<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12.
DIGI INTERNATIONAL INC.
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
952/912-3444
December 21, 2000
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 24, 2001.
The Secretary's Notice of Annual Meeting and the Proxy Statement which
follow describe the matters to come before the meeting. During the meeting, we
will also review the activities of the past year and items of general interest
about the Company.
We hope that you will be able to attend the meeting in person and we look
forward to seeing you. Please mark, date and sign the enclosed proxy and return
it in the accompanying postage-paid reply envelope as quickly as possible, even
if you plan to attend the Annual Meeting. If you later desire to revoke the
proxy, you may do so at any time before it is exercised.
Sincerely,
/s/ Joseph T. Dunsmore
Joseph T. Dunsmore
Chairman of the Board
<PAGE> 3
DIGI INTERNATIONAL INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JANUARY 24, 2001
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 24, 2001 for the following
purposes:
1. To elect one director for a one-year term and two directors for a
three-year term.
2. To approve the Digi International Inc. 2000 Omnibus Stock Plan, which
provides eligible participants the opportunity to receive stock-based awards.
3. To ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants of the Company for the fiscal year ending September 30, 2001.
4. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed December 8, 2000 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
December 21, 2000
<PAGE> 4
------------------------
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 24, 2001 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 8, 2000 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
(952) 912-3444. The mailing of this Proxy Statement and form of proxy to
stockholders will commence on or about December 21, 2000.
Stockholder proposals intended to be presented at the 2002 Annual Meeting
of Stockholders must be received by the Company at its principal executive
office no later than August 23, 2001 for inclusion in the Proxy Statement for
that meeting. Any other stockholder proposals for the Company's 2002 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 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 2001 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.
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
1
<PAGE> 5
authority to vote for the election of directors 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 8, 2000 there were 15,187,743 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 8, 2000, 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:
Bruce H. Berger 0 *
Joseph T. Dunsmore 19,500(2) *
Richard E. Eichhorn 119,750(3) *
Douglas J. Glader 205,532(4) 1.3%
Subramanian Krishnan 82,240(5) *
Kenneth E. Millard 7,500(6) *
Robert S. Moe 76,875(7) *
Mykola Moroz 134,536(8) *
John P. Schinas 1,401,352(9) 9.2%
Michael Seedman 0 *
David Stanley 102,250(10) *
James Tucker 0 *
All directors, nominees and executive
officers as a group (12 persons, including
those named above) 2,149,535(11) 13.6%
Other beneficial owners:
Dimensional Fund Advisors Inc. 1,279,550(12) 8.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
------------------------------
* Less than one percent.
(1) Unless otherwise indicated in footnote below, the listed beneficial owner
has sole voting power and investment power with respect to such shares.
(2) Includes 15,000 shares covered by options which are exercisable within 60
days of the record date.
(3) Includes 85,500 shares covered by options which are exercisable within 60
days of the record date.
(4) Includes 166,046 shares covered by options which are exercisable within 60
days of the record date. Includes 4,200 shares held by Mr. Glader's
spouse's IRA. Mr. Glader disclaims beneficial ownership for the shares
held by his spouse's IRA.
(5) Includes 66,770 shares covered by options which are exercisable within 60
days of the record date.
(6) Includes 7,500 shares covered by options which are exercisable within 60
days of the record date.
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<PAGE> 6
(7) Includes 36,875 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.
(8) Includes 127,000 shares covered by options which are exercisable within 60
days of the record date.
(9) Mr. Schinas' address is P.O. Box 187, Rangeley, Maine 04970.
(10) Includes 85,500 shares covered by options which are exercisable within 60
days of the record date.
(11) Includes 342,375 shares covered by options which are exercisable within 60
days of the record date held by five non-employee directors of the Company
and 247,816 shares covered by options which are exercisable within 60 days
of the record date held by three executive officers of the Company.
(12) Based on information received by the Company on November 15, 2000 from
Dimensional Fund Advisors Inc. ("Dimensional"). Dimensional, an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment manager
to certain other investment vehicles, including commingled group trusts.
In its role as investment advisor and investment manager, Dimensional
possessed both voting and investment power over 1,279,550 shares of the
Company's stock as of September 30, 2000. Such shares are owned by
Dimensional's portfolios and Dimensional claims beneficial ownership for
the shares held by the portfolios.
3
<PAGE> 7
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 as
nearly equal in number as possible, and directors of one class are elected each
year for a term of three years. Each class consists of at least one director.
The Board of Directors has fixed at three the number of directors to be elected
to the Board at the 2001 Annual Meeting of Stockholders and has nominated the
three persons named below for election as directors. The Board has nominated Mr.
Moroz to stand for election for a one-year term. Proxies solicited by the Board
of Directors will, unless otherwise directed, be voted to elect the three
nominees named below.
Each of the nominees named below is currently a director of the Company,
and each has indicated a willingness to serve as a director. 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 2001 Annual
Meeting:
DIRECTOR NOMINEE FOR TERM EXPIRING IN 2002:
Mykola Moroz, age 63
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.
DIRECTOR NOMINEES FOR TERM EXPIRING IN 2004:
Michael Seedman, age 44
Mr. Seedman has been a member of the Board of Directors of the Company
since October 2000. Since February 1999, Mr. Seedman has been a private
investor. Mr. Seedman founded Entegra Technologies, a telecommunications
company, and pursued non-business interests from October 1997 to January 1999.
From 1993 to September 1997, he served as Vice President, General Manager of the
Personal Communications Division of U.S. Robotics. He founded Practical
Peripherals, Inc. in 1982 and continued to serve as President after it was
acquired in 1989 until July 1993. Mr. Seedman also serves as a director of
Western Multiplex Corporation, Wave Systems Corp. and three private companies.
James Tucker, age 44
Mr. Tucker has been a member of the Board of Directors of the Company since
October 2000. He has been the Vice President of Global Business Development for
Open Port Technology, Inc., a telecommunications company, since January 2000.
From July 1997 to December 1999, Mr. Tucker served as Director of Strategic
Sales Initiatives for 3COM Corporation, a telecommunications company. From April
1994 to June 1997, he was Director of Sales for the Network Systems Division of
U.S. Robotics. Before that, he held various sales, marketing and general
management positions at IBM Corporation from 1976 to 1994.
DIRECTORS WHOSE TERMS EXPIRE AFTER 2001:
Joseph T. Dunsmore, age 42
Mr. Dunsmore joined the Company in October 1999, as President and Chief
Executive Officer and a member of the Board of Directors and was elected
Chairman of the Board in May 2000. Prior to joining the Company, Mr. Dunsmore
had been Vice President of Access for Lucent Microelectronics, a
telecommunications company, since June 1999. From October 1998 to June 1999, he
acted as an independent consultant to various high technology companies. From
February 1998 to October 1998, Mr. Dunsmore was Chief
4
<PAGE> 8
Executive Officer of NetFax, Inc., a telecommunications company. From October
1995 to February 1998, he held executive management positions at US Robotics and
then at 3COM after 3COM acquired US Robotics in June 1997. Prior to that, Mr.
Dunsmore held various marketing management positions at AT&T Paradyne
Corporation since May 1983.
Kenneth E. Millard, age 54
Mr. Millard has been a member of the Board of Directors of the Company
since October 1999. He has been the President and Chief Operating Officer of
Telular Corporation, a telecommunications company, since April 1996. Mr. Millard
served as the President and Chief Operating Officer of Oncor Communications, a
telecommunications company, from February 1992 to January 1996. Prior to that,
he held various executive management positions at Ameritech Corporation and
worked as an attorney for AT&T and Wisconsin Bell. Mr. Millard continues to
serve as a director of Telular and also serves as a director of two private
corporations.
Robert S. Moe, age 70
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.
David Stanley, age 65
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.
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 thirteen times during fiscal 2000. All directors
attended at least 75% of the meetings of the Board and of the Committees on
which they served held during fiscal 2000, except Mr. Moe. 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. All members of the Audit Committee are "independent" as that term is
defined in the applicable listing standards of The Nasdaq Stock Market. The
Audit Committee oversees the Company's financial reporting process by, among
other things, reviewing and reassessing the Audit Committee Charter annually,
recommending and taking action to oversee the independence of the independent
accountants and selecting and appointing the independent accountants. The Audit
Committee met four times during fiscal 2000. The responsibilities of the Audit
Committee are set forth in the Audit Committee Charter, adopted by the Company's
Board of Directors on January 25, 2000, a copy of which is included as Exhibit A
to this Proxy Statement.
Compensation Committee
The Company has a Compensation Committee consisting of Messrs. Eichhorn
(Chairman), Millard 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 Inc. Stock
Option Plan, the Digi International Inc. Non-Officer Stock Option Plan, the Digi
International Inc. Employee Stock
5
<PAGE> 9
Purchase Plan and, if approved by the stockholders at the 2001 Annual Meeting,
the Digi International Inc. 2000 Omnibus Stock Plan. The Compensation Committee
met fifteen times during fiscal 2000.
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.
Millard (Chairman), Stanley and Eichhorn, met twice in fiscal 2000.
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.
6
<PAGE> 10
REPORT OF THE AUDIT COMMITTEE
The role of the Company's Audit Committee, which is composed of three
independent non-employee directors, is one of oversight of the Company's
management and the Company's outside auditors in regard to the Company's
financial reporting and the Company's controls respecting accounting and
financial reporting. In performing its oversight function, the Audit Committee
relied upon advice and information received in its discussions with the
Company's management and independent auditors.
The Audit Committee has (i) reviewed and discussed the Company's audited
financial statements for the fiscal year ended September 30, 2000 with the
Company's management; (ii) discussed with the Company's independent auditors the
matters required to be discussed by Statement on Auditing Standards No. 61
regarding communication with audit committees (Codification of Statements on
Auditing Standards, AU sec. 380); and (iii) received the written disclosures and
the letter from the Company's independent accountants required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and has discussed with the Company's independent accountants the independent
accountants' independence.
Based on the review and discussions with management and the Company's
independent auditors referred to above, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2000 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
David Stanley, Chairman
Robert S. Moe
Mykola Moroz
7
<PAGE> 11
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 2000.
Compensation Philosophy
The Company has historically implemented 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 salary of the Company's Chief Executive
Officer is below average relative to its national and regional peer companies
and that the base salaries of other executive officers are average. However, if
the cash bonus targets are fully achieved, the Chief Executive Officer of the
Company is able to earn total cash compensation that is slightly below average
relative to these peer companies as a group, and the other executive officers
are able to earn total cash compensation that is above average. 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 generally 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.
The Committee also recognizes that competition is intense for qualified
executives in the data communications field and that the Company needs to remain
flexible and responsive to individual circumstances in order to attract and
retain talented senior management.
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
2000, 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. For fiscal 2001, the base salaries of all
executive officers will remain unchanged from the prior year.
Mr. Schinas received $78,460 in fiscal 2000, based on his annual base
salary of $100,000 for his service as Chairman of the Board, which was increased
to $250,000 for the period from February 9, 1999 to October 24, 1999 when he
also served as Interim President and Chief Executive Officer.
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<PAGE> 12
The Company entered into employment agreements with certain executive
officers 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.
At the outset of the 2000 fiscal year, the Committee established Company-wide
financial objectives upon which 75% of the cash bonuses for Messrs. Glader and
Krishnan were based, with the remaining 25% based upon personal performance
goals. Cash bonus targets for Messrs. Glader and Krishnan were set at 100% of
base salary. In April 2000 the Committee determined to guarantee the bonuses of
Messrs. Glader and Krishnan for fiscal 2000 at 75% of their cash bonus target in
order to assist in retaining these executive officers and in response to
employment offers Messrs. Glader and Krishnan received from other companies. The
fiscal 2000 financial objectives were not met, and accordingly such executive
officers were not entitled to a cash bonus for fiscal 2000 except to the extent
of the partial guarantees. In fiscal 2000, Mr. Dunsmore received a guaranteed
bonus of $260,000 pursuant to the terms of his employment agreement and Mr.
Berger received a guaranteed bonus of $75,000 pursuant to the terms of his
employment offer letter. Messrs. Dunsmore and Berger joined the Company during
the course of fiscal 2000. Mr. Schinas did not receive a bonus in fiscal 2000.
The Committee has set criteria for achievement of cash bonuses in fiscal
2001 by the executive officers based upon the achievement of Company-wide
financial goals. For fiscal 2001, the Committee set the bonus target for Messrs.
Glader and Krishnan at 100% of base salary. Mr. Dunsmore's bonus target for
fiscal 2001 is 100% of base salary under his employment agreement and Mr.
