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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DIGI INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
612/912-3444
January 5, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders to be held at the Marquette Hotel, 710 Marquette Avenue,
Minneapolis, Minnesota, commencing at 3:30 p.m., Central Standard Time, on
Wednesday, January 27, 1999.
The Secretary's Notice of Annual Meeting and the Proxy Statement
which follow describe the matters to come before the meeting. During the
meeting, we will also review the activities of the past year and items of
general interest about the Company.
We hope that you will be able to attend the meeting in person and we
look forward to seeing you. Please mark, date and sign the enclosed proxy and
return it in the accompanying postage-paid reply envelope as quickly as
possible, even if you plan to attend the Annual Meeting. If you later desire to
revoke the proxy, you may do so at any time before it is exercised.
IF YOU HAVE QUESTIONS REGARDING THIS SOLICITATION, PLEASE CALL THE
COMPANY AT 612-912-3444 OR MACKENZIE PARTNERS, INC. TOLL-FREE AT 800-332-2885.
Sincerely,
/s/ John P. Schinas
John P. Schinas
CHAIRMAN OF THE BOARD
<PAGE>
DIGI INTERNATIONAL INC.
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JANUARY 27, 1999
The Annual Meeting of Stockholders of Digi International Inc. will be held
at the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, at 3:30
p.m., Central Standard Time, on Wednesday, January 27, 1999 for the following
purposes:
1. To elect two directors for a three-year term.
2. To amend the Digi International Inc. Stock Option Plan (the "Plan") to
reserve 700,000 additional shares of Common Stock for future awards and
to extend the expiration date of the Plan from December 1, 2006 to
November 24, 2008.
3. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed December 11, 1998 as the record date for
the meeting, and only stockholders of record at the close of business on that
date are entitled to receive notice of and vote at the meeting.
YOUR PROXY IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. EVEN IF YOU OWN
ONLY A FEW SHARES, AND WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING,
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ACCOMPANYING
POSTAGE-PAID REPLY ENVELOPE AS QUICKLY AS POSSIBLE. YOU MAY REVOKE YOUR PROXY AT
ANY TIME PRIOR TO ITS EXERCISE, AND RETURNING YOUR PROXY WILL NOT AFFECT YOUR
RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING AND REVOKE THE PROXY.
By Order of the Board of Directors,
/s/ James E. Nicholson
James E. Nicholson
SECRETARY
Minnetonka, Minnesota
January 5, 1999
<PAGE>
-----------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
The enclosed proxy is being solicited by the Board of Directors of Digi
International Inc., a Delaware corporation (the "Company"), for use in
connection with the Annual Meeting of Stockholders to be held on Wednesday,
January 27, 1999 at the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota, commencing at 3:30 p.m., Central Standard Time, and at any
adjournments thereof. Only stockholders of record at the close of business on
December 11, 1998 will be entitled to vote at such meeting or adjournments.
Proxies in the accompanying form which are properly signed, duly returned to the
Company and not revoked will be voted in the manner specified. A stockholder
executing a proxy retains the right to revoke it at any time before it is
exercised by notice in writing to the Secretary of the Company of termination of
the proxy's authority or a properly signed and duly returned proxy bearing a
later date.
The address of the principal executive office of the Company is 11001 Bren
Road East, Minnetonka, Minnesota 55343 and the Company's telephone number is
(612) 912-3444. The mailing of this Proxy Statement and form of proxy to
stockholders will commence on or about January 9, 1999.
Stockholder proposals intended to be presented at the 2000 Annual Meeting of
Stockholders must be received by the Company at its principal executive office
no later than September 11, 1999 for inclusion in the Proxy Statement for that
meeting. Any other stockholder proposals for the Company's 2000 Annual Meeting
of Stockholders must be received by the Company at its principal executive
office not less than 60 days prior to the date fixed for such annual meeting,
unless the Company gives less than 75 days' prior public disclosure of the date
of the meeting, in which case the Company must receive notice from the
stockholder not later than the close of business on the fifteenth day following
the day on which the Company makes such public disclosure. The notice must set
forth certain information concerning such proposal, including a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, the name and
record address of the stockholder proposing such business, the class and number
of shares of the Company which are beneficially owned by the stockholder, and
any material interest of the stockholder in such business.
Under the Company's Bylaws, nominations of persons for election as a
director at any meeting of stockholders must be made pursuant to timely notice
in writing to the President of the Company. To be timely, a stockholder's notice
must be delivered to or mailed to and received at, the principal executive
offices of the Company not less than 60 days prior to the date fixed for the
meeting, unless the Company gives less than 75 days' prior public disclosure of
the date of the meeting, in which case the Company must receive notice from the
stockholder not later than the close of business on the fifteenth day following
the day on which the Company makes such public disclosure.
The Company will pay the cost of soliciting proxies in the accompanying
form. In addition to solicitation by the use of the mails, certain directors,
officers and employees of the Company may solicit proxies by telephone, telegram
or personal contact, and have requested brokerage firms and
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custodians, nominees and other record holders to forward soliciting materials to
the beneficial owners of stock of the Company and will reimburse them for their
reasonable out-of-pocket expenses in so forwarding such materials. To assist the
Company in soliciting proxies for the 1999 Annual Meeting of Stockholders, the
Company has retained MacKenzie Partners, Inc. for a total fee not to exceed
$10,000 plus out-of-pocket expenses.
With the exception of the election of directors, the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the meeting and entitled to vote is required
for approval of each proposal presented in this Proxy Statement. A plurality of
the votes of outstanding shares of Common Stock of the Company present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors is required for the election of directors. Abstentions and broker
non-votes will be counted as present for purposes of determining the existence
of a quorum at the meeting. However, shares of a stockholder who either
abstains, withholds authority to vote for the election of directors or each of
the proposals or who does not otherwise vote in person or by proxy (including
broker non-votes) will not be counted for the election of directors or approval
of the proposals.
The Common Stock of the Company, par value $.01 per share, is the only
authorized and issued voting security of the Company. At the close of business
on December 11, 1998 there were 14,588,995 shares of Common Stock issued and
outstanding, each of which is entitled to one vote. Holders of Common Stock are
not entitled to cumulate their votes for the election of directors.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of December 11, 1998, the beneficial
ownership of Common Stock of the Company by each director or nominee for
director of the Company, by each executive officer of the Company named in the
Summary Compensation Table herein, by all directors, nominees and executive
officers as a group, and by each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OUTSTANDING SHARES
- --------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
Directors, nominees and executive officers:
Willis K. Drake 62,135(2) *
Jerry A. Dusa 351,125(3) 2.4%
Richard E. Eichhorn 102,750(4) *
Douglas J. Glader 33,812(5) *
Dino G. Kasdagly 10,000(6) *
Jonathon E. Killmer 23,850(7) *
Robert S. Moe 59,625(8) *
Mykola Moroz 115,786(9) *
John P. Schinas 1,407,260(10) 9.6%
David Stanley 85,250(11) *
All directors, nominees and executive officers as a
group (10 persons, including those named above) 2,251,593(12) 14.7%
</TABLE>
- ------------------------
* Less than one percent.
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(1) Unless otherwise indicated in footnote below, the listed beneficial owner
has sole voting power and investment power with respect to such shares.
(2) Includes 30,000 shares covered by options which are exercisable within 60
days of the record date.
(3) Includes 348,125 shares covered by options which are exercisable within 60
days of the record date.
(4) Includes 83,500 shares covered by options which are exercisable within 60
days of the record date.
(5) Includes 28,700 shares covered by options which are exercisable within 60
days of the record date.
(6) Includes 10,000 shares covered by options which are exercisable within 60
days of the record date.
(7) Includes 22,500 shares covered by options which are exercisable within 60
days of the record date. Includes 175 shares held by the IRA of Mr.
Killmer's spouse and 1,000 shares held directly by Mr. Killmer's spouse.
Mr. Killmer disclaims beneficial ownership for shares held by his spouse.
Mr. Killmer held the office of Senior Vice President of the Company until
his resignation effective October 30, 1998. Due to his resignation, Mr.
Killmer's 22,500 options will lapse on January 28, 1999, unless previously
exercised.
(8) Includes 18,125 shares covered by options which are exercisable within 60
days of the record date. Includes 1,500 shares held directly by Mr. Moe's
spouse. Mr. Moe disclaims beneficial ownership for the shares held by his
spouse.
(9) Includes 108,250 shares covered by options which are exercisable within 60
days of the record date.
(10) Mr. Schinas' address is 11001 Bren Road East, Minnetonka, Minnesota 55343.
(11) Includes 79,750 shares covered by options which are exercisable within 60
days of the record date.
(12) Includes 319,625 shares covered by options which are exercisable within 60
days of the record date held by five non-employee directors of the Company
and 409,325 shares covered by options which are exercisable within 60 days
of the record date held by four executive officers of the Company.
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ELECTION OF DIRECTORS
The business of the Company is managed by or under the direction of a Board
of Directors with a number of directors, not less than three, fixed from time to
time by the Board of Directors. The Board is divided into three classes, and
directors of one class are elected each year for a term of three years. Each
class consists of at least one director. The Board of Directors has fixed at two
the number of directors to be elected to the Board at the 1999 Annual Meeting of
Stockholders and has nominated the two persons named below for election as
directors. Proxies solicited by the Board of Directors will, unless otherwise
directed, be voted to elect the two nominees named below.
Each of the nominees named below is currently a director of the Company, and
each has indicated a willingness to serve as a director. In case any nominee is
not a candidate for any reason, the proxies named in the enclosed form of proxy
may vote for a substitute nominee in their discretion.
Following is certain information regarding the nominees for the office of
director and the current directors whose terms expire after the 1999 Annual
Meeting:
DIRECTOR NOMINEES FOR TERM EXPIRING IN 2002:
ROBERT S. MOE, AGE 67
Mr. Moe has been a member of the Board of Directors since October 1996. From
1981 to his retirement in 1993, he was the Chief Financial Officer of Polaris
Industries, Inc., a manufacturer of snowmobiles, all-terrain vehicles and
personal watercraft. He is also a director of Polaris Industries, Inc.
JOHN P. SCHINAS, AGE 61
Mr. Schinas, a founder of the Company, has been its Chairman of the Board
since July 1991. He has been a member of the Board of Directors since the
Company's inception in July 1985 and served as the Company's Chief Executive
Officer from July 1985 to January 1992.
DIRECTORS WHOSE TERMS EXPIRE AFTER 1999:
WILLIS K. DRAKE, AGE 75
Mr. Drake has been a member of the Board of Directors since 1987. Since
1983, Mr. Drake has been a private investor. Mr. Drake is also a director of
Analysts International Corporation, a software manufacturer, Innovex Inc., a
manufacturer of specialty precision electromagnetic products, and Telident,
Inc., a manufacturer of telephone system enhancement equipment, as well as
several privately held companies.
JERRY A. DUSA, AGE 51
Mr. Dusa has been a member of the Board of Directors and President and Chief
Executive Officer of the Company since March 12, 1997 after serving the Company
as interim acting Chief Executive Officer from January 3, 1997 to March 12,
1997. Prior to January 3, 1997, Mr. Dusa had been the owner and principal of
Phase One Partners, Inc., an investment and consulting business, since 1995 and
had acted as a consultant to the Company in this capacity since August 1996.
