e10vq

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

As of September 1, 2003, the registrant had 27,159,852 shares of $.01 par value common stock issued and outstanding.


		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Operations for the three and six months ended July 31, 2003 and 2002		3
	Consolidated Balance Sheets as of July 31, 2003 and January 31, 2003 Consolidated Statements of Cash Flows for the six months ended July 31, 2003 and 2002		4 5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial
Item 3.	Condition and Results of Operations Market Risk		12 19
Item 4.	Controls and Procedures		19
PART II	OTHER INFORMATION		21
Item 1.	Legal Proceedings		21
Items 2-3.	None
Items 4.	Submission of Matters to a Vote of Security Holders		22
Items 5.	None
Item 6.	Exhibits and Reports on Form 8-K		23
SIGNATURES			24
CERTIFICATIONS
EXHIBIT INDEX

COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


				Three months ended						Six months ended

				July 31,						July 31,

				2003			2002			2003			2002

Revenue:
	Product sales			$	63,489		$	33,128		$	97,893		$	62,882
	Service fees				33,224			15,738			51,150			31,196

		Total revenue			96,713			48,866			149,043			94,078

Cost of revenue:
	Cost of product sales				39,244			19,612			60,878			36,980
	Cost of service fees				20,420			9,308			30,506			19,068

		Total cost of revenue			59,664			28,920			91,384			56,048

Gross profit					37,049			19,946			57,659			38,030

Operating expenses:
	Sales and marketing				24,867			14,208			39,073			29,785
	Engineering and development				12,025			6,591			17,945			13,259
	General and administrative				5,266			2,694			7,822			5,207
	In-process research and development charge				19,706			—			19,706			—

		Total operating expenses			61,864			23,493			84,546			48,251

Loss from operations					(24,815	)		(3,547	)		(26,887	)		(10,221	)

Other income (expense):
	Net gain on sale of marketable securities				—			—			747			—
	Interest expense				(1,094	)		(1,150	)		(2,220	)		(2,044	)
	Interest income and other, net				375			1,523			1,454			3,473

Other income (expense), net					(719	)		373			(19	)		1,429

Loss before income taxes					(25,534	)		(3,174	)		(26,906	)		(8,792	)
Provision (benefit) for income taxes					288			(1,068	)		998			(2,989	)

Net loss before cumulative effect of change in accounting principle					(25,822	)		(2,106	)		(27,904	)		(5,803	)
Cumulative effect of change in accounting principle					—			—			—			(10,068	)

Net loss				$	(25,822	)	$	(2,106	)	$	(27,904	)	$	(15,871	)

Basic and diluted loss per share:
	Net loss before cumulative effect of change
		in accounting principle		$	(.96	)	$	(.07	)	$	(1.03	)	$	(.20	)

	Cumulative effect of change in accounting
			principle	$	—		$	—		$	—		$	(.34	)

	Net loss			$	(.96	)	$	(.07	)	$	(1.03	)	$	(.54	)

	Shares				26,979			28,466			26,973			29,437

COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)


			July 31,
			2003			January 31,
			(unaudited)			2003

Assets
Current assets:
	Cash and cash equivalents		$	51,545		$	98,341
	Marketable securities			8,644			111,143
	Receivables, net			92,110			56,040
	Inventories			23,769			24,091
	Other current assets			4,131			2,118

		Total current assets		180,199			291,733

Property and equipment, net				41,761			22,566
Field support spares, net				11,202			6,009
Goodwill				108,991			14,113
Other intangibles, net				36,638			1,669
Other assets				3,306			3,079

			$	382,097		$	339,169

Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable		$	27,480		$	16,889
	Accrued liabilities			53,145			25,060
	Deferred revenue			41,211			19,340
	Current installments of capital lease			290			708

		Total current liabilities		122,126			61,997

Convertible subordinated debt				125,000			125,000
Deferred tax liability				473			541

		Total liabilities		247,599			187,538

Shareholders equity:
	Preferred stock			—			—
	Common stock, $.01 par value; authorized 100,000 shares, issued and outstanding 27,159 at July 31, 2003 and 26,921 at January 31, 2003			272			269
	Additional paid-in capital			185,499			173,955
	Unearned compensation			(487	)		(675	)
	Accumulated deficit			(50,850	)		(22,946	)
	Accumulated other comprehensive income (loss)			64			1,028

		Total shareholders’ equity		134,498			151,631

			$	382,097		$	339,169

COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


					Six months ended
					July 31,

					2003			2002

Operating Activities:
	Net loss				$	(27,904	)	$	(15,871	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Cumulative effect of change in accounting principle				—			10,068
		Depreciation and amortization				11,162			8,138
		In-process research and development charge				19,706			—
		Non-cash compensation expense				280			354
		Net gain on sale of marketable securities				(747	)		—
		Changes in deferred taxes				7			—
		Changes in operating assets and liabilities, net of acquisition:
			Receivables			(2,967	)		9,442
			Inventories			10,970			(1,925	)
			Other current assets			3,591			1,448
			Accounts payable			321			(5,418	)
			Accrued liabilities			(7,672	)		(4,578	)
			Deferred revenue			927			2,359

				Cash provided by operating activities		7,674			4,017

Investing Activities:
	Additions to property and equipment					(4,434	)		(4,052	)
	Additions to field support spares					(739	)		(2,823	)
	Acquisition of Inrange Technologies, net of cash acquired					(152,585	)		—
	Acquisition of BI-Tech, net of cash acquired					—			(7,723	)
	Net redemption (purchase) of marketable securities					102,500			(32,775	)
	Other assets					392			175

				Cash used in investing activities		(54,866	)		(47,198	)

Financing Activities:
	Net proceeds from issuance of convertible subordinated debt					—			121,706
	Proceeds from issuance of common stock					1,032			1,531
	Payments for repurchases of common stock					—			(29,941	)
	Repayments of obligations under capital leases					(418	)		(719	)

				Cash provided by financing activities		614			92,577

Effects of exchange rate changes						(218	)		687

Net increase (decrease) in cash and cash equivalents						(46,796	)		50,083
Cash and cash equivalents — beginning of period						98,341			34,402

Cash and cash equivalents — end of period					$	51,545		$	84,485

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

The accompanying consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2003 as filed with the Securities and Exchange Commission. References to fiscal 2003 and 2002, represent the twelve months ended January 31, 2004 and 2003, respectively.

On May 5, 2003, the Company completed the acquisition of Inrange Technologies (Inrange) for $190 million in cash. The acquisition was accounted for as a purchase, and the Company’s financial statements include the results of since May 5, 2003. See footnote 4 “Acquisitions” for further information regarding the effect of the Inrange acquisition on the Company’s balance sheet and results of operations.

During the first quarter of fiscal 2003, the Company sold marketable securities totaling $122 million, resulting in a net pre-tax gain of approximately $747. No significant gains or losses from the sale of marketable securities were recorded during the second quarter of fiscal 2003 or the first half of fiscal 2002.

The Company’s investments in marketable securities primarily consist of U.S. government and agency securities, corporate debt securities and bank certificates of deposit.

Inventories, stated at the lower of cost (first-in, first-out method) or market, consist of:

On April 6, 2003, the Company entered into an agreement whereby a wholly owned subsidiary of the Company would acquire all of the shares of Inrange Technologies Corporation that were owned by SPX Corporation. The shares acquired constituted approximately 91% of the issued and outstanding shares of Inrange for a purchase price of approximately $2.31 per share and $173 million in the aggregate. On May 5, 2003 the Company completed the acquisition of Inrange and pursuant to the agreement the subsidiary merged into Inrange, and the remaining capital stock owned by the other Inrange shareholders was converted into the right to receive approximately $2.31 per share in cash, resulting in a total payment of $190 million for both the stock purchase and merger. The acquisition was accounted for as a purchase and the consolidated financial statements of the Company include the results of Inrange since May 5, 2003. The purchase price was allocated to the fair value of the assets and liabilities acquired as follows:


Purchase Price:
	Cash paid	$	190,526
	Value of stock option grants		10,286
	Transaction costs		3,347

Total purchase consideration paid		$	204,159

Fair Value of Assets Acquired and Liabilities Assumed:
	Cash	$	41,088
	Accounts receivable		33,102
	Inventory		10,648
	Property and equipment		21,614
	Field support spares		6,826
	Developed technology		20,248
	Customer list		15,294
	Trademarks		1,234
	In-process research and development		19,706
	Goodwill		90,643
	Deferred taxes		75
	Other assets		6,223
	Accounts payable		(10,270	)
	Accrued expenses		(31,328	)
	Deferred revenue		(20,944	)

Total purchase consideration paid		$	204,159

The following table presents the unaudited pro forma consolidated results of operations of the Company for the three and six months ended July 31, 2003 and 2002 as if the acquisition of Inrange took place on February 1, 2003 and 2002, respectively:

The pro forma results include amortization of the customer list, developed technology and trademarks presented above. The unaudited pro forma results do not include the $19.7 million charge for in-process research and development related to the Inrange acquisition. The unaudited pro forma results are for comparative purposes only and do not necessarily reflect the results that would have been recorded had the acquisition occurred at the beginning of the period presented or the results which might occur in the future. The Inrange purchase price allocation is preliminary and subject to change pending completion of the purchase price allocation analysis.

On June 24, 2002, the Company acquired all the outstanding stock of Business Impact Technology Solutions Limited (BI-Tech), a leading provider of storage management solutions and services, for $12 million in cash plus the assumption of approximately $3.6 million of liabilities and the acquisition of approximately $8.7 million of tangible assets. The Company allocated $6.5 million, $1.1 million and $250 of the purchase price to goodwill, customer list and non-compete agreements, respectively. The customer list and non-compete agreements are amortized over periods of ten and two years, respectively. The accompanying financial statements include the results of BI-Tech since June 24, 2002.

The original purchase agreement required payments of additional consideration to the former stockholders and the BI-Tech employees based on achievement of certain earnings for each of the two years beginning July 1, 2002. A modification to the purchase agreement was made during the second quarter of fiscal 2003, whereby the first earn out period ended April 30, 2003. It also guarantees the former stockholders a minimum payment for the second earn out period, which ends June 30, 2004, of at least $3.9 million. The portion payable to the former stockholders is recorded as goodwill. The portion payable to the BI-Tech employees is recorded as compensation expense. During the second quarter and first six months of 2003, $3.5 million and $7.7 million, respectively, was added to goodwill and $0 and $1.1 million, respectively, was recorded as compensation expense under the earn out arrangement.

The change in the carrying amount of goodwill for the first six months of 2003 was as follows:


		July 31, 2003					January 31, 2003

		Gross Carrying		Accumulated			Gross Carrying		Accumulated
		Amount		Amortization			Amount		Amortization

Customer list		$	16,924	$	(789	)	$	1,630	$	(161	)
Trademarks			1,234		(62	)		—		—
Developed technology			20,248		(1,055	)		—		—
Non-compete agreements			250		(112	)		250		(50	)

	Total	$	38,656	$	(2,018	)	$	1,880	$	(211	)

Total other intangible assets, net		$	36,638				$	1,669

Amortization expense for intangible assets during the second quarter and first six months of 2003 was $1.7 million and $1.8 million, respectively. Amortization expense for the remainder of 2003 is estimated to be $3.5 million. Amortization expense is estimated to be $6.8 million in 2004 through 2006, $6.2 million in 2007 and $3.2 million in 2008.


	Six Months ended
	July 31,

	2003			2002

Net loss	$	(27,904	)	$	(15,871	)
Unrealized loss on marketable securities, net of tax effect of $277 and $267		(444	)		(519	)
Realized gains on marketable securities included in net loss, net of tax effect $288 and $0		(459	)		—
Foreign currency translation adjustment, net of tax effect of $0		(61	)		448

Total comprehensive loss	$	(28,868	)	$	(15,942	)

In February 2002, the Company sold $125 million of 3% convertible subordinated notes due February 2007, raising net proceeds of $121 million. The notes are convertible into the Company’s common stock at a price of $19.17 per share. The Company may redeem the notes upon payment of the outstanding principal balance, accrued interest and a make whole premium if the closing price of its common stock exceeds 175% of the conversion price for at least 20 consecutive trading days within a period of 30 consecutive trading days ending on the trading day prior to the date the redemption notice is mailed. The make whole payment represents additional interest payments that would be made if the notes were not redeemed prior to the due date.

