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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER: 0-13994
COMPUTER NETWORK TECHNOLOGY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
MINNESOTA 41-1356476
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
605 NORTH HIGHWAY 169, SUITE 800, MINNEAPOLIS, MINNESOTA 55441
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(Address of Principal Executive Offices) (Zip Code)
(612) 797-6000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
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Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK $.01
PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 20, 1996 was approximately $128,714,816, based on a
closing price of $5.625 per share as reported by the Nasdaq National Market on
such date.
As of March 20, 1996, Registrant had 23,124,610 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Computer Network Technology Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on May 17, 1996 are
incorporated by reference into Part III of this Form 10-K.
Portions of the Annual Report to Shareholders for the fiscal year ended December
31, 1995 are incorporated by reference into Parts I and II of this Form 10-K.
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TABLE OF CONTENTS
PART 1
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Item 1. Business..........................................................................................1
Overview..........................................................................................1
Recent Developments...............................................................................1
Markets...........................................................................................2
Products..........................................................................................3
Customer Support..................................................................................5
Marketing and Sales...............................................................................6
Revenue Recognition Policy........................................................................6
Engineering and Development.......................................................................7
Manufacturing and Suppliers.......................................................................8
Competition.......................................................................................8
Intellectual Property Rights......................................................................9
Employees.........................................................................................9
Item 2. Properties........................................................................................10
Item 3. Legal Proceedings.................................................................................10
Item 4. Submission of Matters to Vote of Security Holders.................................................10
Item 4.A Executive Officers of the Company.................................................................11
PART II
Item 5. Market for the Registrant's Securities and Related Shareholders Matters...........................14
Item 6. Selected Consolidated Financial Information.......................................................14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............14
Item 8. Consolidated Financial Statements and Supplementary Data..........................................14
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure............................14
PART III
Item 10. Directors and Executive Officers..................................................................15
Item 11. Executive Compensation............................................................................15
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................15
Item 13. Certain Relationships and Related Transactions....................................................15
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.....................16
SIGNATURES..................................................................................................23
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PART I
ITEM 1. BUSINESS
OVERVIEW
Computer Network Technology Corporation ("CNT" or the "Company") designs,
manufactures, markets, and supports a range of enterprise-wide networking
hardware and software products designed to meet the complex networking needs of
large organizations. These products are marketed by CNT under the Channelink(R)
and Brixton(R) tradenames.
Channelink systems create high speed, wide area networks that interconnect
traditional data centers, peripherals, remote users, and the growing base of
open system computer servers. Brixton products enable desktop computer and
terminal users operating different networking protocols (i.e., TCP/IP and SNA)
to share the same physical networks and to access applications and data on
different types of mainframes and open systems servers. CNT markets its
products and services in North America primarily through a direct sales force
and internationally through wholly-owned subsidiaries and distributors. Brixton
software products are also remarketed by original equipment manufacturers
("OEMs") under other tradenames.
CNT emphasizes comprehensive customer support and training designed to maximize
quality and customer satisfaction. CNT believes that its customer service
programs provide significant added value to its customer base and enhance
marketing to prospective customers.
CNT's executive offices are located at 605 North Highway 169, Suite 800,
Minneapolis, Minnesota 55441 and its telephone number is 612-797-6000. Its
World Wide Web site can be accessed at http:\\www.cnt.com. Unless the context
otherwise requires "CNT" or the "Company" refers to Computer Network Technology
Corporation and its subsidiaries.
RECENT DEVELOPMENTS
On December 12, 1995, the Board of Directors of the Company elected John A.
Rollwagen to serve as Chairman of the Board and Erwin A. Kelen to serve as Vice
Chairman of the Board. The Board also established an Executive Committee
composed of Mr. Rollwagen, Mr. Kelen, and Lawrence Perlman, the three outside
directors. At the same time, C. McKenzie Lewis III resigned as the President
and Chief Executive Officer of the Company and accepted appointment as the
Company's Executive Vice President of Marketing and Engineering; Eugene D.
Misukanis resigned as the Company's Vice President of Engineering and as a
director; and Frantz Corneille resigned as Vice President of Marketing. At the
December 12, 1995 meeting, the Board elected Bruce T. Coleman to serve as Acting
President and Chief Executive Officer and as a director. Mr. Coleman has served
in similar transitional capacities with other companies and it is expected that
he will remain with CNT until a permanent chief executive is retained. The
Board has engaged a recruiting firm to assist in its search for a new chief
executive officer. In February 1996, Mr. Lewis resigned as both an officer and
director of the Company. See notes 6 and 12 to the Company's Consolidated
Financial Statements and
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the "Special Charges" caption of Management's Discussion and Analysis of
Financial Condition and Results of Operations for more information concerning
the financial impact of this management reorganization.
MARKETS
CNT principally addresses two markets, the high-speed connectivity market with
its Channelink product line and the enterprise-wide application access and
interoperability market with its Brixton product line.
High-Speed Connectivity. The Company's marketing of its Channelink products has
focused on three key interrelated areas: (i) data center networking, (ii) LAN
gateways, and (iii) network-based storage. CNT's products enable data centers
and remotely located peripherals to communicate over wide areas without
significant degradation of performance. Data center networking applications have
been the point of entry for CNT's relationship with many of its customers. LAN
gateways enable communications for a wide range of LAN-based workstations and
servers with large-scale, channel-based systems used in enterprise-wide
networks. Network-based storage products provide direct network connections to
high capacity tape storage subsystems and on-line disk storage systems. Channel
networking applications have accounted for a substantial majority of CNT's
historical revenue and the Company will continue to emphasize supporting and
servicing this important market.
Enterprise-wide Application Access and Interoperability. The Company's Brixton
product line enables users to implement common IP backbone networks for all of
their enterprise applications. Brixton products allow organizations with
significant resources invested in SNA mainframe-based networks, supporting
devices such as terminal displays and printers, to access computers with Unix-
based applications and databases. Brixton products also allow Unix-based systems
and Windows-based PCs to access data and applications on IBM mainframes and IBM
AS/400 midrange systems.
Brixton software products provide a solution that operates on a range of open
systems computing platforms, including Unix systems from vendors such as Sun
Microsystems, IBM, Hewlett-Packard, Digital Equipment, and others, as well as
support for Windows and other desktop operating environments. Brixton integrated
gateways are designed as turnkey (hardware and software) solutions. The
Company's marketing of Brixton products focuses on three key areas: (i)
application access over open networks (i.e., SNA devices to SNA applications
over an open network; SNA devices to open systems applications; and TCP/IP and
Netware clients to SNA applications), (ii) SNA device emulation for open systems
desktop computers, and (iii) software internetworking products.
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PRODUCTS
Channelink Network Processors
CNT's traditional product line has been the Channelink family of network
processors. These network processors are principally used in connection with
data center consolidations, disaster recovery, and, recently, network-based
storage. Channelink products support a variety of mainframes and peripheral
devices, including disk drives, optical storage devices, magnetic tape
controllers, printers, check sorters, document processors, imaging systems,
microfiche recorders, terminal controllers, graphics controllers, plotters, data
base computers, and front end processors ("FEPs"). LAN interfaces provide
connections to a wide variety of popular LANs, including Ethernet, Token Ring,
and FDDI. WAN interface modules provide connectivity between network nodes over
unlimited distances using common carrier communication links such as T-1 and DS-
3. The Company configures and installs Channelink networks to meet the specific
geographic and interface requirements of each customer's information movement
applications.
To support mission-critical wide area networks ("WANs"), Channelink networks can
be configured with redundancy. CNT channel networks generally operate at
"channel speeds," which means end users may operate a number of peripheral
devices concurrently and remotely at speeds comparable to speeds that would be
achieved with direct local connections to the host. In addition, Channelink
products intelligently and transparently (to the end user) perform functions
designed to manage the network for maximum efficiency, without depending on host
computing cycles or host memory resources.
The Channelink product architecture has been enhanced continuously since its
introduction in 1986 with new interfaces, higher speed processors, faster and
larger memories, expanded software functionality, and expanded network
management capabilities and support tools. Each Channelink network processor
includes multiple microprocessors, CNT-developed software, and a combination of
interface modules (e.g., for mainframe computer channels, peripheral devices,
and various local and wide area communication connections). Depending on the
application, a single Channelink node has a bandwidth of up to 450 megabits per
second ("Mbps") and multiple Channelink nodes can be configured in parallel to
provide virtually unlimited bandwidth.
Channelink software is based on a real-time distributed operating system to
support a variety of concurrent device or channel interfaces and networking
software tasks. This technique enables protocol processing to be off-loaded from
the host and permits peripheral devices that previously were not included in
networks to be connected in enterprise-wide systems. Channelink products support
widely used industry standard communication protocols, such as TCP/IP, and a
number of de facto industry standard, device specific, and peripheral interface
data transfer protocols. The Company's Channelink products incorporate software
drivers,
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networking software functionality, error recovery functions, network management
software, and, for many types of data transfer applications, application-
specific software, to facilitate high speed communication of information with
low application processor overhead and efficient, cost effective use of
expensive, high bandwidth communications facilities.
For managing and monitoring channel networks, the Company offers network
management software for legacy and open systems. CNT's Host Monitor Facility
software interfaces to IBM's NetView or other mainframe-based network management
subsystems. CNT's CMF is a PC-based network management system with a user
interface that connects to any network node and allows system-wide monitoring
and control facilities for Channelink networks. The Company also offers network
management software for simple network management protocol ("SNMP"), an industry
standard management protocol used by many LAN and workstation users in the
management of their networks.
Brixton Connectivity Software.
Brixton for Connecting SNA Terminal Devices. The Brixton PU5 SNA server creates
a virtual mainframe operating on a Unix system by emulating the functionality of
an SNA host, so that information can flow directly from existing SNA terminal
devices to Unix applications without a mainframe connection. When used with the
Brixton UnixGateway software product, this emulation allows SNA terminal device
users to use Unix-based applications such as relational databases and electronic
mail. The application platform is transparent to SNA terminal device users, who
can continue to use their terminals in the same manner that they have been,
allowing organizations to preserve their investments in SNA terminal devices,
SNA infrastructure, and user training. These Brixton products do not require
dedicated hardware and can operate on a number of platforms, including Sun
Microsystems, IBM, Santa Cruz Operations, Digital Equipment, and Hewlett-Packard
workstation/servers.
Brixton for Accessing Host Applications. The Brixton PU2.1 SNA server provides
an enterprise-wide gateway for terminal emulation products to provide network
access to IBM-type mainframes and midrange systems. These SNA servers provide
multi-platform support including Sun, HP, IBM, SCO, and Digital. These servers
are scalable to support thousands of concurrent users and provide the high
levels of availability required in modern enterprise networks. The Brixton PU2.1
SNA server allows users of TCP/IP networks to access mainframe applications
without running TCP/IP on the host. Brixton's PU2.1 SNA Server supports 3270,
TN3270, 5250, TN5250, LU0, LU6.2, and other clients. This product suite includes
software to interface to network management systems from Sun, HP, and IBM's
Netview. Application programmatic interfaces allow users to develop customized
programs to communicate with IBM mainframe and midrange applications.
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SNA Client Emulation. Brixton's 3270 open client and 5250 open client allow
Unix, Windows, Windows NT, and MacIntosh workstations to access SNA
applications. Brixton clients can operate on a number of platforms, including
Sun SPARC, IBM RS/6000, Digital OSF Alpha, MacIntosh, Windows 3.1, and Windows
NT.
Brixton for Internetworking. The Brixton FR, Brixton PPP, and Brixton X.25
products allow TCP/IP communications to be routed over frame relay, point-to-
point, and X.25 networks. They allow organizations to link distant sites or
mobile systems by using these products as gateways to public and private data
communication lines.
Brixton Integrated Gateways.
Brixton integrated gateway products integrate Channelink and Brixton
technologies and enable users to access any enterprise application over a
common, open backbone network. Brixton integrated gateways support Channelink
and industry-standard network interfaces. Brixton integrated gateway products
allow organizations to migrate their networks, including SNA networks, to open
standards while enabling users on heterogeneous platforms the ability to use
applications in their native mode, thereby eliminating the redundancy of
supporting both IP and SNA networks and uncoupling the bonds between
applications and networks.
CUSTOMER SUPPORT
The Company has developed a comprehensive support strategy designed to maximize
quality and customer satisfaction. A high level of continuing customer service
is integral to the Company's strategy of developing long-term customer
relationships. The Company supports the commitment of its employees to achieve
this strategy through extensive training and the delegation of authority and
responsibility.
The Company's support services group becomes involved with end users during
initial presales activities by analyzing their requirements, developing proposed
solutions, and providing project management guidance during implementation or
enhancement of the customer's enterprise-wide computing network.
CNT uses remote diagnostic tools to support Channelink and Brixton integrated
gateway networks seven days per week, 24 hours per day. Through the Company's
ability to dial in to these networks worldwide and perform on-line
troubleshooting, in a sizable majority of the cases the Company provides timely
resolution to customer problems without having to visit the customer's site.
Brixton products come with on-line help, comprehensive documentation, and
diagnostic tools to allow users to monitor their lines. When necessary, CNT
dispatches trained maintenance personnel, generally third party maintenance
providers, to provide repairs at the customer's facility.
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MARKETING AND SALES
The Company, along with its subsidiaries, markets its Channelink products in the
United States, Canada, the United Kingdom, and France primarily through a direct
sales force. Outside of these countries, CNT markets its Channelink products
through independent distributors. Brixton products are marketed directly by CNT
in North America and through subsidiaries and exclusive and nonexclusive
distributors outside of the United States. Brixton products are also marketed by
OEMs, systems integrators, and value-added resellers.
The Company derived approximately $22.8 million, $22.0 million, and $16.7
million, or 29%, 28%, and 30%, of its revenue from operations outside of North
America for the years ended December 31, 1995, 1994, and 1993. The Company
expects that foreign sales will continue to represent a substantial percentage
of its revenue. International operations are subject to various risks common to
international businesses, including exposure to currency fluctuations, political
and economic instability, the greater difficulty of administering business
internationally, and the need to comply with a wide variety of U.S. export and
foreign import laws and regulations. See note 10 to the Company's Consolidated
Financial Statements for additional information regarding the Company's
operations by geographic regions.
The Company manufactures its products based on a schedule of forecasted orders.
The Company's customers generally place orders for immediate delivery and
generally not in advance of need. Customers may generally cancel or reschedule
orders without penalties. Accordingly, the Company believes that backlog is
generally not meaningful for purposes of predicting its revenue for any fiscal
period.
CNT expects that it will continue to receive significant repeat revenue from
existing customers and that a relatively small and changing group of customers
will provide a large percentage of each quarter's revenue. Given the importance
of these factors, CNT believes that the alienation of any major customer could
have a material adverse effect on the Company. In addition, although the Company
endeavors to meet technical standards established by foreign regulatory bodies,
there can be no assurance that the Company will be able to comply with such
standards in the future. The inability of the Company to design products to meet
future foreign standards could have a material adverse effect on the Company.
REVENUE RECOGNITION POLICY
In connection with direct sales by CNT to Channelink end users (or to a systems
integrator that in turn sells to an end user) where the installation and
maintenance services are provided by CNT, the Company recognizes the related
revenue when the equipment is installed and ready for use. When dealing with a
new customer or if the purchase contract so requires, revenue will not be
recognized until installation is complete and a certificate of acceptance has
been received from the customer. The Company believes that this policy helps to
focus its personnel on achieving installations in a manner consistent with
customer satisfaction, while reducing exposure to potential reported revenue
reversals as a result of the return of shipped equipment. In connection with
sales to distributors or systems integrators where the
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installation and maintenance services are not provided by the Company, revenue
is recognized upon shipment by CNT.
As Brixton products generally do not require CNT installation services, revenue
on direct sales of these products is recognized upon shipment by CNT. Revenue on
Brixton products licensed through OEMs is recognized as earned, which is
generally upon CNT's receipt of the OEM's periodic royalty reports with respect
to such products.
Service fees are recognized as revenue when earned, which is generally on a
straight-line basis over the service period.
ENGINEERING AND DEVELOPMENT
The computer networking industry is characterized by rapidly changing
technology, new standards, and changing customer requirements. The Company
believes that its long-term success in the marketplace depends upon its
continuing ability to develop and integrate advanced network hardware and
software technologies.
During the past year, the Company has developed products to support SCSI fast
and wide, remote DASD vaulting (XRC) , and other peripheral devices. These
developments are important as the network-based storage market expands. The
Company's engineering and development efforts also focus on providing
sophisticated diagnostic support tools to help deliver both high network
availability and, in the event of failure, rapid return to service.
The Company also continues to invest in engineering and development of its
Brixton products by developing new products and enhancing the functionality of
its current products. In 1995, CNT introduced a new version of its Brixton
gateway software designed to provide high availability and fault resilience.
To meet the future networking demands of its customers, the Company expects to
continue to: (i) increase the compatibility and interoperability of its products
with the products of other vendors; (ii) emphasize the flexible and modular
architecture of its products to permit the introduction of new interfaces and
capabilities in a manner that can be used within existing customer networks and
to provide a framework for existing customers to incorporate and install new CNT
products, features, and functions; and (iii) develop additional products to meet
the demands of its customers to support connectivity among various peripherals,
including LANs and remote DASD. Engineering and development expenses, excluding
a special charge in 1995 associated with the Company's management
reorganization, were approximately $11.2 million, $11.3 million, and $8.0
million, or 14% of CNT's total revenue, for each of the years in the three year
period ended December 31, 1995. The Company currently intends to continue to
apply a significant portion of its resources to product enhancements and new
product development for the foreseeable future.
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MANUFACTURING AND SUPPLIERS
The Company manufactures its Channelink and Brixton integrated gateway products
and systems from subassemblies, parts, and components, such as integrated
circuits, printed circuit boards, power supplies, and metal parts manufactured
by other vendors. Certain items manufactured by suppliers are made to the
Company's specific design criteria. In-house manufacturing activities for the
Company's products primarily involve quality assurance testing of subassemblies
and final system assembly, integration, and quality assurance testing. CNT is
certified under ISO 9002, an international standard of quality, for the
manufacture and support services of high speed electronic communications devices
and computer networking systems.
The Company believes that it currently possesses adequate supply channels.
Components and subassemblies used in the Company's products and systems are
generally available from a number of different suppliers; however, certain key
components in the Company's products are currently purchased from only one
source or from a limited number of sources. The Company does not anticipate any
difficulty in obtaining an adequate supply of required components. An
interruption in its existing supplier relationships or delays by some suppliers,
however, could result in production delays and have an adverse effect on the
Company.
COMPETITION
The networking industry is highly competitive. It is characterized by rapidly
advancing technology and evolving industry standards, resulting in frequent
product and feature introductions and improvements in the relative
price/performance of products. CNT competes with several companies that have
greater engineering and development resources, marketing resources, financial
resources, manufacturing capability, customer support resources, and name
recognition than those of the Company.
The principal competitive factors affecting the markets for the Company's
products include customer service, flexibility, price/performance, reliability,
ease of use, and functionality. In many situations the potential customer has an
installed base of a competitor's products, which can be difficult to dislodge.
IBM, Microsoft, and others can significantly influence customers and control
technology in the connectivity market.
There can be no assurance that the Company can compete successfully with its
current competitors or with competitors that may subsequently enter the market,
particularly the software market, which is characterized by low barriers to
entry. There also can be no assurance that CNT will effect technological changes
necessary to maintain its competitive position.
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INTELLECTUAL PROPERTY RIGHTS
The Company relies on a combination of trade secret, copyright, patent, and
trademark law, nondisclosure agreements, and technical measures to establish and
protect its proprietary rights to its products. Such protection may not preclude
competitors from developing products with features similar to the Company's
products. Because of the rapid pace of technological change in data
communications and in the computer and networking industries, the Company
believes that patent and copyright protection are less significant to the
Company's competitive position than factors such as the effectiveness and
quality of its support services; the knowledge, experience, and ability of the
Company's employees; and the frequency of product enhancements.
Although the Company believes that it possesses all required proprietary rights
to the technology involved in its products and that its products, trademarks,
and other intellectual property rights do not infringe upon the proprietary
rights of third parties, there can be no assurance that others will not claim a
proprietary interest in all or a part of such technology or assert claims of
infringement. Any such claim, regardless of its merits, could involve the
Company in costly litigation and have a material adverse effect on the Company.
Because of the existence of a large number of patents in the networking field
and the rapid rate of issuance of new patents, it is not economically practical
to determine in advance whether a product infringes patent rights of others. The
Company believes that, based upon industry practice, any necessary license or
rights under such patents may be obtained on terms that would not have a
material adverse effect on the Company's consolidated financial position or
results of operations; however, there can be no assurance in this regard.
EMPLOYEES
As of December 31, 1995, the Company had 408 full-time employees, including 43
full-time employees of its wholly-owned foreign subsidiaries. The Company
believes that its relations with its employees are good. The Company considers
its ability to attract and retain qualified employees and to motivate such
employees to be essential to the future success of the Company. Competition for
such highly skilled personnel is particularly intense in the computer and data
communications industry, and no assurance may be given that the Company will
continue to attract and retain qualified employees.
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ITEM 2. PROPERTIES
The Company's principal manufacturing, engineering, and development functions
are located in leased space in Maple Grove, Minnesota, a suburb of Minneapolis.
The Company's administrative offices are located in leased space in Plymouth,
Minnesota, a suburb of Minneapolis. The Company also leases space in Cambridge,
Massachusetts, primarily related to the development and support of Brixton
products. The Company's subsidiaries lease office space in England, France,
Germany, and Australia. The Company leases sales offices for its direct sales
staff and systems consultants in a number of locations throughout the United
States and Canada. The Company believes that its facilities are adequate to meet
its current needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that may have a material adverse
effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
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ITEM 4.A EXECUTIVE OFFICERS OF THE COMPANY
The following table contains certain information regarding the current executive
officers of the Company.
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Name Position Served Age
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Bruce T. Coleman Acting President and Chief Executive Officer 56
and Director
John R. Brintnall Vice President of Finance, Chief Financial 43
Officer and Treasurer
Kathleen E. Brush Acting Vice President of Marketing 39
Richard E. Carlson Vice President of Manufacturing 58
William C. Collette Vice President of Engineering 52
Peter Dixon Vice President of International 46
Richard G. Helgeson Vice President of Sales 44
Scott A. McCourt Vice President of Brixton Development 41
Kristine E. Ochu Vice President of Human Resources 34
Julie C. Quintal Vice President of Customer Support 37
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Bruce T. Coleman was appointed Acting President and Chief Executive Officer of
the Company and a director in December 1995. Since September 1991, Mr.
Coleman has served as the Chief Executive Officer of El Salto Advisors, a
consulting firm that provides advice and interim CEO services to companies.
