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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DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
952/912-3444
December 28, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka,
Minnesota, commencing at 3:30 p.m., Central Standard Time, on Wednesday, January
23, 2002.
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
DIGI INTERNATIONAL INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JANUARY 23, 2002
The Annual Meeting of Stockholders of Digi International Inc. will be held
at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota,
at 3:30 p.m., Central Standard Time, on Wednesday, January 23, 2002 for the
following purposes:
1. To elect one director for a two-year term and two directors for a
three-year term.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants of the Company for the fiscal year ending September 30, 2002.
3. To amend the Digi International Inc. Employee Stock Purchase Plan (the
"Purchase Plan") to reserve 750,000 additional shares of Common Stock for future
purchases under the Purchase Plan.
4. To transact such other business as may properly be brought before the
meeting.
The Board of Directors has fixed December 10, 2001 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 28, 2001
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PROXY STATEMENT
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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 23, 2002 at the Minneapolis Marriott Southwest, 5801 Opus Parkway,
Minnetonka, 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 10, 2001 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 28, 2001.
Stockholder proposals intended to be presented at the 2003 Annual Meeting
of Stockholders must be received by the Company at its principal executive
office no later than August 30, 2002 for inclusion in the Proxy Statement for
that meeting. Any other stockholder proposals for the Company's 2003 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.
With the exception of the election of directors, the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock present in
person or represented by proxy at the meeting and entitled to vote is required
for approval of each proposal presented in this Proxy Statement. A plurality of
the votes of outstanding shares of Common Stock of the Company present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors is required for the election of directors. Abstentions and broker
non-votes will be counted as present for purposes of determining the existence
of a quorum at the meeting. However, shares of a stockholder who either
abstains, withholds authority to vote for the election of
1
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 10, 2001 there were 15,374,947 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 10, 2001, 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.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OUTSTANDING SHARES
------------------------------------------- ------------------------ ------------------
Directors, nominees and executive officers:
Bruce H. Berger 33,502(2) *
Joseph T. Dunsmore 80,750(3) *
Douglas J. Glader 283,708(4) 1.8%
Subramanian Krishnan 144,891(5) *
Kenneth E. Millard 19,250(6) *
Mykola Moroz 142,036(7) *
Michael Seedman 3,125(8) *
David Stanley 94,250(9) *
Bradley J. Williams 0 *
All directors, nominees and executive
officers as a group (9 persons, including
those named above) 801,512(10) 5.2%
Other beneficial owners:
John P. Schinas 1,430,352(11) 9.3%
P.O. Box 187
Rangeley, ME 04970
Dimensional Fund Advisors Inc. 1,291,350(12) 8.4%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
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* 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 32,813 shares covered by options which are exercisable within 60
days of the record date.
(3) Includes 76,250 shares covered by options which are exercisable within 60
days of the record date.
(4) Includes 239,483 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 125,208 shares covered by options which are exercisable within 60
days of the record date.
(6) Includes 19,250 shares covered by options which are exercisable within 60
days of the record date.
2
(7) Includes 134,500 shares covered by options which are exercisable within 60
days of the record date.
(8) Includes 3,125 shares covered by options which are exercisable within 60
days of the record date.
(9) Includes 79,000 shares covered by options which are exercisable within 60
days of the record date.
(10) Includes 235,875 shares covered by options which are exercisable within 60
days of the record date held by four non-employee directors of the Company
and 473,754 shares covered by options which are exercisable within 60 days
of the record date held by four executive officers of the Company.
(11) Based on the information received by the Company from a questionnaire
dated December 3, 2001, completed by the stockholder as to such
stockholder's beneficial ownership as of December 10, 2001.
(12) Based on information received by the Company on December 10, 2001 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 investment and voting power over 1,291,350 shares of the
Company's stock as of September 30, 2001. Such shares are owned by
Dimensional's portfolios and Dimensional disclaims beneficial ownership of
such shares.
3
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 2002 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 two-year term and Messrs. Dunsmore and
Williams to stand for election for a three-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 2002 Annual
Meeting:
DIRECTOR NOMINEE FOR TERM EXPIRING IN 2004:
Mykola Moroz, age 64
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 2005:
Joseph T. Dunsmore, age 43
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 now known as Agere Systems Inc., 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 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.
Bradley J. Williams, age 41
Mr. Williams has been a member of the Board of Directors of the Company
since June 2001. In January 2000, Mr. Williams co-founded Raviant Networks,
Inc., a provider of comprehensive software solutions and professional services
to the telecommunications industry, and currently serves on its Board of
Directors. From August 1996 to December 1999, Mr. Williams worked for Integrated
Network Solutions, a value-added reseller of hardware, software and network
services, where he started a telecommunications consulting division that was
eventually spun off as Raviant Networks. From January 1983 to December 1989, and
again from April 1994 to August 1996, Mr. Williams worked as a sales executive
for Digital Equipment Corporation, a computer manufacturer.
4
DIRECTORS WHOSE TERMS EXPIRE AFTER 2002:
Kenneth E. Millard, age 55
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.
Michael Seedman, age 45
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 and three private companies.
David Stanley, age 66
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 twelve times during fiscal 2001. All directors
attended at least 75% of the meetings of the Board and of the Committees on
which they served during fiscal 2001, except Mr. Seedman. 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), Moroz
and Williams. 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 five times during fiscal 2001. The responsibilities of the Audit
Committee are set forth in the Audit Committee Charter, which was amended by the
Company's Board of Directors in December 2001, a copy of which is included as
Exhibit A to this Proxy Statement.
Compensation Committee
The Company has a Compensation Committee consisting of Messrs. Millard
(Acting Chairman) and Williams, 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
Purchase Plan and the Digi International Inc. 2000 Omnibus Stock Plan. The
Compensation Committee met ten times during fiscal 2001.
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) and Stanley, met three times in fiscal 2001.
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.
