<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
CODA MUSIC TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CODA MUSIC TECHNOLOGY, INC.
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
The Annual Meeting of Shareholders of Coda Music Technology, Inc. will be
held on April 23, 1997, at 3:30 p.m. (Minneapolis time), at the Marriott City
Center Hotel, 30 South Seventh Street, Minneapolis, Minnesota, for the following
purposes:
1. To set the number of directors at six (6).
2. To elect directors for the ensuing year.
3. To approve a 200,000 share increase in the number of shares reserved
for issuance under the Company's 1992 Stock Option Plan.
4. To consider and act upon such other matters as may properly come
before the meeting and any adjournments thereof.
Only shareholders of record at the close of business on March 14, 1997, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
Your vote is important. We ask that you complete, sign, date and return
the enclosed proxy in the envelope provided for your convenience. The prompt
return of proxies will save the Company the expense of further requests for
proxies.
BY ORDER OF THE BOARD OF DIRECTORS
John W. Paulson
CHIEF EXECUTIVE OFFICER
Eden Prairie, Minnesota
March 21, 1997
<PAGE>
CODA MUSIC TECHNOLOGY, INC.
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 1997
---------------------
PROXY STATEMENT
---------------------
INTRODUCTION
Your Proxy is solicited by the Board of Directors of Coda Music Technology,
Inc. ("the Company") for use at the Annual Meeting of Shareholders to be held on
April 23, 1997, at the location and for the purposes set forth in the notice of
meeting, and at any adjournment thereof.
The cost of soliciting proxies, including the preparation, assembly and
mailing of the proxies and soliciting material, as well as the cost of
forwarding such material to beneficial owners of stock, will be borne by the
Company. Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
Any shareholder giving a proxy may revoke it at any time prior to its use
at the meeting by giving written notice of such revocation to the Secretary of
the Company. Proxies not revoked will be voted in accordance with the choice
specified by shareholders by means of the ballot provided on the Proxy for that
purpose. Proxies which are signed but which lack any such specification will,
subject to the following, be voted in favor of the proposals set forth in the
Notice of Meeting and in favor of the number and slate of directors proposed by
the Board of Directors and listed herein. If a shareholder abstains from voting
as to any matter, then the shares held by such shareholder shall be deemed
present at the meeting for purposes of determining a quorum and for purposes of
calculating the vote with respect to such matter, but shall not be deemed to
have been voted in favor of such matter. Abstentions, therefore, as to any
proposal will have the same effect as votes against such proposal. If a broker
returns a "non-vote" proxy, indicating a lack of voting instructions by the
beneficial holder of the shares and a lack of discretionary authority on the
part of the broker to vote on a particular matter, then the shares covered by
such non-vote proxy shall be deemed present at the meeting for purposes of
determining a quorum but shall not be deemed to be represented at the meeting
for purposes of calculating the vote required for approval of such matter.
The mailing address of the principal executive office of the Company is
6210 Bury Drive, Eden Prairie, Minnesota 55346-1718. The Company expects that
this Proxy Statement, the related proxy and notice of meeting will first be
mailed to shareholders on or about March 21, 1997.
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<PAGE>
OUTSTANDING SHARES AND VOTING RIGHTS
The Board of Directors of the Company has fixed March 14, 1997, as the
record date for determining shareholders entitled to vote at the Annual Meeting.
Persons who were not shareholders on such date will not be allowed to vote at
the Annual Meeting. At the close of business on March 14, 1997, 4,327,035
shares of the Company's Common Stock were issued and outstanding. The Common
Stock is the only outstanding class of capital stock of the Company entitled to
vote at the meeting. Each share of Common Stock is entitled to one vote on each
matter to be voted upon at the meeting. Holders of Common Stock are not
entitled to cumulative voting rights.
