<PAGE>
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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1996
--------------
Commission File Number 1-2982
------
ANCOR COMMUNICATIONS, INCORPORATED
----------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1569659
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6130 Blue Circle Drive Minnetonka, Minnesota 55343
----------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code (612) 932-4000
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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 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 [_]
8,505,092
---------
(Number of shares of common stock of the
registrant outstanding as of May 10, 1996)
Transitional Small Business Issuer format: Yes [_] No [X]
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<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996
Page
----
PART I - FINANCIAL INFORMATION
- - ------ ---------------------
ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995 3
Statements of Operations for the three
month periods ended March 31, 1996
and 1995 (unaudited) 4
Statements of Cash Flows for the three
month periods ended March 31, 1996
and 1995 (unaudited) 5
Notes to Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II - OTHER INFORMATION 9
- - ------- -----------------
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ANCOR COMMUNICATIONS, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ($37,628) $251,475
Short-term investments 9,134,241 1,300,178
Accounts receivable 2,227,550 1,822,883
Inventories 1,383,187 819,760
Other current assets 174,581 180,848
----------- -----------
Total current assets 12,881,932 4,375,144
Equipment, net of accumulated depreciation 1,439,077 1,140,899
Patents, Prepaid Royalties, and Other Assets,
net of accumulated amortization 256,466 256,982
----------- -----------
TOTAL ASSETS $14,577,475 $5,773,025
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $1,554,621 $1,540,000
Accounts payable 924,045 838,689
Accrued liabilities 366,714 435,264
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Total current liabilities 2,845,380 2,813,953
Long-term debt, less current maturities 235,956 199,653
Shareholders' equity (Note 2)
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; issued and outstanding
10,300 shares in 1996 and none issued in 1995 $10 ---
Common stock, par value $.01 per share,
authorized 12,000,000 shares; issued and outstanding
7,595,007 shares in 1996 and 8,273,426 shares in 1995 82,764 82,734
Additional paid-in capital 24,249,671 14,656,203
Accumulated deficit (12,836,306) (11,979,519)
----------- -----------
Total shareholders' equity 11,496,139 2,759,418
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,577,475 $5,773,025
=========== ===========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
----------- ------------
<S> <C> <C>
Net Sales $1,415,766 $611,531
Cost of Sales 764,501 420,539
----------- ------------
Gross Profit 651,265 190,992
Operating Expenses
Selling and general and administrative 773,657 595,799
Research and development 742,619 630,869
----------- ------------
Total operating expenses 1,516,276 1,226,668
----------- ------------
Operating loss (865,011) (1,035,676)
Other income (expense)
Interest expense (30,796) (41,112)
Other, net 39,021 16,456
----------- ------------
Net Loss ($856,787) ($1,060,332)
=========== ===========
Net loss per common share ($0.10) ($0.16)
=========== ============
Weighted average common and
common equivalent shares
outstanding 8,274,442 6,745,602
=========== ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
------- -------
<TABLE>
<CAPTION>
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($856,787) ($1,060,332)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation & amortization 66,806 66,806
Changes in current assets & liabilities:
Accounts receivable (404,667) 425,626
Notes receivable 0 240,000
Inventories (563,427) 86,024
Other current assets 6,267 (79,016)
Accounts payable 85,357 (327,776)
Accrued liabilities (68,550) 105,435
----------- ---------
Net cash used in operating activities (1,735,003) (543,233)
----------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of equipment (364,466) (83,131)
Short-term investments (7,834,063) 588,564
Payment of contingent consideration 0 0
Purchase of other assets (1) (83,613)
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Net cash used in investing activities (8,198,531) 421,820
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 0 90,000
Loan repayments 50,923 (38,721)
Proceeds from stock issuance
and exercise of options 9,593,508 1,873
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Net cash provided by financing activities 9,644,431 53,152
----------- ---------
Net increase (decrease) in cash (289,103) (68,261)
Cash, at beginning of period 251,475 93,148
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Cash, at end of period ($37,628) $24,887
=========== =========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
March 31,1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the interim financial statements include all
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented. Operating results for the three and nine months
ended March 31, 1996 are not necessarily indicative of the operating results to
be expected for the year ending December 31, 1996.