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, 2001 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
6
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,
2001 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
David Stanley, Chairman
Mykola Moroz
Bradley J. Williams
AUDIT FEES
The aggregate fees billed for the audit of the Company's annual
consolidated financial statements for fiscal 2001 and for the review of the
Company's interim consolidated financial statements for each quarter in fiscal
2001 were approximately $288,000.
ALL OTHER FEES
The Company also paid its principal accountant approximately $87,000 for
all other services in fiscal 2001. These fees related primarily to preparation
and review of the Company's tax returns, consulting relating to accounting and
tax planning, due diligence relating to acquisitions by the Company, review of
filings with the Securities and Exchange Commission and review of the Company's
401-K plan. The Audit Committee has determined that the provision of these
non-audit services was compatible with maintaining the independence of the
Company's principal accountant.
7
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 2001.
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 the 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
2001, 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 2002, the base salaries of all
executive officers will remain unchanged from the prior year.
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.
8
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 2001 fiscal year, the Committee established Company-wide
financial objectives. Cash bonus targets for Messrs. Glader and Krishnan were
set 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. The fiscal
2001 financial objectives were not met, and accordingly such executive officers
were not entitled to a cash bonus for fiscal 2001.
The Committee has set criteria for achievement of cash bonuses in fiscal
2002 by the executive officers based upon the achievement of Company-wide
financial goals. For fiscal 2002, the Committee set the bonus target for Messrs.
Dunsmore, Glader, Krishnan and Berger at 100% of base salary. The cash bonus
plan for fiscal 2002 sets quarterly financial objectives for quarterly payments
of 50% of the bonus targets and annual financial objectives for annual payments
of 50% of the bonus targets. If an objective is not met, the executives will not
receive the bonus pay-out that corresponds to such objective, subject to the
Compensation Committee's authority to award bonuses in its discretion. The cash
bonus plan for fiscal 2002 also provides for a sliding scale for greater bonuses
if any of the bonus objectives are exceeded. At the maximum end of the scale, if
200% of any bonus objective is achieved, the bonus payout related to that
objective increases to 200% of the amount of the bonus targets. If the Company
achieves greater than 200% of the bonus objectives, the Committee has discretion
to determine whether bonus amounts in excess of 200% of the amount of the bonus
targets will be paid.
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. In September 2001, the Committee granted stock options to
certain employees, including the executive officers, with more favorable vesting
terms than customary partially in lieu of making discretionary cash bonus
payments. The options granted to employees were immediately exercisable and the
options granted to the executive officers vested over two years. The Committee
also administers the grant of stock-based incentive awards under the Company's
2000 Omnibus Stock Plan according to the same philosophy, although no such
awards have been made yet.
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 2001, Mr. Dunsmore was granted options to purchase 250,000
shares, Mr. Glader was granted options to purchase 30,000 shares, Mr. Krishnan
was granted options to purchase 80,000 shares and Mr. Berger was granted options
to purchase 60,000 shares at prices ranging from $5.20 per share to $7.00 per
share (each at the fair market value on the date of the grant).
401-K Savings and Profit Sharing Plan. Company officers may participate in
the Company's 401-K Savings and Profit Sharing Plan (the "401-K Plan") which
allows any Company employee (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. In 2002, an eligible employee can contribute up to 20 percent
of his or her earnings. Eligible employees who are regularly scheduled to work
more than 24 hours per week 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 2001 and will be $11,000 in
9
2002. The annual maximum will be increased by $1,000 per year through 2006, and
then indexed for inflation in future years.
Under the 401-K Plan, the Company provides a matching contribution and has
the discretion to make a profit sharing contribution. Profit sharing
contributions are allocated in proportion to the earnings of eligible
participants. 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. No profit
sharing contributions were made in fiscal 2001.
Matching contributions are allocated in proportion to the contributions
each participant makes from his or her salary. Matching contributions are made
each pay period for those employees who are active participants during the pay
period, based on the contributions made by the employee during that pay period.
For 2001, 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. In 2002, the Company will provide a dollar for dollar match on
contributions up to 3% of the participant's salary and a 50 cent match on each
dollar of contributions representing the next 2% of the participant's salary.
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 2001 the members of the Committee
were Kenneth E. Millard (Acting Chairman) and Bradley J. Williams. Richard E.
Eichhorn also served on the Committee until his term as a director ended on
January 24, 2001 and Robert S. Moe served on the Committee until his resignation
from the Board of Directors on April 18, 2001. The Committee members have no
interlocking relationships as defined by the Securities and Exchange Commission.
COMPENSATION COMMITTEE
Kenneth E. Millard, Acting Chairman
Bradley J. Williams
10
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning
annual and long-term compensation for the fiscal years ended September 30, 2001,
2000, and 1999 provided to the individual who served as Chief Executive Officer
during fiscal 2001 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, 2001.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- AWARDS
NAME AND FISCAL ------------ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
------------------------------------------- ------ -------- -------- ------------ ------------
Joseph T. Dunsmore, Chairman of the Board, 2001 $260,000 $ 0 250,000 $ 2,985
President and Chief Executive Officer(1) 2000 239,808 260,000 240,000 3,379
Douglas J. Glader, Executive Vice President 2001 225,000 0 30,000 188,133
of the Company and General Manager 2000 232,789 168,750 110,000 131,917
of MiLAN Technology(2) 1999 193,242 147,288 60,000 7,455
Subramanian Krishnan, Senior Vice 2001 200,000 0 80,000 3,495
President, Chief Financial Officer and 2000 207,000 150,000 110,000 3,495
Treasurer(3) 1999 122,019 108,000 85,000 4,697
Bruce H. Berger, Senior Vice President 2001 200,000 0 60,000 2,572
and Managing Director of European 2000 87,692 75,000 75,000 51,131
Operations(4)
------------------------------
(1) Mr. Dunsmore joined the Company as President and Chief Executive Officer,
and a director, in October 1999 and became Chairman of the Board of
Directors in May 2000. Amounts included in All Other Compensation for Mr.
