COMPUTER NETWORK TECHNOLOGY CORP, 10-K, 1998-03-27

COMPUTER NETWORK TECHNOLOGY CORP
10-K, 1998-03-27
COMPUTER COMMUNICATIONS EQUIPMENT

Previous: COLUMBIA FUTURES FUND, 10-K, 1998-03-27

Next: CARNEGIE TAX FREE INCOME TRUST, NSAR-A, 1998-03-27

<PAGE>

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

----------------------

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

----------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER: 0-13994

COMPUTER NETWORK TECHNOLOGY CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

MINNESOTA 41-1356476
- -------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

605 NORTH HIGHWAY 169, MINNEAPOLIS, MINNESOTA 55441
- --------------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)

(612) 797-6000
----------------------------------------------------
(Registrant's telephone number, including area code)

Securities registered pursuant to
Section 12(b) of the Act: NONE
--------------------

Securities registered pursuant to
Section 12(g) of the Act: COMMON STOCK $.01 PAR VALUE
--------------------------------
(Title of Class)

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 such filing
requirements for the past 90 days.

YES [X] NO [_]

Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of common stock held by non-affiliates of the
Registrant as of March 23, 1998 was approximately $98,879,000, based on a
closing price of $4.56 per share as reported by the Nasdaq National Market on
such date.

As of March 23, 1998, Registrant had 22,104,390 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of Computer Network Technology Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held on May 19, 1998 are
incorporated by reference into Part III of this Form 10-K.

Portions of the Annual Report to Shareholders for the fiscal year ended December
31, 1997 are incorporated by reference into Parts I and II of this Form 10-K.

================================================================================
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C> <C>
PART 1

Item 1 Business . ...................................................................................1
Overview ..................................................................................1
Markets ...................................................................................2
Products ..................................................................................4
Customer Services .........................................................................8
Marketing and Sales .......................................................................8
Revenue Recognition Policy ................................................................9
Engineering and Development ...............................................................9
Manufacturing and Suppliers ...............................................................10
Competition ...............................................................................10
Intellectual Property Rights ..............................................................11
Employees .................................................................................11
Item 2 Properties....................................................................................12
Item 3 Legal Proceedings.............................................................................12
Item 4 Submission of Matters to Vote of Security Holders.............................................12
Item 4.A Executive Officers of the Company.............................................................13

PART II

Item 5. Market for the Registrant's Securities and Related Shareholders Matters.......................16
Item 6. Selected Consolidated Financial Information...................................................16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........16
Item 8. Consolidated Financial Statements and Supplementary Data......................................16
Item 9. Changes in and Disagreements with Accountants and Financial Disclosure........................16

PART III

Item 10. Directors and Executive Officers..............................................................17
Item 11. Executive Compensation........................................................................17
Item 12. Security Ownership of Certain Beneficial Owners and Management................................17
Item 13. Certain Relationships and Related Transactions................................................17

PART IV

Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K.................18

SIGNATURES.............................................................................................28
</TABLE>

ii
<PAGE>

PART I

ITEM 1. BUSINESS

OVERVIEW

Computer Network Technology Corporation ("CNT" or the "Company") designs,
manufactures, markets and supports a range of enterprise-wide information
management connectivity, access and storage networking hardware and software
products designed to meet the complex needs of large organizations. These
products are marketed by CNT under the UltraNet(R), Channelink(R),
FileSpeed(TM), Enterprise/Connect, Enterprise/View, Enterprise/View Pro,
Enterprise Access, Enterprise/Access Development Studio, Enterprise/Access
System Monitor and Enterprise Integrator trade names.

Effective October 24 1997, the Company acquired the Internet Solutions Division
of Apertus Technologies Incorporated. The Company anticipates that the
acquisition will increase its presence in the markets for enterprise
connectivity between Internet and intranet users and IBM hosts. (See Note 3 to
the Company's Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations for further
information regarding the Company's acquisition of the Internet Solutions
Division of Apertus Technologies Incorporated.)

CNT's connectivity and UltraNet storage and Channelink systems create
high-speed, wide area enterprise networks that connect traditional data centers
to peripherals and remote users by integrating open systems with traditional
mainframes. These products also allow data centers to be interconnected to
enable access to stored mission-critical information, and full business recovery
in case of disasters. The UltraNet products allow users to move and share data
among diverse servers and storage systems and support applications such as disk
mirroring, backup and restore, and data migration.

CNT's access products enable desktop computer and terminal users operating
different networking protocols (i.e. TCP/IP and SNA) to share the same physical
networks and to access applications and data on different types of mainframe and
open systems servers. In addition, they provide access to mainframe databases
and applications (such as those based on IBM products CICS or DB2) from the
Internet or an intranet using a Web-based browser.

CNT markets its products and services in North America primarily through a
direct sales force and internationally through wholly-owned subsidiaries and
distributors. Select hardware and software products are also remarketed by
original equipment manufacturers ("OEMs") under other trade names.

CNT emphasizes comprehensive customer support and training designed to maximize
quality and customer satisfaction. CNT believes that its customer service
programs provide significant added value to its customer base, enhance the
reputation of the Company, and accelerate selling products and services to
prospective customers.

1
<PAGE>

CNT is a successor to a Minnesota corporation organized in 1979, and has been
engaged it its present business since 1983. CNT's corporate offices are located
at 605 North Highway 169, Minneapolis, Minnesota 55441 and its telephone number
is 612-797-6000. Its World Wide Web site is http://www.cnt.com. Unless the
context otherwise requires, "CNT" or the "Company" refers to Computer Network
Technology Corporation and its subsidiaries.

This annual report includes trade names, trademarks and registered trademarks of
companies other than CNT.

Certain statements included in the products section of this Form 10-K constitute
"forward-looking statements," including the dates of general availability and
planned features for new products. All forward-looking statements involve risks
and uncertainties, and actual results may be materially different. The timely
completion of required engineering activities and unforeseen technological
barriers and expense may cause the Company's actual results to be materially
different from those set forth in any such forward-looking statements.

MARKETS

CNT designs high-performance networking solutions that seamlessly integrate a
heterogeneous mix of technology, architectures, vendors and communication
standards that allow enterprises to preserve their investments in traditional
mainframe data processing systems and today's open systems to create
enterprise-wide networks and intranets.

Networking Solutions

The Company's traditional networking solutions facilitate data center
consolidation and centralization, while enabling certain input and output
peripherals to be more conveniently housed with geographically dispersed
regional customer operations. Increasingly, these new solutions are being
constructed by customers in conjunction with business process changes being
driven for cost efficiencies, improved customer services, or the penetration of
new markets with new services. Reducing the total number of data centers while
interconnecting the remaining centers for stability and workload sharing has
extended the life of legacy systems while deferring costly investments in these
centers as new, distributed computing systems are brought online.

CNT's UltraNet, Channelink and FileSpeed products enable data centers and
remotely located peripherals to communicate over wide areas without significant
degradation of performance. LAN gateways enable communications for a wide range
of LAN-based workstations and servers with large-scale, channel-based systems
used in enterprise-wide networks. Channel networking applications have accounted
for a substantial majority of CNT's historical revenue and the Company will
continue to emphasize supporting and servicing this important market.

A Storage Area Network (SAN) is a high-speed network that establishes a direct
connection between storage devices, thereby externalizing storage from the
server and allowing information to be shared among multiple `host' servers
without affecting performance of the primary network. Making the SAN concept a
reality requires networking equipment of a high order of

2
<PAGE>

connectivity, performance, and manageability, and the UltraNet product family
provides these capabilities.

The Company's Channelink products provide high performance extended distance
data archival and retrieval from remote DASD and tape storage facilities that
allow customers to employ new strategies for storing and accessing
mission-critical data, including data duplexing for disaster protection and
enterprise-wide data sharing, while reducing associated storage costs. The
Company's FileSpeed product is designed to provide users with a business
continuation and disaster recovery capability by providing for very high speed
bulk data transfer between mainframes and open systems for backup, database
updates, and other data transfer applications. In addition, FileSpeed can also
be used to quickly back up open systems server data to the same central data
repository used by the mainframe to facilitate data recovery and synchronization
of open systems and mainframe databases.

Today's global approach to business requires that data centers be open for
business twenty-four hours a day. Large organizations require data processing
services as a key part of their service or product offerings and thereby require
non-stop operation. Customers who require non-stop operations typically deploy
duplicate hardware and software to ensure continuous availability. The Company
develops and provides products that facilitate using public recovery centers or
other customer data centers as a recovery asset. In addition, gathering routine
data backup copies is exacerbated by the shortening window of time required for
full copy backups during enforced periods of inactivity. The Company provides
solutions which enable backups to occur simultaneously with normal transaction
processing activities.

Internet Solutions

Customers deploying the distributed and Internet/intranet model of computing
desire to provide access to both old and new applications from both legacy SNA
3270 networks and, in parallel, the customer's intranet or the public Internet.
Proprietary SNA networks connect Enterprise class IBM OS/390 computers and
midrange IBM AS/400 computers to proprietary IBM 3270 and 5250 terminals. While
performing 3270 and 5250 emulation using personal computers has been available
since 1983, these systems continue to limit efficient growth by requiring
proprietary dedicated SNA networks. Similarly, even after several years of
migration from legacy data bases to client-server application architectures,
practical and operational limits require that mainframe-based data remain
resident in centralized "Information Warehouses."

These markets are also characterized by the desire to deploy open systems which
can leverage past investments in personal computers and can exploit emerging
Internet and intranet Web-based computing architectures. By linking networks of
personal computers, UNIX-based distributed servers, and legacy data centers,
together with the Internet, data center operating processes and procedures,
perfected by 25 years of experience, can be combined with fresh approaches
fueled by the explosion and creativity engendered in the Internet. Market
expansion in the legacy - open systems interconnect market is being driven by
the significant transition from mainframe-based general accounting applications
to client-server, data-centric integrated business management systems.

3
<PAGE>

CNT serves this market, represented by almost all of the 2,000 largest
organizations world-wide, by linking personal computers to legacy mainframes in
a fashion that reduces the number of physical mainframe connections required,
replaces SNA with open TCP/IP protocols, and facilitates the combination and
sharing of expensive data communication channels with voice and other data
networks. Similarly, the Company's products connect common web browsers such as
the Netscape Navigator(R) and Microsoft's Internet Explorer(R) to legacy IBM
mainframe transaction systems based on CICS, IMS, and DB/2. The Company's
products reduce the need for mainframe computing resources by performing
expensive protocol conversion and compression activities in specialized hardware
and software.

PRODUCTS

UltraNet

In 1997, CNT introduced its Storage Area Network (SAN) strategy and the UltraNet
product family.

Today's businesses depend on the network to provide high-speed, reliable and
secure access to mission-critical stored information, whether it is centralized
or remote, from a variety of systems. CNT's UltraNet product family - the
UltraNet Storage Director, the UltraNet Storage Gateway, and the UltraNet
Storage Multiplexer - reduces IT managers' resource expense for storage
management by connecting to any transport protocol on any platform, using any
operating system in any network.

The SAN is a high-speed network that establishes a direct connection between
storage devices and servers, thereby externalizing storage from the server and
allowing information to be shared among multiple `host' servers without
impacting system performance or the primary network.

Storage Area Networks provide an infrastructure for a wide variety of
applications such as data protection, data vaulting, data migration and disaster
recovery that solve widespread business problems such as data warehousing and
business resumption. CNT's UltraNet family supports these applications by
enabling external and centralized storage as well as remote clustering.

Today, electronic information is truly a corporate asset. It is distributed
across many locations on desktops, servers and data centers. Its volumes are
growing at record rates, and managing all of this information so it is
accessible and continuously available is a major challenge and expense. By
providing a SAN solution with the UltraNet product family, CNT is leading the
market in addressing vital customer requirements for lower total cost of
ownership for integrated networks, more timely business recovery, and
cost-effective, shared access to information across the entire enterprise.

The UltraNet Family

UltraNet offers superior price/performance for storage applications that are
increasingly important in distributed enterprise networks. The UltraNet family
includes both single-board and

4
<PAGE>

multi-slot chassis products that are driven and managed by UltraNet SAN Software
(USS). This software resides at the core of the three UltraNet products,
providing high-level functionality and management, critical in meeting
customers' growing requirements.

The UltraNet Storage Director is a high-speed switching platform that allows
users to move and share data among diverse servers and storage systems. It
optimizes WAN circuit utilization, and enables cost-effective server and storage
consolidation among IBM's OS/390, Microsoft's Windows NT, and open systems
(UNIX) storage systems platforms. The UltraNet Storage Director is designed to
support a wide range of high performance channel interfaces including Fibre
Channel, SCSI, ESCON along with traditional network interfaces such as ATM, DS3,
FDDI and Ethernet.

The UltraNet Storage Gateway is a low-cost, high-performance product that
provides much of the functionality of the Storage Director on a smaller
platform. This entry-level product, which is expected to be generally available
in April 1998, addresses bulk data movement between mainframes and open systems,
and enables data mirroring over wide area networks (WANs).

The UltraNet Storage Multiplexer is a product that allows multiple servers to
share up to 15 storage devices. Primary interfaces will be SCSI-to-SCSI (Small
Computer System Interface) with Fiber Channel and extension capabilities
available in June 1998.

Channelink

CNT's traditional product line has been the Channelink family of network
processors and software for enterprise networking and connectivity. Channelink
products support a variety of mainframes and peripheral devices, including disk
drives, optical storage devices, magnetic tape controllers, printers, check
sorters, document processors, imaging systems, microfiche recorders, terminal
and graphic controllers, plotters, database computers and front-end processors.
The Company configures and installs Channelink networks to meet the specific
geographic and interface requirements of each customer's information movement
applications.

Channelink continues to be a key product for CNT and is complementary to the
UltraNet products. The Channelink product focuses on mainframe data center
applications and is uniquely suited to support applications that involve
bus-and-tag data channels and T1/E1 network interfaces. Channelink is
interoperable with the UltraNet product family over both ATM and FDDI networks.

For managing and monitoring channel networks, the Company offers network
management software for legacy and open systems. CNT's Host Monitor Facility
software interfaces to IBM's NetView or other mainframe-based network management
subsystems. CNT's CMF is a PC-based network management system with a user
interface that connects to any network node and allows system-wide monitoring
and control facilities for Channelink networks. The Company also offers network
management software for Simple Network Management Protocol ("SNMP"), an industry
standard management protocol used by many LAN and workstation users in the
management of their networks.

5
<PAGE>

FileSpeed

FileSpeed is a software solution that works over CNT UltraNet and Channelink
product lines. It is well positioned to solve key data sharing and
backup/restore problems in both the open systems and enterprise environments.
FileSpeed's Application Programming Interface (API) can be used to move database
records between two heterogeneous databases even if one exists on a mainframe
and the other on an open system (Unix or NT). Its ability to move data to/from
open systems to mainframe disk or tape devices at high speeds solves many
problems encountered in backup and recovery at most enterprise sites.

FileSpeed works over both OS/390 ESCON and bus-and-tag channels and SCSI
channels. It can be configured to provide multiple data paths between systems
and data integrity features, such as, checkpoint/restart and CRCs. Thus, data is
moved between a mainframe using an ESCON channel and an open system using a SCSI
channel (direct ESCON connections are also supported) with its integrity
constantly being monitored. Data rates over a single ESCON line have reached
nearly 15MB/sec. Given its high speed and ability to interface with databases,
many enterprises are interested in FileSpeed's capability to solve data movement
problems in the data warehousing industry.

CNT Application Re-Engineering Environment (CARE)

CARE provides a comprehensive set of products that takes users through each
level of Web-to-host integration.

Enterprise/Connect

Enterprise/Connect is a complete, easy-to-implement inter-operability package
that provides the necessary network infrastructure to connect any standard Web
browser to legacy system applications and data. Enterprise/Connect is a complete
IP-to-SNA connectivity solution, with all the components to enable 3270/5250
emulators or Web browsers to access applications on IBM mainframe and midrange
computers. With Enterprise/Connect, an intuitive point-and-click interface
provides universal, centralized management access. Superior load-balancing
technology ensures guaranteed access to business-critical access, and Java-based
client software enables browsers to function as universal clients for
interactive access to mainframe terminal, file transfer, and print services.

Enterprise/Connect provides complete TN3270/3270E and TN5250 terminal access to
IBM host computers with maximum flexibility and performance in connecting
diverse networks and communications environments. It supports a wide range of
SNA host connections and LAN connectivity. Simplifying mainframe printing,
Enterprise/Connect allows you to send SNA print jobs to local or TCP/IP network
printers without any special hardware or software on your PC or browser.

6
<PAGE>

Enterprise/View

Enterprise/View is a Java-based 3270/5250 emulator that provides traditional,
uncustomized "green screen" access to legacy applications without additional
software on the desktop. The emulator is downloaded from the server when you
connect, simplifying software distribution and maintenance and off-loading
processing from the server. With Enterprise/View, access to mobile and remote
users is simplified, providing a consistent interface that is completely
independent of desktop configurations. Session encryption and support ensures
that user sessions and legacy data are secure.

Enterprise/View Pro

Enterprise/View Pro is a Java-based rescreening tool that creates a customized
GUI (Graphical User Interface) interface on a Web browser for legacy
applications. It dynamically creates visually appealing tables, turns function
keys into buttons, and integrates graphics. Because Enterprise/View Pro provides
an "out of the box" Java GUI to mainframe applications and data from a standard
Java-enabled Web browser, your legacy applications can be deployed more widely
without programming.

Enterprise/Access

Enterprise/Access is a powerful set of tools for re-engineering legacy
applications to open networking environments. Based on open systems and
object-oriented technologies, Enterprise/Access allows you to integrate your
front-end applications and networks with your back-end corporate applications
and data, with no changes to existing applications, security, or business logic.
This non-intrusive approach reduces time, cost, and risk while increasing
performance.

With Enterprise/Access, users get the scalability, manageability, and security
they need to easily extend corporate applications and data into new content-rich
environments. Enterprise/Access is server-based and can easily be deployed on
multiple, connected servers to support large networks. It supports a variety of
standard protocols, insulating users from the communications details and
eliminating the need to program communications code.

The Enterprise/Access Development Studio enables users to easily encapsulate and
extend the functionality of application systems. The Code Generator
automatically and rapidly produces stored interfaces. Host screen changes are
activated in production without having to modify or regenerate the interface
code. Enterprise/Access has also been integrated with the leading Web
development tools, includes Java and CGI interfaces, and automatically generates
C code and HTML templates. In addition, Enterprise/Access includes a 32-bit DLL
and ActiveX library for integration into Windows-based GUI applications.

The Enterprise/Access System Monitor has a graphical interface that supports
centralized configuration, performance, and fault management. Enterprise/Access
operates behind the Web server and leverages any security schemes the Web
clients use.

7
<PAGE>

CNT's Enterprise/Integrator provides a set of all-Java development tools to
create new business applications that incorporate legacy system access. It
provides native Java access to mainframe data, allowing faster application
development and deployment with a "completely Java" approach. With its
GreenBeans technology, users can leverage industry-standard JavaBean components
and development environments. That means the user can easily create and reuse
software as they roll out solutions for different groups.

CUSTOMER SERVICES

The Company has developed a comprehensive support strategy designed to maximize
quality and customer satisfaction. A high level of continuing customer service
is integral to the Company's commitment to developing long-term, 100 percent
satisfied, customer relationships. The Company supports the commitment of its
employees to achieve this strategy through extensive training and the delegation
of authority and responsibility. CNT's employees are skilled in the design and
support of high-speed, wide-area networks for large data centers. CNT networks
incorporate state-of-the-art technology for robust and dynamic routing to ensure
continuous operations.

The Company's support services group becomes involved with end users during
initial presales activities by analyzing their requirements, developing proposed
solutions, and providing project management guidance during implementation, or
enhancement of the customer's enterprise-wide computing network.

CNT uses remote diagnostic tools to support customer networks. One of the
company's service options provides customers with seven days per week, 24 hours
per day technical support through the unique ability to dial into these networks
worldwide and perform on-line troubleshooting. In the majority of cases opened,
the Company provides timely resolution to customer problems without having to
visit the customer's site. In over 45 percent of the cases, customers depend on
CNT to diagnose problems that are ultimately identified as other vendor's
hardware and/or communications issues. Our software products come with on-line
help, comprehensive documentation, and diagnostic tools to allow users to
monitor their lines. When necessary, CNT dispatches trained field service
personnel, through third party maintenance providers, to provide repairs at the
customer's facility.

MARKETING AND SALES

The Company, along with its subsidiaries, markets its products in the United
States, Canada, the United Kingdom, France, Germany, Australia, Hong Kong and
Japan primarily through a direct sales force, and also through Original
Equipment Manufacturers, systems integrators, and value-added resellers. Outside
of these countries, CNT markets its products through independent distributors.

The Company derived approximately $27.2 million, $25.2 million, and $23.6
million, or 28%, 26%, and 30%, of its revenue from operations outside of the
United States and Canada for the years ended December 31, 1997, 1996, and 1995,
respectively. International operations are subject to various risks common to
international businesses, including exposure to currency

8
<PAGE>

fluctuations, political and economic instability, the greater difficulty of
administering business internationally, and the need to comply with a wide
variety of U.S. export and foreign import laws and regulations. No single
customer accounted for more than 10% of the Company's revenue in 1997 or 1995.
Sales to IBM and its multiple divisions accounted for 18% of the Company's total
revenue in 1996. See note 14 to the Company's Consolidated Financial Statements
for additional information regarding the Company's operations by geographic
region and major customers.

The Company manufactures its products based on a schedule of forecasted orders.
The Company's customers generally place orders for immediate delivery and
generally not in advance of need. Customers may generally cancel or reschedule
orders without penalties. Accordingly, the Company believes that backlog is
generally not meaningful for purposes of predicting its revenue for any fiscal
period.

The Company expects 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. In addition, the alienation of any major customer could have a
material effect on revenue. The level of product revenue reported by the Company
in any given period will continue to be affected by the receipt and fulfillment
of sizable new orders from OEMs and others.

REVENUE RECOGNITION POLICY

Service fees are recognized as revenue when earned, which is generally on a
straight-line basis over the contracted service period.

ENGINEERING AND DEVELOPMENT

The computer networking industry is characterized by rapidly changing
technology, new standards, and changing customer requirements. The Company
believes that its long-term success in the marketplace depends upon its
continuing ability to develop and integrate advanced network hardware and
software technologies.

