<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
September 23, 1999 (September 21, 1999)
SDL, INC.
(Exact name of Registrant as
Specified in its Charter)
DELAWARE
(State or Other Jurisdiction
of Incorporation)
000 25688
(Commission File Number)
77-0331449
(IRS Employer Identification No.)
80 ROSE ORCHARD WAY
SAN JOSE, CA 95134
(408) 943-9411
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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Item 5. OTHER EVENTS.
On September 21, 1999, SDL, Inc. (the "Company") priced its offering of
3,392,500 shares (the "Shares") of its Common Stock (including an over-allotment
option of 442,500 shares) at $82.00 per share. Attached hereto as exhibits to
this Current Report on Form 8-K are (i) the Underwriting Agreement dated as of
September 21, 1999 among the Company on the one hand, and CIBC World Markets
Corp., Hambrecht & Quist LLC, Donaldson Lufkin & Jenrette Securities
Corporation, Merrill Lynch Pierce Fenner & Smith Incorporated, S. G. Cowen
Securities Corporation and Soundview Technology Group, Inc. on the other hand,
relating to the issuance of the Shares; (ii) an opinion of counsel relating to
the Shares; and (iii) the Prospectus Supplement of the Company dated September
21, 1999.
Item 7. Exhibits
1.1 Underwriting Agreement
5.1 Opinion of Counsel (relating to the Common Stock)
99.0 Prospectus Supplement of the Company dated September 21, 1999.
2
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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 hereunto duly authorized.
SDL, INC.
September 23, 1999 By: /s/ Michael L. Foster
-------------------------------------
Michael L. Foster
Chief Financial Officer,
and Secretary,
(Principal Financial and Accounting
Officer)
3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------------- -------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement
5.1 Opinion of Morrison & Foerster (relating to the Common Stock)
99.0 Prospectus Supplement of the Company dated September 21, 1999
</TABLE>
4
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2,950,000 Shares
SDL, INC.
Common Stock
UNDERWRITING AGREEMENT
September 21, 1999
CIBC World Markets Corp.
Hambrecht & Quist LLC
Donaldson Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
SDL, Inc., a Delaware corporation (the "Company"), proposes, subject to
the terms and conditions contained herein, to sell to you and the other
underwriters named on Schedule I to this Agreement (the "Underwriters"), for
whom you are acting as Representatives (the "Representatives"), an aggregate of
2,950,000 shares (the "Firm Shares") of the Company's Common Stock, $0.001 par
value (the "Common Stock"). All of the Firm Shares are to be issued and sold by
the Company. The respective amounts of the Firm Shares to be purchased by each
of the several Underwriters are set forth opposite their names on Schedule I
hereto. In addition, the Company proposes to grant to the Underwriters an option
to purchase up to an additional 442,500 shares (the "Option Shares") of Common
Stock from it for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
1. Sale and Purchase of the Shares.
On the basis of the representations, warranties and agreements contained
in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a price of $78.64 per share (the "Initial Price"), the number of
Firm Shares set forth opposite the name of such Underwriter under the column
"Number of Firm Shares to be Purchased from the Company" on Schedule I to this
Agreement, subject to adjustment in accordance with Section 10 hereof.
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(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option Shares at the
Initial Price. The number of Option Shares to be purchased by each Underwriter
shall be the same percentage (adjusted by the Representatives to eliminate
fractions) of the total number of Option Shares to be purchased by the
Underwriters as such Underwriter is purchasing of the Firm Shares. Such option
may be exercised only to cover over-allotments in the sales of the Firm Shares
by the Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the Firm
Shares Closing Date (as defined below), and from time to time thereafter within
30 days after the date of this Agreement, in each case upon written, facsimile
or telegraphic notice, or verbal or telephonic notice confirmed by written,
facsimile or telegraphic notice, by the Representatives to the Company no later
than 12:00 noon, New York City time, on the business day before the Firm Shares
Closing Date or at least two business days before the Option Shares Closing Date
(as defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm Shares
Closing Date) of such purchase.
2. Delivery and Payment. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and payment
of the purchase price by certified or official bank check or checks payable in
New York Clearing House (same day) funds drawn to the order of the Company,
against delivery of the certificates therefor to the Representatives, shall take
place at the offices of CIBC World Markets Corp., One World Financial Center,
New York, New York 10281, at 10:00 a.m., New York City time, on the third
business day following the date of this Agreement, or at such time on such other
date, not later than 10 business days after the date of this Agreement, as shall
be agreed upon by the Company and the Representatives (such time and date of
delivery and payment are called the "Firm Shares Closing Date").
In the event the option with respect to the Option Shares is exercised
in whole or in part on one or more occasions, delivery by the Company of the
Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price thereof in immediately available
funds by wire transfer or by certified or official bank check or checks payable
in New York Clearing House (same day) funds to the Company shall take place at
the offices of CIBC World Markets Corp. specified above at the time and on the
date (which may be the same date as, but in no event shall be earlier than, the
Firm Shares Closing Date) specified in the notice referred to in Section 1(b)
(such time and date of delivery and payment are called the "Option Shares
Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date
are called, individually, a "Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or, in the case of Option
Shares, on the day of notice of exercise of the option as described in Section
l(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).
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3. Registration Statement and Prospectus; Public Offering. The Company
has prepared and filed in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a Registration Statement (as hereinafter defined)
on Form S-3 (No. 333-84925), including a preliminary prospectus relating to the
Shares, and has filed with, or transmitted for filing to, or shall promptly
hereafter file with or transmit for filing to, the Commission a prospectus
supplement (the "Prospectus Supplement") specifically relating to the Shares and
has filed with the Commission such amendments thereof as may have been required
to the date of this Agreement. Copies of such Registration Statement (including
all amendments thereof), the related Preliminary Prospectus (as hereinafter
defined) and the related Prospectus Supplement have heretofore been delivered by
the Company to you. The term "Preliminary Prospectus" means any prospectus
supplement filed with the Commission pursuant to Rule 424 or Rule 430A under the
Securities Act and any preliminary prospectus (as described in Rule 430 of the
Rules) included at any time as a part of the Registration Statement or filed
with the Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules. The term "Registration Statement" as used
in this Agreement means the initial registration statement (including all
exhibits, financial schedules and information deemed to be a part of the
Registration Statement through incorporation by reference or otherwise), as
amended and supplemented at the time and on the date it becomes effective (the
"Effective Date") including the information (if any) deemed to be part thereof
at the time of effectiveness pursuant to Rule 430A of the Rules. If the Company
has filed an abbreviated registration statement to register additional Shares
pursuant to Rule 462(b) under the Rules (the "462(b) Registration Statement")
then any reference herein to the Registration Statement shall also be deemed to
include such 462(b) Registration Statement. The term "Prospectus" as used in
this Agreement means the prospectus (including the Prospectus Supplement) in the
form included in the Registration Statement at the time of effectiveness or, if
Rule 430A of the Rules is relied on, the term Prospectus shall also include the
final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules.
Any reference herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to the applicable form under the Securities Act, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be; any reference to any
amendment or supplement to any Preliminary Prospectus or Prospectus shall be
deemed to refer to and include any documents filed after the date of such
Preliminary Prospectus or Prospectus, as the case may be, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by
reference in such Preliminary Prospectus or Prospectus, as the case may be; any
reference to any amendment to the Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the Registration
Statement that is incorporated by reference in the Registration Statement; and
any reference to the Prospectus as amended or supplemented shall be deemed to
refer to the Prospectus as amended or supplemented in relation to the applicable
Shares in the form in which it is filed with the Commission pursuant to Rule
424(b) under the Securities Act in accordance with Section 4(b) hereof,
including any documents incorporated by reference therein as of the date of such
filing.
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the
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Underwriters and dealers have been authorized to distribute or cause to be
distributed each Preliminary Prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied,
and on the date of the Prospectus, the date any post-effective amendment to the
Registration Statement becomes effective, the date any supplement or amendment
to the Prospectus is filed with the Commission and each Closing Date, the
Registration Statement and the Prospectus (and any amendment thereof or
supplement thereto) will comply, in all material respects, with the applicable
provisions of the Securities Act and the Rules and the Exchange Act and the
rules and regulations of the Commission thereunder. The Registration Statement
did not, as of the Effective Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and on the
Effective Date and the other dates referred to above neither the Registration
Statement nor the Prospectus, nor any amendment thereof or supplement thereto,
will contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. When any related preliminary prospectus was
first filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the Rules) and
when any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus as amended or supplemented complied in
all material respects with the applicable provisions of the Securities Act and
the Rules and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. Notwithstanding the foregoing, none
of the representations and warranties in this paragraph 4(a) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon, and in conformity with, information herein or otherwise
furnished in writing by the Representatives on behalf of the several
Underwriters for use in the Registration Statement or the Prospectus. With
respect to the preceding sentence, the Company acknowledges that the only
information furnished in writing by the Representatives on behalf of the several
Underwriters for use in the Registration Statement or the Prospectus is the
paragraph with respect to stabilization on the inside front cover page of the
Prospectus and the statements contained under the caption "Underwriting" in the
Prospectus.
(b) The Registration Statement is effective under the Securities
Act and no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued and no proceedings for that purpose have been instituted or are
threatened under the Securities Act. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules has been or will be
made in the manner and within the time period required by such Rule 424(b).
(c) The documents incorporated by reference in the Registration
Statement and the Prospectus, at the they became effective or were filed with
the Commission, as the case may be,
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complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations thereunder, and
none or such documents contained an untrue statement of material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed and
incorporated by reference in the Registration Statement and the Prospectus or
any further amendment or supplement thereto, when such documents become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(d) The financial statements of the Company (including all notes
and schedules thereto) included or incorporated by reference in the Registration
Statement and Prospectus present accurately and fairly the financial position,
the results of operations, the statements of cash flows and the statements of
stockholders' equity and the other information purported to be shown therein of
the Company at the respective dates and for the respective periods to which they
apply; and such financial statements and related schedules and notes have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for an accurate and fair presentation of the results for such periods
have been made. The summary and selected financial data included in the
Prospectus present accurately and fairly the information shown therein as at the
respective dates and for the respective periods specified and the summary and
selected financial data have been presented on a basis consistent with the
consolidated financial statements so set forth in the Prospectus and other
financial information.
(e) Ernst & Young LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the periods
covered by their reports, are and were independent public accountants as
required by the Securities Act and the Rules.
(f) The Company and each of its Subsidiaries (as hereinafter
defined) is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation. The Company and each such
subsidiary or other entity controlled directly or indirectly by the Company
(collectively, "Subsidiaries") is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted by it or location of the assets or properties owned,
leased or licensed by it requires such qualification, except for such
jurisdictions where the failure to so qualify would not have a material adverse
effect on the assets or properties, business, prospects, results of operations
or financial condition of the Company (a "Material Adverse Effect"). The Company
and each of its Subsidiaries has all requisite corporate power and authority,
and all necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory bodies or
any other person or entity (collectively, the "Permits"), to own, lease and
license its assets and properties and conduct its business, all of which are
valid and in full force and effect, as described in the Registration Statement
and the Prospectus, except where the lack of such Permits, individually or in
the aggregate, would not have a Material Adverse Effect. The Company and each of
its Subsidiaries has fulfilled and performed in all material respects all of its
material obligations with respect to such Permits and no event has occurred that
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any other material
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impairment of the rights of the Company thereunder. Except as may be required
under the Securities Act and state and foreign Blue Sky laws, no other Permits
are required to enter into, deliver and perform this Agreement and to issue and
sell the Shares.
(g) The Company and each of its Subsidiaries owns or possesses
adequate and enforceable rights to use all trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications, licenses,
know-how and other similar rights and proprietary knowledge (collectively,
"Intangibles") described in the Prospectus as being owned by it necessary for
the conduct of its business. Except as described in the Prospectus, neither the
Company nor any of its Subsidiaries has received any notice of, or is not aware
of, any infringement of or conflict with asserted rights of others with respect
to any Intangibles.
(h) The Company and each of its Subsidiaries has good and
marketable title in fee simple to all items of real property and good and
marketable title to all personal property described in the Prospectuses as being
owned by it. Any real property and buildings described in the Prospectuses as
being held under lease by the Company and each of its Subsidiaries is held by it
under valid, existing and enforceable leases, free and clear of all liens,
encumbrances, claims, security interests and defects, except such as are
described in the Registration Statement and the Prospectus or would not have a
Material Adverse Effect.
(i) There is no litigation or governmental proceeding to which
the Company or its Subsidiaries is subject or which is pending or, to the
knowledge of the Company, threatened, against the Company or any of its
Subsidiaries, which, individually or in the aggregate, might have a Material
Adverse Effect, affect the consummation of this Agreement or which is required
to be disclosed in the Registration Statement and the Prospectus that is not so
disclosed.
(j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as described
therein, (a) there has not been any material adverse change with regard to the
assets or properties, business, prospects, results of operations or financial
condition of the Company; (b) neither the Company nor its Subsidiaries has
sustained any loss or interference with its assets, businesses or properties
(whether owned or leased) from fire, explosion, earthquake, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree which would
have a Material Adverse Effect; and (c) since the date of the latest balance
sheet included in the Registration Statement and the Prospectus, except as
reflected therein, neither the Company nor its Subsidiaries has (i) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money, except such liabilities or obligations incurred in the ordinary
course of business, (ii) entered into any transaction not in the ordinary course
of business or (iii) declared or paid any dividend or made any distribution on
any shares of its stock or redeemed, purchased or otherwise acquired or agreed
to redeem, purchase or otherwise acquire any shares of its stock.
(k) There is no document, contract or other agreement of a
character required to be described in the Registration Statement or Prospectus
or to be filed as an exhibit to the Registration Statement which is not
described or filed as required by the Securities Act or Rules. Each description
of a contract, document or other agreement in the Registration Statement and the
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Prospectus accurately reflects in all respects the terms of the underlying
document, contract or agreement. Each agreement described in the Registration
Statement and Prospectus or listed in the Exhibits to the Registration Statement
or incorporated by reference is in full force and effect and is valid and
enforceable by and against the Company or the Subsidiary, as the case may be, in
accordance with its terms. Neither the Company nor the Subsidiary, if the
Subsidiary is a party, nor to the Company's knowledge, any other party is in
default in the observance or performance of any term or obligation to be
performed by it under any such agreement, and no event has occurred which with
notice or lapse of time or both would constitute such a default, in any such
case which default or event, individually or in the aggregate, would have a
Material Adverse Effect. No default exists, and no event has occurred which with
notice or lapse of time or both would constitute a default, in the due
performance and observance of any term, covenant or condition, by the Company or
the Subsidiary, if the Subsidiary is a party thereto, of any other agreement or
instrument to which the Company or the Subsidiary is a party or by which it or
the Subsidiary or their properties or business may be bound or affected which
default or event, individually or in the aggregate, would have a Material
Adverse Effect.
(l) Neither the Company nor any of its Subsidiaries is in
violation of any term or provision of its certificate of incorporation or
by-laws or of any franchise, license, permit, judgment, decree, order, statute,
rule or regulation, where the consequences of such violation, individually or in
the aggregate, would have a Material Adverse Effect.
(m) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the
Company of the Shares will give rise to a right to terminate or accelerate the
due date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or an event which with notice
or lapse of time or both would constitute a default) under, or require any
consent or waiver under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company or its
Subsidiary pursuant to the terms of, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or its Subsidiary is a party
or by which either the Company or its Subsidiary or any of their properties or
businesses is bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation applicable to the Company or its Subsidiary or
violate any provision of the certificate of incorporation or by-laws of the
Company or its Subsidiary, except for such consents or waivers which have
already been obtained and are in full force and effect.
