<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ANCOR COMMUNICATIONS, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
May 16, 2000
TO THE SHAREHOLDERS OF ANCOR COMMUNICATIONS, INCORPORATED:
Notice is hereby given that the Annual Meeting of Shareholders of Ancor
Communications, Incorporated will be held at 3:30 p.m. on Tuesday, May 16, 2000,
at the Radisson Plaza Hotel Minneapolis, 35 South Seventh Street, Minneapolis,
Minnesota, for the following purposes:
1. To elect two directors to serve on the Board of Directors;
2. To vote upon a proposal to amend the Ancor Communications,
Incorporated 1994 Long-Term Incentive and Stock Option Plan (the
"Plan") to (i) increase the limit on the aggregate number of shares
for which incentive stock options may be exercised over the life of
the Plan; and (ii) limit the number of shares that may be subject to
options that may be granted to any one person in any calendar year;
3. To ratify the selection of KPMG LLP as the Company's independent
public accountants for the fiscal year ending December 31, 2000; and
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 24, 2000 as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting.
You are cordially invited to attend the meeting. Whether or not you plan to
attend the meeting, please complete, date and sign the enclosed proxy and return
it promptly in the enclosed envelope, which needs no postage if mailed in the
United States. Alternatively, you may wish to submit your proxy by touch-tone
phone or the Internet as indicated on the proxy.
By Order of the Board of Directors,
/s/ Steven E. Snyder
Steven E. Snyder
Secretary
Dated: April 5, 2000
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
PROXY STATEMENT
For
ANNUAL MEETING OF SHAREHOLDERS
May 16, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Ancor Communications, Incorporated (the
"Company") for use at the Annual Meeting of Shareholders of the Company to be
held on May 16, 2000, at 3:30 p.m. at the Radisson Plaza Hotel Minneapolis, 35
South Seventh Street, Minneapolis, Minnesota, and at any adjournment thereof. A
shareholder giving the enclosed proxy may revoke it at any time before the vote
is cast at the annual meeting. Shares represented by a proxy will be voted in
the manner directed by a shareholder. If no direction is made, the proxy will be
voted for the election of the nominees for director named in this Proxy
Statement and for the other proposals set forth in this Proxy Statement. This
Proxy Statement and the accompanying form of proxy are being sent or given to
shareholders beginning on or about April 5, 2000 along with the Company's 1999
Annual Report to Shareholders.
Only shareholders of record at the close of business on March 24, 2000 are
entitled to notice of and to vote at the meeting or at any adjournment thereof.
On March 24, 2000 there were 29,167,471 shares of Common Stock of the Company
outstanding. Generally, the affirmative vote of a majority of the shares of
Common Stock present and entitled to vote on each matter is required for the
election of each director nominee and the approval of each other matter to be
acted upon. However, if the shares present and entitled to vote on that item of
business would not constitute a quorum for the transaction of business at the
meeting, then the item must be approved by a majority of the voting power of the
minimum number of shares that would constitute such a quorum. Each share is
entitled to one vote. Cumulative voting is not permitted. Shares voted as
abstentions on any matter (or a "withhold vote for" as to a director) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum at the meeting and as unvoted, although
present and entitled to vote, for purposes of determining the approval of each
matter as to which the shareholder has abstained. Consequently, abstentions and
withheld votes have the same effect as a no vote. If a broker submits a proxy
that indicates the broker does not have discretionary authority as to certain
shares to vote on one or more matters, those shares will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum at the meeting, but will not be considered as present and entitled
to vote with respect to such matters.
The Board of Directors knows of no matters other than those that are
described in this Proxy Statement that may be brought before the meeting.
However, if any other matters are properly brought before the meeting, persons
named in the enclosed proxy or their substitutes will vote in accordance with
their best judgment on such matters.
All expenses in connection with the solicitation of proxies will be paid by
the Company. In addition to solicitation by mail, officers, directors and
regular employees of the Company, who will receive no extra compensation for
their services, may solicit proxies by telephone, facsimile or personal calls.
Shareholders voting through the Internet should understand that there may be
costs associated with electronic access, such as usage charges from Internet
service providers and telephone companies, that must be borne by the
shareholder.
The Company's principal executive offices are located at 6321 Bury Drive,
Suite 13, Eden Prairie, Minnesota 55346.
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Articles of Incorporation of the Company provide that directors of the
Company shall be divided into three classes, as nearly equal in number as
reasonably possible. The term of office of the first class of directors will
expire at the annual meeting of shareholders in 2000, the term of the second
class of directors will expire at the annual meeting of shareholders in 2001 and
the term of the third class of directors will expire at the annual meeting of
shareholders in 2002. Directors elected at each annual meeting of shareholders
will be of the same class as the directors whose terms expire at such annual
meeting of shareholders, and shall be elected to hold office for a term expiring
at the third succeeding annual meeting of shareholders and until their
successors are elected and shall qualify.
Vacancies and newly created directorships resulting from an increase in the
number of directors may be filled by a majority of the directors then in office
and the directors so chosen will hold office until the next election of the
class for which such directors shall have been chosen.