During the past year, the Company completed development and announced its
UltraNet Storage Director with support for SCSI, Fibre Channel and ESCON device
connections, as well as ATM and T3/E3 wide area network (WAN) interfaces.

To meet the future networking demands of its customers, the Company expects to
continue to: (i) increase the compatibility and interoperability of its products
with the products of other vendors; (ii) emphasize the flexible and modular
architecture of its products to permit the

9
<PAGE>

introduction of new capabilities in a manner that can be used within existing
networks and to provide a framework for existing customers to incorporate and
install new CNT products, features, and functions; (iii) continue to focus on
providing sophisticated diagnostic support tools to help deliver both high
network availability and, in the event of failure, rapid return to service; and
(iv) develop additional products to meet the demands of its customers. Excluding
the impact of special items, engineering and development expense was equal to
18% of CNT's total revenue in 1997, compared to approximately 15% of total
revenue in 1996 and 1995. The Company currently intends to continue to apply a
significant portion of its resources to product enhancements and new product
development for the foreseeable future.

MANUFACTURING AND SUPPLIERS

The Company manufactures its products and systems from subassemblies, parts, and
components, such as integrated circuits, printed circuit boards, power supplies,
and metal parts manufactured by other vendors. Certain items manufactured by
suppliers are made to the Company's specific design criteria. In-house
manufacturing activities for the Company's products primarily involve quality
assurance testing of subassemblies and final system assembly, integration, and
quality assurance testing. Since 1993, CNT has been certified under ISO 9002, an
international standard of quality, for the manufacture and support services of
high-electronic communications devices and computer networking systems.

The Company believes that it currently possesses adequate supply channels.
Components and subassemblies used in the Company's products and systems are
generally available from a number of different suppliers; however, certain key
components in the Company's products are currently purchased from only one
source or from a limited number of sources. The Company does not anticipate any
difficulty in obtaining an adequate supply of required components. An
interruption in its existing supplier relationships or delays by some suppliers,
however, could result in production delays and have an adverse effect on the
Company.

COMPETITION

The networking industry is highly competitive. It is characterized by rapidly
advancing technology and evolving industry standards, resulting in frequent
product and feature introductions and improvements in the relative
price/performance of products. CNT competes with several companies that have
greater engineering and development resources, marketing resources, financial
resources, manufacturing capability, customer support resources, and name
recognition than those of the Company.

The principal competitive factors affecting the markets for the Company's
products include customer service, flexibility, price/performance, reliability,
ease of use, and functionality. In many situations, the potential customer has
an installed base of a competitor's products, which can be difficult to
dislodge. IBM, Microsoft, and others can significantly influence customers and
control technology in the Company's markets.

10
<PAGE>

Rapid change, new technologies and worldwide deregulation of the
telecommunications industry are generally positive developments for the Company
because they should have the impact of reducing carrier costs and increasing
bandwidth speeds and capacity. However, the many and unpredictable nature of the
changes also carries with it some risk of dislocation for CNT.

There can be no assurance that the Company can compete successfully with its
current competitors or with competitors that may subsequently enter the market,
particularly the software market, which is characterized by low barriers to
entry. There also can be no assurance that CNT will affect technological changes
necessary to maintain its competitive position.

INTELLECTUAL PROPERTY RIGHTS

The Company relies on a combination of trade secret, copyright, patent, and
trademark law, nondisclosure agreements, and technical measures to establish and
protect its proprietary rights to its products. Such protection may not preclude
competitors from developing products with features similar to the Company's
products. Because of the rapid pace of technological change in data
communications and in the computer and networking industries, the Company
believes that patent and copyright protection are less significant to the
Company's competitive position than factors such as the effectiveness and
quality of its support services; the knowledge, experience, and ability of the
Company's employees; and the frequency of product enhancements.

The Company has from time to time received, and may in the future receive,
communications from third parties asserting patents against the Company which
may relate to certain of the Company's products. Although the Company believes
that it possesses all required proprietary rights to the technology involved in
its products and that its products, trademarks, and other intellectual property
rights do not infringe upon the proprietary rights of third parties, there can
be no assurance that others will not claim a proprietary interest in all or a
part of such technology or assert claims of infringement. Any such claim,
regardless of its merits, could involve the Company in costly litigation and
have a material adverse effect on the Company.

Because of the existence of a large number of patents in the networking field
and the rapid rate of issuance of new patents, it is not economically practical
to determine in advance whether a product infringes patent rights of others. The
Company believes that, based upon industry practice, any necessary license or
rights under such patents may be obtained on terms that would not have a
material adverse effect on the Company's consolidated financial position or
results of operations; however, there can be no assurance in this regard.

EMPLOYEES

As of December 31, 1997, the Company had 625 full-time employees, including 65
full-time employees of its wholly-owned foreign subsidiaries. The Company
considers its ability to attract and retain qualified employees and to motivate
such employees to be essential to the future success of the Company. Competition
for such highly skilled personnel is particularly intense in the computer and
data communications industry, and no assurance may be given that the Company
will continue to attract and retain qualified employees.

11
<PAGE>

ITEM 2. PROPERTIES

The Company's principal administrative offices, manufacturing, engineering, and
development functions are located in leased facilities in the Minneapolis
suburbs of Maple Grove and Plymouth, Minnesota. The Company also leases space in
Westborough, Massachusetts and New York City, primarily related to the
manufacturing, development and support of its Internet Solutions software
products. The Company's subsidiaries lease office space in England, France,
Germany, Australia, Hong Kong and Japan. The Company leases sales offices for
its direct sales staff and systems consultants in a number of locations
throughout the United States and Canada. The Company believes that its
facilities are adequate to meet its current needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings that could have a material
adverse effect on the Company or its business.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

12
<PAGE>

ITEM 4.A EXECUTIVE OFFICERS OF THE COMPANY

The following table contains certain information regarding the current executive
officers of the Company.

<TABLE>
<CAPTION>
Name Position Served Age
<S> <C> <C>
Thomas G. Hudson President, Chief Executive Officer, and Director 51

Gregory T. Barnum Vice President of Finance, Chief Financial Officer and 43
Corporate Secretary

Jeffrey A. Bertelsen Corporate Controller and Treasurer 35

Richard E. Carlson Vice President of Manufacturing 60

William C. Collette Vice President of Engineering 54

Peter Dixon Vice President of Worldwide Distribution 48

Martin G. Hahn General Manager - Internet Solutions Division 40

Mark R. Knittel Vice President of Marketing and Business Development 43

Kristine E. Ochu Vice President of Human Resources 36

Julie C. Quintal Vice President of Customer Support 39
</TABLE>

13
<PAGE>

Thomas G. Hudson has been President and Chief Executive Officer since June 1996
and a director since August 1996. From 1993 to June 1996, Mr. Hudson was Senior
Vice President of McGraw Hill Companies, a leading information services
provider, serving as General Manager of its F.W. Dodge Division, and as Senior
Vice President, Corporate Development. From 1968 to 1993, Mr. Hudson served in a
number of management positions at IBM Corporation, most recently as Vice
President Services Sector Division. Mr. Hudson's IBM career included varied
product development, marketing and strategic responsibilities for IBM's
financial services customers and extensive international and large systems
experience. He is a graduate of the University of Notre Dame and New York
University. He attended the Harvard Advanced Management Program in 1990.

Gregory T. Barnum was appointed Vice President of Finance, Chief Financial
Officer and Corporate Secretary in July 1997. From September 1992 to July 1997,
Mr. Barnum served as Senior Vice President of Finance and Administration, Chief
Financial Officer and Corporate Secretary at Tricord Systems, Inc., a
manufacturer of enterprise servers. From May 1988 to September 1992, Mr. Barnum
served as the Executive Vice President, Finance, Chief Financial Officer,
Treasurer and Corporate Secretary for Cray Computer Corporation, a development
stage company engaged in the design of supercomputers. Prior to that, Mr. Barnum
served in various accounting and financial management capacities for Cray
Research, Inc., a leading manufacturer of supercomputers. He is a graduate of
the University of St. Thomas.

Jeffrey A. Bertelsen was appointed Corporate Controller and Treasurer in
December 1996. Mr. Bertelsen served as the Company's Controller from March 1995
to December 1996. From 1985 to March 1995, Mr. Bertelsen was employed by KPMG
Peat Marwick, most recently as a Senior Audit Manager. He is a graduate of the
University of Minnesota.

Richard E. Carlson was appointed Vice President of Manufacturing in January
1992. Mr. Carlson served as Director of Manufacturing from August 1990 to
January 1992. From 1981 to 1990, Mr. Carlson was employed by Zycad Corporation,
a manufacturer of special purpose computers, most recently as Vice President of
Product Development and Operations. Mr. Carlson holds a bachelor of science
degree in mechanical engineering from the University of Minnesota.

William C. Collette was appointed Vice President of Engineering in December
1995. Mr. Collette served as Director of Future Software Development and as a
Software Development Manager from June 1993 to December 1995. From 1990 to 1993,
Mr. Collette was employed by SuperComputer Systems, Inc. as a Senior Software
Engineer, where he worked with Steve Chen to design the networking for the SS1
Supercomputer. Mr. Collette holds a bachelors degree in business management from
Metro State University.

14
<PAGE>

Peter Dixon was appointed Vice President of Worldwide Distribution in March
1998. Mr. Dixon served as Vice President of International from January 1990 to
March 1998. He served as Vice President of Strategic Account Marketing from
January 1989 to January 1990 and as Director of Distribution Marketing and Sales
from February 1988 to January 1989. From 1985 to 1988, Mr. Dixon served as an
Account Manager with National Advanced Systems Canada, Inc. and its predecessor,
Sand Technology Systems, Inc., companies involved in the marketing of mainframe
peripherals.

Martin G. Hahn was appointed General Manager of the Internet Solutions Division
in October 1997. Mr. Hahn served as President of the Internet Solutions Division
at Apertus Technologies Inc., prior to its acquisition by the Company, from
June 1995 to October 1997. He also held a variety of executive marketing and
sales positions at Apertus Technologies Inc. from July 1987 to May 1995. Prior
to that, he served as Assistant Vice President of the Corporate Finance and
Development Business Unit at First Bank Systems. He is a graduate of the
University of Minnesota and University of Chicago Graduate School of Business
(MBA).

Mark R. Knittel was appointed Vice President of Marketing and Business
Development in May 1997. Mr.Knittel served as Vice President of Architecture and
Business Development from March 1997 to May 1997. From July 1977 to March 1997,
Mr. Knittel was employed with IBM where he held several development executive
positions for both hardware and software networking products, as well as
multiple strategy positions. Most recently, Mr. Knittel held the position of
Director of Campus Product Marketing within the Network Hardware Division of
IBM. Mr. Knittel has a masters degree in philosophy from the University of
Chicago.

Kristine E. Ochu was appointed Vice President of Human Resources in March 1996,
and served as Director of Human Resources from May 1995 to March 1996. From
January 1994 to May 1995, Ms. Ochu was employed by Data Systems and Management,
a software development company, as Manager of Human Resources. From 1991 to
1994, Ms. Ochu was employed as a Director of Human Resources by DataCard, Inc.,
a diversified high technology manufacturing company. Ms. Ochu holds a bachelors
degree in psychology and a masters degree in industrial relations from the
University of Minnesota. She attended the University of Michigan Advanced Human
Resources Executive Program in 1996.

Julie C. Quintal was appointed Vice President of Customer Support in May 1993.
From 1985 until May 1993, Ms. Quintal was employed by Dataserv Inc., a computer
service company, most recently as Division Vice President of Custom Solutions.
Ms. Quintal holds a bachelor of science degree in business administration,
management, and industrial relations from Mankato State University.

15
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S SECURITIES AND RELATED SHAREHOLDERS MATTERS

The information set forth under the captions "Price Range of the Company's
Common Stock" and "Dividends" on page 35 of the 1997 Annual Report to
Shareholders is incorporated herein by reference.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION

The information set forth under the captions "Selected Consolidated Statements
of Operations Data" and "Selected Consolidated Balance Sheet Data" on page 14 of
the 1997 Annual Report to Shareholders is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 15 through
20 of the 1997 Annual Report to Shareholders is incorporated herein by
reference.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and the accompanying Notes to Consolidated
Financial Statements on pages 21 through 33 of the 1997 Annual Report to
Shareholders is incorporated herein by reference. The information set forth
under the caption "Quarterly Financial Data" on page 34 of the 1997 Annual
Report to Shareholders is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None.

16
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The information set forth under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 19,
1998, to be filed with the Securities and Exchange Commission (the "Commission")
on or before April 30, 1998, is incorporated herein by reference. For
information concerning the executive officers, see Item 4.A. of this Annual
Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions "Summary Compensation Table",
"Option Tables", "Employment Agreements" and "Election of Directors -
Compensation of Directors" in the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 19, 1998, to be filed with the
Commission on or before April 30, 1998, is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 19, 1998, to be filed with the
Commission on or before April 30, 1998, is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

17
<PAGE>

PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.

(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF REGISTRANT

The following consolidated financial statements of the Company are incorporated
by reference to the 1997 Annual Report to Shareholders.
Pages in 1997
Annual Report to
SHAREHOLDERS
-----------------
Consolidated Statements of Operations for the
Years Ended December 31, 1997, 1996 and 1995 ........ 21

Consolidated Balance Sheets as of December 31,
1997 and 1996 ....................................... 22

Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 ........ 23

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 .................... 24

Notes to Consolidated Financial Statements............... 25-32

Independent Auditors' Report ............................ 33

(a) 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE OF REGISTRANT

Independent Auditors' Report on Consolidated Financial Statement
Schedule

Schedule II: Valuation and Qualifying Accounts for the
years ended December 31, 1997, 1996 and 1995.

All other schedules are omitted as the required information is
inapplicable or is presented in the consolidated financial
statements or related notes thereto.

18
<PAGE>

(a) 3. EXHIBITS

Of the exhibits listed below, the following are management contracts
or compensatory plans or arrangements with the Company:

EXHIBIT DESCRIPTION
------- -----------
10B. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F Form S-2 Registration Statement No. 33-41985.)

10D. Amended and Restated Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10A Form S-8 Registration Statement File No.
33-41986.)

10E. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B Form S-8 Registration Statement No.
33-41986.)

10F. Certificate of Resolutions contained in Minutes of Annual Meeting
of Shareholders on May 30, 1990 increasing shares reserved under
ISOP from 500,000 to 1,000,000. (Incorporated by reference to
Exhibit 10C Form S-8 Registration Statement No. 33-41986.)

10G. Certificate of Resolutions contained in Minutes of Special
Meeting of the Board of Directors on April 25, 1991 increasing
the number of shares reserved under the NSOP from 1,100,000 to
1,600,000. (Incorporated by reference to Exhibit 10D Form S-8
Registration Statement No. 33- 41986.)

10H. 1992 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 28 Form S-8 Registration Statement No. 33-48954.)

10I. 1992 Stock Award Plan. (Incorporated by reference to Exhibit 28
Form S-8 Registration Statement No. 33-48944.)

19
<PAGE>

10L. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award Plan from
650,000 to 1,050,000 and increasing shares reserved under the
1992 Employee Stock Purchase Plan from 150,000 to 300,000.
(Incorporated by reference to Exhibit 10BB Annual Report on Form
10-K for the fiscal year ended December 31, 1993.)

10N. March 10, 1994 Incentive Stock Option Agreements. (Incorporated
by reference to Exhibit 28.2 Form S-8 Registration Statement No.
33-83266.)

10O. March 10, 1994 Non-Qualified Stock Option Agreements.
(Incorporated by reference to Exhibit 28.3 Form S-8 Registration
Statement No. 33-83266.)

10P. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000. (Incorporated by reference to Form
S-8 Registration Statement No. 33-83262.)

10Q. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000. (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)

10R. Amendment to and Restatement of Employment Agreement by and
between the Company and C. McKenzie Lewis, III. (Incorporated by
reference to Exhibit 10S Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.)

10S. Severance agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10T Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.)

10T. Amendment No. 1 to Severance Agreement by and between the Company
and Eugene D. Misukanis. (Incorporated by reference to Exhibit
10Y Form 10-Q for the quarterly period ended June 30, 1996.)

20
<PAGE>

10U. Employment Agreement by and between the Company and Thomas G.
Hudson as amended. (Incorporated by reference to Exhibit 10Z Form
10-Q for the quarterly period ended June 30, 1996.)

10W. Minutes of Annual Meeting of Shareholders on May 17, 1996
increasing shares reserved under the 1992 Stock Award Plan from
3,250,000 to 4,350,000; to provide for the automatic grant of
certain stock options to nonemployee directors upon initial
election or appointment to the Executive Committee of the Board
and upon initial election as Chairman or Vice Chairman of the
Board; and to increase the maximum number of shares subject to
options that can be awarded to any single employee during any
calendar year to 750,000; and increasing shares reserved under
the 1992 Employee Stock Purchase Plan from 400,000 to 450,000 and
to limit the number of shares that may be purchased thereunder to
5,000 per Participant for any annual Purchase Period.
(Incorporated by reference to Exhibit 10W Annual Report on Form
10-K for fiscal year ended December 31, 1996.)

10X. Minutes of Annual Meeting of Shareholders on May 15, 1997 to
amend the 1992 Stock Award Plan to increase the number of shares
authorized for issuance thereunder from 4,350,000 to 5,400,000.
To amend the 1992 Employee Stock Purchase Plan to increase the
number of shares authorized for issuance thereunder from 450,000
to 500,000 and to modify the definition of "affiliate" as used in
the Plan to allow the Board of Directors discretion in
determining which affiliates of the Company (and, therefore,
their employees) will be eligible to participate in the Plan.
(Incorporated by reference to Exhibit 10A Form 10-Q for the
quarterly period ended June 30, 1997.)

10Y. Description of Success Sharing Bonus Plan.

10Z. Executive Deferred Compensation Plan.

10AA. Employment Agreement by and between the Company and Mark Knittel

21
<PAGE>

The following exhibits are filed herewith:

EXHIBIT DESCRIPTION
------- -----------
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain
Significant Shareholders of Brixton Systems, Inc. dated as of
February 4, 1994. (Incorporated by reference to Exhibit 2 to
current report on Form 8-K dated February 22, 1994.)

2B. Asset Purchase Agreement by and between CNT Acquisition I
Corporation, Computer Network Technology Corporation and Apertus
Technologies Incorporated dated October 24, 1997. (Incorporated
by reference to Exhibit 2.1 to current report on Form 8-K dated
October 24, 1997.)

3A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on Form
8-K dated June 22, 1992.)

3B. By-laws of the Company, as amended. (Incorporated by reference to
Exhibit 3B Annual Report on Form 10-K for fiscal year ended
December 31, 1991.)

10A. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer Network
Technology Corporation. (Incorporated by reference to Exhibit 10C
Form S-2 Registration Statement No. 33-41985.)

10B. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F Form S-2 Registration Statement No. 33-41985.)

10C. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G Form S-2 Registration Statement No.
33-41985.)

10D. Amended and Restated Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 10A Form S-8 Registration Statement No.
33-41986.)

22
<PAGE>

10E. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B Form S-8 Registration Statement No.
33-41986.)

10H. 1992 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 28 Form S-8 Registration Statement No. 33-48954.)

10I. 1992 Stock Award Plan. (Incorporated by reference to Exhibit 28
Form S-8 Registration Statement No. 33-48944.)

10J. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation dated
October 1, 1993. (Incorporated by reference to Exhibit 10X Annual
Report on Form 10-K for fiscal year ended December 31, 1993.)

10K. First Amendment to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology Corporation
dated October 26, 1993. (Incorporated by reference to Exhibit 10Y
Annual Report on Form 10-K for fiscal year ended December 31,
1993.)

23
<PAGE>

10M. Amendment No. 1 to Sublease Agreement by and between ITT Consumer
Financial Corporation and Computer Network Technology Corporation
dated February 9, 1994. (Incorporated by reference to Exhibit
10CC Form 10Q for the quarterly period ended March 31, 1994.)

10N. March 10, 1994 Incentive Stock Option Agreements. (Incorporated
by reference to Exhibit 28.2 Form S-8 Registration Statement No.
33-83266.)

10O. March 10, 1994 Non-Qualified Stock Option Agreements.
(Incorporated by reference to Exhibit 28.3 Form S-8 Registration
Statement No. 33-83266.)

10P. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000. (Incorporated by reference to Form
S-8 Registration Statement No. 33-83262.)

10Q. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000. (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)

10R. Amendment to and Restatement of Employment Agreement by and
between the Company and C. McKenzie Lewis III. (Incorporated by
reference to Exhibit 10S Annual Report on Form 10-K for fiscal
year ended December 31, 1995.)

10S. Severance Agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10T Annual
Report on Form 10-K for fiscal year ended December 31, 1995.)

10T. Amendment No. 1 to Severance Agreement by and between the Company
and Eugene D. Misukanis. (Incorporated by reference to Exhibit
10Y Form 10-Q for the quarterly period ended June 30, 1996.)

10U. Employment Agreement by and between the Company and Thomas G.
Hudson as amended. (Incorporated by reference to Exhibit 10Z Form
10-Q for the quarterly period ended June 30, 1996.)

24
<PAGE>

10V. Lease Agreement between Teachers Realty Corporation and Computer
Network Technology Corporation. (Incorporated by reference to
Exhibit 10AA Form 10-Q for the quarterly period ended June 30,
1996.)

10Y. Description of Success Sharing Bonus Plan.

10Z. Executive Deferred Compensation Plan.

10AA. Employment Agreement by and between the Company and Mark Knittel

11. Statement Re: Computation of Net Income (Loss) per Basic and
Diluted Share.

25
<PAGE>

13. Annual Report to Shareholders for the fiscal year ended December
31, 1997. (Only those portions specifically incorporated by
reference herein shall be deemed filed with the Commission.)

21. Subsidiaries of the Registrant.

23. Independent Auditors' Consent.

27.1 Financial Data Schedule 1997 (12 months)

27.2 Restated Financial Data Schedule 1997 (9 months).

27.3 Restated Financial Data Schedule 1997 (6 months).

27.4 Restated Financial Data Schedule 1997 (3 months).

27.5 Restated Financial Data Schedule 1996 (12 months).

27.6 Restated Financial Data Schedule 1996 (9 months).

27.7 Restated Financial Data Schedule 1996 (6 months).

27.8 Restated Financial Data Schedule 1996 (3 months).

27.9 Restated Financial Data Schedule 1995 (12 months).

(b) REPORTS ON FORM 8-K.