The estimated per share weighted average fair value of all stock options granted during the six months ended July 31, 2003 and 2002 was $5.02 and $7.13 respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

Had the Company recorded compensation cost based on the estimated fair value on the date of grant, as defined by SFAS 123, the Company’s pro forma net loss would have been as follows:


		Three months ended						Six months ended
		July 31,						July 31,

		2003			2002			2003			2002

Net loss, as reported		$	(25,822	)	$	(2,106	)	$	(27,904	)	$	(15,871	)
Stock-based employee compensation expense determined under fair value based method for all awards			(2,783	)		(1,933	)		(5,292	)		(3,683	)

Pro forma net loss		$	(28,605	)	$	(4,039	)	$	(33,196	)	$	(19,554	)

Basic and diluted net loss per share:
	As reported	$	(.96	)	$	(.07	)	$	(1.03	)	$	(.54	)
	Pro forma	$	(1.06	)	$	(.14	)	$	(1.23	)	$	(.66	)

The Company records a liability for warranty claims at the time of sale. The amount of the liability is based on contract terms and historical warranty loss expenses, which is periodically adjusted for recent actual experience. Warranty terms on the Company’s equipment range from 90 days to 13 months. The changes in warranty reserve balances for the six months ended July 31, 2003 and 2002 were as follows:

In December 2002, the EITF reached a consensus on EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the different revenue-generating activities (deliverables) are sufficiently separable and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables (that is, there are separate units of accounting). In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. This Issue addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate units of accounting. This Issue does not change otherwise applicable revenue recognition criteria. The guidance in this Issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We do not expect the adoption of EITF 00-21 will have a material effect on our financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging, which amends and clarifies financial accounting and reporting for derivative instruments. The adoption of SFAS 149 in June of 2003 did not have an effect on our consolidated financial statements.

On May 15, 2003, the Financial Accounting Standards Board issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. The Statement requires issuers to classify as liabilities (or assets in some circumstance) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, the Statement is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We will adopt the provisions of the Statement on August 1, 2003. We did not enter into any financial instruments within the scope of the Statement during June or July of 2003. We do not expect that the adoption of SFAS 150 will have an effect on our consolidated financial statements.

Inrange Technologies Corporation, which is now a wholly owned subsidiary of the Company, has been named as a defendant in the case SBC Technology Resources, Inc. v. Inrange Technologies Corp., Eclipsys Corp. and Resource Bancshares Mortgage Group, Inc., No. 303-CV-418-N, pending in the United States District Court for the Northern District of Texas, Dallas Division. The action was commenced on February 27, 2003. The complaint alleges Inrange is infringing the SBC patent by manufacturing and selling storage area networking equipment, including Fibre Channel directors and switches, for use in storage networks that embody certain inventions claimed in a patent owned by SBC. The complaint asks for judgment that SBC’s patent is infringed by the defendants in the case, an accounting for actual damages, attorneys fees, costs of suit and other relief. Additionally, Eclipsys has demanded that Inrange indemnify and defend Eclipsys pursuant to documentation under which it acquired the product from Inrange. Hitachi Data Systems Corporation has informed Inrange that it has also received a demand from Eclipsys that Hitachi indemnify and defend Eclipsys for this action. Hitachi has put Inrange on notice that it will tender any claim by Eclipsys for indemnification and defense of this action to Inrange. The case is in its preliminary stages and management is evaluating the litigation.

Inrange has also been named as a defendant in the case Onex, Inc., Joseph P. Huffine, and Sally Huffine Breen v. Inrange Technologies Corporation, No. CV-0593LJM-WTL, pending in the United States District Court, Southern District of Indiana. The action was commenced on April 23, 2003. The complaint alleges breach of the contract pursuant to which Inrange acquired certain assets of Onex, Inc. The contract includes a provision for additional payments of purchase price based on the performance of the business acquired over a two year period. The contract requires the payments be made at the end of each year in such two year period. Specifically, the complaint alleges, among other things, that Inrange did not conduct the business in a commercially reasonable manner and the pay out for the first year should have been $6 million. The complaint also alleges the plaintiffs were harmed by the failure to provide accurate data with respect to the business acquired and Inrange’s failure to pay certain liabilities harmed the plaintiffs. The case is in its preliminary stages and management is evaluating the litigation.

A shareholder class action was filed against Inrange and certain of its officers on November 30, 2001, in the United States District Court for the Southern District of New York, seeking recovery of damages caused by Inrange’s alleged violation of securities laws, including section 11 of the Securities Act of 1933 and section 10(b) of the Exchange Act of 1934. The complaint, which was also filed against the various underwriters that participated in Inrange’s initial public offering (IPO), is identical to hundreds of shareholder class actions pending in this Court in connection with other recent IPOs and is generally referred to as In re Initial Public Offering Securities Litigation. The complaint alleges, in essence, (a) that the underwriters combined and conspired to increase their respective compensation in connection with the IPO by (i) receiving excessive, undisclosed commissions in exchange for lucrative allocations of IPO shares, and (ii) trading in Inrange’s stock after creating artificially high prices for the stock post-IPO through “tie-in” or “laddering” arrangements (whereby recipients of allocations of IPO shares agreed to purchase shares in the aftermarket for more than the public offering price for Inrange shares) and dissemination of misleading market analysis on our prospects; and (b) that Inrange violated federal securities laws by not disclosing these underwriting arrangements in its prospectus. The defense has been tendered to the carriers of Inrange’s director and officer liability insurance, and a request for indemnification has been made to the various underwriters in the IPO. At this point the insurers have issued a reservation of rights letter and the underwriters have refused indemnification. The court has granted Inrange’s motion to dismiss claims under Section 10(b) of the Securities Exchange Act of 1934 because of the absence of a pleading of intent to defraud. The court granted plaintiffs leave to replead these claims, but no further amended complaint has been filed. The court also denied Inrange’s motion to dismiss claims under Section 11 of the Securities Act of 1933. The court has also dismissed Inrange’s individual officers without prejudice, after they entered into a tolling agreement with the plaintiffs. On July 25, 2003, the Company's Board of Directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of Inrange and of the individual defendants for the conduct alleged in the action to be wrongful in the complaint. Inrange would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims Inrange may have against its underwriters. Any direct financial impact of the proposed settlement is expected to be borne by Inrange’s insurers. The settlement was approved subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of Inrange’s insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the IPO Litigations. At this point, it is too early to form a definitive opinion concerning the ultimate outcome.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead be tested for impairment at least annually using a two-step impairment test.

Effective February 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142 provides a six-month transitional period from the effective date of adoption for the Company to perform an assessment of whether there is an indication of goodwill impairment. The Company tested its reporting units for impairment by comparing fair value to carrying value. Fair value was determined using a discounted cash flow and cost methodology. The valuation of the Company’s former Storage Solutions segment indicated that the goodwill associated with the acquisition of Articulent in April of 2001 was impaired. The performance of this business had not met management’s original expectations, primarily due to the unexpected global slow down in capital spending for information technology equipment. Accordingly, a non-cash impairment charge of $10.1 million from the adoption of SFAS No. 142 was recognized as a cumulative effect of change in accounting principle in the first quarter ended April 30, 2002.

The consolidated statement of operations for the three and six months ended July 31, 2003 includes severance costs related to our integration of Inrange Technologies Corporation as follows:

At July 31, 2003 the Company had a remaining accrual for severance in the amount of $345,000.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our interim consolidated financial statements and notes thereto which appear elsewhere in this Quarterly Report and the MD&A contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 30, 2003.

We are a leading provider of end-to-end storage solutions, including hardware and software products, related consulting and integration services, and managed services in the growing storage networking market. We focus primarily on helping our customers design, develop, deploy and manage a wide range of solutions for critical storage networks, including storage area networks, or SANs, a high speed network within a business’ existing computer system that allows the business to manage its data storage needs with greater efficiency and less disruption to its overall network.

Our storage networking solutions enable businesses to cost-effectively design, implement, monitor and manage their storage requirements, connect geographically dispersed storage networks, provide continuous availability to greater amounts of data and protect increasing amounts of data more efficiently. We market out storage networking products and services directly to customers through our sales force and worldwide distributors. We also have strategic marketing and supply relationships with leading storage and telecommunications companies, including EMC, Hewlett-Packard, Hitachi Data Systems, IBM, StorageTek, Dell Computer Corporation and Veritas.

Our wholly owned subsidiary, Inrange Technologies Corporation (Inrange), which we acquired on May 5, 2003, also designs, manufactures, markets and services networking and switching products for storage and data networks. These products provide fast and reliable connections among networks of computers and related devices, allowing customers to manage and expand large, complex, storage networks efficiently, without geographic limitations.

The flagship product of Inrange, the FC/9000, is the most scalable storage networking director-class Fibre Channel switch available for SANs. With an ability for customers to upgrade and scale to 256 ports without disrupting existing systems, the FC/9000 provides a platform from which an enterprise can build storage networks that can be used in systems where reliability and continuous availability are critical. These products are designed to be compatible with various vendors’ products and multiple communication standards and protocols. Inrange distributes and supports these products through a combination of direct sales and service operations and indirect channels.

We also supply storage systems, telecommunications capacity, storage application software and other products and services manufactured or provided by others.

On April 6, 2003, we entered into an agreement whereby our wholly owned subsidiary would acquire all of the shares of Inrange that were owned by SPX Corporation. The shares acquired constituted approximately 91% of the issued and outstanding shares of Inrange for a purchase price of approximately $2.31 per share and $173 million in the aggregate. On May 5, 2003 we completed the acquisition of Inrange and pursuant to the agreement the subsidiary merged into Inrange, and the remaining capital stock owned by the other Inrange shareholders was converted into the right to receive approximately $2.31 per share in cash, resulting in a total payment of $190 million for both the stock purchase and merger.

Completion of this acquisition makes us one of the world’s largest providers of complete storage networking products, solutions and services, with combined 2002 pro forma annual revenues of approximately $435 million. We have global leadership positions in our markets. The acquisition significantly broadens and strengthens our portfolio of storage and networking products and solutions, increases our global size and scope, expands our customer base, and provides us with significant scale and cost reduction opportunities.

During the second quarter of 2003, we incurred integration charges related to the Inrange acquisition of $3.4 million for wages and severance related to terminated employees, and travel costs for integration activities. Employees were terminated in most functional areas to obtain cost synergies. We also incurred a $1.6 million charge to write-down inventory related to the integration of product strategies for the new combined entity. The following table sets forth the impact of the integration charges on our Statements of Operations for the three and six months ended July 31, 2003:


						Three months							Six months
			Impact of			ended				Impact of			ended
	As reported		integration			July 31, 2003		As reported		integration			July 31, 2003

Cost of product	$	39,244	$	(2,223	)	$	37,021	$	60,878	$	(2,223	)	$	58,655
Cost of service		20,420		(124	)		20,296		30,506		(124	)		30,382
Sales and marketing		24,867		(1,201	)		23,666		39,073		(1,201	)		37,872
Engineering and development		12,025		(343	)		11,682		17,945		(343	)		17,602
General and administrative		5,266		(1,145	)		4,121		7,822		(1,145	)		6,677

In addition to the above impact of integration, cost of product for the three and six months ended July 31, 2003 includes $1.1 million of amortization for developed technology related to the Inrange acquisition. Sales and marketing expense includes $607,000 of amortization for trademarks and customer lists which are also related to the Inrange acquisition. We may incur additional integration expenses of $1.0 million in our third quarter ending October 31, 2003 for wages and severance.

In June 2002, we acquired all of the outstanding stock of Business Impact Technology Solutions Limited (BI-Tech), a leading provider of storage management solutions and services, for $12 million in cash, plus the assumption of approximately $3.6 million of liabilities and the acquisition of approximately $8.7 million of tangible assets. The accompanying financial statements include the results of BI-Tech since June 24, 2002.

