<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))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SDL, Inc.
- --------------------------------------------------------------------------------
(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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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 14, 1998
The Annual Meeting of Stockholders (the "Annual Meeting") of SDL, Inc. (the
"Company"), will be held at the Four Points Hotel, 1100 North Mathilda Avenue,
Sunnyvale, California 94089, on Thursday, May 14, 1998, at 9:00 a.m. Pacific
Daylight Time, for the following purposes:
1. To elect two Class 1 directors to hold office until the 2001 annual
meeting of stockholders and until their respective successors have been
elected or appointed;
2. To approve an amendment to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares reserved for issuance
thereunder from 450,000 shares to 850,000 shares;
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for 1998; and
4. 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 16, 1998 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,
Executive Vice President, Secretary
and Director
San Jose, California
April 17, 1998
<PAGE> 3
MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 17, 1998
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 Thursday May 14, 1998, at 9:00 a.m. Pacific Daylight
Time, at the Four Points Hotel, 1100 North Mathilda Avenue, Sunnyvale,
California 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.
RECORD DATE, SHARE OWNERSHIP AND QUORUM
The close of business on March 16, 1998 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 13,736,746 shares
of Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or approximately 6,868,374 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 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 2000, 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 Class 1 directors are to be elected at the Annual Meeting to serve
until the 2001 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 1 directors is furnished
below:
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 optoelectronics and laser technology. Dr.
Scifres has also served as the President of the Laser and Electro-Optics
Manufacturers' Association and the IEEE Lasers and Electro-Optics Society.
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
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<PAGE> 5
University in 1975, an M.A. degree in Philosophy, Politics and Economics from
Oxford College in 1977, and an M.S. degree in engineering-economic systems from
Stanford University in 1978.
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 eleven times during 1997. 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, 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 times in 1997, 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 two times in
1997.
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to act upon a proposal to
approve the action of the Board of Directors amending the Company's Purchase
Plan. Ratification of the proposal requires the affirmative vote of a majority
of the shares of Common Stock present in person or by proxy.
The Board of Directors of the Company amended the Purchase Plan in February
1998, to effect the following, subject to stockholder approval: to increase the
number of shares reserved for issuance under the Purchase Plan from 450,000
shares to 850,000 shares.
Amended Plan Benefits. The Board of Directors believes that the attraction
and retention of high quality personnel are essential to the Company's continued
growth and success and that an incentive plan such as the Purchase Plan is
necessary for the Company to remain competitive in its compensation practices.
In the absence of an increase in the available shares, no shares will be
available for purchase under the Purchase Plan after the current Purchase Period
(as defined below), except to the extent that shares are not purchased during
the current Purchase Period due to the withdrawal of a plan participant.
The Board of Directors recommends a vote FOR the ratification and approval of
the amendment to the Company's 1995 Employee Stock Purchase Plan.
3
<PAGE> 6
GENERAL DESCRIPTION OF THE PURCHASE PLAN
The following summary of the Purchase Plan, including the proposed
amendment, is qualified in its entirety by the specific language of the Purchase
Plan, a copy of which is available to any stockholder upon request.
In January 1995 the Board of Directors adopted, and in February 1995 the
stockholders approved, the Purchase Plan. An aggregate of 300,000 shares of the
Company's Common Stock was reserved for issuance under the Purchase Plan and
made available for purchase thereunder, subject to adjustment in the event of a
stock split, stock dividend or other similar change in the Common Stock or the
capital structure of the Company. In May 1996 the Company declared a
three-for-two split of its Common Stock, which was effected in the form of a 50%
stock dividend, thus increasing the number of shares reserved for issuance under
the Purchase Plan to 450,000 shares.
The purpose of the Purchase Plan is to provide employees of the Company who
participate in the Plan with an opportunity to purchase Common Stock of the
Company through payroll deductions. The Purchase Plan, and the right of
participants to make purchases thereunder, is intended to qualify as an
"employee stock purchase plan" under the provisions of Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). Employees of the Company
and its designated subsidiaries are eligible to participate in the Purchase
Plan. Directors who are not employees are not eligible to participate. As of
March 16, 1998, approximately 613 employees were eligible to participate in the
Purchase Plan. In February 1998, the Board of Directors approved an amendment to
the Purchase Plan increasing the number of shares available for issuance
thereunder from 450,000 shares to 850,000 shares. As of March 16, 1998, 287,187
shares of Common Stock had been sold pursuant to the Purchase Plan at a weighted
average price of $10.62 per share, with 171,813 shares available for future
issuance under the Purchase Plan.
Any person who is employed by the Company (or any of its majority-owned
subsidiaries for whom the appropriate regulatory filings and action by the Board
of Directors have been made) for at least 20 hours per week and more than five
months in a calendar year is eligible to participate in the Purchase Plan
provided that the employee is employed on the first day of a Purchase Period and
subject to certain limitations imposed by Section 423(b) of the Code. Eligible
employees become participants in the Purchase Plan by delivering to the Company
a subscription agreement authorizing payroll deductions prior to the
commencement of the applicable Purchase Period.
Under the Purchase Plan, an option is granted to each participant at the
commencement of each 24-month period (a "Purchase Period") during which
deductions are made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Purchase Plan. A new
24-month Purchase Period commences each April 10 and October 10. An employee may
participate in only one Purchase Period at a time. Purchases of stock are made
on the last day of each of four six-month "Accrual Periods" during the Purchase
Period. Each Purchase Period terminates automatically prior to the expiration of
24 months if the average fair market value of the Company's Common Stock on the
last three days of an Accrual Period within the Purchase Period is less than its
fair market value on the first day of the Purchase Period, and the employee will
be enrolled in the new Purchase Period commencing the following day. Payroll
deductions may be from 1% to 10% (in whole percentage increments) of a
participant's compensation. Participants may not make direct cash payments to
their accounts. The Board of Directors or a committee thereof may establish a
maximum number of shares of Common Stock which any employee may purchase under
the Purchase Plan for a Purchase Period. Certain additional limitations on the
amount of Common Stock which may be purchased in any calendar year are imposed
by the Code.