During the 1997 fourth quarter, a Current Report on Form 8-K dated
October 24, 1997 was filed regarding the Company's acquisition of the
Internet Solutions Division of Apertus Technologies Incorporated.

26
<PAGE>

SCHEDULE II

COMPUTER NETWORK TECHNOLOGY CORPORATION

Valuation and Qualifying Accounts

Years ended December 31, 1997, 1996 and 1995
(in thousands)

<TABLE>
<CAPTION>
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning costs & other end of
Description of period expenses account Deductions period
- ------------------------------------ ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts
and sales returns (1) $ 899 121 2,354 (395) $2,979

Year ended December 31, 1996
Allowance for doubtful accounts
and sales returns $1,131 -- -- (232) $ 899

Year ended December 31, 1995
Allowance for doubtful accounts
and sales returns $ 692 489 -- (50) $1,131
</TABLE>

(1) In connection with its acquisition of the Internet Solutions Division of
Apertus Technologies Incorporated the Company recorded an allowance for
doubtful accounts and sales returns in the amount of $2,354.

27
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

COMPUTER NETWORK TECHNOLOGY CORPORATION

Dated: March 26, 1998 By: /s/ Thomas G. Hudson
---------------------------------------
Thomas G. Hudson, President and Chief
Executive Officer,
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/ Thomas G. Hudson President and Chief Executive
- --------------------------- Officer (Principal Executive
Thomas G. Hudson Officer) and Director March 26, 1998

/s/ Gregory T. Barnum Vice President of Finance, Chief
- --------------------------- Financial Officer and Secretary
Gregory T. Barnum (Principal Financial Officer) March 26, 1998

/s/ Jeffrey A. Bertelsen Corporate Controller and Treasurer
- --------------------------- (Principal Accounting Officer)
Jeffrey A. Bertelsen March 26, 1998

/s/ Patrick W. Gross
- --------------------------- Director March 26, 1998
Patrick W. Gross

/s/ Erwin A. Kelen
- --------------------------- Director March 26, 1998
Erwin A. Kelen

/s/ Lawrence Perlman
- --------------------------- Director March 26, 1998
Lawrence Perlman

/s/ John A. Rollwagen
- --------------------------- Director March 26, 1998
John A. Rollwagen

28
<PAGE>

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE

The Board of Directors and Shareholders
Computer Network Technology Corporation:

Under the date of January 27, 1998, we reported on the consolidated balance
sheets of Computer Network Technology Corporation and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, as contained in the 1997 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1997. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedule as listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Minneapolis, Minnesota
January 27, 1998

29
<PAGE>

INDEX TO EXHIBITS

EXHIBIT DESCRIPTION PAGE
- ------- ----------- ----
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain
Significant Shareholders of Brixton Systems, Inc. dated February
4, 1994. (Incorporated by reference to Exhibit 2 to current
report on Form 8-K dated February 22, 1994.)

3A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated June 22, 1992.)

3B. By-laws of the Company, as amended. (Incorporated by reference
to Exhibit 3B Annual Report on Form 10-K for fiscal year ended
December 31, 1991.)

10A. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer Network
Technology Corporation. (Incorporated by reference to Exhibit
10C Form S-2 Registration Statement No. 33-41985.)

10B. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F Form S-2 Registration Statement No. 33-41985.)
<PAGE>

10C. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G Form S-2 Registration Statement No.
33-41985.)

10D. Amended and Restated Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 10A Form S-8 Registration Statement No.
33-41986.)

10E. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B Form S-8 Registration Statement No.
33-41986.)

10F. Certificate of Resolutions contained in Minutes of Annual
Meeting of Shareholders on May 30, 1990 increasing shares
reserved under ISOP from 500,000 to 1,000,000. (Incorporated by
reference to Exhibit 10C Form S-8 Registration Statement No.
33-41986.)

10H. 1992 Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 28 Form S-8 Registration Statement No. 33-48954.)

10I. 1992 Stock Award Plan. (Incorporated by reference to Exhibit 28
Form S-8 Registration Statement No. 33-48944.)

10J. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation dated
October 1, 1993. (Incorporated by reference to Exhibit 10X
Annual Report on Form 10-K for fiscal year ended December 31,
1993.)
<PAGE>

10K. First Amendment to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated October 26, 1993. (Incorporated by reference
to Exhibit 10Y Annual Report on Form 10-K for fiscal year ended
December 31, 1993.)

10M. Amendment No. 1 to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated February 9, 1994. (Incorporated by reference
to Exhibit 10CC Form 10Q for the quarterly period ended March
31, 1994.)

10N. March 10, 1994 Incentive Stock Option Agreements. (Incorporated
by reference to Exhibit 28.2 Form S-8 Registration Statement No.
33-83266.)

10O. March 10, 1994 Non-Qualified Stock Option Agreements.
(Incorporated by reference to Exhibit 28.3 Form S-8 Registration
Statement No. 33-83266.)

10P. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000. (Incorporated by reference to Form
S-8 Registration Statement No. 33-83262.)

10Q. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000. (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)
<PAGE>

10S. Severance Agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10T Annual
Report on Form 10-K for fiscal year ended December 31, 1995.)

10T. Amendment No. 1 to Severance Agreement by and between the
Company and Eugene D. Misukanis. (Incorporated by reference to
Exhibit 10Y Form 10Q for the quarterly period ended June 30,
1996.)

10U. Employment Agreement by and between the Company and Thomas G.
Hudson as amended. (Incorporated by reference to Exhibit 10Z
Form 10Q for the quarterly period ended June 30, 1996.)

10V. Lease Agreement between Teachers Realty Corporation and Computer
Network Technology Corporation. (Incorporated by reference to
Exhibit 10AA Form 10Q for the quarterly period ended June 30,
1996.)

10W. Minutes of Annual Meeting of Shareholders on May 17, 1996
increasing shares reserved under the 1992 Stock Award Plan from
3,250,000 to 4,350,000; to provide for the automatic grant of
certain stock options to nonemployee directors upon initial
election or appointment to the Executive Committee of the Board
and upon initial election as Chairman or Vice Chairman of the
Board; and to increase the maximum number of shares subject to
options that can be awarded to any single employee during any
calendar year to 750,000; and increasing shares reserved under
the 1992 Employee Stock Purchase Plan from 400,000 to 450,000
and to limit the number of shares that may be purchased
thereunder to

<PAGE>

EXHIBIT 10Y

COMPUTER NETWORK TECHNOLOGY CORPORATION

Success Sharing Bonus Plan

The Company's Success Sharing Bonus Plan provides a formula for determination of
cash bonus payments to eligible employees based on a defined percentage of a
participant's qualifying base compensation multiplied by the CNT Performance
Factor (CPF). The CPF is derived from a matrix formulated by the board of
directors with axes consisting of defined levels of revenue, growth and pre-tax
profit.

<PAGE>

EXHIBIT 10Z

COMPUTER NETWORK TECHNOLOGY CORPORATION

Executive Deferred Compensation Plan
(As Adopted Effective July 1, 1997)
<PAGE>

CNT EXECUTIVE DEFERRED COMPENSATION PLAN

ARTICLE I

GENERAL

SEC. 1.1 NAME OF PLAN. The name of this plan is the "CNT Executive Deferred
Compensation Plan" (referred to hereinafter as the "Plan").

SEC. 1.2 PURPOSE. The Plan has been established to provide additional
future income to certain select management or highly compensated employees
through voluntary deferrals of Compensation.

SEC. 1.3 EFFECTIVE DATE. The "Effective Date" of the Plan, the date as of
which the Plan was established, is July 1, 1997.

SEC. 1.4 COMPANY. For purposes of this Plan, "Company" means Computer
Network Technology Corporation, a Minnesota corporation, and any Successor
Employer thereof.

SEC. 1.5 CONSTRUCTION AND APPLICABLE LAW. The Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of section 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan shall be
administered and construed consistent with said intent. This Plan also shall be
governed and construed in accordance with the laws of the State of Minnesota as
applied to contracts executed and to be wholly performed within said state to
the extent that such laws are not preempted by the laws of the United States of
America.

ARTICLE II

DEFINITIONS

SEC. 2.1 ACCOUNTS. "Accounts" shall be established for each eligible
Participant reflecting the deferred Compensation and Matching Credits owed to
the Participant or the Participant's Beneficiary under the terms of this Plan.
The following Accounts shall be established for each Participant:

(a) DEFERRAL ACCOUNT. A Deferral Account shall be established to which
shall be credited the amounts of Compensation deferred under Sec. 4.1
and the Earnings Credits under Sec. 4.3 related to those deferrals.
<PAGE>

(b) MATCHING ACCOUNT. A Matching Account shall be established to which
shall be credited the Matching Credits determined under Sec. 4.2 and
the Earnings Credits under Sec. 4.3 related to the Matching Credits.

The Company may maintain sub-accounts for a Participant within each Account
to reflect the amount deferred or credited for each Plan Year and Earnings
Credits on that amount.

SEC. 2.2 BENEFICIARY. "Beneficiary" means the person or persons designated
as such pursuant to the provisions of Sec. 5.4.

SEC. 2.3 CHANGE OF CONTROL. "Change of Control" means the occurrence of an
"Event" as defined in the Company's 1992 Stock Award Plan, as amended, or in any
successor or replacement to said plan.

SEC. 2.4 CODE. "Code" means the Internal Revenue Code of 1986, as amended.

SEC. 2.5 COMPENSATION. "Compensation" for a Plan Year means the
compensation to which the Participant is entitled from the Company with respect
to the Plan Year, excluding sales commissions and sales bonuses. For purposes of
this Plan, Compensation shall be separated into the following two categories:

(a) BASE COMPENSATION means the Compensation classified as such by the
Company which is paid to the Participant on a regular periodic basis
during the Plan Year.

(b) INCENTIVE COMPENSATION means the amounts earned for a Plan Year (and
normally paid during the following January) under the Company-wide
annual incentive plan or under any individual arrangements that create
annual payments based on factors such as the achievement of individual
objectives, provided that such arrangement has been designated by the
Chief Executive Officer of the Company as covered by this Plan.

SEC. 2.6 EARNINGS CREDITS. "Earnings Credits" are the credits allocable to
Accounts of Participants under Sec. 4.3 based on the investment indexes elected
by the Participant.

SEC. 2.7 MATCHING CREDITS. "Matching Credits" are the credits allocable to
the Participant's Matching Account pursuant to Sec. 4.2 based on the deferrals
of Compensation elected by Participants under Sec. 4.1.

SEC. 2.8 PARTICIPANT. A "Participant" is an individual described as such in
Article III.

SEC. 2.9 PLAN YEAR. A "Plan Year" is the 12-consecutive-month period
commencing on each January 1 and ending on the following December 31. However,
the first Plan Year begins on July 1, 1997 and ends on December 31, 1997.
<PAGE>

SEC. 2.10 QUALIFIED EMPLOYEE. "Qualified Employee" for a Plan Year means
the Chief Executive Officer of the Company and any select management or highly
compensated employee of the Company who meets all of the following requirements:

(a) The employee's annual rate of Base Compensation (prior to any
deferrals under this Plan) for the current Plan Year is equal to or
greater than $100,000.

(b) The employee has been designated in writing by the Chief Executive
Officer of the Company as eligible for this Plan for the current Plan
Year.

(c) The employee qualifies as a "highly compensated employee" under Code
Section 414(q) for the current Plan Year based on his or her
Compensation during the preceding Plan Year. If the employee was hired
by the Company during the preceding Plan Year, the employee's
Compensation during the preceding Plan Year shall be annualized for
purposes of applying this subsection. This subsection shall not apply
during the Plan Year in which the employee is first employed by the
Company. For purposes of applying this subsection during 1997, the
"current Plan Year" shall be all of 1997 and the "preceding Plan Year"
shall be 1996.

SEC. 2.11 SUCCESSOR EMPLOYER. A "Successor Employer" is any entity that
succeeds to the business of the Company through merger, consolidation,
acquisition of all or substantially all of its assets, or any other means and
which elects before or within a reasonable time after such succession, by
appropriate action evidenced in writing, to continue the Plan.

SEC. 2.12 TERMINATION OF EMPLOYMENT. The "Termination of Employment" of an
employee for purposes of the Plan shall be deemed to occur upon the employee's
resignation, discharge, retirement, death, failure to return to active work at
the end of an authorized leave of absence or the authorized extension or
extensions thereof, failure to return to work when duly called following a
temporary layoff, or upon the happening of any other event or circumstance
which, under the policy of the Company as in effect from time to time, results
in the termination of the employer-employee relationship.

ARTICLE III

PARTICIPATION

SEC. 3.1 ELIGIBILITY FOR PARTICIPATION. An employee of the Company shall
become a Participant in the Plan on the earliest date (on or after the Effective
Date) on which he or she is a Qualified Employee and has elected to make
deferrals under Sec. 4.1.

SEC. 3.2 DURATION OF PARTICIPATION. A Participant shall continue to be
eligible to make elections under Sec. 4.1 until the earliest of:

(a) The date the Participant's Termination of Employment occurs.
<PAGE>

(b) The date on which the Participant ceases to be a Qualified Employee.

(c) The date the Participant fails to meet the requirements of any
regulations which may be issued by the Department of Labor that define
the phrase "select group of management or highly compensated
employees" under ERISA.

No deferrals under Sec. 4.1 shall be made from any Compensation that is payable
to the Participant for a Plan Year beginning after the earliest of said dates
unless he or she again meets the requirements for being a Qualified Employee for
a subsequent Plan Year. However, an individual shall continue to be a
Participant for purposes of the provisions of the Plan other than Sec. 4.1 until
the date all of his or her Accounts have been distributed.

SEC. 3.3 NO GUARANTEE OF EMPLOYMENT. Participation in the Plan does not
constitute a guarantee or contract of employment with the Company. Such
participation shall in no way interfere with any rights the Company would have
in the absence of such participation to determine the duration of the employee's
employment with the Company.

ARTICLE IV

DEFERRED COMPENSATION AND ACCOUNTS

SEC. 4.1 ELECTION TO DEFER COMPENSATION. Prior to the first day of any Plan
Year beginning on or after the Effective Date, a Participant may elect to have
part or all of the Base Compensation and/or Incentive Compensation payable with
respect to that Plan Year credited to the Participant's Deferral Account rather
than being paid in cash. The Compensation actually payable for the Plan Year to
a Participant who elects deferred compensation under this section shall be
reduced by the percentage or amount so elected, subject to the following:

(a) Elections for the Plan Year commencing on July 1, 1997 must be filed
with the Company by June 30, 1997. Elections for subsequent Plan Years
must be filed by the preceding December 31. However, an election by an
individual who first becomes a Qualified Employee during a Plan Year
may be filed within 30 days after the date he or she becomes a
Qualified Employee and shall apply to Base Compensation payable for
payroll periods beginning after the date the election is filed and to
any Incentive Compensation with respect to that Plan Year which is
subject to a requirement that the individual remain employed to a date
that is after the date the election is filed. Elections shall be made
on forms specified by the Company for purposes of this Plan.

(b) The election filed prior to the beginning of each Plan Year will apply
to the Base Compensation payable during that Plan Year and the
Incentive Compensation for that Plan Year which is payable during
December of the current Plan Year or during the following Plan Year.
<PAGE>

(c) The Participant may elect to defer a fixed dollar amount of Base
Compensation during each pay period. However, the deferral may not
reduce the Participant's rate of Base Compensation for the Plan Year
to less than $80,000 (or such higher amount for the Plan Year equal to
the amount specified for that Plan Year under Code Section 414(q)(1)).

(d) A Participant may elect to have one of the following types of
deferrals made from the Participant's Incentive Compensation:

(1) The Participant may elect to contribute a percentage (up
to 100%) of the payment of Incentive Compensation.

(2) The Participant may elect to contribute a specific dollar
amount of the Incentive Compensation payment (or 100% of the
payment, if less than the specified amount).

Notwithstanding the foregoing, the amount deferred may not exceed the
Incentive Compensation that remains after the deduction of any taxes
attributable to the amounts deferred which are required to be withheld
and which are not withheld from other compensation payable to the
Participant.

(e) The Participant must file a separate election with the Company for
each Plan Year for which deferrals are to be made under this Plan. An
election for a Plan Year shall become irrevocable on the first day of
that year, subject to subsection (g). Elections will not carry over
into subsequent Plan Years.

(f) The deferred compensation credited under the Plan by the Company on
behalf of a Participant for a Plan Year shall be allocated to the
Deferral Account of the Participant as of the date that the Base
Compensation or Incentive Compensation would otherwise have been paid
to the Participant in cash.

(g) Notwithstanding the foregoing provisions of this section, all
deferrals by a Participant shall cease as of (i) the date the
Participant receives a hardship withdrawal under any qualified defined
contribution plan subject to Code Section 401(k) maintained by the
Company or any of its affiliates which requires that deferrals be
suspended for a certain period of time following such withdrawal, or
(ii) the date the Participant receives a distribution for
unforeseeable emergency under Sec. 5.5. Deferrals under this section
may not recommence until the first day of the second Plan Year
beginning after the date deferrals ceased under clause (i) of the
previous sentence, or the first day of the Plan Year beginning after
the date deferrals ceased under clause (ii).

SEC. 4.2 MATCHING CREDITS. The Company will credit to the Matching Account
of each Participant for each Plan Year a Matching Credit equal to 20% of the
amount the Participant defers under Sec. 4.1 with respect to that Plan Year,
subject to the following:
<PAGE>

(a) The total Matching Credit for each Participant with respect to any
Plan Year (based on deferrals of Base Compensation during that year
and of Incentive Compensation for that year paid during the following
year) shall be limited to $10,000.

(b) Matching Credits shall be allocated to Matching Accounts on the same
date that the deferrals on which they are based are credited to
Deferral Accounts, but shall stop for each Participant on the date the
Participant reaches the $10,000 limit under subsection (a) for the
Plan Year.

SEC. 4.3 VALUATION OF ACCOUNTS. As of any date as of which an Account is to
be valued, the value of the Account shall be adjusted to reflect the effect of
additional credits under Sec. 4.1 or Sec. 4.2 and any Earnings Credits with
respect to that Account, less any distributions under the Plan with respect to
said Account, since the last date the value of the Account was determined.

(a) Earnings Credits during each Plan Year will be based on the annual
rate of return under the investment index or indexes selected by the
Participant prior to the Plan Year to be applied to his or her
Accounts for that Plan Year. As of the Effective Date, the following
investment indexes are available to Participants:

(1) The annual rate of return on ten-year U.S. Treasury securities on
the first business day of the Plan Year, as published in the NEW
YORK TIMES.

(2) The annual rate of total shareholder return on the CIGNA Stock
Market Index Fund for the Plan Year, determined as of the last
business day of the Plan Year.

(b) The Participant shall file a single election covering the Earnings
Credits for all of his or her Accounts, except that separate elections
may be filed for credits on the Account balances as of the last day of
the prior Plan Year and on amounts to be added to the Participant's
Accounts during the current and subsequent Plan Years. Elections must
be stated in 10% increments for each index.

(c) Accounts will generally be revalued as of the last day of each Plan
Year, and the Earnings Credits for the Plan Year will be equal to (i)
the applicable investment index multiplied by the applicable portion
of each Account as of the last day of the prior Plan Year, plus (ii)
the Earnings Credits for that Plan Year determined under subsection
(d). However, if a distribution of the Participant's entire benefit is
to occur under Sec. 5.1 or Sec. 5.3, the Participant's Accounts will
be revalued as of the last day of the month in which the Participant's
Termination of Employment or death occurred, as described in
subsection (e).

(d) If Accounts are being revalued as of the last day of a Plan Year, the
annual rate of Earnings Credits under each applicable investment index
will be adjusted as appropriate to reflect credits to each Account
during the Plan Year, as follows:
<PAGE>

(1) Earnings Credits on Incentive Compensation deferred during the
Plan Year, and on Matching Credits attributable to such
deferrals, shall be determined by multiplying each applicable
rate of return by a fraction, the numerator of which is the
number of days from the date the amounts were credited to the
Participant's Accounts to the last day of the Plan Year, and the
denominator of which is 365.

(2) Earnings Credits on Base Compensation deferred during the Plan
Year, and on Matching Credits attributable to such deferrals,
shall be determined by multiplying each applicable rate of return
by 50%. However, if the Participant began deferring Base
Compensation after the first payroll period of the Plan Year, the
rate under the previous sentence shall be further adjusted by
multiplying it by a fraction, the numerator of which is the
number of days from the first day of the payroll period in which
deferrals commenced to the last day of the Plan Year and the
denominator of which is 365.

(e) Notwithstanding the foregoing provisions of this section, if a
distribution is to be made during a Plan Year under Sec. 5.1 or Sec.
5.3 following the last day of the month in which the Participant's
Termination of Employment or death occurred (the "revaluation date"),
Earnings Credits for the portion of the Plan Year ending on the
revaluation date shall be determined as follows:

(1) The rate of return under subsection (a)(1) shall be adjusted by
multiplying it by the number of months from the first day of the
Plan Year to the revaluation date and dividing the result by 12.

(2) The rate of return under subsection (a)(2) shall be the rate of
return on the CIGNA Stock Market Index Fund for the period
beginning on the first business day of the Plan Year and ending
on the business day coinciding with or immediately preceding the
revaluation date.

(3) The rates determined under paragraphs (1) and (2) shall be
applied to the Participant's Account balances as of the last day
of the previous Plan Year.

(4) The rates determined under paragraphs (1) and (2) shall be
adjusted as provided in subsection (d) to determine Earnings
Credits for the Plan Year on deferrals and Matching Credits made
during that year, except that:

(A) The numerator of the fraction in subsection (d)(1) shall be
the number of days from the date the amounts were credited
to the Participant's Accounts to the revaluation date and
the denominator of the fraction shall be the number of days
from the first day of the Plan Year to the revaluation date.
<PAGE>

(B) The numerator of the fraction in the second sentence of
subsection (d)(2) shall be the number of days from the first
day of the payroll period in which deferrals commenced to
the revaluation date and the denominator of the fraction
shall be the number of days in the portion of the Plan Year
ending on the revaluation date.

