<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number 0-25688
SDL, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0331449
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
80 Rose Orchard Way, San Jose, CA 95134-1365
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (408) 943-9411
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock as of May 4, 1998
was 13,815,770.
<PAGE> 2
SDL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income for
the three months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SDL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ---------
(UNAUDITED) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,222 $ 4,593
Short-term investments 9,651 10,400
Accounts receivable, net 19,177 19,960
Inventories 14,527 13,938
Prepaid expenses and other current assets 2,636 2,738
--------- ---------
Total current assets 55,213 51,629
Property and equipment, net 28,269 26,298
Long-term investments 9,068 11,613
Note due from related party 530 536
Other assets 4,323 4,148
--------- ---------
$ 97,403 $ 94,224
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,696 $ 8,469
Accrued payroll and related expenses 3,115 2,945
Income taxes payable 559 828
Unearned revenue 371 393
Acquisition obligations 650 650
Other accrued liabilities 2,253 2,332
--------- ---------
Total current liabilities 15,644 15,617
Other long-term liabilities 2,181 2,020
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock 14 14
Additional paid-in-capital 116,695 116,409
Accumulated other comprehensive income (198) (208)
Accumulated deficit ($32,084 relating to the
repurchase of common stock and
recapitalization in 1992) (36,887) (39,586)
--------- ---------
79,624 76,629
Less: stockholders' notes receivable (46) (42)
--------- ---------
Total stockholders equity 79,578 76,587
--------- ---------
$ 97,403 $ 94,224
========= =========
</TABLE>
(1) The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes
3
<PAGE> 4
SDL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
<S> <C> <C>
Total revenue:
Product revenue $22,140 $16,775
Research revenue 3,217 4,241
------- -------
25,357 21,016
Cost of revenue:
Cost of product revenue 14,778 10,886
Cost of research revenue 2,372 3,132
------- -------
Gross margin 8,207 6,998
Operating expenses:
Research and development 2,476 2,836
Selling, general and administrative 2,889 3,897
Amortization of purchased intangibles 196 161
------- -------
Operating income 2,646 104
Interest income, net 273 631
------- -------
Income before income taxes 2,919 735
Provision for income taxes 220 228
------- -------
Net income $ 2,699 $ 507
======= =======
Net income per share - basic $ 0.20 $ 0.04
======= =======
Net income per share - diluted $ 0.19 $ 0.04
======= =======
Number of weighted average shares - basic 13,708 13,331
Number of weighted average shares - diluted 14,545 14,265
</TABLE>
See accompanying notes.
4
<PAGE> 5
SDL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,699 $ 507
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,904 1,250
Deferred income taxes -- 477
Changes in operating assets and liabilities:
Accounts receivable 783 (4,275)
Inventories (589) 416
Accounts payable 227 607
Income taxes payable (269) (271)
Accrued payroll and related expenses 170 749
Unearned revenue (22) 90
Other accrued liabilities (79) (69)
Other (63) 132
------- -------
Total adjustments 2,062 (894)
------- -------
Net cash provided by (used in) operating activities 4,761 (387)
INVESTING ACTIVITIES
Acquisition of property and equipment, net (3,679) (2,869)
Payment of acquisition obligations -- (14)
Sale of investments, net 3,261 5,641
------- -------
Net cash provided by (used in) investing activities (418) 2,758
FINANCING ACTIVITIES
Issuance of stock pursuant to employee stock plans 286 82
Payments on stockholder notes receivable -- 5
------- -------
Net cash provided by financing activities 286 87
------- -------
Net increase in cash and cash equivalents 4,629 2,458
Cash and cash equivalents at beginning of period 4,593 2,605
------- -------
Cash and cash equivalents at end of period $ 9,222 $ 5,063
======= =======
SUPPLEMENT DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes $ 473 $ --
SUPPLEMENT DISCLOSURES OF NONCASH ACTIVITIES
Unrealized loss on marketable securities $ 33 $ 421
</TABLE>
See accompanying notes.
5
<PAGE> 6
SDL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31,
1998 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Registrant Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The consolidated financial statements include the accounts of SDL, Inc.
and its wholly owned subsidiary, SDL Optics. Intercompany accounts and
transactions have been eliminated in consolidation.
The functional currency of the Company's foreign subsidiary is the U.S.
dollar. Subsidiary financial statements are remeasured into U.S. dollars
for consolidation. Foreign currency transaction gains and losses are
included in interest income and were immaterial for all periods presented.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to December 31. The first fiscal
quarter of 1998 and 1997 ended on April 3, 1998 and March 28, 1997,
respectively. For ease of discussion and presentation, all accompanying
financial statements have been shown as ending on the last day of the
calendar month.
6
<PAGE> 7
2. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
For the quarter ended
March 31,
-------------------
1998 1997
-------------------
<S> <C> <C>
Numerator:
Net income $ 2,699 $ 507
======= =======
Denominator:
Denominator for basic net income per
share-weighted average shares 13,708 13,331
Incremental common shares attributable to
shares issuable under employee stock plans 837 934
------- -------
Denominator for diluted net income per
share-adjusted weighted average shares
and assumed conversions 14,545 14,265
======= =======
Net income per share - basic $ 0.20 $ 0.04
======= =======
Net income per share - diluted $ 0.19 $ 0.04
======= =======
</TABLE>
3. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130),"Reporting Comprehensive Income."
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
statement had no impact on the Company's net income or stockholders'
equity. SFAS 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation
adjustments, which have been consistently included in stockholders' equity
and excluded from net income, to be included in comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
During the first quarter of 1998 and 1997, total comprehensive income
amounted to approximately $2.7 million and $0.1 million, respectively.
4. RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
establishes new requirements for the reporting of information regarding
operating segments, products, services, geographic areas and major
customers. The Company will adopt SFAS No.131 effective December 31, 1998.
7
<PAGE> 8
5. INVENTORIES
The components of inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
Raw materials $ 6,012 $ 6,087
Work in process 8,515 7,851
-------- --------
$14,527 $13,938
======= =======
</TABLE>
No significant amounts of finished goods are maintained.
6. SHAREHOLDER RIGHTS PLAN
The Company has adopted a Shareholder Rights Plan (Rights Agreement).
Pursuant to the Rights Agreement, rights were distributed at the rate of
one right for each share of Common Stock owned by the Company's
stockholders of record on November 17, 1997. The rights expire on November
5, 2007 unless extended or earlier redeemed or exchanged by the Company.
Under the Rights Agreement, each right entitles the registered holder to
purchase one-hundredth of a Series B Preferred share of the Company at a
price of $110. The rights will become exercisable only if a person or
group acquires beneficial ownership of 15% or more of the Company's common
stock or commences a tender offer or exchange offer upon consummation of
which such person or group would beneficially own 15% or more or the
Company's common stock.
7. CONTINGENCIES
See Part I, Item 3, Legal Proceedings in the Company's Form 10-K for the
year ended December 31, 1997 for discussion of legal matters.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SDL designs, manufactures and markets semiconductor optoelectronic integrated
circuits (OEICs), semiconductor lasers, fiber optic related products and
optoelectronic systems. The Company's revenue consists of product and research
revenue. The Company's product revenue is primarily derived from the sale of
standard and customized products to a variety of customers, in volumes ranging
from single products sold to numerous organizations to high unit volumes sold to
certain original equipment manufacturer (OEM) customers. As a result, product
gross margins tend to fluctuate based on the mix of products sold in any
reported period. From the original products introduced in 1984, the Company has
expanded its product offering to over 200 standard products in addition to
providing custom design and packaging for OEM customers. OEM customers often
fund the design or customization as well as the manufacturing and testing of
their volume products. The primary applications for the Company's products
include telecommunications, CATV, satellite communications, LAN, printing,
medical, data storage, sensor, defense, materials processing and instrument
markets.
The Company's research revenue is derived from customer-funded research
programs. The Company's research and engineering staff, which currently includes
approximately 60 Ph.D.s, provides state-of-the-art research and proof-of-concept
prototypes over a broad range of semiconductor OEIC and laser technologies. The
Company has been issued over 70 U.S. patents and has approximately 90 U.S.
patent applications pending. Customer-funded research revenue is typically based
on material and labor costs incurred, plus coverage for overhead and operating
expenses, and in most cases, an additional profit component. Cost-based pricing
has generally resulted in lower gross margins for research revenue than for
product revenue. The Company typically retains rights to the technology
developed under customer-funded research programs and therefore is able to
leverage these programs to continue to broaden its product and technology
offerings. All internally-funded research and development costs are expensed in
the period incurred.