Certain information and footnote disclaimers normally included in financial
statements in accordance with generally accepted accounting principles have been
condensed or omitted.
NOTE 2 - EQUITY FINANCING
Subsequent to the fiscal year end, the Board of Directors designated 1,100
shares of the Company's authorized preferred stock as Series A Preferred Stock.
This stock has a stated value of $10,000 per share, with an 8 percent per annum
conversion premium. The holders of Series A Preferred Stock are not entitled to
receive dividends.
On March 7, 1996, the Company sold 1,030 shares of Series A Preferred Stock
through a private placement at its stated value of $10,000 per share. Total net
proceeds from this private placement were $9,579,000, after reduction for
commissions and issuance costs of $721,000. Each holder of Series A Preferred
Stock will be able to convert their preferred shares into shares of common
stock, in cumulative increments of one-third of preferred shares held, on April
21, 1996, June 5, 1996, and July 20, 1996, and thereafter. Each share of Series
A Preferred Stock is convertible into common stock based on its stated value of
$10,000, plus an 8 percent annualized premium for the period for which the
Series A is held, divided by a conversion price. This conversion price is the
lesser of $6.49 or 85 percent of the average closing bid price of the Company's
common stock for the five trading days preceding the conversion date.
6
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ITEM 2
------
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995.
The following table sets forth, for the periods indicated, certain statements of
operations data as a percentage of net sales.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Goods Sold 54.0 68.8
Gross Profit 46.0 31.2
Operating Expenses:
Selling, general & admin. 54.6 97.4
Research & development 52.5 103.2
Total operating expenses 107.1 200.6
Operating loss (61.1) (169.4)
Other income (expense)
Interest expense (2.2) (6.7)
Other, net 2.8 2.7
----- -----
Net Loss (60.5)% (173.4)%
====== =====
</TABLE>
Net Sales. Net sales for the first quarter were approximately
$1,416,000 an increase of 131.5% from the 1995 first quarter sales of
approximately $612,000. Fibre Channel product sales equaled approximately
$1,413,000 in the first quarter of 1996 compared to approximately $384,000 in
the 1995 first quarter. Non-Fibre Channel sales in the 1996 first quarter were
$2,600 to the Navy for its non-Fibre Channel communications network. This non-
Fibre Channel defense communications business was ceased in 1995, and carry over
sales from this discontinued category will not be significant in future
quarters.
7
<PAGE>
Gross Profit. Gross profit in the first quarter of 1996 increased to
$651,265, or 46.0% of sales, from $190,992, or 31.2% of sales, in the first
quarter of 1995. This increase was a result of overall higher sales levels and
greater amount of higher margin Fibre Channel sales than first quarter 1995.
Operating Expense. The Company's operating expenses for the first quarter
of 1996 were approximately $1,516,000, or 107.1% of net sales, compared to
approximately $1,227,000, or 200.6% of net sales, in the first quarter of 1995.
While the percent to sales decreased in the first quarter of 1995, the dollar
increase in operating expense in the first quarter of 1996 was primarily due to
the addition of sales, engineering and management personnel.
Net Loss. Net loss equaled approximately $857,000 in the first quarter of
the 1996, compared to a net loss of approximately $1,060,000 in the same period
of the prior year. The decrease in net loss in the first quarter of 1996 was
primarily due to higher sales. Interest expense in the first quarter of 1996
was lower than 1995 due to the absence of higher average borrowing. Interest
income in the first quarter of 1996 was above 1995 levels due to the higher
level of short-term investments in the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES.
- - --------------------------------
The Company's cash and cash equivalents were approximately $9,097,000 as of
March 31, 1996, compared to approximately $1,552,000 as of December 31, 1995.
Cash, cash equivalents and short-term investments increased by approximately
$7,545,000 at the end of the first quarter compared to year-end 1995. During
the quarter the Company completed an off shore private placement of 1,030 shares
of convertible preferred stock with a stated value of $10,000 per share,
resulting in net proceeds to the Company of approximately $9,500 000 after
deducting selling commissions and offering expenses. This increase in cash was
offset by the funding of operating activities and the purchase of equipment.