The original purchase agreement required payments of additional consideration to the former stockholders and the BI-Tech employees based on achievement of certain earnings for each of the two years beginning July 1, 2002. A modification to the purchase agreement was made during the second quarter of fiscal 2003, whereby the first earn out period ended April 30, 2003. It also guarantees the former stockholders a minimum payment for the second earn out period, which ends June 30, 2004, of at least $3.9 million. The portion payable to the former stockholders is recorded as goodwill. The portion payable to BI-Tech employees is recorded as compensation expense. During the second quarter and first half of 2003, an additional $3.5 million and $7.7 million, respectively, was added to goodwill and $0 and $1.1 million, respectively, was recorded as compensation expense under this earn out arrangement.

In February 2002, we sold $125 million of 3% convertible subordinated notes due February 2007, raising net proceeds of $121 million. The notes are convertible into our common stock at a price of $19.17 per share. We may redeem the notes upon payment of the outstanding principal balance, accrued interest and a make whole premium if the closing price of our common stock exceeds 175% of the conversion price for at least 20 consecutive trading days within a period of 30 consecutive trading days ending on the trading day prior to the date we mail the redemption notice. On August 15, 2002 a registration statement for the resale of the notes and the 6.5 million shares of common stock issuable upon conversion of the notes became effective.

In the fourth quarter of fiscal 2002, we recorded a non-cash charge of $23.6 million to provide a full valuation allowance for our United States deferred tax assets. As we generate taxable income in future periods, we do not expect to record significant income tax expense in the United States until it becomes likely that we will be able to utilize the deferred tax assets, and we reduce the valuation allowance. The establishment of the valuation allowance does not impair our ability to use the deferred tax assets upon achieving profitability. Our federal net operating loss carry-forwards and credits do not expire for the next 15-20 years.

Effective February 1, 2002, we adopted SFAS No. 142 “Goodwill and Other Intangible Assets.” In connection with the adoption of SFAS No. 142, we engaged a third party appraisal firm to determine the fair value of one of the reporting units within our former storage solutions segment. This valuation indicated that the goodwill associated with our acquisition of Articulent in April of 2001 was impaired, resulting in a $10.1 million non-cash charge. This non-cash charge was recognized as a cumulative effect of change in accounting principle in our first quarter ended April 30, 2002.

The following table sets forth financial data for our operations for the periods indicated as a percentage of total revenue except for gross profit, which is expressed as a percentage of the related revenue. The financial data has also been presented to show the impact of the $3.4 million of Inrange integration expenses and the $1.6 million inventory write-down on the Company’s financial statements.


			Three months ended												Six months ended
			July 31,												July 31,

						Impact of												Impact of
			As reported			integration			2003			2002			As reported			integration			2003			2002

Revenue:
	Product sales			65.6	%		—	%		65.6	%		67.8	%		65.7	%		—	%		65.7	%		66.8	%
	Service fees			34.4			—			34.4			32.2			34.3			—			34.3			33.2

		Total revenue		100.0			—			100.0			100.0			100.0			—			100.0			100.0

Gross profit:
	Product sales			38.2			(3.5	)		41.7			40.8			37.8			(2.3	)		40.1			41.2
	Service fees			38.5			(.4	)		38.9			40.9			40.4			(.2	)		40.6			38.9

		Total gross profit		38.3			(2.4	)		40.7			40.8			38.7			(1.6	)		40.3			40.4

Operating expenses:
	Sales and marketing			25.7			(1.3	)		24.4			29.1			26.2			(.8	)		25.4			31.7
	Engineering and development			12.4			(.3	)		12.1			13.5			12.1			(.3	)		11.8			14.1
	General and administrative			5.4			(1.1	)		4.3			5.5			5.2			(.8	)		4.4			5.5
	In process research and development charge			20.4			—			20.4			—			13.2			—			13.2			—

		Total operating expenses		63.9			(2.7	)		61.2			48.1			56.7			(1.9	)		54.8			51.3

Loss from operations				(25.6	)%		(5.1	)%		(20.5	)%		(7.3	)%		(18.0	)%		(3.5	)%		(14.5	)%		(10.9	)%

Cost of product as reported of $39.2 million includes $1.1 million of amortization for developed technology related to the Inrange acquisition and $2.2 million of integration expenses related to the integration of Inrange. Sales and marketing expense as reported of $24.9 million includes $607,000 of amortization for trademarks and customer list related to the Inrange acquisition and $1.2 million of integration expenses related to the integration of Inrange. We also incurred a $19.7 million charge related to the Inrange acquisition for purchased in-process research and development.

Sales of our proprietary CNT products generated revenues of $51.0 million and $69.3 million in the second quarter and first half of 2003, respectively, increases of 116% and 51%, respectively, from $23.7 million and $45.9 million for the second quarter and first half of 2002. A substantial amount of the increase in our proprietary CNT product sales during the second quarter and first half of 2003 relates to the acquisition of Inrange, including the Inrange Fibre Channel director products. Revenue from the sale of the Fibre Channel director products totaled $12 million in the second quarter and first half of 2003. We anticipate that the Fibre Channel director products acquired from Inrange will account for a significant portion of our proprietary CNT product revenue in future periods.

Sales of our third party storage solutions products generated revenues of $12.5 million and $28.6 million in the second quarter and first half of 2003, respectively, increases of 32% and 68%, respectively, from $9.5 million and $17.0 million for the second quarter and first half of 2002. Our acquisition of Articulent in April 2001 and BI-Tech in June 2002 significantly expanded our third party solution offerings. The BI-Tech acquisition accounted for $5.0 million and $8.9 million of third party product revenue in the second quarter and first half of 2003.

Service revenues from our proprietary CNT products for the second quarter and first half of 2003 totaled $22.0 million and $32.9 million, respectively, increases of 102% and 50%, respectively, from $10.9 million and $21.9 million for the second quarter and first half of 2002. The increase is primarily attributable to our acquisition of Inrange, as maintenance related to the proprietary products acquired from Inrange provide us with an expected $44 million recurring annual revenue stream.

Our consulting fee revenues increased 132% and 96% in the second quarter and first half of 2003 to $11.2 million and $18.3 million, respectively, up from $4.8 million and $9.3 million for the second quarter and first half of 2002. A large portion of the growth in consulting fee revenue relates to our acquisition of Inrange. We also continue to experience an increase in customer acceptance of our consulting offerings, and our sales team has become more experienced and proficient at selling solutions that include our consulting offerings.

Revenue generated from the sale of products and services outside the United States for the second quarter and first half of 2003 totaled $35.3 million and $50.6 million, respectively, increases of 179% and 128%, respectively, from $12.7 million and $22.2 million for the second quarter and first half of 2002. The increase in revenue generated outside the United States is primarily attributable to the acquisition of Inrange in May of 2003 and the BI-Tech acquisition in June of 2002. During calendar year 2002, international sales accounted for 40% or $89.3 million of Inrange’s total revenue. We continue to expect our volume of international sales to increase significantly in future periods, when compared to the same period last year, due to the acquisition of Inrange.

One customer accounted for 15% of our revenue during first half of fiscal 2003. No customer accounted for more than 10% of our revenue during the first half of 2002. Price discounting had a small impact on our product revenue during these periods.

We primarily sell our proprietary CNT products directly to end-user customers in connection with joint marketing activities with our business partners. For a new customer, the initial sales and design cycle, from first contact through shipment, can vary from 90 days to 12 months or more. We expect this cycle will continue.

We expect continued quarter-to-quarter fluctuations in revenue in both domestic and international markets. The timing of sizable orders, because of their relative impact on total quarterly sales, may contribute to such fluctuations. The level of product sales reported by us in any given period will continue to be affected by the receipt and fulfillment of sizable new orders in both domestic and international markets.

Gross margins from the sale of proprietary CNT products for the second quarter and first half of 2003 were 43% and 46%, respectively, compared to 48% and 49%, respectively, in the second quarter and first half of 2002. Excluding the $1.6 million write-down of inventory resulting from the integration of product strategies related to the Inrange acquisition, $600,000 of integration expenses, and $1.1 million of amortization expense for developed technology acquired through the Inrange acquisition, gross product margins from the sale of proprietary CNT products for the second quarter and first half of 2003 would have been 50% and 51%, respectively. The increase in gross margin percentage, excluding the inventory write-down, integration expenses and amortization of developed technology, was due to a change in mix of products sold, as the acquisition of Inrange substantially increased our portfolio of proprietary products. We also have taken actions to reduce the manufactured cost of our UltraNet® Director products. A large portion of our newly acquired Fibre Channel director products are sold through indirect channels. Sales through indirect channels carry a lower gross margin, but approximately the same operating margin as a direct sale to the end user.

Gross margins from the sale of third party storage solutions products for the second quarter and first half of 2003 were 18% and 17%, respectively, compared to 23% and 20%, respectively, in the second quarter and first half of 2002. The slight decrease in gross margin percentage was primarily due to product mix. We anticipate that product margins for third party products will remain in the high teens in future periods.

Gross service margins for our proprietary CNT products in the second quarter and first half of 2003 were 48% and 49%, respectively, compared to 50% and 48%, respectively, in the second quarter and first half of 2002. We anticipate that gross service margins for our proprietary CNT products, excluding any potential integration expenses in the third quarter of 2003, will continue to be in the 50% range for the foreseeable future.

Gross profit margins from our consulting fees were 20% and 26%, respectively, for the second quarter and first half of fiscal 2003, compared to 20% and 18%, respectively, for the second quarter and first half of 2002. Gross profit margins for the second quarter of 2003, were consistent with the second quarter of 2002. Improvements in employee utilization prior to the acquisition of Inrange were offset by lower utilization of employees in the newly acquired Inrange consulting business. The improvement in the gross profit margin percentage in the first half of 2003 compared to 2002 was primarily due to higher utilization of employee consultants.

Sales and marketing expense for the second quarter and first half of 2003 totaled $24.9 million and $39.1 million, respectively, up 75% and 31%, respectively, from $14.2 million and $29.8 million in the second quarter and first half of 2002. Excluding integration expenses of $1.2 million, and amortization for customer list and trademarks of $607,000 relating to the Inrange acquisition, our sales and marketing expense would have been $23.1 million and $37.3 million, respectively, for the second quarter and first half of 2003. Substantially all of the increase was due to our acquisition of Inrange in May 2003 and BI-Tech in June 2002.

Engineering and development expense for the second quarter and first half of 2003 totaled $12.0 million and $17.9 million, respectively, up 82% and 35%, respectively, from $6.6 million and $13.3 million in the second quarter and first half of 2002. Excluding integration expenses of $343,000 related to the Inrange acquisition, our engineering and development expenses would have been $11.7 million and $17.6 million, respectively, for the second quarter and first half of 2003. The increase was primarily due to our acquisition of Inrange in May of 2003. We are committed to the future development of our Fibre Channel director products acquired from Inrange, and our UltraNet® family of products, particularly the UltraNet® Edge product, which has generated $23.2 million of revenue since its introduction in the third quarter of 2001. In future periods, we expect to continue to invest a significant portion of our resources in the engineering and development of new products, and new features for existing products.

General and administrative expenses for the second quarter and first half of 2003 totaled $5.2 million and $7.8 million, respectively, up 95% and 50%, respectively, from $2.7 million and $5.2 million in the second quarter and first half of 2002. Excluding integration expenses of $1.1 million related to the Inrange acquisition, our general and administrative expense, would have been $4.1 million and $6.7 million, respectively, for the second quarter and first half of 2003. The increase in expense was primarily due to our acquisition of Inrange in May 2003 and BI-Tech in June 2002.

In connection with the acquisition of Inrange, we acquired certain fibre channel related technology that was deemed to be in process (approximately 50% complete), that had not yet reached technological feasibility, and that had no alternative future use. The in process research and development was valued at $19.7 million, as determined by an independent appraisal. We expect to incur additional expenses of $10 to $15 million to achieve technological feasibility with respect to this technology. As with any new technology, there are risks and uncertainties associated with completion of the project. We currently believe revenue related to this technology will commence during 2004.