The Company operates and reports financial results on a fiscal year of 52 or 53
weeks ending on the Friday closest to December 31. The first fiscal quarter of
1998 and 1997 ended on April 3, 1998 and March 28, 1997, respectively. For ease
of discussion and presentation, all accompanying financial statements have been
shown as ending on the last day of the calendar month.
RESULTS OF OPERATIONS
REVENUE. Total revenue for the quarter ended March 31, 1998 increased 21% to
$25.4 million compared to $21.0 million in the corresponding 1997 quarter.
Sequentially, total revenue increased 2% over the $24.8 million reported for the
December 1997 fourth quarter. Product revenue reported for the first quarter of
1998 increased 32% compared to product revenue for the first quarter of 1997.
This growth in revenue resulted primarily from continued strong customer demand
and the Company's increased manufacturing capacity for 980 nm pump modules used
in the telecommunications market. Research revenue declined both in dollars and
as a percentage of total revenue compared to the corresponding first quarter of
1997. This downward trend in research revenue has resulted as the Company
continues to focus its longer term strategy on commercial product opportunities.
Revenue derived directly or indirectly from government sources declined to 31%
of total revenue reported for the first three months of 1998, compared to 43%
for the first quarter of 1997. Additionally, revenue received from Lockheed
Martin decreased to 14% of total revenue during the March 1998 quarter compared
to 18% in the prior year quarter.
International revenue as a percentage of total revenue for the three months
ended March 31, 1998 increased to 21% from 15% for the corresponding 1997
quarter. Increased international marketing efforts primarily resulted
9
<PAGE> 10
in this international revenue growth. The Company expects that such marketing
efforts will continue to grow its international revenues as a percentage of
total revenue over the next several years.
There can be no assurance that the application markets for SDL's products will
grow in future periods at historical percentage rates. Further, there can be no
assurance that the Company will be able to increase or maintain its market share
in the future or to sustain historical growth rates.
GROSS MARGIN. First quarter 1998 gross margin was 32.4% compared with 33.3% for
the first quarter of 1997 and 33.6% for the fourth quarter of 1997. Higher
volume 980 nm product revenue during the first quarter of 1998 was offset by: i)
duplication of manufacturing costs for 980 product not yet qualified under the
new manufacturing process, and, ii) an unfavorable mix of lower margin
government production and research contracts when compared to gross margin
reported in the year earlier quarter. Sequentially, an increase of 1.6
percentage points in commercial production gross margin was offset by lower
margin government production contracts.
The Company's gross margin can be affected by a number of factors, including
product mix, pricing pressures, and product yield. Generally, the cost of newer
products tends to be higher as a percentage of product revenue than that of more
mature, higher volume products. In addition, the cost of research revenue is
significantly higher as a percentage of revenue, as research revenue is
typically based on costs incurred rather than market pricing. As a result of
these factors, gross margin fluctuations are difficult to predict and there can
be no assurance that the Company will maintain gross margins at current levels
in future periods.
RESEARCH AND DEVELOPMENT. The Company incurred research and development expense
of $2.5 million and $2.8 million for the quarters ended March 31, 1998 and 1997,
respectively. Research and development expense as a percentage of total revenue
was 10% and 13% for the March 1998 and 1997 quarters, respectively. The higher
levels of 1997 spending were focused on addressing manufacturing process
improvements, primarily production yields, and to a lesser extent, new product
development. Conversely, during 1998 the emphasis of research and development
has been to bring new communication, laser and system products to market.
Quarterly research and development expenditures during the remainder of 1998 are
expected to remain relatively flat with that of the first quarter.
The level of research and development incurred in future periods may vary. In
addition, there can be no assurance that expenditures for manufacturing
improvements or for other advanced research projects will be successful, or that
improved processes or commercial products will result from these projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expense
(SG&A) for the three months ended March 31, 1998 declined to approximately $2.9
million compared to $3.9 million recorded during the March 1997 quarter. SG&A
costs decreased in the first quarter of 1998 as compared with the same quarter
in 1997 because of legal costs incurred in the first quarter of 1997 in defense
of the Spectra-Physics litigation, partially offset by higher costs in 1998 for
continued expansion of the Company's business and personnel, especially within
sales and marketing to support increased revenues. The Company expects quarterly
G&A spending throughout 1998 to remain relatively flat with that of the first
quarter, as sales and marketing efforts increase to support the Company's
current and expected future volume of business. There can be no assurances that
current SG&A levels as a percentage of total revenue are indicative of future
SG&A as a percentage of total revenue.
10
<PAGE> 11
INTEREST INCOME, NET. Net interest income for the three months ended March 31,
1998 was $273,000 compared to $631,000 recorded in the March 1997 quarter. Lower
average cash, cash equivalents and investments in 1998 as a result of the
settlement of the Spectra-Physics litigation in the second quarter of 1997 was
the main reason for the year over year decrease in interest income.
PROVISION FOR INCOME TAXES. The income tax provision for the three months ended
March 31, 1998 of $220,000 consists principally of foreign income taxes and
Federal and state minimum taxes. The Company has benefited from previously
unrecognized federal and state net operating loss carryforwards.
The estimated annualized effective tax rate of 31% for the three month period
ended March 31, 1997 differed from the combined federal and state statutory tax
rate of 40% primarily due to the benefits of state tax credits, tax-exempt
interest income, and a reduction in the valuation allowance.
Although realization is not assured, the Company continues to believe that it
will generate future taxable income sufficient to realize the benefit of the
$3.0 million of net deferred tax assets previously recognized. The amount of the
net deferred tax assets considered realizable could be reduced or increased in
the near term if estimates of future taxable income are changed. Management
intends to evaluate the realizability of the net deferred tax assets each
quarter to assess the need for the valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities generated cash and cash equivalents of $4.8
million during the quarter ended March 31, 1998. The Company acquired capital
equipment and funded facilities expansion for $3.7 million. As a result of these
activities, cash, cash equivalents and investments increased from $26.6 million
at December 31, 1997 to $27.9 million at March 31, 1998.
The Company currently expects to spend approximately $12 million for capital
equipment purchases and leasehold improvements during the remainder of 1998.
The Company believes that current cash balances, cash generated from operations,
and cash available through the equity markets will be sufficient to fund capital
equipment purchases, acquisitions of complementary businesses, products or
technologies and working capital requirements at least through 1998. However,
there can be no assurances that events in the future will not require the
Company to seek additional capital sooner or, if so required, that adequate
capital will be available on terms acceptable to the Company.
IMPACT OF YEAR 2000
The Company is in the process of addressing the conversion to enterprise
resource planning software programs, supporting the Company's manufacturing,
finance, distribution / logistics and human resource operations. The total cost
of this conversion, which will also make all of the Company's computer systems
Year 2000 complaint is estimated at approximately $2.5 million, which includes
$1.5 million for the purchase of new software and hardware that will be
capitalized and $1.0 million that will be expensed as incurred.
11
<PAGE> 12
RISK FACTORS
The statements contained in this Report on Form 10-Q that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs or strategies regarding the future. Forward looking
statements include the Company's long-term strategic focus on commercial product
opportunities, the expected growth in international revenues, the levels of
expenditures on research and development, and selling, general and
administration, the ability to realize the benefit of net deferred tax assets,
as well as the Company's liquidity and anticipated cash needs and availability
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations." All forward looking statements included in this
document are based on information available to the Company on the date hereof,
and SDL assumes no obligation to update any such forward looking statement. It
is important to note that the Company's actual results could differ materially
from those in such forward looking statements. Among the factors that could
cause actual results to differ materially are the factors detailed below. You
should also consult the risk factors listed from time to time in the Company's
Reports on Form 10-Q, 8-K, 10-K and Annual Reports to Stockholders.
MANUFACTURING RISKS. The manufacture of semiconductor OEIC and laser components,
products and systems such as those sold by the Company is highly complex and
precise, requiring production in a highly controlled and clean environment.
Changes in the Company's or its suppliers' manufacturing processes or the
inadvertent use of defective or contaminated materials by the Company or its
suppliers has in the past and could in the future adversely affect the Company's
ability to achieve acceptable manufacturing yields and product reliability. To
the extent the Company does not achieve such yields or product reliability, its
operating results and customer relationships would be adversely affected.
