Document:

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                                                                   EXHIBIT 10.16

                              TRANSITION AGREEMENT

        THIS AGREEMENT (the "Agreement"), made as of the 9th day of July, 2000,
by and between JDS Uniphase Corporation, a Delaware corporation (the "Company"),
with its principal U.S. offices located at San Jose, California, and Donald R.
Scifres (the Executive").

                                 WITNESSETH THAT

        WHEREAS, the Company and SDL, Inc., a Delaware corporation ("SDL"), are
parties to an Agreement and Plan of Merger (the "Merger Agreement") pursuant to
which, at the Effective Time, Merger Sub (as such terms are defined in the
Merger Agreement) shall be merged with and into SDL and the separate existence
of Merger Sub shall thereupon cease, and SDL shall continue as the surviving
corporation as a wholly-owned subsidiary of the Company (the "Merger"),

        WHEREAS, in connection with and as a condition of its willingness to
consummate the Merger, the Company desires to retain the Executive as the
Co-Chairman of the Board of Directors of the Company, and President of the
Actives Group reporting to the Chief Executive Officer of the Company, on the
terms hereinafter set forth, and to induce the Executive to enter into a
covenant against competition and certain other restrictive covenants intended to
protect the goodwill of SDL and the Company;

        WHEREAS, the Executive has a significant financial interest in the
Merger, will be converting all of his shares in SDL (options to acquire shares
of SDL) into Company shares and options pursuant to the Merger and wishes to be
employed by SDL in such capacity on the terms hereinafter set forth, and

        WHEREAS, the Company would not have entered into the Merger Agreement or
agreed to issue shares of the Company (or options for shares of the Company) for
the Executive's SDL shares and options if the Executive had not executed this
Agreement (and, in particular, the noncompete and nonsolicitation agreement
incorporated herein);

        WHEREAS, the Executive is a party to an Employment Agreement dated July
17, 1992, as subsequently amended on February 19, 1993 and again on July 29,
1994, and a Change of Control Agreement dated February 10, 2000 (collectively,
the "Executive Agreements").

        NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
hereby agree as follows:

        1. Assumption of Agreements. Except as noted below and as amended
hereby, the Executive Agreements shall be assumed by the Company. All references
to SDL, Inc. or the Company in the Executive Agreements shall become "Company"
as referenced in this Agreement.

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                                                                               2

        2. Modification of Change of Control Agreement.

           (a) The definition of "Good Reason" of clause (i) of Section 2(i) in
the Change of Control Agreement dated February 10, 2000 (the "Change of Control
Agreement"), shall be amended by removing the words "a material and", inserting
the word "an" and by the addition of the following at the end thereof:

        provided, however, that the changes in the Executive's status, title,
        positions, responsibilities, duties and offices which occur immediately
        after the Change of Control effected by the Company shall not constitute
        Good Reason, and provided further, that no payment will be due Executive
        under this Agreement or the Employment Agreement solely as a result of
        the Merger as defined in the Transition Agreement between the Executive
        and JDS Uniphase Corporation, dated July 9, 2000 (the "Transition
        Agreement")

           (b) The "Good Reason" definition in the Change of Control Agreement
is further amended by the addition of the following at the end thereof:

        (vii) failure to be appointed or reappointed, or his removal as, a
        member of the board of directors of SDL or the failure to be elected or
        re-elected, or his removal as, a member of the board of directors of the
        Company,

        (viii) material breach by the Company of the Transition Agreement,

        (ix) a Change of Control of JDS Uniphase Corporation or of SDL following
        the Merger, and

        (x) a change in Executive's reporting structure

        3. Noncompete and Nonsolicitation Agreement. Executive will enter into a
noncompete and nonsolicitation agreement with the Company. This noncompete and
nonsolicitation agreement is attached as Appendix A of this Agreement, and is
incorporated herein by reference.

        4. Period of Employment. Section 1 of Executive's Employment Agreement
is amended and restated in its entirety to read as follows

        The Company hereby employs Scifres as the Co-Chairman of the Board of
        Directors of the Company and President of the Actives Group, which
        position will result in Scifres being an "Executive Officer" of the
        Company for purposes of Section 16 of the Securities Exchange Act of
        1934, as amended, with the duties and responsibilities described in
        Section 2, for the compensation specified in Section 2, for the
        compensation specified in Sections 3 and 4 and for the period commencing
        at the Effective Time (as defined in the Agreement; and Plan of Merger
        between JDS Uniphase Corporation and SDL) and ending on termination as
        provided in Section 5. Scifres hereby accepts employment by the Company
        in such capacity, upon the terms and conditions set forth in this
        Agreement.

