<PAGE>
SDL, INC.
80 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134-1365
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 13, 1996
The Annual Meeting of Stockholders (the "Annual Meeting") of SDL, Inc. (the
"Company"), will be held at the Sheraton Inn Sunnyvale (Four Points) located at
1100 North Mathilda Avenue, Sunnyvale, CA 94089, on Monday May 13, 1996, at
1:00 p.m. Pacific Daylight Time, for the following purposes:
1. To elect two (2) Class 2 directors to hold office until the 1999
annual meeting of stockholders and until their respective successors have
been elected or appointed;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for 1996; and
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed Proxy
Statement, which is attached and made a part hereof.
The Board of Directors has fixed the close of business on March 29, 1996 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any postponement or adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE TO
ENSURE THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. IF YOU SEND IN YOUR
PROXY AND THEN DECIDE TO ATTEND THE ANNUAL MEETING TO VOTE YOUR SHARES IN
PERSON, YOU MAY STILL DO SO. YOUR PROXY IS REVOCABLE IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THE PROXY STATEMENT.
By Order of the Board of Directors,
/s/ John P. Melton
------------------------------------
John P. Melton,
Vice President, Business Operations,
Secretary and Director
San Jose, California
April 12, 1996
<PAGE>
MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 12, 1996
SDL, INC.
80 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134-1365
----------------
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of SDL, Inc., a Delaware corporation (the "Company"), of
proxies in the accompanying form for use in voting at the Annual Meeting of
Stockholders to be held on Monday May 13, 1996, at 1:00 p.m. Pacific Daylight
Time, at the Sheraton Inn Sunnyvale (Four Points) located at 1100 North
Mathilda Avenue, Sunnyvale, CA 94089, and any adjournment or postponement
thereof (the "Annual Meeting"). The shares represented by the proxies received,
properly dated and executed, and not revoked will be voted at the Annual
Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date, or
by attending the Annual Meeting and voting in person.
SOLICITATION AND VOTING PROCEDURES
The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing and
mailing proxy materials for the Annual Meeting and reimbursements paid to
brokerage firms and others for their expenses incurred in forwarding
solicitation material regarding the Annual Meeting to beneficial owners of the
Company's Common Stock. The Company may conduct further solicitation
personally, telephonically or by facsimile through its officers, directors and
regular employees, none of whom will receive additional compensation for
assisting with the solicitation.
The close of business on March 29, 1996 has been fixed as the record date
(the "Record Date") for determining the holders of shares of Common Stock of
the Company entitled to notice of and to vote at the Annual Meeting. As of the
close of business on the Record Date, the Company had approximately 7,271,774
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
The presence at the Annual Meeting of a majority, or approximately 3,635,900 of
these shares of Common Stock of the Company, either in person or by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. Each
outstanding share of Common Stock on the Record Date is entitled to one (1)
vote on all matters.
An automated system administered by the Company's transfer agent will
tabulate votes cast by proxy at the Annual Meeting, and an employee of the
Company will tabulate votes cast in person at the Annual Meeting. Abstentions
and broker non-votes are each included in the determination of the number of
shares present and voting, and each is tabulated separately. However, broker
non-votes are not counted for purposes of determining the number of votes cast
with respect to a particular proposal. In determining whether a proposal has
been approved, abstentions are counted as votes against the proposal and broker
non-votes are not counted as votes for or against the proposal.
1
<PAGE>
ELECTION OF DIRECTORS
The number of directors on the Board is currently fixed at six. The Company's
Certificate of Incorporation divides the Company's Board of Directors into
three classes. The members of each class of directors serve staggered three-
year terms. The Board is composed of two Class 1 directors (Dr. Scifres and Mr.
Geeslin), two Class 2 directors (Dr. Myers and Mr. Melton) and two Class 3
directors (Dr. Schwettmann and Mr. Holbrook), whose terms will expire upon the
election and qualification of directors at the Annual Meeting of Stockholders
held in 1998, 1996 and 1997, respectively. At each annual meeting of
stockholders, directors will be elected for a full term of three years to
succeed those directors whose terms are expiring.