The Company relies almost exclusively on its own production capability in
computer-aided chip and package design, wafer fabrication, wafer processing,
device packaging, hybrid microelectronic packaging, printed circuit board
testing, final assembly and testing of products. Because the Company
manufactures, packages and tests these components, products and systems at its
own facility, and such components, products and systems are not readily
available from other sources, any interruption in manufacturing resulting from
shortages of parts of equipment, fire, natural disaster, equipment failures,
poor yields or otherwise would have a material adverse effect on the Company's
business and results of operations. In particular, a significant portion of the
Company's production relies or occurs on equipment for which the Company does
not have a backup. To alleviate, at least in part, this situation, the Company
recently remodeled its front-end wafer fabrication facility and its packaging
and test facility. The Company incurred additional start-up costs from the
expansion of its wafer fabrication capacity during 1997 and the first quarter of
1998. Front-end production activities were operated in parallel to allow
adequate time for customer acceptance and to validate yields, thereby increasing
production costs. There can be no assurances that The Company will not
experience further start-up costs and yield problems in fully utilizing its
increased wafer capacity. In the event of any disruption in production by one of
these machines, the Company's business and results of operations could be
materially adversely affected. Furthermore, the Company has a limited number of
employees dedicated to the operation and maintenance of its equipment, loss of
whom could affect the Company's ability to effectively operate and service such
equipment.
The Company experienced lower than expected production yields on some of its
products, including certain key product lines during 1997 and the first quarter
of 1998. While the Company has aggressively addressed these problems, solutions
on certain product lines have proven to be more difficult to identify and
implement than anticipated. This reduction in yields adversely affected gross
margins, delayed component, product and system shipments and, to a certain
extent, new orders booked. There can be no assurance that the Company's
manufacturing yields will be acceptable to ship products on time in the future.
To the extent the Company
12
<PAGE> 13
continues to experience lower than expected manufacturing yields or experiences
any shipment delays, the Company could continue to lose customers and experience
reduced or delayed customer orders and cancellation of existing backlog. In such
event, the Company's business and results of operations would be materially
adversely affected.
DEPENDENCE ON EMERGING APPLICATIONS AND NEW PRODUCTS. The Company's current
products serve many applications in the communications, materials processing,
information and light source replacement markets. In many cases, the Company's
products are substantially completed, but the customer's product is not yet
completed, and the applications are emerging or are otherwise in new markets. In
addition, the Company and certain of its customers are currently in the process
of developing new products, in various stages of development, testing and
qualification, sometimes in emerging applications or new markets. The Company
believes that rapid customer acceptance of its new products are key to the
Company's financial results. A substantial portion of the Company's products
address markets that are not now, and may never become substantial commercial
markets. The Company has experienced, and is expected to experience,
competitive, technological and pricing constraints that may preclude development
of markets and fluctuation in customer orders. Currently, several of the
Company's customers are testing pump modules, amplifiers and marking systems
among other new products for potential volume applications. No assurances can be
given that the Company or its customers will qualify these new products, will
continue their existing product development efforts, or if continued that such
efforts will be successful, that markets will develop for any of the Company's
technology or pricing will enable such markets to develop, or that the Company's
and its customer's products will not be superseded by other technology or
products. The Company may also be unable to develop new products on a timely
schedule or be able to manufacture such new products at an acceptable cost so as
to maintain profitability.
COMPETITION. The Company's various markets are highly competitive. The Company
faces current or potential competition from four primary sources: (i) direct
competitors, (ii) potential entrants, (iii) suppliers of potential new
technologies and (iv) suppliers of existing alternative technologies. The
Company offers a range of components, products and systems and has numerous
competitors worldwide in various segments of its markets. As the markets for the
Company's products grow, new competitors have recently emerged and are likely to
continue to do so in the future. The Company also sells products and services to
companies with which it presently competes or in the future may compete. In most
of the Company's product lines, both the Company and competitors are working to
develop new technologies, or improvements and modifications to existing
technologies, which will obsolete present products. Many of the Company's
competitors have significantly greater financial, technical, manufacturing,
marketing, sales and other resources than SDL. In addition, many of these
competitors may be able to respond more quickly to new or emerging technologies,
evolving industry trends and changes in customer requirements and to devote
greater resources to the development, promotion and sale of their products than
the Company. There can be no assurance that the Company's current or potential
competitors have not already or will not in the future develop or acquire
products or technologies comparable or superior to those developed by the
Company, combine or merge to form significant competitors, or adapt more quickly
than the Company to new technologies, evolving industry trends and changing
customer requirements. Increased competition has resulted and could, in the
future, result in price reductions, reduced margins or loss of market share, any
of which could materially and adversely affect the Company's business and
results of operations. There can be no assurance that the Company will be able
to compete successfully against current and future competitors or that
competitive pressures faced by the Company would not have a material adverse
effect on its business and results of operations. The Company expects that both
direct and indirect competition will increase in the future. Additional
competition could have a material adverse effect on the Company's results of
operations through price reductions and loss of market share.
13
<PAGE> 14
DEPENDENCE UPON GOVERNMENT PROGRAMS AND CONTRACTS. In the first quarter of 1998
and fiscal 1997 and 1996, the Company derived approximately 31 %, 43% and 43 %,
respectively, of its revenue directly and indirectly from a variety of Federal
government sources. The Company received approximately 14%, 18% and 21% of its
revenue for the first quarter of 1998, and fiscal 1997 and 1996, respectively,
from Lockheed Martin through several government and commercial programs. Almost
all of the Company's revenue from Lockheed Martin during these periods was, and
during the remainder of 1998 is expected to be, derived from Federally-funded
programs. The demand for certain of the Company's services and products is
directly related to the level of funding of government programs. The Company
believes that the success and further development of its business is dependent,
in significant part, upon the continued existence and funding of such programs
and upon the Company's ability to participate in such programs. For example,
substantially all of the Company's research revenue for 1998, 1997 and 1996 was
funded by Federal programs. Most of the Company's Federally-funded programs are
subject to renewal every one or two years, so that continued work by the Company
under these programs in future periods is not assured. Federally-funded programs
are subject to termination for convenience of the government agency, at which
point the Company would be reimbursed for related allowable costs incurred to
the termination date. Federally-funded contracts are subject to audit of pricing
and actual costs incurred, which have resulted, and could result in the future,
in price adjustments. The Federal government has in the past, and could in the
future, challenge the Company's accounting methodology for computing indirect
rates and allocating indirect costs to government contracts. The government is
currently challenging certain indirect cost allocations. While management
believes that amounts recorded on its financial statements are adequate to cover
all related risks, the government has not concluded its investigation or agreed
to a settlement with the Company. Although the outcome of this matter cannot be
determined at this time, management does not believe that its outcome will have
a material adverse effect on the Company's financial position, results of
operations and cash flows. However, based on future developments, the Company's
estimate of the outcome of these matters could change in the near term. In
addition, a change in the Company's accounting practices in this area could
result in reduced profit margins on government contracts. During the fourth
quarter of 1996, the Company exceeded the maximum number of employees allowed
under eligibility requirements for the U.S. government's Small Business
Innovative Research (SBIR) programs and is no longer able to compete for
research contract awards within SBIR programs. Previously awarded SBIR contracts
will not terminate but, depending on the contract, can continue through contract
completion, which can be up to two years from the initial contract award date.
SBIR contracts accounted for approximately 4%, 5% and 6 % of revenue in the
first quarter of 1998, and fiscal years 1997 and 1996, respectively.
NEED TO MANAGE GROWTH. The Company has on occasion been unable to manufacture
certain products in quantities sufficient to meet demand of its existing
customer base and new customers. The recent expansion in the scope of its
operations has placed a considerable strain on its management, financial,
manufacturing and other resources and has required the Company to implement and
improve a variety of operating, financial and other systems, procedures and
controls. There can be no assurance that any existing or new systems, procedures
or controls will be adequate to support the Company's operations or that its
systems, procedures and controls will be designed, implemented or improved in a
cost-effective and timely manner. Any failure to implement, improve and expand
such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business and results of operations.
