DIGI INTERNATIONAL INC, 10-K405, 1995-12-28

DIGI INTERNATIONAL INC
10-K405, 1995-12-28
COMPUTER PERIPHERAL EQUIPMENT, NEC

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the fiscal year ended September 30, 1995 or
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 0-17972
-------

DIGI INTERNATIONAL INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 41-1532464
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6400 Flying Cloud Drive
Eden Prairie, Minnesota 55344
---------------------------------------- ----------
(Address of principal executive officers) (Zip Code)

Registrant's telephone number, including area code: (612) 943-9020

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
----------------------------
(Title of each class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past ninety days.
YES X NO
----- -------

The aggregate market value of voting stock held by nonaffiliates of the
Registrant, based on a closing price of $23.00 per share as reported on the
National Association of Securities dealers Automated Quotation System - National
Market System on December 13, 1994 was $258,986,141.

Shares of common stock outstanding as of December 13, 1995: 13,228,442.

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE

The following table shows, except as otherwise noted, the location of
information, required in this Form 10-K, in the Registrant's Annual Report to
Stockholders for the year ended September 30, 1995 and Proxy Statement for the
Registrant's Annual Meeting of Stockholders scheduled for January 31, 1996, a
definitive copy of which was filed on December 27, 1995. All such information
set forth below under the heading "Reference" is incorporated herein by
reference.

PART I ITEM IN FORM 10-K REFERENCE
- ------ ----------------- ----------
<S> <C> <C>
Item 1. Business Business, pages 4 through
7, this document

Item 2. Properties Properties, page 7
this document

Item 3. Legal Proceedings Legal Proceedings, page 8
this document

Item 4. Submission of Matters to a Submission of Matters
to Vote of Security Holders a Vote of Security
Holders, page 8, this
document

PART II
- -------
Item 5. Market for Registrant's Stock Listing; Dividend
Common Equity and Related Policy, page 32, Annual
Stockholder Matters Report to Stockholders

Item 6. Selected Financial Data Financial Highlights, and
Selected Financial
Information, pages 3 & 4,
Annual Report to
Stockholders

Item 7. Management's Discussion Management's Discussion
And Analysis of Financial and Analysis of Financial
Condition and Results of Condition and Results of
Operations Operations, pages 20 and
21, Annual Report to Stockholders

Item 8. Financial Statements and Annual Report to Stock-
Supplementary Data holders, pages 22 through
31

</TABLE>

<S> <C> <C>
Item 9. Changes in and Disagree- Changes in and Dis-
ments with Accountants on agreements with
Accounting and Financial Accountants on Accounting and Financial Disclosure,
Disclosure page 8, this document

PART III ITEM IN FORM 10-K REFERENCE
- -------- ----------------- ----------

Item 10. Directors of the Registrant Election of Directors,
Proxy Statement

Executive Officers of Executive Officers of the
the Registrant Registrant, pages 8 through 10,this document

Compliance with Section Section 16(a) Reporting,
16(a) of the Exchange Act Proxy Statement

Item 11. Executive Compensation Executive Compensation;
Election of Directors,
Summary Compensation
Table; Option Grants in
Last Fiscal Year;
Aggregated Option
Exercises in the Last
Fiscal Year and Year-end
Option Values, Employment
Contracts; Severance,
Termination of Employment
and Change-in-Control
Arrangements; Performance
Evaluation, Proxy
Statement

Item 12. Security Ownership of Security Ownership of
Certain Beneficial Owners Principal Stockholders
and Management and Management, Proxy
Statement

Item 13. Certain Relationships and Certain Relationships and
Related TransactionsRelated Transactions,
Proxy Statement

PART IV
- -------

Item 14. Exhibits, Financial Exhibits, Financial State
Statement Schedules and ment Schedules and
Reports on Form 8-K Reports on Form 8-K,
pages 10 through 12, this
document
</TABLE>

<PAGE>
DIGI INTERNATIONAL INC.

FORM 10-K

Year ended September 30, 1995

PART I

ITEM 1. BUSINESS

Digi International Inc. (the "Company") was formed in 1985 and is a leading
producer of data communications hardware and software products that deliver
solutions for multiuser environments, remote access markets both LAN and
WAN, and the LAN connect market.

The Company's multiuser products connect terminals, PCs running terminal
emulation software, and other serial devices, to a PC-based host. This
pathway enables users to share the processing power of a single host
computer. These products are ideal for companies-or workgroups within
companies-that need easy, low-cost system management and high performance
at the lowest cost per user. These products are ideal for point-of-sale
applications, on-line transaction processing, factory automation, dial-
in/dial-out connections and data dissemination.

The Company's multiuser solutions support from one to 224 high-speed serial
ports through a single expansion slot or as many as 1,792 ports through a
single host (eight expansion slots). In addition to maximizing the
capabilities of a multiuser system by enabling hundreds of users to be
connected to a system, an equally important benefit is the product's
ability to quickly and accurately transmit data, eliminating the
information bottlenecks that result when multiple users or devices share
one processing unit.

The Company's remote access products address the need to connect
telecomuters and branch offices to corporate LANs, other branches, other
individuals through server-centric and standalone product solutions. Only
the Company has solutions for each portion of this large and fast growing
market. The Company entered the standalone solution market with the
acquisition of Lan Access Corporation in September 1995 in a cash
transaction of approximately $5.5 million.

The Company's ISDN products address the need for high-speed remote access
which is necessary for LAN-to-LAN (WAN) internetworking and for accessing
the Internet.

The Company entered the LAN Connect market with its acquisition of MiLAN
Technology Corporation in November 1993.

<PAGE>

The Company's LAN connect group provides cost-effective and power-
efficient Ethernet and Token Ring networking products through three groups:

1) The original "physical layer" line of products that allow users
to easily build and expand networks using single and multiport
transceivers, converters, modular microhubs and modular repeaters.

2) Products based on the innovative FastPort line, which makes print
sharing convenient and affordable. The FastPort line includes the
industry's first multiprotocol network print server providing access
to any printer on an Ethernet or Token Ring network without the
inconvenience and expense of spooling through a workstation or server.

3) Network performance enhancement products, including the first
comprehensive family of physical layer connectivity solutions for Fast
Ethernet.

The Company's products are sold through a network of more than 109
distributors in the United States, Canada and 56 countries worldwide.

Committed to the development and evolution of innovative connectivity and
networking solutions, the Company works closely with customers and
marketing partners to meet the changing needs of the communications and
networking marketplace.

The Company markets its products to a broad range of customers, including
major domestic and international distributors, system integrators, VARs and
OEMs. In July 1991, the Company opened a sales support office in Germany to
increase sales support to the European distribution network for its
DigiBoard products. In October 1993, the Company opened a sales support
office in Singapore to increase sales support to the Pacific Rim
distribution network for its products.

To serve these markets, the Company (i) offers products that, in the
opinion of management, provide superior performance relative to current
standards and application requirements, (ii) provides products that are
compatible with a broad array of operating systems and microcomputer and
workstation architectures, and (iii) provides, in the opinion of
management, superior technical support, including frequent and timely
product updates and ready access to the Company's support staff.

The microcomputer industry is characterized by rapid technological advances
and evolving industry standards. The market can be significantly affected
by new product

<PAGE>

introductions and marketing activities of industry participants. The
Company competes for customers on the basis of product performance in
relation to compatibility, support, quality and reliability, product
development capabilities, price and availability. Many of the Company's
competitors and potential competitors have greater financial,
technological, manufacturing, marketing and personnel resources than the
Company. The Company believes that it is the market leader in the
multiuser market segment of the computer industry and is the leader in the
server centric portion of the remote access portion of that market. With
respect to the standalone portion of the remote access market and the LAN
connect market, the Company believes it commands less than a 5% market
share.

The Company's manufacturing operations procure all parts and certain
services involved in the production of products. The Company subcontracts
most of its product manufacturing to outside firms that specialize in
providing such services. The Company believes that this approach to
manufacturing is beneficial because it permits the Company to reduce its
fixed costs, maintain production flexibility and maximize its profit
margins.

The Company's products are manufactured to its designs with standard and
semi-custom components. Virtually all of these components are available
from multiple vendors.

During fiscal years 1993, 1994 and 1995, the Company's research and
development expenditures were $5,187,337, $9,833,859, and $14,676,683
respectively.

Due to the rapidly changing technology in the computer industry, the
Company believes that its success depends primarily upon the engineering,
marketing, manufacturing and support skills of its personnel, rather than
upon patent protection. Although the Company may seek patents where
appropriate and has certain patent applications pending for proprietary
technology, the Company's proprietary technology or products are generally
not patented. The Company relies primarily on the copyright, trademark and
trade secret laws to protect its proprietary rights in its products. The
Company has established common law and registered trademark rights on a
family of marks for a number of its products.

At September 30, 1995, the Company had 605 full-time employees.

During the year ended September 30, 1995, two customers comprised more than
10% of net sales; Ingram Micro at 12.5% and IBM at 11.7%. During 1994, one
company (Ingram Micro) accounted for 11.8% of net sales. During 1993, two

<PAGE>

customers comprised more than 10% of net sales; Ingram Micro at 10.3% and
IBM at 10.8%.

As of November 30, 1995, the Company had backlog orders which management
believed to be firm in the amount of $11,314,685. All of these orders are
expected to be filled in the current fiscal year. Backlog at November 30,
1994 was $9,390,100.

During fiscal years 1993, 1994 and 1995, the Company's net sales to
customers outside the United States, primarily in Europe, amounted to
approximately $20,000,000, $28,000,000, and $33,000,000, respectively.

ITEM 2. PROPERTIES

The Company's headquarters and research facilities are currently located
in a 30,000 square foot office building in Eden Prairie, Minnesota which
the Company acquired in December 1990 and has occupied since January
1991. The Company purchased a 133,000 square foot building in September
1995 which will become the corporate office and the primary research
site in February 1996. The Company's primary manufacturing facilities
are currently located in a 58,000 square foot building in Eden Prairie,
Minnesota, which the Company purchased in May 1993 and has occupied
since August 1993. Additional office and research facilities are located
in a 17,000 square foot facility in Nashville, Tennessee, the lease for
which expires in September 2000; a 22,000 square foot facility in Solon,
Ohio, the lease for which expires in January 1996; a 46,000 square foot
facility in Sunnyvale, California, the lease for which expires in April
2003, with additional temporary office space in a 10,000 square foot
building, located in Sunnyvale, California the lease for which expires
in December 1995 and; a 10,525 square foot building in Torrance,
California the lease for which expires in January 1997. The Company's
sales support office in Germany is located in a 3,400 square foot office
in Cologne, Germany, the lease for which expires in November 1998. The
Company's sales support office in Asia is located in a 1,600 square foot
office in Singapore, the lease for which expires in October 1997.
Management believes that the Company's facilities are suitable and
adequate for current office, research and warehouse requirements, and
that its manufacturing facilities provide sufficient productive capacity
to meet the Company's currently anticipated needs.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

There are no material pending or threatened legal,
governmental, administrative or other proceedings to which the Company
or any of its subsidiaries is a party or to which any of its or its
subsidiaries' property is subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during
the quarter ended September 30, 1995.

PART II

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

None.

PART III

ITEM 10. EXECUTIVE OFFICERS OF THE REGISTRANT

Name Age Position
---- --- --------
John P. Schinas 58 Chairman of the Board of
Directors

Ervin F. Kamm, Jr. 56 President and Chief
Executive Officer

Mykola Moroz 58 Former President and
Chief Executive Officer

Gary L. Deaner 55 Vice President of the
Company and General
Manager of LAN Connect
PMU

Gerald A. Wall 49 Vice President, Chief
Financial Officer and
Treasurer

Ray D. Wymer, Jr. 39 Vice President of the
Company and General
Manager of the Multi
Connect PMU

Keith C. Rericha 40 Vice President of Support
Services

<PAGE>

Joseph A. Diodati 53 Vice President of
Marketing and Strategic
Planning

Douglas J. Glader 52 Vice President of
Operations

Dana R. Nelson 47 Vice President of Sales

James R. Baker 50 Vice President of
Technology and Standards

Mr. Schinas, founder of the Company, retired as Chief Executive Officer
effective January 27, 1992. He has been a member of the Board of Directors
since the Company's inception in July 1985 and was elected Chairman of the
Board of Directors in July 1991. From July 1985 to July 1991, Mr. Schinas
also served the Company as President and Treasurer.

Mr. Kamm has been a member of the Board of Directors since December 1994 and
President and Chief Executive Officer of the Company since November 30, 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., Micromedics Inc. and
the Institute for Advanced Technology.

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 irector of Manufacturing Operations. Mr. Moroz is also a
director of Parts 1, Inc., a privately held corporation that is a supplier to
the Company.

Mr. Deaner has been Vice President of the Company since October 1990. Since
March 1991, to September 30, 1995, he has also served as President of the
Company's Arnet and MiLAN subsidiaries. Currently, he is General Manager of
the Remote Access PMU. From August 1985 to October 1990, Mr. Deaner was
employed by the Company as Director of Marketing.

Mr. Wall has been Vice President, Chief Financial Officer and Treasurer of
the Company since July 1991. He joined

<PAGE>

the Company as Chief Financial Officer/Director of Finance and Administration
in August 1989.

Mr. Wymer has been Vice President of the Company since April 1993 when Star
Gate was acquired. From 1984 to September 30, 1995, he has served as President
of Star Gate and currently is General manager of Multi-Connect PMU.

Mr. Rericha has been Vice President of the Company since April 1993 when Star
Gate was acquired. From 1984 to September 30, 1995, he has served as
Executive Vice President of Star Gate and currently is Vice President of
Support Services.

Mr. Diodati, 52, was named Vice President of Marketing in March 1995. Since
joining the company in April 1992, he has served as Director of Marketing and
Strategic Planning and Divisional Vice President of Marketing and Strategic
Planning. Prior to joining Digi International Inc., he served as Vice
President of Marketing and Sales at Saratoga Group and served in a similar
capacity at Viewport Technology.

Mr. Glader, 52, was named Vice President of Operations in February 1995.
Before that, he was formerly Director of Manufacturing and Operations for
MiLAN Technology Corporation. He began his career with Memorex Corporation
and also worked for Measurex Corporation, Altus Corporation and Direct
Incorporated. He founded and was vice president of operations for Greyhawk
Systems, Inc., a manufacturer of electronic imaging hardware and software.

Mr. Nelson, 47, was named to the position of Vice President of Sales for Digi
International effective June 1, 1995. From 1983 to 1995, Nelson was with
Ascom Timeplex, most recently as Vice President of Worldwide Sales. Ascom
Timplex is a worldwide leader in LAN and WAN networking solutions.

Mr. Baker, 50, joined the Company in October 1995 as Vice President of
Technology and Standards. From 1991 to 1995, Baker was Senior Vice President,
Telecommunications, for Loral Corporation where he managed the synchronous
transfer mode (ATM) switching products business. Before that, Baker held a
variety of positions, including tenures at GTE and Harris Corporation.

PART IV

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

<PAGE>

(a) Consolidated Financial Statements and Schedules

1. Incorporated by reference to pages 22 through 31 of the
Company's 1995 Annual Report to Stockholders:

Consolidated Statements of Operations for the fiscal years
ended 1995, 1994 and 1993

Consolidated Balance Sheets as of September 30, 1995 and
1994

Consolidated Statements of Cash Flows for the fiscal years
ended 1995, 1994 and 1993

Consolidated Statements of Stockholders' Equity for the
fiscal years ended 1995, 1994 and 1993

Notes to Consolidated Financial Statements

Report of Independent Accountants

2. Included in Part II:

Report of Independent Accountants on Financial Statement
Schedules

Schedule II - Valuation and Qualifying
Accounts

All other schedules are omitted because they are not applicable or are not
required.

(b) Reports on Form 8-K

There were no reports filed on Form 8-K during the
quarter ended September 30, 1995.

Exhibit Number Description
-------------- -----------
3(a) Restated Certificate of Incorporation of the Registrant*

3(b) Amended and Restated By-Laws of the Registrant**

10(a) Stock Option Plan of the Registrant***

10(b) Form of indemnification agreement with directors and
officers of the Registrant*

<PAGE>

10(f) 401-(K) Savings and Profit Sharing Plan of Digi
International Inc.****

10(g) Amended and Restated Employment Agreement between the
Company and Ervin F. Kamm, Jr.

10(n) Employment Agreement with Ray D.Wymer, as amended by
Amendment No. 1 to Employment Agreement

10(o) Employment Agreement with Keith C.Rericha, as amended by
Amendment No. 1 to Employment Agreement

10(p) Employment arrangement between the Registrant and
Douglas Glader for fiscal 1995

10(q) Employment arrangement between the Registrant and
Dana R. Nelson for fiscal 1995 and 1996

11 Detail computation of earnings per share

13 1995 Annual Report to Stockholders (only those portions
specifically incorporated by reference herein shall be
deemed filed with the Securities and Exchange
Commission).

21 Subsidiaries of the Registrant

23 Consent of Independent Accountants

27 Financial Data Schedule

* Incorporated by reference to the corresponding exhibit number of the
Company's Registration Statement on Form S-1 (File No.33-30725).

** Incorporated by reference to the corresponding exhibit number of the
Company's Registration Statement on Form S-1 (File No.33-42384).