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                                                                               3

        5. Position and Duties. Section 2 of Executive's Employment Agreement is
amended and restated in its entirety to read as follows:

        Scifres accepts employment with the Company and shall, during the term
        of this Agreement, have overall responsibility for the management and
        operations of the Actives Group, including responsibility for decisions
        regarding compensation and benefits matters at the Actives Group, as
        Co-Chairman of the Board of Directors of the Company and President of
        the Actives Group. Scifres shall report to Jozef Straus, Chief Executive
        Officer and shall have duties and responsibilities that are commensurate
        with his title and reporting structure. Scifres shall, during the term
        of this Agreement, devote his best effort and entire working time,
        attention and skill exclusively to the business and affairs of SDL and
        the Actives Group, provided that Scifres's participation on board of
        directors of other companies and other activities Scifres currently
        participates in as identified in Exhibit 1 hereto, as amended with the
        consent of the Company, shall not be deemed a violation of this
        provision unless such activities materially interfere with Scifres's
        duties hereunder. The location of employment, headquarters and travel
        responsibilities will be consistent with 2(i)(iii) of the Change of
        Control Agreement with the Company, dated February 10, 2000 (the "Change
        of Control Agreement"), regardless of whether such Change of Control
        Agreement is then in effect.

        6. Compensation. Section 3 of Executive's Employment Agreement is
amended and restated in its entirety to read as follows:

        "For all services rendered by Scifres to the Company and for all
        obligations assumed by him pursuant to this Agreement, the Company
        shall, subject to Scifres's performance of such obligations, pay to
        Scifres the compensation set forth in this Section 3 and provide the
        other benefits set forth in this Agreement

           (a) Salary. Scifres shall receive a base salary on a per annum basis
("Base Salary") equal to Three Hundred Thousand Dollars ($300,000) commencing as
of the Effective Time. The foregoing Base Salary shall be subject to annual
increases on July 1 of each year during the term of this Agreement, commencing
July 1, 2001, as determined by the Company in its sole discretion.

           (b) Bonuses. Scifres shall be eligible to receive a bonus each year
equal to an amount of up to one hundred and twenty percent (120%) of his Base
Salary, which bonus shall be paid to Scifres on an annual basis upon his
reaching the performance goals mutually established from time to time hereafter
by Scifres and the Company. Under the plan to be established, the target bonus
each year will be 60% of Scifres' Base Salary (the "Target Bonus"), with an
opportunity to earn from 0% to 200% of the Target Bonus based on actual
performance compared to the annual goals to be established for the plan.

           (c) Stock Options. Within 10 days of the Effective Time, Scifres
shall be granted 200,000 nonqualified Company stock options (the "Initial
Options"). Such Initial

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                                                                               4

Options will be subject to the terms of a stock option agreement which will
provide for an option term of no more than 10 years, vesting 50% after one (1)
year and 100% after two (2) years and an exercise price equal to the fair market
value of Company common stock an the date of grant. If the employment of Scifres
is terminated without Cause or terminates for Good Reason (as such terms are
defined in Scifres's Change of Control Agreement, as amended by the Transition
Agreement, made as of July 9, 2000, between Scifres and JDS Uniphase Corporation
(the "Transition Agreement"), regardless of whether such Change of Control
Agreement is then in effect), then such Initial Options shall become immediately
vested and exercisable. If Scifres's employment terminates for any reason, all
vested Initial Options shall remain exercisable for the remainder of their
10-year term.

        Scifres will also be eligible for annual grants of stock options,
consistent with SDL past practices, or if more favorable, with grants made to
other similarly situated executives of the Company.

           (d) Outstanding Stock Options. Notwithstanding anything to the
contrary, in the event that Scifres's employment with the Company is terminated
without Cause or for Good Reason (as such terms are defined in the Change of
Control Agreement, as amended by the Transition Agreement, regardless of whether
such Change of Control Agreement is then in effect), or in the event of
Scifres's death, disability or retirement at or after age 55, all unvested stock
options granted to Scifres before the Effective Time (the "Prior Options") shall
become immediately vested and exercisable and, together with all vested stock
options granted before the Effective Time, may be exercised for the balance of
the full remaining life of the options (i.e., full 10-year term).

           (e) For purposes of clarification, if Executive's employment
Terminates for Cause or without Good Reason, then all vested Initial Options and
all vested Prior Options shall remain exercisable for the remainder of their
10-year term, however unvested options shall not accelerate and shall be
forfeited.

        7. Employee Benefits. The first sentence of Section 4(a) Executive's
Employment Agreement is amended and restated in its entirety to read as follows:

        The Company shall provide Scifres with health, disability, life
        insurance and other welfare benefits, vacation, stock purchase and 401
        (k) plans which are no less favorable than those provided to Scifres at
        the Effective Time, or if more favorable, under employee benefit plans
        provided to similarly situated executives of the Company of similar rank
        and responsibility.

        8. Additional Cash Payments.

           (a) Within 10 days of the Effective Time and in consideration for
Executive accepting the terms of the attached Noncompetition and Nonsolicitation
Agreement and the amendments to the Executive Agreements, the Executive shall
receive a cash payment of $75 Million.