At the Annual Meeting of Shareholders to be held May 16, 2000, the term of
office of Kenneth E. Hendrickson and John F. Carlson will expire. Messrs.
Hendrickson and Carlson (the "Nominees") have been nominated to be elected to
the Board of Directors for additional three year terms which will expire at the
annual meeting of shareholders in 2003. The Board of Directors recommends that
the shareholders elect the Nominees as directors of the Company for the ensuing
three year period. It is intended that the persons named as proxies in the
enclosed form of proxy will vote the proxies received by them for the election
of the Nominees, unless otherwise directed. The Nominees have indicated a
willingness to serve, but in case either of them is not a candidate at the
meeting, which is not presently anticipated, the proxies named in the enclosed
form of proxy may vote for a substitute nominee in their discretion.
Information regarding the directors of the Company is set forth below:
Name Age Expiration of Term
---- --- ------------------
Kenneth E. Hendrickson 59 2000
John F. Carlson* 61 2000
Gerald M. Bestler+ 70 2001
Paul F. Lidsky* 46 2001
Michael L. Huntley* 60 2001
Amyl Ahola+ 55 2002
Thomas F. Hunt, Jr.+ 50 2002
--------------------
*Denotes a member of the Audit Committee.
+Denotes a member of the Compensation Committee.
Kenneth E. Hendrickson has served as the Company's Chief Executive Officer
and as a director of the Company since August 1997 and has served as the
Chairman of the Board of Directors since September 1997. Mr. Hendrickson was an
independent consultant from 1996 to August 1997. Prior thereto, Mr. Hendrickson
was Executive Vice President and General Manager of the Microcomputer Products
Group of Western Digital Corporation, a disk drive company, from 1993 to 1996.
Mr. Hendrickson was Vice President of Operations and Quality of Overland Data
Corp., a tape drive company from 1992 to 1993 and was President of Archive
Technology, another tape drive company, from 1990 to 1992. Mr. Hendrickson is
also a director of Tecmar Technologies, Inc. and Netpropulsion, Inc.
John F. Carlson has served as a director of the Company since September
1997. Mr. Carlson has been the Chairman and Chief Financial Officer of Excorp
Medical, Inc., a medical technology company, since 1996. Prior thereto,
2
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Mr. Carlson was with Cray Research, Inc., a supercomputer manufacturer from 1976
to 1995, serving as Chairman and Chief Executive Officer from 1993 to 1995,
President and Chief Operating Officer from 1991 to 1993 and Chief Financial
Officer from 1984 to 1991. Mr. Carlson is also on the Board of Directors of TSI,
Incorporated and Excorp Medical, Inc.
Gerald M. Bestler has been a director of the Company since May 1990. Mr.
Bestler is retired. He was formerly Executive Vice President of BMC Industries
Inc., an optical and electronic components manufacturer. Mr. Bestler is also a
director of Innovex, Inc., a precision electromagnetic products and
photo-processing equipment manufacturer.
Paul F. Lidsky has served as a director of the Company since October 1997.
Mr. Lidsky has been the President and Chief Executive Officer of OneLink
Communications, Inc., a telecommunications company, since 1997. Prior thereto,
Mr. Lidsky was Executive Vice President of Strategy and Business Development of
Norstan, Inc., a comprehensive technology services company, from 1992 to 1997.
Mr. Lidsky is a director of OneLink Communications, Inc. and DataLink
Corporation.
Michael L. Huntley has served as a director of the Company since December
1998. Since March 1999, Mr. Huntley has been a consultant to Seagate Technology,
Inc. From July 1997 to December 1998, Mr. Huntley served as Seagate's Senior
Vice President of Worldwide Sales during which he was responsible for management
of all Seagate disk drive sales worldwide. Prior to that role, Mr. Huntley
served as Senior Vice President and General Manager of Seagate Removable Storage
Solutions from April 1996 to June 1997 and Vice President of Americas Sales with
Seagate Technology, Inc. from May 1993 to March 1996.
Amyl Ahola has served as a director of the Company since October 1997. Mr.
Ahola has been the President, Chief Executive Officer and Chief Operating
Officer of TeraStor Corporation since November 1999. Prior thereto, Mr. Ahola
served as its President and Chief Operating Officer from 1997 to November 1999.
Prior to that role, Mr. Ahola served as its Executive Vice President, Marketing.
From 1992 to 1996, Mr. Ahola was Vice President of Seagate Technology, a disk
drive company, initially responsible for corporate development, then marketing,
product line management and corporate strategy.
Thomas F. Hunt, Jr. has been a director of the Company since May 1993. Mr.
Hunt has served as President of Medallion Capital, Inc. (formerly Capital
Dimensions, Inc), a venture capital investment company, since 1987. Prior to
co-founding Capital Dimensions, Mr. Hunt served as President of Control Data
Community Venture Fund, Inc. and served as Assistant General Counsel for Control
Data Corporation.
The Board of Directors recommends a vote FOR Messrs. Hendrickson and
Carlson.
