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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
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or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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SDL, INC.
80 Rose Orchard Way
San Jose, California 95134-1365
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of SDL, Inc.
(the "Company"), will be held at the Wyndham Garden Hotel, 1300 Chesapeake
Terrace, Sunnyvale, California, on Thursday, May 18, 2000, at 9:00 a.m. Pacific
time, for the following purposes:
1. To elect two Class 3 directors to hold office until the 2003
annual meeting of stockholders and until their successors have been
elected or appointed.
2. To approve an amendment to the Company's 1995 Employee Stock
Purchase Plan increasing the number of shares reserved for issuance
thereunder from 4,600,000 shares to 5,500,000 shares and making certain
other procedural changes to the plan.
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares
of Common Stock.
4. To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for 2000.
5. 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 23, 2000
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,
Michael L. Foster,
Vice President, Finance and Chief
Financial Officer and Secretary
San Jose, California
April 11, 2000
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MAILED TO STOCKHOLDERS ON OR ABOUT APRIL 11, 2000
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 18, 2000, at 9:00 a.m. Pacific time, at
Wyndham Garden Hotel, 1300 Chesapeake Terrace, Sunnyvale, California, 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.
Except where the context otherwise requires or specific reference is
otherwise made, all references to numbers of shares, options to purchase shares
and the exercise prices of options to purchase shares in this proxy statement
reflect the effects of the Company's March 2000 2-for-1 stock split effected in
the form of a 100% stock dividend (the "Stock Split").
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 23, 2000 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 72,748,983 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. The
presence at the Annual Meeting of a majority, or approximately 36,374,492 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, except for the election of directors in which stockholders may vote
cumulatively.
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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 solicitations
personally, telephonically or by facsimile through its officers, directors and
regular employees, none of whom will receive additional compensation for
assisting with the solicitations. 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. Each
share of Common Stock outstanding on the record date will be entitled to one
vote on all matters, except for the election of directors in which stockholders
may vote cumulatively. The approval of the amendment to the Company's 1995
Employee Stock Purchase Plan and the ratification of the independent auditors
for the Company for the current year will require the affirmative vote of a
majority of the shares of the Company's Common Stock present or represented and
entitled to vote at the Annual Meeting. The amendment of the Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock will require the affirmative vote of a majority of the shares of
the Company's outstanding Common Stock. Abstentions are treated as shares
present or represented and entitled to vote for the purposes of determining
whether a matter has been approved by the stockholders and therefore have the
same effect as negative votes. Broker non-votes and shares as to which proxy
authority has been withheld with respect to any matter are not deemed to be
entitled to vote for purposes of determining whether stockholder approval of
that matter has been obtained and effectively count as votes against Proposal
No. 3, the Amendment to the Certificate of Incorporation. However, with respect
to Proposals No. 2 and 4 requiring the affirmative vote of a majority of the
shares present and entitled to vote, broker non-votes shall have no effect.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The number of directors on the Board is currently fixed at five. 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), one Class 2 director (Dr. Myers) 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
2001, 2002 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.
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In voting for directors, each stockholder is entitled to cast that
number of votes equal to the number of directors to be elected multiplied by the
number of shares of Common Stock held by such stockholder. Such votes may be
cast for one candidate or distributed in any manner among the nominees for
director. However, the right to cumulate votes in favor of one or more
candidates may not be exercised until the candidate or candidates have been
nominated and a stockholder has given notice at the Annual Meeting of the
intention to do so. The candidates receiving the highest number of affirmative
votes will be elected, up to the number of directors to be elected. The persons
authorized to vote shares represented by executed proxies in the enclosed form
(if authority to vote for the election of directors is not withheld) will have
full discretion and authority to vote cumulatively and to allocate votes among
any or all of the nominees as they may determine or, if authority to vote for a
specified candidate or candidates has been withheld, among those candidates for
whom authority to vote has not been withheld.
Unless marked otherwise, proxies received will be voted FOR the election
of 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 the nominees listed below.
Two Class 3 directors are to be elected at the Annual Meeting to serve
until the 2003 Annual Meeting of Stockholders or until successors are duly
elected or appointed and qualified or until the directors' earlier resignation
or removal. The Board has no reason to believe that the persons named below will
be unable or unwilling to serve as nominees or as directors, if elected.
Certain information about each of the nominees for Class 3 director is
furnished below:
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.
