<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Computer Network Technology Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------------
<PAGE>
[LOGO]
605 North Highway 169
Minneapolis, Minnesota 55441
(612) 797-6000
April 1, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the Shareholders
of Computer Network Technology Corporation (the "Company") at the Marriott City
Center, 30 South Seventh Street, Minneapolis, Minnesota, on Thursday, May 13,
1999, beginning at 10:00 a.m.
The Secretary's Notice of the Annual Meeting and the Proxy Statement that
appear on the following pages describe the matters scheduled to come before the
meeting. At the meeting, I will discuss the Company's performance in 1998 and
report on current items of interest to our shareholders. In addition, certain
members of the Company's board of directors and executives of the Company, as
well as representatives of KPMG Peat Marwick LLP, the Company's independent
auditors will be available to answer your questions.
I hope you will be able to attend the meeting in person and look forward to
seeing you. PLEASE MARK, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS QUICKLY AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE
MEETING. If you attend the meeting you may withdraw any proxy previously given
and vote your shares in person.
On behalf of your board of directors and the Company's employees, thank you
for your support of and interest in the Company.
Sincerely,
/s/ Thomas G. Hudson
Thomas G. Hudson
President and Chief Executive Officer
<PAGE>
[Logo]
Computer Network Technology Corporation
605 North Highway 169
Minneapolis, Minnesota 55441
(612) 797-6000
___________________________________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999
___________________________________________________________________________
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Computer Network Technology Corporation, a Minnesota corporation, will be held
on Thursday, May 13, 1999 at the Marriott City Center, 30 South Seventh Street,
Minneapolis, Minnesota, beginning at 10:00 a.m. for the following purposes:
(1) To fix the number of directors at five and to elect five persons to
the board of directors to serve until the next Annual Meeting of the
Shareholders;
(2) To approve the proposed amendment to the Restated Articles of
Incorporation of the Company to increase the number of authorized
shares of Common Stock from 30,000,000 to 100,000,000;
(3) To amend the 1992 Stock Award Plan to increase the number of shares
authorized for issuance thereunder by 800,000;
(4) To amend the 1992 Employee Stock Purchase Plan to increase the number
of shares authorized for issuance thereunder by 300,000;
(5) To ratify and approve the appointment of KPMG Peat Marwick LLP as
independent auditors for the year ending December 31, 1999; and
(6) To transact other business that may properly come before the meeting.
Shareholders of record on March 15, 1999 are the only persons entitled to
notice of and to vote at the meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Greogory T. Barnum
Gregory T. Barnum
Vice President of Finance, Chief Financial Officer and
Corporate Secretary
April 1, 1999
Minneapolis, Minnesota
<PAGE>
[Logo]
Computer Network Technology Corporation
605 North Highway 169
Minneapolis, Minnesota 55441
(612) 797-6000
___________________________________________________________________________
PROXY STATEMENT
___________________________________________________________________________
ANNUAL MEETING OF SHAREHOLDERS
MAY 13, 1999
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the board of directors (the "Board") of Computer Network Technology Corporation
of proxies to be voted at the Annual Meeting of the Shareholders of the Company
(the "Annual Meeting") to be held on Thursday May 13, 1999 at the Marriott City
Center, 30 South Seventh Street, Minneapolis, Minnesota, beginning at 10:00 a.m.
(central time), and at any adjournments thereof. This Proxy Statement and the
accompanying proxy card are furnished in connection with the proxy solicitation
and are being mailed to shareholders beginning approximately April 1, 1999.
Shares represented by properly executed and returned proxies will, unless
otherwise specified on the proxy card, be voted FOR all of the nominees listed
in Item 1 and FOR Items 2, 3, 4 and 5 as set forth on the proxy card, and be
voted in the discretion of the proxy holders as to any other matter that may
properly come before the meeting. A shareholder voting through a proxy who
abstains with respect to a certain proposal is considered to be present and
entitled to vote on such proposal at the meeting, and is in effect a negative
vote, but a shareholder (including a broker) who does not give authority to a
proxy holder to vote, or withholds authority to vote, on a certain proposal
shall not be considered present and entitled to vote on such proposal.
The proxy may be revoked at any time prior to its exercise by providing
written notice of revocation or another proxy bearing a later date to the
Secretary of the Company at the address set forth above or at the Annual
Meeting.
1
<PAGE>
The Company will pay expenses incurred in connection with the solicitation of
proxies. Proxies are being solicited by mail. In addition, directors, officers
and other employees of the Company may solicit proxies personally, by telephone,
by electronic mail, or by facsimile without additional compensation to them.
The Company has requested brokerage houses, nominees, custodians, and
fiduciaries to forward solicitation material to the beneficial owners of Common
Stock of the Company and will reimburse such persons for their expenses.
Shareholders of record as of March 15, 1999 are the only persons entitled
to vote at the Annual Meeting. As of that date, there were issued and
outstanding 22,xxx,xxx shares of Common Stock, the only authorized and issued
voting security of the Company. Each shareholder is entitled to one vote for
each share held.
2
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The by-laws of the Company provide that the number of directors that
constitute the board shall be fixed from time to time by the shareholders of the
Company and that directors shall be elected at the annual meeting and shall hold
office until the next annual meeting of shareholders and until their successors
are elected and qualified. The Board recommends that the number of directors
constituting the Board be set at five and nominates the five persons named below
for election as directors.
The accompanying proxy will be voted in favor of the election of the
following nominees as directors, each of whom is currently a director, unless
the shareholder giving the proxy indicates to the contrary on the proxy. All
nominees have agreed to stand for election at the Annual Meeting. If any
nominee is not available as a candidate for director at the time of the Annual
Meeting, the proxies will be voted for another nominee designated by the Board
to fill such vacancy, unless the shareholder giving the proxy indicates to the
contrary on the proxy.
The affirmative vote of the holders of a majority of the voting power of
the outstanding shares of Common Stock of the Company entitled to vote on the
election of directors and present, in person or by proxy, at the Annual Meeting
is required to elect each of the five nominees named below.
3
<PAGE>
NOMINEES TO THE BOARD
THOMAS G. HUDSON, 52 years of age, has been President and Chief Executive
Officer since June 1996, and a director since August 1996. From 1993 to June
1996, Mr. Hudson was Senior Vice President of McGraw Hill Companies, a leading
information services provider, serving as General Manager of its F.W. Dodge
Division, and as Senior Vice President, Corporate Development. From 1968 to
1993, Mr. Hudson served in a number of management positions at IBM Corporation,
most recently as Vice President Services Sector Division. Mr. Hudson's IBM
career included varied product development, marketing and strategic
responsibilities for IBM's financial services customers and extensive
international and large systems experience. He is a graduate of the University
of Notre Dame and New York University. He attended the Harvard Advanced
Management Program in 1990.
PATRICK W. GROSS, 54 years of age, has been a director since July 1997.
Mr. Gross founded American Management Systems, Inc. ("AMS") in 1970 where he
serves as Chairman of the Executive Committee and Principal Executive Officer.
AMS is a management consulting and systems integration firm applying information
technology to business and management in both the public and private sectors.
Between July 1968 and May 1970, Mr. Gross served on the staff of the U.S.
Secretary of Defense in the Office of Systems Analysis. Mr. Gross is Chairman
of Baker & Taylor Holdings, Inc., a private company, and serves as a director of
Capital One Financial Corporation and Landmark Systems Corporation. He is a
graduate of Rensselaer Polytechnic Institute, University of Michigan and
Stanford University.
ERWIN A. KELEN, 63 years of age, has been a director since June 1988. Mr.
Kelen is President of Kelen Ventures and a partner of Camir Investments, both
private investment entities. He is a private investor active in venture capital
investments, investment management and helping small companies grow. From 1984
to 1990, Mr. Kelen was President and Chief Executive Officer of DataMyte
Corporation, a wholly owned subsidiary of Allen Bradley Co. Mr. Kelen is also a
director of Printronix, Inc., Insignia Systems, Inc., and CyberOptics
Corporation. He is a graduate of the Technical University of Budapest and the
University of Minnesota Graduate School.
LAWRENCE PERLMAN, 60 years of age, has been a director since June 1988.
From January 1990 to November 1992, Mr. Perlman was President and Chief
Executive Officer of Ceridian Corporation, formerly Control Data Corporation,
and has been Chairman and Chief Executive Officer since November 1992. Ceridian
Corporation is a leading information services and defense electronics company
that serves the human resources, electronic media, transportation, gaming and
government markets. Mr. Perlman also serves as a director of Ceridian
Corporation, Valspar Corporation and Amdocs Ltd. and as Chairman and a director
of Seagate Technology, Inc. He is a graduate of Carleton College and Harvard Law
School.
4
<PAGE>
JOHN A. ROLLWAGEN, 58 years of age, has been a director since June 1993 and
Chairman of the Board since December 1995. Mr. Rollwagen is a private investor
and venture partner with St. Paul Venture Capital, a venture capital firm. From
January 1993 to May 1993, Mr. Rollwagen served as U.S. Department of Commerce
Deputy Secretary-Designate. Beginning in 1975, Mr. Rollwagen served in
executive capacities with Cray Research, Inc. ("Cray"). Mr. Rollwagen served as
Chairman and Chief Executive Officer of Cray from 1981 to January 1993. Mr.
Rollwagen serves as a director of Minnesota Brewing Co., and several private
companies. He is a graduate of The Massachusetts Institute of Technology and
Harvard Graduate School of Business Administration.
MEETINGS AND COMMITTEES OF THE BOARD
The Board held five meetings during 1998 and otherwise conducted business
by written resolutions signed by all directors. Each director attended at least
75% of the total number of meetings of the Board plus the total number of
meetings of all committees on which he served
The Audit Committee recommends to the Board the selection of independent
auditors, reviews the activities and reports of the independent auditors, and
reviews the internal accounting controls of the Company. The Audit Committee is
comprised of Messrs. Kelen, Perlman, and Rollwagen. The Audit Committee held
two meetings in 1998.
The Compensation Committee is comprised of Messrs. Kelen, Perlman, and
Rollwagen. The primary purpose of this Committee is set forth in the "Report on
Executive Compensation" contained in this Proxy Statement. The Compensation
Committee held two meetings in 1998 and otherwise conducted business by written
resolutions signed by the Committee members.
The Board does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a retainer of $5,000
per quarter, plus reimbursement of out-of-pocket expenses incurred on behalf of
the Company. Accordingly, the non-employee directors were each paid a retainer
of $20,000 for 1998. During 1998, each of the Company's non-employee directors
also received an option to purchase 20,000 shares of the Company's Common Stock
under the Company's 1992 Stock Award Plan.
5
<PAGE>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 1999, certain
information with respect to all shareholders known to the Company to have been
beneficial owners of more than 5% of its Common Stock, for each director and
each executive officer named in the Compensation Table on page 14, and all
directors and executive officers of the Company as a group. Unless otherwise
indicated, each person named in the table has sole voting and investment power
as to the Common Stock shown.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11/th/ Floor 1,353,400 6.12%
Santa Monica, CA 90401 /(1)/
- --------------------------------------------------------------------------------------------
Thomas G. Hudson /(2)/ 491,415 2.14%
- --------------------------------------------------------------------------------------------
Erwin A. Kelen /(3)/ 496,237 2.18%
- --------------------------------------------------------------------------------------------
John A. Rollwagen /(3)/ 296,660 1.30%
- --------------------------------------------------------------------------------------------
Lawrence Perlman /(3)/ 197,493 *
- --------------------------------------------------------------------------------------------
Patrick A. Gross /(3)/ 52,507 *
- --------------------------------------------------------------------------------------------
Gregory T. Barnum /(4)/ 24,509 *
- --------------------------------------------------------------------------------------------
Nick V. Ganio /(5)/ 68,040 *
- --------------------------------------------------------------------------------------------
Martin G. Hahn /(6)/ 25,000 *
- --------------------------------------------------------------------------------------------
Mark R. Knittel /(7)/ 40,540 *
- --------------------------------------------------------------------------------------------
All executive officers and directors as a
Group (15 persons) /(8)(9)/ 1,879,330 7.83%
==============================================================================================
</TABLE>
* Represents beneficial ownership of less than one percent of the outstanding
Common Stock
6
<PAGE>
(1) According to a Schedule 13G dated February 11, 1999, Dimensional Fund
Advisors, Inc. ("Dimensional"), a registered investment advisor, is deemed
to have beneficial ownership of 1,353,400 shares of the Company's Common
Stock as of December 31, 1998, all of which shares are held in portfolios
of DFA Investment Dimensions Group, Inc., a registered open-end investment
company, or in series of the DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and DFA Participation Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional Fund Advisors Inc. serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.
(2) Includes 491,415 shares that may be acquired upon exercise of incentive and
non-qualified stock options that are currently exercisable or are
exercisable within 60 days. Also includes 877 shares held by Connecticut
General Trust Company as trustee of the Company's 401(k) Plan.
(3) Includes 203,327, 266,660, 169,993 and 52,507 shares that may be acquired
upon the exercise of non-qualified stock options held by Messrs. Kelen,
Rollwagen, Perlman, and Gross, respectively. These options are currently
exercisable or are exercisable within 60 days.