Two (2) Class 2 directors are to be elected at the Annual Meeting to serve
until the 1999 Annual Meeting of Stockholders and until their respective
successors are elected or appointed. In the event any nominee is unable or
unwilling to serve as a nominee, the proxies may be voted for the other nominee
named and for any substitute nominee designated by the present Board of
Directors or the proxy holders to fill such vacancy, or for the other nominee
named without nomination of a substitute. The Board of Directors has no reason
to believe that either of the persons named will be unable or unwilling to
serve as a nominee or as a director if elected.
In voting for directors, each stockholder is entitled to cast that number of
votes equal to the number of directors to be elected multiplied by the number
of shares of Common Stock held by such stockholder. Such votes may be cast for
one candidate or distributed in any manner among the nominees for director.
However, the right to cumulate votes in favor of one or more candidates may not
be exercised until the candidate or candidates have been nominated and a
stockholder has given notice at the Annual Meeting of the intention to do so.
The candidates receiving the highest number of affirmative votes will be
elected, up to the number of directors to be elected. The persons authorized to
vote shares represented by executed proxies in the enclosed form (if authority
to vote for the election of directors is not withheld) will have full
discretion and authority to vote cumulatively and to allocate votes among any
or all of the nominees as they may determine or, if authority to vote for a
specified candidate or candidates has been withheld, among those candidates for
whom authority to vote has not been withheld.
Unless marked otherwise, proxies received will be voted FOR the election of
each of the nominees named below. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner in accordance with cumulative voting
as will ensure the election of as many of the nominees listed below as
possible, and, in such event, the specific nominees to be voted for will be
determined by the proxy holders.
Certain information about the nominees for Class 2 directors is furnished
below:
John P. Melton, age 60, joined the Company as a consultant in 1987 and became
Manager, Business Operations of the Company in 1988. In 1992, Mr. Melton's
title was changed to Vice President, Business Operations and Mr. Melton became
a Director of the Company. Mr. Melton also serves as Chairman of SDL Optics.
Mr. Melton earned a bachelor's degree in chemistry from the University of
Oklahoma in 1958, and an M.B.A. from Stanford University in 1963.
Mark B. Myers, Ph.D., age 57, has been a Director of the Company since
December 1992. Dr. Myers is Senior Vice President, Corporate Research and
Technology of Xerox Corporation, responsible for worldwide research and
technology. Since joining Xerox in 1964, Dr. Myers has held several research
and engineering positions. He was named Vice President and Manager of the
Webster Research Center in 1984. He was elected Corporate Vice President in May
1989 and was named to his current position in February 1992. Dr. Myers earned a
B.S. degree in geology and physics from Earlham College, Richmond, Indiana, in
1960 and a Ph.D. in material sciences from Pennsylvania State University in
1964.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED.
2
<PAGE>
THE BOARD OF DIRECTORS AND COMMITTEES
There are no family relationships among any of the directors or executive
officers of the Company.
The Company's Board of Directors met 10 times during 1995. None of the
directors attended fewer than 75% of all the meetings of the Board and those
committees of the Board on which he served. Directors of the Company who are
not employees of the Company receive no monetary compensation for attending
Board or Committee meetings, but receive automatic grants under the SDL, Inc.
1995 Stock Option Plan (the "Option Plan") of options to purchase 6,000 shares
upon initial election to the Board and 1,000 shares annually thereafter for
continuing directors following each annual meeting of stockholders.
The Audit Committee currently consists of Mr. Geeslin and Mr. Holbrook. The
Audit Committee, which met two times in 1995, recommends to the Board of
Directors the engagement of the firm of certified public accountants to audit
the financial statements of the Company for the fiscal year for which they are
appointed, and monitors the effectiveness of the audit effort and the Company's
financial and accounting organization and financial reporting.