(n) The Company has authorized and outstanding capital stock as
set forth under the captions "Description of Common Stock" and "Description of
Preferred Stock" in the Prospectus. The certificates evidencing the Shares are
in due and proper legal form and have been duly authorized for issuance by the
Company. All of the issued and outstanding shares of Common Stock have been duly
and validly issued and are fully paid and nonassessable. There are no statutory
preemptive or other similar rights to subscribe for or to purchase or acquire
any shares of Common Stock of the Company or its Subsidiaries or any such rights
pursuant to its Certificate of Incorporation or by-laws or any agreement or
instrument to or by which the Company or any of its Subsidiaries is a party or
bound. The Shares, when issued and sold pursuant to this Agreement, will be duly
and validly issued, fully paid and nonassessable and none of them will be issued
in violation
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of any preemptive or other similar right. Except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding option,
warrant or other right calling for the issuance of, and there is no commitment,
plan or arrangement to issue, any share of stock of the Company or its
Subsidiaries or any security convertible into, or exercisable or exchangeable
for, such stock. The Common Stock and the Shares conform in all material
respects to all statements in relation thereto contained in the Registration
Statement and the Prospectus. All outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued, and are fully paid and
nonassessable and are owned directly by the Company or by another wholly-owned
subsidiary of the Company free and clear of any security interests, liens,
encumbrances, equities or claims, other than those described in the Prospectus.
(o) No holder of any security of the Company has the right to
have any security owned by such holder included in the Registration Statement or
to demand registration of any security owned by such holder during the period
ending 60 days after the date of this Agreement. By the Closing, officers,
directors and other stockholders holding approximately 2,280,000 shares of
Common Stock shall have delivered to the Representatives enforceable written
lock-up agreements in the form attached to this Agreement ("Lock-Up Agreement").
(p) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and performance of
this Agreement and the issuance and sale of the Shares by the Company. This
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitute and will constitute legal, valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
(q) Neither the Company nor any of its Subsidiaries is involved
in any labor dispute nor, to the knowledge of the Company, is any such dispute
threatened, which dispute would have a Material Adverse Effect. The Company is
not aware of any existing or imminent labor disturbance by the employees of any
of its principal suppliers or contractors which would have a Material Adverse
Effect. The Company is not aware of any threatened or pending litigation between
the Company or its Subsidiaries and any of its executive officers which, if
adversely determined, could have a Material Adverse Effect and has no reason to
believe that such officers will not remain in the employment of the Company.
(r) No transaction has occurred between or among the Company and
any of its officers or directors or five percent shareholders or any affiliate
or affiliates of any such officer or director or five percent shareholders that
is required to be described in and is not described in the Registration
Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of any of the Shares.
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(t) The Company and its Subsidiaries has filed all Federal,
state, local and foreign tax returns which are required to be filed through the
date hereof, or has received extensions thereof, and has paid all taxes shown on
such returns and all assessments received by it to the extent that the same are
material and have become due. There are no tax audits or investigations pending,
which if adversely determined would have a Material Adverse Effect; nor are
there any material proposed additional tax assessments against the Company and
any of its Subsidiaries.
(u) The Shares have been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market System, subject to official Notice of Issuance.
(v) The books, records and accounts of the Company and its
Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and its Subsidiaries. The Company and each of its
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(w) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged or propose
to engage after giving effect to the transactions described in the Prospectus;
all policies of insurance and fidelity or surety bonds insuring the Company or
any of its subsidiaries or the Company's or its subsidiaries' respective
businesses, assets, employees, officers and directors are in full force and
effect; the Company and each of its subsidiaries are in compliance with the
terms of such policies and instruments in all material respects; and neither the
Company nor any Subsidiary of the Company has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a Material Adverse
Effect.
(x) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated required to be obtained or performed by the Company (except such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under the state securities or Blue Sky laws) has been
obtained or made and is in full force and effect.
(y) Each of the Company and its Subsidiaries is in compliance in
all material respects with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of health or
the environment ("Environmental Law") which are applicable to its business; (ii)
neither the Company nor its Subsidiaries has received any notice from any
governmental authority or third party of an asserted claim under Environmental
Laws; (iii) each
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of the Company and its Subsidiaries has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business, except in the cases where the lack of such permits, licenses or other
approvals would not result in a Material Adverse Effect and is in compliance
with all terms and conditions of any such permit, license or approval, except in
the cases where such non-compliance would not result in a Material Adverse
Effect; (iv) to the Company's knowledge, no facts currently exist that will
require the Company or its Subsidiaries to make future material capital
expenditures to comply with Environmental Laws; and (v) no property which is or
has been owned, leased or occupied by the Company or its Subsidiaries has been
designated as a Superfund site pursuant to the Comprehensive Environmental
Response, Compensation of Liability Act of 1980, as amended (42 U.S.C. Section
9601, et. seq.) or otherwise designated as a contaminated site under applicable
state or local law. Neither the Company nor any of its Subsidiaries has been
named as a "potentially responsible party" under the CER, CLA 1980.
(z) Neither the Company nor any of its Subsidiaries has violated
any federal or state law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable federal or state wages and hours laws, nor
any provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and its Subsidiaries, taken as a whole.
(aa) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the course of
which the Company identifies and evaluates associated costs and liabilities
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws, or
any permit, license or approval, any related constraints on operating activities
and any potential liabilities to third parties). On the basis of such review,
the Company has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, have a Material Adverse Effect.
(bb) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of proceeds thereof as described in
the Prospectus, will not be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(cc) The Company, its Subsidiaries, or any other person
associated with or acting on behalf of the Company or its Subsidiaries
including, without limitation, any director, officer, agent or employee of the
Company or its Subsidiaries has not, directly or indirectly, while acting on
behalf of the Company or its Subsidiaries (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful
payment.
(dd) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations of the
Company or any of its subsidiaries will be affected by the Year 2000 Problem
(that is, any significant risk that computer hardware or
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<PAGE> 11
software applications used by the Company and its subsidiaries will not, in the
case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000); as a result of such review, (i) the Company has no reason to
believe, and does not believe, that (A) there are any issues related to the
Company's preparedness to address the Year 2000 Problem that are of a character
required to be described or referred to in the Registration Statement or
Prospectus which have not been accurately described in the Registration
Statement or Prospectus and (B) the Year 2000 Problem will have a Material
Adverse Effect, or result in any material loss or interference with the business
or operations of the Company and its subsidiaries, taken as a whole; and (ii)
the Company reasonably believes, after due inquiry, that the suppliers, vendors,
customers or other material third parties used or served by the Company and such
subsidiaries are addressing or will address the Year 2000 Problem in a timely
manner, except to the extent that a failure to address the Year 2000 by a
supplier, vendor, customer or material third party would not have a Material
Adverse Effect.
5. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives and the Prospectus
shall have been timely filed with the Commission in accordance with Section 6(a)
of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the Commission
and the Representatives.
(c) The representations and warranties of the Company contained
in this Agreement and in the certificates delivered pursuant to Section 5(d)
shall be true and correct when made and on and as of each Closing Date as if
made on such date. The Company shall have performed all covenants and agreements
and satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date
a certificate, addressed to the Representatives and dated such Closing Date, of
the chief executive or chief operating officer and the chief financial officer
or chief accounting officer of the Company to the effect that (i)the signers of
such certificate have carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of the
Company in this Agreement are true and correct on and as of such Closing Date
with the same effect as if made on such Closing Date and the Company has
performed all covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by it at or prior to such
Closing Date, and (ii)no stop order suspending the effectiveness of the
Registration Statement has been issued and to the best of their knowledge, no
proceedings for that purpose have been instituted or are pending under the
Securities Act.
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<PAGE> 12
(e) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date a signed letter from Ernst &
Young LLP addressed to the Representatives and dated, respectively, the date of
this Agreement and each such Closing Date, in form and substance reasonably
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Securities Act and the Rules, that the
response to Item 10 of the Registration Statement is correct insofar as it
relates to them and stating in effect that:
(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by reference in the
Registration Statement and the Prospectus and reported on by them comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included
in the Registration Statement and the Prospectus under the headings "Ratio of
Earnings to Fixed Charges" and "Selected Financial Data," carrying out certain
procedures (but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter, a reading of the minutes
of the meetings of the stockholders and directors of the Company, and inquiries
of certain officials of the Company who have responsibility for financial and
accounting matters of the Company as to transactions and events subsequent to
the date of the latest audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to their attention which
caused them to believe that:
(A) the amounts in "Ratio of Earnings to Fixed
Charges," and "Selected Financial Data" included in the Registration Statement
and the Prospectus do not agree with the corresponding amounts in the audited
and unaudited financial statements from which such amounts were derived; or
(B) with respect to the Company, there were, at a
specified date not more than three business days prior to the date of the
letter, any increases in the current liabilities and long-term liabilities of
the Company or any decreases in net income or in working capital or the
stockholders' equity in the Company, as compared with the amounts shown on the
Company's audited balance sheet for the fiscal year ended and the 6 months ended
June 30, 1999 included in the Registration Statement;
(iii) they have performed certain other procedures as
may be permitted under Generally Acceptable Auditing Standards as a result of
which they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company) set
forth in the Registration Statement and the Prospectus and reasonably specified
by the Representatives agrees with the accounting records of the Company; and
(iv) based upon the procedures set forth in clauses
(ii) and (iii) above and a reading of the amounts included in the Registration
Statement under the headings "Ratio of Earnings to Fixed Charges" and "Selected
Financial Data" included in the Registration Statement and Prospectus and a
reading of the financial statements from which certain of such data were
derived,
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<PAGE> 13
nothing has come to their attention that gives them reason to believe that the
"Ratio of Earnings to Fixed Charges" and "Selected Financial Data" included in
the Registration Statement and Prospectus do not comply as to the form in all
material respects with the applicable accounting requirements of the Securities
Act and the Rules or that the information set forth therein is not fairly stated
in relation to the financial statements included in the Registration Statement
or Prospectus from which certain of such data were derived are not in conformity
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement and Prospectus.
References to the Registration Statement and the Prospectus in this paragraph
(e) are to such documents as amended and supplemented at the date of the letter.
(f) The Representatives shall have received on each Closing Date
from Morrison & Foerster LLP, counsel for the Company, an opinion, addressed to
the Representatives and dated such Closing Date, and stating in effect that:
(i) Each of the Company and its domestic Subsidiaries
has been duly organized and is validly existing as a corporation in good
standing under the laws of its respective jurisdiction of incorporation. Each of
the Company and its domestic Subsidiaries is duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the character or location
of its assets or properties (owned, leased or licensed) or the nature of its
businesses makes such qualification necessary, except for such jurisdictions
where the failure to so qualify, individually or in the aggregate, would not
have a Material Adverse Effect.
(ii) Each of the Company and its domestic Subsidiaries
has all requisite corporate power and authority to own, lease and license its
assets and properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus and with respect to
the Company to enter into, deliver and perform this Agreement and to issue and
sell the Shares other than those required under the state and foreign Blue Sky
laws.
(iii) The Company has authorized and issued capital
stock as set forth in the Registration Statement and the Prospectus under the
captions "Description of Common Stock" and "Description of Preferred Stock" as
of the dates set forth therein; the certificates evidencing the Shares are in
due and proper legal form and have been duly authorized for issuance by the
Company; all of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable and
none of them was issued in violation of any preemptive or other similar right.
The Shares when issued and sold pursuant to this Agreement will be duly and
validly issued, outstanding, fully paid and nonassessable and none of them will
have been issued in violation of any preemptive or other similar right. To the
best of such counsel's knowledge, except as disclosed in the Registration
Statement and the Prospectus, there are no preemptive or other rights to
subscribe for or to purchase or any restriction upon the voting or transfer of
any securities of the Company pursuant to the Company's Certificate of
Incorporation or by-laws or other governing documents or any agreements or other
instruments to which the Company is a party or by which it is bound. To the best
of such counsel's knowledge, except as disclosed in the Registration Statement
and the Prospectus and except for options issued under the Company's benefit
plans in the ordinary course of business after June 30, 1999, there is no
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<PAGE> 14
outstanding option, warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any share of stock of the Company or
any security convertible into, exercisable for, or exchangeable for stock of the
Company. The Common Stock and the Shares conform in all material respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
The issued and outstanding shares of capital stock of each of the Company's
domestic Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned by the Company or by another wholly owned
subsidiary of the Company, free and clear of any perfected security interest or,
to the best knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims, other than those disclosed in the Registration
Statement and the Prospectus.
(iv) All necessary corporate action has been duly and
validly taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares. This
Agreement has been duly and validly authorized, executed and delivered by the
Company and this Agreement constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
(v) Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the
Company of the Shares) will give rise to a right to terminate or accelerate the
due date of any payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or any event which with
notice or lapse of time, or both, would constitute a default) under, or require
consent or waiver under, or result in the execution or imposition of any lien,
charge, claim, security interest or encumbrance upon any properties or assets of
the Company or any domestic Subsidiary pursuant to the terms of any indenture,
mortgage, deed trust, note or other agreement or instrument of which such
counsel is aware and to which the Company or any domestic Subsidiary is a party
or by which either the Company or the Subsidiary or any of its properties or
businesses is bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation of which such counsel is aware or violate any
provision of the charter or by-laws of the Company or any domestic Subsidiary.
(vi) To the best of such counsel's knowledge, no
default exists, and no event has occurred which with notice or lapse of time, or
both, would constitute a default, in the due performance and observance of any
term, covenant or condition by the Company of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the Company is a party
or by which it or any of its assets or properties or businesses may be bound or
affected, where the consequences of such default, individually or in the
aggregate, would have a Material Adverse Effect.
(vii) To the best of such counsel's knowledge, the
Company and its Subsidiaries are not in violation of any term or provision of
its charter or by-laws or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation, where the consequences of such violation,
individually or in the aggregate, would have a Material Adverse Effect.
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<PAGE> 15
(viii) No consent, approval, authorization or order of
any court or governmental agency or regulatory body is required for the
execution, delivery or performance of this Agreement by the Company or the
consummation of the transactions contemplated hereby, except such as have been
obtained under the Securities Act and such as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the several Underwriters.
(ix) To the best of such counsel's knowledge, except
as disclosed in the Prospectus, there is no litigation or governmental or other
proceeding or investigation, before any court or before or by any public body or
board pending or threatened against, or involving the assets, properties or
businesses of, the Company which would have a Material Adverse Effect.
(x) The statements in the Prospectus under the
captions "Description Of Common Stock," "Description Of Preferred Stock,"
"Description Of Depositary Shares," "Description Of Warrants" and "Description
Of Debt Securities," "Delaware Law and Certain Charter Provisions" and
"Description of Capital Stock," insofar as such statements constitute a summary
of documents referred to therein or matters of law, are fair summaries in all
material respects and accurately present the information called for with respect
to such documents and matters. Accurate copies of all contracts and other
documents required to be filed as exhibits to, or described in, the Registration
Statement have been so filed with the Commission or are fairly described in the
Registration Statement, as the case may be.
(xi) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or supplement thereto (except
for the financial statements and schedules and other financial and statistical
data included therein, as to which such counsel expresses no opinion) comply as
to form in all material respects with the requirements of the Securities Act and
the Exchange Act and the rules promulgated by the Commission thereunder.
(xii) The Registration Statement is effective under
the Securities Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are threatened, pending or contemplated. Any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xiii) The Shares have been approved for listing on
the Nasdaq National Market.
(xiv) The capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectus under
the caption "Description of Capital Stock."
(xv) The Company is not an "investment company" or an
entity controlled by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
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<PAGE> 16
In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Representatives and representatives of the independent
public accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus as they related to the matters set
forth in the foregoing opinion were discussed. While such counsel has not
undertaken to independently verify and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing, no facts have come to the attention of
such counsel with respect to the matters set forth in the foregoing opinion
which lead such counsel to believe that the Registration Statement at the time
it became effective (except with respect to the financial statements and notes
and schedules thereto and other financial data, as to which such counsel need
express no belief) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as amended or
supplemented (except with respect to the financial statements, notes and
schedules thereto and other financial data, as to which such counsel need make
no statement) on the date thereof and the date of such opinion contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware and
the Federal laws of the United States. Copies of such certificates and other
opinions shall be furnished to the Representatives and counsel for the
Underwriters.
