Digi International (DGII) DEF 14ADefinitive proxy

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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DIGI INTERNATIONAL INC.

9350 Excelsior Blvd.
Hopkins, Minnesota 55343
952/912-3444

December 18, 2020

Dear Stockholder:

        You are cordially invited to attend our Annual Meeting of Stockholders, commencing at 3:30 p.m., Central Standard Time, on Friday, January 29, 2021. Due to health and safety concerns relating to the COVID-19 pandemic, the Annual Meeting will be held in a virtual only meeting format. Stockholders will not be able to physically attend the Annual Meeting.

        The Secretary's Notice of Annual Meeting and the Proxy Statement that follow describe the matters to come before the meeting. Whether or not you plan to log into the Annual Meeting, please vote your shares promptly so they can be represented at the meeting. If you have elected to receive a full set of proxy materials, then please sign the enclosed proxy card and return it in the accompanying postage-paid reply envelope as quickly as possible. If you later desire to revoke your proxy or voting instructions, you will have an opportunity to do so.

Sincerely,

Satbir Khanuja, Ph.D.
Non-Executive Chairman of the Board

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DIGI INTERNATIONAL INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on
January 29, 2021

        The Annual Meeting of Stockholders of Digi International Inc. will be held at 3:30 p.m., Central Standard Time, on Friday, January 29, 2021, in a virtual meeting format via live webcast at www.virtualshareholdermeeting.com/DGII2021. Stockholders will not be able to physically attend the Annual Meeting. Additional information is provided below under the heading "General Information."

        The items of business are:

1.

to elect two directors for a three-year term;



2.

to approve, on a non-binding advisory basis, the executive compensation paid to our named executive officers ("Say-on-Pay");



3.

to ratify the appointment of Grant Thornton LLP as independent registered public accounting firm of the company for the fiscal year ending September 30, 2021;



4.

to approve the Digi International Inc. 2021 Omnibus Incentive Plan; and



5.

to transact such other business as may properly be brought before the meeting.

        The Board of Directors has fixed December 14, 2020 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 log into the meeting, please vote your shares by proxy as quickly as possible. You may revoke your proxy at any time prior to its exercise, and voting by proxy will not affect your right to vote if you log into the meeting and revoke the proxy.

By Order of the Board of Directors,

David H. Sampsell
Vice President, Corporate Development, General Counsel��& Corporate Secretary
Hopkins, Minnesota
December 18, 2020

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PROXY STATEMENT

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PROXY STATEMENT

GENERAL INFORMATION

        Proxies are being solicited by the Board of Directors (the "Board") of Digi International Inc., a Delaware corporation (the "Company," "we," "us" or "our"), for use in connection with the Annual Meeting of Stockholders to be held on Friday, January 29, 2021 and at any adjournment thereof. Only stockholders of record at the close of business on December 14, 2020 will be entitled to vote at such meeting.

        The address of our principal executive office is 9350 Excelsior Blvd., Suite 700, Hopkins, Minnesota, Minnesota 55343 and our telephone number is (952) 912-3444. The mailing of this proxy statement and a proxy card, or a Notice Regarding the Availability of Proxy Materials, to stockholders will commence on or about December 18, 2020.

        Shares of Common Stock Outstanding on Record Date.    Our common stock, par value $.01 per share, is our only outstanding voting security. At the close of business on December 14, 2020, there were 29,619,868 shares of our common stock issued and outstanding, each of which is entitled to one vote.

Vote Required on Proposals.

1.

Election of Directors—Because the number of candidates equals the number of members to be elected to the Board, a majority of the votes cast with respect to each director nominee is required for the election of directors. This means that the number of shares voted "for" a director nominee's election must exceed the number of votes cast "against" that director nominee's election. Holders of common stock are not entitled to cumulate their votes for the election of directors. See below under "Majority Voting for Election of Directors" for additional details.



2.

Say-on-Pay Proposal—The Say-on-Pay proposal is advisory and not binding. We will consider our stockholders to have approved, on an advisory basis, our executive compensation if the number of votes "for" the proposal exceeds the number of votes "against" the proposal.



3.

Ratification of Auditors—The affirmative vote of the holders of a majority of the outstanding shares of common stock present or represented by proxy at the meeting and entitled to vote is required for approval of the proposal to ratify the appointment of auditors.



4.

2021 Omnibus Incentive Plan—The affirmative vote of the holders of a majority of the outstanding shares of common stock present or represented by proxy at the meeting and entitled to vote is required for the approval of the Digi International Inc. 2021 Omnibus Incentive Plan (the "2021 Plan").

        Majority Voting for Election of Directors.    If an incumbent director does not receive a majority vote, then the director will promptly tender his or her resignation to the Board. The Nominating and Governance Committee will make a recommendation to the full Board as to whether to accept or reject the tendered resignation. The Board will publicly disclose its decision regarding the tendered resignation and the rationale behind the decision within 90 days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the recommendation of the Nominating and Governance Committee or the decision of the Board with respect to his or her resignation.

        In a contested election, directors are elected by a plurality of the outstanding shares present or represented by proxy at the meeting and entitled to vote on the election of directors. We do not anticipate a contested election at the 2021 Annual Meeting of Stockholders.

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        Abstentions and Broker Non-Votes.    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 abstains or does not otherwise vote at the meeting or by proxy (including broker non-votes) will not be counted for the election of directors or the Say-on-Pay proposal. An abstention will have the effect of a vote against the ratification of auditors and the 2021 Plan. A stockholder who does not vote at the meeting, by proxy (including broker non-votes) or otherwise, on the ratification of auditors or the 2021 Plan will have no effect on the outcome of those proposals.

        Expenses of Soliciting.    We will pay the cost of soliciting proxies. In addition to solicitation by the use of the mails, certain of our directors, officers and employees may solicit proxies by telephone, email or personal contact, and we have requested brokerage firms and custodians, nominees and other record holders to forward soliciting materials to the beneficial owners of our stock and will reimburse them for their reasonable out-of-pocket expenses in so forwarding such materials. We have engaged The Proxy Advisory Group LLC to assist in the solicitation of proxies for the 2021 Annual Meeting of Stockholders and to provide related advice and informational support for a services fee and the reimbursement of customary disbursements, which are expected not to exceed $25,000 in the aggregate.

        Stockholder Proposals.    Stockholder proposals (other than director nominations) that are submitted for inclusion in our proxy statement for our 2022 Annual Meeting of Stockholders must follow the procedures and requirements of the federal securities laws, including Rule 14a-8 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). To be timely, such proposals must be received by us at our principal executive office no later than August 20, 2021.

        If a stockholder does not submit a proposal for inclusion in our proxy statement but desires to propose an item of business to be considered at an annual meeting of stockholders or to nominate persons for election as director at an annual meeting, then the stockholder must give timely written notice of such proposal or nominations to our Secretary at our principal executive office, which is 9350 Excelsior Blvd., Suite 700, Hopkins, MN 55343. To be timely under our By-Laws, we must receive notice of the stockholder's intention to propose an item of business or to nominate persons for election as director not less than 120 days before the first anniversary of the date of the preceding year's annual meeting (unless the date of the annual meeting is more than 30 days before or 60 days after such anniversary date, in which case such notice will be timely only if delivered not less than 120 days before the annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting), and the notice must otherwise comply with certain other requirements contained in our By-Laws as well as all applicable statutes and regulations.

        Assuming that our next annual meeting of stockholders is held not more than 30 days before nor more than 60 days after the one-year anniversary of this year's Annual Meeting, we must receive notice of a stockholder's intention to propose an item of business or nominate persons for election as a director on or before October 1, 2021. A stockholder's notice will not be deemed to be submitted until we have received all of the required information.

        Meeting Admission.    Due to health and safety concerns relating to the COVID-19 pandemic, this year's Annual Meeting will be held in a virtual only meeting format. Stockholders will not be able to physically attend the Annual Meeting.

        If you are a registered stockholder or beneficial owner of our common stock at the close of business on December 14, 2020, you may attend the virtual Annual Meeting by visiting www.virtualshareholdermeeting.com/DGII2021. You will need the 16-digit control number found on your Notice of Internet Availability, your proxy card or on the instructions that accompany your proxy materials to participate in the Annual Meeting and vote your shares electronically. If your shares are held in the name of a bank, broker or other holder of record, you should follow the instructions provided by your bank, broker or other holder of record to be able to participate in the meeting.

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        If you lose your 16-digit control number or are not a stockholder at the close of business on December 14, 2020, you will be able to attend the meeting by visiting www.virtualshareholdermeeting.com/DGII2021 and registering as a guest. If you enter the meeting as a guest, you will not be able to vote your shares or submit a question during the meeting.

        You may log into www.virtualshareholdermeeting.com/DGII2021 beginning at 3:15 p.m. Central Standard Time on January 29, 2021. The Annual Meeting will begin promptly at 3:30 p.m. Central Standard Time on January 29, 2021. If you experience any technical difficulties during the meeting, a toll-free number will be available on our virtual shareholder meeting site for assistance.

        You may submit a question in advance of the meeting at www.proxyvote.com or during the meeting at www.virtualshareholdermeeting.com/DGII2021 after logging in with your control number. If we do not have time to answer all the questions that have been submitted, we expect to post any additional appropriate questions and our answers on the Investor Relations website promptly following the meeting, and retain them for one week after posting. Questions and answers will be grouped by topic and substantially similar questions will be grouped and answered once.

        If you are not able to attend the virtual Annual Meeting, a recorded version of the meeting will be available on www.virtualshareholdermeeting.com/DGII2021.

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HOW TO VOTE

        Your vote is important.    We encourage you to vote promptly. Internet and telephone voting are available through 10:59 p.m. Central Standard Time on Thursday, January 28, 2021. If you received a Notice Regarding the Availability of Proxy Materials, you should vote as instructed in the notice. If you received paper copies of this proxy statement, you may vote in one of the following ways:

        By Telephone.    If you are located in the United States or Canada, you can vote your shares by calling the toll-free telephone number on your proxy card or in the instructions that accompany your proxy materials. You may vote by telephone 24 hours a day. The telephone voting system has easy-to-follow instructions and allows you to confirm that the system has properly recorded your votes. If you vote by telephone, you do not need to return your proxy card or your voting instruction form.