The Compensation and Stock Option Committee currently consists of Dr. Myers
and Dr. Schwettmann. Its functions are to establish and review the compensation
policies applicable to the Company's executive officers and to administer the
Option Plan and SDL, Inc. 1995 Employee Stock Purchase Plan (the "Purchase
Plan"), including determining the individuals to receive options and the terms
of such options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of March 29,
1996 by (a) each stockholder known by the Company to be the beneficial owner of
more than five percent of the Company's Common Stock, (b) each director and
nominee for director of the Company, (c) each executive officer named in the
Summary Compensation Table below who beneficially owns shares and (d) all
executive officers, directors and nominees for director who beneficially own
shares, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
------------------------ ------------------ ---------------------
<S> <C> <C>
Donald R. Scifres(2).................. 831,800 11.0%
Keystone Small Growth Fund............ 500,000 6.9%
ML Venture Partners II................ 379,155 5.2%
JP Morgan & Co., Inc.................. 373,870 5.1%
Keith B. Geeslin(2)................... 183,904 2.5%
Hsing H. Kung(2)...................... 175,955 2.4%
David S. Evans(2)..................... 157,518 2.1%
John P. Melton(2)..................... 110,684 1.5%
John G. Endriz(2)..................... 58,524 *
Mark B. Myers(2)...................... 5,525 *
Frederic N. Schwettmann(2)............ 2,691 *
Anthony B. Holbrook(2)................ -- *
All executive officers and directors
as a group (13 persons)(2)........... 1,770,755 22.4%
</TABLE>
- --------
* Less than one percent.
(1) Percent beneficially owned is based on approximately 7,271,774 total shares
of Common Stock outstanding as of March 29, 1996.
(2) Includes options, both vested and which will become vested, or for which
the Company's repurchase option will lapse, during the sixty-day period
following March 29, 1996, in the following amounts: Dr. Scifres, 303,524
shares; Mr. Geeslin, 2,266 shares; Dr. Kung, 56,670 shares; Mr. Evans,
103,140 shares; Mr. Melton, 37,427 shares; Dr. Endriz, 25,878 shares; Dr.
Myers, 5,525 shares; Dr. Schwettmann, 2,691 shares; Mr. Holbrook, 0 shares;
and all executive officers, directors and nominees for director as a group,
628,095 shares.
3
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following tables set forth certain information concerning compensation of
and stock options held by the Company's Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------- -------------------
NAME AND PRINCIPAL OTHER ANNUAL SECURITIES
POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION(2) UNDERLYING OPTIONS
------------------ ---- ---------- ------------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
Donald R. Scifres....... 1995 $199,938 $136,283 $8,450 408,469
Chairman of the Board, 1994 188,005 92,361 6,285 --
Chief Executive Officer
and President 1993 179,082 13,665 6,266 --
John P. Melton.......... 1995 $131,646 $ 44,148 $3,048 68,205
Vice President,
Business Operations, 1994 116,910 29,648 2,346 --
Secretary and Director 1993 106,977 5,438 2,361 --
David S. Evans.......... 1995 $131,486 $ 41,666 $4,098 114,704
Vice President,
Marketing & Sales 1994 129,574 25,379 2,325 --
1993 128,112 6,246 2,215 --
John G. Endriz.......... 1995 $130,156 $ 38,106 $2,775 50,150
Vice President,
Engineering 1994 124,545 28,004 2,355 --
1993 119,076 12,058 2,280 --
Hsing H. Kung........... 1995 $128,898 $ 27,851 $4,245 67,992
Vice President,
Manufacturing 1994 124,983 24,879 3,125 --
1993 120,496 6,093 3,011 --
</TABLE>
- --------
(1) Includes bonus amounts in the year earned, rather than in the year in which
each such bonus amount was paid or is to be paid.