From 1994 to 1995, Mr. Dusa was Vice President of Fujitsu Microelectronics,
Inc., a manufacturer of integrated circuit products. From 1993 to 1994, Mr. Dusa
was President of Eagle Technology, a manufacturer of network connectivity
products. From 1992 to 1993, Mr. Dusa was President of Kalpana, Inc., a
manufacturer of
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network connectivity products. Prior to 1992, Mr. Dusa held executive management
positions with a number of high technology companies including IBM Corporation,
3Com Corporation and Tandem Computers.
RICHARD E. EICHHORN, AGE 69
Mr. Eichhorn has been a member of the Board of Directors since 1987. Since
April 1992, Mr. Eichhorn has been a private investor. He is also a director of
several privately held companies.
MYKOLA MOROZ, AGE 61
Mr. Moroz, a founder of the Company, has been a member of the Board of
Directors since July 1991. He was a consultant to the Company on manufacturing
operations from December 1994 to November 1996. 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. Mr. Moroz is also a director of Parts 1, Inc., a privately
held corporation that is a supplier to the Company.
DAVID STANLEY, AGE 63
Mr. Stanley has been a member of the Board of Directors since 1990. Mr.
Stanley served as Chairman and Chief Executive Officer of Payless Cashways,
Inc., a building materials retailer, from 1984 to 1997. Payless Cashways, Inc.
filed a voluntary Chapter 11 bankruptcy petition on July 21, 1997. A plan of
reorganization was approved by the creditors and confirmed by the United States
Bankruptcy Court for the Western District of Missouri in November 1997. Payless
Cashways, Inc. emerged from bankruptcy in early December 1997. Mr. Stanley is
also a director of Best Buy Co., Inc., a consumer electronics retailer.
None of the directors is related to any other director or to any executive
officer of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board of Directors met eight times during fiscal 1998. All directors
attended at least 75% of the meetings of the Board and of the Committees on
which they served held during fiscal 1998. The Company has an Audit Committee, a
Compensation Committee and a Corporate Governance and Nominating Committee.
Following is a description of the functions performed by each of these
Committees.
AUDIT COMMITTEE
The Company's Audit Committee consists of Messrs. Stanley (Chairman), Moe
and Moroz. The Audit Committee makes recommendations concerning the selection
and appointment of independent auditors, reviews the scope and findings of the
completed audit and reviews the adequacy and effectiveness of the Company's
accounting policies and system of internal accounting controls. The Audit
Committee met four times during fiscal 1998.
COMPENSATION COMMITTEE
The Company has a Compensation Committee consisting of Messrs. Eichhorn
(Chairman), Drake and Moe, which reviews and acts upon management
recommendations concerning employee stock options, bonuses and other
compensation and benefit plans and administers the Digi International
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Inc. Stock Option Plan, the Digi International Inc. Non-Officer Stock Option
Plan and the Digi International Inc. Employee Stock Purchase Plan. The
Compensation Committee met eight times during fiscal 1998.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The Company has a Corporate Governance and Nominating Committee, which
advises and makes recommendations to the Board on all matters concerning
directorship and corporate governance practices and the selection of candidates
as nominees for election as directors. The Committee, consisting of Messrs.
Schinas (Chairman), Stanley and Eichhorn, met once in fiscal 1998.
This Committee will consider persons recommended by stockholders in
selecting nominees for election to the Board of Directors. Stockholders who wish
to suggest qualified candidates should write to: Digi International Inc., 11001
Bren Road East, Minnetonka, MN 55343, Attention: Chairman, Corporate Governance
and Nominating Committee. All recommendations should state in detail the
qualification of such persons for consideration by the Committee and should be
accompanied by an indication of the person's willingness to serve.
DIRECTOR COMPENSATION
Currently, each non-employee director of the Company who beneficially owns
not more than 5% of the Company's outstanding Common Stock who is newly elected
to the Board, whether elected at an annual meeting or during the year, and who
has not previously been a director of the Company, receives a one-time,
non-elective grant of an option to purchase 5,000 shares of Common Stock of the
Company at the then-current market price. Furthermore, each non-employee
director of the Company who beneficially owns not more than 5% of the Company's
outstanding Common Stock, whether incumbent or newly elected, who is a director
at the conclusion of an annual meeting receives a non-elective grant of an
option to purchase 1,500 shares of Common Stock of the Company at the then-
current market price. If a newly elected non-employee director is first elected
during the year, then such non-elective option grant is prorated. In addition,
each non-employee director of the Company who beneficially owns not more than 5%
of the Company's outstanding Common Stock, whether incumbent or newly elected,
who is a director at the conclusion of an annual meeting has an election to
receive one of the following: (i) an option to purchase 6,000 shares of Common
Stock of the Company at the then-current market price or (ii) cash payments
consisting of an annual retainer of $8,000, payable quarterly in arrears, plus
per meeting fees of $750 for each meeting of the Board of Directors attended and
$350 for each committee meeting attended that is not held on the same day as a
meeting of the Board of Directors. If a newly elected non-employee director of
the Company who beneficially owns not more than 5% of the Company's outstanding
Common Stock is first elected during the year, the option grant to purchase
6,000 shares of Common Stock or the $8,000 annual retainer is prorated. As
additional compensation, each committee Chairman who is also a non-employee
director who beneficially owns not more than 5% of the Company's outstanding
Common Stock has an annual election to receive one of the following in addition
to the compensation described above: (i) an option to purchase 1,000 shares of
the Common Stock of the Company at the then-current market price or (ii) a cash
payment of $2,500. Directors who beneficially own more than 5% of the Company's
outstanding Common Stock serve without receiving the compensation described
above. Mr. Schinas serves as Chairman of the Board pursuant to an employment
agreement for an annual base salary of $100,000 and such bonus compensation as
the Compensation Committee may determine to award in its discretion.
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EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
establishes the general compensation policies of the Company and specific
compensation for each of the Company's executive officers. The purpose of this
report is to inform stockholders of the Company's compensation policies for
executive officers and the rationale for the compensation paid to executive
officers in fiscal 1998.
COMPENSATION PHILOSOPHY
The Company has a "pay for performance" compensation program for its
executive officers. The compensation program is designed to motivate and reward
executives responsible for attaining the financial and strategic objectives
essential to the Company's success and continued growth, while at the same time
allowing the Company to attract and retain high-caliber executives. The
Committee believes that the Company's compensation practices reward executives
commensurately with their ability (i) to meet the Company's established
financial targets and other goals, through cash bonuses, and (ii) to drive
increases in stockholder value, through stock options.
A central feature of the Company's compensation program is its emphasis on
objective performance incentives. Under the Company's historical practice,
performance targets are established by the Committee at the outset of each
fiscal year for each executive officer. The Company's historical practice has
been to communicate to each executive, near the outset of a fiscal year, the
performance targets that must be met for that fiscal year and the amount of cash
bonus that the executive will be eligible to receive if such goals are met.
The Committee believes that base salaries of the Company's executive
officers are below average relative to its national and regional peer companies.
However, if the cash bonus targets are fully achieved, executive officers of the
Company are able to earn total cash compensation that is above average relative
to these peer companies as a group. This analysis supports the Committee's
compensation philosophy of putting a substantial portion of executives' total
cash compensation "at risk" by tying it to the achievement of objective
financial results and other goals, and giving executives the opportunity to earn
above average compensation through performance.
An additional important aspect of the Company's compensation program is its
use of stock options. The Committee believes that the use of stock-based
incentives ensures that the executive's interests are aligned with the long-term
interests of the Company's stockholders. Executives are thereby given the
incentive not only to meet their annual performance objectives, but also to
achieve longer-term strategic goals.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The key components of the Company's compensation program are base salary,
cash bonuses and stock options.
BASE SALARY. The Committee annually reviews the base salary of each
executive officer. In determining the appropriate base salary level for fiscal
1998, the Company considered base salaries for the previous fiscal year and
individual performance, including performance in relation to performance targets
for the then-ending fiscal year.
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The Company is a party to an employment agreement with its President and
Chief Executive Officer, Jerry A. Dusa, pursuant to which Mr. Dusa has agreed to
serve for an indefinite term in a senior executive capacity, initially as
President and Chief Executive Officer of the Company, for an annual base salary
of $250,000, subject to an annual review of Mr. Dusa's base salary by the
Committee. On January 27, 1998, the Committee increased Mr. Dusa's base salary
to $300,000, retroactive to October 1, 1997. The Committee has yet to review Mr.
Dusa's base salary for fiscal 1999. The Committee believes that Mr. Dusa's base
salary is below average relative to base salaries of comparable companies.
The Company entered into employment agreements with certain executive
officers, including Messrs. Glader, Kasdagly and Killmer, that establish certain
minimum base salaries and bonus targets. The Committee has reviewed these
salaries and targets and believes that they are consistent with the Company's
compensation philosophy described above.
CASH BONUSES. Each executive of the Company is given a specified bonus
target which he or she will receive if the applicable objectives set by the
Committee are met. These bonus targets have typically been 100% of base salary;
however, Mr. Kasdagly's bonus target was set at 60% of base salary for fiscal
1998. Mr. Killmer's bonus opportunity for fiscal 1998 remained at $170,000
(equal to 100% of his annual base salary prior to May 1, 1998) despite the
increase in his annual base salary to $210,000, effective May 1, 1998.
At the outset of the 1998 fiscal year the Committee established Company-wide
financial objectives and personal performance goals upon which cash bonuses for
executives other than Mr. Dusa were based, subject to a partially guaranteed
bonus payable to Mr. Killmer for fiscal 1998 and a one time signing bonus for
Mr. Kasdagly. Mr. Dusa's Company-wide financial objectives and personal
performance goals for fiscal 1998 were established by the Committee in January
1998. The Company's executive officers were awarded cash bonuses for fiscal 1998
based on the percentage of their objectives achieved. In addition, the Committee
determined to award additional cash bonuses to Messrs. Dusa and Kasdagly in the
exercise of its discretion. In making its determination to award these
discretionary bonuses, the Committee considered the extraordinary efforts of
these individuals in connection with the Company's acquisitions of Central Data
Corporation ("Central Data") and ITK International, Inc. ("ITK International")
during fiscal 1998. The Committee also considered the recommendation of the
Chief Executive Officer with regard to executive bonuses other than his own.
Taking these factors into account, the Committee determined to award the cash
bonuses set forth in the Summary Compensation Table below. Mr. Dusa was awarded
a performance bonus of 67% of base salary based upon the Committee's
determination that he met his financial and operational objectives set in
advance by the Committee at a level of 38.5% and should be awarded the
additional discretionary bonus described above.
The Committee has not yet set criteria for achievement of cash bonuses in
fiscal 1999 by the executive officers but intends to set goals based in part
upon the achievement of Company-wide financial goals and in part upon
individualized performance factors specific to each executive officer's duties
within the Company. See "Employment Contracts; Severance, Termination and
Change-in-Control Arrangements" below. For fiscal 1999, the Committee set the
bonus target for Messrs. Glader and Kasdagly at 100% of base salary. Mr. Dusa's
bonus target is 100% of base salary under the terms of his employment contract.
If some or all of the objectives are not met, the executive's bonus will be
based on the percentage of objectives achieved, subject to the Compensation
Committee's authority to award a greater bonus in its discretion. If the bonus
objectives are exceeded, the Committee may
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decide to award more than the target amount. In fiscal 1999 there will be no
guaranteed bonuses for the current executive officers of the Company.
