<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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
DIGI INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
DIGI INTERNATIONAL INC.
6400 FLYING CLOUD DRIVE
EDEN PRAIRIE, MINNESOTA 55344
612/943-9020
December 27, 1995
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders to be held at Marriott City Center, 30 South Seventh Street,
Minneapolis, Minnesota, commencing at 3:30 p.m., Central Standard Time, on
Wednesday, January 31, 1996.
The Secretary's Notice of Annual Meeting and the Proxy Statement
which follow describe the matters to come before the meeting. During the
meeting, we will also review the activities of the past year and items of
general interest about the Company.
We hope that you will be able to attend the meeting in person and we
look forward to seeing you. Please mark, date and sign the enclosed proxy and
return it in the accompanying postage-paid reply envelope as quickly as
possible, even if you plan to attend the Annual Meeting. If you later desire to
revoke the proxy, you may do so at any time before it is exercised.
Sincerely,
/s/ John P. Schinas
John P. Schinas
CHAIRMAN OF THE BOARD
<PAGE>
DIGI INTERNATIONAL INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JANUARY 31, 1996
The Annual Meeting of Stockholders of Digi International Inc. will be held
at Marriott City Center, 30 South Seventh Street, Minneapolis, Minnesota, at
3:30 p.m., Central Standard Time, on Wednesday, January 31, 1996 for the
following purposes:
1. To elect three directors for a three-year term.
2. To amend provisions of the Digi International Inc. Stock Option Plan
that provide for the granting of stock options to non-employee directors.
3. To approve the Digi International Inc. Employee Stock Purchase Plan,
which provides eligible employees of the Company the opportunity to
purchase Common Stock.
4. To ratify the appointment of Coopers & Lybrand L.L.P. as independent
public accountants of the Company for the fiscal year ending September
30, 1996.
5. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed December 13, 1995 as the record date for
the meeting, and only stockholders of record at the close of business on that
date are entitled to receive notice of and vote at the meeting.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU OWN
ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING,
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
POSTAGE-PAID REPLY ENVELOPE AS QUICKLY AS POSSIBLE. YOU MAY REVOKE YOUR PROXY AT
ANY TIME PRIOR TO ITS EXERCISE, AND RETURNING YOUR PROXY WILL NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING AND REVOKE THE PROXY.
By Order of the Board of Directors,
/s/ James E. Nicholson
James E. Nicholson
SECRETARY
Eden Prairie, Minnesota
December 27, 1995
<PAGE>
-----------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
The enclosed proxy is being solicited by the Board of Directors of Digi
International Inc., a Delaware corporation (the "Company"), for use in
connection with the Annual Meeting of Stockholders to be held on Wednesday,
January 31, 1996 at Marriott City Center, 30 South Seventh Street, Minneapolis,
Minnesota, commencing at 3:30 p.m., Central Standard Time, and at any
adjournments thereof. Only stockholders of record at the close of business on
December 13, 1995 will be entitled to vote at such meeting or adjournments.
Proxies in the accompanying form which are properly signed, duly returned to the
Company and not revoked will be voted in the manner specified. A stockholder
executing a proxy retains the right to revoke it at any time before it is
exercised by notice in writing to the Secretary of the Company of termination of
the proxy's authority or a properly signed and duly returned proxy bearing a
later date.
The address of the principal executive office of the Company is 6400 Flying
Cloud Drive, Eden Prairie, Minnesota 55344 and the Company's telephone number is
(612) 943-9020. The mailing of this Proxy Statement and form of proxy to
stockholders will commence on or about December 27, 1995.
Stockholder proposals intended to be presented at the 1997 Annual Meeting of
Stockholders must be received by the Company at its principal executive office
no later than August 29, 1996 for inclusion in the Proxy Statement for that
meeting.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by the use of the mails, certain directors,
officers and employees of the Company may solicit proxies by telephone, telegram
or personal contact, and have requested brokerage firms and custodians, nominees
and other record holders to forward soliciting materials to the beneficial
owners of stock of the Company and will reimburse them for their reasonable
out-of-pocket expenses in so forwarding such materials.
With the exception of the election of directors, the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the meeting and entitled to vote is required
for approval of each proposal presented in this Proxy Statement. A plurality of
the votes of outstanding shares of Common Stock of the Company present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors is required for the election of directors. Abstentions and broker
non-votes will be counted as present for purposes of determining the existence
of a quorum at the meeting. However, shares of a stockholder who either
abstains, withholds authority to vote for the election of directors or each of
the proposals or who does not otherwise vote in person or by proxy (including
broker non-votes) will not be counted for the election of directors or approval
of the proposals.
1
<PAGE>
The Common Stock of the Company, par value $.01 per share, is the only
authorized and issued voting security of the Company. At the close of business
on December 13, 1995 there were 13,228,442 shares of Common Stock issued and
outstanding, each of which is entitled to one vote. Holders of Common Stock are
not entitled to cumulate their votes for the election of directors.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of December 13, 1995, the beneficial
ownership of Common Stock of the Company by each director or nominee for
director of the Company, by each executive officer of the Company named in the
Summary Compensation Table herein, by all directors, nominees and executive
officers as a group, and by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OUTSTANDING SHARES
- --------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Directors, nominees and executive officers:
Gary L. Deaner 61,000(2) *
Willis K. Drake 43,135(3) *
Richard E. Eichhorn 86,750(4) *
Douglas J. Glader 8,500(5) *
Ervin F. Kamm, Jr. 12,000(6) *
Mykola Moroz 63,536(7) *
Richard E. Offerdahl 121,677(8) *
John P. Schinas 1,550,121(9) 11.7%
Jagdish N. Sheth -0- *
David Stanley 39,750(10) *
Gerald A. Wall 37,000(11) *
Ray D. Wymer 110,478(12) *
All directors, nominees and executive officers as a
group (16 persons, including those named above) 2,250,925(13) 17.0%
Other beneficial owners:
William Blair & Company 1,520,652(14) 11.5%
222 West Adams Street
Chicago, Illinois 60606
AIM Capital Management Inc. 803,300(14) 6.1%
Suite 1919
11 Greenway Place
Houston, Texas 77046
</TABLE>
- ------------------------
* Less than one percent.
(1)Unless otherwise indicated in footnote below, the listed beneficial owner
has sole voting power and investment power with respect to such shares.
(2)Includes 46,000 shares covered by options which are exercisable within 60
days of the record date.
(3)Includes 7,500 shares covered by options which are exercisable within 60
days of the record date.
(4)Includes 57,500 shares covered by options which are exercisable within 60
days of the record date.
2
<PAGE>
(5)Includes 6,000 shares covered by options which are exercisable within 60
days of the record date.
(6)Includes 12,000 shares covered by options which are exercisable within 60
days of the record date.
(7)Includes 56,000 shares covered by options which are exercisable within 60
days of the record date.
(8) Includes 12,000 shares covered by options which are exercisable within 60
days of the record date.
(9) Mr. Schinas' address is 6400 Flying Cloud Drive, Eden Prairie, Minnesota
55344.
(10) Includes 38,250 shares covered by options which are exercisable within 60
days of the record date.
(11) Includes 37,000 shares covered by options which are exercisable within 60
days of the record date.
(12) Includes 2,000 shares covered by options which are exercisable within 60
days of the record date.
(13) Includes 115,250 shares covered by options which are exercisable within 60
days of the record date granted to four non-employee directors of the
Company and 167,500 shares covered by options which are exercisable within
60 days of the record date to eight executive officers of the Company.
(14) Based on information at September 30, 1995 contained in Form 13F filed by
the applicable stockholder with the Securities and Exchange Commission.
3
<PAGE>
ELECTION OF DIRECTORS
The business of the Company is managed by or under the direction of a Board
of Directors with a number of directors, not less than three, fixed from time to
time by the Board of Directors. The Board is divided into three classes, and
directors of one class are elected each year for a term of three years. Each
class consists of at least one director. The Board of Directors has fixed at
three the number of directors to be elected to the Board at the 1996 Annual
Meeting of Stockholders and has nominated the three persons named below for
election as directors. Proxies solicited by the Board of Directors will, unless
otherwise directed, be voted to elect the three nominees named below.
Each of the nominees named below is currently a director of the Company, and
each has indicated a willingness to serve as a director for the three-year term.
In case any nominee is not a candidate for any reason, the proxies named in the
enclosed form of proxy may vote for a substitute nominee in their discretion.
Following is certain information regarding the nominees for the office of
director and the current directors whose terms expire after the 1996 Annual
Meeting:
DIRECTOR NOMINEES FOR TERM EXPIRING IN 1999:
JOHN P. SCHINAS, AGE 58
Mr. Schinas, a founder of the Company, has been its Chairman of the Board
since July 1991. He has been a member of the Board of Directors since the
Company's inception in July 1985 and served as the Company's Chief Executive
Officer from July 1985 to January 1992. From July 1985 to July 1991, Mr. Schinas
also served the Company as President and Treasurer.
RICHARD E. OFFERDAHL, AGE 52
Mr. Offerdahl has been a member of the Board of Directors since 1987. Mr.
Offerdahl has been a private investor and venture capitalist since 1986.
DR. JAGDISH N. SHETH, AGE 57
Dr. Sheth has been a member of the Board of Directors since August 1995.
Since 1991, he has been the Charles H. Kellstadt Professor of Marketing at
Goizueta Business School, Emory University. From 1983 to 1991, Dr. Sheth was the
Robert E. Brooker Professor of Marketing at the University of Southern
California. In 1993, Dr. Sheth founded, and became a director of, the Center for
Relationship Marketing at Emory University. Dr. Sheth also is a founder of the
Center for Telecommunications Management at the University of Southern
California. Dr. Sheth has worked for numerous industries and companies in the
United States, Europe and Asia, both as a consultant and as a seminar leader.
Dr. Sheth is also a director of Norstan, Inc., a distributor of
telecommunications products.
DIRECTORS WHOSE TERMS EXPIRE AFTER 1996:
WILLIS K. DRAKE, AGE 72
Mr. Drake has been a member of the Board of Directors since 1987. Since
1983, Mr. Drake has been a private investor. Mr. Drake is also a director of
Analysts International Corporation, a software manufacturer; Innovex Inc., a
manufacturer of specialty precision electromagnetic products; and Telident,
Inc., a manufacturer of telephone system enhancement equipment; as well as
several privately held companies.
4
<PAGE>
DAVID STANLEY, AGE 60
Mr. Stanley has been a member of the Board of Directors since 1990. Mr.
Stanley has been Chairman and Chief Executive Officer of Payless Cashways, Inc.,
a building materials retailer, since 1984. He is also a director of Best Buy
Co., Inc., a consumer electronics retailer, and Piper Jaffray Companies Inc., a
securities industry holding company.
RICHARD E. EICHHORN, AGE 66
Mr. Eichhorn has been a member of the Board of Directors since 1987. Since
April 1992, Mr. Eichhorn has been a private investor. From July 1991 to April
1992 Mr. Eichhorn was President and Chief Executive Officer of CPT Holdings,
Inc. and its wholly-owned subsidiary, CPT Office Systems Inc., a manufacturer of
office automation systems. From April 1990 to July 1991, Mr. Eichhorn was a
director of CPT Corporation, the predecessor corporation to CPT Holdings, Inc.,
of which he was a founder. Mr. Eichhorn also served as Vice President of CPT
Corporation from December 1990 to July 1991. He is also a director of several
privately held companies.
MYKOLA MOROZ, AGE 58
Mr. Moroz, a founder of the Company, has been a member of the Board of
Directors since July 1991 and a consultant to the Company on manufacturing
operations since December 1994. He was President of the Company from July 1991
to November 1994 and Chief Executive Officer from January 1992 to November 1994.
Mr. Moroz was Chief Operating Officer of the Company from July 1991 to January
1992. From October 1985 to July 1991, he occupied various management positions
with the Company, including Senior Vice President, Vice President and Director
of Manufacturing Operations. Mr. Moroz is also a director of Parts 1, Inc., a
privately held corporation that is a supplier to the Company.
ERVIN F. KAMM, JR., AGE 56
Mr. Kamm has been a member of the Board of Directors since December 1994 and
President and Chief Executive Officer of the Company since December 1, 1994.
From May 1988 to November 1994, he served as President and Chief Operating
Officer of Norstan Inc., a distributor of telecommunications products. From
February 1988 to May 1988, he was President of Norstan Communications, Inc. Mr.
Kamm is also a director of Aequitron Medical Inc., a manufacturer of medical
devices, Micromedics Inc., a privately held corporation that manufactures
specialty medical products, and the Institute for Advanced Technology.
None of the directors is related to any other director or to any executive
officer of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors met eleven times during fiscal 1995. All directors,
except Mr. Sheth, attended at least 75% of the meetings of the Board and of the
Committees on which they served. Mr. Sheth was elected to the Board in August
1995 and was absent for the September 1995 meeting of the Board. The Company has
an Audit Committee, a Compensation Committee and Corporate Governance and
Nominating Committee. Following is a description of the functions performed by
each of the Committees.
AUDIT COMMITTEE
The Company's Audit Committee consists of Messrs. Offerdahl (Chairman),
Stanley and Eichhorn. The Audit Committee makes recommendations concerning the
selection and appointment
5
<PAGE>
of independent auditors, reviews the scope and findings of the completed audit
and reviews the adequacy and effectiveness of the Company's accounting policies
and system of internal accounting controls. The Audit Committee met three times
during fiscal 1995.
COMPENSATION COMMITTEE
The Company has a Compensation Committee consisting of Messrs. Eichhorn
(Chairman), Drake and Offerdahl, which reviews and acts upon management
recommendations concerning employee stock options, bonuses and other
compensation and benefit plans and administers the Digi International Inc. Stock
Option Plan and, subject to stockholder approval, the Digi International Inc.
Employee Stock Purchase Plan, both of which are discussed below. The
Compensation Committee met thirteen times during fiscal 1995.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
In January 1995 the Board established the Corporate Governance and
Nominating Committee, which advises and makes recommendations to the Board on
all matters concerning directorship and corporate governance practices and the
selection of candidates as nominees for election as directors. The Committee,
consisting of Messrs. Stanley (Chairman), Schinas and Offerdahl, acted once by
written action in 1995. The Committee recommended this year's nominees at the
November 1995 Board meeting.
This Committee will consider persons recommended by stockholders in
selecting nominees for election to the Board of Directors. Stockholders who wish
to suggest qualified candidates should write to: Digi International Inc., 6400
Flying Cloud Drive, Eden Prairie, MN 55344, Attention: Chairman, Corporate
Governance and Nominating Committee. All recommendations should state in detail
the qualification of such persons for consideration by the Committee and should
be accompanied by an indication of the person's willingness to serve.
DIRECTOR COMPENSATION
Currently, members of the Board receive no cash compensation. In lieu of
cash compensation, each non-employee director of the Company who beneficially
owns not more than 5% of the Company's outstanding Common Stock receives each
year, on the date of the annual meeting of stockholders of the Company, options
to purchase 7,500 shares of Common Stock of the Company at an exercise price
equal to the fair market value of the Common Stock on the date of grant and with
an expiration date ten years from the date of grant. The right to exercise these
stock options vests as to 20% of the shares subject to the options on the first
through fifth anniversaries of the date of grant, except that options issued to
non-employee directors who have attained the age of 62 and who have served the
Company for at least five years vest one year after the date of issuance.
Non-employee directors of the Company who beneficially own not more than 5% of
the Company's outstanding Common Stock and who are elected between annual
meetings of stockholders of the Company receive an option upon terms that are
similar to those awarded at an annual meeting, except that the number of shares
covered by such option is prorated to reflect the number of months from the date
of election to the date of the next annual meeting.