Berger's bonus target for fiscal 2001 is 90% of base salary under his employment
agreement. If all of the objectives are not met, the executives will not receive
bonuses, subject to the Compensation Committee's authority to award bonuses in
its discretion. The cash bonus plan for fiscal 2001 also provides for a sliding
scale for greater bonuses if the bonus objectives are exceeded. At the maximum
end of the scale, if 110% of the bonus objectives are achieved, the bonus payout
increases to 125% of the amount of the bonus targets. If the Company achieves
greater than 110% of the bonus objectives, the Committee has discretion to
determine whether bonus amounts in excess of 125% of the amount of the bonus
targets will be paid. In fiscal 2001 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 generally 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. If the Company's 2000 Omnibus Stock Plan (the "Omnibus
Plan") is approved at the 2001 Annual Meeting, the Committee will administer the
grant of stock-based incentive awards under the Omnibus Plan according to the
same philosophy.
During 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 2000, Mr. Dunsmore was granted options to purchase 240,000
shares, Messrs. Glader and Krishnan were each granted options to purchase
110,000 shares and Mr. Berger was granted options to purchase 75,000 shares at
prices ranging from $5.75 per share to $14.625 per share (each at the fair
market value on the date of the grant).
9
<PAGE> 13
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 (other than interns, temporary employees, certain
part-time employees and certain other excluded categories of employees) who is
at least 18 years of age to contribute up to 15 percent of his or her earnings
to the 401-K Plan. Eligible employees can begin contributing on the first day of
the month following their date of hire. The participant's contributions are
subject to an annual maximum imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), which was $10,500 in 2000 and also will be $10,500 in
2001. 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, 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 profit sharing contributions for a
year, the participant must be employed by the Company on December 31 of that
year and must have completed at least 1,000 hours of service during the year.
Matching contributions are made each pay period for those employees who are
active participants on the last day of the pay period, based on the
contributions made by the employee during that pay period. For 2000, the Company
matched contributions dollar for dollar on contributions up to 3% of the
participant's salary, with an annual maximum for any participant of $2,500. The
Company will make the same matching contribution for 2001.
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 2000 the members of the Committee
were Richard E. Eichhorn (Chairman), Kenneth E. Millard and Robert S. Moe.
Willis K. Drake also served on the Committee until his term as a director ended
on January 26, 2000. The Committee members have no interlocking relationships as
defined by the Securities and Exchange Commission.
COMPENSATION COMMITTEE
Richard E. Eichhorn, Chairman
Kenneth E. Millard
Robert S. Moe
10
<PAGE> 14
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning
annual and long-term compensation for the fiscal years ended September 30, 2000,
1999, and 1998 provided to the individuals who served as Chief Executive Officer
during fiscal 2000 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, 2000.
<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>
John P. Schinas, Interim President 2000 $ 78,460 $ 0 0 $ 1,085
and Chief Executive Officer(1) 1999 204,186 0 0 3,159
1998 100,340 0 0 625
Joseph T. Dunsmore, President, 2000 239,808 260,000 240,000 3,379
Chief Executive Officer(2)
Douglas J. Glader, Executive Vice 2000 232,789 168,750 110,000 131,917
President and General Manager of 1999 193,242 147,288 60,000 7,455
MiLAN Technology(3) 1998 159,597 169,752 30,000 1,039
Subramanian Krishnan, Senior Vice 2000 207,000 150,000 110,000 3,495
President, Chief Financial Officer and 1999 122,019 108,000 85,000 4,697
Treasurer(4)
Bruce H. Berger, Vice President 2000 87,692 75,000 75,000 51,131
and Managing Director of European
Operations(5)
</TABLE>
------------------------------
(1) Mr. Schinas served as Chairman of the Board of Directors from July 1991
until May 5, 2000. Mr. Schinas served as Interim President and Chief
Executive Officer from February 9, 1999 until his replacement by Mr.
Dunsmore on October 24, 1999. Amounts included in All Other Compensation
for Mr. Schinas include the Company's matching contributions to the 401-K
Plan allocated to Mr. Schinas' account.
(2) Mr. Dunsmore joined the Company as President and Chief Executive Officer,
and a director, on October 24, 1999 and became Chairman of the Board of
Directors on May 5, 2000. Amounts included in All Other Compensation for
Mr. Dunsmore include term life insurance premiums of $485 paid for Mr.
Dunsmore, reimbursement for relocation expenses of $2,565 incurred in
connection with his employment by the Company and reimbursement of Mr.
Dunsmore's tax liability of $329 resulting from the relocation expense
reimbursement.
(3) Mr. Glader joined the Company in 1994 serving in various executive
management positions and he became Executive Vice President and Chief
Operating Officer in April 1999. He became Executive Vice President and
General Manager of MiLAN Technology on May 8, 2000 and continues to hold
such office. Amounts included in All Other Compensation for Mr. Glader for
2000 include the Company's matching contribution to the 401-K Plan of
$2,500 allocated to Mr. Glader's account, term life insurance premiums of
$1,675 paid for Mr. Glader, cash in lieu of accrued vacation over three
years of service of $46,152, imputed interest of $4,705 related to an
interest-free loan made to Mr. Glader in connection with his relocation,
reimbursement for relocation expenses of $24,727 incurred in connection
with his employment by the Company, housing allowance payments of $16,963
and reimbursement of Mr. Glader's tax liability of $35,195 resulting from
the relocation expense reimbursement and housing allowance payments paid to
Mr. Glader. Amounts for 1999 include the Company's matching contribution to
the 401-K Plan of $5,780 to Mr. Glader's account and term life insurance
premiums of $1,675 paid for Mr. Glader. Amounts for 1998 include the
Company's matching contribution to the 401-K Plan to Mr. Glader's account.
11
<PAGE> 15
(4) Mr. Krishnan joined the Company as Vice President of Worldwide Finance and
Corporate Development in January 1999 and became Senior Vice President,
Chief Financial Officer and Treasurer in February 1999. Amounts included in
All Other Compensation for Mr. Krishnan for 2000 include the Company's
matching contribution to the 401-K Plan of $2,500 allocated to Mr.
Krishnan's account and term life insurance premiums of $995 paid for Mr.
Krishnan. The amounts for 1999 include the Company's matching contribution
to the 401-K Plan of $3,702 allocated to Mr. Krishnan's account and term
life insurance premiums of $995 paid for Mr. Krishnan.
(5) Mr. Berger joined the Company as Vice President and Managing Director of
European Operations in May 2000. Amounts represented in All Other
Compensation for Mr. Berger include the Company's matching contribution to
the 401-K Plan of $2,192 allocated to Mr. Berger's account, term life
insurance premiums of $380 paid for Mr. Berger, reimbursement for
relocation expenses of $24,127 incurred in connection with his employment
by the Company, vehicle allowance payments of $2,650, reimbursement of
incidental expenses of $3,356 and reimbursement of Mr. Berger's tax
liability of $18,426 resulting from the relocation expense reimbursement,
vehicle allowance payments and incidental expense reimbursement paid to Mr.
Berger.
12
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERMS (1)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------------------
NAME (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
----------------------------------------- ---------- ---------- -------- ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Joseph T. Dunsmore....................... 240,000(2) 21.7173% $12.000 10/23/09 $0 $ 1,809,963 $ 4,586,078
Douglas J. Glader........................ 25,000(3) 2.1581 14.625 11/10/09 0 229,940 582,712
Douglas J. Glader........................ 85,000(4) 7.3374 7.125 04/20/10 0 380,874 965,210
Subramanian Krishnan..................... 25,000(3) 2.1581 14.625 11/10/09 0 229,940 582,712
Subramanian Krishnan..................... 85,000(5) 7.3374 5.750 04/27/10 0 307,372 778,942
Bruce H. Berger.......................... 75,000(6) 6.4742 7.125 04/20/10 0 336,066 851,656
---------------------------------------------------------------------------------------------------------------------------------
</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, which benefits all stockholders
commensurately.
(2) These options become exercisable in four segments, each consisting of
60,000 shares. The first segment vests in four equal increments of 15,000
shares on October 23rd of 2000, 2001, 2002 and 2003, provided that if the
average per share closing price of the Company's stock equals or exceeds
$15.00 for 60 consecutive calendar days the first segment will vest in full
immediately. The second segment vests in four equal increments of 15,000
shares on each of the second through fifth anniversaries of the date of
grant, provided that if the average per share closing price of the
Company's stock equals or exceeds $20.00 for 60 consecutive calendar days
the second segment will vest in full immediately. The third segment vests
in four equal installments of 15,000 shares on each of the third through
sixth anniversaries of the date of grant, provided that if the per share
closing price of the Company's stock equals or exceeds $25.00 for 60
consecutive calendar days the third segment will vest in full immediately.
The fourth segment vests in four equal increments of 15,000 shares on each
of the fourth through seventh anniversaries of the date of grant, provided
that if the average per share closing price of the Company's stock equals
or exceeds $30.00 for 60 consecutive calendar days the fourth segment will
vest in full immediately.
(3) These options became exercisable as to all of the shares on October 1,
2000.
(4) These options become exercisable as to 21,250 shares on April 20, 2001, and
as to the remaining 63,750 shares covered by the option in equal
installments over the next 36 months beginning on May 20, 2001.
(5) These options become exercisable as to 21,250 shares on April 27, 2001, and
as to the remaining 63,750 shares covered by the option in equal
installments over the next 36 months beginning on May 27, 2001.
(6) These options become exercisable as to 18,750 shares on April 20, 2001, and
as to the remaining 56,250 shares covered by the option in equal
installments over the next 36 months beginning on May 20, 2001.
13
<PAGE> 17
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 2000 and any value of their unexercised
stock options as of September 30, 2000. The Named Officers did not exercise
stock options in fiscal 2000 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 UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END AT FY-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John P. Schinas.............. 0 $ 0 0 0 $ 0 $ 0
Joseph T. Dunsmore........... 0 0 0 240,000 0 0
Douglas J. Glader............ 0 0 135,630 176,770 75,510 14,231
Subramanian Krishnan......... 0 0 34,689 160,311 209,044 18,621
Bruce H. Berger.............. 0 0 0 75,000 0 56,250
</TABLE>
------------------------------
(1) Value is based on a share price of $7.875, which was the last reported sale
price for a share of Common Stock on the Nasdaq National Market System on
September 29, 2000, minus the exercise price.
14
<PAGE> 18
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
John P. Schinas. Until his resignation as Chairman of the Board on May 5,
2000, the Company and Mr. Schinas were parties to an employment agreement
pursuant to which Mr. Schinas served as Chairman of the Board for an annual base
salary of $100,000. The agreement also gave the Company discretion to grant Mr.
Schinas incentive compensation.
Joseph T. Dunsmore. The Company and Mr. Dunsmore are parties to an
employment agreement entered into on October 24, 1999 relating to Mr. Dunsmore's
election as President and Chief Executive Officer of the Company. The agreement
provides that Mr. Dunsmore would be paid an annual base salary of $250,000.
Beginning on October 1, 2000, the Committee will review Mr. Dunsmore's base
salary annually and may, in its sole discretion, increase it to reflect
performance and other factors. Mr. Dunsmore's annual base salary will remain
$250,000 in fiscal 2001. The agreement also provides that during fiscal 2000 Mr.
Dunsmore was entitled to a guaranteed cash bonus of $260,000. Beginning with
fiscal 2001, Mr. Dunsmore is entitled to a cash bonus equal to 100% of his based
salary, provided that the objectives set by the Committee 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. Dunsmore. If the objectives set by the Committee for a cash
performance bonus are exceeded for a fiscal year, the Committee may, in it
discretion, award Mr. Dunsmore a bonus that is larger than the target bonus.
Pursuant to his employment agreement, on October 23, 1999, the Company
issued Mr. Dunsmore stock options to purchase an aggregate of 240,000 shares of
the Company's Common Stock on the date of his employment agreement at fair
market value on the date of grant. The options consist of four 60,000 share
segments. The first segment vests in four equal increments of 15,000 shares on
each of the first through fourth anniversaries of the date of grant, provided
that if the average per share closing price of the Company's Common Stock equals
or exceeds $15.00 for 60 consecutive calendar days the first segment will vest
in full immediately. The second segment vests in four equal increments of 15,000
shares on each of the second through fifth anniversaries of the date of grant,
provided that if the average per share closing price of the Company's Common
Stock equals or exceeds $20.00 for 60 consecutive calendar days the second
segment will vest in full immediately. The third segment vests in four equal
increments of 15,000 shares on each of the third through sixth anniversaries of
the date of grant, provided that if the average per share closing price of the
Company's Common Stock equals or exceeds $25.00 for 60 consecutive calendar days
the third segment will vest in full immediately. The fourth segment vests in
four equal installments of 15,000 shares on each of the fourth through seventh
anniversaries of the date of grant, provided that if the average per share
closing price of the Company's Common Stock equals or exceeds $30.00 for 60
consecutive calendar days the fourth segment will vest in full immediately. Mr.
