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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1996.
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 Number)
11001 Bren Road East
Minnetonka, Minnesota 55343
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(Address of principal executive offices) (Zip Code)
(612) 912-3444
------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
On January 31, 1997, there were 13,376,019 shares of the registrant's $.01 par
value Common Stock outstanding.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements Page
----
Condensed Consolidated Statements of Operations
for the three months ended December 31, 1996
and 1995.............................................................3
Condensed Consolidated Balance Sheets as of
December 31, 1996 and September 30, 1996.............................4
Condensed Consolidated Statements of Cash Flows
for the three months ended December 31, 1996 and 1995................5
Notes to Condensed Consolidated Financial
Statements...........................................................6
Independent Accountant's Report......................................8
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition........................9
Forward-looking Statements..........................................13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................14
ITEM 2. Changes in Securities...............................................14
ITEM 3. Defaults Upon Senior Securities.....................................14
ITEM 4. Submission of Matters to a Vote of Securities Holders...............14
ITEM 5. Other Information...................................................15
ITEM 6. Exhibits and Reports on Form 8-K....................................15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
Net sales $ 42,236,213 $ 43,716,263
Cost of sales 22,595,738 19,987,202
------------- ------------
Gross margin 19,640,475 23,729,061
------------- ------------
Operating expenses:
Sales and marketing 10,526,836 8,670,102
Research and development 5,439,456 4,144,836
General and administrative 5,413,865 3,898,356
------------- ------------
Total operating expenses 21,380,157 16,713,294
------------- ------------
Operating (loss) income (1,739,682) 7,015,767
Other income, net 99,031 393,360
AetherWorks Corporation net loss (1,519,789) (279,307)
------------- ------------
(Loss) income before income taxes (3,160,440) 7,129,820
(Benefit) provision for income taxes (582,433) 2,607,899
------------- ------------
Net (loss) income $ (2,578,007) $ 4,521,921
------------- ------------
------------- ------------
Net (loss) income per common and
common equivalent share $ (0.19) $ 0.33
------------- ------------
------------- ------------
Weighted average common and
common equivalent shares outstanding 13,354,080 13,902,733
------------- ------------
------------- ------------
The accompanying notes to condensed consolidated financial statements are an
integral part of this financial statement.
3
<PAGE>
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1996 1996
-------------- --------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,607,580 $ 8,943,390
Accounts receivable, net 41,207,824 42,874,898
Inventories 35,396,677 33,372,164
Income tax refund receivable 2,483,624 1,675,626
Other 3,013,454 2,825,828
-------------- --------------
Total current assets 89,709,159 89,691,906
Property, equipment and improvements, net 25,114,285 24,230,101
Intangible assets, net 11,403,120 10,854,845
Investment in AetherWorks Corporation 2,152,960 1,672,749
Other 2,281,357 3,489,228
-------------- --------------
Total assets $ 130,660,881 $ 129,938,829
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,966,534 $ 12,549,738
Accrued expenses:
Advertising 4,182,403 3,761,619
Compensation 1,492,813 1,622,549
Other 2,414,057 2,061,782
-------------- --------------
Total current liabilities 23,055,807 19,995,688
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; 14,682,967 and 14,677,150 shares issued 146,829 146,772
Additional paid-in capital 42,932,896 42,866,758
Retained earnings 88,326,740 90,904,746
-------------- --------------
131,406,465 133,918,276
Unearned stock compensation (269,708) (295,156)
Treasury stock, at cost, 1,326,651 and 1,338,894
shares (23,531,683) (23,679,979)
-------------- --------------
Total stockholders' equity 107,605,074 109,943,141
-------------- --------------
Total liabilities and stockholders' equity $ 130,660,881 $ 129,938,829
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of this financial statement.
4
<PAGE>
DIGI INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Operating activities:
Net (loss) income $ (2,578,007) $ 4,521,921
------------ -------------
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,994,649 1,251,733
AetherWorks Corporation net loss 1,519,789 279,307
Provision for doubtful accounts receivable 174,000 39,280
Provision for inventory obsolescence 964,000 179,012
Changes in operating assets and liabilities 332,471 (11,119,384)
Other 72,146 78,441
------------ -------------
Total adjustments 5,057,055 (9,291,611)
------------ -------------
Net cash provided by (used in)
operating activities 2,479,048 (4,769,690)
------------ -------------
Investing activities:
Purchase of property, equipment and improvements (2,029,349) (2,144,951)
Investment in AetherWorks Corporation (2,000,000) (3,363,235)
Sale of marketable securities, net - 13,256,978
------------ -------------
Net cash (used in) provided by
investing activities (4,029,349) 7,748,792
------------ -------------
Financing activities:
Stock benefit plan transactions, net 214,491 216,233
Purchase of treasury stock - (7,249,339)
------------ -------------
Net cash provided by (used in) financing activities 214,491 (7,033,106)
------------ -------------
Net decrease in cash and cash equivalents (1,335,810) (4,054,004)
Cash and cash equivalents, beginning of period 8,943,390 5,103,731
------------ -------------
Cash and cash equivalents, end of period $ 7,607,580 $ 1,049,727
------------ -------------
------------ -------------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of this financial statement.
5
<PAGE>
DIGI INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included in this Form
10-Q have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted, pursuant to such rules and regulations. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto included in the Company's 1996
Annual Report and Form 10-K.
The condensed consolidated financial statements presented herein as of December
31, 1996 and for the three month periods ended December 31, 1996 and 1995,
reflect, in the opinion of management, all adjustments (which consist only of
normal, recurring adjustments) necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations and
cash flows for the periods presented. The consolidated results of operations
for any interim period are not necessarily indicative of results for the full
year.
