CNT CEO Eyes $3M Payout

Computer Network Technology Corp. (CNT) (Nasdaq: CMNT) CEO Tom Hudson is in line for a $3 million termination payout, plus a senior executive position at McData Corp. (Nasdaq: MCDTA), when McDatas proposed $235 million acquisition of its rival switch vendor closes, according to an Securities and Exchange Commission (SEC) filing (see SEC OKs McData’s CNT Filing).

The overall acquisition deal is pending approval of both companies’ shareholders. They are scheduled to vote May 24, and McData says it hopes to close by the end of July.

According to a document filed by McData this week, the acquisition will terminate Hudson’s contract with CNT. His CNT contract calls for him to receive a lump sum payment of 300 percent of his base salary plus 300 percent of the maximum bonus he would receive this year for CNT. The documents estimate that Hudson will receive $3 million upon termination of employment.

He won’t be out of work long, though. McData has already agreed to offer Hudson a senior executive post reporting to CEO John Kelley, and he will join the McData board of directors.

CNT CFO Greg Barnum will also cash in for $925,000 after the deal closes. Barnum’s contract with CNT calls for him to receive a lump sum of 200 percent of his base salary and bonus. His lump sum will total around $800,000.McData hasn’t agreed to take Barnum on full time, but he has signed on for a six-month consulting gig for $20,833 per month –- adding another $125,000 to his payout.

The payouts come after CNT suffered a pro forma loss of $6.3 million and GAAP loss of $110.6 million for 2004.

McData will also shell out nearly $7 million plus expenses to Credit Suisse First Boston Corp. and Lehman Brothers for providing financial advice during negotiations. Credit Suisse First Boston will pick up approximately $4.2 million plus expenses, including legal fees as McData’s advisers. Lehman Brothers will receive $2.5 million for advising CNT.

McData’s filing includes a timeline of negotiations. McData and CNT briefly discussed a “strategic combination of the two companies” in July 2003, but those discussions went nowhere. The following month, McData acquired switch startups Nishan Systems and Sanera Systems (see McData Sweeps Up Nishan, Sanera).

Kelley and Hudson began talking last November, three months after CNT laid off 220 employees or 18 percent of its workforce (see CNT Takes a Hit). Kelley received support of the McData board to pursue a deal with CNT on December 1, and the CEOs and other executives of the companies met regularly in person and over the phone throughout mid-January. They kept negotiations secret, however, until rumors started on message boards January 14 (see Investors React to McData-CNT Chatter).On January 15, 2005, negotiations nearly broke down when the sides failed to agree on certain issues, including the price that McData would pay, corporate governance matters, and retention and severance pay for CNT employees, according to the SEC filing. The companies drafted a press release saying they were no longer discussing a merger, but they continued to negotiate over that weekend and agreed to a deal on January 17. They announced the deal the following day (see McData Bags CNT for $235M).

— Dave Raffo, Senior Editor, Byte and Switch