Dunsmore's option grant 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
if any person or group acquires more than 25% of the voting power of the
Company, if there is a change in the membership of the Board of Directors, not
approved by the continuing directors, such that the persons who were directors
at the beginning of any three-year period no longer constitute a majority of the
Board or in the event of a merger or consolidation of the Company in which less
than 60% of the common stock of the surviving corporation is owned by the
Company's stockholders.
Pursuant to the agreement the Company paid Mr. Dunsmore's relocation
expenses and purchased his prior residence for the price he had paid for such
residence. The agreement also provides that Mr. Dunsmore 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. Dunsmore's employment agreement, if the Company
terminates his employment without cause, Mr. Dunsmore is entitled to receive his
then current base salary for a period of twenty-four months if such termination
occurs within six months of the date of his employment agreement, for a period
of eighteen months if such termination occurs after six months and before one
year from the date of his employment agreement and for a period of twelve months
if such termination occurs after one year from the date of his employment
agreement.
15
<PAGE> 19
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 upon annual review by the Committee was set at $170,000 for
fiscal 1998 and which was initially increased to $190,000 for fiscal 1999 and
further increased in fiscal 1999 to $200,000. Mr. Glader's base salary for
fiscal 2000 was increased to $225,000 and will remain $225,000 for fiscal 2001.
The Committee will continue to 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. Mr.
Glader was also granted additional options in fiscal 2000. In November 1999, Mr.
Glader was granted an option to purchase 25,000 shares of Common Stock of the
Company at the fair market value on the date of grant, vesting on October 1,
2000. In April 2000, Mr. Glader was granted an option to purchase 85,000 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. Dunsmore's option vesting. The options granted to him in April 2000 also
vest in full in the event of a sale of the Company's MiLAN business. In
connection with the change in Mr. Glader's duties from Executive Vice President
and Chief Operating Officer to Executive Vice President and General Manager of
MiLAN Technology, the 25,000 share option granted to Mr. Glader on May 3, 1999
immediately vested in full in accordance with the terms of the related option
agreement. 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.
In connection with Mr. Glader's agreement to return to California to become
Executive Vice President and General Manager of MiLAN Technology, the Committee
approved an agreement to pay Mr. Glader a housing allowance in response to the
significantly higher housing costs in the Bay Area of California. Pursuant to
the agreement, the Company will reimburse Mr. Glader for the difference between
his house payment in the Bay Area and his prior house payment in Minnesota,
which equals $8,482 per month. This payment, together with a payment equal to
the difference between his real estate property taxes in the Bay Area and his
real estate property taxes in Minnesota, will be paid until the earliest of the
date on which Mr. Glader sells his current California residence, the date on
which Mr. Glader ceases to be an employee of the Company or the first date on
which Mr. Glader is both free to trade and legally entitled to sell shares of
the Company's Common Stock that can be acquired under stock options granted to
Mr. Glader by the Company and the net profit from such sale after payment of
federal and state income taxes would be at least one million dollars. The
agreement also provides that the Company will reimburse Mr. Glader for any
federal and state income taxes imposed on the housing allowance and real estate
property tax payments made to Mr. Glader.
The agreement also provides that Mr. Glader will repay the Company $243,056
on or before January 26, 2001 for the interest-free loan he received from the
Company to cover approximately 50% of the down payment that was required upon
purchase of his home in California. The agreement also provides for
reimbursement of Mr. Glader's relocation expenses. Finally, the agreement also
obligates the Company to pay Mr. Glader severance equal to one year's base
salary and a bonus (if earned) that will be prorated for the portion of the
fiscal year through the termination date if he is terminated by the Company
without cause.
Subramanian Krishnan. The Company and Mr. Krishnan are parties to a letter
agreement dated March 26, 1999, as amended, which provides that if Mr.
Krishnan's employment is terminated by the Company without cause on or before
January 24, 2001, he will be entitled to receive severance equal to one year's
base salary and a bonus (if earned) that will be pro-rated for the portion of
the fiscal year through the termination date. Mr. Krishnan's annual base salary
for fiscal 1999 was $180,000 and was increased to $200,000 for fiscal 2000 and
will remain $200,000 for fiscal 2001. In November 1999, Mr. Krishnan was granted
an option to purchase 25,000 shares of Common Stock of the Company at the fair
market value on the date of grant, vesting on October 1, 2000. In April 2000,
Mr. Krishnan was granted an additional option to purchase 85,000 shares of
Common Stock of the Company at the fair market value on the date of grant,
vesting over four years. The options granted to Mr. Krishnan in February 1999
and April 2000 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
16
<PAGE> 20
occur under the same conditions as for purposes of Mr. Dunsmore's option
vesting. Mr. Krishnan also is entitled to the benefits and perquisites which the
Company generally provides to its other employees under applicable Company plans
and policies.
Bruce A. Berger. The Company is a party to a letter agreement with Mr.
Berger dated March 29, 2000, which provides that Mr. Berger will be paid an
annual base salary of $200,000. The letter agreement also provides that during
fiscal 2000 Mr. Berger is entitled to a guaranteed cash bonus of 90% of his base
salary, pro-rated for the period of his employment in fiscal 2000. Beginning
with fiscal 2001, Mr. Berger is entitled to a cash bonus equal to 90% of his
base salary, provided that the objectives set by the Committee are met.
Pursuant to the terms of the letter agreement, the Company issued Mr.
Berger stock options to purchase an aggregate of 75,000 shares of the Company's
Common Stock. The options were granted at fair market value on the date of
grant, vesting over four years. The options will also vest in full in the event
of his termination without cause or upon a "change in control" of the Company
which is deemed to occur under the same conditions as for purposes of the other
executive officers.
Pursuant to the letter agreement, the Company also paid Mr. Berger's
relocation expenses. The letter agreement also provides that Mr. Berger 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. Berger's employment agreement, if the Company
terminates his employment without cause after his repatriation to a United
States assignment, Mr. Berger is entitled to receive his then current base
salary for a period of six months and a pro-rated bonus payment based upon the
period he worked in the year and actual fiscal year performance of the target
objectives.
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, 2000.
17
<PAGE> 21
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, 1995 to September 30, 2000, the last
day of fiscal 2000, 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,
1995 for the Common Stock, the CRSP Index and the Peer Index and assumes the
reinvestment of all dividends.
<TABLE>
<CAPTION>
NASDAQ COMPUTER
NASDAQ STOCK MARKET (US MANUFACTURERS STOCKS SIC
DIGI INTERNATIONAL INC. COMPANIES) 3570-3579 US & FOREIGN
----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
09/29/95 100.000 100.000 100.000
94.690 99.424 104.614
82.301 101.753 108.457
67.257 101.215 102.122
82.301 101.722 102.506
95.575 105.601 112.727
97.345 105.955 105.235
100.000 114.733 120.568
99.558 119.995 128.741
94.690 114.584 118.252
45.133 104.385 106.124
50.442 110.250 113.444
09/30/96 50.442 118.681 130.355
52.212 117.362 130.841
46.460 124.637 142.407
33.628 124.531 136.729
29.646 133.368 148.793
29.204 125.986 128.082
25.221 117.770 114.954
23.451 121.442 119.644
31.858 135.196 147.258
35.841 139.352 148.503
40.708 154.034 180.791
53.097 153.804 180.192
09/30/97 50.442 162.918 186.514
53.540 154.431 172.455
68.805 155.247 174.219
60.177 152.524 165.347
81.195 157.355 180.387
85.841 172.145 204.359
97.566 178.507 203.445
94.248 181.514 217.895
80.531 171.429 212.784
71.681 183.408 240.955
68.142 181.268 252.422
36.283 145.337 219.021
09/30/98 43.363 165.500 263.869
53.097 172.770 274.210
46.018 190.335 300.683
39.381 215.060 358.548
35.177 246.266 442.109
23.009 224.222 372.395
23.894 241.182 403.616
26.991 248.955 416.177
29.646 242.058 392.885
36.947 263.828 449.093
40.708 259.064 453.542
40.266 270.003 512.121
09/30/99 38.717 270.378 510.229
43.805 292.048 545.932
57.080 327.559 643.691
36.947 399.602 760.324
42.257 384.833 733.012
39.823 457.944 895.280
32.743 448.484 952.217
19.248 377.223 843.937
18.142 331.719 705.778
23.009 389.935 826.162
22.124 368.823 831.843
27.434 412.399 947.974
9/29/00 27.876 358.956 842.960
</TABLE>
LEGEND
<TABLE>
<CAPTION>
SYMBOL CRSP TOTAL RETURNS INDEX FOR: 09/1995 09/1996 09/1997 09/1998 09/1999 09/2000
------ ----------------------------- ------- ------- ------- ------- ------- -------
<C> <S> <C> <C> <C> <C> <C> <C>
M Digi International Inc. 100.0 50.4 50.4 48.4 38.7 27.9
* Nasdaq Stock Market (US Companies) 100.0 118.7 162.9 165.5 270.4 359.0
O Nasdaq Computer Manufacturers Stocks 100.0 130.4 186.5 263.9 510.2 848.0
SIC 8570 - 8579 US & Foreign
</TABLE>
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 09/29/1996.
18
<PAGE> 22
PROPOSAL TO APPROVE THE DIGI INTERNATIONAL INC.
2000 OMNIBUS STOCK PLAN
INTRODUCTION
Effective November 6, 2000, the Company's Board of Directors authorized the
adoption of the Digi International Inc. 2000 Omnibus Stock Plan (the "2000
Plan"), which is attached as Exhibit B to this Proxy Statement. At that time,
the Board directed that the Company submit the 2000 Plan to the stockholders of
the Company for approval at the January 2001 Annual Meeting of Stockholders. If
the stockholders approve the 2000 Plan, it will be effective as of November 6,
2000.
The Company currently issues stock options under two incentive plans. The
Digi International Inc. Stock Option Plan, as amended (the "Stock Option Plan"),
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. The Stock
Option Plan expires December 1, 2006. To date, approximately 2,210,345 shares
have been issued, 2,056,341 shares are subject to outstanding options and
333,314 shares remain available for issuance.
The Company's Non-Officer Stock Option Plan, as amended (the "Non-Officer
Stock Option Plan"), provides that the Committee may grant options to purchase
shares of Common Stock of the Company, not to exceed 1,250,000 shares in the
aggregate. Officers and directors of the Company are not eligible to participate
in the Non-Officer Stock Option Plan. To date, 110,797 shares have been issued,
659,317 shares are subject to outstanding options and 479,886 shares remain
available for issuance.
In the aggregate, under the Stock Option Plan and the Non-Officer Stock
Option Plan, there were approximately 3,528,858 shares subject to outstanding
options or available for issuance, constituting 23.2% of total outstanding
shares as of December 8, 2000. In the event this proposal is approved by the
stockholders, there will be approximately 4,278,858 shares subject to
outstanding options or available for issuance of stock-based awards,
constituting 24.9% of the total outstanding shares as of December 8, 2000.
The Compensation Committee of the Board of Directors and the Board of
Directors continue to believe that stock-based compensation programs are a key
element in achieving the Company's continued financial and operational success.
The Company's compensation programs have been designed to motivate
representatives of the Company to work as a team to achieve the corporate goal
of maximizing stockholder return.
The descriptions set forth below are in all respects qualified by the terms
of the 2000 Plan.
PURPOSE
The purpose of the 2000 Plan is to promote the interests of the Company and
its stockholders by providing key personnel of the Company and its affiliates
with an opportunity to acquire a proprietary interest in the Company and reward
them for achieving a high level of corporate performance and thereby develop a
stronger incentive to put forth maximum effort for the continued success and
growth of the Company and its affiliates. In addition, the opportunity to
acquire a proprietary interest in the Company will aid in attracting and
retaining key personnel of outstanding ability. The 2000 Plan is also intended
to provide directors of the Company who are not employees of the Company (the
"Outside Directors") with an opportunity to acquire a proprietary interest in
the Company, to compensate Outside Directors for their contributions to the
Company and to aid in attracting and retaining Outside Directors.
ADMINISTRATION
The 2000 Plan is administered by the Company's Compensation Committee (the
"Committee"). The Committee has the authority to adopt, revise and waive rules
relating to the 2000 Plan and to determine the timing and identity of
participants, the amount of any awards and other terms and conditions of awards.
The Committee may delegate its responsibilities under the 2000 Plan to members
of management of the Company or to others with respect to the selection and
grants of awards to employees of the Company who are not deemed to be officers,
directors or 10% stockholders of the Company under applicable Federal securities
laws.
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<PAGE> 23
Certain grants of options and the amount and nature of the awards to be granted
to Outside Directors are automatic.
The regulations under Section 162(m) of the Internal Revenue Code of 1986
(the "Code") require that the directors who serve as members of the Committee
must be "outside directors." The 2000 Plan provides that directors serving on
the Committee may be "outside directors" within the meaning of Section 162(m).