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 AMD's 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
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positions with Fairchild Semiconductor and Computer Micro Technology
Corporation. Mr. Holbrook received a B.S. degree in engineering from UCLA in
1963 and an M.S. degree in electrical engineering from Stanford University in
1966.
The Board of Directors recommends a vote FOR the election of the
nominees named.
RELATIONSHIPS AMONG DIRECTORS OR EXECUTIVE OFFICERS
There are no family relationships among any of the directors or
executive officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors met eleven times during 1999. 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 four times in 1999, 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 the 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
twelve times in 1999.
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 and restating the
Company's 1995 Employee Stock Purchase Plan (the "Purchase Plan"). Ratification
of the proposal requires the affirmative vote of a majority of the shares of
Common Stock voting on the proposal in person or by proxy. In the following
discussion of the Purchase Plan capitalized terms have the same meanings as
defined in the Purchase Plan, unless otherwise noted.
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The Board of Directors of the Company amended and restated the Purchase
Plan in February 2000, to effect the following, subject to stockholder approval:
(i) increase the maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Purchase Plan by 900,000 shares to a
total of 5,500,000 shares, as adjusted for the March 2000 Stock Split, (ii)
adopt a limit of 800 shares that may be purchased by any employee during any
two-year Purchase Period under the Purchase Plan and a limit of 200 shares that
may be purchased by any employee for each six month Accrual Period under the
Purchase Plan, in each case as adjusted for the March 2000 Stock Split, and
(iii) amend certain other sections of the Purchase Plan addressing the
administration of the Purchase Plan.
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,
insufficient shares will be available for purchase under the Purchase Plan for
future planned Purchase Periods (as defined below). The limits that are being
placed on the number of shares which may be purchased during each Accrual Period
and Purchase Period will help the Company maintain a sufficient number of shares
available for future purchase under the Purchase Plan.
The Board of Directors recommends a vote FOR the ratification and
approval of the amendment to the Company's 1995 Employee Stock Purchase Plan.
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.
The purpose of the Purchase Plan is to provide employees of the Company
who participate in the Purchase 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.
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 then reserved for issuance
under the Purchase Plan to 450,000 shares. In February 1998, the Board of
Directors approved and in May 1998 the stockholders ratified, an amendment to
the Purchase Plan increasing the number of shares available for issuance
thereunder from 450,000 shares
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to 850,000 shares. In February 1999, the Board of Directors approved and in May
1999 the stockholders ratified an amendment to the Purchase Plan increasing the
number of shares available for issuance thereunder from 850,000 shares to
1,150,000 shares. In addition, in June 1999, the Company completed a two-for-one
split of its Common Stock, which was effected in the form of a 100 percent stock
dividend, thus increasing the number of shares then reserved for issuance under
the Purchase Plan to 2,300,000 shares. In March 2000 the Company completed
another two-for-one split of its Common Stock, which was also effected in the
form of a 100 percent stock dividend, thus increasing the number of shares then
reserved for issuance under the Purchase Plan to 4,600,000 shares. Finally, the
Board of Directors has approved, subject to stockholder approval, a further
amendment to the Purchase Plan to increase the number of shares available for
issuance thereunder from 4,600,000 to 5,500,000 shares. As of March 23, 2000,
2,716,584 shares of Common Stock had been sold pursuant to the Purchase Plan at
a weighted average price of $3.63 per share, with 1,883,416 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 on or about each April 10 and October 10.
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 maximum number of
shares of Common Stock any employee may purchase in any two-year Purchase Period
is 800 shares, and the maximum number of shares of Common Stock which any
employee may purchase in any six-month Accrual Period is 200 shares. 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
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for any date is determined by averaging the closing sales 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 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 the plan administrator determines that on a given exercise date the
number of shares with respect to which options are to be exercised may exceed
(a) the number of shares then available for sale under the Purchase Plan or (b)
the number of shares available for sale under the Purchase Plan on the
enrollment dates of one or more of the Purchase Periods in which such exercise
date is to occur, the plan administrator is authorized to apportion the
available shares remaining on such enrollment dates or exercise dates pro rata
among participating employees on the basis of their election in effect for such
Purchase Period or Accrual Period, and shall either continue all Purchase
Periods then in effect or terminate any one or more Purchase Periods then in
effect. The Company makes no cash contributions to the Purchase Plan, but bears
the expenses of administration. The Purchase Plan is administered by 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 twentieth anniversary of its date of adoption, unless earlier
terminated by the plan administrator.