Meetings of the Board of Directors and Certain Committees
During the fiscal year ended December 31, 1999, the Board of Directors met
four times. All of the directors, except for Mr. Hunt, Jr., attended more than
75% of the aggregate of all meetings of the Board of Directors and meetings of
the committees on which they served. The Board of Directors and its committees
also act from time to time by written consent in lieu of meetings.
The Board of Directors of the Company has standing audit and compensation
committees which have a current membership as indicated in the foregoing
section. The Board of Directors has no standing nominating committee.
The audit committee makes recommendations as to the selection of auditors
and their compensation, and reviews with the auditors the scope of the annual
audit, matters of internal control and procedure and the adequacy thereof, the
audit results and reports and other general matters relating to the Company's
accounts, records, controls and financial reporting. During fiscal 1999, the
audit committee held three meetings.
The compensation committee reviews and recommends to the Board of Directors
the compensation guidelines for executive officers and other key personnel and
the composition and levels of participation in incentive compensation
3
<PAGE>
plans, fringe benefits and retirement benefits for all employees. During fiscal
1999, the compensation committee held two meetings.
EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Kenneth E. Hendrickson 59 Chief Executive Officer
Calvin G. Nelson 47 President
Steven E. Snyder 43 Chief Financial Officer and Secretary
See the biographical information on Mr. Hendrickson under "Election of
Directors."
Calvin G. Nelson was named President of the Company effective April 16,
1997 and prior to such time served as the Company's Vice President, Engineering
and Operations since March 1996. Prior to that role, Mr. Nelson served as the
Company's Vice President, Engineering from July 1995 to March 1996. Prior to
joining Ancor, Mr. Nelson was employed by ADC Telecommunications, Inc. since
1979, serving as Vice President - Engineering since 1990.
Steven E. Snyder has been the Chief Financial Officer and Secretary of the
Company since October 1997. Prior to joining the Company, Mr. Snyder was the
Director of Finance, from 1996 to 1997, and the Controller, from 1995 to 1996,
of Cray Research, Inc., which was acquired by Silicon Graphics Inc. in April
1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than ten percent of
the Company's Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors, and greater than ten percent beneficial owners
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers, directors and
holders of ten percent or more of the Company's Common Stock, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and ten percent shareholders were satisfied.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee is responsible for establishing compensation policies
for all executive officers of the Company, including the executive officers
named in the accompanying tables (the "Named Executives Officers"). The members
of the Compensation Committee are Messrs. Ahola, Bestler and Hunt. The
Compensation Committee establishes the total compensation for the executives
officers in light of these policies. The Compensation Committee is composed
entirely of outside Directors.
The objectives of the Company's executive compensation program are:
1. to attract, retain and motivate superior talent and reward individual
performance;
4
<PAGE>
2. to support the achievement of the Company's financial an strategic
goals; and
3. through stock based compensation, align the executive officers'
interests with those of the shareholders of the Company.
The following report addresses the Company's executive compensation policies and
discusses factors considered by the Compensation Committee in determining the
compensation of the Company's Chief Executive Officer and other executive
officers for the year ended December 31, 1999.
Compensation Policies for Executive Officers
The Compensation Committee's executive compensation policies are designed to
provide competitive levels of compensation that integrate pay with the Company's
annual and long term performance goals, reward the achievement of corporate
goals, recognize individual initiative and achievements, and assist the Company
in attracting and retaining qualified executives. The Company's executive
officers are paid base salaries that are subject to merit increases, along with
periodic adjustments to make such salaries competitive with other similar sized
companies in the high-technology industry. The Company's executive officers are
also given the opportunity to participate in certain other broad-based employee
benefit plans. The Company's use of stock option grants as a key component of
its executive compensation plans reflects the Compensation Committee's position
that stock ownership by management and stock based compensation arrangements are
beneficial in aligning management's and shareholders' interests to enhance
shareholder value. The Compensation Committee believes that a greater reliance
on stock-based incentives is appropriate for the Company's current stage of
development.
Executive Incentive Program
In 1997, the Company established an executive incentive program which sets forth
guidelines for awarding discretionary executive incentive pay. The executive
incentive program is comprised of two components: (1) a group incentive based on
Company revenue goals and (2) individual incentives based upon pre-defined
performance goals which are approved by the Committee. The Company and
individual goals and the bonus amounts are determined by the Compensation
Committee annually. Although the executive incentive program sets forth certain
Company revenue and individual goals, payments under the executive incentive
program are within the Company's sole discretion and do not represent any
contractual or other obligation on the part of the Company to pay any bonus.
Bonus payments under the executive incentive program are based on all aspects of
an executive employee's performance and the Company's overall financial ability
to pay any such bonuses. Payments totaling $63,509 were paid to the two Named
Executive Officers other than the Chief Executive Officer for fiscal 1999
performance, $32,470 of which was based on the achievement of Company revenue
goals and $31,039 of which was based on achievement of individual performance
goals.