STOCK OPTIONS. Long-term incentives are provided through the Company's
Stock Option Plan. The Plan is administered by the Committee, which is
authorized to award stock options to employees of the Company and its
subsidiaries, non-employee directors of the Company and certain advisors and
consultants to the Company. While the Committee has broad discretion to select
the optionees and to establish the terms and conditions for the grant, vesting
and exercise of each option, the Committee's current practice is to grant stock
options to employees vesting over four years in order to strengthen the
employee's ties to the Company and to focus on enhancing stockholder value on a
long-term basis. During fiscal 1998, the Committee adjusted this policy to
conform to the industry practice of granting stock options vesting over four
years. In fiscal 1998, Mr. Dusa was granted options with vesting schedules
differing from the Company's current practice as described below. All options
granted to Mr. Killmer will expire, unless previously exercised, on January 28,
1999, pursuant to the terms of the Company's stock option plan following his
resignation as an executive officer of the Company on October 30, 1998.
At the end of each fiscal year, the Committee considers whether awards will
be made to executive officers under the Plan. In determining the employees to
whom options shall be granted and the number of shares to be covered by each
option, the Committee may take into account the nature of the services rendered
by the respective employees, their present and potential contributions to the
success of the Company, and such other factors as the Committee in its sole
discretion shall deem relevant.
In fiscal 1998 the Committee granted to Mr. Dusa options to purchase an
aggregate of 250,000 shares at the fair market value on December 31, 1997, of
$17.00 per share ($3.85 per share below the fair market value on January 27,
1998, the date of grant), vesting in 20% increments on the first, second, third,
fourth and fifth anniversaries of the date of grant with the possibility of
performance-based accelerated vesting of (i) up to 125,000 shares upon the
attainment of fiscal 1998 goals previously established for determination of Mr.
Dusa's cash bonus and (ii) up to an additional 125,000 shares based upon the
attainment of fiscal 1999 goals to be established by the Committee for
determination of Mr. Dusa's cash bonus. If either the fiscal 1998 or 1999 goals
are not fully attained, the number of options to be accelerated will be prorated
based on the aggregate percentage achieved, in either case as determined by the
Committee. The options to be accelerated are those that are the last to vest.
Options to purchase a total of 48,125 shares were accelerated based on the
Committee's determination that Mr. Dusa had attained 38.5% of his fiscal 1998
goals. In fiscal 1998, other executive officers were granted options to purchase
an aggregate of 140,000 shares at prices ranging from $14.75 per share to $21.50
per share (each at the fair market value on the date of the grant).
401-K SAVINGS AND PROFIT SHARING PLAN. Company officers may participate in
the Company's 401-K Savings and Profit Sharing Plan (the "401-K Plan") which
allows any Company employee who has completed six months of service and who is
at least 18 years of age to contribute up to 15 percent of his or her earnings
to the 401-K Plan. However, the participant's contributions are subject to an
annual maximum imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), which was $10,000 in 1998 and will be $10,000 in 1999. The annual
maximum will be indexed for inflation in future years.
Under the 401-K Plan, the Company has discretion to make either profit
sharing contributions or matching contributions. For any given year, the Company
may decide to make no such contributions,
9
<PAGE>
to make one type of contribution or to make both types of contributions. Profit
sharing contributions are allocated in proportion to the earnings of eligible
participants. Matching contributions are allocated in proportion to the
contributions each participant makes from his or her salary, unless the Company
specifies a different matching formula for a particular year. To be eligible to
receive either type of contribution for a particular year, the participant must
be employed by the Company on December 31st of that year and must have completed
at least 1,000 hours of service during the year. For fiscal 1998, the Company
has decided to make an aggregate matching contribution of $240,000 and no profit
sharing contribution. As of the date of this Proxy Statement no allocation of
this matching contribution has been made to individual plan accounts for the
1998 calendar year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, comprised entirely of independent, outside
directors, is responsible for establishing and administering the Company's
policies involving the compensation of executive officers. No employee of the
Company serves on the Committee. During fiscal 1998 the members of the Committee
were Richard E. Eichhorn (Chairman), Willis K. Drake and Robert S. Moe. The
Committee members have no interlocking relationships as defined by the
Securities and Exchange Commission.
COMPENSATION COMMITTEE
Richard E. Eichhorn, Chairman
Willis K. Drake
Robert S. Moe
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning
annual and long-term compensation for the fiscal years ended September 30, 1998,
1997, and 1996 provided to the Chief Executive Officer and the other three most
highly compensated executive officers of the Company (the "Named Officers") who
received remuneration exceeding $100,000 for the fiscal year ended September 30,
1998.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- AWARDS
NAME AND FISCAL ------------ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- ------------------------------------------------------- ------ --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Jerry A. Dusa, President, 1998 $ 283,228 $200,000 250,000 $ (5)
Chief Executive Officer, Director(1) 1997 250,315 212,768 250,000 0
Douglas J. Glader, Senior Vice President, Manufacturing 1998 159,597 169,752 30,000 (5)
Operations(2) 1997 169,327 123,000 105,800 0
1996 134,712 0 10,800 0
Dino G. Kasdagly, Senior Vice President, Development(3) 1998 171,106 143,938 80,000 (5)
Jonathon E. Killmer, Senior Vice President, Chief 1998 182,480 156,910 30,000 (5)
Financial Officer, Treasurer(4) 1997 144,231 100,000 105,000 0
</TABLE>
- ------------------------
(1) Mr. Dusa became President and Chief Executive Officer, and a Director, on
March 12, 1997. Prior to March 12, 1997, Mr. Dusa served as interim acting
Chief Executive Officer from January 3, 1997 and served as a consultant to
the Company prior to that time.
(2) Mr. Glader joined the Company in 1994, became Vice President in February
1995 and became Senior Vice President in April 1997.
(3) Mr. Kasdagly joined the Company as Senior Vice President in October 1997.
Pursuant to his employment agreement, the Company paid Mr. Kasdagly a one
time signing bonus of $42,407.74, which is included in his 1998 bonus
compensation in the above table. See "Employment Contracts; Severance,
Termination of Employment and Change-in-Control Arrangements" below.
(4) Mr. Killmer joined the Company as Vice President, Chief Financial Officer
and Treasurer in October 1997. Mr. Killmer became Senior Vice President,
Chief Financial Officer and Treasurer in July 1997 and held such offices
until his resignation effective October 30, 1998.
(5) No allocation of the Company's matching contribution to the 401-K Plan has
been made to individual plan accounts for the 1998 calendar year. If
allocated, these amounts would be reflected here and would be the only
compensation reported in this column.
11
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERMS (1)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------------------------
NAME (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ------------------------------ ----------- -------------- ----------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jerry A. Dusa................. 250,000(2) 20.83% $ 17.00 01/28/08 $ 968,750 $ 4,250,794 $ 9,286,093
Douglas J. Glader............. 30,000(3) 2.50 27.50 04/20/08 0 518,838 1,314,838
Dino G. Kasdagly.............. 50,000(4) 4.16 14.75 10/28/07 0 463,810 1,175,385
Dino G. Kasdagly.............. 30,000(3) 2.50 27.50 04/20/08 0 518,838 1,314,838
Jonathon E. Killmer........... 30,000(3) 2.50 27.50 04/20/08 0 518,838 1,314,838
All Stockholders' Potential Realizable Value at
Assumed Growth Rates (5)............................................................ $ 0 $ 462,649,245 $ 734,097,858
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The dollar amounts under these columns are the results of calculations at a
0% annual appreciation rate, and at the 5% and 10% annual appreciation
rates set by the Securities and Exchange Commission for illustrative
purposes, and, therefore, are not intended to forecast future financial
performance or possible future appreciation, if any, in the price of the
Company's stock. Stockholders are therefore cautioned against drawing any
conclusions from the appreciation data shown, aside from the fact that
optionees will only realize value from the option grants shown when the
price of the Company's stock appreciates (other than in the case of Mr.
Dusa), which benefits all stockholders commensurately.
(2) These options become exercisable in 20% increments on the first, second,
third, fourth and fifth anniversaries of the date of grant with the
possibility of performance-based accelerated vesting of (i) up to 125,000
shares upon the attainment of fiscal 1998 goals previously established for
determination of Mr. Dusa's cash bonus and (ii) up to an additional 125,000
shares based upon the attainment of fiscal 1999 goals to be established by
the Committee for determination of Mr. Dusa's cash bonus. If either the
fiscal 1998 or 1999 goals are not fully attained, the number of options to
be accelerated will be prorated based on the aggregate percentage achieved,
in either case as determined by the Committee. The options to be
accelerated are those that are the last scheduled to vest. Based upon Mr.
Dusa's achievement of 38.5% of his fiscal 1998 goals, vesting was
accelerated with respect to 48,125 shares covered by these options.
(3) These options become exercisable as to 7,500 shares on April 20, 1999, and
as to 625 shares on the twentieth day of each of the next 36 months
beginning on May 20, 1999.
(4) These options become exercisable in 20% increments on the first, second,
third, fourth and fifth anniversaries of the date of grant.
(5) These calculations are based upon 14,588,995 outstanding shares and assume
a base price of $19.40, the average price of the options granted to the
Named Officers.
12
<PAGE>
AGGREGATED OPTION
EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The purpose of the following table is to report exercises of stock options
by the Named Officers during fiscal 1997 and any value of their unexercised
stock options as of September 30, 1998. One Named Officer exercised stock
options in fiscal 1998 pursuant to the Company's Stock Option Plan. The Company
has not issued any stock appreciation rights to the Named Officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END(1)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Jerry A. Dusa.............. 0 $ 0 250,000 250,000 $ 1,236,250 $ 0
Douglas J. Glader.......... 23,400 371,850 28,700 113,700 99,475 333,225
Dino G. Kasdagly........... 0 0 0 80,000 0 0
Jonathon E. Killmer........ 0 0 22,500 112,500 74,375 265,625
</TABLE>
- ------------------------
(1) Value is based on a share price of $12.25, which was the last reported sale
price for a share of Common Stock on the Nasdaq National Market System on
September 30, 1998, minus the exercise price.
13
<PAGE>
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
JERRY A. DUSA. The Company and Mr. Dusa are currently parties to an
employment agreement entered into upon Mr. Dusa's election as President and
Chief Executive Officer of the Company on March 13, 1997. The agreement provides
that Mr. Dusa will be paid a base salary initially at the annual rate of
$250,000. The Committee will review Mr. Dusa's base salary annually and may, in
its sole discretion, increase it to reflect performance and other factors. The
Committee increased Mr. Dusa's base salary to $300,000 for fiscal 1998. The
Committee has not yet reviewed Mr. Dusa's base salary for fiscal 1999. The
agreement also provides that Mr. Dusa will be entitled to a cash bonus equal to
100% of his base salary, provided that the objectives set by the Committee,
acting in its sole discretion, are met. If some or all of the objectives are not
met for a fiscal year then the Committee shall determine in its discretion what
portion of the target bonus amount, if any, will be paid to Mr. Dusa. Based upon
his achievement of 38.5% of his performance objectives and an additional
discretionary amount awarded in connection with his efforts in completing the
Company's acquisitions of Central Data and ITK International during fiscal 1998,
the Committee awarded Mr. Dusa a cash bonus of $200,000 for fiscal 1998 which
was equal to 67% of his aggregate base salary for fiscal 1998.