The Board has approved, subject to stockholder approval of an amendment to
the Digi International Inc. Stock Option Plan, a change in the compensation of
non-employee directors to provide for flexibility in the compensation of such
directors. See "Proposed Amendments to Stock Option Plan". Such change provides
that each non-employee director of the Company who beneficially owns not more
than 5% of the Company's outstanding Common Stock who is newly elected to the
Board,
6
<PAGE>
whether elected at an annual meeting or during the year, and who has not
previously been a director of the Company, will receive a one-time, non-elective
grant of an option to purchase 5,000 shares of Common Stock of the Company at
the then-current market price. Furthermore, each non-employee director of the
Company who beneficially owns not more than 5% of the Company's outstanding
Common Stock, whether incumbent or newly elected, who is elected at an annual
meeting will receive a non-elective grant of an option to purchase 1,500 shares
of Common Stock of the Company at the then-current market price. If a newly
elected non-employee director is first elected during a year, then such
non-elective option grant will be prorated. In addition, each non-employee
director of the Company who beneficially owns not more than 5% of the Company's
outstanding Common Stock, whether incumbent or newly elected, who is elected at
an annual meeting will have an election to receive one of the following: (i) an
option to purchase 6,000 shares of Common Stock of the Company at the
then-current market price or (ii) cash payments consisting of an annual retainer
of $8,000, payable quarterly in arrears, plus per meeting fees of $750 for each
meeting of the Board of Directors attended and $350 for each committee meeting
attended that is not held on the same day as a meeting of the Board of
Directors. If a newly elected non-employee director of the Company who
beneficially owns not more than 5% of the Company's outstanding Common Stock is
first elected during the year, the option grant to purchase 6,000 shares of
Common Stock or the $8,000 annual retainer will be prorated. Directors who
beneficially own more than 5% of the Company's outstanding Common Stock serve
without compensation. If the amendments to the Stock Plan are not approved, then
non-employee directors will continue to receive annual grants of options to
purchase 7,500 shares of Common Stock of the Company, as described above.
Subject to such approval, all of the present non-employee directors of the
Company have elected to receive the grant of an option to purchase 6,000 shares
of Common Stock of the Company in lieu of the cash compensation for the year of
service beginning January 31, 1996.
7
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
establishes the general compensation policies of the Company and specific
compensation for each of the Company's executive officers. The purpose of this
report is to inform stockholders of the Company's compensation policies for
executive officers and the rationale for the compensation paid to executive
officers in fiscal 1995.
COMPENSATION PHILOSOPHY
The Company has a "pay for performance" compensation program for its
executive officers. The compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's success and continued growth, while at the same time
allowing the Company to attract and retain high-caliber executives. The
Committee believes that the Company's compensation practices reward executives
commensurately with their ability (i) to meet the Company's established
financial targets, through cash bonuses and commissions, and (ii) to drive
increases in stockholder value, through stock options.
A central feature of the Company's compensation program is its emphasis on
objective performance incentives. Under the Company's historical practice,
performance targets are established by the Committee at the outset of each
fiscal year for each executive officer (other than Mr. Schinas, who serves as
Chairman of the Board for an annual salary of $100,000, and such bonus
compensation as the Committee may determine to award in its discretion). These
performance targets may be reached only if the Company (or other relevant
business unit) is successful in meeting its net sales and after-tax earnings
objectives set forth in its budget plan for the upcoming fiscal year, and take
into account the scope of the individual's duties (e.g., Company-wide, division
or subsidiary) and the complexity of those duties. The Company's historical
practice has been to communicate to each executive, at the outset of a fiscal
year, the performance targets that must be met for that fiscal year and the
amount of cash bonus and commission that the executive will be eligible to
receive if such goals are met.
For fiscal 1995, the Committee deferred setting salaries and cash bonus
targets and amounts for those executives that did not have their compensation
fixed by contract until January 31, 1995, when it received the report of an
independent compensation consultant that had been engaged to assist the
Committee in reviewing the Company's executive compensation. At that time the
Committee approved executive compensation for fiscal 1995, retroactive to
October 1, 1994.
To assist the Committee in setting 1995 executive compensation for those
executive officers whose compensation was not determined by contract and in
reviewing compensation for those executives with contracts, the Company's
performance and executive compensation were measured against two peer groups
recommended to the Committee by its outside consulting firm, which selected
companies for similar industry classification, size and financial performance.
Comparative performance data were based on a group of 22 publicly held companies
in the computer industry and 11 publicly held peer companies in Minnesota, to
measure the competitiveness of the Company's compensation structure on both a
national and regional basis.
Based principally upon the report of its independent compensation
consultant, the Committee believes that base salaries of the Company's executive
officers are below average relative to its national and regional peer companies.
However, if the cash bonus targets are fully achieved, executive
8
<PAGE>
officers of the Company are able to earn total cash compensation that is above
average relative to these peer companies as a group. This analysis supports the
Committee's compensation philosophy of putting a substantial portion of
executives' total cash compensation "at risk" by tying it to the achievement of
objective financial results, and giving executives the opportunity to earn above
average compensation through performance.
For fiscal 1996, the Company's cash bonus plan emphasizes the achievement of
Company-wide financial goals, other than with respect to those executive
officers (including Messrs. Glader and Wymer and one other executive officer)
that have employment agreements that provide individualized measurements for
cash bonus entitlement which are based on both Company-wide and business unit
performance. Performance targets and the target amounts of cash bonus and any
commission have been set by contract for Messrs. Kamm, Wymer, Glader and three
other executive officers. See "Employment Contracts; Severance, Termination and
Change-in-Control Arrangements" below.
An additional important aspect of the Company's compensation program is its
use of stock options. The Committee believes that the use of stock-based
incentives ensures that the executive's interests are aligned with the long-term
interests of the Company's stockholders. Executives are thereby given the
incentive not only to meet the Company's annual performance objectives, but also
to achieve longer-term strategic goals.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's compensation program are base salary,
cash bonuses and commissions, and stock options.
BASE SALARY. The Committee annually reviews the base salary of each
executive officer. In determining the appropriate base salary level for fiscal
1995, the Company considered base salaries for the previous fiscal year and
individual performance, including the individual's performance in relation to
his or her target for the then-ending fiscal year. The Committee also reviewed
the report of its compensation consultant to confirm that the base salaries of
its executive officers were competitive with the respective base salaries of
comparable companies.
The Company is a party to an employment agreement with its President and
Chief Executive Officer, Ervin F. Kamm, Jr., pursuant to which Mr. Kamm has
agreed to serve for an indefinite term in a senior executive capacity, initially
as President and Chief Executive Officer, for an annual base salary of $215,000,
subject to an annual review of Mr. Kamm's base salary by the Committee. For
fiscal 1996 Mr. Kamm's base salary was raised to $236,500. The Committee
believes that Mr. Kamm's base salary is below average relative to base salaries
of comparable companies.
In connection with its April 1993 acquisition of Star Gate Technologies,
Inc., the Company entered into employment agreements with certain executive
officers, including Mr. Wymer, which establish certain minimum base salaries and
bonus targets. The Committee has reviewed these salaries and targets and
believes that they are consistent with the Company's compensation philosophy
described above.
John P. Schinas and the Company are parties to an employment agreement
pursuant to which Mr. Schinas has agreed to serve for an indefinite term as
Chairman of the Board for an annual base salary of $100,000. Pursuant to the
agreement, the Committee may, in its discretion, also grant Mr. Schinas
incentive compensation.
9
<PAGE>
During fiscal 1995 Mykola Moroz, the Company's former President and Chief
Executive Officer, continued to serve in that capacity on an interim basis from
October 1 to November 30, 1994, when Mr. Kamm assumed those duties. During that
period Mr. Moroz continued to be paid a base salary at the annual rate of
$175,000, which represented a continuation of his base salary rate which had
been established by the Committee in November 1993 for fiscal 1994.
CASH BONUSES AND COMMISSIONS. Each year the Company accrues a cash bonus
pool based on net sales. Allocations of the pool are approved by the Committee
at the end of each fiscal year, and include cash bonuses paid to executives and,
upon recommendation of management of the Company, other employees of the Company
and its subsidiaries. Each executive is given a specified bonus target which he
or she will receive if the applicable budget objectives are met. These bonus
targets are typically 100% of base salary; Mr. Kamm's employment agreement
provides a target bonus of 120% of his base salary. If some or all of the
objectives are not met, the executive's portion of the bonus pool, if any, is
decided by the Committee (other than Mr. Wymer and three other executive
officers, whose employment contracts provide for a sliding scale based upon the
achievement of at least 80% of the relevant bonus targets). If the objectives
are exceeded, the Committee may decide to award more than the target amount. In
fiscal 1995 these targets were not fully achieved. However, the Committee
determined to award Mr. Kamm a bonus equal to $186,000, after taking into
account the performance of the Company and Mr. Kamm during the fiscal year.
Actual bonus awards to other executive officers in 1995 were from 68% to 86% of
their base salaries, with the exception of Mr. Moroz, who received no bonus. Mr.
Schinas also did not receive a bonus for 1995.
Mr. Kamm's employment contract also provides that he is entitled to receive
a 1% commission equal to the amount by which net sales exceed the Company's
budget plan, although the commission is payable only if the after-tax profit
margin for that year equals or exceeds the budget for that year. Mr. Kamm did
not receive a commission for fiscal 1995.
STOCK OPTIONS. Long-term incentives are provided through the Company's
Stock Option Plan. The Plan is administered by the Committee which is authorized
to award stock options to employees of the Company and its subsidiaries,
non-employee directors of the Company and certain advisors and consultants to
the Company. While the Committee has broad discretion to select the optionees
and to establish the terms and conditions for the grant, vesting and exercise of
each option, the Committee's practice has been to grant stock options to
employees vesting over five years in order to strengthen the employee's ties to
the Company and to focus on enhancing stockholder value on a long-term basis.
At the end of each fiscal year, the Committee considers whether awards will
be made to executive officers under the Plan. In determining the employees to
whom options shall be granted and the number of shares to be covered by each
option, the Committee may take into account the nature of the services rendered
by the respective employees, their present and potential contributions to the
success of the Company, and such other factors as the Committee in its sole
discretion shall deem relevant.
In October and November 1994 the Committee granted to Mr. Kamm options to
purchase an aggregate of 230,000 shares as follows: 60,000 shares at $15.25 per
share (the fair market value on the date of grant), vesting over a five-year
period, and 170,000 shares at $17.50 per share (the fair market value on the
date of grant), vesting over a seven-year period. In November 1995 the Committee
granted to Mr. Kamm an option to purchase 35,000 shares at $27.50 per share (the
fair market value on the date of grant), vesting over a five-year period.
10
<PAGE>
401-K SAVINGS AND PROFIT SHARING PLAN. Company officers may participate in
the Company's 401-K Savings and Profit Sharing Plan (the "401-K Plan") which
allows any Company employee who has completed six months of service and who is
at least 18 years of age to contribute up to 15 percent of his or her earnings
to the 401-K Plan. However, the participant's contributions are subject to an
annual maximum imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), which was $9,240 in 1995 and will be indexed for inflation in future
years.
Under the 401-K Plan, the Company has discretion to make either profit
sharing contributions or matching contributions. For any given year, the Company
may decide to make no such contributions, to make one type of contribution or to
make both types of contributions. Profit sharing contributions are allocated in
proportion to the earnings of eligible participants. Matching contributions are
allocated in proportion to the contributions each participant makes from his or
her salary, unless the Company specifies a different matching formula for a
particular year. To be eligible to receive either type of contribution for a
particular year, the participant must be employed by the Company on December
31st of that year and must have completed at least 1,000 hours of service during
the year. During fiscal 1995, the Company allocated its matching contribution
under the 401-K Plan for fiscal 1994. For fiscal 1994, contributions of $860
were made on behalf of each of Messrs. Moroz, Deaner and Wall, $693 on behalf of
Mr. Wymer and $5,686 on behalf of all executive officers as a group (7 persons).
For fiscal 1995, the Company has decided to make a matching contribution
totaling $125,000 and to make no profit sharing contribution. No allocation of
this matching contribution will be made to individual plan accounts until after
the end of the 1995 calendar year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, comprised entirely of independent, outside
directors, is responsible for establishing and administering the Company's
policies involving the compensation of executive officers. No employee of the
Company serves on the Committee. During the 1995 fiscal year the members of the
Committee were (and are currently) Willis K. Drake, Richard E. Eichhorn and
Richard E. Offerdahl. During fiscal 1995 Mr. Eichhorn succeeded Mr. Drake as
Chairman of the Committee. The Committee members have no interlocking
relationships as defined by the Securities and Exchange Commission.
COMPENSATION COMMITTEE
Richard E. Eichhorn, Chairman
Willis K. Drake
Richard E. Offerdahl
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning
annual and long-term compensation provided to the chief executive officers and
the other four most highly compensated executive officers of the Company (the
Named Officers) who received remuneration exceeding $100,000 for the fiscal
years ended September 30, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------
------- ALL
NAME AND FISCAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) (#) COMPENSATION(2)
- -------------------------------------------------------------------------- -------- --------------- -------
<S> <C> <C> <C> <C> <C>
Ervin F. Kamm, Jr., President, 1995 $190,257 $186,000 230,000 (3)
Chief Executive Officer, Director(4)
Mykola Moroz, President, 1995 124,679 0 0 (3)
Chief Executive Officer, Director(5) 1994 175,000 175,000 70,000 $ 860
1993 150,000 190,955 0 1,031
Gerald A. Wall, Vice President, 1995 127,500 93,500 10,000 (3)
Chief Financial Officer, 1994 115,000 92,000 20,000 860
Treasurer 1993 90,000 90,000 0 1,031
Gary L. Deaner, Vice President; 1995 144,570 108,000 30,000 (3)
President of Arnet 1994 150,000 142,500 20,000 860
1993 125,000 67,500 0 1,031
Douglas J. Glader, Vice President(6) 1995 127,898 86,500 20,000 (3)
1994 100,800 50,000 30,000 0
Ray D. Wymer, Vice President(7) 1995 125,386 108,000 30,000 (3)
1994 110,000 0 0 693
1993 50,417 50,000 0 0
</TABLE>
- ------------------------
(1) Reflects commissions and compensation paid under the Company's Cash Bonus
Plan described above, except that the bonus of $175,000 paid to Mr. Moroz
for fiscal 1994 was awarded in conjunction with his severance from the
Company and was not dependent upon meeting financial objectives. See
"Employment Contracts; Severance, Termination of Employment and Change-in-
Control Arrangements" below.
(2) All Other Compensation reported represents Company contributions to the
401-K Plan for the accounts of the Named Officers.
(3) No allocation of the Company's matching contribution to the 401-K Plan will
be made to individual plan accounts, including the accounts of the Named
Officers, until after the end of the 1995 calendar year.
(4) Mr. Kamm became President and Chief Executive Officer on December 1, 1994.
(5) Mr. Moroz held office as President and Chief Executive Officer until
November 30, 1994, and is now a part-time employee and a consultant to the
Company on manufacturing operations.
(6) Mr. Glader joined the Company in 1994, and became Vice President in February
1995.
(7) Mr. Wymer joined the Company as Vice President in April 1993.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERMS (2)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------------------
NAME (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ---------------------------------------- ---------- ------------ -------- ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ervin F. Kamm, Jr....................... 60,000 7.24% $ 15.25 10/26/04 15,000 575,439 1,458,274
Ervin F. Kamm, Jr....................... 170,000 20.52% $ 17.50 11/30/04 0 1,870,901 4,741,384
Gerald A. Wall.......................... 10,000 1.20% $ 17.50 11/30/04 0 110,057 278,905
Gary L. Deaner.......................... 30,000 3.62% $ 17.50 11/30/04 0 330,170 836,715
Douglas J. Glader....................... 20,000 2.41% $ 22.00 01/31/05 0 276,714 701,247
Ray D. Wymer............................ 10,000 1.20% $ 17.50 11/30/04 0 110,057 278,905
Ray D. Wymer............................ 20,000 2.41% $ 21.125 05/09/05 0 265,708 673,356
- --------------------------------------------------------------------------------------------------------------------------------
All Shareholders Potential Realizable Value at Assumed Growth Rates (3)....................
