The founder and president of Computer Network Corp. abruptly resigned yesterday, after he took the floor at the company's annual meeting and denounced the current chairman for the "outrageous" request that Comnet pay him $685,000 in legal expenses incurred in the fight to take over the company.
"I cannot and will not continue in this environment," Lee Johnson said in an announcement that surprised shareholders, management officials and members of the board of the computer-processing firm headquartered on MacArthur Boulevard.
Yet, within minutes after Johnson left the meeting, the chairman and another member of the board attacked Johnson, accusing him of being a "dictator" who ran the company for his own benefit and not for its shareholders.
"Johnson ran the company as a one-man show too long," said Theodore Lehman, a New York investor who, as a substantial owner of Comnet stock, was part of a group of dissident shareholders who gained control of the company's board last month when they replaced all of the directors except for Johnson, who remained as a director and president.
"As a substantial stockholder, I feel very comfortable," about the company's future, Lehman said after Johnson left, adding, "As a matter of fact, I feel more comfortable now than I did this morning" before the meeting began.
Lehman's sentiments were echoed by Comnet's new chairman, John Spohler, a New York stockbroker who led the dissident's takeover fight.
Noting the company has had operating losses over the last three years under Johnson, Spohler said, "I believe the resources can be employed better than they have been employed."
Comnet had an operating loss of $211,000 on sales of $14.5 million in the fiscal year ending last March. Overall, it reported a profit of $377,000 largely due to interest earnings.
Yesterday, Comnet stock closed at 8 1/2, up from Friday's close of 8 1/8.
After the market closed, Spohler announced that a three-member committee of directors would perform the functions of the presidency on an interim basis.
Johnson's walkout appears to put an end to a bitter, two-year battle between Spohler and Johnson. Through a series of court suits and filings before the Securities and Exchange Commission, Johnson charged Spohler and the other dissidents with trying to take over the company at an unjustifiably low price in order to grab Comnet's large chunk of cash (now about $8 million) and stock in two promising computer-equipment companies.
Spohler, on the other hand, had accused Comnet's officers of mismanaging the company and using its assets for their own benefit to entrench themselves in office at the stockholders' expense.
Shortly after Spohler announced that he would launch a proxy fight to try to depose current management, Johnson and Spohler reached an agreement in which Spohler dropped his litigation against Johnson and, in return, Spohler's team would be named to the board. One week after this agreement was reached, Spohler replaced Johnson as Comnet chairman, although Johnson remained as president.
At the time, Johnson said yesterday, Spohler specifically denied that he had any intention of taking over the company's daily operations. But Johnson said that a series of events--some "personally degrading"--have convinced him otherwise. "I now realize that the original intent was also to take operational control over the company," said Johnson, who was paid $145,000 a year and stands to receive a $125,000 severance payment.
Johnson said he was particularly distressed "that Mr. Spohler is seeking from the new board--which he selected, and which he controls--to pay himself the outrageous sum of $685,000 from Comnet funds."
Johnson declined to elaborate on the "personally degrading" events. However, Spohler subsequently charged that these events were merely an attempt by the board to look "a little more deeply into the company's problems." Lehman added that Johnson balked when he was questioned about the company's budget. According to one member of the dissident group, Johnson never kept a budget.
"He couldn't accept the light of accountability," Spohler said. "Having run the company for 16 years, he acquired a bit of propriety," and resented making his company accountable to its stockholders.
"This man decided if he could not be the dictator, no one else could be president of the company," Lehman added.
"It was never our intention to dissolve the day-to-day management" of Comnet, Spohler said.
As far as the money he was seeking, Spohler said it was not unusual for people to recoup the funds they spent in taking over a company. "The expenditures I am seeking are only in connection with my personal defense of a lawsuit Comnet launched against me, plus all the expenditures I made in eliminating policies that were not thought to be in the shareholders interest. Although I was acting on behalf of all shareholders, I am the one who paid out all the money," he said.