(2) Represents matching contributions paid by the Company under the Company's
401(k) plan. For Dr. Scifres only, also includes reimbursement of certain
expenses as specified in his Employment Agreement, including tax
preparation, legal expenses, physical exam and additional life insurance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS TO APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION -----------------
NAME GRANTED(1) YEAR PER SHARE DATE 5% 10%
---- ---------- ---------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres....... 36,550 8.3% $16.00 3/16/05 $161,569 $357,026
John P. Melton.......... 13,600 3.1% $16.00 3/16/05 $ 60,119 $132,847
David S. Evans.......... 9,600 2.2% $16.00 3/16/05 $ 42,437 $ 93,774
John G. Endriz.......... 11,600 2.6% $16.00 3/16/05 $ 51,278 $113,311
Hsing H. Kung........... 9,600 2.2% $16.00 3/16/05 $ 42,437 $ 93,774
</TABLE>
- --------
(1) Each of these options vest over four years at a rate of 1/4 of the shares
subject to the option per year and have a ten-year term.
4
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
SHARES END (#)(2) FISCAL YEAR END ($)(3)(4)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres....... 42,245 $1,341,093 371,919 36,550 $8,734,629 $292,400
John P. Melton.......... 41,333 $1,212,315 54,605 13,600 $1,282,415 $108,800
David S. Evans.......... -- -- 105,104 9,600 $2,456,899 $ 76,800
John G. Endriz.......... 109,679 $1,858,629 38,550 11,600 $ 888,930 $ 92,800
Hsing H. Kung........... -- -- 58,392 9,600 $1,371,354 $ 76,800
</TABLE>
- --------
(1) The value realized upon the exercise of stock options represents the
positive spread between the exercise price of stock options and the last
reported sale price per share for the Company's Common Stock on the
exercise date.
(2) The number of shares underlying exercisable options which are not subject
to repurchase by the Company is 293,417, 38,650, 85,819, 12,262 and 46,596
for Dr. Scifres, Mr. Melton, Mr. Evans, Dr. Endriz and Dr. Kung,
respectively.
(3) The value of "in-the-money" stock options represents the positive spread
between the exercise price of options and the last reported such price per
share for the Company's Common Stock on December 31, 1995.
(4) The value of shares underlying exercisable options which are not subject to
repurchase by the Company is $6,890,986, $907,707, $2,015,485, $287,977 and
$1,094,321 for Dr. Scifres, Mr. Melton, Mr. Evans, Dr. Endriz and Dr. Kung,
respectively.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph which follows shall not be deemed to be
incorporated by reference into any such filings.
In determining the officers' compensation levels, the Compensation and Stock
Option Committee generally considers factors such as competitive compensation
levels for officers of other high technology companies of similar revenue,
profitability and growth rates, among other factors.
The Compensation and Stock Option Committee is currently composed of Dr.
Myers and Dr. Schwettmann. In addition to administering the Option Plan and the
Purchase Plan, the Compensation and Stock Option Committee is authorized by the
Board, among other things, to establish and review annually the general
compensation policies applicable to the Company's executive officers, including
the relationship of Company financial performance to executive compensation and
the bases for the Chief Executive Officer's compensation during each fiscal
year. The Compensation and Stock Option Committee is also authorized to review
and approve the level of compensation paid to the Chief Executive Officer and
the Company's other executive officers during each fiscal year.
Bonuses for the Chief Executive Officer and a portion of the bonuses for
other officers are based on a matrix which considers revenue and profitability
of the Company as compared to the Company's annual plan, which is reviewed and
approved by the Board of Directors. A portion of the officers' (excluding the
CEO's) bonus is determined at the discretion of the Compensation and Stock
Option Committee.
No member of the Compensation and Stock Option Committee is a former or
current officer or employee of the Company.
5
<PAGE>
Compensation Policy Regarding Deductibility. The Company is required to
disclose its policy regarding qualifying executive compensation for
deductibility under Section 162(m) of the Internal Revenue Code of 1986, as
amended, which provides that, for purposes of the regular income tax and the
alternative minimum tax, the otherwise allowable deduction for compensation
paid or accrued with respect to a covered employee of a publicly-held
corporation is limited to no more than $1 million per year. For the fiscal year
ended December 31, 1995, no executive officer of the Company received $1
million in total compensation, nor does the Company anticipate that
compensation payable to any executive officer will exceed $1 million for fiscal
1996.
Compensation and Stock Option
Committee
Mark B. Myers, Ph.D.