(f) If an in-service distribution occurred during the Plan Year under Sec.
5.2, the amount of the distribution will be subtracted from the
Participant's Deferral Account as of the last day of the preceding
Plan Year and no Earnings Credits will be made with respect to the
amount distributed for the period from the first day of the Plan Year
to the date of distribution.

(g) If a distribution for unforeseen emergency is made during the Plan
Year under Sec. 5.5, the Participant's Deferral Account will be
revalued by the Company as of the last day of the month preceding the
date the withdrawal occurs using procedures similar to those provided
in subsection (e), and the amount will be deemed to have been
withdrawn as of that revaluation date. If any portion of the
Participant's Deferral Account remains after the withdrawal, the
Earnings Credits on the Deferral Account for the Plan Year will be
determined using procedures similar to those provided in the preceding
subsections of this section, but with appropriate adjustments to
reflect the withdrawal.

(h) For purposes of the Plan Year commencing July 1, 1997, the annual rate
of return under subsection (a)(1) shall be multiplied by 50% before
applying the other subsections of this section, and the rate for
purposes of subsection (a)(2) shall be the rate of total shareholder
return of the CIGNA Stock Market Index Fund for the period from July
1, 1997 to December 31, 1997.

SEC. 4.4 UNSECURED OBLIGATIONS. A Participant's credits in his or her
Accounts shall be an unsecured obligation of the Company to pay the Participant
(or the Participant's Beneficiary, in the event of the Participant's death) the
actual amount of the credits (to the extent vested) at the time designated in
Article V. Each Participant or Beneficiary is only a general creditor of the
Company with respect to his or her Accounts. Accounts are maintained for
recordkeeping purposes only. Notwithstanding the foregoing, obligations of the
Company to pay benefits under this Plan may be satisfied by distributions from a
grantor trust created by the Company in its sole discretion for such purpose. If
the Company obtains an insurance contract in connection with its obligations
under this Plan, each Participant shall cooperate with the Company and shall
execute any documents or submit to any physical examination reasonably required
by the Company to obtain such coverage.
<PAGE>

ARTICLE V

DISTRIBUTION OF ACCOUNTS

SEC. 5.1 DISTRIBUTION ON TERMINATION OF EMPLOYMENT Upon a Participant's
Termination of Employment for a reason other than death, the entire balance in
the Participant's Deferral Account at that time, plus the vested percentage of
the balance in the Participant's Matching Account, shall be paid to the
Participant in a single lump sum as of the last day of the month in which the
Termination of Employment occurred, or as soon thereafter as administratively
feasible.

(a) The Participant's vested percentage shall be based on the number of
full years of employment with the Company since the later of (i) July
1, 1997, or (ii) the date the Participant was first employed by the
Company, and shall be determined from the following schedule:

FULL YEARS OF EMPLOYMENT VESTED PERCENTAGE

Less than 1 0%
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%

Notwithstanding the foregoing, the vested percentage shall be 100% if
the Participant's Termination of Employment occurs after a Change of
Control.

(b) The portion of the Participant's Matching Account that is not vested
will be forfeited and canceled on the date the Participant's
Termination of Employment occurs, and will not be reinstated if the
Participant is subsequently reemployed by the Company.

(c) If the Participant dies after his or her Termination of Employment but
before the benefit has been distributed, the remaining benefit to
which the Participant was entitled will be distributed as soon as
administratively feasible to the Beneficiary determined under Sec.
5.4.

SEC. 5.2 DISTRIBUTIONS PRIOR TO TERMINATION OF EMPLOYMENT The Participant
may elect on the election form for a Plan Year that the amount deferred into his
or her Deferral Account for that Plan Year, and Earnings Credits on that amount,
shall be paid in one to five annual installments, commencing with a calendar
year specified by the Participant, even though the Participant's Termination of
Employment has not yet occurred. The calendar year specified must commence at
least four years after the date the election is filed.
<PAGE>

(a) Each in-service distribution will be paid as of the Participant's
first normal payroll date occurring on or after January 1 of the
calendar year in which the installment is to be paid. No Earnings
Credits will be made on the amount distributed for the portion of
January preceding the payment date.

(b) The amount of each installment shall be equal to the amount credited
to the Deferral Account or sub-account being distributed at the time
the installment is to be paid divided by the number of installments
remaining to be paid. Installment payments shall cease when the
Participant's Deferral Account or sub-account has been reduced to
zero.

(c) Upon the Participant's Termination of Employment, all installment
payments shall cease, and the balance of the Participant's Deferral
Account shall be distributed pursuant to Sec. 5.1.

SEC. 5.3 DISTRIBUTION ON DEATH. Upon the death of a Participant while
employed by the Company, the Participant's Accounts shall be 100% vested, and
the Company shall pay to the Participant's Beneficiary or Beneficiaries an
amount equal to the entire balance of the Participant's Accounts. Such payment
shall be made in a single sum payment to the Participant's Beneficiary or
Beneficiaries as soon as administratively feasible following the last day of the
month in which the Participant's death occurred.

SEC. 5.4 BENEFICIARY DESIGNATION. Each Participant shall have the right, at
any time, to designate any person or persons as Beneficiary or Beneficiaries to
whom payments under this Plan shall be made in the event of the Participant's
death prior to complete distribution of the vested amount credited to the
Participant's Accounts. Each Participant shall have the right to change his or
her Beneficiary designation at any time. Each Beneficiary designation shall
become effective only when filed in writing with the Company during the
Participant's life on a form prescribed by the Company. If a Participant fails
to designate a Beneficiary as provided above, or if all designated Beneficiaries
predecease the Participant, then the Participant's Beneficiary shall be the
Participant's estate.

SEC. 5.5 DISTRIBUTIONS FOR UNFORESEEABLE EMERGENCY. Notwithstanding the
foregoing sections of this Article V, the Company in its sole discretion may
approve a request by a Participant for a withdrawal from the Participant's
Deferral Account due to an unforeseeable emergency. An "unforeseeable emergency"
is an unanticipated emergency that is caused by an event beyond the control of
the Participant and that would result in severe financial hardship to the
Participant if an early withdrawal is not permitted. Any such early withdrawal
approved by the Company may not exceed the amount necessary to meet the
emergency.
<PAGE>

SEC. 5.6 WITHHOLDING AND TAXES. The benefits payable under this Plan shall
be subject to the deduction of any federal, state, or local income taxes or
other taxes which are required to be withheld from such payments by applicable
laws and regulations. Any Social Security (FICA) taxes which must be withheld
prior to the distribution of benefits to the Participant shall be withheld from
the amounts deferred, or from the Participant's other compensation, as
determined by the Company. The Company provides no assurances or guarantees
regarding the tax treatment of amounts deferred under this Plan. Each
Participant is solely responsible for any applicable taxes, penalties or
interest.

SEC. 5.7 DISTRIBUTIONS FOLLOWING A CHANGE OF CONTROL. If a Change of
Control occurs, all deferrals under Sec. 4.1 and Matching Credits under Sec. 4.2
shall cease immediately, all Accounts of all Participants will become 100%
vested and will be revalued as of the last day of the month coinciding with or
immediately preceding the date the Change of Control occurred using procedures
similar to those provided in Sec. 4.3(e), and all of a Participant's Accounts
shall be paid to the Participant in a single lump sum payment as soon as
administratively feasible following the date the Change of Control occurred.

ARTICLE VI

ADMINISTRATION

SEC. 6.1 ADMINISTRATION BY THE COMPANY. The Company shall administer the
Plan, shall establish, adopt, or revise such rules and regulations as it may
deem necessary or advisable for the administration of the Plan, and shall have
discretionary authority to interpret the provisions of the Plan. The
interpretations of the Company shall be conclusive on all parties.

SEC. 6.2 CLAIMS PROCEDURE. A Participant or Beneficiary may make a claim
for Plan benefits within the time and in the manner described herein. Such claim
shall be made within 60 days after the claim arises by filing a written request
with the Company. The claim shall be determined by the Company within 90 days
after the receipt of the written claim (unless the Company extends the period
for up to an additional 90 days).

(a) Notice of the Company's decision shall be communicated to the claimant
in writing. If the claim is denied, the notice shall include the
specific reasons for the denial (including reference to pertinent Plan
provisions), a description of any additional material or information
necessary for the Company to reconsider the claim, the reasons for any
of such additional material or information, and an explanation of the
review procedure.
<PAGE>

(b) The claimant or a duly authorized representative may, within 60 days
after receiving such written notice, request the Company to review its
decision. The Company may afford the claimant a hearing and shall
afford the claimant the opportunity to review all pertinent documents
and submit issues and comments orally or in writing. The Company shall
render a review decision in writing within 60 days after receipt of
request for review (unless the Company extends the review period for
up to an additional 60 days). The review proceeding shall be conducted
in accordance with the rules and regulations adopted from time to time
by the Company.

ARTICLE VII

AMENDMENT AND TERMINATION

SEC. 7.1 AMENDMENT. The Plan may be amended in whole or in part at any time
for any reason by action of the Board of Directors of the Company, or by action
of any person to whom that authority has been delegated by the Board. No
amendment shall decrease the benefits under the Plan which have accrued prior to
the date of such amendment. An amendment may modify the investment index options
under Sec. 4.3 to be used to determine Earnings Credits following the adoption
of the amendment, but shall not change the Earnings Credits to be credited to
Accounts for periods prior to the date the amendment was adopted.

SEC. 7.2 TERMINATION OF PLAN. The Company, by action of its Board of
Directors, may terminate the Plan at any time. After such termination, no
employee of the Company shall become a Participant, and no further amounts shall
be credited pursuant to Sec. 4.1 or Sec. 4.2 to Accounts of Participants. At the
discretion of the Company, the amounts credited to the Accounts of Participants
may be either (i) distributed to Participants as soon as reasonably possible
after the date of termination or (ii) distributed in accordance with Article V.

ARTICLE VIII

MISCELLANEOUS

SEC. 8.1 BENEFITS MAY NOT BE ASSIGNED OR ALIENATED. Neither a Participant
nor any Beneficiary shall have the right to sell, assign, transfer, encumber or
otherwise convey any right to receive any payment hereunder. No part of the
amounts payable hereunder shall be subject to seizure or sequestration for the
payment of any debts or judgments owed by a Participant or any other person
(other than the Company). However, the Company may offset its obligations to the
Participant or the Participant's Beneficiary hereunder by any amounts the
Participant owes to the Company.
<PAGE>

SEC. 8.2 INCOMPETENCY. Every person receiving or claiming benefits under
this Plan shall be conclusively presumed to be mentally competent until the date
on which the Company receives a written notice in a form and manner acceptable
to the Company that such person is incompetent and that a guardian, conservator
or other person legally vested with the care of his or her estate has been
appointed. In such event, the Company may direct payments of benefits to such
guardian, conservator or other person legally vested with the care of the
person's estate and any such payments so made shall be a complete discharge of
the Company to the extent so made.

SEC. 8.3 NOTICES. Notices required by this Plan to be given to the Company
or a Participant shall be in writing and shall be considered to have been duly
given or served if personally delivered, or sent by first class, certified or
registered mail.

SEC. 8.4 SEVERABILITY. The invalidity or partial invalidity of any portion
of this Plan shall not invalidate the remainder thereof, and said remainder
shall remain in full force and effect.

SEC. 8.5 HEADINGS. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.

SEC. 8.6 CAPITALIZED DEFINITIONS. Capitalized terms used in the Plan shall
have their meaning as defined in the Plan unless the context clearly indicates
to the contrary.

SEC. 8.7 GENDER. Any references to the masculine gender include the
feminine and vice versa.

SEC. 8.8 USE OF COMPOUNDS OF WORD "HERE". Use of the words "hereof",
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.

SEC. 8.9 CONSTRUED AS A WHOLE. The provisions of the Plan shall be
construed as a whole in such manner as to carry out the provisions hereof and
shall not be construed separately without relation to the context.

<PAGE>

EXHIBIT 10AA.

February 19, 1997

Mark Knittel
1408 Paumier Court
Raleigh, NC 27615

Dear Mark,

I am pleased to offer you employment as a Vice President of Product Strategy,
and Business Development Architecture reporting to me, with base compensation at
an annualized rate of $160,000. You will be paid on a semi-monthly basis on the
15th and last day of the month. Your employment start date will be March 20,
1997.

Your incentive compensation will be targeted at a bonus rate of 30% of your base
salary, which equates to $48,000. Seventy percent of the target bonus will be
based on CNT's Corporate Success Sharing Program and 30% on accomplishments of
individual goals. For 1997, we will guarantee $24,000 of your total target
bonus. This $24,000 will be paid on a prorated monthly basis for the first year.
CNT also agrees to provide six months severance should the employment
relationship be terminated for non-performance.

CNT will also provide you with a signing bonus of $25,000 as an additional
incentive to make the transition to CNT. Should you decide to remain with your
current employer through April 30, 1997, until additional stock is vested, you
will forfeit the sign on bonus. We will pay this in two increments: the first 30
days after joining CNT; the second, at year end 1997.

I will recommend to the Board, at the start of employment, that you be awarded
an incentive stock option to purchase 70,000 shares of CNT common stock. If such
stock option is approved, the price per share would be the closing sale price
for the trading day immediately preceding the date of approval. This option
would vest in increments of 25% over four years with the first 25% vesting one
year from the date of grant and 25% each anniversary thereafter.

CNT will provide a relocation package which pays for the following:

- closing costs for the purchase of a new home and sale of an existing
home (the cost of points are not included).

- physical move of household goods.

- an apartment rental for 30-90 days.
<PAGE>

Enclosed is a summary of our employee benefits, which includes group medical,
dental, life, AD&D, and disability insurance. CNT also offers a 401(k) Salary
Savings Plan, a Success Sharing Bonus Plan, an Employee Stock Purchase Plan,
company paid holidays, personal time off, and other benefits. Your personal time
off will begin at the five year service level, equating to 20 days off. This
schedule increases each year for length of service according to the plan. Your
eligibility for the benefits listed above is subject to the terms of each plan.

In addition, enclosed is a copy of our Employment Agreement covering proprietary
information and non-disclosure covenants. Please review this document carefully
so that you are prepared to sign it on your first day of employment. Also, you
are required to complete Form I-9 (Employment Eligibility). On your first day of
employment, please have the appropriate documents that establish your employment
eligibility, per the attached list.

Mark, I look forward to you joining CNT, and the contributions you have to
offer.

Sincerely, Offer Accepted by: Mark Knittel

Thomas G. Hudson
President and CEO ---------------------------------

<PAGE>

EXHIBIT 11

COMPUTER NETWORK TECHNOLOGY CORPORATION

Statement Re: Computation of Net Income (Loss) Per Basic and Diluted Share
(in thousands, except per share data)

(Not Covered by Independent Auditors' Report)

<TABLE>
<CAPTION>
Weighted Average Per Share
Net Income (Loss) Shares Outstanding Amount
------------------ ------------------ -----------------
<S> <C> <C> <C>
1997:
Basic $(2,314) 22,702 $ (.10)
Dilutive effect of employee stock purchase
awards and options(1) - - -
------------------ ------------------ -----------------
Diluted $(2,314) 22,702 $ (.10)
================== ================== =================
1996:
Basic $1,360 23,241 $ .06
Dilutive effect of employee stock purchase
awards and options(1) - 316 -
------------------ ------------------ -----------------
Diluted $1,360 23,557 $ .06
================== ================== =================
1995:
Basic $4,023 22,675 $ .18
Dilutive effect of employee stock purchase
awards and options(1) - 768 (.01)
------------------ ------------------ -----------------
Diluted $4,023 23,443 $ .17
================== ================== =================
</TABLE>

(1) For the year ended December 31, 1997, employee stock options and shares
issuable under the employee stock purchase plan are not included in the
computation of diluted net income (loss) per share due to their
anti-dilutive effect. For the years ended December 31, 1996 and 1995,
outstanding employee stock options and shares issuable under the employee
stock purchase plan (as disclosed in the notes to the consolidated
financial statements incorporated by reference in this Form 10-K) are
included in the computation of diluted net income (loss) per share using
the treasury stock method.

<PAGE>

connecting

users to information

to growth markets

the web to corporate data

mainframes to open systems

storage devices to networks

COMPUTER NETWORK
TECHNOLOGY CORPORATION

1997 Annual Report

[LOGO OF CNT APPEARS HERE]
<PAGE>

CORPORATE PROFILE

Computer Network Technology Corporation (CNT) is a leading worldwide provider of
high-performance networking solutions that allow mainframe systems and open
systems environments to share data and information. The company was founded in
1983 to design, manufacture, market and service high-speed connectivity
technologies, and introduced the Channelink system in 1985.

Today, CNT offers customers a diverse mix of technologies for Web-to-host
access, high-speed communications, enterprise data access and creating server
and storage networking solutions. CNT products are at the core of many of the
world's largest data centers, helping blue chip companies, research facilities
and government agencies redesign their wide area network infrastructures and
reengineer their Web-to-host applications for maximum efficiency and
manageability. The company enhances the performance of its products through its
commitment to 100 percent customer satisfaction.

Based in Minneapolis, Minnesota, CNT's products and services are sold
worldwide to end users, system integrators and original equipment manufacturers
(OEMs) through a direct sales force and a network of authorized distributors. A
public corporation since 1985, CNT is listed on the Nasdaq National Market under
the symbol CMNT.

TABLE OF CONTENTS

Connecting to Growth Markets 2
Letter to Shareholders 4
CNT At-A-Glance 6
Connecting Storage Devices to Networks 8
Connecting the Web to Corporate Applications 10
Connecting to Customer Service 12
Selected Financial Data 14
Management's Discussion and Analysis
of Financial Condition and Results of Operations 15
Consolidated Financial Statements 21
Notes to Consolidated Financial Statements 25
Independent Auditors' Report,
Report of Management 33
Quarterly Financial Data 34
Investor Information 35
Corporate Information 36
Glossary of Terms Inside Back Cover
<PAGE>

FINANCIAL HIGHLIGHTS...........................................................
(in thousands, except per share data)

1997 1996
...............................................................................

FOR THE YEAR ENDED DECEMBER 31

Revenue $ 97,841 $ 97,109
Net income before special charges 619* 3,088*
Net income per share before special charges .03* .13*
Net income (loss) (2,314) 1,360
Net income (loss) per share (.10) .06

AT YEAR END
Total assets $ 85,487 $ 82,379
Shareholders' equity 55,607 64,161
Working capital 30,380 48,192

*Excludes special charges in 1997 of $4.9 million, or $.13 per share after tax,
associated with the acquisition of the Internet Solutions Division from Apertus
Technologies Inc. in October 1997, and subsequent integration charges; excludes
a charge in 1996 of $2.7 million, or $.07 per share after tax, for the write-
down of purchased technology.

Computer Network Technology

1
<PAGE>

2
Connecting to growth markets

We have refocused CNT's strategic direction and positioned the company to
address customers' needs by achieving leadership in more robust technology
markets. Our long-term goals are to provide effective business solutions in
these markets in an effort to achieve sustainable revenue growth and improved
returns to shareholders. To help CNT achieve these goals, we are addressing
dynamic markets:

Storage Area Networks (SANs) With vital corporate information dispersed over
many different servers and networks, SANs provide a high-performance
infrastructure to protect that information against loss and also make it easily
available to those who need it. By the year 2000, the SAN market is expected to
be nearly $1.2 billion according to Strategic Research Corp. (SRC), an industry
research firm.

Web-to-Host Providing rapid access to mainframe information is an escalating
requirement for corporations seeking Web-based connections to link corporate
data and applications with open systems. International Data Corporation (IDC),
an industry research firm, estimates this market to be more than $1 billion by
the year 2002.

We will grow by serving the increasing global need for Storage Area Networks
(SANs).

Businesses worldwide, including many CNT customers, now face a critical
need to make data accessible to users at all times because downtime causes
significant productivity losses and measurable costs. Millions of dollars in
annual downtime losses are not uncommon today because computer networks were not
designed for mission-critical applications such as mainframe data centers. For
this reason, a new kind of infrastructure is needed: one that provides network
availability, data accessibility, and manageability. The SAN is a high-speed
network that establishes a direct connection between multiple storage devices
and servers, thereby externalizing storage from the server and allowing
information to be shared among multiple `host' servers without affecting the
performance of the primary network. The SAN market segment is a natural
evolution of the channel networking market, encompassing both open systems and
mainframe environments.

Our new UltraNet product family with our enhanced FileSpeed software and
Channelink products are uniquely positioned to provide customers with
applications such as disk mirroring, data archiving and retrieval, backup and
restore, and data sharing

[ART APPEARS HERE]

Storage Area Networks
<PAGE>

Web-to-Host

[ART APPEARS HERE]

between different environments. The SAN is quickly becoming an industry standard
among server and storage vendors, and CNT has established itself as a
connectivity leader in this rapidly expanding market.

We will grow by serving the accelerating need for Web-to-Host connectivity.

Web-to-host integration is helping businesses leverage their huge
investments in mainframe systems by providing access to data and applications on
these systems in cost-effective and highly flexible ways. Extending the
enterprise to employees, customers and vendors via the Web enables businesses to
become more competitive, provide new products and services, and reach new
markets.

The CNT Application Re-engineering Environment (CARE) solution suite,
comprised of the Enterprise/View (formerly the Web Integrator),
Enterprise/Connect and Enterprise/Access products, is well positioned to play a
leading role in this evolving market. As corporations begin to re-engineer their
applications for the Web, an orderly progression of development takes place,
from establishing a communications infrastructure to extending and integrating
host-based business logic and data into new applications. With CARE, these
corporations can now come to one vendor, CNT, to provide the products and
service that meet their Web-to-host integration needs.

We will grow by increasing our share of the traditional channel networking
market.

CNT has long been a market leader in channel connectivity which had total
industry sales of approximately $189 million in 1996, according to IDC, an
industry research firm. Since l985, the Channelink family of intelligent
networking products has extended channel networking to unlimited distances
between host computers, and to local area networks (LANs), wide area networks
(WANs), peripherals, and workstations. Today as users look for effective ways to
preserve their investments in mainframe systems and peripherals, Channelink
provides a powerful, industry-leading tool for data center consolidation, data
center load balancing, and remote, high-speed digital printing and imaging.
CNT's leadership of the channel networking market also provides a strong base
for the evolution to a SAN environment.