(4) Includes 21,250 shares that may be acquired upon exercise of incentive
stock options that are currently exercisable or are exercisable within 60
days.
(5) Includes 62,500 shares that may be acquired upon exercise of incentive and
non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(6) Includes 25,000 shares that may be acquired upon exercise of incentive and
non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(7) Includes 40,000 shares that may be acquired upon exercise of incentive and
non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(8) Includes 10,039 shares held by Connecticut General Trust Company as trustee
of the Company's 401(k) Plan for the benefit of three officers.
(9) Includes 1,461,244 shares that may be acquired upon exercise of incentive
and non-qualified stock options. These options, including those discussed
above, are currently exercisable or exercisable within 60 days. Includes
only executive officers and directors as of February 28, 1999.
7
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file periodic reports of ownership and changes in
ownership with the Securities and Exchange Commission. During 1998, based solely
on its review of the copies of such reports received by it and of written
representations from certain reporting persons regarding filings required to be
made by such persons, the Company believes that all persons required under
Section 16(a) to file beneficial ownership reports with respect to the Company's
Common Stock complied with such filing requirements.
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee (the Committee) is comprised entirely of
independent, outside directors and is responsible for recommending to the Board
the Company's executive compensation philosophy, for determining all aspects of
the Chief Executive Officer's compensation, and for review and approval of
recommendations for compensation paid to other executives. The Committee is
also responsible for administering the Company's stock-based compensation plans.
During 1998, the Committee was comprised of Messrs. Rollwagen, Kelen and
Perlman.
The primary objectives of executive compensation are to provide
compensation that will attract, retain, reward and motivate a highly effective
Executive Team that will lead the Company in achieving its business goals in a
highly competitive and rapidly changing industry; to ensure that compensation
opportunities for executives are competitively positioned and yet reasonable in
light of the Company's objectives; and to emphasize and reinforce the link of
pay for individual and Company performance.
The Committee believes that the Company's executive compensation program
provides an overall level of compensation opportunity that is competitive with
comparably sized companies within the computer industry.
COMPONENTS OF EXECUTIVE COMPENSATION
The Company's total compensation for executives consists of annual cash
compensation in the form of base salaries and bonuses, and long-term incentives
in the form of participation in the Company's Executive Deferred Compensation
Plan and options to acquire Common Stock. In addition, executives are provided
with the same level and types of benefits that are generally available to other
employees. The Company' executive compensation strategy is designed to base a
significant portion of an executive's overall compensation on the financial
performance of the Company. The following sections describe each component of
executive compensation.
8
<PAGE>
ANNUAL CASH COMPENSATION
Base salary and bonuses are established for the Company's executives each
year based on the executive's job responsibilities, level of experience, overall
performance and contributions, future potential, as well as information obtained
with respect to competitive pay practices. Comparative compensation data was
derived from an analysis of external compensation surveys encompassing companies
of similar size and industry, and from outside consultants. Bonuses may be based
on a combination of the Success Sharing Annual Leadership Bonus Plan ("the
Success Sharing Plan"), individual performance bonuses or sales commissions. For
1998, base salaries and bonuses for the Company's executives, other than its
Chief Executive Officer, were recommended to the Committee by the Company's
Chief Executive Officer, after consideration was given to the factors noted
above and consultation with the Company's Vice President of Human Resources.
The Success Sharing Plan is an annual incentive program which provides
executives and other key contributors with the opportunity to earn a cash bonus
if the Company achieves certain levels of revenue growth and pre-tax
profitability, with the level of bonus payment specifically tied to achievement
of these key performance measures.
At the beginning of each year, the Committee approves a success sharing
grid for use in determining the Company's success sharing bonus factor and an
individual success sharing bonus participation rate for each executive. The
horizontal and vertical axes of the success sharing grid are based on defined
levels of revenue growth over the previous year and pre-tax profit as a
percentage of revenue (after deducting the cost of success sharing bonuses and
excluding special charges). The annual success sharing factor is based on the
success sharing grid and the Company's actual level of revenue growth and pre-
tax profitability. The success sharing bonus participation rate for each
executive is based on the executive's expected level of contribution to the
Company's overall financial performance. The success sharing bonus for an
executive is determined by multiplying their eligible compensation (primarily
salary) by the Company's success sharing bonus factor and their individual
success sharing bonus participation rate.
For 1998, the Company's success sharing bonus factor was 86.25 percent and
individual success sharing bonus participation rates for the Company's
executives ranged from 25 percent to 40 percent. An executive having eligible
compensation of $125,000 and a success sharing bonus participation rate of 25
percent would have earned a 1998 success sharing bonus of $26,953.
The Committee approved a Management by Objective (MBO) bonus program
in 1998 that provided most of the Company's executives with quarterly bonus
payments through achievement of various individual and corporate objectives. In
addition, certain executives earned other commissions and bonuses in 1998 by
achieving various predetermined goals and objectives. For example, the Company's
Vice President of Worldwide Sales earned commissions and bonuses in 1998 by
achieving various revenue, operating profit and expense management objectives.
9
<PAGE>
LONG TERM INCENTIVES
Stock options are a key tool to recruit, retain, and motivate executive
officers and other key employees. The Committee determines the timing and number
of stock option grants for the Company's executives, including its Chief
Executive Officer, based on the anticipated contribution of the executive to the
Company's overall financial performance and their level of responsibility within
the Company. In determining the number of options to be granted, the Committee
also takes into consideration the number of options then held by the executive.
All stock options granted have an exercise price equal to fair market value on
the date of grant, generally vest over a four year period and expire ten years
from the date of grant.
The Company's Executive Deferred Compensation Plan provides eligible
executives with the opportunity to defer compensation and receive a matching
contribution equal to 20% of deferrals, up to an annual maximum of $10,000 per
year. The matching contribution is fully vested after four years of service.
COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The 1998 compensation plan for the Company's President and Chief Executive
Officer, Thomas G. Hudson, included annual base salary of $300,000 and
participation in the Success Sharing Plan at a rate of 60 percent. The
employment agreement the Company entered into with Mr. Hudson when he joined the
Company in June 1996 provided for guaranteed minimum Success Sharing payments of
$12,500 per calendar month through June 30, 1998. Mr. Hudson also received MBO
bonuses for 1998 of $100,000. Mr. Hudson received two stock option grants in
1998 for the purchase of an aggregate of 75,000 shares of Common Stock. The
option grants made to Mr. Hudson were based upon his performance and leadership
with the Company. The grants placed a significant portion of his total
compensation at risk, since the options' value depends on the appreciation of
the Company's Common Stock over the option term.
INTERNAL REVENUE CODE SECTION 162(M)
Internal Revenue Code Section 162(m) limits the deductibility of
compensation over $1 million paid by a company to an executive officer. Other
than limiting the maximum number of shares that may be awarded to any employee
or other participant under the Stock Award Plan in any calendar year to 750,000
shares, the Committee currently does not have a policy with respect to Section
162(m) because it is unlikely that such limit will apply to compensation paid by
the Company to any of the Company's executive officers for at least the current
year.
ERWIN A. KELEN
LAWRENCE PERLMAN
JOHN ROLLWAGEN
Members of the Compensation Committee
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows, for the Company's Chief Executive Officer
and for each of the four other most highly compensated executive officers of the
Company at the end of fiscal 1998 (collectively, the "Named Officers"),
information concerning compensation earned for services in all capacities during
the fiscal year ended December 31, 1998, as well as compensation earned by each
such person for the two previous fiscal years (if the person was Chief Executive
Officer or another executive officer during any part of such fiscal year):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
LONG TERM
OTHER COMPENSATION
ANNUAL SHARES
COMPEN- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($) OPTIONS (#) COMPENSATION ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Hudson/(1)/ 1998 $300,000 $290,200 $37,996 75,000 $ 11,000
President and Chief 1997 $285,000 $150,000 $ 3,863 200,000 $135,411
Executive Officer 1996 $125,962 $ 75,000 - 500,000 $118,961
Gregory T. Barnum/(2)/ 1998 $178,000 $ 85,734 $ 1,976 30,000 $ 2,800
Vice President Finance, Chief 1997 $ 80,067 - $ 103 85,000 $ 400
Financial Officer and
Secretary
Nick V. Ganio/(3)/ 1998 $138,541 $196,260 $ 3,527 250,000 $ 60,000
Vice President of Worldwide
Sales
Martin G. Hahn/(4)/ 1998 $165,000 $113,838 $11,474 17,000 $ 11,000
Vice President & General 1997 $ 35,380 - $ 203 100,000 $ 2,000
Manager Enterprise Integration,
Solutions Division
Mark R. Knittel/(5)/ 1998 $168,000 $ 93,960 $ 5,067 40,000 $ 3,030
Vice President of Marketing and 1997 $124,923 $ 49,000 $ 461 90,000 $ 29,056
Business Development
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Hudson's "Bonus" consists of guaranteed minimum success sharing
payments and a success sharing bonus earned for 1998 based on profitability
and revenue growth according to his employment agreement (see section
entitled "Employment Agreements" for further information) and MBO
performance bonuses of $100,000. "Other Annual Compensation" consists of
earnings credits under the Company's Executive Deferred Compensation Plan.
"All Other Compensation" in 1998 consists of a $1,000 401(k) match and a
$10,000 Executive Deferred Compensation match.
(2) Mr. Barnum's "Bonus" consists of a $53,734 success sharing bonus and MBO
performance bonuses of $32,000. "Other Annual Compensation consists of
earnings credits under the Company's Executive Deferred Compensation Plan.
"All Other Compensation" consists of a $1,000 401(k) match paid by the
Company and a $1,800 Executive Deferred Compensation match.
(3) Mr. Ganio's "Bonus" consists of a $29,873 success sharing bonus and
$166,387 of sales commissions and performance bonuses. "Other Annual
Compensation consists of earnings credits under the Company's Executive
Deferred Compensation Plan. "All Other Compensation" consists of a sign-on
bonus of $50,000 and a $10,000 Executive Deferred Compensation match. Mr.
Ganio became an executive officer of the Company in March 1998.
(4) Mr. Hahn's "Bonus" consists of a $57,838 success sharing bonus and $56,000
of performance bonuses. "Other Annual Compensation" consists of earnings
credits under the Company's Executive Deferred Compensation Plan. "All
Other Compensation" consists of a $1,000 401(k) match and a $10,000
Executive Deferred Compensation match. Mr. Hahn became an executive officer
of the Company in October 1997.
(5) Mr. Knittel's "Bonus" consists of a $57,960 success sharing bonus and
$36,000 of MBO performance bonuses. "Other Annual Compensation" consists of
earnings credits under the Company's Executive Deferred Compensation Plan.
"All Other Compensation" consists of a $3,030 Executive Deferred
Compensation match.
11
<PAGE>
OPTION TABLES
The following tables summarize stock option grants and exercises during
1998 to or by the Named Officers and certain other information relative to such
options.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
==============================================================================================================================
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM /(3)/
- ------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS GRANTED EMPLOYEES IN EXERCISE EXPIRATION
NAME /(1)/ FISCAL YEAR PRICE /(2)/ DATE 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Hudson 75,000 3.0% $9.6875 December 9, 2008 $ 457,734 $1,155,234
- ------------------------------------------------------------------------------------------------------------------------------
Gregory T. Barnum 30,000 1.2% $9.6875 December 9, 2008 $ 183,094 $ 462,094
- ------------------------------------------------------------------------------------------------------------------------------
Nick V. Ganio 250,000 10.0% $4.6875 March 15, 2008 $ 738,281 $1,863,281
- ------------------------------------------------------------------------------------------------------------------------------
Martin G. Hahn 17,000 .7% $9.6875 December 9, 2008 $ 103,753 $ 261,853
- ------------------------------------------------------------------------------------------------------------------------------
Mark R. Knittel 40,000 1.6% $9.6875 December 9, 2008 $ 244,125 $ 616,125
==============================================================================================================================
</TABLE>
(1) Subject to acceleration at the discretion of the Compensation Committee or
upon the death or disability of the optionee, each option generally becomes
cumulatively exercisable with respect to 25% of the shares covered on each
of the first four anniversaries of the grant date.
(2) Fair market value per share on the date of grant as determined in
accordance with the Stock Award Plan.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
12
<PAGE>
Aggregated Option Exercises In 1998 And Year-End Option Values
<TABLE>
<CAPTION>
=========================================================================================================================
NUMBER OF SHARES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END (#) FISCAL YEAR-END (1)
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Hudson - - 399,990 / 375,820 $3,073,751 / $2,519,368
Gregory T. Barnum - - 21,250 / 93,750 $ 179,219 / $ 622,031
Nick V. Ganio - - - / 250,000 - / $1,953,125
Martin G. Hahn - - 25,000 / 92,000 $ 190,625 / $ 607,684
Mark R. Knittel - - 22,500 / 107,500 $ 162,500 / $ 600,000
=========================================================================================================================
</TABLE>
(1) The dollar value of unexercised in-the-money options at fiscal year end is
equal to the difference between the market value of the shares underlying
the options and the exercise price.