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 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 his or her rate of payroll deduction (to
the 10% maximum allowed by the Purchase Plan) for future Accrual Period(s)
within a Purchase Period and future Purchase Periods by filing a new payroll
deduction authorization with the Company one business day prior to the
commencement of the upcoming Accrual Period. The new rate will become effective
on the first day of the Accrual Period following the filing of
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the new authorization and will remain in effect for the entire Purchase Period
and each subsequent Accrual Period and 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.
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
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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
(subject to the requirements of reasonableness and perhaps, in the future, the
satisfaction of a withholding obligation). 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
APPROVAL OF AN AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK
INTRODUCTION
The Company's Restated Certificate of Incorporation, as amended,
currently authorizes the issuance of one hundred forty-one million (141,000,000)
shares of capital stock of which one hundred forty million (140,000,000) shares
have been designated as Common Stock, with a par value of $.001 per share, and
one million (1,000,000) shares have been designated Preferred Stock, with a par
value of $.001 per share, of which two hundred seventy-one thousand six hundred
twenty-eight (271,628) shares have been denominated as Series A Preferred Stock
and three hundred thousand (300,000) shares are denominated as Series B
Preferred Stock. The Board of Directors on March 23, 2000, adopted a resolution
proposing that the Restated Certificate of Incorporation be amended to increase
the authorized number of shares of capital stock to two hundred eighty-one
million (281,000,000) shares of which two hundred eighty million (280,000,000)
shares shall be Common Stock and one million (1,000,000) shares shall be
Preferred Stock, subject to stockholder approval of the amendment.
PROPOSED AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
The principal purpose of the proposed amendment is to authorize
additional shares of Common Stock which will be available in the event that the
Board of Directors determines that it is necessary or appropriate, among other
things, to effect future stock dividends or stock splits, to raise additional
capital through the sale of securities, to acquire another company or its
business or assets through the issuance of securities.
If the proposed amendment were to be adopted, the aggregate number of
authorized shares of Common Stock would be increased from one hundred forty
million (140,000,000) shares to two hundred eighty million (280,000,000) shares
and, based on the balance of
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authorized but unissued shares of Common Stock as of March 23, 2000,
approximately 191,708,058 shares of Common Stock would be available for future
issuance by the Board of Directors without any stockholder approval, except in
accordance with the requirements of the Nasdaq Stock Market or the Delaware
General Corporation Law. If the proposed amendment is not approved, the number
of authorized shares will remain the same and management will have more limited
flexibility to do the things described above. The Board has no immediate plans,
understandings, agreements or commitments to issue any of the additional shares
of Common Stock. The Board, depending on market and other business conditions,
may in the future give consideration to additional stock dividends or splits.
There will be no change in the voting rights, liquidation rights,
preemptive rights or any other stockholder rights as a result of the proposed
amendment. The additional shares might be issued at such times and under such
circumstances as to have a dilutive effect on earnings per share and on the
equity ownership of the present holders of Common Stock.
Under the Company's Restated Certificate of Incorporation, as amended,
the Company's stockholders do not have preemptive rights with respect to sales
or issuances of the Common Stock. Thus, should the Board of Directors elect to
issue additional shares of Common Stock, existing stockholders would not have
any preferential rights to purchase such shares. In addition, if the Board of
Directors elects to issue additional shares of Common Stock, such issuance could
have a dilutive effect on the earnings per share, voting power, and
shareholdings of current stockholders.
POTENTIAL ANTI-TAKEOVER EFFECT
The proposed amendment could, under certain circumstances, have an
anti-takeover effect, although this is not the intent of the proposal. The
increased number of authorized shares of Common Stock could discourage, or be
used to impede, an attempt to acquire or otherwise change control of the
Company. The private placement of shares of Common Stock into "friendly" hands,
for example, could dilute the voting strength of a party seeking control of the
Company. Furthermore, certain companies have issued warrants or other rights to
acquire additional shares of Common Stock to the holders of its Common Stock to
discourage or defeat unsolicited share accumulation programs and acquisition
proposals, which programs or proposals may be viewed by the Board of Directors
as not in the best interest of the Company and its stockholders. Although the
Company has no present intent to use the additional authorized shares of Common
Stock for such purposes, if the proposed amendment is adopted, more capital
stock of the Company would be available for such purposes than is currently
available.