This limitation would exclude from the Committee directors who are (i) current
employees of the Company or an affiliate, (ii) former employees of the Company
or an affiliate receiving compensation for past services, other than benefits
under a tax-qualified pension option plan, (iii) current and former officers of
the Company or an affiliate, (iv) directors currently receiving direct or
indirect remuneration from the Company or an affiliate in any capacity, other
than as a director, and (v) any other person who is not otherwise considered an
"outside director" for purposes of Section 162(m). The definition of an "outside
director" under Section 162(m) is generally narrower than the definition of a
"non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934.
ELIGIBILITY AND NUMBER OF SHARES
All employees of the Company and its affiliates and other individuals or
entities that are not employees but who provide services to the Company or its
affiliates in capacities such as consultants, advisors and directors are
eligible to receive awards under the 2000 Plan at the discretion of the
Committee. Incentive stock options under the 2000 Plan may be awarded by the
Committee only to employees. There are approximately 500 total employees and
others who provide services to the Company and its affiliates, any or all of
whom may be considered for the grant of awards under the 2000 Plan at the
discretion of the Committee.
The total number of shares of Company Common Stock available for
distribution under the 2000 Plan is 750,000, subject to adjustment for future
stock splits, stock dividends and similar changes in the capitalization of the
Company. No more than 250,000 shares pursuant to stock options and no more than
100,000 shares pursuant to stock appreciation rights may be granted to any one
participant under the 2000 Plan in any calendar year. Subject to this
limitation, there is no limit on the number of shares in respect of which awards
may be granted by the Committee to any person.
The 2000 Plan provides that all awards are subject to agreements containing
the terms and conditions of the awards. Such agreements will be entered into by
the recipients of the awards and the Company on or after the time the awards are
granted and are subject to amendment, including unilateral amendment by the
Company unless such amendments are determined by the Committee to be materially
adverse to the participant and are not required as a matter of law. Any shares
of Company Common Stock subject to awards under the 2000 Plan which are not used
because the terms and conditions of the awards are not met may be reallocated as
though they had not previously been awarded, unless such shares were used to
calculate the value of stock appreciation rights which have been exercised.
TYPES OF AWARDS
The types of awards that may be granted under the 2000 Plan include
restricted and unrestricted stock, incentive and nonstatutory stock options,
stock appreciation rights, performance units and other stock-based awards.
Subject to the restrictions described in this Proxy Statement with respect to
incentive stock options, such awards will be exercisable by the participants at
such times as are determined by the Committee. Except as noted below, during the
lifetime of a person to whom an award is granted, only that person, or that
person's legal representative, may exercise an option or stock appreciation
right, or receive payment with respect to performance units or any other award.
No award may be sold, assigned, transferred, exchanged or otherwise encumbered
other than to a successor in the event of a participant's death or pursuant to a
qualified domestic relations order. However, the Committee may provide that an
award, other than incentive stock options, may be transferable to members of the
participant's immediate family 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 the participant does not receive any consideration for the
transfer.
20
<PAGE> 24
In addition to the general characteristics of all of the awards described
in this Proxy Statement, the basic characteristics of each type of award that
may be granted to an employee, and in some cases, a consultant, advisor or
director, under the 2000 Plan are as follows:
Restricted and Unrestricted Stock and Other Stock-Based Awards
The Committee is authorized to grant, either alone or in conjunction with
other awards, stock and stock-based awards. The Committee shall determine the
persons to whom such awards are made, the timing and amount of such awards, and
all other terms and conditions. Company Common Stock granted to participants may
be unrestricted or may contain such restrictions, including provisions requiring
forfeiture and imposing restrictions upon stock transfer, as the Committee may
determine. Unless forfeited, the recipient of restricted Common Stock will have
all other rights of a stockholder, including without limitation, voting and
dividend rights. The 2000 Plan provides that no more than 100,000 shares in the
form of restricted stock and 50,000 shares in the form of unrestricted stock can
be issued under the 2000 Plan.
Incentive and Nonstatutory Stock Options
Both incentive stock options and nonstatutory stock options may be granted
to participants at such exercise prices as the Committee may determine, provided
that the exercise price of nonstatutory stock options shall be not less than 50%
of the fair market value of the underlying stock as of the date the option is
granted and the exercise price of incentive stock options shall be not less than
100% of the fair market value of the underlying stock as of the date the option
is granted. Stock options may be granted and exercised at such times as the
Committee may determine, except that unless applicable Federal tax laws are
modified, (i) no incentive stock options may be granted more than 10 years after
the effective date of the 2000 Plan, (ii) an incentive stock option shall not be
exercisable more than 10 years after the date of grant and (iii) the aggregate
fair market value of the shares of Company Common Stock with respect to which
incentive stock options held by an employee under the 2000 Plan and any other
plan of the Company or any affiliate may first become exercisable in any
calendar year may not exceed $100,000. Additional restrictions apply to an
incentive stock option granted to an individual who beneficially owns 10% or
more of the outstanding shares of the Company.
The purchase price for stock purchased upon the exercise of the options may
be payable in cash, in stock having a fair market value on the date the option
is exercised equal to the option price of the stock being purchased or in a
combination of cash and stock, as determined by the Committee. The Committee may
permit optionees to simultaneously exercise options and sell the stock purchased
upon such exercise pursuant to brokerage or similar relationships and use the
sale proceeds to pay the purchase price. The Committee may provide, at or after
the grant of a stock option, that a 2000 Plan participant who surrenders shares
of stock in payment of an option shall be granted a new incentive or
nonstatutory stock option covering a number of shares equal to the number of
shares so surrendered. The Committee may prevent participants from purchasing
options in any manner that could have adverse financial accounting consequences
for the Company.
In addition, options may be granted under the 2000 Plan to employees of
entities acquired by the Company in substitution of options previously granted
to them by the acquired entity.
Stock Appreciation Rights and Performance Units
The value of a stock appreciation right granted to a participant is
determined by the appreciation in Company Common Stock, subject to any
limitations upon the amount or percentage of total appreciation that the
Committee may determine at the time the right is granted. The participant
receives all or a portion of the amount by which the fair market value of a
specified number of shares, as of the date the stock appreciation right is
exercised, exceeds a price specified by the Committee at the time the right is
granted. The price specified by the Committee must be at least 100% of the fair
market value of the specified number of shares of Company Common Stock to which
the right relates determined as of the date the stock appreciation right is
granted. Performance units entitle the participant to payment in amounts
determined by the Committee based
21
<PAGE> 25
upon the achievement of specified performance targets during a specified term.
Payments with respect to stock appreciation rights and performance units may be
paid in cash, shares of Company Common Stock or a combination of cash and shares
as determined by the Committee.
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS, TERMINATION OF EMPLOYMENT,
FORFEITURE
The Committee may provide for the lapse of restrictions on restricted stock
or other awards, accelerated exercisability of options, stock appreciation
rights and other awards or acceleration of the term with respect to which the
achievement of performance targets for performance units is determined in the
event of certain fundamental changes in the corporate structure of the Company,
the death of the participant or such other events as the Committee may
determine.
In the event of the death or disability of a participant, options that were
not previously exercisable will become immediately exercisable in full if the
participant was continuously employed by the Company and its affiliates 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. If a
participant's employment or other relationship with the Company terminates for
any reason other than death or disability, then any option or stock appreciation
right that has not expired shall remain exercisable for three months after
termination of the participant's employment, but, unless otherwise provided in
the agreement, only to the extent such option or stock appreciation right was
exercisable prior to such participant's termination of employment. If the
participant is an Outside Director, the option or stock appreciate right shall
remain exercisable until the expiration of the term, but, unless otherwise
provided in the agreement, only to the extent that such option or stock
appreciation right was exercisable prior to such Outside Director's ceasing to
be a director. In no event may an option be exercisable at any time after its
expiration date.
Unless otherwise provided in an agreement, if a participant's employment or
other relationship with the Company and its affiliates terminates due to death
or disability, the participant shall be entitled to a payment with respect to
performance units at the end of the performance cycle based upon the achievement
of performance targets at the end of such period and prorated for the portion of
the performance cycle during which the participant was employed and shall be
entitled to receive a number of shares of restricted stock under outstanding
awards that has been prorated for the term of the participant's employment and
for which portion the restrictions shall lapse.
The Committee may condition a grant upon the participant's agreement that
in the event of certain occurrences, which may include a participant's
competition with, unauthorized disclosure of confidential information of, or
violation of the applicable business ethics policy or business policy of the
Company or any of its affiliates, the awards paid to the participant within six
months prior to the termination of employment of the participant (or their
economic value) may be subject to forfeiture at the Committee's option.
ADJUSTMENTS, MODIFICATIONS, CANCELLATIONS
The 2000 Plan gives the Committee discretion to adjust the kind and number
of shares available for awards or subject to outstanding awards, the option
price of outstanding options and performance targets for, and payments under,
outstanding awards of performance units in the event of mergers,
recapitalizations, stock dividends, stock splits or other relevant changes.
Adjustments in performance targets and payments on performance units are also
permitted upon the occurrence of such other events as may be specified by the
Committee, which may include changes in accounting practices of the Company or
changes in the participant's title or employment responsibilities. The 2000 Plan
also gives the Board the right to terminate, suspend or modify the 2000 Plan,
except that amendments to the 2000 Plan are subject to stockholder approval if
needed to comply with the incentive stock option provisions of Federal tax laws.
Under the 2000 Plan, the Committee may cancel outstanding options and stock
appreciation rights generally in exchange for cash payments to the participants
in the event of certain dissolutions, liquidations, mergers, statutory share
exchanges or other similar events involving the Company.
22
<PAGE> 26
OUTSIDE DIRECTOR OPTIONS
Under the terms of the 2000 Plan, each person who is an Outside 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 2000 Plan also provides that each eligible Outside
Director who is elected between annual meetings of the stockholders of the
Company is awarded (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 2000 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 an Outside Director.
All options granted to Outside Directors under the 2000 Plan are
nonstatutory stock options that do not meet the requirements of Section 422 of
the Code and the options have an exercise price per share equal to the fair
market value of a share of Common Stock on the date of grant. Presently, Messrs.
Eichhorn, Millard, Moe, Moroz, Seedman, Stanley and Tucker are the only
directors eligible to receive Outside Director stock option grants under the
2000 Plan.
The 2000 Plan provides that (i) options granted to eligible Outside
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 Outside
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
an Outside 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 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 Outside 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 an affiliate of the Company in the capacity of an advisor,
consultant, employee, officer or director, and service as a director from an
annual meeting of stockholders to the next succeeding annual meeting constitutes
a year of service, notwithstanding that such period may actually be more or less
than one year.
The Committee also may provide for the accelerated exercisability,
modification or termination of the options granted to Outside Directors in the
same manner as other options granted under the 2000 Plan. The Committee, in its
discretion, may grant additional options or other awards to an Outside Director.
FEDERAL TAX CONSIDERATIONS
The Company has been advised by its counsel that awards made under the 2000
Plan generally will result in the following tax events for United States
citizens under current United States Federal income tax laws:
Restricted and Unrestricted Stock
Unless the participant files an election to be taxed under Section 83(b) of
the Code, (a) the participant will not realize income upon the grant of
restricted stock, (b) the participant will realize ordinary income and the
Company will be entitled to a corresponding deduction when the restrictions have
been removed or expire and (c) the amount of such ordinary income and deduction
will be the fair market value of the restricted stock on the date the
restrictions are removed or expire. If the recipient files an election to be
taxed under
23
<PAGE> 27
Section 83(b) of the Code, the tax consequences to the participant and the
Company will be determined as of the date of the grant of the restricted stock
rather than as of the date of the removal or expiration of the restrictions.
With respect to awards of unrestricted stock, (a) the participant will
realize ordinary income and the Company will be entitled to a corresponding
deduction upon the grant of the unrestricted stock and (b) the amount of such
ordinary income and deduction will be the fair market value of such unrestricted
stock on the date of grant.
When the participant disposes of restricted or unrestricted stock, the
difference between the amount received upon such disposition and the fair market
value of such shares on the date the recipient realizes ordinary income will be
treated as a capital gain or loss.
Incentive Stock Options
A participant will not realize any taxable income, and the Company will not
be entitled to any related deduction, when any incentive stock option is granted
under the 2000 Plan. If certain statutory employment and holding period
conditions are satisfied before the participant disposes of shares acquired
pursuant to the exercise of such an option, then no taxable income will result
upon the exercise of such option and the Company will not be entitled to any
deduction in connection with such exercise. Upon disposition of the shares after
expiration of the statutory holding periods, any gain or loss a recipient
realizes will be a capital gain or loss. The Company will not be entitled to a
deduction with respect to a disposition of the shares by a participant after the
expiration of the statutory holding periods.