2. INVESTMENT IN AETHERWORKS CORPORATION
Through December 31, 1996, under a financing arrangement, the Company purchased
$7,296,525 of convertible notes from AetherWorks Corporation, a development
stage company engaged in the development of wireless and dial-up remote access
technology. At December 31, 1996, the Company is obligated to purchase up to an
additional $6.5 million of convertible notes from time to time at the request of
AetherWorks, based on certain conditions. The convertible notes held by the
Company at December 31, 1996 are convertible into 55% of AetherWork's common
stock, and the purchase of $6.5 million additional principal amount of
convertible notes would increase the Company's ownership interest upon
conversion to 62.7%, based on AetherWorks' present capitalization. Subsequent
to December 31, 1996, the Company purchased $500,000 of AetherWorks convertible
notes. In connection with the financing arrangement, the Company has also
guaranteed $2.5 million of lease obligations of AetherWorks.
The Company has reported its investment in AetherWorks on the equity method and
has reported a $1,519,789 loss for the three month period ended December 31,
1996 and a $279,307 loss for the three month period ended December 31, 1995.
Such losses represent 100% of the AetherWorks net losses for the three month
periods. The percentage of AetherWorks' net loss included in the Company's
financial statements is based upon the percentage of financial support provided
by the Company (versus other investors) to AetherWorks during the period.
6
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN AETHERWORKS CORPORATION (CONTINUED)
Investment in AetherWorks Corporation consists of the following:
December 31 September 30
----------- ------------
Convertible notes receivable $7,296,525 $5,296,525
Cumulative net loss (5,143,565) (3,623,776)
--------- ---------
$2,152,960 $1,672,749
--------- ---------
--------- ---------
3. INVENTORIES
Inventories are stated at the lower of cost or market, with cost determined on
the first-in, first-out method. Inventories at December 31, 1996 and September
30, 1996 consisted of the following:
December 31 September 30
----------- ------------
Raw materials $17,981,708 $19,145,019
Work in process 11,057,146 10,469,315
Finished goods 6,357,823 3,757,830
4. (LOSS) INCOME PER SHARE
(Loss) income per share is computed by dividing net (loss) income by the
weighted average number of common shares and common equivalent shares
outstanding during the period. Common stock equivalents result from dilutive
stock options.
5. RECLASSIFICATION OF REBATE EXPENSES
Rebates approximating $150,000 for the period ended December 31, 1995, which are
now offset against net sales, were previously included in sales and marketing
expenses. This reclassification had no impact on previously reported net income
or stockholders' equity.
7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Digi International Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Digi
International Inc. and Subsidiaries as of December 31, 1996, and the related
condensed consolidated statements of operations and cash flows for the three
month periods ended December 31, 1996 and 1995. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1996, and the
related consolidated statements of operations and cash flows for the year then
ended (not presented herein); and in our report dated December 20, 1996, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of September 30, 1996, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
/s/ COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 6, 1997
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth selected information derived from the Company's
interim condensed consolidated financial statements expressed as percentage of
sales:
Quarter ended
December 31
----------------- Percentage
1996 1995 Increase (decrease)
---- ---- -------------------
Net sales 100.0% 100.0% (3.3%)
Cost of sales 53.5 45.7 13.1
---- ---- ----
Gross margin 46.5 54.3 (17.2)
---- ---- ----
Operating expenses:
Sales and marketing 24.9 19.8 21.4
Research and development 12.9 9.5 31.2
General and administrative 12.8 8.9 38.9
---- ---- ----
Total operating expenses 50.6 38.2 27.9
---- ---- ----
Operating (loss) income (4.1) 16.1 (124.8)
Other income, net 0.2 0.9 (74.8)
AetherWorks Corporation net loss (3.6) (0.6) 444.1
---- ---- -----
(Loss) income before income taxes (7.5) 16.4 (144.3)
(Benefit) provision for income taxes (1.4) 6.0 (122.3)
---- ---- -----
Net (loss) income (6.1%) 10.3% (157.0%)
----- ---- -----
---- ---- -----
NET SALES
Sales for the three month period ended December 31, 1996 were lower than sales
for the corresponding three month period ended December 31, 1995 by $1,480,050
or 3.3%, the majority of the decline being represented by a $1.15 million
increase in rebates in the 1996 period. Such increase was due to providing
incentives to the distribution market. Rebates, which had been historically
included as a part of sales and marketing expenses, have been offset against net
sales for the three months ended December 31, 1996. Rebates in the statement
for the three months ended December 31, 1995, amounting to $150,000, have been
reclassified to conform to the current presentation.
Net sales by product markets for the three month period ended December 31, 1996
and 1995 expressed in percentages were as follows:
Quarter ended
December 31 Percentage
--------------
1996 1995 Increase (decrease)
---- ---- -------------------
Net sales:
Multiuser 56.2% 65.0% (16.4%)
Remote Access 21.4% 17.8% 15.9%
LAN Connect 22.4% 17.2% 26.1%
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Sales to original equipment manufacturers (OEM's) across product markets
increased from 14.2% of net sales in the quarter ended December 31, 1995 to
19.9% in 1996. However, on a quarter to quarter basis, such sales declined from
22.7% of net sales for the quarter ended September 30, 1996. The decline was
due primarily to year-end inventory management by the Company's OEM customers.
The Company expects the OEM portion of the Company's business to slightly
increase in the second quarter.
Sales to the distribution markets decreased both on a quarter to quarter basis,
as well as in comparison to the corresponding 1996 quarter. Sales to the
distribution markets decreased from 70.3% of net sales in the quarter ended
December 31, 1995 to 68.9% for the quarter ended December 31, 1996. Sales to
the distribution markets increased, however, from 63.7% of net sales for the
quarter ended September 30, 1996. Actual sales dollars to the distribution
markets declined from $33.2 million for the quarter ended September 30, 1996 to
$29.1 million for the quarter ended December 31, 1996. The decline was due
primarily to softness in demand and adjustments in inventory levels by the
distributors, which not only impacted the Company, but the industry as a whole.
Such declines were reflected in the percentage declines of multiuser sales.
Other product market percentage increases were also adversely impacted by the
year-end adjustments in inventory levels.
