<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SDL, INC.
80 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA 95134-1365
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1997
The Annual Meeting of Stockholders (the "Annual Meeting") of SDL, Inc. (the
"Company"), will be held at the Renaissance Meeting Center at Techmart, 5201
Great America Parkway, Santa Clara, California 95054, on Monday, May 12, 1997,
at 9:00 a.m. Pacific Daylight Time, for the following purposes:
1. To elect two (2) Class 3 directors to hold office until the 2000
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 1997; 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 31, 1997 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,
LOGO
John P. Melton,
Vice President, Business Operations,
Secretary and Director
San Jose, California
April 14, 1997
<PAGE> 3
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 12, 1997, at 9:00 a.m. Pacific Daylight
Time, at the Renaissance Meeting Center at Techmart, 5201 Great America Parkway,
Santa Clara, California 95054, 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.
RECORD DATE, SHARE OWNERSHIP AND QUORUM
The close of business on March 31, 1997 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 13,386,432 shares
of Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or approximately 6,693,217 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.
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 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.
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
transfer agent 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.
<PAGE> 4
PROPOSAL NO. 1
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, 1999 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 3 directors are to be elected at the Annual Meeting to serve
until the 2000 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 shareholder 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 shareholder. 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
shareholder 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 3 directors is furnished
below:
Dr. Schwettmann was appointed a member of the Board in October 1994. Dr.
Schwettmann has served as President, Chief Operating Officer and a Director of
Read-Rite Corporation since May 1993. Dr. Schwettmann has held positions as
Chairman of the Advisory Committee for Integrated Systems at Stanford
University, member of the Board of the Applied Technology Institute for
Microelectronics and member of the Board of SEMATECH. He currently serves on the
Board of Actel Corporation. Prior to joining Read-Rite, Dr. Schwettmann worked
for Hewlett-Packard Company from 1976 to 1993, his most recent position being
Vice President and General Manager of the Circuit Technology Group. Dr.
Schwettmann received his B.Ch.E. degree from The City College of New York in
1961, his M.Ch.E. degree from New York University in 1964, and his Ph.D.Ch.E.
degree from The City University of New York in 1969.
Mr. Holbrook has been a Director of the Company since December 1995. Mr.
Holbrook retired as Chief Technical Officer of Advanced Micro Devices in August
1994. Mr. Holbrook joined AMD in 1973 and served in a number of executive
capacities. He was elected a corporate officer in 1978 and in 1982 was named
Executive Vice President and Chief Operating Officer. In 1986 Mr. Holbrook was
named President of AMD and elected to the board of directors. In 1989 he moved
from Chief Operating Officer to Chief Technical Officer and in 1990 from
President to Vice Chairman, a position he held until April 1996. Prior to
joining
2
<PAGE> 5
AMD, Mr. Holbrook held engineering management positions with Fairchild
Semiconductor and Computer Micro Technology Corporation. Mr. Holbrook received a
B.S. degree in engineering from UCLA in 1963 and an M.S. degree in electrical
engineering from Stanford University in 1966.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the directors or executive
officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors met nine (9) times during 1996. 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 automatic grants under the SDL, Inc. 1995 Stock
Option Plan (the "Option Plan") of options to purchase 9,000 shares upon initial
election to the Board and 1,500 shares annually thereafter for continuing
directors following each annual meeting of stockholders. In addition, in
November 1996, the Board of Directors approved a non-employee director
compensation package consisting of (i) an annual fee of $12,000 per year,
payable quarterly in arrears beginning with a payment of $3,000 on December 31,
1996 for the quarter ending on such date, and (ii) reimbursement of expenses
incurred in connection with attending meetings of the Board.
The Audit Committee currently consists of Mr. Geeslin and Mr. Holbrook. The
Audit Committee, which met five (5) times in 1996, 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. The Compensation and Stock Option Committee met fourteen (14)
times in 1996.
PROPOSAL NO. 2
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 1997. 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 1997.