From 1988 to 1991, Mr. Coleman managed Information Science, Inc., a human
resource software and service company. Mr. Coleman was the President, Chief
Executive Officer, and a director of Boole and Babbage, Inc., which develops and
markets software products, from 1985 to 1988. Mr. Coleman is also a director of
Printronix, Inc.
John R. Brintnall was appointed Vice President of Finance in December 1986.
Since June 1986, Mr. Brintnall has served as Director of Finance, Chief
Financial Officer, and Treasurer of the Company. Mr. Brintnall holds a
bachelors degree in business administration from the University of Notre Dame
and is a Certified Public Accountant.
Kathleen E. Brush was appointed Acting Vice President of Marketing in March
1996. Since 1994, Ms. Brush has been with Intek Management, a firm which
specializes in providing management consulting services to high-tech companies.
During 1994 and 1995, Ms. Brush served as President of Fischer EDI and Vice
President of Marketing for Fischer International Systems Corporation. From 1993
to 1994, Ms. Brush served as general manager of Keep It Simple Computer Center.
From 1992 to 1993, Ms. Brush served as Vice President of Operations for NewEra
Software, Inc. Prior to 1992, Ms. Brush served in various capacities for Boole
and Babbage, Inc., most recently as Vice President of Marketing. Ms. Brush holds
a bachelors degree from the University of Central Florida, and a masters of
business administration degree from Florida Atlantic University.
Richard E. Carlson was appointed Vice President of Manufacturing in January
1992. Mr. Carlson served as Director of Manufacturing from August 1990 to
January 1992. From 1981 to 1990, Mr. Carlson was employed by Zycad Corporation,
a manufacturer of special purpose computers, most recently as Vice President of
Product Development and Operations. Mr. Carlson holds a bachelor of science
degree in mechanical engineering from the University of Minnesota.
William C. Collette was appointed Vice President of Engineering in December
1995. Mr. Collette served as Director of Future Software Development and as a
Software Development Manager from June 1993 to December 1995. From 1990 to
1993, Mr. Collette was employed by SuperComputer Systems, Inc. as a Senior
Software Engineer. Mr. Collette holds a bachelors degree in business management
from Metro State University.
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Peter Dixon was appointed Vice President of International in January 1990 and
was elected an executive officer of the Company in April 1991. He served as
Vice President of Strategic Account Marketing from January 1989 to January 1990
and as Director of Distribution Marketing and Sales from February 1988 to
January 1989. From 1985 to 1988, Mr. Dixon served as an Account Manager with
National Advanced Systems Canada, Inc. and its predecessor, Sand Technology
Systems, Inc., companies involved in the marketing of mainframe peripherals.
Mr. Dixon serves as the chief executive officer of both CNTI and CNTF.
Richard G. Helgeson was appointed Vice President of Sales in September 1995.
From November 1994 to August 1995, Mr. Helgeson was employed by Raptor Systems,
a software development company, as a Regional Sales Manager. From June 1991
until November 1994, Mr. Helgeson was employed by Wellfleet Communications, a
computer networking company, as Pacific Northwest Regional Manager. Prior to
June 1991, Mr. Helgeson was employed by Vitalink Communications Corporation, a
data communications products manufacturer, as Pacific Northwest Account
Executive. Mr. Helgeson has a bachelors degree in english and education, and a
masters degree in english from the University of Montana.
Scott A. McCourt was appointed Vice President of Brixton Development in November
1995. From November 1992 until November 1995, Mr. McCourt served as Director of
Software Engineering for Mercury Computer Systems, a computer manufacturer. From
October 1988 until November 1992, Mr. McCourt served as Research and Development
Lab Manager -Distributed Object Computing Program for Hewlett Packard Company.
Mr. McCourt has a bachelors degree in computer science and biology from Hofstra
University, and a master degree in computer science from Indiana University.
Kristine E. Ochu was appointed Vice President of Human Resources in March 1996,
and served as Director of Human Resources from May 1995 to March 1996. From
January 1994 to May 1995, Ms. Ochu was employed by Data Systems and Management,
a software development company, as Manager of Human Resources. From 1991 to
1994, Ms. Ochu was employed as a Director of Human Resources by Datacard, Inc.,
a diversified high technology manufacturing company. Ms. Ochu holds a bachelors
degree in psychology and a masters degree in industrial relations from the
University of Minnesota.
Julie C. Quintal was appointed Vice President of Customer Support in May 1993.
From 1985 until May 1993, Ms. Quintal was employed by Dataserv Inc., a computer
service company, most recently as Division Vice President of Custom Solutions.
Ms. Quintal holds a bachelor of science degree in business administration,
management, and industrial relations from Mankato State University.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED SHAREHOLDERS
MATTERS
The information set forth under the captions "Price Range of the Company's
Common Stock" and "Dividends" on page 28 of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION
The information set forth under the caption "Selected Financial Data" on page 27
of the 1995 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 10 through
14 of the 1995 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements on pages 15 through 25 of the 1995 Annual Report to
Shareholders is incorporated herein by reference. The information set forth
under the caption "Quarterly Financial Data" on page 27 of the 1995 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information set forth under the caption "Election of Directors" in the
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 17, 1996, to be filed with the Securities and Exchange Commission (the
"Commission") on or before April 30, 1996, is incorporated herein by reference.
For information concerning the executive officers, see Item 4.A. of this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table",
"Option Tables", "Employment Agreements" and "Election of Directors -
Compensation of Directors" in the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 17, 1996, to be filed with the
Commission on or before April 30, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 17, 1996, to be filed with the
Commission on or before April 30, 1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
Form 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF REGISTRANT
The following consolidated financial statements of the Company are incorporated
by reference to the 1995 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Pages in 1995
Annual Report to
Shareholders
------------
<S> <C>
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993......................................... 15
Consolidated Balance Sheets as of December 31, 1995 and 1994............... 16
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993......................................... 17
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993......................................... 18
Notes to Consolidated Financial Statements................................. 19-25
Independent Auditors' Report............................................... 26
</TABLE>
(a) 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES OF REGISTRANT
Independent Auditors' Report on Consolidated Financial Statement
Schedules
Schedule II: Valuation and Qualifying Accounts for the years
ended December 31, 1995, 1994, and 1993.
All other schedules are omitted as the required information is
inapplicable or is presented in the consolidated financial
statements or related notes thereto.
16
<PAGE>
(a) 3. EXHIBITS
Of the exhibits listed below, the following are management
contracts or compensatory plans or arrangements with the
Company:
Exhibit Description
------- -----------
10C. Computer Network Technology Corporation 401(k) Salary
Savings Plan effective January 1, 1991.
(Incorporated by reference to Exhibit 10F Form S-2
Registration Statement No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan
(Incorporated by reference to Exhibit 10A Form S-8
Registration Statement File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan.
(Incorporated by reference to Exhibit 10B Form S-8
Registration Statement No. 33-41986.)
10G. Certificate of Resolutions contained in Minutes of
Annual Meeting of Shareholders on May 30, 1990
increasing shares reserved under ISOP from 500,000 to
1,000,000. (Incorporated by reference to Exhibit 10C
Form S-8 Registration Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes of
Special Meeting of the Board of Directors on April
25, 1991 increasing the number of shares reserved
under the NSOP from 1,100,000 to 1,600,000.
(Incorporated by reference to Exhibit 10D Form S-8
Registration Statement No. 33- 41986.)
10I. 1992 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 28 Form S-8 Registration
Statement No. 33-48954.)
10J. 1992 Stock Award Plan. (Incorporated by reference to
Exhibit 28 Form S-8 Registration Statement No. 33-
48944.)
17
<PAGE>
10M. Minutes of Annual Meeting of Shareholders on May 27,
1993 increasing shares reserved under the 1992 Stock
Award Plan from 650,000 to 1,050,000 and increasing
shares reserved under the 1992 Employee Stock
Purchase Plan from 150,000 to 300,000. (Incorporated
by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
10O. March 10, 1994 Incentive Stock Option Agreements.
(Incorporated by reference to Exhibit 28.2 Form S-8
Registration Statement No. 33-83266.)
10P. March 10, 1994 Non-Qualified Stock Option Agreements.
(Incorporated by reference to Exhibit 28.3 to Form
S-8 Registration Statement No. 33-83266.)
10Q. Amendment to 1992 Stock Award Plan increasing shares
reserved from 1,050,000 to 3,250,000. (Incorporated
by reference to Form S-8 Registration Statement No.
33-83262.)
10R. Amendment to Employee Stock Purchase Plan increasing
shares reserved from 300,000 to 400,000.
(Incorporated by reference to Form S-8 Registration
Statement No. 33-83264.)
10S. Amendment to and Restatement of Employment Agreement
by and between the Company and C. McKenzie Lewis,
III.
10T. Severance agreement by and between the Company and
Eugene D. Misukanis.
10U. Severance and Settlement Agreement by and between the
Company and Frantz Corneille.
10V. Independent Contractor Agreement by and between the
Company and Bruce T. Coleman.
10W. Independent Contractor Agreement by and between the
Company and Erwin A. Kelen.
10X. Independent Contractor Agreement by and between the
Company and John A. Rollwagen.
18
<PAGE>
The following exhibits are filed herewith:
Exhibit Description
------- -----------
2A. Agreement and Plan of Merger among Computer Network
Technology Corporation, BRX Corp., Brixton Systems,
Inc., and certain Significant Shareholders of Brixton
Systems, Inc. dated as of February 4, 1994.
(Incorporated by reference to Exhibit 2 to current
report on Form 8-K dated February 22, 1994.)
3A. Restated Articles of Incorporation of the Company, as
amended. (Incorporated by reference to Exhibit 2 to
current report on Form 8-K dated June 22, 1992.)
3B. By-laws of the Company, as amended. (Incorporated by
reference to Exhibit 3B Annual Report on Form 10-K for
fiscal year ended December 31, 1991.)
10A. Master Lease Agreement by and between the Company and
Comdisco, Inc. dated September 7, 1990. (Incorporated
by reference to Exhibit 10B Form S-2 Registration
Statement No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by and between
TOLD Development Company, a general partnership, and
Computer Network Technology Corporation. (Incorporated
by reference to Exhibit 10C Form S-2 Registration
Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary
Savings Plan effective January 1, 1991. (Incorporated
by reference to Exhibit 10F Form S-2 Registration
Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd.
and Kanematsu USA Inc. dated October 22, 1990.
(Incorporated by reference to Exhibit 10G Form S-2
Registration Statement No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10A Form S-8
Registration Statement No. 33-41986.)
19
<PAGE>
10F. Amended 1986 Nonqualified Stock Option Plan.
(Incorporated by reference to Exhibit 10B Form S-8
Registration Statement No. 33-41986.)
10G. Certificate of Resolutions contained in Minutes of
Annual Meeting of Shareholders on May 30, 1990
increasing shares reserved under ISOP from 500,000 to
1,000,000. (Incorporated by reference to Exhibit 10C
Form S-8 Registration Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes of
Special Meeting of the Board of Directors on April 25,
1991 increasing the number of shares reserved under the
NSOP from 1,100,000 to 1,600,000. (Incorporated by
reference to Exhibit 10D Form S-8 Registration
Statement No. 33-41986.)
10I. 1992 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 28 Form S-8 Registration Statement
No. 33-48954.)
10J. 1992 Stock Award Plan. (Incorporated by reference to
Exhibit 28 Form S-8 Registration Statement No. 33-
48944.)
10K. Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology
Corporation dated October 1, 1993. (Incorporated by
reference to Exhibit 10X Annual Report on Form 10-K for
fiscal year ended December 31, 1993.)
10L. First Amendment to Sublease Agreement by and between
ITT Consumer Financial Corporation and Computer Network
Technology Corporation dated October 26, 1993.
(Incorporated by reference to Exhibit 10Y Annual Report
on Form 10-K for fiscal year ended December 31, 1993.)
20
<PAGE>
10M. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award
Plan from 650,000 to 1,050,000 and increasing shares
reserved under the 1992 Employee Stock Purchase Plan
from 150,000 to 300,000. (Incorporated by reference to
Exhibit 10BB Annual Report on Form 10-K for fiscal year
ended December 31, 1993.)
10N. Amendment No. 1 to Sublease Agreement by and between
ITT Consumer Financial Corporation and Computer Network
Technology Corporation dated February 9, 1994.
(Incorporated by reference to Exhibit 10CC Form 10Q for
the quarterly period ended March 31, 1994.)
10O. March 10, 1994 Incentive Stock Option Agreements.
(Incorporated by reference to Exhibit 28.2 Form S-8
Registration Statement No. 33-83266.)
10P. March 10, 1994 Non-Qualified Stock Option Agreements.
(Incorporated by reference to Exhibit 28.3 Form S-8
Registration Statement No. 33-83266.)
10Q. Amendment to 1992 Stock Award Plan increasing shares
reserved from 1,050,000 to 3,250,000. (Incorporated by
reference to Form S-8 Registration Statement No. 33-
83262.)
10R. Amendment to Employee Stock Purchase Plan increasing
shares reserved from 300,000 to 400,000. (Incorporated
by reference to Form S-8 Registration Statement No. 33-
83264.)
10S. Amendment to and Restatement of Employment Agreement by
and between the Company and C. McKenzie Lewis III.
10T. Severance Agreement by and between the Company and
Eugene D. Misukanis.
10U. Severance Agreement by and between the Company and
Frantz Corneille.
21
<PAGE>
10V. Independent Contractor Agreement by and between the
Company and Bruce T. Coleman.
10W. Independent Contractor Agreement by and between the
Company and Erwin A. Kelen.
10X. Independent Contractor Agreement by and between the
Company and John A. Rollwagen.
11. Statement Re: Computation of Net Income (Loss) per
Common and Common Equivalent Share.
13. Annual Report to Shareholders for the fiscal year ended
December 31, 1995. (Only those portions specifically
incorporated by reference herein shall be deemed filed
with the Commission.)
21. Subsidiaries of the Registrant.
23. Independent Auditors' Consent.
27. Financial Data Schedule.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the fourth
quarter, 1995.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMPUTER NETWORK TECHNOLOGY CORPORATION
Dated: March 22, 1996 By: /s/ Bruce T. Coleman
-----------------------------------
Bruce T. Coleman, Acting President
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Bruce T. Coleman Acting President and Chief March 22, 1996
- ----------------------- Executive Officer (Principal
Bruce T. Coleman Executive Officer) and Director
/s/ John R. Brintnall Vice President of Finance, March 22, 1996
- ----------------------- Chief Financial Officer, and
John R. Brintnall Treasurer (Principal Financial
and Accounting Officer)
/s/ Erwin A. Kelen Director March 22, 1996
- -----------------------
Erwin A. Kelen
/s/ Lawrence Perlman Director March 22, 1996
- -----------------------
Lawrence Perlman
/s/ John A. Rollwagen Director March 22, 1996
- -----------------------
John A. Rollwagen
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
Computer Network Technology Corporation:
Under the date of February 1, 1996, we reported on the consolidated balance
sheets of Computer Network Technology Corporation and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in the 1995 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1995. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1996
<PAGE>
Schedule II
-----------
COMPUTER NETWORK TECHNOLOGY CORPORATION
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additions
--------------------
Balance at Charged Charged Balance at
Beginning to costs & to other end of
Description of period expenses account Deductions period
- -------------------------------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts
and sales returns $692,130 489,000 - (50,404) $1,130,726
Year ended December 31, 1994
Allowance for doubtful accounts
and sales returns/(1)/ $87,000 318,000 346,500 (59,370) $692,130
Year ended December 31, 1993
Allowance for doubtful accounts/(2)/ $0 - 87,000 - $87,000
</TABLE>
(1) In connection with its acquisition of Brixton Systems, Inc., on March 10,
1994, the Company recorded an allowance for doubtful accounts and sales
returns in the amount of $346,500.
(2) In connection with its acquisition of Ultra Network Technologies, Inc., on
July 1, 1993, the Company recorded an allowance for doubtful accounts in the
amount of $87,000.
<PAGE>
INDEX TO EXHIBITS
Exhibit Description Page
------- ----------- ----
2A. Agreement and Plan of Merger among
Computer Network Technology Corporation,
BRX Corp., Brixton Systems, Inc., and
certain Significant Shareholders of
Brixton Systems, Inc. dated February 4,
1994. (Incorporated by reference to
Exhibit 2 to current report on Form
8-K dated February 22, 1994.)
3A. Restated Articles of Incorporation of the
Company, as amended. (Incorporated by
reference to Exhibit 2 to current report
on Form 8-K dated June 22, 1992.)
3B. By-laws of the Company, as amended.
(Incorporated by reference to Exhibit 3B
Annual Report on Form 10-K for fiscal year
ended December 31, 1991.)
10A. Master Lease Agreement by and between the
Company and Comdisco, Inc. dated September
7, 1990. (Incorporated by reference
to Exhibit 10B Form S-2 Registration
Statement No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by
and between TOLD Development Company, a
general partnership, and Computer Network
Technology Corporation. (Incorporated by
reference to Exhibit 10C Form S-2 Registration
Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k)
Salary Savings Plan effective January 1, 1991.
(Incorporated by reference to Exhibit 10F Form
S-2 Registration Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics
Ltd. and Kanematsu USA Inc. dated October 22,
1990. (Incorporated by reference to Exhibit 10G
Form S-2 Registration Statement No. 33-41985.)
<PAGE>
Exhibit Description Page
------- ----------- ----
10E. Amended and Restated Incentive Stock Option
Plan. (Incorporated by reference to Exhibit
10A Form S-8 Registration Statement No.
33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan.
(Incorporated byreference to Exhibit 10B
Form S-8 Registration Statement No.
33-41986.)
10G. Certificate of Resolutions contained in Minutes
of Annual Meeting of Shareholders on May 30,
1990 increasing shares reserved under ISOP
from 500,000 to 1,000,000. (Incorporated by
reference to Exhibit 10C Form S-8 Registration
Statement No. 33-41986.)
10H. Certificate of Resolutions contained in Minutes
of Special Meeting of the Board of Directors on
April 25, 1991 increasing the number of shares
reserved under the NSOP from 1,100,000 to
1,600,000. (Incorporated by reference to
Exhibit 10D Form S-8 Registration Statement
No. 33-41986.)
10I. 1992 Employee Stock Purchase Plan. (Incorporated
by reference to Exhibit 28 Form S-8 Registration
Statement No. 33-48954.)
10J. 1992 Stock Award Plan. (Incorporated by reference
to Exhibit 28 Form S-8 Registration Statement
No. 33-48944.)
10K. Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network
Technology Corporation dated October 1, 1993.
(Incorporated by reference to Exhibit 10X Annual
Report on Form 10-K for fiscal year ended December
31, 1993.)
<PAGE>
Exhibit Description Page
------- ----------- ----
10L. First Amendment to Sublease Agreement by and
between ITT Consumer Financial Corporation
and Computer Network Technology Corporation
dated October 26, 1993. (Incorporated by
reference to Exhibit 10Y Annual Report on
Form 10-K for fiscal year ended
December 31, 1993.)
10M. Minutes of Annual Meeting of Shareholders on
May 27, 1993 increasing shares reserved under
the 1992 Stock Award Plan from 650,000 to
1,050,000 and increasing shares reserved under
the 1992 Employee Stock Purchase Plan from
150,000 to 300,000. (Incorporated by reference
to Exhibit 10BB Annual Report on Form 10-K for
fiscal year ended December 31, 1993.)
10N. Amendment No. 1 to Sublease Agreement by and
between ITT Consumer Financial Corporation and
Computer Network Technology Corporation dated
February 9, 1994. (Incorporated by reference
to Exhibit 10CC Form 10Q for the quarterly
period ended March 31, 1994.)
10O. March 10, 1994 Incentive Stock Option Agreements.
(Incorporated by reference to Exhibit 28.2 Form
S-8 Registration Statement No. 33-83266.)
10P. March 10, 1994 Non-Qualified Stock Option
Agreements. (Incorporated by reference to
Exhibit 28.3 Form S-8 Registration
Statement No. 33-83266.)
10Q. Amendment to 1992 Stock Award Plan increasing
shares reserved from 1,050,000 to 3,250,000.
(Incorporated by reference to Form S-8
Registration Statement No. 33-83262.)
<PAGE>
Exhibit Description Page
------- ----------- ----
10R. Amendment to Employee Stock Purchase
Plan increasing shares reserved from
300,000 to 400,000. (Incorporated by
reference to Form S-8 Registration
Statement No. 33-83264.)
10S. Amendment to and Restatement of
Employment Agreement by and between
the Company and C. McKenzie
Lewis III.............................. Electronically Filed
10T. Severance Agreement by and between the
Company and Eugene D. Misukanis........ Electronically Filed
10U. Severance and Settlement Agreement by
and between the Company and Frantz
Corneille.............................. Electronically Filed
10V. Independent Contractor Agreement by
and between the Company and Bruce
T. Coleman............................. Electronically Filed
10W. Independent Contractor Agreement by
and between the Company and Erwin
A. Kelen............................... Electronically Filed
10X. Independent Contractor Agreement by
and between the Company and John A.
Rollwagen.............................. Electronically Filed
11. Statement Re: Computation of Net Income
(Loss) per Common and Common Equivalent
Share.................................. Electronically Filed
13. Annual Report to Shareholders for the
fiscal year ended December 31, 1995.
(Only those portions specifically
incorporated by reference herein shall
be deemed filed with the
Commission.)........................... Electronically Filed
21. Subsidiaries of the Registrant......... Electronically Filed
23. Independent Auditors' Consent.......... Electronically Filed
27. Financial Data Schedule................ Electronically Filed
<PAGE>
Exhibit 10S
AMENDMENT TO AND RESTATEMENT OF EMPLOYMENT AGREEMENT
This instrument, made and entered into as of the 29th day of December,
1995, by and between Computer Network Technology Corporation ("CNT"), a
Minnesota corporation, and C. McKenzie Lewis III ("Executive"), is an amendment
to and restatement of that certain Employment Agreement dated May 15, 1986, as
amended, by and between CNT and Executive (the "Original Employment Agreement").
WHEREAS, Executive has been employed by CNT as its President and Chief
Executive Officer pursuant to the Original Employment Agreement; and
WHEREAS, Executive has resigned as President and Chief Executive Officer
of CNT and was then elected its Executive Vice President of Marketing and
Engineering; and
WHEREAS, the parties desire to amend and restate the Employment Agreement
in its entirety as hereinafter provided,
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements set forth herein, the parties hereto agree that the
Employment Agreement is amended and restated to read, in its entirety, as
follows:
I.
EMPLOYMENT TERMS AND DUTIES
---------------------------
Section 1.1 Term. CNT agrees to employ Executive, and Executive agrees
to be employed by CNT, until termination of this Agreement in accordance with
Article IV hereof.