The Company believes that the softness in sales to the distribution markets will
continue into the next quarter, and may have some effect in the third quarter,
as well.
GROSS MARGIN
Gross margin as a percentage of net sales decreased to 46.5% for the quarter
ended December 31, 1996 from 54.3% for the quarter ended December 31, 1995.
The decrease in the gross margin for the quarter is primarily related to
increased rebates and a higher percentage of sales in the LAN Connect market,
which have traditionally resulted in lower margins. In addition, reserves for
potential inventory obsolescence were increased by $964,000 during the three
months ended December 31, 1996, due to increased concerns regarding the impact
of softness in sales and continued increases in inventory levels.
OPERATING EXPENSES
Operating expenses for the quarter ended December 31, 1996, increased 27.9% over
operating expenses for the corresponding quarter ended December 31, 1995, and
increased as a percentage of sales to 50.6% for the quarter ended December 31,
1996 from 38.2% for the quarter ended December 31, 1995. The increase was
primarily due to the opening of two new research and development facilities in
Huntsville, Ala. and Redmond, Wash., as well as additional marketing costs in
connection with new product introductions. In addition, general and
administrative expenses increased due to severance expenses and expansion and
upgrades to the Company's infrastructure.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
Total operating expenses declined from $23.5 million in the quarter ended
September 30, 1996 to $21.4 million in the quarter ended December 31, 1996.
Such decline was due to decreased marketing costs and a reduction of funding
levels for new product development. The Company expects to continue to reduce
its sales and marketing, research and development and general and administrative
costs during fiscal 1997.
OTHER INCOME
Other income for the quarter ended December 31, 1996 decreased by $294,329, as
compared to the quarter ended December 31, 1995, due to lower interest income
resulting from a decrease in invested funds.
AETHERWORKS CORPORATION NET LOSS
In connection with the purchase of convertible notes from AetherWorks
Corporation, a development stage company engaged in the development of wireless
and dial-up remote access technology, the Company has the ability, under certain
conditions, to convert its investment into a majority of AetherWorks' common
stock. The Company has reported its investment in AetherWorks on the equity
method and has recorded a $1,519,789 and a $279,307 loss for the quarters ended
December 31, 1996 and 1995, respectively. Such losses represent 100% of
AetherWorks' net losses for such periods. The percentage of AetherWorks' net
losses included in the Company's financial statements is based upon the
percentage of financial support provided by the Company (versus other investors)
to AetherWorks during such periods. The Company anticipates that AetherWorks'
losses for the remainder of 1997 will be at levels similar to or higher than
those incurred during the quarter ended December 31, 1996.
INCOME TAXES
Due to the loss incurred in the quarter ended December 31, 1996, the Company has
recorded an income tax benefit of $582,433. Such benefit is not higher due to
the non-deductibility of the AetherWorks' losses.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
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.
Investing activities for the quarter ended December 31, 1996 consisted of
purchases of equipment and capital improvements and the additional purchase of
$2,000,000 in convertible notes from AetherWorks Corporation. As of
December 31, 1996, the Company is obligated to purchase up to an additional $6.5
million in convertible notes from time to time at the request of AetherWorks,
based on certain conditions. See also Note 2 of the Notes to the Condensed
Consolidated Financial Statements.
At December 31, 1996, the Company had working capital of $66.6 million and no
debt. The Company has negotiated a $5 million unsecured line of credit with its
bank, but has not utilized such line. The Company's management believes that
current financial resources, cash generated from operations and the Company's
potential capacity for debt and /or equity financing will be sufficient to fund
current and anticipated business operations.
FOREIGN CURRENCY TRANSLATION
Substantially all of the Company's foreign transactions are negotiated, invoiced
and paid in U.S. dollars.
INFLATION
Management believes inflation has not had a material effect on the Company's
operations or on its financial position.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
FORWARD-LOOKING STATEMENTS
Certain statements made above, which are summarized below, are forward-looking
statements that involve risks and uncertainties, and actual results may be
materially different. Factors that could cause actual results to differ include
those identified below:
THE COMPANY'S MANAGEMENT EXPECTS THE OEM PORTION OF THE COMPANY'S BUSINESS TO
INCREASE IN THE SECOND QUARTER. OEM orders are subject to cancellation at the
option of the customer, and are historically subject to greater quarterly
fluctuations than sales through the Company's other channels, as well as
competitive conditions in markets served by the Company's OEM customers. OEM
sales could also be adversely impacted by component shortages.
THE SOFTNESS IN SALES TO THE DISTRIBUTION MARKETS WILL CONTINUE INTO THE NEXT
QUARTER, AND MAY HAVE SOME EFFECT IN THE THIRD QUARTER, AS WELL. General market
conditions and competitive conditions within these markets may impact sales
levels either unfavorably or favorably.
THE EXPECTATION TO CONTINUE TO REDUCE SALES AND MARKETING, RESEARCH AND
DEVELOPMENT AND GENERAL AND ADMINISTRATIVE COSTS DURING FISCAL 1997. This
expectation may be impacted by presently unanticipated opportunities or by
unanticipated expenses.
THE EXPECTATION THAT THE AETHERWORKS CORPORATION LOSSES FOR THE REMAINDER OF
FISCAL 1997 WILL BE SIMILAR TO OR GREATER THAN THOSE INCURRED IN THE QUARTER
ENDED DECEMBER 31, 1996. This expectation may be impacted by presently
unanticipated revenue opportunities or by unanticipated expenses.