*** Incorporated by reference to Exhibit A to the Registrant's Proxy Statement
for its Annual Meeting of Stockholders scheduled for January 31, 1996 (File
No. 0-17972).

**** Incorporated by reference to the corresponding exhibit number of the
Company's Form 10-K for the year ended September 30, 1991.

<PAGE>

SIGNATURES

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

DIGI INTERNATIONAL INC.

December 28, 1995 By:/s/ Ervin F. Kamm, Jr.
- ------------------------------- -------------------------------
Date Ervin F. Kamm, Jr.
President and Chief
Executive Officer

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

December 28, 1995 By:/s/ Ervin F. Kamm, Jr.
- ------------------------------- -------------------------------
Date Ervin F. Kamm, Jr.
President and Chief
Executive Officer
(Principal Executive
Officer)

December 28, 1995 By:/s/ Gerald A. Wall
- ------------------------------- -------------------------------
Date Gerald A. Wall
Vice President, Chief
Financial Officer and
Treasurer (Principal
Financial and Accounting
Officer)

December 28, 1995 /s/ Willis K. Drake
- ------------------------------- ----------------------------------
Date Willis K. Drake

December 28, 1995 /s/ Richard E. Eichhorn
- ------------------------------- ----------------------------------
Date Richard E. Eichhorn

December 28, 1995 /s/ Ervin F. Kamm, Jr.
- ------------------------------- ----------------------------------
Date Ervin F. Kamm, Jr.

December 28, 1995 /s/ Mykola Moroz
- ------------------------------- ----------------------------------
Date Mykola Moroz

December 28, 1995
- ------------------------------- ----------------------------------
Date Richard E. Offerdahl

December 28, 1995
- ------------------------------- ----------------------------------
Date John P. Schinas

<PAGE>

December 28, 1995 /s/ Dr. Jagdish Sheth
- ------------------------------- ----------------------------------
Date Dr. Jagdish Sheth

December 28, 1995 /s/ David Stanley
- ------------------------------- ----------------------------------
Date David Stanley

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of
Digi International Inc.:

Our report on the consolidated financial statements of Digi International
Inc. has been incorporated by reference in this Form 10-K from page 31 of the
1995 Annual Report to Stockholders of Digi International Inc. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in Item 14(a)2 on page 11 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.

COOPERS & LYBRAND L.L.P.

Minneapolis, Minnesota
November 15, 1995
<PAGE>
DIGI INTERNATIONAL INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER DEDUCTIONS BALANCE AT
DESCRIPTION OF YEAR EXPENSE ACCOUNTS FROM ALLOWANCE END OF YEAR
- ----------------------------------------- ----------- ------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Deducted from Accounts Receivable:
Year ended September 30, 1993
Allowance for doubtful accounts........ 391,000 397,358 429,358(1) 359,000
Year ended September 30, 1994
Allowance for doubtful accounts........ 359,000 608,001 84,581(2) 410,082(1) 641,500
Year ended September 30, 1995
Allowance for doubtful accounts........ 641,500 243,895 228,895(1) 656,500
Deducted from Inventory:
Year ended September 30, 1993
Allowance for inventory obsolesence.... 81,000 274,000 355,000
Year ended September 30, 1994
Allowance for inventory obsolesence.... $ 355,000 $ 1,071,741 $ 72,441(2) $ 817,182(3) $ 682,000
Year ended September 30, 1995
Allowance for inventory obsolesence.... $ 682,000 $ 716,300 $ 586,300(3) $ 812,000
</TABLE>

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

(1) Uncollectible accounts charged against allowance.

(2) Balance of MiLAN Technology Corporation at date of acquisition.

(3) Scraped inventory charged against allowance.

<PAGE>

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
(Ervin F. Kamm, Jr.)

This Amended and Restated Employment Agreement is made as of November
10, 1995 by and between DIGI INTERNATIONAL INC., a Delaware corporation (the
"Company"), and Ervin F. Kamm, Jr. (the "Executive").

WHEREAS the Company and the Executive entered into an Employment
Agreement as of October 26, 1994 (the "Original Agreement");

WHEREAS the Company and the Executive desire to amend the Original
Agreement and restate the Original Agreement, as amended, in its entirety;

WHEREAS the Company desires to employ Executive in accordance with the
terms and conditions stated in this Agreement;

WHEREAS Executive desires to accept that employment pursuant to the
terms and conditions of this Agreement;

NOW THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:

I. EMPLOYMENT

1.1 EMPLOYMENT AS SENIOR EXECUTIVE. The Company hereby agrees to employ
Executive, commencing the date hereof and continuing until the date his
employment terminates pursuant to Article III hereof, in a senior executive
capacity, initially as President elect and, effective November 30, 1994, as
President and Chief Executive Officer of the Company. Executive accepts such
employment pursuant to the terms of this Agreement. Executive shall perform
such duties and responsibilities as may be determined from time to time by the
Board of Directors of the Company, which shall be consistent with his position
as an officer of the Company.

1.2 EXCLUSIVE SERVICES. Commencing as soon as practicable from and after
November 30, 1994, but in any event on or before January 1, 1995, Executive
agrees to devote his full time, attention and energy to performing his duties
and responsibilities to the Company under this Agreement during the term of this
Agreement, and prior thereto, Executive shall be an employee of the Company,
commencing October 26, 1994, devoting sufficient time to learn about the
Company's technology, marketing approach and sales channels.

II. COMPENSATION, BENEFITS AND PERQUISITES

2.1 BASE SALARY. During the period this Agreement is in effect, the
Company shall pay Executive a base salary at the annual rate set forth on
Schedule I hereto. The base salary shall be payable semi-monthly. Beginning on
or about October 1, 1995, the Board of Directors of the Company (the "Board",
which term shall include a duly authorized committee of the Board of Directors)
will review the base salary annually, and may in its sole discretion increase it
to reflect performance, appropriate industry guideline data and other factors.
However, the Board is not obligated to provide for any increases.

<PAGE>

2.2 BONUSES. Executive shall be eligible to receive a bonus for each
fiscal year during which this Agreement is in effect, as follows:

(a) The target bonus shall be equal to a percentage of base salary
paid for each fiscal year during the period of this Agreement as set forth
on Schedule I hereto. Executive shall be entitled to the target bonus
amount if the objectives set by the Company's Board-approved Budget Plan
for the fiscal year (or, in the case of the fiscal year ending September
30, 1995, the net sales and after-tax earnings targets set forth on
Schedule I hereto) are met.

(b) If some or all of the objectives of the Budget Plan (or, in the
case of the fiscal year ending September 30, 1995, the net sales and after-
tax earnings targets set forth on Schedule I hereto) are not met for a
fiscal year, then the Board will determine in its discretion what portion,
if any, of the target bonus amount will be paid to Executive for that year.
If the objectives are exceeded for a fiscal year, the Board may in its
discretion award Executive a bonus that is larger than the target bonus.

(c) The target bonus for each fiscal year shall be paid to Executive
on September 30 of each year or as soon thereafter as the Company is able
to determine whether the objectives for such bonus have been met for that
year.

(d) The Board will consult with Executive before determining the
Budget Plan for each fiscal year, beginning with the fiscal year ending
September 30, 1996. However, the Board will have authority to establish
the Budget Plan for each year in its sole discretion. The net sales and
after-tax earnings targets for the fiscal year ending September 30, 1995
are set forth on Schedule I hereto.

(e) The objectives set by the Company's Board-approved Budget Plan
for any fiscal year, and the net sales and after-tax earnings targets for
the fiscal year ending September 30, 1995 set forth on Schedule I hereto,
shall not be adjusted for the acquisition, by any means, of any businesses
or business units (and expenses related thereto) that may occur during a
particular fiscal year. The objectives set by the Company's Board-approved
Budget Plan for any fiscal year, and the net sales and after-tax earnings
targets for the fiscal year ending September 30, 1995 set forth on Schedule
I hereto, shall be equitably adjusted by the Board for the divestiture, by
any means, of any businesses or business units (and expenses related
thereto) that may occur during a particular fiscal year and to eliminate
any reorganization, restructuring or other extraordinary charge that may be
incurred during a particular fiscal year.

2.3 COMMISSIONS. Executive shall be eligible to receive a commission for
each fiscal year during which this Agreement is in effect, as follows:

(a) Executive shall be paid a commission equal to 1% of the amount by
which net sales for a fiscal year exceed the amount of net sales set forth
in the Budget Plan (or, in the case of the fiscal year ending September 30,
1995, the net sales target set forth on Schedule I hereto); provided,
however, that the after-tax profit margin of the Company must equal or
exceed the after-tax profit margin set forth in the Budget Plan for such
fiscal year (or, in the case of the fiscal year

<PAGE>

ending September 30, 1995, the target after-tax profit margin set forth on
Schedule I hereto). If the after-tax profit margin for such fiscal year is
less than the after-tax profit margin set forth in the Budget Plan for such
fiscal year (or set forth on Schedule I in the case of the fiscal year
ending September 30, 1995), then the Board will determine in its discretion
what commission, if any, will be paid to Executive for that year.

(b) The commission for each fiscal year shall be paid to Executive on
September 30 of each year or as soon thereafter as the Company is able to
determine whether the objectives for such commission have been met for that
year.

(d) The net sales and after-tax profit margin targets set by the
Company's Board-approved Budget Plan for any fiscal year, and the net sales
and after-tax profit margin targets for the fiscal year ending September
30, 1995 set forth on Schedule I hereto, shall not be adjusted for the
acquisition, by any means, of any businesses or business units (and
expenses related thereto) that may occur during a particular fiscal year.
The net sales and after-tax profit margin targets set by the Company's
Board-approved Budget Plan for any fiscal year, and the net sales and
after-tax profit margin targets for the fiscal year ending September 30,
1995 set forth on Schedule I hereto, shall be equitably adjusted by the
Board for the divestiture, by any means, of any businesses or business
units (and expenses related thereto) that may occur during a particular
fiscal year and to eliminate any reorganization, restructuring or other
extraordinary charge that may be incurred during a particular fiscal year.

2.4 STOCK OPTIONS FOR THE PERIOD TO SEPTEMBER 30, 1997. As of the date of
this Agreement, Executive shall be awarded a non-statutory stock option under
the Digi International Inc. Stock Option Plan (or a newly adopted stock option
plan providing for the issuance of non-statutory stock options), as set forth on
Schedule I hereto. Executive shall also be awarded non-statutory stock options
under the Digi International Inc. Stock Option Plan (or a newly adopted stock
option plan) upon the terms and conditions set forth in Schedule I hereto as of
November 30, 1994.

2.5 STOCK OPTIONS FROM AND AFTER SEPTEMBER 30, 1997. On or about
September 30 of each year the Compensation Committee of the Board of The Company
considers and awards stock options to key employees of The Company and its
subsidiaries. These awards are made in the discretion of the Compensation
Committee and are principally intended to recognize performance over the
preceding fiscal year. Except as set forth in Section 2.4, Executive would be
first eligible for a stock option grant on or about September 30, 1997;
provided, however, that the Compensation Committee, in its sole discretion, may
award a stock option or stock options to Executive at any time on or before such
date.

2.6 FORM OF STOCK OPTION AGREEMENT. Stock option awards to Executive
shall be pursuant to stock option agreements in substantially the form of
Schedule II, with such additions thereto and deletions therefrom as Executive

<PAGE>

and the Chairman of the Board or another duly authorized officer of the Company
shall agree, such agreement to be conclusively evidenced by their execution and
delivery thereof, and, in the case of the options to be awarded as of November
30, 1994, the stock option agreements shall contain the additional provisions
set forth on Schedule I hereto.

2.7 ACKNOWLEDGMENT OF REQUIRED STOCKHOLDER APPROVAL, POTENTIAL
CANCELLATION OF OPTIONS. Executive acknowledges that the Company has no present
authority to issue stock options under the Digi International Inc. Stock Option
Plan (or any newly-adopted stock option plan) and that any options issued, or to
be issued, under this Agreement are contingent upon stockholder approval of an
increase in the number of shares under the Digi International Inc. Stock Option
Plan (or the approval of a newly-adopted stock option plan). In the event that
such stockholder approval is not obtained, Executive agrees that stock options
granted, or to be granted, under this Agreement shall be canceled, without any
compensation to Executive.

2.8 VACATIONS. Executive shall be entitled to vacation in accordance with
policies of the Company.

2.9 EMPLOYEE BENEFITS. Executive shall be entitled to the benefits and
perquisites which the Company generally provides to its other employees under
the applicable Company plans and policies, and to future benefits and
perquisites made generally available to employees of the Company. Executive's
participation in such benefit plans shall be on the same basis as applies to
other employees of the Company. Executive shall pay any contributions which are
generally required of employees to receive any such benefits.

2.10 EMPLOYMENT TAXES AND WITHHOLDING. Executive recognizes that the
compensation, benefits and other amounts provided by the Company under this
Agreement may be subject to federal, state or local income taxes. It is
expressly understood and agreed that all such taxes shall be the responsibility
of the Executive. To the extent that federal, state or local law requires
withholding of taxes on compensation, benefits or other amounts provided under
this Agreement, the Company shall withhold the necessary amounts from the
amounts payable to Executive under this Agreement.

2.11 COMPANY RESPONSIBILITY FOR INSURED BENEFITS. In this Article II, the
Company is agreeing to provide certain benefits which are provided in the form
of premiums of insurance coverage. The Company is not itself promising to pay
the benefit an insurance company is obligated to pay under the policy the
insurance company has issued. If an insurance company becomes insolvent and
cannot pay benefits it owes to Executive or his beneficiaries under the
insurance policy, neither Executive nor his personal representative or
beneficiary shall have any claim for benefits against the Company.

2.12 EXPENSES. During the term of his employment hereunder, Executive
shall be entitled to receive prompt reimbursement from the Company (in
accordance with the policies and procedures in effect for the Company's
employees) for all reasonable travel and other expenses incurred by him in
connection with his services hereunder.

2.13 RELOCATION. During the term of his employment hereunder, Executive
shall not be obligated to relocate, without his consent, from the general
vicinity of the Minneapolis/St. Paul metropolitan area.

<PAGE>

III. TERMINATION OF EXECUTIVE'S EMPLOYMENT

3.1 TERMINATION OF EMPLOYMENT. Executive's employment under this
Agreement may be terminated by the Company at any time for any reason; provided,
however, that if Executive's employment is terminated by the Company during the
term of this Agreement for a reason other than for cause, he shall be entitled
to continue to receive his base salary under Section 2.1 for a period of 12
months from his date of termination. Executive's employment under this
Agreement may be terminated by Executive at any time for any reason. The
termination shall be effective as of the date specified by the party initiating
the termination in a written notice delivered to the other party, which date
shall not be earlier than the date such notice is delivered to the other party.
This Agreement shall terminate in its entirety immediately upon the death of
Executive. Except as expressly provided to the contrary in this section or
applicable law, Executive's rights to pay and benefits shall cease on the date
his employment under this Agreement terminates.

3.2 CAUSE. For purposes of this Article III, "cause" shall mean only the
following: (i) indictment or conviction of, or a plea of nolo contendere to,
(A) any felony (other than any felony arising out of negligence) or any
misdemeanor involving moral turpitude, or (B) any crime or offense involving
dishonesty with respect to the Company;(ii) theft or embezzlement of Company
property or commission of similar acts involving dishonesty or moral turpitude;
(iii) repeated material negligence in the performance of Executive's duties;
(iv) Executive's failure to devote substantially all of his working time and
efforts during normal business hours to the Company's business; (v) knowing
engagement in conduct which is materially injurious to the Company; (vi) knowing
failure, for Executive's own benefit, to comply with the covenants contained in
Sections 4.1 or 4.2 of this Agreement; (vii) knowingly providing materially
misleading information concerning the Company to the Company's Board of
Directors, any governmental body or regulatory agency or to any lender or other
financing source or proposed financing source of the Company; (viii) failure of
the Company to meet at least 70% of Budget for either net sales or after-tax
earnings in any fiscal year; or (ix) any other failure by Executive to
substantially perform his material duties under this Agreement (excluding
nonperformance resulting from Executive's disability) which failure is not cured
within thirty (30) days after written notice from the Chairman of the Board or
the Chairman of the Compensation Committee of the Company specifying the act of
nonperformance or within such longer period (but no longer than ninety (90) days
in any event) as is reasonably required to cure such nonperformance. For
purposes of Section 3.2(viii), the net sales and after-tax earnings targets set
by the Company's Board-approved Budget Plan for any fiscal year shall not be
adjusted for the acquisition, by any means, of any businesses or business units
(and expenses related thereto) that may occur during a particular fiscal year,
but shall be equitably adjusted by the Board for the divestiture, by any means,
of any businesses or business units (and expenses related thereto) that may
occur during a particular fiscal year and to eliminate any reorganization,
restructuring or other extraordinary charge that may be incurred during a
particular fiscal year.

<PAGE>

entitled to such disability, medical, life insurance, and other benefits as may
be provided generally for disabled employees of the Company during the period he
remains disabled.