(g) The Representatives shall have received on each Closing Date
from local counsel for the Company satisfactory to the Representatives, an
opinion, addressed to the Representatives and dated such Closing Date, and
stating in effect that, with respect to each non-domestic Subsidiary of the
Company:
(i) The Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation.
(ii) The Subsidiary has corporate power and authority to
own, lease and operate its properties and to conduct its business as currently
conducted.
(iii) The Subsidiary is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock
of the Subsidiary is _________ shares of Common Stock; all of the shares of
issued and outstanding capital stock of the Subsidiary have been duly authorized
and validly issued and are fully paid and non-assessable and are held of record
and beneficially owned by the Company; and, to our knowledge, none of the
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<PAGE> 17
outstanding shares of capital stock of the Subsidiary was issued in violation of
the preemptive or other similar rights of any securityholder of the Subsidiary.
(v) To the knowledge of such counsel, there is not pending
or threatened any action, suit, proceeding, inquiry or investigation to which
the Subsidiary is a party, or to which the property of the Subsidiary is
subject, before or brought by any court or governmental agency or body, domestic
or foreign, which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
the properties or assets thereof.
(vi) To the knowledge of such counsel, the Subsidiary is
not in violation of its charter or by-laws and no default by the Subsidiary
exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument.
In rendering such opinion, such counsel may rely as to matters of fact (but not
as to legal conclusions), to the extent they deem proper, on certificates of
responsible officers of the Subsidiary and public officials.
(h) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives, and their counsel and
the Underwriters shall have received from Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation a favorable opinion, addressed to the Representatives
and dated such Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters, as the
Representatives may reasonably request, and the Company shall have furnished to
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(i) If the Shares have been qualified for sale in Florida, the
Representatives shall have received on each Closing Date certificates, addressed
to the Representatives, and dated such Closing Date, of an executive officer of
the Company, to the effect that the signer of such certificate has reviewed and
understands the provisions of Section 517.075 of the Florida Statutes, and
represents that the Company has complied, and at all times will comply, with all
provisions of Section 517.075 and further, that as of such Closing Date, neither
the Company nor any of its affiliates does business with the government of Cuba
or with any person or affiliate located in Cuba.
(j) The Representatives shall have received copies of the Lock-up
Agreements executed by each entity or person described in Section 4(o).
(k) The Company shall have furnished or caused to be furnished to
the Representatives such further certificates or documents as the
Representatives shall have reasonably requested.
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<PAGE> 18
6. Covenants of the Company.
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective as promptly as
possible. The Company shall prepare the Prospectus and Prospectus Supplement in
a form approved by the Representatives and file such Prospectus and Prospectus
Supplement pursuant to Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Securities Act.
(ii) The Company shall promptly advise the Representatives
in writing (i) when any amendment to the Registration Statement shall have
become effective, (ii) of any request by the Commission for any amendment of the
Registration Statement, Prospectus or Prospectus Supplement or for any
additional information, (iii) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (iv) of the
receipt by the Company of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or supplement to the Prospectus unless
the Company has furnished the Representatives a copy for its review prior to
filing and shall not file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(iii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the Securities
Act or the Rules, the Company promptly shall prepare and file with the
Commission, subject to the second sentence of paragraph (ii) of this Section
6(a), an amendment or supplement which shall correct such statement or omission
or an amendment which shall effect such compliance.
(iv) The Company shall make generally available to its
security holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at the end of
the fiscal quarter of the Company during which the Effective Date occurs (or 90
days if such 12-month period coincides with the Company's fiscal year), an
earning statement (which need not be audited) of the Company, covering such
12-month period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
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<PAGE> 19
(v) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and to each
other Underwriter a copy of the Registration Statement (without exhibits
thereto) and all amendments thereof and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Securities Act or the Rules, as
many copies of any preliminary prospectus and the Prospectus and any amendments
thereof and supplements thereto as the Representatives may reasonably request.
(vi) The Company shall cooperate with the Representatives
and their counsel in endeavoring to qualify the Shares for offer and sale in
connection with the offering under the laws of such jurisdictions as the
Representatives may designate and shall maintain such qualifications in effect
so long as required for the distribution of the Shares; provided, however, that
the Company shall not be required in connection therewith, as a condition
thereof, to qualify as a foreign corporation or to execute a general consent to
service of process in any jurisdiction or subject itself to taxation as doing
business in any jurisdiction.
(vii) Without the prior written consent of CIBC World
Markets Corp., for a period of 60 days after the date of this Agreement, the
Company and each of its individual directors and executive officers shall not
issue, sell or register with the Commission, or otherwise dispose of, directly
or indirectly, any equity securities of the Company (or any securities
convertible into, exercisable for or exchangeable for equity securities of the
Company), except for the issuance of the Shares pursuant to the Registration
Statement and the issuance of shares pursuant to the Company's existing stock
option plan or bonus plan as described in the Registration Statement and the
Prospectus.
(viii) On or before completion of this offering, the
Company shall make all filings required under applicable securities laws and by
the Nasdaq National Market (including any required registration under the
Exchange Act).
(ix) The Company will apply the net proceeds from the
offering of the Shares in the manner set forth under "Use of Proceeds" in the
Prospectus.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and the
printing, filing and distribution of this Agreement; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred to in Section
6(a)(vi), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to the Underwriters of copies
of each preliminary prospectus, the Prospectus and all amendments or
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<PAGE> 20
supplements to the Prospectus, and of the several documents required by this
Section to be so furnished, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold; (v) inclusion of the Shares for quotation on the Nasdaq
National Market; and (vi) all transfer taxes, if any, with respect to the sale
and delivery of the Shares by the Company to the Underwriters. Subject to the
provisions of Section 9, the Underwriters agree to pay, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the Company
pursuant to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement, the Prospectus, as amended or
supplemented and any other prospectus relating to the Shares, or any amendment
thereof or supplement thereto, or in any Blue Sky application or other
information or other documents executed by the Company filed in any state or
other jurisdiction to qualify any or all of the Shares under the securities laws
thereof (any such application, document or information being hereinafter
referred to as a "Blue Sky Application") or arise out of or are based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided, however, that the indemnification contained in this subsection (a)
with respect to any preliminary prospectus or prospectus supplement shall not
inure to the benefit of any Underwriter (or to the benefit any person
controlling such Underwriter) on account of any such losses, claims, damages,
liabilities or judgments arising from the sale of Shares by such Underwriter to
any person if a copy of the Prospectus (as amended or supplemented, if
applicable) shall not have been sent to such person within the time required by
the Act, and the untrue statement or alleged untrue statement or omission or
alleged omission of material fact contained in such preliminary prospectus or
prospectus supplement was corrected in the Prospectus (as amended or
supplemented, if applicable), provided that the Company has furnished the
Prospectus (as amended or supplemented, if applicable) to the Underwriters in
requisite quantity on a timely basis to permit such delivery or sending, (ii) in
whole or in part upon any breach of the representations and warranties set forth
in Section 4 hereof, or (iii) in whole or in part upon any failure of the
Company to perform any of its obligations hereunder or under law; provided,
however, that such indemnity shall not inure to the benefit of any Underwriter
(or any person controlling such Underwriter) on account of any losses, claims,
damages or liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration Statement,
the Prospectus, as amended or supplemented and any other
-20-
<PAGE> 21
prospectus relating to the Shares, or any amendment or supplement thereto, or in
any Blue Sky Application in reliance upon and in conformity with information
furnished in writing to the Company by the Representatives on behalf of any
Underwriter specifically for use therein; and provided further, that the
indemnification contained in this subsection (a) with respect to any preliminary
prospectus or prospectus supplement shall not inure to the benefit of any
Underwriter (or to the benefit any person controlling such Underwriter) on
account of any such losses, claims, damages, liabilities or judgments arising
from the sale of Shares by such Underwriter to any person if a copy of the
Prospectus (as amended or supplemented, if applicable) shall not have been sent
to such person within the time required by the Act, and the untrue statement or
alleged untrue statement or omission or alleged omission of material fact
contained in such preliminary prospectus was corrected in the Prospectus (as
amended or supplemented, if applicable), provided that the Company has furnished
the Prospectus (as amended or supplemented, if applicable) to the Underwriters
in requisite quantity on a timely basis to permit such delivery or sending. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, each director of the Company, and each officer of the
Company who signs the Registration Statement, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only insofar as
such losses, claims, damages or liabilities arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which was
made in any preliminary prospectus, the Registration Statement, the Prospectus,
as amended or supplemented and any other prospectus relating to the Shares, or
any amendment thereof or supplement thereto, contained in the (i) concession and
reallowance figures appearing under the caption "Underwriting" and (ii) the
stabilization information contained under the caption "Underwriting" in the
Prospectus; provided, however, that the obligation of each Underwriter to
indemnify the Company (including any controlling person, director or officer
thereof) shall be limited to the net proceeds received by the Company from such
Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 7(a) or 7(b) shall be available to any party who shall fail to give
notice as provided in this Section 7(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the
-21-
<PAGE> 22
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, except as provided below and except for the reasonable costs
of investigation subsequently incurred by such indemnified party in connection
with the defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
parties, (ii) the indemnified party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different from
or in addition to those available to the indemnifying party (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party; it being understood that the
indemnifying parties shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all indemnified parties in such action or actions) or
(iii) the indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying parties. An indemnifying party shall not be liable
for any settlement of any action, suit, proceeding or claim effected without its
written consent, which consent shall not be unreasonably withheld or delayed.
8. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Section 7(a) or
7(b) is due in accordance with its terms but for any reason is held to be
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or 7(b), then each indemnifying party shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by any person entitled hereunder
to contribution from any person who may be liable for contribution) to which the
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares or, if such allocation
is not permitted by applicable law or indemnification is not available as a
result of the indemnifying party not having received notice as provided in
Section 7 hereof, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts but before deducting expenses) received by the
Company as set forth in the table on the cover page of the Prospectus, bear to
(y) the underwriting discounts received by the Underwriters, as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company or
the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact related to
information supplied by the Company or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable
-22-
<PAGE> 23
considerations referred to above. Notwithstanding the provisions of this Section
8, (i) in no case shall any Underwriter (except as may be provided in the
Agreement Among Underwriters) be liable or responsible for any amount in excess
of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder; and (ii) the Company shall be liable and responsible for
any amount in excess of such underwriting discount; provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each person, if
any, who controls the Company within the meaning of the Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (i) and (ii) in the immediately preceding sentence of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company at any time if one of the following conditions is met:
(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in the
opinion of the Representatives will in the future materially disrupt, the
securities markets; (ii) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in the judgment of
the Representatives, inadvisable to proceed with the offering; (iii) if there
shall be such a material adverse change in general financial, political or
economic conditions or the effect of international conditions on the financial
markets in the United States is such as to make it, in the judgment of the
Representatives, inadvisable or impracticable to market the Shares; (iv) if
trading in the Shares has been suspended by the Commission or trading generally
on the New York Stock Exchange, Inc., on the American Stock Exchange, Inc. or
the Nasdaq National Market has been suspended or limited, or minimum or maximum
ranges for prices for securities shall have been fixed, or maximum ranges for
prices for securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any other
governmental or regulatory authority; or (v) if a banking moratorium has been
declared by any state or Federal authority; or (vi) if, in the judgment of the
Representatives, there has occurred a Material Adverse Effect, or
-23-
<PAGE> 24
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required by
this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no Underwriter
shall be under any liability to the Company, except that (y) if this Agreement
is terminated by the Representatives or the Underwriters because of any failure,
refusal or inability on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company
or to the other Underwriters for damages occasioned by its failure or refusal.
10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then each of
the nondefaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant
to this Section 10 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
shall be entitled to one additional business day within which it may, but is not
obligated to, find one or more substitute underwriters reasonably satisfactory
to the Representatives to purchase such Shares upon the terms set forth in this
Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the COMPANY. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing
-24-
<PAGE> 25
Date, and none of the nondefaulting Underwriters or the Company shall make
arrangements pursuant to this Section within the period stated for the purchase
of the Shares that the defaulting Underwriters agreed to purchase, this
Agreement shall terminate with respect to the Shares to be purchased on such
Closing Date without liability on the part of any nondefaulting Underwriter to
the Company and without liability on the part of the Company, except in both
cases as provided in Sections 6(b), 7, 8 and 9. The provisions of this Section
shall not in any way affect the liability of any defaulting Underwriter to the
Company or the nondefaulting Underwriters arising out of such default. A
substitute underwriter hereunder shall become an Underwriter for all purposes of
this Agreement.
11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers and
of the Underwriters set forth in or made pursuant to this Agreement shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(b), 7, 8
and 9 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters
and the Company and their respective successors and assigns, and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered or by telephone or telegraph if subsequently confirmed in writing,
(a) if to the Representatives, c/o CIBC World Markets Corp., One World Financial
Center, New York, New York 10281 Attention: Tom Ortwein, with a copy to Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California 94304 Attention: Jeffrey D. Saper, Esq., and (b) if to the
Company, to its agent for service as such agent's address appears on the cover
page of the Registration Statement with a copy to Morrison & Foerster LLP, 755
Page Mill Road, Palo Alto, California 94304 Attention: William D. Sherman, Esq.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
-25-
<PAGE> 26
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
SDL, INC.
By__________________________________
Title:_________________________
Confirmed:
CIBC WORLD MARKETS CORP.
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By CIBC WORLD MARKETS CORP.
By__________________________________
Title:_________________________
<PAGE> 27
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Name to be Purchased
---- ---------------------
<S> <C>
CIBC World Markets Corp. 1,061,250
Hambrecht & Quist LLC 523,550
Donaldson Lufkin & Jenrette Securities Corporation 311,300
Merrill Lynch, Pierce, Fenner & Smith Incorporated 311,300
SG Cowen Securities Corporation 311,300
SoundView Technology Group, Inc. 311,300
FAC/Equities, a division of First Albany Corporation 30,000
Gruntal & Co., L.L.C. 30,000
Hoefer & Arnett, Inc. 30,000
U.S. Bancorp Piper Jaffray Inc. 30,000
---------
TOTAL 2,950,000
=========
</TABLE>
<PAGE> 1
September 21, 1999
SDL, Inc.
80 Rose Orchard Way
San Jose, California 95134-1365
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
filed by SDL, Inc., a Delaware corporation (the "Company"), with the Securities
and Exchange Commission on August 12, 1999 (the "Registration Statement") and
the Prospectus and the Prospectus Supplement (collectively the "Prospectus")
relating to the registration and sale under the Securities Act of 1933, as
amended, of up to 3,392,500 shares of the Company's Common Stock, par value
$0.001 per Share (the "Stock"), to be offered and sold by the Company. The Stock
is to be sold to the underwriters named in the Registration Statement for resale
to the public.
As counsel to the Company, we have examined the proceedings taken by the
Company in connection with the issuance and sale by the Company of up to
3,392,500 shares of Stock.
We are of the opinion that the shares of Stock to be offered and sold by
the Company have been duly authorized and, when issued and sold by the Company
in the manner described in the Registration Statement and the Prospectus and in
accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the Prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-84925
PROSPECTUS SUPPLEMENT
TO PROSPECTUS DATED AUGUST 25, 1999
2,950,000 SHARES
[SDL LOGO]
SDL, INC.
COMMON STOCK
$82.00 PER SHARE
- --------------------------------------------------------------------------------
We are offering 2,950,000 shares of our common stock. This is a firm commitment
underwriting.
Our common stock is listed on the Nasdaq National Market under the symbol
"SDLI." On September 21, 1999, the last reported sales price of our common stock
on the Nasdaq National Market System was $83.94 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-6 OF THE PROSPECTUS SUPPLEMENT AND ON PAGE 5 OF THE ACCOMPANYING
PROSPECTUS.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Price to the public......................................... $82.00 $241,900,000
Underwriting discount....................................... 3.36 9,912,000
Our proceeds................................................ 78.64 231,988,000
</TABLE>
We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 442,500 additional shares
from us within 30 days following the date of this prospectus supplement to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC WORLD MARKETS
HAMBRECHT & QUIST
DONALDSON LUFKIN & JENRETTE
MERRILL LYNCH & CO.