THE BELIEF THAT THE COMPANY'S CURRENT FINANCIAL RESOURCES, CASH GENERATED FROM
OPERATIONS AND THE COMPANY'S POTENTIAL CAPACITY FOR DEBT AND/OR EQUITY FINANCING
WILL BE SUFFICIENT TO FUND CURRENT AND ANTICIPATED BUSINESS OPERATIONS. Changes
in anticipated operating results, credit availability and equity market
conditions may further enhance or inhibit the Company's ability to maintain or
raise appropriate levels of cash.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 3, 1997, the Company and certain of its previous officers were named
as defendants in a putative securities class action lawsuit in the United States
District Court for the District of Minnesota on behalf of an alleged class of
purchasers of its common stock during the period January 25, 1996, through
December 23, 1996, inclusive, which is captioned DENNIS D'HONDT, INDIVIDUALLY
AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED, PLAINTIFF, VS. DIGI
INTERNATIONAL INC., ERVIN F. KAMM, JR., GERALD A. WALL, AND GARY L. DEANER,
DEFENDANTS. The complaint in the action alleges the Company and certain of its
previous officers violated federal securities laws by, among other things,
misrepresenting and/or omitting material information concerning the Company's
operations and financial results. The complaint seeks compensatory damages in
an unspecified amount plus interest against all defendants, jointly and
severally, and an award of attorneys' fees, experts' fees and costs.
On January 17, 1997 and February 6, 1997, two additional putative securities
class action lawsuits were filed in the United States District Court for the
District of Minnesota captioned RUTH LINEHAN, INDIVIDUALLY AND ON BEHALF OF ALL
PERSONS SIMILARLY SITUATED, PLAINTIFF AND RUSSELL SIEGEL AND ANNE BUTLER, AS
EXECUTRIX OF THE ESTATE OF MICHAEL BUTLER, ON BEHALF OF THEMSELVES AND ALL OTHER
SIMILARLY SITUATED, PLAINTIFFS, VS. DIGI INTERNATIONAL INC., ERVIN F. KAMM, JR.,
GERALD A. WALL, AND GARY L. DEANER, DEFENDANTS, which make the same allegations
against the same defendants as those asserted in the lawsuit described in the
previous paragraph.
These lawsuits are in a preliminary stage and, accordingly, their ultimate
outcome or potential impact on the financial position, results of operations or
cash flows of the Company cannot be determined at this time.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on January 30, 1997, the stockholders
approved the following:
(a) Proposal to elect three directors, Willis K. Drake and David Stanley
for three year terms and Robert S. Moe for a term of two years. Mr.
Drake was elected on a vote of 10,901,684 in favor, with 330,754
shares withholding authority to vote. Mr. Stanley was elected on a
vote of 10,927,087 in favor, with 305,351 withholding authority to
vote. Mr. Moe was elected on a vote of 11,024,190 in favor, with
208,248 withholding authority to vote.
14
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
(b) Proposal to amend the Digi International Inc. Stock Option Plan to
reserve additional shares for future awards and extend the Plan's
expiration date. The proposal passed on a vote of 9,425,554 in favor,
1,756,383 against, 50,501 abstentions and no broker non-votes.
(c) Proposal to ratify the appointment of Coopers & Lybrand L.L.P. as
independent public accountants of the Company for fiscal year 1997.
The proposal passed on a vote of 10,967,099 in favor, 238,102 against,
27,237 abstentions and no broker non-votes.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended December 31,
1996. The Exhibits filed as part of this report are listed below.
Exhibit No. Description
3(a) Amended and Restated Certificate of Incorporation of the
Registrant*
3(b) Amended and Restated By-Laws of the Registrant**
10(l) Separation Agreement between the Company and Ervin F. Kamm, Jr.,
dated January 3, 1997
10(p)(i) Amendment to Employment Arrangement Between the Company and
Douglas Glader
11 Detail Computation of Earnings Per Share
15 Letter Re: Unaudited Interim Financial Information
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)
15
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: February 7, 1997 By: /s/ Jonathon E. Killmer
-------------------------------
Jonathon E. Killmer
Chief Financial Officer
(duly authorized officer and
Principal Financial Officer)
16
<PAGE>
EXHIBIT 10(l)
SEPARATION AGREEMENT BETWEEN THE COMPANY
AND ERVIN F. KAMM, JR.
DATED JANUARY 3, 1997
<PAGE>
CONFORMED COPY
STRICTLY CONFIDENTIAL
SEPARATION AGREEMENT
This Separation Agreement ("Agreement") is made and entered into by
and between Ervin F. Kamm, Jr. ("Kamm") and Digi International Inc., a Delaware
corporation (the "Company"), on the dates set forth below.
WHEREAS, Kamm has been employed by the Company since October 1994
pursuant to a written Employment Agreement; and
WHEREAS, the Company and Kamm have agreed that it is in their mutual
interests that Kamm resign as a director, officer, and employee of the Company
and its subsidiaries and AetherWorks Corporation as of December 31, 1996; and
WHEREAS, the parties are attempting to conclude their employment
relationship amicably, but mutually recognize that any significant employment
relationship may give rise to potential claims or liabilities; and
WHEREAS, Kamm and the Company expressly deny that they may be liable
to each other on any basis or that they have engaged in any improper or unlawful
conduct or wrongdoing against each other; and
WHEREAS, Kamm and the Company desire to resolve all issues potentially
in dispute between them; and
WHEREAS, Kamm and the Company have agreed to a full settlement of all
issues potentially in dispute between them; and
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WHEREAS, it is one of the purposes of this Agreement to provide for
the exchange of consideration between the parties, to provide for the exchange
of releases of potential claims between the parties, and to consolidate within
one document the parties' obligations to each other,
NOW, THEREFORE, in consideration of the mutual promises and provisions
contained in this Agreement and the Releases referred to below, the parties
agree as follows:
1. RELEASE OF CLAIMS BY KAMM. At the same time Kamm executes this
Agreement, he also will execute a Release, in the form attached to this
Agreement as Exhibit A, in favor of the Company, its insurers, parent companies,
subsidiaries, AetherWorks Corporation, joint venture partners, divisions,
committees, directors, officers, employees, agents, predecessors, successors,
and assigns (the "Kamm Release"). This Agreement will not be interpreted or
construed to limit in any manner the Kamm Release. The existence of any dispute
respecting the interpretation of this Agreement will not nullify or otherwise
affect the validity or enforceability of the Kamm Release.