        By Internet.    You can also vote your shares by the Internet. Your proxy card indicates the website you may access for Internet voting. You may vote by the Internet 24 hours a day. As with telephone voting, you will be able to confirm that the system has properly recorded your votes. If you hold your shares in street name, please follow the Internet voting instructions that accompany your proxy materials. You may incur telephone and Internet access charges if you vote by the Internet. If you vote by the Internet, you do not need to return your proxy card or your voting instruction form.

        By Mail.    If you are a holder of record and received a paper copy of the proxy card by mail, you can vote by marking, dating, and signing your proxy card and returning it by mail in the envelope provided. If you hold your shares in street name, you can vote by completing and mailing the voting instruction form.

        At the Meeting.    Voting your shares now will not limit your right to change your vote at the meeting if you log into the meeting. You will need the 16-digit control number found on your Notice of Internet Availability, your proxy card or on the instructions that accompany your proxy materials (such as your voting instruction form) to participate in the Annual Meeting and vote your shares electronically.

        All shares that have been properly voted and not revoked will be voted as you have directed at the meeting. If you sign and return your proxy card without any voting instructions, your shares will be voted as the Board recommends.

        Revocation of Proxies.    You can revoke your proxy at any time before your shares are voted if you (1) submit a written revocation to our corporate secretary at our executive offices before the meeting, or at the meeting, (2) submit a timely later-dated proxy (or voting instruction form if you hold shares in street name), (3) provide timely subsequent telephone or Internet voting instructions, or (4) vote at the meeting.

Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on January 29, 2021
The Notice of Meeting & Proxy Statement, Annual Report to Stockholders and Form of Proxy are available at: https://materials.proxyvote.com/253798

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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

        The following table sets forth the beneficial ownership of our common stock, as of December 14, 2020, by each of our directors or nominees for director, by each of our executive officers 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 us to own beneficially more than 5% of our outstanding common stock. Unless otherwise indicated in a footnote below, the address of each director, nominee and executive officer is care of our Company at 9350 Excelsior Blvd., Suite 700, Hopkins, Minnesota 55343.

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PROPOSAL NO. 1
ELECTION OF DIRECTORS

        Our business is overseen by our Board with the number of directors, not less than three, fixed from time to time by the Board. The Board is divided into three classes as nearly equal in number as possible, and directors typically are elected to a designated class for a term of three years. The Board has fixed at two the number of directors to be elected to the Board at the 2021 Annual Meeting of Stockholders. The Nominating and Governance Committee has nominated Christopher D. Heim and Sally J. Smith to stand for election, each to serve for a three-year term. Proxies solicited by the Board will, unless otherwise directed, be voted to elect the nominees named below. If a nominee is not elected, then the Board may fill the resulting vacancy or may decrease the size of the Board, each in accordance with the applicable provisions of our By-Laws.

        The Nominating and Governance Committee of the Board selected each of the below named nominees. In case any nominee is not a candidate for any reason, the proxies named in the enclosed proxy card may vote for a substitute nominee selected by the Nominating and Governance Committee.

        The following provides certain information regarding the nominees for the office of director and the current directors whose terms are scheduled to expire after the 2021 Annual Meeting:

Nominees for Terms Expiring in 2024

Christopher D. Heim, age 56

        Mr. Heim has served as a member of our Board since January 2018 and is the Executive Chairman of HelpSystems, a leading developer of IT management software, a position he has held since July 2019. Prior to this, he was Chief Executive Officer of HelpSystems since December 2014. Before HelpSystems, he was Chief Executive Officer of Axium, a leading provider of project management and accounting solutions for Architectural and Engineering firms, from January 2013 until its sale to Deltek in June 2014. Prior to Axium, Mr. Heim served as Chief Executive Officer of Amcom Software (now known as Spok, Inc.), a provider of mission-critical communications solutions for hospitals, government, and hospitality customers, from 2007 until its sale to USA Mobility in 2011 and then as its President and Chief Executive Officer from 2011 to 2012. Prior to Amcom, Chris was Chief Executive Officer and President of HighJump Software, a software company serving the supply chain management sector, from 1997 until it was acquired by 3M in 2004 and then as its president and General Manager from 2004 to 2006. Mr. Heim is a member of the boards of directors of HelpSystems (since 2019), Ascentis (since 2019), Calabrio, Inc. (since January 2014) and Field Nation, LLC (since January 2014), and previously served as a director of USA Mobility (now known as Spok, Inc.) from 2011 to 2013.

        Mr. Heim brings broad and extensive business expertise to our Board. In particular, his experience in building leading software and services with recurring revenue models enhances our Board's oversight of our SmartSense by Digi business and our overall growth.

Sally J. Smith, age 62

        Ms. Smith has served as a member of our Board since January 2018 and served as President and Chief Executive Officer of Buffalo Wild Wings, Inc., a restaurant company, from 1996 until its acquisition in February 2018. She previously served as its Chief Financial Officer from 1994 to 1996. From 1984 to 1994, she served as Chief Financial Officer of Dahlberg, Inc., a manufacturer of hearing aids. She began her career with KPMG LLP, an international accounting and consulting firm. Ms. Smith is a member of the boards of directors of Alerus Financial Corporation (NASDAQ: ALRS) (since 2007), Allina Health System (since 2012), Hormel Foods Corporation (since 2014), The Marvin Companies (since 2018) and the National Restaurant Association (since 2003). She served on the board of directors of Buffalo Wild Wings, Inc. from 1996 to 2017.

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        Ms. Smith's experience as an executive leader of a public company contributes to our Board. Her acumen in restaurant and food service operations is especially useful in our Board's oversight of our continuing expansion of SmartSense by Digi. Her strong background in accounting and financial reporting is also valuable to the Board.

THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES IN THIS PROPOSAL 1.

Directors Whose Terms Expire in 2023

Satbir Khanuja, Ph.D., age 53

        Dr. Khanuja has served as a member of our Board since June 2013 and has served as its Non-Executive Chairman since January 2018. He has served as an operating partner at Fuse Venture Partners since August 2020, as a venture advisor with Ignition Partners, a venture capital firm, since May 2018 and as a member of the Board of Directors of LevelTen Energy, Inc. since February 2018. He was President and Chief Executive Officer of DataSphere Technologies, Inc., an online marketing company, from 2008 until the company was acquired in May 2017. Dr. Khanuja served as Senior Vice President of Marketing and Business Development of Second Space, Inc., an online services company operating a network of immersive lifestyle-oriented web sites, from 2006 to 2008. Prior to that, he held a variety of roles at Amazon.com from 1999 to 2006, including Vice President IMDb.com and Amazon In-Theater and Vice President, Worldwide Traffic. Before joining Amazon.com, Dr. Khanuja was an Engagement Manager with McKinsey & Company from 1998 to 1999.

        Dr. Khanuja provides the Board with extensive leadership experience in marketing, operations and strategy. His role in the development of internet-based businesses is very valuable as the Company develops cloud-based application solutions such as SmartSense by Digi™ and Digi Remote Manager®.

Ronald E. Konezny, age 52

        Mr. Konezny has served as a member of our Board and as our President and Chief Executive Officer since December 2014. From September 2013 to December 2014, he served as Vice President, Global Transportation and Logistics at Trimble Navigation Limited, a global provider of navigation and range-finding equipment and related solutions. From August 2011 to September 2013, he served as General Manager of Trimble's Global Transportation and Logistics division. From 2007 to September 2013, he served as Chief Executive Officer of PeopleNet, Inc., a provider of telematics solutions for the transportation industry, which was acquired by Trimble in 2011. Mr. Konezny founded PeopleNet in 1996 and served in various other roles, including Chief Technology Officer, Chief Financial Officer and Chief Operating Officer, before serving as its Chief Executive Officer. Mr. Konezny also serves on the board of directors of Atlas Financial Holdings, Inc. (NASDAQ: AFH) (since 2018).

        Mr. Konezny has extensive experience in the wireless M2M industry working with solutions comprised of hardware and cloud-based applications. He brings extensive leadership experience in corporate strategy, manufacturing, operations, technology, finance and business development to the Board.

Directors Whose Terms Expire in 2022

Spiro C. Lazarakis, age 65

        Mr. Lazarakis has served as a member of our Board since July 2015. He served in various roles at Ernst & Young LLP from 1989 until his retirement in July 2015, including most recently as lead partner in charge of audit services for a number of technology companies. Mr. Lazarakis was one of the most experienced assurance partners in Ernst & Young's Northern California Technology practice. He has over 35 years of experience serving technology companies, ranging from large multinationals to smaller, pre-public growth companies and venture-backed start-up entities. He focused on serving companies in

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the Internet, software, networking, Software-as-a-Service and semiconductor sectors. He served Blue Coat Systems, Juniper Networks and Infoblox among others during his career. Mr. Lazarakis also serves as a director of Venture Lending & Leasing VIII, LLC, a provider of debt and equity financing to early and late stage venture capital backed technology companies.

        As a former assurance partner with Ernst & Young, Mr. Lazarakis has extensive high technology industry knowledge, leadership experience in management of audit and financial matters and provides expertise to our Board in such areas as finance, mergers and acquisitions, internal controls, risk management and auditing. Mr. Lazarakis' experience qualifies him as an Audit Committee financial expert.

Hatem H. Naguib, age 52

        Mr. Naguib has served as a member of our Board since February 2019 and has served as the Chief Operating Officer and Senior Vice President of Products and Services of Barracuda Networks, Inc., a provider of security, networking and storage products based on network appliances and cloud services, since December 2018. Prior to serving in this role, he was a Senior Vice President and General Manager of the Security Business Unit at Barracuda from June 2016 to December 2018. Before joining Barracuda, Mr. Naguib served as Vice President of Products Network and Security for VMware, Inc., a digital information software company, from July 2012 to May 2016.

        Mr. Naguib's extensive experience both in the communications hardware industry generally and in executing business strategies for networking products and services will enhance our Board's ability to oversee our operations and further support our continued long-term growth.