$ 0 $334,069,997 $531,950,639
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The right to exercise the stock options set forth in this table vests as to
20% of the shares subject to such options on the first through fifth
anniversaries of the date of grant, other than a 170,000 share option
granted to Mr. Kamm, which vests over seven years.
(2) The dollar amounts under these columns are the results of calculations at a
0% annual appreciation rate, and at the 5% and 10% annual appreciation rates
set by the Securities and Exchange Commission for illustrative purposes,
and, therefore, are not intended to forecast future financial performance or
possible future appreciation, if any, in the price of the Company's stock.
Stockholders are therefore cautioned against drawing any conclusions from
the appreciation data shown, aside from the fact that optionees will only
realize value from the option grants shown when the price of the Company's
stock appreciates, which benefits all stockholders commensurately.
(3) These calculations assume a base price of $17.50, the price of the majority
of options granted to the Named Officers.
AGGREGATED OPTION
EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The purpose of the following table is to report exercises of stock options
by the Named Officers during fiscal 1995 and the value of their unexercised
stock options as of September 30, 1995. The Named Officers exercised stock
options in fiscal 1995 pursuant to the Company's Stock Option Plan. The Company
has not issued any stock appreciation rights to the Named Officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END(1)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ervin F. Kamm, Jr........... 0 $ 0 0 230,000 $ 0 $ 2,607,500
Mykola Moroz................ 12,000 265,600 44,000 74,000 617,250 999,700
Gerald A. Wall.............. 0 0 25,000 38,000 412,750 407,000
Gary L. Deaner.............. 0 0 30,000 68,000 491,800 818,800
Ray D. Wymer................ 0 0 0 30,000 0 250,000
Douglas J. Glader........... 0 0 6,000 44,000 99,000 521,000
</TABLE>
- ------------------------
(1) Value is based on a share price of $28.25, which was the last reported sale
price for a share of Common Stock on the Nasdaq National Market System on
September 28, 1995, minus the exercise price.
13
<PAGE>
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
ERVIN F. KAMM, JR. The Company and Mr. Kamm entered into an employment
agreement as of October 1994. Mr. Kamm has agreed to serve for an indefinite
term in a senior executive capacity, initially as President and Chief Executive
Officer, commencing December 1, 1994. The agreement provides that Mr. Kamm will
be paid a base salary at the annual rate of $215,000. The Compensation Committee
will review Mr. Kamm's base salary annually and may, in its sole discretion,
increase it to reflect performance, appropriate industry guideline data and
other factors, but is not obligated to provide for any increases in base salary.
The Committee increased Mr. Kamm's base salary to $236,500 for fiscal 1996. The
agreement also provides that Mr. Kamm will be entitled to a cash bonus equal to
120% of his base salary in any fiscal year, provided that the net sales and
after-tax earnings targets for such year have been met. In the event that such
targets are not met, the Compensation Committee may, but is not obligated to,
provide for a cash bonus to Mr. Kamm. In addition, he is entitled to a
commission equal to 1% of net sales in excess of the net sales target for a
particular year, provided that the after-tax profit margin equals or exceeds the
targeted after-tax profit margin. If the after-tax profit margin is not met, the
Committee will determine in its discretion what commission, if any, will be paid
to Mr. Kamm for that year.
The employment agreement also provides for the issuance of stock options to
purchase an aggregate of 230,000 shares of Company Common Stock. These options
were granted at the fair market value on the date of grant and vest over a
seven-year period. These stock options were intended to provide Mr. Kamm with a
significant equity participation in the Company from the outset of his
employment. Under his employment agreement he is generally not eligible for
another stock option grant until on or about September 30, 1997, except that the
Compensation Committee may, in its sole discretion, grant stock options to Mr.
Kamm before such date. In November 1995 the Committee granted Mr. Kamm an option
to purchase 35,000 shares at the fair market value on the date of grant, vesting
over five years. The agreement also provides that Mr. Kamm is entitled to the
benefits and perquisites which the Company generally provides to its other
employees under applicable Company plans and policies.
If the Company terminates his employment without cause, Mr. Kamm would be
entitled to receive his then current base salary for a period of twelve months.
In addition, any unvested stock options would vest immediately prior to any
termination of his employment by the Company without cause. Any unvested stock
options would also vest in the event of a "change in control" of the Company,
which is deemed to have occurred if any person or group acquires more than 30%
of the voting power of the Company, or if there is a change in the membership of
the Board of Directors, not approved by the continuing directors, such that
persons who were directors at the beginning of any three-year period no longer
constitute a majority of the Board.
MYKOLA MOROZ. The Company and Mr. Moroz entered into a consulting agreement
as of October 1994. Mr. Moroz has agreed to serve the Company as a consultant on
manufacturing operations for an annual fee of $100,000. Although Mr. Moroz has
no entitlement to incentive compensation while serving as a consultant, the
Compensation Committee may also award a cash bonus in its discretion. No cash
bonus was awarded for fiscal 1995. The consulting agreement may be terminated by
either the Company or Mr. Moroz at any time for any reason, except that if the
agreement is terminated by the Company other than for cause before October 1,
1996, Mr. Moroz will be entitled to receive in a
14
<PAGE>
lump sum an amount equal to the unpaid consulting fees for the remainder of the
period to October 1, 1996. Mr. Moroz has further agreed not to compete with the
Company for a period of two years following the termination of his services to
the Company.
Although Mr. Moroz originally announced his intention to resign as President
and Chief Executive Officer effective October 1, 1994, he nevertheless continued
to serve as interim President and Chief Executive Officer at the request of the
Company from October 1 to November 30, 1994, when Mr. Kamm assumed those
offices. During the interim period Mr. Moroz continued to be paid his then
current salary at an annual rate of $175,000.
Under his consulting agreement with the Company Mr. Moroz has the option of
remaining a part-time employee or serving as an outside consultant. If he is not
an employee on the date of the 1996 Annual Meeting of Stockholders, as a
non-employee director he would be awarded a stock option to purchase shares at
the then current fair market value. The option would be for 1,500 shares,
assuming stockholder approval of proposed amendments to the Stock Option Plan.
See "Proposed Amendments to Stock Option Plan". If such amendments are not
approved, the option would be for 7,500 shares.
GARY L. DEANER. The Company's agreement with Mr. Deaner on May 16, 1995 and
applicable to all of fiscal 1995 provides that Mr. Deaner will be paid a base
salary at the annual rate of $150,000. The Committee will review Mr. Deaner's
base salary annually and may, in its sole discretion, increase it to reflect
performance, appropriate industry guideline data and other factors, but is not
obligated to provide for any increases in base salary. Mr. Deaner also will be
entitled to a cash bonus equal to 100% of his base salary in any fiscal year,
provided that the net sales and after-tax earnings targets for such year have
been met. In the event that such targets are not met, the Committee may, but is
not obligated to, provide for a cash bonus to Mr. Deaner. Finally, Mr. Deaner
was granted an option to purchase 30,000 shares of Common Stock of the Company
with an exercise price of $17.50 per share, the fair market value on the date of
grant, and a vesting period of five years. Mr. Deaner also is entitled to the
benefits and perquisites which the Company generally provides to its other
employees under applicable Company plans and policies.
DOUGLAS J. GLADER. The Company's agreement with Mr. Glader on February 6,
1995 provides that Mr. Glader will be paid a base salary at the annual rate of
$120,000, which the Committee has increased to $135,000 for fiscal 1996. The
Committee will review Mr. Glader's base salary annually and may, in its sole
discretion, increase it to reflect performance, appropriate industry guideline
data and other factors, but is not obligated to provide for any increases in
base salary. Mr. Glader also will be entitled to a cash bonus equal to 100% of
his base salary in any fiscal year, provided that the net sales and after-tax
earnings targets for such year have been met. In the event that such targets are
not met, the Committee may, but is not obligated to, provide for a cash bonus to
Mr. Glader. In addition, Mr. Glader was granted an option to purchase 20,000
shares of Common Stock of the Company with an exercise price of $22.00 per
share, the fair market value on the date of grant, and a vesting period of five
years. If Mr. Glader's employment is terminated without cause within one year of
the date of his relocation to Minnesota in June 1, 1995, he will be entitled to
receive a severance payment of $120,000. Thereafter, he would be entitled to
receive severance of $60,000. Finally, because Mr. Glader relocated during
fiscal 1995, he received reimbursement for reasonable moving expenses and the
cost of temporary housing. Mr. Glader also is entitled to the benefits and
perquisites which the Company generally provides to its other employees under
applicable Company plans and policies.
15
<PAGE>
GERALD A. WALL. The Company's agreement with Mr. Wall on May 18, 1995 and
applicable to all of fiscal 1995 provides that Mr. Wall will be paid a base
salary at the annual rate of $130,000, which the Committee has increased to
$135,000 for fiscal 1996. The Committee will review Mr. Wall's base salary
annually and may, in its sole discretion, increase it to reflect performance,
appropriate industry guideline data and other factors, but is not obligated to
provide for any increases in base salary. Mr. Wall also will be entitled to a
cash bonus equal to 100% of his base salary in any fiscal year, provided that
the net sales and after-tax earnings targets for such year have been met. In the
event that such targets are not met, the Committee may, but is not obligated to,
provide for a cash bonus to Mr. Wall. Finally, Mr. Wall was granted an option to
purchase 10,000 shares of Common Stock of the Company with an exercise price of
$17.50 per share, the fair market value on the date of grant, and a vesting
period of five years. Mr. Wall also is entitled to the benefits and perquisites
which the Company generally provides to its other employees under applicable
Company plans and policies.
RAY D. WYMER. On May 15, 1995, the Company and Mr. Wymer entered into an
amendment of Mr. Wymer's existing employment agreement, dated April 13, 1995,
providing for an increase of Mr. Wymer's base salary to $150,000 from $110,000.
The Committee will review Mr. Wymer's base salary annually and may, in its sole
discretion, increase it to reflect performance, appropriate industry guideline
data and other factors, but is not obligated to provide for any increases in
base salary. For fiscal 1995, the amended agreement provides that Mr. Wymer will
be entitled to a cash bonus equal to 100% of his base salary, provided that the
net sales and after-tax earnings targets for such year have been met. In the
event that such targets are not met, the Committee may, but is not obligated to,
provide for a cash bonus to Mr. Wymer. Beginning in fiscal 1996, Mr. Wymer's
bonus is dependent on the achievement of both Company-wide and business unit
objectives. The bonus percentage is based on a sliding scale of achievement of
at least 80% of the relevant objectives. If Mr. Wymer's employment is terminated
without cause before September 30, 1996, he will be entitled to receive his base
salary until such date. Mr. Wymer also is restricted from competing with the
Company for two years following the termination of his employment. Finally, Mr.
Wymer was granted an option to purchase 20,000 shares of Common Stock of the
Company with an exercise price of $21.125 per share, the fair market value on
the date of grant, and a vesting period of five years. Mr. Wymer also is
entitled to the benefits and perquisites which the Company generally provides to
its other employees under applicable Company plans and policies.
JOHN P. SCHINAS. Mr. Schinas and the Company are parties to an amended and
restated employment agreement under which Mr. Schinas has agreed to serve for an
indefinite term as Chairman of the Board for an annual base salary of $100,000.
Although Mr. Schinas has no entitlement to incentive compensation while serving
as Chairman of the Board, the Compensation Committee may also award a cash bonus
in its discretion. No cash bonus was awarded for fiscal 1995. Mr. Schinas has
further agreed not to compete with the Company for a period of two years
following the termination of his services to the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company purchased 65,000 shares of its Common Stock from
William Blair & Company, a registered broker-dealer and 16.4% stockholder of the
Company, in its capacity as a marketmaker for the Common Stock of the Company.
These shares were acquired pursuant to the Company's stock repurchase program,
which was conducted in accordance with Rule 10b-18 under the Securities Exchange
Act of 1934, as amended. The aggregate purchase price for all shares acquired
16
<PAGE>
was $1,371,250.50, without any marketmaker mark-ups. The prices paid to William
Blair & Company were prevailing market prices, and the acquisition of shares at
a net price, without any marketmaker mark-ups, was comparable to the terms of
transactions with other broker-dealers from which the Company repurchased
shares.
On June 13, 1995, the Company repurchased 5,000 shares of its Common Stock
from Willis K. Drake, a director of the Company, under the Company's stock
repurchase program. The shares were purchased for a price of $20.75, for an
aggregate purchase price of $103,750. Such price was at the prevailing market
price on such date.
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors and executive officers file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Directors and executive officers are required 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
Company's directors and executive officers, all Section 16(a) filing
requirements were met for the fiscal year ended September 30, 1995. However, in
September 1995, Mykola Moroz, a director of the Company who was also the
President and Chief Executive Officer until November 1995, amended a previously
filed Form 4 because of a discrepancy in the number of shares of Common Stock of
the Company reported as sold by Mr. Moroz in December 1993. The amended Form 4
reflected that 20,000 shares of Common Stock were actually sold at a price of
$21.00 per share, a reduction of 799 shares of Common Stock from the previously
filed Form 4.
17
<PAGE>
PERFORMANCE EVALUATION
The graph below compares the total cumulative stockholders' return on the
Common Stock for the period from the close of the NASDAQ Stock Market -- U.S.
Companies on September 28, 1990 to September 30, 1995, the last day of fiscal
1995, with the total cumulative return on the CRSP Total Return Index for the
Nasdaq Stock Market-U.S. Companies (the "CRSP Index") and the CRSP Index for
Nasdaq Computer Manufacturers Stocks (the "Peer Index") over the same period.
The index level for the graph and table was set to 100.0 on September 28, 1990
for the Common Stock, the CRSP Index and the Peer Index and assumes the
reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DIGI INTERNATIONAL
INC. NASDAQ STOCK MARKET NASDAQ COMPUTER MANUFACTURERS
<S> <C> <C> <C>
Stocks SIC 3570-3579 US & For-
(US Compamies) eign
09/28/90 100.000 100.000 100.000
10/31/90 106.383 96.060 99.905
11/30/90 146.809 105.227 115.427
12/31/90 186.170 109.785 124.945
01/31/91 253.191 121.954 153.707
02/28/91 265.957 133.685 168.086
03/28/91 340.426 142.630 186.536
04/30/91 306.383 143.533 176.143
05/31/91 325.532 150.122 172.346
06/28/91 310.638 140.979 149.818
07/31/91 378.723 149.324 160.734
08/30/91 446.809 156.745 173.160
09/30/91 417.021 157.319 169.351
10/31/91 459.575 162.536 165.852
11/29/91 404.255 157.086 155.347
12/31/91 468.085 176.265 174.804
01/31/92 421.277 186.572 200.258
02/28/92 408.511 190.800 213.217
03/31/92 323.404 181.796 195.073
04/30/92 325.532 174.000 187.219
05/29/92 344.681 176.260 189.736
06/30/92 338.298 169.369 173.045
07/31/92 376.596 175.368 178.045
08/31/92 344.681 170.009 171.025
09/30/92 363.830 176.328 182.147
10/30/92 440.426 183.274 201.476
11/30/92 517.022 197.854 221.671
12/31/92 603.192 205.139 234.972
01/29/93 587.234 210.979 247.041
02/26/93 548.937 203.109 225.617
03/31/93 580.852 208.987 222.338
04/30/93 465.958 200.069 210.944
05/28/93 568.086 212.021 230.002
06/30/93 561.703 213.000 213.643
07/30/93 513.830 213.255 193.528
08/31/93 580.852 224.275 196.765
09/30/93 542.554 230.954 191.145
10/29/93 568.086 236.152 205.127
11/30/93 491.490 229.122 210.033
12/31/93 568.086 235.506 222.687
01/31/94 491.490 242.644 233.656
02/28/94 472.341 240.435 239.302
03/31/94 440.426 225.628 215.892
04/29/94 347.075 222.702 201.765
05/31/94 338.298 223.259 187.908
06/30/94 382.979 215.120 175.035
07/29/94 338.298 219.530 186.723
08/31/94 363.830 233.518 205.060
09/30/94 363.830 232.924 212.800
10/31/94 427.660 237.462 232.251
11/30/94 427.660 229.562 229.789
12/30/94 478.724 230.266 244.561
01/31/95 548.937 231.545 239.232
02/28/95 593.618 243.738 246.081
03/31/95 561.703 250.841 258.247
04/28/95 568.086 258.888 270.266
05/31/95 523.405 265.665 278.000
06/30/95 580.852 286.760 312.002
07/31/95 628.724 307.435 336.758
08/31/95 721.278 313.767 359.397
09/29/95 721.278 320.672 373.647
</TABLE>
18
<PAGE>
PROPOSED AMENDMENTS TO STOCK OPTION PLAN
DESCRIPTION OF THE PLAN AND PROPOSED AMENDMENTS
The Digi International Inc. Stock Option Plan (the "Plan") was approved by
stockholders on July 19, 1989 and, with respect to certain amendments which have
been incorporated into the following description of the Plan, on January 28,
1991, January 27, 1992, and January 31, 1995. The Plan provides for the issuance
of options that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and for the issuance of
nonstatutory stock options.