The future success of the Company is dependent, in part, on its ability to
attract, assimilate and retain additional employees, including certain key
personnel. The Company will continue to need a substantial number of additional
personnel, including those with specialized skills, to commercialize its
products and expand all areas of its business in order to continue to grow.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to attract, assimilate or retain additional highly
qualified personnel.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not
applicable
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. OTHER INFORMATION. Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
Number Exhibit Description
3.1 Certificate of Incorporation of Registrant as Amended
27.1 Financial Data Schedule (March 31, 1998)
27.2 Financial Data Schedule (March 31, 1997)
27.3 Financial Data Schedule (June 30, 1997)
27.4 Financial Data Schedule (September 30, 1997)
27.5 Financial Data Schedule (March 31, 1996)
27.6 Financial Data Schedule (June 30, 1996)
27.7 Financial Data Schedule (September 30, 1996)
27.8 Financial Data Schedule (December 31, 1996)
27.9 Financial Data Schedule (December 31, 1995)
(b) Reports on Form 8-K
None
15
<PAGE> 16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SDL, INC.
Registrant
May 18, 1998 /S/ Vincent A. McCord
---------------------------------------
Vincent A. McCord
Vice President, Finance
Chief Financial Officer
(duly authorized officer, and principal
financial and accounting officer)
16
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SDL, INC.,
A DELAWARE CORPORATION
------------------------------
SDL, Inc., a corporation organized and existing under the laws of
the State of Delaware, does hereby certify that:
FIRST: The name of the corporation is SDL, Inc., and the date of
filing of its original Certificate of Incorporation with the Secretary of State
was November 16, 1992.
SECOND: This Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law by (i) the Board of Directors of the Corporation (the
"Board") in accordance with the Delaware General Corporation Law, and (ii) the
stockholders of the Corporation by written consent of such stockholders given in
accordance with Section 228 of the Delaware General Corporation Law.
THIRD: The text of the Restated Certificate of Incorporation is
hereby amended and further restated to read in full as follows:
"I. The name of the Corporation is SDL, Inc.
II. The address of its registered office in the State of Delaware is
32 Loockerman Square, Suite L-100, in the City of Dover, 19901, County of Kent.
The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
III. The nature of the business of the Corporation and the objects
or purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
IV. A. Classes of Stock. The total number of shares of all classes
of stock that the Corporation is authorized to issue is Twenty-Two Million
(22,000,000) shares, consisting of Twenty-One Million (21,000,000) shares of
Common Stock, with a par value of $.001 per share, and One Million (1,000,000)
shares of Preferred Stock, with a par value of $.001 per share, of which Two
Hundred Seventy-One Thousand Six Hundred Twenty-Eight (271,628) shares are
denominated as Series A Preferred Stock. The Preferred Stock may be issued in
one or more series, and the Board of Directors of the Corporation is expressly
authorized (i) to fix the designations, powers, preferences, rights,
qualifications, limitations, and restrictions with respect to any series of
Preferred Stock and (ii) to specify the number of shares of any series of
Preferred Stock.
Upon amendment of the Restated Certificate of Incorporation of
the Corporation as set forth herein, each share of Common Stock of the
Corporation outstanding prior to such amendment shall be split and subdivided
into three and four-tenths (3.4) shares of Common Stock of the Corporation.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in one or more series. The
1
<PAGE> 2
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock, which series shall consist of 298,970 shares, are set
forth below in this Section IV(B). The Board of Directors is hereby authorized
to fix or alter the rights, preferences, privileges, and restrictions granted to
or imposed upon any additional series of Preferred Stock (including the dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences and sinking fund terms thereof), and the number of shares
constituting any such series and the designation thereof. Subject to compliance
with applicable protective voting rights which have been or may be granted to
the Preferred Stock or series thereof in Certificates of Designations or the
Corporation's Certificate of Incorporation ("Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any series thereof,
the rights, privileges, preferences, and restrictions of or on any such
additional series may be subordinated to, pari passu with (including, without
limitation, inclusion of provisions with respect to liquidation and acquisition
preferences, redemption, and/or approval of matters by vote or written consent)
or senior to any of those of any present or future class or series of Preferred
Stock or Common Stock. Subject to the compliance with applicable Protective
Provisions, the Board of Directors is also authorized to increase or decrease
the number of shares of any series prior or subsequent to the issuance of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions. Subject to the rights of series of
Preferred Stock which may from time to time come into existence, the holders of
shares of Series A Preferred Stock shall be entitled to receive dividends, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $2.00 per
share per annum or, if greater (as determined on a per annum basis and an
as-converted basis for the Series A Preferred Stock), an amount equal to that
paid on any other outstanding shares of this Corporation, payable quarterly
when, as, and if declared by the Board of Directors. Such dividends shall not be
cumulative.
2. Liquidation Preference.
a. In the event of any liquidation, dissolution, or winding
up of this Corporation, either voluntary or involuntary, subject to the rights
of series of Preferred Stock which may from time to time come into existence,
the holders of Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets of this Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (i) $32.35 for each outstanding share of Series A
Preferred Stock (the "Original Series A Issue Price") and (ii) an amount equal
to declared but unpaid dividends on such share (such amount equal to declared
but unpaid dividends being referred to herein as the "Premium"). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then,
subject to the rights of series of Preferred Stock which may from time to time
come into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock in proportion to the amount of such stock owned by each
such holder.
b. Upon the completion of the distribution required by
subparagraph (a) of this Section 2 and any other distribution which may be
required with respect to series of Preferred Stock which may from time to time
come into existence, if assets remain in this Corporation, the holders of the
Common Stock of this Corporation, shall receive an amount equal to $1.75 per
share (appropriately adjusted for any stock splits, stock dividends or other
recapitalizations). If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Common Stock shall be insufficient to
permit the payment to such holders
2
<PAGE> 3
of the full aforesaid amount, then the entire remaining assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Common Stock in proportion to the amount of such stock
owned by each such holder.
c. After the distribution described in subsections (a) and
(b) above have been paid, subject to the rights of series of Preferred Stock
which may from time to time come into existence the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
among the holders of Series A Preferred Stock and Common Stock pro rata based on
the number of shares of Common Stock held by each (assuming full conversion of
all such Series A Preferred Stock).
d. A consolidation or merger of this Corporation with or
into any other corporation or corporations, or a sale, conveyance or disposition
of all or substantially all of the assets of this Corporation or the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, shall not be deemed to be a liquidation, dissolution, or winding up
with the meaning of this Section 2, but shall instead be treated pursuant to
Section 5 hereof.
3. Redemption.
a. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, on or at any time after July 17,
1997, within thirty (30) days after the receipt by this Corporation of a written
request from any holder of Series A Preferred Stock that all or some of such
holder's shares be redeemed, and concurrently with surrender by such holder of
the certificate representing such shares, this Corporation shall, to the extent
it may lawfully do so, redeem the shares specified in such request by paying in
cash therefor a sum per share equal to the Original Series A Issue Price and the
Premium (such total amount is hereinafter referred to as the "Series A
Redemption Price"); provided, however that the Corporation may elect to redeem
(subject to the provisions of 3(b) hereof) the shares of series A Preferred
Stock in three equal installments on an annual basis beginning thirty (30) days
after the date of the written request for redemption by paying in cash therefor
a sum per share equal to the Series A Redemption Price, which shall include
simple interest thereon from the date thirty (30) days after the date of the
written request for redemption at the rate of ten percent (10%) per annum; and
provided further that this Corporation may, at any time and from time to time,
prepay any amounts owing pursuant to this Section 3(a).
b. As used herein, the term "Redemption Date" shall refer to
each date of redemption of the Series A Preferred Stock, whether immediate or
deferred. At least fifteen (15) days prior to each Redemption Date written
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Series A Preferred Stock to be redeemed, at the address
last shown on the records of the Corporation for such holder, notifying such
holder of the redemption to be effected, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Redemption Price, the place
at which payment may be obtained and calling upon each holder to surrender to
the Corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to be redeemed (the "Redemption Notice").
Except as provided in Section 3(c), on or after the Redemption Date, each holder
of Series A Preferred Stock to be redeemed shall surrender to this Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
3
<PAGE> 4
c. From and after the applicable Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series A Preferred Stock designated for redemption
in the Redemption Notice as holders of Series A Preferred Stock (except the
right to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such redeemed shares,
and such redeemed shares shall not thereafter be transferred on the books of
this Corporation or be deemed to be outstanding for any purpose whatsoever.