Except in the event of death, if shares acquired upon the exercise of an
incentive stock option are disposed of before the expiration of the statutory
holding periods (a "disqualifying disposition"), the participant will be
considered to have realized as compensation, taxable as ordinary income in the
year of disposition, an amount, not exceeding the gain realized on such
disposition, equal to the difference between the exercise price and the fair
market value of the shares on the date of exercise of the option. The Company
will be entitled to a deduction at the same time and in the same amount as the
participant is deemed to have realized ordinary income. Any gain realized on the
disposition in excess of the amount treated as compensation or any loss realized
on the disposition will constitute capital gain or loss, respectively. If the
participant pays the option price with shares that were originally acquired
pursuant to the exercise of an incentive stock option and the statutory holding
periods for such shares have not been met, the participant will be treated as
having made a disqualifying disposition of such shares and the tax consequences
of such disqualifying disposition will be as described above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes an incentive stock option will be treated as if
it were a nonstatutory stock option, the tax consequences of which are discussed
below.
Nonstatutory Stock Options
A participant will not realize any taxable income, and the Company will not
be entitled to any related deduction, when any nonstatutory stock option is
granted under the 2000 Plan. When a participant exercises a nonstatutory stock
option, the participant will realize ordinary income, and the Company will be
entitled to a deduction, equal to the excess of the fair market value of the
stock on the date of exercise over the option price. Upon disposition of the
shares, any additional gain or loss the participant realizes will be a capital
gain or loss.
Stock Appreciation Rights and Performance Units
Generally (i) the participant will not realize income upon the grant of a
stock appreciation right or performance unit award, (ii) the participant will
realize ordinary income and the Company will be entitled to a corresponding
deduction, when cash, shares of Common Stock or a combination of cash and shares
are delivered to the participant upon exercise of a stock appreciation right or
in payment of the performance unit
24
<PAGE> 28
award and (iii) the amount of such ordinary income and deduction will be the
amount of cash received plus the fair market value of the shares of common stock
received on the date they are received. The Federal income tax consequences of a
disposition of unrestricted shares received by the participant upon exercise of
a stock appreciation right or in payment of a performance unit award are the
same as described above with respect to a disposition of unrestricted shares.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS
Section 162(m) of the Code denies a deduction to any publicly-held
corporation for compensation paid to certain "covered employees" in a taxable
year to the extent that compensation to such covered employee exceeds $1
million. It is possible that compensation attributable to stock options, when
combined with all other types of compensation received by a covered employee
from the Company, may cause this limitation to be exceeded in any particular
year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation if
the option is granted by a compensation committee comprised solely of "outside
directors" and either (i) the plan contains a per-employee limitation on the
number of shares for which options may be granted during a specified period, the
per-employee limitation is approved by the stockholders, and the exercise price
of the option is no less than the fair market value of the stock on the date of
grant or (ii) the option is granted (or exercisable) only upon the achievement
(as certified in writing by the compensation committee) of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, and the option is approved by stockholders.
The Company intends that any stock options granted to covered employees will
qualify as "performance-based compensation" for purposes of Section 162(m),
thereby preserving any available corporate compensation deductions attributable
to such options.
WITHHOLDING
The 2000 Plan permits the Company to withhold from cash awards, and to
require a participant receiving Common Stock under the 2000 Plan to pay the
Company in cash, an amount sufficient to cover any required withholding taxes.
In lieu of cash, the Committee may permit a participant to cover withholding
obligations through a reduction in the number of shares delivered to such
participant or a surrender to the Company of shares then owned by the
participant.
VOTING REQUIREMENTS, RECOMMENDATION
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company entitled to vote on this item and present in
person or by proxy at the Meeting is required for approval of the 2000 Plan and
the shares authorized under the 2000 Plan. Proxies solicited by the Board will
be voted for approval of the proposal, unless stockholders specify otherwise in
their proxies.
For this purpose, a stockholder voting through a proxy who abstains with
respect to approval of the 2000 Plan is considered to be present and entitled to
vote on the approval of the 2000 Plan at the meeting, and is in effect a
negative vote, but a stockholder (including a broker) who does not give
authority to a proxy to vote, or withholds authority to vote, on the approval of
the 2000 Plan shall not be considered present and entitled to vote on the
proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE DIGI
INTERNATIONAL INC. 2000 OMNIBUS STOCK PLAN.
25
<PAGE> 29
RELATIONSHIP WITH AND APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP, independent public accountants, has
been the auditors for the Company since 1998, prior to which Coopers and Lybrand
L.L.P., one of the two firms that were merged to form PricewaterhouseCoopers LLP
in 1998, were the auditors for the Company since 1986. Upon the recommendation
of the Audit Committee, the Board of Directors has again selected
PricewaterhouseCoopers LLP to serve as the Company's independent public
accountants for the fiscal year ending September 30, 2001, subject to
ratification by the stockholders. While it is not required to do so, the Audit
Committee is submitting the selection of that firm for ratification in order to
ascertain the view of the stockholders. If the selection is not ratified, the
Audit Committee will reconsider its selection.
A representative of PricewaterhouseCoopers LLP 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,
2000, 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: December 21, 2000
26
<PAGE> 30
EXHIBIT A
DIGI INTERNATIONAL INC.
AUDIT COMMITTEE CHARTER
(AS OF JANUARY 25, 2000)
PURPOSE
There shall be an Audit Committee of the Board of Directors of the Digi
International Inc., a Delaware corporation (the "Company").
The Committee shall have responsibility to oversee the Company's management
and outside auditors in regard to corporate accounting and financial reporting.
The Committee has the authority to conduct any investigation it deems
appropriate, with full access to all books and records, facilities, personnel
and outside advisors of the Company. The Committee is empowered to retain
outside counsel, auditors or other experts in its discretion.
ORGANIZATION
The Committee shall consist of at least three directors. Each director
appointed to the Committee shall:
a) not be disqualified from being an "independent director" within the
meaning of Rule 4200 of the NASD Manual, and shall have no relationship
with the Company which, in the opinion of the Board, would interfere with
the exercise of independent judgment; and
b) be able to read and understand fundamental financial statements,
including the Company's balance sheet, income statement and cash flow
statement. If a director is not capable of understanding such fundamental
financial statements, he or she must become able to do so within a
reasonable period of time after appointment to the Committee.
At least one member of the Committee shall have past employment experience
in finance or accounting, requisite professional certification in accounting or
any other comparable experience or background which results in the director's
financial sophistication.
RESPONSIBILITIES
The Committee recognizes that the preparation of the Company's financial
statements and other financial information is the responsibility of the
Company's management and that the auditing, or conducting limited reviews, of
those financial statements and other financial information is the responsibility
of the Company's outside auditors. The Committee's responsibility is to oversee
the financial reporting process.
The Company's management, and its outside auditors, in the exercise of
their responsibilities, acquire greater knowledge and more detailed information
about the Company and its financial affairs than the members of the Committee.
Consequently, the Committee is not responsible for providing any expert or other
special assurance as to the Company's financial statements and other financial
information or any professional certification as to the outside auditors' work,
including without limitation their reports on and limited reviews of, the
Company's financial statements and other financial information.
In carrying out its oversight responsibilities, the Committee shall:
a) review and reassess the adequacy of the Audit Committee Charter
annually;
b) require that the outside auditors provide the Committee with a
formal written statement delineating all relationships between the outside
auditors and the Company, consistent with Independence Standards Board
Standard No. 1, and discuss with the outside auditors their independence;
c) actively engage in a dialogue with the outside auditors regarding
any disclosed relationships or services that may impact the objectivity and
independence of the outside auditors;
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d) take, or recommend that the full Board take, appropriate action to
oversee the independence of the outside auditors;
e) review and consider the matters identified in Statement on Auditing
Standards No. 61 with the outside auditors and management;
f) review and discuss the Company's audited financial statements that
are to be included in the Company's Form 10-K with the outside auditors and
management and determine whether to recommend to the Board of Directors
that the financial statements be included in the Company's Form 10-K for
filing with the Securities and Exchange Commission; and
g) review, or the Committee's Chairman shall review, any matters
identified by the outside auditors pursuant to Statement on Auditing
Standards No. 71 regarding the Company's interim financial statements. Any
such review shall occur prior to the filing of such interim financial
statements on the Company's Form 10-Q.
The outside auditors are ultimately accountable to the Board and the
Committee, as representatives of the shareholders. The Board and the Committee
have ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the outside auditors, and, if applicable, to nominate the
outside auditors to be proposed for approval by the shareholders in any proxy
statement.
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EXHIBIT B
DIGI INTERNATIONAL INC.
2000 OMNIBUS STOCK PLAN
(EFFECTIVE AS OF NOVEMBER 6, 2000)
1. Purpose. The purpose of the Digi International Inc. 2000 Omnibus Stock
Plan (the "Plan") is to promote the interests of the Company and its
stockholders by providing key personnel of the Company and its Affiliates with
an opportunity to acquire a proprietary interest in the Company and reward them
for achieving a high level of corporate performance and thereby develop a
stronger incentive to put forth maximum effort for the continued success and
growth of the Company and its Affiliates. In addition, the opportunity to
acquire a proprietary interest in the Company will aid in attracting and
retaining key personnel of outstanding ability. The Plan is also intended to
provide Outside Directors with an opportunity to acquire a proprietary interest
in the Company, to compensate Outside Directors for their contribution to the
Company and to aid in attracting and retaining Outside Directors.
2. Definitions.
2.1 The capitalized terms used elsewhere in the Plan have the
meanings set forth below.
(a) "Affiliate" means any corporation that is a "parent
corporation" or "subsidiary corporation" of the Company, as those terms
are defined in Code Sections 424(e) and (f), or any successor
provisions, and, for purposes other than the grant of Incentive Stock
Options, any joint venture in which the Company or any such "parent
corporation" or "subsidiary corporation" owns an equity interest.
(b) "Agreement" means a written contract (i) consistent with the
terms of the Plan entered into between the Company or an Affiliate and a
Participant and (ii) containing the terms and conditions of an Award in
such form and not inconsistent with the Plan as the Committee shall
approve from time to time, together with all amendments thereto, which
amendments may be unilaterally made by the Company (with the approval of
the Committee) unless such amendments are deemed by the Committee to be
materially adverse to the Participant and not required as a matter of
law.
(c) "Award" or "Awards" means a grant made under the Plan in the
form of Restricted Stock, Options, Stock Appreciation Rights,
Performance Units, Stock or any other stock-based award.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time or any successor statute.
(f) "Committee" means two or more Non-Employee Directors designated
by the Board to administer the Plan under Plan Section 3.1 and
constituted so as to permit grants thereby to comply with Exchange Act
Rule 16b-3 and Code Section 162(m).
(g) "Company" means Digi International Inc., a Delaware
corporation, or any successor to all or substantially all of its
businesses by merger, consolidation, purchase of assets or otherwise.
(h) "Effective Date" means the date specified in Plan Section 12.1.
(i) "Employee" means an employee (including an officer or director
who is also an employee) of the Company or an Affiliate.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time or any successor statute.
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(k) "Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Exchange Act, as now in
force and in effect from time to time or any successor regulation.
(l) "Fair Market Value" as of any date means, unless otherwise
expressly provided in the Plan:
(i) the closing sale price of a Share on the date immediately
preceding that date or, if no sale of Shares shall have occurred on
that date, on the next preceding day on which a sale of Shares
occurred
(A) on the composite tape for New York Stock Exchange listed
shares, or
(B) if the 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 Exchange Act on
which the Shares are listed, or
(C) if the Shares are not listed on any such exchange, on
the National Association of Securities Dealers, Inc. Automated
Quotations National Market System or any system then in use, or
(ii) if clause (i) is inapplicable, the mean between the closing
"bid" and the closing "asked" quotation of a Share on the date
immediately preceding that date, or, if no closing bid or asked
quotation is made on that date, on the next preceding day on which a
closing bid and asked quotation is made, on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system
then in use, or
(iii) if clauses (i) and (ii) are inapplicable, what the
Committee determines in good faith to be 100% of the fair market
value of a Share on that date, using such criteria as it shall
determine, in its sole discretion, to be appropriate for valuation.
However, if the applicable securities exchange or system has closed
for the day at the time the event occurs that triggers a determination
of Fair Market Value, whether the grant of an Award, the exercise of an
Option or Stock Appreciation Right or otherwise, all references in this
paragraph to the "date immediately preceding that date" shall be deemed
to be references to "that date." In the case of an Incentive Stock
Option, if this determination of Fair Market Value is not consistent
with the then current regulations of the Secretary of the Treasury, Fair
Market Value shall be determined in accordance with those regulations.