3
<PAGE> 6
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 31, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ------------------------------------------
<S> <C> <C>
Donald R. Scifres 50 Chairman of the Board, Chief Executive
Officer and President
John P. Melton 60 Vice President, Business Operations,
Secretary and Director
Richard R. Craig 41 Vice President, Space and Avionics
Business Unit
Gregory P. Dougherty 37 Vice President, Communications Business
Unit and Corporate Marketing and Sales
Stephen J. Eglash 39 Vice President, Printing and Data Storage
Business Unit
John G. Endriz 55 Vice President, Power Delivery Business
Unit
Elizabeth A. Gurklys 36 Vice President, Human Resources
Michael C. Lancaster 51 Vice President, Manufacturing
Gregory C. Lindholm 46 Vice President, Finance, Chief Financial
Officer and Treasurer
David F. Welch 36 Vice President, Systems Business Unit
Keith B. Geeslin (1) 43 Director
Anthony B. Holbrook (1) 57 Director
Mark B. Myers (2) 58 Director
Frederic N. Schwettmann(2) 57 Director
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.
Dr. Scifres has been President, Chief Executive Officer and a member of the
Board of Directors of the Company since he helped found the Company in 1983. In
1992, Dr. Scifres became Chairman of the Board. Dr. Scifres earned a B.S. degree
in electrical engineering from Purdue University in 1968, and M.S. and Ph.D.
degrees in electrical engineering from the University of Illinois in 1970 and
1972, respectively. From 1972 to 1983 Dr. Scifres held increasingly responsible
positions at the Xerox Palo Alto Research Center including Manager of
Optoelectronics and Xerox Research Fellow. Dr. Scifres is a member of the
National Academy of Engineering and a Fellow of the Institute of Electrical and
Electronic Engineers and the Optical Society of America, holds over 100 U.S.
patents and has won a number of industry awards, including awards for
commercialization of semiconductor OEIC and laser technology. Dr. Scifres has
also served as the President of the Laser and Electro-Optics Manufaturers'
Association and the IEEE Lasers and Electro-Optics Society.
Mr. Melton joined the Company as a consultant in 1987 and became Manager,
Business Operations of the Company in 1988. In 1992 Mr. Melton was appointed
Vice President, Business Operations and became a Director of the Company. Mr.
Melton is also Chairman of SDL Optics. Mr. Melton earned a B.S. degree in
chemistry from the University of Oklahoma in 1958, and an M.B.A. degree from
Stanford University in 1963.
Dr. Craig joined the Company in September 1989 as Senior Staff Engineer in
the Engineering Department. He was appointed Communications Business Unit
Director upon creation of the unit in August 1994, and became Vice President,
Communications Business Unit in March 1995. Dr. Craig became Vice President of
the Space and Avionics Business Unit upon its creation in March 1997. Dr. Craig
is also the President of SDL Optics. Dr. Craig received a B.S. degree in physics
from the University of California, Berkeley in 1978 and a Ph.D. in electrical
engineering from the University of California, Los Angeles in 1985.
Mr. Dougherty joined the Company in March 1997 as Vice President,
Communications Business Unit and Corporate Marketing and Sales. Prior to joining
the Company, from 1989 to 1997, Mr. Dougherty was the
4
<PAGE> 7
Director of Product Management and Marketing at Lucent Technologies
Microelectronics in the Optoelectronics Strategic Business Unit. From 1984 to
1989 he was employed by Laser Diode, Inc. in marketing and sales positions. Mr.
Dougherty received a B.S. degree in Optics from Rochester University in 1983.
Dr. Eglash joined the Company in March 1993 as a Staff Scientist in the
Research Department and subsequently held positions in Marketing and
Engineering. Dr. Eglash was appointed Vice President, Printing and Data Storage
Business Unit upon its creation in January 1997. Prior to joining the Company,
Dr. Eglash was employed by Hewlett-Packard Company from 1974 to 1985, and M.I.T.
Lincoln Laboratory from 1985 to 1993. Dr. Eglash received a B.S. degree from the
University of California, Berkeley in 1979 and M.S. and Ph.D. degrees from
Stanford University in 1982 and 1986, respectively, all in electrical
engineering.
Dr. Endriz joined the Company in February 1988 as Engineering Manager. In
1992 Dr. Endriz was appointed Vice President, Engineering. Dr. Endriz became
Vice President of the Power Delivery Business Unit upon its creation in January
1997. Dr. Endriz received B.S. and M.S. degrees in electrical engineering from
the Massachusetts Institute of Technology in 1965 and a Ph.D. in electrical
engineering from Stanford University in 1970.