PRINCIPAL SHAREHOLDERS
The following table provides information concerning persons known to the
Company to be the beneficial owners of more than 5% of the Company's outstanding
Common Stock as of March 14, 1997. Unless otherwise indicated, the shareholders
listed in the table have sole voting and investment powers with respect to the
shares indicated.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS (1)
------------------ ------------------ ----------
Gordon F. Stofer
3800 W. 80th Street
Minneapolis, MN 55431 580,966(2) 13.3%
Cherry Tree Ventures IV
3800 W. 80th Street
Minneapolis, MN 55431 566,835(3) 13.0%
John W. Paulson
6210 Bury Drive
Eden Prairie, MN 55346 440,732(4) 10.0%
Donald R. Brattain
601 Lakeshore Parkway
Minnetonka, MN 55305 220,359(5) 5.1%
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(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person to acquire them as of March 14, 1997, or within sixty days of
such date are treated as outstanding only when determining the percent
owned by such individual and when determining the percent owned by a group.
(2) Includes (i) 526,835 shares held by Cherry Tree Ventures IV, of which Mr.
Stofer is a general partner, and (ii) 40,000 shares issuable pursuant to
currently exercisable warrants
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<PAGE>
held by Cherry Tree Ventures IV. Mr. Stofer disclaims beneficial ownership
in the securities held by Cherry Tree Ventures IV.
(3) Includes 40,000 shares issuable pursuant to currently exercisable options
and warrants.
(4) Includes 90,232 shares which may be purchased upon exercise of options
which are exercisable as of March 14, 1997 or within 60 days of such date.
(5) Includes (i) 15,000 shares issuable pursuant to currently exercisable
warrants, (ii) 102,026 shares held by Founding Partners II Limited
Partnership and (iii) 15,000 shares issuable pursuant to currently
exercisable warrants held by Founding Partners II Limited Partnership. Mr.
Brattain is a general partner of the general partner of Founding Partners
II Limited Partnership, and thus shares voting and dispositive power over
the shares held by such entity.
MANAGEMENT SHAREHOLDINGS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 14, 1997, by each executive officer of the
Company named in the Summary Compensation table, by each current director and
nominee for director of the Company and by all directors and executive officers
(including the named individuals) as a group. Unless otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the shares indicated.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF
OR IDENTITY OF GROUP BENEFICIALLY OWNED CLASS (1)
Gordon F. Stofer 580,966 (2) 13.3%
John W. Paulson 440,732 (3) 10.0%
David A. Henderson 192,300 (4) 4.4%
Ronald B. Raup 32,166 (5) *
Larry A. Pape 10,100 (6) *
Karl T. Bruhn 13,000 (7) *
Mark E. Dunn 39,541 (7) *
Joan K. Berg 17,833 (8) *
All officers and directors
as a group (9 persons) 1,336,171 (9) 29.1%
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* Less than 1%
(1) See footnote (1) to preceding table.
(2) See footnote (2) to preceding table.
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<PAGE>
(3) See footnote (4) to preceding table.
(4) Includes (i) 102,026 shares held by Founding Partners II Limited
Partnership and (ii) 15,000 shares issuable pursuant to currently
exercisable warrants held by Founding Partners II Limited Partnership. Mr.
Henderson, an officer and director of the Company, is a general partner of
the general partner of Founding Partners II Limited Partnership, and thus
shares voting and dispositive power over the shares held by such entity.
(5) Includes 31,666 shares which may be purchased upon exercise of options
which are exercisable as of March 14, 1997 or within 60 days of such date.
(6) Includes 9,500 shares which may be purchased upon exercise of options which
are exercisable as of March 14, 1997 or within 60 days of such date.
(7) Such shares are not outstanding but may be purchased upon exercise of
options which are exercisable as of March 14, 1997 or within 60 days of
such date.
(8) Includes 14,833 shares which may be purchased upon exercise of options
which are exercisable as of March 14, 1997 or within 60 days of such date.
(9) Includes 263,105 shares which may be purchased upon exercise of options and
warrants which are exercisable as of March 14, 1997 or within 60 days of
such date.