The purpose of the Plan is to promote the interests of the Company and its
stockholders by providing key personnel of the Company and any subsidiaries of
the Company with an opportunity to acquire a proprietary interest in the Company
and thereby develop a stronger incentive to put forth maximum effort for the
continued success and growth of the Company and any subsidiaries of the Company.
It is also expected that the opportunity provided by the Plan to acquire a
proprietary interest in the Company will aid the Company in attracting and
retaining key personnel of outstanding ability.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which consists of not less than two directors who
are "disinterested persons" as that term is defined in Rule 16b-3(c) promulgated
under the Securities Exchange Act of 1934, as amended. Subject to the provisions
of the Plan, the Committee may from time to time adopt such rules for the
administration of the Plan as it deems appropriate.
The Plan currently provides that the Committee may grant options to purchase
shares of Common Stock of the Company, not to exceed 3,629,400 shares in the
aggregate. No incentive stock options have been granted under the Plan.
Nonstatutory stock options to purchase an aggregate of 1,974,820 shares of
Common Stock were outstanding as of December 13, 1995 and held by 384 employees,
including executive officers, under the Plan. At December 13, 1995, options to
purchase an aggregate of 816,413 shares of Common Stock would be available for
future stock option grants under the Plan. Options outstanding at December 13,
1995 have per share exercise prices ranging from $.50 to $29.25, or a weighted
average per share exercise price of $19.15, and generally expire ten years from
the date of grant of the option, on dates ranging between June 25, 1998 and
November 10, 2005 (unless exercised prior to that time). Approximately 400 key
employees are currently eligible to participate in the Plan.
SUMMARY DESCRIPTION OF THE PROPOSED AMENDMENTS
On June 28, 1995, the Board of Directors adopted, subject to stockholder
approval, certain amendments to the Plan's provisions relating to the grant of
options to non-employee directors. The text of the Plan as proposed to be
amended is set forth in Exhibit A to this Proxy Statement. The proposed
amendments would do the following:
1. Change the annual automatic grant of nonstatutory options to eligible
non-employee directors from a grant of an option to purchase 7,500 shares of
Common Stock to: (i) a non-elective grant of an option to purchase 1,500 shares
of Common Stock and (ii) an election to receive an option to purchase 6,000
shares of Common Stock in lieu of cash compensation for the ensuing year. Under
both
19
<PAGE>
the Plan as currently in effect and as proposed to be amended, an eligible
person elected as a non-employee director between annual meetings would be
entitled to receive an option to purchase a prorated number of shares.
2. Provide for a one-time automatic grant, at the time such person is first
elected as a non-employee director of the Company, of a nonstatutory option to
purchase 5,000 shares of Common Stock to each eligible person who has not
previously been a director of the Company.
3. Shorten the normal vesting period for options granted to non-employee
directors from five years to two. Provisions for accelerated vesting are the
same under the Plan as currently in effect and as proposed to be amended.
Under both the Plan as currently in effect and as proposed to be amended,
options granted to non-employee directors have a ten year term and have an
exercise price per share equal to the fair market value (as defined in the Plan)
of a share of Common Stock of the Company on the date of grant. To be eligible
to receive an option under the Plan, a non-employee director must not
beneficially own more than 5% of the outstanding shares of Common Stock of the
Company. If the proposed amendments to the Plan are not approved by
stockholders, the Plan will not be amended and non-employee directors will
continue to receive automatic annual grants of options to purchase 7,500 shares
of Common Stock.
DESCRIPTION OF THE PLAN
Shares issued upon exercise of options granted under the Plan shall be
authorized and unissued shares of Common Stock of the Company or treasury stock.
If any option lapses or terminates for any reason before being completely
exercised, the shares covered by the unexercised portion of such option may
again be made subject to subsequently granted options under the Plan. The
aggregate number of shares that may be made subject to options granted under the
Plan, and the number of shares covered by an outstanding option and the purchase
price per share of such option, may, at the discretion of the Committee, be
adjusted to give effect to certain adjustments made during the term of the Plan
or such option, as the case may be, in the number of shares of Common Stock of
the Company outstanding through a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split or other relevant
change.
Incentive stock options and nonstatutory stock options may be granted under
the Plan to employees of the Company or any subsidiary thereof. The Plan also
provides that nonstatutory stock options may be granted to individuals or
entities who are not "employees" but who provide services to the Company or any
parent or subsidiary thereof in the capacity of an advisor or consultant, and
must be granted to non-employee directors of the Company beneficially owning not
more than 5% of the outstanding Common Stock. References in this description to
"employment" shall include the providing of services in any such capacity or as
a director.
Nonstatutory options may also be granted in substitution for stock options
held by employees of other corporations who are about to become employees of the
Company or a subsidiary of the Company, or whose employer is about to become a
subsidiary of the Company, as the result of a merger or consolidation of the
Company or a subsidiary of the Company with another corporation, the acquisition
by the Company or a subsidiary of the Company of all or substantially all of the
assets of another corporation or the acquisition by the Company or a subsidiary
of the Company of at least 50% of the issued and outstanding stock of another
corporation. The Board of Directors of the Company
20
<PAGE>
has the discretion to vary the terms and conditions of any substitute options so
granted from the terms and conditions set forth in the Plan to the extent that
the Board of Directors deems appropriate to conform the substitute options to
the options in substitution for which they are granted. The Board of Directors
is not authorized to vary such terms and conditions so as to affect the status
of any such substitute option as an incentive stock option under the Code.
The Committee has complete discretion to select all optionees, other than
non-employee directors, and to establish the terms and conditions for the grant,
vesting and exercise of each option granted to each such optionee, subject in
all cases to the provisions of the Plan. As of December 13, 1995, approximately
400 key employees, including executive officers, were eligible to receive option
grants under the Plan. In determining the employees to whom options shall be
granted and the number of shares to be covered by each option, the Committee may
take into account the nature of the services rendered by the respective
employees, their present and potential contributions to the success of the
Company, and such other factors as the Committee in its sole discretion shall
deem relevant. More than one option may be granted to the same employee. In the
case of any incentive stock option, to the extent that the aggregate fair market
value, determined at the time the option is granted, of shares of Common Stock
of the Company with respect to which incentive stock options held by the option
holder first become exercisable in any calendar year (under the Plan and any
other plans of the Company and its parent and subsidiaries) exceeds $100,000,
such options shall be treated as nonstatutory stock options.
Under the terms of the Plan as currently in effect, each person who is a
non-employee director and who beneficially owns not more than 5% of the
outstanding Common Stock receives a nonstatutory stock option to purchase 7,500
shares of Common Stock each year at the conclusion of the annual meeting of
stockholders of the Company at an exercise price equal to the fair market value
(as defined in the Plan) of the Common Stock on the date of the grant. The Plan
also provides that each eligible non-employee director who is elected between
annual meetings of stockholders of the Company receives nonstatutory stock
options subject to the identical terms and conditions as apply to options
granted to eligible non-employee directors at the conclusion of each annual
meeting, except that instead of being 7,500, the number of shares subject to
such option is prorated.
Under the proposed amendment, each person who is a non-employee director and
who beneficially owns not more than 5% of the outstanding Common Stock would be
given, each year at the conclusion of the annual meeting of stockholders of the
Company, (i) a non-elective grant of a nonstatutory stock option to purchase
1,500 shares of Common Stock, and (ii) the right to elect to receive a
nonstatutory stock option to purchase 6,000 shares of Common Stock in lieu of
cash compensation for the ensuing year. See "Election of Directors -- Director
Compensation" above. The proposed amendment also provides that each eligible
non-employee director who is elected between annual meetings of the stockholders
of the Company would be given (i) a nonstatutory stock option to purchase a
prorated portion of the 1,500 shares of Common Stock, and (ii) the right to
elect to receive, in lieu of cash compensation, a nonstatutory stock option to
purchase a prorated portion of 6,000 shares of Common Stock.
In addition, the proposed amendment would provide for an automatic initial
one-time grant of a nonstatutory stock option to purchase 5,000 shares of Common
Stock when a person who has not previously been a director of the Company (and
who does not beneficially own more than 5% of the outstanding Common Stock of
the Company) is first elected as a non-employee director.
21
<PAGE>
All options granted to non-employee directors under the Plan as currently in
effect and as proposed to be amended have an exercise price per share equal to
the fair market value (as defined in the Plan) of a share of Common Stock on the
date of grant.
Messrs. Drake, Eichhorn, Offerdahl, Sheth and Stanley are the only directors
presently eligible to receive non-employee director stock option grants under
the Plan. Each of them has elected to receive an option to purchase 6,000 shares
of Common Stock in lieu of cash compensation for services as a director for the
year following the 1996 Annual Meeting of Stockholders, provided that the
proposed amendments to the Plan are approved by stockholders. Mr. Moroz would
also be eligible to receive a non-employee director stock option under the Plan,
provided he is not a part-time employee on the date of the 1996 Annual Meeting
of Stockholders. Mr. Moroz's consulting agreement with the Company gives him the
option of remaining a part-time employee or serving as an outside consultant.
The Plan currently provides that (i) options granted to eligible
non-employee directors at the conclusion of an annual meeting of stockholders
vest as to 20% of the shares subject to the option on the date of each of the
first through fifth subsequent annual meetings, and (ii) options granted to
eligible non-employee directors between annual meetings vest as to 20% of the
shares subject to the option on each of the first through fifth anniversaries of
the date of grant.
The proposed amendment provides that (i) options granted to eligible
non-employee directors at the conclusion of an annual meeting of stockholders
vest as to 50% of the shares subject to the option on the date of each of the
first and second subsequent annual meetings, and (ii) options granted to
eligible non-employee directors between annual meetings vest as to 50% of the
shares subject to the option on each of the first and second anniversaries of
the date of grant.
Notwithstanding the foregoing regular vesting provisions, an option held by
a non-employee director vests and becomes immediately exercisable upon the
latest of (i) the date on which such director attains 62 years of age, (ii) the
date on which such director has completed five years of Service (as hereinafter
defined), and (iii) the first anniversary of the date of grant of such option
or, if applicable, the annual meeting of stockholders next succeeding the annual
meeting at which such option was granted. Any option granted to an eligible
non-employee director on or after the first accelerated vesting date for such
director automatically vests on the annual meeting of stockholders next
succeeding the annual meeting at which such option was granted. "Service", for
purposes of this provision, means service to the Company or any subsidiary of
the Company in the capacity of an advisor, consultant, employee, officer or
director, and Service as a director from an annual meeting of stockholders to
the next succeeding annual meeting constitutes a year of Service,
notwithstanding that such period may actually be more or less than one year.
The exercise price for nonstatutory options granted under the Plan to
optionees other than non-employee directors is determined by the Committee in
its discretion and may be set at not less than 50% of the fair market value (as
defined in the Plan) of the Company's Common Stock as of the date the option is
granted. The exercise price for incentive stock options granted to optionees
must be the fair market value (as defined in the Plan) of the Common Stock on
the date of grant. If an incentive stock option is granted to an employee who
owns, at the time of grant, more than 10% of the total combined voting power of
all classes of stock of the Company (or any parent or subsidiary of the Company)
(a "10% Stockholder"), the exercise price shall be at least 110% of the fair
market value of the Company's Common Stock on the date of grant. The exercise
price for options granted under the Plan may be paid in cash or, at the
discretion of the optionee, by delivery to the Company of
22
<PAGE>
unencumbered shares of Common Stock of the Company having an aggregate fair
market value on the date of exercise equal to the exercise price, or by a
combination of cash and such shares. On December 13, 1995, the last reported
sale price of the Company's Common Stock on the Nasdaq Stock Market was $23.00
per share.
The Plan provides that options may be granted at any time prior to November
29, 2004. The date and time of approval by the Committee of the granting of an
option shall be considered the date and time of the grant of such option. The
term of each option is determined by the Committee but may not exceed ten years
from the date the option is granted, or five years in the case of an incentive
stock option granted to a 10% Stockholder. Each option and all rights to
purchase shares thereunder also shall terminate three months after termination
of the employment of an optionee (other than a non-employee director), or one
year after termination of employment of an optionee who is disabled, or one year
after the death of an optionee. No option granted under the Plan shall be
assignable or transferable by the optionee otherwise than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder.
In the event of the death or disability of an optionholder, options that
were not previously exercisable will become immediately exercisable in full if
such holder was continuously employed by the Company or a parent or subsidiary
of the Company between the date the option was granted and the date of such
disability, or, in the event of death, a date not more than three months prior
to such death. Only the individual to whom an option is granted or his or her
guardian or legal representative may exercise an option granted under the Plan,
and only while such individual is an employee of the Company or of a parent or
subsidiary thereof, and only if such individual has been continuously employed
by the Company or a parent or subsidiary of the Company since the date the
option was granted. An optionholder (other than a non-employee director) may,
however, exercise the option within three months after termination of
employment, to the extent the option was exercisable immediately prior to such
termination, and may exercise the option within one year after termination if
termination was the result of the disability of such individual, or, if the
optionholder is a non-employee director, such optionholder may exercise the
option after such individual ceases to be a director of the Company, to the
extent the option was exercisable immediately prior to such individual's ceasing
to be a director, and may exercise the option for only one year after such
cessation, if cessation was the result of the disability of such individual. An
option may be exercised after the death of the optionholder by such holder's
legal representatives, heirs or legatees, but only within one year after the
death of such optionholder. In no event shall any option be exercisable at any
time after its expiration date.
All options granted under the Plan will be evidenced by a written agreement
in such form or forms as the Committee may from time to time determine. The
agreement shall specify when each option granted under the Plan shall become
exercisable.
In the event of the proposed dissolution or liquidation of the Company or
the proposed merger or consolidation of the Company with or into any other
corporation, unless appropriate provision shall have been made in the event of a
merger or consolidation for the protection of outstanding options granted under
the Plan (a) by substitution, in lieu of such options, of options to purchase
appropriate voting common stock (the "Survivor's Stock") of the corporation
surviving the merger or consolidation or a parent corporation of the Company or
the surviving corporation to be issuable upon the exercise of options, or (b) by
delivery of a number of shares of the Survivor's Stock with a fair market
23
<PAGE>
value (as defined in the Plan) as of the effective date of such merger or
consolidation equal to the product of the excess of the proceeds to be received
per share of Common Stock covered by the option as of the effective date over
the exercise price per share, times the number of shares covered by the option,
the Committee shall declare that each outstanding option under the Plan shall be
cancelled at the time of, or immediately prior to the occurrence of, such event
in exchange for payment to each optionholder of cash equal to the amount, for
each share covered by the cancelled option, by which the proceeds to be received
per share of Common Stock exceeds the exercise price per share covered by such
option. At the time of such declaration by the Committee, each option shall
immediately become exercisable in full, and may be exercised prior to
cancellation. The Plan shall terminate at the time of such cancellation, subject
to the aforementioned payment obligations.