VOTE NECESSARY TO APPROVE THE AMENDMENT
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting, assuming a quorum
is present, is necessary for approval of the amendment. Therefore, abstentions
and broker non-votes (which may occur if a beneficial owner of stock where
shares are held in a brokerage or bank account fails to provide the broker or
the bank voting instructions as to such shares) effectively count as votes
against the amendment.
11
<PAGE> 13
The Board of Directors recommends a vote FOR the amendment to the
Company's Restated Certificate of Incorporation to increase the number of
authorized shares of capital stock from one hundred forty-one million
(141,000,000) shares to two hundred eighty-one million (281,000,000) shares of
which two hundred eighty million (280,000,000) shares shall be Common Stock.
PROPOSAL NO. 4
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 2000. In the event that ratification of this selection
of auditors is not approved by a majority of the shares of Common Stock voting
at the Annual Meeting in person or by proxy, management will review its future
selection of auditors. Unless marked to the contrary, proxies received will be
voted FOR ratification of the appointment of Ernst & Young LLP as the
independent auditors for the current year.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement, if they desire to do
so, and they are expected to be available to respond to appropriate questions.
The Board of Directors recommends a vote FOR ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors for 2000.
12
<PAGE> 14
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 23, 2000 were as follows:
Name Age Position
Donald R. Scifres 53 Chairman of the Board, Chief
Executive Officer and President
Gregory P. Dougherty 40 Chief Operating Officer
Michael L. Foster 53 Vice President, Finance and
Chief Financial Officer and
Secretary
David F. Welch 39 Vice President of Corporate
Development and Chief Technical
Officer
Keith B. Geeslin (1) 46 Director
Anthony B. Holbrook (1) 60 Director
Mark B. Myers (2) 61 Director
Frederic N. Schwettmann (2) 60 Director
(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.
13
<PAGE> 15
Mr. Dougherty was appointed Chief Operating Officer of the Company upon
creation of the position in August 1998. He 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.
Mr. Foster joined the Company as Interim Chief Financial Officer in July
1998 and was appointed Vice President, Finance and Chief Financial Officer and
Secretary in September 1998. Prior to joining the Company, Mr. Foster was
employed by California Microwave, Inc. from April 1979 through June 1998, the
last eight years as Vice President and Treasurer. Prior thereto, Mr. Foster was
employed by Watkins-Johnson Company, as a division financial officer, from June
1973 to April 1979. Mr. Foster holds a B.A. degree and an M.B.A. from Stanford
University.
Dr. Welch was appointed Vice President of Corporate Development and
Chief Technical Officer in September 1998. He joined the Company in January 1985
as a member of the technical staff. In January 1991, he became Manager of the
Research Department. In 1992, Dr. Welch was appointed Vice President, Research &
Development. Dr. Welch became Vice President, Systems 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 is a fellow of the Optical Society of
America (OSA) and a senior member of IEEE, holds over fifty U.S. patents and
has won a number of industry awards including the 1992 Adolph Lomb Award from
OSA, the 1998 Engineering Achievement Award from the Laser and Electro-Optical
Society of IEEE and the 1999 Fraunhoffer Award from OSA.
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 Globespan, Inc., Paradyn Networks, Rhythms
NetConnections 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
14
<PAGE> 16
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 the 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.
15
<PAGE> 17
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").
The Company operates on a 52-53 week year ending on the Friday closest
to December 31. 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
ANNUAL COMPENSATION AWARDS
---------------------- ------------
SECURITIES
NAME AND PRINCIPAL POSITION UNDERLYING ALL OTHER
- --------------------------- YEAR SALARY($) BONUS($)(1) OPTIONS(2) COMPENSATION(3)
---- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Donald R. Scifres.................. 1999 $234,000 $315,900 100,000 $10,865
Chairman of the Board, 1998 233,571 -- -- 3,080
Chief Executive Officer and 1997 222,412 -- 100,000 3,868
President
Gregory P. Dougherty............... 1999 209,206 235,357 80,000 80,975 (4)
Chief Operating Officer 1998 183,347 37,100 120,400 2,586
1997 120,582 -- 112,000 114,154 (5)
David F. Welch..................... 1999 169,811 110,377 52,000 10,203
Vice President of Corporate 1998 167,022 -- 40,400 2,578
Development and Chief Technical 1997 151,594 -- 60,000 2,572
Officer
Michael L. Foster.................. 1999 150,000 135,009 -- 9,196
Vice President, Finance, Chief 1998 57,617 -- 100,000 96
Financial Officer and Secretary 1997
</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 $70,748 of loan forgiveness related to Mr. Dougherty's
employment agreement.