13
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Thomas G. Hudson
to serve as its President and Chief Executive Officer. Effective January 1, 1999
and 1998, the Committee approved increases in Mr. Hudson's annualized base
salary to $330,000 and $300,000, respectively. The employment agreement also
provided for a hiring bonus, which was paid in 1996, in the amount of $100,000;
a success sharing bonus at a 60 percent participation rate, with a non-
recoverable minimum monthly payment of $12,500 for the period from July 1, 1996
through June 30, 1998; and a long-term incentive in the form of a non-qualified
stock option to purchase 500,000 shares of the Company's Common Stock. In the
event of a "Change of Control," the number of unvested Options equal to the
number of then vested options shall become immediately vested and exercisable,
provided in no event shall less than an aggregate of 250,000 options be vested
and exercisable upon a Change of Control. If Mr. Hudson's employment ends by
reason of termination without cause, then the Company shall continue to pay Mr.
Hudson's base salary and reimburse him for expenses incurred to retain ongoing
COBRA benefits, at the rate then in effect, for a period of one year following
the date of termination, provided that if termination occurs upon or within six
months after a Change of Control, he shall receive a lump sum payment equal to
one year's base salary. In addition, the Company agreed to reimburse Mr. Hudson
for certain relocation expenses.
The Company has entered into an employment arrangement with Mark R.
Knittel, Vice President of Marketing and Business Development which provides for
six months severance should the employment relationship be terminated for non-
performance.
On February 18, 1998, the Company entered into an employment arrangement
with Nick V. Ganio to serve as its Vice President of Worldwide Sales. Mr.
Ganio's annual target cash compensation is $350,000, consisting of $175,000 in
base compensation, plus $175,000 of bonus opportunities consisting of a success
sharing bonus at a 25 percent participation rate and other commissions and
bonuses based on achievement of revenue, operating profitability and expense
management objectives. The Company guaranteed $95,000 of the bonus opportunity
in the first year of employment. Mr. Ganio also received a $50,000 signing
bonus which was paid in 1998 and a long term incentive in the form of stock
options for the purchase of 250,000 shares of the Company's Common Stock. Upon
termination of employment other than for cause, Mr. Ganio is entitled to
severance equal to his base salary for a period of six months, with the
opportunity for an additional six months of severance in the event he has not
found employment.
14
<PAGE>
COMPARATIVE STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on the Common
Stock of the Company ("CNT Common Stock") for the last five fiscal years with
the cumulative total return of The Nasdaq Stock Market (U.S. Companies) Index
("The Nasdaq Total Return Index") and the Computer Manufacturers Nasdaq Industry
Category Index ("The Nasdaq Computer Manufacturers Index") for the same periods
as compiled by the Center for Research in Security Prices of the University of
Chicago Graduate School of Business (assuming the investment of $100 in CNT
Common Stock, The Nasdaq Total Return Index, and The Nasdaq Computer
Manufacturers Index on December 31, 1993, and reinvestment of all dividends).
The Nasdaq Computer Manufacturers Index is comprised of all companies listed on
The Nasdaq Stock Market with SIC Code No. 357. The Company will promptly make
available a list of the companies comprising the Nasdaq Computer Manufacturers
Index on the request of a shareholder in writing to the Secretary of the Company
at the address set forth on the first page of this Proxy Statement.
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CNT Common Stock 100.0 63.4 41.9 46.5 32.6 116.3
- ----------------------------------------------------------------------------------------------------
The Nasdaq Total Return Index 100.0 97.8 138.3 170.0 208.3 293.5
- ----------------------------------------------------------------------------------------------------
The Nasdaq Computer Manufacturers Index 100.0 109.8 173.0 231.9 280.5 610.0
- ----------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
PROPOSAL TO AMEND THE RESTATED ARTICLES OF INCORPORATION
(ITEM 2 ON PROXY CARD)
The Company's Restated Articles of Incorporation authorize the issuance of
30,000,000 shares of Common stock, $.01 par value, and 1,000,000 shares of
Preferred Stock. As of December 31, 1998, there were 22,253,674 shares of
Common Stock issued and outstanding, and 5,814,632 shares of Common Stock
reserved for issuance under the 1992 Stock Award Plan, 1997 Restricted Stock
Plan and 1992 Employee Stock Purchase Plan. No shares of Preferred Stock were
outstanding as of March 15, 1999.
The proposed amendment to Article III of the Company's Restated Articles of
Incorporation recommended by the Board, would increase the number of shares of
Common Stock that the Company is authorized to issue from 30,000,000 to
100,000,000. If the amendment is approved by the shareholders, subsection 3.01
of Article III of the Company's Restated Articles of Incorporation, as amended,
would read as follows:
"This corporation shall have the authority to issue an aggregate
of one hundred million (100,000,000) shares of Common Stock of
par value of $.01 per share. Such shares shall be designated as
this corporation's `Common Stock.' "
The Board desires to increase the authorized number of shares of Common Stock
to enhance the Company's flexibility in connection with possible future actions,
such as equity financings, mergers, acquisitions of property, stock splits,
stock dividends, use in employee benefit plans, or other corporate purposes.
Having such authorized shares available for issuance would allow shares of
Common Stock to be issued without the expense and delay of a special
shareholders' meeting. The additional shares of Common Stock would be part of
the existing class of Common Stock and, if and when issued, would have the same
rights and privileges as the shares of Common Stock currently outstanding.
If the proposed amendment is approved, the additional shares of Common Stock
would be available for issuance without further action by the shareholders,
unless such action is required by applicable law, the rules of the National
Association of Securities Dealers, Inc., or any stock exchange on which the
Company's securities may be listed.
16
<PAGE>
At the date of this proxy statement, except as described herein under
"Proposal to Amend the 1992 Stock Award Plan," "Proposal to Amend the 1992
Employee Stock Purchase Plan," and the 1997 Restricted Stock Plan as described
in the Notes to Financial Statements in the 1998 Annual Report, the Board has
not authorized the issuance of any additional shares of Common Stock and the
Company has no agreements or commitments with respect to the sale or issuance of
any shares of Common Stock beyond the number currently authorized. The proposal
to increase the authorized number of shares of Common Stock may be considered as
having the effect of discouraging attempts to takeover control of the Company
and issuances of additional shares could have the effect of diluting per share
earnings and book value of existing shares.
The affirmative vote of a majority of the outstanding shares of Common
Stock present or represented and entitled to vote on this item is required for
approval of the amendment of the Company's Restated Articles of Incorporation.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT.
17
<PAGE>
PROPOSAL TO AMEND THE 1992 STOCK AWARD PLAN
(ITEM 3 ON PROXY CARD)
APPROVAL OF AMENDMENT OF 1992 STOCK AWARD PLAN
The 1992 Stock Award Plan ("the Stock Award Plan") was adopted by the Board
and approved by the shareholders in 1992 and 6,200,000 shares of Common Stock
are reserved for issuance. The Board has adopted, subject to shareholder
approval, an amendment to the Stock Award Plan to increase the number of shares
authorized for issuance thereunder from 6,200,000 shares to 7,000,000 shares,
an increase of 800,000 shares.
The board of directors believes that stock based compensation has been and will
continue to be an important compensation element in attracting, retaining and
motivating key employees. As of December 31, 1998, there were 728,098 shares of
Common Stock available for future grants of stock options and other stock based
awards under the Stock Award Plan. The board of directors believes that the
increase in authorized shares reserved for issuance under the Stock Award Plan
is necessary because of the need to continue to make awards to recruit, retain
and motivate key employees and other Company representatives, including outside
directors, and to use such awards in connection with a planned increase in the
number of employees of the Company. The shareholders are being asked to approve
this amendment to the Stock Award Plan at the Annual Meeting.
PURPOSE
The purpose of the Stock Award Plan is to assist the Company in recruiting and
retaining key employees and other Company representatives, including outside
directors, and to motivate them to produce a superior return for the Company's
shareholders by offering an opportunity to realize stock appreciation,
facilitating stock ownership, and rewarding a high level of corporate financial
performance.
ADMINISTRATION
The Stock Award Plan is administered by the Compensation Committee (the
"Committee"), a committee of the Board composed of two or more directors who are
non-employee directors, as that term is defined in Rule 16b-3(b) promulgated
under the Securities Exchange Act of 1934, as amended. The Committee has the
exclusive power to adopt and revise rules relating to the Stock Award Plan and
to determine the timing of grants, identity of recipients, the form and amount
of each award and other terms and conditions of awards; provided, however, that
the Board will have the sole power to grant awards to outside directors. The
Committee may delegate its responsibilities under the Stock Award Plan to
members of the Company's management and others with respect to the selection and
grant of awards to employees of the Company who are not deemed to be officers,
directors, or 10% shareholders of the Company under applicable federal
securities laws.
18
<PAGE>
Under the Stock Award Plan, the Committee may require or permit employees
to elect to defer the issuance of Shares or the settlement of awards in cash
under such rules and procedures as it may establish under the Plan. It may also
provide that deferred settlements include the payment or crediting of interest
on the deferral amounts.
ELIGIBILITY AND NUMBER OF SHARES
Officers, other employees, directors, consultants, and independent
contractors of the Company and its affiliates are eligible to receive awards
under the Stock Award Plan. The Company currently has approximately 600
employees and directors who are eligible to receive awards under the Stock Award
Plan.
The number of shares of the Company's Common Stock available for issuance
under the Stock Award Plan is 6,200,000 (subject to adjustment for stock splits,
stock dividends, and similar changes in the Company's capitalization, and
acquisitions as noted below). The Committee may grant awards under the Stock
Award Plan to employees and other representatives of entities acquired by the
Company in substitution of stock-based awards previously granted to them by the
acquired entity and such awards may have terms and conditions that vary from
those specified in the Stock Award Plan. The Stock Award Plan provides that the
maximum number of shares available for distribution under its terms will be
increased to take into account any awards granted in substitution for stock-
based awards previously granted by an acquired entity.
If the amendment is approved, an additional 800,000 shares of Common Stock
will be available for issuance under the Stock Award Plan (subject to adjustment
as described above). The maximum number of shares that may be awarded by stock
options intended to comply with Section 422 of the Internal Revenue Code
("incentive stock options') is 7,000,000. The aggregate maximum number of
shares that may be awarded as restricted stock and stock awards is 500,000. In
addition, no employee participating in the Stock Award Plan may receive options
to purchase more than 750,000 shares of Common Stock in any one calendar year.
Grants of options to individual employees in any calendar year under the Stock
Award Plan have historically been below this 750,000 share limit. The last
reported per share sale price of the Company's Common Stock on the Nasdaq
National Market on February 28, 1999 was $11.875. The aggregate market value
of securities underlying options granted under the Stock Award Plan was
$56,178,856 at February 28, 1999.
19
<PAGE>
The Stock Award Plan provides that all awards are subject to agreements
containing the terms and conditions of the awards. These agreements are entered
into by the recipients of the awards and the Company when the awards are
granted. Agreements with employees are subject to amendment, including
unilateral amendment by the Company (upon authorization of the Committee),
unless such amendments are determined by the Committee to be materially adverse
to the recipient and are not required as a matter of law. Any shares of Common
Stock subject to awards under the Stock Award Plan that are not used because the
terms and conditions of the awards are not met may be reallocated under the
Stock Award Plan as though they had not previously been awarded. In addition,
the Stock Award Plan provides that if a recipient uses shares of the Company's
Common Stock to pay the purchase or exercise price of an award or to satisfy tax
withholding obligations related to an award, only the net number of shares shall
be deemed to be issued for purposes of determining the maximum number of shares
available under the Stock Award Plan.
TYPES OF AWARDS
The types of awards that may be granted under the Stock Award Plan include
incentive and non-qualified stock options, performance units, restricted stock,
stock and other stock-based awards. Subject to the restrictions described in
this Proxy Statement with respect to incentive stock options and non-employee
director options, these awards are exercisable by the recipients at such times
as determined by the Committee. No award is assignable or transferable by a
recipient. However, under the Stock Award Plan, the Committee, in its
discretion, may permit transfers of awards in the event of death or when the
award (other than Incentive Stock Options) are transferred to members of the
recipient's immediate family or to one or more trusts for the benefit of such
family members or partnerships in which such family members are the only
partners, if the recipient receives no consideration for the transfer.
20
<PAGE>
Incentive and Non-qualified Stock Options. Both incentive stock options and
non-qualified stock options may be granted to recipients at such exercise prices
as the Committee may determine, but not less than 100% of their fair market
value (as defined in the Stock Award Plan) as of the date the option is granted.
Stock options may be granted and exercised at such times as the Committee may
determine, except that unless applicable federal tax laws are modified: (i) no
incentive stock options may be granted more than ten years after the effective
date of the Stock Award Plan; (ii) an incentive stock option shall not be
exercisable more than ten years after the date of grant; and (iii) the aggregate
fair market value of the shares of the Company's Common Stock with respect to
which incentive stock options held by an employee under the Stock Award Plan or
any other plan of the Company or any affiliate may first become exercisable in
any calendar year may not exceed $100,000. Incentive stock options may only be
granted to employees of the Company and its subsidiaries. The purchase price for
stock purchased upon the exercise of the options may be payable in cash, in
stock having a fair market value on the date the option is exercised equal to
the option price of the stock being purchased, or in a combination of cash and
stock, as determined by the Committee. The Committee may permit participants to
exercise options and simultaneously sell the stock purchased upon such exercise
and use the sale proceeds to pay the purchase price and/or any required
withholding taxes. The Committee may provide, at or after the grant of a stock
option, that a recipient who surrenders shares of stock in payment of an option
shall be granted a new incentive or non-qualified stock option covering a number
of shares equal to the number of shares tendered.