Director Independence

        None of the directors or director nominees are related to any other director, director nominee or executive officer of our Company. Our Board has determined that Ms. Smith, Messrs. Heim, Lazarakis and Naguib, and Dr. Khanuja, constituting a majority of the Board, are "independent directors" as defined in the applicable listing standards of The Nasdaq Stock Market LLC ("Nasdaq").

Board Leadership Structure

        Our Company does not have a written policy with respect to separation of the roles of Chief Executive Officer and Chairman because our Board believes it is in the best interests of our stockholders to make that determination based on the applicable circumstances. However, our Board has a policy that whenever the roles of Chief Executive Officer and Chairman are combined, the Board will appoint an independent lead director.

        Dr. Khanuja has served as Non-Executive Chairman since his appointment by the Board to this position effective January 2018. The Board believes Dr. Khanuja's tenure as a member of the Board and his familiarity with our business has qualified him to serve as our Non-Executive Chairman. The Board has determined that, based on the current characteristics and circumstances of the Company at this time, separating the roles of Chairman and Chief Executive Officer is appropriate and in the best interests of our stockholders.

        Our Non-Executive Chairman (i) presides as chair of meetings of our Board, (ii) organizes, convenes and presides over executive sessions of the independent directors, (iii) serves as a liaison between the Chief Executive Officer and the independent directors, (iv) consults with the Chief Executive Officer and other members of management in establishing schedules and agendas for meetings of the Board, and (v) serves in such other capacities with such other duties as the independent directors may determine from time to time. The Board has determined that this leadership structure is appropriate given the specific characteristics and circumstances of the Company at present.

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The Board's Role in Risk Oversight

        The Board is involved actively in the oversight of risks facing our Company and endeavors to provide management with guidance on the mitigation of identified risks. While the Board generally is responsible for overseeing risk management, including risks related to our overall operations, certain committees of the Board are responsible for specific areas of risk relating to their respective focuses:

•

Our Audit Committee is responsible for the oversight of financial risk relating to our consolidated financial statements, financial reporting processes and internal controls over financial reporting.



•

Our Compensation Committee is responsible for the oversight of company-wide compensation risk and reviews on an annual basis whether the risks arising from our compensation policies and practices with respect to our employees generally are reasonably likely to have a material adverse effect on the Company.



•

Our Nominating and Governance Committee monitors the risks related to our governance structure, policies and procedures.

        The chair of each committee is responsible for reporting to the full Board the activities of the committee, the significant issues that have been presented to or otherwise discussed by the committee, and the committee's final determination with respect to such issues, as appropriate. By leveraging the particular competencies of its committees, the Board actively utilizes its leadership structure to administer its role in the risk oversight of the Company.

Risks Arising from Compensation Policies and Practices

        Our management recently conducted an evaluation of the risks arising from our company-wide compensation policies and practices with respect to employees. Management analyzed our compensation policies and practices and concluded that they do not create risks that are reasonably likely to have a material adverse effect on our Company. In connection with its risk oversight role, our Compensation Committee reviewed management's analysis and conclusions.

Employee, Officer and Director Hedging

        Each of our directors, officers, other employees and their designees are prohibited from (i) purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars and exchange funds) that hedge or offset, or are designed to hedge of offset, any decrease in the market value of our equity securities and (ii) otherwise engaging in transactions that hedge or offset, or are designed to hedge of offset, any decrease in the market value of our equity securities. Notwithstanding the foregoing, portfolio diversification transactions and investments in broad-based index funds is generally permitted. The prohibition applies to securities granted to the covered persons as part of compensation for their service to the Company plus any other Company securities they held by them, whether directly or indirectly.

Committees of the Board and Meeting Attendance

        The Board met fifteen times during fiscal 2020. All directors attended all of the meetings of the Board and of the Committees on which they served during fiscal 2020. We have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee. The following is a description of the functions performed by each of these committees.

        We do not have a policy regarding attendance of members of our Board at annual meetings of our stockholders. Mr. Konezny attended the January 2020 Annual Meeting of Stockholders.

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Audit Committee

        Our Audit Committee presently consists of Mr. Heim, Dr. Khanuja, Mr. Lazarakis (Chair) and Ms. Smith. Our Board has determined that all members of the Audit Committee are "independent" as that term is defined in the applicable Nasdaq listing standards and regulations of the SEC. The Board has determined that all members are financially literate as required by the applicable Nasdaq listing standards. The Board has determined that Mr. Lazarakis and Ms. Smith are each an "audit committee financial expert" as defined by applicable regulations of the SEC. The Audit Committee oversees our accounting, internal controls and financial reporting process by, among other things, taking action to oversee the independence of and annual audit by the independent registered public accounting firm and selecting and appointing the independent registered public accounting firm. The Audit Committee also provides oversight of the Company's internal audit processes and, as discussed below under "Related Person Transaction Approval Policy", is responsible for the review and approval or ratification of transactions under our Related Person Transaction Approval Policy. The Audit Committee met seven times during fiscal 2020. The responsibilities of the Audit Committee are set forth in the Audit Committee Charter, a copy of which is available on the Investor Relations section of our website, www.digi.com. The Audit Committee reviews the Audit Committee Charter annually and may make recommendations to the Board for revision of the Audit Committee Charter to reflect changing circumstances and requirements.

Compensation Committee

        We have a Compensation Committee presently consisting of Messrs. Lazarakis and Naguib and Ms. Smith (Chair). Our Board has determined that all members of the Compensation Committee are "independent" as that term is defined in the applicable Nasdaq listing standards. The Compensation Committee determines the compensation of the Chief Executive Officer and all other executive officers. With respect to employees other than executive officers, the Compensation Committee oversees general compensation policies and reviews the annual incentive compensation structure. The Compensation Committee also oversees our benefit plans and our equity incentive and employee stock purchase plans. The Compensation Committee met six times during fiscal 2020. The responsibilities of the Compensation Committee are set forth in the Compensation Committee Charter, a copy of which is available on the Investor Relations section of our website, www.digi.com. The Compensation Committee reviews the Compensation Committee Charter annually and may recommend to the Board revisions to the Compensation Committee Charter to reflect changing circumstances and requirements. The processes and procedures used by the Compensation Committee for considering and determining executive and director compensation are described below under "Executive Compensation—Compensation Discussion and Analysis" starting on page 15.

Nominating and Governance Committee

        We have a Nominating and Governance Committee, presently consisting of Mr. Heim (Chair), Dr. Khanuja and Mr. Naguib. Our Board has determined that all members of the Nominating and Governance Committee are "independent" as that term is defined in the applicable Nasdaq listing standards. The Nominating and Governance Committee selects candidates as nominees for election as directors, advises the Board about the appropriate composition of the Board and its committees and oversees matters of corporate governance. This committee also oversees environmental and social responsibility matters, including our diversity and inclusion initiatives. The Nominating and Governance Committee met four times during fiscal 2020. The responsibilities of the Nominating and Governance Committee are set forth in the Nominating and Governance Committee Charter, a copy of which is available on the Investor Relations Section of our website, www.digi.com. The Nominating and Governance Committee reviews the Nominating and Governance Committee Charter annually and may

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recommend to the Board revisions to the Nominating and Governance Committee Charter to reflect changing circumstances and requirements.

Director Nominee Selection Process and Criteria

        The Nominating and Governance Committee generally identifies director candidates based upon suggestions from current directors and senior management, recommendations by stockholders and/or use of a director search firm. Stockholders who wish to suggest qualified candidates should write to the attention of the Chair of our Board's Nominating and Governance Committee: Digi International Inc., 9350 Excelsior Blvd., Suite 700, Hopkins, MN 55343. 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. The Nominating and Governance Committee will consider candidates recommended by stockholders in the same manner that it considers all director candidates.

        Candidates for director nominees are reviewed in the context of the current composition of our Board, our operating requirements and the long-term interests of our stockholders. We do not have a formal policy regarding the consideration of diversity in identifying director nominees.

        The Nominating and Governance Committee will consider, at a minimum, the following factors in nominating existing and potential new members of the Board, in addition to other factors it deems appropriate based on the current needs and desires of the Board:

•

demonstrated character and integrity, an inquiring mind, experience at a strategy/policy setting level, sufficient time to devote to our affairs, and high-level managerial experience;



•

whether the member/potential member is subject to a potentially disqualifying factor, such as relationships with competitors, customers, suppliers, contractors, counselors or consultants, or recent previous employment with us;



•

the member's/potential member's independence;



•

whether the member/potential member assists in achieving a mix of members on the Board that represents a diversity of background and experience, including with respect to age, gender, international background, race and specialized experience;



•

whether the member/potential member has general and strategic business management experience and financial experience with companies of a similar size that operate in the same general industry as us;



•

whether the member/potential member, by virtue of particular experience, technical expertise, or specialized skills, will add specific value as a member of the Board; and



•

any factors related to the ability and willingness of a new member to serve, or an existing member to continue his/her service.

Stockholder Communications with the Board

        Stockholders may communicate with our Board by addressing correspondence to our principal executive office, identified above, Attention: Non-Executive Chairman. The Non-Executive Chairman will forward communications directed at particular members of the Board directly to the particular members. Communications directed to the Board in general will be handled by the Non-Executive Chairman.

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Compensation Committee Interlocks and Insider Participation

        The Compensation Committee is comprised entirely of independent, outside directors. No member of this committee was at any time during fiscal 2020 or at any other time an officer or employee of the Company or any of our subsidiaries or affiliates or has had any relationship with our Company requiring disclosure in our Proxy Statement other than service as a director. None of our executive officers has served on the board of directors or on the compensation committee of any other entity, any officers of which served either on our Board or its Compensation Committee.

Audit and Non-Audit Fees

        The following table presents fees for fiscal 2020 and 2019 for professional services performed by Grant Thornton LLP for the audit of our annual consolidated financial statements, the review of our interim consolidated financial statements for each quarter in fiscal 2020 and 2019, and all other services performed:

        The audit fees reported above relate to services performed by Grant Thornton LLP for the audit of our annual consolidated financial statements, the review of our interim consolidated financial statements for each quarter in fiscal 2020 and 2019, the review of activity related to acquisitions, and a registration statement filed in connection with our equity compensation plan. The Tax fees above relate to the preparation of tax returns for a foreign subsidiary. The Audit Committee pre-approved all of the services described above pursuant to engagements that occurred in fiscal 2020 and 2019.