Dunsmore for 2001 include the Company's matching contribution to the 401-K
Plan of $2,500 allocated to Mr. Dunsmore's account and term life insurance
premiums of $485 paid for Mr. Dunsmore. Amounts for 2000 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.
(2) Mr. Glader joined the Company in 1994 serving in various executive
management positions and he became Executive Vice President and Chief
Operating Officer of the Company in April 1999. He became Executive Vice
President of the Company 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 2001 include the Company's matching
contribution to the 401-K Plan of $2,500 allocated to Mr. Glader's account,
life insurance premiums of $1,675 paid for Mr. Glader, reimbursement for
relocation expenses of $4,273 incurred in connection with his employment,
housing allowance payments of $101,780 and reimbursement of Mr. Glader's
tax liability of $77,905 resulting from the relocation expense
reimbursement and housing allowance payments paid to Mr. Glader. Amounts
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.
(3) 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 each of 2001 and 2000
11
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. 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.
(4) Mr. Berger joined the Company as Vice President and Managing Director of
European Operations in May 2000 and became Senior Vice President and
General Manager of European Operations in December 2001. Amounts
represented in All Other Compensation for Mr. Berger for 2001 include the
Company's matching contribution to the 401-K Plan of $2,192 allocated to
Mr. Berger's account and term life insurance premiums of $380 paid for Mr.
Berger. Amounts for 2000 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 $18,426
resulting from the relocation expense reimbursement, vehicle allowance
payments and incidental expense reimbursement paid to Mr. Berger.
12
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERMS (1)
GRANTED IN FISCAL PRICE EXPIRATION --------------------------------
NAME (#) YEAR ($/SH) DATE 0% ($) 5% ($) 10% ($)
--------------------------------------------- ---------- ---------- -------- ---------- ------ ---------- ----------
Joseph T. Dunsmore........................... 100,000(2) 6.4024% $7.00 10/10/10 $0 $ 440,226 $1,115,620
Joseph T. Dunsmore........................... 150,000(3) 9.6035 5.20 09/28/11 0 490,538 1,243,119
Douglas J. Glader............................ 30,000(3) 1.9207 5.20 09/28/11 0 98,108 248,624
Subramanian Krishnan......................... 80,000(3) 5.1219 5.20 09/28/11 0 261,620 662,997
Bruce H. Berger.............................. 60,000(3) 3.8414 5.20 09/28/11 0 196,215 497,248
---------------------------------------------------------------------------------------------------------------------------------
(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 as to 25,000 shares on October 10, 2001,
and as to the remaining 75% of the shares in equal installments on the
tenth day of the next 36 months beginning on November 10, 2001. These
options will vest in full immediately prior to termination of the
optionee's employment by the Company without cause or upon a change in
control of the Company.
(3) These options become exercisable in 50% increments on September 28, 2002
and September 28, 2003. These options will vest in full immediately prior
to termination of the optionee's employment by the Company without cause or
upon a change in control of the Company.
13
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 2001 and any value of their unexercised
stock options as of September 30, 2001. The Named Officers did not exercise
stock options in fiscal 2001 pursuant to the Company's Stock Option Plan. The
Company has not issued any stock appreciation rights to the Named Officers.
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
---- ----------- -------- ----------- ------------- ----------- -------------
Joseph T. Dunsmore........... 0 $ 0 15,000 475,000 $ 0 $ 3,000
Douglas J. Glader............ 0 0 218,130 124,270 0 600
Subramanian Krishnan......... 0 0 102,188 172,812 0 1,600
Bruce H. Berger.............. 0 0 26,563 108,437 0 1,200
------------------------------
(1) Value is based on a share price of $5.22, which was the last reported sale
price for a share of Common Stock on the Nasdaq National Market System on
September 28, 2001, minus the exercise price.
14
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
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 $260,000. The
Committee will continue to 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 $260,000 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 base 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. In October 2000, Mr. Dunsmore was granted an
option to purchase 100,000 shares of Common Stock of the Company at the fair
market value on the date of grant, vesting as to 25,000 shares on October 10,
2001, and as to the remaining 75% of the shares in equal installments on the
tenth day of the next 36 months beginning on November 10, 2001. In September
2001, Mr. Dunsmore was granted an option to purchase 150,000 shares of Common
Stock of the Company at the fair market value on the date of grant, vesting in
50% increments on September 28, 2002 and September 28, 2003. All of Mr.
Dunsmore's options 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
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 twelve months.
Douglas J. Glader. The Company's agreement with Mr. Glader on February 6,
1995, as amended, 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 and 2001 was increased to $225,000 and will remain
$225,000 for fiscal 2002. 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
2001. In September 2001, Mr. Glader was granted an option to purchase 30,000
shares of Common Stock of the Company at the fair market value on the date of
grant, vesting in 50% increments on September 28, 2002 and September 28, 2003.
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. Mr. Glader also is entitled
15
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
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 Company may demand repayment at any time but has not yet made
such request. 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 at any time, 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 2001 and will
remain $200,000 for fiscal 2002. In September 2001, Mr. Krishnan was granted an
option to purchase 80,000 shares of Common Stock of the Company at the fair
market value on the date of grant, vesting in 50% increments on September 28,
2002 and September 28, 2003. The options granted to Mr. Krishnan in September
2001, and those options granted 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 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 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. In September 2001, Mr. Berger was granted an
option to purchase 60,000 shares of Common Stock of the Company at the fair
market value on the date of grant, vesting in 50% increments on September 28,
2002 and September 28, 2003. 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.
16
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.
The Company also entered into a letter agreement with Mr. Berger dated
December 14, 2001, which provides that Mr. Berger will hold the position of
Senior Vice President of the Company and General Manager of NetSilicon, Inc.
("NetSilicon") contingent on the closing of the proposed merger of NetSilicon
into a wholly owned subsidiary of the Company. The letter provides that Mr.