Ms. Gurklys initially joined the Company in April 1990 as a Human Resources
Representative. Ms. Gurklys was appointed Human Resources Manager in April 1992.
From March to June 1995, she was Human Resources Manager of Quasar Engineering,
Inc. In July 1995, Ms. Gurklys rejoined the Company as Director of Human
Resources and became Vice President, Human Resources in January 1996. Ms.
Gurklys received a B.A. degree in administrative studies from York University in
1989.
Dr. Lancaster joined the Company in August 1996 as Vice President,
Manufacturing. From February 1994 to July 1996, Dr. Lancaster consulted in the
areas of manufacturing techniques, chip scale packaging and surface mount
technology. From September 1990 to January 1994 he was Director of Engineering
at Solectron Corporation, a sub-contract manufacturing company. From September
1979 to August 1990 Dr. Lancaster held successive management positions at
Advanced Micro Devices, Manufacturing Services Division which is responsible for
the offshore assembly of integrated circuits, package design and reliability.
Dr. Lancaster received a B.S. degree in Physics at the University of Nottingham,
England and an M.S. and Ph.D. at the University of Lancaster, also in England.
Mr. Lindholm joined the Company in September 1985 as Controller and
Treasurer. In 1992 Mr. Lindholm was appointed Vice President, Finance and Chief
Financial Officer. Mr. Lindholm received a B.A. degree in business
administration from California State University, Fullerton in 1975.
Dr. Welch joined the Company in January 1985 as a member of the technical
staff. In January 1991, he became Manager of the Research Department. In 1992
Dr. Welch was appointed Vice President, Research & Development. Dr. Welch became
Vice President, Systems Business Unit upon its creation in January 1996. Dr.
Welch received a B.S. degree in electrical engineering from the University of
Delaware in 1981 and a Ph.D. in electrical engineering from Cornell University
in 1985. Dr. Welch received the Outstanding Young Scientist Award from the
Optical Society of America in 1994 for his contributions to the
commercialization of semiconductor OEICs and lasers.
Mr. Geeslin has been a Director of the Company since July 1992. Mr. Geeslin
is Senior Vice President of The Sprout Group, where he has been employed since
1984. In addition, he is a direct or indirect general or limited partner of a
series of investment funds associated with The Sprout Group, a division of DLJ
Capital Corporation, a subsidiary of Donaldson, Lufkin & Jenrette, Inc. Mr.
Geeslin is also a director of Actel Corporation and several privately held
companies. Mr. Geeslin received a B.S.E.E. degree from Stanford University in
1975, an M.A. degree in Philosophy, Politics and Economics from Oxford in 1977,
and an M.S. degree in engineering-economic systems from Stanford in 1978.
Dr. Myers 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.
5
<PAGE> 8
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.
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
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(2) COMPENSATION(3)
- ------------------------------------- ---- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Donald R. Scifres.................... 1996 $ 209,312 $ -- -- $ 4,750
Chairman of the Board, 1995 199,938 136,283 54,825 8,450(4)
Chief Executive Officer and 1994 188,005 92,361 -- 6,285(4)
President
John P. Melton....................... 1996 150,331 15,419 7,500 2,417
Vice President, Business 1995 131,646 44,148 20,400 3,048
Operations,
Secretary and Director 1994 116,910 29,648 -- 2,346
David F. Welch....................... 1996 138,067 14,088 12,000 2,382
Vice President, Systems 1995 122,028 41,629 20,400 2,335
Business Unit 1994 113,727 29,851 -- 2,335
John G. Endriz....................... 1996 137,461 -- -- 2,387
Vice President, Power Delivery 1995 130,156 38,106 17,400 2,775
Business Unit 1994 124,545 28,004 -- 2,355
Richard R. Craig..................... 1996 126,399 -- -- 2,521
Vice President, Space and 1995 111,229 39,623 24,900 3,163
Avionics Business Unit 1994 102,978 15,437 12,750 2,574
</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) Options granted pursuant to the Company's 1992 Stock Option Plan. The
options vest annually over a four year period at the rate of 25% per year.
(3) Represents matching contributions paid by the Company under the Company's
401(k) plan.
(4) Includes reimbursement of certain expenses as specified in Dr. Scifres
Employment Agreement, including tax preparation, legal expenses, physical
exam and additional life insurance.
