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                                                                    Exhibit 10.4


                                    SDL, INC.
                        1995 EMPLOYEE STOCK PURCHASE PLAN

                 (AMENDED AND RESTATED AS OF FEBRUARY 18, 1997)


         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. 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, (ii) to a plan qualified
under Section 125 of the Code, or (iii) to any other qualified or non-qualified
plan intended to defer the receipt of compensation. Compensation does not
include bonuses, reimbursements or other expense allowances, fringe benefits
(cash or noncash), moving expenses, 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.

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                  (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.

                  (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 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contact, the employment relationship for purposes of the Plan will
be deemed to have terminated on the 91st 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.

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                  (p) "Purchase Period" shall mean a purchase period established
pursuant to Section 4 hereof.

                  (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 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 Subsection
(a) above, the following Employees 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; (ii) Employees whose customary employment is for
not more than 5 months in any calendar year; and (iii) Employees who are subject
to rules or laws of a foreign jurisdiction that prohibit or make impractical the
participation of such Employees in the Plan.

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         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 Section 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 option for each
Purchase Period in which he/she participates. The option 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 Section 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 Section 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 (i) a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan or (ii) a subscription agreement authorizing
direct contributions to the Plan in the form of Exhibit B 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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                  (b) If elected, 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 Section 10.

         6. PAYROLL DEDUCTIONS.

                  (a) At the time a Participant files his/her subscription
agreement, he/she may elect (i) to have payroll deductions made on each pay day
during the Purchase Period in an amount not exceeding ten percent (10%) of the
Compensation which he/she receives on each pay day during the Purchase Period or
(ii) to be authorized to contribute to his/her account an amount not exceeding
ten percent (10%) of the aggregate Compensation which he/she receives during
each Accrual Period of the Purchase 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 who elects payroll deductions may not make any
additional payments into such account. If elected, a Participant's direct
contributions will be authorized in whole percentages only and the full amount
authorized must be deposited to his/her account at least fifteen (15) business
days prior to each Exercise Date, unless a later time is established by the
Board for all eligible Employees with respect to a given Purchase Period. A
Participant's failure to make a timely account contribution will be deemed an
election by the Participant to withdraw from the Plan under Section 10.

                  (c) A Participant may discontinue his/her participation in the
Plan as provided in Section 10, or may decrease the rate of his/her payroll
deductions or amount of direct contributions during the Purchase Period by
completing or filing with the Company a new subscription agreement authorizing a
decrease in payroll deduction rate or amount of direct contribution. 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. The decrease in amount of direct contributions will be effective
for the Exercise Dates that occur following fifteen (15) 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 or amount of direct contributions for a
future Purchase Period by filing with the Company a new subscription agreement
authorizing an increase in payroll deduction rate or amount of direct
contributions 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 Section 10. The Board shall be authorized to limit the number of
participation rate or amount of direct contribution changes during any Purchase
Period. A Participant may change his account contribution from payroll deduction
to direct contribution or from direct contribution to payroll deduction by
filing with the Company a new subscription agreement authorizing the change in
account contribution method. The change in account contribution method will be
effective with the first day of the next Accrual Period that occurs ten (10) or
more business days after the 

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Company's receipt of a new subscription agreement unless the Company elects to
process a given change in participation more quickly.

                  (d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) herein, a
Participant's payroll deductions or authorized direct contributions may be
decreased to 0% or $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 or authorized direct contributions 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 or authorized
direct contributions accumulated with respect to the Current Purchase Period
equal $21,250. Payroll deductions or authorization to make direct contributions
shall recommence at the rate or amount 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 Section 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 or direct
contributions 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 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 Section 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 or direct
contributions made to his/her account. No fractional shares will be purchased;
any payroll deductions or authorized direct contributions 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. Any
amount remaining in a Participant's account following the purchase of shares on
the Exercise Date which exceeds the cost of one full share of Common Stock on
the Exercise Date shall be returned to the Participant and shall not be carried
over to the next Purchase Period. 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.

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         10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.