Subject to the rights of series of Preferred Stock which may from time to time
come into existence, if the funds of the Corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon their holdings of Series A Preferred
Stock. The shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
Subject to the rights of series of Preferred Stock which may from time to time
come into existence, at any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.
d. Subject to the rights of series of Preferred Stock which
may from time to time come into existence, three days prior to each Redemption
Date, this Corporation shall deposit the Redemption Price of all outstanding
shares of Series A Preferred Stock designated for redemption in the Redemption
Notice, and not yet redeemed or converted, with a bank or trust company having
aggregate capital and surplus in excess of $100,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for redemption and
not yet redeemed. Simultaneously, this Corporation shall deposit irrevocable
instruction and authority to such bank or trust company to publish the notice of
redemption thereof (or to complete such publication if theretofore commenced)
and to pay, on and after the date fixed for redemption or prior thereto, the
Redemption Price of the Series A Preferred Stock to the holders thereof upon
surrender of their certificates. Any monies deposited by this Corporation
pursuant to this subsection 3(d) for the redemption of shares which are
thereafter converted into shares of Common Stock pursuant to Section 4 hereof no
later than the close of business on the Redemption Date shall be returned to
this Corporation forthwith upon such conversion. The balance of any monies
deposited by this Corporation pursuant to this subsection 3(d) remaining
unclaimed at the expiration of two years following the Redemption Date shall
thereafter be returned to this Corporation, provided that the shareholder to
which such monies would be payable hereunder shall be entitled, upon proof of
its ownership of the Series A Preferred Stock and payment of any bond requested
by the Corporation, to receive such monies but without interest from the
Redemption Date.
4. Conversion. The holders of Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
a. Right to Convert.
(i) Subject to subsection 4(c) hereof, each share of
Series A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time between the date of issuance of such share and the close of
business on any Redemption Date as may have been fixed in any Redemption Notice
with respect to such share, at the office of this Corporation or any transfer
agent for the Series A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price by the Conversion Price at the time in effect for such
share. The initial Conversion Price per share for shares of Series A Preferred
Stock shall be the Original Series A Issue Price; provided, however, that the
Conversion Price for the Series A Preferred Stock shall be subject to adjustment
as set forth in subsection 4(c).
4
<PAGE> 5
(ii) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series A Preferred Stock immediately upon the
earlier of (A) the closing of the Corporation's sale of its Common Stock in a
bona fide, firm commitment underwriting pursuant to a registration statement on
Form S-1 under the Securities Act of 1933, as amended, the public offering price
of which was not less than $40.00 per share (adjusted to reflect subsequent
stock dividends, stock splits or recapitalization) and $10,000,000 in the
aggregate or (B) the date upon which the Corporation obtains the consent of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the then
outstanding shares of Series A Preferred Stock.
b. Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, to this Corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, the conversion may, at the option of any
holder tendering Series A Preferred Stock for conversion, be conditioned upon
the closing of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock issuable upon such conversion
of the Series A Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock until immediately prior to the closing of such sale of
securities.
c. Conversion Price Adjustments of Series A Preferred
Stock. The Conversion Price of the Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) A. Upon each issuance by the Corporation of any
Additional Stock (as defined below), after the date upon which any shares of the
Series A Preferred Stock were first issued (the "Purchase Date" with respect to
such series), without consideration or for a consideration per share less than
the Conversion Price for such Series A Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for such
series in effect immediately prior to each such issuance shall forthwith (except
as otherwise provided in this clause (i)) be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance, plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of such Additional Stock. For purposes of the calculation
called for by this clause (i), shares of Common Stock issuable upon exercise or
conversion of then-outstanding securities exercisable or exchangeable for or
convertible into, directly or indirectly, Common Stock shall be deemed to be
outstanding.
B. No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less than five cents ($0.05)
per share, provided that any adjustments which are not required to be made by
reason of this sentence shall be
5
<PAGE> 6
carried forward and shall be either taken into account in any subsequent
adjustment made prior to 3 years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of 3 years from
the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4)
hereof, no adjustment of such Conversion Price pursuant to this subsection
4(c)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
C. In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
D. In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors irrespective of any accounting treatment.
E. In the case of the issuance (whether before,
on, or after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this subsection 4(c)(i) and subsection 4(c)(ii):
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (to the extent then
exercisable) of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subsections
4(c)(i)(C) and (c)(i)(D) hereof), if any, received by the
Corporation upon the issuance of such options or rights plus the
exercise price provided in such options or rights (without taking
into account potential antidilution adjustments) for the Common
Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (to the
extent then convertible or exchangeable) for any such convertible or
exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued
or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any
such securities and related options or rights, plus the additional
consideration, if any, to be received by the Corporation (without
taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(c)(i)(C) and
(c)(i)(D) hereof).
3. In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable
to this Corporation upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or exchangeable
securities, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or
computed using such options, rights, or securities, shall be
recomputed to reflect such change.
6
<PAGE> 7
4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the Series A
Preferred Stock, to the extent in any way affected by or computed
using such options, rights, or securities or options or rights
related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect)
actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
5. No further adjustment shall be made for the
actual issuance of Common Stock upon exercise of such options or
rights, conversion or exchange of such securities, or exercise of
options or rights for such securities.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
4(c)(i)(E)) by this Corporation after the Purchase Date other than:
A. Common Stock issued pursuant to a transaction
described in subsection 4(c)(iii) hereof,
B. shares of Common Stock issuable or issued to
employees, officers, consultants, or directors of this Corporation
directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of this Corporation at any time
when the total number of shares of Common Stock so issuable or
issued (and not repurchased at their original cost from the holder
thereof by the Corporation in connection with the termination of
such holder's employment or service relationship with this
Corporation) does not exceed 893,750, and
C. 556,418 shares of Common Stock issued pursuant
to the Stock Purchase Agreement dated July 17, 1992.
D. Shares of Common Stock issued upon conversion of
the Series A Preferred Stock.
(iii) In the event the Corporation should at any time
or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split, or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then,
7
<PAGE> 8
following the record date of such combination, the Conversion Price for the
Series A preferred Stock shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in outstanding shares.
d. Other Distributions. In the event this Corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by this Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 4(c)(iii)
hereof, then, in each such case for the purpose of this subsection 4(b) hereof,
the holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Corporation into which their shares of Series A
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
e. Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination, or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 5) provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise, to which a holder
of the number of shares of Common Stock deliverable upon conversion of such
Series A Preferred Stock would have been entitled on such recapitalization. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
f. No Impairment. This Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue,
or sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in taking of all such
action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series A Preferred Stock against impairment.
g. No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued upon
conversion of the Series A Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A Preferred Stock the holder is at
the time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Preferred Stock pursuant to
this Section 4, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (A) such
adjustment and readjustment, (B) the Conversion Price at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A Preferred Stock.
8
<PAGE> 9
h. Notices of Record Date. In the event of any taking by
this Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase, or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution, or right, and the amount and character of such dividend,
distribution, or right.
i. Reservation of Stock Issuable Upon Conversion. This
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock; and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, this Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
j. Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
this Corporation.
5. Merger, Consolidation.
a. At any time, in the event of:
(i) any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) which will result in the Corporation's shareholders immediately
prior to such transaction not holding (by virtue of such shares or securities
issued solely with respect thereto) at least 50% of the voting power of the
surviving or continuing entity (for purposes of this calculation, shares of
Common Stock issuable upon exercise or conversion of then-outstanding securities
exercisable or exchangeable for or convertible into, directly or indirectly,
Common Stock shall be deemed to be outstanding), or
(ii) a sale of all or substantially all of the
assets of the Corporation, unless the Corporation's shareholders immediately
prior to such sale will, as a result of such sale, hold (by virtue of securities
issued as consideration for the Corporation's sale) at least 50% of the voting
power of the purchasing entity (for purposes of this calculation, shares of
Common Stock issuable upon exercise or conversion of then-outstanding securities
exercisable or exchangeable for or convertible into, directly or indirectly,
Common Stock shall be deemed to be outstanding);
then, subject to the rights of series of Preferred Stock which may from time to
time come into existence, holders of the Series A Preferred Stock shall receive
for each share of such stock in cash or in securities received from the
acquiring corporation, or in a combination thereof, at the closing of any such
transaction, an amount equal to the Original Series A Issue Price, plus an
amount equal to the Premium as of the date of closing of such transaction, and,
subject to the rights of series of Preferred Stock which may from time to time
9
<PAGE> 10
come into existence, the remaining proceeds of such transaction shall be
distributed pro rata among the holders of the Common Stock. In the event the
proceeds of the transaction are not sufficient to make full payment of the
aforesaid preferential amounts to the holders of the Series A Preferred Stock in
accordance herewith, then, subject to the rights of series of Preferred Stock
which may from time to time come into existence, the entire amount payable in
respect of the proposed transaction shall be distributed among the holders of
Series A Preferred Stock in proportion to the amount of such stock owned by each
such holder. Notwithstanding the foregoing, if holders of the Series A Preferred
Stock would receive, for each share of such stock, an amount greater than that
provided above in this Section 5(a) by converting such stock into shares of
Common Stock in accordance with Section 4(a)(i), then, for purposes of this
Section 5(a), all shares of Series A Preferred Stock shall be deemed to have
been so converted into shares of Common Stock immediately prior to the closing
of the transaction.