IV. NON-COMPETITION, CONFIDENTIALITY AND TRADE SECRETS

4.1 AGREEMENT NOT TO COMPETE. In consideration of the covenants and
agreements contained in this Agreement, Executive agrees that, on or before the
date which is one year after the date Executive's employment by the Company, any
parent company of the Company or any of their subsidiaries terminates, he will
not, unless he receives the prior approval of the Board of Directors of the
Company, directly or indirectly engage in any of the following actions:

(a) Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance to, or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any entity whose products or services
compete directly or indirectly with those of the Company, any parent
Company of the Company, or any of their subsidiaries. However, nothing in
this subsection (a) shall preclude Executive from holding less than one
percent of the outstanding capital stock of any corporation required to
file periodic reports with the Securities and Exchange Commission under
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
securities of which are listed on any securities exchange, quoted on the
National Association of Securities Dealers Automated Quotation System or
traded in the over-the-counter market.

(b) Intentionally solicit, endeavor to entice away from the Company,
any parent company of the Company or any of their subsidiaries, or
otherwise interfere with the relationship of the Company, any parent
company of the Company or any of their subsidiaries with, any person who is
employed by or otherwise engaged to perform services for the Company, any
parent company of the Company or any of their subsidiaries (including, but
not limited to, any independent sales representatives or organizations), or
any persons or entity who is, or was within the then most recent 12-month
period, a customer or client of the Company, any parent company of the
Company or any of their subsidiaries, whether for Executive's own account
or for the account of any other individual, partnership, firm, corporation
or other business organization.

If the scope of the restrictions in this section are determined by a court of
competent jurisdiction to be too broad to permit enforcement of such
restrictions to their full extent, then such restrictions shall be construed or
rewritten (blue-lined) so as to be enforceable to the maximum extent permitted
by law, and Executive hereby consents, to the extent he may lawfully do so, to
the judicial modification of the scope of such restrictions in any proceeding
brought to enforce them.

4.2 NON-DISCLOSURE OF INFORMATION. During the period of his employment
hereunder, and at all times thereafter, Executive shall not, without the written
consent of the Company disclose to any person, other than an employee of the
Company, any parent company of the Company or any of their subsidiaries or a
person to whom disclosure is reasonably necessary or appropriate in connection
with the performance by Executive of his duties as an executive of the Company,
except where such disclosure may be required by

<PAGE>

law, any material confidential information obtained by him while in the employ
of the Company, any parent company of the Company or any of their subsidiaries
with respect to any products, technology, know-how or the like, services,
customers, methods or future plans of the Company, any parent company of the
Company or any of their subsidiaries, all of which Executive acknowledges are
valuable, special and unique assets, the disclosure of which Executive
acknowledges may be materially damaging.

4.3 REMEDIES. Executive acknowledges that the Company's remedy at law for
any breach or threatened breach by Executive of Section 4.1 or Section 4.2 will
be inadequate. Therefore, the Company shall be entitled to injunctive and other
equitable relief restraining Executive from violating those requirements, in
addition to any other remedies that may be available to the Company under this
Agreement or applicable law.

V. MISCELLANEOUS

5.1 AMENDMENT. This Agreement may be amended only in writing, signed by
both parties and approved by the Board.

5.2 ENTIRE AGREEMENT. Before signing this Agreement the parties had
numerous conversations, including preliminary discussions, formal negotiations
and informal conversations, and generated correspondence and other writings, in
which the parties discussed the employment which is the subject of this
Agreement and their aspirations for its success. In such conversations and
writings, individuals representing the parties may have expressed their
judgments and beliefs concerning the intentions, capabilities and practices of
the parties, and may have forecasted future events. The parties recognize that
such conversations and writings often involve an effort by both sides to be
positive and optimistic about the prospects for the employment. It is also
recognized, however, that all business transactions contain an element of risk,
and that it is normal business practice to limit the legal obligations of
contracting parties to only those promises and representations which are
essential to their transaction so as to provide certainty as to their respective
future rights and remedies. Accordingly, this Agreement is intended to define
the full extent of the legally enforceable undertakings of the parties hereto,
and no related promise or representation, written or oral, which is not set
forth explicitly in this Agreement is intended by either party to be legally
binding. Both parties acknowledge that in deciding to enter into this
transaction they have relied on no representations, written or oral, other than
those explicitly set forth in this Agreement. Executive has relied entirely on
his own judgment and that of his advisers in entering into this Agreement.

5.3 ASSIGNMENT. The Company may in its sole discretion assign this
Agreement to any entity which succeeds to some or all of the business of the
Company through merger, consolidation, a sale of some or all of the assets of
the Company, or any similar transaction. Executive acknowledges that the
services to be rendered by him are unique and personal. Accordingly, Executive
may not assign any of his rights or obligations under this Agreement.

5.4 SUCCESSORS. Subject to Section 5.3, the provisions of this Agreement
shall be binding upon the parties hereto, upon any successor to or assign of the
Company, and upon Executive's heirs and the personal representative of Executive
or Executive's estate.

<PAGE>

5.5 NOTICES. Any notice required to be given under this Agreement shall
be in writing and shall be delivered either in person or by certified or
registered mail, return receipt requested. Any notice by mail shall be
addressed as follows:

If to the Company, to:

Digi International Inc.
6400 Flying Cloud Drive
Eden Prairie, MN 55344

Attention: Chairman of the Board

With a copy to:

Faegre & Benson
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3601
Attention: James E. Nicholson

If to Executive, to:

Ervin F. Kamm, Jr.
763 North Ferndale Road
Wayzata, MN 55391

or to such other addresses as either party may designate in writing to the other
party from time to time.

5.6 WAIVER OF BREACH. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement. No waiver by the Company
shall be valid unless in writing and signed by the Chairman of the Board of
Directors or Chairman of the Compensation Committee.

5.7 SEVERABILITY. If any one or more of the provisions (or portions
thereof) of this Agreement shall for any reason be held by a final determination
of a court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions (or portions of the provisions) of this Agreement, and the
invalid, illegal or unenforceable provisions shall be deemed replaced by a
provision that is valid, legal and enforceable and that comes closest to
expressing the intention of the parties hereto.

5.8 GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Minnesota, without giving effect to
conflict of law principles.

5.9 HEADINGS. The headings of articles and sections herein are included
solely for convenience and reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.

<PAGE>

5.10 COUNTERPARTS. This Agreement may be executed by either of the parties
hereto in counterparts, each of which shall be deemed to be an original, but all
such counterparts shall constitute a single instrument.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.

DIGI INTERNATIONAL INC.

By /s/ John P. Schinas
----------------------------------
Its Chairman of the Board

EXECUTIVE

/s/ Ervin F. Kamm, Jr.
------------------------------------
Ervin F. Kamm, Jr.

<PAGE>

Schedule I to

EMPLOYMENT AGREEMENT

ANNUAL BASE SALARY: $215,000.

TARGET BONUS PERCENTAGE: 120% of Base Salary.

The bonus targets for the fiscal year ending September 30, 1995:

Net sales of an amount to be separately agreed upon by the Company and
Executive.

After-tax earnings of an amount to be separately agreed upon by the Company
and Executive.

The target after-tax profit margin for commissions for the fiscal year ending
September 30, 1995 shall be an amount to be separately agreed upon by the
Company and Executive.

If the Board-approved Budget Plan for the fiscal year ending September 30, 1995
has net sales, after-tax earnings and/or after-tax profit margin objectives that
are lower than the foregoing agreed upon numbers, the lower number(s) shall be
the targets for the fiscal year ending September 30, 1995.

STOCK OPTIONS

1. Stock option award concurrent with execution of this Agreement:

Number of Shares: 60,000.

Exercise Price: $15.25 per share (i.e., the Fair Market Value (as defined
in the Digi International Inc. Stock Option Plan) per share on the date of
grant).

Vesting: 20% per year over a five-year period from the date of grant.

Expiration Date: October 26, 2004.

2. Stock option awards on November 30, 1994:

A. Number of Shares: 80,000

Exercise Price: $17.50 (i.e., the Fair Market Value (as defined in the
Digi International Inc. Stock Option Plan) per share on the date of grant).

Vesting: 20% per year over a five-year period from October 26, 1995.

Expiration Date: November 30, 2004.

Additional provision in stock option agreement: the form of stock option
agreement set forth as Schedule II hereto shall be amended to reflect that
the provisions of Section 6(c) and (d) of such agreement shall be effective
on or after October 26, 1995.

<PAGE>

B. Number of Shares: 90,000

Exercise Price: $17.50 (i.e., the Fair Market Value (as defined in the
Digi International Inc. Stock Option Plan) per share on the date of grant).

Vesting: 20% per year over a five-year period from October 26, 1996.

Expiration Date: November 30, 2004.

I-2

<PAGE>

Schedule II to
Employment Agreement

THE GRANT OF THE OPTION EVIDENCED BY THIS NONSTATUTORY STOCK OPTION AGREEMENT IS
CONDITIONED UPON APPROVAL OF THE STOCKHOLDERS OF THE COMPANY OF AN INCREASE IN
THE NUMBER OF COMMON SHARES UNDER THE DIGI INTERNATIONAL STOCK OPTION PLAN. IN
THE EVENT SUCH STOCKHOLDER APPROVAL IS NOT OBTAINED, THE GRANT OF THE OPTION
EVIDENCED BY THIS NONSTATUTORY STOCK OPTION AGREEMENT SHALL BE CANCELED WITHOUT
ANY COMPENSATION TO OPTIONEE.

DIGI INTERNATIONAL INC.
STOCK OPTION PLAN

NONSTATUTORY STOCK OPTION AGREEMENT

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Full Name of Optionee: Ervin F. Kamm, Jr.
- --------------------------------------------------------------------------------
No. of Shares Covered: Date of Grant:

- --------------------------------------------------------------------------------
Exercise Price Per Share: Expiration Date:

- --------------------------------------------------------------------------------
Exercise Schedule (Cumulative):

No. of Shares
Initial Date of As to Which Option
Exercisability Becomes Exercisable
-------------- -------------------

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

This is a NONSTATUTORY STOCK OPTION AGREEMENT between Digi
International Inc., a Delaware corporation (the "Company"), and the optionee
(the "Optionee") listed above.

WHEREAS, the Company desires to carry out the purposes of its Digi
International Inc. Stock Option Plan (the "Plan"), by affording the Optionee an
opportunity to purchase

<PAGE>

Common Stock of the Company, par value $.01 per share (the "Common Shares"),
according to the terms set forth herein;

NOW THEREFORE, the parties hereto hereby agree as follows:

1. GRANT OF OPTION. Subject to the terms of the Plan, the Company
hereby grants to the Optionee the right and option (the "Option") to purchase
the number of Common Shares specified at the beginning of this Agreement, on the
terms and conditions hereinafter set forth. The Option is not intended by the
Company to be an "incentive stock option" within the meaning of Section 422A of
the Internal Revenue Code of 1986, as amended (the "Code").

2. PURCHASE PRICE. The purchase price of each of the Common Shares
subject to the Option shall be the exercise price per share specified at the
beginning of this Agreement, which price has been specified in accordance with
the Plan.

3. OPTION PERIOD.

(a) Subject to the provisions of paragraphs 5(a), 5(b) and 6(b)
hereof, the Option shall become exercisable as to the number of shares and on
the dates specified in the exercise schedule at the beginning of this Agreement.
The exercise schedule shall be cumulative; thus, to the extent the Option has
not already been exercised and has not expired, terminated or been canceled, the
Optionee may at any time, and from time to time, purchase all or any portion of
the Common Shares then purchasable under the exercise schedule. Notwithstanding
the foregoing or any other provision herein to the contrary, the Option shall
become immediately exercisable:

(i) upon the occurrence of the death or disability within the
meaning of Section 22(e)(3) of the Code, of the Optionee (as more
particularly described in paragraphs 5(a)(ii) or 5(b) and 6(a)
hereof);

(ii) in the event that the committee under the Plan (the
"Committee") shall declare pursuant to paragraph 6(b) hereof that the
Option shall be canceled at the time of, or immediately prior to the
occurrence of an Event, as defined in paragraph 6(b) hereof; or

(iii) as provided in paragraph 6(c) or 6(d) hereof.

(b) The Option and all rights to purchase shares thereunder shall
cease on the earliest of:

(i) the expiration date specified at the beginning of this
Agreement (which date shall not be more than ten years after the date
of this Agreement);

-2-

<PAGE>

(ii) the expiration of the period after the termination of the
Optionee's employment (as defined in paragraph 4 of the Plan) within
which the Option is exercisable as specified in paragraph 5(a) or
5(b), whichever is applicable; or

(iii) the date, if any, fixed for cancellation pursuant to
paragraph 6(b) hereof.

Notwithstanding any other provision in this Agreement, in no event may anyone
exercise the Option, in whole or in part, after its original expiration date.

4. MANNER OF EXERCISING OPTION.

(a) Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivering written notice of exercise to the Company
at its principal executive office, to the attention of its President. The notice
shall state the election to exercise the Option and the number of Common Shares
in respect of which it is being exercised, and shall be signed by the person
exercising the Option. If the person exercising the Option is not the Optionee,
he or she also shall send with the notice appropriate proof of his or her right
to exercise the Option. Such notice shall be accompanied by either:

(i) payment (by check, bank draft or money order payable to the
Company) of the full purchase price of the Common Shares being
purchased; or

(ii) certificates for unencumbered Common Shares having an
aggregate Fair Market Value (as defined in paragraph 5(c) of the Plan)
on the date of exercise equal to the purchase price of the Common
Shares to be purchased; or

(iii) a combination of cash and such unencumbered Common Shares.

The Optionee shall duly endorse all certificates delivered to the Company
pursuant to the foregoing subparagraphs (a)(ii) or (a)(iii) in blank and shall
represent and warrant in writing that he or she is the owner of the Common
Shares so delivered free and clear of all liens, security interests and other
restrictions or encumbrances.

(b) As soon as practicable after receipt of the purchase price
provided for above, the Company shall deliver to the person exercising the
Option, in the name of the Optionee or his or her estate or heirs, as the case
may be, a certificate or certificates representing the Common Shares being
purchased. The Company shall pay all original issue or transfer taxes, if any,
with respect to the issue or transfer of the Common Shares to the person
exercising the Option and all fees and expenses necessarily incurred by the
Company in connection therewith. All Common Shares so issued shall be fully
paid and nonassessable. Notwithstanding anything to the contrary in this
Agreement, the Company shall not be required, upon the exercise of this Option
or any part thereof, to issue or deliver any Common Shares prior to the
completion of such registration or other

-3-

<PAGE>

qualification of such Common Shares under any State law, rule or regulation as
the Company shall determine to be necessary or desirable.

5. EXERCISABILITY OF OPTION AFTER TERMINATION OF EMPLOYMENT.

(a) During the lifetime of the Optionee, the Option may be exercised
only while the Optionee is employed (as defined in paragraph 4 of the Plan) by
the Company or a parent or subsidiary thereof, and only if the Optionee has been
continuously so employed since the date of this Agreement, except that:

(i) if the Optionee is not an Outside Director, the Option shall
continue to be exercisable for three months after termination of the
Optionee's employment but only to the extent that the Option was
exercisable immediately prior to the Optionee's termination of
employment, and if the Optionee is an Outside Director, the Option
shall continue to be exercisable after the Optionee ceases to be a
director of the Company but only to the extent that the Option was
exercisable immediately prior to the Optionee's ceasing to be a
director;

(ii) in the event the Optionee is disabled (within the meaning of
Section 22(e)(3) of the Code) while employed, the Optionee or his or
her legal representative may exercise the Option within one year after
the termination of the Optionee's employment; and

(iii) if the Optionee's employment terminates after a declaration
pursuant to paragraph 6(b) of this Agreement, the Optionee may
exercise the Option at any time permitted by such declaration.

(b) In the event of the Optionee's death while employed by the
Company or a parent or subsidiary thereof, or within three months after his or
her termination of employment, the legal representative, heirs or legatees of
the Optionee's estate or the person who acquired the right to exercise the
Option by bequest or inheritance may exercise the Option within one year after
the death of the Optionee.

(c) Neither the transfer of the Optionee between any combination of
the Company, its parent and any subsidiary of the Company, nor a leave of
absence granted to the Optionee and approved by the Committee, shall be deemed a
termination of employment. The terms "parent" and "subsidiary" as used herein
shall have the meaning ascribed to "parent corporation" and "subsidiary
corporation," respectively, in Sections 425(e) and (f) (or successor provisions)
of the Code.

-4-

<PAGE>

6. ACCELERATION OF OPTION.

(a) DISABILITY OR DEATH. If paragraph 5(a)(ii) or 5(b) of this
Agreement is applicable, the Option, whether or not previously exercisable,
shall become immediately exercisable in full if the Optionee shall have been
employed continuously by the Company or a parent or subsidiary thereof 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.

(b) DISSOLUTION, LIQUIDATION, MERGER. In the event of (i) 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
Option by the substitution, in lieu of the Option, of an option 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 defined in paragraph 5(c) of the Plan) as of the effective date
of such merger or consolidation equal to the product of (A) the 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 exercise price per Common
Share, times (B) the number of Common Shares covered by the Option, or (ii) 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 the Optionee of the declaration, that the Option,
whether or not then exercisable, shall be canceled 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 the
Optionee, within ten days after the Event, of cash equal to the amount (if any),
for each Common Share covered by the canceled Option, by which the Event
Proceeds per Common Share (as hereinafter defined) exceeds the exercise price
per Common Share covered by the Option. At the time of the declaration provided
for in the immediately preceding sentence, the Option shall immediately become
exercisable in full and the Optionee shall have the right, during the period
preceding the time of cancellation of the Option, to exercise the Option as to
all or any part of the Common Shares covered thereby. The Option, to the extent
it shall not have been exercised prior to the Event, shall be canceled 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 6(b). 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.