The Board of Directors may at any time amend, suspend or discontinue the
Plan; provided, however, that no amendment by the Board of Directors shall,
without further approval of the stockholders of the Company, change the class of
employees eligible to receive options, increase the total number of shares of
Common Stock which may be made subject to options granted under the Plan or
change the minimum purchase price for the exercise of an option granted under
the Plan (except in the case of adjustments to give effect to certain
adjustments made in the number of shares of Common Stock of the Company
outstanding), increase the maximum period during which options may be exercised,
extend the term of the Plan or change the terms, conditions or eligibility
requirements of an option granted or to be granted to a non-employee director
under the Plan.
FEDERAL TAX CONSIDERATIONS
NONSTATUTORY STOCK OPTIONS. No taxable income to an optionee will be
realized, and the Company will not be entitled to any related deduction, at the
time any nonstatutory stock option is granted under the Plan. Generally, at the
time shares are transferred to an optionee pursuant to the exercise of a
nonstatutory stock option, the optionee will realize ordinary income equal to
the excess of the fair market value of the stock on the date of exercise over
the option price. The Company will be entitled to a deduction at the same time
and in the same amount as the optionee is considered to have realized ordinary
income as a result of exercise of a nonstatutory stock option. Upon disposition
of the shares, any additional gain or loss realized by the optionee will be
taxed as a capital gain or loss. The Company will not be entitled to a deduction
with respect to the disposition of shares by an optionee.
Delivery of shares upon exercise of a nonstatutory stock option shall be
subject to any required withholding taxes. A person exercising such an option
may, as a condition precedent to receiving the shares, be required to pay the
Company a cash amount equal to the amount of such required withholdings. The
Committee may, but is not required to, permit an optionee to elect to cover all
or any part of any required withholding taxes through a reduction in the number
of shares of Common Stock delivered to the optionee.
INCENTIVE STOCK OPTIONS. No taxable income to an optionee will be realized,
and the Company will not be entitled to any related deduction, at the time any
incentive stock option is granted under the Plan. If certain statutory
employment and holding period conditions are satisfied before the optionee
disposes of shares acquired pursuant to the exercise of such an option, then no
taxable income will result upon the exercise of such option and the Company will
not be entitled to any deduction in connection with such exercise. Upon
disposition of the shares after expiration of the statutory holding periods, any
gain or loss realized by an optionee will generally be a capital gain or loss.
The Company will not be entitled to a deduction with respect to a disposition of
the shares by an
24
<PAGE>
optionee after the expiration of the statutory holding periods. Except in the
event of death, if shares acquired by an optionee upon the exercise of an
incentive stock option are disposed of by such optionee before the expiration of
the statutory holding periods (a "disqualifying disposition"), such optionee
will be considered to have realized as compensation in the year of disposition
an amount, not exceeding the gain realized on such disposition, equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise of the option. The Company will be entitled to a deduction,
at the same time and in the same amount as the optionee is deemed to have
realized such ordinary income. Generally, any gain realized on the disposition
in excess of the amount treated as compensation or any loss realized on the
disposition will constitute capital gain or loss, respectively. If the optionee
pays the option price with shares that were originally acquired pursuant to the
exercise of an incentive stock option and the statutory holding periods for such
shares have not been met, the optionee will be treated as having made a
disqualifying disposition of such shares, and the tax consequences of such
disqualifying disposition will be as described above.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE DIGI INTERNATIONAL INC. STOCK OPTION PLAN.
25
<PAGE>
PROPOSAL TO APPROVE THE DIGI INTERNATIONAL INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTION OF EMPLOYEE STOCK PURCHASE PLAN BY THE BOARD
On November 10, 1995, the Board of Directors adopted the Digi International
Inc. Employee Stock Purchase Plan (the "Purchase Plan") and directed that the
Purchase Plan be submitted for approval by the stockholders at the 1996 Annual
Meeting of Stockholders. If approved by the stockholders, the Purchase Plan will
become effective April 1, 1996.
PURPOSE
The purpose of the Purchase Plan is to provide eligible employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of its Common Stock and, thus, to develop a stronger incentive to work
for the continued success of the Company. The Purchase Plan is an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
ADMINISTRATION
The Purchase Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Subject to the provisions of the Purchase
Plan, the Committee is authorized to determine any questions arising in the
administration, interpretation and application of the Purchase Plan, and to make
such uniform rules as may be necessary to carry out its provisions.
ELIGIBILITY AND NUMBER OF SHARES
Up to 500,000 shares of Common Stock of the Company are available for
distribution under the Purchase Plan, subject to appropriate adjustments by the
Committee in the event of certain changes in the outstanding shares of Common
Stock by reason of stock dividends, stock splits, corporate separations,
recapitalizations, mergers, consolidations, combinations, exchanges of shares or
similar transactions. Shares delivered pursuant to the Purchase Plan may be
newly issued shares or treasury shares previously acquired by the Company.
Any employee of the Company or a parent or subsidiary corporation of the
Company (including officers and any directors who are also employees) will be
eligible to participate in the Purchase Plan for any Purchase Period (as defined
below) so long as, on the first day of such Purchase Period, the employee has
completed at least 90 days of continuous service and is customarily employed at
least 20 hours per week. "Purchase Period" means each quarter of the Company's
fiscal year.
Any eligible employee may elect to become a participant in the Purchase Plan
for any Purchase Period by filing an enrollment form in advance of the Purchase
Period to which it relates. The enrollment form will authorize payroll
deductions beginning with the first payday in such Purchase Period and
continuing until the employee modifies his or her authorization, withdraws from
the Purchase Plan or ceases to be eligible to participate.
No employee may participate in the Purchase Plan if such employee would be
deemed for purposes of the Code to own stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company.
The Company currently has approximately 605 employees who are eligible to
participate in the Purchase Plan.
26
<PAGE>
PARTICIPATION
An eligible employee who elects to participate in the Purchase Plan will
authorize the Company to make payroll deductions of a specified whole percentage
from 1% to 10% of the employee's gross cash compensation. A participant may, at
any time during a Purchase Period, direct the Company to adjust the amount of
deductions (within those limits) or make no further deductions, as set forth in
greater detail in the Purchase Plan. A participant may also elect to withdraw
from the Purchase Plan at any time before the end of a Purchase Period. In the
event of a withdrawal, all future payroll deductions will cease and the amounts
withheld will be paid to the participant in cash within 15 days. Any participant
who stops payroll deductions may not thereafter resume payroll deductions for
that Purchase Period, and any participant who withdraws from the Purchase Plan
will not be eligible to reenter the Purchase Plan until the next succeeding
Purchase Period.
Amounts withheld under the Purchase Plan will be held by the Company as part
of its general assets until the end of the Purchase Period and then applied to
the purchase of Common Stock of the Company as described below. No interest will
be credited to a participant for amounts withheld.
PURCHASE OF STOCK
Amounts withheld for a participant in the Purchase Plan will be used to
purchase Common Stock of the Company as of the last day of the Purchase Period
at a price equal to the 85% of the lesser of the Fair Market Value (as defined
in the Purchase Plan) of a share of Common Stock on either the first or last day
of the Purchase Period. All amounts so withheld will be used to purchase the
number of shares of Common Stock (including fractional shares) that can be
purchased with such amount, unless the participant has properly notified the
Company that he or she elects to purchase a lesser number of shares or to
receive the entire amount in cash.
If purchases by all participants would exceed the number of shares of Common
Stock available for purchase under the Purchase Plan, each participant will be
allocated a ratable portion of such available shares. Any amount not used to
purchase shares of Common Stock will be refunded to the participant in cash.
Shares of Common Stock acquired by each participant will be held in a
general account maintained for the benefit of all participants. Certificates for
the number of whole shares of Common Stock purchased by a participant will be
issued and delivered to him or her only upon the request of such participant or
his or her representative. No certificates for fractional shares will be issued
and participants will instead receive cash representing any fractional share.
Dividends with respect to a participant's shares held in the general account
will, at the election of the participant, either be paid to the participant in
cash or reinvested in additional shares of Common Stock of the Company. If a
participant fails to make such an election, all dividends with respect to the
participant's shares held in the general account will automatically be
reinvested to purchase additional shares of Common Stock of the Company. Each
participant will be entitled to vote all shares held for the benefit of such
participant in the general account.
No more than $25,000 in Fair Market Value (determined on the first day of
the respective Purchase Periods) of shares of Common Stock may be purchased
under the Purchase Plan and all other employee stock purchase plans, if any, of
the Company and any parent or subsidiary corporation of the Company by any
participant for each calendar year.
27
<PAGE>
DEATH, DISABILITY, RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
If the employment of a participant is terminated for any reason, including
death, disability or retirement, the amounts previously withheld will be applied
to the purchase of shares of Common Stock as of the last day of the Purchase
Period in which the participant's employment terminated, unless the participant
has properly notified the Company prior to the last day of such Purchase Period
that he or she elects to receive a refund of all amounts previously withheld.
RIGHTS NOT TRANSFERABLE
The rights of a participant under the Purchase Plan are exercisable only by
the participant during his or her lifetime. No right or interest of any
participant in the Purchase Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution.
AMENDMENT OR MODIFICATION
The Board of Directors may at any time amend the Purchase Plan in any
respect which shall not adversely affect the rights of participants pursuant to
shares previously acquired under the Purchase Plan, provided that approval by
the stockholders of the Company is required to (i) increase the number of shares
of Common Stock to be reserved under the Purchase Plan (except for adjustments
by reason of stock dividends, stock splits, corporate separations,
recapitalizations, mergers, consolidations, combinations, exchanges of shares
and similar transactions), (ii) decrease the minimum purchase price, (iii)
withdraw the administration of the Purchase Plan from the Committee, or (iv)
change the definition of employees eligible to participate in the Purchase Plan.
TERMINATION
All rights of participants in any offering under the Purchase Plan will
terminate at the earlier of (i) the day that participants become entitled to
purchase a number of shares of Common Stock equal to or greater than the number
of shares remaining available for purchase or (ii) at any time, at the
discretion of the Board of Directors, after 30 days' notice has been given to
all participants. Upon termination of the Purchase Plan, shares of Common Stock
will be issued to participants in accordance with the terms of the Purchase
Plan, and cash, if any, previously withheld and not used to purchase Common
Stock will be refunded to the participants, as if the Purchase Plan were
terminated at the end of a Purchase Period.
FEDERAL TAX CONSIDERATIONS
Participants will not recognize any income as a result of participation in
the Purchase Plan until the disposal of shares acquired under the Purchase Plan
or the death of the participant. Participants who hold their shares for more
than one year or die while holding their shares will recognize ordinary income
in the year of disposition or death equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition or death over the
purchase price paid by the participant or (ii) the excess of the fair market
value of the shares on the first day of the Purchase Period over the purchase
price paid by the participant. If the holding period has been satisfied when the
participant sells the shares or if the participant dies while holding the
shares, the Company will not be entitled to any deduction in connection with the
transfer of such shares to the participant.
Participants who hold their shares for less than one year after the shares
are transferred to them will be considered to have realized ordinary income in
the year of disposition in an amount equal to the excess of the fair market
value of the shares on the date they were purchased by the participant over
28
<PAGE>
the purchase price paid by the participant. If such dispositions occur, the
Company generally will be entitled to a deduction at the same time and in the
same amount as the ordinary income realized by the participants.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of disposition of the shares. Any additional gain or loss realized on the
disposition of shares acquired under the Purchase Plan will be capital gain or
loss.
COPY OF PURCHASE PLAN
The full text of the Purchase Plan is set forth as Exhibit B to this Proxy
Statement, to which Exhibit reference is made for a complete statement of the
terms of the Purchase Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
DIGI INTERNATIONAL INC. EMPLOYEE STOCK PURCHASE PLAN.
29
<PAGE>
RELATIONSHIP WITH AND APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P., independent public accountants, has
been the auditors for the Company since 1986. Upon the recommendation of the
Audit Committee, the Board of Directors has again selected Coopers & Lybrand
L.L.P. to serve as the Company's independent public accountants for the fiscal
year ending September 30, 1996, subject to ratification by the stockholders.
While it is not required to do so, the Board of Directors is submitting the
selection of that firm for ratification in order to ascertain the view of the
stockholders. If the selection is not ratified, the Board of Directors will
reconsider its selection.
A representative of Coopers & Lybrand L.L.P. will be present at the annual
meeting and will be afforded an opportunity to make a statement if such
representative so desires and will be available to respond to appropriate
questions during the meeting.
ADDITIONAL MATTERS
The Annual Report of the Company for the fiscal year ended September 30,
1995, including financial statements, is being mailed with this Proxy Statement.
As of the date of this Proxy Statement, management knows of no matters that
will be presented for determination at the annual meeting other than those
referred to herein. If any other matters properly come before the annual meeting
calling for a vote of stockholders, it is intended that the shares represented
by the proxies solicited by the Board of Directors will be voted by the persons
named therein in accordance with their best judgment.
By Order of the Board of Directors,
[LOGO]
James E. Nicholson
SECRETARY
Dated: December 27, 1995
30
<PAGE>
EXHIBIT A
DIGI INTERNATIONAL INC.
STOCK OPTION PLAN
AS AMENDED AND RESTATED*
1. PURPOSE OF PLAN. The purpose of this Digi International Inc. Stock
Option Plan (the "Plan"), is to promote the interests of Digi International
Inc., a Delaware corporation (the "Company"), and its stockholders by providing
key personnel of the Company and its subsidiaries with an opportunity to acquire
a proprietary interest in the Company and thereby develop a stronger incentive
to put forth maximum effort for the continued success and growth of the Company
and its subsidiaries. In addition, the opportunity to acquire a proprietary
interest in the Company will aid in attracting and retaining key personnel of
outstanding ability.
2. ADMINISTRATION OF PLAN. This Plan shall be administered by a committee
of two or more directors (the "Committee") appointed by the Company's board of
directors (the "Board"). No person shall serve as a member of the Committee
unless such person shall be a "disinterested person" as that term is defined in
Rule 16b-3(c), promulgated under the Securities Exchange Act of 1934, as amended
(the "Act"), or any successor statute or regulation comprehending the same
subject matter. A majority of the members of the Committee shall constitute a
quorum for any meeting of the Committee, and the acts of a majority of the
members present at any meeting at which a quorum is present or the acts
unanimously approved in writing by all members of the Committee shall be the
acts of the Committee. Subject to the provisions of this Plan, the Committee may
from time to time adopt such rules for the administration of this Plan as it
deems appropriate. The decision of the Committee on any matter affecting this
Plan or the rights and obligations arising under this Plan or any option granted
hereunder, shall be final, conclusive and binding upon all persons, including
without limitation the Company, stockholders, employees and optionees. To the
full extent permitted by law, no member of the Committee shall be liable for any
action or determination taken or made in good faith with respect to this Plan or
any option granted hereunder.
Notwithstanding any contrary provisions of this Plan, the Committee shall
have no discretion with respect to the granting of options to any Outside
Director (as hereinafter defined) or to alter or amend any terms, conditions and
eligibility requirements of an option granted or to be granted to any Outside
Director under this Plan, it being understood that the granting and terms,
conditions and eligibility requirements of such options are governed solely by
the provisions set forth in this Plan pertaining thereto.
3. SHARES SUBJECT TO PLAN. The shares that may be made subject to options
granted under this Plan shall be authorized and unissued shares of common stock
(the "Common Shares") of the Company, $.01 par value, or Common Shares held in
treasury, and they shall not exceed 3,629,400 in the aggregate, except that, if
any option lapses or terminates for any reason before such option has
- ------------------------
* BOLD TEXT INDICATES AMENDMENT SUBMITTED FOR STOCKHOLDER APPROVAL; [brackets
indicate deletions]; also gives effect to a two-for-one stock split effected
in the form of a stock dividend distributed to stockholders on March 1, 1991,
a three-for-two stock split effected in the form of a stock dividend
distributed to stockholders on March 31, 1992 and all amendments to the Plan
through December 13, 1995.
A-1
<PAGE>
been completely exercised, the Common Shares covered by the unexercised portion
of such option may again be made subject to options granted under this Plan.