SG COWEN
SOUNDVIEW TECHNOLOGY GROUP
The date of this Prospectus Supplement is September 21, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
About This Prospectus Supplement.......................... S-3
Special Note Regarding Forward-Looking Statements......... S-3
Prospectus Supplement Summary............................. S-4
Risk Factors.............................................. S-6
Use Of Proceeds........................................... S-8
Price Range Of Common Stock............................... S-8
Description Of Capital Stock.............................. S-8
Underwriting.............................................. S-9
Experts................................................... S-11
Legal Matters............................................. S-11
PROSPECTUS
About This Prospectus..................................... 2
Where You Can Find More Information....................... 2
Incorporation Of Certain Documents By Reference........... 3
The Company............................................... 3
Use Of Proceeds........................................... 4
Ratios Of Earnings To Fixed Charges....................... 4
Forward Looking Statements................................ 4
Risk Factors.............................................. 5
Description Of Common Stock............................... 14
Description Of Preferred Stock............................ 14
Description Of Depositary Shares.......................... 15
Description Of Warrants................................... 19
Description Of Debt Securities............................ 19
Delaware Law And Certain Charter Provisions............... 27
Plan Of Distribution...................................... 29
Legal Matters............................................. 30
Experts................................................... 30
</TABLE>
------------------------
As used in this prospectus supplement and the accompanying prospectus, the terms
"we," "us," "our," the "Company" and "SDL" mean SDL, Inc. and its subsidiaries
(unless the context indicates a different meaning), and the term "common stock"
means our common stock, $0.001 par value per share. Unless otherwise stated, all
information contained in this prospectus supplement and the accompanying
prospectus assumes no exercise of the over-allotment option granted to the
underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about September 24, 1999, against payment in immediately available funds.
S-2
<PAGE> 3
ABOUT THIS PROSPECTUS SUPPLEMENT
We provide information to you about this offering of shares of our Common Stock
in two separate documents: (a) the accompanying prospectus, which provides
general information, some of which may not apply to this offering, and (b) this
prospectus supplement, which describes the specific details regarding this
offering. Generally, when we refer to this "prospectus," we are referring to
both documents combined.
IF INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS INCONSISTENT WITH THE
PROSPECTUS, YOU SHOULD RELY ON THIS PROSPECTUS SUPPLEMENT.
You should read this prospectus supplement and the accompanying prospectus
carefully before you invest. Both documents contain information you should
consider when making your investment decision. You should also read and consider
the information in the documents to which we have referred you in "Where You Can
Find More Information" on page 2 of the accompanying prospectus.
If we use a capitalized term in this prospectus supplement and do not define the
term in this document, the capitalized term is defined in the prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus supplement contains forward-looking statements, such as those
pertaining to our (including certain of our subsidiaries') technology, products,
and business performance. Forward-looking statements involve numerous risks and
uncertainties and you should not rely on them as predictions of future events.
There is no assurance that the events or circumstances reflected in
forward-looking statements will be achieved or will occur. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and we may not be able to realize
them. We caution you not to place undue reliance on forward-looking statements,
which reflect our analysis only. It is important to note that our 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 under the caption "Risk Factors." You should also consult our
reports on Form 10-K and Form 10-K/A for the year ended January 1, 1999, on Form
10-Q for the quarter ended March 31, 1999, on the Form 10-Q for the quarter
ended June 30, 1999 and other reports filed by us from time to time under the
Exchange Act for risks associated with investing in our common stock.
S-3
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this prospectus
supplement, including the information under the caption "Risk Factors," the
accompanying prospectus and in documents incorporated by reference therein.
THE COMPANY
We design, manufacture and market fiber optic related products, lasers and
optoelectronic systems. Our products are used in diverse markets such as
telecommunications, cable television, dense wavelength division multiplexing
("DWDM"), satellite communications, printing, medical and materials processing.
We were established in 1983 as a joint venture between Xerox and Spectra-Physics
to develop and commercialize semiconductor laser technology. Our management led
a group to buy-out the joint venture partners in 1992 and we issued our common
stock to the public in an initial public offering in 1995 and our common stock
was approved for quotation on the Nasdaq National Market System at the same
time. Our technical staff, including over fifty PhDs, represents one of the
largest investments in core technology in the photonics industry. From the
original products introduced in 1984, we have expanded our product offering to
over 150 standard products in addition to providing custom design and packaging
for original equipment manufacturer ("OEM") customers. Our revenue also includes
revenue from customer-funded research programs.
In 1995, our management recognized that our core technical strengths of high
reliability and high power were particularly well-suited to the growing market
opportunity in fiber optic communications. Since the acquisition of Seastar
Optics in 1995, our strategy has increasingly focused on providing solutions for
optical communications. Our optical communications products power the
transmission of data, voice and Internet information over fiber optic networks
to meet the needs of telecommunications, DWDM, cable television and satellite
communications applications. Led by growth in shipments of our flagship 980 nm
semiconductor laser pump module, revenue in 1998 from fiber optic products for
terrestrial, undersea and cable television communications increased by more than
100 percent compared with 1997. Overall, communications-related revenue
increased to 73 percent of total revenue in the first half of 1999. In May 1999,
in a transaction accounted for as a pooling-of-interests, we completed the
acquisition of IOC International plc ("IOC"), a United Kingdom-based provider of
lithium niobate modulators. We believe the merger with IOC will strengthen our
position in the transmitter portion of the DWDM telecommunications market.
Our address is SDL, Inc., 80 Rose Orchard Way, San Jose, California 95134-1365,
and our telephone number is (408) 943-9411.
THE OFFERING
Common Stock offered.......... 2,950,000 shares
Common Stock to be outstanding
after the offering............ 34,199,572 shares
Use of proceeds............... For capital expenditures, general corporate
purposes, including working capital, and to
fund potential acquisitions.
Nasdaq National Market
symbol........................ SDLI
- ------------------------
These share numbers are based on shares outstanding as of June 30, 1999 and
exclude:
- 4,528,966 shares of common stock issuable upon exercise of outstanding
options at an average exercise price of $15.62; and
- shares of common stock reserved for issuance under our stock option plans
upon exercise of options not yet granted.
S-4
<PAGE> 5
SELECTED FINANCIAL DATA
The following table summarizes the financial data for our business during the
periods indicated. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto incorporated by
reference in the accompanying prospectus.
The following financial data includes the operating results of IOC for all
periods presented. We acquired IOC in May 1999, in a transaction accounted for
as a pooling of interests. Also, in May 1999, we authorized a two-for-one split
of our common stock. All of the share and per share data in the selected
financial data have been retroactively adjusted to reflect the stock split.
The information under "As Adjusted" reflects the application of the proceeds
from the sale by us of 2,950,000 shares of common stock in this offering at an
offering price of $82.00 per share, net of the underwriting discount and
estimated offering expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $88,224 $102,119 $112,792 $55,299 $80,837
Gross margin........................... 31,149 30,874 38,731 17,038 32,831
Operating income (loss)................ 9,499 (25,544)(1) 7,702 2,524 8,074
Net income (loss)...................... $ 8,139 $(24,353)(1) $ 7,903 $ 2,649 $ 5,834
Net income (loss) per share:
Basic................................ $ 0.33 $ (0.87)(1) $ 0.28 $ 0.09 $ 0.19
Diluted.............................. $ 0.30 $ (0.87)(1) $ 0.26 $ 0.09 $ 0.18
Shares used in per share calculation:
Basic................................ 24,756 27,888 28,718 28,442 30,518
Diluted.............................. 27,238 27,888 30,362 30,149 32,554
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term marketable
securities................................................ $ 27,575 $259,163
Working capital............................................. 65,879 297,467
Total assets................................................ 151,271 382,859
Long-term debt, less current portion........................ 567 567
Stockholders' equity........................................ 119,336 350,924
</TABLE>
- ------------
(1) Includes approximately $27.5 million of litigation settlement and related
expenses, as discussed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operation" included in our 1998 Form
10-K.
S-5
<PAGE> 6
RISK FACTORS
BEFORE PURCHASING OUR COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE RISKS
DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 5 OF THE
ACCOMPANYING PROSPECTUS AND THE RISKS DESCRIBED IN THE DOCUMENTS INCORPORATED BY
REFERENCE THEREIN TOGETHER WITH THE RISK FACTORS DESCRIBED BELOW:
A DECREASE IN DEMAND FOR OUR PRODUCTS THAT ARE BASED ON DENSE WAVELENGTH
DIVISION MULTIPLEXING TECHNOLOGY WOULD SIGNIFICANTLY DECREASE OUR REVENUES
A majority of our revenues are derived from sales of products which rely on
dense wavelength division multiplexing, or DWDM, technology. As the market for
DWDM products grew last year, our revenues from the sale of our DWDM products
increased significantly and we expect that the percentage of our overall
revenues attributable to the sale of our DWDM products will continue to increase
for the foreseeable future. If the markets for optoelectronic products move away
from DWDM technology and begin using new technologies, we may not be able to
successfully design and manufacture new products that use these new
technologies. There is also the risk that new products we develop in response to
new technologies may not be accepted in the market. In addition, DWDM technology
is continuously evolving, and we may not be able to modify our products to
address new DWDM specifications. Any of these events would have a material
adverse effect on our business.
OUR SALES WOULD SUFFER IF ONE OR MORE OF OUR KEY CUSTOMERS SUBSTANTIALLY REDUCED
OR CANCELLED ORDERS FOR OUR PRODUCTS
Our top ten customers accounted for a substantial majority of our net revenues
for 1998 and for the six months ended June 30, 1999. During the quarter ended
June 30, 1999, three customers each accounted for over 10% of our revenues.
Although not all of these customers may continue to account for such a
percentage of our revenues, we anticipate that we will continue to be dependent
upon a relatively limited number of customers for a significant portion of our
net revenues in future periods. Most of our customers are not presently
obligated to purchase any specified amount of products or to provide us with
binding forecasts of product purchases for any period. The reduction, delay or
cancellation of orders from one of our significant customers could materially
and adversely affect our financial condition and results of operations. There
can be no assurance that significant customers will not reduce, cancel or delay
orders.
OUR QUALIFICATION AND SALES CYCLE IS LENGTHY AND CAN RESULT IN UNEXPECTED DELAYS
WITH RESPECT TO ANTICIPATED REVENUES
Our customers typically perform numerous tests and extensively evaluate our
products before incorporating them into their systems. The time required for the
process of designing, testing, evaluating, qualifying and integrating our
products into customers' equipment can take up to twelve months. It can take an
additional six months or more before a customer commences volume shipments of
equipment that incorporates our products. Because of this lengthy qualification
and sales cycle, we may experience a delay between the time when we incur
expenses for research and development and sales and marketing efforts and the
time when we generate revenues, if any, from these expenditures.
In addition, the delays inherent in our lengthy qualification and sales cycle
raise additional risk that customers may decide to cancel or change product
plans. After a customer selects our technology, there can be no assurance that
the customer will ultimately ship products incorporating our products. Our
business could be materially adversely affected if during our lengthy
qualification and sales cycle a significant customer reduces or delays orders or
chooses not to release products incorporating our products.
S-6
<PAGE> 7
CHANGES IN OUR PRODUCT MIX MAY ADVERSELY AFFECT OUR OPERATING RESULTS
We sell a variety of products, with differing margins, and we introduce new
products to the markets from time to time. The proportional mix of the products
that we sell changes from quarter to quarter. This change in product mix may
adversely affect our operating results if, for example, we sell more products
with lower margins in a particular quarter. Further, our ability to address
changes in the market demand for our specific products depends on our ability to
ramp up production for products with increased demand and to ramp down
production for products with decreased demand. If we are not able to
successfully manage the production cycles for our products, our operating
results would be adversely affected.
S-7
<PAGE> 8
USE OF PROCEEDS
The net proceeds to us from this offering will be $231,588,000. If the
underwriters fully exercise the over-allotment option, the net proceeds will be
$266,386,200. We currently plan to use approximately $35,000,000 of the net
proceeds for capital expenditures that we anticipate making over the next twelve
months. The remaining net proceeds will be used for general corporate purposes,
including working capital. We may also use a portion of the net proceeds to fund
potential acquisitions; however, we have no present commitments and are not
currently actively engaged in any negotiations with respect to any acquisitions.
Pending use of the net proceeds for any of these purposes, we may invest the net
proceeds in short-term investment grade instruments, interest-bearing bank
accounts, certificates of deposit, money market securities, U.S. government
securities or mortgage-backed securities guaranteed by federal agencies.
PRICE RANGE OF COMMON STOCK
The price of our common stock is quoted on the Nasdaq National Market under the
symbol "SDLI." The following table sets forth, for the periods indicated, the
highest and lowest closing sale prices per share of our common stock as reported
on the Nasdaq National Market. On September 21, 1999, the last reported sale
price on the Nasdaq National Market was $83.94 per share.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
FISCAL YEAR 1998
First Quarter............................................. $ 12.00 $ 7.57
Second Quarter............................................ 13.75 9.82
Third Quarter............................................. 14.53 6.25
Fourth Quarter............................................ 20.94 4.88
FISCAL YEAR 1999
First Quarter............................................. $ 45.38 $19.88
Second Quarter............................................ 61.94 40.03
Third Quarter (through September 21, 1999)................ 91.13 52.88
</TABLE>
DESCRIPTION OF CAPITAL STOCK
For a general description of our capital stock, including our common stock, see
"Description of Common Stock," and "Description of Preferred Stock," in the
accompanying prospectus. The description of our capital stock in the
accompanying prospectus and of certain provisions of Delaware law do not purport
to be complete and are subject to and qualified in their entirety by reference
to our Restated Certificate of Incorporation, as amended, our Bylaws and
Delaware law. Copies of those documents have been filed with the Securities and
Exchange Commission. See "Where You Can Find More Information" in the
accompanying prospectus.
S-8
<PAGE> 9
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., Hambrecht & Quist LLC, Donaldson, Lufkin &
Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, SG Cowen Securities Corporation and SoundView Technology Group,
Inc. are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
CIBC World Markets Corp. ................................... 1,061,250
Hambrecht & Quist LLC....................................... 523,550
Donaldson Lufkin & Jenrette Securities Corporation.......... 311,300
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 311,300
SG Cowen Securities Corporation............................. 311,300
SoundView Technology Group, Inc. ........................... 311,300
FAC/Equities, a division of First Albany Corporation........ 30,000
Gruntal & Co., L.L.C. ...................................... 30,000
Hoefer & Arnett, Inc. ...................................... 30,000
U.S. Bancorp Piper Jaffray Inc. ............................ 30,000
----------
Total............................................. 2,950,000
----------
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus supplement
(other than those covered by the over-allotment option described below) if any
are purchased. Under the underwriting agreement, if an underwriter defaults in
its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The representatives have advised us that the underwriters propose to offer the
shares directly to the public at the public offering price that appears on the
cover page of this prospectus. In addition, the representatives may offer some
of the shares to certain securities dealers at such price less a concession of
$2.00 per share. The underwriters may also allow, and such dealers may reallow,
a concession not in excess of $0.10 per share to certain other dealers. After
the shares are released for sale to the public, the representatives may change
the offering price and other selling terms at various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 442,500 additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the public offering price that
appears on the cover page of this prospectus, less the underwriting discount. If
this option is exercised in full, the total price to public will be
approximately $278 million, and the total proceeds to us will be approximately
$266 million. The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter's initial amount reflected in
the foregoing table.
S-9
<PAGE> 10
The following table provides information regarding the amount of the discount to
be given to the underwriters by us.
<TABLE>
<CAPTION>
TOTAL
--------------------------------------
TOTAL WITH FULL
WITHOUT EXERCISE OF EXERCISE OF
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
- --------- ------------------- ---------------
<S> <C> <C>
$3.36 $9,912,000 $11,398,800
</TABLE>
We will pay all of the expenses of the offering, excluding the underwriting
discount, which we estimate to be approximately $400,000. We have agreed to
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act of 1933.