Stock Options
Stock options awarded under the Company's 1994 Incentive and Stock Option Plan
(the "1994 Plan") are intended as incentive compensation and have historically
been granted to officers and other key employees to attract, retain and motivate
the talent necessary to the Company to achieve its objectives. The Company's
policy is to not grant stock options annually, but to review each individual's
stock option position, at which point the Compensation Committee may or may not
grant additional options in its discretion. Original stock option grants
totaling 802,500 and 45,000 were granted to 118 employees and the two Named
Executive Officers (other than the Chief Executive Officer), respectively,
during 1999 in connection with the hiring of new employees and as a reward for
individual contributions to the Company.
Chief Executive Officer's Compensation
Kenneth E. Hendrickson has served as the Company's Chief Executive Officer since
August 1997. Compensation for Mr. Hendrickson during 1999, as reflected in the
Summary Compensation Table set forth herein, consisted of base compensation,
bonus, and the grant of stock options. Mr. Hendrickson's annual base
compensation was equal to $180,000 until October 31, 1999, and currently is
$200,000. In setting Mr. Hendrickson's annual base salary, the
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Compensation Committee considered the salaries paid to Chief Executive Officers
of other development stage, high- technology companies, the Company's resources
and the Compensation Committee's philosophy that stock options should be a
significant element of the compensation package in order to align the
executive's interests with those of the Company and its shareholders. Therefore,
Mr. Hendrickson was granted stock options to purchase 25,000 shares of the
Company's Common Stock in 1999.
Mr. Hendrickson is also eligible to participate in the Company's Executive
Incentive Program described above. Mr. Hendrickson received a payment of $37,460
under the Executive Incentive Program to reflect the achievement of Company and
individual performance goals.
At this time the Committee has no formal written plan for CEO compensation
separate and apart from the Company's general compensation philosophy and the
executive incentive program. Until a plan specific to the CEO is developed, CEO
compensation will be based on corporate and individual performance, consistent
with guidelines applicable to all key employees.
Tax Deductibility of Executive Compensation
In the event that compensation paid by the Company to any executive officer
of the Company during any fiscal year exceeds $1,000,000, such excess amount may
not qualify as a tax deduction for the Company under the provisions of Section
162(m) of the Internal Revenue Code of 1986. Section 162(m) excludes from the
$1,000,000 limitation any income realized by an executive officer of the Company
upon the exercise of outstanding stock options granted under plans that meet
certain requirements. The Company is seeking shareholder approval of an
amendment to the Company's 1994 Plan, as required by Section 162(m), so that
compensation attributable to stock options and certain other awards granted
under the 1994 Plan may be excluded from the $1,000,000 limitation. See
"Proposal Two To Approve an Amendment to the 1994 Long-Term Incentive and Stock
Option Plan."
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE COMPANY'S BOARD OF DIRECTORS:
Amyl Ahola Gerald M. Bestler Thomas F. Hunt, Jr.
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Summary Compensation Table
The following table sets forth the compensation awarded to or earned during
the last three fiscal years by the Company's Chief Executive Officer and each
other executive officer who earned salary and bonus in excess of $100,000 during
the fiscal year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ----------------
Fiscal
Name and Principal Position Year Salary Bonus Options(4)
- ----------------------------------------------- -------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Kenneth E. Hendrickson (1) 1999 $ 190,277 $ 37,460 25,000
Chief Executive Officer 1998 170,277 19,569 550,000
1997 59,692 0 200,000
Calvin G. Nelson (2) 1999 $ 180,277 $ 35,414 25,000
President 1998 160,277 18,369 550,000
1997 142,482 10,686 100,000
Steven E. Snyder (3) 1999 $ 137,308 $ 28,095 20,000
Chief Financial Officer and Secretary 1998 126,539 15,185 210,000
1997 26,442 0 60,000
</TABLE>
- ------------------------
(1) Mr. Hendrickson joined the Company in August, 1997. In 1998 Mr. Hendrickson
was granted 350,000 options and had a total of 200,000 options repriced.
(2) In 1998 Mr. Nelson was granted 350,000 options and had a total of 200,000
options repriced.
(3) Mr. Snyder joined the Company in October, 1997. In 1998 Mr. Snyder was
granted 150,000 options and had a total of 60,000 options repriced.
(4) No restricted stock was held by the Named Executive Officers as of December
31, 1999.
Stock Options
The following table summarizes stock options granted to the executive
officers named in the Summary Compensation Table above during the Company's
Fiscal Year ended December 31, 1999.
7
<PAGE>
Option Grants in Fiscal 1999
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------------------------------
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation for
Underlying Employees Exercise Option Term(2)
Options in Fiscal Price Per Expiration -----------------------
Name Granted 1999(3) Share Date 5% 10%
- --------------------------- ------------- ------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Hendrickson 25,000(4) 2.87% $ 28.375 10/20/09 $ 446,122 $ 1,130,561
Mr. Nelson 25,000(4) 2.87% $ 28.375 10/20/09 $ 446,122 $ 1,130,561
Mr. Snyder 20,000(4) 2.29% $ 28.375 10/20/09 $ 356,898 $ 904,449
</TABLE>
- --------------------
(1) All options were granted pursuant to the 1994 Long-Term Incentive and Stock
Option Plan. The options are nontransferable and become immediately
exercisable in full upon a change of control of the Company.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the SEC and do not represent the Company's
estimate or projection of future Common Stock prices.