The proceeds of the offering will be used to repay $1,500,000 of indebtedness to
IBM due in June 1996, to fund sales and marketing efforts to accelerate
penetration of the Company's products into OEM, system integrator and reseller
accounts, to fund research and development efforts needed to maintain
technological leadership and broaden the Company's product line and for working
capital. Management believes its cash, cash equivalents and short term
investments will meet the needs of the company at least through 1996.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
4.1 /a/ Loan and Warrant Purchase Agreement, dated as of June
24, 1992, between Ancor Communications, Incorporated and
International Business Machines Incorporated.
4.2 /a/ Agreement and Amendment to Loan and Warrant Purchase
Agreement, dated March 10, 1994, by and among Ancor
Communications, Incorporated, International Business
Machines Corporation and IBM Credit Corporation.
4.3 /b/ Second Amendment to Loan and Warrant Purchase Agreement
dated April 25, 1994, by and among Ancor Communications,
Incorporated, International Business Machines
Corporation and IBM Credit Corporation.
4.4 /a/ Shareholders Agreement, dated as of June 24, 1992, among
Ancor Communications, Incorporated, International
Business Machines Incorporated and the shareholders of
the Company named on the signature page thereto.
9
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4.5 /c/ Representative's Warrant.
4.6 /a/ Form of Warrant issued November 8, 1993.
4.7 /f/ Form of Warrant issued April 28, 1995.
4.8 /g/ Form of Warrant issued to Andcor Human Resources on
August 28, 1995.
4.9 /g/ Form of Warrant issued to John G. Kinnard & Company on
October 23, 1995.
4.10 /h/ Certificate of Designation of Series A Preferred Stock.
4.11 /h/ Form of Warrant issued to Swartz Investments, Inc. on
March 7, 1996.
10.1 /a/ Form of Promissory Note, dated June 24, 1992, made by
Ancor Communications, Incorporated in favor of IBM
Credit Corporation in connection with the Loan and
Warrant Purchase Agreement referenced in Exhibit 4.2
above.
10.2 /a/ Ancor Communications, Incorporated 1990 Stock Option
Plan.
10.3 /a/ Ancor Communications, Incorporated 1994 Long-Term
Incentive and Stock Option Plan.
10.4 /a/ Employment Agreement, dated January 1, 1994, between
Ancor Communications, Incorporated and Dale C. Showers.
10.5 /a/ Employment Agreement, dated January 1, 1994, between
Ancor Communications, Incorporated and Stephen C.
O'Hara.
10.6 /a/ Employment Agreement, dated June 30, 1992, between Ancor
Communications, Incorporated and Terry M. Anderson.
10.7 /a/ Employment Agreement, dated June 30, 1992, between Ancor
Communications, Incorporated and Robert S. Cornelius.
10.8 /a/ Sublease, dated March 29, 1988, by and between Anderson
Cornelius and Unisys Corporation, formerly known as
Burroughs Corporation.
10
<PAGE>
10.9 /a/ Sublease, Amendment Agreement, dated March 8, 1989, by
and between Anderson Cornelius and Unisys Corporation,
formerly known as Burroughs Corporation.
10.10 /a/ Sublease, Amendment Agreement, dated August 31, 1992, by
and between the Company and Unisys Corporation, formerly
known as Burroughs Corporation.
10.11 /a/ Development and License Agreement between the Company
and International Business Machines Corporation dated
June 4, 1992, as amended on February 8, 1993, May 10,
1993 and October 5, 1993 (a request for confidentiality
of certain portions of this agreement has been granted).
10.12 /c/ Underwriting Agreement.
10.13 /d/ Amendment No. 1 to Employment Agreement dated November
4, 1994 between the Company and Dale C. Showers amending
the Employment Agreement dated January 1, 1994 between
the Company and Mr. Showers filed as exhibit No 10.4
10.14 /e/ Form of Change of Control Agreement dated January 1,
1995 between the Company and each of Lee B. Lewis,
Timothy W. Donaldson and William F. Walker.