                  (a) A Participant may withdraw all but not less than all the
payroll deductions or direct contributions 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 C to this Plan. All of the
Participant's payroll deductions or direct contributions 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 or direct
contributions for the purchase of shares will be made or authorized during the
Purchase Period. If a Participant withdraws from a Purchase Period, payroll
deductions will not resume or direct contributions will not be accepted 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 or direct contributions
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 Section 14,
and such Participant's option will be automatically terminated.

         11. INTEREST. No interest shall accrue on the payroll deductions or
direct contributions 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 Section 18. If on a given Exercise Date the number of shares with respect to
which options are to be exercised exceeds the 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. 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 

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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.

         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 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 amounts 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 Section 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 Section 10.

         16. USE OF FUNDS. All payroll deductions and direct contributions
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 and direct contributions.

         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, direct contributions, 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 

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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 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 Section 10.
For purposes of this Section, 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 

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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 Section 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 Section 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 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 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 or contributed directly by a Participant, 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 

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law. In addition, no options shall be exercised or shares issued hereunder
before the Plan shall have been approved by shareholders of the Company as
provided in Section 23.

         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 Section 19.

         23. 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 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.

         24. 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 or
a Designated Subsidiary, and it shall not be deemed to interfere in any way with
the Company's or a Designated Subsidiary's right to terminate, or otherwise
modify, an employee's employment at any time.

         25. 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.

         26. 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.

         27. EFFECTIVE DATE OF AMENDMENT AND RESTATEMENT OF THE PLAN. The Plan
was adopted initially by the Board on January 23, 1995 and approved by the
shareholders on February 28, 1995. This amendment and restatement of the Plan
adopted by the Board on February 18, 1997 shall be effective for Purchase
Periods that commence on or after the Board's adoption of this amendment and
restatement of the Plan.

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<PAGE>   12
                                    EXHIBIT A


                                    SDL, INC.
                        1995 EMPLOYEE STOCK PURCHASE PLAN
                    SUBSCRIPTION AGREEMENT-PAYROLL DEDUCTION


___      Original Application                       Enrollment Date: _________
___      Change in Payroll Deduction Rate
___      Change of Beneficiary(ies)
___      Change in Method of Account Contribution


         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 

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<PAGE>   13
AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY SUCH
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:     _______________________________________________________
                        _______________________________________________________
                        _______________________________________________________



                                      A-2
<PAGE>   14
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME.

Employee Signature:        ____________________________________________________

Dated:                     ____________________________________________________

Signature of spouse
if beneficiary is
other than spouse:         ____________________________________________________

Dated:                     ____________________________________________________


                                      A-3
<PAGE>   15
                                    EXHIBIT B


                                    SDL, INC.
                        1995 EMPLOYEE STOCK PURCHASE PLAN
                   SUBSCRIPTION AGREEMENT-DIRECT CONTRIBUTION


___      Original Application                       Enrollment Date: _________
___      Change in Payroll Deduction Rate
___      Change of Beneficiary(ies)
___      Change in Method of Account Contribution

         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 elect to contribute to my account under the Employee Stock
Purchase Plan in the amount of ____% of my aggregate Compensation paid to me
during each Accrual Period (not to exceed 10%) of the Purchase Period in
accordance with the Employee Stock Purchase Plan. I will contribute the above
amount no later than fifteen (15) business days prior to each Exercise Date
under the Employee Stock Purchase Plan. I acknowledge that the failure to make a
timely account contribution in the full amount specified above will be deemed an
election by me to withdraw from the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted).

         3. I understand that the amount of my contributions shall be applied
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 contributions to my
account will be used to automatically exercise my option. I understand that
interest will not be paid on amounts contributed to my account under the
Employee Stock Purchase Plan.

         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:

                            _________________________________

                            _________________________________


                                      B-1
<PAGE>   16
         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 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:     _______________________________________________________
                        _______________________________________________________
                        _______________________________________________________


                                      B-2
<PAGE>   17
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME.

Employee Signature:        ____________________________________________________

Dated:                     ____________________________________________________

Signature of spouse
if beneficiary is
other than spouse:         ____________________________________________________

Dated:                     ____________________________________________________


                                      B-3
<PAGE>   18
                                 EXHIBIT C


                                    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 amounts 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 and no contributions will be authorized 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:                   _______________________________________________________



                                      C-1