(c) TERMINATION WITHOUT CAUSE. The Option, whether or not
previously exercisable, shall become immediately exercisable in full immediately
prior to any termination of Optionee's employment by the Company without cause
under the terms of the Employment Agreement dated as of October 26, 1994 between
Optionee and the Company.

-5-

<PAGE>

(d) CHANGE IN CONTROL. The Option, whether or not previously
exercisable, shall become immediately exercisable in full upon the occurrence of
any "Change in Control". A "Change in Control" shall be deemed to have occurred
upon the occurrence of either of the following events:

(i) any person, as defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934 (the "Exchange Act"), becomes
the "beneficial owner" (as defined in Rule 13d-3 promulgated pursuant
to the Exchange Act), directly or indirectly, of securities of the
Company having 30% or more of the voting power in the election of
directors of the Company, excluding, however, Optionee (or a group of
persons, including Optionee, acting in concert); or

(ii) the occurrence within any period, commencing immediately
after an Annual Meeting of Stockholders and continuing to and
including the Annual Meeting of Stockholders occurring on or about the
third anniversary date of the commencement of such period, of a change
in the Board of Directors of the Company with the result that the
Incumbent Members (as defined below) do not constitute a majority of
the Company's Board of Directors. The term "Incumbent Members" shall
mean the members of the Board on the date of the commencement of such
period, provided that any person becoming a director during such
period whose election or nomination for election was approved by a
majority of the directors who, on the date of such election or
nomination for election, comprised the Incumbent Members shall be
considered one of the Incumbent Members in respect of such period.

7. LIMITATION ON TRANSFER. During the lifetime of the Optionee,
only the Optionee or his or her guardian or legal representative may exercise
the Option. The Optionee shall not assign or transfer the Option otherwise than
by will or the laws of descent and distribution, and the Option shall not be
subject to pledge, hypothecation, execution, attachment or similar process. Any
attempt to assign, transfer, pledge, hypothecate or otherwise dispose of the
Option contrary to the provisions hereof, and the levy of any attachment or
similar process upon the Option, shall be null and void.

8. STOCKHOLDER RIGHTS BEFORE EXERCISE. The Optionee shall have
none of the rights of a stockholder of the Company with respect to any share
subject to the Option until the share is actually issued to him or her upon
exercise of the Option.

9. DISCRETIONARY ADJUSTMENT. The Committee may in its sole
discretion make appropriate adjustments in the number of shares subject to the
Option and in the purchase price per share to give effect to any adjustments
made in the number of outstanding Common Shares of the Company through a merger,
consolidation, recapitalization, reclassification, combination, stock

-6-

<PAGE>

dividend, stock split or other relevant change, provided that fractional shares
shall be rounded to the nearest whole share.

10. TAX WITHHOLDING. The parties hereto recognize that the Company
or a parent or subsidiary thereof may be obligated to withhold federal and state
income taxes and social security or other taxes upon the Optionee's exercise of
the Option. The Optionee agrees that, at the time he or she exercises the
Option, if the Company or a parent or subsidiary thereof is required to withhold
such taxes, he or she will promptly pay in cash upon demand to the Company, or
the parent or subsidiary having such obligation, such amounts as shall be
necessary to satisfy such obligation; provided, however, that in lieu of all or
any part of such a cash payment, the Committee may, but shall not be required
to, (or, in the case of an Optionee who is an Outside Director (as defined in
paragraph 4 of the Plan), the Committee shall) permit the Optionee 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 Optionee's full FICA and
federal, state and local income tax with respect to income arising from the
exercise of the Option, through a reduction of the number of Common Shares
delivered to the Optionee or through a subsequent return to the Company of
shares delivered to the Optionee. If the Optionee is subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934, as amended,
any such election, except as set forth in paragraph 10(c) below, is also subject
to the following:

(a) TIME OF ELECTION. The Optionee may make the election 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 statement 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 the Optionee pursuant to clause (i) or (ii)
may not be made within six months of the date of grant of the Option unless the
Optionee's death or disability occurs during said six-month period.

(b) COMMITTEE APPROVAL; REVOCATION. The Committee's approval of
such an election, if given, may be granted in advance but is subject to
revocation by the Committee at any time. In the case of an Optionee who is an
Outside Director (as defined in paragraph 4 of the Plan), such election by the
Optionee shall not be subject to approval nor revocation by the Committee in
accordance with the Plan. Once an election is made, the Optionee may not revoke
it.

(c) EXCEPTION. Notwithstanding the foregoing, the Optionee who
tenders previously owned shares to the Company in payment of the purchase price
of shares in connection

-7-

<PAGE>

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 10(a) above.

11. INTERPRETATION OF THIS AGREEMENT. All decisions and
interpretations made by the Committee with regard to any question arising
hereunder or under the Plan shall be binding and conclusive upon the Company and
the Optionee. In the event that there is any inconsistency between the
provisions of this Agreement and the Plan, the provisions of the Plan shall
govern.

12. DISCONTINUANCE OF EMPLOYMENT. This Agreement shall not give the
Optionee a right to continued employment with the Company or any parent or
subsidiary thereof, and the Company or any such parent or subsidiary thereof
employing the Optionee may terminate his or her employment and otherwise deal
with the Optionee without regard to the effect it may have upon him or her under
this Agreement.

13. GENERAL. The Company shall at all times during the term of this
Option reserve and keep available such number of Common Shares as will be
sufficient to satisfy the requirements of this Option Agreement. This Agreement
shall be binding in all respects on the Optionee's heirs, representatives,
successors and assigns. This Agreement is entered into under the laws of the
State of Minnesota and shall be construed and interpreted thereunder.

IN WITNESS WHEREOF, the Optionee and the Company have executed this
Agreement as of the ____ day of ________, 199__.

___________________________________
Ervin F. Kamm, Jr.

DIGI INTERNATIONAL INC.

By_________________________________
Its_______________________________

-8-

<PAGE>

EMPLOYMENT AGREEMENT

This Agreement is made as of April 13, 1993 by and between POLARIS
ACQUISITION INC. (to be renamed STAR GATE TECHNOLOGIES, INC.), a Delaware
corporation (the "Company"), and Ray D. Wymer (the "Executive").

W I T N E S S E T H :

WHEREAS the Company desires to employ Executive in accordance with the
terms and conditions stated in this Agreement; and

WHEREAS Executive desires to accept that employment pursuant to the
terms and conditions of this Agreement;

NOW THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:

I. EMPLOYMENT

1.1 EMPLOYMENT AS SENIOR EXECUTIVE. The Company hereby agrees to employ
Executive in a senior executive capacity, initially in the same office that he
occupied with Star Gate Technologies, Inc., an Ohio corporation, immediately
prior to its merger into the Company, commencing the date hereof and continuing
until the earlier of (i) September 30, 1996 or (ii) the date his employment
terminates pursuant to Article III hereof. In addition, Executive shall serve
as a Vice President of Digi International Inc., a Delaware corporation and the
parent corporation of the Company ("Digi"), during the period this Agreement is
in effect. Executive accepts such employment pursuant to the terms of this
Agreement. Executive shall perform such duties and responsibilities as may be
determined from time to time by the Board of Directors of the Company and Digi,
which shall be consistent with his position as an officer of the Company.

1.2 EXCLUSIVE SERVICES. Executive agrees to devote his full time,
attention and energy to performing his duties and responsibilities to the
Company and Digi under this Agreement during the term of this Agreement.

II. COMPENSATION, BENEFITS AND PERQUISITES

2.1 BASE SALARY. During the period this Agreement is in effect, the
Company shall pay Executive a base salary at the annual rate set forth on
Schedule I hereto. The base salary shall be payable semi-monthly. Beginning
October 1, 1993, the Board of Directors of Digi will review the base salary
annually, and may in its sole discretion increase it to reflect performance,
appropriate industry guideline data and other factors. However, the Board is
not obligated to provide for any increases.

<PAGE>

2.2 BONUSES. Executive shall be eligible to receive a bonus for each
fiscal year during which this Agreement is in effect as follows:

(a) The target bonus shall be equal to a percentage of base
salary paid for each fiscal year (or six month period, in the case of
the fiscal year ending September 30, 1993) during the period of this
Agreement as set forth on Schedule I hereto. Executive shall be
entitled to that bonus amount if the objectives set by the Company's
Budget Plan for the fiscal year (or such six month period) are met.

(b) If some or all of the objectives of the Budget Plan are not
met for a fiscal year (or such six month period), the Board of
Directors of Digi will determine in its discretion what portion, if
any, of the target bonus amount will be paid to Executive for that
year (or such six month period). If the objectives are exceeded for a
fiscal year (or such six month period), the Board may in its
discretion award Executive a bonus that is larger than the target
bonus.

(c) The bonus for each fiscal year (or such six month period)
shall be paid to Executive on September 30 of each year or as soon
thereafter as the Company is able to determine whether the objectives
have been met for that year (or such six month period).

(d) The Board of Directors will consult with Executive before
determining the Budget Plan for each fiscal year. However, the Board
will have authority to establish the Budget Plan for each year in its
sole discretion. The Budget Plan for the six months ending September
30, 1993 is set forth on Schedule I hereto.

2.3 COMMISSIONS. For each fiscal year (or six month period, in the case
of the fiscal year ending September 30, 1993) during the term of this Agreement,
Executive shall receive a commission equal to 1% of the amount by which net
sales of the Company exceed the Budget for the fiscal year (or such six month
period), provided that said commission shall be payable only if the Company's
after-tax earnings for such year (or such six month period) equal or exceed the
Budget for such fiscal year (or such six month period). If the after-tax
earnings of the Company for the fiscal year (or such six month period) are less
than the Budget for such fiscal year (or such six month period), the Board of
Directors will determine in its sole discretion the amount of commission, if
any, to be paid for such year (or such six month period). Any commission
payable for a fiscal year (or such six month period) shall be paid on
September 30 of that year, or as soon thereafter as the amount can be
determined.

2.4 STOCK OPTIONS. On or about September 30 of each year the Compensation
Committee of the Board of Directors of Digi considers and awards stock options
under the Digi International Inc. Stock Option Plan to officers of Digi. These
awards are made in the discretion of the Compensation Committee and are
principally intended to recognize performance over the preceding fiscal year.
Executive would be first eligible for a stock option grant on or about September
30, 1993.

<PAGE>

2.5 VACATIONS. Executive shall be entitled to vacation in accordance with
policies of Digi.

2.6 EMPLOYEE BENEFITS. Executive shall be entitled to the benefits and
perquisites which the Company generally provides to its other employees under
the applicable Company plans and policies, and to future benefits and
perquisites made generally available to employees of the Company. Executive's
participation in such benefit plans shall be on the same basis as applies to
other employees of the Company. Executive shall pay any contributions which are
generally required of employees to receive any such benefits.

2.7 EMPLOYMENT TAXES AND WITHHOLDING. Executive recognizes that the
compensation, benefits and other amounts provided by the Company under this
Agreement may be subject to federal, state or local income taxes. It is
expressly understood and agreed that all such taxes shall be the responsibility
of the Executive. To the extent that federal, state or local law requires
withholding of taxes on compensation, benefits or other amounts provided under
this Agreement, the Company shall withhold the necessary amounts from the
amounts payable to Executive under this Agreement.

2.8 LEGAL LIMITS ON BENEFITS. The parties recognize that the Internal
Revenue Code of 1986, as amended, and other laws and regulations place limits on
the benefits the Company can provide for its employees. The benefits for
Executive under this Agreement shall be reduced to the extent necessary to
comply with any such laws and regulations currently in effect or enacted in the
future, including any reductions that may be necessary to preserve the tax-
favored status of a benefit, to preserve the Company's tax deduction for the
costs of a benefit, or to avoid the imposition of excise taxes on the Company or
Executive.

2.9 COMPANY RESPONSIBILITY FOR INSURED BENEFITS. In this Article II, the
Company is agreeing to provide certain benefits which are provided in the form
of premiums of insurance coverage. The Company is not itself promising to pay
the benefit an insurance company is obligated to pay under the policy the
insurance company has issued. If an insurance company becomes insolvent and
cannot pay benefits it owes to Executive or his beneficiaries under the
insurance policy, neither Executive nor his personal representative or
beneficiary shall have any claim for benefits against the Company.

2.10 EXPENSES. During the term of his employment hereunder, Executive
shall be entitled to receive prompt reimbursement from the Company (in
accordance with the policies and procedures in effect for the Company's
employees) for all reasonable travel and other expenses incurred by him in
connection with his services hereunder.

III. TERMINATION OF EXECUTIVE'S EMPLOYMENT

<PAGE>

remainder of the period through September 30, 1996. Executive's employment
under this Agreement may be terminated by Executive at any time for any reason.
The termination shall be effective as of the date specified by the party
initiating the termination in a written notice delivered to the other party,
which date shall not be earlier than the date such notice is delivered to the
other party. This Agreement shall terminate in its entirety immediately upon
the death of Executive. Except as expressly provided to the contrary in this
section or applicable law, Executive's rights to pay and benefits shall cease on
the date his employment under this Agreement terminates.

3.2 CAUSE. For purposes of this Article III, "cause" shall mean only the
following: (i) indictment or conviction of a felony; (ii) theft or embezzlement
of Company property or commission of similar acts involving moral turpitude;
(iii) failure of the Company to meet at least 70% of Budget for either net sales
or after-tax earnings in any fiscal year; or (iv) the willful failure by
Executive to substantially perform his material duties under this Agreement
(excluding nonperformance resulting from Executive's disability) which willful
failure is not cured within thirty (30) days after written notice from the
Chairman of the Board of Directors or the Chief Executive Officer of Digi
specifying the act of willful nonperformance or within such longer period (but
no longer than ninety (90) days in any event) as is reasonably required to cure
such willful nonperformance.

3.3 DISABILITY. If Executive has become disabled from performing his
duties under this Agreement and the disability has continued for a period of
more than sixty (60) days, the Board of Directors of Digi may, in its
discretion, determine that Executive will not return to work and terminate his
employment under this Agreement. Upon any such termination for disability,
Executive shall be entitled to such disability, medical, life insurance, and
other benefits as may be provided generally for disabled employees of the
Company during the period he remains disabled.

IV. NON-COMPETITION, CONFIDENTIALITY AND TRADE SECRETS

4.1 AGREEMENT NOT TO COMPETE. Executive agrees that, on or before the
date which is two years after the date Executive's employment under this
Agreement terminates under Section 3.1, he will not, unless he receives the
prior approval of the Board of Directors of Digi, directly or indirectly engage
in any of the following actions:

(a) Own an interest in (except as provided below), manage, operate,
join, control, lend money or render financial or other assistance to, or
participate in or be connected with, as an officer, employee, partner,
stockholder, consultant or otherwise, any entity whose products or services
compete directly or indirectly with those of the Company, Digi, or any of
their subsidiaries. However, nothing in this subsection (a) shall preclude
Executive from holding less than one percent of the outstanding capital
stock of any corporation required to file periodic reports with the
Securities and Exchange Commission under Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the securities of which are
listed on any securities exchange, quoted on

<PAGE>

the National Association of Securities Dealers Automated Quotation System or
traded in the over-the-counter market.

(b) Intentionally solicit, endeavor to entice away from the Company,
Digi, or any of their subsidiaries, or otherwise interfere with the
relationship of the Company, Digi, or any of their subsidiaries with, any
person who is employed by or otherwise engaged to perform services for the
Company, Digi, or any of their subsidiaries (including, but not limited to,
any independent sales representatives or organizations), or any persons or
entity who is, or was within the then most recent 12-month period, a
customer or client of the Company, Digi, or any of their subsidiaries,
whether for Executive's own account or for the account of any other
individual, partnership, firm, corporation or other business organization.

4.2 NON-DISCLOSURE OF INFORMATION. During the period of his employment
hereunder, and at all times thereafter, Executive shall not, without the written
consent of Digi, disclose to any person, other than an employee of the Company,
Digi, or any of their subsidiaries or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by Executive of his
duties as an executive of the Company, except where such disclosure may be
required by law, any material confidential information obtained by him while in
the employ of the Company with respect to any of the Company's or Digi's
products, technology, know-how or the like, services, customers, methods or
future plans, all of which Executive acknowledges are valuable, special and
unique assets the disclosure of which Executive acknowledges may be materially
damaging to the Company.

<PAGE>

V. MISCELLANEOUS

5.1 AMENDMENT. This Agreement may be amended only in writing, signed by
both parties and consented to by Digi.

5.2 ENTIRE AMENDMENT. This Agreement contains the entire understanding of
the parties with regard to all matters contained herein. There are no other
agreements, conditions or representations, oral or written, expressed or
implied, with regard thereto. This Agreement supersedes all prior agreements
relating to the employment of Executive by the Company.

If to the Company, to:

Star Gate Technologies, Inc.
c/o Digi International Inc.
6400 Flying Cloud Drive
Eden Prairie, MN 55344

Attention: Chief Financial Officer

with a copy to:

Digi International Inc.
6400 Flying Cloud Drive
Eden Prairie, MN 55344

Attention: Chairman of the Board

<PAGE>

If to Executive, to:

Ray D. Wymer
Star Gate Technologies, Inc.
29300 Aurora Road
Solon, Ohio 44139

or to such other addresses as either party may designate in writing to the other
party from time to time.