6
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to the grant
of stock options under the Company's 1993 Long-Term Stock Incentive Plan (the
"Plan") to each of the Named Executive Officers during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
NUMBER OF PRICE APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -------------------
NAME GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE 5% 10%
- -------------------------------- ----------- -------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres............... -- -- -- -- -- --
John P. Melton.................. 7,500 2.33% $ 18.833 02/08/05 $ 77,875 $191,810
David F. Welch.................. 12,000 3.73 16.917 01/07/05 112,130 276,289
John G. Endriz.................. -- -- -- -- -- --
Richard R. Craig................ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Each of these options vests over four years at a rate of 25% of the shares
subject to the option per year and has a ten-year term.
(2) Based on a total of 322,099 options granted to employees of the Company in
1996, including the Named Executive Officers.
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the date the options were
granted.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table discloses for the Named Executive Officers information
regarding options to purchase the Company's Common Stock exercised during 1996
and options to purchase the Company's Common Stock held at the end of 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS VALUE OF UNEXERCISED
AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES VALUE END(#)(2) FISCAL YEAR END($)(3)(4)
ACQUIRED ON REALIZED(1) ------------------ --------------------------
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------- ----------- ---------- ------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres...... 126,000 $2,715,170 425,476 61,228 $10,881,269 $1,161,732
John P. Melton......... 63,000 1,409,459 19,988 26,820 465,177 398,195
David F. Welch......... 65,000 1,358,074 26,279 31,494 628,157 459,078
John G. Endriz......... 34,185 711,952 5,881 16,540 107,451 293,777
Richard R. Craig....... 13,500 326,493 44,840 25,181 1,050,773 405,570
</TABLE>
- ---------------
(1) The value realized upon the exercise of stock options represents the
positive spread between the exercise price of stock options and the fair
market of the shares subject to such options on the exercise date.
(2) The number of shares underlying exercisable options which are not subject to
repurchase by the Company is 375,154; 9,932; 15,785; 5,881 and 23,722 for
Dr. Scifres, Mr. Melton, Dr. Welch, Dr. Endriz and Dr. Craig, respectively.
(3) The value of "in-the-money" stock options represents the positive spread
between the exercise price of options and the fair market value of the
underlying on December 31, 1996 ($26.25).
(4) The value of shares underlying exercisable options which are not subject to
repurchase by the Company is $9,577,582; $204,657; $346,290; $107,451 and
$956,147 for Dr. Scifres, Mr. Melton, Dr. Welch, Dr. Endriz and Dr. Craig,
respectively.
7
<PAGE> 10
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
During 1996, 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.
Dr. Schwettmann President, Chief Operating Officer and Director of
Read-Rite Corporation and Dr. Myers Senior Vice President, Corporate Research
and Technology of Xerox Corporation are currently directors and members of the
Compensation and Stock Option Committee. During 1996 the Company sold
approximately $414,544 of products to Read-Rite Corporation and $58,550 of
products to Xerox Corporation. In addition, the Company has entered into certain
agreements with Xerox Corporation. See "Certain Relationships and Related
Transactions -- Agreements with Xerox Corporation."
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee (the "Committee") of the Board
of Directors sets the compensation of the Chief Executive Officer of the
Company, reviews the design, administration and effectiveness of the
compensation program for executive officers, and approves annual bonuses and
stock option grants for all executive officers. The Committee, serving under a
charter adopted by the Board of Directors, is composed entirely of outside
directors who have never served as officers of the Company.
The Company operates in the extremely competitive and rapidly changing high
technology industry. The Company believes that the compensation programs for
executive officers of the Company should be designed to attract, motivate and
retain talented executives responsible for the success of the Company and should
be determined within a competitive framework and based on the achievement of
overall Company financial results and individual contributions.
The compensation for each of the Company's executive officers consists of a
base salary, an annual bonus and longterm incentive compensation in the form of
stock option grants. Information obtained from available surveys of executive
compensation in the high technology industry is used to determine total
compensation levels. Based upon the Company's actual performance compared to its
performance goals and the individual's performance compared to his or her
performance goals the Committee then considers the award of a cash bonus.