Other expense for the second quarter and first half of 2003 totaled $719,000 and $19,000, respectively, compared to other income of $373,000 and $1.4 million for the second quarter and first half of 2002. In February 2002, we sold $125 million of 3% convertible subordinated notes due February 2007, raising net proceeds of $121 million. Coupon interest on the notes, plus amortization of debt issuance costs, resulted in interest expense in the second quarter and first half of 2003 of $1.1 million and $2.2 million, respectively, compared to $1.1 million and $1.9 million, respectively, in the second quarter and first half of 2002. Interest income totaled $187,000 and $1.3 million for the second quarter and first half of 2003, compared to $1.5 million and $3.4 million in the second quarter and first half of 2002. During the first quarter of 2003, we sold substantially all of our investments in marketable securities to finance our acquisition of Inrange on May 5, 2003 for $190 million in cash. The sale resulted in a net realized gain totaling $747,000, and was the primary reason for the reduction in interest income in 2003 compared to 2002.

Given our losses in fiscal 2002 and 2001, and our cautious outlook for information technology spending, we concluded that it was necessary to provide a full valuation allowance for our United States deferred tax assets, in our fourth quarter ended January 31, 2003. As we generate taxable income in future periods, we do not expect to record significant income tax expense in the United States until it becomes likely that we will be able to utilize the deferred tax assets, and we reduce the valuation allowance. The establishment of the valuation allowance does not impair our ability to use the deferred tax assets upon achieving profitability. Our federal net operating loss carry-forwards and credits do not expire until 15-20 years from now.

We have historically financed our operations through the public and private sale of debt and equity securities, bank borrowings under lines of credit, capital and operating leases and cash generated by operations.

Cash, cash equivalents and marketable securities at July 31, 2003 totaled $60.2 million, a decrease of $149.2 million since January 31, 2003. The decrease is primarily due to our acquisition of Inrange in May of 2003. Net cash used to complete this transaction was $152.6 million. Cash flow from operations for the first half of fiscal 2003 totaled $7.7 million, including a reduction in inventory of $11.0 million due to better inventory management and payments for accrued liabilities of $7.7 million for severance and other items. Proceeds related to the issuance of common stock totaled $1.0 million. Uses of cash for the first half of fiscal 2003, included $5.2 million for capital equipment and field support spares. Expenditures for capital equipment and field support spares have been, and will likely continue to be, a significant capital requirement.

At July 31, 2003, our available cash and marketable securities totaled $60.2 million. We believe our anticipated cash flows from operations, including cash flow improvements resulting from increased scale and cost synergies from the acquisition of Inrange, will be adequate to fund our operating plans and meet our current anticipated aggregate capital requirements, at least through the next twelve months. This belief is based upon a number of assumptions and estimates, including obtaining certain revenue levels from Inrange products and services, completion of certain restructuring activities and payments of integration and restructuring charges in line with estimates by management. If these estimates and assumptions do not turn out to be correct, or if we encounter unanticipated difficulties or economic conditions, our liquidity could be impaired.

We believe that inflation has not had a material impact on our operations or liquidity to date.

Our future minimum contractual cash obligations at July 31, 2003, including open purchase orders incurred in the ordinary course of business, are as follows (in millions):


			Less Than		One to		Four to Five			After
Cash Obligation	Total		One year		Three Years		Years			Five Years

Capital leases	$	.3	$	.3	$	None	$	None			$	None
Operating leases	$	40.1	$	8.6	$	16.5	$		8.7		$	6.3
Purchase orders	$	19.3	$	18.9	$	.4	$	None			$	None
BI-Tech earn out	$	8.8	$	8.8	$	None	$	None			$	None
Convertible notes, plus interest	$	138.1	$	3.8	$	11.3	$		123.0		$	None

On December 3, 2002 we entered into a product development agreement that requires us to purchase $10.0 million of product prior to March 15, 2005. The commitment expires if the product is not generally available by March 31, 2004. This purchase commitment has also been reflected in the above table under the “Purchase Order” caption.

Our acquisition of BI-Tech originally required us to pay the former stockholders and BI-Tech employees additional consideration based on achievement of certain earnings for each of the two years beginning July 1, 2002. A modification to the purchase agreement was made during the second quarter of fiscal 2003, whereby the first earn out period ended April 30, 2003. It also guarantees the former stockholders a minimum payment for the second earn out period, which ends June 30, 2004, of at least $3.9 million. Payment of the second period earn out may be in the form of a note payable or stock at our option, or in the case of the employees, cash.

This Form 10-Q includes non-GAAP information regarding results from operations, which includes adjustments to amounts calculated under generally accepted accounting principles. The non-GAAP information is not in accordance with, or an alternative for GAAP and may be different from non-GAAP information used by other companies. Non-GAAP information is provided as a complement to results provided in accordance with generally accepted accounting principles. The non-GAAP information is provided to give investors a more complete understanding of the underlying operational results and trends in our performance. Management believes that the non-GAAP information is used by some investors and equity analysts to make informed decisions because the information may be more useful when analyzing historical results or predicting future results from operations. In addition, management uses the pro-forma information as a basis for planning and forecasting future periods.

Our exposure to market risk due to changes in the general level of U.S. interest rates relates primarily to our cash, cash equivalents, and marketable securities. The primary objective of our investment activities is the preservation of principal while maximizing investment income and minimizing risk. We mainly invest our cash, cash equivalents and marketable securities in investment grade, highly liquid investments, consisting of U.S. government and agency securities, corporate debt securities and bank certificates of deposits. We believe that market risk due to changes in interest rates is not material.

Our convertible subordinated debt is subject to a fixed interest rate and the notes are based on a fixed conversion ratio into common stock. Therefore, we are not exposed to changes in interest rates related to our long-term debt instruments. On July 31, 2003, the average bid and ask price of our convertible subordinated notes due 2007 was 81.88 resulting in an aggregate fair value of approximately $102.4 million. Our common stock is quoted on the Nasdaq National Market under the symbol “CMNT”. On July 31, 2003, the last reported sale price of our common stock on the Nasdaq Market was $6.71 per share.

At July 31, 2003, our marketable securities included a $210,000 investment in a Standard & Poors 500 stock price index fund and a $335,000 investment in a NASDAQ 100 index tracking stock. These investments were purchased to directly offset any investment gains or losses owed to participants under our executive deferred compensation plan, which has been established for selected key employees.

We are exposed to market risks related to fluctuations in foreign exchange rates because some sales transactions, and the assets and liabilities of our foreign subsidiaries, are denominated in foreign currencies, primarily the euro and British pound sterling. As of July 31, 2003, we had no open forward exchange contracts.

The Company reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered by this report (the “Evaluation Date”). This review and evaluation was done under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on their review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and effective to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission: rules and forms. It should be noted that the design of any system of controls is based upon certain assumptions about the likelihood of future events, and there can be assurance that design will succeed in achieving its stated under all potential future conditions, regardless of how remote.

There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

This Form 10-Q and other documents we have filed with the Securities and Exchange Commission contain forward-looking statements, which may include statements about our:

•

expectations regarding future liquidity revenue levels, gross margins, expenses, operating margins and earnings per share;

•

timing of and plans for the introduction or phase-out of products or services;

•

other plans, objectives, expectations and intentions contained in this Form 10-Q that are not historical facts.

When used in this Form 10-Q, the words “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” and similar expressions are generally intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of certain risk factors, including but not limited to (i) competitive factors, including pricing pressures; (ii) variability in quarterly sales; (iii) economic trends generally and in various geographic markets; (iv) relationships with our strategic partners; (v) technological change affecting our products; (vi) whether any delayed orders will be received; (vii) unanticipated difficulties in integration of Inrange; (viii) unanticipated risks associated with introducing new products and features; (ix) risks associated with the unfavorable developments in litigation, and, (x) other events and other important factors, including those discussed under cautionary statements in Exhibit 99 to our Form 10-K filing with the Securities and Exchange Commission for the year ended January 31, 2003. We assume no obligation to update any forward-looking statements. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward looking statements speak as of the date hereof. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

The information set forth in Note 11 (Litigation) to the consolidated financial statements included in Part I of this Form 10-Q is hereby incorporated by reference.


	Affirmative	Negative		Abstain		Broker
	Votes	Votes		Votes		Non-Votes



1. Election of Directors Thomas G. Hudson Patrick W. Gross Erwin A. Kelen John A. Rollwagen Lawrence A. McLernon Katherine B. Earley Bruce J. Ryan	24,107,558 24,410,272 24,715,695 24,393,289 24,401,241 24,789,202 24,785,665		879,710 567,996 262,573 584,979 577,027 189,066 192,603		— — — — — — —	— — — — — — —

2. Proposal to amend the 1992 employee Stock purchase plan to increase the number of shares authorized for issuance thereunder by 1,300,000 to 2,800,000; and to increase to $7,500 the amount that may be withheld by any participant to purchase shares of common stock under the plan during any purchase period	23,566,687		1,239,650		171,930	—

3. Proposal to ratify and approve the appointment of KPMG LLP as independent auditors for the fiscal year ending January 31, 2004.	24,586,745		349,731		41,792	—


2		Amendment dated June 9, 2003 to purchase Agreement dated June 24, 2002 between Computer Network Technology Corporation, Greg Scorziello, Paul John Foskett and Owen George Smith.(2)
3.1		Second Restated Articles of incorporation of the Company. (Incorporated by reference to Exhibits 3(i)-1 and 3(i)-2 to current report on Form 8-K dated May 25, 1999).
3.2		Articles of Amendment of the Second Restated Articles of the Company. (Incorporated by reference to Exhibit 3(i)-1 to current report on Form 8-K dated May 25, 1999.)
3.3		By-laws of the Company (Incorporated by reference to Exhibit 3 (ii)-1 to current report on Form 8-K dated May 25, 1999.)
4.1		Rights Agreement between the Company and Chase Mellon Shareholder Services, L.L.C., as Rights Agent including the form of Rights Certificate and the Summary of Rights to Purchase Preferred Shares. (Incorporated by reference to Exhibit 1 to Form 8-A dated July 29, 1998 and Exhibit 1 to Form 8-A/A dated November 27, 2000.)
4.2		First Amendment of Rights Agreement dated November 21, 2000. (Incorporated by reference to Exhibit 1 to Form 8-A/A dated November 27, 2000.)
4.3		First Amendment of Certificate of Designations, Preferences and Right of Series A Junior Participating Preferred Stock. ($.01 Par Value Per Share) of Computer Network Technology Corporation (Incorporated by reference to Exhibit 2 to Form 8-A/A dated November 27, 2000.)
10		Amendment to amended and Restated 1999 Non-Qualified Stock Award Plan.(1)(2)
11.		Statement Re: Computation of Net income (loss) per Basic and Diluted Share.(2)
31.1		CEO Certification Required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.(2)
31.2		CFO Certification Required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.(2)
32		Computer Network Technology Corporation Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).(2)

The company filed a current report on Form 8-K on May 16, 2003 and Form 8-K/A on July 18, 2003 relating to the acquisition of Inrange Technologies Corporation. A current report on Form 8-K was dated and furnished May 12, 2003, pursuant to Item 9 (Regulation FD Disclosure) to report the press release announcing the Company’s financial results for the first quarter of 2003 and certain other information.

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officers.