5.8 GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Minnesota, without giving effect to
conflict of law principles.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date set forth above.

POLARIS ACQUISITION INC.

By /s/ John P. Schinas
----------------------------
Its Chairman of the Board

EXECUTIVE

/s/ Ray D. Wymer
------------------------------
Ray D. Wymer

ACKNOWLEDGED AND AGREED TO:

DIGI INTERNATIONAL INC.

By /s/ John P. Schinas
----------------------------
Its Chairman of the Board

<PAGE>

Schedule I to
EMPLOYMENT AGREEMENT

Annual Base Salary: $110,000

Target Bonus: 100% of Base Salary

Company Budget Plan for the six months ending September 30, 1993 (including pre-
merger results of operations from April 1, 1993):

Net sales of at least $7,732,450

After-tax earnings of at least $858,302

<PAGE>

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made as of the 8th day of
May, 1995, by and between STAR GATE TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and Ray D. Wymer (the "Executive").

WITNESSETH:

Whereas, the parties have entered into an Employment Agreement dated as of
April 13, 1993 (the "Employment Agreement"); and

Whereas the parties hereto wish to amend the Employment Agreement as set
forth below:

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. AMENDMENT TO EMPLOYMENT AGREEMENT.

(A) Section 2.2 of the Employment Agreement is hereby amended in its
entirety to read as follows:

2.2 BONUS FOR FISCAL 1995. Executive shall be eligible to receive a
bonus for fiscal 1995 as follows:

(a) The target bonus shall be 100% of Executive's base salary for fiscal
1995. Executive shall be entitled to that bonus amount if the
objectives set by the budget plan for Digi International Inc. (the
"Budget Plan" or "Budget") for fiscal 1995 are met.

(b) If some or all of the objectives of the Budget Plan are not met for
fiscal 1995, the Board of Directors of Digi will determine in its
discretion what portion, if any, of the target bonus amount will
be paid to Executive for that year. If the objectives are exceeded
for fiscal 1995, the Board may in its discretion award Executive a
bonus that is larger than the target bonus.

(c) The bonus for fiscal 1995 shall be paid to Executive on September 30,
1995 or as soon thereafter as the Company is able to determine
whether the objectives have been met for that year.

(B) Section 2.3 of the Employment Agreement is hereby amended in its
entirety to read as follows:

2.3 BONUSES BEGINNING IN FISCAL 1996. Beginning in fiscal 1996, if
Digi International Inc. meets both net sales and after-tax earnings targets
set by the Budget Plan by at least 80% for any fiscal year during which
this Agreement is in effect, then Executive shall be eligible for the cash
bonuses described below for such year. If the Digi International Inc.
Budget Plan is less than 80% achieved for either net sales or after-tax
earnings, neither bonus described below will be paid.

(a) If the targets for Digi International Inc. are 100% achieved for both
net sales and after-tax earnings, Executive shall be entitled

<PAGE>

to a bonus equal to 50% of Executive's base salary. If the Digi
International Inc. targets for both net sales and after-tax earnings
are achieved by at least 80%, but for either measure by less than
100%, Executive will be entitled to a percentage of the foregoing
bonus amount (i.e., 50% of Executive's base salary) equal to the
smaller of the percentages of net sales or after-tax earnings that
were achieved.

(b) Provided that that Digi International Inc. targets are at least 80%
achieved, Executive will also be entitled to an additional bonus
(the "PMU Bonus") based upon targets for net sales and operating
income for Digi International Inc.'s Multiuser Product Marketing Unit
(the "Multiuser PMU").

(c) If the Multiuser PMU targets for both net sales and operating income
are 100% achieved, Executive will be entitled to a PMU Bonus equal
to 50% of Executive's base salary. If the net sales and operating
income targets for the Multiuser PMU are both achieved by at least
80%, but for either measure by less than 100%, Executive will be
entitled to a prorated PMU Bonus as set forth below:

(i) Three-fourths of the amount of the PMU Bonus will be contingent
upon operating income. As a result, if the Multiuser PMU
target for operating income is achieved by at least 80%,
Executive will be entitled to a percentage of the amount which is
contingent upon operating income (i.e., three-fourths of 50% of
Executive's base salary) equal to the percentage (not exceeding
100%) by which the Multiuser PMU operating income was achieved.

(ii) One quarter of the amount of PMU Bonus will be similarly
contingent upon net sales. As a result, if the Multiuser
PMU target for net sales is achieved by at least 80%,
Executive will be entitled to a percentage of the amount which
is contingent upon net sales (i.e., one quarter of 50% of
Executive's base salary) equal to the percentage (not exceeding
100%) by which the Multiuser PMU target for net sales was
achieved.

(d) If some or all of the objectives of the Budget Plan are exceeded
for a fiscal year, the Board of Directors of Digi may in its
discretion award Executive a bonus that is larger than the target
bonus.

(e) The bonuses for each fiscal year shall be paid to Executive
on September 30 of each year or as soon thereafter as the Company is
able to determine whether the objectives have been met for that year.

(f) The Board of Directors will consult with Executive before
determining the Budget Plan and Multiuser PMU targets for each fiscal
year. However, the Board will have authority to establish

<PAGE>

the Budget Plan and Multiuser PMU targets for each year in its sole
discretion.

(C) References to "Budget," "Budget Plan" and "Company Budget Plan"
in the remaining provisions of the Employment Agreement shall be deemed to be
references to the budget plan for Digi International Inc., and the reference to
the "Company" in Section 3.2(iii) shall be deemed to be a reference to Digi
International Inc.

2. EFFECTIVE DATE. This Amendment No. 1 shall be effective from and
after October 1, 1994.

3. NO ADDITIONAL CHANGES. Except as expressly amended by this Amendment
No. 1, the Employment Agreement shall continue in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the date first above written.

STAR GATE TECHNOLOGIES, INC.

By /s/ Ray D. Wymer
----------------------------
Its President
-------------------------

EXECUTIVE

/s/ Ray D. Wymer
-------------------------------
Ray D. Wymer

ACKNOWLEDGED AND AGREED TO:

DIGI INTERNATIONAL INC.

By /s/ Ervin F. Kamm
--------------------------------
Its President/CEO
---------------------------

<PAGE>

EMPLOYMENT AGREEMENT

This Agreement is made as of April 13, 1993 by and between POLARIS
ACQUISITION INC. (to be renamed STAR GATE TECHNOLOGIES, INC. ), a Delaware
corporation (the "Company"), and Keith C. Rericha (the "Executive").

W I T N E S S E T H :

WHEREAS the Company desires to employ Executive in accordance with the
terms and conditions stated in this Agreement; and

WHEREAS Executive desires to accept that employment pursuant to the
terms and conditions of this Agreement;

NOW THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:

I. EMPLOYMENT

1.1 EMPLOYMENT AS SENIOR EXECUTIVE. The Company hereby agrees to employ
Executive in a senior executive capacity, initially in the same office that he
occupied with Star Gate Technologies, Inc., an Ohio corporation, immediately
prior to its merger into the Company, commencing the date hereof and continuing
until the earlier of (i) September 30, 1996 or (ii) the date his employment
terminates pursuant to Article III hereof. In addition, Executive shall serve as
a Vice president of Digi International Inc., a Delaware corporation and the
parent corporation of the Company ("Digi"), during the period this Agreement is
in effect. Executive accepts such employment pursuant to the terms of this
Agreement. Executive shall perform such duties and responsibilities as may be
determined from time to time by the Board of Directors of the Company and Digi,
which shall be consistent with his position as an officer of the Company.

II. COMPENSATION, BENEFITS AND PERQUISITES

2.1 BASE SALARY. During the period this Agreement is in effect, the
Company shall pay Executive a base salary at the annual rate set forth on
Schedule I hereto. The base salary shall be payable semi-monthly. Beginning
October 1, 1993, the Board of Directors of Digi will review the base salary
annually, and may in its sole discretion increase it to reflect performance,
appropriate industry guideline data and other factors. However, the Board is not
obligated to provide for any increases.

2.2 BONUSES. Executive shall be eligible to receive a bonus for each
fiscal year during which this Agreement is in effect as follows:

<PAGE>

(d) The Board of Directors will consult with Executive before
determining the Budget Plan for each fiscal year. However, the Board
will have authority to establish the Budget Plan for each year in its
sole discretion. The Budget Plan for the six months ending
September 30, 1993 is set forth on Schedule I hereto.

2.5 VACATIONS. Executive shall be entitled to vacation in accordance with
policies of Digi.

2.7 EMPLOYMENT TAXES AND WITHHOLDINQ. Executive recognizes that the
compensation, benefits and other amounts provided by the Company under this
Agreement may be subject to federal, state or local income taxes. It is
expressly understood and agreed that all such taxes shall be the

-2-

<PAGE>

responsibility of the Executive. To the extent that federal, state or local law
requires withholding of taxes on compensation, benefits or other amounts
provided under this Agreement, the Company shall withhold the necessary amounts
from the amounts payable to Executive under this Agreement.

III. TERMINATION OF EXECUTIVE'S EMPLOYMENT

3.l TERMINATION OF EMPLOYMENT. Executive's employment under this
Agreement may be terminated by the Company at any time for any reason;
provided, however, that if Executive's employment is terminated by the
Company during the term of this Agreement for a reason other than for cause,
he shall be entitled to continue to receive his base salary under Section 2.1
for the remainder of the period through September 30, 1996. Executive's
employment under this Agreement may be terminated by Executive at any time for
any reason. The termination shall be effective as of the date specified by
the party initiating the termination in a written notice delivered to the
other party, which date shall not be earlier than the date such notice is
delivered to the other party. This Agreement shall terminate in its entirety
immediately upon the death of Executive. Except as expressly provided to the
contrary in this section or applicable law, Executive's rights to pay and
benefits shall cease on the date his employment under this Agreement terminates.

-3-

<PAGE>

longer period (but no longer than ninety (90) days in any event) as is
reasonably required to cure such willful nonperformance.

3.3 DISABILITY. If Executive has become disabled from performing his
duties under this Agreement and the disability has continued for a period of
more than sixty (60) days, the Board of Directors of Digi may, in its
discretion, determine that Executive will not return to work and terminate his
enployment under this Agreement. Upon any such termination for disability,
Executive shall be entitled to such disability, medical, life insurance, and
other benefits as may be provided generally for disabled employees of the
Company during the period he remains disabled.

IV. NON-COMPETITION, CONFIDENTIALITY AND TRADE SECRETS

(a) Own an interest in (except as provided below), manage,
operate, join, control, lend money or render financial or other
assistance to, or participate in or be connected with, as an officer,
employee, partner, stockholder, consultant or otherwise, any entity
whose products or services compete directly or indirectly with those
of the Company, Digi, or any of their subsidiaries. However, nothing
in this subsection (a) shall preclude Executive from holding less than
one percent of the outstanding capital stock of any corporation
required to file periodic reports with the Securities and Exchange
Commission under Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the securities of which are listed on any securities
exchange, quoted on the National Association of Securities Dealers
Automated Quotation System or traded in the over-the-counter market.

(b) Intentionally solicit, endeavor to entice away from the
Company, Digi, or any of their subsidiaries, or otherwise interfere
with the relationship of the Company, Digi, or any of their
subsidiaries with, any person who is employed by or otherwise engaged
to perform services for the Company, Digi, or any of their
subsidiaries (including, but not limited to, any independent sales
representatives or organizations), or any persons or entity who is, or
was within the then most recent 12-month period, a customer or client
of the Company, Digi, or any of their subsidiaries, whether for
Executive's own account or for the account of any other individual,
partnership, firm, corporation or other business organization.

4.2 NON-DISCLOSURE OF INFORMATION. During the period of his employment
hereunder, and at all times thereafter, Executive shall not,

-4-

<PAGE>

without the written consent of Digi, disclose to any person, other than an
employee of the Company, Digi, or any of their subsidiaries or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by Executive of his duties as an executive of the Company, except
where such disclosure may be required by law, any material confidential
information obtained by him while in the employ of the Company with respect to
any of the Company's or Digi's products, technology, know-how or the like,
services, customers, methods or future plans, all of which Executive
acknowledges are valuable, special and unique assets the disclosure of which
Executive acknowledges may be materially damaging to the Company.

V. MISCELLANEOUS

5.1 AMENDMENT. This Agreement may be amended only in writing, signed by
both parties' and consented to by Digi.

5.3 ASSIGNMENT. The Company may in its sole discretion assign this
Agreement to any entity which succeeds to some or all of the business of the
Company through merger, consolidation, a sale of some or all of the assets of
the Company, or any similar transaction. Executive acknowledges `that the
services to be rendered by him are unique and personal. Accordingly, Executive
may not assign any of his rights or obligations under this Agreement.

5.5 NOTICES. Any notice required to be given under this Agreement shall
in writing and shall be delivered either in person or by certified or giste~ed
mail, return receipt requested. Any notice by mail shall be addressed follows:

If to the Company, to:

Star Gate Technologies, Inc.
c/o Digi International Inc.
6400 Flying Cloud Drive
Eden prairie, MN 55344

Attention: Chief Financial Officer

with a copy to:

-5-

<PAGE>

Digi International Inc.
6400 Flying Cloud Drive
Eden Prairie, MN 55344

Attention: Chairman of the Board

If to Executive, to:

Keith C. Rericha
Star Gate Technologies, Inc.
29300 Aurora Road
Solon, Ohio 44139

or to such other addresses as either party may designate in writing to the other
party from time to time.

5.6 WAIVER OF BREACH. Any waiver by either party of compliance with any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreements or of any subsequent
breach by such party of a provision of this Agreement. No waiver by the Company
shall be valid unless in writing and signed by the Chairman of the Board of
Directors or Chief Executive Officer of Digi.

5.8 GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Minnesota, without giving effect to
conflict of law principles.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date set forth above.

POLARIS ACQUISITION INC.

By /s/ John P. Schinas
---------------------------------
Its Chairman of the Board

-6-

<PAGE>

EXECUTIVE

By /s/ Keith C. Rericha
---------------------------------
Keith C. Rericha

ACKNOWLEDGED AND AGREED TO:

DIGI INTERNATIONAL INC.

By /s/ John P. Schinas
---------------------------------
Its Chairman of the Board

-7-

<PAGE>

Schedule I to

EMPLOYMENT AGREEMENT

Annual Base Salary: $110,000

Target Bonus: l00% of Base Salary

Company Budget Plan for the six months ending September 30, 1993 (including pre-
merger results of operations from April 1, 1993):

Net sales of at least $7,732,450

After-tax earnings of at least $858,302

-8-
<PAGE>

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made as of the 1st day of
July, 1995, by and between STAR GATE TECHNOLOGIES, INC., a Delaware corporation
(the "Company"), and Keith C. Rericha (the "Executive").

WITNESSETH:

Whereas, the parties have entered into an Employment Agreement dated as of
April 13, 1993 (the "Employment Agreement"); and

Whereas the parties hereto wish to amend the Employment Agreement as set
forth below:

NOW, THEREFORE, the parties hereto hereby agree as follows:

1. AMENDMENT TO EMPLOYMENT AGREEMENT.

(A) Section 2.2 of the Employment Agreement is hereby amended in its
entirety to read as follows:

2.2 BONUS FOR FISCAL 1995. Executive shall be eligible to receive a
bonus for fiscal 1995 as follows:

(a) The target bonus shall be 100% of Executive's base salary
for fiscal 1995. Executive shall be entitled to that bonus amount if
the objectives set by the budget plan for Digi International Inc. (the
"Budget Plan" or "Budget") for fiscal 1995 are met.

(b) If some or all of the objectives of the Budget Plan are not
met for fiscal 1995, the Board of Directors of Digi will determine in
its discretion what portion, if any, of the target bonus amount will
be paid to Executive for that year. If the objectives are exceeded
for fiscal 1995, the Board may in its discretion award Executive a
bonus that is larger than the target bonus.

(c) The bonus for fiscal 1995 shall be paid to Executive on
September 30, 1995 or as soon thereafter as the Company is able to
determine whether the objectives have been met for that year.

(B) Section 2.3 of the Employment Agreement is hereby amended in its
entirety to read as follows:

2.3 BONUSES BEGINNING IN FISCAL 1996. Beginning in fiscal 1996, if
Digi International Inc. meets both net sales and after-tax earnings targets
set by the Budget Plan by at least 80% for any fiscal year during which
this Agreement is in effect, then Executive shall be eligible for the cash
bonus described below for such year. If the Digi International Inc. Budget
Plan is less than 80% achieved for either net sales or after-tax earnings,
the bonus described below will not be paid.

(a) If the targets for Digi International Inc. are 100% achieved
for both net sales and after-tax earnings, Executive shall be entitled
to a bonus equal to 100% of Executive's base salary. If the Digi

<PAGE>

International Inc. targets for both net sales and after-tax earnings
are achieved by at least 80%, but for either measure by less than
100%, Executive will be entitled to a bonus equal to a percentage of
Executive's base salary equal to the smaller of the percentages of net
sales or after-tax earnings that were achieved.