The determination of Fair Market Value shall be subject to adjustment as
provided in Plan Section 16.
(m) "Fundamental Change" means a dissolution or liquidation of the
Company, a sale of substantially all of the assets of the Company, a
merger or consolidation of the Company with or into any other
corporation, regardless of whether the Company is the surviving
corporation, or a statutory share exchange involving capital stock of
the Company.
(n) "Incentive Stock Option" means any Option designated as such
and granted in accordance with the requirements of Code Section 422 or
any successor provision.
(o) "Insider" as of a particular date means any person who, as of
that date is an officer of the Company as defined under Exchange Act
Rule 16a-1(f) or its successor provision.
(p) "Non-Employee Director" means a member of the Board who is
considered a non-employee director within the meaning of Exchange Act
Rule 16b-3(b)(3) or its successor provision and an outside director for
purposes of Code Section 162(m).
(q) "Non-Statutory Stock Option" means an Option other than an
Incentive Stock Option.
(r) "Option" means a right to purchase Stock, including both
Non-Statutory Stock Options and Incentive Stock Options.
(s) "Outside Director" means a director who is not an Employee.
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(t) "Participant" means a person or entity to whom an Award is or
has been made in accordance with the Plan.
(u) "Performance Cycle" means the period of time as specified in an
Agreement over which Performance Units are to be earned.
(v) "Performance Units" means an Award made pursuant to Plan
Section 11.
(w) "Plan" means this Digi International Inc. 2000 Omnibus Stock
Plan, as may be amended and in effect from time to time.
(x) "Restricted Stock" means Stock granted under Plan Section 7 so
long as such Stock remains subject to one or more restrictions.
(y) "Section 16" or "Section 16(b)" means Section 16 or Section
16(b), respectively, of the Exchange Act or any successor statute and
the rules and regulations promulgated thereunder as in effect and as
amended from time to time.
(z) "Share" means a share of Stock.
(aa) "Stock" means the common stock, par value $.01 per share, of
the Company.
(bb) "Stock Appreciation Right" means a right, the value of which
is determined in relation to the appreciation in value of Shares
pursuant to an Award granted under Plan Section 10.
(cc) "Subsidiary" means a "subsidiary corporation," as that term is
defined in Code Section 424(f) or any successor provision.
(dd) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant, and if the Participant is
deceased the estate of the Participant or the person or persons who may,
by bequest or inheritance, or pursuant to the terms of an Award, acquire
the right to exercise an Option or Stock Appreciation Right or to
receive cash and/or Shares issuable in satisfaction of an Award in the
event of the Participant's death.
(ee) "Term" means the period during which an Option or Stock
Appreciation Right may be exercised or the period during which the
restrictions or terms and conditions placed on Restricted Stock or any
other Award are in effect.
(ff) "Transferee" means any member of the Participant's immediate
family (i.e., his or her children, step-children, grandchildren and
spouse) or one or more trusts for the benefit of such family members or
partnerships in which such family members are the only partners.
2.2 Gender and Number. Except when otherwise indicated by the
context, reference to the masculine gender shall include, when used, the
feminine gender and any term used in the singular shall also include the
plural.
3. Administration and Indemnification.
3.1 Administration.
(a) The Committee shall administer the Plan. The Committee shall
have exclusive power to (i) make Awards, (ii) determine when and to whom
Awards will be granted, the form of each Award, the amount of each Award
(except as to the amount of the Outside Director Options pursuant to
Plan Section 9.3), and any other terms or conditions of each Award
consistent with the Plan, and (iii) determine whether, to what extent
and under what circumstances, Awards may be settled, paid or exercised
in cash, Shares or other Awards, or other property or canceled,
forfeited or suspended. Each Award shall be subject to an Agreement
authorized by the Committee. A majority of the members of the Committee
shall constitute a quorum for any meeting of the Committee, and 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. Notwithstanding the
foregoing, the Board shall have the sole and exclusive power to
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administer the Plan with respect to Awards granted to Outside Directors,
including any grants made under Plan Section 9.3(e).
(b) Solely for purposes of determining and administering Awards to
Participants who are not Insiders, the Committee may delegate all or any
portion of its authority under the Plan to one or more persons who are
not Non-Employee Directors.
(c) To the extent within its discretion and subject to Plan
Sections 15 and 16, other than price, the Committee may amend the terms
and conditions of any outstanding Award.
(d) It is the intent that the Plan and all Awards granted pursuant
to it shall be administered by the Committee so as to permit the Plan
and Awards to comply with Exchange Act Rule 16b-3, except in such
instances as the Committee, in its discretion, may so provide. If any
provision of the Plan or of any Award would otherwise frustrate or
conflict with the intent expressed in this Section 3.1(d), that
provision to the extent possible shall be interpreted and deemed amended
in the manner determined by the Committee so as to avoid the conflict.
To the extent of any remaining irreconcilable conflict with this intent,
the provision shall be deemed void as applicable to Insiders to the
extent permitted by law and in the manner deemed advisable by the
Committee.
(e) The Committee's interpretation of the Plan and of any Award or
Agreement made under the Plan and all related decisions or resolutions
of the Board or Committee shall be final and binding on all parties with
an interest therein. Consistent with its terms, the Committee shall have
the power to establish, amend or waive regulations to administer the
Plan. In carrying out any of its responsibilities, the Committee shall
have discretionary authority to construe the terms of the Plan and any
Award or Agreement made under the Plan.
3.2 Indemnification. Each person who is or shall have been a member
of the Committee, or of the Board, and any other person to whom the
Committee delegates authority under the Plan, shall be indemnified and held
harmless by the Company, to the extent permitted by law, against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by such person in connection with or resulting from any claim,
action, suit or proceeding to which such person may be a party or in which
such person may be involved by reason of any action taken or failure to
act, made in good faith, under the Plan and against and from any and all
amounts paid by such person in settlement thereof, with the Company's
approval, or paid by such person in satisfaction of any judgment in any
such action, suit or proceeding against such person, provided such person
shall give the Company an opportunity, at the Company's expense, to handle
and defend the same before such person undertakes to handle and defend it
on such person's own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
person or persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power
that the Company may have to indemnify them or hold them harmless.
4. Shares Available Under the Plan.
(a) The number of Shares available for distribution under the Plan
shall not exceed 750,000 (subject to adjustment pursuant to Plan Section
16).
(b) Any Shares subject to the terms and conditions of an Award under
the Plan that are not used because the terms and conditions of the Award
are not met may again be used for an Award under the Plan; provided
however, that Shares with respect to which a Stock Appreciation Right has
been exercised whether paid in cash and/or in Shares may not again be
awarded under the Plan.
(c) Any unexercised or undistributed portion of any terminated,
expired, exchanged, or forfeited Award, or any Award settled in cash in
lieu of Shares (except as provided in Plan Section 4(b)) shall be available
for further Awards.
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(d) For the purposes of computing the total number of Shares granted
under the Plan, the following rules shall apply to Awards payable in Shares
where appropriate:
(i) each Option shall be deemed to be the equivalent of the maximum
number of Shares that may be issued upon exercise of the particular
Option;
(ii) an Award (other than an Option) payable in some other security
shall be deemed to be equal to the number of Shares to which it relates;
(iii) where the number of Shares available under the Award is
variable on the date it is granted, the number of Shares shall be deemed
to be the maximum number of Shares that could be received under that
particular Award; and
(iv) where two or more types of Awards (all of which are payable in
Shares) are granted to a Participant in tandem with each other, such
that the exercise of one type of Award with respect to a number of
Shares cancels at least an equal number of Shares of the other, each
such joint Award shall be deemed to be the equivalent of the maximum
number of Shares available under the largest single Award.
Additional rules for determining the number of Shares granted under
the Plan may be made by the Committee as it deems necessary or desirable.
(e) No fractional Shares may be issued under the Plan; however, cash
shall be paid in lieu of any fractional Share in settlement of an Award.
(f) The maximum number of Shares that may be awarded to a Participant
in any calendar year in the form of Options is 250,000 and the maximum
number of Shares that may be awarded to a Participant in any calendar year
in the form of Stock Appreciation Rights is 100,000.
5. Eligibility. Participation in the Plan shall be limited to Employees
and to individuals or entities who are not Employees but who provide services to
the Company or an Affiliate, including services provided in the capacity of a
consultant, advisor or director. The granting of Awards is solely at the
discretion of the Committee, except that Incentive Stock Options may only be
granted to Employees and except for certain Awards to Outside Directors pursuant
to Plan Section 9.3. References herein to "employed," "employment" or similar
terms (except "Employee") shall include the providing of services in any
capacity or as a director. Neither the transfer of employment of a Participant
between any of the Company or its Affiliates, nor a leave of absence granted to
such Participant and approved by the Committee, shall be deemed a termination of
employment for purposes of the Plan.
6. General Terms of Awards.
6.1 Amount of Award. Each Agreement shall set forth the number of
Shares of Restricted Stock, Stock or Performance Units subject to the
Agreement, or the number of Shares to which the Option subject to the
Agreement applies or with respect to which payment upon the exercise of the
Stock Appreciation Right subject to the Agreement is to be determined, as
the case may be, together with such other terms and conditions applicable
to the Award as determined by the Committee acting in its sole discretion.
6.2 Term. Each Agreement, other than those relating solely to Awards
of Shares without restrictions, shall set forth the Term of the Option,
Stock Appreciation Right, Restricted Stock or other Award or the
Performance Cycle for the Performance Units, as the case may be.
Acceleration of the expiration of the applicable Term is permitted, upon
such terms and conditions as shall be set forth in the Agreement, which
may, but need not, include, without limitation, acceleration in the event
of the Participant's death or retirement. Acceleration of the Performance
Cycle of Performance Units shall be subject to Plan Section 11.2.
6.3 Transferability. Except as provided in this Section, during the
lifetime of a Participant to whom an Award is granted, only that
Participant (or that Participant's legal representative) may exercise an
Option or Stock Appreciation Right, or receive payment with respect to
Performance Units or any
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other Award. No Award of Restricted Stock (before the expiration of the
restrictions), Options, Stock Appreciation Rights or Performance Units or
other Award may be sold, assigned, transferred, exchanged or otherwise
encumbered other than to a Successor in the event of a Participant's death
or pursuant to a qualified domestic relations order as defined in the Code
or Title 1 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder; any attempted transfer in
violation of this Section 6.3 shall be of no effect. Notwithstanding the
immediately preceding sentence, the Committee, in an Agreement or otherwise
at its discretion, may provide that the Award (other than Incentive Stock
Options) may be transferable to a Transferee if the Participant does not
receive any consideration for the transfer. Any Award held by a Transferee
shall continue to be subject to the same terms and conditions that were
applicable to that Award immediately before the transfer thereof to the
Transferee. For purposes of any provision of the Plan relating to notice to
a Participant or to acceleration or termination of an Award upon the death,
disability or termination of employment of a Participant (or, in the case
of Plan Section 9.3, an Outside Director) the references to "Participant"
(or "Outside Director") shall mean the original grantee of an Award and not
any Transferee.
6.4 Termination of Employment. Except as otherwise determined by the
Committee or provided by the Committee in an Agreement, in case of a
Participant's termination of employment, the following provisions shall
apply:
(a) Options and Stock Appreciation Rights.
(i) If a Participant's employment or other relationship with the
Company and its Affiliates terminates because of the Participant's
death, then any Option or Stock Appreciation Right that has not
expired or been terminated shall become exercisable in full if the
Participant's employment or other relationship with the Company and
its Affiliates has been continuous between the date the Option or
Stock Appreciation Right was granted and a date not more than three
months prior to such death, and may be exercised by the Participant's
Successor at any time, or from time to time, within one year after
the date of the Participant's death.
(ii) If a Participant's employment or other relationship with
the Company and its Affiliates terminates because the Participant is
disabled (within the meaning of Section 22(e)(3) of the Code), then
any Option or Stock Appreciation Right that has not expired or been
terminated shall become exercisable in full if the Participant's
employment or other relationship with the Company and its Affiliates
has been continuous between the date the Option or Stock Appreciation
Right was granted and the date of such disability, and the
Participant or the Participant's Successor may exercise such Option
or Stock Appreciation Right at any time, or from time to time, within
one year after the date of the Participant's disability.
(iii) If a Participant's employment terminates for any reason
other than death or disability, then any Option or Stock Appreciation
Right that has not expired or been terminated shall remain
exercisable for three months after termination of the Participant's
employment, but, unless otherwise provided in the Agreement, only to
the extent that such Option or Stock Appreciation Right was
exercisable immediately prior to such Participant's termination of
employment; provided, however, that if the Participant is an Outside
Director, the Option or Stock Appreciation Right shall remain
exercisable until the expiration of the Term after such Outside
Director ceases to be a director of the Company but, unless otherwise
provided in the Agreement, only to the extent that such Option or
Stock Appreciation Right was exercisable immediately prior to such
Outside Director ceasing to be a director.
