acceleration of the exercisability of all outstanding
options upon the occurrence of one or more events described in Section
8 of the Plan ("Section 8 Events"). A Section 8 Event is deemed to
have occurred when (i) there occurs any transaction or series of
transactions that results in the stockholders of the Company
immediately before such transaction or transactions ceasing to own at
least 51% of the voting stock of the Company (or of the surviving
entity in the transaction, if other than the Company); (ii) the
stockholders of the Company approve a plan of merger, consolidation,
reorganization, liquidation or dissolution in which the Company does
not survive (unless the approved transaction is subsequently
abandoned); or (iii) the stockholders of the Company approve a plan
for the sale or other disposition of all or substantially all the
property and assets of the Company (unless such plan is subsequently
abandoned). The Compensation Committee, in its sole discretion, may
by giving written notice cancel, effective upon the date of
consummation of any corporate transaction approved as described in
clause (ii) or (iii) above, any option that remains unexercised on the
date of such consummation. The Compensation Committee also may change
the option prices or the number of shares subject to outstanding
options, or both, if, in its sole discretion, it deems such changes
appropriate by reason of a Section 8 Event described in clause (ii) or
(iii) above.
Possible Anti-Takeover Effect. The provisions of the Plan
providing for the acceleration of the exercise date or the change in
the terms of outstanding options upon the occurrence of a Section 8
Event could make it more difficult for a third party to acquire
control of the Company and, therefore, may be deemed to benefit the
current directors and officers of the Company.
<PAGE>
Grants Table
All options set forth in the following table are incentive
options granted in fiscal years 1995 through 1997, except that the
options granted to Mr. Nicholas and Mr. Harris are nonstatutory
options. All such options were granted with terms of ten years from
the date of grant and exercise prices equal to the fair market value
of the Common Stock on the date of grant, except as indicated below.
Options Granted Under
The 1990 Stock Option Plan
Per Share
Name Grant Date Number of Shares Exercise Price
Harry W. Margolis 08/01/1995 225,000 (1) $1.52
George P. McGraw 12/01/1994 5,000 1.19
05/10/1994 50,000 0.88
Kenneth R. Nicholas 02/21/1995 12,000 1.19
Gerald D. Harris 11/07/1994 12,000 0.88
All Current Executive
Officers as a Group(2) 1994 61,667 0.99
1995 308,544 1.38
1996 50,000 3.14
All Employees Who Are
Not Executive Officers,
asa Group (2) 1995 26,000 1.98
1996 30,000 2.11
(1) The option granted to Mr. Margolis, the Chief Executive
Officer and a greater than 10% stockholder of the Company,
is an incentive stock option granted in replacement of three
options previously granted to Mr. Margolis under the Plan
and has an exercise price equal to the average exercise
price of the three replaced options, which is equal to 122%
of the fair market value of the Common Stock on the date of
grant of the currently outstanding option. The option has a
five-year term.
(2) For the indicated groups, reflects all options granted to
members of the group during the years specified and the
average exercise prices of such options.
U.S. Federal Income Tax Consequences
The following summary is based upon an analysis of the Code as
currently in effect, existing laws, judicial decisions, administrative
rulings, regulations and proposed regulations, all of which are
subject to change. Moreover, the following is only a summary of U.S.
federal income tax consequences, and the consequences to employees may
be either more or less favorable than those described below depending
on their particular circumstances.
<PAGE>
Incentive Stock Options. No income will be recognized by an
optionee for federal income tax purposes upon the grant or exercise of
an incentive stock option. The basis of shares transferred to an
optionee pursuant to the exercise of an incentive stock option is the
price paid for the shares. If the optionee holds the shares for at
least one year after transfer of the shares to the optionee and two
years after the grant of the option, the optionee will recognize
capital gain or loss upon sale of the shares received upon the
exercise equal to the difference between the amount realized on the
sale and the basis of the stock. Generally, if the shares are not
held for that period, the optionee will recognize ordinary income upon
disposition in an amount equal to the excess of the fair market value
of the shares on the date of exercise over the option price of such
shares, or if less (and if the disposition is a transaction in which
loss, if sustained, would be recognized), the gain on disposition.
Any additional gain or loss realized by the optionee upon such
disposition will be a capital gain or loss.
The excess of the fair market value of shares received upon the
exercise of an incentive stock option over the option price for the
shares is an item of adjustment for the optionee for purposes of the
alternative minimum tax.
The Company is not entitled to a deduction upon the exercise of
an incentive stock option by an optionee. If the optionee disposes of
the shares received pursuant to such exercise prior to the expiration
of one year following transfer of the shares to the optionee or two
years after grant of the option, however, the Company may, subject to
the deduction limitation described below, deduct an amount equal to
the ordinary income recognized by the optionee upon disposition of the
shares at the time such income is recognized by the optionee.