(b) If some or all of the objectives of the Budget Plan are
exceeded for a fiscal year, the Board of Directors of Digi may in its
discretion award Executive a bonus that is larger than the target
bonus.

(c) The bonus for each fiscal year shall be paid to Executive on
September 30 of each year or as soon thereafter as the Company is able
to determine whether the objectives have been met for that year.

2. EFFECTIVE DATE. This Amendment No. 1 shall be effective from and
after October 1, 1994.

3. NO ADDITIONAL CHANGES. Except as expressly amended by this Amendment
No. 1, the Employment Agreement shall continue in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the date first above written.

STAR GATE TECHNOLOGIES, INC.

By /s/ Ray D. Wymer
---------------------------------
Ray D. Wymer, President

-2-

<PAGE>

EXECUTIVE

/s/ Keith C. Rericha
-----------------------------------
Keith C. Rericha

ACKNOWLEDGED AND AGREED TO:

DIGI INTERNATIONAL INC.

By /s/ Ervin F. Kamm, Jr.
-------------------------------------
Ervin F. Kamm, Jr., President
and Chief Executive Officer

-3-

<PAGE>

February 6, 1995

PERSONAL AND CONFIDENTIAL

Mr. Douglas Glader
MiLAN Technology Corporation
894 Ross Drive, #101
Sunnyvale, CA 94080

Dear Doug:

This letter is written to confirm the terms of the promotion that we
have discussed.

You would have the title of Vice President of Operations Worldwide.
As such, you would become an executive officer of Digi International Inc., with
a direct line of responsibility to me as Chief Executive Officer.

Your base pay would be an annual salary of $120,000. You would also
be eligible for a cash bonus of up to 100% of your base salary, contingent upon
Digi International Inc. meeting budgeted net sales and after-tax earnings
targets. Beginning with fiscal 1996 your bonus would be dependent upon those
factors as well as measured improvements in the Company's operations.

In recognition of your increased responsibilities, you have been
awarded a stock option for an additional 20,000 shares of Digi Common Stock,
with an exercise price of $22 per share.

If you were to be terminated without "cause" within one year of your
relocation to the Twin Cities, you would be entitled to receive a severance
payment of $120,000. If you were terminated without cause after one year
following your relocation, you would be entitled to receive severance of
$60,000. The definition of cause is attached as an appendix for your reference.

Digi will reimburse you for all reasonable documented expenses
relating to your relocation. Digi will also cover all reasonable documented
expenses relating to trips that you and your wife take from California to the
Twin Cities area for house hunting and other

<PAGE>

Mr. Douglas Glader
MiLAN Technology Corporation
February 6, 1995
Page 2

purposes related to your relocation. Digi will also cover the cost of temporary
housing in both California and the Twin Cities as needed and as I approve.

Relocation expenses to be borne by Digi would generally not include
any costs, fees, losses or expenses associated with the sale or purchase of a
residence, except that the Company will pay a mortgage subsidy of 2% for a two-
year period on a mortgage for your residence in the Twin Cities area, with a
mortgage loan amount up to $400,000.

It is my hope that you can complete your relocation by July 1, 1995.

If the terms outlined above are acceptable, please confirm by signing
the enclosed copy below and returning it to me.

Very truly yours,

/s/ Ervin F. Kamm, Jr.

EFK:djt Ervin F. Kamm, Jr.
President and Chief Executive Officer

ACCEPTED:

/s/ Douglas Glader
----------------------------------------
Douglas Glader

<PAGE>

APPENDIX

Definition of Cause - Douglas Glader
February 6, 1995
------------------------------------

For purposes of Ervin F. Kamm's letter of February 6, 1995, "cause"
shall mean only the following: (i) indictment or conviction of, or a plea of
nolo contendere to, (A) any felony (other than any felony arising out of
negligence) or any misdemeanor involving moral turpitude, or (B) any crime or
offense involving dishonesty with respect to Digi International Inc. or any of
its subsidiaries (collectively, the "Company"); (ii) theft or embezzlement of
Company property or commission of similar acts involving dishonesty or moral
turpitude; (iii) repeated material negligence in the performance of your duties;
(iv) your failure to devote substantially all of your working time and efforts
during normal business hours to the Company's business; (v) knowing engagement
in conduct which is materially injurious to the Company; (vi) knowing failure,
for your own benefit, to comply with the Company's policies concerning
confidentiality; (vii) knowingly providing materially misleading information
concerning the Company to the Company's Chief Executive Officer or Board of
Directors, any governmental body or regulatory agency or to any lender or other
financing source or proposed financing source of the Company; or (viii) any
other failure by you to substantially perform your material duties (excluding
nonperformance resulting from your disability) which failure is not cured within
thirty (30) days after written notice from the Chairman of the Board or the
Chief Executive Officer of the Company specifying the act of nonperformance or
within such longer period (but no longer than ninety (90) days in any event) as
is reasonably required to cure such nonperformance.

<PAGE>

June 1, 1995

PERSONAL AND CONFIDENTIAL

Dana R. Nelson
29 Partridge Run
Montvale, NJ 07645

Dear Dana:

This letter is written to confirm your acceptance of Digi
International's offer to hire you as Vice President of Sales, commencing June 1,
1995. As such, you would become an executive officer of Digi International
Inc., with a direct line of responsibility to me as Chief Executive Officer.

Your base pay is an annual salary of $150,000. You will also be
eligible for cash bonuses, as described below, in an amount up to 100% of your
base salary, contingent upon Digi International Inc. meeting budgeted net sales
and after-tax earnings targets.

You will receive a stock option for 30,000 shares of Digi Common
Stock, vesting over five years, having an exercise price equal to $20 1/2 (I.E.,
the closing sale price on May 31, 1995.)

For fiscal 1995 you will be paid an additional $50,000, payable in
$25,000 installments on June 1 and July 15, 1995, which amount will be a
guaranteed bonus payment and will be credited against the amount of bonus that
would otherwise be payable for fiscal 1995. Your bonus for fiscal 1995 will be
calculated as if you had been employed from April 1, 1995; that is, you would be
entitled to a maximum bonus of $75,000.

If the Digi International Inc. targets are 100% achieved for both net
sales and after-tax earnings for fiscal 1995, you will be entitled to a bonus of
$75,000. If the Digi International Inc. targets are less than 80% achieved for
either net sales or after-tax tax earnings for fiscal 1995, you will not be paid
a bonus for fiscal 1995 (other than the $50,000 guaranteed bonus payment). If
the Digi International Inc. targets for both net sales and after-tax earnings
are achieved by at least 80%, but for either measure by less than 100%, you will

<PAGE>

Dana R. Nelson
June 1, 1995
Page 2

be entitled to a percentage of $75,000 equal to the smaller of the percentages
of net sales or after-tax earnings that were achieved.

Beginning in fiscal 1996 the bonus formula emphasizes achievement of
budgeted net sales targets, in recognition of your responsibilities as Vice
President of Sales. One half of the bonus will be measured by Digi
International Inc. goals, and one half by achievement of the budget objective
for net sales.

For fiscal 1996 you will be paid an additional $50,000, payable in
$25,000 installments on October 15, 1995 and January 15, 1996, which amount will
be a guaranteed bonus payment and will be credited against the amount of bonus
that would otherwise be payable for fiscal 1996.

If the Digi International Inc. targets are 100% achieved for both net
sales and after-tax earnings for fiscal 1996, you will be entitled to a bonus
equal to 50% of your base salary. If the Digi International Inc. targets are
less than 80% achieved for either net sales or after-tax earnings, you will not
be paid a bonus (other than the $50,000 guaranteed bonus payment for fiscal
1996). If the Digi International Inc. targets for both net sales and after-tax
earnings are achieved by at least 80%, but for either measure by less than 100%,
you will be entitled to a percentage of the foregoing bonus amount (I.E., 50% of
your base salary) equal to the smaller of the percentages of net sales or after-
tax earnings that were achieved.

Provided that the Digi International Inc. targets are at least 80%
achieved, you will also be entitled to an additional bonus (the "Sales Bonus")
based upon the Digi International Inc. target for net sales.

If the Digi International Inc. target for net sales is 100% achieved,
you will be entitled to a Sales Bonus equal to 50% of your base salary. If the
net sales target is achieved by at least 80%, you will be entitled to a Sales
Bonus equal to the percentage of net sales that was achieved.

If you were to be terminated without "cause" within one year of your
relocation to the Twin Cities, you would be entitled to receive a severance
payment of $150,000. If you were terminated without cause after one year
following your relocation, you would be entitled to receive severance of $75,000
and, in the event that you remained unemployed six months after termination, you
would be entitled to receive an additional $12,500 for each month that you
continue to be unemployed, up to a maximum of six months. The definition of
cause is attached as an appendix for your reference. In the event of
termination you would not be entitled to any bonus or any unpaid guaranteed
bonus.

<PAGE>

Dana R. Nelson
June 1, 1995
Page 3

Digi International will reimburse you for all reasonable documented
expenses relating to your relocation. Digi International will also cover all
reasonable documented expenses relating to trips that you and your wife take
from New Jersey to the Twin Cities area for house hunting and other purposes
related to your relocation. Digi will also cover the cost of temporary housing
in both New Jersey and the Twin Cities as needed and as I approve.

Relocation expenses to be borne by Digi would generally not include
any costs, fees, losses or expenses associated with the sale or purchase of a
residence, except that Digi will pay a customary brokerage commission on the
sale of your present primary residence and closing costs associated with the
purchase of your new residence. Digi will also consider a bridge loan and
mortgage subsidy consistent with company policy.

In addition, you are entitled to vacation in accordance with Digi
policies and to the benefits and perquisites which Digi generally provides to
its other employees under applicable Digi plans and policies, and to future
benefits and perquisites made generally available to Digi employees. Your
participation in such benefit plans shall be on the same basis as applies to
other Digi employees, and you would be obligated to pay any contributions which
are generally required of employees to receive any such benefits.

I am delighted that you have decided to join Digi and look forward to
working with you.

Very truly yours,

/s/ Ervin F. Kamm, Jr.

Ervin F. Kamm, Jr.
President and Chief Executive Officer

ACCEPTED:

/s/ Dana R. Nelson
----------------------------------------
Dana R. Nelson
EFK:djt

cc: Richard E. Eichhorn (w/encl.)
Gerald A. Wall (w/encl.)
James E. Nicholson (w/encl.)

<PAGE>

Dana R. Nelson
June 1, 1995
Page 4

APPENDIX

Definition of Cause - Dana R. Nelson
June 1, 1995
------------------------------------

For purposes of Ervin F. Kamm's letter of June 1, 1995, "cause" shall
mean only the following: (i) indictment or conviction of, or a plea of nolo
contendere to, (A) any felony (other than any felony arising out of negligence)
or any misdemeanor involving moral turpitude, or (B) any crime or offense
involving dishonesty with respect to Digi International Inc. or any of its
subsidiaries (collectively, the "Company"); (ii) theft or embezzlement of
Company property or commission of similar acts involving dishonesty or moral
turpitude; (iii) repeated material negligence in the performance of your duties;
(iv) your failure to devote substantially all of your working time and efforts
during normal business hours to the Company's business; (v) knowing engagement
in conduct which is materially injurious to the Company; (vi) knowing failure,
for your own benefit, to comply with the Company's policies concerning
confidentiality; (vii) knowingly providing materially misleading information
concerning the Company to the Company's Chief Executive Officer or Board of
Directors, any governmental body or regulatory agency or to any lender or other
financing source or proposed financing source of the Company; or (viii) any
other failure by you to substantially perform your material duties (excluding
nonperformance resulting from your disability) which failure is not cured within
thirty (30) days after written notice from the Chairman of the Board or the
Chief Executive Officer of the Company specifying the act of nonperformance or
within such longer period (but no longer than ninety (90) days in any event) as
is reasonably required to cure such nonperformance.

<PAGE>
DIGI INTERNATIONAL INC.
EXHIBIT 11 -- DETAIL COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
PER SHARE DATA
Income before cumulative effect of a change in accounting for
income taxes.................................................... $ 14,782,664 $ 16,701,092 $ 19,331,093
Cumulative effect of the change in accounting for income taxes... 122,100
Net income....................................................... $ 14,904,764 $ 16,701,092 $ 19,331,093
-------------- -------------- --------------
-------------- -------------- --------------
Net income per common and common equivalent share,
Income before cumulative effect of a change in accounting for
income taxes.................................................... $ 1.02 $ 1.15 $ 1.38
Cumulative effect of the change in accounting for income taxes... .01
Primary.......................................................... $ 1.03 $ 1.15 $ 1.38
-------------- -------------- --------------
-------------- -------------- --------------
Net income per common and common equivalent share,
Income before cumulative effect of a change in accounting for
income taxes.................................................... $ 1.02 $ 1.15 $ 1.38
Cumulative effect of the change in accounting for income taxes... .01
Fully diluted.................................................... $ 1.03 $ 1.15 $ 1.38
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMOM EQUIVALENT SHARES
Primary:
Weighted average of common shares outstanding.................. 14,091,503 14,262,206 13,656,150
Dilutive stock options, using treasury stock method............ 472,176 248,363 400,959
-------------- -------------- --------------
14,563,679 14,510,569 14,057,109
-------------- -------------- --------------
-------------- -------------- --------------
Fully diluted:
Weighted average of common shares outstanding.................. 14,091,503 14,262,206 13,656,150
Dilutive stock options, using treasury stock method............ 478,047 245,690 611,033
-------------- -------------- --------------
14,569,550 14,507,896 14,267,183
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

- ------------------------
NOTE: The calculation of fully diluted earnings per share is submitted in
compliance with Regulation S-K Item 601(b) (11) although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in
less than 3% dilution.

<PAGE>
DIGI INTERNATIONAL INC.
SELECTED FINANCIAL INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30

<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 164,978 $ 130,945 $ 93,385 $ 70,867 $ 50,866
% change.................................. 26% 40% 32% 39% 59%
Net income................................ 19,331 16,701 14,905 12,555 8,145
% change.................................. 16 12 19 54 64
Net income/share.......................... 1.38 1.15 1.03 0.87 0.64
% change.................................. 20 12 18 36 64
Total assets.............................. 126,043 102,758 88,859 69,788 56,403
% change.................................. 23 16 27 24 128
Stockholders' equity...................... 105,827 91,113 80,467 64,076 51,284
% change.................................. 16 13 26 25 148
</TABLE>
<PAGE>
DIGI INTERNATIONAL INC.
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED SEPTEMBER 30

<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 164,978 $ 130,945 $ 93,385 $ 70,867 $ 50,866
Income before taxes....................... 29,366 25,351 22,510 18,256 12,276
Net income................................ 19,331 16,701 14,905 12,555 8,145
Net income/share.......................... 1.38 1.15 1.03 0.87 0.64
Average shares outstanding................ 14,048 14,511 14,564 14,443 12,752
Working capital........................... 74,061 72,671 69,648 56,147 43,121
Total assets.............................. 126,043 102,758 88,859 69,788 56,403
Stockholders' equity...................... 105,827 91,113 80,467 64,076 51,284
Book value per share...................... 7.82 6.64 5.68 4.58 5.44
Return on sales........................... 11.7% 12.8% 16.0% 17.7% 16.0%
Number of employees....................... 605 430 333 266 223
</TABLE>

- ------------------------
(In thousands except per share amounts, percentages and number of employees)
Operations and balance sheet data for 1991 and 1992 have been restated for the
Star Gate acquisition described in Footnote 2.
<PAGE>

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

RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

The following table sets forth selected information derived from the Company's
Consolidated Statements of Operations expressed as percentage of net sales.
<TABLE>
<CAPTION>

YEAR ENDED SEPTEMBER 30 PERCENTAGE INCREASE/(DECREASE)
- ---------------------------------------------------------------------------------------------------------------------------------
1995 over 1994 over
1995 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 26.0% 40.2%
Cost of sales 47.8 48.2 43.8 25.1 54.1
- ---------------------------------------------------------------------------------------------------------------------------------
Gross margin 52.2 51.8 56.2 26.8 29.4

Operating expenses:
Sales & marketing 19.1 17.2 18.9 39.9 27.8
Research & development 8.9 7.5 5.6 49.2 89.6
General & administrative 7.6 8.6 9.4 11.3 27.1
- ---------------------------------------------------------------------------------------------------------------------------------
35.6 33.3 33.9 34.6 37.7

Operating income 16.6 18.5 22.3 12.8 16.7
Other income, principally interest 1.2 .9 1.8 84.4 (37.0)
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of a change in accounting for income taxes 17.8 19.4 24.1 15.8 12.6
Provision for income taxes 6.1 6.6 8.3 16.0 11.9
- ---------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of a
change in accounting for income taxes 11.7 12.8 15.8 15.7 13.0

Cumulative effect of the change in
accounting for income taxes 0.2
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 11.7% 12.8% 16.0% 15.7% 12.1%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NET SALES
The increase in net sales from 1994 to 1995 of $34.0 million and from 1993 to
1994 of $37.6 million spanned all product markets as follows:
<TABLE>
<CAPTION>

PRODUCT MARKET ANNUAL SALES INCREASE PERCENT OF ANNUAL SALES
- --------------------------------------------------------------------------------
1994 1995 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Multiuser 13% 17% 86.3% 69.5% 64.6%
Remote Access 103% 63% 7.4% 10.7% 13.8%
LAN Connect * 54% * 15.1% 18.4%
Other 6.3% 4.7% 3.2%
- --------------------------------------------------------------------------------
</TABLE>
* During 1994 the Company acquired MiLAN Technology Corporation, which
contributed $20 million in LAN Connect sales, representing 53.3% of
the increase in total sales for fiscal 1994.