10.15 /f/ Agency Agreement between the Company and John G. Kinnard
and Company, Incorporated dated April 20, 1995.
10.16 /g/ Agency Agreement between the Company and John G. Kinnard
& Company, Inc. dated October 23, 1995.
10.17 /g/ Ancor Communications, Inc. 1995 Employee Stock Purchase
Plan.
10.18 /g/ Ancor Communications, Inc. Non-Employee Director Stock
Option Plan.
10.19 /h/ Form of Subscription Agreement between the Company and
Purchasers of the Company's Series A Preferred Stock
(March 1996).
10.20 /h/ Registration Rights Agreement dated March 7, 1996
between the Company, Swartz Investments, Inc. and
Purchasers of the Company's Series A Preferred Stock.
11
<PAGE>
10.21 /h/ Letter Agreement between the Company and Swartz
Investments, Inc. dated February 1996.
10.22 /i/ Separation and General Release Agreement between the
Company and William F. Walker.
27.1 /i/ Financial Data Schedule
/a/ Incorporated by reference to the Company's Registration Statement on form
SB-2 filed March 11, 1994.
/b/ Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on form SB-2 Filed April 28, 1994.
/c/ Incorporation by reference to the Company's Form 10-QSB filed for the
quarterly period ended March 31, 1994.
/d/ Incorporated by reference to the Company's Form 10-QSB filed for the
quarterly period ended September 30, 1994.
/e/ Incorporated by reference to the Company's Form 10-KSB filed for the fiscal
year ended December 31, 1994.
/f/ Incorporated by reference to the Company's form 10-QSB filed for the
quarterly period ended March 31, 1995.
/g/ Incorporated by reference to the Company's form 10-QSB filed for the
quarterly period ended September 30, 1995.
/h/ Incorporated by reference to the Company's Form 10-KSB filed for the fiscal
year ended December 31, 1995.
/i/ Included herewith.
(b.) Reports on Form 8-K
None.
12
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANCOR COMMUNICATIONS, INCORPORATED
----------------------------------
Dated: May 10, 1996 By / S/ STEPHEN C. O'HARA
-------------------------
Stephen C. O'Hara
President &
Chief Executive Officer
Dated: May 10, 1996 By /S/ LEE B. LEWIS
-------------------
Lee B. Lewis
Vice President &
Chief Financial Officer
13
<PAGE>
Exhibit 10.22
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Separation Agreement and General Release ("Separation Agreement")
is made and entered into this 20th day of February, 1996, by and between William
F. Walker ("Walker"), a resident of the State of Minnesota, and Ancor
Communications, Inc. ("Ancor"), a Minnesota corporation with its principal place
of business in Minnetonka, Minnesota.
WHEREAS, Walker was employed by Ancor from approximately January 18,
1993, through February 6, 1996;
WHEREAS, Walker resigned his employment with Ancor, effective February
6, 1996;
WHEREAS, Walker has negotiated with Ancor regarding the terms and
conditions of his resignation and separation from Ancor;
WHEREAS, it is the desire of Walker and Ancor to settle all disputes
related directly or indirectly to Walker's employment by Ancor, and/or Walker's
resignation from employment, in accordance with the terms and conditions set
forth in this Separation Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Separation Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
IT IS AGREED, by and between the undersigned, as follows:
A) COMPENSATION AND BENEFITS
-------------------------
(1) Compensation to Walker: Ancor will pay the sum of Forty-six Thousand
Two Hundred, Forty-nine and 98/100 Dollars ($46,249.98) to Walker. This
Page 1 of 9
<PAGE>
sum will be provided in accordance with Ancor's normal payroll disbursements,
over a six-month period, commencing with the first paycheck disbursement
following the expiration of the rescission period described in Paragraph (9)
below. Ancor will make these payments only on the condition that Walker does not
exercise his right to revoke or rescind this Agreement pursuant to Paragraph (9)
below. Ancor will make state and federal tax deductions, social security
deductions, and all other standard deductions from these severance payments.
(2) Stock Options/Accelerated Vesting: Ancor will allow Walker to vest
current non-vested options for 24,916 shares of Ancor stock, following the
expiration of the rescission period described in Paragraph (9) below, on the
condition that Walker does not revoke or rescind this Separation Agreement.