b. In any of such events, if the consideration received by
this Corporation is other than cash or indebtedness, its value will be deemed to
be its fair market value. In the case of publicly-traded securities, fair market
value shall mean the closing market price for such securities on the date such
consolidation, merger, or sale is consummated. If the consideration is in a form
other than publicly-traded securities, its fair market value shall be determined
in good faith by the Board of Directors of this Corporation.
c. In the event the requirements of subsection 5(a) are not
complied with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such
time as the requirements of this Section 5 have been complied with, or
(ii) cancel such transaction, in which event the
rights, preferences and privileges of the holders of Series A Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 5(d) hereof.
d. The Corporation shall give each holder of record of Series
A Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 5, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Series A
Preferred Stock which is entitled to such notice rights or similar notice rights
and which represents at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all then outstanding shares of such Series A Preferred Stock.
6. Voting Rights. The holder of each share of Series A
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share), and with respect to such vote, such holder shall have
full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any shareholders' meeting in accordance with the by-laws of
this Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote.
10
<PAGE> 11
7. Status of Converted or Redeemed Stock. In the event any shares
of Series A Preferred Stock shall be redeemed or converted pursuant to Section 3
or Section 4 hereof, the shares so converted or redeemed shall be cancelled and
shall not be issuable by the Corporation and shall resume the status of
authorized but unissued and non-denominated Preferred Stock. The Certificate of
Incorporation of this Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchase by this
Corporation of its Common Stock pursuant to its agreement with certain of the
holders thereof, Sections 502 and 503 of the California Corporations Code shall
not apply in whole or in part with respect to such repurchases.
V. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
VI. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
VII. To the fullest extent permitted by Delaware statutory or
decisional law, as amended or interpreted, no director of this Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. This Section VII does not affect the
availability of equitable remedies for breach of fiduciary duties. Any repeal or
modification of the provisions of this Section VII by the stockholders of the
Corporation shall not adversely affect any right or protection of any director
existing at the time of such repeal or modification.
VIII. In all elections of directors each shareholder shall be
entitled to as many votes as shall equal the number of shares held by him
multiplied by the number of directors to be elected, and he may cast all of such
votes for a single director or may distribute them among the number to be voted
for, or any two or more of them, as he may see fit, which right, when exercised,
shall be termed "cumulative voting."
IX. For so long as the board of directors consists of greater than
two directors, the directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third (1/3) of the total number of directors constituting the
entire Board of Directors. The initial classes shall be elected as follows:
Class I directors shall be elected for a one-year term, Class II directors for a
two-year term and Class III directors for a three-
11
<PAGE> 12
year term. At each succeeding annual meeting of stockholders, successors to the
class of directors whose term expires at the annual meeting shall be elected for
three-year terms. If the number of directors is changed, any increase or
decrease shall be elected for three-year terms. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director shall
hold office until the annual meeting for the year in which his or her term
expires and until his or her successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Except as otherwise required by law, any vacancy on the
Board of Directors that results from an increase in the number of directors and
any other vacancy occurring in the Board of Directors shall be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his or her predecessor.
X. In addition to any other considerations which the Board of
Directors may lawfully take into account, in determining whether to take or to
refrain from taking corporate action on any matter, including proposing any
matter to the stockholders of the Corporation, the Board of Directors may take
into account the long-term as well as the short-term interests of the
Corporation and its stockholders (including the possibility that these interests
may be best served by the continued independence of the Corporation), customers,
employees and other constituencies of the Corporation and its subsidiaries,
including the effect upon communities in which the Corporation and its
subsidiaries do business. In so evaluating any such determination, the Board of
Directors shall be deemed to be performing their duties and acting in good faith
and in the best interests of the Corporation within the meaning of Section 145
of the Delaware General Corporation Law, or any successor provision.
XI. A. At any meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before such meeting. To be
properly brought before an annual meeting, business to be brought before such
meeting must be (1) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (2) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (3) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
received not less than sixty days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
days or delayed by more than sixty days from such anniversary, notice by the
stockholder to be timely must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (1) the sixtieth day prior to such annual meeting or (2) the tenth day
following the date on which notice of the date of the annual meeting was mailed
or public disclosure thereof was made, whichever first occurs. For purposes of
calculating the first such notice period following adoption of this Certificate
of Incorporation, the first anniversary of the 1994 annual meeting shall be
deemed to be May 22, 1995. Each such notice shall set forth as to each matter
the stockholder proposed to bring before the annual meeting: (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class, series and number of shares of the Corporation
which are beneficially owned by the stockholder and (d) any material interest of
the stockholder in such business. To be properly brought before a special
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors or
(ii) otherwise properly brought before the meeting by or at the direction of the
Board of Directors.
B. No business shall be conducted at any meeting of the
stockholders except in accordance with the procedures set forth in this Article
XI. The presiding officer of the meeting shall, if the
12
<PAGE> 13
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Article XI, and if he or she should so determine, any such business not properly
brought before the meeting shall not be transacted. Nothing herein shall be
deemed to affect any rights of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended, or any successor provision.
XII. A. Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, dissolution or winding-up, nominations for the election of
directors may be made by the Board of Directors or a committee or person
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors generally. However, any stockholder entitled to vote
in the election of directors generally may nominate one or more persons for
election as directors at an annual meeting only pursuant to the Corporation's
notice of such meeting or if written notice of such stockholder's intent to make
such nomination or nominations has been received by the Secretary of the
Corporation not less than sixty nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting, then pursuant to such notice
by the stockholder; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty days or delayed by more than
sixty days from such anniversary, notice by the stockholder to be timely must be
so received not earlier than the ninetieth day prior to such annual meeting and
not later than the closing of business on the later of (1) the sixtieth day
prior to such annual meeting or (2) the tenth day following the day on which
notice of the date of the annual meeting was mailed or public disclosure thereof
was made by the Corporation, whichever first occurs. For purposes of calculating
the first such notice period following adoption of this Certificate of
Incorporation, the first anniversary of the 1994 annual meeting shall be deemed
to be May 22, 1995. Each such notice shall set forth: (a) the name and address
of the stockholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) relating to the nomination or
nominations; (d) the class and number of shares of the Corporation which are
beneficially owned by such stockholder's notice and by any other stockholders
known by such stockholder to be supporting such nominees as of the date of such
stockholder's notice; (e) such other information regarding each nominee proposed
by such stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission; and
(f) the consent of each nominee to serve as a director of the Corporation if so
elected.
B. In addition, in the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors, any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at a special meeting only pursuant
to the Corporation's notice of meeting or if written notice of such
stockholder's intent to make such nomination or nominations, setting forth the
information and complying with the form described in the immediately preceding
paragraph, has been received by the Secretary of the Corporation not earlier
than the ninetieth day prior to such special meeting and not later than the
close of business on the later of (i) the sixtieth day prior to such special
meeting or (ii) the tenth day following the day on which notice of the date of
the special meeting was mailed or public disclosure thereof was made by the
Corporation, whichever first occurs.
C. No person shall be eligible for election as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Article XII. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article XII, and if he or she
should so determine, the defective nomination shall be disregarded.
13
<PAGE> 14
D. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide."
IN WITNESS WHEREOF, SDL, Inc. has caused this Certificate to be
signed and attested by its duly authorized officers this 14th day of March,
1995.
SDL, INC.,
a Delaware corporation
By: /s/ Donald R. Scifres
-------------------------------------
Donald R. Scifres
President
Attest:
By: /s/ John P. Melton
-------------------------
John P. Melton
Secretary
14
<PAGE> 15
CERTIFICATE OF CORRECTION
OF
RESTATED CERTIFICATE OF INCORPORATION
OF SDL, INC.