Item		Description

2		Amendment dated June 9, 2003 to purchase Agreement dated June 24, 2002 between Computer Network Technology Corporation, Greg Scorziello, Paul John Foskett and Owen George Smith.(2)
3.1		Second Restated Articles of incorporation of the Company. (Incorporated by reference to Exhibits 3(i)-1 and 3(i)-2 to current report on Form 8-K dated May 25, 1999).
3.2		Articles of Amendment of the Second Restated Articles of the Company. (Incorporated by reference to Exhibit 3(i)-1 to current report on Form 8-K dated May 25, 1999.)
3.3		By-laws of the Company (Incorporated by reference to Exhibit 3 (ii)-1 to current report on Form 8-K dated May 25, 1999.)
4.1		Rights Agreement between the Company and Chase Mellon Shareholder Services, L.L.C., as Rights Agent including the form of Rights Certificate and the Summary of Rights to Purchase Preferred Shares. (Incorporated by reference to Exhibit 1 to Form 8-A dated July 29, 1998 and Exhibit 1 to Form 8-A/A dated November 27, 2000.)
4.2		First Amendment of Rights Agreement dated November 21, 2000. (Incorporated by reference to Exhibit 1 to Form 8-A/A dated November 27, 2000.)
4.3		First Amendment of Certificate of Designations, Preferences and Right of Series A Junior Participating Preferred Stock. ($.01 Par Value Per Share) of Computer Network Technology Corporation (Incorporated by reference to Exhibit 2 to Form 8-A/A dated November 27, 2000.)
10		Amendment to amended and Restated 1999 Non-Qualified Stock Award Plan.(1)(2)
11.		Statement Re: Computation of Net income (loss) per Basic and Diluted Share.(2)
31.1		CEO Certification Required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.(2)
31.2		CFO Certification Required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934.(2)
32		Computer Network Technology Corporation Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).(2)

a sale and purchase agreement in respect of the
whole of the issued share capital of Business
Impact Technology Solutions Limited dated 24
June 2002

(1)

THE PERSONS whose names and addresses are set out in schedule 1 (“Vendors”); and

(2)

COMPUTER NETWORK TECHNOLOGY CORPORATION, a company incorporated under the laws of the State of Minnesota, United States of America with its principal place of business at 6000 Nathan Lane North, Plymouth, Minnesota, 55442, USA (“Purchaser”).

Pursuant to the Acquisition Agreement the Vendors sold and the Purchaser purchased the entire issued share capital of Business Impact Technology Solutions Limited (“Company”). The Acquisition Agreement was varied by the Deed of Variation.

It is the intention of the parties to enter into this deed to further vary the provisions of the Acquisition Agreement to amend the Earn-out Provisions to reflect the fact that subsequent to the date of the Acquisition Agreement Mr Scorziello and Mr Foskett have assumed responsibility for the UK and Scandinavian operations of the Purchaser’s Group.

To the extent not defined in this deed, words and expressions shall have the meaning ascribed to them in the Acquisition Agreement. In this deed:

“Acquisition Agreement” means the agreement between the Vendors and the Purchaser for the sale and purchase of the entire issued share capital of the Company dated 24 June 2002;

“Deed of Variation” means an agreement between the Vendors and the Purchaser amending the Acquisition Agreement dated 13 December 2002;

“Earn-out Provisions” means the earn-out provisions that are contained in Schedule 7 according to which the Additional Consideration (as defined in the Acquisition Agreement) is to be calculated and payable;

With effect from the date of this deed the Acquisition Agreement shall be varied as follows:

2.1

the definition of EBIT at part 1 of Schedule 7 shall be deleted and replaced with a new definition with the following words:

“means the earnings before interest and corporation tax on income of (i) in Year 1, the Group (or of any separate and distinct division of the Purchaser or of another member of the Purchaser Group referred to in paragraph 3 of this part 1 of schedule 7) or (ii) in Year 2, the UK and Scandinavian operations of the Purchaser Group (including for the avoidance of doubt, the Group) (the “Relevant Business”) for Year 2 calculated as set out in part 2 of this schedule and translated into US dollars using the mid-market exchange rate of The Royal Bank of Scotland plc on the day before the relevant Additional Consideration is paid;”

2.2

the definition of “Year 1” at part 1 of Schedule 7 shall be deleted and replaced with a new definition with the following words:

“means the financial period for the Group commencing 1 July 2002 and ending on 30 April 2003;”

2.3

the definition “Year 2” at part 1 of Schedule 7 shall be deleted and replaced with a new definition with the following words:

“means the financial period for the Purchaser Group commencing on 1 May 2003 and ending on 30 June 2004;”

2.4

the definition of “Consideration Accounts” at part 1 of Schedule 7 shall be deleted and replaced with a new definition with the following words:

“means the audited consolidated group accounts of the Group for Year 1 or the audited consolidated accounts of the Relevant Business for Year 2;”

2.5

clause 12.3.4 shall be amended by adding the following words at the end of that clause:

2.6

paragraph 2 of part 1 of Schedule 7 shall be deleted and replaced with a new paragraph 2 with the following words:

2.1

the product of (EBIT for Year 1 minus ten-twelfths of one million US dollars ($1,000,000)) multiplied by 1.4; and

2.2

the product of (EBIT for Year 2 minus five million US dollars ($5,000,000)) multiplied by 0.8;

provided that in either case if the resulting amount is negative no Additional Consideration shall be payable in respect of that Consideration Year and the Vendors shall have no obligation to pay the Purchaser any amount in respect of such negative amount”.

2.7

an additional paragraph shall be inserted immediately after paragraph 2 of part 1 of Schedule 7 to be numbered paragraph 3 with the following words:

“Notwithstanding that the Additional Consideration payable by the Purchaser to the Vendors in respect of Year 2 may be less than the Year 1 Payment the Purchaser undertakes to the Vendors that it shall pay to the Vendors a sum of not less than the Year 1 Payment in respect of the Additional Consideration that is payable in respect of Year 2. The provisions of paragraphs 1 to 4 (both inclusive) of part 5 of this schedule 7 shall not apply in respect of Year 2.”

and the existing paragraphs 3 and 4 of part 1 of Schedule 7 shall be renumbered as paragraphs 4 and 5 respectively.

2.8

the first line of paragraph 1 of Part 2 of Schedule 7 shall be deleted and replaced with the following words:

“The EBIT for Year 1 is (to the nearest £1) the earnings before interest and”

2.9

paragraph 1.2.3 of Part 2 of Schedule 7 shall be deleted and replaced with a new paragraph 1.2.3 with the following words:

“after taking into account both as an expense and as a receipt of the business of the Group (to the extent not already taken into account) the payment by the Company of the Year 1 Bonus Pool together with PAYE and National Insurance Contributions (employees and employers) thereon and the funding of the Company by the Purchaser made to compensate the Company therefor (as provided in clause 12.3)”;

2.10

an additional paragraph shall be inserted immediately after paragraph 1 of part 2 of Schedule 7, to be numbered paragraph 2 with the following words:

“2.

The EBIT for Year 2 is (to the nearest £1) the earnings before interest and corporation tax on income of the Relevant Business as shown in the Consideration Accounts for that period which shall be prepared:

2.1

insofar as it relates to the Group in accordance with the specific accounting principles, bases, policies and methods used in preparing the Completion Accounts as set out in part 2 of schedule 6;

2.2.1

after adding back an amount equal to any sum paid by the Vendors to the Purchaser under the Warranties to the extent that the matter giving rise to a claim under the Warranties affects EBIT;

2.2.2

after taking into account both as an expense and as a receipt of the business of the Group (to the extent not already taken into account) the payment by the Company of the Year 2 Bonus Pool together with PAYE and National Insurance Contributions (employees and employers) thereon and the funding of the Company by the Purchaser made to compensate the Company therefor (as provided in clause 12.3 );

2.2.3

after excluding any revenues and costs relating to the installed base at Barclays Bank as at 30 April 2003 and any Break Fix Maintenance on the replacement of such installed base. All revenues and costs from new sales to Barclays Bank shall be included in the Year 2 earn-out calculation;

2.2.4

after adding back any severance costs that have been incurred in relation to the termination of contracts of employment prior to 31 July 2003 of any employees employed in the Relevant Business as a result of the acquisition of the Inrange business ; and

2.2.5

after deducting any revenues of the Inrange business earned prior to 6 May 2003 but including any revenues of the Inrange business earned after that date;

2.3

to the extent not covered by 2.1 and 2.2 above, on a basis consistent with the Accounts, or, as the case may be, previous accounts of the Purchaser’s subsidiaries in the United Kingdom and Sweden, using the same accounting principles, bases, policies and methods (to the extent these comply with UK GAAP); and

2.4

to the extent not covered by 2.1 to 2.3 above, in accordance with UK GAAP.”

2.9

paragraph 1 of Part 3 of Schedule 7 shall be deleted and replaced by a new paragraph 1 with the following words:

“The Purchaser shall (as its own cost) procure that the Consideration Accounts are prepared and audited (and the auditors’ certificate in respect of them signed):

and are submitted together with the EBIT certificate specified in paragraph 2 of this part to the Vendors.”

2.11

paragraph 2 of Part 3 of Schedule 7 shall be amended by adding, after the words “income tax of the Group” in the third line the words “or the Purchaser Group as the case may be”;

2.12

paragraph 5 of Part 3 of Schedule 7 shall be amended by adding, after the words “in the possession of the Group” in the third line the words “or the Purchaser Group as the case may be”; and

2.13.2

the deletion of paragraphs 5.2 to the end of paragraph 5 and the substitution therefor of the following:

“5.2

the employment of both of Paul Foskett and Greg Scorziello with the Company is terminated by the Purchaser or at its direction (otherwise than where such termination is voluntarily initiated by the relevant one of Paul Foskett and Greg Scorziello) or both of Paul Foskett and Greg Scorziello have been given notice of termination of their employment or suspended from all or a material part of their duties other than in circumstances in which the Company is lawfully entitled to effect a summary dismissal in accordance with the relevant service contract

(whether or not such notice or suspension applies to Paul Foskett and Greg Scorziello simultaneously);

5.3

both of Paul Foskett and Greg Scorziello are removed from office as directors of the Company by the Purchaser or at its direction other than in circumstances in which the Company is lawfully entitled to effect a summary dismissal in accordance with the relevant service contract (whether or not such removal applies to Paul Foskett and Greg Scorziello simultaneously),

the Vendors shall be entitled to elect, by written notice of the Manager served within 30 days of the relevant Acceleration Event to receive the Year 2 Payment which, notwithstanding anything else in this agreement, shall be calculated as follows:

5.4

EBIT for the six months immediately preceding the Acceleration Event (“Acceleration EBIT”) shall be calculated by reference to the immediately preceding six months and otherwise mutatis mutandis in accordance with part 2 of this schedule 7; and

5.5

if an Acceleration Event occurs: EBIT for purposes of Year 2 shall be calculated by dividing Acceleration EBIT by six and multiplying it by the number of months (including fractions of months) (but not exceeding 14 months) remaining to elapse from the later of the date of the Acceleration Event and the beginning of Year 2 to the end of Year 2.

The amount given by the above formula (“Acceleration Amount”) or, if greater, the amount of the Year 1 Payment, shall be paid by the Purchaser to the Vendors in Loan Notes in accordance, mutatis mutandis, with part 4 of schedule 7.”

Subject to the terms of this deed, the parties confirm that the Acquisition Agreement (as amended by the Deed of Variation) remains in full force and effect.

4.1

This deed may be signed in a number of counterparts and shall have the same effect as though the signatures were on a single copy of this deed.

4.2

The parties agree that this deed shall be governed by and be construed in accordance with the laws of England and the parties submit to the exclusive jurisdiction of the English Courts.

4.3

A person who is not a party to this deed shall have no rights under the Contract (Right of Third Parties) Act 1999 to enforce any term of this deed.


SIGNED (but not delivered until the date hereof) as a deed by Greg Scorziello in the presence of:		) )/s/ Greg Scorziello

Witness Signature: /s/ Mark J. Vargo

Full Name: Mark J. Vargo

Address:

Occupation:

SIGNED (but not delivered until the date hereof) as a deed by Paul John Foskett in the presence of:		) ) /s/ Paul John Foskett

Witness Signature: /s/ Mark J. Vargo

Full Name: Mark J. Vargo

Address:

Occupation:

SIGNED (but not delivered until the date hereof) as a deed by Owen George Smith in the presence of:		) ) /s/ Owen George Smith

Witness Signature: /s/ Mark J. Vargo

Full Name: Mark J. Vargo

Address:

Occupation:

Plan Information Statement
For Participants in the Company’s
1999 Non-Qualified Stock Award Plan

This document constitutes part of a prospectus
covering securities registered under
the Securities Act of 1933.

The Board of Directors of Computer Network Technology Corporation (the “Company”) has adopted the 1999 Non-Qualified Stock Award Plan (as amended from time to time, the “Plan”). In brief, the Plan enables the Company to make compensation awards of cash, shares and options to purchase shares of its Common Stock to employees, consultants and advisors of the Company and those of its parent and or subsidiary corporations, if any.