Walker will be allowed to exercise these options for a period of one year,
commencing on the day after the expiration of the rescission period. Similarly,
Ancor will allow Walker to exercise options for the same one year period
referenced in the preceding sentence, for the 15,084 shares in which he already
is vested. Walker's exercise of options must be made in accordance with the
"Ancor Communications, Incorporated Incentive Stock Option Agreement" dated
March 3, 1993 (Exhibit A, hereto), "Ancor Communications, Incorporated Incentive
Stock Option Agreement" dated June 30, 1993 (Exhibit B, hereto), "Ancor
Communications, Incorporated Incentive Stock Option Agreement" dated December
20, 1993 (Exhibit C, hereto), "Ancor Communications, Incorporated Incentive
Stock Option Agreement" dated August 9, 1994 (Exhibit D, hereto), the "Ancor
Communications, Incorporated Incentive Stock Option Agreement" dated January 4,
1995 (Exhibit E, hereto), and the "Ancor
Page 2 of 9
<PAGE>
Communications, Incorporated 1994 Long-term Incentive and Stock Option Plan,"
(Exhibit F, hereto) all of which are incorporated herein by reference. Walker's
rights pursuant to the stock option documents referenced in the preceding
sentence have been modified and expanded by the actions of the Ancor Board of
Directors and the Committee administering the stock option plan, as described in
Section 3(a) of Exhibit F.
(3) Insurance Benefits: Ancor will continue Walker's insurance coverage
for health and dental, disability, and life insurance for a one year period,
commencing on the day after the expiration of the rescission period described in
Paragraph (9) below, on the condition that Walker does not revoke or rescind
this Separation Agreement. Ancor will pay for these insurance coverages, by
making Walker's COBRA payments for him. If, however, Walker finds alternative
employment during this 12-month period and if his new employer provides one or
more insurance coverages being provided by Ancor, Walker shall immediately
notify Ancor of his new coverage(s) and Ancor's obligations pursuant to this
Paragraph shall cease.
(4) Walker's Death: Ancor agrees that the compensation and benefits
described in Paragraphs (1) - (3) above will be paid or provided to, or
exercised by, Walker's estate in the event of his death. Ancor further agrees
to pay any outstanding obligations Walker incurred prior to his death pursuant
to Paragraph (5) below.
(5) Outplacement Assistance: To facilitate Walker's transition to new
employment, Ancor will provide him outplacement assistance by paying a
Page 3 of 9
<PAGE>
maximum of Five Thousand and No/100 Dollars ($5000) to the outplacement service
selected by Walker, as these costs are incurred and billed by the outplacement
service. This outplacement assistance will be provided on the condition that
Walker does not revoke or rescind this Separation Agreement pursuant to
Paragraph (9) below. This obligation shall end no later than one year after the
expiration of the rescission period, or when the $5,000 has been expended,
whichever occurs first.
(6) No Legal Entitlement to Compensation and Benefits: Walker agrees that
Ancor has no legal obligation to provide him the compensation and benefits
described in Paragraphs (1) - (4) above. Ancor has agreed to provide Walker the
compensation and benefits described in Paragraphs (1) - (4) to reach an
expeditious and amicable resolution regarding the terms and conditions of
Walker's resignation, to minimize the attorneys' fees that otherwise would be
incurred in the defense of any litigation instituted by Walker, and to minimize
the management time that otherwise would be expended in the defense of any
litigation instituted by Walker.
(7) Inclusive of All Income and Other Benefits: Walker agrees that the
compensation and benefits described in Paragraphs (1) - (4) above are inclusive
of any and all income or other benefits for which Walker may be, is, or would
have been eligible, had his employment with Ancor been continued in the same or
some other manner, except for reimbursement of $36.54 of business expenses (per
final Expense Report dated February 16, 1996, attached hereto) and payment of
one and one-half days of vacation pay, which Ancor agrees to pay to Walker
promptly after expiration of the rescission period.