Performance Units. Performance units entitle the recipient to payment in
amounts determined by the Committee based upon the achievement of specified
performance targets during a specified term. Payments with respect to
performance units may be paid in cash, shares of Common Stock, or a combination
of cash and Common Stock, as determined by the Committee.
Restricted Stock, Stock and Other Stock-Based Awards. The Committee is
authorized to grant, either alone or in conjunction with other awards, stock and
stock-based awards. The Committee shall determine the persons to whom such
awards are made, the timing and amount of such awards, and all other terms and
conditions. Common Stock granted to recipients may be unrestricted or may
contain such restrictions, including provisions requiring forfeiture and
imposing restrictions upon stock transfer, as the Committee may determine.
Unless forfeited, the recipient of restricted Common Stock will have all other
rights of a shareholder, including without limitation, voting and dividend
rights.
Outside Director Awards. Outside directors may, at the discretion of the Board
and in accordance with the terms of the Stock Award Plan, be granted awards at
various times, including when an outside director is first elected or appointed
to the board, when an outside director is re-elected to the board or at other
times as may be deemed appropriate
21
<PAGE>
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS, FORFEITURE
The Committee may provide for the lapse of restrictions on restricted stock or
other awards, accelerated exercisability of options or acceleration of the term
with respect to which the achievement of performance targets for performance
units is determined in the event of a change in control of the Company, other
fundamental changes in the corporate structure of the Company, the death or
retirement of the recipient, or such other events as the Committee may
determine. The Committee may provide that certain awards may be exercised in
certain events after the termination of employment or death of the recipient.
ADJUSTMENTS, MODIFICATION, TERMINATION
The Stock Award Plan provides the Committee with discretion to adjust the kind
and number of shares available for awards or subject to outstanding awards, the
option price of outstanding options, and performance targets for, and payments
under, outstanding awards of performance units in the event of mergers,
recapitalization, stock dividends, stock splits, or other relevant changes.
Adjustments in performance targets and payments on performance units are also
permitted upon the occurrence of such other events as may be specified by the
Committee, which may include changes in the Company's accounting practices or
changes in the recipient's title or employment responsibilities. The Stock Award
Plan also gives the Board the right to terminate, suspend, or modify the Stock
Award Plan, except that amendments to the Stock Award Plan are subject to
shareholder approval if needed to comply with the incentive stock option
provisions of federal tax law. Under the Stock Award Plan, the Committee may
cancel outstanding options and performance units generally in exchange for cash
payments to the recipients in the event of certain dissolutions, liquidations,
mergers, statutory share exchanges, or other similar events involving the
Company.
FEDERAL TAX CONSIDERATIONS
Incentive Stock Options. No taxable income to a recipient will be realized,
and the Company will not be entitled to any related deduction, at the time any
incentive stock option is granted under the Stock Award Plan. If certain
statutory employment and holding period conditions are satisfied before the
recipient disposes of shares acquired pursuant to the exercise of such an
option, then no taxable income will result upon the exercise of such option and
the Company will not be entitled to any deduction in connection with such
exercise. Upon disposition of the shares after expiration of the statutory
holding periods, any gain or loss realized by a recipient will be a capital gain
or loss. The Company will not be entitled to a deduction with respect to a
disposition of the shares by a recipient after the expiration of the statutory
holding periods.
22
<PAGE>
Except in the event of death, if shares acquired by a recipient upon the
exercise of an incentive stock option are disposed of by the recipient before
the expiration of the statutory holding periods (a "disqualifying disposition"),
the recipient will be considered to have realized compensation, taxed as
ordinary income in the year of disposition, in an amount, not exceeding the gain
realized on such disposition, equal to the difference between the exercise price
and the fair market value of the shares on the date of exercise of the option.
The Company will be entitled to a deduction at the same time and in the same
amount as the recipient is deemed to have realized ordinary income. Generally,
any gain realized on the disposition in excess of the amount treated as
compensation or any loss realized on the disposition will constitute capital
gain or loss, respectively. If the recipient pays the option price with shares
that were originally acquired pursuant to the exercise of an incentive stock
option and the statutory holding periods for such shares have not been met, the
recipient will be treated as having made a disqualifying disposition of such
shares, and the tax consequences of such disqualifying disposition will be as
described above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes, an incentive stock option will be treated as
if it were a non-qualified stock option, the tax consequences of which are
discussed below.
Non-qualified Stock Options. No taxable income to a recipient will be
realized, and the Company will not be entitled to any related deduction, at the
time any non-qualified stock option is granted under the Stock Award Plan.
Generally, at the time shares are transferred to the recipient pursuant to the
exercise of a non-qualified stock option, the recipient will realize ordinary
income, and the Company will be entitled to a deduction, equal to the excess
fair market value of the stock on the date of exercise over the option price.
Upon disposition of the shares, any additional gain or loss realized by the
recipient will be treated as a capital gain or loss.
Restricted and Unrestricted Stock. Unless the recipient files an election to
be taxed under Section 83(b) of the Code, (a) the recipient will not realize
income upon the grant of restricted stock, (b) the recipient will realize
ordinary income, and the Company will be entitled to a corresponding deduction
when the restrictions have been removed or expire and (c) the amount of such
ordinary income and deduction will be the fair market value of the restricted
stock on the date the restrictions are removed or expire. If the recipient files
an election to be taxed under Section 83(b) of the Code, the tax consequences to
the recipient and the Company will be determined as of the date of the grant of
the restricted stock rather than as of the date of the removal or expiration of
the restrictions. With respect to awards of unrestricted stock, (a) the
recipient will realize ordinary income and the Company will be entitled to a
corresponding deduction upon the grant of the unrestricted stock, and (b) the
amount of such ordinary income and deduction will be the fair market value of
such unrestricted stock on the date of the grant. When the recipient disposes of
restricted or unrestricted stock, the difference between the amount received
upon such disposition and the fair market value of such shares on the date the
recipient realizes ordinary income will be treated as a capital gain or loss.
23
<PAGE>
Performance Units. Generally: (i) the recipient will not realize income upon
the grant of a performance unit award; (ii) the recipient will realize ordinary
income, and the Company will be entitled to a corresponding deduction, in the
year cash, shares of Common Stock, or a combination of cash and shares of Common
Stock are delivered to the recipient upon payment of the performance unit award;
and (iii) the amount of such ordinary income and deduction will be the amount of
cash received plus the fair market value of the shares of Common Stock received
on the date they are received. When the recipient disposes of shares received
in payment of a performance unit award, the difference between the amount
received upon such disposition and the fair market value of such shares on the
date the recipient realizes ordinary income will be treated as a capital gain or
loss.
WITHHOLDING
The Stock Award Plan permits the Company to withhold from cash awards, and to
require a recipient receiving Common Stock under the Stock Award Plan to pay the
Company, in cash, an amount sufficient to cover any required withholding taxes.
In lieu of cash, the Committee may permit a recipient of a stock award to cover
withholding obligations through a reduction in the number of shares delivered to
such recipient or the surrender to the Company of shares previously received by
the recipient.
COMPANY TAX DEDUCTIONS
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
allowable deduction for compensation paid to or accrued with respect to the
Chief Executive Officer and each of the four other most highly compensated
employees of a publicly held corporation to no more than $1 million per year.
Certain types of compensation are exempted from this deduction limitation,
including compensation subject to: (i) the attainment of an objective
performance goal or goals; (ii) an outside director requirement; and (iii) a
shareholder approval requirement. The deduction with respect to any stock
option meeting the requirements described above is not subject to the $1 million
per employee per year deduction limitations.
The tax deduction of the Company with respect to any other stock option is
determined when the option is exercised by the option holder. To the extent the
option is treated as a non-qualified option, the deductible amount generally
will equal the difference between the fair market value of the Common Stock of
the Company on the date of exercise and the exercise price of the option,
multiplied by the total number of options exercised.
The stock options of the Company granted pursuant to the Stock Award Plan are
awarded at a price not less than the fair market value of the Common Stock of
the Company on the date of the grant. Thus, such options are treated as
"performance-based" compensation under the first requirement of the Code set
forth above. The Board plans to continue to review the composition of the
Committee to ensure that it will consist entirely of "outside directors" (as
such term is defined by the Code) in order to satisfy the second requirement of
the Code set forth above.
24
<PAGE>
In order to satisfy the final requirement of the Code set forth above, the
Stock Award Plan sets at 750,000 the maximum number of shares subject to options
that can be awarded to any single employee during a specified period. Grants of
options to individual participants in any calendar year under the Stock Award
Plan have historically been significantly below this 750,000 share limit. The
purpose of this 750,000 share limit is to afford the Board and the Committee
great flexibility in connection with the recruitment and retention of executives
and other high level employees. In satisfying the requirements of the Code, the
Stock Award Plan qualifies the stock options granted under it so as to preserve
the corresponding tax deductions of the Company if and when such stock options
are exercised.
BOARD RECOMMENDATION AND VOTING REQUIREMENTS
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE STOCK AWARD
PLAN. Provided a quorum is present, the affirmative vote of holders of a
majority of the voting power of the outstanding shares of Common Stock of the
Company entitled to vote on this item and present, in person or by proxy, at the
Annual Meeting is required for approval of the amendment to increase the number
of shares authorized for issuance under the Stock Award Plan by 800,000 Proxies
solicited by the Board will be voted for approval of this amendment, unless
shareholders specify otherwise in their proxies.
25
<PAGE>
PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 4 ON PROXY CARD)
APPROVAL OF AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
The 1992 Employee Stock Purchase Plan (the "Stock Purchase Plan") was adopted
by the Board and approved by the shareholders in 1992 and 800,000 shares of
Common Stock are reserved for issuance. The Board has adopted, subject to
shareholder approval, an amendment to the Company's Stock Purchase Plan to
increase the number of shares authorized for issuance thereunder from 800,000
shares to 1,100,000 shares, an increase of 300,000 shares. As of December 31,
1998, there were 146,837 shares of Common Stock available for future purchases
under the Stock Purchase Plan.
The increase in the number of authorized shares is necessary to enable the
Company to continue to offer employees the opportunity to purchase shares of
Common Stock under the Stock Purchase Plan and to accommodate the growth in the
number of employees. The shareholders are being asked to approve this amendment
to the Stock Purchase Plan at the Annual Meeting.
PURPOSE
The purpose of the Stock Purchase Plan is to provide eligible employees with
an opportunity to acquire a proprietary interest in the Company through the
purchase of Common Stock of the Company and, thereby, to develop a stronger
incentive to work for the continued success of the Company. The Stock Purchase
Plan is an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended.
ADMINISTRATION
The Stock Purchase Plan is administered by the Compensation Committee of the
Board ("the Committee"). Subject to the provisions of the Stock Purchase Plan,
the Committee is authorized to determine any questions arising in the
administration, interpretation, and application of the Stock Purchase Plan, and
to make such rules as are necessary to carry out its provisions.
ELIGIBILITY AND NUMBER OF SHARES
Up to 800,000 shares of Common Stock are reserved for issuance under the Stock
Purchase Plan (subject to appropriate adjustments by the Committee in the event
of certain changes in the outstanding shares of Common Stock by reason of a
stock dividend, stock split, corporate separation, recapitalization, merger,
consolidation, combination, exchange of shares and the like). If the amendment
to the Stock Purchase Plan is approved by the shareholders, an additional
300,000 shares of Common Stock will be reserved for issuance under the Stock
Purchase Plan (subject to adjustment as described above). Shares delivered
pursuant to the Stock Purchase Plan shall be newly issued Common Stock of the
Company.
26
<PAGE>
Currently, any employee of the Company or one of its affiliates is eligible to
participate in the Stock Purchase Plan for any "Purchase Period" so long as, on
the first day of such Purchase Period, the employee's customary employment is:
(i) at least 20 hours per week; and (ii) for more than five months in any
calendar year. Purchase Period is defined as either the 6-month period
beginning on December 1 of each year and ending on May 31 of the year, or the 6-
month period beginning on June 1 of each year and ending on November 30 of the
year.
Any eligible employee may elect to become a participant in the Stock Purchase
Plan by filing an enrollment form in advance of the Purchase Period in which the
employee wishes to participate. The enrollment form authorizes payroll
deductions beginning with the first payday in the Purchase Period and continuing
until the employee withdraws from the Purchase Plan or ceases to be eligible to
participate.
No employee may be granted the right to purchase Common Stock under, or
otherwise participate in, the Stock Purchase Plan if after the purchase such
employee would own (or have the right to purchase) stock of the Company
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company.