Section 1.2 Duties.
(a) Executive shall be employed by CNT as Executive Vice
President of Marketing and Engineering, or such other capacity as CNT may
designate and shall perform such duties as CNT may from time to time direct. The
parties contemplate that Executive's responsibilities will include senior
executive accountability and authority for designing and implementing corporate
strategies for marketplace, product, and opportunity development involving such
issues as marketing, marketing communications, and strategic partnerships.
(b) Executive shall devote such time, attention and energy
to the performance of his duties as may be reasonably required from time to time
by CNT. While employed by CNT, and subject to the mutual written agreement of
CNT and Executive to the contrary, Executive shall not be engaged in any other
business activity or be employed by any other person, firm or entity, whether or
not such activity is pursued for gain, profit or other pecuniary benefit;
provided, however, Executive may serve as a member of Boards of Directors or
entities that are not directly or indirectly in competition with CNT so long as
<PAGE>
such membership does not interfere with the performance of Executive's duties
under this Agreement; and, provided further, that nothing contained herein shall
be construed as preventing Executive from investing his assets or property in
such form or manner as shall not require any services on the part of Executive
in the operation of the affairs of any entity or endeavors in which such
investments are made.
II.
COMPENSATION
------------
Section 2.1 Salary. For all services rendered by Executive on behalf of
CNT, Executive shall be paid $204,000 per annum or such greater amount as shall
from time to time be determined by CNT (the "Salary"). The Salary shall be
payable in equal semi-monthly installments payable on the fifteenth and last day
of each month during the term hereof (or in the event the fifteenth or last day
shall fall on a Saturday, Sunday or holiday, on the last business day preceding
the fifteenth or last day of each month during the term hereof).
Section 2.2 Benefits. Executive shall be entitled to vacations,
reimbursement for all reasonable and necessary out-of-pocket expenses incurred
in the performance of his duties under this Agreement, and medical insurance,
and other employee benefits as determined to be appropriate by CNT's Board of
Directors from time to time. CNT will provide, at its sole expense, personal
disability insurance and/or salary continuation coverage for the benefit of
Executive under circumstances where Executive is unable to perform his normal
duties for reasons beyond his control.
Section 2.3 Pro-Ration. In the event of Executive's death during the
term of his employment hereunder, the Executive's legal representatives shall be
entitled to receive Executive's prorated Salary accrued through the last day of
the calendar month during which his death occurred.
III.
RESTRICTIVE COVENANTS
---------------------
Section 3.1 Definitions. For the purposes of this Agreement:
-----------
(a) The term "CNT" extends to comprehend all of the existing
or future parent, subsidiary, or affiliated corporations of Computer Network
Technology Corporation, a Minnesota corporation, and any division of or entity
surviving CNT.
2
<PAGE>
(b) The Term "Proprietary Inventions" means any invention, improvement,
discovery or idea (whether or not patentable or subject to copyright protection)
made by Executive either solely or in collaboration with others during
Executive's employment with CNT or within six months thereafter relating to the
existing or reasonably foreseeable business interests of CNT. The term
"Proprietary Inventions" shall not include any invention, improvement, discovery
or idea if all of the following conditions are met:
(i) it was developed entirely on Executive's own time;
(ii) it was made without the use of any of CNT's equipment, supplies,
facility or trade secret information;
(iii) it does not relate (a) directly to the business of CNT, or (b) to
CNT's actual or demonstrably anticipated research or development; and
(iv) it does not result from any work performed by Executive for CNT.
(c) "Proprietary Information" means any information that is not generally
known that relates to CNT's existing or reasonably foreseeable business which is
not readily disclosed by inspection of CNT's products and has been expressly or
implicitly protected by CNT from unrestricted use by persons not associated with
CNT, including trade secrets, customer lists, and inventions. Proprietary
Information includes, but is not limited to, information contained in or
relating to CNT's product designs, computer programs and programming systems,
tolerances, manufacturing methods, processes, techniques, treatment or chemical
composition of material, plant layout, tooling, marketing plans or proposals,
and customer information.
(d) The term "Customer Proprietary Information" means any information
which is not generally known or available that relates to the existing or
reasonably foreseeable business of a customer of CNT which is not readily
disclosed by inspection of the customer's products that has been provided to CNT
by the customer, expressly or implicitly, for use on behalf of the customer
only. Customer Proprietary Information includes, but is not limited to, trade
secrets and inventions as well as information contained in or relating to a
customer of CNT's product designs, tolerances, manufacturing methods, processes,
techniques, treatment or chemical composition of material, plant layout,
tooling, marketing plans or proposals, and customer information.
Section 3.2 Non-Disclosure. Unless authorized in writing by CNT, Executive
shall not divulge or use any Proprietary Information or Customer Proprietary
Information, except to the extent necessitated by the reasonable needs of CNT's
business, for his own or another's benefit, either during the term of this
Agreement or afterwards.
3
<PAGE>
Section 3.3 Patent and Copyright. Executive will promptly disclose in
writing to CNT complete information concerning each and every invention,
discovery, improvement, device, design, apparatus, practice, process, method or
product, whether or not patentable or subject to copyright protection, made,
developed, perfected, devised, conceived or first reduced to practice by
Executive, either solely or in collaboration with others, during Executive's
employment with CNT, or within six months thereafter, whether or not during
regular working hours, relating directly to the business, products, practices or
techniques of CNT. Executive, to the extent that he has the legal right to do
so, hereby acknowledges that any and all of said inventions which are considered
Proprietary Inventions by CNT are the property of CNT and hereby assigns and
agrees to assign to CNT any and all of Executive's right, title and interest in
and to any and all of said Proprietary Inventions. Upon request and without
further compensation therefor but at no expense to Executive, and whether during
the employment period or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that, in the opinion of CNT, its successors and assigns,
may be necessary or desirable in obtaining, sustaining, reissuing, extending and
enforcing copyright protection or United States and foreign Letters Patent,
including, but not limited to, design patents, on any and all of said
Proprietary Inventions, and for perfecting, affirming and recording CNT's
complete ownership and title thereto, and to cooperate otherwise in all
proceedings and matters relating thereto. Executive hereby acknowledges receipt
of a "Notice Pursuant to Minnesota Statutes 181.78 (Subd. 3)", a form of which
is attached to the Original Employment Agreement as Exhibit "A".
Section 3.4 Title. All documents or other tangible property relating in
any way to the business of CNT which are conceived or generated by Executive or
come into Executive's possession during the employment period shall be and
remain the exclusive property of CNT, and Executive agrees to return all such
documents and tangible property, including but not limited to all records,
manuals, books, blank forms, documents, letters, memoranda, notes, notebooks,
reports, data, tables, calculations and copies thereof which are the property of
CNT or which relate in any way to the business, products, practices or
techniques of CNT, and all other property of CNT, including, but not limited to,
all documents which in whole or in part contain any trade secrets, customer
lists, or confidential information of CNT, which in any of these cases are in
his possession or under his control, to CNT on termination of this Agreement or
at such earlier time as CNT may request him to do so.
Section 3.5 Protective Covenant. So long as Executive is employed by CNT
and for a period of two (2) years after termination of Executive's employment
with CNT for any reason, Executive shall not:
(a) Manage, operate, control, be employed by or render
services to or be connected in any manner with the management of an operation of
any Competitor within the Business Territory; or
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(B) Own, participate in, have an interest in or be connected in
any manner with the ownership of any Competitor within the Business Territory.
For purposes of this Section 3.5, the terms:
(i) "Competitor" shall include any person, firm, partnership,
corporate or other entity whatsoever which is engaged in or about to become
engaged in research on or development, production, marketing or selling of
any product, process, machine or service which resembles or competes with a
product, process, machine or service in existence or under development by
CNT at any time during the term of Executive's employment with CNT; and
(ii) The term "Business Territory" shall mean the world.
Section 3.6 Continuing Payment Following Termination. In the absence of a
written agreement between CNT and Executive to the contrary, the terms of
Section 3.5 shall continue in force and effect following termination of
Executive's employment by CNT or Executive only if Executive is paid, on a
monthly basis, an amount equal to (a) one-twelfth (1/12th) of two-thirds (2/3)
of his annual base Salary (determined as of the date of his termination of
employment) during such period following termination or (b) if such termination
occurs during the period described in the first sentence of Section 4.2, if
Executive is paid the amounts specified in Paragraph 4.2(a) hereof. If
Executive's termination occurs after the period described in the first sentence
of Section 4.2 and CNT determines not to make the payments provided for in (a)
above, Executive's sole remedy shall be to engage in a business or activity that
would otherwise have been prohibited under Section 3.5.
Section 3.7 Assignment. The transfer of Executive from CNT to any
subsidiary or affiliate, or to a successor company that results from any
acquisition, merger or reorganization thereof shall operate as an assignment to
such company of CNT's rights hereunder. Such an assignment shall not operate to
terminate or modify this Agreement, except that the company to which Executive
is transferred shall be construed, for the purpose of this Agreement, as
standing in the same place and stead as CNT as of the date of transfer. All
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by the successors and assigns of CNT, including an assignee by
operation of law. Subject to Section 5.3, this Agreement is personal to
Executive and may not be assigned or transferred by Executive nor may Executive
delegate his duties hereunder to another person without the prior written
consent of CNT.
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Section 3.8 Survival. Except as otherwise expressly provided herein, the
provisions of Article III of this Agreement shall survive (a) the termination of
this Agreement as a result of breach or otherwise and (b) the termination of
Executive's employment hereunder.
Section 3.9 Enforceability. Recognizing that in the event of a breach of
any of the covenants set forth in this Article III damages at law would be
inadequate, CNT shall be entitled to equitable relief, by way of restraining
order or injunction, to prevent or restrain any such breach or threatened
breach. In the event that a court of competent jurisdiction determines that the
covenants set forth in Section 3.5 hereof are unenforceable by reason of the
length or geographic scope thereof, such court shall reform such provision to
the minimum extent necessary to make such convents enforceable, it being the
intention of the parties hereto that such covenants be enforced to the maximum
extent permitted by law.
IV.
TERMINATION
-----------
Section 4.1 Termination. This Agreement, and Executive's employment by
CNT, may be terminated by CNT or Executive, at any time, with or without cause,
immediately upon a party's delivery to the other of written notice of
termination. Article III, Section 4.2, and the applicable provisions of Article
V hereof shall survive any such termination.
Section 4.2 Special Severance. In the event that Executive's employment
by CNT is terminated effective on or prior to the later of December 31, 1996 or
the date that is 210 days following the appointment by CNT of a President and/or
Chief Executive Officer (excluding any interim or acting President or Chief
Executive Officer so appointed), whether such termination is by CNT or Executive
and with or without cause, CNT shall, in addition to any other payments due to
Executive (e.g., accrued but unpaid wages), provide to Executive the following
severance compensation:
(a) Salary Continuation. The salary payable to Executive
pursuant to Section 2.1 of this Agreement shall be continued for a period of two
years following the effective date of the termination of Executive's employment
(the "Termination Date") at the rate such salary was payable as of the
Termination Date. Payment of the salary owing pursuant to this paragraph (a)
shall constitute payment of all amounts contemplated to be paid pursuant to
Section 3.6 of this Agreement, and the covenants set forth in Section 3.5 of
this Agreement shall continue in full force and effect if the amounts payable
pursuant to this paragraph (a) are so paid, whether or not any additional
amounts are paid pursuant to Section 3.6 of this Agreement. CNT shall pay to
Executive, in accordance with CNT's standard policies, amounts accrued for paid
time off which remain unused and unforfeited as of the Termination Date.
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(b) Success Sharing. Notwithstanding any terms to the contrary
in the success sharing bonus plan, Executive shall continue to participate in
CNT's "Success Sharing" program or any successor plan thereto for the calendar
year in which the Termination Date occurs and the subsequent calendar year based
solely upon the Salary payments made to Executive during his employment and the
payments made pursuant to paragraph (a) above for the first twelve months after
the Termination Date, using the success sharing participation rate applicable to
Executive as of the Termination Date. The Success Sharing amount payable to
Executive in the calendar year following the year in which the Termination Date
occurs shall be determined by multiplying the product of the salary continuation
amounts received by Executive during such calendar year and the success sharing
participation rate applicable to Executive on the Termination Date by the annual
success sharing factor for such year. Payments to Executive shall be made at the
same time as payments are made to annual participants in the Success Sharing
Plan.
(c) Options. The stock options granted by CNT to Executive
prior to the Termination Date (to the extent the same have not as of the
Termination Date been exercised or expired and excluding the non-qualified stock
options granted April 25, 1991 to purchase 180,000 shares at a purchase price of
$3.50 per share) shall continue to vest and be exercisable as if Executive
remained employed by CNT for a period of two years following the Termination
Date. Executive's stock option agreements with CNT and the grant of such options
are hereby amended to the extent such agreement and grant are inconsistent with
the foregoing. The parties acknowledge the foregoing will cause all or a portion
of such stock options to become non-qualified stock options, notwithstanding any
prior designation thereof, and Executive shall be liable for any personal income
taxes associated therewith.
(d) Benefits. For a period of two years following the
Termination Date, CNT shall continue to provide to Executive medical, life and
dental insurance coverage of substantially the same type, and on substantially
the same terms, as that provided by CNT to Executive as of the Termination Date.
For a period of two years after the Termination Date, CNT shall reimburse
Executive for premiums actually paid by him to maintain individual long-term
disability insurance, up to $500 per year. Executive acknowledges that such
reimbursements shall be taxable income to him.
(e) Out Placement. CNT shall, at its sole cost and expense (up
to a maximum expense of $30,000), provide to Executive the services of an
outplacement advisor selected by him (with the consent of CNT, which shall not
be unreasonably withheld) through six months after the Termination Date.
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(f) Office Space and Secretarial Support. For a period of two
years following the Termination Date, CNT shall reimburse Executive for all
expenses actually incurred by Executive in renting and maintaining an office
(separate from CNT's facilities) and secretarial support, up to a maximum
reimbursement of $1,000 per month or, at Executive's election, CNT shall pay to
Executive the sum of $12,000 (less any reimbursements previously made pursuant
to this paragraph) at any time within two years following the Termination Date.
In the event of the death of Executive, any amounts payable pursuant to
Paragraphs (a) through (d) above (and any expenses incurred by Executive
pursuant to Paragraphs (e) and (f) above) shall inure to the benefit of and be
payable to his estate or heirs. CNT's obligation to provide the severance
compensation identified in Paragraphs (a) through (f) above shall be contingent
upon (i) Executive's executing and delivering to CNT, at the time of termination
of Executive's employment, a release substantially in the form of the release
set forth in Section 6.1 hereof with respect to any matters arising out of or
relating to the employment of Executive by CNT or the termination of such
employment, and (ii) Executive being available to Company for a reasonable
amount of consultation and advice for a period of six months following the
Termination Date.
V.
PROVISIONS OF GENERAL APPLICATION
---------------------------------
Section 5.1 Notices. All notices, requests and other communications from
any of the parties hereto to any of the others shall be in writing and, except
as otherwise provided herein, shall be considered to have been duly given or
served if sent by United States mail, first-class, certified or registered
postage prepaid, return receipt requested, to the respective party at his or its
address set forth below or to such other address as such party may hereafter
designate by notice to the other parties:
As to CNT: Computer Network Technology Corporation
605 North Highway 169, Suite 800
Minneapolis, MN 55441
Attn: Lewis Shender
As to Executive: Mac Lewis
605 North Highway 169, Suite 800
Minneapolis, MN 55441
Section 5.2 Amendment. This Agreement may be amended only upon the mutual
written agreement of the parties hereto.
Section 5.3 Parties in Interest. This Agreement shall be binding upon,
and the benefits and obligations provided for herein shall inure to, the parties
hereto and their
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respective heirs, legal representatives, successors, assigns, transferees or
donees, as the case may be.
Section 5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
Section 5.5 Effect of Prior Agreements. This Agreement is intended by the
parties as the final and binding expression of their contract and agreement as
the complete and exclusive statement of the terms thereof. This Agreement
supersedes and revokes all other prior negotiations, representations and
agreements, whether oral or written, relating to the subject matter hereof.
Section 5.6 Enforceability. If any provision contained herein shall be
deemed or declared unenforceable, invalid or void, the same shall not impair any
of the other provisions contained herein, which shall be enforced in accordance
with their respective terms.
Section 5.7 Consruction. The headings preceding and labeling the
paragraphs of this Agreement are for the purposes of identification only and
shall not in any event be employed or used for the purpose of construction or
interpretation of any portion of this Agreement. No waiver by any party of any
default or nonperformance hereunder shall be deemed a waiver of any subsequent
default or nonperformance. As used herein and where necessary, the singular
shall include the plural and vice versa, and masculine, feminine and neuter
expressions shall be interchangeable.
Section 5.8 Applicable Law. This Agreement was made and entered into in
Minneapolis, Minnesota, and the laws of the State of Minnesota shall govern and
be applicable to this Agreement any construction or interpretation thereof.
Section 5.9 Reimbursement. CNT shall reimburse Executive for up to $5,000
of legal fees and expenses actually incurred by Executive in connection with the
negotiation of this Agreement. Exicutive acknowledges that such reimbursement
shall be taxable income to him.
VI.
PROVISIONS RELATING TO RESIGNATION, REAPPOINTMENT AND AMENDMENT
---------------------------------------------------------------
Section 6.1 Release. Executive acknowledges that CNT denies any liability
to Executive for any violation of any legal rights of Executive and Executive
acknowledges that the amounts payable to him pursuant to Section 4.2 hereof
constitute a substantial benefit to Executive over and above the amount to which
he would otherwise have been entitled under the terms of CNT's severance policy
had he not entered into this Agreement. CNT and Executive intend by this
Agreement to settle any and all claims Executive has or may have
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against CNT arising out of or relating to the resignation of Executive as
President and Chief Executive Officer of CNT and his appointment as CNT's
Executive Vice President of Marketing and Engineering (the "Resignation and
Appointment"). For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Executive, for himself, his heirs, successors
and assigns, hereby remises, releases and forever discharges CNT, its officers,
employees, directors, agents, successors and assigns (the "Released Parties"),
of and from any and all manner of actions, suits, claims, damages, judgments,
levies and executions, whether known or unknown, suspected or unsuspected,
liquidated or unliquidated, fixed or contingent, direct or indirect, at law or
in equity, that Executive ever had, has or ever can shall or may have or claim
to have arising out of or relating to the Resignation and Appointment,
including, without limitation, any claims arising under or based upon the
Minnesota Human Rights Act, Minn. Stat. (S) 363.01; Title VII of the Civil
Rights Act, 42 U.S.C. (S) 2000e, et. seq.; the Americans with Disabilities Act,
42 U.S.C. (S) 12101; the Age Discrimination in Employment Act, 29 U.S.C. (S) 621
et. seq.; ERISA 29 U.S.C. (S) 1001 and any contract, quasi contract or tort
claims with respect to such matters, whether developed or undeveloped, but
excluding any claims arising under this Agreement. Executive shall not institute
any claim for damages or equitable relief, by charge or otherwise, nor authorize
any other party, governmental or otherwise, to institute any claim for damages
or equitable relief, via administrative or legal proceedings against one or more
of the Released Parties for any matter arising out of or relating to the
Resignation and Appointment, and Executive shall not permit himself to be a
member of any class seeking relief, and will not counsel or assist in any
prosecution of claims, against one or more of the Released Parties, whether on
behalf of himself or others with respect to any such matter. Notwithstanding the
foregoing, this release does not include and shall not extend to any rights or
claims of Executive to any currently vested bennefits under any pension or
employee welfare benefit plan of CNT, any accrued but unpaid compensation, any
Workers' Compensation benefits, or any claim to indemnification pursuant to
CNT's Articles of Incorporation, By-laws, or policies or applicable law.
Section 6.2 Rescission.
(a) Executive has been informed of his right to rescind this
Agreement under Minn. Stat. Ch. 363 (prohibiting discrimination in employment)
by written notice to CNT within fifteen (15) calendar days following his
execution of this Agreement. To be effective, such written notice must be
delivered by hand or by mail to Lewis Shender, Computer Network Technology
Corporation, 605 North Highway 169, Minneapolis, Minnesota 55441, within such
15-day period. If a notice of rescission is delivered by mail, it must be: (1)
postmarked within such 15-day period; (2) properly addressed to Lewis Shender as
set forth above; and (3) sent by certified mail return receipt requested. It is
understood that CNT will have no obligations under this Agreement in the event
such a notice of rescission by Executive is timely delivered.
(b) Executive has been informed of his right to revoke this
Agreement under the Age Discrimination in Employment Act, 29 U.S.C. (S)621 et.
seq. by
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written notice informing CNT of his intent to revoke this Agreement within seven
(7) calendar days following his execution of this Agreement. This Agreement
shall not become effective or enforceable until such 7-day period has expired.
To be effective, such written notice must be delivered by hand or by mail to
Lewis Shender, Computer Network Technology Corporation, 605 North Highway 169,
Minneapolis, Minnesota 55441, within such 7-day period. If a notice of
rescission is delivered by mail, it must be: (1) postmarked within such 7-day
period; (2) properly addressed to Lewis Shender as set forth above; and (3) sent
by certified mail return receipt requested. It is understood that CNT will have
no obligations under this Agreement in the event such a notice of rescission by
Executive is timely delivered.
(c) Executive has also been informed that the terms of this
Agreement shall be open for acceptance and execution by him for a period of
twenty-one (21) days during which time he may consider whether to accept this
Agreement. No payments or benefits will be provided pursuant to Section 4.2
above until Executive executes this Agreement.
(d) It is agreed that the payments and benefits specified in
this Agreement are subject to immediate termination, suspension, or
reimbursement in the event that Executive takes any action or engages in any
conduct which is in material violation of this Agreement.
Section 6.3 Acknowledgement. EXECUTIVE HEREBY AFFIRMS AND ACKNOWLEDGES
THAT HE HAS READ THE FOREGOING AGREEMENT AND THAT HE HAS BEEN ADVISED BY CNT TO
CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. EXECUTIVE FURTHER
AFFIRMS THAT HE UNDERSTANDS THE MEANING OF THE TERMS OF THIS AGREEMENT AND THEIR
EFFECT AND AGREES THAT THE PROVISIONS SET FORTH IN THE ENTIRE AGREEMENT ARE
WRITTEN IN LANGUAGE UNDERSTANDABLE TO EXECUTIVE. EXECUTIVE REPRESENTS THAT HE
ENTERS INTO THIS AGREEMENT FREELY AND VOLUNTARILY AND THAT HE HAS HAD THE
OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL OF HIS OWN CHOOSING. EXECUTIVE
ACKNOWLEDGES THAT HE HAS NOT RELIED UPON ANY REPRESENTATIONS BY CNT OR ITS
AGENTS IN DECIDING TO SIGN OR NOT TO SIGN THIS AGREEMENT, OTHER THAN THE
STATEMENTS MADE IN THIS AGREEMENT.