The price per share at which shares of Common Stock are purchased pursuant
to the Purchase Plan for any Purchase Period is the lesser of (a) 85% of the
fair market value of Common Stock on the date of the grant of the option (the
commencement of the Purchase Period) or (b) 85% of the fair market value of
Common Stock on the date of exercise of the option (the last business day of an
Accrual Period). Fair market value of the Common Stock for any date is
determined by averaging the high and low asked prices for the Common Stock on
the three trading days prior to the date of determination. On the last business
day of each Accrual Period, amounts credited to the accounts of the participants
who have neither been terminated from
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<PAGE> 7
the employ of the Company (or designated subsidiary) nor withdrawn from the
Purchase Plan for such Purchase Period are used to purchase shares of Common
Stock. Only amounts credited to the accounts of participants may be applied to
the purchase of shares of Common Stock under the Purchase Plan. The number of
shares of Common Stock which may be purchased is subject to adjustment in the
event of a stock split, stock dividend or other similar change in the Common
Stock or the capital structure of the Company. If for any Purchase Period, the
number of shares of Common Stock available for the Plan shall be insufficient,
the plan administrator is authorized to apportion the remaining available shares
pro rata among participating employees on the basis of their election in effect
for such Purchase Period. The Company makes no cash contributions to the
Purchase Plan, but bears the expenses of administration. The Purchase Plan is
administered the Compensation and Stock Option Committee, which has the
authority to determine the terms and conditions under which shares are to be
offered and corresponding options are to be granted under the Purchase Plan for
any Purchase Period during the term of the Purchase Plan, and to resolve all
questions immediately relating to the administration of the Plan. The Purchase
Plan will terminate on the date preceding the tenth anniversary of its date of
adoption, unless earlier terminated by the Board of Directors.
Notwithstanding the foregoing, (i) no employee will be permitted to
subscribe for shares under the Purchase Plan if, immediately after the grant of
the option, the employee would own 5% or more of the voting power or value of
all classes of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), and (ii) no employee shall be granted an option which would
permit the employee to buy pursuant to the Purchase Plan more than $25,000 worth
of stock (determined at the fair market value of the shares at the time the
option is granted) in any calendar year.
A participant may decrease the rate of his or her payroll deduction for the
remainder of a Purchase Period by filling out the appropriate form and
delivering it to the Company (or its designee). The reduced rate will become
effective with the first full payroll period following ten business days after
the Company receives the form unless the Company elects to process changes more
quickly, and will remain in effect for the entire Purchase Period and each
subsequent Purchase Period.
A participant may also increase or decrease his or her rate of payroll
deduction (to the 10% maximum allowed by the Purchase Plan) for a subsequent
Purchase Period by filing a new payroll deduction authorization with the Company
prior to the start of that Purchase Period. The new rate will become effective
on the first day of the Purchase Period following the tenth business day after
filing the new authorization and will remain in effect for the entire Purchase
Period and each subsequent Purchase Period.
A participant's interest in a given Purchase Period may be terminated in
whole, but not in part, by signing and delivering to the Company a notice of
withdrawal from the Purchase Plan. Such withdrawal may be elected at any time
prior to the end of the applicable six-month Accrual Period. Any withdrawal by
the participant of accumulated payroll deductions for a given Purchase Period
automatically terminates the participant's interest in that Purchase Period. The
failure to remain in the continuous employ of the Company (or a designated
subsidiary) for at least 20 hours per week and more than five months in a
calendar year during a Purchase Period will be deemed to be a withdrawal from
that Purchase Period.
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
CERTAIN FEDERAL TAX CONSEQUENCES
The following discussion summarizes certain tax considerations for
participants in the Purchase Plan and certain tax effects to the Company. State,
local and foreign tax consequences may differ.
Amounts deducted from a participant's pay under the Purchase Plan are part
of the employee's regular compensation and remain subject to federal, state and
local income and employment withholding taxes. A participant will not recognize
any additional income at the time the participant elects to participate in the
Purchase Plan, or purchases Common Stock under the Purchase Plan.
5
<PAGE> 8
If a participant disposes of Common Stock purchased pursuant to the
Purchase Plan within two years after the first day of the Purchase Period or
within one year of the purchase of Common Stock (the "Minimum Holding Period"),
the participant will recognize, for federal tax purposes, ordinary compensation
income at the time of disposition of the Common Stock in an amount equal to the
excess of the fair market value of the Common Stock on the day the Common Stock
was purchased over the purchase price the participant paid for the Common Stock.
This amount may be subject to withholding for taxes. In addition, a participant
generally will recognize a capital gain or loss in an amount equal to the
difference between the amount realized upon the disposition of the Common Stock
and the participant's basis in the Common Stock (that is, the purchase price
plus the amount taxed as compensation income).
If a participant disposes of Common Stock purchased pursuant to the
Purchase Plan at any time after the Minimum Holding Period, the participant will
recognize, for federal tax purposes, ordinary compensation income at the time of
such disposition in an amount equal to the lesser of (a) the excess (or zero if
there is no excess) of the fair market value of the Common Stock at the time of
such disposition over the amount paid for the Common Stock, or (b) 15% of the
fair market value of the Common Stock on the first day of the Purchase Period.
In addition, the participant generally will recognize a capital gain or loss in
an amount equal to the difference between the amount realized upon the
disposition of the Common Stock and the participant's basis in the stock (that
is, the purchase price plus the amount, if any, taxed as compensation income).
Although the amounts deducted from a participant's pay under the Purchase
Plan generally are tax-deductible business expenses of the Company, the Company
generally will not be allowed any additional deduction by reason of a
participant's purchase of Common Stock under the Purchase Plan. However, if a
participant disposes of Common Stock purchased pursuant to the Purchase Plan
within the Minimum Holding Period, the Company should be entitled to a deduction
in an amount equal to the compensation income recognized by the participant. If
a participant disposes of Common Stock purchased under the Purchase Plan after
the Minimum Holding Period, the Company will not receive any deduction for
federal income tax purposes with respect to the Common Stock.