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                                                                               5

           (b) Notwithstanding anything in the Executive Agreements to the
contrary, in the event that any of the payments or benefits provided under this
Agreement or the Executive Agreements result in Executive being subject to the
golden parachute excise tax imposed by Section 4999 of the Internal Revenue
Code, the Company shall make such additional payment as will make executive
whole for such tax obligation, as set forth in Appendix B, which is incorporated
herein by reference.

        9. Current Board Participation and Other Activities. Executive's
Employment Agreement is amended by the addition of Exhibit 1 at the end thereof.

        10. Board of Directors. Section 4(c) of Executive's Employment Agreement
shall be amended to refer to the Board of the Company and the Board of SDL.

        Executive acknowledges and agrees that the Voting Agreement referenced
in his July 17, 1992 Employment Agreement at Section 4(c) is no longer in force
and effect.

        11. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and any affiliate thereof, their perspective
successors, permitted assigns and legal representatives.

        12. Construction/Interpretation. The Executive acknowledges that the
Executive has been advised by the Company to review the terms of this Agreement
with legal counsel of the Executive's choice and that the Executive has been
given reasonable opportunity to seek such legal advice. The parties hereto
acknowledge and agree that: (i) each party and their counsel have (or had the
opportunity to) reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the rule of construction to
the effect that any ambiguities are resolved against the drafting party shall
not be employed in the interpretation of this Agreement, and (iii) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.

        13. Disputes/Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement, the Employment Agreement or the Change of Control
Agreement, not withstanding any provisions thereof to the contrary, involving
termination of Executive's employment with the Company or involving the failure
or refusal of the Company to perform fully in accordance with the terms hereof,
the Company shall reimburse Executive, on a current basis, for all reasonable
legal fees and expenses, if any, incurred by Executive in connection with such
contest or dispute (regardless of the result thereof), together with interest in
an amount equal to the prime rate of Citibank N.A. from time to time in effect,
but in no event higher than the maximum legal rate permissible under applicable
law, such interest to accrue from the date the Company receives Executive's
statement for such fees and expenses through the date of payment thereof,
regardless of whether or not Executive's claim is upheld by a court of competent
jurisdiction, provided, however, Executive shall be required to repay any such
amounts to the Company to the extent that a court issues a final and
non-appealable order setting

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forth the determination that the position taken by Executive was frivolous or
advanced by Executive in bad faith.

        In addition, the Company shall reimburse the Executive for legal and
consulting fees and expenses arising in connection with entering into this
Agreement.

        14. Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed and enforced with the laws
of the State of California without giving effect to the conflict of laws
principle thereof.

        15. Severability. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall, for any reason and to
any extent, be declared invalid or unenforceable by a court of competent
jurisdiction, the remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be affected thereby, but
rather shall be enforced to the fullest extent permitted by law.

        16. Amendments to Agreement. No amendment or alteration of the terms of
this Agreement shall be valid or binding unless made in writing signed by
parties to this Agreement specifically referring to this Agreement.

        17. Voiding Agreement. This Agreement will be null and void and given no
effect if the Merger contemplated by the Merger Agreement is not consummated.

        18. Integration. The parties understand and agrees that this Agreement,
along with the Executive Agreements, represent the entire agreement between the
parties; that no representation or promise has been made by the Company
concerning the subject matter of those agreements, except as expressly set forth
in those agreements, and that all agreements and understandings between the
parties concerning the subject matter of those agreements are embodied and
expressed in those agreements. This Agreement and the Executive Agreements shall
supercede all prior or contemporaneous agreements and understandings between
Executive and the Company, whether written or oral, expressed or implied, with
respect to the subject matter of those agreements.

        IN WITNESS WHEREOF, the parties have executed this Agreement, under
seal, as of the date first above written

EXECUTIVE:                                  JDS UNIPHASE CORPORATION

By  /s/ DONALD R. SCIFRES                   By  /s/ MICHAEL PHILLIPS
   -------------------------------             -------------------------------
    Donald R. Scifres                           Senior Vice President

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                                                                               7

                                   APPENDIX A

                  NONCOMPETITION AND NONSOLICITATION AGREEMENT

        A. Non-Competition.

           (a) During the Executive's employment by, or relationship with, the
Company and for a period of one (1) year following the Effective Time of the
Merger, the Executive will not directly or indirectly, either as principal,
agent, employee, consultant, officer, director, or stockholder of the Company,
engage in any business which is competitive with the photonics or optics
networking businesses of SDL or the Company (collectively, the "Business"),
provided, however, that nothing contained herein shall preclude the Executive
from purchasing or owning less than five percent (5%) of the stock or other
securities of (1) any company with securities Traded on a nationally recognized
securities exchange or (ii) any venture capital fund passive interest,

           (b) For the purposes of this Section A, a business will be deemed
competitive with the Business if it involves the performing of services and/or
the production, manufacture, distribution, sale or development of any product
similar to services performed or products produced, manufactured, distributed,
sold or developed or being developed by the Business and/or the licensing of any
process or technology concerning production similar to those utilized, developed
or being developed by the Business during the period in which the Executive is
employed or otherwise affiliated with the Company.