Mr. Dusa has a fully vested option to purchase 10,000 shares of the
Company's Common Stock at a per share exercise price of $10.125 which he
received on January 3, 1997 in connection with his service as interim acting
Chief Executive Officer of the Company. Pursuant to his employment agreement the
Company issued to Mr. Dusa stock options to purchase an aggregate of 240,000
shares of the Company's Common Stock in March 1997. These options were granted
at the fair market value on the date of grant, vesting in 25% increments on the
first, second, sixth and seventh anniversaries of the date of grant with the
possibility of accelerated vesting of the 25% increments allocated to the sixth
and seventh years if the closing price of the Company's Common Stock equals or
exceeds $20.00 per share for 90 consecutive calendar days at any time prior to
the fifth anniversary of the date of grant. The Committee, in its discretion,
vested all 240,000 shares subject to this option in January 1998. In January
1998, Mr. Dusa was granted an option to purchase 250,000 shares at $17.00 per
share ($3.85 per share below the fair market value on the date of grant),
vesting in 20% increments on the first, second, third, fourth and fifth
anniversaries of the date of grant with the possibility of performance-based
accelerated vesting of (i) up to 125,000 shares upon the attainment of fiscal
1998 goals previously established for determination of Mr. Dusa's cash bonus and
(ii) up to an additional 125,000 shares based upon the attainment of fiscal 1999
goals to be established by the Committee for determination of Mr. Dusa's cash
bonus. If either the fiscal 1998 or 1999 goals are not fully attained, the
number of options to be accelerated will be prorated based on the aggregate
percentage achieved, in either case as determined by the Committee. The options
to be accelerated are those that are the last scheduled to vest. Based upon Mr.
Dusa's achievement of 38.5% of his fiscal 1998 goals, vesting was accelerated
with respect to 48,125 shares covered by this option. The agreement also
provides that Mr. Dusa is entitled to the benefits and perquisites which the
Company generally provides to its other employees under applicable Company plans
and policies.
Under the terms of Mr. Dusa's employment agreement, if the Company
terminates his employment without cause, Mr. Dusa is entitled to receive his
then current base salary for a period of twelve months. In addition, any
unvested stock options will vest immediately prior to any termination of his
employment by the Company without cause. Any unvested stock options will also
vest in the event of a
14
<PAGE>
"change in control" of the Company, which is deemed to have occurred if any
person or group acquires more than 25% of the voting power of the Company, or if
there is a change in the membership of the Board of Directors, not approved by
the continuing directors, such that persons who were directors at the beginning
of any three-year period no longer constitute a majority of the Board.
DOUGLAS J. GLADER. The Company's agreement with Mr. Glader on February 6,
1995 provides that Mr. Glader will be paid a base salary at the annual rate of
$120,000, which the Committee increased to $170,000 for fiscal 1997 and 1998 and
which will increase to $190,000 for fiscal 1999. The Committee will review Mr.
Glader's base salary annually and may, in its sole discretion, increase it to
reflect performance, appropriate industry guideline data and other factors, but
is not obligated to provide for any increases in base salary. Under his
agreement, Mr. Glader also is entitled to a cash bonus opportunity based on his
percentage of achievement of objectives set by the Committee, of up to 100% of
his base salary in any fiscal year. The Committee increased this percentage to
110% for fiscal 1997 and 1998, but it will return to 100% for fiscal 1999. In
addition, Mr. Glader was granted an option to purchase 20,000 shares of Common
Stock of the Company with an exercise price at the fair market value on the date
of grant, vesting over five years. In August 1996, Mr. Glader was granted an
option to purchase 10,800 shares at the fair market value on the date of the
grant, vesting over five years with the possibility of accelerated vesting of
the 20% increments allocated to the fourth and fifth years if the closing price
of the Company's Common Stock equals or exceeds $26.00 per share for twenty
consecutive trading days. These options were repriced as part of a May 8, 1997
option repricing and the substitute options now vest over four years. In May
1997, Mr. Glader was granted an additional option to purchase 75,000 shares at
the fair market value on the date of the grant, vesting over five years. In
April 1998, Mr. Glader was granted an option to purchase 30,000 shares of Common
Stock of the Company at the fair market value on the date of grant, vesting over
four years. All of Mr. Glader's option grants will also vest in full in the
event of his termination without cause or a "change in control" of the Company
which is deemed to occur under the same conditions as for purposes of Mr. Dusa's
option vesting. If Mr. Glader's employment is terminated without cause, he would
be entitled to receive severance of $60,000. Mr. Glader also is entitled to the
benefits and perquisites which the Company generally provides to its other
employees under applicable Company plans and policies.
DINO G. KASDAGLY. The Company's agreement with Mr. Kasdagly dated October
1, 1997, provides that Mr. Kasdagly will be paid a base salary at an annual rate
of $175,000, which the Committee has increased to $185,000 for fiscal 1999. Mr.
Kasdagly's employment agreement also provides for a guaranteed payment of
$20,000, after taxes ($42,407.74 before taxes), paid in January 1998. Under his
agreement, Mr. Kasdagly is entitled to a cash bonus based on the percentage of
his achievement of objectives set by the Committee, of up to 60% of his base
salary in any fiscal year. The Committee increased his cash bonus opportunity to
100% of his base salary for fiscal 1999. Mr. Kasdagly's employment agreement
also provided for an option to purchase 50,000 shares of Common Stock of the
Company at the fair market value on the date of the grant, vesting over five
years. In April 1998, Mr. Kasdagly was granted an additional option to purchase
30,000 shares, vesting over four years. Mr. Kasdagly's options will vest in full
in the event of his termination without cause or a "change in control" of the
Company which is deemed to occur under the same conditions as for purposes of
Mr. Dusa's options vesting. Finally, Mr. Kasdagly's employment agreement with
the Company entitles him to the benefits and perquisites which the Company
generally provides to its other employees under applicable Company plans and
policies.
15
<PAGE>
JONATHON E. KILLMER. Prior to his resignation, effective October 30, 1998,
the Company was party to an employment agreement with Mr. Killmer dated
September 16, 1996, which provided that Mr. Killmer would be paid a base salary
at an annual rate of $150,000, which the Committee increased to $170,000 for
fiscal 1998 and further increased, effective May 1, 1998, to $210,000. Under his
agreement, Mr. Killmer was also entitled to a cash bonus based on his percentage
of achievement of objectives set by the Committee of up to 100% of his base
salary in any fiscal year. For fiscal 1997, $100,000 of Mr. Killmer's bonus was
guaranteed. For fiscal 1998, the Committee determined to guarantee $80,000 of
Mr. Killmer's bonus. The Committee decreased the amount of Mr. Killmer's
guaranteed bonus to 40% on May 1, 1998, resulting in a guaranteed bonus of
$63,333.33 ( 7/12 times $80,000 plus 5/12 times $40,000) for fiscal 1998. Mr.
Killmer's employment agreement also provided for an option to purchase 30,000
shares of Common Stock of the Company at the fair market value on the date of
grant, vesting over five years. This option was repriced as part of the May 8,
1997 repricing and the substitute option now vests over four years. In May and
July 1997, Mr. Killmer was granted additional options to purchase 25,000 and
50,000 shares, respectively, vesting over five years. The 25,000 share option
was granted at the fair market value on the date of grant and the 50,000 share
option was granted at $1.13 below the fair market value on the date of grant. In
April 1998, Mr. Killmer was granted an option to purchase 30,000 shares of
Common Stock of the Company at the fair market value on the date of grant,
vesting over four years. Mr. Killmer's options would have vested in full in the
event of his termination without cause or a "change in control" of the Company
had either event occurred prior to his resignation. As a result of his
resignation, Mr. Killmer's 22,500 exercisable options will expire on January 28,
1999, unless previously exercised. Finally, Mr. Killmer's employment agreement
with the Company entitles him to the benefits and perquisites which the Company
generally provides to its other employees under applicable Company plans and
policies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires that the Company's directors and
executive officers file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Directors and executive
officers are required to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms furnished
to the Company and written representations from the Company's directors and
executive officers, all Section 16(a) filing requirements were met for the
fiscal year ended September 30, 1998.
16
<PAGE>
PERFORMANCE EVALUATION
The graph below compares the total cumulative stockholders' return on the
Company's Common Stock for the period from the close of the NASDAQ Stock Market
- -- U.S. Companies on September 30, 1993 to September 30, 1998, the last day of
fiscal 1998, with the total cumulative return on the CRSP Total Return Index for
the Nasdaq Stock Market-U.S. Companies (the "CRSP Index") and the CRSP Index for
Nasdaq Computer Manufacturers Stocks (the "Peer Index") over the same period.
The index level for the graph and table was set to $100 on September 30, 1993
for the Common Stock, the CRSP Index and the Peer Index and assumes the
reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Digi Nasdaq Stock Market
International Inc. (US Companies)
9/30/93 $100.000 $100.000
10/29/93 $104.706 $102.247
11/30/93 $90.588 $99.201
12/31/93 $104.706 $101.966
1/31/94 $90.588 $105.061
2/28/94 $87.059 $104.080
3/31/94 $81.176 $97.681
4/29/94 $63.971 $96.412
5/31/94 $62.353 $96.649
6/30/94 $70.588 $93.114
7/29/94 $62.353 $95.025
8/31/94 $67.059 $101.084
9/30/94 $67.059 $100.826
10/31/94 $78.824 $102.806
11/30/94 $78.824 $99.396
12/30/94 $88.235 $99.674
1/31/95 $101.176 $100.243
2/28/95 $109.412 $105.544
3/31/95 $103.529 $108.674
4/28/95 $104.706 $112.098
5/31/95 $96.471 $114.989
6/30/95 $107.059 $124.308
7/31/95 $115.882 $133.446
8/31/95 $132.941 $136.151
9/29/95 $132.941 $139.281
10/31/95 $125.882 $138.477
11/30/95 $109.412 $141.729
12/29/95 $89.412 $140.974
1/31/96 $109.412 $141.667
2/29/96 $127.059 $147.059
3/29/96 $129.412 $147.544
4/30/96 $132.941 $159.781
5/31/96 $132.353 $167.118
6/28/96 $125.882 $159.585
7/31/96 $60.000 $145.354
8/30/96 $67.059 $153.498
9/30/96 $67.059 $165.238
10/31/96 $69.412 $163.412
11/29/96 $61.765 $173.514
12/31/96 $44.706 $173.358
1/31/97 $39.412 $185.678
2/28/97 $38.824 $175.408
3/31/97 $33.529 $163.954
4/30/97 $31.176 $169.080
5/30/97 $42.353 $188.242
6/30/97 $47.647 $194.007
7/31/97 $54.118 $214.484
8/29/97 $70.588 $214.157
9/30/97 $67.059 $226.814
10/31/97 $71.176 $215.072
11/28/97 $91.471 $216.150
12/31/97 $80.000 $212.688
1/30/98 $107.941 $219.357
2/27/98 $114.118 $239.944
3/31/98 $129.706 $248.789
4/30/98 $125.294 $253.005
5/29/98 $107.059 $239.120
6/30/98 $95.294 $255.976
7/31/98 $90.588 $253.184
8/31/98 $48.235 $203.694
9/30/98 $57.647 $231.786
Symbol CRSP Total Returns Index for: 09/30/93
- -- -- Digi International Inc. 100.0
* Nasdaq Stock Market (US Companies) 100.0
/ Nasdaq Computer Manufacturers Stocks 100.0
SIC 3570-3579 US & Foreign
Notes:
A. The lines represent monthly index levels derived
from
compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the
market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal
year-end,
is not a trading day, the preceding trading day is
used.