Frederic N. Schwettmann, Ph.D.
April 12, 1996
6
<PAGE>
PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on the
Company's Common Stock during 1995 and 1996 since the date of the Company's IPO
(March 15, 1995) through February 29, 1996, with the cumulative total return on
the CRSP Total Return Index for The Nasdaq Stock Market (U.S. Companies) and
the Donaldson, Lufkin & Jenrette Semiconductor Industry Index for selected
semiconductor stocks. The comparison assumes $100 was invested on March 15,
1995 in the Company's Common Stock and in each of the foregoing indices, and
assumes reinvestment of dividends, if any. The stock price performance shown on
the graph below is not necessarily indicative of future price performance.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG SDL, INC., NASDAQ STOCK MARKET--U.S.
AND DLJ SEMICONDUCTOR INDEX
LOGO
<TABLE>
<CAPTION>
NASDAQ DLJ
Measurement Period STOCK SEMI-
(Fiscal Year Covered) SDL, INC. MARKET-U.S. CONDUCTOR INDEX
- --------------------- --------------- ----------- ---------------
<S> <C> <C> <C>
Measurement Pt-03/15/95 $100.00 $100.00 $100.00
3/31/95 160.94 101.22 99.51
4/28/95 159.38 104.53 112.90
5/31/95 161.72 107.08 120.49
6/30/95 187.50 115.62 140.24
7/31/95 215.63 124.01 161.41
8/31/95 198.44 126.35 163.06
9/29/95 176.56 129.25 165.50
10/31/95 159.38 128.32 147.17
11/30/95 140.63 131.19 135.94
12/29/95 150.00 130.31 116.48
1/31/96 156.25 131.26 115.72
2/29/96 189.44 136.25 120.81
</TABLE>
7
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
During 1995, the Compensation and Stock Option Committee established levels
of compensation for the Company's executive officers. Dr. Myers and Dr.
Schwettmann currently serve as members of the Compensation and Stock Option
Committee of the Company's Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES TO AND AGREEMENTS WITH XEROX
During 1995 and the three months ended March 29, 1996, the Company sold
$66,500 and $3,000, respectively, of products to Xerox Corporation ("Xerox").
Mark B. Myers, a Director of the Company, is a Senior Vice President of Xerox.
The Company believes that these sales were made on terms no less favorable to
the Company than would have been obtained from unaffiliated third parties.
In October 1992, the Company entered into an agreement with Xerox to perform
certain research and development regarding semiconductor laser arrays. The
research and development is funded by NIST in the aggregate amount of
$8,919,000, scheduled to be paid over five years, with matching funds scheduled
to be contributed by the Company and Xerox in the aggregate amount of
$3,147,000 and $6,152,00, respectively, over the same period, subject to
specified adjustments in the event NIST reduces funding. The Company and Xerox
will jointly own the technology conceived and reduced to practice, developed or
authored under the agreement, and each party will have certain exclusive rights
to such technology for use in its specified field. The Company and Xerox will
license to each other certain other technologies related to such technology. In
July 1992, the Company entered into a related one-year cooperative agreement,
subsequently renewed in November 1993 and renewed for two years in November
1994, with Xerox and NIST pursuant to which the parties agreed to the conduct
of and funding for the aforementioned research.
As part of the agreement relating to its formation, the Company entered into
a technology agreement with Spectra-Physics, Inc. ("Spectra-Physics") and Xerox
(the "Technology Agreement"), pursuant to which Xerox granted the Company
certain rights to certain technical information and patents held or developed
by Xerox prior to September 30, 1989. In March 1995, SDL agreed to a limited
transfer of technology, as provided in the Technology Agreement, intended only
for Xerox' internal research and development, laser printing, image projection
and other activities in the document processing field. Spectra-Physics has
filed suit against the Company alleging, among other things, that Spectra-
Physics and Opto Power have rights to Company patented and non-patented
technology developed through at least June 1993. As part of this suit, Xerox
has also sued the Company.