           (c) The Executive acknowledges that the Business has been and will be
conducted on a global basis by SDL and the Company, and that, accordingly, time
restrictions contained in this Section A shall apply in (i) any city, county or
other political subdivision of the State of California (including, without
limitation, the counties listed on Exhibit II hereto), and (ii) any city, county
or other political subdivision of any other state in the United States or any
country or other territory in the world, where the Company is selling or
delivering any of the Business' products or services or is otherwise carrying on
business or selling activities with respect to the Business or (y) has engaged
in any of the activities described in clause (x) within the most recent 12-month
period.

           (d) The Executive acknowledges and agrees that strict enforcement of
the terms of this Agreement is necessary for the purpose of ensuring the
preservation, protection and continuity of the business, trade secrets and
goodwill of the Company and that, in furtherance of such purpose, the
prohibition against competition imposed by this Section A is narrow, reasonable
and fair. The Executive further agrees that, given the Executive's experience,
knowledge and skills, substantial opportunities for employment outside of the
areas restricted by this Agreement are and will remain available to the
Executive. If any part of this Section A should be determined by a court of
competent jurisdiction to be unreasonable in duration, geographic area, or
scope, then this Agreement is intended to and shall extend only for such period
of time, in such area and with respect to such activities as are determined to
be reasonable.

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(e) Notwithstanding anything contained in this Section A to the contrary, the
Executive shall be permitted to serve as a director of, or an investor in, each
of the corporations set forth on Exhibit 1, which may be amended from time to
time by the mutual consent of the Executive and the Company.

        A. Non-Solicitation

        During the Executive's employment or relationship with the Company and
for a period of one (1) year following the Effective Time, the Executive will
not directly or indirectly, either as principal, agent, employee, consultant,
officer, director or stockholder, solicit any employee, consultant, independent
contractor or agent of the Business with the intention or effect of encouraging
such party to terminate his or her employment, agency or other relationship, as
applicable, with the Business.

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                                                                               9

                                    EXHIBIT 1

HomeFiber - approximately 10% interest
DMISI - approximately 10% interest

<PAGE>   10
                                                                              10

                                   EXHIBIT II

<TABLE>
                ----------------------------------------------------------
                               CALIFORNIA COUNTIES
                ----------------------------------------------------------
                <S>                            <C>
                Alameda                        Placer
                ----------------------------------------------------------
                Alpine                         Plumas
                ----------------------------------------------------------
                Amador                         Riverside
                ----------------------------------------------------------
                Butt                           Sacramento
                ----------------------------------------------------------
                Calaveras                      San Benito
                ----------------------------------------------------------
                Colusa                         San Bernardino
                ----------------------------------------------------------
                Contra Costa                   San Diego
                ----------------------------------------------------------
                Del Norte                      San Francisco
                ----------------------------------------------------------
                El Dorado                      San Joaquin
                ----------------------------------------------------------
                Fresno                         San Luis Obispo
                ----------------------------------------------------------
                Glenn                          San Mateo
                ----------------------------------------------------------
                Humboldt                       Santa Barbara
                ----------------------------------------------------------
                Imperial                       Santa Clara
                ----------------------------------------------------------
                Inyo                           Santa Cruz
                ----------------------------------------------------------
                Kern                           Shasta
                ----------------------------------------------------------
                Kings                          Sierra
                ----------------------------------------------------------
                Lake                           Siskiyou
                ----------------------------------------------------------
                Lassen                         Solano
                ----------------------------------------------------------
                Los Angeles                    Sonoma
                ----------------------------------------------------------
                Madera                         Stanislaus
                ----------------------------------------------------------
                Marin                          Sutter
                ----------------------------------------------------------
                Mariposa                       Tehama
                ----------------------------------------------------------
                Mendocino                      Trinity
                ----------------------------------------------------------
                Merced                         Tulare
                ----------------------------------------------------------
                Modoc                          Tuolumne
                ----------------------------------------------------------
                Mono                           Ventura
                ----------------------------------------------------------
                Monterey                       Yolo
                ----------------------------------------------------------
                Napa                           Yuba
                ----------------------------------------------------------
                Nevada
                ----------------------------------------------------------
                Orange
                ------------------------------ ---------------------------
</TABLE>

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                                                                              11

