<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO]
Computer Network Technology Corporation
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 Hotel, 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 Hotel, 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/ Gregory 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 Hotel, 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.
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
22,696,196 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.
<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.
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.
2
<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 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.
3
<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 8, 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, 11th Floor
Santa Monica, CA 90401(/1/) 1,353,400 6.12%
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 (14 persons)(/8/)(/9/) 1,799,934 7.52%
</TABLE>
- --------
*Represents beneficial ownership of less than one percent of the outstanding
Common Stock.
(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 456,239 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 1,382,183 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.
4
<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's 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.
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.
5
<PAGE>
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.
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.
6
<PAGE>
Internal Revenue Code Section 162(m)
Internal Revenue Code Section 162(m) limits the deductibility of
compensation over $1 million paid by a company to an executive officer. Other
than limiting the maximum number of shares that may be awarded to any employee
or other participant under the Stock Award Plan in any calendar year to
750,000 shares, the Committee currently does not have a policy with respect to
Section 162(m) because it is unlikely that such limit will apply to
compensation paid by the Company to any of the Company's executive officers
for at least the current year.
ERWIN A. KELEN
LAWRENCE PERLMAN
JOHN ROLLWAGEN
Members of the Compensation
Committee
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows, for the Company's Chief Executive Officer and for
each of the four other most highly compensated executive officers of the
Company at the end of fiscal 1998 (collectively, the "Named Officers"),
information concerning compensation earned for services in all capacities
during the fiscal year ended December 31, 1998, as well as compensation earned
by each such person for the two previous fiscal years (if the person was Chief
Executive Officer or another executive officer during any part of such fiscal
year):
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Long-Term
Compensation
Other Annual Shares All Other
Name And Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) ($) Options (#) ($)
- ------------------ ---- -------- -------- ------------ ------------ ------------
<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 and
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 1997 $124,923 $ 49,000 $ 461 90,000 $ 29,056
</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 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.
8
<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>
Individual Grants
------------------------------------------------------
Potential Realizable Value
Number of Percent of at Assumed Annual Rates of
Shares Total Options Stock Price Appreciation for
Underlying Granted to Option Term(/3/)
Options Employees in Exercise Expiration -----------------------------
Name Granted(/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 0.7% $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.
Aggregated Option Exercises In 1998 And Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End(/1/)
------------------------------ -------------------------
Shares
Acquired on Value
Name Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ -------- ------------------------------ -------------------------
<S> <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.
9
<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 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.
10
<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.
[PERFORMANCE GRAPH APPEARS HERE]
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
CNT Common Stock 100.00 63.4 41.9 46.5 32.6 116.3
- ------------------- ------ ----- ----- ----- ----- -----
The NASDAQ Total 100.00 97.8 138.3 170.0 208.3 293.5
Return Index
- ------------------- ------ ----- ----- ----- ----- -----
The NASDAQ Computer 100.00 109.8 173.0 231.9 280.5 610.0
Manufacturers Index
- ------------------- ------ ----- ----- ----- ----- -----
11
<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.
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.
12
<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.
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.
13
<PAGE>
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.
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.
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.
14
<PAGE>
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.
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.
15
<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.
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.
16
<PAGE>
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.
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.
17
<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.
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.
18
<PAGE>
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.
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.
19
<PAGE>
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.
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.
20
<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.
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.
21
<PAGE>
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
22
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 13, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having duly received the Notice of Annual Meeting and Proxy
Statement dated April 1, 1999, hereby appoints Gregory T. Barnum and Jeffrey A.
Bertelsen as proxies (each with the power to act alone and with the power of
substitution and revocation), to represent the undersigned and to vote, as
designated on the reverse side, all shares of Common Stock of Computer Network
Technology Corporation held of record by the undersigned on March 15, 1999, at
the Annual Meeting of Shareholders to be held on May 13, 1999 at the Minneapolis
Marriott City Center Hotel, 30 South Seventh Street, Minneapolis, Minnesota, at
10:00 a.m. and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES IN PROPOSAL NO. 1, AND FOR PROPOSALS NO. 2, 3, 4, and 5.
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
(continued on reverse side)
<PAGE>
1. ELECTION OF DIRECTORS
[ ] [ ]
FOR WITHHOLD AUTHORITY
all nominees listed to vote for all nominees listed
(except as marked to the contrary)
NOMINEES:
Thomas G. Hudson, Patrick W. Gross, Erwin A. Kelen, Lawrence Perlman and
John A. Rollwagen
INSTRUCTION:
To withhold authority to vote for any individual nominee, write that
nominee's name on the space provided below.
------------------------------------------
2. PROPOSAL TO AMEND 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.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. PROPOSAL TO AMEND THE 1992 STOCK AWARD PLAN
to increase the number of shares authorized for issuance by 800,000.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
4. PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN to increase the
number of shares authorized for issuance by 300,000.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
5. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP
as independent auditors for the year ending December 31, 1999.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
6. OTHER BUSINESS
The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
----------------------------------------
PLEASE SIGN exactly as name appears on this card. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated:_________________________________
- ---------------------------------------
(Signature)
- ---------------------------------------
(Signature)
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 13, 1999
401(k) SALARY SAVINGS PLAN - VOTING INSTRUCTION CARD
DIRECTIONS: As a participant in the Computer Network Technology Corporation
401(k) Salary Savings Plan, you are entitled to instruct the Plan's Trustee,
CIGNA Corporation, how to vote the shares of Computer Network Technology
Corporation stock allocated to you under the Plan at the Annual Meeting of
Shareholders to be held on May 13, 1999, and at any adjournment or postponement
therefore, upon the matters set forth in the Notice of such meeting. Please
complete this card and mail it in the enclosed postage-paid envelope provided to
you. It must be received no later than May 3, 1999.
VOTING INSTRUCTIONS: I, the participant in the Computer Network Technology
Corporation 401(k) Salary Savings Plan signing this voting instruction card,
hereby instruct the Plan's Trustee, CIGNA Corporation, to vote the shares of
Computer Network Technology Corporation stock allocated to me under the
foregoing Plan.
(continued on reverse side)
<PAGE>
1. ELECTION OF DIRECTORS
[ ] [ ]
FOR WITHHOLD AUTHORITY
all nominees listed to vote for all nominees listed
(except as marked to the contrary)
NOMINEES:
Thomas G. Hudson, Patrick W. Gross, Erwin A. Kelen, Lawrence Perlman and
John A. Rollwagen
INSTRUCTION:
To withhold authority to vote for any individual nominee, write that
nominee's name on the space provided below.
------------------------------------------
2. PROPOSAL TO AMEND 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.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
3. PROPOSAL TO AMEND THE 1992 STOCK AWARD PLAN
to increase the number of shares authorized for issuance by 800,000.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
4. PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN to increase the
number of shares authorized for issuance by 300,000.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
5. PROPOSAL TO RATIFY AND APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP
as independent auditors for the year ending December 31, 1999.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
6. OTHER BUSINESS
The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
----------------------------------------
PLEASE SIGN exactly as name appears on this card. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated:_________________________________
- ---------------------------------------
(Signature)
- ---------------------------------------
(Signature)
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