D. The index level for all series
was set to $100.0 on 09/30/93.
<CAPTION>
NASDAQ COMPUTER
<S> <C> <C> <C> <C> <C>
Manufacturers Stocks
SIC 3570-3579
US & Foreign
9/30/93 $100.000
10/29/93 $107.314
11/30/93 $109.883
12/31/93 $116.497
1/31/94 $122.236
2/28/94 $125.197
3/31/94 $112.941
4/29/94 $105.560
5/31/94 $98.323
6/30/94 $91.588
7/29/94 $97.702
8/31/94 $107.303
9/30/94 $111.361
10/31/94 $121.520
11/30/94 $120.243
12/30/94 $127.969
1/31/95 $125.104
2/28/95 $128.566
3/31/95 $134.863
4/28/95 $141.736
5/31/95 $145.693
6/30/95 $163.960
7/31/95 $176.942
8/31/95 $188.314
9/29/95 $197.263
10/31/95 $206.310
11/30/95 $213.879
12/29/95 $201.487
1/31/96 $202.212
2/29/96 $222.467
3/29/96 $207.623
4/30/96 $237.946
5/31/96 $254.131
6/28/96 $233.396
7/31/96 $209.501
8/30/96 $223.970
9/30/96 $257.370
10/31/96 $258.413
11/29/96 $281.313
12/31/96 $270.131
1/31/97 $293.999
2/28/97 $253.074
3/31/97 $227.051
4/30/97 $236.383
5/30/97 $290.991
6/30/97 $293.458
7/31/97 $357.214
8/29/97 $356.071
9/30/97 $368.364
10/31/97 $340.741
11/28/97 $344.251
12/31/97 $326.779
1/30/98 $356.586
2/27/98 $403.970
3/31/98 $402.141
4/30/98 $431.068
5/29/98 $421.069
6/30/98 $476.867
7/31/98 $500.134
8/31/98 $434.070
9/30/98 $523.302
Symbol 09/30/94 09/30/95 09/30/96 09/30/97 09/30/98
- -- -- 67.1 132.9 67.1 67.1 57.6
* 100.8 139.2 165.2 226.8 231.8
/ 111.4 197.3 257.4 368.4 523.3
Notes:
A. The lines represent monthly index levels derived
from
compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the
market
capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal
year-end,
is not a trading day, the preceding trading day is
used.
D. The index level for all series
was set to $100.0 on 09/30/93.
</TABLE>
17
<PAGE>
PROPOSED AMENDMENTS TO STOCK OPTION PLAN
DESCRIPTION OF THE PLAN AND PROPOSED AMENDMENTS
The Plan provides for the issuance of options that qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and for the issuance of nonstatutory stock options.
The purpose of the Plan is to promote the interests of the Company and its
stockholders by providing key personnel of the Company and its subsidiaries with
an opportunity to acquire a proprietary interest in the Company and thereby
develop a stronger incentive to put forth maximum effort for the continued
success and growth of the Company. It is also expected that the opportunity
provided by the Plan to acquire a proprietary interest in the Company will aid
in attracting and retaining key personnel of outstanding ability.
The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which consists of not less than two directors who
are "Non-Employee Directors" as that term is defined in Rule 16b-3(b)
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act"). As permitted by amendments to rules promulgated under Section 16 of the
1934 Act, the Plan was amended to allow the Chief Executive Officer of the
Company to make grants to persons not required to file reports under Section 16
of the 1934 Act, upon the precedent delegation of such authority by the
Committee. On April 20, 1998, the Committee authorized the Chief Executive
Officer to grant options to purchase an aggregate of 10,000 shares of Common
Stock per quarter (without carryover), with a further limit of 2,000 shares per
optionee, in each case at an exercise price not less than the fair market value
of the Common Stock on the date of the grant. Officers and directors are not
eligible to receive option grants approved by the Chief Executive Officer.
Subject to the provisions of the Plan, the Committee may from time to time adopt
such rules for the administration of the Plan as it deems appropriate.
The Plan currently provides that the Committee may grant options to purchase
shares of Common Stock of the Company, not to exceed 4,129,400 shares in the
aggregate. Incentive stock options to purchase an aggregate of 485,331 shares of
Common Stock were outstanding as of December 11, 1998 and held by 137 employees,
including executive officers, under the Plan. Nonstatutory stock options to
purchase an aggregate of 1,847,763 shares of Common Stock were outstanding as of
December 11, 1998 and held by 197 employees, including executive officers, under
the Plan. At December 11, 1998, options to purchase an aggregate of 518,110
shares of Common Stock would be available for future stock option grants under
the Plan. Options outstanding at December 11, 1998 have per share exercise
prices ranging from $.50 to $29.25, or a weighted average per share exercise
price of $12.56, and generally expire ten years from the date of grant of the
option, on dates ranging between May 31, 1999 and November 24, 2008 (unless
exercised prior to that time). Approximately 300 key employees are currently
eligible to participate in the Plan.
DESCRIPTION OF THE PROPOSED AMENDMENTS
Effective November 24, 1998, the Board of Directors adopted, effective upon
stockholder approval at the 1999 annual meeting, amendments to the Plan's
provisions relating to the number of shares of
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Common Stock authorized for issuance under the Plan and the expiration date of
the Plan. The proposed amendments would do the following:
1. Increase the number of shares of Common Stock that may be issued under
the Plan from 4,129,400 to 4,829,400. The purpose of this amendment is to ensure
that the Company has flexibility to meet its foreseeable future needs for stock
options to be granted under the Plan.
2. Extend the expiration date of the Plan from December 1, 2006 to November
24, 2008. The purpose of this amendment is to ensure that the Company is able to
continue to grant stock options under the Plan after November 24, 1998.
DESCRIPTION OF THE PLAN
Shares issued upon exercise of options granted under the Plan shall be
authorized and unissued shares of Common Stock of the Company or treasury stock.
If any option lapses or terminates for any reason before being completely
exercised, the shares covered by the unexercised portion of such option may
again be made subject to subsequently granted options under the Plan. The
aggregate number of shares that may be made subject to options granted under the
Plan, and the number of shares covered by an outstanding option and the purchase
price per share of such option, may, at the discretion of the Committee, be
adjusted to give effect to certain adjustments made during the term of the Plan
or such option, as the case may be, in the number of shares of Common Stock of
the Company outstanding through a merger, consolidation, recapitalization,
reclassification, combination, stock dividend, stock split or other relevant
change.
Incentive stock options and nonstatutory stock options may be granted under
the Plan to employees of the Company or any subsidiary thereof. The Plan also
provides that nonstatutory stock options may be granted to individuals or
entities who are not "employees" but who provide services to the Company or any
parent or subsidiary thereof in the capacity of a non-employee director, advisor
or consultant, and must be granted to non-employee directors of the Company
beneficially owning not more than 5% of the outstanding Common Stock. References
in this description to "employment" shall include the providing of services in
any such capacity or as a director.
Nonstatutory options may also be granted in substitution for stock options
held by employees of other corporations who are about to become employees of the
Company or a subsidiary of the Company, or whose employer is about to become a
subsidiary of the Company, as the result of a merger or consolidation of the
Company or a subsidiary of the Company with another corporation, the acquisition
by the Company or a subsidiary of the Company of all or substantially all of the
assets of another corporation or the acquisition by the Company or a subsidiary
of the Company of at least 50% of the issued and outstanding stock of another
corporation. The Board of Directors of the Company has the discretion to vary
the terms and conditions of any substitute options so granted from the terms and
conditions set forth in the Plan to the extent that the Board of Directors deems
appropriate to conform the substitute options to the options in substitution for
which they are granted. The Board of Directors is not authorized to vary such
terms and conditions so as to affect the status of any such substitute option as
an incentive stock option under the Code.
The Committee has complete discretion to select all optionees, other than
non-employee directors, and to establish the terms and conditions for the grant,
vesting and exercise of each option granted to each such optionee, subject in
all cases to the provisions of the Plan. As of December 11, 1998, approximately
300 key employees, including executive officers, were eligible to receive option
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grants under the Plan. In determining the employees to whom options shall be
granted and the number of shares to be covered by each option, the Committee may
take into account the nature of the services rendered by the respective
employees, their present and potential contributions to the success of the
Company, and such other factors as the Committee in its sole discretion shall
deem relevant. More than one option may be granted to the same employee. In the
case of any incentive stock option, to the extent that the aggregate fair market
value, determined at the time the option is granted, of shares of Common Stock
of the Company with respect to which incentive stock options held by the option
holder first become exercisable in any calendar year (under the Plan and any
other plans of the Company and its parent and subsidiaries) exceeds $100,000,
such options shall be treated as nonstatutory stock options.
Under the terms of the Plan as currently in effect, each person who is a
non-employee director and who beneficially owns not more than 5% of the
outstanding Common Stock is given, each year at the conclusion of the annual
meeting of stockholders of the Company, (i) a non-elective grant of a
nonstatutory stock option to purchase 1,500 shares of Common Stock, and (ii) the
right to elect to receive a nonstatutory stock option to purchase 6,000 shares
of Common Stock in lieu of cash compensation for the ensuing year. See "Election
of Directors--Director Compensation" above. The Plan also provides that each
eligible non-employee director who is elected between annual meetings of the
stockholders of the Company is given (i) a nonstatutory stock option to purchase
a prorated portion of the 1,500 shares of Common Stock, and (ii) the right to
elect to receive, in lieu of cash compensation, a nonstatutory stock option to
purchase a prorated portion of 6,000 shares of Common Stock.
In addition, the Plan provides for an automatic initial one-time grant of a
nonstatutory stock option to purchase 5,000 shares of Common Stock when a person
who has not previously been a director of the Company (and who does not
beneficially own more than 5% of the outstanding Common Stock of the Company) is
first elected as a non-employee director.
All options granted to non-employee directors under the Plan have an
exercise price per share equal to the fair market value (as defined in the Plan)
of a share of Common Stock on the date of grant. Presently, Messrs. Drake,
Eichhorn, Stanley, Moroz and Moe are the only directors eligible to receive
non-employee director stock option grants under the Plan.
The Plan currently provides that (i) options granted to eligible
non-employee directors at the conclusion of an annual meeting of stockholders
vest as to 50% of the shares subject to the option on the date of each of the
first and second subsequent annual meetings, and (ii) options granted to
eligible non-employee directors between annual meetings vest as to 50% of the
shares subject to the option on each of the first and second anniversaries of
the date of grant.
Notwithstanding the foregoing regular vesting provisions, an option held by
a non-employee director vests and becomes immediately exercisable upon the
latest of (i) the date on which such director attains 62 years of age, (ii) the
date on which such director has completed five years of Service (as hereinafter
defined), and (iii) the first anniversary of the date of grant of such option
or, if applicable, the annual meeting of stockholders next succeeding the annual
meeting at which such option was granted. Any option granted to an eligible
non-employee director on or after the first accelerated vesting date for such
director automatically vests on the annual meeting of stockholders next
succeeding the annual meeting at which such option was granted. "Service", for
purposes of this provision, means service to the Company or any subsidiary of
the Company in the capacity of an
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advisor, consultant, employee, officer or director, and Service as a director
from an annual meeting of stockholders to the next succeeding annual meeting
constitutes a year of Service, notwithstanding that such period may actually be
more or less than one year.