                                   APPENDIX B

                   Certain Additional Payments by the Company

(a)     Anything in this Agreement or the Executive Agreements to the contrary
        notwithstanding, in the event it shall be determined that any payment,
        award, benefit or distribution (or any acceleration of any payment,
        award, benefit or distribution) by the Company (or any of its affiliated
        entities) or any entity which effectuates a Change of Control (or any of
        its affiliated entities) to or for the benefit of Executive (whether
        pursuant to the terms of this Agreement or otherwise, but determined
        without regard to any additional payments required under this Appendix
        B) (the "Payments") would be subject to the excise tax imposed by
        Section 4999 of the Internal Revenue Code of 1986, as amended (the
        "Code"), or any interest or penalties are incurred by Executive with
        respect to such excise tax (such excise tax together with any such
        interest and penalties, are hereinafter collectively referred to as the
        "Excise Tax"), then the Company shall pay to Executive an additional
        payment (a "Gross-Up Payment") in an amount such that after payment by
        Executive of all taxes (including any Excise Tax) imposed upon the
        Gross-Up Payment, Executive retains an amount of the Gross-Up Payment
        equal to the sum of (x) the Excise Tax imposed upon the Payments and (y)
        the product of any deductions disallowed because of the inclusion of the
        Gross-up Payment in Executive's adjusted gross income and the highest
        applicable marginal rate of federal income taxation for the calendar
        year in which the Gross-up Payment is to be made. For purposes of
        determining the amount of the Gross-up Payment, the Executive shall be
        deemed to (i) pay federal income taxes at the highest marginal rates of
        federal income taxation for the calendar year in which the Gross-up
        Payment is to be made, (ii) pay applicable state and local income taxes
        at the highest marginal rate of taxation for the calendar year in which
        the Gross-up Payment is to be made, net of the maximum reduction in
        federal income taxes which could be obtained from deduction of such
        state and local taxes and (iii) have otherwise allowable deductions for
        federal income tax purposes at least equal to those which could be
        disallowed because of the inclusion of the Gross-up Payment in the
        Executive's adjusted gross income. Notwithstanding the foregoing
        provisions of this Appendix B(a), if it shall be determined that
        Executive is entitled to a Gross-Up Payment, but that the Payments would
        not be subject to the Excise Tax if the Payments were reduced by an
        amount that is less than 10% of the portion of the Payments that would
        be treated as "parachute payments" under Section 280G of the Code, then
        the amounts payable to Executive under this Agreement shall be reduced
        (but not below zero) to the maximum amount that could be paid to
        Executive without giving rise to the Excise Tax (the "Safe Harbor Cap"),
        and no Gross-Up Payment shall be made to Executive. The reduction of the
        amounts payable hereunder, if applicable, shall be made by reducing any
        cash payments, unless an alternative method of reduction is elected by
        Executive. For purposes of reducing the Payments to the Safe Harbor Cap,
        only amounts payable under this Agreement (and no other Payments) shall
        be reduced. If the reduction of the amounts

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                                                                              12

        payable hereunder would not result in a reduction of the Payments to the
        Safe Harbor Cap, no amounts payable under this Agreement shall be
        reduced pursuant to this provision.

<PAGE>   13
                                                                              13

        (b) Subject to the provisions of this Appendix B (a), all determinations
required to be made under this Appendix B, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment, the reduction of the
Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving
at such determinations, shall be made by the public accounting firm that is
retained by the Company as of the date immediately prior to the Change of
Control (the "Accounting firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business days
of the receipt of notice from the Company or the Executive that there has been a
Payment, or such earlier time as is requested by the Company (collectively, the
"Determination"). In the event that the Accounting firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
Executive may appoint another nationally recognized public accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company and the Company shall enter
into any agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-up Payment under this Appendix
B with respect to any Payments shall be made no later than thirty (30) days
following such Payment. If the Accounting Firm determines that no Excise Tax is
payable by Executive, it shall furnish Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on
Executive's applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. In the event the Accounting Firm
determines that the Payments shall be reduced to the Safe Harbor Cap, it shall
furnish Executive with a written opinion to such effect. The Determination by
the Accounting Firm shall be binding upon the Company and Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the Determination, it is possible that Gross-Up Payments which will not have
been made by the Company should have been made ("Underpayment") or Gross-up
Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made hereunder.
In the event that the Executive thereafter is required to make payment of any
Excise Tax or additional, Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment (together
with interest, to the extent not already within the Excise Tax, at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the
Company to or for the benefit of Executive. In the event the amount of the
Gross-up Payment exceeds the amount necessary to reimburse the Executive for his
Excise Tax, the Accounting Firm shall determine the amount of the Overpayment
that has been made and any such Overpayment (together with interest at the rate
provided in Section 1274(b)(2) of the Code) shall be promptly paid by Executive
(to the extent he has received a refund if the applicable Excise Tax has been
paid to the Internal Revenue Service) to or for the benefit of the Company.
Executive shall cooperate, to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.<PAGE>   1
                                                                             1

                                                                   EXHIBIT 10.17

                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between Gregory
P. Dougherty ("Employee") and SDL, Inc. (the "Company"), and is effective as of
the 1st day of October, 1998 and supercedes any/all previous employment
agreements. The parties hereby AGREE AS FOLLOWS:

1. Period of Employment

The Company will employ Employee to render services to the Company in the
position and with the duties and responsibilities described in Section 2, for
the compensation specified in Sections 3 and 4 and for the period commencing on
the effective date of this Agreement and ending on termination as provided in
Section 5.

2. Position and Duties

Employee accepts employment with the Company as its Chief Operating Officer. As
such, Employee shall have the responsibilities for the management and operations
of the Company established for him from time to time by the Board of Directors.