ELECTION OF DIRECTORS
(PROPOSALS #1 AND #2)
GENERAL INFORMATION
The Bylaws of the Company provide that the number of directors, which shall
not be less than one, shall be determined by the Board of Directors or by the
shareholders. The Board of Directors recommends that the number of directors be
set at six and that six directors be elected at the Annual Meeting. Under
applicable Minnesota law, approval of the proposal to set the number of
directors at six, as well as the election of each nominee, requires the
affirmative vote of the holders of the greater of (1) a majority of the voting
power of the shares represented in person or by proxy at the Annual Meeting with
authority to vote on such matter or (2) a majority of the voting power of the
minimum number of shares that would constitute a quorum for the transaction of
business at the Annual Meeting.
In the absence of other instructions, each proxy will be voted for each of
the nominees listed below. If elected, each nominee will serve until the next
annual meeting of shareholders and until his successor shall be elected and
qualified. If, prior to the meeting, it should become known that any of the
nominees will be unable to serve as a director after the meeting by reason of
death, incapacity or other unexpected occurrence, the proxies will be voted for
such substitute nominee as is selected by the Board of Directors or,
alternatively, not voted for any nominee. The Board of Directors has no reason
to believe that any nominee will be unable to serve.
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<PAGE>
The names and ages of all of the director nominees and the positions held
by each with the Company are as follows:
NAME AGE POSITION
- ----------------------- --- -----------------------------
John W. Paulson 49 Chief Executive Officer and
Chairman of the Board of Directors
Ronald B. Raup 46 President, Chief Operating Officer
and Director
David A. Henderson (1)(2) 44 Director
Gordon F. Stofer (1)(2) 50 Director
Larry A. Pape 50 Director
Karl T. Bruhn 67 Director
- ----------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
JOHN W. PAULSON has been Chief Executive Officer and Chairman of the Board
of Directors of the Company since December 1990. From 1982 to 1990, Mr. Paulson
was Chairman of Springboard Software, Inc., a publicly-held company he founded
to develop and market educational and consumer software products. Springboard
was subsequently purchased by Spinnaker Software Corp. Prior to founding
Springboard, Mr. Paulson was a public school music teacher for nine years during
which time he taught band, keyboard and electronic music classes. He has a
Master of Arts in Music Education from the Eastman School of Music, is a
published composer, and has performed as a professional musician for over ten
years. Mr. Paulson was recently elected to the Board of Directors of the
National Association of Music Merchants.
RONALD B. RAUP has been President, Chief Operating Officer and a director
of the Company since January 1, 1996, and served as Executive Vice President
from August 1995 through December 1995. From 1977 through July 1995 Mr. Raup
was employed by Yamaha Corporation of America, serving as Senior Vice President
of Sales and Marketing from 1989 until his departure. Mr. Raup also served on
Yamaha's Board of Directors from 1990 until 1995.
DAVID A. HENDERSON has been a director of the Company since December 1990
and served as Secretary and Treasurer from December 1990 to May 1996. Since
October 1990, Mr. Henderson has been the sole managing partner of Founding
Partners Limited Partnership and is a managing partner of Founding Partners II
Limited Partnership, two private venture capital partnerships specializing in
early stage investment opportunities. From January 1991 until December 1992,
Mr. Henderson was employed as the Executive Vice President of Cherry Tree
Investments, Inc. From 1986 to 1989, Mr. Henderson was the President and Chief
Executive Officer of Corporate BancServices, Inc., a St. Paul-based bank holding
company. From 1982
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<PAGE>
to 1986, he held senior management positions, including Chief Financial Officer
and President, with Republic Telcom Corporation, a telephone services company.
Mr. Henderson is currently a director of the following public companies:
Destron Fearing Corporation and Harmony Brook, Inc.
GORDON F. STOFER has been a director of the Company since January 1993.