The exercise price for nonstatutory options granted under the Plan to
optionees other than non-employee directors as to automatic grants is determined
by the Committee in its discretion and may be set at not less than 50% of the
fair market value (as defined in the Plan) of the Company's Common Stock as of
the date the option is granted. The exercise price for incentive stock options
granted to optionees must be the fair market value (as defined in the Plan) of
the Common Stock on the date of grant. If an incentive stock option is granted
to an employee who owns, at the time of grant, more than 10% of the total
combined voting power of all classes of stock of the Company (or any parent or
subsidiary of the Company) (a "10% Stockholder"), the exercise price shall be at
least 110% of the fair market value of the Company's Common Stock on the date of
grant. The exercise price for options granted under the Plan may be paid in cash
or, at the discretion of the optionee, by delivery to the Company of
unencumbered shares of Common Stock of the Company having an aggregate fair
market value on the date of exercise equal to the exercise price, or by a
combination of cash and such shares. On December 11, 1998, the last reported
sale price of the Company's Common Stock on the Nasdaq Stock Market was $10.19
per share.
The Plan provides that options may be granted at any time prior to December
1, 2006 (November 24, 2008, as proposed to be amended). The date and time of
approval by the Committee of the granting of an option shall be considered the
date and time of the grant of such option. The term of each option is determined
by the Committee but may not exceed ten years from the date the option is
granted, or five years in the case of an incentive stock option granted to a 10%
Stockholder. Each option and all rights to purchase shares thereunder also shall
terminate three months after termination of the employment of an optionee (other
than a non-employee director), or one year after termination of employment of an
optionee who is disabled, or one year after the death of an optionee. No option
granted under the Plan shall be assignable or transferable by the optionee
otherwise than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder.
In the event of the death or disability of an optionholder, options that
were not previously exercisable will become immediately exercisable in full if
such holder was continuously employed by the Company or a parent or subsidiary
of the Company between the date the option was granted and the date of such
disability, or, in the event of death, a date not more than three months prior
to such death. Only the individual to whom an option is granted or his or her
guardian or legal representative may exercise an option granted under the Plan,
and only while such individual is an employee of the Company or of a parent or
subsidiary thereof, and only if such individual has been continuously employed
by the Company or a parent or subsidiary of the Company since the date the
option was granted. An optionholder (other than a non-employee director) may,
however, exercise the option within three months after termination of
employment, to the extent the option was exercisable immediately prior to such
termination, and may exercise the option within one year after termination if
termination was the result of the disability of such individual, or, if the
optionholder is a non-employee director, such optionholder may exercise the
option after such individual ceases to be a director of the Company, to the
extent the option was exercisable immediately prior to such individual's ceasing
to be a director, and may exercise the option for only one year after such
cessation, if
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cessation was the result of the disability of such individual. An option may be
exercised after the death of the optionholder by such holder's legal
representatives, heirs or legatees, but only within one year after the death of
such optionholder. In no event shall any option be exercisable at any time after
its expiration date.
All options granted under the Plan will be evidenced by a written agreement
in such form or forms as the Committee may from time to time determine. The
agreement shall specify when each option granted under the Plan shall become
exercisable.
In the event of the proposed dissolution or liquidation of the Company or
the proposed merger or consolidation of the Company with or into any other
corporation, unless appropriate provision shall have been made in the event of a
merger or consolidation for the protection of outstanding options granted under
the Plan (a) by substitution, in lieu of such options, of options to purchase
appropriate voting common stock (the "Survivor's Stock") of the corporation
surviving the merger or consolidation or a parent corporation of the Company or
the surviving corporation to be issuable upon the exercise of options, or (b) by
delivery of a number of shares of the Survivor's Stock with a fair market value
(as defined in the Plan) as of the effective date of such merger or
consolidation equal to the product of the excess of the proceeds to be received
per share of Common Stock covered by the option as of the effective date over
the exercise price per share, times the number of shares covered by the option,
the Committee shall declare that each outstanding option under the Plan shall be
cancelled at the time of, or immediately prior to the occurrence of, such event
in exchange for payment to each optionholder of cash equal to the amount, for
each share covered by the cancelled option, by which the proceeds to be received
per share of Common Stock exceeds the exercise price per share covered by such
option. At the time of such declaration by the Committee, each option shall
immediately become exercisable in full, and may be exercised prior to
cancellation. The Plan shall terminate at the time of such cancellation, subject
to the aforementioned payment obligations.
The Board of Directors may at any time amend, suspend or discontinue the
Plan; provided, however, that no amendment by the Board of Directors shall,
without further approval of the stockholders of the Company, change the class of
employees eligible to receive options, increase the total number of shares of
Common Stock which may be made subject to options granted under the Plan or
change the minimum purchase price for the exercise of an option granted under
the Plan (except in the case of adjustments to give effect to certain
adjustments made in the number of shares of Common Stock of the Company
outstanding) or extend the term of the Plan.
FEDERAL TAX CONSIDERATIONS
NONSTATUTORY STOCK OPTIONS. An optionee will realize no taxable income, and
the Company will not be entitled to any related deduction, when a nonstatutory
stock option is granted under the Plan. Generally, when shares are transferred
to an optionee pursuant to the exercise of a nonstatutory stock option, the
optionee will realize ordinary income equal to the excess of the fair market
value of the stock on the date of exercise over the option price. The Company
will be entitled to a deduction at the same time and in the same amount as the
optionee is considered to have realized ordinary income. Upon disposition of the
shares, any additional gain or loss the optionee realizes will be a capital gain
or loss. The Company will not be entitled to a deduction with respect to the
disposition of shares by an optionee.
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Delivery of shares upon exercise of a nonstatutory stock option is subject
to any required withholding taxes. An optionee may be required to pay the
Company cash equal to the withholding taxes. The Committee may permit an
optionee to cover all or part of any withholding taxes through a reduction in
the number of shares of Common Stock delivered to the optionee.
INCENTIVE STOCK OPTIONS. An optionee will realize no taxable gain, and the
Company will not be entitled to any related deduction, when an incentive stock
option is granted under the Plan. If certain statutory employment and holding
period conditions are satisfied before the optionee disposes of shares acquired
pursuant to the exercise of such an option, then the optionee will realize no
taxable income upon the exercise of such option and the Company will not be
entitled to any related deduction. Upon disposition of the shares after
expiration of the statutory holding periods, any gain or loss an optionee
realizes will generally be a capital gain or loss. The Company will not be
entitled to a deduction with respect to a disposition of the shares by an
optionee after the expiration of the statutory holding periods. Except in the
event of death, if an optionee disposes of the shares before the expiration of
the statutory holding periods (a "disqualifying disposition"), the optionee will
be considered to have realized as compensation in the year of disposition an
amount, not exceeding the gain realized on such disposition, equal to the
difference between the exercise price and the fair market value of the shares on
the date of exercise. The Company will be entitled to a deduction, at the same
time and in the same amount as the optionee is deemed to have realized such
compensation income. Generally, any gain realized on the disposition in excess
of the amount treated as compensation or any loss realized on the disposition
will constitute capital gain or loss, respectively.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE DIGI INTERNATIONAL INC. STOCK OPTION PLAN.
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INDEPENDENT PUBLIC ACCOUNTANTS
A representative of PricewaterhouseCoopers LLP, as independent auditors for
the Company for fiscal 1998, will be present at the annual meeting and will be
afforded an opportunity to make a statement if such representative so desires
and will be available to respond to appropriate questions during the meeting.
ADDITIONAL MATTERS
The Annual Report of the Company for the fiscal year ended September 30,
1998, including financial statements, is being mailed with this Proxy Statement.
As of the date of this Proxy Statement, management knows of no matters that
will be presented for determination at the annual meeting other than those
referred to herein. If any other matters properly come before the annual meeting
calling for a vote of stockholders, it is intended that the shares represented
by the proxies solicited by the Board of Directors will be voted by the persons
named therein in accordance with their best judgment.
By Order of the Board of Directors,
/s/ James E. Nicholson
James E. Nicholson
SECRETARY
Dated: January 5, 1999
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DIGI INTERNATIONAL INC.
STOCK OPTION PLAN
AS AMENDED AND RESTATED
AS OF JULY 28, 1998
[JANUARY 27, 1999 AS
PROPOSED TO BE AMENDED]
1. PURPOSE OF PLAN. The purpose of this Digi International Inc. Stock Option
Plan (the "Plan"), is to promote the interests of Digi International Inc., a
Delaware corporation (the "Company"), and its stockholders by providing key
personnel of the Company and its subsidiaries with an opportunity to acquire a
proprietary interest in the Company and thereby develop a stronger incentive to
put forth maximum effort for the continued success and growth of the Company and
its subsidiaries. In addition, the opportunity to acquire a proprietary interest
in the Company will aid in attracting and retaining key personnel of outstanding
ability.
2. ADMINISTRATION OF PLAN. This Plan shall be administered by a committee of
two or more directors (the "Committee") appointed by the Company's board of
directors (the "Board"). No person shall serve as a member of the Committee
unless such person shall be a "Non-Employee Director" as that term is defined in
Rule 16b-3(a)(3)(i), promulgated under the Securities Exchange Act of 1934, as
amended (the "Act"), or any successor statute or regulation comprehending the
same subject matter. A majority of the members of the Committee shall constitute
a quorum for any meeting of the Committee, and the acts of a majority of the
members present at any meeting at which a quorum is present or the acts
unanimously approved in writing by all members of the Committee shall be the
acts of the Committee. Subject to the provisions of this Plan, the Committee
may from time to time adopt such rules for the administration of this Plan as it
deems appropriate. The decision of the Committee on any matter affecting this
Plan or the rights and obligations arising under this Plan or any option granted
hereunder, shall be final, conclusive and binding upon all persons, including
without limitation the Company, stockholders, employees and optionees. To the
full extent permitted by law, (i) no member of the Committee or the CEO Stock
Option Committee (as defined in this paragraph 2) shall be liable for any action
or determination taken or made in good faith with respect to this Plan or any
option granted hereunder and (ii) the members of the Committee and the CEO Stock
Option Committee shall be entitled to indemnification by the Company against and
from any loss incurred by such member or person by reason of any such actions
and determinations. The Committee may delegate all or any part of its authority
under this Plan to a one person committee consisting of the Chief Executive
Officer of the Company as its sole member (the "CEO Stock Option Committee") for
purposes of granting and administering awards granted to persons other than
persons who are then subject to the reporting requirements of Section 16 of the
Exchange Act ("Section 16 Individuals").
3. SHARES SUBJECT TO PLAN. The shares that may be made subject to options
granted under this Plan shall be authorized and unissued shares of common
stock (the "Common Shares") of the Company, $.01 par value, or Common Shares
held in treasury, and they shall not exceed 4,129,400 [4,829,400 as proposed to
be amended] in the aggregate, except that, if any option lapses or terminates
for any reason before such option has been completely exercised, the Common
Shares covered by the unexercised portion of such
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option may again be made subject to options granted under this Plan. Appropriate
adjustments in the number of shares and in the purchase price per share may be
made by the Committee in its sole discretion to give effect to adjustments made
in the number of outstanding Common Shares of the Company through a merger,
consolidation, recapitalization, reclassification, combination, stock dividend,
stock split or other relevant change, provided that fractional shares shall be
rounded to the nearest whole share.