Berger will be paid an annual base salary of $200,000 and is entitled to a cash
bonus equal to $180,000, provided that the objectives set by the Committee are
met.
Pursuant to the terms of the letter agreement, the Company will provide Mr.
Berger with a cost of living adjustment payment in the amount of 12.5% of his
base salary during the time he is employed in the Boston, Massachusetts area.
The letter agreement also provides for reimbursement of Mr. Berger's relocation
expenses and closing costs on the purchase of a new home, including
reimbursement of up to $12,000 in mortgage loan origination fees. The agreement
also provides that the Company will reimburse Mr. Berger for any federal and
state income taxes imposed on the relocation and closing cost reimbursement
payments and the first $6,000 of taxes imposed on the mortgage loan origination
fee reimbursement. The letter agreement provides that, for purposes of
calculating any severance due to Mr. Berger as described above, his base salary
would include his base salary and cost of living adjustment payment.
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, 2001.
17
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, 1996 to September 30, 2001, the last
day of fiscal 2001, 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, 1996 for the Common Stock, the CRSP Index and the Peer Index and
assumes the reinvestment of all dividends.
[LINE GRAPH/PERFORMANCE CHART]
NASDAQ COMPUTER
NASDAQ STOCK MARKET (US MANUFACTURERS STOCKS SIC
DIGI INTERNATIONAL INC. COMPANIES) 3570-3579 US & FOREIGN
----------------------- ----------------------- ------------------------
09/30/96 100.000 100.000 100.000
103.509 98.890 100.373
92.105 105.020 109.246
66.667 104.931 104.888
58.772 112.375 114.140
57.895 106.157 98.223
50.000 99.233 88.137
46.491 102.326 91.734
63.158 113.914 112.920
71.053 117.417 113.819
80.702 129.788 138.573
105.263 129.595 138.059
09/30/97 100.000 137.275 142.836
106.140 130.123 132.128
136.404 130.810 133.487
119.298 128.515 126.736
160.965 132.589 138.336
170.175 145.047 156.739
193.421 150.410 156.014
186.842 152.954 167.167
159.649 144.456 163.320
142.105 154.545 184.960
135.088 152.735 193.908
71.930 122.454 168.298
09/30/98 85.965 139.442 202.840
105.263 145.568 210.771
91.228 160.364 231.139
78.070 181.198 275.621
69.737 207.497 339.945
45.614 188.916 286.339
47.368 203.207 310.348
53.509 209.753 319.976
58.772 203.942 302.083
73.246 222.291 345.330
80.702 218.283 348.722
79.824 227.512 393.765
09/30/99 76.754 227.824 392.405
86.842 246.085 420.010
113.158 276.020 495.357
73.246 336.732 585.065
83.772 324.299 564.134
78.947 385.998 689.187
64.912 378.035 732.994
38.158 317.964 649.511
35.965 279.607 543.183
45.614 328.703 635.788
43.860 310.884 640.003
54.386 347.634 729.545
9/29/00 55.263 302.468 648.748
50.877 277.650 589.974
42.982 213.904 400.809
42.982 202.539 329.535
46.930 227.104 393.305
41.667 175.822 268.414
40.570 151.177 234.812
42.316 173.734 264.994
62.807 173.521 247.512
61.333 178.183 254.549
62.456 166.857 246.582
63.158 148.678 191.309
9/28/01 36.632 123.637 147.917
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 $100.00 on 09/30/1996.
18
PROPOSED AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
PROPOSED AMENDMENT
On November 10, 1995, the Board of Directors adopted the Digi International
Inc. Employee Stock Purchase Plan (the "Purchase Plan"), which was approved by
the stockholders and became effective April 1, 1996. As of September 30, 2001,
there were 128,152 shares available for future issuances under the Purchase
Plan. On December 14, 2001, the Board of Directors approved an amendment to the
Purchase Plan to increase the number of shares of Common Stock of the Company
that are reserved for future purchase under the Purchase Plan by 750,000 shares
and directed that the amendment be submitted for approval by the stockholders at
the 2002 Annual Meeting of Stockholders. The purpose of this amendment is to
ensure that the Company has sufficient shares reserved for future purchases by
participants in the Purchase Plan.
PURPOSE OF THE PURCHASE PLAN
The purpose of the Purchase Plan is to provide eligible employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of its Common Stock and, thus, to develop a stronger incentive to work
for the continued success of the Company. The Purchase Plan is an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code").
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). Subject to the provisions of the Purchase
Plan, the Committee is authorized to determine any questions arising in the
administration, interpretation and application of the Purchase Plan, and to make
such uniform rules as may be necessary to carry out its provisions.
ELIGIBILITY AND NUMBER OF SHARES
If the proposed amendment is approved by the stockholders, there will be a
total of 1,250,000 shares of Common Stock of the Company available for purchase
under the Purchase Plan, subject to appropriate adjustments by the Committee in
the event of certain changes in the outstanding shares of Common Stock by reason
of stock dividends, stock splits, corporate separations, recapitalizations,
mergers, consolidations, combinations, exchanges of shares or similar
transactions. As of September 30, 2001, 371,848 of these shares have been
purchased by participants. Shares sold pursuant to the Purchase Plan may be
newly issued shares or treasury shares previously acquired by the Company.
Any employee of the Company or a parent or subsidiary corporation of the
Company (including officers and any directors who are also employees) is
eligible to participate in the Purchase Plan for any Purchase Period (as defined
below) so long as, on the first day of such Purchase Period, the employee has
completed at least 90 days of continuous service and is customarily employed at
least 20 hours per week. "Purchase Period" means each quarter of the Company's
fiscal year.
Any eligible employee may elect to become a participant in the Purchase
Plan for any Purchase Period by filing an enrollment form in advance of the
Purchase Period to which it relates. The enrollment form authorizes payroll
deductions beginning with the first payday in such Purchase Period and
continuing until the employee modifies his or her authorization, withdraws from
the Purchase Plan or ceases to be eligible to participate.