Implications of this Strategy

During l998 the successful execution of this strategy should position CNT:

. to be a leading supplier in the rapidly-growing Storage Area Network (SAN)
and Web-to-host markets;

. to be the dominant vendor in the traditional channel networking market;

. to generate more revenue from products and services outside of the
traditional corporate data center with products for administering
distributed open systems and storage;

. to derive more revenue and earnings from the sale of higher-margined
software and professional services;

. to employ broader distribution channels, including OEM partnerships,
strategic alliances and arrangements with outsourcers, service providers,
value-added resellers (VARs), and systems integrators; and

. to achieve improved expense ratios, sustainable revenue growth and
consistent profitability resulting in improved shareholder value.

3
<PAGE>

CONNECTING WITH OUR SHAREHOLDERS

In l997 we set the stage for a new, stronger CNT that's more favorably
positioned to compete in new growth markets. This strategic refocus was
essential to strengthen CNT's potential to grow and deliver better financial
results and improved shareholder returns.

We enjoyed the first signs of CNT's accelerating business momentum in the
second half of 1997. Revenue grew 33 percent between the third quarter and the
record fourth quarter of 1997. The new UltraNet product family accounted for 14
percent of fourth quarter product revenues. Fourth quarter service revenues also
rose 27 percent from the third quarter. This growth had two sources: the
addition of the service business of the Internet Solutions Division of Apertus
Technologies Inc., which we acquired in October, and CNT's growing installed
base. Fourth quarter operating earnings per share rose 50 percent compared with
the third quarter.

In 1997 we had marginal revenue growth, reporting record revenues of $97.8
million, compared with $97.1 million in 1996. Excluding non-recurring charges,
1997 net income was approximately $619,000, or $.03 per share, compared with
$3.1 million, or $.13 per share a year ago. After the acquisition and
integration charges, the 1997 net loss totaled $2.3 million, or $.10 per share.

Fourth-quarter and year-end 1997 results reflected approximately $4.9
million, or $.13 per share, in non-recurring charges associated with the Apertus
acquisition and subsequent business integration.

CNT began 1998 with $10.8 million in cash and marketable securities.

Although our net results for 1997 were not satisfactory, we are very
encouraged by our improved business momentum and the important initiatives that
continue to support our growth.

New Strategy. We refocused our strategic direction to:

. concentrate on critical new opportunities in the rapidly growing markets of
Storage Area Networks (SANs) and Web-to-host integration, which are
substantially larger than our mature, traditional markets; and

. increase our share of the traditional channel networking and SNA gateway
markets.

New Products. New products accounted for more than 30 percent of our 1997
product revenue. Among our most important new releases are:

. the UltraNet product family, which supports SANs and enables high-speed
sharing and movement of data among diverse servers and data storage
systems. The UltraNet Storage Director was named a 1998 "Hot Product" by
Data Communications magazine.

. the FileSpeed software product, which provides high-speed data transfer
between open systems and enterprise environments.

. enhancements that expand Channelink's versatility in wide area networks
(WANs) including ATM, compression and disk mirroring (IBM and EMC).

. the Enterprise/View product suite, which provides cost-effective and secure
access to mainframe applications and data from Java-enabled Web browsers.

Computer Network Technology
<PAGE>

Investments and Acquisitions. To help support our new strategic direction, we
made several investments:

. the $11.4 million acquisition of the Internet Solutions Division from
Apertus Technologies Inc., which we expect to increase our market share in
the rapidly growing Web-to-host connectivity market. This acquisition,
along with ongoing quality and process improvements, improves our operating
efficiency and profitability and gives us a critical mass to be a more
aggressive player. We subsequently sold this division's Vision product line
for approximately $3.5 to $4 million.

. the acquisition of data movement technology for FileSpeed solutions, an
investment that is beginning to pay off in new business such as our OEM
contract with IBM.

. the purchase of more than 1.4 million shares of common stock for $6.7
million out of a planned 2 million share repurchase program.

New Customers and Partners. In 1997 we added more than 100 new accounts. We
continued to expand our distribution channels by entering into OEM agreements
with Bay Networks for our SNA gateway and Web browser technologies; Exabyte
Corp. for our UltraNet technologies; IBM for UltraNet and FileSpeed
technologies; and Hitachi Data Systems (HDS) for FileSpeed technologies. In
addition, our acquisition of the Internet Solutions Division significantly
expanded our business relationships with partners such as Lotus,
Hewlett-Packard, Sun Microsystems, Bluestone Software, and NetDynamics.

Management. Our senior management team strengthened in 1997, including the
addition of Patrick W. Gross to the board of directors, Greg Barnum as vice
president of finance and chief financial officer, Mark Knittel as vice president
of marketing and business development, and Martin Hahn as vice president and
general manager of the Internet Solutions Division.

Looking Forward. Our goals in 1998 are to successfully execute our strategic
plan, grow revenues and return the company to consistent profitability.

We are encouraged by the market's reception of our new UltraNet and CARE
solution product families. These new products, along with others planned for
l998, are designed to foster direct and OEM sales and boost 1998 revenue. We
will also benefit in 1998 from increased demand for our systems consulting
services that support complex networking and Internet solutions.

With the completed integration of the Brixton and Internet Solutions
Division, we expect to generate incremental revenues, realize significant
savings and improve profitability as we increase our presence in the gateway and
Web-to-host market.

We expect to complete installation of a new enterprise resource planning
system in 1998. This will give us a new information technology infrastructure to
handle growth into the next century.

Throughout 1998 we are seeking every opportunity to trim operating costs
as we grow revenues. Cash utilization should improve with close management of
inventories.

The elements for CNT's success are in place. Excellence in execution is
our focus. We are aggressively pursuing new opportunities in high-growth markets
with new products, new customers, OEM partners and strategic relationships. I
want to thank our outstanding employees, whose diligence and expertise embody
the revitalized CNT every day.

I believe our fourth quarter 1997 results are an indication of the good
revenue growth and steady profit improvement we hope to achieve for our patient
investors throughout 1998.

Sincerely,

/s/ Thomas G. Hudson

[PHOTO OF THOMAS G. HUDSON APPEARS HERE]

THOMAS G. HUDSON
President and Chief Executive Officer
March 23, 1998

Computer Network Technology
5
<PAGE>

MARKETS APPLICATIONS

Channel Networking Data Center Consolidation
Data Center Load Balancing
Remote, High-Speed Digital
Printing/Imaging

Storage Area Networks (SANs) Disk Mirroring

Disk mirroring avoids the serious threat
to business posed by the loss of data
[ART APPEARS HERE] between data system backups by
simultaneously creating up-to-the-minute
images of mission-critical data on
multiple backup storage disks. CNT
provides the highest level of
performance and reliability for
mainframe and open systems, supporting
all key vendor environments such as EMC,
IBM, and Hitachi Data Systems.

Data Sharing

CNT's UltraNet and FileSpeed solutions
give businesses the tools to access and
move data between and among dissimilar
storage and network environments. The
results: reduced costs, increased
productivity and improved management for
applications such as data warehousing
and data mining.

Backup and Restore

CNT's UltraNet solutions streamline an
enterprise's backup and restore
capabilities by introducing higher
storage system performance and better
usage of communications bandwidth. The
payoff: less system downtime, operating
savings, greater system availability and
flexibility.

Web-to-Host CARE (CNT Application Re-engineering
Environment)
[ART APPEARS HERE]
Access Host Applications

CNT's products provide gateways between
the Web and mainframes to cost-
effectively access corporate
information.

Extend Applications to Internal Users

CNT's products can help businesses
migrate to lower-cost Web browser
interfaces while still maintaining other
types of interfaces already in use.

Extend Interfaces to New External Users

CNT's products provide the rescreening
tools required to rejuvenate application
interfaces for new customers and
vendors.

Extend Applications to New Applications

CNT's products help companies extend and
leverage host-based business logic and
data into new applications such as
electronic (e-) commerce.

Computer Network Technology
<PAGE>

PRODUCTS SELECTED CUSTOMERS ALLIANCES
<S> <C> <C>

Channelink U.S. Bancorp EMC

FileSpeed Software Reliance Electric IBM

NationsBank Hitachi Data Systems

General Electric Exabyte

Sandia National Laboratories Clariion (Data General)

Bank of Montreal

National Westminster Bank (U.K.)

KLM Royal Dutch Airlines

UltraNet Storage Director (Netherlands)

UltraNet Storage Gateway RABO Bank (Netherlands)

UltraNet Storage Multiplexer

Enterprise/Access Boeing Sun Microsystems

Enterprise/View (formerly Ameritech Bay Networks

Web Integrator) Allina Health System Cap Gemini

Enterprise/Connect ReliaStar Financial Corp. BULL

APG/Canadian Defense Dept. Lotus

Dreyfus Bluestone Software

Fleet Mortgage HAHT

GTE NetDynamics

Kas Associatie (Netherlands) Active Software

</TABLE>

Computer Network Technology

7
<PAGE>

Today's businesses depend on the network to provide high-speed, reliable and
secure access to mission-critical stored information, whether it is centralized
or remote, from a variety of systems. CNT's UltraNet product family -- the
UltraNet Storage Director, the UltraNet Storage Gateway, and the UltraNet
Storage Multiplexer -- reduces information technology managers' resource expense
for storage management by connecting to any transport protocol on any platform,
using any operating system in any network. By providing high levels of
connectivity, performance, and manageability, the UltraNet product family
enables Storage Area Networks (SANs).

The SAN is a high-speed network that establishes a direct connection
between storage devices and servers, thereby externalizing storage from the
server and allowing information to be shared among multiple `host' servers
without impacting system performance or the primary network.

Storage Area Networks provide an infrastructure for a wide variety of
applications such as disk mirroring, backup and restore, archiving and
retrieval, and data sharing that solve widespread business problems such as data
warehousing and business resumption. CNT's UltraNet family supports these
applications by enabling external and centralized storage as well as remote
clustering.

The UltraNet product family is complemented by the existing Channelink
product line, and the two product lines can be combined in the same network.
CNT's FileSpeed software solution also works with both product lines to enable
high-speed data movement between mainframes and open systems.

By providing a SAN solution, CNT is leading the market in addressing vital
customer requirements for lower total cost of ownership for integrated networks,
more timely business recovery and cost-effective, shared access to information
across the entire enterprise.

[ART APPEARS HERE]

CONNECTING STORAGE DEVICES TO NETWORKS

Mark Sobotka of U.S. Bancorp is shown in the Computer Network Operations Center.
As the nation's 15th largest bank, U.S. Bancorp serves nearly 500,000 businesses
and 3.9 million retail customer households. Some of the applications supported
by CNT products include disk mirroring, backup and restore, and channel
extension.

Computer Network Technology
<PAGE>

[PHOTO OF MARK SOBOTKA APPEARS HERE]
Vice President and General Manager,
Technical Services, U.S. Bancorp
St. Paul, Minnesota

U. S. BANCORP

"When we consolidated operations during the recent merger, CNT UltraNet products
allowed us to transfer customer data from Portland, Oregon, to St. Paul,
Minnesota, quickly and reliably with less disruption to customer service than
traditional tape courier methods employed in past consolidations. They also
allow data to be transferred to and from our headquarters and two remote
distribution centers that support more than 1,200 bank branches located in 17
Midwest and Western states."

Computer Network Technology

9
<PAGE>

To keep their competitive edge, businesses today understand the importance of
providing information to anyone who needs it -- customers, employees, business
partners -- regardless of location. These organizations understand the strategic
benefits of Web-to-host integration in helping them leverage their enormous
investments in existing mainframe systems.

As businesses begin to re-engineer their applications for the Web, an
orderly progression ensues. First, a communications infrastructure is
established to provide access to mainframe applications. Second, existing
applications are extended to current users or employees. Third, existing
applications are extended to new employees and customers, and other external
users. Finally, mainframe-based business logic and data are extended and
integrated into new applications that enable more efficient and targeted uses
of mission-critical information.

The CNT Application Re-engineering Environment (CARE) solution offers a
comprehensive set of products that takes an organization through each level of
the Web-to-host integration process. Enterprise/Connect provides the
interoperability between Web browsers and mainframe applications and data
through a channel-attached enterprise gateway. The Enterprise/View (formerly the
Web Integrator) is a Java-based emulator that provides familiar "green screen"
access to mainframe applications without reprogramming. The Enterprise/View Pro
(also part of the Web Integrator) is a re-screening tool that creates an instant
graphical user interface (GUI) on a Web browser for mainframe applications. The
Enterprise/Access is a powerful development tool and production environment for
extending existing applications to new environments.

The CARE solution is an industry first in supporting all the steps in the
evolution of a successful Web-to-host integration. With CARE, CNT helps its
customers compete better, lower costs and develop new markets while leveraging
their mainframe investments.

[ART APPEARS HERE]

CONNECTING THE WEB TO CORPORATE APPLICATIONS

Roberto Zanatta of Cap Gemini provides integrated solutions for large telecom
companies in Europe by using CNT's Enterprise/Access technology. Cap Gemini
Group, with revenues of $4.2 billion, is the largest European computer services
and consulting company, employing more than 30,000 people in 18 European
countries, the United States and the Far East.

Computer Network Technology
<PAGE>

[PHOTO OF ROBERTO ZANATTA APPEARS HERE]
Skill Group Manager
Cap Gemini
Rome, Italy

CAP GEMINI

"When one of our customers undertook a multimillion dollar initiative to deliver
new products and services, we looked for a scalable Web-to-host integration
solution. We selected CNT's technology because it was reliable, it was available
on a number of different platforms, and could support thousands of users rather
than hundreds. CNT's Enterprise/Access won hands down because of the ease with
which it can be implemented, and because it is much simpler to manage and
maintain."

Computer Network Technology

11
<PAGE>

Customer satisfaction is the number one priority at CNT. This commitment affects
the way we conduct business, from the development of new products and
applications to customer service and quality assurance programs.

CNT's comprehensive support program uses remote diagnostic tools to support
customer networks. This unique ability to dial into dedicated networks worldwide
and perform on-line troubleshooting enables service teams to provide customers
with seven-days-a-week, 24-hours-a-day technical support. As a result, CNT's
customers get their problems resolved faster -- often without one of our trained
specialists having to visit their sites -- thereby reducing downtime. Customers
also depend on CNT to diagnose problems that are often identified as other
vendors' hardware and communications issues.

CNT service teams provide pre-sales support by analyzing customer
requirements, developing solutions, and offering project management guidance
during product implementation and installation. Secure records are maintained of
all changes made to each customer's network, so that the network can be restored
more quickly in the event of a failure.

With ever more complex networks handling mission-critical functions, there
is increasing customer demand for even broader services, especially
pre-installation network planning and design consultation. CNT also provides
more than 20 standard instructional courses on our product lines, as well as
customized courses geared to customers' specific networking issues.

From the customer's pre-purchase contact to post-installation
reconfigurations, CNT's value-added services are focused on helping customers
achieve maximum long-term productivity from their networking investments.

[ARTWORK APPEARS HERE]

CONNECTING TO CUSTOMER SERVICE

Jerry Theus of Reliance Electric uses CNT's FileSpeed solution to migrate the
company's computer network from mainframe to open systems. A leading
manufacturer of large industrial motors and systems controls, the billion-dollar
company has more than 40 manufacturing plants and hundreds of sales and service
facilities located in 10 countries worldwide.

Computer Network Technology
<PAGE>

[PHOTO APPEARS HERE]

JERRY THEUS
Manager, Central Network Support
Reliance Electric, A Rockwell
Automation Business, Cleveland, Ohio

RELIANCE ELECTRIC

"CNT's customer service is highly qualified and responsive. Because they can
diagnose a situation and provide corrective action remotely, we are able to call
a technical specialist directly and get an immediate, personal response. This
means we experience very little downtime, which is critical to our Information
Technology operation. When we recently purchased additional products to upgrade
our network, we selected CNT because their service was so effective."

Computer Network Technology

13
<PAGE>

SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(in thousands, except per share data)

Years Ended December 31 1997 1996 1995 1994 1993
........................................................................................................................
<S> <C> <C> <C> <C> <C>
Revenue $ 97,841 $ 97,109 $ 78,837 $ 79,542 $ 55,687
Income (loss) from operations (5,293) (48) 4,927 (3,049) 8,059
Income (loss) before income taxes (3,893) 2,024 6,535 (1,789) 7,901
Net income (loss) (2,314) 1,360 4,023 (4,714) 5,001
Net income (loss) per share:
Basic: $ (.10) $ .06 $ .18 $ (.21) $ .27
Diluted: $ (.10) $ .06 $ .17 $ (.21) $ .26

SELECTED CONSOLIDATED BALANCE SHEET DATA
(in thousands, except employee data)

December 31 1997 1996 1995 1994 1993
........................................................................................................................
<S> <C> <C> <C> <C> <C>
Current assets $ 59,559 $ 66,410 $ 61,525 $ 53,062 $ 53,506
Current liabilities 29,179 18,218 17,243 17,675 17,103
........... ............ ............ ............ ...........
Working capital $ 30,380 $ 48,192 $ 44,282 $ 35,387 $ 36,403
........... ............ ............ ............ ...........
........... ............ ............ ............ ...........
Total assets $ 85,487 $ 82,379 $ 79,134 $ 73,149 $ 66,101
Long-term obligations $ 701 $ - $ - $ 163 $ 448
Shareholders' equity $ 55,607 $ 64,161 $ 60,506 $ 53,979 $ 48,550
Number of full-time employees 625 493 408 338 326

</TABLE>

Computer Network Technology
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

ACQUISITION

On October 24, 1997, the Company acquired substantially all of the assets,
including in-process research and development, of the Internet Solutions
Division (ISD) of Apertus Technologies Inc., (Apertus) a provider of
Internet-to-mainframe connectivity products and Web-access-to-legacy
applications. The purchase price totaled $16.4 million, including a cash payment
of $11.4 million, and assumption of $5.0 million of liabilities and related
acquisition costs. The amount related to in-process research and development of
$2.7 million was charged to expense in 1997 as the underlying research and
development projects had not yet reached technological feasibility. Subsequent
to the acquisition, the Company recorded a charge of $2.2 million for costs
incurred to integrate existing businesses, including accruals for severance,
facility closure, relocation of employees and other productivity initiatives.
The Company believes that it will be able to provide its customers with new and
enhanced products by combining the best elements of its existing technology with
new technology acquired from ISD. The Company anticipates that the acquisition
will increase its engineering and sales capabilities and expand its customer
base in the market for enterprise connectivity between Internet and intranet
users and IBM hosts. The Company also believes that the productivity initiatives
it has undertaken by combining ISD with its existing businesses will create
synergy and increase economies of scale.

RESULTS OF OPERATIONS

As an aid to understanding the Company's operating results, the following
table sets forth certain information derived from the Consolidated Statements of
Operations of the Company. (All amounts are expressed as a percentage of total
revenue except gross profit which is expressed as a percentage of the related
revenue.)

Percentage of Revenue 1997 1996 1995
................................................................................

REVENUE

Product sales 70.3% 76.4% 77.2%
Service fees 29.7 23.6 22.8
...... ...... ......
Total revenue 100.0 100.0 100.0
...... ...... ......

GROSS PROFIT

Product sales 67.3 65.2 70.8
Service fees 33.9 24.7 17.7
...... ...... ......
Total gross profit 57.4 55.6 58.7
...... ...... ......

OPERATING EXPENSES

Sales and marketing 34.5 33.2 29.9
Engineering and development 18.2 14.4 16.1
General and administrative 5.1 5.3 6.4
Write-down of
purchased technology - 2.8 -
Purchased in-process research
and development 2.8 - -
Integration charges 2.2 - -
...... ...... ......
Total operating expenses 62.8 55.7 52.4
...... ...... ......
Income (loss) from operations (5.4) (0.1) 6.3
Other income, net 1.4 2.2 2.0
...... ...... ......
Income (loss) before
income taxes (4.0) 2.1 8.3
Benefit (provision) for
income taxes 1.6 (0.7) (3.2)
...... ...... ......
Net income (loss) (2.4)% 1.4% 5.1%
...... ...... ......
...... ...... ......

Computer Network Technology

15
<PAGE>

REVENUE

The Company's revenue primarily includes the licensing, sale and support of
products for high-performance enterprise networking and connectivity, enterprise
access and enterprise information management and recovery that integrates
traditional legacy data processing systems with open systems to create
enterprise-wide networks.

Revenue from product sales totaled $68.8 million in 1997, a reduction of
approximately 7 percent when compared to the $74.2 million of product revenue
recorded in 1996. The decrease in 1997 product sales is primarily attributable
to a reduction in revenue from the Company's OEM partners of $8.2 million when
compared to 1996. During 1997, the Company recognized revenue from OEM products
sales to IBM, Bay Networks, Sun Microsystems and others of $4.8 million,
compared to revenue from OEM products sales of $13 million for the same period
of 1996. The reduction in 1997 OEM revenue was due to IBM's cancellation of an
order for the Company's channel connectivity controller. The decrease in 1997
product revenue resulting from lower sales to the Company's OEM partners was
partially offset by sales of the Company's new ATM and SRDF products and initial
sales of the Company's new UltraNet Storage Director products. In addition, the
sale of products acquired from ISD accounted for $2.3 million of new revenue in
1997.

Revenue from product sales totaled $74.2 million in 1996, an increase of
approximately 22 percent when compared to the $60.9 million of product revenue
recorded in 1995. The increase in 1996 product sales was primarily attributable
to OEM sales of the Company's channel connectivity controller to IBM and initial
sales of the Company's new integrated gateway product. During 1996, revenue
recognized from OEM product sales to IBM, Sun Microsystems and others increased
approximately $10.6 million when compared to 1995 OEM product sales.

Revenue from service fees, which primarily reflects maintenance, network
reconfiguration and professional services from the Company's technical support
personnel, increased in 1997 and 1996 by 27 percent and 28 percent,
respectively. The year to year growth in service fees is primarily due to the
growing base of customers using the Company's enterprise-wide networking
products and service fees resulting from the acquisition of ISD which accounted
for $1.3 million of revenue in 1997.

During 1997 and 1996, international revenue increased 8 percent and 7
percent over the prior year, respectively, primarily due to increases in service
and product sales to international distributors. The Company derived 28 percent,
26 percent and 30 percent of its revenue from international customers in 1997,
1996 and 1995, respectively. The percentage of revenue derived from
international customers for any given period is subject to fluctuation because
of the variable timing of sizable orders from customers both internationally and
in North America.