PROPOSAL NO. 3
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 1998. In the event that ratification of this selection
of auditors is not approved by a majority of the shares of Common Stock present
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 1998.
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<PAGE> 9
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 16, 1998 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald R. Scifres................... 51 Chairman of the Board, Chief
Executive Officer and President
John P. Melton...................... 61 Executive Vice President, Secretary
and Director
Richard R. Craig.................... 42 Vice President, Space and Avionics
Group
Gregory P. Dougherty................ 38 Vice President, Components Group
Stephen J. Eglash................... 40 Vice President, Printing Business
Unit
John G. Endriz...................... 56 Vice President, Power Delivery
Business Unit
Michael C. Lancaster................ 52 Vice President, Materials and
Logistics
Robert J. Lang...................... 36 Vice President, Research and
Development
Vincent A. McCord................... 51 Vice President, Finance and Chief
Financial Officer
David F. Welch...................... 37 Vice President, Systems Group
Keith B. Geeslin(1)................. 44 Director
Anthony B. Holbrook(1).............. 58 Director
Mark B. Myers(2).................... 59 Director
Frederic N. Schwettmann (2)......... 58 Director
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.
Dr. Scifres has been Chief Executive Officer, President 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 optoelectronics and laser technology. Dr.
Scifres has also served as the President of the Laser and Electro-Optics
Manufacturers' 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. In
1997 Mr. Melton was appointed Executive Vice President. Mr. Melton earned a B.S.
degree in chemistry from the University of Oklahoma in 1958, and an M.B.A. 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,
Space and Avionics Group, upon its creation in March 1997. 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.
7
<PAGE> 10
Mr. Dougherty joined the Company in March 1997 as Vice President,
Communications Business Unit and Corporate Marketing and Sales. In June 1997, he
was appointed Vice President Communications and Information Products. In
December 1997, Mr. Dougherty was appointed Vice President, Components Group. Mr.
Dougherty is also the President of SDL Optics. Prior to joining the Company,
from 1989 to 1997, Mr. Dougherty was the 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 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, Power Delivery Business Unit upon its creation in January 1997.
Prior to joining the Company, Dr. Endriz was Engineering Manager and Operations
Manager at Varian Image Tube Division from 1977 through 1987. Dr. Endriz was
employed by RCA Sarnoff Research Center from 1972 to 1977. 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.
Dr. Lancaster joined the Company in August 1996 as Vice President,
Manufacturing. In January 1998 he was appointed Vice President, Materials and
Logistics. 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.
Dr. Lang joined the Company in April 1992 as a Senior Research Section
Manager in the Research and Development Department. He has subsequently held
positions of Chief Scientist, Acting Vice President of Research and Development,
and Director of Research and Development. In January 1998, Dr. Lang was
appointed Vice President, Research and Development. Prior to joining the
Company, Dr. Lang worked at SEL/Alcatel and NASA/JPL. Dr. Lang received a B.S.
degree in Electrical Engineering from the California Institute of Technology in
1982, an M.S. degree in Electrical Engineering from Stanford University in 1983
and a Ph.D. degree in Applied Physics from the California Institute of
Technology in 1986. Dr. Lang was elected a Fellow of the Optical Society of
America in 1997.
Mr. McCord joined the Company in February 1998 as Vice President, Finance
and Chief Financial Officer. From November 1996 to January 1998, he was Vice
President, Finance and Chief Financial Officer of QuickLogic Corporation, a
privately held company in the semiconductor industry. From July 1996 to October
1996, he consulted in the financial management area to several high technology
companies. From April 1996 to July 1996, Mr. McCord was Chief Financial Officer
of Exergy, Incorporated, a privately held company in the energy field. From
September 1991 to March 1996, he was Vice President and Controller of LSI Logic
Corporation. From December 1988 to September 1991, Mr. McCord was Director of
Planning for Conner Peripherals. Mr. McCord was employed by IBM from July 1974
until December 1988, where he held various positions in sales and financial
management. Mr. McCord received a B.S. degree in Applied Mathematics from the
Georgia Institute of Technology and an M.B.A. from Harvard University.
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 &
8
<PAGE> 11
Development. Dr. Welch became Vice President, Systems Group 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 Adolph Lomb Award from the
Optical Society of America in 1994 for his contributions to the
commercialization of semiconductor optoelectronics 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 College
in 1977, and an M.S. degree in engineering-economic systems from Stanford
University in 1978.
Mr. Holbrook has been a Director of the Company since December 1995. Mr.
Holbrook retired as Chief Technical Officer of Advanced Micro Devices ("AMD") 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 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.
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. 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.
Dr. Schwettmann has been a director of Company since October 1994. Dr.
Schwettmann served as President, Chief Operating Officer and a Director of
Read-Rite Corporation from May 1993 until his retirement in May 1997. 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.
9
<PAGE> 12
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").
In 1997, the Company changed from a calendar year end to a 52-53 week year
ending on the Friday closest to December 31. Fiscal year 1997 ended January 2,
1998. For ease of discussion and presentation all fiscal year ends are referred
to as ending on December 31.
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................ 1997 $222,412 $ -- 25,000 $3,868
Chairman of the Board, 1996 209,312 -- -- 4,750
Chief Executive Officer and 1995 199,938 136,283 54,825 8,450(4)
President
John P. Melton................... 1997 164,918 -- 15,000 2,746
Executive Vice President, 1996 150,331 15,419 7,500 2,417
Secretary and Director 1995 131,646 44,148 20,400 3,048
David F. Welch................... 1997 151,594 -- 15,000 2,572
Vice President, Systems Group 1996 138,067 14,088 12,000 2,382
1995 122,028 41,629 20,400 2,335
John G. Endriz................... 1997 142,973 -- 8,000 1,978
Vice President, Power Delivery 1996 137,461 -- -- 2,387
Business Unit 1995 130,156 38,106 17,400 2,775
Richard R. Craig................. 1997 138,746 -- 12,000 2,139
Vice President, Space and 1996 126,399 4,000 -- 2,521
Avionics Group 1995 111,229 39,623 24,900 3,163
</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 1995 Stock Option Plan. The
options vest annually over a four year period at the rate of 25% per year.