No employee may participate in the Purchase Plan if such employee would be
deemed for purposes of the Code to own stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company.
The Company currently has approximately 350 employees who are eligible to
participate in the Purchase Plan.
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PARTICIPATION
An eligible employee who elects to participate in the Purchase Plan
authorizes the Company to make payroll deductions of a specified whole
percentage from 1% to 10% of the employee's gross cash compensation. A
participant may, at any time during a Purchase Period, direct the Company to
adjust the amount of deductions (within those limits) or make no further
deductions, as set forth in greater detail in the Purchase Plan. A participant
may also elect to withdraw from the Purchase Plan at any time before the end of
a Purchase Period. In the event of a withdrawal, all future payroll deductions
will cease and the amounts withheld will be paid to the participant in cash
within 15 days. Any participant who stops payroll deductions may not thereafter
resume payroll deductions for that Purchase Period, and any participant who
withdraws from the Purchase Plan will not be eligible to reenter the Purchase
Plan until the next succeeding Purchase Period.
Amounts withheld under the Purchase Plan are held by the Company as part of
its general assets until the end of the Purchase Period and then applied to the
purchase of Common Stock of the Company as described below. No interest will be
credited to a participant for amounts withheld.
PURCHASE OF STOCK
Amounts withheld for a participant in the Purchase Plan are used to
purchase Common Stock of the Company as of the last day of the Purchase Period
at a price equal to the 85% of the lesser of the Fair Market Value (as defined
in the Purchase Plan) of a share of Common Stock on either the first or last day
of the Purchase Period. All amounts so withheld will be used to purchase the
number of shares of Common Stock (including fractional shares) that can be
purchased with such amount, unless the participant has properly notified the
Company that he or she elects to purchase a lesser number of shares or to
receive the entire amount in cash.
If purchases by all participants would exceed the number of shares of
Common Stock available for purchase under the Purchase Plan, each participant
will be allocated a ratable portion of such available shares. Any amount not
used to purchase shares of Common Stock will be refunded to the participant in
cash.
Shares of Common Stock acquired by each participant are held in a general
account maintained for the benefit of all participants. Certificates for the
number of whole shares of Common Stock purchased by a participant will be issued
and delivered to him or her only upon the request of such participant or his or
her representative. No certificates for fractional shares will be issued and
participants will instead receive cash representing any fractional share.
Dividends with respect to a participant's shares held in the general account
will, at the election of the participant, either be paid to the participant in
cash or reinvested in additional shares of Common Stock of the Company. If a
participant fails to make such an election, all dividends with respect to the
participant's shares held in the general account will automatically be
reinvested to purchase additional shares of Common Stock of the Company. Each
participant is entitled to vote all shares held for the benefit of such
participant in the general account.
No more than $25,000 in Fair Market Value (determined on the first day of
the respective Purchase Periods) of shares of Common Stock may be purchased
under the Purchase Plan and all other employee stock purchase plans, if any, of
the Company and any parent or subsidiary corporation of the Company by any
participant for each calendar year.
DEATH, DISABILITY, RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
If the employment of a participant is terminated for any reason, including
death, disability or retirement, the amounts previously withheld will be applied
to the purchase of shares of Common Stock as of the last day of the Purchase
Period in which the participant's employment terminated, unless the participant
has properly notified the Company prior to the last day of such Purchase Period
that he or she elects to receive a refund of all amounts previously withheld.
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RIGHTS NOT TRANSFERABLE
The rights of a participant under the Purchase Plan are exercisable only by
the participant during his or her lifetime. No right or interest of any
participant in the Purchase Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution.
AMENDMENT OR MODIFICATION
The Board of Directors may at any time amend the Purchase Plan in any
respect which shall not adversely affect the rights of participants pursuant to
shares previously acquired under the Purchase Plan, provided that approval by
the stockholders of the Company is required to (i) increase the number of shares
of Common Stock to be reserved under the Purchase Plan (except for adjustments
by reason of stock dividends, stock splits, corporate separations,
recapitalizations, mergers, consolidations, combinations, exchanges of shares
and similar transactions), (ii) decrease the minimum purchase price, (iii)
withdraw the administration of the Purchase Plan from the Committee, or (iv)
change the definition of employees eligible to participate in the Purchase Plan.
TERMINATION
All rights of participants in any offering under the Purchase Plan will
terminate at the earlier of (i) the day that participants become entitled to
purchase a number of shares of Common Stock equal to or greater than the number
of shares remaining available for purchase or (ii) at any time, at the
discretion of the Board of Directors, after 30 days' notice has been given to
all participants. Upon termination of the Purchase Plan, shares of Common Stock
will be issued to participants in accordance with the terms of the Purchase
Plan, and cash, if any, previously withheld and not used to purchase Common
Stock will be refunded to the participants, as if the Purchase Plan were
terminated at the end of a Purchase Period.
FEDERAL TAX CONSIDERATIONS
Participants will not recognize any income as a result of participation in
the Purchase Plan until the disposal of shares acquired under the Purchase Plan
or the death of the participant. Participants who hold their shares for more
than 21 months or die while holding their shares will recognize ordinary income
in the year of disposition or death equal to the lesser of (i) the excess of the
fair market value of the shares on the date of disposition or death over the
purchase price paid by the participant or (ii) 15% of the fair market value of
the shares on the first day of the Purchase Period in which the shares were
purchased. If the holding period has been satisfied when the participant sells
the shares or if the participant dies while holding the shares, the Company will
not be entitled to any deduction in connection with the transfer of such shares
to the participant.