(5) Includes $111,942 in relocation and related expenses paid to Mr.
Dougherty in 1997.
16
<PAGE> 18
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to the
grant of stock options under the Company's 1995 Stock Option Plan (the "Plan")
to each of the Named Executive Officers during the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE AT ASSUMED ANNUAL
UNDERLYING OPTIONS TO EXERCISE RATES OF STOCK PRICE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION APPRECIATION FOR
NAME GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE OPTION TERM(4)
---- ---------- -------------- -------- ---------- -----------------------
5% 10%
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres.......................... 100,000 3.37% $ 26.7813 04/26/09 $1,684,251 $4,268,242
Gregory P. Dougherty....................... 80,000 2.70% 26.7813 04/26/09 1,347,401 3,414,594
David F. Welch............................. 52,000 1.75% 26.7813 04/26/09 875,810 2,219,486
Michael L. Foster.......................... -- -- -- -- -- --
</TABLE>
(1) Each of these options vests over four years at a rate of 25% of the
shares subject to the option per year and has a ten-year term.
(2) Based on a total of 2,969,658 options granted to employees of the
Company in 1999, including the Named Executive Officers.
(3) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the date the
options were granted.
(4) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their terms, assuming the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the options. Actual gains, if any, on stock option
exercise are dependent upon a number of factors, including the future
performance of the Common Stock, overall stock market conditions, and
the timing of option exercises, if any. There can be no assurance that
amounts reflected in this table will be achieved.
17
<PAGE> 19
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table discloses for the Named Executive Officers
information regarding options to purchase the Company's Common Stock exercised
during 1999 and options to purchase the Company's Common Stock held at the end
of 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END (#) FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED(1) ------------------------- ----------------------------
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Donald R. Scifres............ 720,000 $27,163,458 1,129,216 150,000 $122,261,014 $13,509,370
Gregory P. Dougherty......... 86,400 2,516,730 --- 226,000 --- 21,841,118
David F. Welch............... 60,000 1,178,486 139,492 124,000 14,736,128 11,819,496
Michael L. Foster............ 10,000 596,625 15,000 75,000 1,588,125 7,940,625
</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 December 31, 1999.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
During 2000, the Compensation and Stock Option Committee established
levels of compensation for the Company's executive officers. Dr. Myers currently
serves as a member of the Compensation and Stock Option Committee of the
Company's Board of Directors.
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.
18
<PAGE> 20
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 2000 to evaluate the annual bonus
payable to the Company's executive officers and employees for fiscal 1999. In
general, the performance factors utilized by the Committee to evaluate whether
bonuses should be granted to Company's executive officers for fiscal 1999 are
quantifiable and include, but are not limited to, the following: the Company's
performance based on both revenue and profit before interest and taxes that must
be attained before a portion of the incentives are awarded, and the officer's
overall individual performance in his or her position and relative contribution
during the year. Based on the above criteria, bonuses were paid to all of the
Company's executive officers for fiscal 1999.
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 November 1998, the Committee determined the annual base salary for
the Chief Executive Officer for 1999. 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, 1999, no executive officer of the Company
19
<PAGE> 21
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 2000.
Compensation and Stock Option Committee
Mark B. Myers, Ph.D.
Frederic N. Schwettmann, Ph.D.
April 11, 2000
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, 1999, 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.
{IN PROCESS OF GETTING UPDATE INFORMATION FOR GRAPH}
Graph to be plotted at printer
<TABLE>
<CAPTION>
3/15/95 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97
------- ------- ------- ------- -------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SDL, Inc. 100 161 187 177 150 198 260 192 246 161 179
Nasdaq Stock 100 101 116 130 131 137 149 154 162 153 181
Market U.S.