•

motivate key personnel to produce a superior return to the Company’s shareholders by offering an opportunity to share in the appreciation of Company stock, and

•

help recruiting and retaining key personnel by providing an attractive opportunity to accumulate capital.

The Plan is not qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and is not subject to the Employee Retirement Income Securities Act of 1974.

You have been granted an award under the Plan in the form of either restricted or unrestricted stock, non-qualified stock options, performance units or some other stock-based

award (an “Award”). A copy of the Plan is attached hereto as Exhibit A. You also have executed an agreement (the “Agreement”) containing additional terms and conditions of your Award. The Plan, along with the Agreement, contain the rights and obligations you have as the recipient of an Award under the Plan. The Company suggests that you read the Plan and the Agreement carefully. The main body of this document briefly summarizes some of the features of the Plan and also includes additional information the Company is required to provide under the federal securities laws. Capitalized terms not defined in this document shall have the meaning given to them in Section 2.1 of the Plan.

The Plan is administered by the Compensation Committee (the “Committee”) of the Board which is composed of two or more directors who are “disinterested persons,” as defined in Rule 16b-3(c) (or its successor provisions ) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Members of the Committee are appointed by, and may be removed by, a majority vote of the Board and serve on the Committee for an indefinite term at the discretion of the Board.

The Committee has the authority to adopt and revise rules relating to the Plan, to make final and binding interpretations of the Plan and to determine the timing of grants, identity of recipients, and other terms and conditions of Awards. The Committee may generally delegate its responsibilities under the Plan to members of the Company’s management and others with respect to the selection and grants of Awards to Employees. (See Sections 2.1, 3 and 5 of the Plan.)

Key employees, consultants, independent contractors and, in certain circumstances, officers of the Company and its Affiliates are eligible to receive Awards under the Plan. The Committee decides to whom Awards should be granted, the type of Award, and the amount and terms of any such Award. (See Sections 2.1(j) and 3 of the Plan)

Up to an aggregate of 6,480,000 shares of Common Stock of the Company, par value $.01 per share, may be issued pursuant to Awards granted under the Plan. The aggregate number of shares is subject to adjustment for stock splits, stock dividends, and similar changes in the Company’s capitalization. Shares of stock subject to Awards under the Plan that are not used because the terms and conditions of the Awards are not met may be reallocated under the Plan as though they had not been previously awarded. (See Sections 4, 13 and 17 of the Plan.)

The types of Awards that may be granted under the Plan include Non-Qualified Stock Options, Performance Units, Restricted Stock, Stock and other Stock-based Awards. Subject to restrictions described in the Plan and the Agreement, Awards will be granted and exercisable or received, as the case may be, by the recipients at such times as are determined by the Committee.

Except as may be provided in the Plan or the Agreement, Awards are not assignable or transferable by you. (See Sections 3, 6 and 7 of the Plan)

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, your death or retirement, or such other events as the Committee may determine. The Committee may provide that certain Awards may be exercised in certain events after your retirement or death. (See Sections 6, 7 and 13 of the Plan)

The 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 Board has the right to terminate, suspend or modify the Plan. The Committee may cancel your 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. (See Sections 6, 7, 11, 12, 13 and 16)

Nonqualified Stock Options. You will not realize any taxable income, and the Company will not be entitled to any related deduction, at the time any Non-Qualified Stock Option is granted under the Plan. Generally, at the time Shares are transferred to you upon the exercise of a Non-Qualified Stock Option, you will realize ordinary income, and the Company will be entitled to a deduction. The amount of such income and deduction will be equal to the excess of the fair market value of the Shares on the date of exercise over the exercise price. When you dispose of the Shares, any additional gain or loss you realize will be taxed as a capital gain or loss.

Nonqualified Stock Options — UK option holders. If you are a UK resident for tax purposes or are working in the UK, you will not be subject to any UK tax charge when you are granted a Stock Option under the Plan. However, when you exercise the Stock Option you will suffer a UK income tax charge on the difference between the amount you are required to pay on the exercise of the Stock Option and the value of the Shares at that time. UK national insurance contributions will also be payable on this difference. You will be required to pay all relevant income tax and employee’s national insurance contribution (see below).

Restricted and Unrestricted Stock. Unless you file an election to be taxed under Section 83(b) of the Code:

•

you will realize ordinary income, and the Company will be entitled to a corresponding deduction when the restrictions have been removed or expire, and

•

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 you file an election to be taxed under Section 83(b) of the Code, your tax consequences and the Company’s tax consequences will be determined as of the date of you were granted the Restricted Stock, rather than as of the date of the removal or expiration of the restrictions. An election under Section 83(b) of the Code must be filed within 30 days of the date of your grant of Restricted Stock. The election is made by filing with the Company and the IRS Service Center where you file your income tax return. The statement of election should include your name, your social security number, the number of shares of Restricted Stock acquired, the fair market value on the date of grant, and the date of grant. A copy of the election must be included with your income tax return for the year of grant.

•

you will realize ordinary income and the Company will be entitled to a corresponding deduction upon the grant of the Unrestricted Stock, and

•

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 you dispose of Restricted or Unrestricted Stock, you will realize a capital gain or loss based on the difference between the amount you received from such disposition and the fair market value of such shares on the date you realize ordinary income.

•

you 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 you upon payment of the Performance Unit Award, and

•

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 you dispose of shares received in payment of a Performance Unit Award, the difference between the amount received upon the disposition and the fair market value of the shares on the date you realize ordinary income will be treated as a capital gain or loss.

Withholding. The Plan permits the Company to require you upon receiving Stock under the Plan to pay the Company, in cash, an amount sufficient to cover any required withholding taxes or (in the UK) any income tax or employee’s national insurance contributions for which the Company may be liable in connection with the exercise of any Option or the receipt of the Stock. In lieu of cash, the Committee may permit you to cover withholding obligations (or the UK tax liabilities) through a reduction in the number of Shares delivered to you or the surrender to the Company of Shares previously received by you. The use of Stock to satisfy withholding obligations is subject to certain restrictions if the recipient is an officer or director of the Company or deemed to be a holder of 10% or more of the Company’s capital stock under applicable securities laws. (See Section 10 of the Plan)

The foregoing is only a brief summary of the applicable federal income tax laws and should not be relied upon as being a complete statement. The tax laws are from time to time subject to legislative changes and new or revised judicial or administrative interpretations. In addition, you may incur foreign, state or local tax consequences which are not discussed above. In particular, the summaries set out above in relation to Restricted Stock and Performance Unit Awards do not deal with UK tax issues. Therefore, you are encouraged to review with a tax adviser from time to time the tax status of the Award you have received. You are also encouraged to review with a tax adviser the tax consequences prior to exercising an Option and disposing of the Shares acquired pursuant to such exercise or receiving Stock or cash in connection with other Awards under the Plan.

The prospectus of which this document is a part will not be available for the resale of Shares of Stock purchased by an “affiliate” of the Company, as that term is defined in Rule 405 adopted under the Securities Act of 1933, as amended (the “Securities Act”). Generally, such affiliates may resell their Shares upon compliance with Rule 144 adopted under the Securities Act or pursuant to an effective registration statement filed with the Securities and Exchange Commission. If you are not an affiliate of the Company you may generally resell your Shares without compliance with Rule 144 or further registration under the Securities Act. Participants who are officers of the Company must also comply with the reporting and holding period requirements of Section 16 of the Exchange Act, and the rules and regulations adopted thereunder.

The Company will provide you without charge, upon your oral or written request, additional copies of this document and a copy of any or all of the following documents (without exhibits, except where such exhibits are specifically incorporated by reference into the information incorporated into this document), all of which are incorporated by reference into the

prospectus under Section 10(a) of the Securities Act of which this document is a part (the “Prospectus”):

(a)

The Company’s latest annual report on Form 10-K filed pursuant to Section 13 or 15(d) of the Exchange Act.

(b)

All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the annual report referred to in (a) above.

(c)

The description of the Company’s Common Stock in its registration statement filed under Section 12 of the Exchange Act, including any amendment or report filed for the purpose of updating such description.

(d)

All reports and other documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities offered hereby have been sold or which deregisters all securities remaining unsold (which shall be deemed to be incorporated by reference into the Prospectus as of the date of filing of such reports and documents).

The Company will provide you a copy of each annual report to shareholders and all reports, proxy statements and other communications distributed to its shareholders generally when such distributions are made. Additional information about the Plan and its administrators is also available. Written requests for such copies or information should be directed to: Secretary, Computer Network Technology Corporation, 6000 Nathan Lane, Minneapolis, Minnesota 55442. Telephone requests may be directed to the office of the Secretary at (763) 268-6000.

1. Purpose. The purpose of this 1999 Non-Qualified Stock Award Plan (the “Plan”) is to motivate key personnel to produce a superior return to the shareholders of Computer Network Technology Corporation by offering such personnel an opportunity to realize Stock appreciation, by facilitating Stock ownership, and by rewarding them for achieving a high level of corporate performance. This Plan is also intended to facilitate recruiting and retaining key personnel of outstanding ability by providing an attractive capital accumulation opportunity.

2.1 The terms defined in this section are used (and capitalized) elsewhere in this Plan.

(a) “Affiliate” means any corporation that is a “parent corporation” or “subsidiary corporation” of the Company, as those terms are defined in Section 424(e) and (f) of the Code, or any successor provision.

(b) “Agreement” means a written contract entered into between the Company or an Affiliate and a Participant containing the terms and conditions of an Award in such form (not inconsistent with this Plan) as the Committee approves from time to time, together with all amendments thereto, which amendments may be unilaterally made by the Company (with the approval of the Committee) unless such amendments are deemed by the Committee to be materially adverse to the Participant and are not required as a matter of law.

(c) “Award” means a grant made under this Plan in the form of Options, Restricted Stock, Stock, or any other Stock-based Award.

(e) “Code” means the Internal Revenue Code of 1986, as amended from time to time.

(f) “Committee” means two or more Disinterested Persons designated by the Board to administer this Plan under Section 3 hereof.

(g) “Company” means Computer Network Technology Corporation, a Minnesota corporation, or any successor to substantially all of its businesses.

(h) “Disinterested Person” means a member of the Board who is considered a disinterested person within the meaning of Exchange Act Rule l6b-3 or any successor definition.

(j) “Employee” means any employee (excluding an officer or director) of the Company or an Affiliate. “Employee” shall also include other individuals and entities who are not “employees” of the Company or an Affiliate but who provide services to the Company or an Affiliate in the capacity of an advisor or consultant (other than as a director). References herein to “employment” and similar terms shall include the providing of services in any such capacity. Employee shall also include any other person not previously employed by the Company or an Affiliate who is issued an Award as an inducement essential to the person’s entering into an employment contract with the Company (including employment as an officer), but only if issuance of the Award would not require shareholder approval of the Plan or the Award under the rules of the National Association of Securities Dealers, Inc.

(i) The acquisition by an individual, entity, or group (within the meaning of Section 13(d)(3) or l4(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Exchange Act Rule 13d-3) of 40% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of the Board (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute an Event:

(1) any acquisition of voting securities of the Company directly from the Company,

(2) any acquisition of voting securities of the Company by the Company or any of its wholly owned Subsidiaries,

(3) any acquisition of voting securities of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Subsidiaries, or

(4) any acquisition by any corporation with respect to which, immediately following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as was their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be;

(ii) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest which was (or, if threatened, would have been) subject to Exchange Act Rule 14a-ll;

(iii) Approval by the shareholders of the Company of a reorganization, merger, consolidation, or statutory exchange of Outstanding Company Voting Securities, unless immediately following such reorganization, merger, consolidation, or exchange, all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger, consolidation, owned, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger, consolidation, or exchange in substantially the same proportions as was their ownership, immediately prior to such reorganization, merger, consolidation, or exchange, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or

(iv) Approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation with respect to which, immediately following such sale or other disposition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company

Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as was their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be.