Participants who hold their shares for less than 21 months after the shares
are transferred to them will be considered to have realized ordinary income in
the year of disposition in an amount equal to the excess of the fair market
value of the shares on the date they were purchased by the participant over the
purchase price paid by the participant. If such dispositions occur, the Company
generally will be entitled to a deduction at the same time and in the same
amount as the ordinary income realized by the participants.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of disposition of the shares. Any additional gain or loss realized on the
disposition of shares acquired under the Purchase Plan will be capital gain or
loss.
COPY OF PURCHASE PLAN
The full text of the Purchase Plan is included as Exhibit B to this Proxy
Statement, to which Exhibit reference is made for a complete statement of the
terms of the Purchase Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT TO THE DIGI INTERNATIONAL INC. EMPLOYEE STOCK
PURCHASE PLAN.
21
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, 2002, 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 on Form 10-K of the Company for the fiscal year ended
September 30, 2001, 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 28, 2001
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EXHIBIT A
DIGI INTERNATIONAL INC.
AUDIT COMMITTEE CHARTER
(AS OF DECEMBER 14, 2001)
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 addition, the
Committee is entitled to rely on information provided by the Company's
management and the outside auditors with respect to the nature of services
provided by the outside auditor and the fees paid for such services.
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;
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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;
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;
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;
h) review the terms of proposed engagements of the outside auditors
relating to services to the Company in connection with any formal
investigation of possible fraud, financial statement misstatements or
material weaknesses in internal controls, prior to such engagements;
and
i) consider whether the provision of the services by the outside
auditors (other than those services rendered in respect of the audit
or review of the Company's annual or quarterly financial statements)
is compatible with maintaining the outside auditor's independence.
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.
EMPLOYEE STOCK PURCHASE PLAN
(AS OF DECEMBER 14, 2001)
1. Purpose and Scope of Plan. The purpose of this Digi International Inc.
Employee Stock Purchase Plan (the "Plan") is to provide the employees of Digi
International Inc. (the "Company") with an opportunity to acquire a proprietary
interest in the Company through the purchase of its Common Stock and, thus, to
develop a stronger incentive to work for the continued success of the Company.
The Plan is intended to be an "employee stock purchase plan" within the meaning
of Section 423(b) of the Internal Revenue Code of 1986, as amended, and shall be
interpreted and administered in a manner consistent with such intent.
2. Definitions.
2.1. The terms defined in this section are used (and capitalized)
elsewhere in this Plan:
(a) "Affiliate" means any corporation that is a "parent
corporation" or "subsidiary corporation" of the Company, as defined in
Sections 424(e) and 424(f) of the Code or any successor provision, and
whose participation in the Plan has been approved by the Board of
Directors.
(c) "Board of Directors" means the Board of Directors of the
Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means three or more Disinterested Persons
designated by the Board of Directors to administer the Plan under
Section 13.
(f) "Common Stock" means the common stock, par value $.01 per share
(as such par value may be adjusted from time to time), of the Company.
(g) "Company" means Digi International Inc.
(h) "Compensation" means the gross cash compensation (including
wage, salary, commission, bonus, and overtime earnings) paid by the
Company or any Affiliate to a Participant in accordance with the terms
of employment.
(i) "Disinterested Persons" means a member of the Board of
Directors who is considered a disinterested person within the meaning of
Exchange Act Rule 16b-3 or any successor definition.
(j) "Eligible Employee" means any employee of the Company or an
Affiliate who has been employed for at least 90 days and whose customary
employment is at least 20 hours per week; provided, however, that
"Eligible Employee" shall not include any person who would be deemed for
purposes of Section 423(b)(3) of the Code, to own stock possessing 5% or
more of the total combined voting power or value of all classes of stock
of the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(l) "Fair Market Value" of a share of Common Stock as of any date
means, if the Company's Common Stock is listed on a national securities
exchange or traded in the national market system, the mean between the
high and low sale prices for such Common Stock on such exchange or
market on said date, or, if no sale has been made on such exchange or
market on said date, on the last preceding day on which any sale shall
have been made. If such determination of Fair Market Value is not
consistent with the then current regulations of the Secretary of the
Treasury applicable to plans intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423(b) of the Code,
however, Fair Market Value shall be determined in accordance with such
regulations. The determination of Fair Market Value shall be subject to
adjustment as provided in Section 14.
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(m) "Participant" means an Eligible Employee who has elected to
participate in the Plan in the manner set forth in Section 4.
(n) "Plan" means this Digi International Inc. Employee Stock
Purchase Plan, as amended from time to time.
(o) "Purchase Period" means each quarter of the Company's fiscal
year. The first Purchase Period will be the quarter that starts April 1,
1996 and ends June 30, 1996.
(p) "Recordkeeping Account" means the account maintained in the
books and records of the Company recording the amount withheld from each
Participant through payroll deductions made under the Plan.
3. Scope of the Plan. Shares of Common Stock may be sold by the Company to
Eligible Employees commencing April 1, 1996, as hereinafter provided, but not
more than 1,250,000 shares of Common Stock (subject to adjustment as provided in
Section 14) shall be sold to Eligible Employees pursuant to this Plan. All sales
of Common Stock pursuant to this Plan shall be subject to the same terms,
conditions, rights and privileges. The shares of Common Stock delivered by the
Company pursuant to this Plan may be acquired shares having the status of any
combination of authorized but unissued shares, newly issued shares, or treasury
shares.
4. Eligibility and Participation. To be eligible to participate in the
Plan for a given Purchase Period, an employee must be an Eligible Employee on
the first day of such Purchase Period. An Eligible Employee may elect to
participate in the Plan by filing an enrollment form with the Company before the
first day of such Purchase Period that authorizes regular payroll deductions
from Compensation beginning with the first payday in such Purchase Period and
continuing until the Eligible Employee withdraws from the Plan, modifies his or
her authorization, or ceases to be an Eligible Employee, as hereinafter
provided.