Appropriate adjustments in the number of shares and in the purchase price per
share may be made by the Committee in its sole discretion to give effect to
adjustments made in the number of outstanding Common Shares of the Company
through a merger, consolidation, recapitalization, reclassification,
combination, stock dividend, stock split or other relevant change, provided that
fractional shares shall be rounded to the nearest whole share.
4. ELIGIBLE PARTICIPANTS. Options may be granted under this Plan to any
key employee of the Company or any subsidiary thereof, including any such
employee who is also an officer or director of the Company or any subsidiary
thereof. Nonstatutory stock options, as defined in paragraph 5(a) hereof, also
shall be granted to directors of the Company who are not employees of the
Company or any subsidiary thereof (the "Outside Directors") in accordance with
paragraph 6 hereof and may also be granted to other individuals or entities who
are not "employees" but who provide services to the Company or a parent or
subsidiary thereof in the capacity of an advisor or consultant. Options granted
to Outside Directors shall have the terms and conditions specified in paragraph
6 and elsewhere in this Plan (other than paragraph 5) and options granted to
employees and other individuals or entities shall have the terms and conditions
specified in paragraph 5 and elsewhere in this Plan (other than paragraph 6).
References herein to "employment" and similar terms shall include the providing
of services in any such capacity or as a director.
5. TERMS AND CONDITIONS OF EMPLOYEE OPTIONS.
(a) Subject to the terms and conditions of this Plan (other than paragraph
6), the Committee may, from time to time prior to November 29, 2004, grant to
such eligible employees as the Committee may determine options to purchase such
number of Common Shares of the Company on such terms and conditions as the
Committee may determine; provided, however, that no employee may be granted
options with respect to more than 250,000 Common Shares during any calendar
year. In determining the employees to whom options shall be granted and the
number of Common Shares to be covered by each option, the Committee may take
into account the nature of the services rendered by the respective employees,
their present and potential contributions to the success of the Company, and
such other factors as the Committee in its sole discretion shall deem relevant.
The date and time of approval by the Committee of the granting of an option
shall be considered the date and the time of the grant of such option. The
Committee in its sole discretion may designate whether an option is to be
considered an "incentive stock option" (as that term is defined in Section 422
of the Internal Revenue Code of 1986, as amended, or any amendment thereto (the
"Code")) or a nonstatutory stock option (an option granted under this Plan that
is not intended to be an "incentive stock option"). The Committee may grant both
incentive stock options and nonstatutory stock options to the same individual.
However, if an incentive stock option and a nonstatutory stock option are
awarded simultaneously, such options shall be deemed to have been awarded in
separate grants, shall be clearly identified, and in no event shall the exercise
of one such option affect the right to exercise the other. To the extent that
the aggregate Fair Market Value (as defined in paragraph 5(c)) of Common Shares
with respect to which incentive stock options (determined without regard to this
sentence) are exercisable for the first time by any individual during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) exceeds $100,000, such options shall be treated as nonstatutory
stock options.
(b) The purchase price of each Common Share subject to an option granted
pursuant to this paragraph 5 shall be fixed by the Committee. For nonstatutory
stock options, such purchase price may
A-2
<PAGE>
be set at not less that 50% of the Fair Market Value (as defined below) of a
Common Share on the date of grant. For incentive stock options, such purchase
price shall be no less than 100% of the Fair Market Value of a Common Share on
the date of grant, provided that if such incentive stock option is granted to an
employee who owns, or is deemed under Section 424(d) of the Code to own, at the
time such option is granted, stock of the Company (or of any parent or
subsidiary of the Company) possessing more than 10% of the total combined voting
power of all classes of stock therein (a "10% Stockholder"), such purchase price
shall be no less than 110% of the Fair Market Value of a Common Share on the
date of grant.
(c) For purposes of this Plan, the "Fair Market Value" of a Common Share at
a specified date shall, unless otherwise expressly provided in this Plan, mean
the closing sale price of a Common Share on the date immediately preceding such
date or, if no sale of such shares shall have occurred on that date, on the next
preceding day on which a sale of such shares occurred, on the Composite Tape for
New York Stock Exchange listed shares or, if such shares are not quoted on the
Composite Tape for New York Stock Exchange listed shares, on the principal
United States securities exchange registered under the Act, on which the shares
are listed, or, if such shares are not listed on any such exchange, on the
National Association of Securities Dealers, Inc. Automated Quotation
System/National Market System or any similar system then in use or, if such
shares are not included in the National Association of Securities Dealers, Inc.
Automated Quotation System/National Market System or any similar system then in
use, the mean between the closing "bid" and the closing "asked" quotation of
such a share on the date immediately preceding the date as of which such Fair
Market Value is being determined, or, if no closing bid or asked quotation is
made on that date, on the next preceding day on which a quotation is made, on
the National Association of Securities Dealers, Inc. Automated Quotation System
or any similar system then in use, provided that if the shares in question are
not quoted on any such system, Fair Market Value shall be what the Committee
determines in good faith to be 100% of the fair market value of such a share as
of the date in question. Notwithstanding anything stated in this paragraph, if
the applicable securities exchange or system has closed for the day by the time
the determination is being made, all references in this paragraph to the date
immediately preceding the date in question shall be deemed to be references to
the date in question.
(d) Each option agreement provided for in paragraph 14 hereof shall specify
when each option granted under this Plan shall become exercisable.
(e) Each option granted pursuant to this paragraph 5 and all rights to
purchase shares thereunder shall cease on the earliest of:
(i) ten years after the date such option is granted (or in the case of
an incentive stock option granted to a 10% Stockholder, five years after the
date such option is granted) or on such date prior thereto as may be fixed
by the Committee on or before the date such option is granted;
(ii) the expiration of the period after the termination of the
optionee's employment within which the option is exercisable as specified in
paragraph 8(b) or 8(c), whichever is applicable; or
(iii) the date, if any, fixed for cancellation pursuant to paragraph 9 of
this Plan.
In no event shall any option be exercisable at any time after its original
expiration date. When an option is no longer exercisable, it shall be deemed to
have lapsed or terminated and will no longer be outstanding.
A-3
<PAGE>
6. TERMS AND CONDITIONS OF OUTSIDE DIRECTOR OPTIONS.
(a) Subject to the terms and conditions of this Plan (other than paragraph
5), the Committee shall grant options to each Outside Director who is not on the
date such option would be granted the beneficial owner (as defined in Rule 13d-3
under the Act) of more than 5% of the outstanding Common Shares, on the terms
and conditions set forth in this paragraph 6. During the term of this Plan and
provided that sufficient Common Shares are available pursuant to paragraph 3:
(i) each person who is an Outside Director at the conclusion of each
Annual Meeting of Stockholders HELD PRIOR TO THE DATE OF THE 1996 ANNUAL
MEETING OF STOCKHOLDERS shall be granted a nonstatutory stock option on the
date of such Annual Meeting of Stockholders. The date of such Annual Meeting
of Stockholders also shall be the date of grant for options granted pursuant
to this subparagraph 6(a)(i). The number of Common Shares covered by each
such option shall be 15,000 (7,500 on or after the 1992 Annual Meeting of
Stockholders);
(ii) each person who is elected to be an Outside Director between Annual
Meetings of Stockholders AND PRIOR TO THE DATE OF THE 1996 ANNUAL MEETING OF
STOCKHOLDERS shall be granted a nonstatutory stock option. The date such
person is elected to be an Outside Director of the Company [(the "Date of
Election")] by the Board shall be the date of grant for such options granted
pursuant to this subparagraph 6(a)(ii). The number of Common Shares covered
by each such option shall be 15,000 (7,500 on or after the 1992 Annual
Meeting of Stockholders) multiplied by a fraction, the numerator of which
shall be 12 minus the number of whole 30-day months that have elapsed from
the date of the most recent Annual Meeting of Stockholders to the [Date of
Election of such] DATE SUCH PERSON IS ELECTED TO BE AN Outside Director, and
the denominator of which shall be 12;
(III) EACH PERSON WHO IS ELECTED TO BE AN OUTSIDE DIRECTOR AT ANY TIME ON
OR AFTER THE DATE OF THE 1996 ANNUAL MEETING OF STOCKHOLDERS AND WHO WAS NOT
AT ANY TIME PREVIOUSLY A DIRECTOR OF THE COMPANY SHALL BE GRANTED A
NONSTATUTORY STOCK OPTION. THE DATE SUCH PERSON IS ELECTED TO BE AN OUTSIDE
DIRECTOR OF THE COMPANY SHALL BE THE DATE OF GRANT FOR SUCH OPTIONS GRANTED
PURSUANT TO THIS SUBPARAGRAPH 6(A)(III). THE NUMBER OF COMMON SHARES COVERED
BY EACH SUCH OPTION SHALL BE 5,000;
(IV) EACH PERSON WHO IS AN OUTSIDE DIRECTOR AT THE CONCLUSION OF THE 1996
ANNUAL MEETING OF STOCKHOLDERS AND AT THE CONCLUSION OF EACH ANNUAL MEETING
OF STOCKHOLDERS THEREAFTER SHALL BE GRANTED A NONSTATUTORY STOCK OPTION ON
THE DATE OF SUCH ANNUAL MEETING OF STOCKHOLDERS. THE DATE OF SUCH ANNUAL
MEETING OF STOCKHOLDERS SHALL ALSO BE THE DATE OF GRANT FOR OPTIONS GRANTED
PURSUANT TO THIS SUBPARAGRAPH 6(A)(IV). THE NUMBER OF COMMON SHARES COVERED
BY EACH SUCH OPTION SHALL BE 1,500;
(V) EACH PERSON WHO IS ELECTED TO BE AN OUTSIDE DIRECTOR BETWEEN ANNUAL
MEETINGS OF STOCKHOLDERS AND AFTER THE DATE OF THE 1996 ANNUAL MEETING OF
STOCKHOLDERS SHALL BE GRANTED A NONSTATUTORY STOCK OPTION. THE DATE SUCH
PERSON IS ELECTED TO BE AN OUTSIDE DIRECTOR OF THE COMPANY BY THE BOARD
SHALL BE THE DATE OF GRANT FOR SUCH OPTIONS GRANTED PURSUANT TO THIS
SUBPARAGRAPH 6(A)(V). THE NUMBER OF COMMON SHARES COVERED BY EACH SUCH
OPTION SHALL BE 1,500 MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH SHALL
BE 12 MINUS THE NUMBER OF WHOLE 30-DAY MONTHS THAT HAVE ELAPSED FROM THE
DATE OF THE MOST RECENT ANNUAL MEETING OF STOCKHOLDERS TO THE DATE SUCH
PERSON IS ELECTED TO BE AN OUTSIDE DIRECTOR, AND THE DENOMINATOR OF WHICH
SHALL BE 12;
(VI) EACH PERSON WHO IS AN OUTSIDE DIRECTOR AT THE CONCLUSION OF THE 1996
ANNUAL MEETING OF STOCKHOLDERS AND EACH ANNUAL MEETING OF STOCKHOLDERS
THEREAFTER MAY ELECT IN WRITING TO BE GRANTED A
A-4
<PAGE>
NONSTATUTORY STOCK OPTION ON THE DATE OF SUCH ANNUAL MEETING OF STOCKHOLDERS
IN LIEU OF ALL CASH COMPENSATION TO WHICH SUCH OUTSIDE DIRECTOR WOULD BE
ENTITLED FOR THE BOARD YEAR OF THE COMPANY COMMENCING WITH SUCH ANNUAL
MEETING OF STOCKHOLDERS. THE DATE OF SUCH ANNUAL MEETING OF STOCKHOLDERS
SHALL ALSO BE THE DATE OF GRANT FOR OPTIONS GRANTED PURSUANT TO THIS
SUBPARAGRAPH 6(A)(VI). THE NUMBER OF COMMON SHARES COVERED BY EACH SUCH
OPTION SHALL BE 6,000. ANY SUCH ELECTION BY AN OUTSIDE DIRECTOR SHALL BE
IRREVOCABLE AND MUST BE RECEIVED BY THE COMPANY AT LEAST SIX MONTHS PRIOR TO
THE DATE IT IS TO BECOME EFFECTIVE, OR SUCH SHORTER PERIOD PRIOR TO THE DATE
IT IS TO BECOME EFFECTIVE AS THE COMMITTEE MAY PERMIT; AND
(VII) EACH PERSON WHO IS ELECTED TO BE AN OUTSIDE DIRECTOR BETWEEN ANNUAL
MEETINGS OF STOCKHOLDERS AND AFTER THE DATE OF THE 1996 ANNUAL MEETING OF
STOCKHOLDERS MAY ELECT IN WRITING TO BE GRANTED A NONSTATUTORY STOCK OPTION
IN LIEU OF ALL CASH COMPENSATION TO WHICH SUCH OUTSIDE DIRECTOR WOULD
OTHERWISE BE ENTITLED FOR THE PERIOD COMMENCING WITH THE DATE SUCH PERSON IS
ELECTED TO BE AN OUTSIDE DIRECTOR OF THE COMPANY BY THE BOARD AND ENDING ON
THE DATE OF THE NEXT ANNUAL MEETING OF STOCKHOLDERS. THE DATE SUCH PERSON IS
ELECTED TO BE AN OUTSIDE DIRECTOR OF THE COMPANY BY THE BOARD SHALL BE THE
DATE OF GRANT FOR SUCH OPTIONS GRANTED PURSUANT TO THIS SUBPARAGRAPH
6(A)(VII). THE NUMBER OF COMMON SHARES COVERED BY EACH SUCH OPTION SHALL BE
6,000 MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH SHALL BE 12 MINUS THE
NUMBER OF WHOLE 30-DAY MONTHS THAT HAVE ELAPSED FROM THE DATE OF THE MOST
RECENT ANNUAL MEETING OF STOCKHOLDERS TO THE DATE SUCH PERSON IS ELECTED TO
BE AN OUTSIDE DIRECTOR, AND THE DENOMINATOR OF WHICH SHALL BE 12. SUCH
ELECTION BY AN OUTSIDE DIRECTOR SHALL BE IRREVOCABLE AND MUST BE RECEIVED BY
THE COMPANY AT LEAST SIX MONTHS PRIOR TO THE DATE IT IS TO BECOME EFFECTIVE,
OR SUCH SHORTER PERIOD PRIOR TO THE DATE IT IS TO BECOME EFFECTIVE AS THE
COMMITTEE MAY PERMIT.
(b) The purchase price of each Common Share subject to an option granted to
an Outside Director pursuant to this paragraph 6 shall be the Fair Market Value
of a Common Share on the date of grant.