H&Q Technology 100 101 126 142 135 137 147 156 167 160 192
Index
</TABLE>
<TABLE>
<CAPTION>
9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SDL, Inc. 190 136 223 224 117 371 851 957 1,431 4,087
Nasdaq Stock 211 198 232 238 216 279 312 342 349 504
Market U.S.
H&Q Technology 233 196 238 243 216 305 333 294 417 682
Index
</TABLE>
20
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK OPTION PROMISSORY NOTES AND ESCROW INSTRUCTION AGREEMENTS
On March 31, 1997, the Company hired Gregory P. Dougherty as its Vice
President, Communications and Material Processing Components Group. Pursuant to
Terms of Employment Offer extended to Mr. Dougherty dated February 21, 1997, the
Company agreed to compensate Mr. Dougherty as follows: Relocation Incentives.
The Company loaned Mr. Dougherty $612,000 in connection with the purchase of a
house in San Jose, California, with a 10-year term at no interest, secured by a
mortgage on the house. Mr. Dougherty is to pay against the principal of the loan
(i) 100% of any amount paid under the Option Appreciation Guarantee against the
principal of the loan and (ii) 50% of the net after-tax proceeds of all bonus
payments received from the Company during the term of the loan. Of the loan
principal, $40,000 is to be forgiven each year over 10 years for continuous
employment except in year 1 and year 5 where $0 and $80,000 are forgiven
respectively. The remaining principal of the loan is due on March 31, 2007. In
the event of termination of Mr. Dougherty's employment, payment on the loan is
accelerated. In the event of involuntary termination or Mr. Dougherty's death or
disability, Mr. Dougherty has the option for one year to require the Company to
repurchase the house at the higher of the original purchase price or the
appraised market value at the time of termination. Sale of Pennsylvania
Residence. The Company further assisted Mr. Dougherty in his relocation by
paying Mr. Dougherty a total of $62,742 in connection with the sale of his prior
residence. Additional Relocation Assistance. In addition, the Company paid Mr.
Dougherty $49,200 and loaned Mr. Dougherty $150,800 in connection with his
relocation. The loan is forgiven at the rate of 20% of the principal thereof on
each of the first 5 anniversaries of Mr. Dougherty's employment date, on the
condition that he is still employed by the Company. In the event of involuntary
termination or termination for any reason after 12 months of continuous
employment with the Company, the entire amount of such loan will be forgiven.
Stock Option Grants. Mr. Dougherty was granted a stock option on 112,000 shares
of Company Common Stock at an exercise price of $4.8125 (the "Initial Grant"),
which was the fair market value at the time of grant.
21
<PAGE> 23
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
23, 2000 by (a) each stockholder known by the Company to be the beneficial owner
of more than five percent of the Company's Common Stock, (b) each director and
nominee for director of the Company, (c) each executive officer named in the
Summary Compensation Table above who beneficially owns shares and (d) all
executive officers, directors and nominees for director who beneficially own
shares, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED (1)
------------------------ ------------------ ----------------------
<S> <C> <C>
LeRoy C. Kopp and Kopp Investment
Advisors, Inc. (2)......................... 6,675,152 9.2%
Janus Capital Corp. (3).................... 6,346,770 8.7%
Putman Investments, Inc. (4)............... 6,204,418 8.6%
Donald R. Scifres (5)...................... 3,598,582 4.9%
David F. Welch (6)......................... 395,246 *
Gregory P. Dougherty (7)................... 48,694 *
Michael L. Foster (8)...................... 32,000 *
Anthony B. Holbrook (9).................... 31,000 *
Keith B. Geeslin (10)...................... 27,840 *
Mark B. Myers (11)......................... 25,000 *
Frederic N. Schwettmann (12)............... 13,000 *
All executive officers and directors as a
group (8 persons) (13)................... 4,171,362 5.6%
</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
23, 2000 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 72,748,983 shares
outstanding on March 23, 2000, 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, 1999
, including 1,019,400 shares as to which Kopp Investment Advisors, Inc.
has sole voting power and 1,020,000 shares of which Kopp Investment
Advisors, Inc. has sole investment power.
(3) Janus Capital Corp.'s address is 100 Fillmore Street Suite 300, Denver,
Colorado 80206. 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, 1999, including 6,346,770 shares
as to which Janus Capital Corp. has shared voting and investment power.