(3) Percent calculations based on 872,500 total options granted to officers and
employees in 1999.
(4) Option vests 25% per year, over four years beginning October 20, 2000.
Year-End Option Table
The following table summarizes the value of the options held at the end of
fiscal 1999 by the executive officers named in the Summary Compensation Table
above.
Aggregate Value of Options Held at December 31, 1999
<TABLE>
<CAPTION>
Number of Unexercised Options Held at Value of Unexercised In-the-Money Options
December 31, 1999 Held at December 31, 1999(1)
---------------------------------------------- ------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------------ ---------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Mr. Hendrickson 362,500 212,500 $23,914,838 $13,247,638
Mr. Nelson 329,166 245,834 $21,711,668 $15,450,807
Mr. Snyder 107,500 122,500 $ 7,078,590 $ 7,485,145
</TABLE>
- --------------------
(1) Value based on the difference between the closing price of the Company's
Common Stock as reported by the Nasdaq Stock Market on December 31, 1999
($67.875) and the option exercise price per share multiplied by the number
of shares subject to the option.
8
<PAGE>
Compensation of Directors
Directors receive no cash compensation for their attendance at meetings.
Pursuant to the Non-Employee Director Stock Option Plan (the "Director Plan"),
each non-employee director is entitled to receive an option to purchase 6,000
shares of Common Stock on the first business day of each fiscal year in which
such director remains a director. In addition, the Director Plan provides for an
automatic grant of an option to purchase 12,000 shares on the date any new
director is first elected to the Board of Directors.
Directors who are also employees of the Company do not receive any
additional compensation for serving on the Board of Directors.
Employment Agreements
The Company and Kenneth E. Hendrickson are parties to a letter agreement
dated July 25, 1997, pursuant to which the Company agreed to employ Mr.
Hendrickson as the Company's Chief Executive Officer. Pursuant to the terms of
the letter agreement, Mr. Hendrickson is entitled to a severance payment equal
to one year's salary and to full vesting of any stock options in the event his
employment with the Company is terminated without cause.
The Company and Steven E. Snyder are parties to a letter agreement dated
September 23, 1997, pursuant to which the Company agreed to employ Mr. Snyder as
the Company's Chief Financial Officer. Pursuant to the terms of the letter
agreement, Mr. Snyder is entitled to a severance payment equal to six month's
salary in the event his employment with the Company is terminated without cause
and, in such an event, any stock options held by Mr. Snyder would continue to
vest pursuant to their terms during the six months following such termination.
Comparative Stock Performance
The graph below compares the cumulative total shareholder return on the
Company's Common Stock since December 31, 1994 with the cumulative total return
on the Total Return Index for the Nasdaq Stock Market (U.S. Companies) and the
Total Return Index for Nasdaq Non-Financial Stocks over the same period
(assuming the investment of $100 in each on December 31, 1994 and the
reinvestment of all dividends).
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/1994 12/31/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ancor Communications $ 100 $ 120 $ 249 $ 77 $ 71 $ 1,207
Total Return Index for the Nasdaq
Stock Market (U.S. Companies) $ 100 $ 141 $ 174 $ 213 $ 300 $ 546
Total Return Index for
Nasdaq Non-Financial Stocks $ 100 $ 139 $ 169 $ 198 $ 290 $ 562
</TABLE>
9
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 1, 2000 by: (i)
each director of the Company, (ii) each executive officer of the Company named
in the Summary Compensation Table, (iii) all directors and executive officers of
the Company as a group, and (iv) each person or entity known by the Company to
own beneficially more than five percent of the Company's Common Stock. Unless
otherwise indicated, the address of each of the following shareholders is the
same as the Company.
Beneficial Ownership(1)
Name Shares(2) Percent
- ---- --------- -------
Kenneth E. Hendrickson (3) 285,115 *
Calvin G. Nelson (4) 309,676 1.0%
Steven E. Snyder 77,955 *
Amyl Ahola 27,000 *
Gerald M. Bestler 25,000 *
John F. Carlson 27,000 *
Thomas F. Hunt, Jr. 27,000 *
Michael L. Huntley 24,000 *
Paul F. Lidsky 27,000 *
All executive officers and directors as a group 829,746 2.8%
(nine persons)
FMR Corp. (5) 2,795,400 9.5%
82 Devonshire Street
Boston, MA 02109
- --------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with rules of the SEC, and
includes generally voting power and/or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days of March 1, 2000 are deemed
outstanding for computing the beneficial ownership percentage of the person
holding such options but are not deemed outstanding for computing the
beneficial ownership percentage of any other person. Except as indicated by
footnote, the persons named in the table above have the sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) The following table indicates the total number of beneficially owned shares
subject to options exercisable within 60 days of March 1, 2000 included in
the table above.