In May 1995, the Company, Xerox and several other parties created a
consortium to research and develop laser diodes that emit blue light. The
project is funded by ARPA in the aggregate amount of $4,136,000, scheduled to
be paid over two years, with matching funds schedules to be contributed by the
Company and Xerox in the aggregate amount of $979,000 and $846,000,
respectively, over the same period. The consortium members shall retain the
entire right, title and interest throughout the world to each subject
invention. All principal members of the consortium, including the Company and
Xerox, agreed to provide cross licenses to the other principal members on all
patents which may issue for any invention developed under the agreement.
SALES TO READ-RITE CORPORATION
During 1995 the Company sold $383,500 of products to Read-Rite Corporation.
No products were sold to Read-Rite Corporation during the three months ended
March 29, 1996. Frederic N. Schwettmann, a Director of the Company, is
President, Chief Operating Officer and a Director of Read-Rite Corporation.
8
<PAGE>
The Company believes that these sales were made on terms no less favorable to
the Company than could have been obtained from unaffiliated third parties.
STOCK OPTION PROMISSORY NOTES AND ESCROW INSTRUCTION AGREEMENTS
In connection with the exercise of certain of their options to purchase
Company stock, certain employees, including all of the officers of the Company
issued the Company promissory notes for the exercise price of such options.
Certain notes have a five-year term, with the principal due at the end of such
term, accrued but unpaid interest payable annually, and interest rates ranging
from 9.00% to 5.07%. The remaining notes have a five-year term, with the
principal and accrued but unpaid interest due at the end of such term, and an
interest rate of 5.98%. The aggregate principal and accrued interest balance of
such notes as of March 29, 1996 was $426,329. In connection with the exercise
of such options and such notes, certain employees, including all of the
officers of the Company entered into joint escrow instruction agreements to
hold in escrow shares issued upon exercise of such options until full payment
of such notes or termination of certain first refusal or repurchase rights set
forth in the respective option agreements.
OPTION GRANTS
In consideration of joining the Board of Directors, in January and December
1995, Keith B. Geeslin and Anthony B. Holbrook received from the Company an
option for 6,800 and 6,000 shares of Common Stock, respectively. In addition,
options to purchase an aggregate of 41,600 shares of Common Stock were granted
to officers of the Company from January 1, 1995 to March 29, 1996. See
"Executive Compensation-Option Grants in Last Fiscal Year."
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP has served as the Company's independent auditors since 1983
and has been recommended to the Board of Directors as the Company's independent
auditors for 1996. In the event that ratification of this selection of auditors
is not approved by a majority of the shares of Common Stock voting at the
Annual Meeting in person or by proxy, management will review its future
selection of auditors. Unless marked to the contrary, proxies received will be
voted FOR ratification of the appointment of Ernst & Young LLP as the
independent auditors for the current year.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting with the opportunity to make a statement, if they desire to do so, and
they are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1996.
STOCKHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
stockholders to be held in 1997 and included in the Company's proxy statement
relating thereto, a stockholder proposal must be received by John P. Melton,
Secretary, SDL, Inc., 80 Rose Orchard Way, San Jose, California, 95134-1365 no
earlier than February 12, 1997 and no later than March 14, 1997.
The Board of Directors does not have a nominating committee or a committee
performing the functions of a nominating committee. The Company's Certificate
of Incorporation (the "Certificate") also establishes an advance notice
procedure for bringing business before an annual meeting of stockholders and
for nominating (other than by or at the direction of the Board of Directors)
candidates for election as directors. To be timely, notice of nominations or
other business to be brought before an annual meeting must be received
9
<PAGE>
by the Secretary of the Company, at the address set forth above, not earlier
than ninety nor later than sixty days prior to the first anniversary of the
preceding year's annual meeting or, if the date of the annual meeting is
advanced by more than thirty days or delayed by more than sixty days from such
anniversary, such notice must be received not earlier than ninety days prior to
such annual meeting and not later than the later of (1) the sixtieth day prior
to the annual meeting or (2) the tenth day following the date on which notice
of the date of the annual meeting was mailed or public disclosure thereof was
made, whichever occurs first. For purposes of calculating the notice period for
this Annual Meeting, the first anniversary of the Company's 1995 annual meeting
is June 15, 1996. The Certificate also provides that notice of nomination of a
candidate for director shall include certain information with respect to a
proposed nominee, including (without limitation) information as to such
nominee's business background, relationships with stockholders and certain
other parties, and share ownership in the Company.