3. Compensation

(a) Base Salary. Employee shall receive a base salary of $209,204 per year,
payable in equal installments in accordance with the Company's current practices
or as they may be amended. The foregoing base salary shall be subject to annual
reviews each year during the term of the Agreement, as determined by the Board
of Directors in its sole discretion.

(b) Annual Bonuses. The Board of Directors shall approve an annual operating
plan for the Company. Employee shall receive cash bonuses in connection with
each audit of the Company's results of operations conducted by the Company's
independent certified public accountants. Such audits shall be conducted at
least annually. Employee's bonuses shall be computed as provided in the matrix
attached to this agreement as Exhibit A or other such criteria as determined by
the SDL Board of Directors, provided that such bonuses shall be adjusted pro
rata to reflect any audit period less than twelve (12) months. The Company's
results of operations shall be determined by the Company's independent certified
public accountants in accordance with generally accepted accounting principles
applied consistent with the practice for prior periods and shall be accompanied
by an audit report of such accountants, which shall be reasonably acceptable to
the Company's Board of Directors. Such bonuses shall be calculated and paid
within thirty (30) days following delivery of the audit report. Bonuses shall be
deemed earned with respect to each fiscal year (or portion thereto) during which
Employee has been employed hereunder as of the end of the fiscal period covered
by the audit; such bonuses shall thereafter be paid on the dates set forth
above, subject only to the determination of the Company's results of operations.

(e) Option Appreciation Guarantee. Offer letter dated February 21, 1997 states:
"If at the end of your second complete year with SDL the options that you have
been granted do not yield you $200,000 appreciation, SDL will make up the
difference in cash. That is, if the options are below water SDL

<PAGE>   2
                                                                               2

will pay $200,000 in cash less taxes. If the options are above water but their
value is less than $200,000 above the exercise price, SDL will pay you the
difference in cash less taxes. SDL will calculate the appreciation on the second
anniversary of your option grant date based on a 3 day average of the last trade
price as reported in the Wall Street Journal; day before, anniversary date, and
day after." This agreement amends the above paragraph by adding the following
sentence: Any such payout will actually occur on your tenth anniversary or
termination from the Company for any reason, whichever comes first.

4. Benefits

(a) Employee will continue to receive benefits made generally available to
employees of the Company. In addition, Employee shall receive in the future
benefits generally made available to the Company's executives at a similar
reporting level. The foregoing shall include stock option plan grants, with the
number of shares, if any, covered by such grants determined by the Board of
Directors in its sole discretion. The Company shall reimburse Employee for
reasonable travel and other business expenses incurred by him in the performance
of his duties hereunder in accordance with the Company's policies in this
regard.

(b) During the term of this Agreement and for a period of six (6) months
thereafter, the Company will maintain an insurance policy on Employee's life in
an amount equal to his then-current base salary. The proceeds of the foregoing
insurance policy shall be payable to such beneficiaries as Employee may
designate from time to time or, in the absence of a designation, to his estate.

(c) New Loan. In the event Employee sells the Property and purchases a new
residence, the Company agrees to enter into a new housing assistance loan (the
"New Loan"), the terms of which will be the same in all material respects to the
terms of Housing Assistance Loan, including but not limited to the terms related
to the on-going loan repayment obligations of Employee and the repayment
obligations of Employee in the event of termination by the Company, provided,
however, that (i) at the time of the close of escrow for the new residence, the
Employee must be currently employed at the Company, (ii) the amount of the New
Loan will be equal to the price of the new residence minus $228,000, but in no
event shall it exceed the amount outstanding under the Note at the time such
amount became due and payable and (iii) the New Loan will be due and payable on
the tenth anniversary of the date of the Note.

(d) See attached "Addendum, Terms of Employment Offer" Section 1)(d)(iii) under
"Relocation Package" in the attached "Addendum, Terms of Employment Offer" dated
February 21, 1997 is amended to read as follows: Dollar forgiveness on the
anniversary of your employment date

<TABLE>
                  <S>       <C>         <C>     <C>
                  1999      $40,000      -      2nd Anniversary
                  2000      $40,000      -      3rd Anniversary
                  2001      $40,000      -      4th Anniversary
                  2002      $80,000      -      5th Anniversary
                  2003      $40,000      -      6th Anniversary
                  2004      $40,000      -      7th Anniversary
                  2005      $40,000      -      8th Anniversary
                  2006      $40,000      -      9th Anniversary
                  2007      $40,000      -     10th Anniversary
</TABLE>

<PAGE>   3
                                                                               3

5. Termination In addition to the terms of termination defined in the "Addendum,
Terms of Employment Offer" (see attached) the following will apply.

(a) Employee's employment by the Company hereunder shall be TERMINABLE BY EITHER
EMPLOYEE OR the Company at any time and for any reason, with or without cause,
effective upon written notice to the other party. Upon termination of employment
the employee shall be deemed to have resigned from all offices and directorships
then held with the Company or any affiliate.