4. ELIGIBLE PARTICIPANTS. Options may be granted under this Plan to any key
employee of the Company or any subsidiary thereof, including any such employee
who is also an officer or director of the Company or any subsidiary thereof.
Nonstatutory stock options, as defined in paragraph 5(a) hereof, also shall be
granted to directors of the Company who are not employees of the Company or any
subsidiary thereof (the "Outside Directors") in accordance with paragraph 6
hereof and may also be granted to other individuals or entities who are not
"employees" but who provide services to the Company or a parent or subsidiary
thereof in the capacity of an Outside Director, advisor or consultant.
References herein to "employed," "employment" and similar terms (except
"employee") shall include the providing of services in any such capacity or as a
director. The employees and other individuals and entities to whom options may
be granted pursuant to this paragraph 4 are referred to herein as "Eligible
Participants."
5. TERMS AND CONDITIONS OF EMPLOYEE OPTIONS.
(a) Subject to the terms and conditions of this Plan, the
Committee may, from time to time prior to December 1, 2006 [November 24,
2008 as proposed to be amended], grant to such Eligible Participants as
the Committee may determine options to purchase such number of Common
Shares of the Company on such terms and conditions as the Committee may
determine; provided, however, that no Eligible Participant may be granted
options with respect to more than 250,000 Common Shares during any calendar
year. In determining the Eligible Participants to whom options shall be
granted and the number of Common Shares to be covered by each option, the
Committee may take into account the nature of the services rendered by the
respective Eligible Participants, their present and potential contributions
to the success of the Company, and such other factors as the Committee in
its sole discretion shall deem relevant. The date and time of approval by
the Committee of the granting of an option shall be considered the date and
the time of the grant of such option. The Committee in its sole
discretion may designate whether an option granted to an employee is to
be considered an "incentive stock option" (as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended, or any
amendment thereto (the "Code")) or a nonstatutory stock option (an
option granted under this Plan that is not intended to be an "incentive
stock option"). The Committee may grant both incentive stock options and
nonstatutory stock options to the same employee. However, if an
incentive stock option and a nonstatutory stock option are awarded
simultaneously, such options shall be deemed to have been awarded in
separate grants, shall be clearly identified, and in no event shall the
exercise of one such option affect the right to exercise the other. To
the extent that the aggregate Fair Market Value (as defined in paragraph
5(c)) of Common Shares with respect to which incentive stock options
(determined without regard to this sentence) are exercisable for the
first time by any individual during any calendar year (under all plans
of the Company and its parent and subsidiary corporations) exceeds
$100,000, such options shall be treated as nonstatutory stock options.
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(b) The purchase price of each Common Share subject to an option
granted pursuant to this paragraph 5 shall be fixed by the Committee. For
nonstatutory stock options, such purchase price may be set at not less than
50% of the Fair Market Value (as defined below) of a Common Share on the
date of grant. For incentive stock options, such purchase price shall be no
less than 100% of the Fair Market Value of a Common Share on the date of
grant, provided that if such incentive stock option is granted to an
employee who owns, or is deemed under Section 424(d) of the Code to own, at
the time such option is granted, stock of the Company (or of any parent or
subsidiary of the Company) possessing more than 10% of the total combined
voting power of all classes of stock therein (a "10% Stockholder"), such
purchase price shall be no less than 110% of the Fair Market Value of a
Common Share on the date of grant.
(c) For purposes of this Plan, the "Fair Market Value" of a Common
Share at a specified date shall, unless otherwise expressly provided in
this Plan, mean the closing sale price of a Common Share on the date
immediately preceding such date or, if no sale of such shares shall have
occurred on that date, on the next preceding day on which a sale of such
shares occurred, on the Composite Tape for New York Stock Exchange listed
shares or, if such shares are not quoted on the Composite Tape for New York
Stock Exchange listed shares, on the principal United States securities
exchange registered under the Act, on which the shares are listed, or, if
such shares are not listed on any such exchange, on the Nasdaq Stock Market
or any similar system then in use or, if such shares are not included on
the Nasdaq Stock Market or any similar system then in use, the mean between
the closing "bid" and the closing "asked" quotation of such a share on the
date immediately preceding the date as of which such Fair Market Value is
being determined, or, if no closing bid or asked quotation is made on that
date, on the next preceding day on which a quotation is made, on an NASD
System or any similar system then in use, provided that if the shares in
question are not quoted on any such system, Fair Market Value shall be what
the Committee determines in good faith to be 100% of the fair market value
of such a share as of the date in question. Notwithstanding anything stated
in this paragraph, if the applicable securities exchange or system has
closed for the day by the time the determination is being made, all
references in this paragraph to the date immediately preceding the date in
question shall be deemed to be references to the date in question.
(d) Each option agreement provided for in paragraph 14 hereof shall
specify when each option granted under this Plan shall become exercisable.
(e) Each option granted pursuant to this paragraph 5 and all rights
to purchase shares thereunder shall cease on the earliest of:
(i) ten years after the date such option is granted (or in the
case of an incentive stock option granted to a 10% Stockholder, five
years after the date such option is granted) or on such date prior
thereto as may be fixed by the Committee on or before the date such
option is granted;
(ii) the expiration of the period after the termination of the
optionee's employment within which the option is exercisable as
specified in paragraph 8(b) or 8(c), whichever is applicable; or
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(iii) the date, if any, fixed for cancellation pursuant to
paragraph 9 of this Plan.
In no event shall any option be exercisable at any time after its original
expiration date. When an option is no longer exercisable, it shall be deemed to
have lapsed or terminated and will no longer be outstanding.
6. TERMS AND CONDITIONS OF OUTSIDE DIRECTOR OPTIONS.
(a) Subject to the terms and conditions of this Plan, the Committee
shall grant options to each Outside Director who is not on the date such
option would be granted the beneficial owner (as defined in Rule 13d-3
under the Act) of more than 5% of the outstanding Common Shares, on the
terms and conditions set forth in this paragraph 6. During the term of this
Plan and provided that sufficient Common Shares are available pursuant to
paragraph 3:
(i) each person who is elected to be an Outside Director and who
was not at any time previously a director of the Company shall be
granted a nonstatutory stock option. The date such person is elected
to be an Outside Director of the Company shall be the date of grant
for such options granted pursuant to this subparagraph 6(a)(i). The
number of Common Shares covered by each such option shall be 5,000;
(ii) each person who is an Outside Director at the conclusion of
an Annual Meeting of Stockholders shall be granted a nonstatutory
stock option on the date of such Annual Meeting of Stockholders. The
date of such Annual Meeting of Stockholders shall also be the date of
grant for options granted pursuant to this subparagraph 6(a)(ii). The
number of Common Shares covered by each such option shall be 1,500;
(iii) each person who is elected to be an Outside Director between
Annual Meetings of Stockholders shall be granted a nonstatutory stock
option. The date such person is elected to be an Outside Director of
the Company by the Board shall be the date of grant for such options
granted pursuant to this subparagraph 6(a)(iii). The number of Common
Shares covered by each such option shall be 1,500 multiplied by a
fraction, the numerator of which shall be 12 minus the number of whole
30-day months that have elapsed from the date of the most recent
Annual Meeting of Stockholders to the date such person is elected to
be an Outside Director, and the denominator of which shall be 12;
(iv) each person who is an Outside Director at the conclusion of
an Annual Meeting of Stockholders may elect in writing to be granted a
nonstatutory stock option on the date of such Annual Meeting of
Stockholders in lieu of all cash compensation to which such Outside
Director would be entitled for the Board year of the Company
commencing with such Annual Meeting of Stockholders. The date of such
Annual Meeting of Stockholders shall also be the date of grant for
options granted pursuant to this subparagraph 6(a)(iv). The number of
Common Shares
A-4
<PAGE>
covered by each such option shall be 6,000. Any such election by an
Outside Director shall be subject to prior approval by the Committee;
and
(v) each person who is elected to be an Outside Director between
Annual Meetings of Stockholders may elect in writing to be granted a
nonstatutory stock option in lieu of all cash compensation to which
such Outside Director would otherwise be entitled for the period
commencing with the date such person is elected to be an Outside
Director of the Company by the Board and ending on the date of the
next Annual Meeting of Stockholders. The date such person is elected
to be an Outside Director of the Company by the Board shall be the
date of grant for such options granted pursuant to this
subparagraph 6(a)(v). The number of Common Shares covered by each such
option shall be 6,000 multiplied by a fraction, the numerator of which
shall be 12 minus the number of whole 30-day months that have elapsed
from the date of the most recent Annual Meeting of Stockholders to the
date such person is elected to be an Outside Director, and the
denominator of which shall be 12. Such election by an Outside Director
shall be subject to prior approval by the Committee.
(b) The purchase price of each Common Share subject to an option
granted to an Outside Director pursuant to this paragraph 6 shall be the
Fair Market Value of a Common Share on the date of grant.
(c)(i) Subject to the provisions of paragraphs 6(d) and 6(e)
hereof, (x) options granted to Outside Directors pursuant to subparagraph
6(a)(ii) and (iv) and (y) options granted to Outside Directors pursuant to
subparagraph 6(a)(i) if the date of grant of such options is the date of an
Annual Meeting of Stockholders shall vest and become exercisable in
accordance with the following schedule:
<TABLE>
<CAPTION>
Annual Meeting Cumulative Percentage
of Stockholders Becoming Exercisable
--------------- --------------------
<S> <C>
One Year After Grant 50%
Two Years After Grant 100%
</TABLE>
(ii) Subject to the provisions of paragraph 6(d) and 6(e) hereof,
(x) the options granted to Outside Directors pursuant to subparagraphs
6(a)(iii) and (v) and (y) options granted to Outside Directors
pursuant to subparagraph 6(a)(i) if the date of grant of such options
is a date other than the date of an Annual Meeting of Stockholders
shall vest and become exercisable in accordance with the following
schedule:
<TABLE>
<CAPTION>
Anniversary of the Cumulative Percentage
Date of Grant Becoming Exercisable
--------------- --------------------
<S> <C>
One Year After Grant 50%
Two Years After Grant 100%
</TABLE>
A-5
<PAGE>
(d) Notwithstanding the vesting schedules set forth in paragraph 6(c)
hereof, an option held by an Outside Director shall vest and become
immediately exercisable upon the latest of (i) the date on which such
Outside Director attains 62 years of age, (ii) the date on which such
Outside Director has completed five years of Service (as hereinafter
defined) and (iii) the first anniversary of the date of grant of such
option or, if applicable, the Annual Meeting of Stockholders next
succeeding the Annual Meeting at which such option was granted. Any option
granted to an Outside Director on or after the first accelerated vesting
date for such Outside Director shall automatically vest on the Annual
Meeting of Stockholders next succeeding the Annual Meeting at which such
option was granted. As used herein, "Service" shall mean service to the
Company or any subsidiary thereof in the capacity of any advisor,
consultant, employee, officer or director, and Service as a director from
an Annual Meeting of Stockholders to the next succeeding Annual Meeting
shall constitute a year of Service, notwithstanding that such period may
actually be more or less than one year.
(e) Each option granted to an Outside Director pursuant to this
paragraph 6 and all rights to purchase shares thereunder shall terminate on
the earliest of:
(i) ten years after the date such option is granted;
(ii) the expiration of the period specified in paragraph 8(b) or
8(c), whichever is applicable, after an Outside Director ceases to be
a director of the Company; or
(iii) the date, if any, fixed for cancellation pursuant to
paragraph 9 of this Plan.