        The Audit Committee's current practice on pre-approval of services performed by the independent registered public accounting firm is to approve annually all audit services and each recurring permissible non-audit service to be provided by the independent registered public accounting firm during the fiscal year. In addition, the Audit Committee may pre-approve other non-audit services during the year on a case-by-case basis, and delegates authority to grant such pre-approvals during the year between Audit Committee meetings to the Audit Committee chair. The Audit Committee reviews each non-audit service to be provided and assesses the impact of the service on the independent registered public accounting firm's independence.

Report of the Audit Committee

        The role of our Audit Committee, which is composed of four independent non-employee directors, is one of oversight of our management and our independent registered public accounting firm in regard to our financial reporting and our internal controls respecting accounting and financial reporting. The Audit Committee also considers and pre-approves any non-audit services provided by our independent registered public accounting firm to ensure that no prohibited non-audit services are provided by the independent registered public accounting firm and that the independent registered public accounting firm's independence is not compromised. In performing its oversight function, the Audit Committee relies upon advice and information received in its discussions with our management and independent registered public accounting firm.

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        The Audit Committee has (i) reviewed and discussed our audited consolidated financial statements for the fiscal year ended September 30, 2020 with our management and with Grant Thornton LLP, our independent registered public accounting firm for such year; (ii) discussed with Grant Thornton LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC regarding communication with audit committees; and (iii) received the written disclosures and the letter from our independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the Audit Committee concerning independence, and has discussed with Grant Thornton LLP their independence.

        Based on the review and discussions with management and our independent registered public accounting firm referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for filing with the SEC.

Spiro C. Lazarakis (Chair)
Christopher D. Heim
Satbir Khanuja, Ph.D.
Sally J. Smith

Environmental, Social and Other Governance

        We believe that efforts that promote environmental responsibility, sustainability, health and safety, corporate ethics and compliance, and workplace diversity and inclusion initiatives are not only socially responsible but also sound business practices that drive more efficient and effective operations. We recently altered the charter of our Nominating and Governance Committee of our Board to designate this Committee as having oversight of our initiatives in these areas. We are presently working on a report that will highlight our initiatives in these areas that will be posted on our web site.

Environmental, Sustainability and Health and Safety

        We incorporate numerous business practices that promote the efficient use of materials across our operations as well as environmental awareness among our employees, customers, suppliers and other key stakeholders. We similarly engage in practices to help assure our operations are socially responsible in areas such as avoidance of corruption and violations of export restrictions. Among others, we have implemented the following measures in these areas:

•

The operations of our assembly facility in Eden Prairie, Minnesota are both ISO 9001-2015-certified and ISO 14001-certified. Further, we are taking steps to assure our assembly operations in Sandy, Utah are ISO 9001-2015-certified as well. Our corporate headquarters building, where sales, product management, engineering, administrative and IT personnel are employed, is LEED-certified.



•

We require our suppliers to avoid the use of ozone-depleting substances, and, to our knowledge, our suppliers do not use ozone-depleting substances in our manufacturing and assembly operations. We maintain compliance with applicable environmental laws in our operations, including regulations such as Restriction of Hazardous Substances (RoHS) and Waste Electrical and Electronic Equipment (WEEE).



•

Beginning in fiscal 2021, we will conduct due diligence in an effort to assure that our suppliers do not use forced or child labor in their operations.



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We maintain a compliance program with regards to anti-corruption that includes:



•

Due diligence of prospective distributors and resellers;

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•

Agreement by distributors and resellers to comply with applicable anti-corruption laws;



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Training for employees and distributors and resellers; and



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Annual compliance reviews for selected Digi offices as well as distributors and resellers.



•

We screen product orders in an effort to assure compliance with applicable export control laws as well as added screenings beyond the requirements of law for certain wireless products that can transmit over long distances.

Social and Workplace Policies

        We are also committed to the promotion of ethical business practices in the workplace, employee well-being initiatives and the advancement of social diversity and inclusion in the workplace. Among others, we have implemented the following measures in these areas:

•

We maintain a global code of business conduct that covers a broad range of ethical and legal business practices. Our employees are trained on various components of this code of conduct annually.



•

We provide a benefits package that includes equity, competitive pay, a quarterly or annual incentive plan, and, in the United States, a defined contribution savings plan with an employer match and a market-competitive health insurance package.



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We provide tuition reimbursement to employees for continuing education classes that contribute to their personal and professional growth.



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Following social unrest in the United States and globally in 2020, we formed a diversity and inclusion committee that is focused on culture that continuously strives to eliminate bias and become more inclusive in our workplace. While this committee is relatively new, to date it has advanced training for management on elimination of bias and promoted greater involvement in community initiatives.



•

We are a founding member of CEO Action for Diversity and Inclusion^TM, a Minnesota-based organization that promotes civic action to advance diversity and inclusion in the Twin Cities area.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        This compensation discussion and analysis (sometimes referred to in this proxy statement as the "CD&A"):

•

describes our compensation philosophy, objectives and programs for our named executive officers (referred to elsewhere in this CD&A as "Named Executives"). For fiscal 2020, these individuals included:



•

Ronald E. Konezny, our Chief Executive Officer and President;



•

James J. Loch, our Senior Vice President, Chief Financial Officer and Treasurer;



•

Michael A. Ueland, who served as our President, IoT Products and Services during fiscal 2020;



•

Kevin C. Riley, our President, IoT Solutions; and



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David H. Sampsell, our Vice President of Corporate Development, General Counsel and Corporate Secretary

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•

describes the process used to determine our compensation program elements and targets; and



•

provides details of each element of our Named Executive compensation program, including targeted and actual compensation for fiscal 2020.

Executive Summary

        Our compensation philosophy is built on a foundation of pay-for-performance and rewards Named Executives for positive developments in the results of our Company and the price of our common stock over time. Below is a comparison of our total stockholder returns for the past one, three and five most recently completed fiscal years as compared to the median total stockholder returns for the same periods of our 2021 peer group.

Digi International Inc. vs. Peer Group
Total Stockholder Return (TSR)

Data Source: Yahoo Finance, Adjusted Closing Price(s)

        Total stockholder return was calculated using average closing prices for the ten trading days up to and including September 30, 2020 for all periods presented.

        Below is a summary of the key decisions impacting fiscal 2020 compensation for the Named Executives:

•

Base pay was consistent with general market practices and pay levels of our comparable peer group. Base salary increases are considered for Named Executives based on competitive market pay levels and individual performance. When base pay was initially set for fiscal 2020, base salaries for all Named Executives were increased. As part of company-wide cost savings recommended by management to mitigate the adverse financial impact of the COVID-19 pandemic, the following changes were implemented during the fiscal year to conserve cash:



•

the base salaries of our Named Executives were reduced by 10% for the last two fiscal quarters of fiscal 2020 in exchange for equity grants; and

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•

our non-employee directors did not receive any cash retainer payments for the last two fiscal quarters of fiscal 2020, but rather received incremental equity grants.



•

Our original annual incentive plan for fiscal 2020 was terminated in May 2020 when it was clear that the operational and financial impacts of the COVID-19 pandemic would preclude that plan from providing any meaningful incentive. The Committee replaced the annual plan with a revised incentive plan for the second half of fiscal 2020 that incorporated performance targets reflecting revised aggressive, yet achievable, levels of performance of the same financial metrics used in the original annual incentive plan. The target award amounts under the revised plan were equal to each Named Executive's actual base salary for the second half of the year, resulting in targets of slightly less than 50% of the original annual incentive targets. The Committee implemented a revised incentive program to ensure that the management team remained focused on achievement of key performance measures amidst the operational challenges the team was navigating.



•

Stock option and restricted stock unit grants were awarded based on market practices, recognition of our fiscal 2019 performance, our relative performance against our peer group, executive performance, retention goals, individual potential and our desire to incent Named Executives for the long term with equity awards that require our share price to increase to create value and align the interests of Named Executives with our stockholders.



•

On February 4, 2020, the Committee granted a one-time restricted stock unit award to our Chief Executive Officer to recognize his performance over his more than five-year tenure and serve as an additional incentive for his continued service and performance in addition to annual equity awards and the incremental awards to compensate for salary reductions.

        As discussed in further detail in this CD&A, we believe we exercise sound executive compensation management practices, including:

•

independent oversight of compensation programs by our Compensation Committee and their use of external consultants as needed;



•

balanced compensation programs that emphasize pay-for-performance, alignment with stockholder value creation, and attraction and retention of key talent without creating undue risk, including the adoption of a clawback policy in October 2014 and stock ownership guidelines in November 2014 and the expansion of the scope of our clawback policy in December 2020 to include incentive equity awards;



•

competitive compensation levels that are supported by our peer group compensation practices; and



•

multiple compensation program elements that emphasize short-and long-term business strategies and performance.

Fiscal 2020 "Say on Pay" Advisory Vote on Executive Compensation

        At our annual stockholders meeting held on January 29, 2020, greater than 98% of the votes cast approved, on an advisory basis, the compensation of our Named Executives as disclosed in the proxy statement for that annual meeting. Our Compensation Committee has considered the results of that vote in its subsequent deliberations, and no changes have been made in compensation policies or practices as a result of the vote because of the stockholder support for our executive compensation evidenced by the voting results.

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Compensation Philosophy

        The philosophies that drive our compensation program design and objectives are:

•

incent Named Executives to advance the Company's business and financial objectives through a "pay-for-performance" culture that ties the compensation of our Named Executives to the performance of the individual, the Company, and the price of our common stock;



•

attract and retain qualified executive talent by providing competitive compensation packages;



•

align Named Executive focus on Company financial performance and stockholder value creation by providing balanced compensation programs. Balance is achieved through plans that reward for the advancement of long-term strategic business objectives and annual financial objectives; and



•

ensure that the design of our compensation program does not encourage Named Executives to take unnecessary or undesirable risks.