5. Amount of Common Stock Each Eligible Employee May Purchase.
5.1. Subject to the provisions of the Plan, each Eligible Employee
shall be offered the right to purchase on the last day of the Purchase
Period the number of shares of Common Stock (including fractional shares)
that can be purchased at the price specified in Section 5.2 with the entire
credit balance in the Participant's Recordkeeping Account; provided,
however, that the Fair Market Value (determined on the first day of any
Purchase Period) of shares of Common Stock that may be purchased by a
Participant during such Purchase Period shall not exceed the excess, if
any, of (i) $25,000 over (ii) the Fair Market Value (determined on the
first day of the relevant Purchase Period) of shares of Common Stock
previously acquired by the Participant in any prior Purchase Period during
such calendar year. Notwithstanding the foregoing, no Eligible Employee
shall be granted an option to acquire shares of Common Stock under this
Plan which permits the Eligible Employee's rights to purchase shares of
Common Stock under this Plan and all employee stock purchase plans of the
Company and the Affiliates to accrue at a rate which exceeds $25,000 of
Fair Market Value (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time. If the
purchases by all Participants would otherwise cause the aggregate number of
shares of Common Stock to be sold under the Plan to exceed the number
specified in Section 3, however, each Participant shall be allocated at a
ratable portion of the maximum number of shares of Common Stock which may
be sold.
5.2. The purchase price of each share of Common Stock sold pursuant
to this Plan will be the lesser of (a) or (b) below:
(a) 85% of the Fair Market Value of such share on the first day of
the Purchase Period.
(b) 85% of the Fair Market Value of such share on the last day of
the Purchase Period.
6. Method of Participation.
6.1. The Company shall give notice to each Eligible Employee of the
opportunity to purchase shares of Common Stock pursuant to this Plan and
the terms and conditions for such offering. Such notice is subject to
revision by the Company at any time prior to the date of purchase of such
shares. The
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Company contemplates that for tax purposes the first day of a Purchase
Period will be the date of the offering of such shares.
6.2. Each Eligible Employee who desires to participate in the Plan
for a purchase Period shall signify his or her election to do so by signing
an election form developed by the Committee. An Eligible Employee may elect
to have any whole percent of Compensation withheld, but not exceeding ten
percent (10%) per pay period. An election to participate in the Plan and to
authorize payroll deductions as described herein must be made before the
first day of the Purchase Period to which it relates and shall remain in
effect unless and until such Participant withdraws from this Plan, modifies
his or her authorization, or terminates his or her employment with the
Company, as hereinafter provided.
6.3. Any Eligible Employee who does not make a timely election as
provided in Section 6.2, shall be deemed to have elected not to participate
in the Plan. Such election shall be irrevocable for such Purchase Period.
7. Recordkeeping Account.
7.1. The Company shall maintain a Recordkeeping Account for each
Participant. Payroll deductions pursuant to Section 6 will be credited to
such Recordkeeping Accounts on each payday.
7.2. No interest will be credited to a Participant's Recordkeeping
Account.
7.3. The Recordkeeping Account is established solely for accounting
purposes, and all amounts credited to the Recordkeeping Account will remain
part of the general assets of the Company.
7.4. A Participant may not make any separate cash payment into the
Recordkeeping Account.
8. Right to Adjust Participation or To Withdraw.
8.1. A Participant may, at any time during a Purchase Period, direct
the Company to make no further deductions from his or her Compensation or
to adjust the amount of such deductions. Upon either of such actions,
future payroll deductions with respect to such Participant shall cease or
be adjusted in accordance with the Participant's direction.
8.2. Any Participant who stops payroll deductions may not thereafter
resume payroll deductions during such Purchase Period.
8.3. At any time before the end of a Purchase Period, any Participant
may also withdraw from the Plan. In such event, all future payroll
deductions shall cease and the entire credit balance in the Participant's
Recordkeeping Account will be paid to the Participant, without interest, in
cash within 15 days. A Participant who withdraws from the Plan will not be
eligible to reenter the Plan until the next succeeding Purchase Period.
8.4. Notification of a Participant's election to adjust or terminate
deductions, or to withdraw from the Plan, shall be made by the filing of an
appropriate notice to such effect with the Company.
9. Termination of Employment. If the employment of a Participant is
terminated for any reason, including death, disability, or retirement, the
entire balance in the Participant's Recordkeeping Account will be applied to the
purchase of shares as provided in Section 10.1 as of the last day of the
Purchase Period in which the Participant's employment terminated; except that if
such Participant so requests prior to the last day of such Purchase Period, the
Company shall refund in cash within 15 days all amounts credited to his or her
Recordkeeping Account.
10. Purchase of Shares.
10.1. As of the last day of the Purchase Period, the entire credit
balance in each Participant's Recordkeeping Account will be used to
purchase shares (including fractional shares) of Common Stock (subject to
the limitations of Section 5) unless the Participant has filed an
appropriate form with the Company in advance of that date (which either
elects to purchase a specified number of shares which is less than the
number described above or elects to receive the entire credit balance in
cash). Any amount
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in a Participant's Recordkeeping Account that is not used to purchase
shares pursuant to this Section 10.1 will be refunded to the Participant.
10.2. Shares of Common Stock acquired by each Participant shall be
held in a general account maintained for the benefit of all Participants.
10.3. Certificates for the number of whole shares of Common Stock,
determined as aforesaid, purchased by each Participant shall be issued and
delivered to him or her only upon request of the Participant or his or her
representative directed to the Company. No Certificates for fractional
shares will be issued. Instead, Participants will receive a cash
distribution representing any fractional shares.
10.4. Dividends with respect to a Participant's shares held in the
general account will, at the election of the Participant, either be paid to
the Participant in cash or reinvested in additional shares of Common Stock.
If a Participant fails to make such an election, all dividends with respect
to the Participant's shares held in the general account will automatically
be reinvested to purchase additional shares of Common Stock.
10.5. Each Participant will be entitled to vote all shares held for
the benefit of such Participant in the general account.