As of February 28, 1999, approximately 600 employees were eligible to
participate in the Stock Purchase Plan for the December 1, 1998 through May 31,
1999 Purchase Period.
PARTICIPATION
An eligible employee who elects to participate in the Stock Purchase Plan
authorizes the Company to make payroll deductions of between 1% and 10% of the
employee's "Base Compensation" (meaning gross cash compensation paid in
accordance with the terms of employment, subject to certain exclusions set forth
in the Stock Purchase Plan) and "Incentive Compensation" (meaning compensation
paid pursuant to the Company's Success Sharing Bonus Plan or in the form of
commissions). The participant may elect different withholding percentages for
Base Compensation and Incentive Compensation, provided in each case that the
withholding percentage must always be a whole percentage from 0% to 10%.
A participant may, at any time during the Purchase Period, elect to reduce
(but not increase) the amount of deductions or to make no further deductions, as
set forth in greater detail in the Stock Purchase Plan. A participant may also
elect to withdraw from the Stock Purchase Plan at any time before the end of a
Purchase Period. In the event of a withdrawal, all future payroll deductions
will cease and the amounts withheld will be paid to the participant in cash
within 60 days. Any participant who stops payroll deductions may not thereafter
resume payroll deductions for that Purchase Period, and any participant who
decreases payroll deductions may not thereafter further decrease or increase
such deductions, except that he or she may stop further deductions.
Amounts withheld under the Stock Purchase Plan are held by the Company as part
of its general assets until the end of the Purchase Period and then applied to
the purchase of Common Stock of the Company as described below. No interest is
credited to a participant for amounts withheld.
27
<PAGE>
PURCHASE OF STOCK
Amounts withheld for a participant in the Stock Purchase Plan are used to
purchase Common Stock of the Company as of the last business day of the Purchase
Period at a price equal to 85% of the lesser of the Market Price (as defined in
the Stock Purchase Plan) of a share of Common Stock on either the first or last
business day of the Purchase Period. All amounts so withheld are used to
purchase the largest number of whole shares of Common Stock purchasable with
such amount, unless the participant has properly notified the Committee in
advance that he or she elects to purchase a lesser number of whole shares or to
receive the entire amount in cash. If the purchases by all participants would
exceed the number of shares of Common Stock available for purchase under the
Stock Purchase Plan, each participant will be allocated a ratable portion of
such available shares. Any amount not used to purchase shares of Common Stock
will be paid to the participant in cash within 60 days after the end of the
Purchase Period. No more than $2,500 may be withheld by any Participant to
purchase shares of Common Stock under the Stock Purchase Plan during any
Purchase Period.
As soon as practicable after the close of the Purchase Period, the Company
shall issue and deliver to participants certificates representing the respective
shares of Common Stock purchased under the Stock Purchase Plan.
No more than 2,500 shares of Common Stock and other stock may be purchased
under the Stock Purchase Plan and all other employee stock purchase plans (if
any) of the Company and any parent or subsidiary corporations of the Company by
any participant for each Purchase Period.
DEATH, DISABILITY, RETIREMENT, OR OTHER TERMINATION OF EMPLOYMENT
If the participant's employment terminates because the employee has died,
becomes permanently disabled, or has retired at or after age 65 (or earlier with
the consent of the Committee), the participant (or his or her legal
representative) may either: (i) withdraw from the Stock Purchase Plan, in which
case all amounts withheld and not previously used to purchase Common Stock
pursuant to the Stock Purchase Plan will be refunded in cash; or (ii) elect to
receive a refund of only a portion of such amounts and to apply the balance
toward the acquisition of Common Stock at the end of the Purchase Period. Any
such election must be made within three months of the event causing termination
of employment, but not (except in the case of death) later than the conclusion
of the Purchase Period. If no notice of election is filed with the Committee
within the prescribed period, the participant will be deemed to have elected to
withdraw from the Stock Purchase Plan.
If a participant's employment terminates for any other reason, the Company
will refund in cash all amounts withheld and not previously used to purchase
Common Stock under the Stock Purchase Plan.
28
<PAGE>
RIGHTS NOT TRANSFERABLE
The rights of a participant in the Stock Purchase Plan are exercisable only by
the participant during his or her lifetime. No right or interest of any
participant in the Stock Purchase Plan may be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution.
AMENDMENT OR MODIFICATION
The Board may at any time amend or modify the Stock Purchase Plan, provided
that approval by the shareholders of the Company is required to: (i) increase
the number of shares of Common Stock to be reserved under the Stock Purchase
Plan (except for adjustments by reason of stock dividends, stock splits,
corporate separations, recapitalizations, mergers, consolidations combinations,
exchanges of shares and the like); (ii) decrease the minimum purchase price
(except for adjustments by reason of stock dividends, stock splits, corporate
separations, recapitalizations, mergers, consolidations combinations, exchanges
of shares and the like); (iii) withdraw the administration of the Stock Purchase
Plan from the Committee; or (iv) change the definition of employees eligible to
participate in the Stock Purchase Plan.
TERMINATION
All rights of participants in any offering under the Stock Purchase Plan will
terminate at the earlier of: (i) the conclusion of the Purchase Period ending
May 31, 2002; (ii) the day participants become entitled to purchase a number of
shares of Common Stock equal to or greater than the number of shares remaining
available for purchase; or (iii) at any time, at the discretion of the Board,
after 30 days' notice has been given to all participants.
Upon termination, shares of Common Stock available under the Stock Purchase
Plan will be issued to participants and cash, if any, previously withheld and
not used to purchase Common Stock will be refunded to the participants, as if
the Stock Purchase Plan were terminated at the end of a Purchase Period.
FEDERAL TAX CONSIDERATIONS
No income will be recognized by participants due to their purchase of shares
under the Stock Purchase Plan until the disposal of those shares or the death of
the participant. Participants who hold their shares for more than one year or
die while holding their shares will have ordinary income in the year of
disposition or death equal to the lesser of: (i) the excess of the fair market
value of the shares on the date of disposition or death over the purchase price
paid by the participant; or (ii) the excess of the fair market value of the
shares on the first day of the year in which they were purchased by the
participant over the purchase price paid by the participant. If the holding
period has been satisfied when the participant sells the shares or the
participant dies while holding the shares, the Company will not be entitled to
any deduction in connection with the shares.
29
<PAGE>
Participants who dispose of their shares within the one-year period after the
shares are transferred to them will be considered to have realized ordinary
income in the year of disposition in an amount equal to the difference between
the fair market value of the shares on the date they were purchased by the
participant and the price paid by the participant. If such dispositions occur,
the Company generally will be entitled to a deduction at the same time and in
the same amount as the participants who make those dispositions are deemed to
have realized ordinary income.
Participants will have a basis in their shares equal to the purchase price of
their shares plus any amount that must be treated as ordinary income at the time
of their disposition of the shares. Any gain realized on the disposition of
shares acquired under the Stock Purchase Plan in excess of the basis will be
capital gain.
BOARD RECOMMENDATION AND VOTING REQUIREMENTS
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE STOCK
PURCHASE PLAN. Provided a quorum is present, the affirmative vote of holders of
a majority of the voting power of the outstanding shares of Common Stock of the
Company entitled to vote on this item and present, in person or by proxy, at the
Annual Meeting is required for approval of the amendments to increase the number
of shares of Common Stock reserved for issuance under the Stock Purchase Plan by
300,000. Proxies solicited by the board will be voted for approval of the
amendment, unless shareholders specify otherwise in their proxies.
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS
(ITEM 5 ON PROXY CARD)
KPMG Peat Marwick LLP has audited the financial statements of the Company
since 1984 and has no other relationship with or interest in the Company. The
Board, based on the recommendation of the Audit Committee, has again appointed
KPMG Peat Marwick LLP to serve as the Company's independent auditors for the
fiscal year ending December 31, 1999, subject to ratification by the
shareholders. If the shareholders do not ratify the appointment of KPMG Peat
Marwick LLP, another firm of independent auditors will be selected by the Board.
Proxies solicited by the Board will be voted to ratify the appointment of KPMG
Peat Marwick LLP, unless shareholders specify otherwise in their proxies.
Representatives of KPMG Peat Marwick LLP will be present at the meeting, will
have an opportunity to make a statement if they so desire, and will be available
to respond to questions.
30
<PAGE>
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Any shareholder proposals for the Company's 2000 annual meeting must be
received by the Company by December 3, 1999 in order to be included in the proxy
statement for that meeting. The proposals also must comply with all applicable
statutes and regulations.
At the time this Proxy Statement was mailed, the Board was not aware of any
matters to be presented for action at the Annual Meeting other than those
discussed in this Proxy Statement. If other matters properly come before the
meeting, the proxy holders have discretionary authority - unless it is expressly
revoked - to vote all proxies in accordance with their discretion.
SHAREHOLDERS WHO WISH TO OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998, MAY DO SO WITHOUT CHARGE UPON WRITTEN REQUEST TO:
INVESTOR RELATIONS, COMPUTER NETWORK TECHNOLOGY CORPORATION, 605 NORTH HIGHWAY
169, MINNEAPOLIS, MINNESOTA 55441.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gregory T. Barnum
Gregory T. Barnum
Vice President of Finance, Chief Financial Officer
and Corporate Secretary
Minneapolis, Minnesota
April 1, 1999
31
<PAGE>
APPENDIX A
1992 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED THROUGH MAY 1998)
1. PURPOSE AND SCOPE OF PLAN. The purpose of the 1992 Employee Stock
Purchase Plan (the "PLAN") is to provide the employees of Computer Network
Technology Corporation (the "COMPANY") and its affiliates with an opportunity to
acquire a proprietary interest in the Company through the purchase of its common
stock and, thus, to develop a stronger incentive to work for the continued
success of the Company. The Plan is intended to be an "employee stock purchase
plan" within the meaning of Section 473(b) of the Internal Revenue Code of 1986,
as amended, and shall be interpreted and administered in a manner consistent
with such intent.
2. DEFINITIONS.
2.1 Whenever used in this Plan:
(a) "AFFILIATE" means any parent or subsidiary corporation
of the Company. as defined in Sections 424(e) and 424(f) of the
Code and whose participation in the Plan has been approved by the
Board of Directors.
(b) "BASE COMPENSATION" means the gross cash compensation
(including wage, salary, and overtime earnings) paid by the
Company or any Affiliate to a Participant in accordance with the
terms of employment, but excluding all incentive Compensation,
cash received upon receipt of Certificates of Recognition,
expense allowances (including, without limitation, moving expense
allowances), and compensation payable in a form other than cash,
provided that such compensation will be determined without regard
to any earnings reduction agreements made pursuant to (i) a
qualified cash or deferred arrangement under Section 401(k) of
the Code or (ii) a cafeteria plan established under Section 125
of the Code.
(c) "BOARD OF DIRECTORS" means the board of directors of the
Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means the Compensation Committee of the
Board of Directors.
(f) "COMMON STOCK" means the common stock, par value $.01
per share, of the Company.
(g) "COMPANY" means Computer Network Technology Corporation.
(h) "COMPENSATION" means the sum of a Participant's Base
Compensation and his or her Incentive Compensation.
(i) "ELIGIBLE EMPLOYEE" means any employee of the Company or
an Affiliate whose customary employment is (i) at least 20 hours
per week and (ii) for more than 5 months in any calendar year,
provided, however, that "Eligible Employee" shall not include any
person who would be deemed for purposes of Section 423(b)(3) of
the Code to own stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company.
(j) "INCENTIVE COMPENSATION" means compensation paid to a
Participant pursuant to the Success Sharing Plan of the Company
or in the form of commissions.
(k) "FAIR MARKET VALUE" as of any date means:
(i) the closing sale price of a share of Common Stock on
the date specified or, if no sale of shares of Common
Stock shall have occurred on that date, on the next
preceding day on
<PAGE>
which a sale occurred of shares on the National
Association of Securities Dealers Inc. Automated
Quotations National Market System ("NMS"), or
(ii) if the shares of Common Stock are not quoted on the
NMS, what the Committee determines in good faith to be
the fair market value of a share of Common Stock on
that date.
If such determination of Fair Market Value is not consistent with
the then current regulations of the Secretary of the Treasury
applicable to plans intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423(b) of the Code,
Fair Market Value shall be determined in accordance with said
regulations. The determination of Fair Market Value shall be
subject to adjustment as provided in Section 14 hereof.
(l) "PARTICIPANT" means an Eligible Employee who has elected
to participate in the Plan in the manner set forth in Section 4.
(m) "PLAN" means this 1992 Employee Stock Purchase Plan.
(n) "PURCHASE PERIOD" through May 31, 1997 means the period
of July 1, 1992 to May 31, 1993, and thereafter the l2-month
period beginning on June 1 of each year and ending on May 31 of
the succeeding year; and commencing June 1, 1997, means each
six-month period ending on November 30 and May 31 during the
remainder of the term of this Plan.
(o) "STOCK PURCHASE ACCOUNT" means the account maintained in
the books and records of the Company recording the amount
withheld from each Participant through payroll deductions made
under the Plan.
3. SCOPE OF THE PLAN. Options to purchase shares of Common Stock may be
granted by the Company to Eligible Employees during the period commencing July
1, 1992 and ending May 31, 2002 as hereinafter provided, but not more than
800,000 shares of Common Stock (subject to adjustment as provided in Section 14
hereof) shall be purchased pursuant to such options. All options granted
pursuant to this Plan shall be subject to the same terms, conditions, rights,
and privileges. The shares of Common Stock delivered by the Company pursuant to
this Plan may be acquired shares having the status of authorized but unissued
shares, newly issued shares, or both.