Shares Subject
to Options
Kenneth E. Hendrickson..............................226,360
Calvin G. Nelson....................................281,000
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<PAGE>
Steven E. Snyder.....................................55,070
Amyl Ahola...........................................27,000
Gerald M. Bestler.....................................1,000
John F. Carlson......................................27,000
Thomas F. Hunt, Jr...................................27,000
Michael L. Huntley...................................24,000
Paul F. Lidsky.......................................27,000
All executive officers and directors as a group.....695,430
(3) Excludes shares owned by Mr. Hendrickson's adult children, for which he
disclaims beneficial ownership.
(4) Includes 200 shares owned by Mr. Nelson's son.
(5) Based upon information contained in an amended Schedule 13G filed by FMR
Corp. on February 14, 2000. FMR Corp. has the sole power to vote 1,494,500
of the 2,795,400 shares beneficially owned.
PROPOSAL TWO
TO APPROVE AMENDMENT TO THE
1994 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
On March 24, 2000, the Board of Directors approved an amendment to the
Ancor Communications, Incorporated 1994 Long-Term Incentive and Stock Option
Plan (the "Plan"), subject to shareholder approval, to (i) increase the limit on
the aggregate number of shares for which incentive stock options may be
exercised over the life of the Plan by 2,500,000 shares; and (ii) limit the
number of shares of Common Stock that may be subject to stock options or other
awards, the value of which is based solely on an increase in the price of the
Company's Common Stock, that may be granted to any one person in any calendar
year to 1,000,000 shares. The amendment to the Plan described in clause (ii)
above is intended to cause the Plan to meet the requirements of Section 162(m)
of the Internal Revenue Code regarding the deductibility of executive
compensation. See "Report of the Compensation Committee On Executive
Compensation - Tax Deductibility of Executive Compensation."
The Company continues to recruit key personnel and believes that stock
options or other grants under the Plan are an important element in attracting
highly skilled and qualified individuals. As such, the Company believes that the
amendments to the Plan can help it meet the competitive demands of attracting
and retaining a productive work force. A description of the Plan is set forth
below.
1994 Long-Term Incentive and Stock Option Plan
The Plan was approved by the Board of Directors and the shareholders of the
Company in March 1994. The Plan provides for the granting of stock options,
stock appreciation rights, restricted stock awards and performance awards to
officers, directors, employees, consultants and independent contractors of the
Company and its subsidiaries. The Company currently has seven directors, three
executive officers and 140 employees. The Plan is administered by the
compensation committee of the Board of Directors (the "Committee").
The Committee has discretion to select the recipients of options and awards
and to establish the terms and conditions of each option and award, subject to
the provisions of the Plan and the applicable provisions of the Internal Revenue
Code. Options and awards granted under the plan are nontransferable except by
will or by the laws of descent and distribution, and are subject to various
other conditions and restrictions.
The Plan provides for the granting of both incentive stock options intended
to qualify for preferential treatment under Section 422 of the Internal Revenue
Code of 1986, as amended ("incentive options"), and nonqualified options
11
<PAGE>
that do not qualify for such treatment ("non-statutory options"). The option
price of an incentive option granted under the Plan must not be less than the
fair market value of the Company's Common Stock on the date of the grant, and
the term of an incentive option must not exceed ten years. For an incentive
option granted under the Plan to an optionee who owns capital stock representing
more than 10% of the voting rights of the capital stock of the Company and its
subsidiaries, however, the option price must be at least 110% of the fair market
value of the Company's Common Stock on the date of the grant, and the term must
not exceed five years. Incentive options may only be granted to full or part-
time employees of the Company and its subsidiaries, including officers and
directors.
Stock appreciation rights ("SARs") may be granted under the Plan at the
time of grant of an option or award under the Plan, or at any other time. Any
such SAR may be exercised subject to restrictions set forth in an agreement
representing such SAR and approved by the Committee. The SAR exercise amount may
be paid in cash, shares of the Company's Common Stock or a combination thereof.
At the time of an award of restricted stock under the Plan, a restricted
period is established for each participant. During the restricted period, the
restricted stock may not be transferred, encumbered or sold unless the Committee
may otherwise determine. The participant, as owner of such shares, will have the
rights of a stockholder, including the right to receive cash dividends and to
vote.
Performance awards under the Plan may be payable in cash, common shares
(including restricted stock), other securities, other awards or other property.
The value of each award will be determined by the Committee and will be payable
to, or exercisable by, the holder of the performance award upon his or her
achievement of the performance goals during the performance periods established
by the terms of the award.
The aggregate number of shares for which incentive stock options may be
exercised under the Plan shall not exceed 5,000,000 (prior to the amendment) and
the aggregate number of shares of Common Stock awarded or for which options may
be exercised under the Plan may not exceed 18% of the issued and outstanding
Common Stock of the Company at any given time. If the amendment to the Plan is
approved, the aggregate number of shares for which incentive stock options may
be exercised over the life of the Plan shall not exceed 7,500,000 shares. In
addition, if the amendment to the Plan is approved, no recipient may be granted
stock options and any other awards, the value of which is based solely on an
increase in the price of the Company's Common Stock, relating to more than
1,000,000 shares in the aggregate in any calendar year.