2. RELEASE OF CLAIMS BY THE COMPANY. At the same time the Company
executes this Agreement, the Company also will execute a Release, in the form
attached to this Agreement as Exhibit B (the "Company Release"), in favor of
Kamm and his heirs, representatives, successors, and assigns. The Company
Release releases claims by the Company and its subsidiaries against Kamm and his
heirs, representatives, successors and assigns. The Company will indemnify Kamm
for any liability arising to AetherWorks Corporation for actions or inactions
occurring prior to the date hereof. This Agreement will not be interpreted or
construed to limit in any manner the Company Release. The existence of
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any dispute respecting the interpretation of this Agreement will not nullify or
otherwise affect the validity or enforceability of the Company Release.
3. RESIGNATIONS BY KAMM. At the same time Kamm executes this
Agreement, he will also sign two documents, in the form attached to this
Agreement as Exhibits C-1 and C-2, respectively, resigning, effective as of
December 31, 1996, (i) as a director, an officer, and an employee of the
Company, and as a director and/or an officer of any of the Company's
subsidiaries and (ii) as a director of AetherWorks Corporation.
4. PAYMENTS. Provided that (i) Kamm has not rescinded this
Agreement or the Kamm Release within the applicable rescission period, (ii) the
Company has received written confirmation from Kamm, in the form attached to
this Agreement as Exhibit D, dated not earlier than the day after the expiration
of the applicable rescission period, that Kamm has not rescinded and will not
rescind this Agreement or the Kamm Release, and (iii) Kamm has not breached his
obligations pursuant to this Agreement or the Kamm Release, then the Company
will make the following payments.
a. VACATION PAY. The Company will pay Kamm $19,230.77, less
all applicable payroll withholding, for his accrued and earned vacation not yet
taken as of December 31, 1996, in a lump sum on the first business day following
the expiration of the applicable rescission period (the "Payment Date").
b. SEVERANCE PAY. The Company will pay Kamm $250,000.00, less
all applicable payroll withholding, in a lump sum on the Payment Date.
c. MEDICAL INSURANCE REIMBURSEMENT. The Company will apply
$5,385.60 to offset the premiums that Kamm otherwise would be required to pay
for the
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continuation of his group medical and dental insurance coverages under the terms
of paragraph 7 below; provided, however, that if Kamm does not elect such
coverages, or discontinues such coverages before the full $5,385.60 is so
applied, then the Company will pay the balance of the $5,385.60, less all
applicable payroll withholding, to Kamm promptly after the date on which Kamm
declines or discontinues such coverages.
5. STOCK OPTIONS. The Company will accelerate the exercisability of
all unvested options to purchase shares of the Company's stock held by Kamm (to
wit, 236,900 options), which acceleration will be deemed to have occurred
immediately prior to the termination of his employment with the Company as of
December 31, 1996. Assuming that Kamm serves as a consultant to the Company
through March 31, 1997 as provided in paragraph 6 below, such options must be
exercised on or before three months after March 31, 1997, in accordance with the
terms of the Company's Stock Option Plan and applicable stock option agreements
between Kamm and the Company, at which time all unexercised options held by Kamm
will lapse. Kamm understands that he will be solely responsible for the tax
consequences of the exercise of his options, and he acknowledges that he is not
relying on any representations by the Company regarding such tax consequences.
6. KAMM'S CONSULTANT RELATIONSHIP WITH THE COMPANY. Kamm will serve
as a consultant to the Company during regular business hours for reasonable
amounts of time immediately upon the termination of his employment with the
Company and until March 31, 1997. Kamm's consultant relationship with the
Company cannot be terminated by either party for any reason before March 31,
1997. While he is a consultant to the Company, Kamm will complete in a timely
fashion work suitable to his skills and abilities that will be
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assigned to him from time to time by the Company's Board of Directors or its
Chairman. As a consultant to the Company, Kamm will be an independent
contractor and not an employee of the Company. During the time he is a
consultant to the Company, the Company will provide Kamm with appropriate
secretarial and clerical support and other office services, including the
continuation of the direct dial telephone number and voice mail accounts he used
during his employment. Kamm will incur no liability to the Company for services
he provides as a consultant, provided that he acts in good faith, has no
reasonable cause to believe that his conduct was unlawful, and reasonably
believes that his conduct is in the best interests of the Company.
7. INSURANCE CONTINUATION. After January 1, 1997, Kamm will be
entitled to continue his group medical, dental, and life insurance coverages
under such terms as are made available to similarly situated former employees of
the Company, provided that Kamm pays the entire cost of such insurance as
provided by law.
8. SAVINGS AND PROFIT SHARING PLAN. Kamm is a participant in the
Company's 401-K Savings and Profit Sharing Plan (the "Plan"). Kamm acknowledges
that no further salary reduction contributions will be made to the Plan from his
compensation after December 31, 1996, and that he will not be eligible for any
matching or profit sharing contributions to the Plan for 1996. Kamm will
continue to be a participant in the Plan in accordance with the terms and
conditions set forth in the Plan. Kamm will be entitled to begin receiving
benefits from his Plan account or to roll-over the amount in his account at the
times and under the terms and conditions set forth in the Plan.
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9. EMPLOYEE BENEFITS. Except as expressly provided in this
Agreement, Kamm will not be eligible to participate in any of the Company's
employee benefit plans after December 31, 1996.
10. NON-COMPETITION, CONFIDENTIALITY, AND TRADE SECRETS.
a. AGREEMENT NOT TO COMPETE. Before January 1, 1998 Kamm 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:
(i) 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, or any of
its subsidiaries or AetherWorks Corporation. However,
nothing in this subparagraph 10.a. will preclude Kamm 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.