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IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
day and year first above written.
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By /s/ John A. Rollwagen
---------------------
Its Chairman
--------
/s/ C.M. Lewis III
- -------------------
C. McKenzie Lewis III
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Exhibit 10T
SEVERANCE AGREEMENT
This Agreement is made and entered into as of the 11th day of December,
1995 by and between Eugene D. Misukanis ("Executive") and Computer Network
Technology Corporation (the "Company"), a Minnesota corporation.
WHEREAS, Executive has resigned as the Vice President of Engineering, as an
employee, and as a director of the Company; and
WHEREAS, the parties desire to provide for certain severance payments to
Executive and for the release of certain claims Executive may have against the
Company, on the terms set forth herein; and
WHEREAS, Executive is the record and beneficial holder of 287,400 shares of
the Company's common stock (such shares owned by Executive as of the date hereof
being referred to in this Agreement as the "Shares"),
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. SALARY AND BENEFIT CONTINUATION. Through and including December 31,
1995 the Company shall continue to pay to Executive the salary payable by the
Company to Executive as of the date hereof, less withholding and other proper
payroll taxes and deductions. Between January 1, 1996 and December 31, 1997, the
Company shall pay to Executive the sum of $300,000 in 48 equal semi-monthly
installments (less withholding and other proper payroll taxes and deductions) in
accordance with the Company's payroll practices generally. From the date hereof
through and including December 31, 1997, the Company shall continue to provide
to Executive medical, life and dental insurance substantially similar to, and on
substantially the same terms as, the Company provides such insurance to
Executive as of the date hereof. The Company shall pay to Executive, in
accordance with the Company's standard policies, amounts accrued for paid time
off which remained unused and unforfeited as of the termination of Executive's
employment.
2. STOCK AND STOCK OPTIONS. Executive hereby forfeits all stock options
granted by the Company to Executive prior to the date hereof to the extent such
options have not heretofore been exercised. The Executive shall have the right
to cause the Company to purchase from Executive up to 280,000 of the Shares (but
not other shares of the Company's capital stock Executive may have acquired) on
the last trading day in calendar year 1997 at a purchase price of $8.50 per
Share; provided, however, that (i) such right shall expire and be of no force or
effect with respect to 210,000 of such Shares if, for any 5 consecutive trading
days between the fifth calendar day following the date hereof and the last
trading day of calendar year 1997, the closing sale price per Share of the
Company's common stock on the Nasdaq National Market (the "Market Value") is
$8.50 or more, and (ii) such right
<PAGE>
shall expire and be of no force or effect with respect to the remaining 70,000
of such Shares if the Market Value of the Company's common stock is $8.50 or
greater during any 5 consecutive trading days between the 90th calendar day
following the date of this Agreement and the last trading day of calendar year
1997. In the event Executive is entitled and desires to exercise the rights set
forth in this Section 2, he shall do so by delivering to the Company, not later
than 5 days prior to the last trading day of calendar year 1997, written notice
of election. Upon payment by the Company of the purchase price therefore,
Executive shall deliver to the Company the certificates representing the Shares,
duly endorsed for transfer or accompanied by signed assignments separate from
certificate, and Executive shall execute and deliver such other instruments as
may reasonably be required to evidence the transfer of the Shares and comply
with applicable securities laws. In the event that, pursuant to any merger,
reorganization or other transaction to which the Company is a party, the Shares
are converted into any other security prior to the last trading day of calendar
year 1997, the right of Executive pursuant to this Section 2 shall apply with
respect to the securities into which 280,000 of the Shares are converted on the
same basis as such right applies to the Shares, with the $8.50 purchase price
and Market Value referenced above appropriately adjusted to reflect the
corresponding values of such other securities. In the event that, pursuant to
any such transaction, the Shares are converted (prior to the last trading day of
calendar year 1997) into cash or the right to receive cash, the Company shall
pay to Executive, on or prior to the last trading day of calendar year 1997, the
difference between the per Share amount of cash received by Executive pursuant
thereto and $8.50, multiplied by the number of Shares Executive would have had
the right to cause the Company to purchase had such conversion not occurred and
the Market Value of the Shares not increased above the price paid in the
conversion. Nothing in this paragraph shall restrict Executive from selling a
portion of the Shares prior to December 31, 1997, nor shall such sale(s) affect
Executive's right to require the Company to purchase the balance up to 280,000
Shares.
3. OUTPLACEMENT. The Company shall, at its sole cost and expense (up to a
maximum expense of $30,000) provide to Executive the services of an outplacement
advisor selected by him (with the consent of the Company, which shall not be
unreasonably withheld) through December 31, 1996. The Company shall pay to
Executive on December 31, 1996 one half of the amount by which the expenditures
of the Company pursuant to this Section 3 are less than $30,000.
4. OFFICE SPACE AND SECRETARIAL SUPPORT. The Company shall reimburse
Executive for all expenses actually incurred by Executive in renting and
maintaining an office (separate from the Company's facilities) and secretarial
support for a period of two years from and after the date hereof, up to a
maximum aggregate reimbursement of $1,000 per month or, if Executive so elects,
the Company shall pay to Executive the sum of $12,000 (less any reimbursements
previously made pursuant to this Section 4) at any time after the expiration of
the rescission and revocation periods set forth in Section 8 hereof and before
December 31, 1997.
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5. RESTRICTIVE COVENANTS. Executive shall observe and be bound by the
provisions of Article III of that certain employment agreement dated November
11, 1983 by and between the Company and Executive (the "Employment Agreement")
as fully as if all of such provisions were set forth herein in their entirety,
except that Paragraph 3.5 (a) of the Employment Agreement is hereby amended and
restated to read, in its entirety (and included herein) as follows, and
Paragraphs 3.5 (b) and 3.5(c) of the Employment Agreement are hereby deleted and
not included in this Agreement.
Section 3.5 Covenant Against Conflicting Employment. For a period of
two years after the termination of Executive's employment with the Company,
without the prior written consent of the Company which consent may be
withheld in the Company's absolute discretion, Executive shall not,
anywhere in the world, do business with any customer of the Company or
render services, directly or indirectly, to any person or organization that
is engaged in or about to become engaged in research on or development,
production, marketing or selling of, any products, process, machine or
service which resembles or competes with a product, process, machine or
service in existence or under development by the Company at the time of the
termination of Executive's employment with the Company upon which Executive
shall have worked during his employment with the Company.
Recognizing that in the event of a breach of the covenants incorporated into
this Section 5 damages at law would be inadequate, the Company shall be entitled
to equitable relief, by way of restraining order or injunction, to prevent or
restrain any such breach or threatened breach. In the event that a court of
competent jurisdiction determines that the covenant set forth in Section 3.5 of
the Employment Agreement (as incorporated herein) is unenforceable because of
its length or geographic scope, such court shall reform such provision to the
minimum extent necessary to make it enforceable, it being the intention of the
parties that such covenant be enforced to the maximum extent permitted by law.
Save and except as set forth in this Section 5, the Employment Agreement is
terminated and of no further force or effect.
6. NON-DISPARAGEMENT AND PUBLIC COMMENT. Executive shall not disparage,
defame or otherwise make any statements reflecting negatively upon the Company,
its products, services, research and development efforts, or employees. Without
the prior written consent of the Company, for a period of two years from and
after the date of this Agreement, Executive shall not answer questions from or
otherwise respond to or communicate with any reporter or other representative of
any newspaper, magazine or other media or publication concerning the Company,
Executive's employment by the Company or the termination of such employment,
except to respond "no comment" to any question or request for comment. Executive
shall treat the terms and conditions of this Agreement as confidential and shall
not disclose such terms to any person, except members of his immediate family,
his attorneys and accountants and such other persons to whom disclosure may be
required by law.
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7. RELEASE. Executive acknowledges that the Company denies any liability
to the Executive for any violation of any legal rights of Executive and
Executive acknowledges that the amounts payable to him pursuant to this
Agreement constitute a substantial benefit to Executive over and above the
amount to which he would otherwise have been entitled under the terms of the
Company's severance policy had he not entered into this Agreement. The Company
and Executive intend by this Agreement to settle any and all claims Executive
has or may have against the Company arising out of or relating to the Company's
employment of Executive or the termination thereof. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Executive, for himself, his heirs, successors and assigns, hereby releases and
forever discharges the Company, its officers, employees, directors, agents,
successors and assigns (the "Released Parties"), of and from any and all manner
of actions, suits, claims, damages, judgments, levies and executions, whether
known or unknown, suspected or unsuspected, liquidated or unliquidated, fixed or
contingent, direct or indirect, at law or in equity, that Executive ever had,
has or ever can shall or may have or claim to have arising out of or relating to
the employment of Executive by the Company or the termination of such
employment, including, without limitation, any claims arising under or based
upon the Minnesota Human Rights Act, Minn. Stat. (S)363.01; Title VII of the
Civil Rights Act, 42 U.S.C. (S)2000e, et. seq.; the Americans with Disabilities
Act, 42 U.S.C. (S)12101; the Age Discrimination in Employment Act, 29 U.S.C. (S)
621 et. seq.; ERISA 29 U.S.C. (S)1001 and any contract, quasi contract or tort
claims with respect to such matters, whether developed or undeveloped, but
excluding any claims arising under this Agreement. Executive agrees not to
institute any claim for damages or equitable relief, by charge or otherwise, nor
authorize any other party, governmental or otherwise, to institute any claim for
damages or equitable relief, by administrative or legal proceedings against one
or more of the Released Parties for any matter arising out of or relating to the
employment of Executive by the Company or the termination of such employment,
and Executive shall not permit himself to be a member of any class seeking
relief, and will not counsel or assist in any prosecution of claims, against one
or more of the Released Parties, whether on behalf of himself or others with
respect to any such matter.
8. RESCISSION.
----------
(a) Executive has been informed of his right to rescind this
Agreement under Minn. Stat. Ch. 363 (prohibiting discrimination in employment)
by written notice to the Company within fifteen (15) calendar days following his
execution of this Agreement. To be effective, such written notice must be
delivered by hand or by mail to Lewis Shender, Computer Network Technology
Corporation, 605 North Highway 169, Minneapolis, Minnesota 55441, within such 15
day period. If a notice of rescission is delivered by mail, it must be: (1)
postmarked within such 15-day period; (2) properly addressed to Lewis Shender as
set forth above; and (3) sent by certified mail return receipt requested. It is
understood that the Company will have no obligations under this Agreement in the
event such notice of rescission by Executive is timely delivered.
4
<PAGE>
(b) Executive has been informed of his right to revoke this Agreement
under the Age Discrimination in Employment Act, 29 U.S.C. (S) 621 et. seq, by
written notice informing the Company of his intent to revoke this Agreement
within seven (7) calendar days following his execution of this Agreement. This
Agreement shall not become effective or enforceable until such seven (7) day
period has expired. To be effective, such written notice must be delivered by
hand or by mail, to Lewis Shender, Computer Network Technology Corporation, 605
North Highway 169, Minneapolis, Minnesota 55441, within such 7-day period. If a
notice of rescission is delivered by mail, it must be: (1) postmarked within
such 7-day period; (2) properly addressed to Lewis Shender, Computer Network
Technology Corporation, 605 North Highway 169, Minneapolis, Minnesota 55441, as
set forth above; and (3) sent by certified mail return receipt requested. It is
understood that the Company will have no obligations under this Agreement in the
event such a notice of rescission by Executive is timely delivered.
(c) Executive has also been informed that the terms of this Agreement
shall be open for acceptance and execution by him for a period of twenty-one
(21) days during which time he may consider whether to accept this Agreement. No
payments or benefits will be provided pursuant to this Agreement above until
Executive executes his Agreement.
(d) It is agreed that the payments and benefits specified in this
Agreement are subject to immediate termination, suspension, or reimbursement in
the event that Executive takes any action or engages in any conduct which is in
violation of this Agreement, recognizing that the damages incurred by the
Company in any such event would be difficult to ascertain.
9. CONSULTATION. Between the date hereof and December 31, 1997, Executive
shall consult with and provide advice to the Company to the extent reasonably
requested by the Company at times reasonably accommodating to the Company's and
Executive's schedules, up to 80 hours per month with all out-of-pocket expenses
to be reimbursed by the Company.
10. RETURN OF COMPANY PROPERTY. Executive will promptly return all
equipment, documents and other property of the Company that he has in his
possession, custody or control.
11. PAYMENTS UPON DEATH. In the event of the death of Executive, any
amounts payable pursuant to Sections 1 through 4 inclusive and Section 9 of this
Agreement shall inure to the benefit of, and be payable or reimbursable to, his
estate or heirs, except that the Company shall reimburse such estate or heirs
for amounts owing pursuant to Sections 3, 4 and 9 hereof only with respect to
expenses incurred by Executive.
12. GOVERNING LAW. This Agreement has been entered into in the State of
Minnesota and shall be governed, construed and enforced in accordance with the
laws of such state, without giving effect to the conflict of laws principles
thereof.
5
<PAGE>
13. BINDING EFFECT. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective heirs, legal
representatives, successors, and assigns.
14. ENTIRE AGREEMENt. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings among them with respect thereto.
EXECUTIVE HEREBY AFFIRMS AND ACKNOWLEDGES THAT HE HAS READ THE FOREGOING
AGREEMENT AND THAT HE HAS BEEN ADVISED BY THE COMPANY TO CONSULT WITH AN
ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. EXECUTIVE FURTHER AFFIRMS THAT HE
UNDERSTANDS THE MEANING OF THE TERMS OF THIS AGREEMENT AND THEIR EFFECT AND
AGREES THAT THE PROVISIONS SET FORTH IN THE ENTIRE AGREEMENT ARE WRITTEN IN
LANGUAGE UNDERSTANDABLE TO EXECUTIVE. EXECUTIVE REPRESENTS THAT HE ENTERS INTO
THIS AGREEMENT FREELY AND VOLUNTARILY AND THAT HE HAS HAD THE OPPORTUNITY TO
OBTAIN AND CONSULT WITH LEGAL COUNSEL OF HIS OWN CHOOSING. EXECUTIVE
ACKNOWLEDGES THAT HE HAS NOT RELIED UPON ANY REPRESENTATIONS BY THE COMPANY OR
ITS AGENTS IN DECIDING TO SIGN OR NOT TO SIGN THIS AGREEMENT, OTHER THAN THE
STATEMENTS MADE IN THIS AGREEMENT.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
day and year first above written.
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By /s/ John A. Rollwagen
----------------------
Its Director
---------
/s/ Eugene D. Misukanis
--------------------------
Eugene D. Misukanis
6
<PAGE>
Exhibit 10u
SEVERANCE AND SETTLEMENT AGREEMENT
THIS AGREEMENT, made and entered into December 12, 1995, between Frantz
Corneille ("Executive") and Computer Network Technology Corporation, a Minnesota
corporation ("CNT").
WHEREAS, Executive asserts that he has certain claims against CNT;
WHEREAS, Executive has resigned as the Vice President of Marketing and an
employee of CNT; and
WHEREAS, the parties desire to provide for certain severance payments to
Executive and to compensate Executive for the release of the claims Executive
asserts that he has against CNT, on the terms set forth in this Agreement,
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained in this Agreement, the parties agree as follows:
1. Salary and Benefit Continuation.
(a) Severance Payments. CNT shall pay to Executive the gross amount
of $36,250 as severance pay, in six equal semi-monthly installments of
$6,041.67. Installments shall be payable on CNT's regular paydays and
appropriate federal and state taxes shall be withheld. The installments shall
commence on the first of CNT's regular paydays occurring after Executive signs
this Agreement.
(b) Outplacement. CNT shall provide to Executive through December
31, 1996, the services of an outplacement adviser mutually acceptable to
Executive and CNT, up to a maximum expense of $13,000.
(c) References. CNT shall provide to prospective employers of
Executive references in form and substance as may be agreed upon by CNT and
Executive prior to the 15th calendar day following Executive's execution of this
Agreement.
(d) PTO Hours. CNT shall pay to Executive, in accordance with CNT's
standard policies, amounts accrued for time off ("PTO") that remained unused and
unforfeited as of the termination of Executive's employment.
(e) Life Insurance. CNT shall pay for Executive's life insurance
coverage under COBRA through Reliance Standard Insurance Company's group policy
for six months after the date of this Agreement. Thereafter, Executive shall be
entitled to continue such life insurance for an additional twelve months, at his
own expense, in accordance with COBRA.
<PAGE>
2. Non-disparagement and Public Comment. Executive shall not disparage,
defame, or otherwise make any statements reflecting negatively upon CNT, its
products, services, research and development efforts, or employees. For two
years after the date of this Agreement, Executive shall not, without the prior
written consent of CNT, answer questions from or otherwise respond to or
communicate with any reporter or other representative of any newspaper,
magazine, or other media or publication concerning CNT, Executive's employment
by CNT, or the termination of such employment, except to respond "no comment" to
any question or request for comment.
3. Return of Company Property. Executive shall promptly return all
equipment, documents, and other property of CNT that he has in his possession,
custody, or control.
4. SEC Filings. Executive shall sign and file, with CNT's cooperation,
all necessary documents and filings required by the Securities and Exchange
Commission after his termination of employment.
5. Confirmation of Covenants. CNT and Executive hereby amend Executive's
employment agreement with CNT dated May 10, 1994 to provide that Executive's
noncompetition covenant under Section 6 shall only extend for six months after
the date of this Agreement. Executive hereby confirms his obligations under the
provisions of Sections 4 and 5 of his Employment Agreement with CNT dated May
10, 1994. Executive shall treat the terms and conditions of this Agreement as
confidential information of CNT and shall not disclose such terms to any person,
except to members of his immediate family, his attorneys and accountants, and
such other persons to whom disclosure may be required by law.
6. Release. (a) Settlement. While Executive asserts that he has
certain claims against CNT, Executive acknowledges that CNT denies any liability
to Executive for any violation of any legal rights of Executive and Executive
acknowledges that the amounts payable to him pursuant to this Agreement
constitute a substantial benefit to Executive over and above the amount to which
he would otherwise have been entitled under the terms of CNT's severance
practice had he not entered into this Agreement. CNT and Executive intend by
this Agreement to settle any and all claims Executive has or may have against
CNT arising out of or relating to CNT's employment of Executive or the
termination thereof.
(b) Settlement Payments. CNT shall pay to Executive the gross amount
of $26,250 as initial settlement payments, in six equal semi-monthly
installments of $4,375. Installments of initial settlement payments shall be
payable on CNT's regular paydays. The installments shall commence on the first
of CNT's regular paydays occurring after the termination of Executive's
severance payments under Section 1(a). If, after the conclusion of the initial
settlement payments described in the preceding sentence, Executive remains
unemployed or is employed at a monthly gross compensation less than $8,750, CNT
shall pay to Executive an additional gross amount of up to $52,500, in up to 12
semi-monthly installments of up to $4,375 each in the same manner as the initial
settlement payments. If Executive is unemployed, the additional installments
shall be $4,375 each. If Executive is
2
<PAGE>
employed at a monthly gross compensation less than $8,750, these installments
shall each be in an amount equal to the difference between (i) $4,375 minus (ii)
one-half of Executive's new monthly gross compensation. To receive installments
of additional settlement payments under this Section 6(b), Executive must notify
CNT at least five and no more than ten days prior to payment of each installment
that he is not employed or that he is employed at a monthly gross compensation
of less than $8,750, as the case may be.
(c) Release. For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Executive, for himself, his heirs,
successors and assigns, hereby releases and forever discharges CNT, its
officers, employees, directors, agents, successors and assigns (the "Released
Parties"), of and from any and all manner of actions, suits, claims, damages,
judgments, levies and executions, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, fixed or contingent, direct or
indirect, at law or in equity, that Executive ever had, has or ever can, shall
or may have or claim to have arising out of or relating to the employment of
Executive by CNT or the termination of such employment, including, without
limitation, any claims arising under or based upon the Minnesota Human Rights
Act, Minn. Stat. (S) 363.01; Title VII of the Civil Rights Act, 42 U.S.C. (S)
2000e, et. seq.; the Americans with Disabilities Act, 42 U.S.C. (S) 12101; the
Age Discrimination in Employment Act, 29 U.S.C. (S) 621 et. seq.; ERISA 29
U.S.C. (S) 1001 and any contract, quasi contract or tort claims with respect to
such matters, whether developed or undeveloped, but excluding any claims arising
under this Agreement. Executive shall not institute any claim for damages or
equitable relief, by charge or otherwise, nor authorize any other party,
governmental or otherwise, to institute any claim for damages or equitable
relief, by administrative or legal proceedings against one or more of the
Released Parties for any matter arising out of or relating to the employment of
Executive by CNT or the termination of such employment, and Executive shall not
permit himself to be a member of any class seeking relief, and will not counsel
or assist in any prosecution of claims, against one or more of the Released
Parties, whether on behalf of himself or others with respect to any such matter.
7. Rescission.
(a) Rescission under Minnesota Statute. Executive has been informed
of his right to rescind this Agreement under Minn. Stat. (S) 363 et. seq.
(prohibiting discrimination in employment) by written notice to CNT within 15
calendar days following his execution of this Agreement. To be effective, such
written notice must be delivered by hand or by mail to Lewis Shender, Computer
Network Technology Corporation, 605 North Highway 169, Suite 800, Minneapolis,
Minnesota 55441, within such 15-day period. If a notice of rescission is
delivered by mail, it must be: (i) postmarked within such 15-day period; (ii)
properly addressed to Lewis Shender as set forth above; and (iii) sent by
certified mail return receipt requested. It is understood that CNT shall have no
obligations under this Agreement in the event such notice of rescission by
Executive is timely delivered.
3
<PAGE>
(b) Revocation under the Age Discrimination in Employment Act.
Executive has been informed of his right to revoke this Agreement under the Age
Discrimination in Employment Act, 29 U.S.C. (S) 621 et. seq. by written notice
informing CNT of his intent to revoke this Agreement within seven calendar days
following his execution of this Agreement. This Agreement shall not become
effective or enforceable until such 7-day period has expired. To be effective,
such written notice must be delivered by hand or by mail, to Lewis Shender,
Computer Network Technology Corporation, 605 North Highway 169, Suite 800,
Minneapolis, Minnesota 55441, within such 7-day period. If a notice of
rescission is delivered by mail, it must be: (i) postmarked within such 7-day
period; (ii) properly addressed to Lewis Shender as set forth above; and (iii)
sent by certified mail return receipt requested. It is understood that CNT shall
have no obligations under this Agreement in the event such a notice of
rescission by Executive is timely delivered.