The Plan will expire in February 2004, unless terminated earlier by the
Board of Directors. No option or award may be granted after such termination,
but termination of the Plan shall not, without the consent of the optionee or
grantee, alter or impair any rights or obligations under any option or award
previously granted.
The grant of an option or SAR will result in no tax consequences for the
recipient or the Company or any subsidiary employing such individual (the
"employer"). The holder of an incentive stock option generally will have no
taxable income upon exercising the incentive stock option (except that the
alternative minimum tax may apply), and the employer generally will receive no
tax deduction when an incentive stock option is exercised. Upon exercise of a
stock option other than an incentive stock option, the optionee must recognize
ordinary income equal to the excess of the fair market value of the shares
acquired on the date of exercise over the option price, and the employer will
then be entitled to a tax deduction for the same amount. The tax consequences to
an optionee of a disposition of shares acquired through the exercise of an
option will depend on how long the shares have been held and upon whether such
shares were acquired by exercising an incentive stock option or non-statutory
stock option. Generally, there will be no tax consequence to the employer in
connection with a disposition of shares acquired under an option except that the
employer may be entitled to a tax deduction in the case of a disposition of
shares acquired under an incentive stock option before the applicable incentive
stock option holding period has been satisfied.
With respect to other awards granted under the Plan that are settled either
in cash, shares or other property that is either transferable or not subject to
a substantial risk of forfeiture, the holder of an award must recognize ordinary
income equal to the excess of (a) the cash or the fair market value of the
shares or other property received (determined as of the date of such settlement)
over (b) the amount (if any) paid for such shares or other property by the
holder of
12
<PAGE>
the award, and the employer will then be entitled to a deduction for the same
amount. With respect to awards that are settled in shares or other property that
is restricted as to transferability and subject to a substantial risk of
forfeiture, unless a special tax election is made to recognize ordinary income
upon receipt of the awards, the holder of the award must recognize ordinary
income equal to the excess of (i) the fair market value of the shares or other
property received (determined as of the first time the shares or other property
become transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier) over (ii) the amount (if any) paid by the participant
for such shares or other property, and the employer will then be entitled to a
deduction for the same amount.
Special rules apply in the case of individuals subject to Section 16(b) of
the Securities Exchange Act of 1934. In particular, under current law, shares
received pursuant to the exercise of a stock option, other purchase right, or
SAR may be treated as restricted as to transferability and subject to a
substantial risk of forfeiture for a period of up to six months after the date
of exercise. Accordingly, unless a special tax election is made, the amount of
ordinary income recognized and the amount of the employer's deduction may be
determined as of such date.
The Board of Directors recommends a vote FOR the proposal to (i) increase
the limit on the aggregate number of shares for which incentive stock options
may be exercised over the life of the Plan by 2,500,000 shares; and (ii) limit
the number of shares of Common Stock that may be subject to stock options or
other awards, the value of which is based solely on an increase in the price of
the Company's Common Stock, that may be granted to any one person in any
calendar year to 1,000,000 shares.
PROPOSAL THREE
RATIFICATION OF INDEPENDENT AUDITORS
KPMG LLP ("KPMG") served as the Company's independent auditors for the
years ended December 31, 1998 and December 31, 1999. McGladrey & Pullen, LLP
("McGladrey") served as the Company's independent auditors for the year ended
December 31, 1997. On September 18, 1998 the Company received notice that
McGladrey was terminating the client-auditor relationship between the Company
and McGladrey. Such termination was effective September 18, 1998. The Company
subsequently engaged KPMG as the Company's independent public accountants on
September 25, 1998. The decision to engage KPMG was unanimously approved by the
Board of Directors of the Company upon the recommendation of its Audit
Committee.
The reports of McGladrey on the financial statements of the Company for its
fiscal year ended December 31, 1997 did not contain any adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the fiscal year 1997 and the
subsequent interim period through September 18, 1998, (i) there were no
disagreements between the Company and McGladrey on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of McGladrey, would have
caused McGladrey to make reference to the subject matter of the disagreement in
connection with its reports, and (ii) there were no reportable events as defined
in Item 304(a)(1)(v) of Regulation S-K of the Securities and Exchange
Commission.
The Board of Directors has appointed KPMG as the Company's independent
auditors for the year ending December 31, 2000 and recommends that the
shareholders ratify that appointment. KPMG has no relationship with the Company
other than that arising from its employment as independent auditors.
Representatives of KPMG will be present at the Annual Meeting. They will have an
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions from shareholders.
The Board of Directors recommends a vote FOR ratifying this appointment.