(3) Represents group term life insurance premiums paid by the Company and
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.
EMPLOYMENT AGREEMENTS
In July 1992, the Company entered into an agreement, subsequently amended
in February 1993 and July 1994, with Donald R. Scifres to serve as Chief
Executive Officer, President and Chairman of the Board. Dr. Scifres is entitled
to receive bonuses of up to 130% of his current base salary upon achievement of
specified revenue and operating income performance objectives. Under the
agreement, the Company is obligated to maintain a life insurance policy for Dr.
Scifres equal to two times his current base salary. If the Company terminates
Dr. Scifres' employment without cause, as defined in the agreement, he is
entitled to receive a lump sum payment equal to 12 months of his current base
salary and an amount payable monthly for
10
<PAGE> 13
12 months equal to 4.2% of his current base salary, and the vesting of all
outstanding stock options accelerates by 12 months. Dr. Scifres is also entitled
to, but since 1995 has not claimed, reimbursement of certain legal, financial
planning, tax preparation, computer and medical expenses.
The Company also has entered into employment agreements with each of the
other Named Executive Officers. In addition to an annual base salary, each such
Named Executive Officer is entitled to receive bonuses of up to 39% of his
current base salary upon achievement of specified revenue and operating income
performance objectives, with discretionary cash bonuses of up to 10% of current
base salary. Under each agreement, the Company is obligated to maintain a life
insurance policy for each such Named Executive Officer equal to his current base
salary. If the Company terminates one of such Named Executive officer's
employment without cause (as defined in the agreement), he is entitled to
receive a lump sum payment equal to 6 months of his current base salary and an
amount payable monthly for 6 months equal to 2.1% of his current base salary and
the vesting of all options accelerates by 6 months.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to the grant
of stock options under the Option Plan to each of the Named Executive Officers
during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL EXERCISE APPRECIATION FOR
UNDERLYING OPTIONS TO PRICE OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) SHARE($/SHR) (3) DATE 5% ($) 10% ($)
---- ------------- -------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres...... 25,000 4.52 $13.00 4/30/07 $204,389 $517,965
John P. Melton......... 15,000 2.71 13.00 4/30/07 122,633 310,779
David F. Welch......... 15,000 2.71 13.00 4/30/07 122,633 310,779
John G. Endriz......... 8,000 1.45 13.00 4/30/07 65,404 165,748
Richard R. Craig....... 12,000 2.17 13.00 4/30/07 98,106 248,623
</TABLE>
- ---------------
(1) Each of these options vests over four years at a rate of 25% of the shares
subject to the option per year and has a ten-year term.
(2) Based on a total of 549,945 options granted to employees of the Company in
1997, including the Named Executive Officers.
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the date the options were
granted.
(4) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their terms, assuming the specified compounded rates of
appreciation on the Company's Common Stock over the term of the options.
Actual gains, if any, on stock option exercise are dependent upon a number
of factors, including the future performance of the Common Stock, overall
stock market conditions, and the timing of option exercises, if any. There
can be no assurance that amounts reflected in this table will be achieved.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table discloses for the Named Executive Officers information
regarding options to purchase the Company's Common Stock exercised during 1997
and options to purchase the Company's Common Stock held at the end of 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END (#) FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED(1) ---------------------------- ----------------------------
NAME EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ----------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres......... -- $ -- 459,291 52,413 $6,506,201 $175,340
John P. Melton............ -- -- 30,983 30,825 324,970 77,349
David F. Welch............ 15,000 318,603 26,573 31,200 198,806 77,349
John G. Endriz............ 20,151 416,115 12,190 16,700 90,375 55,787
Richard R. Craig.......... -- -- 55,711 26,310 626,482 82,937
</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 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 shares on January 2, 1998 ($15.125).
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
During 1997, the Compensation and Stock Option Committee established levels
of compensation for the Company's executive officers. Dr. Myers, Senior Vice
President, Corporate Research and Technology of Xerox Corporation, is currently
a director and member of the Compensation and Stock Option Committee. See
"Certain Relationships and Related Transactions -- Sales to and Agreements with
Xerox."
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 long-term 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 1998 to evaluate the annual bonus payable to
the Company's executive officers and employees for fiscal 1997. In general, the
performance factors utilized by the Committee to evaluate whether bonuses should
be granted to Company's executive officers for fiscal 1997 are quantifiable
12
<PAGE> 15
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. Based on the above criteria, no bonuses were paid to executive
officers for fiscal 1997.
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.
In February 1997, the Committee determined the annual base salary for the
Chief Executive Officer for 1998. 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, 1997, 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 1998.
Compensation and Stock Option
Committee
Mark B. Myers, Ph.D.
Frederic N. Schwettmann, Ph.D.
April 17, 1998
13
<PAGE> 16
PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on the
Company's Common Stock since the date of the Company's initial public offering
(March 15, 1995) through the fiscal year ended December 31, 1997, with the
cumulative total return on the CRSP Total Return Index for The NASDAQ Stock
Market (U.S. Companies) 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>
Measurement Period NASDAQ Stock H&Q Technology
(Fiscal Year Covered) 'SDL, Inc.' Market--U.S. Index
<S> <C> <C> <C>
3/15/95 100.00 100.00 100.00
3/31/95 160.94 101.22 100.94
6/30/95 187.50 115.62 122.47
9/30/95 176.56 129.25 139.46
12/31/95 150.00 130.31 136.19
3/31/96 198.43 137.06 138.91
6/30/96 260.15 148.31 145..29
9/30/96 192.13 151.96 154.71
12/31/96 246.02 159.90 163.42
3/31/97 160.54 152.82 159.61
6/30/97 179.29 180.83 192.11
9/30/97 189.84 211.42 232.82
12/31/97 135.93 198.27 196.31
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES TO AND AGREEMENTS WITH XEROX
During 1997 the Company sold $48,575 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 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
14
<PAGE> 17
renewed by NIST in November 1993, November 1994 and renewed for the final two
years in September 1995. Work under this agreement was completed in January
1998.