The Committee met in February 1997 to evaluate the annual bonus payable to
the Company's executive officers and employees for fiscal 1996. In general, the
performance factors utilized by the Committee to evaluate whether bonuses should
be granted to Company's executive officers for fiscal 1996 are quantifiable and
include, but are not limited to, the following: the Company's performance based
on both revenue and profit before interest and taxes that must be attained
before a portion of the incentives are awarded, and the officer's overall
individual performance in his or her position and relative contribution during
the year. Bonuses paid reflected these results plus individual accomplishments
of both corporate and functional objectives.
Based on the above criteria, the Committee believes that the Company's
executive officers are committed to achieving positive long-term financial
performance and enhanced stockholder value, and that the compensation policies
and programs discussed in this report have motivated the Company's executive
officers to work toward these goals oriented to increasing stockholder value.
The goal of the Company's long-term incentive compensation in the form of
stock options is to align the interests of executive officers with those of
stockholders and to provide each executive officer with a significant incentive
to manage the Company from the perspective of an owner with an equity stake in
the business. The Committee determines the size of each stock option grant
according to each executive's position within the Company and sets a level it
considers appropriate to create a meaningful opportunity for equity-based
compensation. In addition, the Committee takes into account an individual's
recent performance, his or her potential for future responsibility and
promotion, and comparable awards made to individuals with comparable positions
in other high technology companies. The relative weight given to each of these
factors varies among individuals at the Committee's discretion.
8
<PAGE> 11
In February 1996, the Committee determined the annual base salary for the
Chief Executive Officer for 1996. In setting Dr. Scifres' annual base salary the
Committee based its decision on Dr. Scifres personal performance of his duties
and on salary levels paid to chief executive officers of other high technology
companies, and set his compensation somewhat below the 50th percentile of the
surveyed data.
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, 1996, 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
year 1997.
Compensation and Stock Option
Committee
Mark B. Myers, Ph.D.
Frederic N. Schwettmann, Ph.D.
April 14, 1997
9
<PAGE> 12
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 the fiscal year ended December 31, 1996, with the
cumulative total return on the CRSP Total Return Index for The Nasdaq Stock
Market (U.S. Companies), the Donaldson, Lufkin & Jenrette Semiconductor Industry
Index and the H&Q Technology Index for selected technology 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.
<TABLE>
<CAPTION>
DLJ
Measurement Period NASDAQ Stock Semiconductor H&Q Technology
(Fiscal Year Covered) SDL, Inc. Market - U.S. Index Index
<S> <C> <C> <C> <C>
03/15/95 100.00 100.00 100.00 100.00
03/31/95 160.94 101.22 99.51 100.94
06/30/95 187.50 115.61 140.24 122.47
09/30/95 176.56 129.25 165.50 139.46
12/31/95 150.00 130.31 116.48 136.19
03/31/96 199.94 137.06 122.04 138.91
06/30/96 267.10 148.31 142.49 145.29
09/30/96 192.13 151.96 171.95 154.71
12/31/96 246.02 159.90 226.86 163.42
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES TO AND AGREEMENTS WITH XEROX
During 1996 the Company sold $58,550 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.
Effective September 1992, the Company and Xerox entered into an agreement
addressing the relationship of the parties for the conduct of certain research
and development regarding semiconductor laser arrays. The research and
development program is an annually renewable five year effort funded by the
National Institute of Standards and Technology ("NIST") in the aggregate amount
$8,925,000, with matching funds scheduled to be contributed by the Company and
Xerox in the aggregate amount of $2,947,000 and $6,158,000, respectively over
the same period, subject to specified adjustments in the event NIST reduces
their funding. Under the terms of the research and development agreement, the
Company and Xerox will
10
<PAGE> 13
develop technology conceived and reduced to practice, developed or authored
under the research and development program 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 solely-owned technology and certain other
technologies related to the program. In September 1992, the Company, on behalf
of itself and Xerox entered into the first year of the cooperative agreement
with NIST pursuant to which the parties agreed to the conduct of and funding for
the aforementioned research program. The cooperative agreement was subsequently
renewed by NIST in November 1993, November 1994 and renewed for the final two
years in September 1995.
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 addition, the Technology Agreement gives
Xerox certain rights to certain technical information and patents developed by
the Company. The Company has agreed with Xerox that the cutoff date of the
accrual of such rights shall be July 17, 1995. As part of a lawsuit between the
Company and Spectra-Physics, Xerox has also asserted claims against the Company
under the Technology Agreement.