The sales increase is primarily due to volume not price increases.

Sales to original equipment manufacturers (OEMs) decreased from 22.6% of net
sales in 1993 to 20.6% in 1994 and increased to 22.8% in 1995. Sales to the
distribution markets increased from 52.2% of net sales to 57.9% and 61.1% for
1993, 1994 and 1995 respectively. The Company sees these markets continuing to
grow.

The Company believes that revenue from its remote access and LAN Connect markets
will continue to show rapid growth, while the multiuser market growth will slow.

<PAGE>

GROSS MARGINS
Gross margins increased from 51.8% of net sales in 1994 to 52.2% in 1995 due
primarily to purchasing efficiencies and product redesign. While gross margin
dollars increased from 1993 to 1994, the decline in gross margin percentage is
attributable to the acquisition of MiLAN, whose normal gross margin percentage
is lower than the Company's historical levels, and increased component costs.
Management expects gross margins to stabilize near their current levels.

OPERATING EXPENSES
The year-to-year increases in operating expenses are due primarily to increased
R&D and market development spending for new products and markets, principally
for the remote access and LAN Connect markets, plus increased staffing levels.
The Company expects to continue to commit increased funding for developing new
products in these rapidly growing markets.

OTHER INCOME
The decrease in other income from 1993 to 1994 resulted from a reduction of
available funds due to the acquisition of MiLAN Technology Corporation and
purchase of treasury stock, partially offset by an increase in interest rates.
The increase in other income from 1994 to 1995 resulted from an increase of
available funds and an increase in interest rates.

INCOME TAXES
The Company's effective income tax rate decreased from 34.3% in 1993 to 34.1% in
1994 and reflects the elimination of the prior year IRS adjustment partially
offset by increased state taxes, due primarily to the effect of the acquisition
of MiLAN Technology Corporation, and the increase in the statutory tax rate. The
increase in the effective rate from 1994 to the 1995 rate of 34.2% resulted
primarily from a decrease in the federal R&D credit.

INFLATION
Management believes inflation has not had a material effect on the Company's
operations or on its financial condition.

LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally with funds generated from
operations and proceeds remaining from earlier public stock offerings.
Cash flow from operations for the year ended September 30, 1995 has returned to
historical levels. Cash flow from operations for the year ended September 30,
1994, was negatively impacted by increased levels of inventories and accounts
receivable, mainly resulting from the MiLAN acquisition.

Investing activities for the year ended September 30, 1995, include new
investments of excess cash, reinvestment of maturing investments, purchase for
$4.5 million of a new office and research facility plus the acquisition of LAN
Access Corporation.

The Company expects to expend, in 1996, from existing funds and/or funds
generated from 1996 operations, up to $10 million for capital equipment.

On March 27, 1995, the Company's board of directors authorized a one million
share repurchase program. At September 30, 1995, 277,500 shares have been
acquired under this program as treasury stock. Additional purchases under this
authorization will be funded by available cash balances over an unspecified
period of time.

At September 30, 1995, the Company had working capital of $74.1 million, no debt
and no established lines of credit. Management believes that funds generated
from operations and the Company's potential capacity for debt and/or equity
financing will be sufficient to fund current business operations and any
anticipated business expansion.

FOREIGN CURRENCY TRANSLATION
Substantially all of the Company's foreign transactions are negotiated, invoiced
and paid in U.S. dollars.

NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) has issued Statement No. 123,
"Accounting for Stock-Based Compensation." The Company plans to adopt this
Statement in fiscal year 1997. Although it has not made a definitive
determination of its impact, the Company does not expect the adoption of
Statement No. 123 to have a materially adverse effect on its financial position
or results of operations.

<PAGE>
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30
----------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales................................................... $ 164,978,018 $ 130,945,343 $ 93,385,218
Cost of sales............................................... 78,933,221 63,100,733 40,941,788
---------------- ---------------- ----------------
Gross margin................................................ 86,044,797 67,844,610 52,443,430
Operating expenses:
Sales & marketing......................................... 31,497,005 22,518,353 17,623,832
Research & development.................................... 14,676,683 9,833,859 5,187,337
General & administrative.................................. 12,472,581 11,208,071 8,815,733
---------------- ---------------- ----------------
Total operating expenses.................................... 58,646,269 43,560,283 31,626,902
---------------- ---------------- ----------------
Operating income............................................ 27,398,528 24,284,327 20,816,528
Other income, principally interest.......................... 1,967,565 1,066,765 1,693,739
---------------- ---------------- ----------------
Income before income taxes and cumulative effect of a change
in accounting for income taxes............................. 29,366,093 25,351,092 22,510,267
Provision for income taxes.................................. 10,035,000 8,650,000 7,727,603
---------------- ---------------- ----------------
Income before cumulative effect of a change in accounting
for income taxes........................................... 19,331,093 16,701,092 14,782,664
Cumulative effect of the change in accounting for income
taxes...................................................... 122,100
---------------- ---------------- ----------------
Net income.................................................. $ 19,331,093 $ 16,701,092 $ 14,904,764
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Income per common and common equivalent share:
Before cumulative effect of a change in accounting for
income taxes............................................. $ 1.38 $ 1.15 $ 1.02
Cumulative effect of the change in accounting for income
taxes.................................................... 0.01
---------------- ---------------- ----------------
Net income.................................................. $ 1.38 $ 1.15 $ 1.03
Weighted average common and common equivalent shares
outstanding................................................ 14,057,109 14,510,569 14,563,679
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DIGI INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30 SEPTEMBER 30
1995 1994
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 5,103,731 $ 13,849,017
Marketable securities, at cost.............................................. 27,968,775 23,412,434
Accounts receivable, net.................................................... 31,960,936 21,559,115
Inventories................................................................. 27,019,085 23,359,489
Income tax refund receivable.................................................. 130,165
Other....................................................................... 2,094,893 2,136,113
---------------- ----------------
Total current assets.................................................... 94,277,585 84,316,168
---------------- ----------------
Property, equipment and improvements, net..................................... 17,716,819 9,844,801
Intangible assets, net........................................................ 11,633,305 7,682,910
Other......................................................................... 2,415,755 914,248
---------------- ----------------
Total assets............................................................ $ 126,043,464 $ 102,758,127
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 12,106,515 $ 3,929,146
Income taxes payable........................................................ 1,027,658
Accrued expenses:
Advertising............................................................... 2,235,946 1,172,571
Compensation.............................................................. 4,932,987 4,914,997
Other..................................................................... 941,469 600,580
---------------- ----------------
Total current liabilities............................................... 20,216,917 11,644,952
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; none
outstanding................................................................
Common stock, $.01 par value; 60,000,000 shares authorized; 14,562,958 and
14,474,663 shares outstanding.............................................. 145,630 144,747
Additional paid-in capital.................................................. 41,306,320 39,788,556
Retained earnings........................................................... 81,604,526 62,273,433
---------------- ----------------
123,056,476 102,206,736
Unearned stock compensation................................................... (598,387) (392,332)
Treasury stock, at cost ,1,032,729 and 755,229 shares......................... (16,631,542) (10,701,229)
---------------- ----------------
Total stockholders' equity.............................................. 105,826,547 91,113,175
---------------- ----------------
Total liabilities and stockholders' equity.................................... $ 126,043,464 $ 102,758,127
---------------- ----------------
---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30

<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Operating activities:
Net Income.................................................... $ 19,331,093 $ 16,701,092 $ 14,904,764
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation of property and equipment...................... 2,289,554 1,491,964 618,680
Amortization of intangibles................................. 1,132,006 1,139,076 1,236,998
Provision for losses on accounts receivable................. 243,895 608,001 397,358
Provision for inventory obsolescence........................ 716,300 1,071,741 274,000
Deferred income taxes....................................... (84,750) (80,000) (275,000)
Cumulative effect of accounting change...................... (122,100)
Stock compensation.......................................... 166,667 153,076 160,134
Changes in assets and liabilites:
Accounts receivable....................................... (10,457,106) (7,452,502) 940
Inventories............................................... (4,043,377) (9,785,911) (5,150,506)
Income tax refund receivable.............................. (130,165)
Other assets.............................................. (1,266,098) (345,891) (744,741)
Accounts payable.......................................... 7,420,550 (833,303) 461,601
Income taxes payable...................................... (1,027,658) 279,746 (36,474)
Accrued expenses.......................................... 1,365,901 (363,231) 2,254,449
--------------- --------------- ---------------
Net cash provided by operating activities............... 15,656,812 2,583,858 13,980,103
--------------- --------------- ---------------
Investing activities:
Purchase of property and equipment.......................... (9,573,995) (3,944,632) (4,158,006)
Proceeds from held-to-maturity marketable securities........ 25,004,985 41,480,965 41,876,862
Purchases of held-to-maturity marketable securities......... (21,751,326) (31,194,880) (41,298,190)
Purchases of available-for-sale marketable securities....... (7,810,000)
Business acquisitions, net of cash acquired................. (5,487,374) (2,536,766)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities..... (19,617,710) 3,804,687 (3,579,334)
--------------- --------------- ---------------
Financing activities:
Purchase of treasury stock.................................. (5,930,313) (11,152,498)
Stock option transactions................................... 1,145,925 781,712 1,326,367
--------------- --------------- ---------------
Net cash provided by (used in) financing activities..... (4,784,388) (10,370,786) 1,326,367
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents.... (8,745,286) (3,982,241) 11,727,136
Cash and cash equivalents, beginning of year.................. 13,849,017 17,831,258 6,104,122
--------------- --------------- ---------------
Cash and cash equivalents, end of year........................ $ 5,103,731 $ 13,849,017 $ 17,831,258
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental cash flow disclosure:
Income taxes paid........................................... $ 10,815,846 $ 7,878,279 $ 4,973,965
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DIGI INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK ADDITIONAL
--------------------- ---------------------- PAID-IN
SHARES PAR VALUE SHARES VALUE CAPITAL
---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balances, September 30, 1992................................... 13,978,606 139,786 33,860,990
Treasury stock, at cost........................................ 229 $ (4,981)
Stock compensation.............................................
Issuance of stock upon exercise of stock options, net of
withholding................................................... 199,730 1,997 (285,849)
Tax benefit realized upon exercise of stock options............ 1,615,200
Net income.....................................................
---------- --------- --------- ----------- ----------
Balances, September 30, 1993................................... 14,178,336 141,783 229 (4,981) 35,190,341
Treasury stock, at cost........................................ 780,000 (11,152,498)
Issuance of stock options at below market prices............... 182,554
Stock compensation.............................................
Issuance of stock for MiLAN purchase........................... 186100 1,861 (25,000) 456,250 3,705,823
Issuance of stock upon exercise of stock options, net of
withholding................................................... 110,227 1,103 207,635
Tax benefit realized upon exercise of stock options............ 571,975
Forfeiture of stock options.................................... (69,772)
Net income.....................................................
---------- --------- --------- ----------- ----------
Balances, September 30, 1994................................... 14,474,663 144,747 755,229 (10,701,229) 39,788,556
Treasury stock, at cost........................................ 277,500 (5,930,313)
Issuance of stock options at below market prices............... 448,750
Stock compensation.............................................
Issuance of stock upon exercise of stock options, net of
withholding................................................... 88,295 883 683,315
Tax benefit realized upon exercise of stock options............ 461,727
Forfeiture of stock options.................................... (76,028)
Net income.....................................................
---------- --------- --------- ----------- ----------
Balances, September 30, 1995................................... 14,562,958 145,630 1,032,729 (16,631,542) 41,306,320
---------- --------- --------- ----------- ----------

<CAPTION>
UNEARNED TOTAL
RETAINED STOCK STOCKHOLDERS'
EARNINGS COMPENSATION EQUITY
---------- ------------- ------------
<S> <C> <C> <C>
Balances, September 30, 1992................................... 30,667,577 (592,760) 64,075,593
Treasury stock, at cost........................................ (4,981)
Stock compensation............................................. 160,134 160,134
Issuance of stock upon exercise of stock options, net of
withholding................................................... (283,852)
Tax benefit realized upon exercise of stock options............ 1,615,200
Net income..................................................... 14,904,764 14,904,764
---------- ------------- ------------
Balances, September 30, 1993................................... 45,572,341 (432,626) 80,466,858
Treasury stock, at cost........................................ (11,152,498)
Issuance of stock options at below market prices............... (182,554)
Stock compensation............................................. 153,076 153,076
Issuance of stock for MiLAN purchase........................... 4,138,934
Issuance of stock upon exercise of stock options, net of
withholding................................................... 208,738
Tax benefit realized upon exercise of stock options............ 571,975
Forfeiture of stock options.................................... 69,772
Net income..................................................... 16,701,092 16,701,092
---------- ------------- ------------
Balances, September 30, 1994................................... 62,273,433 (392,332) 91,113,175
Treasury stock, at cost........................................ (5,930,313)
Issuance of stock options at below market prices............... (448,750)
Stock compensation............................................. 166,667 166,667
Issuance of stock upon exercise of stock options, net of
withholding................................................... 684,198
Tax benefit realized upon exercise of stock options............ 461,727
Forfeiture of stock options.................................... 76,028
Net income..................................................... 19,331,093 19,331,093
---------- ------------- ------------
Balances, September 30, 1995................................... 81,604,526 (598,387) 105,826,547
---------- ------------- ------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS DESCRIPTION
Digi International Inc. (the Company) is a leading ISO 9001-compliant provider
of data communications hardware and software that delivers seamless connectivity
solutions for multiuser environments, remote access and LAN Connect markets. The
Company markets its products through an international network of distributors
and resellers, system integrators and original equipment manufacturers (OEMs).

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents, while those having
original maturities in excess of three months are classified as marketable
securities and generally consist of U.S. Government or U.S. Government-backed
obligations. Marketable securities classified as held-to-maturity are carried at
amortized cost. Marketable securities classified as available-for-sale are
recorded at market value. (See Note 3)

REVENUE RECOGNITION
Sales are recognized at the date of shipment. Estimated warranty costs and
customer returns are recorded at the time of sale. Accounts receivable are net
of allowances for returns and doubtful accounts of $656,500 at September 30,
1995 and $641,500 at September 30, 1994.

INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out method. Market for raw materials is based on replacement
cost and for other inventory classifications on net realizable value.
Appropriate consideration is given to deterioration, obsolescence and other
factors in evaluating net realizable value.

PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
provided by charges to operations using the straight-line method based on
estimated useful lives.

Expenditures for maintenance and repairs are charged to operations as incurred,
while major renewals and betterments are capitalized. The assets and related
accumulated depreciation accounts are adjusted for asset retirements and
disposals with the resulting gain or loss included in operations.

INTANGIBLE ASSETS
Purchased technology, license agreements, covenants not to compete and other
intangible assets are recorded at cost. Goodwill represents the excess of cost
over the fair value of assets acquired and goodwill is being amortized on a
straight-line basis over its estimated useful life of ten to fifteen years. All
other intangible assets are amortized on a straight-line basis over their
estimated useful lives of one to five years.

The Company periodically, at least quarterly, analyzes intangible assets for
potential impairment, assessing the appropriateness of lives and recoverability
of unamortized balances through measurement of undiscounted operating unit
income on a basis consistent with generally accepted accounting principles.

RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred. Software development
costs are expensed as incurred. Such costs are required to be expensed until the
point that technological feasibility and proven marketability of the product are
established; costs otherwise capitalized after such point also are expensed
because they are insignificant.

INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect

<PAGE>

taxable income. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

Tax credits are accounted for under the flow-through method, which recognizes
the benefit in the year in which the credit is utilized.

INCOME PER COMMON SHARE
Income per common share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents result from dilutive
stock options.

USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The most
significant areas which require the use of management's estimates relate to the
determination of the allowance for obsolete inventory and uncollectable accounts
receivable, along with accrued warranty costs and sales returns.

2. ACQUISITIONS
On April 13, 1993 the Company issued 431,956 shares of common stock, $.01 par
value, in exchange for all of the outstanding capital stock of Star Gate
Technologies, Inc. ("Star Gate"). Star Gate is a producer of data communications
hardware and software products that permit microcomputers to function as
multiuser systems. The acquisition has been accounted for using the pooling of
interests method, and accordingly, the accompanying financial information has
been restated to include the results of Star Gate for all periods presented.
Costs related to the acquisition of approximately $466,000 were expensed in the
third quarter of fiscal year 1993.

On November 15, 1993, the Company acquired MiLAN Technology Corporation, a
provider of networking products, for stock and cash valued at approximately $6.8
million. The acquisition has been accounted for as a purchase. Results of
operations since the effective date of the transaction are included in the
Consolidated Statements of Operations.

On September 29, 1995, the Company acquired LAN Access Corporation, a provider
of remote access products, for cash of approximately $5.5 million. The
acquisition has been accounted for as a purchase. Results of operations since
the effective date of the transaction are insignificant.