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(ii) Intentionally solicit, endeavor to entice away from
the Company, or any of its subsidiaries or AetherWorks
Corporation, or otherwise interfere with the relationship of
the Company, or any of its subsidiaries or AetherWorks
Corporation with, any person who is employed by or otherwise
engaged to perform services for the Company, or any of its
subsidiaries or AetherWorks Corporation (including, but not
limited to, any independent sales representatives or
organizations), or any person or entity who is, or was
within the then most recent 12-month period, a customer or
client of the Company, or any of its subsidiaries or
AetherWorks Corporation, whether for Kamm'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 subparagraph 10.a. 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 will be construed or
re-written (i.e., blue-lined) so as to be enforceable to the maximum extent
permitted by law, and Kamm 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.
b. NON-DISCLOSURE OF INFORMATION. After December 31, 1996 Kamm
will 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
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subsidiaries or other affiliates, 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 products, technology, know-how or the
like, services, customers, methods, or future plans of the Company, or any of
its subsidiaries or AetherWorks Corporation, all of which Kamm acknowledges are
valuable, special, and unique assets, the disclosure of which Kamm acknowledges
may be materially damaging.
c. REMEDIES. Kamm acknowledges that the Company's remedy at
law for any breach or threatened breach by Kamm of subparagraphs 10.a. and 10.b.
will be inadequate. Therefore, the Company will be entitled to injunctive and
other equitable relief restraining Kamm from violating those provisions, in
addition to any other remedies that may be available to the Company under this
Agreement or applicable law.
11. FUTURE EMPLOYMENT. Except for Kamm's relationship with the
Company as a consultant as provided for in paragraph 5 above, Kamm will not
apply for or seek re-employment at any time in the future with the Company.
Kamm also will not apply for or seek employment at any time in the future with
any of the Company's present or future subsidiaries, or AetherWorks Corporation
or any of its present or future subsidiaries (so long as AetherWorks Corporation
remains an affiliate of the Company); provided, however, that this sentence
shall not prohibit Kamm's continued employment by any entity that becomes a
subsidiary of the Company or AetherWorks.
12. RECORDS, DOCUMENTS, AND PROPERTY. On or before December 31,
1996, or as soon as possible thereafter, Kamm will return to the Company all
records,
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STRICTLY CONFIDENTIAL
correspondence, documents, financial data, plans, computer disks, computer
tapes, keys, credit cards, and other tangible property in his possession
belonging to the Company.
13. MUTUAL CONFIDENTIALITY.
a. GENERAL STANDARD. It is the intent of the parties that the
terms of Kamm's separation from the Company, including the provisions of this
Agreement, the Kamm Release, and Company Release (collectively "Confidential
Separation Information"), will be forever treated as confidential. Accordingly,
Kamm and the Company will not disclose Confidential Separation Information to
anyone at any time, except as provided in subparagraph 13.b.
b. EXCEPTIONS.
(i) It will not be a violation of this Agreement for the
parties to disclose Confidential Separation Information to
the Company's directors and stockholders or in public
filings in the form of proxy statements or other reports
required by securities laws or to governmental agencies as
required by law, including, but not limited to, the
Securities and Exchange Commission and any federal or state
tax authority.
(ii) It will not be a violation of this Agreement for Kamm
to disclose Confidential Separation Information to his
immediate family, his attorneys, his accountants or tax
advisors, or any federal or state tax authority, or as may
be required by law.
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(iii) It will not be a violation of this Agreement for Kamm
to disclose to employers and/or prospective employers that
he is constrained from certain activities as a result of the
terms of paragraph 10 above.
(iv) It will not be a violation of this Agreement for the
Company to disclose Confidential Separation Information to
its auditors, its attorneys, and its employees and agents
who have a legitimate reason to obtain the Confidential
Separation Information in the course of performing their
duties or responsibilities for the Company, or as may be
required by law.
(v) It will not be a violation of this Agreement for the
Company to release a media statement in the form attached to
this Agreement as Exhibit E.
(vi) If Kamm or a director or senior executive officer of
the Company is asked by any person about any matters related
to the termination of Kamm's employment, it will not be a
violation of this Agreement to say in response only that
"all matters relating to Kamm's separation from the Company
were amicably and satisfactorily resolved" and/or that Kamm
and the Company have "agreed not to discuss Kamm's
separation from the Company."
14. NON-DISPARAGEMENT. Kamm will not disparage, defame, or besmirch
the reputation, character, image, products, or services of the Company, or the
reputation or
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character of its directors, officers, employees, or agents. The Company will
not disparage, defame, or besmirch the reputation, character, or image of Kamm.
15. CLAIMS INVOLVING THE COMPANY. Kamm will not recommend or suggest
to any potential claimants or plaintiffs or their attorneys or agents that they
initiate claims or lawsuits against the Company, any of its subsidiaries or
AetherWorks Corporation, or any of its or their directors, officers, employees,
or agents, nor will Kamm voluntarily aid, assist, or cooperate with any
claimants or plaintiffs or their attorneys or agents in any claims or lawsuits
now pending or commenced in the future against the Company, any of its
subsidiaries or AetherWorks Corporation, or any of its or their directors,
officers, employees, or agents; provided, however, that this paragraph will not
be interpreted or construed to prevent Kamm from giving testimony in response to
questions asked pursuant to a legally enforceable subpoena, deposition notice,
or other legal process, during any legal proceedings involving the Company, any
of its subsidiaries or AetherWorks Corporation, or any of its or their
directors, officers, employees, or agents.
16. KAMM'S CONTINUED AVAILABILITY. Kamm will make himself reasonably
available upon request to confer with the Company's senior executive officers,
directors, and lawyers at mutually convenient times during regular business
hours for reasonable amounts of time regarding the Company's significant
business matters and legal affairs. The Company will reimburse Kamm for any
actual out-of-pocket expenses that he incurs when conferring with the Company's
senior executive officers, directors, and lawyers, but will not make any other
payments to him for so conferring unless the time spent conferring exceeds 20
hours per year. If Kamm spends more than 20 hours per year
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conferring with the Company's senior executive officers, directors, and lawyers,
the Company will reasonably compensate Kamm for the time spent in excess of 20
hours.