Responsibility for Determining Executive Compensation

        Our Compensation Committee (referred to in this CD&A as the "Committee") reviews and approves all executive compensation programs and the specific compensation arrangements with each of our Named Executives. The Committee also provides general oversight of our compensation plans. The Committee is composed of three independent, non-employee directors as defined by the SEC and Nasdaq. The Committee maintains responsibility for overseeing the independence of any compensation consultant that it retains. A brief summary of the role of the Committee is found in "Committees of the Board and Meeting Attendance" in this proxy statement.

        The Committee periodically retains the services of a third-party consultant to provide guidance and recommendations on compensation strategy, program design, peer group selection, and market compensation trends. The Committee also has utilized a third-party consultant to recommend peer group companies and determine peer group and/or larger market compensation levels. Members of management participate in Committee meetings at the Committee's request. Presently our Chief Financial Officer oversees our human resources department and contributes analysis on market trends, peer group compensation levels and compensation levels of companies in our broad technology industry category to the Committee. Our Chief Executive Officer provides recommendations on the compensation of other Named Executives. Our Vice President, Corporate Development, General Counsel and Corporate Secretary generally serves as Secretary of Committee meetings. In fiscal 2019, the Committee retained Radford Consulting to provide recommendations on competitive benchmark data for our executive positions, peer group and industry trends on compensation plan design, and advice on compensation program design for fiscal 2020 compensation.

Compensation Determination Process

        Compensation targets are set for each Named Executive based on a number of factors, including:

•

compensation levels of comparable positions at companies in our peer group and our broad technology industry with comparable annual revenues and market caps;



•

each Named Executive's performance against annual objectives;



•

the qualifications of the Named Executive and the potential for positive performance in the future;



•

the achievement of strategic goals to which the Named Executive is held accountable;

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•

the recommendations of the Chief Executive Officer (except with respect to his own compensation); and



•

current financial conditions, goals and performance of the Company.

Compensation Benchmarking

        To determine a range of competitive compensation for comparable jobs, the Committee reviews compensation data for a group of peer companies. The Committee also considers third-party survey data of companies in our broad technology industry category with comparable annual revenues to supplement peer group data.

Cash Compensation

        The Committee generally sets base salaries for Named Executives to fall between the 25^th and 60^th percentile of comparable positions at peer group companies. Determination of the base salary level is based on the compensation determination factors listed above, with specific focus on the nature of the position, the Named Executives' skills and potential, as well as past performance results. Currently, the base salaries of our Named Executives comprise 48% to 71% of their total annual cash compensation target, which places significant emphasis on annual incentive compensation. This supports our pay-for-performance philosophy as the Company will need to meet or exceed Company financial targets for Named Executives to realize their full annual cash compensation potential.

        Total cash compensation, when earned, is targeted to result in Named Executive total cash compensation falling on average between the 25^th and 75^th percentile of the comparable peer group positions if all financial metrics associated with annual incentive compensation are achieved or exceeded. By design, actual total cash compensation for Named Executives could fall below this range if we do not achieve all of our financial metrics in the fiscal year and could fall above this range if we exceed our financial metrics in the fiscal year.

Equity Compensation

        The Committee awards stock options and restricted stock units to Named Executives based on the following factors:

•

the value of equity awards within our peer group for comparable positions;



•

each Named Executive's past performance and potential for the Named Executive to contribute to Company success in the future; and



•

the strategic impact of the Named Executive's position and necessity to retain the Named Executive.

        Excluding new hire equity awards, actual equity compensation awards for Named Executives in fiscal 2020 and fiscal 2021 were generally within the 25^th and 75^th percentiles of peer group long-term incentive amounts other than, in fiscal 2020, Mr. Konezny exceeded the 75^th percentile due to a one-time equity grant of 100,000 restricted stock units that were awarded to him in February 2020 to recognize his performance over his more than five-year tenure and provide an additional incentive for his continued service and performance.

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Fiscal 2020 Compensation Benchmarking

        For fiscal 2020, the Committee retained Radford Consulting to provide a competitive analysis of the base salary, annual cash incentives and equity incentive elements and levels for our Named Executives. This analysis consisted of:

•

a comparison of our compensation elements and levels against the fiscal 2020 peer group to determine our overall market percentile position on each element as well as our total cash compensation and total equity compensation; and



•

a comparison of our compensation elements and levels against companies in our broad technology industry category based on data obtained from an independent third-party compensation survey published by Radford.

The broader survey data contained information for high technology companies in our broader industry and revenue categories and was used in conjunction with the peer group data.

        The Committee independently reviewed our fiscal 2019 peer group and industry to assess whether modifications were appropriate based on our business model, financial metrics, and appropriate competitors within our general market. Based on that review, Boingo Wireless, Inc., Control4 Corporation, and Harmonic, Inc. were added. Maxwell Technologies, Inc. and PCTEL, Inc. were removed as a result of departing from our revenue and market capitalization criteria. RadiSys Corporation was removed as a result of its acquisition by Reliance Industries Limited in December 2018. The final peer group for fiscal 2020 included:

Fiscal 2021 Compensation Benchmarking

        For fiscal 2021, the Committee analyzed the base salary, annual cash incentives and equity incentive elements and levels for our Named Executives. This analysis consisted of:

•

a review of our fiscal 2020 peer group and industry to assess whether modifications were appropriate based on our business model, financial metrics, and appropriate competitors within our general market. Based on that review, ADTRAN, Inc., Aviat Networks, Inc. and Synchronoss Technologies, Inc. were added. Mercury Systems was removed as a result of

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departing from our revenue and market capitalization criteria. The final peer group for fiscal 2021 included:

•

a comparison of our compensation elements and levels against the fiscal 2021 peer group to determine our overall market percentile position on each element as well as our total cash compensation and total equity compensation; and



•

a comparison of our compensation elements and levels against companies in our broad technology industry category based on data obtained from an independent third-party compensation survey published by Radford.

        The broader survey data contained information for high technology companies in our broader industry and revenue categories and was used in conjunction with the peer group data.

Compensation Program Elements

Total Cash Compensation

        To determine the allocation of compensation among each of our cash compensation program elements, we consider the practices of companies within our peer group as well as our compensation philosophy of maintaining a strong pay-for-performance environment. The portion of the Named Executive's total cash compensation dependent on annual incentive differs by position. For instance, while we want our Chief Financial Officer and our General Counsel to be concerned with our financial performance, an important part of their jobs is to oversee our financial controls and reporting. As such, their targeted levels of annual incentive are lower than that of other Named Executives, and a higher emphasis is placed on base salaries.

        As follows, the target total cash compensation for Named Executives in fiscal 2020 was established at the beginning of the fiscal year, prior to any COVID 19-related adjustments:

        As described above in the Executive Summary and in more detail below, the base salary payments and target annual cash incentive were modified during the year in response to the COVID-19 pandemic.

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Base Salaries

        Base salary levels reflect the Committee's compensation philosophy of favoring compensation, as appropriate, that is contingent on the achievement of performance objectives while providing a market competitive level of salary that will allow us to attract and retain talent. This translates to base salary levels for our Named Executives that fall between the 25^th and 60^th percentile of our peer group. Base salaries are reviewed annually but are not automatically increased. Adjustments are approved by the Committee based upon changes in competitive market data and the compensation determination factors listed earlier in this CD&A.

        Based on economic factors of the business, our competitive market analysis for each position and the individual's past performance, base salaries for Named Executives were increased from 2.1% to 5% for fiscal 2020. The increases were determined based on our competitive market analysis for each position and each individual's performance for fiscal 2019. In April 2020, as part of company-wide cash conservation actions recommended by management to mitigate the adverse financial impact of the COVID-19 pandemic, executives and other key personnel at the Company had their base salary payments reduced by 10% for the remainder of fiscal 2020. These reductions were applicable for the last twelve of the thirteen salary payments that occurred during the last half of fiscal 2020 in exchange for an incremental restricted stock unit grant having a grant date fair value approximately equal to the foregone base salary.

        For fiscal 2021, base salaries for Named Executives were increased from 0% to 4.8%. The increases were determined based on our competitive market analysis for each position and each individual's performance for the fiscal year.

Annual Cash Incentives

        Our annual cash incentive program provides Named Executives the opportunity to receive cash incentive payments depending on the degree to which we achieve or exceed quarterly and annual financial goals. This incentive typically has been tied to achievement of revenue and earnings before interest, taxes, depreciation and amortization ("EBITDA"), subject to any appropriate adjustments. The program historically has required a minimum threshold of performance to earn any payment, and a maximum payment opportunity. Any quarterly cash incentive payments are paid upon the release of our quarterly unaudited consolidated financial statements for the first three fiscal quarters. Annual cash incentives are paid following our Compensation Committee's review and approval of our annual results.

        Cash incentive plan metrics and potential cash incentive amounts are determined by the Committee near the start of each fiscal year based upon elements of our board-approved operating plan for that year. In some years, the metrics have included other objective measurements of quarterly or annual financial success as approved by the Committee. The annual cash incentive component pays out based on performance if the Named Executive remains employed with us for the full year. In the event the employment of a Named Executive is terminated without cause during the year, payment of any annual incentive component will be based on their employment agreement. The Committee approves plan elements and targets that they believe will support continued growth and creation of stockholder value.

        The Committee also reserves the right to award discretionary cash bonuses based upon its assessment of a Named Executive's performance and contributions.

Fiscal 2020 Cash Incentive Compensation

        The COVID-19 pandemic and related economic downtown created significant uncertainty for Digi and other companies during our fiscal 2020. In light of these difficulties, and desiring to maintain incentives for all Company employees to remain focused on achieving meaningful financial performance

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in a time of great uncertainty, the Committee reconstructed our fiscal 2020 cash incentive compensation programs in May 2020 to reflect drastically different operating conditions that arose from the pandemic.

        Prior to the COVID-19 pandemic, the Committee determined to increase Mr. Konezny's target annual cash incentive to 110% of base salary to reflect his significant contributions and tenure and to keep target annual cash incentives the same percentage of base salary for all other Named Executives for fiscal 2020.