(c)(i)
Subject to the provisions of paragraphs 6(e) and 6(f) hereof, the
options granted to Outside Directors pursuant to subparagraph 6(a)(i)
shall vest and become exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
ANNUAL MEETING CUMULATIVE PERCENTAGE
OF STOCKHOLDERS BECOMING EXERCISABLE
- ------------------------------------------------------------- ------------------------
<S> <C>
One Year After Grant......................................... 20%
Two Years After Grant........................................ 40%
Three Years After Grant...................................... 60%
Four Years After Grant....................................... 80%
Five Years After Grant....................................... 100%
</TABLE>
A-5
<PAGE>
(ii) Subject to the provisions of paragraph 6(e) hereof, the options
granted to Outside Directors pursuant to subparagraph 6(a)(ii) shall vest
and become exercisable in accordance with the following schedule:
<TABLE>
<CAPTION>
ANNIVERSARY OF THE CUMULATIVE PERCENTAGE
DATE OF GRANT BECOMING EXERCISABLE
- ------------------------------------------------------------- ------------------------
<S> <C>
One Year After Grant......................................... 20%
Two Years After Grant........................................ 40%
Three Years After Grant...................................... 60%
Four Years After Grant....................................... 80%
Five Years After Grant....................................... 100%
</TABLE>
(III) SUBJECT TO THE PROVISIONS OF PARAGRAPHS 6(E) AND 6(F) HEREOF, (X)
OPTIONS GRANTED TO OUTSIDE DIRECTORS PURSUANT TO SUBPARAGRAPH 6(A)(IV) AND
(VI) AND (Y) OPTIONS GRANTED TO OUTSIDE DIRECTORS PURSUANT TO SUBPARAGRAPH
6(A)(III) IF THE DATE OF GRANT OF SUCH OPTIONS IS THE DATE OF AN ANNUAL
MEETING OF STOCKHOLDERS SHALL VEST AND BECOME EXERCISABLE IN ACCORDANCE WITH
THE FOLLOWING SCHEDULE:
<TABLE>
<CAPTION>
ANNUAL MEETING CUMULATIVE PERCENTAGE
OF STOCKHOLDERS BECOMING EXERCISABLE
- ------------------------------------------------------------- -------------------------
<S> <C>
ONE YEAR AFTER GRANT......................................... 50%
TWO YEARS AFTER GRANT........................................ 100%
</TABLE>
(IV) SUBJECT TO THE PROVISIONS OF PARAGRAPH 6(E) AND 6(F) HEREOF, (X) THE
OPTIONS GRANTED TO OUTSIDE DIRECTORS PURSUANT TO SUBPARAGRAPHS 6(A)(V) AND
(VII) AND (Y) OPTIONS GRANTED TO OUTSIDE DIRECTORS PURSUANT TO SUBPARAGRAPH
6(A)(III) IF THE DATE OF GRANT OF SUCH OPTIONS IS A DATE OTHER THAN THE DATE
OF AN ANNUAL MEETING OF STOCKHOLDERS SHALL VEST AND BECOME EXERCISABLE IN
ACCORDANCE WITH THE FOLLOWING SCHEDULE:
<TABLE>
<CAPTION>
ANNIVERSARY OF THE CUMULATIVE PERCENTAGE
DATE OF GRANT BECOMING EXERCISABLE
- ------------------------------------------------------------- -------------------------
<S> <C>
ONE YEAR AFTER GRANT......................................... 50%
TWO YEARS AFTER GRANT........................................ 100%
</TABLE>
(d) Notwithstanding the terms of paragraphs 6(a), 6(b) and 6(c) hereof,
options shall be granted to Willis K. Drake ("Drake") and to Richard E. Eichhorn
("Eichhorn"), on the effective date of the merger (the "Merger") of Digiboard,
Inc., a Minnesota corporation, with and into the Company, to purchase (i) 15,000
Common Shares at a purchase price of $.50 per share, in substitution for options
previously granted to Drake and Eichhorn on October 1, 1987 (the "1987
Options"), which 1987 Options shall vest and become exercisable in accordance
with the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE PERCENTAGE
DATE BECOMING EXERCISABLE
- ------------------------------------------------------------- ------------------------
<S> <C>
Effective Date of this Plan.................................. 20%
October 1, 1989.............................................. 40%
October 1, 1990.............................................. 60%
October 1, 1991.............................................. 80%
October 1, 1992.............................................. 100%
</TABLE>
A-6
<PAGE>
and (ii) 15,000 Common Shares at a purchase price of $.50 per share, in
substitution for options previously granted to Drake and Eichhorn on October 1,
1988 (the "1988 Options"), which 1988 Options shall vest and become exercisable
in accordance with the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE PERCENTAGE
DATE BECOMING EXERCISABLE
- ------------------------------------------------------------- ------------------------
<S> <C>
October 1, 1989.............................................. 20%
October 1, 1990.............................................. 40%
October 1, 1991.............................................. 60%
October 1, 1992.............................................. 80%
October 1, 1993.............................................. 100%
</TABLE>
(e) Notwithstanding the vesting schedules set forth in paragraphs 6(c) and
6(d) hereof, an option held by an Outside Director shall vest and become
immediately exercisable upon the latest of (i) the date on which such Outside
Director attains 62 years of age, (ii) the date on which such Outside Director
has completed five years of Service (as hereinafter defined) and (iii) the first
anniversary of the date of grant of such option or, if applicable, the Annual
Meeting of Stockholders next succeeding the Annual Meeting at which such option
was granted. Any option granted to an Outside Director on or after the first
accelerated vesting date for such Outside Director shall automatically vest on
the Annual Meeting of Stockholders next succeeding the Annual Meeting at which
such option was granted. As used herein, "Service" shall mean service to the
Company or any subsidiary thereof in the capacity of any advisor, consultant,
employee, officer or director, and Service as a director from an Annual Meeting
of Stockholders to the next succeeding Annual Meeting shall constitute a year of
Service, notwithstanding that such period may actually be more or less than one
year.
(f) Each option granted to an Outside Director pursuant to this paragraph 6
and all rights to purchase shares thereunder shall terminate on the earliest of:
(i) ten years after the date such option is granted; provided, however,
that the 1987 Options shall terminate on September 30, 1997, and the 1988
Options shall terminate on September 30, 1998;
(ii) the expiration of the period specified in paragraph 8(b) or 8(c),
whichever is applicable, after an Outside Director ceases to be a director
of the Company; or
(iii) the date, if any, fixed for cancellation pursuant to paragraph 9 of
this Plan.
In no event shall such option be exercisable at any time after its original
expiration date. When an option is no longer exercisable, it shall be deemed to
have lapsed or terminated and will no longer be outstanding.
7. MANNER OF EXERCISING OPTIONS. A person entitled to exercise an option
granted under this Plan may, subject to its terms and conditions and the terms
and conditions of this Plan, exercise it in whole at any time, or in part from
time to time, by delivery to the Company at its principal executive office, to
the attention of its President, of written notice of exercise, specifying the
number of shares with respect to which the option is being exercised,
accompanied by payment in full of the purchase price of the shares to be
purchased at the time. The purchase price of each share on the exercise of any
option shall be paid in full in cash (including check, bank draft or money
order) at the time of exercise or, at the discretion of the holder of the
option, by delivery to the Company of unencumbered Common Shares having an
aggregate Fair Market Value on the date of exercise equal to the purchase price,
or
A-7
<PAGE>
by a combination of cash and such unencumbered Common Shares. No shares shall be
issued until full payment therefor has been made, and the granting of an option
to an individual shall give such individual no rights as a stockholder except as
to shares issued to such individual.
8. TRANSFERABILITY AND TERMINATION OF OPTIONS.
(a) During the lifetime of an optionee, only such optionee or his or her
guardian or legal representative may exercise options granted under this Plan.
No option granted under this Plan shall be assignable or transferable by the
optionee otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined in the Code or Title
I of the Employee Retirement Income Security Act ("ERISA"), or the rules
thereunder.
(b) During the lifetime of an optionee, an option may be exercised only
while the optionee is an employee of the Company or of a parent or subsidiary
thereof, and only if such optionee has been continuously so employed since the
date the option was granted, except that:
(i) an option granted to an individual who is not an Outside Director
shall continue to be exercisable for three months after termination of such
individual's employment but only to the extent that the option was
exercisable immediately prior to such individual's termination of
employment, and an option granted to an individual who is an Outside
Director shall continue to be exercisable after such Outside Director ceases
to be a director of the Company but only to the extent that the option was
exercisable immediately prior to such Outside Director's ceasing to be a
director;
(ii) in the case of an employee who is disabled (within the meaning of
Section 22(e)(3) of the Code) while employed, such individual or his or her
legal representative may exercise the option within one year after
termination of such individual's employment; and
(iii) as to any individual whose termination occurs following a
declaration pursuant to paragraph 9 of this Plan, such individual may
exercise the option at any time permitted by such declaration.
(c) An option may be exercised after the death of the optionee by such
individual's legal representatives, heirs or legatees, but only within one year
after the death of such optionee.
(d) In the event of the disability (within the meaning of Section 22(e)(3)
of the Code) or death of an optionee, any option held by such individual or his
or her legal representative that was not previously exercisable shall become
immediately exercisable in full if the disabled or deceased individual shall
have been continuously employed by the Company or a parent or subsidiary thereof
between the date such option was granted and the date of such disability, or, in
the event of death, a date not more than three months prior to such death.
9. DISSOLUTION, LIQUIDATION, MERGER. In the event of (a) a proposed merger
or consolidation of the Company with or into any other corporation, regardless
of whether the Company is the surviving corporation, unless appropriate
provision shall have been made for the protection of the outstanding options
granted under this Plan by the substitution, in lieu of such options, of options
to purchase appropriate voting common stock (the "Survivor's Stock") of the
corporation surviving any such merger or consolidation or, if appropriate, the
parent corporation of the Company or such surviving corporation, or,
alternatively, by the delivery of a number of shares of the Survivor's Stock
which has a Fair Market Value as of the effective date of such merger or
consolidation equal to the product of (i) the
A-8
<PAGE>
excess of (x) the Event Proceeds per Common Share (as hereinafter defined)
covered by the option as of such effective date, over (y) the option price per
Common Share, times (ii) the number of Common Shares covered by such option, or
(b) the proposed dissolution or liquidation of the Company (such merger,
consolidation, dissolution or liquidation being herein called an "Event"), the
Committee shall declare, at least ten days prior to the actual effective date of
an Event, and provide written notice to each optionee of the declaration, that
each outstanding option, whether or not then exercisable, shall be cancelled at
the time of, or immediately prior to the occurrence of, the Event (unless it
shall have been exercised prior to the occurrence of the Event) in exchange for
payment to each optionee, within ten days after the Event, of cash equal to the
amount (if any), for each Common Share covered by the cancelled option, by which
the Event Proceeds per Common Share (as hereinafter defined) exceeds the
exercise price per Common Share covered by such option. At the time of the
declaration provided for in the immediately preceding sentence, each option
shall immediately become exercisable in full and each optionee shall have the
right, during the period preceding the time of cancellation of the option, to
exercise his or her option as to all or any part of the Common Shares covered
thereby. Each outstanding option granted pursuant to this Plan that shall not
have been exercised prior to the Event shall be cancelled at the time of, or
immediately prior to, the Event, as provided in the declaration, and this Plan
shall terminate at the time of such cancellation, subject to the payment
obligations of the Company provided in this paragraph 9. For purposes of this
paragraph, "Event Proceeds per Common Share" shall mean the cash plus the fair
market value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Common Share by the stockholders of the Company
upon the occurrence of the Event.
10. SUBSTITUTION OPTIONS. Options may be granted under this Plan from time
to time in substitution for stock options held by employees of other
corporations who are about to become employees of the Company or a subsidiary of
the Company, or whose employer is about to become a subsidiary of the Company,
as the result of a merger or consolidation of the Company or a subsidiary of the
Company with another corporation, the acquisition by the Company or a subsidiary
of the Company of all or substantially all the assets of another corporation or
the acquisition by the Company or a subsidiary of the Company of at least 50% of
the issued and outstanding stock of another corporation. The terms and
conditions of the substitute options so granted may vary from the terms and
conditions set forth in this Plan to such extent as the Board at the time of the
grant may deem appropriate to conform, in whole or in part, to the provisions of
the stock options in substitution for which they are granted, but with respect
to stock options which are incentive stock options, no such variation shall be
permitted which affects the status of any such substitute option as an incentive
stock option under Section 422A of the Code.
11. TAX WITHHOLDING. Delivery of Common Shares upon exercise of any
nonstatutory stock option granted under this Plan shall be subject to any
required withholding taxes. A person exercising such an option may, as a
condition precedent to receiving the Common Shares, be required to pay the
Company a cash amount equal to the amount of any required withholdings. In lieu
of all or any part of such a cash payment, the Committee may, but shall not be
required to, permit the individual to elect to cover all or any part of the
required withholdings, and to cover any additional withholdings up to the amount
needed to cover the individual's full FICA and federal, state and local income
tax liability with respect to income arising from the exercise of the option,
through a reduction of the number of Common Shares delivered to the person
exercising the option or through a subsequent return to the
A-9
<PAGE>
Company of shares delivered to the person exercising the option; provided,
however, that the Committee is required to permit an Outside Director to make
such an election. Except as set forth in paragraph 11(c) below, any such
election by an individual who is subject to the reporting requirements of
Section 16 of the Act (a "Section 16 Individual"), also is subject to the
following:
(a) Any such election by a Section 16 Individual may be made only during
certain specified time periods, as follows:
(i) the election may be made during the period beginning on the third
business day following the date of public release of the Company's quarterly
or annual financial statements and ending on the twelfth business day
following such date of public release; or
(ii) the election may be made at least six months prior to the date as
of which the amount of tax to be withheld is determined;
provided, however, an election by such a person pursuant to clause (i) or (ii)
may not be made within six months of the date of grant of the option being
exercised unless death or disability of the individual to whom the option was
granted occurs during said six-month period; and
(b) The Committee's approval of such an election by a Section 16 Individual,
if given, may be granted in advance, but is subject to revocation by the
Committee at any time; provided, however, that such an election by a Section 16
Individual who is an Outside Director is not subject to approval nor to
revocation by the Committee. Once such an election is made by a Section 16
Individual, he or she may not revoke it.
(c) Notwithstanding the foregoing, a Section 16 Individual who tenders
previously owned shares to the Company in payment of the purchase price of
shares in connection with an option exercise may also tender previously owned
shares to the Company in satisfaction of any tax withholding obligations in
connection with such option exercise without regard to the specified time
periods set forth in paragraph 11(a) above.
12. TERMINATION OF EMPLOYMENT. Neither the transfer of employment of an
individual to whom an option is granted between any combination of the Company,
a parent corporation or a subsidiary thereof, nor a leave of absence granted to
such individual and approved by the Committee, shall be deemed a termination of
employment for purposes of this Plan. The terms "parent" or "parent corporation"
and "subsidiary" as used in this Plan shall have the meaning ascribed to "parent
corporation" and "subsidiary corporation", respectively, in Sections 424(e) and
(f) of the Code.
13. OTHER TERMS AND CONDITIONS. The Committee shall have the power,
subject to the terms and conditions of paragraph 6 hereof and subject to the
other limitations contained herein, to fix any other terms and conditions for
the grant or exercise of any option under this Plan. Nothing contained in this
Plan, or in any option granted pursuant to this Plan, shall confer upon any
employee holding an option any right to continued employment by the Company or
any parent or subsidiary of the Company or limit in any way the right of the
Company or any such parent or subsidiary to terminate an employee's employment
at any time.
14. OPTION AGREEMENTS. All options granted under this Plan shall be
evidenced by a written agreement in such form or forms as the Committee may from
time to time determine, which agreement shall, among other things, designate
whether the options being granted thereunder are nonstatutory stock options or
incentive stock options under Section 422 of the Code.
A-10
<PAGE>
15. AMENDMENT AND DISCONTINUANCE OF PLAN. The Board may at any time amend,
suspend or discontinue this Plan; provided, however, that the Board shall not
amend paragraph 6 hereof more than once every six months, other than to comport
with changes in the Code, ERISA, or the rules thereunder; and provided, further,
that no amendment by the Board shall, without further approval of the
stockholders of the Company, if required in order for the Plan to continue to
satisfy the conditions of Rule 16b-3 promulgated under the Act, or any successor
statute or regulation comprehending the same subject matter or to meet the
requirements of the Code:
(a) change the class of employees eligible to receive options;
(b) except as provided in paragraph 3 hereof, increase the total number
of Common Shares of the Company which may be made subject to options granted
under this Plan;
(c) except as provided in paragraph 3 hereof, change the minimum
purchase price for the exercise of an option;
(d) increase the maximum period during which options may be exercised or
otherwise materially increase the benefits accruing to participants under
this Plan;
(e) extend the term of this Plan beyond November 29, 2004; or
(f) change the terms, conditions or eligibility requirements of an
option granted or, subject to the right of the Board to discontinue this
Plan, to be granted to each Outside Director under this Plan.
No amendment to this Plan shall, without the consent of the holder of the
option, alter or impair any options previously granted under this Plan.
16. EFFECTIVE DATE. This Plan shall be effective upon the Merger.
A-11
<PAGE>
EXHIBIT B
DIGI INTERNATIONAL INC. EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE AND SCOPE OF PLAN. The purpose of this Digi International
Inc. Employee Stock Purchase Plan (the "Plan") is to provide the employees of
Digi International Inc. (the "Company") with an opportunity to acquire a
proprietary interest in the Company through the purchase of its Common Stock
and, thus, to develop a stronger incentive to work for the continued success of
the Company. The Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended,
and shall be interpreted and administered in a manner consistent with such
intent.