Pro forma data (unaudited) as though the MiLAN and LAN Access acquisitions had
been effective at the beginning of 1993 is as follows:
<TABLE>
<CAPTION>

DIGI INTERNATIONAL
ACQUISITIONS PRO FORMA TABLE SUPPORT
SEPTEMBER 30, 1995

- -------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $166,784 $ 132,829 $ 106,320
- -------------------------------------------------------------------------------------
Net income 18,284 16,060 15,301
- -------------------------------------------------------------------------------------
Net income per share 1.30 1.11 1.05
- -------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
</TABLE>

3. MARKETABLE SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115), as of September 30, 1994. The adoption of SFAS 115 did
not impact net income or stockholders' equity for fiscal year 1994. In
accordance with SFAS 115, prior-period financial statements have not been
restated to reflect the change in accounting principle.

<PAGE>

Held-to-maturity marketable securities, which consist of state and political
subdivision debt securities, will be held to their maturity of less than one
year. At September 30, 1995, the amortized cost and estimated fair value were
$20,158,775 and $20,232,038, respectively. Unrealized holding gains and losses
were not significant. At September 30, 1994, the amortized cost and estimated
fair value were $23,412,434 and $23,374,698, respectively. Unrealized holding
gains and losses were not significant.

Available-for-sale marketable securities, which consist of state and political
subdivision debt securities, will be sold within the next year. At September 30,
1995, the estimated fair value approximated amortized cost of $7,810,000.
Unrealized and realized gains and losses were not significant.

<TABLE>
<CAPTION>
4. SELECTED BALANCE SHEET DATA 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Inventories:
Raw materials $ 13,288,953 $ 14,329,651
Work in process 7,645,002 5,231,662
Finished goods 6,897,130 4,480,176
- -----------------------------------------------------------------------------------------------
Less reserve for obsolescence 812,000 682,000
- -----------------------------------------------------------------------------------------------
$ 27,019,085 $ 23,359,489
- -----------------------------------------------------------------------------------------------
Property, equipment and improvements:
Land 303,174 $ 303,174
Building 9,009,840 3,980,379
Improvements 274,811 195,599
Equipment 11,922,087 7,583,920
Purchased software 1,778,712 1,411,299
Furniture & fixtures 1,855,639 1,348,163
- -----------------------------------------------------------------------------------------------
25,144,263 14,822,534

Less accumulated depreciation 7,427,444 4,977,733
- -----------------------------------------------------------------------------------------------
$ 17,716,819 $ 9,844,801
- -----------------------------------------------------------------------------------------------
Intangible assets:
Purchased technology $ 1,621,858 $ 1,576,858
License agreements 1,472,000 1,472,000
Covenants not to compete 1,670,000 1,670,000
Goodwill 11,418,393 6,360,531
Other 44,193 49,755
- -----------------------------------------------------------------------------------------------
16,226,444 11,129,144

Less accumulated amortization 4,593,139 3,446,234
- -----------------------------------------------------------------------------------------------
$ 11,633,305 $ 7,682,910
- -----------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

5. STOCK OPTIONS
The Company has a stock option plan (the "Plan") that provides for the issuance
of nonstatutory stock options and incentive stock options (ISOs) to key
employees and nonemployee board members holding less than 5% of the outstanding
shares of the Company's common stock. Currently, under the plan, qualifying
board members will receive a stock option for 7,500 shares of the Company's
common stock annually.

The option price for ISOs and board member options is set at fair market value
of the Company's common stock on the date of grant. The option price for
nonstatutory options is set by the Compensation Committee of the Board of
Directors. The authority to grant options and set other terms and conditions
rests with the Compensation Committee. The Plan terminates in 2004.

During the years ended September 30, 1995, 1994, and 1993, 88,295, 110,227 and
199,730 shares of the Company's Common Stock, respectively, were issued upon the
exercise of options for 95,367, 122,200 and 239,600 shares, respectively. The
difference between shares issued and options exercised results from the Plan's
provision allowing employees to elect to pay their withholding obligation
through share reduction. Withholding taxes paid by the Company as a result of
the share withholding provision amounted to $413,000 in 1995, $223,000 in 1994
and $806,000 in 1993.

During the years ended September 30, 1995 and 1994, the Board of Directors
authorized the issuance of nonstatutory stock options totaling 50,000 and 17,338
shares respectively, at prices below the market value of the stock. For the year
ended September 30, 1993, their were no nonstatutory stock options issued. The
difference between the option price and market value at the date of grant has
been recorded as additional paid-in capital. The compensation related to these
shares is amortized over the five-year period in which the employees perform
services and amounted to $166,667 in 1995, $153,076 in 1994 and $160,134 in
1993.

STOCK OPTIONS AND COMMON SHARES RESERVED FOR GRANT UNDER THE PLAN ARE AS FOLLOWS:
- ----------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR GRANT OPTIONS OUTSTANDING PRICE PER SHARE
<S> <C> <C> <C>
Balances, September 30, 1992 358,150 904,150 $ .33 - 20.50
Granted (74,750) 74,750 20.75 - 24.25
Exercised (239,600) .33 - 12.00
------- ---------
Balances, September 30, 1993 283,400 739,300 .50 - 24.25
Granted (293,338) 293,338 11.50 - 23.75
Exercised (122,200) 11.50 - 24.25
Cancelled 17,100 (17,100) 11.83 - 23.75
------ --------
Balances, September 30, 1994 7,162 893,338 .50 - 24.25
Additional shares approved for grant 2,000,000
Granted (808,375) 808,375 15.25 - 29.25
Exercised (95,367) .50 - 21.25
Cancelled 119,251 (119,251) 3.33 - 23.13
------- --------
Balances, September 30, 1995 1,318,038 1,487,095 .50 - 29.25
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Of options outstanding at September 30, 1995, options for 375,974 shares were
exercisable, at prices ranging from $.50 to $24.50 per share.

<PAGE>

6. COMMITMENTS

The Company has entered into various operating lease agreements, the last of
which expires in fiscal year 2003. Below is a schedule of future minimum
commitments under noncancelable operating leases:
<TABLE>
<CAPTION>

FISCAL YEAR 1996 1997 1998 1999 2000 Thereafter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNT $622,833 $522,775 $521,334 $543,682 $556,736 $378,140
</TABLE>

Total rental expense for all operating leases for the years ended September 30,
1995, 1994, and 1993 was $946,000, $627,000 and $458,000, respectively.

7. INCOME TAXES
On October 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The cumulative effect of this
change in accounting for income taxes increased net income by $122,100 ($.01 per
share) and was recorded separately in the consolidated statement of operations
for the year ended September 30, 1993. The effect of the change on 1993 net
income, excluding the cumulative effect upon adoption, was not material.

The components of the provision for income taxes for the years ended September
30, 1995, 1994, and 1993 are as follows:

1995 1994 1993
---------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ 9,505,650 $ 8,364,428 $ 7,632,603
State 614,100 365,572 370,000
Deferred (84,750) (80,000) (275,000)
---------------------------------------------------------------------
$ 10,035,000 $ 8,650,000 $ 7,727,603
</TABLE>

The components of the net deferred tax asset at September 30, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>

1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Valuation reserves $ 393,100 $ 313,300
Inventory valuation 300,400 221,200
Vacation costs 178,700 124,700
Depreciation (71,097) 57,153
- ------------------------------------------------------------------------
Net deferred tax asset $ 801,103 $ 716,353
</TABLE>

The current portion of the deferred tax asset is reported with other current
assets on the consolidated balance sheet while the long-term portion is reported
with other liabilities in 1995 and other non-current assets in 1994.

The reconciliation of the statutory federal income tax rate with the effective
income tax rate for the years ended September 30, 1995, 1994, and 1993 is as
follows:

1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 34.8%
Increase (reduction) resulting from:
Prior years IRS examination 2.1
Utilization of research and
development tax credits (1.7) (1.9) (1.0)
State taxes, net of federal benefits 2.5 2.4 1.0
FSC benefit (1.0) (.8) (1.1)
Other (.6) (.6) (1.5)
- -------------------------------------------------------------------------------
34.2% 34.1% 34.3%
</TABLE>

8. FOREIGN SALES AND MAJOR CUSTOMERS
Foreign sales, primarily in Europe, comprised approximately 20%, 21% and 22% of
net sales for the years ended September 30, 1995, 1994, and 1993, respectively.
During 1995, one customer (customer A) accounted for 12.5% of net sales while
another (customer B) accounted for 11.7%. One customer (customer A) comprised
11.8% of net sales in 1994. During 1993, one customer (customer B) accounted for
10.8% of net sales while another (customer A) accounted for 10.3%.

9. EMPLOYEE BENEFIT PLAN
The Company has a savings and profit sharing plan pursuant to Section 401(k) of
the Internal Revenue Code ("the Code"), whereby eligible employees may
contribute up to 15% of their earnings, not to exceed amounts allowed under the
Code. In addition, the Company may make contributions at the discretion of the
Board of Directors. During 1995, 1994, and 1993 the Company provided for
matching contributions totaling $125,000, $100,000 and $75,000, respectively.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF DIGI INTERNATIONAL INC.:
We have audited the accompanying consolidated balance sheets of Digi
International Inc. and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended September 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Digi International
Inc. and subsidiaries as of September 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles.

/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
November 15, 1995

QUARTERLY FINANCIAL DATA (UNAUDITED): QUARTER ENDED
- ----------------------------------------------------------------------------------------------------
(in thousands except per share amounts) Dec. 31 Mar. 31 June 30 Sept. 30
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales $37,879 $40,076 $41,179 $45,844
Gross margin 19,745 21,169 22,131 23,000
Net income 4,491 4,597 4,847 5,396
Net income per share .32 .33 .35 .38

1994
Net sales 25,989 31,647 35,185 38,124
Gross margin 14,736 16,672 17,696 18,741
Net income 4,036 4,123 4,216 4,326
Net income per share .28 .28 .29 .31

1993
Net sales 22,632 22,743 23,559 24,451
Gross margin 12,731 12,715 13,301 13,696
Net income 4,026 3,811 3,768 3,301
Net income per share .28 .26 .26 .23
</TABLE>

The summation of quarterly net income per share may not equate to the year end
calculation as quarterly calculations are performed on a discrete basis.

<PAGE>

STOCKHOLDER AND INVESTOR INFORMATION

STOCK LISTING
The Company's common stock has been publicly traded since its initial public
offering on October 5, 1989. The Company's common stock trades on The Nasdaq
Stock Market under the symbol "DGII." At December 13, 1995, the number of
holders of the Company's Common Stock was approximately 7,719 consisting of 369
record holders and approximately 7,350 stockholders whose stock is held by a
bank, broker or other nominee.

High and low closing sale prices for each quarter during the years ended
September 30, 1995 and 1994, as reported on The Nasdaq Stock Market
were as follows:

1995 First Second Third Fourth
- -----------------------------------------------
<S> <C> <C> <C> <C>
HIGH $ 19.25 $ 24.25 $ 26.00 $ 30.25

LOW 13.25 18.00 18.25 22.00
<CAPTION>
1994 First Second Third Fourth
- -----------------------------------------------
<S> <C> <C> <C> <C>
HIGH $ 24.25 $ 21.88 $ 18.00 $ 16.00
LOW 18.25 17.00 12.56 11.50
</TABLE>

DIVIDEND POLICY
The Company has never paid cash dividends on its common stock. The Board of
Directors presently intends to retain all earnings for use in the Company's
business and does not anticipate paying cash dividends in the foreseeable
future.

The Company does not have a Dividend Reinvestment Plan or a Direct Stock
Purchase Plan.

STOCKHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
P.O. Box 738
St. Paul, MN 55075-0738
(612) 450-4064
(800) 468-9716
LEGAL COUNSEL
Faegre & Benson P.L.L.P.
2200 Norwest Center
Minneapolis, MN 55402-3901
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P.
650 Third Avenue South
Minneapolis, MN 55402-4333

ANNUAL MEETING The Company's Annual Meeting of Stockholders will be held on
Wednesday, January 31, 1996, at 3:30 pm, at Marriott City Center, 30 South 7th
Street, Minneapolis, Minn.

INVESTOR RELATIONS A COPY OF THE COMPANY'S FORM 10-K, FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, IS AVAILABLE FREE UPON WRITTEN REQUEST. CONTACT:

MAUREEN MCGARRIGLE
DIRECTOR, INVESTOR RELATIONS
DIGI INTERNATIONAL INC.
6400 FLYING CLOUD DRIVE
EDEN PRAIRIE, MN 55344
(612) 943-5347
EMAIL: [email protected]

<PAGE>

DIRECTORS AND OFFICERS

DIRECTORS
- --------------------------------------------------------------------------------
JOHN P. SCHINAS (3) Mr. Schinas is a founder of the Company and 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
CEO from July 1985 to January 1992.

WILLIS K. DRAKE (2) Mr. Drake has been a member of the Board of Directors
since 1987 and a private investor since 1983.

RICHARD E. EICHHORN (1) (2) Mr. Eichhorn has been a member of the Board of
Directors since 1987. Since April 1992, Mr. Eichorn has been a private investor.

ERVIN F. KAMM, JR. Mr. Kamm has been a member of the Board of Directors since
December 1, 1994 and was named President and CEO November 30, 1994. Mr. Kamm was
President and Chief Operating Officer of Norstan, Inc., from 1988 to 1994. Prior
to Norstan, Mr. Kamm held a variety of CEO/COO positions with privately held
companies.

MYKOLA MOROZ Mr. Moroz was a founder of the Company and CEO from January 1992
to September 1994 and a member of the Board of Directors since July 1991. 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. He is now a private consultant.

[PHOTO]

FIRST ROW: DAVID STANLEY, ERVIN F. KAMM, JR., WILLIS K. DRAKE; SECOND ROW:
RICHARD E. EICHHORN, JOHN P. SCHINAS, MYKOLA MOROZ; NOT PICTURED: RICHARD E.
OFFERDAHL AND DR. JAGDISH SHETH.

RICHARD E. OFFERDAHL (1) (2) Mr. Offerdahl has been a member of the Board of
Directors since 1987 and a private investor and venture capitalist since 1986.

DR. JAGDISH SHETH, PH. D. (3) Dr. Sheth joined the board in August, 1995. He is
the Charles H. Kellstadt Professor of Marketing at Goizueta Business School,
Emory University, Atlanta.

DAVID STANLEY (1) (3) Mr. Stanley has been a member of the Board of Directors
of the Company since 1990. Mr. Stanley has been Chairman and CEO of Payless
Cashways, Inc., a building materials retailer, since 1984.

(1) AUDIT COMMITTEE
(2) COMPENSATION COMMITTEE
(3) CORPORATE GOVERNANCE AND NOMINATING COMMITTEE

CORPORATE OFFICERS
- --------------------------------------------------------------------------------
ERVIN F. KAMM, JR. KEITH C. RERICHA
President and Chief Executive Officer Vice President

JAMES R. BAKER GERALD A. WALL
Vice President Vice President, Chief Financial
Officer and Treasurer
GARY L. DEANER
Vice President RAY D. WYMER
Vice President
JOSEPH A. DIODATI
Vice President JAMES E. NICHOLSON
Partner, Faegre & Benson P.L.L.P.
DOUGLAS J. GLADER Secretary
Vice President

DANA R. NELSON
Vice President

CORPORATE GOVERNANCE
- --------------------------------------------------------------------------------
- - The majority of the board's membership is comprised of outside directors.

- - The executive compensation and audit committees are comprised of all outside
directors.

- - The positions of Chairman of the Board and Chief Executive Officer are
separate.

- - The nominating committee is comprised of the Chairman and two outside
directors.

<PAGE>

EXHIBIT 21

Subsidiaries of Registrant

Digi International Asia Pte., Ltd.
Digi International GmbH
DigiBoard Incorporated FSC
Digi International Israel Inc.

<PAGE>

EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Form S-8 registration
statements (File No. 33-32956 and File No. 33-38898) of Digi International Inc.
for its Stock Option Plan and Form S-3 registration statements (File No. 33-
61180 and File No. 33-82262) of Digi International Inc. for the common shares
issued as part of the Star Gate merger and for the common shares issued as part
of the MiLAN Technologies acquisition of our reports dated November 15, 1995, on
our audits of the consolidated financial statements and financial statement
schedule of Digi International Inc. as of September 30, 1995 and 1994, and for
the years ended September 30, 1995, 1994 and 1993, which reports are included in
or incorporated by reference in this Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Minneapolis, Minnesota
December 27, 1995

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
OF DIGI INTERNATIONAL INC. FOR THE YEAR ENDED SEPTEMBER 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 5,103,731
<SECURITIES> 27,968,775
<RECEIVABLES> 31,960,936
<ALLOWANCES> 0
<INVENTORY> 27,019,085
<CURRENT-ASSETS> 94,277,585
<PP&E> 25,144,263
<DEPRECIATION> 7,427,444
<TOTAL-ASSETS> 126,043,464
<CURRENT-LIABILITIES> 20,216,917
<BONDS> 0
<COMMON> 145,630
0
0
<OTHER-SE> 105,680,917
<TOTAL-LIABILITY-AND-EQUITY> 126,043,464
<SALES> 164,978,018
<TOTAL-REVENUES> 164,978,018
<CGS> 78,933,221
<TOTAL-COSTS> 78,933,221
<OTHER-EXPENSES> 58,646,269
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,366,093
<INCOME-TAX> 10,035,000
<INCOME-CONTINUING> 19,331,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,331,093
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38

</TABLE>