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 asserted certain claims against the Company
under the Technology Agreement, which claims were settled on May 19, 1997.
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. Work under this consortium agreement was completed
in August 1997.
In June 1996, the Company, Xerox and several other parties created a
follow-on consortium to continue the research and development of a semiconductor
laser that emits blue light. The project is funded by the Defense Advanced
Research Project Agency ("DARPA") in the aggregate amount for the consortium of
$5,003,948, scheduled to be paid over three years, with matching funds scheduled
to be contributed by the Company and Xerox in the amounts of $1,450,618 and
$917,286, respectively, over the same period with additional funds to be
contributed by the other consortium members. The consortium members shall retain
all 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 of III-V nitrides.
15
<PAGE> 18
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
16, 1998 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 Named Executive Officer and (d)
all executive officers and directors 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).................................. 4,319,004 31.4%
United States Trust Company of New
York(3).................................. 1,335,434 9.7
Donald R. Scifres(4)....................... 1,228,360 8.9
John P. Melton(5).......................... 154,015 1.1
David F. Welch(6).......................... 113,449 *
Richard R. Craig(7)........................ 57,459 *
John G. Endriz(8).......................... 35,706 *
Keith B. Geeslin(9)........................ 15,248 *
Mark B. Myers(10).......................... 12,450 *
Frederic N. Schwettmann(11)................ 11,174 *
Anthony B. Holbrook(12).................... 10,250 *
All executive officers and directors as a
group (14 persons)(13)................... 1,700,045 12.4%
</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 16, 1998
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 13,736,746 shares outstanding
on March 16, 1998, 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 7701 France
Avenue South, Suite 500, 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, 1997,
including 520,000 shares as to which Kopp Investment Advisors, Inc. has
sole voting power, 254,500 shares of which Kopp Investment Advisors, Inc.
has sole investment power, 149,000 shares of which LeRoy C. Kopp has sole
voting and investment power and 3,915,504 shares of which Kopp Investment
Advisors, Inc. has shared investment power.
(3) United States 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, 1997, including 1,335,434 shares as
to which United States Trust Company of New York has shared voting and
investment power.
(4) Includes (i) 521,914 shares held by The Donald R. and Carol D. Scifres
Revocable Living Trust and 99,450 shares held by Dr. Scifres' five
dependent children and (ii) 479,427 options exercisable during the
sixty-day period following March 16, 1998. Dr. Scifres' address is c/o SDL,
Inc., 80 Rose Orchard Way, San Jose, California 95134.
16
<PAGE> 19
(5) Includes (i) 112,307 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)
41,708 options exercisable during the sixty-day period following March 16,
1998.
(6) Includes 35,423 options exercisable during the sixty-day period following
March 16, 1998.
(7) Includes 49,990 options exercisable during the sixty-day period following
March 16, 1998.
(8) Includes 18,540 options exercisable during the sixty-day period following
March 16, 1998.
(9) Includes 10,537 options exercisable during the sixty-day period following
March 16, 1998.
(10) Includes 12,450 options exercisable during the sixty-day period following
March 16, 1998.
(11) Includes 11,174 options exercisable during the sixty-day period following
March 16, 1998.
(12) Includes 10,250 options exercisable during the sixty-day period following
March 16, 1998.
(13) Includes 724,914 options exercisable during the sixty-day period following
March 16, 1998.
STOCKHOLDER PROPOSALS
To be considered for presentation to the annual meeting of the Company's
stockholders to be held in 1999 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 11, 1998.
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance. 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, during 1997, the Company believes that all reporting persons complied
with all applicable reporting requirements, except as follows: Gregory C.
Lindholm, former Vice President, Finance, Chief Financial Officer and Treasurer
of the Company, filed one late Form 4.
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,
Executive Vice President,
Secretary and Director
April 17, 1998
San Jose, California
17
<PAGE> 20
SDL, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1995 Employee Stock
Purchase Plan of SDL, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Code. The provisions of the Plan, accordingly, shall be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code.
2. DEFINITIONS.
(a) "Accrual Period" shall mean a period of approximately six
months, commencing on April 10 and October 10 of each year and terminating on
the last Trading Day immediately preceding the next following October 10 or
April 10, respectively; provided, however, that the first Accrual Period shall
commence on the Effective Date and shall end on the last Trading Day immediately
preceding October 10, 1995.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" shall mean the common stock of the Company.
(e) "Company" shall mean SDL, Inc., a Delaware corporation.
(f) "Compensation" shall mean an Employee's base salary plus shift
differential and overtime from the Company or one or more Designated
Subsidiaries, including such amounts of base salary, shift differential and
overtime as are deferred by the Employee (i) under a qualified cash or deferred
arrangement described in Section 401(k) of the Code, or (ii) to a plan qualified
under Section 125 of the Code. Compensation does not include bonuses,
reimbursements or other expense allowances, fringe benefits (cash or noncash),
moving expenses, deferred compensation (except as specifically provided in the
first sentence), and welfare benefits.
(g) "Designated Subsidiaries" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(h) "Effective Date" shall mean March 15, 1995. However, should any
Designated Subsidiary become a Participating Company in the Plan after such
date, then such entity shall designate a separate Effective Date with respect to
its employee-participants.
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(i) "Employee" shall mean any individual who is engaged in the
rendition of personal services to the Company or a Designated Subsidiary for
Compensation. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 180
days and the individual's right to reemployment is not guaranteed either by
statute or by contact, the employment relationship will be deemed to have
terminated on the 181st day of such leave.
(j) "Enrollment Date" shall mean the first day of each Purchase
Period.
(k) "Exercise Date" shall mean the last day of each Accrual Period.
(l) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair Market
Value shall be the average of the closing sales prices for such stock
(or the closing bid, if no sales were reported), as quoted on such
exchange (or the exchange with the greatest volume of trading in the
Common Stock) or system on the last three Trading Days prior to the
date of such determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ system (but
not on the National Market system thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the average of the mean between the high and
low asked prices for the Common Stock on the last three Trading Days
prior to the day of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Board.