(v) Notwithstanding the above, an Event shall not be deemed to occur with respect to an employee if the acquisition of the 40% or greater interest referred to in subsection (i) is by a group, acting in concert, that includes that recipient or if at least 40% of the then outstanding common stock or combined voting power of the then outstanding voting securities (or voting equity interests) of the surviving corporation or of any corporation (or other entity) acquiring all or substantially all of the assets of the Company shall be beneficially owned, directly or indirectly, immediately after a reorganization, merger, consolidation, statutory share exchange or disposition of assets referred to in subsections (iii) or (iv) by a group, acting in concert, that includes that Participant.

(m) “Fair Market Value” as of any date means, unless otherwise expressly provided in this Plan:

(i) the closing sale price of a Share on the date immediately preceding that date or, if no sale of Shares shall have occurred on that date, on the next preceding day on which a sale occurred of Shares on the National Association of Securities Dealers, Inc. Automated Quotations National Market System (“NMS”), or

(ii) if the Shares are not quoted on the NMS, what the Committee determines in good faith to be 100% of the fair market value of a Share on that date.

Provided, however, if the NMS has closed for the day at the time the event occurs that triggers a determination of Fair Market Value, whether the grant of an Award, the exercise of an Option or otherwise, all references in this Section 2.1(m) to the “date immediately preceding that date” shall be deemed to be references to “that date.” The determination of Fair Market Value shall be subject to adjustment as provided in Section 12 hereof.

(n) “Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation, or a statutory share exchange involving capital stock of the Company.

(o) “Non-Qualified Stock Option” means an Option that is not an incentive stock option granted in accordance with the requirements of Code Section 422 or any successor to said section.

(p) “Option” means a right to purchase Stock. All Options under the Plan shall be Non-Qualified Stock Options.

(q) “Performance Cycle” means the period of time as specified in an Agreement over which Performance Units are to be earned.

(s) “Plan” means this 1999 Non-Qualified Stock Award Plan, as amended from time to time.

(t) “Restricted Stock” means Stock granted under Plan Section 7.3 so long as such Stock remains subject to one or more restrictions.

(u) “Retirement” of an Employee means termination of employment with the Company or an Affiliate on or after the date the Employee attains age 55.

(w) “Stock” means the common stock, $.01 par value per share (as such par value may be adjusted from time to time), of the Company.

(x) “Subsidiary” means a subsidiary corporation, as that term is defined in Section 424(f) of the Code, or any successor provision.

(y) “Successor” means the legal representative of the estate of a deceased Participant or the person or persons who may, by bequest or inheritance, or under the terms of an Award or of forms submitted by the Participant to the Committee under Section 16 hereof, acquire the right to exercise an Option or receive cash or Shares issuable in satisfaction of an Award in the event of an employee’s death.

(z) “Term” means the period during which an Option may be exercised or the period during which the restrictions or terms and conditions placed on Restricted Stock are in effect.

(aa) “Transferee” means any member of the Participant’s immediate family (i.e., his or her children, step-children, grandchildren and spouse) or one or more trusts for the benefit of such family members or partnerships in which such family members are the only partners.

2.2 Number. Except when otherwise indicated by context, any term used in the singular shall also include the plural.

3.1 Authority of Committee. The Committee shall administer this Plan. The Committee may delegate all or any portion of its authority under this Plan to persons who are not Disinterested Persons solely for purposes of determining and administering Awards to Employees who are not then subject to the reporting requirements of Section 16 of the Exchange Act. The Committee shall have exclusive power to make Awards, to determine when and to whom Awards will be granted, the form of each Award, the amount of each Award, and any other terms or conditions of each Award. Each Award shall be subject to an Agreement authorized by the Committee. The Committee’s interpretation of this Plan and of any Awards made under this Plan shall be final and binding on all persons. The Committee shall have the power to establish regulations to administer this Plan and to change such regulations.

3.2 Indemnification. To the full extent permitted by law, (a) no member of the Board or of the Committee or any person to whom the Committee delegates authority under this Plan shall be liable for any action or determination taken or made in good faith with respect to this Plan or any Award made under this Plan and (b) the members of the Board and of the Committee and each person to whom the Committee delegates authority under this Plan shall be entitled to indemnification by the Company with regard to such actions and determinations.

4. Shares Available Under this Plan. The number of Shares available for distribution under this Plan shall not exceed 6,480,000 (subject to adjustment as provided in this Section 4 and under Section 12 hereof). Any Shares subject to the terms and conditions of an Award under this Plan that are not used because the terms and conditions of the Award are not met may again be used for an Award under this Plan. In addition, if, in accordance with this Plan, an employee uses shares of Common Stock of the Company to (i) pay a purchase or exercise price, including an Option exercise price, or (ii) satisfy tax withholdings, only the number of shares issued net of the shares tendered in payment of such purchase or exercise price and tax withholdings shall be deemed to be issued for purposes of determining the maximum number of Shares available under the Plan. Further, the maximum number of Shares available for distribution under this Plan shall be increased to take into account any Awards granted under Section 17 of this Plan.

5. Eligibility. Awards may be granted under this Plan to Employees, and such Awards shall have the terms and conditions specified in Sections 6 and 7 hereof and elsewhere in this Plan. The granting of Awards to Employees is solely at the discretion of the Committee.

6.1 Amount of Award. Each Agreement with an Employee shall set forth the number of Shares to which the Option subject to such Agreement applies or the number of Shares of Restricted Stock, Stock or Performance Units subject to such Agreement, as the case may be.

6.2 Term. Each Agreement, other than those relating solely to Awards of Shares without restrictions, shall set forth the Term of the Option or Restricted Stock or the Performance Cycle for the Performance Units, as the case may be. An Agreement may permit an acceleration of the expiration of the applicable Term upon such terms and conditions as shall be set forth in the Agreement, which may, but need not, include without limitation acceleration resulting from the occurrence of an Event or in the event of the Employee’s death or Retirement. Acceleration of the Performance Cycle of Performance Units shall be subject to Section 7.2(b) hereof.

6.3 Agreements. Each Award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award, in addition to the terms and conditions specified in this Plan.

6.4 Transferability. Except as provided in this Section 6.4, during the lifetime of an employee to whom an Award is granted, only that Participant (or that Participant’s legal representative) may exercise an Option or receive payment with respect to Performance Units or any other Award. No Award of Restricted Stock (prior to the expiration of the restrictions), Options or Performance Units or other Award may be sold, assigned, transferred, exchanged or otherwise encumbered other than pursuant to a domestic relations order as defined in the Code or Title I of the Employee Retirement Income Security Act (“ERISA”) or the rules thereunder; any attempted transfer in violation of this Section 6.4 shall be of no effect. Notwithstanding the immediately preceding sentence, the Committee, in an Agreement or otherwise at its discretion, may provide (i) that the Award subject to the Agreement shall be transferable to a Successor in the event of an employee’s death, or (ii) that the Award may be transferable to a Transferee if the Participant receives no consideration for the transfer. Any Award held by a Transferee shall continue to be subject to the same terms and conditions that were applicable to such Award immediately prior to its transfer. By way of example and not limitation, (i) an Option may be exercised by a Transferee as and to the extent that such Option has become exercisable and has not terminated in accordance with the provisions of the Plan and the applicable Agreement and (ii) for purposes of any provision of this Plan relating to notice to an optionee or to vesting or termination of an Option upon the death, disability or termination of employment of an optionee, the references to “optionee” shall mean the original grantee of an option and not any Transferee.

7.1 Stock Options. Each Option shall be granted as a Non-Qualified Stock Option and not as an incentive stock option under Code Section 422 or any other successor to said section. The purchase price of each Share subject to an Option shall be determined by the Committee and set forth in the Agreement, but shall not be less than 100% of the Fair Market Value of a Share as of the date the Option is granted. The purchase price of the Shares with respect to which an Option is exercised shall be payable in full at the time of exercise, provided that to the extent permitted by law, the Agreement may permit some or all Participants simultaneously to exercise Options and sell the Shares thereby acquired pursuant to a brokerage or similar relationship and use the proceeds from such sale as payment of the purchase price of such Shares. The purchase price may be payable in cash, in Stock having a Fair Market Value as of the date the Option is exercised equal to the purchase price of the Stock being purchased pursuant to the Option, or a combination thereof as determined by the Committee and provided in the Agreement. Each Option shall be exercisable in whole or in part on the terms provided in the Agreement. In no event shall any Option be exercisable at any time after its expiration date. When an Option is no longer exercisable, it shall be deemed to have lapsed or terminated. The Committee may provide, in an Agreement or otherwise, that an employee who exercises an Option and pays the Option price in whole or in part with Shares then owned by the Participant will be entitled to

receive another Option covering the same number of shares tendered and with a price of no less than Fair Market Value on the date of grant of such additional Option (“Reload Option”).

(a) Initial Award. An Award of Performance Units shall entitle such Participant (or a Successor) to future payments of cash, Stock, or a combination of cash and Stock, as determined by the Committee and provided in the Agreement, based upon the achievement of performance targets established by the Committee. Such performance targets may, but need not, include without limitation targets relating to one or more of corporate, group, unit, Affiliate, or individual performance. The Agreement may establish that a portion of a full or maximum amount of an employee’s Award will be paid for performance, which exceeds the minimum target but falls below the maximum target applicable to such Award. The Agreement shall also provide for the timing of such payment. Following the conclusion or acceleration of each Performance Cycle, the Committee shall determine the extent to which (i) performance targets have been attained, (ii) any other terms and conditions with respect to an Award relating to such Performance Cycle have been satisfied, and (iii) payment is due with respect to an Award of Performance Units.

(b) Acceleration and Adjustment. The Agreement may permit an acceleration of the Performance Cycle and an adjustment of performance targets and payments with respect to some or all of the Performance Units awarded to an employee upon such terms and conditions as shall be set forth in the Agreement, upon the occurrence of certain events, which may, but need not include without limitation an Event, a Fundamental Change, the Participant’s death or Retirement or, with respect to payments in Stock with respect to Performance Units, a reclassification, stock dividend, stock split, or stock combination as provided in Section 12 hereof.

(a) The Committee is authorized to grant, either alone or in conjunction with other Awards, stock and stock-based Awards. The Committee shall determine the persons to whom such Awards are made, the timing and amount of such Awards, and all other terms and conditions. Company Common Stock granted to recipients may be unrestricted or may contain such restrictions, including provisions requiring forfeiture and imposing restrictions upon stock transfer, as the Committee may determine. Unless forfeited, the recipient of restricted Common Stock will have all other rights of a shareholder, including without limitation, voting and dividend rights.

(b) An Award of Restricted Stock under the Plan shall consist of Shares subject to restrictions on transfer and conditions of forfeiture, which restrictions and conditions shall be included in the applicable Agreement. The Committee may provide for the lapse or waiver of any such restriction or condition based on such factors or criteria as the Committee, in its sole discretion, may determine.

(c) Except as otherwise provided in the applicable Agreement, each Stock certificate issued with respect to an Award of Restricted Stock shall either be deposited with the Company or its designee, together with an assignment separate from the certificate, in blank, signed by the Participant, or bear such legends with respect to the restricted nature of the Restricted Stock evidenced thereby as shall be provided for in the applicable Agreement.

(d) The Agreement shall describe the terms and conditions by which the restrictions and conditions of forfeiture upon awarded Restricted Stock shall lapse. Upon the lapse of the restrictions and conditions, Shares free of restrictive legends, if any, relating to such restrictions shall be issued to the Participant or a Successor or Transferee.

(e) An employee or a Successor or Transferee with a Restricted Stock Award shall have all the other rights of a shareholder including, but not limited to, the right to receive dividends and the right to vote the Shares of Restricted Stock.

7.4 Other Awards. The Committee may from time to time grant Stock and other Awards under the Plan including without limitations those Awards pursuant to which Shares are or may in the future be acquired, Awards denominated in Stock units, securities convertible into Stock and Phantom securities. The Committee, in its sole discretion, shall determine the terms and conditions of such Awards provided that such Awards shall not be

inconsistent with the terms and purposes of this Plan. The Committee may, at its sole discretion, direct the Company to issue Shares subject to restrictive legends and/or stop transfer instructions that are consistent with the terms and conditions of the Award to which the Shares relate. Furthermore, the Committee may use stock available under this Plan as payment for compensation, grants or rights and earned or due under any other compensation plans or arrangements of the Company.