(iv) Notwithstanding the foregoing Plan Sections 6.4(a)(i), (ii)
and (iii), in no event shall an Option or a Stock Appreciation Right
be exercisable after the expiration of the Term of such Award. Any
Option or Stock Appreciation Right that is not exercised within the
periods set forth in Plan Sections 6.4 (i), (ii) and (iii), except as
otherwise provided by the Committee in the Agreement, shall terminate
as of the end of the periods described in such Sections.
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(b) Performance Units. If a Participant's employment or other
relationship with the Company and its Affiliates terminates during a
Performance Cycle because of death or disability, or under other
circumstances provided by the Committee in its discretion in the
Agreement or otherwise, the Participant, unless the Committee shall
otherwise provide in the Agreement, shall be entitled to a payment with
respect to Performance Units at the end of the Performance Cycle based
upon the extent to which achievement of performance targets was
satisfied at the end of such period (as determined at the end of the
Performance Cycle) and prorated for the portion of the Performance Cycle
during which the Participant was employed by the Company or its
Affiliates. Except as provided in this Section 6.4(b) or in the
Agreement, if a Participant's employment or other relationship with the
Company and its Affiliates terminates during a Performance Cycle, then
such Participant shall not be entitled to any payment with respect to
that Performance Cycle.
(c) Restricted Stock Awards. Unless otherwise provided in the
Agreement, in case of a Participant's death or disability, the Participant
shall be entitled to receive a number of Shares of Restricted Stock under
outstanding Awards that has been prorated for the portion of the Term of
the Awards during which the Participant was employed by the Company and its
Affiliates, and, with respect to such Shares, all restrictions shall lapse.
Any Shares of Restricted Stock as to which restrictions do not lapse under
the preceding sentence shall terminate at the date of the Participant's
termination of employment and such Shares of Restricted Stock shall be
forfeited to the Company.
6.5 Rights as Stockholder. Each Agreement shall provide that a
Participant shall have no rights as a stockholder with respect to any
securities covered by an Award unless and until the date the Participant
becomes the holder of record of the Stock, if any, to which the Award
relates.
7. Restricted Stock Awards.
(a) An Award of Restricted Stock under the Plan shall consist of
Shares subject to restrictions on transfer and conditions of forfeiture,
which restrictions and conditions shall be included in the applicable
Agreement. The Committee may provide for the lapse or waiver of any such
restriction or condition based on such factors or criteria as the
Committee, in its sole discretion, may determine.
(b) Except as otherwise provided in the applicable Agreement, each
Stock certificate issued with respect to an Award of Restricted Stock shall
either be deposited with the Company or its designee, together with an
assignment separate from the certificate, in blank, signed by the
Participant, or bear such legends with respect to the restricted nature of
the Restricted Stock evidenced thereby as shall be provided for in the
applicable Agreement.
(c) The Agreement shall describe the terms and conditions by which the
restrictions and conditions of forfeiture upon awarded Restricted Stock
shall lapse. Upon the lapse of the restrictions and conditions, Shares free
of restrictive legends, if any, relating to such restrictions shall be
issued to the Participant or a Successor or Transferee.
(d) A Participant or a Transferee with a Restricted Stock Award shall
have all the other rights of a stockholder including, but not limited to,
the right to receive dividends and the right to vote the Shares of
Restricted Stock.
(e) No more than 100,000 of the total number of Shares available for
Awards under the Plan shall be issued during the term of the Plan as
Restricted Stock. This limitation shall be calculated pursuant to the
applicable provisions of Plan Sections 4 and 16.
8. Other Awards. The Committee may from time to time grant Stock and other
Awards under the Plan including, without limitation, those Awards pursuant to
which Shares are or may in the future be acquired, Awards denominated in Stock
units, securities convertible into Stock and phantom securities. The Committee,
in its sole discretion, shall determine the terms and conditions of such Awards
provided that such Awards shall not be inconsistent with the terms and purposes
of the Plan. The Committee may, at its sole discretion, direct the Company to
issue Shares subject to restrictive legends and/or stop transfer instructions
that are consistent with the terms and conditions of the Award to which the
Shares relate. No more than 50,000 of the
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total number of Shares available for Awards under the Plan shall be issued
during the term of the Plan in the form of Stock without restrictions.
9. Stock Options.
9.1 Terms of All Options.
(a) An Option shall be granted pursuant to an Agreement as either
an Incentive Stock Option or a Non-Statutory Stock Option. The purchase
price of each Share subject to an Option shall be determined by the
Committee and set forth in the Agreement, but shall not be less than 50%
of the Fair Market Value of a Share as of the date the Option is granted
(except as provided in Plan Sections 9.2 and 19).
(b) The purchase price of the Shares with respect to which an
Option is exercised shall be payable in full at the time of exercise,
provided that to the extent permitted by law, the Agreement may permit
some or all Participants to simultaneously exercise Options and sell the
Shares thereby acquired pursuant to a brokerage or similar relationship
and use the proceeds from the sale as payment of the purchase price of
the Shares. The purchase price may be payable in cash, by delivery or
tender of Shares having a Fair Market Value as of the date the Option is
exercised equal to the purchase price of the Shares being purchased
pursuant to the Option, or a combination thereof, as determined by the
Committee, but no fractional Shares will be issued or accepted.
Provided, however, that a Participant exercising a stock option shall
not be permitted to pay any portion of the purchase price with Shares
if, in the opinion of the Committee, payment in such manner could have
adverse financial accounting consequences for the Company.
(c) The Committee may provide, in an Agreement or otherwise, that a
Participant who exercises an Option and pays the Option price in whole
or in part with Shares then owned by the Participant will be entitled to
receive another Option covering the same number of shares tendered and
with a price of no less than Fair Market Value on the date of grant of
such additional Option ("Reload Option"). Unless otherwise provided in
the Agreement, a Participant, in order to be entitled to a Reload
Option, must pay with Shares that have been owned by the Participant for
at least the preceding 180 days.
(d) Each Option shall be exercisable in whole or in part on the
terms provided in the Agreement. In no event shall any Option be
exercisable at any time after the expiration of its Term. When an Option
is no longer exercisable, it shall be deemed to have lapsed or
terminated.
9.2 Incentive Stock Options. In addition to the other terms and
conditions applicable to all Options:
(i) the purchase price of each Share subject to an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a Share
as of the date the Incentive Stock Option is granted if this limitation
is necessary to qualify the Option as an Incentive Stock Option (except
as provided in Plan Section 19);
(ii) the aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares with respect to which Incentive Stock
Options held by an individual first become exercisable in any calendar
year (under the Plan and all other incentive stock option plans of the
Company and its Affiliates) shall not exceed $100,000 (or such other
limit as may be required by the Code) if this limitation is necessary to
qualify the Option as an Incentive Stock Option and to the extent an
Option or Options granted to a Participant exceed this limit the Option
or Options shall be treated as a Non-Statutory Stock Option;
(iii) an Incentive Stock Option shall not be exercisable more than
10 years after the date of grant (or such other limit as may be required
by the Code) if this limitation is necessary to qualify the Option as an
Incentive Stock Option;
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(iv) the Agreement covering an Incentive Stock Option shall contain
such other terms and provisions that the Committee determines necessary
to qualify this Option as an Incentive Stock Option; and
(v) notwithstanding any other provision of the Plan to the
contrary, no Participant may receive an Incentive Stock Option under the
Plan if, at the time the Award is granted, the Participant owns (after
application of the rules contained in Code Section 424(d), or its
successor provision), Shares possessing more than 10% of the total
combined voting power of all classes of stock of the Company or its
Subsidiaries, unless (i) the option price for that Incentive Stock
Option is at least 110% of the Fair Market Value of the Shares subject
to that Incentive Stock Option on the date of grant and (ii) that Option
is not exercisable after the date five years from the date that
Incentive Stock Option is granted.
9.3 Terms and Conditions of Outside Director Options. This Section
9.3 shall apply from and after the earlier of the date of termination of
the Digi International Inc. Stock Option Plan or the date on which no
Shares remain available for issuance thereunder.
(a) Outside Director Option Grants. Subject to the terms and
conditions of the 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 Exchange Act) of
more than 5% of the outstanding Shares, on the terms and conditions set
forth in this Section 9.3. During the term of the Plan and provided that
sufficient Shares are available pursuant to Plan Section 4:
(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 Non-Statutory 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 Section 9.3(a)(i). The
number of 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 Non-Statutory
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 Section 9.3(a)(ii). The
number of 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
Non-Statutory 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 Section 9.3(a)(iii).
The number of 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 Non-Statutory 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 Section 9.3(a)(iv). The number of
Shares 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
Non-Statutory 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
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<PAGE> 41
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 Section 9.3(a)(v). The number
of 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) Exercise Price of Outside Director Options. The purchase price
of each Share subject to an Option granted to an Outside Director
pursuant to this Section 9.3 shall be the Fair Market Value of a Share
on the date of grant.
(c) Vesting of Outside Director Options.
(i) Subject to the provisions of Plan Sections 9.3(d) and (e),
(x) options granted to Outside Directors pursuant to Plan Sections
9.3(a)(ii) and (iv) and (y) options granted to Outside Directors
pursuant to Plan Section 9.3(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 Plan Sections 9.3(d) and (e),
(x) the options granted to Outside Directors pursuant to Plan
Sections 9.3(a)(iii) and (v) and (y) options granted to Outside
Directors pursuant to Plan Section 9.3(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>
(d) Accelerated Vesting of Outside Director
Options. Notwithstanding the vesting schedules set forth in Plan Section
9.3(c), 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 an Affiliate 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) Non-exclusivity of Section 9.3. The provisions of this Section
9.3 are not intended to be exclusive; the Committee, in its discretion,
may grant Options or other Awards to an Outside Director.
10. Stock Appreciation Rights. An Award of a Stock Appreciation Right
shall entitle the Participant (or a Successor or Transferee), subject to terms
and conditions determined by the Committee, to receive upon
B-10
<PAGE> 42
exercise of the Stock Appreciation Right all or a portion of the excess of (i)
the Fair Market Value of a specified number of Shares as of the date of exercise
of the Stock Appreciation Right over (ii) a specified price that shall not be
less than 100% of the Fair Market Value of such Shares as of the date of grant
of the Stock Appreciation Right. A Stock Appreciation Right may be granted in
connection with part or all of, in addition to, or completely independent of an
Option or any other Award under the Plan. If issued in connection with a
previously or contemporaneously granted Option, the Committee may impose a
condition that exercise of a Stock Appreciation Right cancels a pro rata portion
of the Option with which it is connected and vice versa. Each Stock Appreciation
Right may be exercisable in whole or in part on the terms provided in the
Agreement. No Stock Appreciation Right shall be exercisable at any time after
the expiration of its Term. When a Stock Appreciation Right is no longer
exercisable, it shall be deemed to have lapsed or terminated. Upon exercise of a
Stock Appreciation Right, payment to the Participant or a Successor or
Transferee shall be made at such time or times as shall be provided in the
Agreement in the form of cash, Shares or a combination of cash and Shares as
determined by the Committee. The Agreement may provide for a limitation upon the
amount or percentage of the total appreciation on which payment (whether in cash
and/or Shares) may be made in the event of the exercise of a Stock Appreciation
Right.
11. Performance Units.
11.1 Initial Award.
(a) An Award of Performance Units under the Plan shall entitle the
Participant or a Successor or Transferee to future payments of cash,
Shares or a combination of cash and Shares, as determined by the
Committee, based upon the achievement of pre-established performance
targets. These performance targets may, but need not, include, without
limitation, targets relating to one or more of the Company's or a
group's, unit's, Affiliate's or an individual's performance. The
Agreement may establish that a portion of a Participant's Award will be
paid for performance that exceeds the minimum target but falls below the
maximum target applicable to the Award. The Agreement shall also provide
for the timing of the payment.
(b) Following the conclusion or acceleration of each Performance
Cycle, the Committee shall determine the extent to which (i) performance
targets have been attained, (ii) any other terms and conditions with
respect to an Award relating to the Performance Cycle have been
satisfied and (iii) payment is due with respect to an Award of
Performance Units.
11.2 Acceleration and Adjustment. The Agreement may permit an
acceleration of the Performance Cycle and an adjustment of performance
targets and payments with respect to some or all of the Performance Units
awarded to a Participant, upon the occurrence of certain events, which may,
but need not include, without limitation, a Fundamental Change, a
recapitalization, a change in the accounting practices of the Company, a
change in the Participant's title or employment responsibilities, the
Participant's death or retirement or, with respect to payments in Shares
with respect to Performance Units, a reclassification, stock dividend,
stock split or stock combination as provided in Plan Section 16. The
Agreement also may provide for a limitation on the value of an Award of
Performance Units that a Participant may receive.