(m) "Participant" means an Employee of the Company or Designated
Subsidiary who is actively participating in the Plan.
(n) "Plan" shall mean this Employee Stock Purchase Plan.
(o) "Plan Administrator" shall mean either the Board or a committee
of the Board that is responsible for the administration of the Plan.
(p) "Purchase Period" shall mean a purchase period established
pursuant to paragraph 4 hereof.
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(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(r) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(s) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(t) "Trading Day" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. ELIGIBILITY.
(a) GENERAL. Any Employee who is employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan for the Purchase
Period commencing with such Enrollment Date.
(b) LIMITATIONS ON GRANT AND ACCRUAL. Any provisions of the Plan to
the contrary notwithstanding, no Employee shall be granted an option under the
Plan (i) if, immediately after the grant, such Employee (taking into account
stock owned by any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary of the Company, or (ii) which permits his or her rights to purchase
stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the Fair Market Value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time. The determination of the accrual of the right to
purchase stock shall be made in accordance with Section 423(b)(8) of the Code
and the regulations thereunder.
(c) OTHER LIMITS ON ELIGIBILITY. Notwithstanding paragraph (a)
above, the following Employees, as defined in paragraph 2, shall not be eligible
to participate in the Plan for any relevant Purchase Period: (i) employees whose
customary employment is 20 hours or less per week; and (ii) employees whose
customary employment is for not more than 5 months in any calendar year.
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<PAGE> 23
4. PURCHASE PERIODS.
(a) The Plan shall be implemented by overlapping Purchase Periods
until such time as (i) the maximum number of shares of Stock available for
issuance under the Plan shall have been purchased or (ii) the Plan shall have
been sooner terminated in accordance with paragraph 19 hereof. Each Purchase
Period shall be of such duration (which, except for the initial Purchase Period,
shall not exceed twenty-four months per Purchase Period) as determined by the
Plan Administrator prior to the commencement of the Purchase Period. The initial
Purchase Period shall begin on the Effective Date and, except as provided
herein, shall end on the Trading Day immediately preceding April 10, 1997.
Subsequent Purchase Periods will commence on each succeeding April 10 or October
10 in each calendar year during which the Plan remains in existence.
(b) A Participant shall be granted a separate purchase right for
each Purchase Period in which he/she participates. The purchase right shall be
granted on the first Trading Day of the Purchase Period and shall be
automatically exercised in successive semi-annual installments on the last day
of each Accrual Period ending within the Purchase Period.
(c) An Employee may participate in only one Purchase Period at a
time. Accordingly, except as provided in paragraph 4(d), an Employee who wishes
to join a new Purchase Period must withdraw from the current Purchase Period in
which he/she is participating and must also enroll in the new Purchase Period
prior to the commencement date for that period.
(d) If on the first day of any Accrual Period in a Purchase Period
in which an Employee is participating in the Plan the Fair Market Value of the
Company's Common Stock is less than the Fair Market Value of the Company's
Common Stock on the first day of the first Accrual Period within the Purchase
Period (after taking into account any adjustment during the Purchase Period
pursuant to paragraph 18(a)), the Purchase Period shall be terminated
automatically and the Employee shall be enrolled automatically in the new
Purchase Period which has its first Accrual Period commencing on that date,
provided the Employee is eligible to participate in the Plan on that date and
has not elected to terminate participation in the Plan.
(e) Except as specifically provided herein, the acquisition of
Common Stock through participation in the Plan for any Purchase Period shall
neither limit nor require the acquisition of Common Stock by a Participant in
any subsequent Purchase Period.
5. PARTICIPATION.
(a) An eligible Employee may become a Participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least fifteen (15) business days prior to the Enrollment Date for the Purchase
Period in which such participation will commence, unless a later time for filing
the subscription agreement is set by the Board for all eligible Employees with
respect to a given Purchase Period.
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<PAGE> 24
(b) Payroll deductions for a Participant shall commence with the
first payroll following the Enrollment Date and shall end on the last complete
payroll period during the Purchase Period, unless sooner terminated by the
Participant as provided in paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) At the time a Participant files his/her subscription agreement,
he/she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he/she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a Participant shall be credited
to his/her account under the Plan and will be withheld in whole percentages
only. A Participant may not make any additional payments into such account.
(c) A Participant may discontinue his or her participation in the
Plan as provided in paragraph 10, or may decrease the rate of his/her payroll
deductions during the Purchase Period by completing or filing with the Company a
new subscription agreement authorizing a decrease in payroll deduction rate. The
decrease in rate shall be effective with the first full payroll period following
ten (10) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A Participant may increase the rate of his/her payroll deductions
for a future Purchase Period by filing with the Company a new subscription
agreement authorizing an increase in payroll deduction rate within ten (10)
business days (unless the Company elects to process a given change in
participation more quickly) before the commencement of the upcoming Purchase
Period. A Participant's subscription agreement shall remain in effect for
successive Purchase Periods unless terminated as provided in paragraph 10. The
Board shall be authorized to limit the number of participation rate changes
during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and paragraph 3(b) herein, a
Participant's payroll deductions may be decreased to 0% at such time during any
Purchase Period which is scheduled to end during the current calendar year (the
"Current Purchase Period") that the aggregate of all payroll deductions which
were previously used to purchase stock under the Plan in a prior Purchase Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Purchase Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such Participant's subscription
agreement at the beginning of the first Purchase Period which is scheduled to
end in the following calendar year, unless terminated by the Participant as
provided in paragraph 10.
7. GRANT OF OPTION. On the first Trading Date of each Purchase
Period, each eligible Employee participating in such Purchase Period shall be
granted an option to purchase on each Exercise Date of such Purchase Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that such purchase
shall be
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<PAGE> 25
subject to the limitations set forth in Sections 3(b) and 12 hereof. Exercise of
the option shall occur as provided in Section 8, unless the Participant has
withdrawn pursuant to Section 10, and the option, to the extent not exercised,
shall expire on the last day of the Purchase Period.