22
<PAGE> 24
(4) Putman Investments, Inc.'s address is One Post Office Square, Boston,
Massachusetts. 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, 1999, including 39,700 shares as to which
Putman Investments, Inc. has shared voting power and 6,240,418 shares of
which Putman Investments, Inc. has shared investment power.
(5) Includes (i) 1,983,678 shares held by The Donald R. and Carol D. Scifres
Revocable Living Trust, (ii) 46,600 shares held by the Scifres Family
1999 Charitable Unitrust UAD 12/22/99, (iii) 48,000 shares held by the
Palo Hills Foundation, (iv) 344,820 shares held by Dr. Scifres' five
dependent children and (v) 939,216 options exercisable during the
sixty-day period following March 23, 2000. Dr. Scifres' address is c/o
SDL, Inc., 80 Rose Orchard Way, San Jose, California 95134.
(6) Includes 189,492 options exercisable during the sixty-day period
following March 23, 2000.
(7) Includes 48,000 options exercisable during the sixty-day period
following March 23, 2000.
(8) Includes 5,000 options exercisable during the sixty-day period following
March 23, 2000.
(9) Includes 31,000 options exercisable during the sixty-day period
following March 23, 2000.
(10) Includes 13,000 options exercisable during the sixty-day period
following March 23, 2000.
(11) Includes 25,000 options exercisable during the sixty-day period
following March 23, 2000.
(12) Includes 13,000 options exercisable during the sixty-day period
following March 23, 2000.
(13) Includes 1,263,708 options exercisable during the sixty-day period
following March 23, 2000.
STOCKHOLDER PROPOSALS
Requirements for Stockholder Proposals to be Brought Before an Annual
Meeting. For stockholder proposals to be considered properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
therefor in writing to the Secretary of the Company. To be timely, a
stockholder's notice must be delivered to or mailed and received by the
Secretary of the Company at the principal executive offices of the Company,
between January 26, 2001 and February 25, 2001. A stockholder's notice to the
Secretary must set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of the Company
which are beneficially owned by the stockholder, and (iv) any material interest
of the stockholder in such business.
Requirements for Stockholder Proposals to be Considered for Inclusion in
the Company's Proxy Materials. Stockholder proposals submitted pursuant to Rule
14a-8 under the Exchange Act and intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received by the Company not later than
December 12, 2000 in order to be considered for inclusion in the Company's proxy
materials for that meeting.
23
<PAGE> 25
OTHER MATTERS
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Section 16(a) of the
Exchange Act requires the Company's officers and directors and persons who own
more than ten percent of the Company's Common Stock (collectively, "Reporting
Persons") to file reports of ownership and changes in ownership with the SEC and
the NASDAQ National Market. Reporting Persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such reports received or
written representations from certain Reporting Persons, during 1999, the Company
believes that all reporting persons complied with all applicable reporting
requirements, except that Dr. Scifres filed three late Form 4s each covering one
transaction.
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
Michael L. Foster,
Vice President, Finance and Chief Financial
Officer and Secretary
April 11, 2000
San Jose, California
24
<PAGE> 26
[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 18, 2000.
Donald R. Scifres and Michael L. Foster, 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 Stockholders of SDL,
Inc. (the "Company"), to be held on Thursday, May 18, 2000, and any adjournment
or postponement thereof.
Election of two (2) Class 2 Directors (or if the nominees are not
available for election, such substitutes as the Board of Directors or the proxy
holders may designate). Nominees: DR. SCHWETTMANN AND MR. HOLBROOK
<PAGE> 27
[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 ADDRESS CHANGE [ ]
INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR THE AND NOTE AT RIGHT
ELECTION OF ALL DIRECTORS, AND FOR ITEMS 2, 3 & 4.
- ----------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE Please sign exactly as your name appears herein. Joint
ELECTION OF DIRECTORS AND FOR PROPOSALS 2, 3 & 4. owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian,
1. Election of Director (see reverse): please give full title as such.
[ ] FOR [ ] WITHHELD
FOR, except vote withheld from the following nominee:
------------------------------------------------------- Signature Date
------------------------------- -----------
------------------------------------------------------- Signature Date
------------------------------- -----------
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 4,600,000 to 5,500,000 shares
and making certain other procedural changes to the plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
3. To approve an amendment to the Company's Restated Certificate
of Incorporation to increase the number of authorized shares of
Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the 2000 fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Annual
Meeting.
</TABLE>