Original Fiscal 2020 Annual Cash Incentive Plan

        At the outset of fiscal 2020, the Committee established an annual cash incentive plan for Named Executives designed to incent and reward profitable growth of the Company. Performance was measured based on achievement of annual revenue and Adjusted EBITDA goals (the "Original Fiscal 2020 Plan"). "Adjusted EBITDA" is a non-GAAP financial measure that can be calculated from our audited financial statements by subtracting interest income net of interest expense located on our Consolidated Statements of Operations from income before income taxes and then adding depreciation of property, equipment and improvements and amortization of identifiable intangible assets and other assets, both of which are located on the Consolidated Statements of Cash Flows. Further adjustments are made by adding back non-cash stock compensation expense, restructuring and severance related charges, and certain transaction expenses, including earnout payments, incurred in connection with acquisitions, divestitures or mergers.

        The annual cash incentive for fiscal 2020 under the Original Fiscal 2020 Plan was dependent on achievement of annual financial goals. The Original Fiscal 2020 Plan had a provision for payment between 50% and 200% of target. Upon achievement of both threshold revenue and threshold Adjusted EBITDA, 50% of target would be earned; 100% of target would be earned upon full achievement of the Adjusted EBITDA goal. Additional incentives up to 200% of target would be earned upon achievement beyond the Adjusted EBITDA goal. The Compensation Committee had discretion to determine additional payments due for incremental Adjusted EBITDA performance above 200% of goal.

        The Original Fiscal 2020 Program provided for a payment of 15% of the Named Executives' annual incentive target after each of the first three quarters of the fiscal year that the Company achieves threshold revenue and Adjusted EBITDA. The final payment was to be determined by multiplying the Named Executives' target total cash incentive for the fiscal year by multipliers based on the annual achievement of revenue and Adjusted EBITDA and then subtracting the quarterly payments already received. The revenue and Adjusted EBITDA components of the annual cash incentive plan were set and measured exclusive of the impact of any acquisitions activity we may have completed during the fiscal year. The Committee also was authorized to adjust the incentive payout by up to 25% upwards or downwards based on individual performance.

        For fiscal 2020, threshold revenue and Adjusted EBITDA were not satisfied for the first and second quarters, such that the participants did not receive payments for those periods. As discussed above, in light of the COVID-19 pandemic and resulting economic downtown, the Original Fiscal 2020 Plan was then terminated and, as set forth below, replaced with a revised plan. Although we did not make any payments under the Original Fiscal 2020 Plan, set forth below are the original threshold and

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target performance levels along with our actual performance for fiscal 2020 (dollar amounts in thousands):

Revised Second Half 2020 Cash Incentive Plan

        In light of the impacts from the COVID-19 pandemic on our operations and financial results, the Committee determined that the thresholds and targets under the Original Fiscal 2020 Plan were not reasonably achievable and the plan therefore no longer served its purpose as an incentive provided to focus the Named Executives' attention on key performance metrics. Acknowledging that the circumstances associated with COVID-19 were not reasonably foreseeable or within the control of the Company and to ensure that the Named Executives remained focused during the second half of fiscal 2020 despite the numerous operating and other challenges facing the Company, the Committee determined to terminate the Original Fiscal 2020 Plan and replace it with a new plan that had modified performance targets for revenue and Adjusted EBITDA metrics for the second half of fiscal 2020 (the "Second Half Fiscal 2020 Plan"). These metrics were also adjusted to include the impact of the Opengear business acquired in fiscal 2020 that had been excluded from the annual thresholds and targets in the Original Fiscal 2020 Plan. The Second Half Fiscal 2020 Plan provided that no payout would be earned unless the threshold level of performance on both metrics was achieved. Similar to the Original Fiscal 2020 Plan, upon achievement of both threshold revenue and threshold Adjusted EBITDA, 50% of target would be earned; 100% of target would be earned upon full achievement of the Adjusted EBITDA goal. The Committee set each Named Executive's target under the Second Half Fiscal 2020 Program at 50% of the Named Executive's original target, reflecting the revised performance period being one-half of the original annual period. The target incentives were also based on the actual amount of base salary paid for the second half of the year, as described above, which included the 10% salary reduction applicable for almost all salary pay periods during the second half of fiscal 2020. The Committee also determined that any payment under the Second Half Fiscal 2020 Plan would be capped at 100% of the revised target, instead of permitting higher payout opportunities for performance up to 200% of target. The Company met the revised threshold levels of performance for revenue and Adjusted EBITDA in the second half of fiscal 2020, resulting in payments under the revised cash incentive plan as below described.

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        The cash incentive plan metrics and achievement percentages for the Second Half Fiscal 2020 Plan for all Named Executives tied to total company performance are set forth in the below table (dollar amounts in thousands):

        The cash incentive plan metrics and achievement percentages for the Second Half Fiscal 2020 Plan tied to IoT Products and Services segment performance, which applied only to a portion of Mr. Ueland's cash incentive as discussed further below, were (dollar amounts in thousands):

        The cash incentive plan metrics and achievement percentages for the Second Half Fiscal 2020 Plan tied to IoT Solutions segment performance, which applied only to a portion of Mr. Riley's cash incentive as discussed further below, were (dollar amounts in thousands):

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        The actual cash incentives earned for fiscal 2020 under the Second Half Fiscal 2020 Plan were:

        A detailed analysis of our financial and operational performance is contained in the Management's Discussion & Analysis section of our 2020 Annual Report on Form 10-K filed with the SEC.

Fiscal 2021 Cash Incentives

        For fiscal 2021, the Committee has established an annual cash incentive plan for Named Executives designed to incent and reward profitable growth of the Company. Performance will be measured based on achievement of annual revenue and Adjusted EBITDA goals for the Company and annual revenue and operating margin goals for each of its segments or units.

        The annual cash incentive for fiscal 2021 is dependent on achievement of annual financial goals. The plan has a provision for payment between 50% and 200% of target. Upon achievement of both threshold revenue and threshold Adjusted EBITDA (or operating margin, if applicable), 50% of target will be earned; 100% of target will be earned upon full achievement of the Adjusted EBITDA (or operating margin) goal. Additional incentives up to 200% of target will be earned upon achievement beyond the Adjusted EBITDA (or operating margin) goal. The Compensation Committee has discretion to determine additional payments due for incremental Adjusted EBITDA (or operating margin) performance above 200% of goal.

        The final annual incentive due will be calculated based on annual results and performance against revenue and Adjusted EBITDA (or operating margin) goals. This final payment will be determined by multiplying the Named Executives' target total cash incentive for the fiscal year by the multiplier based on the annual achievement of Adjusted EBITDA (or operating margin) against the goal. The revenue and Adjusted EBITDA (or operating margin) components of the annual cash incentive plan are set and will be measured exclusive of the impact of any acquisitions activity we may complete during the fiscal year. The Committee can adjust the incentive payout by up to 25% upwards or downwards based on individual performance.

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Equity Incentive Compensation

        Equity incentive compensation is designed to reward demonstrated performance and leadership, motivate future superior performance that drives overall Company growth, aligns the interests of the Named Executive with our stockholders, and allows us to attract and retain talent through the long-term reward potential of this program. We historically provide a mix of non-statutory stock options and restricted stock units to align our equity incentive compensation with market practices and support our compensation philosophy as described above. Commencing with equity awards for fiscal 2021, our CEO will receive 10% of his long-term incentive value in the form of performance stock units as described below. Equity awards are made to Named Executives annually and on other dates that generally correspond to the Named Executive's start date with us, promotions or, in rare cases, an extraordinary performance award. Equity award amounts historically have been based upon competitive equity compensation within our peer group and/or survey group along with the above listed individual factors. Existing ownership levels generally are not a factor in award determinations as we do not want to discourage Named Executives from accumulating Digi stock. However, the Committee may take into consideration a Named Executive's previous equity awards and may approve larger awards to newer Named Executives with less equity by reason of their shorter tenure.

        Stock options have an exercise price equal to the closing price of a share of our common stock on the grant date. As a result, stock options only have value to the extent the price of our common stock on the date of exercise exceeds the exercise price on the date of the grant. For this reason, the Committee believes that stock options are a motivational and performance tool to drive stockholder value.

        Generally, stock options become exercisable as to one-fourth of the shares beginning one year after the grant date and in 36 monthly installments as to the remainder, and have a maximum seven-year term, whereas restricted stock unit awards generally vest as to one-fourth of the shares on each annual anniversary of the grant date. These vesting schedules aid us in retaining our Named Executives and motivating long-term performance. Under our current practice, equity awarded to our Named Executives includes a provision for accelerated vesting upon the permanent disability or death of the executive. In addition, equity awarded to our Named Executives includes a provision for accelerated vesting in connection with a change in control (provided that a substitute award or other equity is not provided) or upon termination of employment either without cause by the Company or for good reason by the Named Executive following a change in control. From time to time, at the discretion of the Committee, an equity award may contain different vesting or expiration terms if the Committee deems, that by doing so, we will better achieve our compensation objectives.

        The exercise price of each stock option awarded to the Named Executives and other employees under our equity incentive plans is the closing price of Digi stock on the date of grant. Stock option and restricted stock unit awards generally are made annually after we announce earnings for our fiscal fourth quarter and full fiscal year. Awards for new hires or for promotions and other performance-related awards are also made during the course of the year on a date after we have announced quarterly earnings. In all instances, the grant date for awards is on a date when the Company's trading window is open.

Fiscal 2020 Equity Awards

        For fiscal 2020, the Committee reviewed equity and long-term incentive practices of equivalent positions within our peer group, and for certain positions, the practices within the broader survey group. The Committee approved equity awards that were deemed as falling between the 25^th and 75^th percentile of reported equity and long-term incentive awards for the most recent fiscal year of companies in our peer group and our broad technology industry category. The selection of award size between the 25^th and 75^th percentile was based on the Company's fiscal 2019 performance and the

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individual factors listed above, most notably, individual performance, long-term potential and retention goals. The Company delivered the equity award value 50% in stock options and 50% in restricted stock units. The Company utilizes valuations using the Black-Scholes method to calculate stock option shares, which resulted in a value of $4.50 per option share, and the six-month average market close price of the stock as of a date preceding the final approval of the awards, which was $13.00 per share as of November 12, 2019. Accordingly, the following stock option and restricted stock unit awards were granted to the Named Executives on November 27, 2019:

        On February 4, 2020, the Committee determined to grant a one-time award of restricted stock units to Mr. Konezny, our Chief Executive Officer, to recognize his performance over his more than five-year tenure and to provide an additional incentive for his continued service and performance, as set forth below. The restricted stock units were subject to our customary vesting schedule, vesting as to one-fourth of the shares on each annual anniversary of the grant date.