Mr. Stofer has been an active investor in the private equity investment industry
for 8 years. He is President and co-founder of Cherry Tree Investments, Inc.
and a Managing General Partner in the Cherry Tree Ventures partnerships. Prior
to founding Cherry Tree Investments, he was a Vice President at Norwest Venture
Capital Corporation. He is currently a director of the following public
companies: Ringer Corporation, Insignia Systems, Inc. and Harmony Brook, Inc.
LARRY A. PAPE has been a director of the Company since September 1993. Mr.
Pape is currently employed by Aprisa Multimedia, Inc., a multimedia courseware
development company, where he has been Chairman and Chief Executive Officer
since May 1993. From May 1992 until April 1993, he was General Manager of the
multimedia division of Radius, Inc., an Apple Macintosh color publishing and
multimedia peripherals company. He has also held various management positions
at Fluent, Inc. from September 1990 to April 1992, Wicat Systems, Inc. from May
1990 to August 1990, Fourth Shift Corporation from July 1983 to April 1990,
Apple Computer, Inc. and Control Data Corporation.
KARL T. BRUHN has been a director of the Company since December 1994. Mr.
Bruhn has been the Presidential Advisor to the National Association for Music
Therapy since June 1993 and recently retired from over four years of service as
the Director of Marketing Development for NAMM. Prior to that, he was employed
by Yamaha Corporation of America, most recently as its Senior Vice President of
Marketing and Sales.
There are no arrangements or understandings between any of the directors or
any other person (other than arrangements or understandings with directors
acting as such) pursuant to which any person was selected as a director or
nominee of the Company. There are no family relationships among the Company's
directors.
COMMITTEE AND BOARD MEETINGS
The Company's Board of Directors has two standing committees, the Audit
Committee and the Compensation Committee. The Audit Committee is responsible
for reviewing the Company's internal control procedures, the quarterly and
annual financial statements of the Company, and reviewing with the Company's
independent public accountants the results of the annual audit. The Audit
Committee met twice during fiscal 1996. The Compensation Committee recommends
to the Board of Directors from time to time the salaries and incentive
compensation to be paid to executive officers of the Company and administers the
Company's stock option plan. The Compensation Committee met three times during
fiscal 1996. Members of both of such Committees meet informally from time to
time throughout the year on Committee matters.
The directors often communicate informally to discuss the affairs of the
Company and, when appropriate, take formal Board action by unanimous written
consent of all directors, in
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<PAGE>
accordance with Minnesota law, rather than hold formal meetings. During fiscal
1996, the Board of Directors held four formal meetings. Each incumbent director
attended 75% or more of the total number of meetings (held during the period(s)
for which he has been a director or served on committee(s)) of the Board and of
committee(s) of which he was a member.
DIRECTORS FEES
Directors are not currently paid fees for attending Board or Committee
meetings. Founding Partners Development Corporation, an affiliate of Mr.
Henderson, receives a management fee of $2,000 per month. These fees are for
Mr. Henderson's participation in various management consultations and advice to
management on operating matters on an as-needed basis. In addition, under the
Company's 1992 Stock Option Plan each nonemployee director (excluding persons
who were non-employee directors on the date such provision was adopted by the
Board) receives a nonqualified option to purchase 5,000 shares of the Company's
Common Stock upon his or her initial election as a director and a nonqualified
option to purchase 1,500 shares of Common Stock upon each re-election
thereafter. As of April 23, 1996, the date of the 1996 annual meeting, Messrs.
Karl T. Bruhn and Larry A. Pape each received an option for the purchase of
1,500 shares at an exercise price of $4.50 per share.
CERTAIN TRANSACTIONS
To provide working capital pending completion of the Company's initial
public offering, from December 1994 through March 1995, the Company entered into
bridge loans with a number of parties in the aggregate amount of $1,200,000.
Such loans were repaid with proceeds from the Company's initial public offering.