4. ELIGIBILITY AND PARTICIPATION. To be eligible to participate in this
Plan for a given Purchase Period, an employee must be an Eligible Employee on
the first day of such Purchase Period. An Eligible Employee may elect to
participate in the Plan by filing an enrollment form with the Committee in
advance of the Purchase Period that authorizes regular payroll deductions from
Compensation beginning with the first payday in the Purchase Period and
continuing until the Eligible Employee withdraws from the Plan or ceases to be
an Eligible Employee.
5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE.
5.1 Subject to the provisions of this Plan, each Eligible
Employee shall be offered the option to purchase on the last day of the
Purchase Period the largest number of whole shares of Common Stock that
can be purchased at the price specified in Section 5.2 hereof with the
entire credit balance in the Participant's Stock Purchase Account:
provided however, that no more than the lesser of (i) 2,500 shares of
Common Stock and other stock for each Purchase Period or (ii) $25,000
in Fair Market Value (determined at the beginning of each Purchase
Period) of shares of Common Stock and other stock may be purchased
under this Plan and all other employee stock purchase plans (if any) of
the Company and the Affiliates by any Participant for each calendar
year. If the purchases by all Participants would otherwise cause the
aggregate number of shares of Common Stock to be sold under the Plan to
exceed the number specified in Section 3 hereof, however, each
Participant shall be allocated a ratable portion of the maximum number
of shares of Common Stock which may be sold.
2
<PAGE>
5.2 The purchase price of each share of Common Stock sold
pursuant to this Plan will be the lesser of (i) 85% of the Fair Market
Value of such share on the first business day of the Purchase Period or
(ii) 85% of the Fair Market Value of such share on the last business
day of the Purchase Period.
6. METHOD OF PARTICIPATION.
6.1 The Committee shall give notice to Eligible Employees of
each offering of options to purchase shares of Common Stock pursuant to
this Plan and the terms and conditions for each offering. Such notice
is subject to revision by the Company at any time prior to the date of
grant of the option. The first day of a Purchase Period is the date
contemplated by the Company as the date of grant of the option to
purchase such shares.
6.2 Each Eligible Employee who desires to participate in the
Plan for a Purchase Period shall signify his or her election to do so
by signing an election form developed by the Committee. An Eligible
Employee may elect different withholding percentages for Base
Compensation and for Incentive Compensation, provided that the
withholding percentage as to each must always be a whole percentage
from 0% to 10%. Notwithstanding the foregoing, a Participant may not
withhold more than $2,500 in the aggregate during each Purchase Period.
An election to participate in the Plan and to authorize payroll
deductions as described herein must be made before the commencement of
the Purchase Period to which it relates and shall remain in effect
unless and until such Participant withdraws from this Plan, modifies
his or her authorization, or terminates his or her employment with the
Company as hereinafter provided.
6.3 Any Eligible Employee who does not make a timely election
as provided in Section 6.2 hereof shall be deemed to have elected not
to participate in the Plan. Such election shall be irrevocable for such
Purchase Period.
7. STOCK PURCHASE ACCOUNT.
7. 1 The Company shall maintain a Stock Purchase Account for
each Participant. Payroll deductions pursuant to Section 6 hereof will
be credited to such Stock Purchase Accounts on each payday.
7.2 No interest will be credited to a Participant's Stock
Purchase Account.
7.3 The Stock Purchase Account is established solely for
accounting purposes, and all amounts credited to the Stock Purchase
Account will remain part of the general assets of the Company.
7.4 A Participant may not make any separate cash payment into
his or her Stock Purchase Account.
8. RIGHT TO REDUCE PARTICIPATION OR TO WITHDRAW.
8.1 A Participant may, at any time during a Purchase Period,
direct the Company to make no further deductions from his or her
Compensation or to reduce the amount of such deductions. Upon either of
such actions, future payroll deductions with respect to such
Participant shall cease or be reduced in accordance with the
Participant's direction.
8.2 Any Participant who stops payroll deductions may not
thereafter resume payroll deductions for the Purchase Period, and any
Participant who decreases payroll deductions may not thereafter further
decrease or increase such deductions, except that he or she may stop
further deductions.
8.3 At any time before the end of a Purchase Period, any
Participant may also withdraw from the Plan. In such event, all future
payroll deductions shall cease and the entire credit balance in the
Participant's Stock Purchase Account will be paid to the Participant,
without interest, in cash within 60 days. A Participant who withdraws
from the Plan will not be eligible to reenter the Plan until the next
succeeding Purchase Period.
3
<PAGE>
8.4 Notification of a Participant's election to reduce or
terminate deductions, or to withdraw from the Plan, shall be made by
the filing of an appropriate notice to such effect with the Committee.
9. TERMINATION OF EMPLOYMENT.
9.1 If the employment of a Participant is terminated prior to
conclusion of the Purchase Period because of death, permanent
disability, or retirement at or after age 65, or earlier with the
consent of the Committee, the Participant or his or her legal
representative, as applicable, may either:
(a) withdraw from the Plan, in which event the Company shall
refund in cash the entire balance in the Participant's Stock
Purchase Account; or
(b) elect to receive a distribution of only a portion of his
or her Stock Purchase Account, in which event the Company shall
refund such portion in cash and shall leave the balance of the
Stock Purchase Account to be applied at the end of the Purchase
Period towards the acquisition of shares of Common Stock as
provided in Section 10 hereof.
9.2 The election of a Participant or his or her legal
representative, as applicable, pursuant to Section 9.1 shall be made
within three months of the event causing the termination of employment,
but not (except in the case of death) later than the conclusion of the
Purchase Period. Notification of the election shall be filed with the
Committee and, in the event no notification has been filed within the
prescribed period, the Participant shall be deemed to have elected to
withdraw from the Plan in accordance with Section 9.l(a) hereof.
9.3 If the employment of a Participant is terminated for any
reason other than those specified in Section 9.1 hereof, the Company
shall refund in cash all amounts credited to his or her Stock Purchase
Account.
10. EXERCISE OF OPTION AND PURCHASE OF SHARES.
10.1 As of the last day of the Purchase Period, the entire
credit balance in each Participant's Stock Purchase Account will be
used to purchase the largest number of whole shares of Common Stock
purchasable with such amount (subject to the limitations of Section 5
hereof) unless the Participant has filed an appropriate form with the
Committee in advance of that date (which either elects to purchase a
specified number of whole shares which is less than the number
described above or elects to receive the entire credit balance in
cash).
10.2 Any amount remaining in a Participant's Stock Purchase
Account after such purchase (or the entire credit balance if the
Participant elected not to purchase any shares) will be paid to the
Participant in cash within 60 days after the end of the Purchase
Period.
10.3 As soon as practicable after the close of the Purchase
Period, certificates for the number of whole shares of Common Stock,
determined as aforesaid, purchased by each Participant shall be issued
and delivered to him or her.
11. RIGHTS AS A STOCKHOLDER. A Participant shall not be entitled to any
of the rights or privileges of a stockholder of the Company with respect to such
shares, including the right to receive any dividends which may be declared by
the Company, until he or she actually has paid the purchase price for such
shares and certificates have been issued to him or her in accordance with
Section 10.
12. RIGHTS NOT TRANSFERABLE. A Participant's rights under this Plan are
exercisable only by the Participant during his or her lifetime, and may not be
sold, pledged, assigned, or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge, assign, or
transfer the same shall be null and void and without effect. The amounts
credited to a Stock Purchase Account may not be assigned, transferred, pledged,
or hypothecated in any way, and any attempted assignment, transfer, pledge,
hypothecation, or other disposition of such amounts will be null and void and
without effect.
4
<PAGE>
13. ADMINISTRATION OF THE PLAN.
13.1 This Plan shall be administered by the Committee, which
is authorized to make such uniform rules as may be necessary to carry
out its provisions. The Committee shall determine any questions arising
in the administration, interpretation, and application of this Plan,
and all such determinations shall be conclusive and binding on all
parties.
13.2 If any option granted under this Plan shall lapse or
terminate unexercised, the number of shares of Common Stock covered
thereby shall again become available for sale under this Plan.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event or any
change in the Common Stock of the Company by reason of stock dividends, stock
splits, corporate separations, recapitalizations, mergers, consolidations,
combinations, exchanges of shares, and the like, the aggregate number and class
of shares available under this Plan and the number, class, and purchase price of
shares under option but not yet purchased under this Plan, shall be adjusted
appropriately by the Committee.
15. REGISTRATION OF CERTIFICATE. Stock certificates will be registered
in the name of the Participant, or jointly in the name of the Participant and
another person, as the Participant may direct on an appropriate form.
16. AMENDMENT OF PLAN. The Board of Directors may at any time amend
this Plan in any respect which shall not adversely affect the rights of
Participants pursuant to options accepted under this Plan, except that, without
stockholder approval on the same basis as required by Section 19.1, no amendment
shall be made (i) to increase the number of shares to be reserved under this
Plan, (ii) to decrease the minimum purchase price, (iii) to withdraw the
administration of this Plan from the Committee, or (iv) to change the definition
of employees eligible to participate in the Plan.
17. EFFECTIVE DATE OF PLAN. This Plan shall consist of an offering
commencing July 1, 1992 and ending May 31, 1993 and thereafter 4 consecutive
annual offerings beginning on June 1 of each year and ending on May 31 of the
subsequent year and commencing June 1, 1997, 10 consecutive six-month offerings
beginning on June 1 and December 1 during the remainder of the term of this
Plan. All rights of Participants in any offering hereunder shall terminate at
the earlier of the conclusion of the last Purchase Period authorized herein on
May 31, 2002 or:
17.1 On the day that Participants become entitled to purchase
a number of shares of Common Stock equal to or greater than the number
of shares remaining available for purchase;
17.2 At any time, at the discretion of the Board of Directors,
after 30 days' notice has been given to all Participants.
Upon termination of this Plan, shares of Common Stock in accordance with Section
10 shall be issued to Participants, and cash, if any, remaining in the
Participants' Stock Purchase Accounts shall be refunded to them, as if the Plan
were terminated at the end of a Purchase Period.
18. GOVERNMENTAL REGULATIONS AND LISTING. All rights granted or to be
granted to Eligible Employees under this Plan are expressly subject to all
applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale, or
transfer of the shares of Common Stock reserved for this Plan, including,
without limitation, there being a current registration statement of the Company
under the Securities Act of 1933 as amended, covering the shares of Common Stock
purchasable under options on the last day of the Purchase Period applicable to
such options, and if such a registration statement shall not then be effective,
the term of such options and the Purchase Period shall be extended until the
first business day after the effective date of such a registration statement, or
post-effective amendment thereto. If applicable, all such rights hereunder are
also similarly subject to effectiveness of an appropriate listing application to
the National Association of Securities Dealers, Inc. covering the shares of
Common Stock under the Plan upon official notice of issuance.
19. MISCELLANEOUS.
5
<PAGE>
19.1 This Plan shall be submitted for approval by the
stockholders of the Company prior to May 31, 1992. If not so approved
prior to such date, this Plan shall terminate on June 1, 1992.
19.2 This Plan shall not be deemed to constitute a contract of
employment between the Company and Participant, nor shall it interfere
with the right of the Company to terminate any Participant and treat
him or her without regard to the effect which such treatment might have
upon him or her under this Plan.
19.3 Wherever appropriate as used herein, the masculine gender
may be read as the feminine gender, the feminine gender may be read as
the masculine gender, the singular may be read as the plural, and the
plural may be read as the singular.
19.4 This Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
Minnesota.
19.5 Delivery of shares of Common Stock or of cash pursuant to
this Plan shall be subject to any required withholding taxes. A person
entitled to receive shares of Common Stock may, as a condition
precedent to receiving such shares, be required to pay the Company a
cash amount equal to the amount of any required withholdings.
6
<PAGE>
APPENDIX B
1992 STOCK AWARD PLAN
(AS AMENDED AND RESTATED THROUGH MAY 1998)
1. PURPOSE. The purpose of this 1992 Stock Award Plan (the "Plan") is to
motivate key personnel, including non-employee directors, to produce a superior
return to the shareholders of Computer Network Technology Corporation by
offering such personnel an opportunity to realize Stock appreciation, by
facilitating Stock ownership, and by rewarding them for achieving a high level
of corporate performance. This Plan is also intended to facilitate recruiting
and retaining key personnel of outstanding ability by providing an attractive
capital accumulation opportunity.
2. DEFINITIONS.
2.1 The terms defined in this section are used (and capitalized) elsewhere
in this Plan.
(a) "AFFILIATE" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Section
424(e) and (f) of the Code, or any successor provision.
(b) "AGREEMENT" means a written contract entered into between the Company
or an Affiliate and a Participant containing the terms and conditions of an
Award in such form (not inconsistent with this Plan) as the Committee approves
from time to time, together with all amendments thereto, which amendments may be
unilaterally made by the Company (with the approval of the Committee) unless
such amendments are deemed by the Committee to be materially adverse to the
Participant and are not required as a matter of law.