SDL, Inc., a Delaware corporation (the "Corporation"), pursuant to
Section 103(f) of the General Corporation Law of the State of Delaware, hereby
certifies that:
the Restated Certificate of Incorporation of the Corporation (the "Restated
Certificate of Incorporation") that was filed with the Secretary of State of
Delaware on March 17, 1995 was an inaccurate record of the corporate action
therein referred to; the Restated Certificate of Incorporation was inaccurate in
that paragraph E of Article XII thereof, relating to the power of the Board of
Directors to make, alter or repeal the bylaws of the Corporation, was
inadvertently omitted in its entirety; and Paragraph E of Article XII of the
Restated Certificate of Incorporation in its correct form as approved by the
Board of Directors and by the stockholders of the Corporation, is as follows:
"E. The board of directors is expressly authorized to
make, alter, or repeal the bylaws of the Corporation."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Correction to be signed by its duly authorized officer this 8th day of December,
1997.
By: /s/ Donald R. Scifres
------------------------------
Donald R. Scifres
President
15
<PAGE> 16
SDL, INC.
CERTIFICATE OF DESIGNATION
OF THE
SERIES B PREFERRED STOCK
-------------------------------------
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
-------------------------------------
The undersigned officers of SDL, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by its Restated Certificate of Incorporation (the
"Certificate"), the said Board of Directors, at a duly called meeting held on
November 5, 1997, at which a quorum was present and acted throughout, adopted
the following resolution, which resolution remains in full force and effect on
the date hereof creating a series of 300,000 shares of Preferred Stock having a
par value of $.001 per share, designated as Series B Preferred Stock (the
"Series B Preferred Stock") out of the class of 1,000,000 shares of preferred
stock of the par value of $.001 per share (the "Preferred Stock"):
RESOLVED, that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of its Certificate, the Board of
Directors does hereby create, authorize and provide for 300,000 shares of its
authorized Preferred Stock to be designated and issued as the Series B Preferred
Stock, having the voting powers, designation, relative, participating, optional
and other special rights, preferences and qualifications, limitations and
restrictions that are set forth as follows:
1. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other series of Preferred
Stock or any other shares of stock of the Corporation ranking prior and superior
to the shares of Series B Preferred Stock with respect to dividends, each holder
of one one-hundredth (1/100) of a share (a "Unit") of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for that purpose, (i) quarterly dividends payable
in cash on the last day of February, May, August and November in each year (each
such date being a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of such Unit of Series
B Preferred Stock, in an amount per Unit (rounded to the nearest cent) equal to
the greater of (a) $.01 or (b) subject to the provision for adjustment
hereinafter set forth, the aggregate per share amount of all cash dividends
declared on shares of the Common Stock since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of a Unit of Series B Preferred Stock, and (ii)
subject to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Dividend Payment Date in an
amount per Unit equal to the
16
<PAGE> 17
aggregate per share amount of all non-cash dividends or other distributions
(other than a dividend payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock, by reclassification or otherwise) declared
on shares of Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or with respect to the first Quarterly Dividend Payment Date,
since the first issuance of a Unit of Series B Preferred Stock. In the event
that the Corporation shall at any time after November 6, 1997 (the "Rights
Declaration Date") (i) declare any dividend on outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide outstanding shares of
Common Stock or (iii) combine outstanding shares of Common Stock into a smaller
number of shares, then in each such case the amount to which the holder of a
Unit of Series B Preferred Stock was entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which shall be the number of shares of
Common Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
Units of Series B Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the shares of Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that, in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per Unit
on the Series B Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on each
outstanding Unit of Series B Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issuance of such Unit of Series B Preferred
Stock, unless the date of issuance of such Unit is prior to the record date for
the first Quarterly Dividend Payment Date, in which case, dividends on such Unit
shall begin to accrue from the date of issuance of such Unit, or unless the date
of issuance is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of Units of Series B Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on Units of Series B Preferred
Stock in an amount less than the aggregate amount of all such dividends at the
time accrued and payable on such Units shall be allocated pro rata on a
unit-by-unit basis among all Units of Series B Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of Units of Series B Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
2. Voting Rights. The holders of Units of Series B Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series B Preferred Stock shall entitle the holder thereof to one
vote on all matters submitted to a vote of
17
<PAGE> 18
the stockholders of the Corporation. In the event the Corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on outstanding
shares of Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each such case the number
of votes per Unit to which holders of Units of Series B Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event; and
(B) Except as otherwise provided herein, in the Certificate or the
Bylaws of the Corporation or as required by law, the holders of Units of Series
B Preferred Stock and the holders of shares of Common Stock shall vote together
as one class on all matters submitted to a vote of stockholders of the
Corporation, and such holders shall have no special voting rights and their
consents shall not be required for taking any corporate action.
3. Certain Restrictions. (A) Whenever quarterly dividends or other
dividends or distributions payable on Units of Series B Preferred Stock as
provided herein are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on outstanding Units of
Series B Preferred Stock shall have been paid in full, the Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or redeem or
purchase or otherwise acquire for consideration any shares of junior stock; (ii)
declare or pay dividends on or make any other distributions on any shares of
parity stock, except dividends paid ratably on Units of Series B Preferred Stock
and shares of all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of such Units and all
such shares are then entitled; (iii) redeem or purchase or otherwise acquire for
consideration shares of any parity stock, provided, however, that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any junior stock; (iv) purchase or
otherwise acquire for consideration any Units of Series B Preferred Stock,
except in accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 3, purchase or otherwise acquire such shares at such time and in
such manner.
4. Reacquired Shares. Any Units of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
Units shall, upon their cancellation, become authorized but unissued shares (or
fractions of shares) of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth herein.
5. Liquidation, Dissolution or Winding Up. (A) Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (i) to the
18
<PAGE> 19
holders of shares of junior stock unless the holders of Units of Series B
Preferred Stock shall have received, subject to adjustment as hereinafter
provided in paragraph (B), the greater of either (a) $.01 per Unit plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not earned or declared, to the date of such payment, or (b) the amount equal
to the aggregate per share amount to be distributed to holders of shares of
Common Stock, or (ii) to the holders of shares of parity stock, unless
simultaneously therewith distributions are made ratably on Units of Series B
Preferred Stock and all other shares of such parity stock in proportion to the
total amounts to which the holders of Units of Series B Preferred Stock are
entitled under clause (i)(a) of this sentence and to which the holders of shares
of such parity stock are entitled, in each case upon such liquidation,
dissolution or winding up.
(B) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on outstanding shares of Common Stock
payable in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding shares of Common Stock into a smaller number
of shares, then in each such case the aggregate amount to which holders of Units
of Series B Preferred Stock were entitled immediately prior to such event
pursuant to clause (i)(b) of paragraph (A) of this Section 5 shall be adjusted
by multiplying such amount by a fraction the numerator of which shall be the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
that were outstanding immediately prior to such event.
6. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or converted into other stock or
securities, cash and/or any other property, then in any such case Units of
Series B Preferred Stock shall at the same time be similarly exchanged for or
converted into an amount per Unit (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is converted or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide outstanding shares of Common Stock, or (iii) combine
outstanding Common Stock into a smaller number of shares, then in each such case
the amount set forth in the immediately preceding sentence with respect to the
exchange or conversion of Units of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be the number
of shares of Common Stock that are outstanding immediately after such event and
the denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
7. Redemption. The Units of Series B Preferred Stock and shares of
Series B Preferred Stock shall not be redeemable.
8. Ranking. The Units of Series B Preferred Stock and shares of
Series B Preferred Stock shall rank junior to all other series of the Preferred
Stock and to any other class of Preferred Stock that hereafter may be issued by
the Corporation as to the payment of dividends and the distribution of assets,
unless the terms of any such series or class shall provide otherwise.
19
<PAGE> 20
9. Fractional Shares. The Series B Preferred Stock may be issued in
Units or other fractions of a share, which Units or fractions shall entitle the
holder, in proportion to such holder's units or fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Series B Preferred Stock.
10. Certain Definitions. As used in this resolution with respect to
the Series B Preferred Stock, the following terms shall have the following
meanings:
(A) The term "Common Stock" shall mean the class of stock designated
as the common stock, par value $.001 per share, of the Corporation at the date
hereof or any other class of stock resulting from successive changes or
reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 3 shall mean the
Common Stock and any other class or series of capital stock of the Corporation
hereafter authorized or issued over which the Series B Preferred Stock has
preference or priority as to the payment of dividends and (ii) as used in
Section 5, shall mean the Common Stock and any other class or series of capital
stock of the Corporation over which the Series B Preferred Stock has preference
or priority in the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
(C) The term "parity stock" (i) as used in Section 3 shall mean any
class or series of stock of the Corporation hereafter authorized or issued
ranking pari passu with the Series B Preferred Stock as to dividends and (ii) as
used in Section 5, shall mean any class or series of capital stock ranking pari
passu with the Series B Preferred Stock in the distribution of assets on any
liquidation, dissolution or winding up.