(b) In the event the Company terminates Employee's employment pursuant to
subsection (a) above other than for cause (as defined below), or the Employee
resigns following a reduction in base pay and bonus when said reduction is not
in conjunction with similar reductions in base pay and bonus with other Senior
Executives or employee is no longer in the role of Chief Operating Officer or at
least equivalent position, Employee shall be entitled to the following benefits:

(i) An amount, payable monthly for six (6) months, commencing on the effective
date of termination of the Employee's employment equal to his then current
monthly base salary;

(ii) Accelerated vesting, for six (6) additional months from the effective date
of termination, under all outstanding stock options then held by Employee; and

(iii) An amount, payable monthly for six (6) months commencing on the effective
date of termination of Employee's employment equal to 4.1667% of his then
current annual base salary

(iv) For a period of six (6) months following the termination of Employee's
employment pursuant to this Agreement, the Company will pay the cost to maintain
medical benefits under COBRA, provided that Employee will continue to pay the
amount he paid for medical insurance prior to such termination and provided the
employee adheres to the terms of COBRA.

(v) $200,000 of "Housing Assistance Loan" described in the Terms of Offer dated
February 21, 1997 will be forgiven if termination occurs during the first 5
years of employment at SDL and the balance of the loan is due upon close of
escrow on the house repurchase or within 1 year which ever comes first,

(vi) At your option, SDL can repurchase your CA house, within 1 year of your
termination date, at the higher of original purchase price or appraised value at
the time of termination or you will need to pay the balance of the loan within
1 year.

(c) If Employee terminates his employment pursuant to this Agreement in
accordance with Section 5 (a), or if the Company terminates Employee's
employment pursuant to Section 5(a) for cause (defined as willful breach of duty
in the course of employment or habitual neglect of duty or continued inability
to perform it), continued inability to perform it shall not include performance
results, unwillingness to move (more than 100 miles)/accept transfer or
unwillingness to accept excessive travel or any reasons/circumstances resulting
from illness in family or child care, the following shall apply:

(i) No further salary shall be payable to Employee, except for amounts accruing
prior to the termination date;

<PAGE>   4
                                                                               4

(ii) No further vesting of Employee's stock options or stock purchase, or
similar rights shall occur; and

(iii) No further bonuses shall be payable pursuant to Section 3(b).

(iv) No forgiveness of the $200,000 "Housing Assistance Loan" will be provided,

(v) "Housing Assistance Loan" balance in full is payable with 1 year, or upon
sale of house whichever occurs first.

(d) Subsequent to the termination of Employee's employment hereunder, the
payments and benefits provided for in Sections 4(b) and subsections 5 (b) (i),
(ii), (iii) and (iv) shall terminate at such time, if any, as Employee commences
employment.

(e) This Agreement shall terminate upon Employee's death or permanent
disability. In such event, Employee (or his estate) shall be entitle to receive
the benefits provided for under Section 5(b).

6. Miscellaneous

(a) Notices under this Agreement shall be in writing and shall be deemed given
when delivered in person or three (3) days after deposit in the United States
Mail, postage prepaid, certified or return receipt requested, and addressed as
follows:

             If to Employee:       NAME
                                   STREET ADDRESS
                                   CITY, STATE, ZIP
             If to the Company:    80 Rose Orchard Way
                                   San Jose, California 95134
                                   Attention: Corporate Secretary

The foregoing addresses may be CHANGED BY NOTICE IN ACCORDANCE WITH THIS
SUBSECTION (a).

(b) The prevailing party in any action to enforce the terms of this Agreement
shall be entitled to reimbursement from the other party for its costs and
expenses (including reasonable attorneys' fees) in connection therewith.

(c) The terms of this Agreement are intended by the parties to be the final
expression of their agreement with respect to the employment of Employee by the
Company and may not be contradicted by evidence of any prior or contemporaneous
agreement. The parties further intend that this Agreement shall constitute the
complete and exclusive statement of its terms and that no extrinsic evidence
whatsoever may be produced in any legal proceeding involving this Agreement.
This Agreement may be amended, and the observance of any of its terms may be
waived, only by a writing signed by the party to be charged with such amendment
or waiver.

(d) If any provision of this Agreement, or the application thereof to any
person, place or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable or void, the remainder of this
Agreement and such provisions as applied to other persons, places and

<PAGE>   5
                                                                               5

circumstances shall remain in full force and effect.

(e) The validity, interpretation, enforceability and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to its rules regarding conflicts of laws.