We, our officers and directors and certain other stockholders have agreed to a
60-day "lock up" with respect to approximately 2,280,000 shares of common stock
beneficially owned, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, subject to certain exceptions, for a period of 60
days following the date of this prospectus, we may not directly or indirectly
offer, sell, pledge or otherwise dispose of those securities without the prior
written consent of CIBC World Markets Corp. CIBC World Markets Corp., however,
may, in its sole discretion and at any time without notice, release all or a
portion of the shares subject to these agreements.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.
- Passive market making -- Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to certain limitations, until the time, if ever, at which a stabilizing bid
is made.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued without notice at
any time.
S-10
<PAGE> 11
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements included in our Current Report on Form 8-K dated May 18, 1999, as set
forth in their report, which is incorporated by reference in this prospectus,
which is based in part on the report of Arthur Andersen, independent auditors.
These consolidated financial statements are incorporated by reference in
reliance on such reports given on the authority of such firms as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
S-11
<PAGE> 12
PROSPECTUS
$300,000,000
[SDL LOGO]
COMMON STOCK, PREFERRED STOCK, DEPOSITARY SHARES,
WARRANTS AND DEBT SECURITIES
- --------------------------------------------------------------------------------
SDL, Inc. may offer, from time to time, in one or more series or classes and in
amounts, at prices and on terms that it will determine at the time of offering,
with an aggregate public offering price of up to $300,000,000 (or its equivalent
in another currency based on the exchange rate at the time of sale):
- shares of common stock, $0.001 par value per share;
- shares of preferred stock, $0.001 par value per share;
- shares of preferred stock represented by depositary shares;
- warrants to purchase common stock or preferred stock; and
- debt securities.
We will provide the specific terms of these securities in supplements to this
prospectus. You should read this prospectus and the applicable supplement
carefully before you invest.
Our common stock is listed on the NASDAQ National Market System under the symbol
"SDLI."
------------------------
INVESTING IN THE SECURITIES INVOLVES RISKS WHICH ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
The date of this prospectus is August 25, 1999.
<PAGE> 13
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may sell any combination of the common stock, preferred
stock, depositary shares, warrants and debt securities described in this
prospectus in one or more offerings up to a total dollar amount of $300,000,000.
This prospectus provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and the applicable
prospectus supplement together with additional information described under the
heading "Where You Can Find More Information."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "SDL", "we," "us," "our" or the "Company" mean
SDL, Inc. and its subsidiaries. When we refer to our "Charter" we mean the
Company's Restated Certificate of Incorporation, as amended, and as supplemented
by the Certificate of Designation for the Series B Preferred Stock.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any document we file with the SEC at the SEC's public
reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The SEC
also maintains a web site that contains reports, proxy and information
statements, and other information regarding registrants that file electronically
with the SEC (http://www.sec.gov). You can inspect reports and other information
we file at the offices of the National Association of Securities Dealers, Inc.,
1735 K. Street, N.W., Washington, D.C. 20006.
We have filed a registration statement of which this prospectus is a part and
related exhibits with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"). The registration statement contains additional information
about us and the securities. You may inspect the registration statement and
exhibits without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and you may obtain copies from the SEC at prescribed
rates.
2
<PAGE> 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with the
SEC, which means that we can disclose important information to you by referring
to those documents. The information incorporated by reference is an important
part of this prospectus. Any statement contained in a document which is
incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
- SDL's Annual Reports on Form 10-K and Form 10-K/A for the year ended
January 1, 1999;
- SDL's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999;
- SDL's Definitive Proxy Statement dated April 9, 1999, filed in connection
with SDL's 1999 Annual Meeting of Stockholders held on May 13, 1999;
- SDL's current reports on Form 8-K each dated as of May 18, 1999 filed
with the SEC on June 2, 1999 and June 29, 1999;
- the description of SDL's common stock contained in SDL's Registration
Statement on Form 8-A filed on March 31, 1995 under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
- the description of SDL's preferred stock rights contained in SDL's
Registration Statement on Form 8-A filed on November 7, 1997 under
Section 12 of the Exchange Act, including SDL's Registration Statement on
Form 8-A/A filed on March 19, 1999 updating such description;
- all documents filed by the Company with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the
initial registration statement and prior to effectiveness of the
registration statement; and
- all documents filed by the Company with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of this offering.
You should rely only on the information incorporated by reference or set forth
in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. We may only
use this prospectus to sell securities if it is accompanied by a prospectus
supplement. We are only offering these securities in states where the offer is
permitted. You should not assume that the information in this prospectus or the
applicable prospectus supplement is accurate as of any date other than the dates
on the front of these documents.
THE COMPANY
SDL designs, manufactures and markets fiber optic related products, lasers and
optoelectronic systems. Its products are used in a diversity of markets such as
telecommunications, cable television, dense wavelength division multiplexing
("DWDM"), satellite communications, printing, medical and materials processing.
SDL was established in 1983 as a joint venture between Xerox and Spectra-Physics
to develop and commercialize semiconductor laser technology. The management of
SDL led a group to buy-out the joint venture partners in 1992 and the Company
issued its common stock to the public in an initial public offering in 1995 and
was admitted to NASDAQ at the same time. SDL's technical staff, including over
fifty PhDs, represents one of the largest investments in core technology in the
photonics industry. From the original products introduced in 1984, SDL has
expanded its product offering to over 150 standard products in addition to
providing custom design and packaging for original equipment manufacturer
("OEM") customers. SDL's revenue also includes revenue from customer-funded
research programs.
3
<PAGE> 15
By 1995, the management of SDL recognized that its core technical strengths of
high reliability and high power were particularly well-suited to the growing
market opportunity in fiber optic communications. Since the acquisition of
Seastar Optics in 1995, SDL's strategy has increasingly focused on providing
solutions for optical communications. SDL's optical communications products
power the transmission of data, voice and Internet information over fiber optic
networks to meet the needs of telecommunications, DWDM, cable television and
satellite communications applications. Led by growth in shipments of our
flagship 980 nm semiconductor laser pump module, revenue in 1998 from fiber
optic products for terrestrial, undersea and cable television communications
increased by more than 100 percent compared with 1997. Overall,
communications-related revenue increased to 73 percent of total revenue in the
first half of 1999. In May 1999, in a transaction accounted for as a
pooling-of-interest, SDL completed the acquisition of IOC International plc
("IOC"), a United Kingdom-based provider of lithium niobate modulators. SDL
believes the merger with IOC will strengthen SDL's position in the transmitter
portion of the DWDM telecommunications market.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement, the Company
intends to use the net proceeds of any sale of securities pursuant to this
prospectus for general corporate purposes.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth SDL's consolidated ratios of earnings to fixed
charges for the periods shown.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
------------- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................ 10.5x 8.1x N/A 17.2x N/A 4.1x
</TABLE>
SDL had net losses for the years ended December 31, 1997 and 1995. Consequently,
earnings were insufficient to cover fixed charges by approximately $23.9 million
and $0.9 million in the years ended December 31, 1997 and 1995, respectively.
The ratio of earnings to fixed charges in computed as income before income
taxes, plus fixed charges, divided by fixed charges. Fixed charges consist of
interest expense and an estimated component of rental expense.
FORWARD LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to our
(including certain of our subsidiaries') technology, products, and business
performance. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. There is no
assurance that the events or circumstances reflected in forward-looking
statements will be achieved or will occur. You can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates" or "anticipates" or the negative of these
words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and we may not be able to realize
them. We caution you not to place undue reliance on forward-looking statements,
which reflect our analysis only. 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 under the caption "Risk Factors". You
should also consult the risk factors listed in the Company's Reports on Form
10-K and Form 10-K/A for the year ended January 1, 1999, on Form 10-Q for the
quarter ended March 31, 1999, on Form 10-Q for the quarter ended June 30, 1999
and on other reports filed by SDL from time to time under the Exchange Act.
4
<PAGE> 16
RISK FACTORS
SDL HAS EXPERIENCED AND COULD AGAIN EXPERIENCE MANUFACTURING DIFFICULTIES
The manufacture of semiconductor lasers and related products and systems that we
sell is highly complex and precise, requiring production in a highly controlled
and clean environment. Changes in the manufacturing processes or the inadvertent
use of defective or contaminated materials by us or our suppliers have in the
past and could in the future significantly impair our ability to achieve
acceptable manufacturing yields and product reliability. If we do not achieve
acceptable yields or product reliability, our operating results and customer
relationships will be adversely affected. We rely almost exclusively on our own
production capability in:
- computer-aided chip and package design,
- wafer fabrication,
- wafer processing,
- device packaging,
- hybrid microelectronic packaging,
- printed circuit board testing, and
- final assembly and testing of products.
Because we manufacture, package and test these components, products and systems
at our own facility, and because these components, products and systems are not
readily available from other sources, our business and results of operations
will be significantly impaired if our manufacturing is interrupted by any of the
following:
- shortages of parts of equipment,
- equipment failures,
- poor yields,
- fire or natural disaster, or
- otherwise.
A significant portion of our production relies or occurs on equipment for which
we do not have a backup. To alleviate, at least in part, this situation, we
remodeled our front-end wafer fabrication facility and our packaging and test
facility. We cannot assure you that we will not experience further start-up
costs and yield problems in fully utilizing our increased wafer capacity
targeted by these remodeling efforts. In addition, we are deploying a new
manufacturing execution software system designed to further automate and
streamline our manufacturing processes, and there may be unforeseen deficiencies
in this system which could adversely affect our manufacturing processes. In the
event of any disruption in production by one of these machines or systems, our
business and results of operations could be materially adversely affected.
Furthermore, we have a limited number of employees dedicated to the operation
and maintenance of our equipment, loss of whom could affect our ability to
effectively operate and service our equipment. We experienced lower than
expected production yields on some of our products, including certain key
product lines during 1997 and the first half of 1998. This reduction in yields:
- adversely affected gross margins,
- delayed component, product and system shipments, and
- to a certain extent, delayed new orders booked.
Although more recently, our yields have improved, we cannot assure you that
yields will continue to improve or not decline in the future, nor that in the
future our manufacturing yields will be acceptable to
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ship products on time. To the extent that we experience lower than expected
manufacturing yields or experience any shipment delays, gross margins will
likely be significantly reduced and we could lose customers and experience
reduced or delayed customer orders and cancellation of existing backlog. We
presently are ramping production of some of our product lines by:
- hiring and training now personnel,
- acquiring new equipment, and
- expanding our packaging facilities and capabilities.
Difficulties in starting production to meet expected demand and schedules have
occurred in the past and may occur in the future including the following:
- quality problems could arise, yields could fall, and gross margins could
be reduced during such a ramp.
- aggressive volume pricing for large long-term orders has been provided to
certain customers.
- cost reductions in manufacturing are required to avoid a drop in gross
margins for certain products sold to customers receiving volume pricing.
These cost reductions may not occur rapidly enough to avoid a decrease in gross
margins on products sold under volume pricing terms. In that event, our business
and results of operations would be materially adversely affected.
OUR BUSINESS DEPENDS ON DEVELOPING NEW PRODUCTS AND APPLICATIONS
Our current products serve many applications in the communications and materials
processing and printing markets. In many cases, our products are substantially
completed, but the customer's product incorporating our products is not yet
completed or the applications or markets for the customer's product are new or
emerging. In addition, some of our customers are currently in the process of
developing new products that are in various stages of development, testing and
qualification, and sometimes are in emerging applications or new markets.
We believe that rapid customer acceptance of our new products is key to our
financial results. A substantial portion of our products address markets that
are not now, and may never become, substantial commercial markets. We have
experienced, and are expected to continue to experience, fluctuation in customer
orders and competitive, technological and pricing constraints that may preclude
development of markets for our products and our customers' products.
Our customers are often required to test and qualify laser pump modules,
transmitters, and marking systems among other new products for potential volume
applications. We cannot assure you that:
- we or our customers will continue their existing product development
efforts, or if continued that such efforts will be successful,
- markets will develop for any of our technology or that pricing will
enable such markets to develop, or
- other technology or products will not supersede our products or our
customer's products.
We may also be unable to develop new products on a timely schedule. Moreover,
even if we are successful in the timely development of new products that are
accepted in the market, we often experience lower margins on these products. The
lower margins are due to lower yields and other factors, and thus we may be
unable to manufacture and sell new products at an acceptable cost so as to
achieve acceptable gross margins.
OUR GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES
We have on occasion been unable to manufacture products in quantities sufficient
to meet demand of our existing customer base and new customers. The expansion in
the scope of our operations has placed a
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considerable strain on our management, financial, manufacturing and other
resources and has required us to implement and improve a variety of operating,
financial and other systems, procedures and controls. In addition, we are
currently deploying a new enterprise resource planning system.
We cannot assure you that any existing or new systems, procedures or controls
will be adequate to support our operations or that our 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 our
business could have a material adverse effect on our business and results of
operations.
Our future success is dependent, in part, on our ability to attract, assimilate
and retain additional employees, including certain key personnel. We will
continue to need a substantial number of additional personnel, including those
with specialized skills, to commercialize our products and expand all areas of
our business in order to continue to grow. Competition for such personnel is
intense, and we cannot assure you that we will be able to attract, assimilate or
retain additional highly qualified personnel.
OUR ACQUISITION STRATEGY POSES SEVERAL RISKS
Our strategy involves the acquisition and integration of additional companies'
products, technologies and personnel. We have limited experience in acquiring
outside businesses. Acquisition of businesses requires substantial time and
attention of management personnel and may require additional equity or debt
financings. Furthermore, integration of newly established or acquired businesses
is often disruptive. Since we have acquired or in the future may acquire one or
more businesses, we cannot assure you that we will:
- identify appropriate targets,
- acquire such businesses on favorable terms, or
- be able to successfully integrate such organizations into our business.
Failure to do so could significantly impair our business, financial condition
and results of operations.
WE HAVE DEPENDED ON GOVERNMENT PROGRAMS AND CONTRACTS
We derived approximately 26 percent, 34 percent, and 40 percent of our revenue
during fiscal 1998, 1997, and 1996, respectively, directly and indirectly from a
variety of Federal government sources. We received approximately 13 percent, 17
percent and 20 percent of our revenue for fiscal 1998, 1997 and 1996,
respectively, from Lockheed Martin through several US government and commercial
programs. We derived almost all of our revenue from Lockheed Martin during these
periods from Federally-funded programs.
The demand for certain of our services and products is directly related to the
level of funding of government programs. We believe that the success and further
development of our business is dependent, in significant part, upon the
continued existence and funding of such programs and upon our ability to
participate in such programs. For example, Federal programs funded substantially
all of our research revenue for 1998, 1997 and 1996. Most of our
Federally-funded programs are subject to renewal every one or two years, so that
continued work by us under these programs in future periods is not assured. For
example, we have been informed by Lockheed Martin that one of our largest
federally funded programs will wind down in 1999. Federally-funded programs are
subject to termination for convenience of the government agency, at which point
we 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 our accounting methodology for computing indirect rates and allocating
indirect costs to government contracts. The government is currently challenging
certain indirect cost allocations. While we believe that amounts recorded on our
financial statements are adequate to cover all related risks, the government has
not concluded its investigation or agreed to a settlement with us. Although the
outcome of this matter cannot be determined at this time, we do not believe that
its outcome will have a material
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adverse effect on our financial position, results of operations and cash flows.
However, based on future developments, our estimate of the outcome of these
matters could change in the near term. In addition, a change in our accounting
practices in this area could result in reduced profit margins on government
contracts.
WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO HIRE QUALIFIED PERSONNEL
Our future performance also depends in significant part upon the continued
service of our key technical and senior management personnel. The loss of the
services of one or more of our officers or other key employees could
significantly impair our business, operating results and financial condition.
While many of our current employees have many years of service with us, there
can be no assurance that we will be able to retain our existing personnel. If we
are unable to retain and hire additional personnel, our business and results of
operations could be materially and adversely affected. See also "Our Acquisition
Strategy Poses Several Risks."