8.1 Effective Date. This Plan shall become effective as of July 15, 1999, the date of adoption of this Plan by the Board.

8.2 Duration of this Plan. This Plan shall remain in effect until all Stock subject to it shall be distributed or all Awards have expired or lapsed, whichever is latest to occur, or this Plan is terminated pursuant to Section 11 hereof. The date and time of approval by the Committee of the granting of an Award (or such other time as the Committee shall designate) shall be considered the date and time at which such Award is made or granted, notwithstanding the date of any Agreement with respect to such Award.

9. Right to Terminate Employment. Nothing in this Plan or in any Agreement shall confer upon any Employee the right to continue in the employment of the Company or any Affiliate or affect any right which the Company or any Affiliate may have to terminate the employment of the Employee with or without cause.

10. Tax Withholding. The Company may withhold from any cash payment under this Plan to an employee or other person (including a Successor or a Transferee) an amount sufficient to cover any withholding taxes required or permitted to be withheld from the employee or other person. The Company shall have the right to require an employee or other person receiving Stock under this Plan to pay to the Company a cash amount sufficient to cover any withholding taxes, including any income tax, social security tax, national insurance contribution, or other kind or type of tax for which the employee, the Company or any Affiliate may be liable as a consequence of the employee or other person exercising an Option or receiving Stock. In lieu of all or any part of such a cash payment from a person receiving Stock under this Plan, the Committee may permit the individual to elect to cover all or any part of the withholdings, and to cover any additional withholdings up to the amount needed to cover the full amount of federal, state, and local tax with respect to income arising from payment of the Award, through a reduction of the number of Shares delivered to such individual or a subsequent return to the Company of Shares held by the employee or other person, in each case valued in the same manner as used in computing the withholding taxes under the applicable laws. The Company or the relevant Affiliate may in accordance with and to the extent it is able under the laws of the jurisdiction with respect to which a tax is owed, deduct the relevant amount from subsequent earnings payable to the employee. To the extent that the Company or the relevant Affiliate cannot (or does not) make the relevant deductions, the employee or person receiving the Stock shall enter into such other arrangements for the individual to reimburse the Company or the Affiliate for the amount of the tax liability as the Company shall require, and the Company may make the individual’s agreement to such arrangements a condition of the exercise of any Stock Option or the receipt of any Award under the Plan.

(a) The Board may at any time and from time to time terminate, suspend or modify the Plan. Except as limited in (b) below, the Committee may at any time alter or amend any or all Agreements under the Plan to the extent permitted by law.

(b) No termination, suspension, or modification of the Plan will materially and adversely affect any right acquired by any Participant or Successor or Transferee under an Award granted before the date of termination, suspension, or modification, unless otherwise agreed to by the Participant in the Agreement or otherwise, or required as a matter of law; but it will be conclusively presumed that any adjustment for changes in capitalization provided for in Plan Section 7.2 or 12 does not adversely affect these rights.

12. Adjustment for Changes in Capitalization. Appropriate adjustments in the aggregate number and type of Shares available for Awards under this Plan and in the number and type of Shares and amount of cash subject to

Awards then outstanding, in the Option price as to any outstanding Options and, subject to Section 7.2(b) hereof, in outstanding Performance Units and payments with respect to outstanding Performance Units may be made by the Committee in its sole discretion to give effect to adjustments made in the number or type of Shares of the Company through a Fundamental Change (subject to Section 13 hereof), recapitalization, reclassification, stock dividend, stock split, stock combination, or other relevant change, provided that fractional Shares shall be rounded to the nearest whole share.

13. Fundamental Change. In the event of a proposed Fundamental Change: (a) involving a merger, consolidation, or statutory share exchange, unless appropriate provision shall be made for the protection of the outstanding Options by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the parent corporation of the Company or such surviving corporation, to be issuable upon the exercise of options in lieu of Options and capital stock of the Company, or (b) involving the dissolution or liquidation of the Company, the Committee shall declare, at least 20 days prior to the occurrence of the Fundamental Change, and provide written notice to each holder of an Option of the declaration, that each outstanding Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of the Fundamental Change in exchange for payment to each holder of an Option, within ten days after the Fundamental Change, of cash equal to the amount, if any, for each Share covered by the canceled Option, by which the Fair Market Value (as defined in this Section) per Share exceeds the exercise price per Share covered by such Option. At the time of the declaration provided for in the immediately preceding sentence, each Option shall immediately become exercisable in full and each person holding an Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the Shares covered thereby; provided, however, that if such Fundamental Change does not become effective, then the declaration pursuant to this Section 13(b) shall be rescinded, the acceleration of the exercisibility of the Option pursuant to this Section 13(b) shall be void, and the Option shall be exercisable in accordance with its terms. In the event of a declaration pursuant to this Section 13, each outstanding Option that shall not have been exercised prior to the Fundamental Change shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, no person holding an Option shall be entitled to the payment provided for in this Section 13 if such Option shall have expired pursuant to an Agreement. For purposes of this Section only, “Fair Market Value” per Share means the cash plus the fair market value, as determined in good faith by the Committee, of the non-cash consideration to be received per Share by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Plan.

14. Unfunded Plan. This Plan shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under this Plan.

15. Other Benefit and Compensation Programs. Payments and other benefits received by an employee under an Award shall not be deemed a part of an employee’s regular, recurring compensation for purposes of any termination, indemnity, or severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract, or similar arrangement provided by the Company or an Affiliate, unless expressly so provided by such other plan, contract, or arrangement or the Committee determines that an Award or portion of an Award should be included to reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of competitive cash compensation.

16. Beneficiary Upon Employee’s Death. To the extent that the transfer of an employee’s Award at death is permitted under an Agreement, (a) an employee’s Award shall be transferable to the beneficiary, if any, designated on forms prescribed by and filed with the Committee and (b) upon the death of the Employee, such beneficiary shall succeed to the rights of the Employee to the extent permitted by law and this Plan. If no such designation of a beneficiary has been made, the Participant’s legal representative shall succeed to the Awards, which shall be transferable by will or pursuant to laws of descent and distribution to the extent permitted under an Agreement.

17. Corporate Mergers, Acquisitions, Etc. The Committee may also grant Options, Restricted Stock or other Awards under the Plan having terms, conditions and provisions that vary from those specified in this Plan provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, restricted stock or other awards granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a transaction involving a

corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation to which the Company or a subsidiary is a party.

18. Deferrals and Settlements. The Committee may require or permit Employees to elect to defer the issuance of Shares or the settlement of Awards in cash under such rules and procedures as it may establish under the Plan. It may also provide that deferred settlements include the payment or crediting of interest on the deferral amounts.

19. Governing Law. To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant to this Plan shall be governed by the laws of Minnesota and construed accordingly.

COMPUTER NETWORK TECHNOLOGY CORPORATION
Statement Re: Computation of Net Loss Per Basic and Diluted shares
(in thousands, except per share data)
(Unaudited)


					Weighted Average
		Net Loss			Shares Outstanding		Per share Amount

Three Months Ended July 31, 2003:
	Basic	$	(25,822	)		26,979	$	(.96	)
	Dilutive effect of employee awards and options and convertible notes(1)		—			—		—

	Diluted	$	(25,822	)		26,979	$	(.96	)

Three Months Ended July 31, 2002:
	Basic	$	(2,106	)		28,466	$	(.07	)
	Dilutive effect of employee awards and options and convertible notes(1)		—			—		—

	Diluted	$	(2,106	)		28,466	$	(.07	)

Six Months Ended July 31, 2003:
	Basic	$	(27,904	)		26,973	$	(1.03	)
	Dilutive effect of employee awards and options and convertible notes(1)		—			—		—

	Diluted	$	(27,904	)		26,973	$	(1.03	)

Six Months Ended July 31, 2002:
	Basic	$	(15,871	)		29,437	$	(.54	)
	Dilutive effect of employee awards and options and convertible notes(1)		—			—		—

	Diluted	$	(15,871	)		29,437	$	(.54	)

(1)

Potential dilutive securities, consisting of convertible notes, outstanding stock options and shares issuable under the employee stock purchase plan, are excluded from the computation of diluted net loss per share due to their anti-dilutive effect.

1. I have reviewed this quarterly report on Form 10-Q of Computer Network Technology Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and we have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting; and

1. I have reviewed this quarterly report on Form 10-Q of Computer Network Technology Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting; and

COMPUTER NETWORK TECHNOLOGY CORPORATION CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

Each of the undersigned, Thomas G. Hudson and Gregory T. Barnum, the Chief Executive Officer and the Chief Financial Officer, respectively, of Computer Network Technology Corporation (the “Company”), individually and not jointly has executed this Certification in connection with the filing with the Securities and Exchange Commission of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2003 (the “Report”).

•

the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this Certification as of the 12th day of September, 2003.

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO COMPUTER NETWORK TECHNOLOGY CORPORATION AND WILL BE RETAINED BY COMPUTER NETWORK TECHNOLOGY CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION UPON ITS WRITTEN REQUEST.


(Mark One)

x		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED JULY 31, 2003
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO


Minnesota		41-1356476

(State of Incorporation)		(I.R.S. Employer Identification No.)


		July 31,		January 31,
		2003		2003

Inventories:
	Components and subassemblies	$	13,467	$	16,918
	Work in process		1,622		306
	Finished goods		8,680		6,867

		$	23,769	$	24,091


	Pro Forma						Pro Forma
	Three months ended						Six months ended
	July 31,						July 31,

	2003			2002			2003			2002

Total revenue	$	96,713		$	101,687		$	189,205		$	208,801
Net loss	$	(6,116	)	$	(12,609	)	$	(17,328	)	$	(27,130	)
Net loss per share	$	(.23	)	$	(.44	)	$	(.64	)	$	(.92	)


	Three months ended						Six months ended
	July 31,						July 31,

	2003			2002			2003			2002

Risk free interest rate		2.55	%		4.16	%		2.71	%		4.36	%
Expected life		6.68			5.91			6.68			5.91
Expected volatility		86.60	%		87.50	%		86.60	%		87.50	%

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6000 Nathan Lane North, Minneapolis, Minnesota 55442

(Address of principal executive offices)(Zip Code)


Telephone Number: (763) 268-6000

(Registrant’s telephone number, including area code)


PART I
	Item 1.
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Items 2-3. None
	Item 4. Submission of matters to a vote of security holders
	Item 5. None
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EX-2 Amendment to Purchase Agreement
EX-10 Amendment to 1999 Stock Award Plan
EX-11 Statement Re: Computation of Net Income
Ex-31.1 Certification of CEO - Section 302
Ex-31.2 Certification of CFO - Section 302
EX-32 Certification of CEO & CFO - Section 906


	Total

Balance February 1, 2003	$	14,113
Addition purchase price of BI-Tech		4,228
Acquisition of Inrange		90,643
Translation adjustment		7

Balance as of July 31, 2003	$	108,991


Cost of product	$	504,000
Sales and marketing	$	238,000
Engineering and development	$	52,000
General and administrative	$	28,000

(1)		Management contracts or compensatory plans or arrangements with the Company.

(2)		Filed herewith (except Exhibit 32 is furnished herewith).

		(b) Reports on Form 8-K


By:		/s/ Gregory T. Barnum Gregory T. Barnum Chief Financial Officer (Principal financial officer)

By:		/s/ Jeffrey A. Bertelsen Jeffrey A. Bertelsen Corporate Controller and Treasurer (Principal accounting officer)


1	DEFINITIONS	1
2	VARIATION	2
3	CONFIRMATION	7
4	MISCELLANEOUS	8
SCHEDULE 1		9
	Vendors	9


EXECUTED (but not delivered until the date hereof) as a deed by Computer Network Technology Corporation acting by two authorised officers:		) ) )

/s/ Thomas G. Hudson		Officer

/s/ Gregory T. Barnum		Officer


Date: September 12, 2003		/s/ THOMAS G. HUDSON Thomas G. Hudson Chief Executive Officer


DATED		9 JUNE 2003