Page 4 of 9
<PAGE>
(8) Attorneys' Fees and Expenses: Walker agrees that he is responsible for
payment of all of his own attorneys' fees and expenses incurred in conjunction
with the resolution of any and all of his purported claims against Ancor.
(B) RIGHT TO CONSIDER AND RIGHT TO REVOKE
-----------------------------------------
(9) Right to Consider Executing this Separation Agreement: Walker
understands that he has twenty-one (21) days to consider whether he should
execute this Separation Agreement. Walker further understands, however, that he
is not required to take the entire twenty-one day period to decide whether he
wishes to execute this Separation Agreement and that he may do so on an
accelerated basis without prejudice to his own or Ancor's rights under this
Separation Agreement.
(10) Right to Rescind or Revoke this Separation Agreement: Walker
understands that he has the right to rescind or revoke this Separation Agreement
for any reason within fifteen (15) days after he signs it. Walker understands
that this Separation Agreement will not become effective or enforceable unless
and until he executes this Separation Agreement and the applicable rescission
period has expired. Walker understands that if he wishes to rescind, the
rescission must be in writing and must be hand-delivered or mailed to Stephen
O'Hara.
If hand-delivered, the rescission must be: (a) addressed to Stephen
O'Hara, Chief Executive Officer and President, 6130 Blue Circle Drive,
Minnetonka, Minnesota 55343; and (b) delivered to Stephen O'Hara within the 15-
day rescission period. If mailed, the rescission must be: (a) postmarked within
the 15-day rescission period; (b) addressed to Stephen O'Hara at the above
address; and (c) sent by certified mail, return receipt requested.
Page 5 of 9
<PAGE>
C) FULL COMPROMISE/GENERAL RELEASE
-------------------------------
(11) Full Compromise: Walker agrees that the payment and acceptance of the
consideration described in Paragraphs (1) - (4) above, is in full, final, and
complete compromise, settlement, and satisfaction of any and all claims relating
directly or indirectly to: Walker's association with or employment by Ancor;
Walker's resignation from employment; and/or claims Walker could have asserted
in any litigation against Ancor.
(12) General Release of Ancor: Walker, for and on behalf of himself and
his heirs, administrators, executors, successors and assigns, agrees to, and
hereby does, release, acquit, and forever discharge Ancor and its parent,
affiliates, subsidiaries, and related companies, and the current and former
directors, officers, members, agents, attorneys, servants, independent
contractors and employees of Ancor and all its related entities (the "Released
Parties"), from any and all claims, whether direct or indirect, fixed or
contingent, known or unknown, which Walker ever had, has, or may claim to have,
for, upon, or by reason of any matter, act or thing prior to the date of this
Separation Agreement, including but not limited to, any cause of action Walker
could have asserted in any litigation against any of the Released Parties, any
cause of action or claim relating to Walker's association with or employment by
Ancor, and/or any cause of action or claim relating to Walker's decision to
resign. This General Release specifically encompasses, but is not limited to,
claims that could be brought under the Minnesota Human Rights, Minn. Stat. (S)
363.01 et seq., Title VII, 42 U.S.C. (S) 2000(e) et seq., the Age Discrimination
in Employment Act, 29 U.S.C. (S) 621 et seq., the Americans With Disabilities
Act, 42
Page 6 of 9
<PAGE>
U.S.C. (S)(S) 12101-12213, and any other state or federal statute, including any
attorneys' fees that could be awarded in connection with these or any other
claims. This General Release also specifically encompasses any and all claims
grounded in contract or tort theories, including, but not limited to: Breach of
contract, interference with contractual relations, promissory estoppel, breach
of the implied covenant of good faith and fair dealing, breach of employee
handbooks, manuals or other policies, wrongful discharge, wrongful discharge in
violation of public policy, assault, battery, fraud, intentional or negligent
misrepresentation, defamation, intentional or negligent infliction of emotional
distress, breach of fiduciary duty, negligent hiring, retention or supervision,
and/or any other tort theory based on intentional or negligent conduct. This
General Release does not relieve Ancor of any of the obligations it has
undertaken pursuant to this Separation Agreement and, if necessary, Walker could
institute litigation to enforce his rights under this Separation Agreement.