No single customer accounted for more than 10 percent of the Company's
revenue in 1997. Sales to one customer and its multiple divisions accounted for
18 percent of the Company's total revenue in 1996.

During 1997, the Company announced its new Storage Area Network (SAN)
strategy and related UltraNet family of products which provides for high-speed
connectivity between storage devices and servers from anywhere anytime. Initial
shipments of the Company's UltraNet Storage Director products accounted for $5.5
million of revenue in the last two quarters of 1997. In addition, the Company's
new UltraNet Storage Gateway and Multiplexer products are expected to be
generally available and provide incremental revenue in 1998. The Company
believes the UltraNet family of products positions the Company for growth in a
new market segment.

Integration of the ISD business acquired from Apertus with the Company's
existing business in the Gateway and Web-to-host growth markets should increase
the Company's presence in these markets and allow the Company to provide
customers with a new and improved set of products and services based on the best
elements of the existing CNT and ISD technologies.

In addition, the Company obtained a number of new OEM contracts in 1997 and
early 1998 including Bay

Computer Network Technology
<PAGE>

Networks, Exabyte and IBM, which should provide additional revenue in future
periods. The OEM agreement with IBM should result in increased sales of the
Company's UltraNet and FileSpeed products.

The Company believes these new products and relationships should result in
increased demand for its products in both domestic and international markets.
The Company believes that it can increase revenue by continuing to acquire and
develop new products and services and by continuing to identify new applications
and markets for its technology, including the sale of these products through
OEMs, VARS, and other outbound technology initiatives.

The Company expects 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 the Company in any given
period will continue to be affected by the receipt and fulfillment of sizable
new orders from OEMs and others.

SPECIAL ITEMS

During 1997, the Company recorded pre-tax charges of $2.7 million for
in-process research and development associated with the acquisition of ISD and
$2.2 million for productivity initiatives subsequent to the acquisition to
integrate existing businesses.

In 1996, the Company recorded a $2.7 million pre-tax charge for the
write-down of purchased technology due to changing market conditions and
evolving customer requirements for SNA, Internet and open systems gateway
products.

During 1995, the Company recorded a $2.5 million pre-tax charge related to
its management reorganization, which was included in the consolidated statement
of operations as follows: sales and marketing: $.2 million; general and
administrative: $.8 million; engineering and development: $1.5 million,
including $1.1 million to record an obligation on the part of the Company to
repurchase its common stock. Engineering and development was increased in 1997
by $.1 million and was reduced in 1996 by $.8 million to reflect changes in the
amount accrued for this obligation (see note 7 to the consolidated financial
statements).

GROSS PROFIT

Gross profit margin from product sales in 1997 was 67 percent, as compared
to 65 percent in 1996 and 71 percent in 1995. The increase in gross profit
margins from product sales in 1997 when compared to 1996 and the decrease in
gross profit margins from product sales in 1996 when compared to 1995 is
primarily due to the high level of 1996 lower margin OEM sales of the Company's
channel connectivity controller to IBM. The gross profit margins generated from
the sale of products acquired from ISD are consistent with the gross margins
from the sale of the Company's existing Web and Gateway products. Actual gross
profit margins on product sales in 1998 will depend on a number of factors,
including the mix of products, market acceptance of the Company's new products,
the relative amount of products sold through indirect distribution sources and
the level of continuing price competition.

Gross profit margins from services in 1997, 1996 and 1995 were 34 percent,
25 percent and 18 percent, respectively. The improvement in gross margins from
services in each of the last three years is primarily attributable to economies
of scale resulting from the steadily increasing base of customers contracting
for services. In addition, gross profit margins from services generated by ISD
have historically been higher than the Company's service margins. The Company
believes that any improvements resulting from economies of scale in 1998 will be
offset by additional investments the Company expects to make in its service
business to support new product introductions, including the Company's new
UltraNet family of products.

OPERATING EXPENSES

Excluding the impact of special items, sales and marketing expenses
increased in 1997 and 1996 by 5 percent and 37 percent, respectively, when
compared to the prior year. The increase in sales and marketing expense in 1997
when compared to 1996 is primarily due to marketing expenses associated with the
launch of the Company's new UltraNet family of products and investments the

Computer Network Technology

17
<PAGE>

Company has made in its marketing organization to identify new market
opportunities for the Company's products. The sales and marketing organization
acquired from ISD also contributed to the increase. The increase in sales and
marketing expense in 1996 when compared to 1995 is primarily due to the
expansion of the Company's sales organization and an increase in commission
expense due to the higher level of sales. Improving the productivity of the
Company's investments in sales and marketing and controlling sales and marketing
expense as a percentage of revenue represent key objectives for the Company.

The Company has identified the Web-to-host and Storage Area Networking
markets as strategic growth markets and believes that its future success is
highly dependent on its ability to successfully compete and sell products in
these markets. The sales and marketing employees acquired from ISD have
extensive experience and knowledge in the gateway and Web-to-host markets. The
acquisition of ISD has provided the Company with an opportunity to have a
dedicated and experienced sales organization focused on the sale of products in
each of the Web-to-host and Storage Area Networking markets. The Company
believes this dedication of resource will improve its sales productivity, allow
it to compete more effectively in the Web-to-host and Storage Area Networking
markets and should result in increased revenue in future periods.

Engineering and development expense primarily relates to costs associated
with development of new products and enhancements to existing products.
Excluding the impact of special items, engineering and development expenses
increased in 1997 and 1996 by 20 percent and 32 percent, respectively, when
compared to the prior year. The increase for both periods is primarily
attributable to costs associated with continued development of new products,
including the Company's new UltraNet Storage Director that generated $5.5
million of product revenue in 1997, and its new UltraNet Storage Gateway and
Multiplexer products that are expected to add new incremental revenues in 1998.
The engineering resource acquired from ISD also contributed to the 1997
increase. The Company anticipates that the integration of the ISD engineering
team into its existing engineering organization should improve productivity in
future periods.

As a percentage of total revenue, engineering and development expense
excluding special items increased to 18 percent of total revenue in 1997,
compared to approximately 15 percent of total revenue in 1996 and 1995. The
increase in engineering and development as a percentage of total revenue in 1997
is primarily due to the expense associated with the development and launch of
the Company's UltraNet family of products. The Company anticipates investing
approximately 15 percent to 20 percent of total revenue on engineering and
development in 1998, which includes investments in current and future products.
The Company believes a sustained high level of investment in engineering and
development is essential to customer satisfaction and future revenue.

General and administrative expenses decreased in 1997 by 4 percent when
compared to 1996. The decrease is attributable to incremental costs incurred in
1996 for employee severance, and costs associated with the management
reorganization that occurred at the end of 1995. General and administrative
expenses excluding special items increased in 1996 by 23 percent when compared
to 1995, primarily due to higher costs for director and executive compensation,
including costs to recruit and retain a Chief Executive Officer and employee
severance. As a percentage of total revenue, general and administrative expenses
excluding special items were approximately 5 percent of total revenue each year
during the 1995 to 1997 period.

Interest income decreased by $.3 million or 16 percent in 1997 when
compared to 1996 due to lower balances of cash and marketable securities
resulting from the Company's common stock repurchase program and acquisition of
ISD. Interest income increased by $.2 million or 15 percent in 1996 when
compared to 1995 because cash flow from operations in 1995 and 1996 resulted in
higher available balances of cash and marketable securities for investment.

In 1997, 1996 and 1995, the Company recorded a provision for income taxes
at an effective rate of 41 percent, 33 percent and 38 percent, respectively. The
fluctuations in

Computer Network Technology
<PAGE>

the Company's effective income tax rate for 1997 and 1996 is primarily due to
changes in the amount of non-deductible foreign losses and the large
non-recurring charges recorded each year. At December 31, 1997, the Company has
recorded deferred tax assets of $6.1 million. Based on an assessment of the
Company's taxable earnings history and prospective future taxable income,
management has determined it to be more likely than not that its net deferred
tax assets will be realized in future periods. The Company may be required to
provide a valuation allowance for this asset in the future if it does not
generate sufficient taxable income as planned. The Internal Revenue Service has
concluded its examination of the Company's United States income tax returns for
the years 1993 through 1995. No additional provision for income taxes resulted
from the examination.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through the private
and public sales of equity securities, bank borrowings under lines of credit,
capital equipment leases and cash generated by operations.

Cash, cash equivalents and marketable securities at December 31, 1997
totaled $10.8 million, a decrease of $24.2 million during 1997. The decrease is
primarily attributable to the cash paid to acquire ISD of $11.4 million and
repurchases of the Company's common stock totaling $6.7 million. Additional uses
of cash included the purchase of property and equipment, field support spares
and technology assets of $10.9 million. The use of cash noted above was
partially offset by cash provided by operations of $1.8 million, proceeds from
the sale of the Vision product line of $2.0 million, proceeds from the exercise
of stock options and issuance of stock under the employee stock purchase plan of
$.7 million and other of $.3 million.

The Company's computer systems and those of third parties with whom it does
business will be affected when the year changes to 2000, commonly known as the
"year 2000 problem." The Company is currently conducting an internal study to
determine the full scope and related costs of modifying the products it sells to
ensure proper processing of transactions into and beyond the year 2000. The
Company expects that it will begin to incur costs in 1998 to address the year
2000 issues identified during the internal study. Although the costs to modify
its products are not expected to be significant, failure to achieve timely
completion of required modifications or conversions or failure of third parties
with whom the Company has relationships to be year 2000 compliant could have a
material adverse impact on the operations and financial condition of the
Company. In addition, the Company has determined that certain of its internal
business systems are not year 2000 compliant. The Company anticipates that it
will spend up to $3 million in 1998 for new capital equipment and software to
acquire and implement a new business system that meets the processing
requirements of year 2000.

In addition, other expenditures for capital equipment and field support
spares have been, and will likely continue to be, a significant capital
requirement. Also, the Company intends to continue to repurchase shares of its
common stock on the open market from time to time pursuant to the previously
authorized common stock repurchase program.

The Company believes that its current balances of cash, cash equivalents
and marketable securities, when combined with anticipated cash flow from
operations, will be adequate to fund its operating plans and meet its currently
anticipated aggregate capital requirements, at least through 1998.

The Company believes that inflation has not had a material impact on its
operations or liquidity to date.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," effective in 1998, establishes standards of disclosure
and financial statement display for reporting total comprehensive income and the
individual components thereof.

In addition, Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," effective
in 1998, establishes new standards for determining reportable segments and
disclosure of information regarding each such segment.

Management has not yet determined the impact of

Computer Network Technology

19
<PAGE>

these new pronouncements on the Company's financial disclosures.

FORWARD-LOOKING STATEMENTS

Certain statements in this annual report (which are summarized below) and
in the Company's press releases and oral statements made by or with the approval
of the Company's executive officers constitute or will constitute
"forward-looking statements." All forward-looking statements involve risks and
uncertainties, and actual results may be materially different. The following
factors are among those that could cause the Company's actual results to differ
materially from those set forth in any such forward-looking statements:

. The expected benefits of the ISD acquisition, including the development of
new products and services, improvements in engineering, production and
sales capabilities and increased market presence, may be impacted by
unforeseen technological barriers, unanticipated integration expenses
(including higher than expected commitments of management, engineering,
financing and marketing resources) and customer acceptance.

. Future OEM revenue is dependent on the successful completion of engineering
activities and the level of customer demand.

. The introduction of new products and the receipt of new product revenue is
dependent upon the timely completion of required engineering activities,
obtaining any required licenses and the product offerings of competitors.

. The results of successfully implementing the Company's new market strategy
could be impacted by its ability to timely respond to customer demands
through the acquisition or development of new technologies and the actual
level and timing of the growth of the identified markets.

. The expected benefits of maintaining two sales organizations to address
each of the Web-to-host and Storage Area Networks markets may depend upon
the successful introduction of new products as planned by the Company and
the actions of existing and future competitors.

. The amounts spent on engineering and development in l998, and what
percentage this will be of total l998 revenue, may be impacted by the need
to enhance or modify products due to changing market requirements, the
success of current product programs, the need to meet unanticipated product
opportunities and the amount of total revenue received in l998.

. The cost of achieving Year 2000 compliance, including the level of l998
expenditures so related, will depend upon the actual amount of engineering
and expense required to modify the Company's products and to implement its
new business system. Successful installation of the Company's new
enterprise planning system in l998 will depend upon obtaining the
appropriate level of resources and management commitment.

. Whether the Company enjoys increased demand for its systems consulting
services in l998 will depend upon the successful introduction and market
acceptance of new service offerings.

. Whether the Company has sufficient cash resources to fund its operating
plans and capital requirements through at least l998 may depend upon the
Company's ability to generate revenue as presently expected, unexpected
expenses and the need for additional funds to react to changes in the
marketplace.

Other factors that could cause the results of the Company to differ
materially than those contained in any such forward-looking statements include
general economic conditions, costs and availability of components and
fluctuations in exchange rates. In addition, the markets for the Company's
products are characterized by significant competition and the Company's results
may be adversely affected by the actions of existing and future competitors,
including the development of new technologies, the introduction of new products
and the reduction of prices by such competitors to gain or retain market share.
The Company assumes no obligation to publicly release the results of any
revision or updates to these forward-looking statements to reflect future events
or unanticipated occurrences.

Computer Network Technology
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Years Ended December 31 1997 1996 1995
................................................................................

REVENUE

Product sales $ 68,787 $ 74,170 $ 60,890
Service fees 29,054 22,939 17,947
......... ......... .........
Total revenue 97,841 97,109 78,837
......... ......... .........

COST OF REVENUE

Cost of product sales 22,472 25,843 17,799
Cost of service fees 19,219 17,269 14,773
......... ......... .........
Total cost of revenue 41,691 43,112 32,572
......... ......... .........
GROSS PROFIT 56,150 53,997 46,265
......... ......... .........

OPERATING EXPENSES
Sales and marketing 33,717 32,192 23,586
Engineering and development 17,848 13,996 12,718
General and administrative 4,944 5,137 5,034
Write-down of purchased technology - 2,720 -
Purchased in-process research and development 2,750 - -
Integration charges 2,184 - -
......... ......... .........
Total operating expenses 61,443 54,045 41,338
......... ......... .........
INCOME (LOSS) FROM OPERATIONS (5,293) (48) 4,927
......... ......... .........

OTHER INCOME (EXPENSE)

Interest income 1,553 1,859 1,617
Interest expense (57) (46) (60)
Other, net (96) 259 51
......... ......... .........
Other income, net 1,400 2,072 1,608
......... ......... .........

INCOME (LOSS) BEFORE INCOME TAXES (3,893) 2,024 6,535

PROVISION (BENEFIT) FOR INCOME TAXES (1,579) 664 2,512
......... ......... .........

NET INCOME (LOSS) $ (2,314) $ 1,360 $ 4,023
......... ......... .........
......... ......... .........

BASIC

Net income (loss) per share $ (.10) $ .06 $ .18
......... ......... .........
......... ......... .........
Shares 22,702 23,241 22,675
......... ......... .........
......... ......... .........

DILUTED

Net income (loss) per share $ (.10) $ .06 $ .17
......... ......... .........
......... ......... .........
Shares 22,702 23,557 23,443
......... ......... .........
......... ......... .........

See accompanying notes to consolidated financial statements.

Computer Network Technology
<PAGE>

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

December 31, 1997 December 31, 1996
.........................................................................................................................
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,790 $ 4,847
Marketable securities 6,034 30,218
Receivables, net 32,752 18,189
Inventories 12,322 9,909
Deferred tax asset 2,284 2,425
Other current assets 1,377 822
................. .................
Total current assets 59,559 66,410
................. .................
Property and equipment, net 14,501 9,655
Field support spares, net 3,589 3,836
Deferred tax asset 3,823 1,052
Goodwill and other intangibles, net 3,530 775
Other assets 485 651
................. .................
$ 85,487 $ 82,379
................. .................
................. .................

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,656 $ 3,833
Accrued liabilities 12,135 9,064
Deferred revenue 9,207 5,321
Current installments of obligations under capital lease 181 -
................. .................
Total current liabilities 29,179 18,218
................. .................
Obligations under capital lease, less current installments 701 -
................. .................
Total liabilities 29,880 18,218
................. .................

Shareholders' equity:
Preferred stock, authorized 1,000 shares; none issued and outstanding - -
Common stock, $.01 par value; authorized 30,000 shares, issued and
outstanding 22,195 at December 31, 1997 and 23,408 at December 31, 1996 222 234
Additional paid-in capital 54,404 60,372
Retained earnings 1,412 3,726
Cumulative translation adjustment (431) (171)
................. .................
Total shareholders' equity 55,607 64,161
................. .................
$ 85,487 $ 82,379
................. .................
................. .................

</TABLE>

See accompanying notes to consolidated financial statements.

Computer Network Technology
<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)

Additional Retained Cumulative
Common Stock Paid-in Earnings Translation
Shares Amount Capital (Deficit) Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
....................................................................................................................................

BALANCE, DECEMBER 31, 1994 22,360 $ 224 $ 55,801 $ (1,657) $ (389) $ 53,979
....................................................................................................................................

Shares issued pursuant to the
employee stock purchase plan and
exercise of stock options and
warrants, net of 86 shares redeemed 569 6 1,446 - - 1,452

Tax benefits related to employee
stock option transactions - - 904 - - 904

Change in cumulative
translation adjustment - - - - 149 149

Net income - - - 4,023 - 4,023
....................................................................................................................................

BALANCE, DECEMBER 31, 1995 22,929 $ 230 $ 58,151 $ 2,366 $ (240) $ 60,507
....................................................................................................................................

Shares issued pursuant to the
employee stock purchase plan
and exercise of stock options,
net of 22 shares redeemed 479 4 1,929 - - 1,933

Tax benefits related to employee
stock option transactions - - 292 - - 292

Change in cumulative
translation adjustment - - - - 69 69

Net income - - - 1,360 - 1,360
....................................................................................................................................

BALANCE, DECEMBER 31, 1996 23,408 $ 234 $ 60,372 $ 3,726 $ (171) $ 64,161
....................................................................................................................................

Shares issued pursuant to the
employee stock purchase plan
and exercise of stock options 192 2 706 - - 708

Repurchase of common stock (1,405) (14) (6,674) - - (6,688)

Change in cumulative
translation adjustment - - - - (260) (260)

Net loss - - - (2,314) - (2,314)
....................................................................................................................................

BALANCE, DECEMBER 31, 1997 22,195 $ 222 $ 54,404 $ 1,412 $ (431) $ 55,607
.......... ............. ............ ............ ............ ..........

.......... ............. ............ ............ ............ ..........

....................................................................................................................................

</TABLE>

See accompanying notes to consolidated financial statements.

Computer Network Technology

23
<PAGE>

CONSOLIDATED STATEMENTS OF CASHFLOWS
(in thousands)

Years ended December 31 1997 1996 1995
....................................................................................................................................

OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (2,314) $ 1,360 $ 4,023
Depreciation and amortization 7,384 7,960 7,418
Tax benefits related to employee stock option transactions -- 292 904
Write-down of purchased technology -- 2,720 --
Purchase of in-process research and development 2,750 -- --
Change in deferred taxes (2,630) (2,303) (386)

CHANGES IN OPERATING ASSETS AND LIABILITIES

Receivables (8,337) 356 5,006
Inventories (1,493) 83 (2,474)
Other current assets (468) 655 (389)
Accounts payable 3,008 1,255 415
Accrued liabilities 1,871 1,653 (801)
Deferred revenue 2,025 (1,932) (209)
........ ........ ........
Cash provided by operating activities 1,796 12,099 13,507
........ ........ ........

INVESTING ACTIVITIES

Additions to property and equipment (7,565) (4,922) (3,299)
Additions to field support spares (1,797) (2,220) (1,563)
Additions to purchased technology (1,550) -- --
Acquisition of Apertus Internet Solutions Division (11,412) -- --
Proceeds from sale of Vision product line 2,000 -- --
Purchase of marketable securities (12,190) (50,671) (31,640)
Redemption of marketable securities 36,374 42,902 11,677
Other 434 (303) (106)

........ ........ ........
Cash provided by (used in) investing activities 4,294 (15,214) (24,931)
........ ........ ........

FINANCING ACTIVITIES

Payments for repurchases of common stock (6,688) -- --
Proceeds from issuance of common stock 708 1,933 1,452
Repayments of obligations under capital lease (107) -- --
........ ........ ........
Cash provided by (used in) financing activities (6,087) 1,933 1,452
........ ........ ........
Effects of exchange rate changes (60) 69 76
........ ........ ........
Net decrease in cash and cash equivalents (57) (1,113) (9,896)

Cash and cash equivalents - beginning of year 4,847 5,960 15,856
........ ........ ........
Cash and cash equivalents - end of year $ 4,790 $ 4,847 $ 5,960
........ ........ ........
........ ........ ........

</TABLE>

See accompanying notes to consolidated financial statements.

Computer Network Technology
<PAGE>

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

December 31, 1997, 1996 and 1995

(in thousands, except per share data)

1/ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Computer Network Technology Corporation and its subsidiaries (together, the
Company). All significant intercompany balances and transactions are eliminated
in consolidation.

REVENUE RECOGNITION

Revenue from product sales is generally recognized by the Company upon
shipment or signed customer acceptance depending on the terms of the contract or
purchase order. Revenue from software license agreements with original equipment
manufacturers (OEMs) for redistribution to the OEM's customers is recognized
when the OEM reports delivery of the software to their customer. Service fees
are recognized as revenue when earned, which is generally on a straight-line
basis over the contracted service period.

Deferred revenue primarily consists of the unearned portion of service
agreements billed in advance and amounts billed to customers prior to
recognition by the Company of the applicable revenue.

CASH EQUIVALENTS

The Company considers investments in highly liquid debt securities having
an initial maturity of three months or less to be cash equivalents.

MARKETABLE SECURITIES

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). The Company's marketable securities are classified
as available-for-sale and are carried at fair value in accordance with SFAS No.
115. If significant, unrealized gains and losses on available-for-sale
securities are excluded from earnings and are reported as a separate component
of shareholders' equity.

INVENTORIES

Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.

PROPERTY AND EQUIPMENT

Property and equipment owned by the Company is carried at cost and
depreciated using the straight-line method over three to eight years. Leasehold
improvements are amortized using the straight-line method over the terms of the
respective leases. Expenditures for repairs and maintenance are charged to
expense as incurred.