(c) Open for Acceptance. Executive has been informed that the terms
of this Agreement shall be open for acceptance and execution by him for a period
of 21 days during which time he may consider whether to accept this Agreement.
CNT shall not be obligated to make any payments or provide any benefits under
this Agreement until Executive executes this Agreement.
(d) Effect of Violation. The payments and benefits specified in this
Agreement are subject to immediate termination, suspension, or reimbursement in
the event that Executive takes any action or engages in any conduct that is in
violation of this Agreement, recognizing that the damages incurred by CNT in any
such event would be difficult to ascertain.
8. Payments Upon Death. In the event of the death of Executive, any
amounts payable pursuant to this Agreement shall inure to the benefit of, and be
payable or reimbursable to, his estate or heirs, except that CNT shall reimburse
such estate or heirs for amounts owing under Section 1(c) only with respect to
expenses incurred by Executive.
9. Governing Law. This Agreement has been entered into in the State of
Minnesota and shall be governed, construed, and enforced in accordance with the
laws of such state, without giving effect to the conflict of laws principles
thereof.
10. Binding Effect. This Agreement shall be binding upon, and inure to the
benefit of, the parties and their respective heirs, legal representatives,
successors, and assigns.
11. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings among them with respect thereto.
EXECUTIVE HEREBY AFFIRMS AND ACKNOWLEDGES THAT HE HAS READ THE FOREGOING
AGREEMENT AND THAT HE HAS BEEN ADVISED BY CNT TO
4
<PAGE>
CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. EXECUTIVE FURTHER
AFFIRMS THAT HE UNDERSTANDS THE MEANING OF THE TERMS OF THIS AGREEMENT AND THEIR
EFFECT AND AGREES THAT THE PROVISIONS SET FORTH IN THE ENTIRE AGREEMENT ARE
WRITTEN IN LANGUAGE UNDERSTANDABLE TO EXECUTIVE. EXECUTIVE REPRESENTS THAT HE
ENTERS INTO THIS AGREEMENT FREELY AND VOLUNTARILY AND THAT HE HAS HAD THE
OPPORTUNITY TO OBTAIN AND CONSULT WITH LEGAL COUNSEL OF HIS OWN CHOOSING.
EXECUTIVE ACKNOWLEDGES THAT HE HAS NOT RELIED UPON ANY REPRESENTATIONS BY CNT OR
ITS AGENTS IN DECIDING TO SIGN OR NOT TO SIGN THIS AGREEMENT, OTHER THAN THE
STATEMENTS MADE IN THIS AGREEMENT.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By /s/ John A. Rollwagan
------------------------
Its Chairman
---------------------
/s/ Frantz Corneille
----------------------------
Frantz Corneille
5
<PAGE>
Exhibit 10v
INDEPENDENT CONTRACTOR AGREEMENT
THIS AGREEMENT, entered into on December 12, 1995, between Computer
Network Technology Corporation, a Minnesota corporation ("CNT"), and Bruce T.
Coleman ("Consultant").
WHEREAS, CNT desires to retain Consultant under the terms and
conditions of this Agreement and Consultant desires to be retained by CNT under
such terms and conditions.
NOW THEREFORE, in consideration of the respective covenants and
commitments of CNT and Consultant set forth in this Agreement, CNT and
Consultant agree as follows:
1. Engagement of Consultant; Term. (a) CNT hereby engages Consultant
to serve as Acting President and Chief Executive Officer of CNT and Consultant
hereby accepts such engagement. In such capacity, Consultant shall perform such
duties and assume such responsibilities as the Board of Directors (the "Board")
of CNT may from time to time assign to him. Consultant shall devote his full-
time and attention to providing services under this Agreement.
(b) The Board shall elect Consultant to serve as a director of CNT,
provided Consultant shall not be (i) considered an "Outside Director" for
purposes of CNT's 1992 Stock Award Plan nor (ii) eligible to receive the $2,500
quarterly retainer paid to directors who are not employees of CNT. Upon the
request of a majority of the other members of the Board, Consultant shall resign
as a director of CNT.
(c) Either party may terminate this Agreement at any time in its
discretion, with or without cause, provided the parties initially expect that
Consultant's engagement shall terminate when CNT engages a permanent chief
executive officer. The last sentence of Section 1(b) shall survive the
termination of this Agreement.
2. Compensation. (a) As a partial inducement to Consultant to accept
this engagement, CNT shall pay to Consultant the nonrefundable lump sum of
$60,000 on or before December 31, 1995. Commencing March 12, 1996, CNT shall pay
to Consultant the monthly fee of $20,000 as compensation for Consultant's
provision of services under this Agreement. If Consultant's engagement extends
after June 11, 1996, the parties shall agree on Consultant's continuing
compensation.
(b) The monthly fee shall be payable in arrears on the 15th day of
each calendar month. Consultant shall receive a ratable payment for any partial
month of service under this Agreement. Consultant shall pay all federal, state,
and local taxes with respect to amounts paid to Consultant under this Agreement.
<PAGE>
(c) CNT shall either provide for the payment of or reimburse
Consultant for reasonable expenses associated with Consultant's provision of
services under this Agreement.
(d) As of December 12, 1995, the Compensation Committee of the Board
shall grant to Consultant the nonqualified option to purchase 30,000 shares of
common stock of CNT at fair market value on the date of grant. The option shall
vest in six equal monthly installments, commencing on December 31, 1995, so long
as Consultant's engagement under this Agreement continues, provided if
Consultant's engagement terminates prior to the vesting of the last installment
the Board would consider in its discretion whether or not to accelerate the
vesting of all or a portion of the unvested options. The terms of the
nonqualified stock option shall be the subject of a separate agreement that
shall supersede the provisions of this Section 2(d).
(e) Except as expressly provided in this Section 2, Consultant shall
not receive any compensation or benefits in connection with his provision of
services under this Agreement.
3. Protection of Confidential Information. (a) Consultant shall not
disclose or provide Confidential Information, as defined in Section 3(b), to any
person other than persons whom Consultant reasonably believes, in connection
with his performance of services under this Agreement, should receive such
information. Upon the termination of Consultant's engagement by CNT, Consultant
shall return or destroy all Confidential Information, copies, and extracts
thereof in Consultant's possession.
(b) "Confidential Information" includes Trade Secrets, Business
Plans, and Personnel Information of CNT and its customers and other third
parties with which it has established contractual relations, where:
(i) "Trade Secrets" means information that: (A) derives independent
economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use and (B) is the subject of
efforts that are reasonable under the circumstances to maintain its
secrecy. The existence of a Trade Secret shall not be negated merely
because a person has acquired a Trade Secret without express or specific
notice that it is a Trade Secret if, under all the circumstances, such
person knows or has reason to know that the party who owns the information
or has disclosed it intends or expects the secrecy of the type of
information comprising the Trade Secret to be maintained;
2
<PAGE>
(ii) "Business Plans" means, without limitation, any and all information
pertaining to proposed products, proposed technologies, current or proposed
marketing plans, current or proposed product tests, current or proposed
product or service pricing, and financial projections; and
(iii) "Personnel Information" means information about the names, addresses,
duties, or other personal characteristics of employees of CNT, its
customers, or others with which it has established contractual relations.
(c) Consultant acknowledges that monetary relief would be inadequate
to fully compensate CNT for damages resulting from any breach by Consultant of
this Section 3. Accordingly, in the event of any actual or threatened breach of
such provision, CNT shall (in addition to any other remedies that it may have)
be entitled to temporary and/or permanent injunctive relief to enforce such
provisions, and such relief may be granted without the necessity of proving
actual damages.
4. Miscellaneous. (a) During the period of this Agreement and for
one year after its termination, Consultant shall not recruit or hire any
employee of CNT during the term of this Agreement on behalf of any other firm,
without the prior written consent of CNT.
(b) This Agreement may not be assigned by either party.
(c) This Agreement shall be governed by the laws of the State of
Minnesota.
(d) This Agreement evidences the entire understanding and agreement
of the parties hereto relative to the consulting arrangement between Consultant
and CNT and the other matters discussed herein. This Agreement supersedes any
and all other agreements and understandings, whether written or oral, relative
to the matters discussed herein. This Agreement may only be amended by a written
document signed by both Consultant and CNT.
(e) To the extent any provision of this Agreement shall be determined
to be invalid or unenforceable, such provision shall be deleted from this
Agreement, and the validity and enforceability of the remainder of such
provision and of this Agreement shall be unaffected. Consultant acknowledges the
uncertainty of the law in this respect and expressly stipulates that this
Agreement shall be construed in a manner that renders its provisions valid and
enforceable to the maximum extent (not exceeding its express terms) possible
under applicable law.
3
<PAGE>
IN WITNESS WHEREOF, CNT and Consultant have executed this Agreement as
of the date set forth in the first paragraph.
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By: /S/ John A. Rollwagen
----------------------------------------
John A. Rollwagen, Chairman of the Board
/S/ Bruce T. Coleman
-------------------------------------------
Bruce T. Coleman
4
<PAGE>
Exhibit 10W
December 12, 1995
Mr. Erwin A. Kelen
Kelen Ventures
The Colonnade
5500 Wayzata Boulevard
Golden Valley, MN 55416
Dear Mr. Kelen:
The purpose of this letter is to set forth the terms on which you will
provide services for Computer Network Technology Corporation (the "Company") on
a part-time, independent contractor basis, as its Vice Chairman of the Board.
When countersigned by you where indicated below, this letter will constitute a
legally binding agreement, enforceable in accordance with its terms.
During the term of your services under this Agreement (the "Term"), you
will provide such services as the Company may reasonably require of you as its
Vice Chairman of the Board, on a part-time basis. It is presently anticipated
that during the Term you will devote approximately one to two days per week
during normal business hours to the performance of services on behalf of the
Company pursuant to this Agreement. The Company recognizes that you have other
business and personal commitments that generally require a minimum of two
business days of your time per week.
As consideration for the services to be provided by you pursuant to this
Agreement, the Company will pay you a fee at the rate of $8,000 per calendar
month during the Term (prorated for any partial calendar month during the Term).
The Term may be terminated by either you or the Company, at any time, with
or without cause.
<PAGE>
Mr. Erwin A. Kelen
December 12, 1995
Page 2
If the foregoing accurately reflects our agreement with respect to the
matters addressed, please countersign this letter where indicated below and
return a fully executed copy to the Company.
Very truly yours,
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By /s/ Bruce T. Coleman
---------------------
Its President
--------------
AGREED TO AND ACCEPTED:
/s/ Erwin A. Kelen
- -------------------
Erwin A. Kelen
<PAGE>
Exhibit 10X
December 12, 1995
Mr. John A. Rollwagen
1315 Foshay Tower
Minneapolis, MN 55402
Dear Mr. Rollwagen:
The purpose of this letter is to set forth the terms on which you will
provide services for Computer Network Technology Corporation (the "Company") on
a part-time, independent contractor basis, as its Chairman of the Board. When
countersigned by you where indicated below, this letter will constitute a
legally binding agreement, enforceable in accordance with its terms.
During the term of your services under this Agreement (the "Term"), you
will provide such services as the Company may reasonably require of you as its
Chairman of the Board, on a part-time basis. It is presently anticipated that
during the Term you will devote approximately two days per week during normal
business hours to the performance of services on behalf of the Company pursuant
to this Agreement. The Company recognizes that you have other business and
personal commitments that generally require a minimum of two business days of
your time per week.
As consideration for the services to be provided by you pursuant to this
Agreement, the Company will pay you a fee at the rate of $ 12,000 per calendar
month during the Term (prorated for any partial calendar month during the Term).
In addition, pursuant to a grant by the Committee administering the Company's
1992 Stock Award Plan, the Company will issue to you non-qualified options to
acquire 100,000 shares of the Company's common stock at a purchase price equal
to the fair market value thereof as of the date of grant, such options to vest
in 12 equal monthly installments so long as you remain a director of the Company
and otherwise be on the terms of Outside Director Option grants under the
Company's 1992 Stock Award Plan.
The Term may be terminated by either you or the Company, at any time, with
or without cause.
<PAGE>
Mr. John A. Rollwagen
December 12, 1995
Page 2
If the foregoing accurately reflects our agreement with respect to the
matters addressed, please countersign this letter where indicated below and
return a fully executed copy to the Company.
Very truly yours,
COMPUTER NETWORK TECHNOLOGY
CORPORATION
By /s/ Bruce T. Coleman
-------------------------
Its
-----------------------
AGREED TO AND ACCEPTED:
/s/ John A. Rollwagen
- ----------------------
John A. Rollwagen
<PAGE>
Exhibit 11
----------
COMPUTER NETWORK TECHNOLOGY CORPORATION
Statement Re: Computation of Net Income (Loss) Per Common and
Common Equivalent Share
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1995/(1)/ 1994/(1)/ 1993/(1)/
---------- ------------ ----------
<S> <C> <C> <C>
Net Income (loss) $4,022,448 $(4,714,385) $5,001,381
========== ============ ==========
Primary Earnings (Loss) Per Share
- ---------------------------------
Weighted average number of common shares
outstanding 22,674,707 21,971,983 18,333,822
Dilutive effect of outstanding common
equivalent shares 768,430 - 894,226
---------- ------------ ----------
Weighted average number of common and
common equivalent shares outstanding 23,443,137 21,971,983 19,228,048
========== ============ ==========
Net income (loss) per common and common
equivalent share $.17 $(.21) $.26
========== ============ ==========
Fully Diluted Earnings (Loss) Per Share:
- ----------------------------------------
Weighted average number of common shares
outstanding 22,674,707 21,971,983 18,333,822
Dilutive effect of outstanding common
equivalent shares 828,658 - 995,764
---------- ------------ ----------
Weighted average number of common and
common equivalent shares outstanding 23,503,365 21,971,983 19,329,586
========== ============ ==========
Net income (loss) per common and common
equivalent share $.17 $(.21) $.26
========== ============ ==========
</TABLE>
(1) For the years ended December 31, 1995 and 1993, outstanding stock options
and warrants issuable under various stock option plans and warrant
agreements, and common shares issuable under the employee stock purchase
plan (as disclosed in the notes to the consolidated financial statements
incorporated by reference in this Form 10-K) are converted to common
equivalent shares by the treasury stock method. For the year ended December
31, 1994, such stock options, warrants, and shares issuable under the
employee stock purchase plan are not included in the computation due to
their anti-dilutive nature.
<PAGE>
[LOGO OF Computer Network Technology Corporation]
Computer Network Technology Corporation
1995
Annual Report
<PAGE>
Computer Network Technology Corporation (CNT) develops and markets high-
performance networking products for the enterprise. Designed for mid- to large-
sized organizations with host-based networks, the Company's Brixton and
Channelink product lines provide open systems connectivity, data center
consolidation and disaster recovery, and network-based storage solutions.
Together, these software and hardware products integrate traditional legacy
systems with today's open system users.
CNT is headquartered in Minneapolis, Minnesota. It has product development and
manufacturing operations in both Cambridge, Massachusetts and Minneapolis,
Minnesota. The Company has over 400 employees, four international operating
subsidiaries, and customers located in 30 countries. Its shares are traded on
the Nasdaq Stock Market under the symbol CMNT.
<PAGE>
FINANCIAL HIGHLIGHTS
(in thousands except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
For the Year 1995 1994 Change
- -------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $78,837 $79,542 -1%
- -------------------------------------------------------------------
Net income before
special charges 5,572* 6,604* -16%
- -------------------------------------------------------------------
Net income per share
before special charges .24* .29* -17%
- -------------------------------------------------------------------
Net income (loss) 4,022 (4,714) --
- -------------------------------------------------------------------
Net income (loss) per share .17 (.21) --
- -------------------------------------------------------------------
- -------------------------------------------------------------------
At Year End
- -------------------------------------------------------------------
Total assets $79,134 $73,149 +8%
- -------------------------------------------------------------------
Shareholders' equity 60,506 53,979 +12%
- -------------------------------------------------------------------
Working capital 44,325 35,387 +25%
- -------------------------------------------------------------------
</TABLE>
[REVENUE, NET INCOME (LOSS) PER SHARE
AND SHAREHOLDERS' EQUITY BAR CHARTS APPEAR HERE]
Revenue (in millions) Net Income (Loss) Per Share Shareholders' Equity
'91 = $22 '91 = $.13 '91 = $15
'92 = $34 '92 = $.21 '92 = $20
'93 = $56 '93 = $.26 /$.28* '93 = $49
'94 = $80 '94 =($.21)/$.29* '94 = $54
'95 = $79 '95 = $.17 /$.24* '95 = $61
*Excludes charges in 1995 of $2.5 million attributable to a management
reorganization; excludes charges in 1994 of $9.3 million for purchased in-
process research and development in connection with the acquisition of Brixton,
$2.8 million for the write-down of excess inventory, and $.5 million related to
a workforce reduction; excludes a charge in 1993 of $.5 million for purchased
in-process research and development and other Ultra acquisition costs.
1
<PAGE>
LETTER TO SHAREHOLDERS
After eight straight years of over 40% annual growth in revenue, CNT's financial
results for 1995 were disappointing. Revenue for the year was $78.8 million,
compared to $79.5 million in 1994. The net income for 1995 was a profit of $4
million, or $.17 per share.
As 1995 progressed, the members of the board became increasingly concerned that
revenue was significantly below management's forecasts and goals. The board
acted on these concerns and initiated a review of the situation. Based on the
results of this review, the board concluded that a fresh approach in leadership
was needed to take CNT to the next level of growth and to increase
profitability, and that this would require the appointment of a new senior
management team.
In December 1995, the board of directors elected Erwin Kelen and me to the
positions of Vice Chairman and Chairman. The Company's President and CEO, Mac
Lewis, stepped down, and the founder of CNT, Gene Misukanis, resigned from the
Company. To fill the position of President and CEO, the Company brought in Bruce
Coleman, on an interim basis, and initiated a national search for a permanent
President and CEO. Bruce Coleman was also elected to the board of directors.
The board's review also showed that, despite the 1995 numbers, CNT continues to
be a strong and successful company. In prior years, it has delivered high growth
and strong earnings, and has maintained a powerful balance sheet with positive
cash flow. The basic strengths of the Company are still very much in place, and
the Company's cash position and ability to successfully invest in technology and
marketing are stronger than ever.
The Company's strength is based on three factors: high and growing market demand
for the type of products produced by the Company; the quality of the Company's
products and customer support; and the strength of the Company's customer base.
CNT's first strength is the large opportunity for market growth, as our
customers and other companies develop high performance data communication
systems to support their global business operations. Most of these companies
are, or will be, re-engineering and integrating their large scale legacy data
processing systems with their burgeoning client/server departmental systems to
create complete enterprise-wide information infrastructures. Within the next few
years, the expenditure on computer networks by most major companies will exceed
the combined cost of all other computer hardware and software. To quote Scott
McNealy of Sun Microsystems, one of our OEM partners: "The network is the
computer."
CNT's second strength is that it is well positioned to take advantage of these
trends in demand for high performance data communications systems by helping our
customers maximize the benefits they can obtain from high-speed connectivity and
enterprise-wide application access. CNT's Channelink systems allow large
organizations to send high volumes of data, over great distances, at high speed,
between legacy systems, data centers, peripherals, remote users, and the growing
base of open system computer servers. With the acquisition of Brixton in 1994,
CNT now
2
<PAGE>
has the capability to interconnect Unix-based client/server systems with legacy
systems -- all with the same high performance and reliability that have become
the hallmark of CNT. Also, our customer support is exceptional.
CNT's third strength is its customer base. One- third of all Fortune 500
companies, one half of all Fortune 100 companies, and all Fortune 10 companies
depend on CNT for the high performance elements of their data networking
systems. These companies use CNT products to move massive amounts of precious
corporate data instantaneously, with guaranteed delivery and without stealing
mainframe cycles or making high volume computing and storage systems wait.
Going forward in 1996 and beyond, the board and the Company's new management
team will be focusing on a new growth and profitability program that will
capitalize on these three CNT strengths, and which will be based on sound and
viable corporate, product, and marketing strategies.
CNT's corporate strategy is to develop and maintain leadership in high-speed
connectivity and enterprise-wide application access and interoperability, by
providing products that are technologically advanced, reliable, customer-
oriented, and competitively priced; and by providing the highest quality
customer support in the industry. These intelligent, high performance, network-
based systems allow our customers to access, store, manage, and protect valuable
corporate information and intelligence on an enterprise-wide basis.
A key part of CNT's product strategy is to continually invest in new technology
to upgrade our product lines. In the case of Channelink, we will introduce new
high performance products that incorporate leading edge technology, which was
developed from the technology CNT obtained when it acquired Ultra. In the case
of the Brixton line of products, we will continue to bring cutting-edge
interoperability software to the cross-platform world, which will allow
efficient and secure access by authorized employees and authorized customers
anywhere, anytime, and with a wide variety of platforms from an SNA terminal, a
Unix workstation, or a PC with an Internet browser.
CNT's marketing strategy has been designed to increase sales and market share by
expanding how the Company markets its products. These objectives are being
achieved by making the Company's products more market oriented, identifying new
markets for the Company's products, doubling the size of the Company's sales and
support staff, expanding existing channels of distribution and OEM sales, and by
emphasizing international marketing and distribution.
CNT is going through a transition. It has grown to be a strong and highly
successful company almost exclusively on the basis of the quality of its
products and customer support, and the hard work of its people. It has high
market, product, and customer strengths, and sound corporate, product, and
marketing strategies. Now, we are putting in place a new management team. The
board of directors is confident that this strong new management team will have
the experience, energy, and commitment to increase profitability and take the
Company to the next level of growth and success.
Sincerely,
/s/ John A. Rollwagen
John A. Rollwagen
Chairman of the Board
3
<PAGE>
CORPORATE STRATEGY
CNT specializes in two critically important, high potential, niche markets in
the information technology industry. These are high-speed connectivity and
enterprise-wide application access and interoperability.
Our historical market is high-speed connectivity, where we provide hardware
products that allow large organizations to send high volumes of data, over great
distances, at high speed. This market is served by our Channelink line of
products, which provide high-speed connectivity between legacy systems
(mainframe computers), and between legacy systems and storage and peripheral
devices. Our new Channelink SCSI products provide high-speed connectivity within
open-system environments (SCSI to SCSI), and between open-systems (using SCSI)
and legacy systems (using ESCON or bus-and-tag).
Our other market is enterprise-wide application access and interoperability,
where we provide software products that allow desktop computers and other open-
systems (using TCP/IP) to communicate with legacy systems, terminals and
peripherals (using SNA) and midrange systems. This market is served by our
Brixton line of products. New Brixton products are also being developed to allow
customers to combine legacy systems with the new and powerful capabilities of
the Internet. These products and markets are discussed further under Product
Strategy and Marketing Strategy.