11. Rights as a Stockholder. A Participant shall not be entitled to any of
the rights or privileges of a stockholder of the Company with respect to such
shares, including the right to receive any dividends which may be declared by
the Company, until (i) he or she actually has paid the purchase price for such
shares and (ii) either the shares have been credited to his or her account or
certificates have been issued to him or her, both as provided in Section 10.
12. Rights Not Transferable. A Participant's rights under this Plan are
exercisable only by the Participant during his or her lifetime, and may not be
sold, pledged, assigned or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge, assign or
transfer the same shall be null and void and without effect. The amounts
credited to a Recordkeeping Account may not be assigned, transferred, pledged or
hypothecated in any way, and any attempted assignment, transfer, pledge,
hypothecation or other disposition of such amounts will be null and void and
without effect.
13. Administration of the Plan. This Plan shall be administered by the
Committee, which is authorized to make such uniform rules as may be necessary to
carry out its provisions. The Committee shall determine any questions arising in
the administration, interpretation and application of this Plan, and all such
determinations shall be conclusive and binding on all parties.
14. Adjustment Upon Changes in Capitalization. In the event of any change
in the Common Stock of the Company by reason of stock dividends, split-ups,
corporate separations, recapitalizations, mergers, consolidations, combinations,
exchanges of shares and the like, the aggregate number and class of shares
available under this Plan and the number, class and purchase price of shares
available but not yet purchased under this Plan, shall be adjusted appropriately
by the Committee.
15. Registration of Certificates. Stock certificates will be registered in
the name of the Participant, or jointly in the name of the Participant and
another person, as the Participant may direct on an appropriate form.
16. Amendment of Plan. The Board of Directors may at any time amend this
Plan in any respect which shall not adversely affect the rights of Participants
pursuant to shares previously acquired under the Plan, except that, without
stockholder approval on the same basis as required by Section 19.1, no amendment
shall be made (i) to increase the number of shares to be reserved under this
Plan, (ii) to decrease the minimum purchase price, (iii) to withdraw the
administration of this Plan from the Committee, or (iv) to change the definition
of employees eligible to participate in the Plan.
17. Effective Date of Plan. This Plan shall consist of an offering
commencing April 1, 1996, and ending June 30, 1996, and continuing on a
quarterly basis thereafter. All rights of Participants in any offering hereunder
shall terminate at the earlier of (i) the day that Participants become entitled
to purchase a number
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of shares of Common Stock equal to or greater than the number of shares
remaining available for purchase or (ii) at any time, at the discretion of the
Board of Directors, after 30 days' notice has been given to all Participants.
Upon termination of this Plan, shares of Common Stock shall be issued to
Participants in accordance with Section 10, and cash, if any, remaining in the
Participant's Recordkeeping Accounts shall be refunded to them, as if the Plan
were terminated at the end of a Purchase Period.
18. Governmental Regulations and Listing. All rights granted or to be
granted to Eligible Employees under this Plan are expressly subject to all
applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale or
transfer of the shares of Common Stock reserved for this Plan, including,
without limitation, there being a current registration statement of the Company
under the Securities Act of 1933, as amended, covering the shares of Common
Stock purchasable on the last day of the Purchase Period applicable to such
shares, and if such a registration statement shall not then be effective, the
term of such Purchase Period shall be extended until the first business day
after the effective date of such a registration statement, or post-effective
amendment thereto. If applicable, all such rights hereunder are also similarly
subject to effectiveness of an appropriate listing application to a national
securities exchange or a national market system, covering the shares of Common
Stock under the Plan upon official notice of issuance.
19. Miscellaneous.
19.1. This Plan shall be submitted for approval by the stockholders of
the Company prior to June 30, 1996. If not so approved prior to such date,
this Plan shall terminate on June 30, 1996.
19.2. This Plan shall not be deemed to constitute a contract of
employment between the Company and any Participant, nor shall it interfere
with the right of the Company to terminate any Participant and treat him or
her without regard to the effect which such treatment might have upon him
or her under this Plan.
19.3. Wherever appropriate as used herein, the masculine gender may be
read as the feminine gender, the feminine gender may be read as the
masculine gender, the singular may be read as the plural and the plural may
be read as the singular.
19.4. The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Minnesota.
19.5. Delivery of shares of Common Stock or of cash pursuant to this
Plan shall be subject to any required withholding taxes. A person entitled
to receive shares of Common Stock may, as a condition precedent to
receiving such shares, be required to pay the Company a cash amount equal
to the amount of any required withholdings.
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[DIGI LOGO] DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
Annual Meeting of Stockholders
Wednesday, January 23, 2002
3:30 PM
Minneapolis Marriott Southwest
5801 Opus Parkway
Minnetonka, Minnesota
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[DIGI LOGO] DIGI INTERNATIONAL INC.
11001 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
PROXY
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
ANNUAL MEETING ON JANUARY 23, 2002
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 10, 2001, at the Annual Meeting of
Stockholders to be held on January 23, 2002, or any adjournment thereof.
See reverse for voting instructions.
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|PROXY |
1. Election of Directors. 01 Mykola Moroz [ ] FOR ALL NOMINEES [ ] WITHHOLD
02 Joseph T. Dunsmore 03 Bradley J. LISTED TO THE AUTHORITY
Williams. Mr. Moroz will serve for a LEFT (except as to vote for
term of two years and Messrs. Dunsmore marked to the all nominees
and Williams 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 amendment of the Digi
International Inc. Employee Stock Purchase
Plan (the "Purchase Plan") to reserve [ ] For [ ] Against [ ] Abstain
750,000 additional shares of Common Stock
for future purchases under the Purchase Plan.
3. Ratification of the appointment of
PricewaterhouseCoopers LLP as independent [ ] For [ ] Against [ ] Abstain
public accountants of the Company for the
2002 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: ----------------------------
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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.
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| PLEASE MARK, SIGN, DATE AND |
| RETURN THE PROXY CARD PROMPTLY|
| USING THE ENCLOSED ENVELOPE |
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