8. EXERCISE OF OPTION. Unless a Participant withdraws from the Plan as
provided in paragraph 10 below, his/her option for the purchase of shares will
be exercised automatically on each Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such Participant at the
applicable Purchase Price with the accumulated payroll deductions in his/her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a Participant's account which are not sufficient to purchase a
full share shall be carried over to the next Purchase Period, if the Participant
elects to participate in the next Purchase Period, or returned to the
Participant. During a Participant's lifetime, a Participant's option to purchase
shares hereunder is exercisable only by him/her.
9. DELIVERY. Upon receipt of a request from a Participant after each
Exercise Date on which a purchase of shares occurs, the Company shall arrange
the delivery to such Participant, as appropriate, of a certificate representing
the shares purchased upon exercise of his/her option.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all but not less than all the
payroll deductions credited to his/ her account and not yet used to exercise
his/her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the Participant's payroll
deductions credited to his/her account will be paid to such Participant promptly
after receipt of notice of withdrawal, such Participant's option for the
Purchase Period will be automatically terminated, and no further payroll
deductions for the purchase of shares will be made during the Purchase Period.
If a Participant withdraws from a Purchase Period, payroll deductions will not
resume at the beginning of the succeeding Purchase Period unless the Participant
delivers to the Company a new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason
or upon termination of a Participant's employment relationship (as described in
Section 2(i)), the payroll deductions credited to such Participant's account
during the Purchase Period but not yet used to exercise the option will be
returned to such Participant or, in the case of his/her death, to the person or
persons entitled thereto under paragraph 14, and such Participant's option will
be automatically terminated.
11. INTEREST. No interest shall accrue on the payroll deductions of a
Participant in the Plan.
12. STOCK.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be 300,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in paragraph 18. If on a given Exercise Date the number of shares with respect
to which options are to be exercised exceeds the
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<PAGE> 26
number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right in shares
covered by his/her option until such shares are actually purchased on the
Participant's behalf in accordance with the applicable provisions of the Plan.
No adjustment shall be made for dividends, distributions or other rights for
which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the Plan will be
registered in the name of the Participant or in the name of the Participant and
his/her spouse.
13. ADMINISTRATION.
(a) ADMINISTRATIVE BODY. The Plan shall be administered by the
Board of the Company or a committee of members of the Board appointed by the
Board. The Board or its committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties. Members
of the Board who are eligible Employees are permitted to participate in the Plan
except to the extent limited by Subsection (b) of this Section 13.
(b) RULE 16B-3 LIMITATIONS. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under The Securities Exchange Act of 1934, as amended, or any successor
provision ("Rule 16b-3") provides specific requirements for the administrators
of plans of this type, the Plan shall be only administered by such a body and in
such a manner as shall comply with the applicable requirements of Rule 16b-3.
Unless permitted by Rule 16b-3, no discretion concerning decisions regarding the
Plan shall be afforded to any committee or person that is not "disinterested" as
that term is used in Rule 16b-3.
14. DESIGNATION OF BENEFICIARY.
(a) Each Participant will file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such Participant of such shares and cash. In addition, a Participant
may file a written designation of a beneficiary who is to receive any cash from
the Participant's account under the Plan in the event of such Participant's
death prior to exercise of the option. If a Participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
Participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver such shares and/or cash to the
executor or
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<PAGE> 27
administrator of the estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the Participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in paragraph 14 hereof) by the Participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Purchase Period in accordance with paragraph 10.
16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each
Participant in the Plan. Statements of account will be given to Participants at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION; OR MERGER
OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the Reserves, as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option. The Board may, if it so determines in the exercise of its sole
discretion, make provision for adjusting the Reserves, as well as the price per
share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock.
(b) CHANGE IN OWNERSHIP, DISSOLUTION OR LIQUIDATION. In the event
of a proposed sale of all or substantially all of the assets of the Company, the
merger of the Company
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<PAGE> 28
with or into another corporation, in which the Company will not be the surviving
corporation (other than a reorganization effectuated primarily to change the
state in which the Company is incorporated), or a reverse merger in which the
Company is the surviving corporation but in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from the
person or persons holding those securities immediately prior to the transfer,
each option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Purchase Period then in progress by setting a new Exercise Date (the "New
Exercise Date"). If the Board shortens the Purchase Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each Participant in writing, at least ten (10) days prior
to the New Exercise Date, that the Exercise Date for his/her option has been
changed to the New Exercise Date and that his/her option will be exercised
automatically on the New Exercise Date, unless prior to such date he/she has
withdrawn from the Purchase Period as provided in paragraph 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the Participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
sale of assets or merger.
19. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in paragraph 18, no
such termination can affect options previously granted, provided that an
Purchase Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in paragraph
18, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any Participant. To the extent necessary to
comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Purchase Periods, limit
the frequency and/or number
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<PAGE> 29
of changes in the amount withheld during Purchase Periods, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. NOTICES. All notices or other communications by a Participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance. As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law. In addition, no purchase rights
shall be exercised or shares issued hereunder before the Plan shall have been
approved by shareholders of the Company as provided in paragraph 24.
22. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under paragraph 19.
23. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, such options shall contain,
and the shares issued upon exercise thereof shall be subject to, such additional
conditions and restrictions as may be required by Rule 16b-3 to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
24. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such shareholder approval is obtained at
a duly held shareholders' meeting, it must
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<PAGE> 30
be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company, or if such shareholder approval is obtained
by written consent, it must be obtained by the unanimous written consent of all
shareholders of the Company; provided, however, that approval at a meeting or by
written consent may be obtained by a lesser degree of shareholder approval if
the Board determines, in its discretion after consultation with the Company's
legal counsel, that such a lesser degree of shareholder approval will comply
with all applicable laws and will not adversely affect the qualification of the
Plan under Section 423 of the Code.