17. INDEMNIFICATION. Notwithstanding Kamm's separation from the
Company, with respect to events that occurred during his tenure as a director,
an officer, or an employee of the Company, Kamm will be entitled, as a former
director, officer, and employee of the Company, to the same rights as are
afforded to senior executive officers of the Company now or in the future, to
indemnification and advancement of expenses provided in the charter documents of
the Company, under applicable law, and under the Company's indemnification
agreement with Kamm dated November 30, 1994 (the "Indemnification Agreement"),
and to coverage and a legal defense under any applicable general liability
and/or directors' and officers' liability insurance policies maintained by the
Company.
18. KAMM REPRESENTATION. Kamm represents that, during the entire
period that he was a director, an officer, and an employee of the Company, he
acted in good faith, had no reasonable cause to believe that his conduct was
unlawful, and reasonably believed that his conduct was in the best interests of
the Company. The parties intend that the terms used in this paragraph will have
the same meaning as the same terms used in Section 145 of the Delaware General
Corporation Law.
19. COMPANY REPRESENTATION. The Company represents that, at the time
it executes this Agreement, the members of its Board of Directors are not aware
of the existence of any facts upon which any claim or cause of action could be
asserted against Kamm.
20. TIME TO CONSIDER AGREEMENT. Kamm understands that he may take at
least 21 calendar days to decide whether to sign this Agreement and the Kamm
Release,
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STRICTLY CONFIDENTIAL
which 21-day period will commence on the date on which Kamm first receives
copies of this Agreement and the Kamm Release for review. Kamm represents that
if he signs this Agreement and the Kamm Release before the expiration of the
21-day period, it is because he has decided that he does not need any additional
time to decide whether to sign this Agreement and the Kamm Release.
21. RIGHT TO RESCIND OR REVOKE. Kamm understands that he has the
right to rescind or revoke this Agreement and the Kamm Release for any reason
within 15 calendar days after he signs them. Kamm understands that this
Agreement and the Kamm Release will not become effective or enforceable unless
and until he has not rescinded this Agreement and the Kamm Release and the
applicable rescission period has expired. Kamm understands that if he wishes to
rescind, the rescission must be in writing and hand-delivered or mailed to the
Company. If hand-delivered, the rescission must be: (a) addressed to John P.
Schinas, Chairman of the Board, Digi International Inc., 11011 Bren Road East,
Minnetonka, MN 55343 and (b) delivered to Mr. Schinas within the 15-day
period. If mailed, the rescission must be: (a) postmarked within the 15-day
period; (b) addressed to John P. Schinas, Chairman of the Board, Digi
International Inc., 11001 Bren Road East, Minnetonka, MN 55343 and (c) sent by
certified mail, return receipt requested. Whether hand-delivered or mailed,
Kamm will, in addition, simultaneously provide copies of his rescission to the
Company's Director of Human Resources at the address of the Company listed in
this paragraph and to Faegre & Benson, 2200 Norwest Center, 90 South Seventh
Street, Minneapolis, MN 55402-3901, Attention: James E. Nicholson.
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22. KAMM'S DUTY TO INFORM COMPANY OF DECISION TO REVOKE. If Kamm
decides to rescind or revoke this Agreement and the Kamm Release by mail, as
provided for in paragraph 21 above, he will so inform John P. Schinas, Chairman
of the Board, of his decision by telephone before 5:00 p.m. on the 15th day of
the rescission period.
23. FULL COMPENSATION. Kamm understands that the payments made and
other consideration provided by the Company under this Agreement will fully
compensate Kamm for and extinguish any and all of the claims Kamm is releasing
in the Kamm Release, including, but not limited to, his claims for attorneys'
fees, costs, and disbursements, and any and all claims for any type of equitable
or legal relief.
24. NO ADMISSION OF WRONGDOING. Kamm understands that this Agreement
does not constitute an admission that the Company has violated any local
ordinance, state or federal statute, or principle of common law, or that the
Company has engaged in any improper or unlawful conduct or wrongdoing against
Kamm. Kamm will not characterize this Agreement or the payment of any money or
the giving of other consideration in accordance with this Agreement as an
admission that the Company has engaged in any improper or unlawful conduct or
wrongdoing against him.
25. AUTHORITY. Kamm represents that he has the authority to enter
into this Agreement and the Kamm Release, and that no causes of action, claims,
or demands released pursuant to this Agreement and the Kamm Release have been
assigned to any person or entity not a party to this Agreement.
26. REPRESENTATION. Kamm acknowledges that he has had a full
opportunity to consult with his own attorneys in this matter, that he has had a
full opportunity
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to consider this Agreement and the Kamm Release, that he has had a full
opportunity to ask any questions that he may have concerning this Agreement and
the Kamm Release, or the settlement of his claims against the Company, and that
he has not relied upon any statements or representations made by the Company or
its attorneys, written or oral, other than the statements and representations
that are explicitly set forth in this Agreement, the Kamm Release, the Company
Release, the Plan, and the Indemnification Agreement.
27. SUCCESSORS AND ASSIGNS. This Agreement will be binding upon and
inure to the benefit of the parties and their respective heirs, representatives,
successors, and assigns, but will not be assignable by either party without the
prior written consent of the other party.
28. INVALIDITY. In the event that any provision of this Agreement or
the Kamm Release or the Company Release is determined by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect, such a
determination will not affect the validity, legality, or enforceability of the
remaining provisions of this Agreement or the Kamm Release or the Company
Release, and the remaining provisions of this Agreement and the Kamm Release and
the Company Release will continue to be valid and enforceable, and any court of
competent jurisdiction may so modify the objectionable provision as to make it
valid and enforceable.