12. Effective Date and Duration of the Plan.
12.1 Effective Date. The Plan shall become effective as of November
6, 2000, provided that the Plan is approved by the requisite vote of
stockholders at the January 2001 Annual Meeting of Stockholders or any
adjournment thereof.
12.2 Duration of the Plan. The Plan shall remain in effect until all
Stock subject to it shall be distributed, all Awards have expired or
lapsed, the Plan is terminated pursuant to Plan Section 15, or November 6,
2010 (the "Termination Date"); provided, however, that Awards made before
the Termination Date may be exercised, vested or otherwise effectuated
beyond the Termination Date unless limited in the Agreement or otherwise.
No Award of an Incentive Stock Option shall be made more than 10 years
after the Effective Date (or such other limit as may be required by the
Code) if this limitation is necessary to qualify the Option as an Incentive
Stock Option. The date and time of approval by the
B-11
<PAGE> 43
Committee of the granting of an Award shall be considered the date and time
at which the Award is made or granted.
13. Plan Does Not Affect Employment Status.
(a) Status as an eligible Employee shall not be construed as a
commitment that any Award will be made under the Plan to that eligible
Employee or to eligible Employees generally.
(b) Nothing in the Plan or in any Agreement or related documents shall
confer upon any Employee or Participant any right to continue in the
employment of the Company or any Affiliate or constitute any contract of
employment or affect any right that the Company or any Affiliate may have
to change such person's compensation, other benefits, job responsibilities,
or title, or to terminate the employment of such person with or without
cause.
14. Tax Withholding. The Company shall have the right to withhold from any
cash payment under the Plan to a Participant or other person (including a
Successor or a Transferee) an amount sufficient to cover any required
withholding taxes. The Company shall have the right to require a Participant or
other person receiving Shares under the Plan to pay the Company a cash amount
sufficient to cover any required withholding taxes before actual receipt of
those Shares. In lieu of all or any part of a cash payment from a person
receiving Shares under the Plan, the Committee may permit the individual to
cover all or any part of the required withholdings through a reduction of the
number of Shares delivered or delivery or tender return to the Company of Shares
held by the Participant or other person, in each case valued in the same manner
as used in computing the withholding taxes under the applicable laws.
15. Amendment, Modification and Termination of the Plan.
(a) The Board may at any time and from time to time terminate, suspend
or modify the Plan. Except as limited in (b) below, the Committee may at
any time alter or amend any or all Agreements under the Plan to the extent
permitted by law.
(b) No termination, suspension, or modification of the Plan will
materially and adversely affect any right acquired by any Participant or
Successor or Transferee under an Award granted before the date of
termination, suspension, or modification, unless otherwise agreed to by the
Participant in the Agreement or otherwise, or required as a matter of law;
but it will be conclusively presumed that any adjustment for changes in
capitalization provided for in Plan Sections 11.2 or 16 does not adversely
affect these rights.
16. Adjustment for Changes in Capitalization. Subject to any required
action by the Company's stockholders, appropriate adjustments, so as to prevent
enlargement of rights or inappropriate dilution -- (i) in the aggregate number
and type of Shares available for Awards under the Plan, (ii) in the limitations
on the number of Shares that may be issued to an individual Participant as an
Option or a Stock Appreciation Right in any calendar year or that may be issued
in the form of Restricted Stock or Shares without restrictions, (iii) in the
number and type of Shares and amount of cash subject to Awards then outstanding,
(iv) in the Option price as to any outstanding Options and, (v) subject to Plan
Section 11.2, in outstanding Performance Units and payments with respect to
outstanding Performance Units -- may be made by the Committee in its sole
discretion to give effect to adjustments made in the number or type of Shares
through a Fundamental Change (subject to Plan Section 17), recapitalization,
reclassification, stock dividend, stock split, stock combination or other
relevant change, provided that fractional Shares shall be rounded to the nearest
whole Share.
17. Fundamental Change. In the event of a proposed Fundamental Change, the
Committee may, but shall not be obligated to:
(a) if the Fundamental Change is a merger or consolidation or
statutory share exchange, make appropriate provision for the protection of
the outstanding Options and Stock Appreciation Rights by the substitution
of options, stock appreciation rights and appropriate voting common stock
of the corporation surviving any merger or consolidation or, if
appropriate, the parent corporation of the Company or such surviving
corporation; or
B-12
<PAGE> 44
(b) at least ten days before the occurrence of the Fundamental Change,
declare, and provide written notice to each holder of an Option or Stock
Appreciation Right of the declaration, that each outstanding Option and
Stock Appreciation Right, whether or not then exercisable, shall be
canceled at the time of, or immediately before the occurrence of the
Fundamental Change in exchange for payment to each holder of an Option or
Stock Appreciation Right, within ten days after the Fundamental Change, of
cash equal to (i) for each Share covered by the canceled Option, the
amount, if any, by which the Fair Market Value (as defined in this Section)
per Share exceeds the exercise price per Share covered by such Option or
(ii) for each Stock Appreciation Right, the price determined pursuant to
Section 10, except that Fair Market Value of the Shares as of the date of
exercise of the Stock Appreciation Right, as used in clause (i) of Plan
Section 10, shall be deemed to mean Fair Market Value for each Share with
respect to which the Stock Appreciation Right is calculated determined in
the manner hereinafter referred to in this Section. At the time of the
declaration provided for in the immediately preceding sentence, each Stock
Appreciation Right and each Option shall immediately become exercisable in
full and each person holding an Option or a Stock Appreciation Right shall
have the right, during the period preceding the time of cancellation of the
Option or Stock Appreciation Right, to exercise the Option as to all or any
part of the Shares covered thereby or the Stock Appreciation Right in whole
or in part, as the case may be. In the event of a declaration pursuant to
Plan Section 17(b), each outstanding Option and Stock Appreciation Right
granted pursuant to the Plan that shall not have been exercised before the
Fundamental Change shall be canceled at the time of, or immediately before,
the Fundamental Change, as provided in the declaration. Notwithstanding the
foregoing, no person holding an Option or a Stock Appreciation Right shall
be entitled to the payment provided for in this Section 17(b) if such
Option or Stock Appreciation Right shall have terminated, expired or been
cancelled. For purposes of this Section only, "Fair Market Value" per Share
means the cash plus the fair market value, as determined in good faith by
the Committee, of the non-cash consideration to be received per Share by
the stockholders of the Company upon the occurrence of the Fundamental
Change.
18. Forfeitures. An Agreement may provide that if a Participant has
received or been entitled to payment of cash, delivery of Shares, or a
combination thereof pursuant to an Award within six months before the
Participant's termination of employment with the Company and its Affiliates, the
Committee, in its sole discretion, may require the Participant to return or
forfeit the cash and/or Shares received with respect to the Award (or its
economic value as of (i) the date of the exercise of Options or Stock
Appreciation Rights, (ii) the date of, and immediately following, the lapse of
restrictions on Restricted Stock or the receipt of Shares without restrictions,
or (iii) the date on which the right of the Participant to payment with respect
to Performance Units vests, as the case may be) in the event of certain
occurrences specified in the Agreement. The Committee's right to require
forfeiture must be exercised within 90 days after discovery of such an
occurrence but in no event later than 15 months after the Participant's
termination of employment with the Company and its Affiliates. The occurrences
may, but need not, include competition with the Company or any Affiliate,
unauthorized disclosure of material proprietary information of the Company or
any Affiliate, a violation of applicable business ethics policies of the Company
or Affiliate or any other occurrence specified in the Agreement within the
period or periods of time specified in the Agreement.
19. Corporate Mergers, Acquisitions, Etc. The Committee may also grant
Options, Stock Appreciation Rights, Restricted Stock or other Awards under the
Plan in substitution for, or in connection with the assumption of, existing
options, stock appreciation rights, restricted stock or other award granted,
awarded or issued by another corporation and assumed or otherwise agreed to be
provided for by the Company pursuant to or by reason of a transaction involving
a corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to which the Company or a Subsidiary is a party.
The terms and conditions of the substitute Awards may vary from the terms and
conditions set forth in the Plan to the 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 awards in substitution for which they are granted.
20. Unfunded Plan. The Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under the Plan. Neither the Company, its Affiliates, the Committee, nor the
Board of Directors shall be deemed to be a trustee of any amounts to be paid
under
B-13
<PAGE> 45
the Plan nor shall anything contained in the Plan or any action taken pursuant
to its provisions create or be construed to create a fiduciary relationship
between the Company and/or its Affiliates, and a Participant or Successor or
Transferee. To the extent any person acquires a right to receive an Award under
the Plan, this right shall be no greater than the right of an unsecured general
creditor of the Company.
21. Limits of Liability.
(a) Any liability of the Company to any Participant with respect to an
Award shall be based solely upon contractual obligations created by the
Plan and the Award Agreement.
(b) Except as may be required by law, neither the Company nor any
member of the Board of Directors or of the Committee, nor any other person
participating in any determination of any question under the Plan, or in
the interpretation, administration or application of the Plan, shall have
any liability to any party for any action taken, or not taken, in good
faith under the Plan.
22. Compliance with Applicable Legal Requirements. No certificate for
Shares distributable pursuant to the Plan shall be issued and delivered unless
the issuance of the certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges on which the Company's Shares may, at the time, be listed.
23. Deferrals and Settlements. The Committee may require or permit
Participants to elect to defer the issuance of Shares or the settlement of
Awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts.
24. Other Benefit and Compensation Programs. Payments and other benefits
received by a Participant under an Award made pursuant to the Plan shall not be
deemed a part of a Participant's regular, recurring compensation for purposes of
the termination, indemnity or severance pay laws of any country and shall not be
included in, nor have any effect on, the determination of benefits under any
other employee benefit plan, contract or similar arrangement provided by the
Company or an Affiliate unless expressly so provided by such other plan,
contract or arrangement, or unless the Committee expressly determines that an
Award or portion of an Award should be included to accurately reflect
competitive compensation practices or to recognize that an Award has been made
in lieu of a portion of competitive cash compensation.
25. Beneficiary Upon Participant's Death. To the extent that the transfer
of a Participant's Award at his or her death is permitted under an Agreement, a
Participant's Award shall be transferable at death to the estate or to the
person who acquires the right to succeed to the Award by bequest or inheritance.
26. Requirements of Law.
(a) To the extent that federal laws do not otherwise control, the Plan
and all determinations made and actions taken pursuant to the Plan shall be
governed by the laws of the State of Minnesota without regard to its
conflicts-of-law principles and shall be construed accordingly.
(b) If any provision of the Plan shall be held illegal or invalid for
any reason, the illegality or invalidity shall not effect the remaining
parts of the Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included.
B-14
<PAGE> 46
[DIGI LOGO] DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
Annual Meeting of Stockholders
Wednesday, January 24, 2001
3:30 PM
Marquette Hotel
710 Marquette Avenue
Minneapolis, Minnesota
Please detach here
--------------------------------------------------------------------------------
[DIGI LOGO] DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
ANNUAL MEETING ON JANUARY 24, 2001
The undersigned hereby appoints Joseph T. Dunsmore and Subramanian Krishnan,
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 on
the reverse, all the shares of Common Stock of Digi International Inc. held of
record by the undersigned on December 8, 2000, at the Annual Meeting of
Stockholders to be held on January 24, 2001, or any adjournment thereof.
See reverse for voting instructions.
<PAGE> 47
Please detach here
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| |
|PROXY |
1. Election of Directors. 01 Mykola Moroz [ ] FOR ALL NOMINEES [ ] WITHHOLD
02 Michael Seedman 03 James Tucker. LISTED TO THE AUTHORITY
Mr. Moroz will serve for a term of LEFT (except as to vote for
one year and Messrs. Seedman and marked to the all nominees
Tucker will serve for a term of contrary) listed to
three years. the left
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ---------------------------
ANY INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE | |
NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ---------------------------
2. Approval of the Digi International Inc. 2000
Omnibus Stock Plan (the "Plan") and [ ] For [ ] Against [ ] Abstain
reservation for 750,000 shares for awards
under the Plan.
3. Ratification of the appointment of
PricewaterhouseCoopers LLP as independent [ ] For [ ] Against [ ] Abstain
public accountants of the Company for the
2001 fiscal year.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER, IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3. THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
Address Change? Mark Box [ ] Date
Indicate changes below: ----------------------------
--------------------------------
| |
| |
--------------------------------
Signature(s) in Box
Please sign your name exactly as
it appears on this proxy. 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.
---------------------------------
| PLEASE MARK, SIGN, DATE AND |
| RETURN THE PROXY CARD PROMPTLY|
| USING THE ENCLOSED ENVELOPE |
---------------------------------
| |
| |
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