In May 1995, the Company, Xerox and several other parties created a
consortium to research and develop semiconductor laser that emit blue light. The
project is funded by the Defense Advanced Research Projects Agency ("DARPA") in
the aggregate amount of $4,136,000, scheduled to be paid over two years, with
matching funds scheduled to be contributed by the Company and Xerox in the
aggregate amount of $979,000 and $846,000, respectively, over the same period
with additional funds contributed by the other consortium members. The
consortium members shall retain the entire right, title and interest throughout
the world to each invention developed under the program. The three 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 related to Metal Organic Chemical Vapor Deposition growth
technology of III -- V nitrides.
SALES TO READ-RITE CORPORATION
During 1996 the Company sold $414,544 of products to Read-Rite Corporation.
Frederic N. Schwettmann, a Director of the Company, is President, Chief
Operating Officer and a Director of Read-Rite Corporation. 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. The
notes have five-year terms, with the principal due at the end of such term,
accrued but unpaid interest payable annually, and interest rates ranging from
5.00% to 8.00%. The aggregate principal and accrued interest balance of such
notes as of December 31, 1996 was approximately $256,000. 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 May 1996, Keith B. Geeslin, Anthony B. Holbrook, Mark B. Myers and
Frederic N. Schwettmann were each granted an option for 1,500 shares of Common
Stock.
In addition, options to purchase an aggregate of 38,500 shares of Common
Stock were granted to officers of the Company from January 1, 1996 to December
31, 1996. See "Executive Compensation -- Option Grants in Last Fiscal Year."
11
<PAGE> 14
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
31, 1997 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 above 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>
LeRoy C. Kopp and Kopp Investment
Advisors, Inc.(2).................... 1,612,634 12.0%
U.S. Trust Company of New York(3)...... 1,221,978 9.1
Donald R. Scifres(4)................... 1,208,704 8.7
JP Morgan & Co., Inc.(5)............... 867,675 6.5
John P. Melton(6)...................... 142,187 1.1
David F. Welch(7)...................... 120,324 *
Gregory C. Lindholm(8)................. 119,847 *
Richard R. Craig(9).................... 61,936 *
John G. Endriz(10)..................... 53,202 *
Keith B. Geeslin(11)................... 22,908 *
Elizabeth A. Gurklys(12)............... 13,958 *
Mark B. Myers(13)...................... 11,200 *
Frederic N. Schwettmann(14)............ 11,200 *
Anthony B. Holbrook(15)................ 9,500 *
Stephen J. Eglash(16).................. 4,977 *
Michael C. Lancaster................... -- *
Gregory P. Dougherty................... -- *
All executive officers and directors as
a group(14 persons)(17).............. 1,779,943 12.7%
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of March 31, 1997 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of each other person.
Applicable percentages are based on 13,386,432 shares outstanding on March
31, 1997, adjusted as required by the rules. To the Company's knowledge,
except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite
such person's name.
(2) LeRoy C. Kopp and Kopp Investment Advisors, Inc.'s address is 6600 France
Avenue South, Suite 672, Edina, Minnesota 55435. Such information is based
on a Schedule 13G filed by such stockholder with the Securities and
Exchange Commission and reflects stock held as of December 31, 1996,
including 112,500 shares as to which Kopp Investment Advisors, Inc. has
sole voting power, 35,000 shares of which Kopp Investment Advisors, Inc.
has sole investment power and 1,577,634 shares of which Kopp Investment
Advisors, Inc. has shared investment power.
(3) U.S. Trust Company of New York's address is 114 West 47th Street, New York,
New York 10036. Such information is based on a Schedule 13G filed by such
stockholder with the Securities and Exchange Commission and reflects stock
held as of December 31, 1996, including 1,221,978 shares as to which U.S.
Trust Company of New York has shared voting and investment power.
12
<PAGE> 15
(4) Includes (i) 649,963 shares held by The Donald R. and Carol D. Scifres
Revocable Living Trust and 99,450 shares held by each of Dr. Scifres' five
dependent children and (ii) 459,291 options exercisable during the
sixty-day period following March 31, 1997. Dr. Scifres' address is c/o SDL,
Inc., 80 Rose Orchard Way, San Jose, California 95134.