D) MISCELLANEOUS
-------------
(13) Letter of Reference/Inquiries from Prospective Employers: Following
the expiration of the rescission period described in Paragraph (9) above, and on
the condition that Walker did not revoke or rescind this Separation Agreement,
Ancor will provide Walker a mutually acceptable letter of reference. Further,
if inquiries are made to Ancor from prospective employers of Walker, the
inquiries (whether written or oral) will be referred to Stephen O'Hara or
another executive selected by Walker. Stephen O'Hara or the other executive
will provide the following information: Walker's name, title, tenure with
Ancor, job responsibilities, and
Page 7 of 9
<PAGE>
compensation level during 1995. Ancor also will provide the letter of reference
prepared pursuant to this Paragraph to the prospective employer.
(14) Mutual Non-disparagement Agreement: Walker agrees that he will not
disparage Ancor or its Directors and Officers. Ancor's Directors and Officers
agree that they will not disparage Walker.
(15) Confidentiality: Walker agrees that it is the intent of the parties
to maintain the complete confidentiality of the terms of this Separation
Agreement and the negotiations leading to this Separation Agreement. Therefore,
Walker agrees that he will not publicize, and will take all prudent steps to
ensure the confidentiality of this Separation Agreement. The only comment
Walker will make about his resignation from Ancor is that he resigned
voluntarily and that all matters relating to his employment with Ancor have been
resolved to the mutual satisfaction of the parties. Notwithstanding the terms
of this Paragraph, Walker will be entitled to disclose the terms of this
Separation Agreement to his lawyers, tax advisors, accountants, and immediate
family on the condition that those to whom such disclosure is made also will be
bound by the terms of this Paragraph.
(16) No Admission of Fault: Walker and Ancor agree that their willingness
to enter into this Separation Agreement does not constitute and should not be
construed as, any admission of liability or fault on the part of Walker or Ancor
or any of the Released Parties.
(17) Complete Agreement: Walker agrees that there are no covenants,
promises, undertakings, or understandings outside of this Separation Agreement,
except as specifically set forth herein. Any modification of, or addition to,
this
Page 8 of 9
<PAGE>
Separation Agreement must be in writing, signed by Walker and Ancor's Chief
Executive Officer.
(18) Knowing and Voluntary Agreement: Walker agrees that he has entered
into this Separation Agreement knowingly and voluntarily. Walker further
acknowledges that he has had the opportunity to be represented by counsel in
connection with the negotiation and preparation of this Separation Agreement,
and have any terms of this Separation Agreement which he did not understand
explained to him.
(19) Governing Law: This Separation Agreement and General Release shall be
governed by, and interpreted in accordance with, the laws of the State of
Minnesota.
/s/ William F. Walker
-----------------------------------
WILLIAM F. WALKER
Subscribed and sworn to before me
this 20th day of February, 1996.
/s/ Elizabeth J. Clark
- - -----------------------------------
Notary Public
ANCOR COMMUNICATIONS, INC.
By /s/ Stephen O'Hara
---------------------------------
Stephen O'Hara
Its Chief Executive Officer and President
Subscribed and sworn to before me
this 20th day of February, 1996.
/s/ Marion J. Logan
- - -----------------------------------
Notary Public
Page 9 of 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> (37,628)
<SECURITIES> 9,134,241
<RECEIVABLES> 2,277,550
<ALLOWANCES> (50,000)
<INVENTORY> 1,383,187
<CURRENT-ASSETS> 12,881,932
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<TOTAL-ASSETS> 14,577,475
<CURRENT-LIABILITIES> 2,845,380
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<COMMON> 82,764
0
10
<OTHER-SE> 11,413,365
<TOTAL-LIABILITY-AND-EQUITY> 14,577,475
<SALES> 1,415,766
<TOTAL-REVENUES> 1,415,766
<CGS> 764,501
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<INCOME-PRETAX> (856,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (856,787)
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<CHANGES> 0
<NET-INCOME> (856,787)
<EPS-PRIMARY> (0.104)
<EPS-DILUTED> (0.104)
</TABLE>