CNT's corporate strategy is to develop and maintain leadership in these two
industry sub-segments by providing products that are technologically advanced,
reliable, customer-oriented, and competitively priced; and by providing the
highest quality customer support in the industry.
To implement the Company's corporate strategy, management has already made major
changes in a number of areas. For example, we have implemented a Process Map and
Responsibility Matrix that brings order and control to the product development
process without inhibiting creativity. This management system is improving the
setting of product development priorities, operational and budgetary control,
employee empowerment and motivation, and personal and departmental productivity.
It should improve the quality and market orientation of CNT products and reduce
time to market.
As part of the corporate strategy, the new management team is developing
strategic alliances with leading companies in the information technology
industry. These alliances will benefit our alliance partners by providing them
with access to our products and markets. They will benefit CNT by allowing us to
extend our areas of core competency without diluting our focus and to increase
our market penetration, sales, and market share in extended geographic locations
and in areas where we have a limited presence.
Internationally, CNT products are critical elements in the globalization of
business and information technology because they facilitate high-speed movement
of data over long distances and communication between dissimilar systems. The
Company is developing and implementing a global product strategy and a multi-
domestic marketing strategy to increase CNT's international sales and market
share by penetrating our two niche markets worldwide.
[A SMALL PHOTO APPEARS IN MIDDLE OF THIS PAGE]
4
<PAGE>
[PHOTO OF Chairman of the Board, John Rollwagen and
Acting President and CEO, Bruce Coleman APPEARS HERE.]
Chairman of the Board, John Rollwagen, and Acting President and CEO,
Bruce Coleman, lead CNT's corporate strategy by focusing on new growth
and profitability.
<PAGE>
PRODUCT STRATEGY
CNT's product strategy is to continually invest in new technology and to upgrade
the Company's products. The objective is to ensure that CNT products are
technologically advanced, reliable, and customer oriented, and that they remain
competitively priced.
The market for CNT's Channelink products has two parts. Part one is for products
that provide high-speed connectivity within legacy environments. Although this
market is relatively mature, it should continue to provide reliable long-term
demand. CNT holds a strong position in this market and will continue to develop
new and improved products, including Asynchronous Transfer Mode (ATM) and Fibre
Channel for large legacy system environments. It is important to note that many
expert projections that forecast the decline and disappearance of legacy systems
have been refuted by the facts. Sales of mainframes are up, and for both
technical and economic reasons legacy systems will continue to be the system of
choice for many applications.
Part two of the Channelink market is for products that provide high-speed
connectivity within open-systems environments (SCSI to SCSI), and between open-
system storage and peripheral devices (using SCSI) and legacy systems (using
ESCON or bus-and-tag). CNT was the first company to market a SCSI/ESCON
connectivity product and is a market leader in this strong growth market.
In addition, the ATM and Fibre Channel products in development will facilitate
high-speed tape vaulting and data movement on local and wide area networks. In
developing these products, we are drawing on the high-speed switching technology
that CNT obtained when it acquired Ultra.
CNT's Brixton products allow organizations to leverage their legacy environments
by mixing desktop computers and other open-systems, legacy systems, midrange
systems, workstations and peripherals in the same network.
There are also several new Brixton products at various stages of development. In
response to the growing importance of the Internet, the World Wide Web and
corporate Intranets, CNT is experimenting with techniques that will allow
desktops to use a web browser to access applications on a legacy system. The
Company is also experimenting with network-centric products that will allow
application software to reside in the network rather than at the desktop.
Three critical elements in CNT's product strategy are its technology, its
manufacturing, and its customer support. CNT invests 14% of its revenue in R&D,
which has recently produced ATM, Fibre Channel, and other cutting-edge products
and has provided CNT's customers with increased integration and interoperability
options and solutions. CNT's concern for quality manufacturing and support
resulted in it being the first networking company to receive ISO 9002
certification, which it has held since 1993. CNT's customer support is the best
in the industry, due to the quality of its account and diagnostic engineers, its
7x24 telephone support, its remote diagnostics capability, and its commitment to
100% customer satisfaction.
[A SMALL PHOTO APPEARS IN MIDDLE OF THIS PAGE]
6
<PAGE>
[PHOTO APPEARS HERE]
CNT continues to invest in new technology and ensure that CNT's products
are technologically advanced, reliable and customer-oriented.
<PAGE>
MARKETING STRATEGY
CNT is implementing a comprehensive marketing strategy that will significantly
change how the Company markets its products. This strategy, which incorporates
best practices from the high-tech industry and sophisticated marketing methods
from other industries, has been designed to increase the market penetration,
sales and market share of CNT's two lines of products.
Internally, the Company is making changes to maximize the effectiveness of the
elements of its marketing mix, including market research, marketing
communications, direct mail, advertising, public relations, trade show
presentations, collaterals and CNT's Web site (http://www.cnt.com). These
changes will allow the complementary use of all mix elements and will allow
CNT's marketing personnel to provide high quality support and assistance to the
Company's customers and to its sales and support staff.
Other internal changes relate to making CNT products more market-oriented. This
is being achieved by including marketing management in all steps of the product
development process, by making marketing responsible for all product development
steps that directly impact customer and user suitability, and by including user
needs requirements from all parts of the world where a product will be marketed.
The result is global, market-oriented products that satisfy all technical user
requirements and also satisfy the non-technical factors that affect in-use
performance and suitability.
Externally, the Company's sales performance has been hampered by insufficient
sales coverage and a lack of sales support. This is being corrected by doubling
the size of CNT's sales and support staff and by the internal marketing changes
that are improving the quality and delivery of sales support. To further improve
sales performance, the Company is increasing its use of marketing partnerships
and other strategic alliances to expand CNT's channels of distribution and to
emphasize OEM sales.
The other external priority will be the development of new markets by
identifying new applications for existing products and by introducing new
products. For example, high-speed remote backup is a new application for an
existing product. It uses a current Channelink high-speed connectivity product
to send data to a remote storage location to provide high-speed recoverable
backup. This solution has security, cost, and convenience benefits over
traditional telecommunication access methods, and over the inconvenience of
shipping boxes of backup tapes to and from an off-site sealed storage vault.
Examples of the use of new products to effect new market development are the ATM
and Fibre Channel products currently in development and the Brixton software we
are developing which will allow customers to combine legacy systems with the new
and powerful capabilities of the Internet.
Internationally, CNT is developing and implementing a global product strategy
and a multi-domestic marketing strategy. The global product strategy means that
product development and manufacture will be based on the premise that CNT's
products will be sold (and must perform perfectly) in all parts of the world
with minimum modification.
[A SMALL PHOTO APPEARS IN MIDDLE OF THIS PAGE]
8
<PAGE>
[PHOTO APPEARS HERE]
CNT employees meet locally and by conference phone calls to implement and
incorporate methods designed to increase market penetration,
sales and market share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
As an aid to understanding the Company's operating results, the following table
sets forth certain information derived from the Consolidated Statements of
Operations of the Company. (All amounts are expressed as a percentage of total
revenue except gross profit, which is expressed as a percentage of the related
revenue.)
<TABLE>
<CAPTION>
Percentage of Revenue 1995 1994 1993
<S> <C> <C> <C>
Revenue:
- ------------------------------------------------------
Product sales 77.2% 82.1% 83.1%
- ------------------------------------------------------
Service fees 22.8 17.9 16.9
- ------------------------------------------------------
Total revenue 100.0 100.0 100.0
Gross Profit:
- ------------------------------------------------------
Product sales 70.8 63.8 69.0
- ------------------------------------------------------
Service fees 17.7 9.9 16.1
- ------------------------------------------------------
Total gross profit 58.7 54.2 60.1
Operating Expenses:
- ------------------------------------------------------
Sales and marketing 27.8 25.8 24.9
- ------------------------------------------------------
Engineering and development 16.1 14.3 14.3
- ------------------------------------------------------
General and administrative 8.5 6.2 6.0
- ------------------------------------------------------
Purchased in-process research
and development -- 11.7 .4
- ------------------------------------------------------
Total operating expenses 52.4 58.0 45.6
Income (loss) from operations 6.3 (3.8) 14.5
- ------------------------------------------------------
Other income (expense), net 2.0 1.6 (.3)
- ------------------------------------------------------
Income (loss) before
income taxes 8.3 (2.2) 14.2
- ------------------------------------------------------
Provision for income taxes (3.2) (3.7) (5.2)
- ------------------------------------------------------
Net income (loss) 5.1% (5.9)% 9.0%
</TABLE>
Revenue
The Company's revenue primarily includes the sale and support of its Channelink
products for the high-speed connectivity market and licensing, sale, and support
of its Brixton hardware and software products for the enterprise-wide
application access and interoperability market. The Company's consolidated
financial statements include the results of Brixton's operations since its
acquisition on March 10, 1994.
Revenue decreased slightly in 1995, compared with increases of 43% and 63% in
1994 and 1993, respectively. Revenue from the Company's Channelink product line
totaled $65.9 million in 1995, a decrease of 3% when compared with revenue of
$67.8 million in 1994. Revenue from the Channelink product line totaled $50.7
million in 1993. Revenue from the Company's Brixton product line totaled $11.5
million in 1995, an increase of 75% when compared to the $6.6 million of revenue
reported by Brixton in 1994. Revenue from the Company's UltraNet product line
decreased to $1.4 million in 1995, compared to $5.2 million and $4.9 million in
1994 and 1993, respectively. The Company discontinued active marketing of this
product line in 1994.
Revenue from product sales decreased 7% in 1995, compared with increases of 41%
and 58% in 1994 and 1993, respectively. The decrease in product sales for 1995
is primarily attributable to a decrease in Channelink product sales of 12%,
which was partially offset by an increase in Brixton product sales of 74%. The
decrease in Channelink product sales primarily resulted from a reduction in
orders from North America end user customers for traditional data center
consolidation applications for Channelink products, and was partially offset by
an increase in sales to the Company's international distributors. The expected
reduction in product sales from the Company's discontinued UltraNet product line
also contributed to the decrease.
[REVENUE BY PRODUCT LINE BAR CHART APPEARS HERE]
Revenue by Product Line
(in millions)
Channelink Brixton UltraNet
'93 = $51 '93 = $0 '93 = $5
'94 = $68 '94 = $7 '94 = $5
'95 = $66 '95 = $12 '95 = $1
10
<PAGE>
The increase in product sales for 1994 can be primarily attributed to increased
sales of Channelink products to end user customers in North America and initial
product sales from the Brixton product line.
Revenue from service fees, which primarily reflects purchased maintenance
service from the Company's technical support personnel, increased 26%, 51%, and
90% in 1995, 1994 and 1993, respectively. The 1995 increase reflects a 42%
increase in Channelink service fees, which were partially offset by the expected
decline in service fees from the UltraNet product line. The year-to-year growth
in service fees has primarily resulted from the growing base of installed
Channelink equipment and service fees from the UltraNet product line.
In 1995, international revenue increased 4% compared with increases of 32% and
114% in 1994 and 1993, respectively. The Company derived 29%, 28%, and 30% of
its revenue from international customers in 1995, 1994, and 1993, respectively.
The percentage of revenue derived from international customers for any given
period is subject to fluctuation because of the variable timing of sizable
orders from customers and the variability of revenue in North America.
During 1994 and the first half of 1995, the Company attempted to use its
existing Channelink sales force to sell its Brixton products. The Company has
determined that this approach diverted sales focus away from the Company's
traditional Channelink market and was not an effective approach for the sale of
Brixton products. As a result, the Company decided to hire additional sales and
marketing personnel to focus exclusively on market opportunities for Brixton
products. Under this plan, the Company proposed to more than triple the number
of Brixton sales representatives, double the Brixton tele-sales staff, and hire
additional pre-sales and post-sales systems engineers dedicated to the Brixton
product line. In addition, the Company has hired staff focused on the sale of
Brixton products through alternate distribution channels. As of December 31,
1995, the Company had hired approximately 50% of the additional sales and
marketing personnel it planned to hire under its strategy to have a separate
sales and marketing staff dedicated exclusively to the Brixton market.
The Company believes that delays by IBM in the introduction of certain storage
products have had a negative impact on its Channelink product revenue in 1995.
Both the Company and IBM expect these products to be released in 1996.
The Company believes that the improved product function associated with new
Brixton products released in the second quarter of 1995 and anticipated growth
in market size, coupled with the increase in the number of employees dedicated
to market and sell the Brixton products, should increase Brixton revenues in
1996. While the Company has experienced a decline in orders for data center
consolidation applications for its Channelink products, it believes that
additional network-based storage applications should result in continuing demand
for the Channelink products.
In 1996, the Company believes service fees for its Channelink and Brixton
product lines will grow at approximately the same rate as the installed base of
these products. The Company believes it will experience a steady decline in
service fees from the UltraNet product line.
The Company expects to continue to see quarter to quarter fluctuations in
revenue. The timing of sizable orders, because of their relative impact on total
quarterly sales, may contribute to such fluctuations. When compared to the same
periods of 1995, the Company anticipates that revenue in the first two quarters
of 1996 will be relatively flat but should start to increase in the second half
of 1996 for the reasons stated above.
[REVENUE BY GEOGRAPHICAL AREA BAR CHART APPEARS HERE]
Revenue by Geographical Area
(in millions)
International North America
'93 = $17 '93 = $39
'94 = $22 '94 = $58
'95 = $23 '95 = $56
11
<PAGE>
Special Charges
During 1995, the Company recorded a $2.5 million pre-tax charge related to its
management reorganization, which was included in the consolidated statements of
operations, as follows: sales and marketing -- $155,000; engineering and
development -- $1,503,000; general and administrative -- $842,000. In connection
with the management reorganization, the Company issued a common equity put
option to a former officer and director under which the former officer can,
under certain circumstances, require the Company to repurchase up to 280,000
shares of its common stock on the last trading day of calendar year 1997 for a
price of $8.50 per share. (See note 6 to the consolidated financial statements.)
The management reorganization charge includes an expense of $1,120,000 relating
to this potential obligation. The Company will adjust compensation expense in
future periods as the market price of its common stock increases or decreases
until the Company has no remaining obligation pursuant to the common equity put
option.
During 1994, the Company recorded a pre-tax charge of approximately $500,000
related to a reduction in work force, which was included in the Consolidated
Statements of Operations as follows: cost of service fees -- $81,000; sales and
marketing -- $196,000; engineering and development -- $190,000; general and
administrative -- $33,000. Also during 1994, the Company recorded a pre-tax
charge of approximately $2.8 million associated with its UltraNet product line.
The charge associated with this inventory write-down is recorded in the
Consolidated Statements of Operations under the caption "Cost of Product Sales."
Gross Profit
In 1995, the gross profit margin from product sales was 71%, as compared to 68%
in 1994, excluding the UltraNet inventory charge, and 69% in 1993. The increase
in gross margins from product sales in 1995 primarily resulted from a larger
percentage of total product revenue coming from the sale of Brixton software
products, which are higher margin than the Company's Channelink product line.
The slight percentage decrease in 1994 (excluding the inventory charge) to 68%,
from 69% in 1993, primarily resulted from a change in product mix and a
competitive pricing environment. The relatively high gross margins from the sale
of Brixton software products in 1994 partially offset these negative factors.
As a result of continuing worldwide competition, the Company anticipates that
its gross profit margin on sales of its Channelink products will be somewhat
lower in 1996 as compared to 1995. The Company believes that the anticipated
decrease in gross profit margins from its Channelink products may be offset in
1996 by an increase in the percentage of product sales coming from the Company's
higher margin Brixton software products. Actual gross profit margins on product
sales in 1996 will depend on a number of factors, including the mix of products,
market acceptance of the Brixton product line, the relative amount of products
sold through indirect distribution sources, and the level of continuing price
competition.
Gross profit margin from service fees was 18%, 10%, and 16% in 1995, 1994, and
1993, respectively. The increase in gross profit margins from service fees in
1995 primarily resulted from a steadily increasing base of installed Channelink
units covered by maintenance contracts, which provides economies of scale. The
decrease in gross profit margins from service fees in 1994 primarily resulted
from higher costs of technical support labor and spares.
The Company anticipates that it will make additional investments in its service
business, particularly to support the Brixton product line. As a result of these
additional investments, the Company anticipates that gross profit margins from
its service business will be somewhat lower in 1996 when compared to 1995.
[GROSS PROFIT MARGIN ON PRODUCT SALES BAR CHART APPEARS HERE]
Gross Profit Margin on Product Sales
'93 = 69%
'94 = 64%
'95 = 71%
12
<PAGE>
Operating Expenses
Sales and marketing expenses, excluding special charges, increased 7%, 46%, and
55% in 1995, 1994, and 1993, respectively. The increase in sales and marketing
expenses for 1995 is primarily attributable to an increase in employee
recruitment (including additions to the Brixton sales and marketing force) and
other costs associated with continued expansion of the Company's sales
organization, which were partially offset by lower commission expense. The
increases in 1994 and 1993 resulted from continuing expansion of the Company's
sales organization, marketing and customer support programs, and higher
commission expense due to the higher level of orders and sales in those years.
The Company expects to continue to expand its domestic and international sales
and marketing organizations in 1996, with a continued emphasis on new employees
to expand sales of the Brixton product line.
Engineering and development costs, excluding special charges, primarily
consisting of compensation and related fringe benefits, depreciation, and
consulting expenses related to new product development and enhancements to
existing products, remained relatively flat in 1995 when compared to 1994.
Engineering and development costs, excluding special charges, increased 40% in
both 1994 and 1993. As a percentage of total revenue, engineering and
development expenses excluding special charges totaled 14% of revenue each year
during the 1993 to 1995 period. The Company anticipates investing approximately
14% of total revenue on engineering and development in 1996, which includes
investments in current and future products.
[OPERATING EXPENSES BAR CHART APPEARS HERE]
Operating Expenses
(in millions)
Sales & Marketing Engineering & Development General & Administrative
'93 = $14 '93 = $8 '93 = $3
'94 = $20 '94 = $11 '94 = $5
'95 = $22 '95 = $13 '95 = $7
The Company believes a sustained high level of investment is essential to
customer satisfaction and future revenue.
General and administrative expenses, excluding special charges, increased 19%,
47%, and 61% in 1995, 1994, and 1993, respectively. These increases have
resulted from expansion of the Company's administrative organization due to
actual or planned increases in the level of orders and revenue. General and
administrative expenses, excluding special charges, were 7% of total revenue in
1995 and 6% of total revenue in 1994 and 1993. The Company anticipates that
general and administrative expenses will be approximately 7% of total revenue in
1996.
Interest income increased in 1995 and 1994 because of higher average balances of
cash and marketable securities, and higher average interest rates. Interest
income was down slightly in 1993 because of lower average balances of cash and
marketable securities and lower interest rates.
In 1995, the Company recorded a provision for income taxes at an effective rate
of 38%. In 1994, excluding a $9.3 million nondeductible charge for purchased in-
process research and development, the Company recorded a provision for income
taxes at an effective rate of 39%, as compared to 37% in 1993. The Company
anticipates that its effective income tax rate for 1996 will be approximately
35% due to an estimated reduction in the level of nondeductible foreign losses.
New Accounting Pronouncements
Beginning in 1996, the Company will be required to adopt the provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" ("SFAS No. 123"). Under SFAS No. 123, companies are permitted to
adopt a new method of accounting for stock compensation awards which is based on
recognition of a charge equal to the estimated fair value of the award on the
date of grant. Alternatively, companies may continue using the methodology
specified in APB No. 25, "Accounting for Stock Issued to Employees" to account
for stock based compensation, with expanded disclosure in the notes to the
financial statements of the pro forma effects on net income and earnings per
share, assuming application of the new accounting method outlined in SFAS No.
123. At the present time, management does not expect this new pronouncement to
have a significant impact on its financial position or results of operations.
13
<PAGE>
Liquidity and Capital Resources
The Company has historically financed its operations through the private and
public sales of equity securities, bank borrowings under lines of credit,
capital equipment leases, and cash generated from operations.
Cash, cash equivalents, and marketable securities at December 31, 1995 totaled
$28.4 million, an increase of $10.1 million during 1995. This increase resulted
from an aggregate $15.1 million increase due to cash provided by operations,
financing activities (primarily consisting of proceeds from the issuance of
common stock), and the effects of exchange rate changes, partially offset by the
cash used for investing in property and equipment, field support spares and
other assets of $5.0 million.
Expenditures for capital equipment and field support spares have been, and will
likely continue to be, a significant capital requirement. The Company plans to
continue to invest aggressively in productivity tools for its employees and in
its field support spares.
The Company believes that the current balances of cash, cash equivalents, and
marketable securities, when combined with anticipated cash flow from operations,
will be adequate to fund its operating plans and meet its currently anticipated
aggregate capital requirements, at least through 1996. However, if the Company
does not generate revenue as expected or incurs unanticipated expenses, or needs
additional investment funds to react to changes in its marketplace, it may need
additional capital earlier or in amounts greater than would otherwise be
required.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
[CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES BAR CHART APPEARS HERE]
Cash, Cash Equivalents, and Marketable Securities
(in millions)
'93 = $24
'94 = $18
'95 = $28
Forward Looking Information
Except for the historical information contained herein, the matters discussed in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward looking statements that involve risks and uncertainties,
including market acceptance of the Brixton products, the availability of new
employees experienced in the Brixton marketplace, growth and timing of new
applications for the Company's Channelink products, particularly in the area of
network-based storage, uncertainties due to the Company's recently announced
management reorganization, including its ability to retain a new Chief Executive
Officer, changes in general economic conditions, cost and availability of
components, and fluctuations in foreign exchange rates. In addition, the markets
for the Company's products are characterized by significant competition, and the
Company's results may be adversely affected by the actions of existing or future
competitors, including the development of new technologies, the introduction of
new products, and the reduction of prices by such competitors to gain or retain
market share.