WE HAVE BEEN SUBJECT TO PATENT INFRINGEMENT CLAIMS
The semiconductor, optoelectronics, communications, information and laser
industries are characterized by frequent litigation regarding patent and other
intellectual property rights. From time to time we have received and may receive
in the future, notice of claims of infringement of other parties' proprietary
rights and licensing offers to commercialize third party patent rights. In
addition, we cannot assure you that:
- additional infringement claims (or claims for indemnification resulting
from infringement claims) will not be asserted against us, or
- that existing claims or any other assertions will not result in an
injunction against the sale of infringing products or otherwise
significantly impair our business and results of operations.
In 1985, we first received correspondence from Rockwell International
Corporation alleging that we used a fabrication process that infringes
Rockwell's patent rights. Those allegations led to two related lawsuits, one of
which is still pending. The first lawsuit was filed in August 1993, when
Rockwell sued the Federal government in the United States Court of Federal
Claims, alleging infringement of these patent rights with respect to the
contracts the Federal government has had with at least 15 companies, including
us (Rockwell International Corporation v. the United States of America, No.
93-542C (US Ct. Fed. CO)). We were not originally named as a party to this
lawsuit. However, the Federal government asserted that, if it was held liable to
Rockwell for infringement of Rockwell's patent rights in connection with some of
its contracts with us, then we would be liable to indemnify the Federal
government for a portion of its liability on certain contracts.
In June 1995, after Rockwell filed a second lawsuit against us in the Northern
District of California, we filed a motion to intervene in the first lawsuit.
That motion was granted on August 17, 1995. Upon intervening in the Federal
government's lawsuit, we filed an answer to Rockwell's complaint, alleging that:
- Rockwell's patent was invalid and that we did not infringe Rockwell's
patent,
- Rockwell's patent was unenforceable under the doctrine of inequitable
conduct, and
- Rockwell's action is barred by the doctrines of laches and equitable
estoppel.
After extensive discovery, we moved, as did the Federal government, for summary
judgment on the ground that Rockwell's patent was invalid. By order dated
February 5, 1997, the Court of Federal Claims granted those motions and entered
judgment in our favor and in favor of the Federal government. However, Rockwell
appealed the Court of Federal Claims' decision, and on June 15, 1998, the United
States Court of Appeals for the Federal Circuit issued an opinion vacating the
judgment that had been entered in our favor and in favor of the Federal
government. The Federal Circuit held that the Court of Federal Claims
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had erred in finding that there were no genuine disputes of material fact
concerning the obviousness of the Rockwell patent, and that the resolution of
this and other disputes requires a trial. The Federal Circuit:
- remanded the case back to the trial court for further proceedings on the
issue of whether Rockwell's patent was invalid on obviousness grounds,
and
- affirmed the Court of Federal Claims' denial of our motion for summary
judgment of invalidity based on anticipation, as well as the Court of
Federal Claims' claim construction.
Subsequent to the Federal Circuit's action, Rockwell and the United States
reached a settlement in the first lawsuit which had been filed on August 1993.
Pursuant to the settlement, a judgment was entered in Rockwell's favor against
the Federal government in the amount of $16,900,000. We did not participate in
the settlement. The Federal government has not again raised the issue of our
potential indemnity obligation.
As noted above, we made our decision to intervene in the lawsuit filed on August
1993 after Rockwell filed suit against us in the Northern District of California
in May 1995, alleging that we had infringed the Rockwell patent in connection
with our manufacture and sale of products to customers other than the United
States. Again, the complaint alleges that we used a fabrication process that
infringes the Rockwell patent (Rockwell International Corporation v. SDL, Inc.,
No. C95-01729 MHP (US Dist. Ct., N.D. Cal.)). By its complaint, Rockwell seeks a
permanent injunction against us to:
- enjoin us from infringement of the Rockwell patent,
- require us to pay damages in an unspecified amount for our alleged past
infringement of the patent, treble damages and attorneys' fees.
The complaint was served on us on June 30, 1995, and we filed an answer to the
complaint on August 18, 1995, alleging that:
- Rockwell's patent is invalid,
- we did not infringe Rockwell's patent,
- Rockwell's patent is unenforceable under the doctrine of inequitable
conduct, and
- Rockwell's action is barred by the doctrines of laches and equitable
estoppel.
On August 11, 1995, prior to filing our answer, we filed a motion to stay this
action based upon the pendency of the lawsuit brought the Federal government.
The District Court granted our motion to stay on September 15, 1995. Subsequent
to the settlement of the lawsuit against the Federal government, the District
Court lifted the stay, and discovery has re-commenced for the lawsuit filed on
May 1995.
Although the Court of Federal Claims ruled in our favor, finding the patent
invalid on motion for summary judgment, the Court of Appeals for the Federal
Circuit reversed the summary judgment ruling, meaning that the issue of validity
needed to go to trial. Such a trial would now occur before a jury in California.
We believe that we have meritorious defenses to Rockwell's allegations. It
should be noted that the resolution of intellectual property disputes is often
fact intensive and, therefore, the results are inherently uncertain. There can
be no assurance that Rockwell will not ultimately prevail in this dispute. If
Rockwell were to prevail, Rockwell could be awarded substantial monetary damages
and/or an injunction against us for the sale of infringing products. If this
injunction were entered, we may seek to obtain a license to use Rockwell's
patent.
We cannot assure you, however, that a license would be available on reasonable
terms or at all. The award of monetary damages against us, or the grant of an
injunction and failure to obtain a license to use Rockwell's patent on
commercially reasonable terms could have a material adverse effect on our
business and results of operations. Litigation of Rockwell's claim against us is
expected to involve significant expense to us and could divert the attention of
our technical and management personnel and could have a material adverse effect
on our business and results of operations.
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In addition, we are involved in various legal proceedings arising in the
ordinary course of our business.
ORDERS FROM OUR CUSTOMERS FLUCTUATE
Our product revenue is subject to fluctuations in customer orders. Occasionally,
some of our customers have ordered more products than they need in a given
period, thereby building up inventory and delaying placement of subsequent
orders until such inventory has been reduced. We may also build inventory in
anticipation of receiving new orders in the future. Also, customers have
occasionally placed large orders that they have subsequently cancelled. In
addition, due to the fact that our sales of our 980 nm pump module products
comprise a significant portion of our total revenues, our revenues are
particularly susceptible to customer order fluctuations for this product. These
fluctuations, cancellations and the failure to receive new orders can have
adverse effects on our business and results of operations. We may also have
incurred significant inventory or other expenses in preparing to fill such
orders prior to their cancellation. Virtually our entire backlog is subject to
cancellation. Cancellation of significant portions of our backlog, or delays in
scheduled delivery dates, could have a material adverse effect on our business
and results of operations.
WE DEPEND ON OWNERSHIP OF OUR TECHNOLOGY AND OUR TECHNICAL EXPERTISE
Our future success and competitive position is dependent in part upon our
proprietary technology, and we rely in part on patent, trade secret, trademark
and copyright law to protect our intellectual property. There can be no
assurance that:
- any of the 127 patents owned or approximately 134 patents licensed by us
will not be invalidated, circumvented, challenged or licensed to others,
- the rights granted under the patents will provide competitive advantages
to us,
- any of our approximately 90 pending or future patent applications will be
issued with the scope of the claims sought by us, if at all, or
- that others will not develop technologies that are similar or superior to
our technology, duplicate our technology or design around the patents we
own, or patent or assert patents on technology which we might use or
intend to use.
In addition, effective copyright and trade secret protection may be unavailable,
limited or not applied for in certain foreign countries. Our technology is
licensed on a non-exclusive basis from Xerox and other third parties that may
license such technology to others, including our competitors. There can be no
assurance that steps we take to protect our technology will prevent
misappropriation of such technology. In addition, litigation has been necessary
and may be necessary in the future:
- to enforce our patents and other intellectual property rights,
- to protect our trade secrets,
- to determine the validity and scope of the proprietary rights of others,
or
- to defend against claims of infringement or invalidity of intellectual
property rights developed internally or acquired from third parties.
Litigation of this type has resulted in substantial costs and diversion of
resources and could have a material adverse effect on our business and results
of operations. Moreover, we may be required to participate in interference
proceedings to determine the propriety of inventions. These proceedings could
result in substantial cost to us.
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OUR MARKETS ARE EXTREMELY COMPETITIVE
Our various markets are highly competitive. We face current or potential
competition from four primary sources:
- direct competitors,
- potential entrants,
- suppliers of potential now technologies, and
- suppliers of existing alternative technologies.
We offer a range of components, products and systems and have numerous
competitors worldwide in various segments of our markets. As the markets for our
products grow, new competitors have recently emerged and are likely to continue
to do so in the future. We also sell products and services to companies with
which we presently compete or in the future may compete and certain of our
customers have been or could be acquired by, or enter into strategic relations
with our competitors. In most of our product lines, our competitors and we are
working to develop new technologies, or improvements and modifications to
existing technologies, which will obsolete present products. Many of our
competitors have significantly greater financial, technical, manufacturing,
marketing, sales and other resources than we do. 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
we. We cannot assure you that:
- our current or potential competitors have not already or will not in the
future develop or acquire products or technologies comparable or superior
to those that we developed,
- combine or merge with each other or our customers to form significant
competitors,
- expand production capacity to more quickly meet customer supply
requirements, or
- adapt more quickly than we do to now 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 our business and results of operations. We
cannot assure you that we will be able to compete successfully against current
and future competitors or that competitive pressures we face will not have a
material adverse effect on our business and results of operations. We expect
that both direct and indirect competition will increase in the future.
Additional competition could have an adverse material effect on our results of
operations through price reductions and loss of market share.
WE HAVE RISKS OF DOING BUSINESS INTERNATIONALLY
Revenues from customers outside of the United States accounted for approximately
27 percent, 25 percent and 21 percent, of our total revenue in 1998, 1997 and
1996, respectively. International revenue carries a number of inherent risks,
including:
- reduced protection for intellectual property rights in some countries,
- the impact of unstable environments in economies outside the United
States,
- generally longer receivable collection periods,
- changes in regulatory environments,
- tariffs, and
- other potential trade barriers.
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In addition, some of our international revenue is subject to export licensing
and approvals by the Department of Commerce or other Federal governmental
agencies. Although to date, we have experienced little difficulty in obtaining
such licenses or approvals, the failure to obtain these licenses or approvals or
comply with such regulations in the future could have a material adverse effect
on our business and results of operations.
We currently use local distributors in key industrialized countries and local
representatives in smaller markets. Although we have formal distribution
contracts with some of our distributors and representatives, some of our
relationships are currently on an informal basis. Most of our international
distributors and representatives offer only our products; however, certain
distributors offer competing products and we cannot assure you that additional
distributors and representatives will not also offer products that are
competitive with our products. We cannot assure you that our international
distributors and representatives will enter into formal distribution agreements
at all or on acceptable terms, will not terminate informal or contractual
relationships, will continue to sell our products or that we will provide the
distributors and resellers with adequate levels of support. Our business and
results of operations will be affected adversely if we lose a significant number
of our international distributors and representatives or experience a decrease
in revenue from these distributors and representatives.
WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL REGULATION
We are subject to a variety of federal, state and local laws and regulations
concerning the storage, use, discharge and disposal of toxic, volatile, or
otherwise hazardous or regulated chemicals or materials used in our
manufacturing processes. Further, we are subject to other safety, labeling and
training regulations as required by local, state and federal law. We have
established an environmental and safety compliance program to meet the
objectives of applicable federal, state and local laws. Our environmental and
safety department administers this compliance program which includes monitoring,
measuring and reporting compliance, establishing safety programs and training
our personnel in environmental and safety matters. We cannot assure you that
changes in these regulations and laws will not have an adverse economic effect
on us. Further, these local, state, and federal regulations could restrict our
ability to expand our operations. If we do not:
- obtain required permits for,
- operate within regulations for,
- control the use of, or
- adequately restrict
the discharge of hazardous or regulated substances or materials under present or
future regulations, we may be required to pay substantial penalties, to make
costly changes in our manufacturing processes or facilities or to suspend our
operations.
WE HAVE LIMITED OR SOLE SOURCE SUPPLIERS FOR NECESSARY MATERIALS
We depend on a single or limited number of outside contractors and suppliers for
raw materials, packages and standard components, and to assemble printed circuit
boards. We generally purchase these products through standard purchase orders or
one-year supply agreements. We do not have long-term guaranteed supply
agreements with these suppliers. We seek to maintain a sufficient safety stock
to overcome short-term shipping delays or supply interruptions by our suppliers.
We also endeavor to maintain ongoing communications with our suppliers to guard
against interruptions in supply. To date, we have generally been able to obtain
sufficient supplies in a timely manner. However, our business and results of
operations have in the past been and could be impaired by:
- a stoppage or delay of supply,
- substitution of more expensive or less reliable parts,
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- receipt of defective parts or contaminated materials, and
- an increase in the price of such supplies or our inability to obtain
reduced pricing from our suppliers in response to competitive pressures.
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE
The market price of our common stock may fluctuate significantly because of:
- announcements of technological innovations,
- large customer orders,
- customer order delays or cancellations,
- customer qualification delays,
- new products by us, our competitors or third parties,
- possible acquisition of us by a third party,
- merger or acquisition announcements,
- production problems,
- quarterly variations in our actual or anticipated results of operations,
and
- developments in litigation in which we are involved.
Furthermore, the stock market has experienced extreme price and volume
volatility, which has particularly affected the market prices of many high
technology companies. This volatility has often been unrelated to the operating
performance of such companies. This broad market volatility may adversely affect
the market price of our common stock. Many companies in the optical
communications industry have in the past year experienced historical highs in
the market prices of their stock. We cannot assure you that the market price of
our common stock will not experience significant volatility in the future,
including volatility that is unrelated to our performance.
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DESCRIPTION OF COMMON STOCK
SDL is authorized to issue up to 70,000,000 shares of common stock, $0.001 par
value per share.
On May 18, 1999, SDL issued 1,130,098 post-split shares in connection with the
acquisition of IOC International plc. The Company has also recently effected a
two-for-one stock split of its common stock in the form of a stock dividend.
Trading on a post-split basis occurred on June 3, 1999. As of July 30, 1999,
31,249,752 shares of SDL's common stock were outstanding. The holders of common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the stockholders. Holders of common stock have cumulative
voting rights in the election of directors. Subject to preferences that may be
granted to any then outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of SDL, holders of common stock are
entitled to share ratably in all assets of SDL remaining after payment of
liabilities and the liquidation of any then outstanding preferred stock. Each
share of common stock also has a preferred stock purchase right under the
Company's stockholder rights agreement. See "Delaware Law and Certain Charter
Provisions -- Stockholder Rights Agreement," below. Holders of common stock have
no preemptive or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of any offering pursuant to this prospectus will be
validly issued, fully paid and non-assessable.
The common stock is listed on the NASDAQ National Market System under the symbol
"SDLI." The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services.
DESCRIPTION OF PREFERRED STOCK
The board of directors has the authority, without further action by the
stockholders, to issue up to 1,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. No shares of preferred stock of SDL are
outstanding. Of the 1,000,000 shares of preferred stock authorized, SDL has
designated 261,628 shares of the preferred stock as Series A Preferred Stock,
par value $0.001 per share. SDL has authorized the issuance of shares of Series
B Preferred Stock and 300,000 shares of the Preferred Stock as Series B
Preferred Stock, par value $0.001 per share upon exercise of certain preferred
stock purchase rights associated with each share of common stock outstanding.
See "Delaware Law and Certain Charter Provision -- Stockholder Rights Agreement"
below.
GENERAL
Because the Board of Directors has the power to establish the preferences,
powers and rights of each class of preferred stock, it may afford the holders of
any class of preferred stock preferences, powers and rights, voting or
otherwise, senior to the rights of holders of shares of common stock. The
issuance of preferred stock could adversely affect the voting power of holders
of common stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation and could have the effect of delaying,
deferring or preventing a change in control of SDL. SDL has no present plan to
issue any shares of preferred stock.