2. DEFINITIONS.
2.1.
The terms defined in this section are used (and capitalized) elsewhere
in this Plan:
(a) "AFFILIATE" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as defined in Sections 424(e) and
424(f) of the Code or any successor provision, and whose participation in
the Plan has been approved by the Board of Directors.
(c) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
(e) "COMMITTEE" means three or more Disinterested Persons designated by
the Board of Directors to administer the Plan under Section 13.
(f) "COMMON STOCK" means the common stock, par value $.01 per share (as
such par value may be adjusted from time to time), of the Company.
(g) "COMPANY" means Digi International Inc.
(h) "COMPENSATION" means the gross cash compensation (including wage,
salary, commission, bonus, and overtime earnings) paid by the Company or any
Affiliate to a Participant in accordance with the terms of employment.
(i) "DISINTERESTED PERSONS" means a member of the Board of Directors who
is considered a disinterested person within the meaning of Exchange Act Rule
16b-3 or any successor definition.
(j) "ELIGIBLE EMPLOYEE" means any employee of the Company or an
Affiliate who has been employed for at least 90 days and whose customary
employment is at least 20 hours per week; provided, however, that "Eligible
Employee" shall not include any person who would be deemed for purposes of
Section 423(b)(3) of the Code, to own stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
(l) "FAIR MARKET VALUE" of a share of Common Stock as of any date means,
if the Company's Common Stock is listed on a national securities exchange or
traded in the national market system, the mean between the high and low sale
prices for such Common Stock on such exchange or market on said date, or, if
no sale has been made on such exchange or market on said date, on
B-1
<PAGE>
the last preceding day on which any sale shall have been made. If such
determination of Fair Market Value is not consistent with the then current
regulations of the Secretary of the Treasury applicable to plans intended to
qualify as an "employee stock purchase plan" within the meaning of Section
423(b) of the Code, however, Fair Market Value shall be determined in
accordance with such regulations. The determination of Fair Market Value
shall be subject to adjustment as provided in Section 14.
(m) "PARTICIPANT" means an Eligible Employee who has elected to
participate in the Plan in the manner set forth in Section 4.
(n) "PLAN" means this Digi International Inc. Employee Stock Purchase
Plan, as amended from time to time.
(o) "PURCHASE PERIOD" means each quarter of the Company's fiscal year.
The first Purchase Period will be the quarter that starts April 1, 1996 and
ends June 30, 1996.
(p) "RECORDKEEPING ACCOUNT" means the account maintained in the books
and records of the Company recording the amount withheld from each
Participant through payroll deductions made under the Plan.
3. SCOPE OF THE PLAN. Shares of Common Stock may be sold by the Company
to Eligible Employees commencing April 1, 1996, as hereinafter provided, but not
more than 500,000 shares of Common Stock (subject to adjustment as provided in
Section 14) shall be sold to Eligible Employees pursuant to this Plan. All sales
of Common Stock pursuant to this Plan shall be subject to the same terms,
conditions, rights and privileges. The shares of Common Stock delivered by the
Company pursuant to this Plan may be acquired shares having the status of any
combination of authorized but unissued shares, newly issued shares, or treasury
shares.
4. ELIGIBILITY AND PARTICIPATION. To be eligible to participate in the
Plan for a given Purchase Period, an employee must be an Eligible Employee on
the first day of such Purchase Period. An Eligible Employee may elect to
participate in the Plan by filing an enrollment form with the Company before the
first day of such Purchase Period that authorizes regular payroll deductions
from Compensation beginning with the first payday in such Purchase Period and
continuing until the Eligible Employee withdraws from the Plan, modifies his or
her authorization, or ceases to be an Eligible Employee, as hereinafter
provided.
5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE.
5.1.
Subject to the provisions of the Plan, each Eligible Employee shall be
offered the right to purchase on the last day of the Purchase Period the
number of shares of Common Stock (including fractional shares) that can be
purchased at the price specified in Section 5.2 with the entire credit balance
in the Participant's Recordkeeping Account; provided, however, that the Fair
Market Value (determined on the first day of any Purchase Period) of shares of
Common Stock that may be purchased by a Participant during such Purchase Period
shall not exceed the excess, if any, of (i) $25,000 over (ii) the Fair Market
Value (determined on the first day of the relevant Purchase Period) of shares of
Common Stock previously acquired by the Participant in any prior Purchase Period
during such calendar year. Notwithstanding the foregoing, no Eligible Employee
shall be granted an option to acquire shares of Common Stock under this Plan
which permits the Eligible Employee's rights to purchase shares of Common Stock
under this Plan and all employee stock purchase plans of the Company and the
Affiliates to accrue at a rate which exceeds $25,000 of Fair
B-2
<PAGE>
Market Value (determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time. If the purchases by all
Participants would otherwise cause the aggregate number of shares of Common
Stock to be sold under the Plan to exceed the number specified in Section 3,
however, each Participant shall be allocated at a ratable portion of the maximum
number of shares of Common Stock which may be sold.
5.2.
The purchase price of each share of Common Stock sold pursuant to this
Plan will be the lesser of (a) or (b) below:
(a) 85% of the Fair Market Value of such share on the first day of the
Purchase Period.
(b) 85% of the Fair Market Value of such share on the last day of the
Purchase Period.
6. METHOD OF PARTICIPATION.
6.1.
The Company shall give notice to each Eligible Employee of the
opportunity to purchase shares of Common Stock pursuant to this Plan and
the terms and conditions for such offering. Such notice is subject to revision
by the Company at any time prior to the date of purchase of such shares. The
Company contemplates that for tax purposes the first day of a Purchase Period
will be the date of the offering of such shares.
6.2.
Each Eligible Employee who desires to participate in the Plan for a
Purchase Period shall signify his or her election to do so by signing an
election form developed by the Committee. An Eligible Employee may elect to have
any whole percent of Compensation withheld, but not exceeding ten percent (10%)
per pay period. An election to participate in the Plan and to authorize payroll
deductions as described herein must be made before the first day of the Purchase
Period to which it relates and shall remain in effect unless and until such
Participant withdraws from this Plan, modifies his or her authorization, or
terminates his or her employment with the Company, as hereinafter provided.
6.3.
Any Eligible Employee who does not make a timely election as provided in
Section 6.2, shall be deemed to have elected not to participate in the
Plan. Such election shall be irrevocable for such Purchase Period.
7. RECORDKEEPING ACCOUNT.
7.1.
The Company shall maintain a Recordkeeping Account for each Participant.
Payroll deductions pursuant to Section 6 will be credited to such
Recordkeeping Accounts on each payday.
7.2.
No interest will be credited to a Participant's Recordkeeping Account.
7.3.
The Recordkeeping Account is established solely for accounting purposes,
and all amounts credited to the Recordkeeping Account will remain part
of the general assets of the Company.
7.4.
A Participant may not make any separate cash payment into the
Recordkeeping Account.
8. RIGHT TO ADJUST PARTICIPATION OR TO WITHDRAW.
8.1.
A Participant may, at any time during a Purchase Period, direct the
Company to make no further deductions from his or her Compensation or to
adjust the amount of such deductions. Upon either of such actions, future
payroll deductions with respect to such Participant shall cease or be adjusted
in accordance with the Participant's direction.
B-3
<PAGE>
8.2.
Any Participant who stops payroll deductions may not thereafter resume
payroll deductions during such Purchase Period.
8.3.
At any time before the end of a Purchase Period, any Participant may
also withdraw from the Plan. In such event, all future payroll
deductions shall cease and the entire credit balance in the Participant's
Recordkeeping Account will be paid to the Participant, without interest, in cash
within 15 days. A Participant who withdraws from the Plan will not be eligible
to reenter the Plan until the next succeeding Purchase Period.
8.4.
Notification of a Participant's election to adjust or terminate
deductions, or to withdraw from the Plan, shall be made by the filing of
an appropriate notice to such effect with the Company.
9. TERMINATION OF EMPLOYMENT. If the employment of a Participant is
terminated for any reason, including death, disability, or retirement, the
entire balance in the Participant's Recordkeeping Account will be applied to the
purchase of shares as provided in Section 10.1 as of the last day of the
Purchase Period in which the Participant's employment terminated; except that if
such Participant so requests prior to the last day of such Purchase Period, the
Company shall refund in cash within 15 days all amounts credited to his or her
Recordkeeping Account.
10. PURCHASE OF SHARES.
10.1.
As of the last day of the Purchase Period, the entire credit balance in
each Participant's Recordkeeping Account will be used to purchase shares
(including fractional shares) of Common Stock (subject to the limitations of
Section 5) unless the Participant has filed an appropriate form with the Company
in advance of that date (which either elects to purchase a specified number of
shares which is less than the number described above or elects to receive the
entire credit balance in cash). Any amount in a Participant's Recordkeeping
Account that is not used to purchase shares pursuant to this Section 10.1 will
be refunded to the Participant.
10.2.
Shares of Common Stock acquired by each Participant shall be held in a
general account maintained for the benefit of all Participants.
10.3.
Certificates for the number of whole shares of Common Stock, determined
as aforesaid, purchased by each Participant shall be issued and
delivered to him or her only upon request of the Participant or his or her
representative directed to the Company. No Certificates for fractional shares
will be issued. Instead, Participants will receive a cash distribution
representing any fractional shares.
10.4.
Dividends with respect to a Participant's shares held in the general
account will, at the election of the Participant, either be paid to the
Participant in cash or reinvested in additional shares of Common Stock. If a
Participant fails to make such an election, all dividends with respect to the
Participant's shares held in the general account will automatically be
reinvested to purchase additional shares of Common Stock.
10.5.
Each Participant will be entitled to vote all shares held for the
benefit of such Participant in the general account.
11. RIGHTS AS A STOCKHOLDER. A Participant shall not be entitled to any
of the rights or privileges of a stockholder of the Company with respect to such
shares, including the right to receive any dividends which may be declared by
the Company, until (i) he or she actually has paid the purchase price for such
shares and (ii) either the shares have been credited to his or her account or
certificates have been issued to him or her, both as provided in Section 10.
B-4
<PAGE>
12. RIGHTS NOT TRANSFERABLE. A Participant's rights under this Plan are
exercisable only by the Participant during his or her lifetime, and may not be
sold, pledged, assigned or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge, assign or
transfer the same shall be null and void and without effect. The amounts
credited to a Recordkeeping Account may not be assigned, transferred, pledged or
hypothecated in any way, and any attempted assignment, transfer, pledge,
hypothecation or other disposition of such amounts will be null and void and
without effect.
13. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the
Committee, which is authorized to make such uniform rules as may be necessary to
carry out its provisions. The Committee shall determine any questions arising in
the administration, interpretation and application of this Plan, and all such
determinations shall be conclusive and binding on all parties.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the Common Stock of the Company by reason of stock dividends,
split-ups, corporate separations, recapitalizations, mergers, consolidations,
combinations, exchanges of shares and the like, the aggregate number and class
of shares available under this Plan and the number, class and purchase price of
shares available but not yet purchased under this Plan, shall be adjusted
appropriately by the Committee.
15. REGISTRATION OF CERTIFICATES. Stock certificates will be registered
in the name of the Participant, or jointly in the name of the Participant and
another person, as the Participant may direct on an appropriate form.
16. AMENDMENT OF PLAN. The Board of Directors may at any time amend this
Plan in any respect which shall not adversely affect the rights of Participants
pursuant to shares previously acquired under the Plan, except that, without
stockholder approval on the same basis as required by Section 19.1, no amendment
shall be made (i) to increase the number of shares to be reserved under this
Plan, (ii) to decrease the minimum purchase price, (iii) to withdraw the
administration of this Plan from the Committee, or (iv) to change the definition
of employees eligible to participate in the Plan.
17. EFFECTIVE DATE OF PLAN. This Plan shall consist of an offering
commencing April 1, 1996, and ending June 30, 1996, and continuing on a
quarterly basis thereafter. All rights of Participants in any offering hereunder
shall terminate at the earlier of (i) the day that Participants become entitled
to purchase a number of shares of Common Stock equal to or greater than the
number of shares remaining available for purchase or (ii) at any time, at the
discretion of the Board of Directors, after 30 days' notice has been given to
all Participants. Upon termination of this Plan, shares of Common Stock shall be
issued to Participants in accordance with Section 10, and cash, if any,
remaining in the Participant's Recordkeeping Accounts shall be refunded to them,
as if the Plan were terminated at the end of a Purchase Period.
18. GOVERNMENTAL REGULATIONS AND LISTING. All rights granted or to be
granted to Eligible Employees under this Plan are expressly subject to all
applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale or
transfer of the shares of Common Stock reserved for this Plan, including,
without limitation, there being a current registration statement of the Company
under the Securities Act of 1933, as amended, covering the shares of Common
Stock purchasable on the last day of the Purchase Period applicable to such
shares, and if such a registration statement shall not then be effective, the
term of such Purchase Period shall be extended until the first business day
after the effective date of such a registration
B-5
<PAGE>
statement, or post-effective amendment thereto. If applicable, all such rights
hereunder are also similarly subject to effectiveness of an appropriate listing
application to a national securities exchange or a national market system,
covering the shares of Common Stock under the Plan upon official notice of
issuance.
19. MISCELLANEOUS
19.1.
This Plan shall be submitted for approval by the stockholders of the
Company prior to June 30, 1996. If not so approved prior to such date,
this Plan shall terminate on June 30, 1996.
19.2.
This Plan shall not be deemed to constitute a contract of employment
between the Company and any Participant, nor shall it interfere with the
right of the Company to terminate any Participant and treat him or her without
regard to the effect which such treatment might have upon him or her under this
Plan.
19.3.
Wherever appropriate as used herein, the masculine gender may be read
as the feminine gender, the feminine gender may be read as the masculine
gender, the singular may be read as the plural and the plural may be read as the
singular.
19.4.
The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Minnesota.
19.5.
Delivery of shares of Common Stock or of cash pursuant to this Plan
shall be subject to any required withholding taxes. A person entitled to
receive shares of Common Stock may, as a condition precedent to receiving such
shares, be required to pay the Company a cash amount equal to the amount of any
required withholdings.
B-6
<PAGE>
DIGI INTERNATIONAL INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
[LOGO] 6400 FLYING CLOUD DRIVE The undersigned hereby appoints John P.
Schinas and Ervin F. EDEN PRAIRIE, MINNESOTA 55344 Kamm, Jr., and each of them,
as Proxies, each with the power to appoint his substitute, and hereby authorizes
such Proxies to represent and to vote, as designated below, all the shares of
Common Stock of Digi International Inc. held of record by the undersigned on
December 13, 1995, at the Annual Meeting of Stockholders to be held on January
31, 1996, or any adjournment thereof. PROXY 1. ELECTION OF DIRECTORS. Nominees
to the Board of Directors are John P.
Schinas, Richard E. Offerdahl and Jagdish N. Sheth. All nominees will serve
for a term of three years.
/ / FOR ALL NOMINEES LISTED ABOVE / / WITHHOLD AUTHORITY
<PAGE>
(except as marked to the contrary below) to vote for all nominees provided
below (INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name in the space provided below.)
_______________________________________________________________________________
2. AMENDMENTS TO THE STOCK OPTION PLAN providing for the granting of stock
options to non-employee directors.
/ / FOR / / AGAINST / / ABSTAIN 3. APPROVAL OF THE DIGI INTERNATIONAL INC.
EMPLOYEE STOCK PURCHASE PLAN. / / FOR / / AGAINST / / ABSTAIN 4. RATIFICATION OF
THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. as independent
public accountants of the Company for the 1996 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4. THE
PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER MATTERS
WHICH MAY PROPERLY COME BEFORE THE MEETING. Please sign exactly as name appears
below. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator,
<PAGE>
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
_____________________________________
Signature
_____________________________________
Signature if held jointly
Dated:_______________________________
______________________________________
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
<PAGE>
______________________________________