OTHER MATTERS
Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the
Exchange Act requires the Company's officers and directors and persons who own
more than ten percent of the Company's Common Stock (collectively, "Reporting
Persons") to file reports of ownership and changes in ownership with the SEC
and the Nasdaq National Market. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such reports received or written
representations from certain Reporting Persons that no Forms 5 were required,
the Company believes that, during 1995, all reporting persons complied with all
applicable filing requirements, with the exception of Anthony B. Holbrook, a
Director of the Company, and Elizabeth Gurklys, Vice President of Human
Resources, who each failed to file on a timely basis a Form 3 upon becoming a
Reporting Person.
Solicitation Expenses. The expense of printing and mailing proxy material
will be borne by the Company. In addition to the solicitation of proxies by
mail, solicitation may be made by certain directors, officers and other
employees of the Company by personal interview, telephone or facsimile. No
additional compensation will be paid for such solicitation. The Company will
request brokers and nominees who hold stock in their names to furnish proxy
material to beneficial owners of the shares and will reimburse such brokers and
nominees for their reasonable expenses incurred in forwarding solicitation
material to such beneficial owners.
Other Matters. The Board of Directors knows of no other business which will
be presented to the Annual Meeting. If any other business is properly brought
before the Annual Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the
persons voting the proxies.
It is important that the proxies be returned promptly and that your shares be
represented.
Stockholders are urged to fill in, sign and promptly return the accompanying
form in the enclosed envelope.
By Order of the Board of Directors
/s/ John P. Melton
------------------------------------
John P. Melton,
Vice President, Business Operations,
Secretary and Director
April 15, 1996
San Jose, California
10
<PAGE>
FOLD AND DETACH HERE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
SDL, INC.
The undersigned hereby appoints Donald R. Scifres, John P. Melton and Gregory
C. Lindholm or one of them, each with power of substitution and revocation, as
the proxy or proxies of the undersigned to represent the undersigned and vote
all shares of the Common Stock, $.001 par value, of SDL, Inc. (the "Company"),
which the undersigned would be entitled to vote if personally present at the
Company's Annual Meeting of Stockholders to be held at the Sheraton Inn
Sunnyvale (Four Points), located at 1100 North Mathilda Avenue, Sunnyvale,
California 94089, at 1:00 p.m., on Monday, May 13, 1996, and at any
adjournments thereof, upon the following matters.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
P R O X Y
(Continued and to be signed on other side)
<PAGE>
Please mark
votes as in
this example
X
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE CHOICES
MADE. WHEN NO CHOICE IS MADE, THIS PROXY WILL BE VOTED FOR ALL LISTED NOMINEES
FOR DIRECTOR AND FOR PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1 AND "FOR"
ITEM 2.
1. To elect directors, John P. Melton and Mark B. Myers, Ph.D.
WITHHELD FOR: (Write that nominee's name in the space provided below).
- -------------------------------------------------------------------------------
2. To ratify the selection of Ernst & Young LLP as independent public
accountants for the Company.
3. With discretionary authority on such other matters as may properly come
before the meeting.
FOR WITHHELD FOR ALL
FOR AGAINST ABSTAIN
THE ANNUAL MEETING MAY BE HELD AS SCHEDULED ONLY IF A MAJORITY OF THE SHARES
OUTSTANDING ARE REPRESENTED AT THE MEETING BY ATTENDANCE OR PROXY.
ACCORDINGLY, PLEASE COMPLETE THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
Signature(s): __________________________ Dated: _______________________, 1996
NOTE: (This proxy should be marked, dated, signed by the stockholder(s) exactly
as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, both should sign.)
FOLD AND DETACH HERE