Preferred stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class of preferred stock will be described in the prospectus
supplement relating to that class, including a prospectus supplement providing
that preferred stock may be issuable upon the exercise of warrants. The
description of preferred stock set forth below and the description of the terms
of a particular class of preferred stock set forth in a prospectus supplement do
not
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purport to be complete and are qualified in their entirety by reference to the
Certificate of Designation relating to that class.
The preferences and other terms of the preferred stock of each class will be
fixed by the Certificate of Designation relating to the class. A prospectus
supplement relating to each class of preferred stock will specify the following
terms:
- The title and stated value of the preferred stock;
- The number of shares of the preferred stock offered, the liquidation
preference per share and the offering price of the preferred stock;
- The dividend rate(s), period(s), and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred stock;
- Whether the preferred stock is cumulative or not and, if cumulative, the
date from which dividends on the preferred stock will accumulate;
- The provision for a sinking fund, if any, for the preferred stock;
- The provision for redemption, if applicable, of the preferred stock;
- Any listing of the preferred stock on any securities exchange;
- The terms and conditions, if applicable, upon which the preferred stock
will be converted into common stock, including the conversion price (or
manner of calculation thereof);
- A discussion of any material federal income tax considerations applicable
to the preferred stock;
- The relative ranking and preferences of the preferred stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
our affairs;
- Any limitations on issuance of any class of preferred stock ranking
senior to or on a parity with such class or series of preferred stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of our affairs;
- Any other specific terms, preferences, rights, limitations or
restrictions of the preferred stock; and
- Any voting rights of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will be, with respect to dividends and upon our voluntary or
involuntary liquidation, dissolution or winding up:
- senior to all classes or series of common stock and to all of our equity
securities the terms of which provide that the equity securities shall
rank junior to the preferred stock;
- junior to all equity securities that we issue which rank senior to the
preferred stock; and
- on a parity with all equity securities that we issued other than those
that are referred to in the bullet points above.
The term "equity securities" does not include convertible debt securities.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
We may issue depositary shares, each of which will represent a fractional
interest of a share of a particular class of preferred stock, as specified in
the applicable prospectus supplement. We will deposit with a depositary (the
"preferred stock depositary") shares of a class of preferred stock represented
by depositary
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shares pursuant to a separate deposit agreement among the Company, the preferred
stock depositary and the holders from time to time of the depositary receipts
issued by the preferred stock depositary which will evidence the depositary
shares ("depositary receipts"). Subject to the terms of the deposit agreement,
each owner of a depositary receipt will be entitled, in proportion to the
fractional interest of a share of a particular class of preferred stock
represented by the depositary shares evidenced by the depositary receipt, to all
the rights and preferences of the class of the preferred stock represented by
the depositary shares (including dividend, voting, conversion, redemption and
liquidation rights).
The depositary shares will be evidenced by depositary receipts issued pursuant
to the applicable deposit agreement. Immediately after we issue and deliver the
preferred stock to a preferred stock depositary, we will cause the preferred
stock depositary to issue the depositary receipts on our behalf. You may obtain
copies of the applicable form of deposit agreement and depositary receipt from
us upon request. The statements made in this section relating to the deposit
agreement and the depositary receipt are summaries of certain anticipated
provisions. These summaries are not complete and may be modified by the
applicable prospectus supplement. For more detail you should refer to the
deposit agreement itself, which will be filed as an exhibit to the registration
statement of which this prospectus is a part or incorporated by reference in
this registration statement by a Form 8-K.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred stock depositary will distribute all cash dividends or other cash
distributions received in respect of a class or series of preferred stock to the
record holders of depositary receipts evidencing the related depositary shares
in proportion to the number of depositary receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the preferred stock
depositary.
In the event of a distribution other than in cash, the preferred stock
depositary will distribute property that it receives to the record holders of
depositary receipts entitled to the property, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the preferred stock depositary, unless the preferred
stock depositary determines that it is not feasible to make the distribution, in
which case the preferred stock depositary may, with our approval, sell the
property and distribute the net proceeds from the sale to the holders.
WITHDRAWAL OF STOCK
Upon surrender of the depositary receipts at the corporate trust office of the
preferred stock depositary, the holders will be entitled to delivery at the
corporate trust office, or upon each such holder's order, of the number of whole
or fractional shares of the class or series of preferred stock and any money or
other property represented by the depositary shares evidenced by such depositary
receipts. Holders of depositary receipts will be entitled to receive whole or
fractional shares of the related class or series of preferred stock on the basis
of the proportion of preferred stock represented by each depositary share as
specified in the applicable prospectus supplement, but holders of such shares of
preferred stock will not thereafter be entitled to receive depositary shares
therefor. If the depositary receipts delivered by the holder evidence a number
of depositary shares in excess of the number of depositary shares representing
the number of shares of preferred stock to be withdrawn, the preferred stock
depositary will deliver to such holder at the same time a new depositary receipt
evidencing the excess number of depositary shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever we redeem shares of preferred stock held by the preferred stock
depositary, the preferred stock depositary will redeem as of the same redemption
date the number of the depositary shares representing shares of such class or
series of preferred stock so redeemed, provided we shall have paid in full to
the preferred stock depositary the redemption price of the preferred stock to be
redeemed plus an amount equal to any accrued and unpaid dividends on the
preferred stock to the date fixed for redemption. The redemption price per
depositary share will be equal to the corresponding portion of the redemption
price
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and any other amounts per share payable with respect to such class or series of
preferred stock. If we redeem fewer than all the depositary shares, we will
select the depositary shares that we will redeem pro rata (as nearly as may be
practicable without creating fractional depositary shares), by lot or by any
other equitable method that we determine.
From and after the date fixed for redemption, all dividends in respect of the
shares of a class or series of preferred stock so called for redemption will
cease to accrue, the depositary shares called for redemption will no longer be
deemed to be outstanding and all rights of the holders of the depositary
receipts evidencing the depositary shares so called for redemption will cease,
except the right to receive any moneys payable upon redemption and any money or
other property to which the holders of the depositary receipts were entitled
upon redemption upon surrender of the depositary receipts to the preferred stock
depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class of
preferred stock deposited with the preferred stock depositary are entitled to
vote, the preferred stock depositary will mail the information contained in the
notice of meeting to the record holders of the depositary receipts evidencing
the depositary shares which represent such class of preferred stock. Each record
holder of depositary receipts evidencing depositary shares on the record date
(which will be the same date as the record date for such class of preferred
stock) will be entitled to instruct the preferred stock depositary as to the
exercise of the voting rights pertaining to the amount of preferred stock
represented by the holder's depositary shares. The preferred stock depositary
will vote the amount of such class or series of preferred stock represented by
the depositary shares in accordance with such instructions, and we will agree to
take all reasonable action which the preferred stock depositary may deem
necessary in order to enable the preferred stock depositary to do so. The
preferred stock depositary will abstain from voting the amount of preferred
stock represented by the depositary shares to the extent it does not receive
specific instructions from the holders of depositary receipts evidencing the
depositary shares. The preferred stock depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from the preferred stock depositary's negligence or willful
misconduct.
LIQUIDATION PREFERENCE
In the event that we voluntarily or involuntarily liquidate, dissolve or wind
up, the holders of each depositary receipt will be entitled to the fraction of
the liquidation preference accorded each share of preferred stock represented by
the depositary share evidenced by the depositary receipt as set forth in the
applicable prospectus supplement.
CONVERSION OF PREFERRED STOCK
The depositary shares, as such, will not be convertible into common stock or any
other securities or property. Nevertheless, if stated in the applicable
prospectus supplement relating to an offering of depositary shares, holders may
surrender depositary receipts to the applicable preferred stock depositary with
written instructions to the preferred stock depositary to instruct us to cause
conversion of a class or series of preferred stock represented by the depositary
shares evidenced by the depositary receipts into whole shares of common stock,
other shares of a class or series of preferred stock or other shares of stock,
and we have agreed that upon receipt of these instructions and any amounts
payable, we will cause the conversion of the shares of preferred stock utilizing
the same procedures as those provided for delivery of preferred stock to effect
the conversion. If we convert only a portion of depositary shares evidenced by a
depositary receipt, we will issue a depositary receipt or receipts for any
depositary shares that we do not covert. We will not issue fractional shares of
common stock upon conversion, and if conversion will result in a fractional
share, we will pay an amount in cash by equal to the value of the fractional
interest based upon the closing price of our common stock on the last business
day prior to the conversion.
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AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of depositary receipt evidencing depositary shares which represent the
preferred stock and any provision of the deposit agreement may at any time be
amended by agreement between us and the preferred stock depositary. However, any
amendment that materially and adversely alters the rights of the holders of
depositary receipts or that would be materially or adversely inconsistent with
the rights granted to the holders of the related preferred stock will not be
effective unless such amendment has been approved by the existing holders of at
least two-thirds of the applicable depositary shares evidenced by the applicable
depositary receipts then outstanding. No amendment will impair the right,
subject to certain anticipated exceptions in the deposit agreements, of any
holder of depositary receipts to surrender any depositary receipt with
instructions to deliver to the holder the related class of preferred stock and
all money and other property, if any, represented by the depositary receipt,
except in order to comply with law. Every holder of an outstanding depositary
receipt at the time any such amendment becomes effective will be deemed, by
continuing to hold such depositary receipt, to consent and agree to such
amendment and to be bound by the applicable deposit agreement as amended.
CHARGES OF A PREFERRED STOCK DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising solely
from the existence of the deposit agreement. In addition, we will pay the fees
and expenses of the preferred stock depositary in connection with the
performance of our duties under the deposit agreement. However, holders of
depositary receipts will pay the fees and expenses of the preferred stock
depositary for any duties requested by the holders to be performed which are
outside of those expressly provided for in the deposit agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The preferred stock depositary may resign at any time by delivering to us notice
of its election to do so, and we may at any time remove the preferred stock
depositary, any such resignation or removal to take effect upon the appointment
of a successor preferred stock depositary. A successor preferred stock
depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company with its principal
office in the United States and a combined capital and surplus of at least
$50,000,000.
MISCELLANEOUS
The preferred stock depositary will forward to holders of depositary receipts
any reports and communications from us which are received by the preferred stock
depositary with respect to the related preferred stock.
We will not be liable, and the preferred stock depositary will not be liable, if
we are prevented or it is prevented from or delayed in, by law or any
circumstances beyond its or our control, performing the obligations under the
deposit agreement. Our obligations and the obligations of the preferred stock
depositary under the deposit agreement will be limited to performing our duties
in good faith and without negligence (in the case of any action or inaction in
the voting of a class or series of preferred stock represented by the depositary
shares), gross negligence or willful misconduct. We will not be obligated, and
the preferred stock depositary will not be obligated, to prosecute or defend any
legal proceeding in respect of any depositary receipts, depositary shares or
shares of a class or series of preferred stock represented thereby unless
satisfactory indemnity is furnished. We may rely on, and the preferred stock
depositary may rely on, written advice of counsel or accountants, or information
provided by persons presenting shares of preferred stock represented thereby for
deposit, holders of depositary receipts or other persons that we believe in good
faith to be competent to give such information, and on documents that we believe
in good faith to be genuine and signed by a proper party.
If a preferred stock depositary receives conflicting claims, requests or
instructions from any holders of depositary receipts, on the one hand, and from
us, on the other hand, the preferred stock depositary will be entitled to act on
such claims, requests or instructions received by us.
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DESCRIPTION OF WARRANTS
We currently have no warrants outstanding (other than options issued under our
stock option plans). We may issue warrants for the purchase of common stock or
preferred stock. We may issue warrants independently or together with any other
securities offered pursuant to any prospectus supplement and warrants may be
attached to or separate from such securities. We will issue each series of
warrants under a separate warrant agreement that we will enter into with a
warrant agent specified in the applicable prospectus supplement. The warrant
agent will act solely as our agent in connection with the warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any provisions of the warrants. We will set forth additional terms of
the warrants and the applicable warrant agreements in the applicable prospectus
supplement.
The applicable prospectus supplement will describe the terms of the warrants in
respect of which we are delivering this prospectus, including, where applicable,
the following:
- the title of the warrants;
- the aggregate number of the warrants;
- the price or prices at which the warrants will be issued;
- the designation, terms and number of shares of preferred stock or common
stock purchasable upon exercise of the warrants;
- the designation and terms of any securities with which the warrants are
issued and the number of any warrants issued with each such security;
- the date, if any, on and after which the warrants and the related
preferred stock or common stock will be separately transferable;
- the price at which each share of preferred stock or common stock
purchasable upon exercise of the warrants may be purchased;
- the date on which the right to exercise the warrants will commence and
the date on which the right will expire;
- the minimum or maximum amount of the warrants which may be exercised at
any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain federal income tax considerations; and
- any other terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The debt securities may be secured or unsecured and may be senior or
subordinated indebtedness of the Company. Unless otherwise specified in the
applicable prospectus supplement, the debt securities are to be issued under an
indenture, as amended or supplemented from time to time, among the Company and a
trustee chosen by the Company and qualified to act as trustee under the Trust
Indenture Act of 1939, as amended. The indenture is subject to, and governed by,
the Trust Indenture Act of 1939, as amended. The statements made in this section
relating to the indenture and the debt securities are summaries of certain
provisions of the debt securities and the indenture. These summaries are not
complete. For more detail you should refer to the indenture, which we have filed
as an exhibit to the registration statement of which this prospectus is a part.
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TERM
We will describe the particular terms of the debt securities offered by a
prospectus supplement in the applicable prospectus supplement, along with any
applicable modifications of or additions to the general terms of the debt
securities as described in this prospectus. Accordingly, for a description of
the terms of any series of debt securities, you must refer to both the
prospectus supplement relating to that series and the description of the debt
securities set forth in this prospectus. A prospectus supplement may change any
of the terms of the debt securities described in this prospectus.
The Company may offer under this prospectus up to $300,000,000 (or its
equivalent in another currency based on the exchange rate at the time of sale)
aggregate principal amount of debt securities or if debt securities are issued
at a discount, such principal amount as may be sold for an initial public
offering price of up to $300,000,000. Unless we state otherwise in any
prospectus supplement, the Company may issue the debt securities in one or more
series, as established from time to time by the Company. The Company need not
issue all debt securities of one series at the same time and, unless otherwise
provided, a series may be reopened, without the consent of the holders of the
debt securities of that series, for issuances of additional debt securities of
that series.
The Company may, but need not, designate more than one trustee under the
indenture, each with respect to one or more series of debt securities. Any
trustee may resign or be removed with respect to one or more series of debt
securities, and a successor trustee may be appointed to act with respect to the
series. If two or more persons are acting as trustee with respect to different
series of debt securities, each such trustee will be a trustee of a trust under
the indenture separate and apart from the trust administered by any other
trustee and, except as we state otherwise in this prospectus, any action to be
taken by a trustee may be taken by each trustee with respect to, and only with
respect to, the one or more series of debt securities for which it is trustee.
The following summaries set forth certain general terms and provisions of the
indenture and the debt securities. The prospectus supplement relating to the
series of debt securities being offered will contain further terms of the debt
securities, including the following specific terms:
- the title of the debt securities;
- the limit on the aggregate principal amount of the debt securities of the
series that may be authenticated and delivered under the indenture;
- the date or dates, or the method for determining the date or dates, on
which the Company will pay the principal of the debt securities;
- the rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which the debt securities
will bear interest, if any;
- the date or dates (or the method for determining the date or dates) from
which any interest will accrue, the dates upon which any interest will be
payable and the record dates for payment of interest (or the method by
which the record dates will be determined);
- the place or places, if any, other than or in addition to the Borough of
Manhattan, The City of New York, where the principal of (and premium, if
any) and interest, if any, on the debt securities will be payable, where
the debt securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company
in respect of the debt securities and the indenture may be served;
- any obligation the Company has to redeem, repay or repurchase the debt
securities, in whole or in part, at the option of a holder of the debt
securities, and the period or periods within which, the date or dates on
which the price or prices at which and the terms and conditions upon
which the Company will redeem, repay or repurchase the debt securities;
- if other than the trustee, the identity of each security registrar and/or
paying agent;
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- any conversion or exchange provisions of the debt securities;
- any provisions granting special rights to holders of the debt securities;
- any deletions from, modifications of, or additions to the events of
default or covenants of the Company with respect to the debt securities,
whether or not such events of default or covenants are consistent with
the events of default or covenants with the indenture;
- the person to whom any interest will be payable, if other than the person
in whose name the debt security is registered; and
- any other terms of the debt securities and any deletions from or
modifications or additions to the indenture in respect of the debt
securities (whether or not consistent with the other provisions of the
indenture).