        On May 12, 2020, the Committee determined to grant incremental restricted stock unit awards to the Named Executive Officers, as set forth below, in order to compensate executives for the reductions in base salary payments to conserve cash in response to the onset of the COVID-19 pandemic. The units had a fair market value approximating 10% of each Named Executive's base salary for the second half of fiscal 2020. The restricted stock units vest in full on the first anniversary of the grant date.

Fiscal 2021 Equity Awards

        For fiscal 2021, the Committee reviewed equity and long-term incentive practices of equivalent positions within our peer group, and for certain positions, the practices within the broader survey group. The Committee approved equity awards that were deemed as falling between the 25^th and 75^th percentile of reported equity and long-term incentive awards for the most recent fiscal year of companies in our peer group and our broad technology industry category. The selection of award size between the 25^th and 75^th percentile was based on the Company's fiscal 2020 performance and the individual factors listed above, most notably, individual performance, long-term potential and retention goals. The Company delivers the equity award value 50% in stock options and 50% in restricted stock units other than, for Mr. Konezny, who in fiscal 2021 received his equity award value 45% in stock

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options, 45% in restricted stock units and 10% in performance stock units. The performance stock units will vest based on achievement of a cumulative adjusted earnings per share metric measured over a three-year performance period.

Other Compensation

        We provide our Named Executives with perquisites and benefits that we believe are reasonable and aligned with our overall Executive compensation program objectives. Named Executives receive the same benefits that are available to all regular full-time employees with the sole addition of a $500,000 supplemental life insurance policy.

Employment Agreements and Change-in-Control Provisions

        As described below in the section entitled "Employment Contracts; Severance; Termination of Employment and Change-in-Control Arrangements," we have entered into employment agreements with our Named Executives to align their interests with stockholders and attract and retain executives by providing contractual arrangements that address the consequences of significant organization changes. Similarly, in certain circumstances, we may enter into separate transition or severance agreements with Named Executives to facilitate the orderly transition of their responsibilities upon their departure from the Company in a manner that is least disruptive to our organization. When entering into these agreements, the Committee considers market terms for these benefits, although the actual agreements are individually negotiated based on the circumstances of the executive being employed or retained.

Assessing Risk in our Executive Compensation Program

        The Committee reviews an annual compensation plan risk assessment provided by management. This assessment includes a review of each cash and equity incentive compensation plan within the Company, a discussion on potential risks, and a review of any process controls for effective plan administration. The Committee believes it has implemented an executive compensation program that provides our Named Executives with incentives to drive business and financial results, but not in a manner that encourages excessive or unnecessary risk-taking behaviors. This is demonstrated by the following design features:

•

having base salaries that are competitive;



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utilizing a rigorous process to establish annual financial performance metrics for our cash incentive plan that are challenging but achievable;



•

for our annual cash incentives (as well as our Second Half Fiscal 2020 Plan), utilizing more than one financial metric to determine payment under the plan. This assures Named Executives are not focused on limited aspects of business performance; and



•

providing Named Executives with an opportunity for an annual equity award that vests over a period of four years. This equity accumulation opportunity incents Named Executives to take actions that promote longer term sustainability of our business.

Compensation Governance Policies

Clawback Policy

        We maintain a Clawback Policy that governs incentive awards to our executive officers. The policy originally applied only to cash incentive awards, but was amended in December 2020 to apply to performance-based equity incentive awards, which currently consist of performance-based stock units granted to our CEO. If, after such an award is paid or settled but, prior to a change in control, we

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materially restate our consolidated financial statements because of our Company's material noncompliance with applicable financial reporting requirements, then each executive officer who is determined by our Compensation Committee to have engaged in misconduct or negligence contributing to the need for such restatement must forfeit any portion of the awards, or repay the net proceeds of such awards, to the extent that such award would not have been vested or paid if the financial results had been as reported in the restatement. "Net proceeds" shall include the proceeds from any sale of shares issued under an equity award subject to clawback and shall be determined net of taxes paid or payable by the executive officer with respect to the forfeited payment. In addition, if it is determined that any executive officer engaged in intentional misconduct or gross negligence that caused or contributed to the need for the restatement, then such executive officer must repay the entire amount of any incentive payment net of taxes paid or payable with respect to the forfeited payment. Our Compensation Committee, in its sole discretion as it deems appropriate, may reduce the forfeiture, return and payment obligations under the Executive Officer Incentive Compensation Clawback Policy. The policy is not intended to limit any other rights our Company may have by law for misconduct of an executive officer that caused or contributed to the need for a restatement.

Stock Ownership Guidelines

        We maintain stock ownership guidelines because our Board believes that it is in the best interest of the Company and our stockholders for non-employee directors and executive officers to have an equity interest in the Company in order to align their financial interests with those of our stockholders. Our Compensation Committee is responsible for monitoring the application of these guidelines.

        The guidelines specify that each non-employee director and executive officer is expected to own shares of our common stock with a value at least equal to the amount shown in the following schedule:

        The guidelines were adopted in November 2014. Covered individuals have five years from the date he or she becomes subject to these guidelines (or any heightened ownership level under these guidelines) to achieve compliance with the applicable target value. Shares are counted toward the target value by including fully-vested outstanding shares of which the covered person is deemed to be the "beneficial owner" (pursuant to Section 16 under the Exchange Act) and by including shares subject to a stock option or stock appreciation right to the extent that the award is vested as to those shares and the award is "in-the-money" (i.e., the closing price of a share of the Company's stock on the determination date exceeds the exercise price). Shares subject to a performance-based compensatory equity-based award of any kind that has not yet vested and shares subject to a restricted stock unit that has not yet vested are not counted.

        The value of the shareholdings of a covered individual is based on the greater of (i) the closing price of a share of the Company's common stock as of the most recent fiscal year end, or (ii) the "acquisition value" of the shares (the purchase price, if acquired in a market or other arm's-length transaction, or its fair market value at the time the receipt of the share was taxable or the share was received in a gift transaction).

        As of September 30, 2020, all non-employee directors and executive officers were either in compliance with the stock ownership guidelines or had made progress toward achieving the stock ownership guidelines within the five-year period before the guidelines become effective for them.

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Accounting and Tax Impacts of Executive Compensation

        Due to the enactment of the Tax Cuts and Jobs Act of 2017 in December 2017, compensation paid the chief executive officer, chief financial officer, the three highest compensated executive officers (other than the CEO and CFO) and anyone who previously was a covered person under that section in excess of $1 million will not be deductible under Section 162(m) of the Code unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017. No assurance can be given that the compensation associated with these awards will qualify for the transitional relief. While the Committee is mindful of the benefit to us of the deductibility of compensation, the Committee continues to believe that stockholder interests are best served if its discretion and flexibility in structuring and awarding compensation is not restricted, even though some compensation awards may have resulted in the past, and are expected to result in the future, in non-deductible compensation expenses to the Company. The Committee's ability to continue to provide a competitive compensation package to attract, motivate and retain the Company's most senior executives is considered critical to the Company's success and to advancing the interests of its stockholders.

        Section 409A of the Internal Revenue Code also affects the payments of certain types of deferred compensation to key employees and includes requirements relating to when payments under such arrangements can be made, acceleration of benefits, and timing of elections under such arrangements. Failure to satisfy these requirements will generally lead to an acceleration of the timing for including deferred compensation in an employee's income, as well as certain penalties and interest.

Report of the Compensation Committee

        The Compensation Committee has reviewed the above Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in Digi's Annual Report on Form 10-K for the year ended September 30, 2020 and this proxy statement. This report is provided by the following independent directors, who comprise the Compensation Committee:

Spiro C. Lazarakis
Hatem H. Naguib
Sally J. Smith (Chair)

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Summary Compensation Table

        The following summarizes the compensation for the fiscal years noted for the individuals who served at any time during our fiscal 2020 as Chief Executive Officer or Chief Financial Officer as well as our other three most highly compensated officers for fiscal 2020 (whom we have referred to in the CD&A and here as the "Named Executives").

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Grants of Plan-Based Awards for Fiscal 2020

        For services during fiscal 2020, the Named Executives received three types of plan-based awards: (1) cash-based awards under the annual incentive plan, (2) non-qualified stock option awards granted on November 27, 2019, and (3) restricted stock unit awards granted on November 27, 2019, February 4, 2020 (in the case of Mr. Konezny only) and/or May 12, 2020 (as further set forth below).

        Each stock option was scheduled to vest as to 25% of the shares subject to the option one year after the date of grant and in 36 monthly installments thereafter as to the rest of the shares, has a seven-year term, and has an exercise price equal to the closing price of a share of our common stock on the date of grant. Except as indicated in footnote 7 below, each restricted stock unit vests in four substantially equal increments of twenty-five percent per year on the anniversary of the grant date. The cash incentive plan is described beginning on page 18 and throughout the "Compensation Discussion and Analysis."

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Outstanding Equity Awards at Fiscal 2020 Year-End

        The table below provides information on each Named Executive's outstanding equity awards as of September 30, 2020. The equity awards consist of stock options and restricted stock units. The market value of each restricted stock unit that had not vested equaled $15.63, which was the closing price of our common stock on September 30, 2020.

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Options Exercised and Stock Vested During Fiscal 2020

        The table below provides information regarding stock option exercises and restricted stock units vested by the Named Executives during the fiscal year ended September 30, 2020. None of the Named Executives had any other form of stock award that vested.