As consideration for making the bridge loans, the lenders were issued seven-year
warrants to purchase the number of shares of Common Stock equal to 10% of the
principal amount of the notes (I.E., warrants to purchase an aggregate of
120,000 shares of Common Stock). The exercise price of the warrants is $4.50.
Three of the parties to the commitment and loan transactions are related to the
Company. Founding Partners II Limited Partnership loaned the Company $50,000
and received warrants to purchase 5,000 shares of Common Stock. Cherry Tree
Ventures IV loaned the Company $250,000 and received warrants to purchase 25,000
shares of Common Stock. Mr. Brattain loaned the Company $50,000 and received
warrants to purchase 5,000 shares of Common Stock. See "Principal
Shareholders."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Chief Executive
Officer and each other executive officer of the Company (the "Named Executive
Officers") who received total salary and bonus compensation in excess of
$100,000 for 1996.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
---------------------------------- --------------
Securities
Name and Principal Salary Bonus Underlying Options
Position Year ($) ($) (# of shares)
- -------------------------------------- ---- -------- ------- ------------------
<S> <C> <C> <C> <C>
John W. Paulson, . . . . . . . . . . . . 1996 $134,946 $13,627 75,000
Chief Executive Officer and Chairman 1995 $130,157 $11,700 -0-
. 1994 $126,000 $11,340 62,500
Ronald B. Raup,. . . . . . . . . . . . . 1996 $154,677 $15,000 50,000
President and Chief Operating 1995 $ 55,628 $ 5,000 50,000
Officer(1)
Joan K. Berg,. . . . . . . . . . . . . . 1996 $100,000 $ 7,500 7,500
Chief Financial Officer(2) 1995 $ 92,868 $14,250 27,500
Mark E. Dunn,. . . . . . . . . . . . . . 1996 $105,177 $ 6,390 22,500
Senior Vice President 1995 $ 96,865 $10,000 -0-
. 1994 $ 91,405 $ 4,086 12,500
</TABLE>
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(1) Mr. Raup joined the Company in August 1995.
(2) Ms. Berg joined the Company in January 1995.
EMPLOYMENT AGREEMENTS
The Company has an Employment Agreement with Mr. Raup which provides for a
base salary (currently $150,000) subject to annual review, and a potential
bonus. The Employment Agreement provides that Mr. Raup may terminate his
employment at any time and that the Company may terminate such employment on 30
days written notice; provided, however, if the Company terminates Mr. Raup's
employment for any reason other than for cause, the Company will pay him an
amount equal to one year's base salary.
OPTION/SAR GRANTS DURING 1996 FISCAL YEAR
The following table sets forth information regarding stock options granted
to the Named Executive Officers during the fiscal year ended December 31, 1996.
The Company has not granted stock appreciation rights.
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE
------------ ------------ ------------ ----------- ----------
John W. Paulson 75,000(1) 29.3% $3.156 2/11/03
Ronald B. Raup 50,000(2) 19.5% $3.156 2/11/03
Joan K. Berg 7,500(3) 2.9% $3.156 2/11/03
Mark E. Dunn 22,500(4) 8.8% $3.156 2/11/03
- ------------------------
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(1) Such option is exercisable as to 23,762 shares on February 12, 1996,
January 1, 1997 and January 1, 1998 and 3,714 shares on January 1, 1999.
(2) Such option is exercisable as to 833.33 shares per month commencing
February 12, 1996.
(3) Such option is exercisable as to 125 shares per month commencing February
12, 1996.
(4) Such option is exercisable as to 375 shares per month commencing February
12, 1996.