(c) "AWARD" means a grant made under this Plan in the form of Options,
Restricted Stock, Stock, Performance Units or any other Stock-based Award.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "COMMITTEE" means two or more Disinterested Persons designated by the
Board to administer this Plan under Section 3 hereof.
(g) "COMPANY" means Computer Network Technology Corporation, a Minnesota
corporation, or any successor to substantially all of its businesses.
(h) "DISINTERESTED PERSON" means a member of the Board who is considered a
disinterested person within the meaning of Exchange Act Rule l6b-3 or any
successor definition.
(i) "EFFECTIVE DATE" means the date specified in Section 10.1 hereof.
(j) "EMPLOYEE" means any employee (including an officer or director who is
also an employee) of the Company or an Affiliate. "Employee" shall also include
other individuals and entities who are not "employees" of the Company or an
Affiliate but who provide services to the Company or an Affiliate in the
capacity of an advisor, director or consultant. In addition, references herein
to "employment" and similar terms shall include the providing of services in any
such capacity.
(k) "EVENT" means any of the following:
1
<PAGE>
(i) The acquisition by an individual, entity, or group (within the
meaning of Section 13(d)(3) or l4(d)(2) of the Exchange Act) of beneficial
ownership (within the meaning of Exchange Act Rule 13d-3) of 40% or more of
either (A) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of the Board (the "Outstanding Company Voting
Securities"); provided, however, that the following acquisitions shall not
constitute an Event:
(1) any acquisition of voting securities of the Company directly
from the Company,
(2) any acquisition of voting securities of the Company by the
Company or any of its wholly owned Subsidiaries,
(3) any acquisition of voting securities of the Company by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any of its Subsidiaries, or
(4) any acquisition by any corporation with respect to which,
immediately following such acquisition, more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such acquisition in substantially the
same proportions as was their ownership, immediately prior to such
acquisition, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be;
(ii)Individuals who, as of the Effective Date, constitute the Board
(the "INCUMBENT BOARD") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest which was (or, if
threatened, would have been) subject to Exchange Act Rule 14a-l l;
(iii) Approval by the shareholders of the Company of a reorganization,
merger, consolidation, or statutory exchange of Outstanding Company Voting
Securities, unless immediately following such reorganization, merger,
consolidation, or exchange, all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, consolidation, owned, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such reorganization, merger,
consolidation, or exchange in substantially the same proportions as was
their ownership, immediately prior to such reorganization, merger,
consolidation, or exchange, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(iv)Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation with respect to which, immediately following such
sale or other disposition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as was their ownership, immediately
2
<PAGE>
prior to such sale or other disposition, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be.
(v) Notwithstanding the above, an Event shall not be deemed to occur
with respect to an employee if the acquisition of the 40% or greater
interest referred to in subsection (i) is by a group, acting in concert,
that includes that recipient or if at least 40% of the then outstanding
common stock or combined voting power of the then outstanding voting
securities (or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially all of the
assets of the Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation, statutory share
exchange or disposition of assets referred to in subsections (iii) or (iv)
by a group, acting in concert, that includes that Participant.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" as of any date means, unless otherwise expressly
provided in this Plan:
(i) the closing sale price of a Share on the date immediately
preceding that date or, if no sale of Shares shall have occurred on that
date, on the next preceding day on which a sale occurred of Shares on the
National Association of Securities Dealers, Inc. Automated Quotations
National Market System ("NMS"), or
(ii)if the Shares are not quoted on the NMS, what the Committee
determines in good faith to be 100% of the fair market value of a Share on
that date.
Provided, however, if the NMS has closed for the day at the time the event
occurs that triggers a determination of Fair Market Value, whether the grant of
an Award, the exercise of an Option or otherwise, all references in this Section
2.1(m) to the "date immediately preceding that date" shall be deemed to be
references to "that date." In the case of an Incentive Stock Option, if such
determination of Fair Market Value is not consistent with the then current
regulations of the Secretary of the Treasury, Fair Market Value shall be
determined in accordance with said regulations. The determination of Fair Market
Value shall be subject to adjustment as provided in Section 13 hereof.
(n) "FUNDAMENTAL CHANGE" means a dissolution or liquidation of the Company,
a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share exchange
involving capital stock of the Company.
(o) "INCENTIVE STOCK OPTION" means any Option designated as such and
granted in accordance with the requirements of Code Section 422 or any successor
to said section.
(p) "NON-QUALIFIED STOCK OPTION" means an Option other than an Incentive
Stock Option.
(q) "OPTION" means a right to purchase Stock, including both Non-Qualified
Stock Options and Incentive Stock Options.
(r) "OUTSIDE DIRECTORS" means those directors of Company who are not
employees of the Company or any Affiliate.
(s) "PERFORMANCE CYCLE" means the period of time as specified in an
Agreement over which Performance Units are to be earned.
(t) "PERFORMANCE UNITS" means an Award made under Section 7.2 hereof
(u) "PLAN" means this 1992 Stock Award Plan, as amended from time to time.
3
<PAGE>
(v) "RESTRICTED STOCK" means Stock granted under Plan Section 7.3 so long
as such Stock remains subject to one or more restrictions.
(w) "RETIREMENT" of an Employee means termination of employment with the
Company or an Affiliate on or after the date the Employee attains age 55.
(x) "SHARE" means a share of Stock.
(y) "STOCK" means the common stock, $.01 par value per share (as such par
value may be adjusted from time to time), of the Company.
(z) "SUBSIDIARY" means a subsidiary corporation," as that term is defined
in Section 424(f) of the Code, or any successor provision.
(aa)"SUCCESSOR" means the legal representative of the estate of a deceased
Participant or the person or persons who may, by bequest or inheritance, or
under the terms of an Award or of forms submitted by the Participant to the
Committee under Section 17 hereof, acquire the right to exercise an Option or
receive cash or Shares issuable in satisfaction of an Award in the event of an
employee's death.
(bb)"TERM" means the period during which an Option may be exercised or the
period during which the restrictions or terms and conditions placed on
Restricted Stock are in effect.
(cc)"TRANSFEREE" means any member of the Participant's immediate family
(i.e., his or her children, step-children, grandchildren and spouse) or one or
more trusts for the benefit of such family members or partnerships in which such
family members are the only partners.
2.2 NUMBER. Except when otherwise indicated by context, any term used in
the singular shall also include the plural.
3. ADMINISTRATION.
3.1 AUTHORITY OF COMMITTEE.
(a) GENERAL. Except as provided in Section 3.1(b), the Committee shall
administer this Plan. The Committee may delegate all or any portion of its
authority under this Plan to persons who are not Disinterested Persons solely
for purposes of determining and administering Awards to Employees who are not
then subject to the reporting requirements of Section 16 of the Exchange Act.
The Committee shall have exclusive power to make Awards, to determine when and
to whom Awards will be granted, the form of each Award, the amount of each
Award, and any other terms or conditions of each Award. Each Award shall be
subject to an Agreement authorized by the Committee. The Committee's
interpretation of this Plan and of any Awards made under this Plan shall be
final and binding on all persons. The Committee shall have the power to
establish regulations to administer this Plan and to change such regulations.
(b) OPTIONS TO OUTSIDE DIRECTORS. Notwithstanding any contrary provisions
of this Plan, the granting and terms, conditions, and eligibility requirements
of Awards granted to Outside Directors shall be determined by the Board of
Directors of the Company.
3.2 INDEMNIFICATION. To the full extent permitted by law, (a) no member of
the Board or of the Committee or any person to whom the Committee delegates
authority under this Plan shall be liable for any action or determination taken
or made in good faith with respect to this Plan or any Award made under this
Plan and (b) the members of the Board and of the Committee and each person to
whom the Committee delegates authority under this Plan shall be entitled to
indemnification by the Company with regard to such actions and determinations.
4
<PAGE>
4. SHARES AVAILABLE UNDER THIS PLAN. The number of Shares available for
distribution under this Plan shall not exceed 6,200,000 (subject to adjustment
as provided in this Section 4 and under Section 13 hereof). Any Shares subject
to the terms and conditions of an Award under this Plan that are not used
because the terms and conditions of the Award are not met may again be used for
an Award under this Plan. In addition, if, in accordance with this Plan, an
employee uses shares of Common Stock of the Company to (i) pay a purchase or
exercise price, including an Option exercise price, or (ii) satisfy tax
withholdings, only the number of shares issued net of the shares tendered in
payment of such purchase or exercise price and tax withholdings shall be deemed
to be issued for purposes of determining the maximum number of Shares available
under the Plan. Further, the maximum number of Shares available for distribution
under this Plan shall be increased to take into account any Awards granted under
Section 18 of this Plan.
5. ELIGIBILITY. Awards may be granted under this Plan to Employees and
Outside Directors, and such Awards shall have the terms and conditions specified
in Sections 6 and 7 hereof and elsewhere in this Plan. The granting of Awards to
Employees (other than Outside Directors) is solely at the discretion of the
Committee; the granting of Awards to Outside Directors is solely at the
discretion of the Board.
6. GENERAL TERMS OF AWARDS.
6.1 AMOUNT OF AWARD. Each Agreement with an Employee shall set forth the
number of Shares to which the Option subject to such Agreement applies or the
number of Shares of Restricted Stock, Stock, Performance Units subject to such
Agreement, as the case may be.
6.2 TERM. Each Agreement, other than those relating solely to Awards of
Shares without restrictions, shall set forth the Term of the Option or
Restricted Stock or the Performance Cycle for the Performance Units, as the case
may be. An Agreement may permit an acceleration of the expiration of the
applicable Term upon such terms and conditions as shall be set forth in the
Agreement, which may, but need not, include without limitation acceleration
resulting from the occurrence of an Event or in the event of the Employee's
death or Retirement. Acceleration of the Performance Cycle of Performance Units
shall be subject to Section 7.2(b) hereof.
6.3 AGREEMENTS. Each Award under this Plan shall be evidenced by an
Agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in this Plan.
6.4 TRANSFERABILITY. Except as provided in this Section 6.4, during the
lifetime of an employee to whom an Award is granted, only that Participant (or
that Participant's legal representative) may exercise an Option or receive
payment with respect to Performance Units or any other Award. No Award of
Restricted Stock (prior to the expiration of the restrictions), Options or
Performance Units or other Award may be sold, assigned, transferred, exchanged
or otherwise encumbered other than pursuant to a domestic relations order as
defined in the Code or Title 1 of the Employee Retirement Income Security Act
("ERISA") or the rules thereunder; any attempted transfer in violation of this
Section 6.4 shall be of no effect. Notwithstanding the immediately preceding
sentence, the Committee, in an Agreement or otherwise at its discretion, may
provide (i) that the Award subject to the Agreement shall be transferable to a
Successor in the event of an employee's death, or (ii) that the Award (other
than Incentive Stock Options) may be transferable to a Transferee if the
Participant receives no consideration for the transfer. Any Award held by a
Transferee shall continue to be subject to the same terms and conditions that
were applicable to such Award immediately prior to its transfer. By way of
example and not limitation, (i) an Option may be exercised by a Transferee as
and to the extent that such Option has become exercisable and has not terminated
in accordance with the provisions of the Plan and the applicable Agreement and
(ii) for purposes of any provision of this Plan relating to notice to an
optionee or to vesting or termination of an Option upon the death, disability or
termination of employment of an optionee, the references to "optionee" shall
mean the original grantee of an option and not any Transferee.
5
<PAGE>
7. TERMS AND CONDITIONS OF SPECIFIC AWARDS.
7.1 STOCK OPTIONS.
(a) TERMS OF ALL OPTIONS. Each Option shall be granted as either an
Incentive Stock Option or a Non-Qualified Stock Option. Only Non-Qualified Stock
Options may be granted to Outside Directors and to Employees who are not
employees of the Company or an Affiliate but who provide services to the Company
or an Affiliate in the capacity of an advisor or consultant. The purchase price
of each Share subject to an Option shall be determined by the Committee and set
forth in the Agreement, but shall not be less than 100% of the Fair Market Value
of a Share as of the date the Option is granted. The purchase price of the
Shares with respect to which an Option is exercised shall be payable in full at
the time of exercise, provided that to the extent permitted by law, the
Agreement may permit some or all Participants simultaneously to exercise Options
and sell the Shares thereby acquired pursuant to a brokerage or similar
relationship and use the proceeds from such sale as payment of the purchase
price of such Shares. The purchase price may be payable in cash, in Stock having
a Fair Market Value as of the date the Option is exercised equal to the purchase
price of the Stock being purchased pursuant to the Option, or a combination
thereof as determined by the Committee and provided in the Agreement. Each
Option shall be exercisable in whole or in part on the terms provided in the
Agreement. In no event shall any Option be exercisable at any time after its
expiration date. When an Option is no longer exercisable, it shall be deemed to
have lapsed or terminated. The number of Shares for which any Employee may be
granted Options in any one calendar year shall not exceed 750,000. The Committee
may provide, in an Agreement or otherwise, that an employee who exercises an
Option and pays the Option price in whole or in part with Shares then owned by
the Participant will be entitled to receive another Option covering the same
number of shares tendered and with a price of no less than Fair Market Value on
the date of grant of such additional Option ("Reload Option").