(5) JP Morgan & Co., Inc.'s address is 60 Wall Street, New York, New York
10260. Such information is based on a Schedule 13G filed by such
stockholder with the Securities and Exchange Commission and reflects stock
held as of December 31, 1996, includes 527,850 shares as to which JP Morgan
& Co., Inc. has sole voting power, and 867,675 shares of which JP Morgan &
Co., Inc. has sole investment power.
(6) Includes (i) 111,204 shares held by John Philip Melton and Eve Wood Melton
or successor(s), as trustees of the Melton Family Trust DTD 8/6/92 and (ii)
30,983 options exercisable during the sixty-day period following March 31,
1997.
(7) Includes (i) 96,751 shares held by David F. Welch and Heidi A. Welch,
Trustees F/A/0 The Welch Charitable Remainder Uni Trust DTD 10/17/95 and
(ii) 23,573 options exercisable during the sixty-day period following March
31, 1997.
(8) Includes (i) 83,435 shares held by Gregory C. Lindholm and Laurie D.
Lindholm co-trustees under the Lindholm Trust Agreement DTD 11/l/95 and
(ii) 36,412 options exercisable during the sixty-day period following March
31, 1997.
(9) Includes 55,696 options exercisable during the sixty-day period following
March 31, 1997.
(10) Includes 12,190 options exercisable during the sixty-day period following
March 31, 1997.
(11) Includes 11,200 options exercisable during the sixty-day period following
March 31, 1997.
(12) Includes 3,600 options exercisable during the sixty-day period following
March 31, 1997.
(13) Includes 11,200 options exercisable during the sixty-day period following
March 31, 1997.
(14) Includes 11,200 options exercisable during the sixty-day period following
March 31, 1997.
(15) Includes 9,500 options exercisable during the sixty-day period following
March 31, 1997.
(16) Includes 4,977 options exercisable during the sixty-day period following
March 31, 1997.
(17) Includes 669,822 options exercisable during the sixty-day period following
March 31, 1997.
STOCKHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
stockholders to be held in 1998 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
later than December 15, 1997.
STOCKHOLDER NOMINATIONS FOR DIRECTOR
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 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. The Certificate also provides that notice of nomination of a
candidate for director shall include certain information with
13
<PAGE> 16
respect to a proposed nominee, including (without limitation) information as to
such nominee's business background, relationships with shareholders 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 and the Company believes that, during 1996, all reporting persons
complied with all applicable filing requirements.
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
LOGO
John P. Melton,
Vice President, Business Operations,
Secretary and Director
April 14, 1997
San Jose, California
14
<PAGE> 17
PROXY
SDL, INC.
80 ROSE ORCHARD WAY
SAN JOSE, CA 95134
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING ON MAY 12, 1997.
Donald R. Scifres and Gregory C. Lindholm, or any one of them, each
with the power of substitution, are hereby authorized to represent and vote
the shares of the undersigned, with all the powers which the undersigned would
possess if personally present, at the Annual Meeting of Shareholders of SDL,
Inc. (the "Company"), to be held on Monday, May 12, 1997, and any adjournment or
postponement thereof.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE
AUTHORITY TO VOTE FOR THE ELECTION OF ALL DIRECTORS, AND FOR ITEM 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS
AND FOR PROPOSAL 2.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 18
Please mark
your votes as [X]
indicated in
this example
WITHHELD
FOR AUTHORITY
1. Election of two (2) Class 3 (or if any nominee is not [ ] [ ]
available for election, such substitutes as the Board
of Directors or the proxy holders may designate).
Nominees: FREDERIC N. SCHWETIMANN AND
ANTHONY B. HOLBROOK.
FOR, except vote withheld from the following nominee(s):
--------------------------------------------------------
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. To ratify the appointment of Ernst & Young LLP as the [ ] [ ] [ ]
Company's independent auditors for the fiscal year
ending December 31, 1997:
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
[ ] MARK HERE FOR
ADDRESS CHANGE
AND NOTE AT RIGHT:
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY USING
THE ENCLOSED REPLY ENVELOPE.
Signature(s) Date
---------------------------------------------------- ----------
Please sign exactly as your name appears herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
-------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