AGGREGATED OPTION/SAR EXERCISES DURING 1996 FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
No options were exercised by the Named Executive Officers during fiscal
1996. The following table provides information related to the number and value
of options held at fiscal year end by the Named Executive Officers:
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
OPTIONS AT 12/31/96 MONEY OPTIONS AT 12/31/96(1)
--------------------- ----------------------------
NAME . EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
John W. Paulson. . . . 61,262 76,238 $ 0 $ 0
Ronald B. Raup . . . . 24,167 75,833 $ 0 $ 0
Joan K. Berg . . . . . 12,375 22,625 $ 0 $ 0
Mark E. Dunn . . . . . 36,625 23,375 $ 8,750 $ 0
- ------------------------
(1) Value of exercisable/unexercisable in-the-money options is equal to the
difference between the market price of the Common Stock at fiscal year end
and the option exercise price per share multiplied by the number of shares
subject to options. The closing sale price as of December 31, 1996 on the
Nasdaq SmallCap Market was $1.95.
APPROVAL OF INCREASE IN SHARES RESERVED UNDER
1992 STOCK OPTION PLAN
(PROPOSAL #3)
GENERAL
The Board of Directors has adopted, subject to shareholder approval, an
increase in the number of shares of the Company's Common Stock reserved for
issuance under the Company's 1992 Stock Option Plan (the "Plan") from 775,000 to
975,000 shares.
A general description of the Plan is set forth below, but such description
is qualified in its entirety by reference to the full text of the Plan, a copy
of which may be obtained without charge upon written request to the Company's
Chief Financial Officer.
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DESCRIPTION OF PLAN
PURPOSE. The purpose of the Plan is to promote the success of the Company
by facilitating the employment and retention of competent personnel and by
furnishing incentive to directors, officers and employees upon whose efforts the
success of the Company will depend to a large degree.
TERM. Incentive stock options may be granted under the Plan for a period
of ten years from the date of adoption of the Plan by the Board of Directors.
Nonqualified stock options may be granted pursuant to the Plan until the Plan is
discontinued or terminated by its Board.
ADMINISTRATION. The Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Plan gives broad powers to the
Committee to administer and interpret the Plan, including the authority to
select the individuals to be granted options and to prescribe the particular
form and conditions of each option granted.
ELIGIBILITY. All employees of the Company or any subsidiary are eligible
to receive incentive stock options pursuant to the Plan. All employees,
directors and officers of, and consultants and advisors to, the Company or any
subsidiary are eligible to receive nonqualified stock options. As of March 14,
1997, the Company had approximately 53 employees (of which five are officers),
four directors who are not employees and 11 consultants and advisors.
OPTIONS. When an option is granted under the Plan, the Committee at its
discretion specifies the option price, the type of option (either "incentive" or
"nonqualified") to be granted, and the number of shares of Common Stock which
may be purchased upon exercise of the option. The exercise price of an
incentive stock option may not be less than 100% of the fair market value of the
Company's Common Stock and, unless otherwise determined by the Committee, the
option price of a nonqualified option will not be less than 100% of the fair
market value of the Company's Common Stock on the date of grant. The market
value of the Company's Common Stock on March 14, 1997 was $2.09. The term
during which the option may be exercised and whether the option will be
exercisable immediately, in stages or otherwise are set by the Committee, but
the term of an incentive stock option may not exceed ten years from the date of
grant. Optionees may pay for shares upon exercise of options with cash,
certified check or Common Stock of the Company valued at the stock's then fair
market value. Each incentive stock option granted under the Plan is
nontransferable during the lifetime of the optionee. Each outstanding option
under the Plan may terminate earlier than its stated expiration date in the
event of the optionee's termination of employment or directorship.
In addition to other options which may be granted under the Plan, each
nonemployee director of the Company (excluding persons who were nonemployee
directors on the date such provision was adopted by the Board) will
automatically be granted a nonqualified option for 5,000 shares of Common Stock
upon his or her initial election as a director and for 1,500 shares upon each
re-election thereafter. Each such option will be exercisable at any time for a
period of five years, unless earlier terminated in accordance with the Plan, at
an exercise price per share equal to 100% of the fair market value of the Common
Stock on the date of grant. Options to purchase 17,500 shares are currently
outstanding as a result of the nonemployee director automatic option provisions
of the Plan.