[BOOK VALUE PER SHARE BAR CHART APPEARS HERE]
Book Value Per Share
'93 = $2.31
'94 = $2.41
'95 = $2.64
14
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue: Product sales $60,889,828 $65,332,961 $46,292,641
--------------------------------------------------------------------------
Service fees 17,946,819 14,208,812 9,394,677
--------------------------------------------------------------------------
Total revenue 78,836,647 79,541,773 55,687,318
==========================================================================
Cost of Revenue: Cost of product sales 17,799,484 23,664,972 14,339,334
--------------------------------------------------------------------------
Cost of service fees 14,772,744 12,808,784 7,883,929
--------------------------------------------------------------------------
Total cost of revenue 32,572,228 36,473,756 22,223,263
==========================================================================
Gross Profit: 46,264,419 43,068,017 33,464,055
==========================================================================
--------------------------------------------------------------------------
Operating Expenses: Sales and marketing 21,882,903 20,499,023 13,868,710
--------------------------------------------------------------------------
Engineering and development 12,718,295 11,347,683 7,956,552
--------------------------------------------------------------------------
General and administrative 6,736,444 4,968,251 3,358,359
--------------------------------------------------------------------------
Purchased in-process research
and development -- 9,302,212 221,298
--------------------------------------------------------------------------
Total operating expenses 41,337,642 46,117,169 25,404,919
==========================================================================
Income (loss) from operations 4,926,777 (3,049,152) 8,059,136
==========================================================================
--------------------------------------------------------------------------
Other Income (Expense): Interest income 1,616,503 629,064 345,118
--------------------------------------------------------------------------
Interest expense (59,825) (125,181) (161,308)
--------------------------------------------------------------------------
Other, net 50,993 755,884 (341,565)
--------------------------------------------------------------------------
Other income (expense), net 1,607,671 1,259,767 (157,755)
==========================================================================
--------------------------------------------------------------------------
Income (loss) before income taxes 6,534,448 (1,789,385) 7,901,381
--------------------------------------------------------------------------
Provision for income taxes 2,512,000 2,925,000 2,900,000
--------------------------------------------------------------------------
Net Income (Loss): $ 4,022,448 $(4,714,385) $ 5,001,381
==========================================================================
Net Income (Loss) per Common
and Common Equivalent Share: $ 0.17 $ (.21) $ .26
==========================================================================
Weighted Average Number
of Common and Common
Equivalent Shares: 23,443,137 21,971,983 19,228,048
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
Assets: Current Assets:
-------------------------------------------------------------------------------------
Cash and cash equivalents $ 5,959,931 $15,855,905
-------------------------------------------------------------------------------------
Marketable securities 22,448,987 2,486,234
-------------------------------------------------------------------------------------
Receivables, net 18,545,363 23,451,598
-------------------------------------------------------------------------------------
Inventories 10,534,152 8,060,363
-------------------------------------------------------------------------------------
Deferred tax asset 2,559,000 2,120,000
-------------------------------------------------------------------------------------
Other current assets 1,477,568 1,088,164
-------------------------------------------------------------------------------------
Total current assets 61,525,001 53,062,264
=====================================================================================
-------------------------------------------------------------------------------------
Property and equipment, net 8,598,666 9,285,714
-------------------------------------------------------------------------------------
Field support spares, net 4,406,225 5,473,078
-------------------------------------------------------------------------------------
Purchased technology, net 3,534,849 4,215,391
-------------------------------------------------------------------------------------
Goodwill, net 722,167 780,479
-------------------------------------------------------------------------------------
Other assets 347,209 331,848
-------------------------------------------------------------------------------------
$79,134,117 $73,148,774
=====================================================================================
Liabilities and
Shareholders' Equity: Current Liabilities:
-------------------------------------------------------------------------------------
Accounts payable $ 2,578,188 $ 2,163,054
-------------------------------------------------------------------------------------
Accrued liabilities 7,248,785 5,125,365
-------------------------------------------------------------------------------------
Deferred revenue 7,254,446 7,463,821
-------------------------------------------------------------------------------------
Income taxes payable -- 2,663,096
-------------------------------------------------------------------------------------
Current installments of obligations under
capital leases 118,712 259,540
-------------------------------------------------------------------------------------
Total current liabilities 17,200,131 17,674,876
=====================================================================================
-------------------------------------------------------------------------------------
Obligations under capital leases, less
current installments 42,912 163,028
-------------------------------------------------------------------------------------
Deferred tax liability 1,385,000 1,332,000
-------------------------------------------------------------------------------------
Total liabilities 18,628,043 19,169,904
=====================================================================================
-------------------------------------------------------------------------------------
Shareholders' Equity:
-------------------------------------------------------------------------------------
Preferred stock, authorized 1,000,000 shares;
none issued and outstanding -- --
-------------------------------------------------------------------------------------
Common stock, $.01 par value; authorized
30,000,000 shares; issued and outstanding
22,929,360 at December 31, 1995 and
22,360,122 at December 31, 1994 229,294 223,601
-------------------------------------------------------------------------------------
Additional paid-in capital 58,150,984 55,801,073
-------------------------------------------------------------------------------------
Retained earnings (deficit) 2,365,812 (1,656,636)
-------------------------------------------------------------------------------------
Cumulative translation adjustment (240,016) (389,168)
-------------------------------------------------------------------------------------
Total shareholders' equity 60,506,074 53,978,870
=====================================================================================
$79,134,117 $73,148,774
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained Cumulative
Common Stock Paid-In Earnings Translation
Shares Amount Capital (Deficit) Adjustment Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 17,027,288 $170,273 $22,338,748 $(1,943,632) $(362,526) $20,202,863
===========================================================================
Shares issued pursuant to the
employee stock purchase plan
and exercise of stock options
and warrants, net of 7,281
shares redeemed 594,200 5,942 1,313,943 -- -- 1,319,885
---------------------------------------------------------------------------
Shares issued to public, net of
issuance costs of $338,549 2,951,420 29,514 19,303,151 -- -- 19,332,665
---------------------------------------------------------------------------
Shares issued in connection
with acquisition of Ultra 425,115 4,251 2,193,593 -- -- 2,197,844
---------------------------------------------------------------------------
Tax benefits related to employee
stock option transactions -- -- 593,000 -- -- 593,000
---------------------------------------------------------------------------
Change in cumulative
translation adjustment -- -- -- -- (97,478) (97,478)
---------------------------------------------------------------------------
Net income -- -- -- 5,001,381 -- 5,001,381
---------------------------------------------------------------------------
Balance, December 31, 1993 20,998,023 209,980 45,742,435 3,057,749 (460,004) 48,550,160
===========================================================================
Shares issued pursuant to the
employee stock purchase plan and
exercise of stock options,
net of 1,844 shares redeemed 376,005 3,760 1,202,383 -- -- 1,206,143
---------------------------------------------------------------------------
Shares issued in connection
with acquisition of Brixton 986,094 9,861 8,501,255 -- -- 8,511,116
---------------------------------------------------------------------------
Tax benefits related to employee
stock option transactions -- -- 355,000 -- -- 355,000
---------------------------------------------------------------------------
Change in cumulative
translation adjustment -- -- -- -- 70,836 70,836
---------------------------------------------------------------------------
Net loss -- -- -- (4,714,385) -- (4,714,385)
---------------------------------------------------------------------------
Balance, December 31, 1994 22,360,122 223,601 55,801,073 (1,656,636) (389,168) 53,978,870
===========================================================================
Shares issued pursuant to the
employee stock purchase plan
and exercise of stock options
and warrants, net of 86,308
shares redeemed 569,238 5,693 1,445,911 -- -- 1,451,604
---------------------------------------------------------------------------
Tax benefits related to employee
stock option transactions -- -- 904,000 -- -- 904,000
---------------------------------------------------------------------------
Change in cumulative
translation adjustment -- -- -- -- 149,152 149,152
---------------------------------------------------------------------------
Net income -- -- -- 4,022,448 -- 4,022,448
---------------------------------------------------------------------------
Balance, December 31, 1995 22,929,360 $229,294 $58,150,984 $ 2,365,812 $(240,016) $60,506,074
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Operating Activities: Net income (loss) $ 4,022,448 $ (4,714,385) $ 5,001,381
------------------------------------------------------------------------------------------
Depreciation and amortization 7,418,179 6,717,541 4,570,300
------------------------------------------------------------------------------------------
Provisions for returns and credit losses 489,000 318,000 --
------------------------------------------------------------------------------------------
Purchase of in-process research and development -- 9,302,212 221,298
------------------------------------------------------------------------------------------
Change in deferred tax asset (386,000) (1,392,844) (306,000)
------------------------------------------------------------------------------------------
Reduction in goodwill due to utilization of
acquired net operating loss carryforwards -- -- 115,000
------------------------------------------------------------------------------------------
Changes in Operating Assets
and Liabilities Net of the
Effect of Acquired Companies: Receivables 4,417,235 (5,345,197) (5,159,516)
------------------------------------------------------------------------------------------
Inventories (2,473,789) 1,856,000 (3,466,947)
------------------------------------------------------------------------------------------
Other current assets (389,404) 587,381 (660,324)
------------------------------------------------------------------------------------------
Accounts payable 415,134 (2,666,173) 1,015,221
------------------------------------------------------------------------------------------
Accrued liabilities (539,676) 949,482 3,079,315
------------------------------------------------------------------------------------------
Deferred revenue (209,375) 2,143,449 1,011,067
------------------------------------------------------------------------------------------
Cash provided by operating activities 12,763,752 7,755,466 5,420,795
==========================================================================================
------------------------------------------------------------------------------------------
Investing Activities: Additions to property and equipment (3,299,233) (4,309,070) (5,856,257)
------------------------------------------------------------------------------------------
Additions to field support spares (1,562,608) (4,707,027) (2,877,640)
------------------------------------------------------------------------------------------
Purchase of Brixton and Ultra,
net of cash acquired -- (5,455,671) 1,717,046
------------------------------------------------------------------------------------------
Purchase of marketable securities (31,639,572) (2,486,234) (1,027,091)
------------------------------------------------------------------------------------------
Redemption of marketable securities 11,676,819 -- 3,000,000
------------------------------------------------------------------------------------------
Other (106,114) (91,862) 9,194
------------------------------------------------------------------------------------------
Cash used in investing activities (24,930,708) (17,049,864) (5,034,748)
==========================================================================================
------------------------------------------------------------------------------------------
Financing Activities: Proceeds from issuance of common stock,
including related tax benefits 2,355,604 1,561,143 21,245,549
------------------------------------------------------------------------------------------
Repayments of obligations under capital leases (260,944) (943,892) (668,450)
------------------------------------------------------------------------------------------
Cash provided by financing activities 2,094,660 617,251 20,577,099
==========================================================================================
------------------------------------------------------------------------------------------
Effects of exchange rate changes 176,322 80,315 (84,941)
------------------------------------------------------------------------------------------
Net Increase (Decrease) in
Cash and Cash Equivalents: (9,895,974) (8,596,832) 20,878,205
==========================================================================================
Cash and Cash Equivalents --
Beginning of Year: 15,855,905 24,452,737 3,574,532
==========================================================================================
Cash and Cash Equivalents --
End of Year: $ 5,959,931 $ 15,855,905 $ 24,452,737
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Computer Network Technology Corporation is engaged in the development,
marketing, and support of high-performance networking products and connectivity
software under the Channelink and Brixton trademarks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Computer Network Technology Corporation and its wholly owned subsidiaries
(together, the "Company"). All significant intercompany balances and
transactions are eliminated in consolidation.
Revenue Recognition
Revenue from product sales requiring installation by the Company is recognized
when the equipment is installed and ready for use or upon signed customer
acceptance, depending on contract terms. Revenue from product sales where no
further performance is required by the Company is recognized upon shipment.
Revenue from software license agreements with original equipment manufacturers
(OEM) for redistribution to the OEM's customers is recognized when the OEM
reports delivery of the software to their customer. Service fees are recognized
as revenue when earned, which is generally on a straight-line basis over the
contracted service period.
Deferred revenue primarily consists of the unearned portion of service
agreements billed in advance and amounts billed to customers prior to
recognition by the Company of the applicable revenue.
Cash Equivalents
The Company considers investments in highly liquid debt securities having an
initial maturity of three months or less to be cash equivalents.
Marketable Securities
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115"). At December 31, 1995, the Company's marketable
securities are classified as available-for-sale in accordance with SFAS No. 115.
Prior to December 31, 1995, the Company's investments in marketable securities
were classified as held-to-maturity. No unrealized holding gain or loss existed
at the date of transfer. Available-for-sale securities are carried at fair
value, and unrealized gains and losses are excluded from earnings and are
reported as a separate component of shareholders' equity.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
Property and Equipment
Property and equipment owned by the Company is carried at cost and depreciated
using the straight-line method over three to eight years. Property and equipment
under capital lease and leasehold improvements are amortized using the straight-
line method over the terms of the respective leases. Expenditures for repairs
and maintenance are charged to expense as incurred.
Field Support Spares
Field support spares are carried at cost and depreciated using the straight-line
method over three years.
Purchased Technology
Purchased technology acquired in connection with the acquisition of Brixton
Systems, Inc. (see note 3) is carried at cost and amortized using the straight-
line method over its estimated useful life of seven years. At December 31, 1995
and 1994, accumulated amortization was $1,228,947 and $548,405, respectively.
19
<PAGE>
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized on a straight-line basis over 20 years. At December
31, 1995 and 1994, accumulated amortization was $158,464 and $113,868,
respectively.
Allowance for Returns and Credit Losses
An allowance is made for potential returns and uncollectible accounts based on
current and historical experience. The allowance for returns and credit losses
at December 31, 1995 and 1994 was approximately $1,131,000 and $692,000,
respectively.
Engineering and Development
The Company accounts for engineering and development costs in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS No. 86"). The
Company has expensed all engineering and development costs to date as such costs
do not meet the criteria for capitalization outlined in SFAS No. 86.
Net Income (Loss) Per Share
For the years ended December 31, 1995 and 1993, net income per common and common
equivalent share was determined by dividing net income by the weighted average
number of common and common equivalent shares outstanding during the year.
Common equivalent shares primarily result from dilutive stock options and
warrants. For the year ended December 31, 1994, net loss per common and common
equivalent share was computed using the weighted average number of common shares
outstanding; stock options and warrants were excluded due to their antidilutive
effect.
Foreign Currency
The financial statements of the Company's international subsidiaries have been
translated into U.S. dollars in accordance with the provisions of Statement of
Financial Accounting Standards No. 52 "Foreign Currency Translation" ("SFAS No.
52"). Under SFAS No. 52, assets and liabilities are translated into U.S. dollars
at year-end exchange rates, while equity accounts are translated at historical
rates. Income and expenses are translated at the average exchange rates during
the year. The resulting translation adjustments are recorded as a separate
component of shareholders' equity.
Foreign currency transaction gains and losses are included in determining net
income (loss). For the years ended December 31, 1995 and 1994, the Company
recorded foreign currency transaction gains of $77,037 and $632,133,
respectively. For the year ended December 31, 1993, the Company recorded foreign
currency transaction losses of $415,926.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
2. MARKETABLE SECURITIES
The Company's investments in marketable securities are summarized as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Corporate debt securities $16,945,004 $ --
- -----------------------------------------------------------------------------
U.S. Government and
Agency securities 5,503,983 2,486,234
- -----------------------------------------------------------------------------
$22,448,987 $ 2,486,234
=============================================================================
</TABLE>
The amount of gross unrealized gains and losses with respect to the Company's
investments in marketable securities at December 31, 1995 and 1994 were not
significant. The Company realized no significant gains or losses from the sale
of marketable securities during the three-year period ended December 31, 1995.
Proceeds from the sale of marketable securities during 1995 were $3,518,755.
There were no sales of marketable securities during 1994. The Company's
investments in marketable securities mature at varying times prior to December
1997.
20
<PAGE>
3. ACQUISITIONS
On March 10, 1994, the Company acquired all of the outstanding common and
preferred stock of Brixton Systems, Inc. ("Brixton") in exchange for 986,094
unregistered shares of its common stock valued at $6,515,000, $5,500,000 in
cash, assumption of $1,600,000 in liabilities and the conversion of existing
Brixton employee stock options into stock options of the Company valued at
$1,996,116. The shares exchanged by the Company were valued at fair market
value, reflecting a 33% discount because of their restricted nature. The
purchase price was allocated to the (i) identifiable tangible assets acquired
based on their estimated fair market values, (ii) purchased technology in the
amount of $4,763,796, and (iii) research and development activities that were in
process at the time of the acquisition and had not yet reached technological
feasibility. The amount allocated to in process research and development of
$9,302,212 was charged to expense upon completion of the acquisition. The
Company's consolidated financial statements include the results of Brixton's
operations since March 10, 1994.
On July 1, 1993, the Company acquired substantially all of the assets of Ultra
Network Technologies, Inc. ("Ultra") in exchange for 425,115 shares of its
common stock, valued at $2,197,844, and direct costs relating to the acquisition
of $177,155. The excess of the purchase price and liabilities assumed over the
fair market value of the assets acquired, amounting to $221,298, was charged to
expense in 1993 as research and development activities that were in process at
the time of the acquisition and had not yet reached technological feasibility.
The Company's consolidated financial statements include the results of Ultra's
operations since July 1, 1993.
The aforementioned acquisitions have been accounted for as purchases and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market values at the date of acquisition.
4. COMPONENTS OF SELECTED BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
December 31 1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Inventories:
- ----------------------------------------------------------------
Components and subassemblies $ 4,471,969 $ 3,712,084
- ----------------------------------------------------------------
Work in process 1,498,588 709,000
- ----------------------------------------------------------------
Finished goods 4,563,595 3,639,279
- ----------------------------------------------------------------
$10,534,152 $ 8,060,363
================================================================
Property and equipment:
- ----------------------------------------------------------------
Machinery and equipment $10,489,189 $ 9,791,090
- ----------------------------------------------------------------
Office and data processing equipment 7,443,064 6,433,342
- ----------------------------------------------------------------
Furniture and fixtures 1,074,412 909,998
- ----------------------------------------------------------------
Leasehold improvements 1,739,304 1,492,605
- ----------------------------------------------------------------
$20,745,969 $18,627,035
================================================================
- ----------------------------------------------------------------
Less accumulated depreciation
and amortization 12,147,303 9,341,321
- ----------------------------------------------------------------
$ 8,598,666 $ 9,285,714
================================================================
Field support spares:
- ----------------------------------------------------------------
Field support spares $ 9,577,421 $12,535,916
- ----------------------------------------------------------------
Less accumulated depreciation 5,171,196 7,062,838
- ----------------------------------------------------------------
$ 4,406,225 $ 5,473,078
================================================================
Accrued liabilities:
- ----------------------------------------------------------------
Compensation $ 5,341,660 $ 2,934,367
- ----------------------------------------------------------------
Other 1,907,125 2,190,998
- ----------------------------------------------------------------
$ 7,248,785 $ 5,125,365
================================================================
</TABLE>
5. OPERATING LEASES
The Company leases all office and manufacturing space and certain equipment
under noncancelable operating leases. Certain of the leases contain renewal
options. In addition, the Company has an option to lease an additional 18,000
square feet of office space beginning December 1, 1996 which, if exercised,
would require a three-year extension of an existing lease for 72,000 square feet
of office space.
21
<PAGE>
Future minimum operating lease payments, excluding executory costs such as real
estate taxes, insurance and maintenance expense, by year and in the aggregate
are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
- ---------------------------------------------------------------------------
<S> <C>
1996 $2,176,369
- ---------------------------------------------------------------------------
1997 1,071,517
- ---------------------------------------------------------------------------
1998 850,734
- ---------------------------------------------------------------------------
1999 653,349
- ---------------------------------------------------------------------------
2000 639,975
- ---------------------------------------------------------------------------
Thereafter 339,863
- ---------------------------------------------------------------------------
Total minimum lease payments $5,731,807
- ---------------------------------------------------------------------------
</TABLE>
Certain of the Company's leases contain concessions such as an allowance for
moving costs and an abatement of real estate taxes. At December 31, 1995 and
1994, an accrued obligation of $405,448 and $416,915, respectively, representing
the rental concessions for these leases is reflected in the accompanying balance
sheets.
Rent expense under noncancelable operating leases, exclusive of executory costs,
for the years ended December 31, 1995, 1994, and 1993, was approximately
$2,332,000, $2,351,000, and $1,573,000, respectively.
6. SHAREHOLDERS' EQUITY
Common Equity Put Option
In connection with a severance agreement entered into with a former officer and
director, the Company has the obligation to repurchase from such former officer
and director up to 280,000 shares of its common stock on the last trading day of
calendar year 1997 for a price of $8.50 per share. The obligation will expire
if, for any five consecutive trading days prior to the last trading day of 1997,
the closing market price for the Company's common stock equals or exceeds $8.50
per share.
During 1995, the Company recorded severance expense relating to this agreement
in the amount of $1,120,000. The Company will adjust compensation expense in
future periods as the market price of its common stock increases or decreases,
until such time as the Company has no remaining obligation under the common
equity put option.
Employee Stock Purchase Plan
The 1992 Employee Stock Purchase Plan (the "Purchase Plan") is a qualified plan
pursuant to Internal Revenue Code Section 423. The Purchase Plan allows eligible
employees an opportunity to purchase an aggregate of 400,000 shares of the
Company's common stock through a series of annual offerings at a per share price
equal to 85% of the lesser of the fair market value of the Company's common
stock at the beginning or the end of each annual offering period. No more than
$5,000 in fair market value of shares of common stock, as determined at the
beginning of each purchase period, may be purchased by any participant during
any calendar year.
During 1995 and 1994, the Company issued 83,331 shares of common stock at $6.27
per share and 102,625 shares of common stock at $4.41 per share, respectively,
pursuant to this plan.
Stock Options
The 1992 Stock Award Plan provides for the grant of stock options and
performance units to officers, other employees, consultants, and independent
contractors as determined by the Compensation Committee of the board of
directors. The Stock Award Plan also provides for automatic stock option grants
to nonemployee directors of 50,000 shares upon their initial election or
appointment, and 20,000 shares each year to nonemployee directors who are
elected, re-elected, or are serving an unexpired term as a director at any
annual meeting of shareholders during the term of the plan.
All stock options granted under the Stock Award Plan have an exercise price
equal to fair market value on the date of grant, vest and become exerciseable
over individually defined periods, and expire ten years from the date of grant.
Performance units entitle participants to payments of cash, stock or a
combination thereof and are based upon the achievement of specified performance
targets as determined by the Compensation Committee. A maximum of 3,250,000
shares of common stock are issuable under the terms of the Stock Award Plan.
Prior to implementation of the 1992 Stock Award Plan, the Company granted stock
options under other incentive and nonqualified stock options plans. All
remaining shares of common stock which had been available for grant under these
plans have been canceled. In addition, in connection with the acquisition of
Brixton, the Company agreed to convert existing Brixton employee stock options
into stock options of the Company.