(b) INCENTIVE STOCK OPTIONS. In addition to the other terms and conditions
applicable to all Options:
(i) the maximum number of shares that may be covered with respect to
incentive stock options is 6,200,000.
(ii)the aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares with respect to which Incentive Stock
Options held by an individual first become exercisable in any calendar year
(under this Plan and all other incentive stock option plans of the Company
and its Affiliates) shall not exceed $100,000 (or such other limit as may
be required by the Code) if such limitation is necessary to qualify the
Option as an Incentive Stock Option;
(iii) an Incentive Stock Option shall not be exercisable more than 10
years after the date of grant (or such other limit as may be required by
the Code) if such limitation is necessary to qualify the Option as an
Incentive Stock Option; and
(iv)the Agreement covering an Incentive Stock Option shall contain
such other terms and provisions which the Committee determines necessary to
qualify such Option as an Incentive Stock Option.
7.2 PERFORMANCE UNITS.
(a) INITIAL AWARD. An Award of Performance Units shall entitle such
Participant (or a Successor) to future payments of cash, Stock, or a combination
of cash and Stock, as determined by the Committee and provided in the Agreement,
based upon the achievement of performance targets established by the Committee.
Such performance targets may, but need not, include without limitation targets
relating to one or more of corporate, group, unit, Affiliate, or individual
performance. The Agreement may establish that a portion of a full or maximum
amount of an employee's Award will be paid for performance which exceeds the
minimum target but falls below the maximum target applicable to such Award. The
Agreement shall also provide for the timing of such payment. Following the
conclusion or acceleration of each Performance Cycle, the Committee shall
determine the extent to which (i) performance targets have been attained, (ii)
any other terms and conditions with respect to an Award relating to such
Performance Cycle have been satisfied, and (iii) payment is due with respect to
an Award of
6
<PAGE>
Performance Units. The maximum payment that can be made for awards granted to
any one individual shall be $1,000,000 for any single or combined performance
goals established for a specified performance period.
(b) ACCELERATION AND ADJUSTMENT. The Agreement may permit an acceleration
of the Performance Cycle and an adjustment of performance targets and payments
with respect to some or all of the Performance Units awarded to an employee upon
such terms and conditions as shall be set forth in the Agreement, upon the
occurrence of certain events, which may, but need not include without limitation
an Event, a Fundamental Change, the Participant's death or Retirement or, with
respect to payments in Stock with respect to Performance Units, a
reclassification, stock dividend, stock split, or stock combination as provided
in Section 13 hereof.
7.3 RESTRICTED STOCK AWARDS
(a) The Committee is authorized to grant, either alone or in conjunction
with other Awards, stock and stock-based Awards. The Committee shall determine
the persons to whom such Awards are made, the timing and amount of such Awards,
and all other terms and conditions. Company Common Stock granted to recipients
may be unrestricted or may contain such restrictions, including provisions
requiring forfeiture and imposing restrictions upon stock transfer, as the
Committee may determine. Unless forfeited, the recipient of restricted Common
Stock will have all other rights of a shareholder, including without limitation,
voting and dividend rights. No more than 500,000 shares in the form of
restricted stock and stock shall be issued under the Stock Award Plan.
(b) An Award of Restricted Stock under the Plan shall consist of Shares
subject to restrictions on transfer and conditions of forfeiture, which
restrictions and conditions shall be included in the applicable Agreement. The
Committee may provide for the lapse or waiver of any such restriction or
condition based on such factors or criteria as the Committee, in its sole
discretion, may determine.
(c) Except as otherwise provided in the applicable Agreement, each Stock
certificate issued with respect to an Award of Restricted Stock shall either be
deposited with the Company or its designee, together with an assignment separate
from the certificate, in blank, signed by the Participant, or bear such legends
with respect to the restricted nature of the Restricted Stock evidenced thereby
as shall be provided for in the applicable Agreement.
(d) The Agreement shall describe the terms and conditions by which the
restrictions and conditions of forfeiture upon awarded Restricted Stock shall
lapse. Upon the lapse of the restrictions and conditions, Shares free of
restrictive legends, if any, relating to such restrictions shall be issued to
the Participant or a Successor or Transferee.
(e) An employee or a Successor or Transferee with a Restricted Stock Award
shall have all the other rights of a shareholder including, but not limited to,
the right to receive dividends and the right to vote the Shares of Restricted
Stock.
7.4 OTHER AWARDS. The Committee may from time to time grant Stock and other
Awards under the Plan including without limitations those Awards pursuant to
which Shares are or may in the future be acquired, Awards denominated in Stock
units, securities convertible into Stock and Phantom securities. The Committee,
in its sole discretion, shall determine the terms and conditions of such Awards
provided that such Awards shall not be inconsistent with the terms and purposes
of this Plan. The Committee may, at its sole discretion, direct the Company to
issue Shares subject to restrictive legends and/or stop transfer instructions
that are consistent with the terms and conditions of the Award to which the
Shares relate. Furthermore, the Committee may use stock available under this
Plan as payment for compensation, grants or rights and earned or due under any
other compensation plans or arrangements of the Company. No more than 500,000
shares in the form of restricted stock and stock shall be issued under the Stock
Award Plan.
7
<PAGE>
8. TERMS AND CONDITIONS OF OUTSIDE DIRECTOR AWARDS.
8.1 Outside Directors may, in the discretion of the Board and in accordance
with the terms of this Plan, be granted Awards under this Plan at various times,
including when an Outside Director is first elected or appointed to the Board,
when an Outside Director is re-elected to the Board or at other times as may be
deemed appropriate.
8.2 TERMS OF AWARDS. In addition to the terms set forth in Section 7.1 of
this Plan, Outside Director Awards may contain such other terms and conditions
as the Board determines.
9. EFFECTIVE DATE OF THIS PLAN.
9.1 EFFECTIVE DATE. This Plan shall become effective as of March 5, 1992,
the date of adoption of this Plan by the Board, provided that this Plan is
approved and ratified by the affirmative vote of the holders of a majority of
the outstanding Shares of Stock present or represented and entitled to vote in
person or by proxy at a meeting of the shareholders of the Company no later than
December 31, 1992.
9.2 DURATION OF THIS PLAN. This Plan shall remain in effect until all Stock
subject to it shall be distributed or all Awards have expired or lapsed,
whichever is latest to occur, or this Plan is terminated pursuant to Section 12
hereof. No Award of an Incentive Stock Option shall be made more than 10 years
after the effective date (or such other limit as may be required by the Code) if
such limitation is necessary to qualify the Option as an Incentive Stock Option.
Except with respect to Director Options, the date and time of approval by the
Committee of the granting of an Award (or such other time as the Committee shall
designate) shall be considered the date and time at which such Award is made or
granted, notwithstanding the date of any Agreement with respect to such Award.
10. RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any Agreement
shall confer upon any Employee the right to continue in the employment of the
Company or any Affiliate or affect any right which the Company or any Affiliate
may have to terminate the employment of the Employee with or without cause.
11. TAX WITHHOLDING. The Company may withhold from any cash payment under
this Plan to an employee or other person (including a Successor or a Transferee)
an amount sufficient to cover any required withholding taxes. The Company shall
have the right to require an employee or other person receiving Stock under this
Plan to pay to the Company a cash amount sufficient to cover any required
withholding taxes. In lieu of all or any part of such a cash payment from a
person receiving Stock under this Plan, the Committee may permit the individual
to elect to cover all or any part of the required withholdings, and to cover any
additional withholdings up to the amount needed to cover the individual's full
FICA and federal, state, and local income tax with respect to income arising
from payment of the Award, through a reduction of the number of Shares delivered
to such individual or a subsequent return to the Company of Shares held by the
Employee or other person, in each case valued in the same manner as used in
computing the withholding taxes under the applicable laws.
12. AMENDMENT, MODIFICATION AND TERMINATION OF THIS PLAN.
(a) The Board may at any time and from time to time terminate, suspend or
modify the Plan. Except as limited in (b) below, the Committee may at any time
alter or amend any or all Agreements under the Plan to the extent permitted by
law. However, no such action may, without further approval of the shareholders
of the Company, be effective if such approval is required in order that the Plan
conform to the requirements of Code Section 422.
(b) No termination, suspension, or modification of the Plan will materially
and adversely affect any right acquired by any Participant or Successor or
Transferee under an Award granted before the date of termination, suspension, or
modification, unless otherwise agreed to by the Participant in the Agreement or
otherwise, or required as a matter of law; but it will be conclusively presumed
that any adjustment for changes in capitalization provided for in Plan Sections
7.2 or 13 does not adversely affect these rights.
8
<PAGE>
13. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. Appropriate adjustments in
the aggregate number and type of Shares available for Awards under this Plan and
in the number and type of Shares and amount of cash subject to Awards then
outstanding, in the Option price as to any outstanding Options and, subject to
Section 7.2(b) hereof, in outstanding Performance Units and payments with
respect to outstanding Performance Units may be made by the Committee in its
sole discretion to give effect to adjustments made in the number or type of
Shares of the Company through a Fundamental Change (subject to Section 14
hereof), recapitalization, reclassification, stock dividend, stock split, stock
combination, or other relevant change, provided that fractional Shares shall be
rounded to the nearest whole share.
14. FUNDAMENTAL CHANGE. In the event of a proposed Fundamental Change: (a)
involving a merger, consolidation, or statutory share exchange, unless
appropriate provision shall be made for the protection of the outstanding
Options by the substitution of options and appropriate voting common stock of
the corporation surviving any such merger or consolidation or, if appropriate,
the parent corporation of the Company or such surviving corporation, to be
issuable upon the exercise of options in lieu of Options and capital stock of
the Company, or (b) involving the dissolution or liquidation of the Company, the
Committee shall declare, at least 20 days prior to the occurrence of the
Fundamental Change, and provide written notice to each holder of an Option of
the declaration, that each outstanding Option, whether or not then exercisable,
shall be canceled at the time of, or immediately prior to the occurrence of the
Fundamental Change in exchange for payment to each holder of an Option, within
ten days after the Fundamental Change, of cash equal to the amount, if any, for
each Share covered by the canceled Option, by which the Fair Market Value (as
defined in this Section) per Share exceeds the exercise price per Share covered
by such Option. At the time of the declaration provided for in the immediately
preceding sentence, each Option shall immediately become excercisable in full
and each person holding an Option shall have the right, during the period
preceding the time of cancellation of the Option, to exercise the Option as to
all or any part of the Shares covered thereby; provided, however, that if such
Fundamental Change does not become effective, then the declaration pursuant to
this Section 14(b) shall be rescinded, the acceleration of the exercisibility of
the Option pursuant to this Section 14(b) shall be void, and the Option shall be
exercisable in accordance with its terms. In the event of a declaration pursuant
to this Section 14, each outstanding Option that shall not have been exercised
prior to the Fundamental Change shall be canceled at the time of, or immediately
prior to, the Fundamental Change, as provided in the declaration.
Notwithstanding the foregoing, no person holding an Option shall be entitled to
the payment provided for in this Section 14 if such Option shall have expired
pursuant to an Agreement. For purposes of this Section only, "Fair Market Value"
per Share means the cash plus the fair market value, as determined in good faith
by the Committee, of the non-cash consideration to be received per Share by the
shareholders of the Company upon the occurrence of the Fundamental Change,
notwithstanding anything to the contrary provided in this Plan.
15. UNFUNDED PLAN. This Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under this Plan.
16. OTHER BENEFIT AND COMPENSATION PROGRAMS. Payments and other benefits
received by an employee under an Award shall not be deemed a part of an
employee's regular, recurring compensation for purposes of any termination,
indemnity, or severance pay laws and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan,
contract, or similar arrangement provided by the Company or an Affiliate, unless
expressly so provided by such other plan, contract, or arrangement or the
Committee determines that an Award or portion of an Award should be included to
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.
17. BENEFICIARY UPON EMPLOYEE'S DEATH. To the extent that the transfer of
an employee's Award at death is permitted under an Agreement, (a) an employee's
Award shall be transferable to the beneficiary, if any, designated on forms
prescribed by and filed with the Committee and (b) upon the death of the
Employee, such beneficiary shall succeed to the rights of the Employee to the
extent permitted by law and this Plan. If no such designation of a beneficiary
has been made, the Participant's legal representative shall succeed to the
Awards, which shall be transferable by will or pursuant to laws of descent and
distribution to the extent permitted under an Agreement.
9
<PAGE>
18. CORPORATE MERGERS, ACQUISITIONS, ETC. The Committee may also grant
Options, Restricted Stock or other Awards under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with the
assumption of, existing options, stock appreciation rights, restricted stock or
other awards granted, awarded or issued by another corporation and assumed or
otherwise agreed to be provided for by the Company pursuant to or by reason of a
transaction involving a corporate merger, consolidation, acquisition of property
or stock, separation, reorganization or liquidation to which the Company or a
subsidiary is a party.
19. DEFERRALS AND SETTLEMENTS. The Committee may require or permit
Employees to elect to defer the issuance of Shares or the settlement of Awards
in cash under such rules and procedures as it may establish under the Plan. It
may also provide that deferred settlements include the payment or crediting of
interest on the deferral amounts.
20. GOVERNING LAW. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.
10