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AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the Plan or revise or amend it in any respect; provided, (i) no such
revision or amendment may impair the terms and conditions of any outstanding
option to the material detriment of the optionee without the consent of the
optionee except as authorized in the event of merger, consolidation or
liquidation of the Company, (ii) the provisions relating to the formula grant to
nonemployee directors may not be amended more than once every six months except
to conform to certain changes in the laws, and (iii) the Plan may not, without
the approval of the shareholders, be amended in any manner that will (a)
materially increase the number of shares subject to the Plan except as provided
in the case of stock splits, consolidations, stock dividends or similar events;
(b) change the designation of the class of employees eligible to receive
options; (c) decrease the price at which options will be granted; or (d)
materially increase the benefits accruing to optionees under the Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN. Under present law, an
optionee will not realize any taxable income on the date a nonqualified option
is granted pursuant to the Plan. Upon exercise of the option, however, the
optionee must recognize, in the year of exercise, ordinary income equal to the
difference between the option price and the fair market value of the Company's
Common Stock on the date of exercise. Upon the sale of the shares, any
resulting gain or loss will be treated as capital gain or loss. The Company
will receive an income tax deduction in its fiscal year in which nonqualified
options are exercised, equal to the amount of ordinary income recognized by
those optionees exercising options, and must withhold income and other
employment-related taxes on such ordinary income.
Incentive stock options granted under the Plan are intended to qualify for
favorable tax treatment under Section 422 of the Internal Revenue Code. Under
Section 422, an optionee recognizes no taxable income when the option is
granted. Further, the optionee generally will not recognize any taxable income
when the option is exercised if he or she has at all times from the date of the
option's grant until three months before the date of exercise been an employee
of the Company. The Company ordinarily is not entitled to any income tax
deduction upon the grant or exercise of an incentive stock option. Certain
other favorable tax consequences may be available to the optionee if he or she
does not dispose of the shares acquired upon the exercise of an incentive stock
option for a period of two years from the granting of the option and one year
from the receipt of the shares.
PLAN BENEFITS. The table below shows the total number of stock options
that have been received by the following individuals and groups under the Plan
as of March 19, 1997:
TOTAL NUMBER OF
NAME AND POSITION/GROUP OPTIONS RECEIVED (1)
----------------------- --------------------
John W. Paulson, Chairman and Chief
Executive Officer 137,500
Ronald B. Raup, President and
Chief Operating Officer 100,000
Joan K. Berg, Chief Financial Officer 35,000
Mark E. Dunn, Senior Vice President 60,000
Current Executive Officer Group (5 persons) 367,500
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<PAGE>
Current Non-executive Officer Director Group
(4 persons) 25,500(2)
Current Non-executive Officer Employee Group
(48 persons) 50,000
- ------------------------
(1) This table reflects the total stock options granted without taking
into account exercises or cancellations. Because future grants of
stock options are subject to the discretion of the Compensation
Committee, the future benefits that may be received by these
individuals or groups under the Plan cannot be determined at this
time, except for the automatic option grants to outside directors as
described above.
(2) Includes 1,500 share options which will be granted to Messrs. Bruhn
and Pape on the date of the 1997 Annual Meeting pursuant to the
existing provisions of the Plan. Messrs. Henderson and Stofer, who
were directors of the Company on the date the automatic nonemployee
director option provision was adopted, are not eligible to receive
such automatic director options.
VOTE REQUIRED
Because of the employees' positive response to the Plan and because of its
belief that making a greater number of shares available to employees, directors
and advisors is an effective means to insure the future growth and development
of the Company, the Board of Directors recommends that the shareholders approve
the increase in the number of shares reserved under the Plan to 975,000 shares.
Approval of such increase requires the affirmative vote of the greater of (i) a
majority of the shares represented at the meeting with authority to vote on such
matter or (ii) a majority of the voting power of the minimum number of shares
that would constitute a quorum for the transaction of business at the meeting.