20
<PAGE> 21
IN WITNESS WHEREOF, SDL, Inc. has caused this Certificate to be
signed by its Chairman and Chief Executive Officer and its Secretary this 14 day
of November, 1997.
SDL, INC.
By: /s/ Donald R. Scifres
----------------------------
Name: Donald R. Scifres
Title: Chariman and Chief
Executive Officer
By: /s/ John P. Melton
----------------------------
Name: John P. Melton
Title: Secretary
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,222
<SECURITIES> 9,651
<RECEIVABLES> 20,027
<ALLOWANCES> 850
<INVENTORY> 14,527
<CURRENT-ASSETS> 55,213
<PP&E> 52,130
<DEPRECIATION> 23,861
<TOTAL-ASSETS> 97,403
<CURRENT-LIABILITIES> 15,644
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 79,564
<TOTAL-LIABILITY-AND-EQUITY> 97,403
<SALES> 22,140
<TOTAL-REVENUES> 25,357
<CGS> 14,778
<TOTAL-COSTS> 17,150
<OTHER-EXPENSES> 5,561
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (273)
<INCOME-PRETAX> 2,919
<INCOME-TAX> 220
<INCOME-CONTINUING> 2,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,699<F1>
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,063
<SECURITIES> 30,089
<RECEIVABLES> 16,857
<ALLOWANCES> (766)
<INVENTORY> 13,025
<CURRENT-ASSETS> 69,528
<PP&E> 41,850
<DEPRECIATION> (18,085)
<TOTAL-ASSETS> 115,888
<CURRENT-LIABILITIES> 15,433
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 99,602
<TOTAL-LIABILITY-AND-EQUITY> 115,888
<SALES> 16,775
<TOTAL-REVENUES> 21,016
<CGS> 10,886
<TOTAL-COSTS> 14,018
<OTHER-EXPENSES> 6,894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (631)
<INCOME-PRETAX> 735
<INCOME-TAX> 228
<INCOME-CONTINUING> 507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507
<EPS-PRIMARY> 0.04<F1>
<EPS-DILUTED> 0.04
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,297
<SECURITIES> 9,400
<RECEIVABLES> 19,515
<ALLOWANCES> (816)
<INVENTORY> 12,495
<CURRENT-ASSETS> 47,625
<PP&E> 43,983
<DEPRECIATION> (19,276)
<TOTAL-ASSETS> 87,311
<CURRENT-LIABILITIES> 15,051
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 71,340
<TOTAL-LIABILITY-AND-EQUITY> 87,311
<SALES> 34,957
<TOTAL-REVENUES> 42,586
<CGS> 25,860
<TOTAL-COSTS> 32,351
<OTHER-EXPENSES> 39,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (737)
<INCOME-PRETAX> (28,736)
<INCOME-TAX> 228
<INCOME-CONTINUING> (28,964)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,964)
<EPS-PRIMARY> (2.16)<F1>
<EPS-DILUTED> (2.16)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,347
<SECURITIES> 9,500
<RECEIVABLES> 21,463
<ALLOWANCES> (1,278)
<INVENTORY> 12,635
<CURRENT-ASSETS> 49,531
<PP&E> 46,325
<DEPRECIATION> (20,639)
<TOTAL-ASSETS> 91,219
<CURRENT-LIABILITIES> 15,999
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 74,180
<TOTAL-LIABILITY-AND-EQUITY> 91,219
<SALES> 54,861
<TOTAL-REVENUES> 66,537
<CGS> 39,000
<TOTAL-COSTS> 48,676
<OTHER-EXPENSES> 45,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,003)
<INCOME-PRETAX> (26,146)
<INCOME-TAX> 367
<INCOME-CONTINUING> (26,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,513)
<EPS-PRIMARY> (1.97)<F1>
<EPS-DILUTED> (1.97)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,426
<SECURITIES> 9,015
<RECEIVABLES> 12,679
<ALLOWANCES> (385)
<INVENTORY> 10,522
<CURRENT-ASSETS> 36,541
<PP&E> 31,830
<DEPRECIATION> (14,242)
<TOTAL-ASSETS> 58,821
<CURRENT-LIABILITIES> 10,592
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 44,790
<TOTAL-LIABILITY-AND-EQUITY> 58,821
<SALES> 17,348
<TOTAL-REVENUES> 20,422
<CGS> 10,505
<TOTAL-COSTS> 12,747
<OTHER-EXPENSES> 4,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (145)
<INCOME-PRETAX> 3,322
<INCOME-TAX> 1,163
<INCOME-CONTINUING> 2,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,159
<EPS-PRIMARY> 0.20<F1>
<EPS-DILUTED> 0.18
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,613
<SECURITIES> 7,515
<RECEIVABLES> 13,715
<ALLOWANCES> (379)
<INVENTORY> 12,623
<CURRENT-ASSETS> 80,472
<PP&E> 33,042
<DEPRECIATION> (14,698)
<TOTAL-ASSETS> 103,356
<CURRENT-LIABILITIES> 14,874
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 87,793
<TOTAL-LIABILITY-AND-EQUITY> 103,356
<SALES> 35,889
<TOTAL-REVENUES> 42,028
<CGS> 22,152
<TOTAL-COSTS> 26,505
<OTHER-EXPENSES> 8,840
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (269)
<INCOME-PRETAX> 6,952
<INCOME-TAX> 2,364
<INCOME-CONTINUING> 4,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,588
<EPS-PRIMARY> 0.42<F1>
<EPS-DILUTED> 0.38
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,536
<SECURITIES> 35,199
<RECEIVABLES> 13,297
<ALLOWANCES> (518)
<INVENTORY> 13,113
<CURRENT-ASSETS> 69,058
<PP&E> 36,486
<DEPRECIATION> (15,830)
<TOTAL-ASSETS> 111,912
<CURRENT-LIABILITIES> 15,906
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 95,357
<TOTAL-LIABILITY-AND-EQUITY> 111,912
<SALES> 51,712
<TOTAL-REVENUES> 61,397
<CGS> 33,758
<TOTAL-COSTS> 41,004
<OTHER-EXPENSES> 13,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (839)
<INCOME-PRETAX> 7,903
<INCOME-TAX> 2,372
<INCOME-CONTINUING> 5,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,531
<EPS-PRIMARY> 0.48<F1>
<EPS-DILUTED> 0.43
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,605
<SECURITIES> 45,353
<RECEIVABLES> 12,596
<ALLOWANCES> 780
<INVENTORY> 13,441
<CURRENT-ASSETS> 77,117
<PP&E> 39,016
<DEPRECIATION> 16,996
<TOTAL-ASSETS> 113,842
<CURRENT-LIABILITIES> 13,874
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 99,214
<TOTAL-LIABILITY-AND-EQUITY> 113,842
<SALES> 69,772
<TOTAL-REVENUES> 82,475
<CGS> 45,365
<TOTAL-COSTS> 54,956
<OTHER-EXPENSES> 18,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,501)
<INCOME-PRETAX> 10,173
<INCOME-TAX> 3,052
<INCOME-CONTINUING> 7,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,121
<EPS-PRIMARY> 0.59<F1>
<EPS-DILUTED> 0.54
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000934741
<NAME> SDL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,793
<SECURITIES> 8,515
<RECEIVABLES> 14,020
<ALLOWANCES> 485
<INVENTORY> 9,006
<CURRENT-ASSETS> 35,340
<PP&E> 29,872
<DEPRECIATION> 13,502
<TOTAL-ASSETS> 56,643
<CURRENT-LIABILITIES> 12,691
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 40,489
<TOTAL-LIABILITY-AND-EQUITY> 56,643
<SALES> 45,277
<TOTAL-REVENUES> 53,894
<CGS> 26,871
<TOTAL-COSTS> 33,390
<OTHER-EXPENSES> 21,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (118)
<INCOME-PRETAX> (1,031)
<INCOME-TAX> 1,788
<INCOME-CONTINUING> (2,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,819)
<EPS-PRIMARY> (0.31)<F1>
<EPS-DILUTED> (0.31)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