29. ENTIRE AGREEMENT. Before executing this Agreement, the parties
had several discussions, including negotiations, and generated certain
documents, in which the parties discussed the matters that are the subject of
this Agreement and the Kamm Release and the Company Release. In such
discussions and documents, the parties may have
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expressed their judgments and beliefs concerning the intentions, capabilities,
and practices of the parties, and may have forecast future events. The parties
recognize, however, that all business transactions, including the transactions
upon which the parties' judgments, beliefs, and forecasts are based, contain an
element of risk, and that it is normal business practice to limit the legal
obligations of contracting parties only to those promises and representations
that are essential to the transaction so as to provide certainty as to their
respective future rights and remedies. Accordingly, this Agreement, the Kamm
Release, the Company Release, the Plan, and the Indemnification Agreement are
intended to define the full extent of the legally enforceable undertakings of
the parties, and no promises or representations, written or oral, that are not
set forth explicitly in this Agreement, the Kamm Release, the Company Release,
the Plan, or the Indemnification Agreement are intended by either party to be
legally binding, and all other agreements and understandings between the parties
are hereby superseded.
30. HEADINGS. The descriptive headings of the paragraphs and
subparagraphs of this Agreement are inserted for convenience only, and do not
constitute a part of this Agreement.
31. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
32. GOVERNING LAW. This Agreement and the Kamm Release and the
Company Release will be interpreted and construed in accordance with, and any
dispute or controversy arising from any breach or asserted breach of this
Agreement or the Kamm Release or the Company Release will be governed by, the
laws of Minnesota.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the
dates indicated at their respective signatures below.
Dated: January 3, 1997. /s/ Ervin F. Kamm, Jr.
----------------------
ERVIN F. KAMM, JR.
DIGI INTERNATIONAL INC.
Dated: January 3, 1997. /s/ John P. Schinas
-------------------
By: John P. Schinas
Its: Chairman of the Board
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<PAGE>
EXHIBIT 10(p)(i)
AMENDMENT TO EMPLOYMENT ARRANGEMENT
BETWEEN THE COMPANY AND DOUGLAS GLADER
<PAGE>
January 16, 1997
PERSONAL AND CONFIDENTIAL
Mr. Douglas J. Glader
Digi International Inc.
11001 Bren Road East
Minnetonka, MN 55343
Dear Doug:
This letter confirms the terms of the amendment to your employment
agreement with the Company dated February 6, 1995 (the "Agreement"). Except as
specifically provided for herein, the terms of the Agreement remain in full
force and effect.
If you are terminated by the Company without "cause" on or before July 31,
1998, you would be entitled to severance equal to one year's base salary and a
bonus (if earned) that would be pro-rated for the portion of the fiscal year
through the termination date. The definition of cause is attached as an
appendix to the Agreement.
In addition, with regard to your relocation expenses associated with your
move from California to Minnesota, the Company has agreed to gross up the amount
paid to you to cover any taxes that you may be obligated to pay as a result of
the Company's reimbursement.
The Agreement as amended by this letter constitutes the entire agreement
between you and the Company regarding the subject matter contained therein and
supersedes all prior agreements and understandings relating thereto.
If the terms outlined above are acceptable, please confirm by signing the
enclosed copy below and returning it to me.
Very truly yours,
DIGI INTERNATIONAL INC.
/S/RICHARD E. EICHHORN
-----------------------------------
By Richard E. Eichhorn
Chairman, Compensation Committee
ACCEPTED:
/S/DOUGLAS J. GLADER
-----------------------------------
Douglas J. Glader
<PAGE>
EXHIBIT 11
DETAIL COMPUTATION OF EARNINGS PER SHARE
<PAGE>
Digi International
Exhibit 11
Detail Computation of Earnings Per Share
Three month period ended
December 31
-------------------------------
1996 1995
---- ----
PER SHARE DATA
Net (loss) income $ (2,578,007) $4,521,901
------------- ------------
------------- ------------
Net (loss) income per common
and common equivalent share
Primary $ (0.19) $ 0.33
------------- ------------
------------- ------------
Fully diluted $ (0.19) $ 0.33
------------- ------------
------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
Primary:
Weighted average of common
shares outstanding 13,354,080 13,427,011
Dilutive stock options, using
treasury stock method - 475,722
------------- ------------
13,354,080 13,902,733
------------- ------------
------------- ------------
Fully diluted:
Weighted average of common
shares outstanding 13,354,080 13,427,011
Dilutive stock options, using
treasury stock method - 475,676
------------- ------------
13,354,080 13,902,687
------------- ------------
------------- ------------
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 1
<PAGE>
EXHIBIT 15
LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
We are aware that our report dated February 6, 1997 on the reviews of interim
condensed consolidated financial information of Digi International Inc. and
Subsidiaries (the Company) for the three month period ended December 31, 1996
and 1995, and included in the Company's Form 10-Q for the quarter ended December
31, 1996, is incorporated by reference in the Company's registration statements
on Form S-8 (Registration Nos. 33-32956, 33-38898, 333-99 and 333-1821) and Form
S-3 (Registration No. 33-59223). Pursuant to Rule 436(c), under the Securities
Act of 1933, this report should not be considered a part of the registration
statements prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
/s/ COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
February 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,607,580
<SECURITIES> 0
<RECEIVABLES> 41,207,824
<ALLOWANCES> 0
<INVENTORY> 35,396,677
<CURRENT-ASSETS> 89,709,160
<PP&E> 25,114,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 130,660,881
<CURRENT-LIABILITIES> 23,055,806
<BONDS> 0
0
0
<COMMON> 146,827
<OTHER-SE> 107,458,247
<TOTAL-LIABILITY-AND-EQUITY> 130,660,881
<SALES> 0
<TOTAL-REVENUES> 42,236,213
<CGS> 22,595,738
<TOTAL-COSTS> 21,380,157
<OTHER-EXPENSES> 1,519,789<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,160,440)
<INCOME-TAX> (582,433)
<INCOME-CONTINUING> (2,578,007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,578,007)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
<FN>
<F1>Aetherworks Corp net loss
</FN>
</TABLE>