INDEPENDENT PUBLIC ACCOUNTANT
Arthur Andersen LLP acted as the Company's independent public accountant
for fiscal 1996. Representatives of Arthur Andersen LLP are expected to be
present at the meeting, will be given an opportunity to make a statement
regarding financial and accounting matters of the Company if they so desire, and
will be available at the meeting to respond to appropriate questions from the
Company's shareholders.
OTHER BUSINESS
Management knows of no other matters to be presented at the meeting. If
any other matter properly comes before the meeting, the appointees named in the
proxies will vote the proxies in accordance with their best judgment.
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<PAGE>
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the 1998 annual meeting of shareholders must be
received by the Company by November 19, 1997, to be includable in the Company's
proxy statement and related proxy for the 1998 annual meeting.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996, accompanies this notice of meeting and Proxy Statement.
No part of the Annual Report is incorporated herein and no part thereof is to be
considered proxy soliciting material.
FORM 10-KSB
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL
STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES THERETO. THE COMPANY WILL
FURNISH TO ANY SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE
FORM 10-KSB, UPON THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE
COMPANY'S FURNISHING SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH REPORT AND/OR
EXHIBITS(S) SHOULD BE DIRECTED TO MS. JOAN K. BERG, CHIEF FINANCIAL OFFICER, AT
THE COMPANY'S PRINCIPAL ADDRESS.
BY ORDER OF THE BOARD OF DIRECTORS
John W. Paulson
CHIEF EXECUTIVE OFFICER
Dated: March 21, 1997
Eden Prairie, Minnesota
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<PAGE>
CODA MUSIC TECHNOLOGY, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 23, 1997
The undersigned hereby appoints JOHN H. PAULSON and DAVID A. HENDERSON,
and each of them, with full power of substitution, as Proxies to represent and
vote, as designated below, all shares of Common Stock of Coda Music Technology,
Inc. registered in the name of the undersigned at the Annual Meeting of
Shareholders of the Company to be held at the Marriott City Center Hotel, 30
South Seventh Street, Minneapolis, Minnesota, at 3:30 p.m. (Minneapolis time) on
April 23, 1997, and at any adjournment thereof, and the undersigned hereby
revokes all proxies previously given with respect to the meeting.
The Board of Directors recommends that you vote FOR each proposal below.
1. SET THE NUMBER OF DIRECTORS AT SIX (6):
/ / FOR / / AGAINST / / ABSTAIN
2. ELECT DIRECTORS: [Nominees: John W. Paulson, Ronald B. Raup, David A.
Henderson, Gordon F. Stofer, Larry A. Pape and Karl T. Bruhn]
/ / FOR all nominees listed above / / WITHHOLD AUTHORITY to vote for
(except those whose names have all nominees listed above
been written in below)
To withhold authority to vote for any individual nominee write that nominee's
name on the line below.)
- --------------------------------------------------------------------------------
3. Approve 200,000 share increase in number of shares reserved for 1992 Stock
Option Plan: / / FOR / / AGAINST / / ABSTAIN
4. OTHER MATTERS. In their discretion, the Proxies are . . . / / AUTHORIZED
/ / NOT AUTHORIZED . . . to vote upon such other business as may properly
come before the Meeting.
(PLEASE SIGN REVERSE SIDE)
<PAGE>
CODA MUSIC TECHNOLOGY, INC.
ANNUAL MEETING
Marriott City Center Hotel
30 South Seventh Street
Minneapolis, MN
APRIL 23, 1997
3:30 P.M. (MINNEAPOLIS TIME)
[LOGO]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL, AND WILL BE
DEEMED TO GRANT AUTHORITY UNDER PROPOSAL NUMBER 4.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Date: __________________________________, 1997
______________________________________________
(Signature)
______________________________________________
(Signature)
PLEASE DATE AND SIGN ABOVE exactly as name
appears at the left, indicating, where
appropriate, official position or
representative capacity. For stock held in
joint tenancy, each joint owner should sign.