13
<PAGE>
PROPOSALS FOR THE NEXT ANNUAL MEETING
In order to be eligible for inclusion in the Company's proxy solicitation
materials for its next annual meeting of shareholders, any shareholder proposal
to be considered at such meeting must be received at the Company's principal
executive offices, 6321 Bury Drive, Suite 13, Eden Prairie, Minnesota 55346, not
later than December 6, 2000. Pursuant to the Company's Bylaws, in order for
business to be properly brought before the next annual meeting by a shareholder,
the shareholder must give written notice of such shareholder's intent to bring a
matter before the annual meeting no later than December 6, 2000. Each such
notice should be sent to the Secretary, and must set forth certain information
with respect to the shareholder who intends to bring such matter before the
meeting and the business desired to be conducted, as set forth in greater detail
in the Company's Bylaws. Any such proposal will be subject to the requirements
of the proxy rules adopted under the Securities Exchange Act of 1934.
Management may use discretionary authority to vote against any shareholder
proposal presented at the 2001 annual meeting if: (1) such proposal has been
properly omitted from the Company's proxy materials under federal securities
law; (2) notice of such proposal was not submitted to the Secretary of the
Company at the address listed above by December 6, 2000; or (3) the proponent
has not solicited proxies in compliance with federal securities laws from the
holders of at least the percentage of the Company's voting shares required to
carry the proposal.
ADDITIONAL MATTERS
The Board of Directors of the Company does not presently know of any
matters to be presented for consideration at the Annual Meeting of Shareholders
other than the matters described in the Notice of Annual Meeting of Shareholders
mailed together with this Proxy Statement, but if other matters are presented,
it is the intention of the persons named in the accompanying proxy to vote on
such matters in accordance with their best judgement. The proxy confers
discretionary authority to vote only with respect to matters that the Board of
Directors of the Company did not know, prior to December 6, 1999, were to be
presented at the Annual Meeting of Shareholders.
By Order of the Board of Directors,
/s/ Steven E. Snyder
Steven E. Snyder
Secretary
Dated: April 5, 2000
14
<PAGE>
----------------------
COMPANY #
CONTROL #
----------------------
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Proxies to vote your shares in
the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326
o Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week.
o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
o Follow the simple instructions the Voice provides for you.
VOTE BY INTERNET -- http://www.eproxy.com/ancr/
o Use the Internet to vote your proxy 24 hours a day, 7 days a week.
o You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Ancor Communications, Incorporated, c/o
Shareowner Services(SM), P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by Phone or Internet, please do not mail your Proxy Card
Please detach here
- --------------------------------------------------------------------------------
The Board of Directors Recommends a Vote FOR Items 1, 2 and 3.
<TABLE>
<S> <C> <C> <C> <C>
1. Election of directors: 01 Kenneth E. Hendrickson 02 John F. Carlson [ ] Vote FOR [ ] Vote WITHHELD
all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote for any indicated nominee, write -------------------------------------------
the number(s) of the nominee(s) in the box provided to the right.) -------------------------------------------
2. Proposal to amend the Ancor Communications, Incorporated 1994 Long-Term [ ] For [ ] Against [ ] Abstain
Incentive and Stock Option Plan (the "Plan") to (i) increase the limit on
the aggregate number of shares for which incentive stock options may be
exercised over the life of the Plan; and (ii) limit the number of shares
that may be subject to options that may be granted to any one person in any
calendar year.
3. Ratification of KPMG LLP as independent auditors of the company for fiscal [ ] For [ ] Against [ ] Abstain
year 2000.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting of Shareholders.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
GIVEN, THIS PROXY WILL BE VOTED FOR EACH ITEM.
</TABLE>
Address Change? Mark Box [ ] Indicate changes below: Dated:
--------------------
--------------------------
--------------------------
Signature(s) in Box
Please sign exactly as
your name(s) appear on
Proxy. If held in joint
tenancy, all persons must
sign. Trustees,
administrators, etc.,
should include title and
authority. Corporations
should provide full name
of corporation and title
of authorized officer
signing the proxy.
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 16, 2000
3:30 p.m. local time
Radisson Plaza Hotel Minneapolis
35 South Seventh Street
Minneapolis, Minnesota
- --------------------------------------------------------------------------------
Ancor Communications, Incorporated
6321 Bury Drive, Suite 13, Eden Prairie, Minnesota 55346 proxy
- ----------------------------------------------------------------------------
This Proxy is solicited on behalf of the Board of Directors
The undersigned, having duly received the Notice of Annual Meeting and Proxy
Statement dated April 5, 2000, appoints Kenneth E. Hendrickson and Steven E.
Snyder proxies (each with the power to act alone and with the power of
substitution and revocation) to represent the undersigned and to vote, as
designated below, all shares of Common Stock of Ancor Communications,
Incorporated which the undersigned is entitled to vote at the Annual Meeting of
Shareholders of Ancor Communications, Incorporated to be held on May 16, 2000,
at the Radisson Plaza Hotel Minneapolis, 35 South Seventh Street, Minneapolis
Minnesota at 3:30 p.m., and any adjournment thereof. Each of the matters set
forth below has been proposed by the Company.
If no choice is specified, the proxy will be voted "FOR" Items 1, 2 and 3.
See reverse for voting instructions.