Employment Contracts; Severance; Termination of Employment and Change-in-Control Arrangements

        Ronald E. Konezny.    We and Mr. Konezny are parties to an employment agreement dated November 26, 2014. The agreement entitled Mr. Konezny to an initial annual base salary, subject to review at least annually, and eligible for decrease only in connection with a uniform reduction affecting all of our senior executives proportionately. The agreement also provides that if we terminate his employment without cause he will receive: (1) severance pay at a rate equal to his base salary for a period of twelve months following termination, paid in installments on regular payroll dates during that period, (2) if Mr. Konezny is eligible for, and takes all steps necessary to continue his group health insurance coverage, we shall pay for the portion of the premium costs for such coverage that the Company pays for then active employees of the Company, at the same level of coverage that was in effect as of the termination date of his employment, for a period of 12 months thereafter, and (3) a pro rata portion of any bonus that would have been payable to him for the fiscal year during which his employment terminated, based on actual results against the annual objectives set by the Committee. Under the employment agreement, Mr. Konezny is entitled to a cash annual incentive bonus, provided that 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 the actual bonus earned based on actual performance against plan as determined through Mr. Konezny's annual cash incentive plan. If the objectives set by the Committee for a cash performance bonus are exceeded for a fiscal year, the Committee may, in its discretion, award Mr. Konezny a bonus in addition to any other bonus to which he is otherwise entitled. The employment agreement also provides that Mr. Konezny is entitled to the benefits and perquisites which we generally provide to our other employees under our applicable plans and policies.

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        James J. Loch.    We and Mr. Loch are parties to a letter agreement dated May 1, 2019. Under this agreement, if Mr. Loch's employment is terminated by us without cause at any time, he will be entitled to receive severance equal to twelve months' base salary paid as a lump sum and a bonus that will be based on the number of months of service during the fiscal year in which his employment was terminated and our actual performance against any established performance objectives under our annual cash incentive compensation plan.

        The letter agreement provided for two equity awards in connection with the commencement of Mr. Loch's employment. On August 13, 2019, he received an option to purchase 100,000 shares of our common stock, which is scheduled to vest as to 25% of the shares on the first anniversary of the grant date and in 36 substantially equal monthly installments thereafter, with a term of seven years. He also received a restricted stock unit award in the amount of 53,663 shares of our common stock, which is scheduled to vest as to 25% of the shares on each of the first four anniversaries of the grant date. Both awards will vest as to all shares if his employment is terminated without cause or terminates for good reason within one year following a change in control.

        Michael A. Ueland.    We and Mr. Ueland are parties to a letter agreement dated October 28, 2018 and a severance agreement dated September 23, 2016. Under the severance agreement, if Mr. Ueland's employment is terminated by us without cause at any time, he will be entitled to receive severance equal to six months' base salary paid as a lump sum and a bonus that will be based on the number of months of service during the fiscal year in which his employment was terminated and our actual performance against any established performance objectives under our annual cash incentive compensation plan.

        Kevin C. Riley.    We and Mr. Riley are parties to a letter agreement dated January 23, 2013. Under this agreement, if Mr. Riley's employment is terminated by us without cause at any time, he will be entitled to receive severance equal to twelve months' base salary paid as a lump sum and a bonus that will be based on the number of months of service during the fiscal year in which his employment was terminated and our actual performance against any established performance objectives under our annual cash incentive compensation plan.

        David H. Sampsell.    We and Mr. Sampsell are parties to a letter agreement dated April 8, 2011. The letter agreement provides that if Mr. Sampsell's employment is terminated by us without cause at any time, he will be entitled to receive severance equal to six months' base salary paid as a lump sum and a bonus that will be based on the number of months of service during the fiscal year in which his employment was terminated and our actual performance against any established performance objectives under our annual cash incentive compensation plan.

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Potential Payments Upon Termination or Change in Control

        The table that follows provides the estimated payments and benefits that would be provided to our Named Executives or their beneficiaries under the employment agreements and equity compensation plans described above under various scenarios involving a termination of employment and/or a change in control, and assuming that the event(s) occurred on September 30, 2020. For these purposes, "cause" generally refers to acts by an executive that result in a felony conviction, willful non-performance of material employment duties, or willfully engaging in fraud or gross misconduct that is materially detrimental to our financial interests.

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CEO Pay Ratio

        For fiscal 2020, the annual total compensation for our Chief Executive Officer was $3,553,633, as reflected in the Summary Compensation Table appearing on page 32 above. We estimate that the median employee's annual total compensation was $101,720 for fiscal 2020. This comparison results in a CEO Pay Ratio of 35:1.

        This ratio is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K promulgated under the Exchange Act, and as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

        As of September 30, 2020, our employee population consisted of approximately 476 U.S. employees and 171 non-U.S. employees. We excluded 150 employees who were acquired as a part of a business combination with Opengear in December 2019, as permitted by SEC guidance. As a result, our median employee was selected from an adjusted employee population of 496 employees (excluding our Chief Executive Officer).

        To identify a median employee among our adjusted employee population (excluding our Chief Executive Officer) employed on September 30, 2020, we used a compensation measure that included base pay received during fiscal 2020 (on an annualized basis for permanent employees employed for less than the full fiscal year) plus actual bonuses and commissions earned and the aggregate grant date fair value of equity-based awards determined in a manner consistent with the Summary Compensation Table. To improve comparability, we did not include overtime wages in our compensation measure. Using this compensation measure we selected the individual at the median of our employee population and then determined that individual's annual total compensation in accordance with Regulation S-K, Item 402(c)(2)(x) as above shown.

COMPENSATION OF DIRECTORS

        The fiscal 2020 director compensation program provided non-employee directors with a combination of cash and restricted stock units that resulted in an annual aggregate value ranging from approximately $160,000 to $193,000 per director depending on committee service in fiscal 2020.

        The Compensation Committee conducts periodic competitive reviews of the compensation plan for non-employee directors. For fiscal 2020, Radford Consulting was engaged to conduct a competitive analysis of director compensation. Among other factors, this analysis included a review of director compensation of our peer group for fiscal 2020. This analysis provided details on total compensation levels and committee service fees for directors in our peer group as well as the allocation of compensation between cash and equity. Our director compensation program was determined to be in the 50^th percentile relative to the peer group. The director compensation plan continues to provide an annual equity award, in the form of restricted stock units, with a target value of $120,000. This award is approved at the regularly scheduled meeting of the Compensation Committee immediately prior to the annual meeting of stockholders and granted after the public announcement of first fiscal quarter

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financial results. These restricted stock units are scheduled to vest in full on the date immediately preceding our next annual meeting of stockholders, which is historically approximately one year after the date of grant. In addition, a newly elected director is expected to be awarded a one-time restricted stock unit award valued at $125,000 in connection with their appointment or initial election. These restricted stock units vest 50% after one year and 100% after two years from date of award.

        The following table describes the compensation arrangements with our non-employee directors effective for fiscal 2020:

Director Compensation for Fiscal 2020

        The table below summarizes compensation provided to each non-employee director for services provided during fiscal 2020. As part of the Company's cash conservation actions in response to the COVID-19 pandemic, the Board determined not to make any cash retainer payments to the non-employee directors for the last two quarters of fiscal 2020. In lieu thereof, each non-employee director received an incremental restricted stock unit grant with a grant date fair value approximating the amount of the retainers attributable to service during the second half of fiscal 2020. The restricted stock units vest on the first anniversary of the grant date.

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RELATED PERSON TRANSACTION APPROVAL POLICY

        Our Board has adopted a written policy (the "Related Person Transaction Approval Policy") regarding transactions with any "Related Person," which is defined to include any of our directors or nominees for directors, executive officers and greater than five percent stockholders and any of their respective immediate family members. In accordance with the policy, the Audit Committee is responsible for the review and approval or ratification of all transactions with Related Persons that are required to be disclosed under the rules of the Securities and Exchange Commission.

        The Related Person Transaction Approval Policy covers "Related Person Transactions" (as defined below) between us and any Related Person. Related Person Transactions include any transactions, arrangements or relationships involving the payment of money or other value involving us and in which a Related Person has a direct or indirect interest. A Related Person Transaction does not include:

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payments of compensation to Related Persons for the Related Person's service to us as a director, officer or employee;



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transactions available to all employees or all stockholders on the same terms; or



•

transactions, which when aggregated with the amount of all other transactions between us and the Related Person or any entity in which the Related Person has an interest, involve less than $120,000 in a fiscal year.

        The Audit Committee must approve a Related Person Transaction prior to commencement of the transaction, except where the transaction is identified after it has commenced or first becomes a Related Person Transaction, in which case the Related Person Transaction will be brought before the Audit Committee for ratification. Our executives are responsible for disclosing all material information pertaining to any Related Person Transaction to the Audit Committee prior to entering into the transaction. The Audit Committee Chairperson has been granted the authority to approve transactions

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that arise between Audit Committee meetings provided that any actions taken by the Chairperson pursuant to such authority must be reported to the Audit Committee at its next regularly scheduled meeting.

        While the Audit Committee is permitted to use any factors it deems appropriate in determining whether to approve a Related Person Transaction, the Related Person Transaction Approval Policy requires the Audit Committee, at a minimum, to consider:

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the fairness of the terms to us;



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materiality of the transaction to us;



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the role of the Related Person in arranging the Related Person Transaction;



•

the structure of the Related Person Transaction; and



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the interests of all Related Persons in the Related Person Transaction.

        The Audit Committee will only approve a Related Person Transaction if the Committee determines it is beneficial and fair to us. No transactions were identified for approval with respect to fiscal 2020.

DELINQUENT SECTION 16(a) REPORTS

        Section 16(a) of the Exchange Act requires that our directors and executive officers file initial reports of ownership and reports of changes in ownership with the SEC. Directors and executive officers are required to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to us and written representations from our directors and executive officers, all Section 16(a) filing requirements were met for the fiscal year ended September 30, 2020, except for one Form 4 filing filed by Mr. Konezny on November 26, 2019 was delinquent with respect to three transactions, one Form 4 filing filed by Mr. Konezny on May 14, 2020 was delinquent with respect to one transaction and one Form 4 filing filed by Terrence G. Schneider on December 10, 2019 was delinquent with respect to one transaction.

EQUITY COMPENSATION PLAN INFORMATION

        The following table gives information as of September 30, 2020 about the equity compensation plans under which shares of our common stock may be issued.