25. NO EMPLOYMENT RIGHTS. The Plan does not, directly or indirectly,
create any right for the benefit of any employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
26. EFFECT OF PLAN. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each employee participating in the Plan, including, without limitation, such
employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such employee.
27. GOVERNING LAW. The law of the State of California will govern all
matters relating to this Plan except to the extent it is superseded by the laws
of the United States.
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<PAGE> 31
EXHIBIT A
SDL, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_______ Original Application Enrollment Date: _________
_______ Change in Payroll Deduction Rate
_______ Change of Beneficiary(ies)
1. I, ________________________, hereby elect to participate in the
SDL, Inc. 1995 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan")
and subscribe to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the
amount of % of my Compensation on each payday (not to exceed 10%) during the
Purchase Period in accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)
3. I understand that the payroll deductions shall be accumulated for
the purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I understand
that if I do not withdraw from an Purchase Period, any accumulated payroll
deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "SDL, Inc. 1995 Employee
Stock Purchase Plan." I understand that my participation in the Employee Stock
Purchase Plan is in all respects subject to the terms of the Plan. I understand
that the grant of the option by the Company under this Subscription Agreement is
subject to obtaining shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan
should be issued in the name(s) of:
_________________________________
_________________________________
6. I understand that if I dispose of any shares received by me
pursuant to this Plan within 2 years after the Enrollment Date (the first day of
the Purchase Period during which I purchased such shares) or within 1 year after
the Exercise Date (the date I purchased such shares), I will be treated for
federal income tax purposes as having received ordinary income at the time of
such disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were delivered to me over the price which I
paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30
DAYS AFTER THE DATE OF ANY SUCH
A-1
<PAGE> 32
DISPOSITION AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common Stock
by me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods described above, I understand that I will be
treated for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess of the
fair market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Purchase Period. The remainder of the
gain, if any, recognized on such disposition will be taxed as capital gain. I
also understand that the foregoing income tax consequences are based on current
federal income tax law and that the Company is not responsible for advising me
of any changes in the applicable tax rules.
7. I hereby agree to be bound by the terms of the Employee Stock
Purchase Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Employee
Stock Purchase Plan.
NAME (Please print): _________________________________________________________
(First) (Middle) (Last)
Relationship: _________________________________________________________
Address: _________________________________________________________
_________________________________________________________
_________________________________________________________
Employee's Social
Security Number: _________________________________________________________
Employee's Address: _________________________________________________________
_________________________________________________________
_________________________________________________________
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<PAGE> 33
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Employee Signature: _________________________________________________________
Dated: _________________________________________________________
Signature of spouse
if beneficiary is
other than spouse: _________________________________________________________
Dated: _________________________________________________________
A-3
<PAGE> 34
EXHIBIT B
SDL, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned participant in the Purchase Period of the SDL, Inc.
1995 Employee Stock Purchase Plan which began on _________________, 19___ (the
"Enrollment Date"), hereby notifies the Company that he or she hereby withdraws
from the Purchase Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Purchase Period. The undersigned
understands and agrees that his or her option for such Purchase Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Purchase Period and the undersigned shall be eligible to participate in
succeeding Purchase Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address
of Participant: _________________________________________________________
_________________________________________________________
_________________________________________________________
Signature: _________________________________________________________
Date: _________________________________________________________
B-1
<PAGE> 35
SDL, INC.
AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE PLAN
CERTIFICATE OF SECRETARY
The undersigned, John P. Melton, does hereby certify that he is the
duly elected, qualified and acting Secretary of SDL, Inc., a Delaware
corporation (the "Company"), that, as such, he is authorized to execute this
Certificate on behalf of the Company, and solely in such capacity, further
certifies on behalf of the Company that:
On February 5, 1998, the Board of Directors of the Company amended
Section 12(a) of the Company's 1992 Employee Stock Purchase Plan (the
"Purchase Plan") to effect the following, subject to shareholder
approval: to increase the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Purchase
Plan to 850,000 shares.
IN WITNESS WHEREOF, on behalf of the Company as the Secretary
thereof, I have set my hand as of the 1st day of April, 1998.
SDL, INC.
A DELAWARE CORPORATION
By: /s/ John P. Melton
---------------------------------
John P. Melton
Secretary
<PAGE> 36
[FORM OF FRONT OF PROXY CARD]
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 14, 1998.
Donald R. Scifres and John P. Melton, 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 Stockholers of SDL, Inc.
(the "Company"), to be held on Thursday, May 14, 1998, and any adjournment or
postponement thereof.
Election of two (2) Class 1 Directors (or if any nominee is not
available for election, such substitute as the Board of Directors or the proxy
holders may designate). Nominees: DR. DONALD R. SCIFRES AND MR. KEITH B.
GEESLIN.
<PAGE> 37
[FORM OF BACK OF PROXY CARD]
<TABLE>
<S> <C>
Shares represented by this proxy will be voted as MARK HERE FOR
directed by the shareholder. IF NO SUCH DIRECTIONS ARE INDICATED, ADDRESS CHANGE [ ]
THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR THE ELECTION OF ALL AND NOTE AT RIGHT
DIRECTORS, AND FOR ITEMS 2 & 3.
- ------------------------------------------------------------------ Please sign exactly as your name appears herein. Joint owners
THE BOARD OF DIRECTORS RECOMMENDS should each sign. When signing as attorney, executor,
A VOTE FOR THE ELECTION OF administrator, trustee or guardian, please give full title as
DIRECTORS AND FOR PROPOSALS 2 & 3 such.
.
Signature Date
------------------------------- --------------
- ------------------------------------------------------------------
1. Election of Directors (see reverse): Signature Date
[ ] FOR [ ] WITHHELD ------------------------------- --------------
FOR, except vote withheld from the following nominee(s):
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
-------------------------------------------------------- USING THE ENCLOSED REPLY ENVELOPE.
--------------------------------------------------------
2. To approve an amendment to the Company's 1995 Employee Stock
Purchase Plan to increase the number of shares reserved for
issuance thereunder from 450,000 to 850,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the 1998 fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Annual
Meeting.
</TABLE>