22
<PAGE>
Information with respect to stock options is summarized as follows:
<TABLE>
<CAPTION>
Option Price
Shares (Per Share)
<S> <C> <C>
Balance, December 31, 1992 1,552,384 $1.00 -- $ 5.78
===========================
Granted 760,750 5.25 -- 9.00
---------------------------
Exercised (312,838) 1.00 -- 4.38
---------------------------
Canceled (82,625) 2.06 -- 6.06
---------------------------
Balance, December 31, 1993 1,917,671 $1.47 -- $ 9.00
===========================
Acquisition of Brixton 229,241 .01 -- 6.00
---------------------------
Granted 496,750 6.00 -- 10.00
---------------------------
Exercised (275,224) 1.47 -- 6.00
---------------------------
Canceled (184,197) .50 -- 10.00
---------------------------
Balance, December 31, 1994 2,184,241 $ .01 -- $10.00
===========================
Granted 1,293,000 6.13 -- 12.63
---------------------------
Exercised (457,215) .01 -- 9.50
---------------------------
Canceled (337,063) .01 -- 11.13
---------------------------
Balance, December 31, 1995 2,682,963 $ .25 -- $12.63
===========================
</TABLE>
At December 31, 1995, 1,035,252 shares of common stock subject to stock options
were exerciseable and 758,877 shares of common stock were available for future
stock option and performance unit grants.
7. INCOME TAXES
The components of income (loss) before income taxes and income tax expense for
each of the years in the three-year period ended December 31, 1995 consists of
the following:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before
income taxes:
- -------------------------------------------------------------
U.S................... $7,398,633 $(2,409,036) $8,097,823
- -------------------------------------------------------------
Foreign............... (864,185) 619,651 (196,442)
- -------------------------------------------------------------
Total................ $6,534,448 $(1,789,385) $7,901,381
=============================================================
Income tax provision
Current:
- -------------------------------------------------------------
U.S................... $2,014,000 $ 3,570,000 $2,411,000
- -------------------------------------------------------------
Foreign............... 243,000 140,000 305,000
- -------------------------------------------------------------
State and other....... 428,000 415,000 490,000
- -------------------------------------------------------------
Total current........ 2,685,000 4,125,000 3,206,000
=============================================================
Deferred:
- -------------------------------------------------------------
U.S................... (195,000) (1,000,000) (306,000)
- -------------------------------------------------------------
State and other....... 22,000 (200,000) --
- -------------------------------------------------------------
Total deferred....... (173,000) (1,200,000) (306,000)
=============================================================
Total income
tax expense........ $2,512,000 $ 2,925,000 $2,900,000
=============================================================
</TABLE>
The reconciliation of the statutory federal tax rate and the effective tax rate
for each of the years in the three-year period ended December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 34.0% (34.0%) 34.0%
- -------------------------------------------------------------
Increase (decrease) in taxes
resulting from:
- -------------------------------------------------------------
Purchased in-process research
and development -- 176.7 --
- -------------------------------------------------------------
Foreign sales corporation and
foreign tax rate differential (7.1) (6.1) 5.5
- -------------------------------------------------------------
State taxes, net of federal
tax benefit 4.6 15.3 3.6
- -------------------------------------------------------------
Change in valuation allowance 8.1 10.6 (5.5)
- -------------------------------------------------------------
Other (1.2) 0.9 (0.9)
- -------------------------------------------------------------
Total 38.4% 163.4% 36.7%
=============================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the Company's deferred tax assets and (liabilities) as of December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
- -----------------------------------------------------------------
Accrued compensation $ 1,245,000 $ 283,000
- -----------------------------------------------------------------
Foreign net operating
loss carryforwards 827,000 301,000
- -----------------------------------------------------------------
Inventory obsolescence and
timing differences 790,000 1,629,000
- -----------------------------------------------------------------
Reserves for bad debts and
sales returns 419,000 138,000
- -----------------------------------------------------------------
Federal and state tax credits 136,000 87,000
- -----------------------------------------------------------------
Capital leases 66,000 151,000
- -----------------------------------------------------------------
Other 124,000 312,000
- -----------------------------------------------------------------
Total gross deferred tax assets 3,607,000 2,901,000
=================================================================
Valuation allowance (827,000) (301,000)
=================================================================
Net deferred tax assets 2,780,000 2,600,000
=================================================================
Deferred tax liabilities:
- -----------------------------------------------------------------
Purchased technology (1,449,000) (1,686,000)
- -----------------------------------------------------------------
Other (157,000) (126,000)
- -----------------------------------------------------------------
Total gross deferred tax liabilities (1,606,000) (1,812,000)
=================================================================
Net deferred income taxes $ 1,174,000 $ 788,000
=================================================================
</TABLE>
23
<PAGE>
During 1995, the Company's valuation allowance increased by $526,000 due to the
nonrecognition of the tax benefit associated with the loss carryforward from
foreign operations. During 1994, the Company's valuation allowance was reduced
by $1,073,000 in connection with the acquisition of Brixton based upon the
cumulative tax attributes of the combined companies. During 1993, the reduction
in the valuation allowance of $1,400,000 included tax benefits from acquired net
operating losses which were offset against goodwill of $115,000, and
compensation expense deductions which were credited to additional paid-in
capital of $593,000.
8. SUCCESS SHARING BONUS PLAN
The Company's Success Sharing Bonus Plan (the "Plan") provides a formula for
determination of cash bonus payments to employees. All full-time employees who
do not participate in other incentive compensation plans are eligible to
participate in the Plan starting with the employee's first full calendar quarter
of employment. The Plan provides for employee bonus payments based on a defined
percentage of a participant's eligible base compensation multiplied by the CNT
Performance Factor (CPF). The CPF is derived from a matrix formulated by the
board of directors with axes consisting of defined levels of revenue growth and
pre-tax profit (determined after deducting the cost of the success sharing
bonuses).
The success sharing bonus expense for the years ended December 31, 1995, 1994
and 1993 was $325,332, $562,003, and $1,561,167, respectively.
9. 401(K) SALARY SAVINGS PLAN
Effective January 1, 1991, the Company adopted a 401(k) Salary Savings Plan
("401(k) Plan"). All employees of the Company are eligible to participate and
benefits provided under the 401(k) Plan are funded by a qualified retirement
trust managed by an outside trustee. The Company has not contributed to the
401(k) Plan.
10. Financial Information by Geographic Area
The Company's revenue, income (loss) from operations, and total assets,
summarized by geographic area is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
- -------------------------------------------------------------------
United States
- -------------------------------------------------------------------
North America $56,073,533 $ 57,548,718 $ 39,026,273
- -------------------------------------------------------------------
European export 8,693,053 6,927,614 9,190,327
- -------------------------------------------------------------------
Pacific Rim export 5,849,359 6,136,794 4,133,623
- -------------------------------------------------------------------
Other 539,330 657,186 363,678
- -------------------------------------------------------------------
Total United States 71,155,275 71,270,312 52,713,901
- -------------------------------------------------------------------
- -------------------------------------------------------------------
European subsidiaries 11,363,084 11,595,574 9,987,524
- -------------------------------------------------------------------
Eliminations (3,681,712) (3,324,113) (7,014,107)
- -------------------------------------------------------------------
Total $78,836,647 $ 79,541,773 $ 55,687,318
===================================================================
Income (loss) from
operations:
- -------------------------------------------------------------------
United States $ 5,605,124 $ (4,316,540) $ 8,850,718
- -------------------------------------------------------------------
European subsidiaries (912,466) 34,445 311,716
- -------------------------------------------------------------------
Eliminations 234,119 1,232,943 (1,103,298)
- -------------------------------------------------------------------
Total $ 4,926,777 $ (3,049,152) $ 8,059,136
===================================================================
Total assets:
- -------------------------------------------------------------------
United States $77,963,266 $ 91,478,669 $ 69,194,745
- -------------------------------------------------------------------
European subsidiaries 7,123,604 8,144,664 13,505,944
- -------------------------------------------------------------------
Eliminations (5,952,753) (26,474,559) (16,599,313)
- -------------------------------------------------------------------
Total $79,134,117 $ 73,148,774 $ 66,101,376
===================================================================
</TABLE>
11. NONCASH FINANCING AND INVESTING ACTIVITIES AND SUPPLEMENTAL CASH FLOW
INFORMATION
During 1994, in connection with the acquisition of Brixton, the Company acquired
noncash assets and liabilities of approximately $6.4 million and $1.6 million,
respectively, in exchange for approximately $5.5 million in cash, common stock
valued at approximately $6.5 million and stock options valued at approximately
$2.0 million.
During 1993, in connection with the acquisition of Ultra, the Company acquired
noncash assets and liabilities of approximately $3.3 million and $3.0 million,
respectively, and issued common stock valued at approximately $2.2 million.
24
<PAGE>
During 1993, the Company entered into capital leases for new equipment totaling
$27,085.
Cash payments for interest expense for the years ended December 31, 1995, 1994
and 1993 were $60,419, $67,967, and $160,422, respectively.
Cash payments for income taxes, net of refunds received, for the years ended
December 31, 1995, 1994, and 1993 were $5,305,879, $1,047,532, and $1,326,441,
respectively.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair values of
financial instruments:
Cash and Cash Equivalents and Marketable Securities
The carrying amount approximates fair value because of the short maturity of
those instruments.
Common Equity Put Option
The carrying value of the common equity put option (see note 6) is equal to the
difference between the aggregate exercise price of the option and the year-end
market value for the underlying shares. The Company believes the carrying value
of the common equity put option approximates its fair value.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
Computer Network Technology Corporation:
We have audited the accompanying consolidated balance sheets of Computer Network
Technology Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computer Network
Technology Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1996
REPORT OF MANAGEMENT
The accompanying consolidated financial statements, including the notes thereto,
and other financial information presented in the Annual Report were prepared by
management, which is responsible for their integrity and objectivity. The
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based upon our best estimates
and judgements.
Computer Network Technology Corporation maintains an effective system of
internal accounting control. We believe this system provides reasonable
assurance that transactions are executed in accordance with management
authorization and are appropriately recorded in order to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to adequately safeguard, verify, and maintain accountability of assets. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal control should not exceed the benefits derived.
KPMG Peat Marwick LLP, independent certified public accountants, is retained to
audit the Company's financial statements. Their accompanying report is based on
an audit conducted in accordance with generally accepted auditing standards. The
audit includes a review of the internal accounting control structure to gain a
basic understanding of the accounting system in order to design an effective and
efficient audit approach and not for the purpose of providing assurance on the
system of internal control.
The Audit Committee of the board of directors is composed of three outside
directors and is responsible for recommending the independent accounting firm to
be retained for the coming year, subject to shareholder approval. The Audit
Committee meets periodically and privately with the independent accountants, as
well as with management, to review accounting, auditing, internal accounting
controls, and financial reporting matters.
/s/ Bruce T. Coleman
Bruce T. Coleman
Acting President and Chief Executive Officer
/s/John R. Brintnall
John R. Brintnall
Vice President of Finance, Chief Financial Officer,
and Treasurer
26
<PAGE>
SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993 1992 1991
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $78,837 $79,542 $55,687 $34,265 $22,278
--------------------------------------------
Income (loss) before
income taxes $ 6,534 $(1,789) $ 7,901 $ 3,832 $ 2,227
--------------------------------------------
Net income (loss) $ 4,022 $(4,714) $ 5,001 $ 3,552 $ 2,042
--------------------------------------------
Net income (loss) per common
and common equivalent share $ .17 $ (.21) $ .26 $ .21 $ .13
--------------------------------------------
Weighted average number of
common and common
equivalent shares 23,443 21,972 19,228 17,263 15,230
--------------------------------------------
</TABLE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
(in thousands except employee data)
<TABLE>
<CAPTION>
December 31 1995 1994 1993 1992 1991
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets $61,525 $53,062 $53,506 $23,075 $16,244
--------------------------------------------
Current liabilities 17,200 17,675 17,103 9,470 4,514
--------------------------------------------
Working capital $44,325 $35,387 $36,403 $13,605 $11,730
--------------------------------------------
Total assets $79,134 $73,149 $66,101 $30,295 $20,505
--------------------------------------------
Long-term obligations $ 43 $ 163 $ 448 $ 622 $ 987
--------------------------------------------
Shareholders' equity $60,506 $53,979 $48,550 $20,203 $15,004
--------------------------------------------
Number of full-time employees 408 338 326 212 174
--------------------------------------------
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Year Ended December 31 Quarter Quarter Quarter Quarter*
--------------------------------------------
<S> <C> <C> <C> <C>
1995
--------------------------------------------
Revenue $18,731 $21,776 $16,587 $21,743
--------------------------------------------
Income (loss) from operations 2,480 3,443 244 (1,240)
--------------------------------------------
Net income (loss) 1,748 2,434 467 (626)
--------------------------------------------
Net income (loss) per common
and common equivalent share .07 .10 .02 (.03)
--------------------------------------------
1994
--------------------------------------------
Revenue $15,596 $18,056 $23,833 $22,057
--------------------------------------------
Income (loss) from operations (8,553) 432 853 4,219
--------------------------------------------
Net income (loss) (8,690) 472 705 2,799
--------------------------------------------
Net income (loss) per common
and common equivalent share (.41) .02 .03 .12
--------------------------------------------
</TABLE>
*The 1995 fourth quarter includes a $2.5 million pre-tax charge
attributable to a management reorganization.
27
<PAGE>
INVESTOR INFORMATION
PRINCIPAL OUTSIDE COUNSEL
Faegre & Benson LLP
Minneapolis, Minnesota
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Minneapolis, Minnesota
TRANSFER AGENT
Chemical Mellon Shareholder Services L.L.C.
Richfield Park, New Jersey
FORM 10-K
A copy of our annual report on Form 10-K, filed with the Securities and Exchange
Commission, will be furnished free of charge to any CNT shareholder upon either
telephone request to (612) 797-6130 or written request to:
Investor Relations
Computer Network Technology Corporation
605 North Highway 169 -- Suite 800
Minneapolis, Minnesota 55441
Information on CNT is also available through the World Wide Web at
http://www.cnt.com
ANNUAL MEETING
Shareholders, employees and friends are invited to attend CNT's annual meeting
on Friday, May 17, 1996 at 10:00 a.m. at the Minneapolis Marriott City Center,
30 South Seventh Street, Minneapolis, Minnesota.
PRICE RANGE OF THE COMPANY'S COMMON STOCK
The following table sets forth the range of high and low sales prices and volume
for the Company's Common Stock (symbol CMNT), as reported on the Nasdaq Stock
Market.
<TABLE>
<CAPTION>
Common Stock
------------------------------
High Low Volume
- ------------------------------------------------------------------------
<S> <C> <C> <C>
1995:
- ------------------------------------------------------------------------
First Quarter $ 9.38 $5.88 10,149,178
- ------------------------------------------------------------------------
Second Quarter $11.88 $7.63 10,875,501
- ------------------------------------------------------------------------
Third Quarter $12.75 $4.75 20,863,956
- ------------------------------------------------------------------------
Fourth Quarter $ 7.25 $4.25 9,083,629
- ------------------------------------------------------------------------
1994:
- ------------------------------------------------------------------------
First Quarter $12.38 $8.63 13,600,473
- ------------------------------------------------------------------------
Second Quarter $10.50 $6.50 7,126,219
- ------------------------------------------------------------------------
Third Quarter $ 8.25 $5.13 11,776,789
- ------------------------------------------------------------------------
Fourth Quarter $ 7.88 $5.63 7,354,229
- ------------------------------------------------------------------------
</TABLE>
As of March 20, 1996, there were 1,124 shareholders of record. The Company
estimates that an additional 10,000 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
DIVIDENDS
The Company has never paid cash dividends on any of its securities. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
28
<PAGE>
CORPORATE INFORMATION
BOARD OF DIRECTORS
Bruce T. Coleman
Acting President and Chief Executive Officer
Chief Executive Officer
El Salto Advisors
Erwin A. Kelen
Vice Chairman of the Board
Private Investor
Kelen Ventures
Lawrence Perlman
Chairman and Chief Executive Officer
Ceridian Corporation
John A. Rollwagen
Chairman of the Board
Private Investor
John A. Rollwagen Company
EXECUTIVE OFFICERS
Bruce T. Coleman
Acting President and Chief Executive Officer
John R. Brintnall
Vice President of Finance, Chief Financial
Officer, and Treasurer
Kathleen E. Brush
Acting Vice President of Marketing
Richard E. Carlson
Vice President of Manufacturing
William C. Collette
Vice President of Engineering
Peter Dixon
Vice President of International
Richard G. Helgeson
Vice President of Sales
Scott A. McCourt
Vice President of Brixton Development
Kristine E. Ochu
Vice President of Human Resources
Julie C. Quintal
Vice President of Customer Support
<PAGE>
[LOGO OF COMPUTER NETWORK TECHNOLOGY CORPORATION]
Corporate Locations:
Computer Network Technology Corporation
6500 Wedgwood Road
Maple Grove, Minnesota 55311-3640
Tel: 612-550-8000
Fax: 612-550-8800
Computer Network Technology Corporation
605 North Highway 169, Suite 800
Minneapolis, Minnesota 55441
Tel: 612-797-6000
Fax: 612-797-6813
Web: http://www.cnt.com
Computer Network Technology Corporation
125 CambridgePark Drive
Cambridge, Massachusetts 02140
Tel: 617-498-2300
Fax: 617-498-2480
Wholly Owned Subsidiaries:
CNT Asia Pacific Pty Ltd.
North Sydney NSW 2060
Australia
Tel: 61-29-922-4177
CNT France S.A.
92250 LaGarenneColombes
France
Tel: 33-1-4130-1212
CNT International Ltd.
Langley, Slough SL3 6EX
United Kingdom
Tel: 44-1753-792400
Joint Ventures:
CNTware Vernetzungssysteme GmbH
63128 Dietzenbach
Germany
Tel: 49-6074-82770
International Distributors:
Korea Computer Maintenance Corporation
Seoul, Korea
Tel: 82-2-771-5800
ECU 10 -- (IPM)
Barcelona, Spain
Tel: 34-3-477-0436
World Information Technologies Co., Ltd.
Bangkok, Thailand
Tel: 66-2-233-2261
CMA Computer Marketing A/S
Oslo, Norway
Tel: 47-2-266-0722
Telematics & Services
Brussels, Belgium
Tel: 32-2-346-2586
Controlware AG
Pfaeffikon, Switzerland
Tel: 41-0-5548-6116
Controlware GmbH
Dietzenbach, Germany
Tel: 49-6074-858-247
Telena Telecomunicazioni Spa
Milano, Italy
Tel: 39-2-582-001
Kanematsu Electronics Limited
Tokyo, Japan
Tel: 81-3-5250-6161
CESCE Equip'amentos Informaticos, Lda.
Lisboa, Portugal
Tel: 351-1315-6190
Techniva, S.A. de C.V.
Zona Rosa, Mexico D.F.
Tel: 525-207-7295
ComTec
Bryanston, South Africa
Tel: 27-11-463-6450
Memorex Telex P.R. Inc.
San Juan, Puerto Rico
Tel: 809-154-7936
IBM Brasil -- Industria,
maquinas e Servicos Ltda.
Rio de Janeiro, Brasil
Tel: 55-21-532-5473
CMA Computer Marketing A/S
Stockholm, Sweden
Tel: 46-8-666-0800
Paradigm Systems Brasil
Sao Paulo, Brasil
Tel: 55-11-851-0949
Benton Software International b.v.
Hoofddorp, The Netherlands
Tel: 31-2503-12268
Interlink Computer Communications, Ltd.
Ramat-Gan, Israel
Tel: 972-3-7513135
Sistemas Informaticos Abiertos
Madrid, Spain
Tel: 34-1-683-4781
Open Technologies Ltd.
Moscow, Russia
Tel: 7-095-132-5292
UNIXPAC Pty. Limited
Sydney, Australia
Tel: 61-2-9953-8366
Hysys
Seoul, Korea
Tel: 82-2-783-2903
LG Electronics Inc.
Seoul, Korea
Tel: 82-2-3459-5319
Padraoix
Brasilia, Brasil
Tel: 55-61-274-6092
Copyright (C) 1996 by Computer Network Technology Corporation (CNT). All rights
reserved. Any reproduction of these materials without the prior written consent
of CNT is strictly prohibited.
CNT, the CNT logo, Channelink, and Brixton are trademarks or registered
trademarks of Computer Network Technology Corporation.
All other trademarks identified herein are the property of their respective
owners. CNT is an equal opportunity employer.
<PAGE>
Exhibit 21
----------
COMPUTER NETWORK TECHNOLOGY CORPORATION
Subsidiaries of the Registrant
CNT International Ltd.
- ----------------------
. Incorporated under the English Companies Act
. d/b/a CNT International Ltd. and CNTI
CNT France S.A.
- ---------------
. Incorporated under French law
. d/b/a CNT France S.A. and CNTF
Computer Network Technology GmbH
- --------------------------------
. Incorporated under German law
CNTFS Corporation
- -----------------
. Incorporated under Virgin Islands law
CNTware Vernetzungssysteme GmbH (51%)
- -------------------------------
. Incorporated under German law
. d/b/a CNTware
Computer Network Technology (Asia Pacific) Pty. Ltd.
- ----------------------------------------------------
. Incorporated under Australian Law
. d/b/a CNT A/P
<PAGE>
EXHIBIT 23.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Computer Network Technology Corporation:
We consent to incorporation by reference in the Registration Statements (No. 33-
6862, 33-28367, 33-42750, 33-41985, 33-41596, 33-48944, 33-48954, 33-68356, 33-
68372, 33-83262, 33-83264, and 33-83266) of Computer Network Technology
Corporation on Form S-8 and the related Reoffer Prospectuses prepared in
accordance with Form S-3 of our reports dated February 1, 1996 relating to the
consolidated balance sheets of Computer Network Technology Corporation and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1995, and all related
schedules, which reports appear, or are incorporated by reference, in the
December 31, 1995 annual report on Form 10-K of Computer Network Technology
Corporation.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the consolidated balance sheet and statement of operations of Computer Network
Technology Corporation as of and for the year ending December 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,959,931
<SECURITIES> 22,448,987
<RECEIVABLES> 19,676,089
<ALLOWANCES> 1,130,726
<INVENTORY> 10,534,152
<CURRENT-ASSETS> 61,525,001
<PP&E> 20,745,969
<DEPRECIATION> 12,147,303
<TOTAL-ASSETS> 79,134,117
<CURRENT-LIABILITIES> 17,200,131
<BONDS> 42,912
<COMMON> 229,294
0
0
<OTHER-SE> 60,276,780
<TOTAL-LIABILITY-AND-EQUITY> 79,134,117
<SALES> 60,889,828
<TOTAL-REVENUES> 78,836,647
<CGS> 17,799,484
<TOTAL-COSTS> 32,572,228
<OTHER-EXPENSES> 12,718,295<F1>
<LOSS-PROVISION> 489,000
<INTEREST-EXPENSE> 59,825
<INCOME-PRETAX> 6,534,448
<INCOME-TAX> 2,512,000
<INCOME-CONTINUING> 4,022,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,022,448
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<FN>
<F1> Amount presented represents engineering and development expense.
</FN>
</TABLE>