If an optionee uses already owned shares of Common Stock to pay
the exercise price for shares under an incentive stock option, the
resulting tax consequences will depend upon whether the already owned
shares of Common Stock are "statutory option stock", and, if so,
whether such statutory option stock has been held by the optionee for
the applicable holding period referred to in Section 424(c)(3)(A) of
the Code. In general, statutory option stock (as defined in Section
424(c)(3)(B) of the Code) is any stock acquired through the exercise
of an incentive stock option or an option granted pursuant to an
employee stock purchase plan, but not stock acquired through the
exercise of a nonqualified stock option. If the stock is statutory
option stock with respect to which the applicable holding period has
been satisfied, no income will be recognized by the optionee upon the
transfer of such stock in payment of the exercise price of an
incentive stock option. If the stock is not statutory option stock,
no income will be recognized by the optionee upon the transfer of the
stock unless the stock is not substantially vested within the meaning
of the regulations under Section 83 of the Code (in which event it
appears that the optionee will recognize ordinary income upon the
transfer equal to the amount by which the fair market value of the
transferred shares exceeds their basis). If the stock used to pay the
exercise price of an incentive stock option is statutory option stock
with respect to which the applicable holding period has not been
satisfied, the transfer of such stock will be a disqualifying
disposition described in Section 421(b) of the Code which will result
in the recognition of ordinary income by the optionee in an amount
equal to the excess of the fair market value of the statutory option
stock at the time the incentive stock option covering such stock was
exercised over the option price of such stock. Under the present
provisions of the Code, it is not clear whether all shares received
upon the exercise of an incentive stock option with already owned
shares will be statutory option stock or how the optionee's basis will
be allocated among such shares.
Nonstatutory Stock Options. No income will be recognized by an
optionee for federal income tax purposes upon the grant of a
nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee will recognize ordinary income in an amount equal
to the excess of the fair market value of the shares on the date of
exercise over the amount paid for such shares. Income recognized upon
the exercise of nonstatutory stock options will be considered
compensation subject to withholding at the time the income is
recognized, and, therefore, the Company must make the necessary
arrangements with the optionee to ensure that the amount of the tax
required to be withheld is available for payment. Nonstatutory stock
options are designed to provide the Company with a deduction equal to
the amount of ordinary income recognized by the optionee at the time
of such recognition by the optionee, subject to the deduction
limitations described below.
<PAGE>
The basis of shares transferred to an optionee pursuant to
exercise of a nonstatutory stock option is the price paid for such
shares plus an amount equal to any income recognized by the optionee
as a result of the exercise of the option. If an optionee thereafter
sells shares acquired upon exercise of a nonstatutory stock option,
any amount realized over the basis of the shares will constitute
capital gain to the optionee for federal income tax purposes.
If an optionee uses already owned shares of Common Stock to pay
the exercise price for shares under a nonstatutory stock option, the
number of shares received pursuant to the option which is equal to the
number of shares delivered in payment of the exercise price will be
considered received in a nontaxable exchange, and the fair market
value of the remaining shares received by the optionee upon such
exercise will be taxable to the optionee as ordinary income. If the
already owned shares of Common Stock are not statutory option stock or
are statutory option stock with respect to which the applicable
holding period referred to in Section 424(c)(3)(A) of the Code has
been satisfied, the shares received pursuant to the exercise of the
nonstatutory stock option will not be statutory option stock and the
optionee's basis in the number of shares received for the stock
delivered in payment of the exercise price will be equal to the basis
of the shares delivered in payment. The basis of the remaining shares
received upon such exercise will be equal to the fair market value of
such shares. However, if the already owned shares of Common Stock are
statutory option stock with respect to which the applicable holding
period has not been satisfied, it is not presently clear whether such
exercise will be considered a disqualifying disposition of the
statutory option stock, whether the shares received upon such exercise
will be statutory option stock or how the optionee's basis will be
allocated among the shares received.
Limitation on the Company's Compensation Deduction. Section
162(m) of the Code limits the deduction which the Company may take for
otherwise deductible compensation payable to certain executive
officers of the Company to the extent that compensation paid to such
officers for such year exceeds $1 million, unless such compensation is
performance-based, is approved by the Company's stockholders and meets
certain other criteria. Compensation attributable to a stock option
is deemed to satisfy the requirements for performance-based
compensation only if (i) the grant is made by a compensation committee
composed of two or more outside directors; (ii) the plan states the
maximum number of shares with respect to which options may be granted
during a specified period to any employee; and (iii) under the terms
of the option, the amount of compensation the employee could receive
is based solely on an increase in the value of the stock after the
date of the option grant. The Plan has not been designed to enable
grants of incentive and nonstatutory stock options to qualify as
performance-based compensation for purposes of Section 162(m) of the
Code.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND
RATIFICATION OF THE 1990 STOCK OPTION PLAN, AS AMENDED. Proxies
solicited by the Board of Directors will be voted in favor of approval
of the Plan, as amended by the Amendment, unless stockholders specify
otherwise.
<PAGE>
OTHER MATTERS
Stockholder Proposals
Any stockholder intending to present any proposal to the 1998
Annual Meeting of Stockholders must submit such proposal in writing to
the Company at its principal executive offices on or before February 2,
1998.
Independent Public Accountants
The firm of Price Waterhouse served as independent public
accountants for the Company for the fiscal year ended January 31, 1997
and has been selected to serve in that capacity for the fiscal year
ending January 31, 1998. A representative of the firm is expected to be
present during the annual meeting. Such representative will be afforded
an opportunity to make a statement at the meeting if he so desires and
will be available to answer appropriate questions.
Other Business
The Board of Directors does not intend to present and does not have
any reason to believe that others in attendance will present at the
Annual Meeting any item of business other than those mentioned in the
Notice of Annual Meeting. If, however, any other business should
properly come before the Annual Meeting, the persons named in the
accompanying Proxy will vote the Proxy as in their discretion they may
deem appropriate, unless they are directed by the Proxy to do otherwise.
By Order of the Board of Directors
/s/ Dana E. Margolis
Dana E. Margolis
Secretary and Treasurer
Richardson, Texas
June 9, 1997
The Company's Form 10-KSB Annual Report, as filed with the
Securities and Exchange Commission, provides certain additional
information about the Company. A copy of this report may be obtained
without charge upon written request to: Investor Relations, CompuTrac,
Inc., 222 Municipal Drive, Richardson, Texas 75080 or via:
www.ctinc.com