(f) Employee agrees THAT ALL DISPUTES between him and the Company (including all
affiliates, shareholders, directors, officers, employees, consultants, agents,
successors and assigns), which arise during Employee's employment or after, will
be resolved by arbitration. The arbitration will be conducted by a single
arbitrator. The arbitrator will be selected and the arbitration conducted
pursuant to the Employment Dispute Resolution rules of the American Arbitration
Association (AAA). The arbitration agreement covers all disputes arising from
Employee's employment, including (1) claims for wages, benefits or compensation,
(2) all tort and contract claims of any kind, including disputes concerning this
Agreement, and (3) claims based on any federal or state law, including
discrimination, harassment or retaliation laws. For example, this arbitration
agreement includes claims arising under Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act, the Americans with Disabilities
Act, and the California Fair Employment and Housing Act. The only claims not
covered by this arbitration agreement are workers' compensation and unemployment
compensation claims, and the Company may, at its option, seek injunctive relief,
equitable relief and damages in court for any breach of this Invention and
Proprietary Information Agreement, any other agreement, or any federal or state
law, concerning Proprietary Information or Inventions. Except as provided in the
previous sentence, arbitration is the exclusive remedy for all disputes covered
by this arbitration agreement, including whether a particular dispute is covered
by this agreement, and shall be final and binding on both parties, which means
that BOTH EMPLOYEE AND THE COMPANY WAIVE ANY RIGHT TO A JURY TRIAL. Either
Employee or the Company may bring an action in court to compel arbitration and
to enforce an arbitration award. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any dispute
covered by the arbitration agreement. The Federal Arbitration Act shall govern
the interpretation and enforcement of this arbitration agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first set forth above.

     EMPLOYEE                                SDL, INC.
     By /s/ Gregory P. Dougherty             By /s/ Donald R. Scifres

<PAGE>   6
                                                                               6

Mr. Gregory P. Dougherty
Addendum, Terms of Employment Offer
February 21, 1997

Stock Options:

1)      A second grant approximately 2 years after the initial grant (exact date
        to be concurrent with appropriate quarterly reload schedule) of 14,000
        options in accordance with the terms of SDL's stock option plan, as long
        as:

            i)   You are still employed with SDL and,

            ii)  SDL's option plan is still in effect

Relocation Package:

1)      "Housing Assistance Loan: secured 2nd mortgage on house:

        a)  The amount of this loan is equivalent to the price of California
            house less $228,000 not exceed $700,000

        b)  Term: 10 years

        c)  Interest rate 0%

        d)  On-going loan repayment:

            i)   100 % of net after tax proceeds of any payment made under
                 option appreciation guarantee, see Employment Offer Letter.

            ii)  50% of net after tax proceeds of all bonus payments, see
                 Employment Offer Letter.

            iii) $200,000 of loan will be forgiven after 5 years and an
                 additional $200,000 of loan will be forgiven after 10 years of
                 SDL service and any remaining loan balance will be due and
                 payable at end of term of the loan.

        e)  Repayment in the event of termination:

            i)   Voluntarily termination - balance in full within 1 year.

            ii)  Termination due to death or disability - balance in full due
                 upon close of escrow on the house repurchase.

            iii) Involuntarily termination - $200,000 of loan will be forgiven
                 if termination occurs during the first 5 years of employment,
                 balance is due upon close of escrow on the house repurchase.

<PAGE>   7
                                                                               7

        f)  In the event of involuntary termination or termination due to death
            or disability, SDL will give you the option of SDL repurchasing your
            CA house within 1 year at the higher of original purchase price or
            appraised value at the time of termination or pay the balance of the
            loan with 1 year.

        g)  SDL is advised that there is no imputed interest on this loan, if
            that advice is incorrect, SDL will reimburse the federal and state
            income tax on any imputed interest if it is due under present tax
            law.

2)      Relocation Assistance:

        a)  Pennsylvania house - SDL will contract with a relocation assistance
            firm to purchase the PA house for $228,000. SDL will reimburse you
            for any Federal and State income taxes which you pay as a result of
            this transaction.

        b)  Lump sum payment:

            I)   Total lump sum payment for relocation is $200,000 which will be
                 split between current compensation and a "Relocation Loan".

            II)  Loan:

                 i) Loan amount equal to the price of the California house minus
                 amount of first mortgage obtained by employee (which will not
                 exceed the amount of the 1st mortgage on the Pennsylvania
                 house) minus amount of housing assistance loan per Relocation
                 Package Section 1a).

                 ii) Repayment of "Relocation Loan" - 20% of the loan portion of
                 the $200,000 amount will be forgiven annually for 5 years on
                 the loan anniversary date if employment continues, iii) In the
                 event of involuntary termination or termination for any reason
                 after 12 months of continuous employment with SDL this loan
                 will be forgiven completely.

            III) Non-loan amount equal to $200,000 minus loan amount per
                 Relocation Package Section 2b) II) which will be paid
                 concurrent with signing the loan agreements.

            IV)  Should you voluntarily terminate your employment with SDL
                 during the first 12 months of your employment, you will be
                 required to repay SDL on a pro rata basis for the lump sum
                 payment.

Vacation:

1)      20 days of vacation will be credited to your account on your hire date
        for your use in 1997.

2)      Additional vacation will accrue at the rate of 20 days per year.

Indemnification of Legal Costs

1)      In the event that Lucent Technologies brings suit against you, not
        related to a violation of law or breach of contract by you, SDL will
        provide a legal defense on your behalf.

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