FIELD SUPPORT SPARES

Field support spares are carried at cost and depreciated using the
straight-line method over three years.

Computer Network Technology

25
<PAGE>

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of purchase price over the fair value of
net assets acquired and is amortized using the straight-line method over periods
ranging from seven to 20 years. Purchased technology and other identifiable
intangible assets are carried at cost and amortized using the units of
production or straight-line methods over periods ranging from three to seven
years.

The Company assesses the potential impairment of its goodwill and other
intangible assets based on anticipated cash flows from operations. No impairment
charges were recorded in 1997. The Company recorded an impairment charge in 1996
of $2,720 because it determined that certain purchased technology assets were
impaired due to changing market conditions and evolving customer requirements
for SNA, Internet and open systems gateway products.

ALLOWANCE FOR RETURNS AND CREDIT LOSSES

An allowance is made for potential returns and uncollectible accounts
based on current and historical experience. The allowance for returns and credit
losses at December 31, 1997 and 1996 was $2,979 and $899, respectively.

ENGINEERING AND DEVELOPMENT

The Company accounts for engineering and development costs in accordance
with Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" (SFAS No.
86). The Company has expensed all engineering and development costs to date as
costs which meet the capitalization criteria outlined in SFAS No. 86 have not
been significant.

FOREIGN CURRENCY

The financial statements of the Company's international subsidiaries have
been translated into U.S. dollars in accordance with the provisions of Statement
of Financial Accounting Standards No. 52 "Foreign Currency Translation" (SFAS
No. 52). Under SFAS No. 52, assets and liabilities are translated into U.S.
dollars at year-end exchange rates, while equity accounts are translated at
historical rates. Income and expenses are translated at the average exchange
rates during the year. The resulting translation adjustments are recorded as a
separate component of shareholders' equity.

Foreign currency transaction gains and losses are included in determining
net income (loss). The Company recorded foreign currency transaction losses in
1997 and 1996 of $45 and $99, respectively. The Company recorded a foreign
currency transaction gain in 1995 of $77.

INCOME TAXES

The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.

STOCK COMPENSATION PLANS

The Company accounts for its stock based compensation awards in accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB No. 25) and provides the footnote disclosures required by
Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation" (SFAS No. 123).

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the
current year presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

Computer Network Technology
<PAGE>

2/ MARKETABLE SECURITIES

The Company's investments in marketable securities are summarized as
follows:

December 31 1997 1996
- -------------------------------------------------------------------
Corporate debt securities $ 5,034 $ 22,810
U.S. government and agency securities 1,000 7,408
--------- -----------
$ 6,034 $ 30,218
========= ===========

The amount of gross unrealized gains and losses with respect to the
Company's investments in marketable securities at December 31, 1997 and 1996
were not significant. The Company realized no significant gains or losses from
the sale of marketable securities during the three year period ended December
31, 1997. Proceeds from the sale of marketable securities during 1997, 1996, and
1995 were $26,252, $23,042, and $3,519, respectively. At December 31, 1997,
investments in marketable securities included $2,984 with contractual maturities
of one year or less and $3,050 with contractual maturities of from one to three
years.

3/ ACQUISITION

Effective October 24, 1997, the Company acquired substantially all of the
assets (including in-process research and development) and assumed certain
liabilities of the Internet Solutions Division (ISD) of Apertus Technologies
Inc., a provider of Internet-to-mainframe connectivity products and Web access
to legacy applications. The purchase price totaled $16,429, including a cash
payment of $11,412 and assumption of $5,017 of liabilities and related
acquisition costs. The acquisition was accounted for as a purchase and,
accordingly, the net assets acquired were recorded at their fair values at
October 24, 1997, the effective date of the acquisition. The purchase price was
allocated as follows:

Current assets $ 10,488
Property and equipment 1,000
Other assets 672
Identifiable intangibles and goodwill 1,519
In-process research and development 2,750
Current liabilities (5,017)
---------
Cash paid $ 11,412
=========

The amount related to in-process research and development as determined by
a third party appraisal of $2,750 was charged to expense in 1997 as the
underlying research and development projects had not yet reached technological
feasibility.

The Company's consolidated financial statements include the results of ISD
since October 24, 1997. The following table presents the consolidated results of
operations of the Company for 1997 and 1996 on an unaudited pro forma basis as
if the acquisition took place at the beginning of each year:

Unaudited Pro Forma
1997 1996
- ---------------------------------------------------------
Total revenue $117,000 $127,000
Net loss $ (9,882) $(11,900)
Net loss per basic and diluted share $ (.44) $ (.51)

The unaudited pro forma results of operations are for comparative purposes
only and do not necessarily reflect the results that would have been recorded
had the acquisitions occurred at the beginning of the periods presented or the
results which might occur in the future.

4/ INTEGRATION ACTIVITIES

Subsequent to the acquisition of ISD in 1997, the Company decided to
consolidate certain operations and recorded a charge of $2,184 for costs
incurred to integrate existing businesses, including accruals for severance,
facility closures, relocation of employees and other productivity initiatives.
At December 31, 1997, a significant portion of the accrued liability for
integration activities remained unpaid. The Company currently anticipates that
the remaining liability will be paid prior to the end of 1998.

In December 1997, the Company sold the assets and technologies relating to
the Vision line of products acquired from ISD for $2 million in cash, plus
additional payments ranging from $1.5 to $2 million through March 2001,
depending upon the Vision product line achieving a defined future revenue
target. The sale did not result in recognition of any gain or loss by the
Company.

Computer Network Technology

27
<PAGE>

5/ COMPONENTS OF SELECTED BALANCE SHEET ACCOUNTS

December 31 1997 1996
- ---------------------------------------------------------
INVENTORIES
Components and subassemblies $ 6,572 $ 3,769
Work in process 1,657 2,324
Finished goods 4,093 3,816
--------- ---------
$ 12,322 $ 9,909
========= =========
PROPERTY AND EQUIPMENT
Machinery and equipment $ 17,882 $ 12,972
Office and data
processing equipment 14,221 9,960
Furniture and fixtures 1,432 1,258
Leasehold improvements 2,096 1,886
--------- ---------
35,631 26,076

Less accumulated depreciation
and amortization 21,130 16,421
--------- ---------
$ 14,501 $ 9,655
========= =========
FIELD SUPPORT SPARES
Field support spares $ 11,985 $ 10,491
Less accumulated depreciation 8,396 6,655
--------- ---------
$ 3,589 $ 3,836
========= =========
GOODWILL AND
OTHER INTANGIBLES
Purchased technology $ 2,250 $ 4,764
Goodwill 1,085 866
Identifiable intangibles 600 -
--------- ---------
3,935 5,630

Less accumulated amortization
and impairment charges 405 4,855
--------- ---------
$ 3,530 $ 775
========= =========
ACCRUED LIABILITIES
Compensation $ 5,955 $ 5,197
Income taxes 1,950 2,020
Integration activities 1,769 -
Other 2,461 1,847
--------- ---------
$ 12,135 $ 9,064
========= =========

6/ LEASES

The Company leases all office and manufacturing space and certain
equipment under noncancelable capital and operating leases.

Future minimum lease payments, excluding executory costs such as real
estate taxes, insurance and maintenance expense, by year and in the aggregate
are as follows:

Minimum Lease Commitments
Year Ending December 31 Capital Operating
- ------------------------------------------------------------
1998 $ 226 $ 3,572
1999 226 3,028
2000 226 1,607
2001 226 1,386
2002 96 722
Thereafter - 1,325
--------- ---------
Total minimum lease payments 1,000 11,640

Less minimum sublease income - 1,477
--------- ---------
Net minimum lease payments 1,000 $ 10,163
=========
Less amount representing
interest at a rate of 5.69% 118
---------
Present value of minimum
capital lease payments 882

Less current installments 181
---------
Obligations under capital lease,
less current installments $ 701
=========

Rent expense under noncancelable operating leases, exclusive of executory
costs, for 1997, 1996, and 1995, was $2,765, $2,202 and $2,332, respectively.

7/ SHAREHOLDERS' EQUITY

COMMON EQUITY PUT OPTION

In connection with a severance agreement entered into with a former
officer and director in 1995, the Company agreed to repurchase up to 280 shares
of its common stock on the last trading day of calendar year 1997 for a price of
$8.50 per share. During 1996, the former officer and director sold 183 common
shares on the open market which were subject to the repurchase obligation. The
Company's remaining obligation was satisfied in early 1998 when 97 shares of its
common stock were repurchased from the former officer and director for $828.

Engineering and development expense was increased in 1997 and 1995 by $146
and $1,120, respectively, to record the Company's initial obligation under this
agreement and decreases in the market price of its common stock. Engineering and
development expense was decreased in 1996 by $779 to reflect termination of the
Company's repurchase obligation with respect to the 183 common shares discussed
above and an increase in

Computer Network Technology
<PAGE>

the market price of its common stock.

COMMON STOCK REPURCHASE

On March 10, 1997 the Company's board of directors authorized the
repurchase of up to 2,000 shares of the Company's common stock. As of December
31, 1997, the Company had repurchased 1,405 shares of its common stock pursuant
to this authorization for $6,688.

STOCK OPTIONS

The Company's 1992 Stock Award Plan (the Award Plan) provides for the
grant of stock options and performance units to officers, other employees,
consultants, and independent contractors as determined by the compensation
committee of the board of directors. The Award Plan also provides for automatic
stock option grants to nonemployee directors of 50 shares upon their initial
election or appointment to the board of directors, and 20 shares each year to
nonemployee directors who are elected, re-elected, or are serving an unexpired
term as a director at any annual meeting of shareholders. A maximum of 5,400
shares of common stock are issuable under the terms of the Award Plan.

All stock options granted under the Award Plan have an exercise price
equal to fair market value on the date of grant, vest and become exerciseable
over individually defined periods, and expire ten years from the date of grant.
Performance units entitle participants to payments of cash, stock or a
combination thereof and are based upon the achievement of specified performance
targets as determined by the compensation committee. As of December 31, 1997, no
performance units have been granted under the terms of the Award Plan.

A summary of the status of the Company's outstanding stock options and
related changes for each of the years in the three year period ended December
31, 1997 is presented below:

1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise

Options Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
Outstanding at
beginning of year 3,368 $ 6.19 2,778 $ 6.28 2,262 $ 5.08
Granted 1,689 4.85 1,483 5.36 1,329 7.43
Reissued 310 4.94 - - - -
Exercised (28) 3.80 (444) 3.38 (457) 3.16
Canceled (1,018) 6.91 (449) 7.10 (356) 6.49
------- ------- -------
Outstanding at
end of year 4,321 $ 5.42 3,368 $ 6.19 2,778 $ 6.28
======= ======= =======
Weighted-average
fair value of
options granted
during the year $ 2.77 $ 3.48 $ 4.16

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable

Weighted-
Average
Range of Remaining Weighted- Weighted-
Exercise Number Contractual Average Number Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.50-4.99 1,888 8.82 $ 4.51 491 $ 4.42
5.00-7.99 2,263 7.92 5.88 1,100 6.15
8.00-11.13 170 7.39 9.83 116 9.86
----- -----
4,321 1,707
===== =====
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN

The 1992 Employee Stock Purchase Plan (the Purchase Plan) allows eligible
employees an opportunity to purchase an aggregate of 500 shares of the Company's
common stock at a price per share equal to 85 percent of the lesser of the fair
market value of the Company's common stock at the beginning or the end of each
six month purchase period. Under the terms of the Purchase Plan, no participant
may acquire more than five shares of the Company's common stock or more than
$2.5 in aggregate fair market value of common stock (as defined) during any six
month purchase period. Common shares sold to employees under the Purchase Plan
in 1997, 1996, and 1995 were 164, 57, and 83, respectively.

The fair value of each purchase right granted in 1997, 1996, and 1995 was
$1.66, $2.06, and $1.81, respectively.

Computer Network Technology

29
<PAGE>

FAIR VALUE ASSUMPTIONS

In determining the compensation cost of stock option grants and shares
sold to employees under the employee stock purchase plan, as specified by SFAS
No. 123, the fair value of each award has been estimated on the date of grant
using the Black-Scholes option pricing model. The weighted average assumptions
used in these calculations are summarized below:

1997 1996 1995
- ----------------------------------------------------------
Risk free interest rate 6.42% 6.58% 6.24%
Expected life -- years 8.14 8.14 8.14
Expected volatility 39.3% 39.3% 39.4%

STOCK COMPENSATION

The Company has elected to continue to account for its plans in accordance
with APB No. 25. Accordingly, no compensation cost has been recognized in the
Company's financial statements for stock compensation awards. Had compensation
cost for the Company's stock-based compensation plans been recognized consistent
with the fair value method of SFAS No. 123, the Company's net income (loss) and
net income (loss) per basic and diluted share would have been reduced to the pro
forma amounts indicated below:

1997 1996 1995
- --------------------------------------------------------
NET INCOME (LOSS)
As reported $(2,314) $ 1,360 $ 4,023
Pro forma $(3,826) $ (704) $ 3,093

NET INCOME (LOSS)
PER SHARE
As reported
Basic $ (.10) $ .06 $ .18
Diluted $ (.10) $ .06 $ .17
Pro forma
Basic $ (.17) $ (.03) $ .14
Diluted $ (.17) $ (.03) $ .13

The pro forma disclosures presented above do not reflect the full impact
of stock based compensation on the Company's reported results under the
recognition provisions of SFAS No. 123 because compensation expense is reflected
over the vesting period of the award and compensation expense for awards granted
prior to January 1, 1995 are not considered.

8/ NET INCOME (LOSS) PER SHARE

During 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128)
which the Company adopted as of December 31, 1997. Under SFAS No. 128, basic net
income (loss) per share is computed based on the weighted average number of
common shares outstanding, while diluted net income (loss) per share is computed
based on the weighted average number of common shares outstanding plus potential
dilutive shares of common stock. Potential dilutive shares of common stock
include stock options which have been granted to employees and directors and
awards under the employee stock purchase plan. SFAS No. 128 also requires
restatement of net income (loss) per share amounts for all periods presented.

The components of net income (loss) per basic and diluted share are as
follows:

Weighted
Average
Net Income Shares Per Share
(Loss) Outstanding Amount
- ---------------------------------------------------------
1997
Basic $ (2,314) 22,702 $ (.10)
Dilutive effect of
employee stock
purchase awards
and options - - -
---------- --------- ----------
Diluted $ (2,314) 22,702 $ (.10)
========== ========= ==========
1996
Basic $ 1,360 23,241 $ .06
Dilutive effect of
employee stock
purchase awards
and options - 316 -
---------- --------- ----------
Diluted $ 1,360 23,557 $ .06
========== ========= ==========
1995
Basic $ 4,023 22,675 $ .18
Dilutive effect of
employee stock
purchase awards
and options - 768 (.01)
---------- --------- ----------
Diluted $ 4,023 23,443 $ .17
========== ========= ==========

Employee stock purchase awards and options for 4,346,678 and 392 common
shares were excluded from the computation of diluted net income (loss) per share
in 1997, 1996, and 1995, respectively, because their effect was anti-dilutive.

Computer Network Technology
<PAGE>

9/ INCOME TAXES

The components of income (loss) before income taxes and income tax expense
(benefit) for each of the years in the three-year period ended December 31, 1997
consists of the following:

1997 1996 1995
.....................................................................
INCOME (LOSS) BEFORE
INCOME TAXES
U.S. $ (3,517) $ 2,396 $ 7,399
Foreign (376) (372) (864)
.......... .......... ..........
Total $ (3,893) $ 2,024 $ 6,535
.......... .......... ..........
.......... .......... ..........

INCOME TAX PROVISION
Current
U.S. $ (592) $ 1,753 $ 2,014
Foreign 119 75 243
State (170) 376 428
.......... .......... ..........
Total current (643) 2,204 2,685
.......... .......... ..........

Deferred
U.S. (741) (1,285) (195)
State (195) (255) 22
.......... .......... ..........
Total deferred (936) (1,540) (173)
.......... .......... ..........
Total income tax
expense (benefit) $ (1,579) $ 664 $ 2,512
.......... .......... ..........
.......... .......... ..........

The reconciliation of the statutory federal tax rate and the effective tax
rate for each of the years in the three year period ended December 31, 1997 is
as follows:

1997 1996 1995
...................................
Statutory tax rate (34.0)% 34.0% 34.0%
Increase (decrease) in
taxes resulting from:
State taxes, net of
federal tax benefit (6.2) 4.0 4.6
Foreign sales corporation (6.7) (13.7) (7.1)
Reduction in foreign net
operating loss carryforwards - 38.6 -
Change in valuation allowance 5.5 (31.3) 8.1
Other .8 1.2 (1.2)
.......... ......... ..........
Total (40.6)% 32.8% 38.4%
.......... ......... ..........
.......... ......... ..........

The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets and (liabilities) as of December
31, 1997 and 1996 is as follows:

December 31 1997 1996
......................................................................
DEFERRED TAX ASSETS
Property and equipment $ 878 $ 1,108
Inventory 1,483 1,126
Reserves for bad debts and sales returns 686 310
Accrued compensation 480 778
Foreign net operating loss carry forwards 410 194
Federal and state tax credits 501 193
Purchased in-process research
and development 1,128 -
Integration activities 493 -
Other 458 88
.......... ..........
Total gross deferred tax assets 6,517 3,797
Valuation allowance (410) (194)
.......... ..........
Net deferred tax assets 6,107 3,603
.......... ..........

DEFERRED TAX LIABILITIES
Purchased technology - (55)
Other - (71)
Total gross deferred tax liabilities - (126)
.......... ..........
Net deferred tax assets $ 6,107 $ 3,477
.......... ..........
.......... ..........

During 1997 and 1995, the Company's valuation allowance increased by $216
and $526, respectively, due to the nonrecognition of the tax benefit associated
with the loss from foreign operations. During 1996, the Company's valuation
allowance was reduced by $633 due to a decrease in the Company's available
foreign net operating loss carryforwards.

The Company has assessed its taxable earnings history and prospective
future taxable income. Based on this assessment, management has determined that
it is more likely than not that its net deferred tax assets will be realized in
future periods. The Company may be required to provide a valuation allowance for
this asset in the future if it does not generate sufficient taxable income as
planned.

10/ SUCCESS SHARING
BONUS PLAN

The Company's Success Sharing Bonus Plan (the Plan) provides a formula for
determination of cash bonus payments to eligible employees based on a defined
percentage of a participant's qualifying base compensation multiplied by the CNT
Performance Factor (CPF). The CPF is derived from a matrix formulated by the
board of directors with axes consisting of defined levels of revenue

Computer Network Technology

31
<PAGE>

growth and pre-tax profit.

The success sharing bonus expense for 1997, 1996, and 1995 was $43, $582,
and $325, respectively.

11/ 401(K) AND DEFERRED
COMPENSATION PLANS

The Company has a 401(k) salary savings plan which covers substantially
all of its employees. The Company matches 50 percent of a participant's annual
plan contributions up to an annual maximum per participant of $1 which vests
over a four year period.

The Company has also established an executive deferred compensation plan
for selected key employees which allows participants to defer a substantial
portion of their compensation each year. The Company matches 20 percent of a
participant's annual plan contributions up to an annual maximum per participant
of $10. Matching contributions vest over a four year period from the later of
July 1, 1997 or the participant's date of hire. In addition, the Company
provides participants with an annual earnings credit based on the investment
indexes selected by the participant prior to the start of each plan year.

The Company's expense under the 401(k) and deferred compensation plans for
1997 was $380. The Company incurred no expense under these plans prior to 1997.

12/ DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL
INSTRUMENTS

The following methods and assumptions were used to estimate the fair
values of financial instruments:

Cash And Cash Equivalents And Marketable Securities

The carrying amount approximates fair value because of the short maturity of
those instruments.

Common Equity Put Option

The carrying value of the common equity put option (see note 7) was equal to
the difference between the aggregate exercise price of the option and the
current market value for the underlying shares. The Company believes the
carrying value of the common equity put option approximated its fair value.

13/ NONCASH FINANCING AND
INVESTING ACTIVITIES AND
SUPPLEMENTAL CASH FLOW
INFORMATION

Cash payments for interest expense in 1997, 1996, and 1995 were $57, $46,
and $60, respectively.

Cash payments for income taxes, net of refunds received in 1997 and 1995
were $986 and $5,306, respectively. Tax refunds received, net of payments, in
1996 were $304.

During 1997, the Company entered into a capital lease obligation for
equipment valued at $989.

14/ FINANCIAL INFORMATION
BY GEOGRAPHIC AREA AND
MAJOR CUSTOMERS

The Company's revenue, income (loss) from operations, and total assets,
summarized by geographic area is as follows:

1997 1996 1995
.....................................................................
REVENUE

United States
North America $ 70,644 $ 71,888 $ 55,245
European export 11,026 8,491 8,693
Pacific Rim export 6,855 7,156 5,849
Other 1,877 1,716 1,368
........... .......... ...........
Total United States 90,402 89,251 71,155
European subsidiaries 9,603 10,292 11,363
Eliminations (2,164) (2,434) (3,681)
........... .......... ...........
Total $ 97,841 $ 97,109 $ 78,837
........... .......... ...........
........... .......... ...........

INCOME (LOSS) FROM

OPERATIONS
United States $ (5,075) $ 425 $ 5,605
European subsidiaries (201) (473) (912)
Eliminations (17) - 234
........... .......... ...........
Total $ (5,293) $ (48) $ 4,927
........... .......... ...........
........... .......... ...........

TOTAL ASSETS
United States $ 82,395 $ 81,385 $ 77,963
European subsidiaries 7,323 6,984 7,124
Eliminations (4,231) (5,990) (5,953)
........... .......... ...........
Total $ 85,487 $ 82,379 $ 79,134
........... .......... ...........
........... .......... ...........

No single customer accounted for more than 10 percent of the Company's
total revenue in 1997 or 1995. Sales to one customer accounted for 18 percent of
the Company's total revenue in 1996.

Computer Network Technology
<PAGE>

INDEPENDENT
AUDITORS' REPORT ..............................................................

................................................................................

We have audited the accompanying consolidated balance sheets of Computer
Network Technology Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Computer
Network Technology Corporation and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.