In no event shall such option be exercisable at any time after its original
expiration date. When an option is no longer exercisable, it shall be deemed to
have lapsed or terminated and will no longer be outstanding.
7. MANNER OF EXERCISING OPTIONS. A person entitled to exercise an option
granted under this Plan may, subject to its terms and conditions and the terms
and conditions of this Plan, exercise it in whole at any time, or in part from
time to time, by delivery to the Company at its principal executive office, to
the attention of its President, of written notice of exercise, specifying the
number of shares with respect to which the option is being exercised,
accompanied by payment in full of the purchase price of the shares to be
purchased at the time. The purchase price of each share on the exercise of any
option shall be paid in full in cash (including check, bank draft or money
order) at the time of exercise or, at the discretion of the holder of the
option, by delivery to the Company of unencumbered Common Shares having an
aggregate Fair Market Value on the date of exercise equal to the purchase price,
or by a combination of cash and such unencumbered Common Shares. Provided,
however, that a person exercising a stock option shall not be permitted to pay
any portion of the purchase price with stock if, in the opinion of the
Committee, payment in such manner could have adverse financial accounting
consequences for the Company. No shares shall be issued until full payment
therefor has been made, and the granting of an option to an individual shall
give such individual no rights as a stockholder except as to shares issued to
such individual.
A-6
<PAGE>
8. TRANSFERABILITY AND TERMINATION OF OPTIONS.
(a) During the lifetime of an optionee, only such optionee or his or
her guardian or legal representative may exercise options granted under
this Plan, and no option granted under this Plan shall be assignable or
transferable by the optionee otherwise than by will or the laws of descent
and distribution or pursuant to a domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act
("ERISA"), or the rules thereunder; provided, however, that any optionee
may transfer a nonstatutory stock option granted under this Plan to a
member or members of his or her immediate family (i.e., his or her
children, grandchildren and spouse) or to one or more trusts for the
benefit of such family members or partnerships in which such family members
are the only partners, if (i) the option agreement with respect to such
options, which must be approved by the Committee, expressly so provides
either at the time of initial grant or by amendment to an outstanding
option agreement and (ii) the optionee does not receive any consideration
for the transfer. Any options held by any such transferee shall continue
to be subject to the same terms and conditions that were applicable to such
options immediately prior to their transfer and may be exercised by such
transferee as and to the extent that such option has become exercisable and
has not terminated in accordance with the provisions of the Plan and the
applicable option agreement. For purposes of any provision of this Plan
relating to notice to an optionee or to vesting or termination of an option
upon the death, disability or termination of employment of an optionee, the
references to "optionee" shall mean the original grantee of an option and
not any transferee.
(b) During the lifetime of an optionee, an option may be exercised
only while the optionee is employed by the Company or a parent or
subsidiary thereof, and only if such optionee has been continuously so
employed since the date the option was granted, except that:
(i) unless otherwise provided in a stock option agreement, an
option granted to an optionee who is not an Outside Director shall
continue to be exercisable for three months after termination of such
optionee's employment but, unless otherwise provided in a stock option
agreement, only to the extent that the option was exercisable
immediately prior to such optionee's termination of employment, and
unless otherwise provided in a stock option agreement, an option
granted to an optionee who is an Outside Director shall continue to be
exercisable after such Outside Director ceases to be a director of the
Company but, unless otherwise provided in a stock option agreement,
only to the extent that the option was exercisable immediately prior
to such Outside Director's ceasing to be a director;
(ii) in the case of an optionee who is disabled (within the
meaning of Section 22(e)(3) of the Code) while employed, the option
granted to such optionee may be exercised within one year after
termination of such optionee's employment; and
A-7
<PAGE>
(iii) as to any optionee whose termination occurs following a
declaration pursuant to paragraph 9 of this Plan, the option granted
to such optionee may be exercised at any time permitted by such
declaration.
(c) An option may be exercised after the death of the optionee, but
only within one year after the death of such optionee.
(d) In the event of the disability (within the meaning of
Section 22(e)(3) of the Code) or death of an optionee, any option granted
to such optionee that was not previously exercisable shall become
immediately exercisable in full if the disabled or deceased optionee shall
have been continuously employed by the Company or a parent or subsidiary
thereof between the date such option was granted and the date of such
disability, or, in the event of death, a date not more than three months
prior to such death.
9. DISSOLUTION, LIQUIDATION, MERGER. In the event of (a) a proposed merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, unless appropriate provision
shall have been made for the protection of the outstanding options granted under
this Plan by the substitution, in lieu of such options, of options to purchase
appropriate voting common stock (the "Survivor's Stock") of the corporation
surviving any such merger or consolidation or, if appropriate, the parent
corporation of the Company or such surviving corporation, or, alternatively, by
the delivery of a number of shares of the Survivor's Stock which has a Fair
Market Value as of the effective date of such merger or consolidation equal to
the product of (i) the excess of (x) the Event Proceeds per Common Share (as
hereinafter defined) covered by the option as of such effective date, over
(y) the option price per Common Share, times (ii) the number of Common Shares
covered by such option, or (b) the proposed dissolution or liquidation of the
Company (such merger, consolidation, dissolution or liquidation being herein
called an "Event"), the Committee shall declare, at least ten days prior to the
actual effective date of an Event, and provide written notice to each optionee
of the declaration, that each outstanding option, whether or not then
exercisable, shall be cancelled at the time of, or immediately prior to the
occurrence of, the Event (unless it shall have been exercised prior to the
occurrence of the Event) in exchange for payment to the holder of each cancelled
option, within ten days after the Event, of cash equal to the amount (if any),
for each Common Share covered by the cancelled option, by which the Event
Proceeds per Common Share (as hereinafter defined) exceeds the exercise price
per Common Share covered by such option. At the time of the declaration provided
for in the immediately preceding sentence, each option shall immediately become
exercisable in full and each holder of an option shall have the right, during
the period preceding the time of cancellation of the option, to exercise his or
her option as to all or any part of the Common Shares covered thereby. Each
outstanding option granted pursuant to this Plan that shall not have been
exercised prior to the Event shall be cancelled at the time of, or immediately
prior to, the Event, as provided in the declaration, and this Plan shall
terminate at the time of such cancellation, subject to the payment obligations
of the Company provided in this paragraph 9. For purposes of this paragraph,
"Event Proceeds per Common Share" shall mean the cash plus the fair market
value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Common Share by the stockholders of the Company
upon the occurrence of the Event.
A-8
<PAGE>
10. SUBSTITUTION OPTIONS. Options may be granted under this Plan from time to
time in substitution for stock options held by employees of other corporations
who are about to become employees of the Company or a subsidiary of the Company,
or whose employer is about to become a subsidiary of the Company, as the result
of a merger or consolidation of the Company or a subsidiary of the Company with
another corporation, the acquisition by the Company or a subsidiary of the
Company of all or substantially all the assets of another corporation or the
acquisition by the Company or a subsidiary of the Company of at least 50% of the
issued and outstanding stock of another corporation. The terms and conditions of
the substitute options so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Board at the time of the grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to stock
options which are incentive stock options, no such variation shall be permitted
which affects the status of any such substitute option as an incentive stock
option under Section 422A of the Code.
11. TAX WITHHOLDING. Delivery of Common Shares upon exercise of any
nonstatutory stock option granted under this Plan shall be subject to any
required withholding taxes. A person exercising such an option may, as a
condition precedent to receiving the Common Shares, be required to pay the
Company a cash amount equal to the amount of any required withholdings. In lieu
of all or any part of such a cash payment, the Committee may, but shall not be
required to, permit the 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 such optionee's full FICA and federal, state and local income
tax liability with respect to income arising from the exercise of the option,
through a reduction of the number of Common Shares delivered to the person
exercising the option or through a subsequent return to the Company of shares
delivered to the person exercising the option.
12. TERMINATION OF EMPLOYMENT. Neither the transfer of employment of an
optionee between any combination of the Company, a parent corporation or a
subsidiary thereof, nor a leave of absence granted to such optionee and approved
by the Committee, shall be deemed a termination of employment for purposes of
this Plan. The terms "parent" or "parent corporation" and "subsidiary" as used
in this Plan shall have the meaning ascribed to "parent corporation" and
"subsidiary corporation", respectively, in Sections 424(e) and (f) of the Code.
13. OTHER TERMS AND CONDITIONS. The Committee shall have the power, subject to
the other limitations contained herein, to fix any other terms and conditions
for the grant or exercise of any option under this Plan. Nothing contained in
this Plan, or in any option granted pursuant to this Plan, shall confer upon any
optionee any right to continued employment by the Company or any parent or
subsidiary of the Company or limit in any way the right of the Company or any
such parent or subsidiary to terminate an optionee's employment at any time.
14. OPTION AGREEMENTS. All options granted under this Plan shall be evidenced
by a written agreement in such form or forms as the Committee may from time to
time determine, which agreement shall, among other things, designate whether the
options being granted thereunder are nonstatutory stock options or incentive
stock options under Section 422 of the Code.
15. AMENDMENT AND DISCONTINUANCE OF PLAN. The Board may at any time amend,
suspend or discontinue this Plan; provided, however, that no amendment by the
Board shall, without further
A-9
<PAGE>
approval of the Stockholders of the Company, if required in order for the Plan
to continue to meet the requirements of the Code:
(a) change the persons eligible to receive options;
(b) except as provided in paragraph 3 hereof, increase the total number of
Common Shares of the Company which may be made subject to options granted
under this Plan;
(c) except as provided in paragraph 3 hereof, change the minimum purchase
price for the exercise of an option; or
(d) extend the term of this Plan beyond December 1, 2006
[November 24, 2008 as proposed to be amended]
No amendment to this Plan shall, without the consent of the holder of the
option, alter or impair any options previously granted under this Plan.
16. EFFECTIVE DATE. This Plan shall be effective July 26, 1989.
A-10
<PAGE>
<TABLE>
<C> <S> <C>
DIGI INTERNATIONAL INC. THIS PROXY IS SOLICITED ON BEHALF
[LOGO] 11001 BREN ROAD EAST OF THE BOARD OF DIRECTORS
MINNETONKA, MINNESOTA 55343 The undersigned hereby appoints
John P. Schinas and Jerry A. Dusa,
and each of
them, as Proxies, each with the
power to appoint his substitute,
and hereby authorizes such Proxies
to represent and to vote, as
designated below, all the shares of
Common Stock of Digi International
Inc. held of record by the
undersigned on December 11, 1998,
at the Annual Meeting of
Stockholders to be held on January
27, 1999, or any adjournment
thereof.
</TABLE>
PROXY
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS. Nominees to the Board of Directors are Robert S. Moe and John P. Schinas. All nominees will serve
for a term of three years.
/ / FOR ALL NOMINEES LISTED ABOVE / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed above
(INSTRUCTION: To withhold authority to vote for any individual nominee, write the nominee's name in the space provided below.)
2. AMENDMENT OF THE DIGI INTERNATIONAL INC. STOCK OPTION PLAN (THE "PLAN") to reserve 700,000 additional shares of Common
Stock for future awards and to extend the expiration date and the Plan from December 1, 2006 to November 24, 2008.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Dated: ------------------------------
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