/s/ KPMG Peat Marwick LLP

KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
January 27, 1998

REPORT OF
MANAGEMENT ....................................................................

................................................................................

The accompanying consolidated financial statements, including the notes
thereto, and other financial information presented in the Annual Report were
prepared by management, which is responsible for their integrity and
objectivity. The financial statements have been prepared in accordance with
generally accepted accounting principles and include amounts that are based upon
our best estimates and judgments.

Computer Network Technology Corporation maintains an effective system of
internal accounting control. We believe this system provides reasonable
assurance that transactions are executed in accordance with management
authorization and are appropriately recorded in order to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to adequately safeguard, verify, and maintain accountability of assets. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal control should not exceed the benefits derived.

KPMG Peat Marwick LLP, independent certified public accountants, is
retained to audit the Company's financial statements. Their accompanying report
is based on audits conducted in accordance with generally accepted auditing
standards. The audits include a review of the internal accounting control
structure to gain a basic understanding of the accounting system in order to
design an effective and efficient audit approach and not for the purpose of
providing assurance on the system of internal control.

The Audit Committee of the Board of Directors is composed of three outside
directors and is responsible for recommending the independent accounting firm to
be retained for the coming year, subject to shareholder approval. The Audit
Committee meets periodically and privately with the independent accountants, as
well as with management, to review accounting, auditing, internal accounting
controls, and financial reporting matters.

/s/ Gregory T. Barnum

GREGORY T. BARNUM
Vice President of Finance, Chief Financial Officer, and Secretary

/s/ Thomas G. Hudson

THOMAS G. HUDSON
President and Chief Executive Officer

Computer Network Technology

33
<PAGE>

QUARTERLY FINANCIAL DATA (UNAUDITED) ..........................................

<TABLE>
<CAPTION>
(in thousands, except per share data)
Year ended December 31 First Quarter Second Quarter Third Quarter Fourth Quarter*
....................................................................................................................................

<S> <C> <C> <C> <C>
1997
Revenue $ 21,747 $ 20,696 $ 23,810 $ 31,588
Gross profit 12,667 11,736 13,725 18,022
Income (loss) from operations 171 (1,769) 206 (3,901)
Net income (loss) 377 (858) 373 (2,206)
Net income (loss) per share:
Basic .02 (.04) .02 (.10)
Diluted .02 (.04) .02 (.10)

1996
Revenue $ 22,357 $ 25,546 $ 23,976 $ 25,230
Gross profit 12,302 14,043 13,689 13,963
Income (loss) from operations (378) 1,278 1,055 (2,003)
Net income (loss) 19 1,181 1,076 (916)
Net income (loss) per share:
Basic .00 .05 .05 (.04)
Diluted .00 .05 .05 (.04)
</TABLE>

* The 1997 fourth quarter includes pre-tax charges of $2.7 million associated
with the acquisition of the Internet Solutions Division from Apertus
Technologies Inc. for in-process research and development and $2.2 million of
subsequent integration charges. The 1996 fourth quarter includes a $2.7
million pre-tax charge attributable to the write-down of purchased
technology.

Computer Network Technology
<PAGE>

INVESTOR INFORMATION

Principal Outside Counsel
Faegre & Benson LLP
Minneapolis, Minnesota

Independent Auditors
KPMG Peat Marwick LLP
Minneapolis, Minnesota

Transfer Agent

Shareholder inquiries relating to shareholder records, stock transfer, change of
ownership or change of address should be directed to the company's transfer
agent:

Chase Mellon Shareholder Services L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
(800) 288-9541

Form 10-K

A copy of our annual report on Form 10-K, filed with the Securities and Exchange
Commission, will be furnished free of charge to any CNT shareholder upon either
telephone request to (612) 797-6111, e-mail request to
[email protected], or written request to:

Investor Relations
Computer Network Technology Corporation
605 North Highway 169
Minneapolis, Minnesota 55441

Information on CNT is also available through the World Wide Web at
http://www.cnt.com.

Investor Inquiries

Shareholders, securities analysts, portfolio managers and others in the
investment community seeking information about CNT should contact Investor
Relations at (612) 797-6111 or by e-mail at [email protected].

Annual Meeting

Shareholders, employees and friends are invited to attend CNT's annual meeting
on Tuesday, May 19, 1998 at 10:00 a.m. at the Marquette Hotel in the IDS Center,
50th Floor, 710 Marquette Avenue, Minneapolis, Minnesota.

Price Range of the Company's Common Stock

The following table sets forth the range of high, low and closing sales prices
and volume for the Company's common stock (NASDAQ: CMNT), as reported on the
Nasdaq Stock Market.

High Low Closing Volume
(in thousands)
................................................................................
1997
First Quarter $ 7.00 $ 4.87 $ 5.37 7,180
Second Quarter 5.75 3.87 4.50 7,543
Third Quarter 6.12 3.37 5.50 11,383
Fourth Quarter 5.62 3.37 3.50 7,682

1996

First Quarter $ 5.87 $ 4.00 $ 5.62 7,723
Second Quarter 10.50 5.25 7.12 15,221
Third Quarter 8.00 4.75 5.75 5,713
Fourth Quarter 6.75 4.87 5.00 8,966

As of March 23, 1998, there were 1,100 shareholders of record. The Company
estimates that an additional 9,000 shareholders own stock held for their
accounts at brokerage firms and financial institutions.

Dividends

The Company has never paid cash dividends on any of its securities. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.

Computer Network Technology

35
<PAGE>

CORPORATE INFORMATION

BOARD OF DIRECTORS

John A. Rollwagen (1) (2)
Chairman of the Board

Mr. Rollwagen has been a director since June 1993 and chairman of the board
since December 1995. He is a private investor and business advisor and also acts
as a venture partner with St. Paul Venture Capital. In 1993, he served as U.S.
Department of Commerce deputy secretary-designate. Between 1981 and 1993, Mr.
Rollwagen was chairman and chief executive officer of Cray Research, Inc.

Thomas G. Hudson

Mr. Hudson has served as CNT's president and chief executive officer since June
1996 and as a director since August 1996. Prior to joining CNT, Mr. Hudson was
senior vice president of McGraw Hill Companies, general manager of that
company's F.W. Dodge Division and senior vice president of Corporate
Development. Between 1968 and 1993, Mr. Hudson served in various management
positions at IBM Corporation, most recently as vice president and general
manager of the Services Sector Division.

Patrick W. Gross

Mr. Gross joined CNT's board of directors in 1997. He co-founded American
Management Systems, Inc. (AMS) in 1970 and serves as chairman of the Executive
Committee and principal executive officer of that company. He also serves as
chairman of Baker & Taylor Holdings, Inc., a major distributor of books, videos
and software. He previously served on the staff of the U.S. Secretary of Defense
in the Office of Systems Analysis.

Erwin A. Kelen (1) (2)

Mr. Kelen has been a director since June 1988. A private investor, he is
president of Kelen Ventures and a partner of Camir Investments. Between 1984 and
1990, he was president and chief executive officer of DataMyte Corporation, a
wholly-owned subsidiary of Allen Bradley Co.

Lawrence Perlman (1) (2)

Mr. Perlman has been a director since June 1988. He is chairman and chief
executive officer of Ceridian Corporation and has held that position for more
than five years.

(1) Audit Committee
(2) Compensation Committee

EXECUTIVE OFFICERS

Thomas G. Hudson
President and Chief Executive Officer

Gregory T. Barnum
Vice President of Finance,
Chief Financial Officer and Secretary

Jeffrey A. Bertelsen
Corporate Controller and
Treasurer

Richard E. Carlson
Vice President of Manufacturing

William C. Collette
Vice President of Engineering

Thomas G. Hudson
Vice President of Worldwide Sales (Acting)

Peter Dixon
Vice President of Worldwide Distribution

Martin G. Hahn
Vice President and General Manager
Internet Solutions Division

Mark R. Knittel
Vice President of Marketing and
Business Development

Kristine E. Ochu
Vice President of Human Resources

Julie C. Quintal
Vice President of Customer Support

Computer Network Technology
<PAGE>

GLOSSARY

ATM (Asynchronous Transfer Mode) - A high-speed
communications technology that transfers data, voice
and video information carried in fixed-sized cells.

Channel - A channel is an interface through which
mainframe computers transmit and receive information.

Channel Extension - Connection of mainframes to other mainframes, storage
devices, or peripheral devices over local area or wide area networks.

DS-1, DS-3 (Digital Signal levels 1 and 3) - Telephony
terms describing the 1.544 megabits per second and 44.7 megabits per second
digital signals.

Data Compression - The process of condensing the data in order to save storage
space and shorten transfer time; the original data is decompressed when read
back into memory.

Data Migration - Transfer of large volumes of data from one storage device to
another.

Disaster Recovery - A set of rules and procedures that allow a computer site to
be put back in operation after a disaster has occurred. The concept of moving
backups off-site constitutes the minimum basic precaution for disaster recovery.
The remote copy is used to recover data when the local storage is inaccessible
after a disaster.

Disk Mirroring - A data redundancy technique in which data is recorded
identically on multiple separate disk drives at the same time. When the primary
disk is off-line, the alternate takes over, providing continuous access to data.

Fibre Channel - Gigabit-per-second data transfer interface technology that can
merge high-speed input/output and networking functionality in a single
connectivity technology.

Gateway - A device connecting two or more networks that may use different
protocols and media. Gateways translate between the different networks and can
connect locally or over wide area networks.

HTML (Hyper Text Markup Language) - The language used in the World Wide Web to
create Web pages with links to other documents and rich text enhancements (bold,
italic, etc.).

Java - A software programming language developed at Sun Microsystems to solve a
number of problems in modern programming practice. The Java language is used
extensively on the World Wide Web.

LAN (Local Area Network) - A data network that enables communications between
multiple users (PCs, printers, etc.) in a limited geographic area -- generally
less than a mile.

Multiplexer - A networking device that condenses multiple communication streams
into one stream.

Protocol - A set of rules for communicating between computers. The use of
standard protocols allows products from different vendors to communicate on a
common network.

SAN (Storage Area Network) - A high-speed network of storage devices that
permits data movement and management.

Scalable - A scalable network is a network that can grow and adapt as customer
needs increase and change. Scalable networks can easily manage increasing
numbers of work-stations, servers, user workloads and added functionality.

SCSI (Small Computer System Interface) - A dominant, international standard
interface used by UNIX servers and many desktop computers to connect to storage
devices; a physical connection between devices.

Shared Storage - A storage resource is shared between multiple hosts and/or
clients, but each system has access only to its volumes.

SRDF - Symmetrix Remote Data Facility (SRDF) is a high-performance,
host-independent business continuance solution that enables users to maintain a
duplicate copy of all or some of their data at a remote site.

WAN (Wide Area Network) - A network which enables communications between
multiple users (PCs, printers, etc.) across a large geographic area, generally
anything outside of your home or office building. WANs typically involve
connections with telephone companies or Internet service providers.

WEB Browser - A program that allows users to access documents on the Web. They
read HTML coded pages that reside on a server and interpret the coding into what
we see as Web pages. (Netscape(R) Navigator(TM) -- Microsoft(R) Internet
Explorer(TM)).
<PAGE>

[LOGO OF CNT APPEARS HERE]

COMPANY LOCATIONS

Computer Network Technology Corporation
(Headquarters)
605 North Highway 169, Suite 800
Minneapolis, Minnesota 55441 USA
Tel: 612-797-6000
Fax: 612-797-6800

Computer Network Technology
(Manufacturing and Development)
6500 Wedgwood Road
Maple Grove, Minnesota 55311 USA
Tel: 612-550-8000
Fax: 612-550-8800

Computer Network Technology
(Manufacturing and Development)
1700 West Park Drive
Westborough, Massachusetts 01581 USA
Tel: 508-870-3500
Fax: 508-870-3550

INTERNATIONAL OFFICES

CNT International Ltd.
2 Langley Quay, Waterside Drive
Langley, Slough SL3 6EX
United Kingdom
Tel: 44-1753-792400
Fax: 44-1753-792499

CNT International Ltd.
Gate House/Isleworth Gate
2 Richmond Road
Isleworth, Middlesex
TW7 7BL
United Kingdom
Tel: 44-181-232-1600
Fax: 44-181-232-2601

CNT France S.A.
77,81 Boulevard de la Republique
92250 La Garenne Colombes
France
Tel: 33-1-4130-1212
Fax: 33-1-4130-1213

CNT Asia Pacific Pty Ltd.
Level 5, 275 Alfred Street North
North Sydney 2060
New South Wales
Australia
Tel: 61-2-9922-4177
Fax: 61-2-9540-5487

CNT China Limited
35/F Central Plaza
18 Harbour Road
Hong Kong
Tel: 85-2-2593-1121
Fax: 85-2-2593-1285

CNT Japan K.K.
Shiroyama JT Mori Bldg. 16F
4-3-1, Toranomon, Minato-ku
Tokyo 105
Japan
Tel: 813-5403-4858
Fax: 813-5403-4646

JOINT VENTURES

CNTware GmbH
Waldstrasse 92
Dietzenbach D-63128
Germany
Tel: 49-6074-8277 0
Fax: 49-6074-827725

For further information, contact us at http://www.cnt.com.

CNT, Channelink, UltraNet and Brixton are registered trademarks, and the CNT
logo, Channelink Integrated Gateway, Web Integrator, and FileSpeed are
trademarks of Computer Network Technology Corporation. All other trademarks
identified herein are the property of their respective owners. CNT is an equal
opportunity employer. CNT is ISO9002 certified.

Printed in the U.S.A.

<PAGE>

EXHIBIT 21

COMPUTER NETWORK TECHNOLOGY CORPORATION

Subsidiaries of the Registrant

CNT INTERNATIONAL LTD.
- ----------------------

- Incorporated under the English Companies Act

- d/b/a CNT International Ltd. and CNTI

CNT FRANCE S.A.
- ---------------

- Incorporated under French law

- d/b/a CNT France S.A. and CNTF

COMPUTER NETWORK TECHNOLOGY GMBH
- --------------------------------

- Incorporated under German law

CNTFS CORPORATION
- -----------------

- Incorporated under Virgin Islands law

CNTWARE VERNETZUNGSSYSTEME GMBH (51%)
- -------------------------------

- Incorporated under German law

- d/b/a CNTware

COMPUTER NETWORK TECHNOLOGY (ASIA PACIFIC) PTY. LTD.
- ----------------------------------------------------

- Incorporated under Australian Law

- d/b/a CNT A/P

CNT CHINA LIMITED
- -----------------

- Incorporated under Hong Kong Law

CNT JAPAN K.K.
- --------------

- Incorporated under Japanese Law

<PAGE>

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Computer Network Technology Corporation:

We consent to incorporation by reference in the Registration Statements (No. 33-
6862, 33-28367, 33-42750, 33-41985, 33-41596, 33-48944, 33-48954, 33-68356, 33-
68372, 33-83262, 33-83264, 33-31853 and 33-31851 and 33-83266) of Computer
Network Technology Corporation on Form S-8 and the related reoffer prospectuses
prepared in accordance with Form S-3 of our reports dated January 27, 1998,
relating to the consolidated balance sheets of Computer Network Technology
Corporation and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, and the
related financial statement schedule, which reports appear, or are incorporated
by reference, in the December 31, 1997 annual report on Form 10-K of Computer
Network Technology Corporation.

/s/ KPMG Peat Marwick LLP

KPMG Peat Marwick LLP

Minneapolis, Minnesota
March 25, 1998

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statement of operations of Computer Network
Technology Corporation as of and for the year ending December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<F1> Amount presented represents engineering and development expense.
<F2> Amount presented represents EPS-Basic
</FN>

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COMPUTER NETWORK TECHNOLOGY CORPORATION AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,083
<SECURITIES> 18,269
<RECEIVABLES> 19,256
<ALLOWANCES> 704
<INVENTORY> 12,087
<CURRENT-ASSETS> 62,232
<PP&E> 31,492
<DEPRECIATION> 19,765
<TOTAL-ASSETS> 81,042
<CURRENT-LIABILITIES> 22,020
<BONDS> 747
0
0
<COMMON> 223
<OTHER-SE> 58,052
<TOTAL-LIABILITY-AND-EQUITY> 81,042
<SALES> 46,042
<TOTAL-REVENUES> 66,253
<CGS> 14,450
<TOTAL-COSTS> 28,124
<OTHER-EXPENSES> 12,243<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> (170)
<INCOME-TAX> (62)
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108)
<EPS-PRIMARY> (.00)<F2>
<EPS-DILUTED> (.00)
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,384
<SECURITIES> 22,422
<RECEIVABLES> 18,204
<ALLOWANCES> 775
<INVENTORY> 12,583
<CURRENT-ASSETS> 62,971
<PP&E> 29,579
<DEPRECIATION> 18,581
<TOTAL-ASSETS> 79,988
<CURRENT-LIABILITIES> 20,199
<BONDS> 808
0
0
<COMMON> 225
<OTHER-SE> 58,755
<TOTAL-LIABILITY-AND-EQUITY> 79,988
<SALES> 29,197
<TOTAL-REVENUES> 42,443
<CGS> 8,943
<TOTAL-COSTS> 18,040
<OTHER-EXPENSES> 8,056<F1>
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (767)
<INCOME-TAX> (287)
<INCOME-CONTINUING> (480)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480)
<EPS-PRIMARY> (.02)<F2>
<EPS-DILUTED> (.02)
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,024
<SECURITIES> 26,548
<RECEIVABLES> 23,544
<ALLOWANCES> 765
<INVENTORY> 11,757
<CURRENT-ASSETS> 70,414
<PP&E> 27,073
<DEPRECIATION> 17,497
<TOTAL-ASSETS> 86,027
<CURRENT-LIABILITIES> 23,441
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 62,356
<TOTAL-LIABILITY-AND-EQUITY> 86,027
<SALES> 15,179
<TOTAL-REVENUES> 21,747
<CGS> 4,499
<TOTAL-COSTS> 9,080
<OTHER-EXPENSES> 3,562<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 602
<INCOME-TAX> 226
<INCOME-CONTINUING> 377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377
<EPS-PRIMARY> .02<F2>
<EPS-DILUTED> .02
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,847
<SECURITIES> 30,218
<RECEIVABLES> 19,088
<ALLOWANCES> 899
<INVENTORY> 9,909
<CURRENT-ASSETS> 66,410
<PP&E> 26,076
<DEPRECIATION> 16,421
<TOTAL-ASSETS> 82,379
<CURRENT-LIABILITIES> 18,218
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 63,927
<TOTAL-LIABILITY-AND-EQUITY> 82,379
<SALES> 74,170
<TOTAL-REVENUES> 97,109
<CGS> 25,843
<TOTAL-COSTS> 43,112
<OTHER-EXPENSES> 13,996<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 2,024
<INCOME-TAX> 664
<INCOME-CONTINUING> 1,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,360
<EPS-PRIMARY> .06<F2>
<EPS-DILUTED> .06
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,465
<SECURITIES> 24,267
<RECEIVABLES> 20,190
<ALLOWANCES> 1,044
<INVENTORY> 10,797
<CURRENT-ASSETS> 68,664
<PP&E> 23,391
<DEPRECIATION> 15,272
<TOTAL-ASSETS> 84,657
<CURRENT-LIABILITIES> 18,765
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 64,273
<TOTAL-LIABILITY-AND-EQUITY> 84,657
<SALES> 55,355
<TOTAL-REVENUES> 71,879
<CGS> 19,148
<TOTAL-COSTS> 31,845
<OTHER-EXPENSES> 10,002<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 3,506
<INCOME-TAX> 1,230
<INCOME-CONTINUING> 2,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,276
<EPS-PRIMARY> .10<F2>
<EPS-DILUTED> .10
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,540
<SECURITIES> 22,170
<RECEIVABLES> 22,522
<ALLOWANCES> 1,069
<INVENTORY> 10,386
<CURRENT-ASSETS> 68,592
<PP&E> 22,426
<DEPRECIATION> 14,164
<TOTAL-ASSETS> 84,962
<CURRENT-LIABILITIES> 20,351
<BONDS> 0
0
0
<COMMON> 233
<OTHER-SE> 62,992
<TOTAL-LIABILITY-AND-EQUITY> 84,962
<SALES> 37,335
<TOTAL-REVENUES> 47,903
<CGS> 13,395
<TOTAL-COSTS> 21,558
<OTHER-EXPENSES> 6,357<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 1,845
<INCOME-TAX> 645
<INCOME-CONTINUING> 1,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,200
<EPS-PRIMARY> .05<F2>
<EPS-DILUTED> .05
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,244
<SECURITIES> 22,990
<RECEIVABLES> 23,157
<ALLOWANCES> 1,123
<INVENTORY> 9,233
<CURRENT-ASSETS> 64,750
<PP&E> 22,216
<DEPRECIATION> 13,063
<TOTAL-ASSETS> 82,542
<CURRENT-LIABILITIES> 20,042
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 60,884
<TOTAL-LIABILITY-AND-EQUITY> 82,542
<SALES> 17,362
<TOTAL-REVENUES> 22,357
<CGS> 6,067
<TOTAL-COSTS> 10,055
<OTHER-EXPENSES> 3,156<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 29
<INCOME-TAX> 10
<INCOME-CONTINUING> 19
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> .00<F2>
<EPS-DILUTED> .00
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,960
<SECURITIES> 22,449
<RECEIVABLES> 19,676
<ALLOWANCES> 1,131
<INVENTORY> 10,534
<CURRENT-ASSETS> 61,525
<PP&E> 20,746
<DEPRECIATION> 12,147
<TOTAL-ASSETS> 79,134
<CURRENT-LIABILITIES> 17,200
<BONDS> 43
0
0
<COMMON> 229
<OTHER-SE> 60,277
<TOTAL-LIABILITY-AND-EQUITY> 79,134
<SALES> 60,890
<TOTAL-REVENUES> 78,837
<CGS> 17,799
<TOTAL-COSTS> 32,572
<OTHER-EXPENSES> 12,718<F1>
<LOSS-PROVISION> 489
<INTEREST-EXPENSE> 60
<INCOME-PRETAX> 6,534
<INCOME-TAX> 2,512
<INCOME-CONTINUING> 4,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,022
<EPS-PRIMARY> .18<F2>
<EPS-DILUTED> .17
<FN>
<F1>Amount presented represents engineering and development expense
<F2>Amount presented represents Basic Net Income (loss) per share
</FN>

</TABLE>