The Company may issue debt securities at a discount below their principal amount
and provide for less than the entire principal amount of the debt securities to
be payable upon declaration of acceleration of maturity. In such cases, we will
describe any material U.S. federal income tax, accounting and other
considerations in the applicable prospectus supplement.
CONVERSION AND EXCHANGE
The applicable prospectus supplement will specify the terms and conditions, if
any, on which debt securities of any series are convertible into or exchangeable
for common stock or preferred stock. Such terms may include provisions for
conversion or exchange, either mandatory, at the option of the holder, or at the
option of SDL, in which the number of shares of common stock or preferred stock
to be received by the holders of the debt securities would be calculated
according to the market price of common stock or preferred stock as of a time
stated in the prospectus supplement.
DENOMINATIONS AND INTEREST
Unless we specify otherwise in the applicable prospectus supplement, the debt
securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Unless we specify otherwise in the applicable
prospectus supplement, interest on any series of debt securities will be payable
to the person in whose name the security is registered at the close of business
on the record date for such interest at the office of the Company maintained for
such purpose within the City and State of New York. However, unless we provide
otherwise in the applicable prospectus supplement, the Company may make interest
payments by check mailed to the address of the person entitled to the interest
as it appears in the applicable register for debt securities or by wire transfer
of funds to such person at an account maintained within the United States.
GLOBAL NOTES
Unless we specify otherwise in the applicable prospectus supplement, the debt
securities of each series will be issued in the form of one or more fully
registered book-entry debt securities of such series (each, a "Global Note")
that will be deposited with, or on behalf of The Depository Trust Company, New
York, New York ("DTC"). Global Notes will be issued in fully registered form.
The Company anticipates that the Global Notes will be deposited with, or on
behalf of DTC, and that such Global Note will be registered in the name of Cede
& Co., DTC's nominee. Unless we specify otherwise in the applicable prospectus
supplement, the Company further anticipates that the following provisions will
apply to the depository arrangements with respect to the Global Notes.
So long as DTC or its nominee is the registered owner of the Global Notes, DTC
or its nominee, as the case may be, will be considered the sole holder of the
debt securities represented by the Global Note for all purposes under the
indenture. Except as described below, owners of beneficial interests in the
Global Notes will not be entitled to have debt securities represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of debt securities in certificated form and
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will not be considered the owners or holders of the debt securities under the
indenture. The laws of some states require that certain purchasers of securities
take physical delivery of such securities in certificated form; accordingly,
such laws may limit the transferability of beneficial interests in the Global
Notes.
The Global Notes will be exchangeable for certificated debt securities only if:
- DTC notifies the Company that it is unwilling or unable to continue as
depository or DTC ceases to be a clearing agency registered under the
Exchange Act (if so required by applicable law or regulation) and, in
either case, a successor depository is not appointed by the Company
within 90 days after the Company receives such notice or becomes aware of
such ineligibility;
- the Company in its sole discretion determines that the Global Notes shall
be exchangeable for certificated debt securities; or
- there shall have occurred and be continuing an event of default with
respect to debt securities of any series under the indenture and
beneficial owners representing a majority in aggregate principal amount
of the debt securities of such series represented by a Global Note advise
DTC to cease acting as depository. Upon any such exchange, owners of a
beneficial interest in such Global Note will be entitled to physical
delivery of individual debt securities of such series in certificated
form of like tenor, terms and rank, equal in principal amount to such
beneficial interest, and to have such debt securities in certificated
form registered in the names of the beneficial owners, which names are
expected to be provided by DTC's relevant Participants (as identified by
DTC) to the trustee.
Debt securities so issued in certificated form will be issued in denominations
of $1,000 or any integral multiple thereof, and will be issued in registered
form only, without coupons.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the Company will not, in any transaction or series of
transactions, consolidate with, or sell, lease, assign, transfer or otherwise
convey all or substantially all of its assets to, or merge with or into any
other person unless:
- either the Company is the continuing person or the successor person (if
other than the Company) formed by or resulting from any such
consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium,
if any) and interest on all of debt securities, and the due and punctual
performance and observance of all of the covenants and conditions
contained in the indenture;
- immediately after giving effect to the transaction and treating any debt
which becomes an obligation of the Company or any of its subsidiaries as
a result of such transaction as having been incurred by the Company or
such subsidiary at the time of such transaction, no event of default
under the indenture, and no event which, after notice or lapse of time,
or both, would become an event of default, shall have occurred and be
continuing; and
- the Company delivers to the trustee an officers' certificate and legal
opinion covering these conditions.
In the event that the Company is not the continuing person, then, for purposes
of the second bullet point above, the successor person will be deemed to be the
Company.
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing legal entity, the
successor entity formed by the consolidation or into which the Company is merged
or to which the sale, assignment, transfer, lease or other conveyance is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the indenture with the same effect as if the successor
entity has been named as the Company in the indenture and the Company will be
released (except in the case of a lease) from its obligations under the
indenture and the debt securities.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless we specify otherwise in the applicable prospectus supplement, the
indenture provides that the following events are "events of default" with
respect to any series of debt securities issued under the indenture:
- default in the payment of any interest upon any debt security of that
series when it becomes due and payable, and continuance of that default
for a period of 30 days;
- default in the payment of principal of or premium, if any, on any debt
security of that series when due and payable;
- default in the performance or breach of any covenant or warranty of the
Company in the indenture with respect to any debt security of that series
(other than a covenant or warranty the default or breach of which is
specifically dealt with in the indenture), which default continues
uncured for a period of 60 days after receipt of written notice as
provided in the indenture;
- the following:
- default in the payment of an aggregate principal amount exceeding
$10,000,000 of any evidence of indebtedness of the Company or any
mortgage, indenture, note, bond, capitalized lease or other instrument
under which such indebtedness is issued or by which such indebtedness
is secured, such default having continued after the expiration of any
applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not
discharged or such acceleration is not rescinded or annulled;
- certain events of bankruptcy, insolvency or reorganization with
respect to the Company, the Company or any significant subsidiary of
the Company (as defined in Regulation S-X under the Securities Act);
and
- any other event of default provided with respect to debt securities of
that series that is described in the applicable prospectus supplement.
A supplemental indenture establishing the terms of a particular series of debt
securities may delete, modify or add to the events of default described above.
No event of default with respect to a particular series of debt securities
necessarily constitutes an event of default with respect to any other series of
debt securities. The occurrence of an event of default may constitute an event
of default under our bank credit agreements in existence from time to time. In
addition, the occurrence of certain events of default or an acceleration under
the indenture may constitute an event of default under certain of our other
indebtedness outstanding from time to time.
If an event of default with respect to debt securities of any series at the time
outstanding occurs and is continuing, then the trustee or the holders of not
less than a majority in principal amount of the outstanding debt securities of
that series may, by a notice in writing to us (and to the trustee if given by
the holders), declare all debt securities of that series to be due and payable
immediately.
At any time after a declaration of acceleration with respect to debt securities
of any series has been made, but before a judgment or decree for payment of the
money due has been obtained by the trustee, the holders of a majority in
principal amount of the outstanding debt securities of that series may rescind
and annul the acceleration if:
- the Company has paid or deposited with the trustee a sum sufficient to
pay:
- all overdue installments of interest on all outstanding debt securities
of that series;
- the principal of (and premium, if any, on) any outstanding debt
securities of that series which have become due otherwise than by such
declaration of acceleration, and interest thereon at the rates provided
for in such debt securities; and
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- to the extent lawful, interest upon overdue installments of interest at
the rate or rates provided in such debt securities; and
- all events of default with respect to debt securities of that series,
other than the nonpayment of the principal of (or premium, if any) or
interest on debt securities of that series which have become due solely
by such declaration of acceleration, have been cured or waived.
The indenture also provides that the holders of a majority in principal amount
of the outstanding debt securities of any series may on behalf of the holders of
all debt securities of such series waive any past default under the indenture
with respect to such debt securities and its consequences, except a default:
- in the payment of the principal of (or premium, if any) or interest on or
payable in respect of any debt security of such series; or
- in respect of a covenant or provision of the indenture which cannot be
modified or amended without the consent of the holder of each outstanding
debt security of such series affected.
If the trustee knows of a default with respect to the debt securities of any
series, the indenture requires the trustee, within 90 days after the default, to
give notice to the holders of such debt securities, unless such default shall
have been cured or waived. However the trustee may withhold notice to the
holders of any debt securities of such series of any default (except a default
in the payment of the principal of (or premium, if any) or interest, if any, on
any debt security of such series) if the trustee determines such withholding is
in the interest of such holders.
The indenture provides that the trustee will be under no obligation to exercise
any of its rights or powers under the indenture at the request of any holders of
outstanding debt securities, unless the holders offer the trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request.
Subject to certain rights of the trustee, the holders of a majority in principal
amount of the outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
No holder of any debt security of any series will have any right to institute
any proceeding, judicial or otherwise, with respect to the indenture or for the
appointment of a receiver or trustee, or for any remedy under the indenture,
unless:
- that holder has previously given to the trustee written notice of a
continuing event of default with respect to debt securities of that
series; and
- the holders of a majority in principal amount of the outstanding debt
securities of that series have made a written request, and offered
reasonable indemnity, to the trustee to institute the proceeding as
trustee, and the trustee has not received from the holders of a majority
in principal amount of the outstanding debt securities of that series a
direction inconsistent with that request and has failed to institute the
proceeding within 60 days.
Notwithstanding the foregoing, the holder of any debt security will have an
absolute and unconditional right to receive payment of the principal of, premium
and any interest on that debt security on or after the due dates expressed in
that debt security and to institute suit for the enforcement of payment.
The indenture requires the Company, within 120 days after the end of each fiscal
year, to furnish to the trustee a statement as to compliance with the indenture.
Further, upon any request by the Company to take any action under the indenture,
the Company will furnish to the trustee:
- an officers' certificate stating that all conditions precedent, if any,
provided for in the indenture relating to the proposed action have been
complied with; and
- an opinion of counsel stating that in the opinion of such counsel all
such conditions precedent, if any, have been complied with.
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MODIFICATION AND WAIVER
We may modify and amend the indenture with the consent of the holders of a
majority in principal amount of the outstanding debt securities of each series
affected by the modifications or amendments except that we may not make any
modification or amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
- change the stated maturity of the principal of (or premium, if any, on)
or any installment of principal of or interest on such debt security;
- reduce the principal amount of debt securities or the rate or amount of
interest on such debt securities, or any premium payable on such debt
security;
- adversely affect the right of any holder of debt securities to repayment
of such debt security at the holder's option;
- change the place, or the currency, for payment of principal of (or
premium, if any) such debt security;
- impair the right to institute suit for enforcement of any payment on or
with respect to such debt security;
- reduce the amount of debt securities whose holders must consent to an
amendment or waiver or reduce the quorum or voting requirements set forth
in the indenture; or
- modify any of the foregoing provisions or any of the provisions relating
to the waiver of certain past defaults or certain covenants, except to
increase the required percentage to effect such action or to provide that
certain other provisions may not be modified or waived without the
consent of the holder of such debt security.
The holders of a majority in principal amount of the outstanding debt securities
of any series may on behalf of the holders of all debt securities of that series
waive the Company's compliance with certain covenants of the indenture.
Modifications and amendments of the indenture may be made by the Company and the
trustee without the consent of any holder of debt securities issued thereunder
for any of the following purposes:
- to evidence the succession of another person to the Company under the
indenture;
- to add to the covenants of the Company for the benefit of the holders of
the debt securities or to surrender any right or power conferred upon the
Company in the indenture;
- to add events of default for the benefit of the holders of all or any
series of debt securities;
- to add or change any provisions of the indenture to facilitate the
issuance of the debt securities in certificated form, provided that such
action shall not adversely affect the interests of the holders of any
debt securities in any material respect;
- to secure the debt securities;
- to provide for the acceptance of appointment by a successor trustee or to
facilitate the administration of the trusts under the indenture by more
than one trustee;
- to cure any ambiguity, defect or inconsistency in the indenture or to add
or change any other provisions with respect to matters or questions
arising under the indenture, provided that such action shall not
adversely affect the interests of holders of debt securities of any
series or any related guarantees in any material respect; or
- to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series
of debt securities, provided that such action shall not adversely affect
the interests of the holders of the debt securities in any material
respect.
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The indenture provides that in determining whether the holders of the requisite
principal amount of outstanding debt securities of a series have given any
request, demand, authorization, direction, notice, consent or waiver under the
indenture or whether a quorum is present at a meeting of holders of the debt
securities of a series, debt securities of each series owned by the Company or
any other obligor upon such debt securities or any affiliate of the Company or
of such other obligor will be disregarded.
The indenture contains provisions for convening meetings of the holders of debt
securities of a series. A meeting may be called at any time by the trustee and
also, upon request, by the Company or the Holders of 25% in principal amount of
the outstanding debt securities of such series, in any such case upon notice
given as provided in the indenture. Except for any consent that must be given by
the holder of each debt security affected by certain modifications and
amendments of the indenture, any resolution presented at a meeting or adjourned
meeting duly reconvened at which a quorum is present may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
outstanding debt securities of such series. However, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the holders of a specified percentage, which is less or more than a
majority, in principal amount of the outstanding debt securities of such series
may be adopted at a meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding debt securities of such
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the indenture will be
binding on all holders of debt securities of such series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding debt securities of any series; provided, however, that if any action
is to be taken at such meeting with respect to a consent or waiver which may be
given by the holders of not less than a specified percentage, which is less or
more than a majority, in principal amount of the outstanding debt securities of
such series, the persons holding or representing such specified percentage in
principal amount of the outstanding debt securities of such series will
constitute a quorum.
Notwithstanding the provisions described above, the indenture provides that if
any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that the indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding debt securities of such series affected thereby:
- there shall be no minimum quorum requirement for such meeting; and
- the principal amount of the outstanding debt securities of such series
that are entitled to vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has
been made, given or taken under the indenture.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
Legal Defeasance and Covenant Defeasance. Unless we specify otherwise in the
applicable prospectus supplement, the indenture provides that the Company may
elect:
- to be discharged from any and all obligations in respect of the debt
securities of any series (except for certain obligations to register the
transfer or exchange of debt securities of such series, to replace
stolen, lost or mutilated debt securities of such series, and to maintain
paying agencies and certain provisions relating to the treatment of funds
held by paying agents) ("legal defeasance"); or
- to be released from compliance with the covenants in the indenture
("covenant defeasance").
The Company will be so discharged upon the deposit with the trustee, in trust,
of money and/or Government Obligations that, through the payment of interest and
principal in accordance with their terms, will provide money in an amount
sufficient to pay and discharge each installment of principal (and
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premium, if any) and interest on the debt securities of that series on the
scheduled due dates or the applicable redemption date in accordance with the
terms of the indenture and those debt securities.
This trust may only be established if, among other things:
- the Company has delivered to the trustee a legal opinion to the effect
that the holders of the debt securities will not recognize income, gain
or loss for United States federal income tax purposes as a result of such
legal defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such legal defeasance or
covenant defeasance had not occurred, and such legal opinion, in the case
of legal defeasance, must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable United States federal,
income tax law occurring after the date of the indenture;
- such legal defeasance or covenant defeasance will not result in a breach
or violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which the Company is a party or
by which it is bound; and
- no event of default or event which with notice or lapse of time or both
would become an event of default with respect to the debt securities
shall have occurred and shall be continuing on the date of, or, solely in
the case of events of default due to certain events of bankruptcy,
insolvency, or reorganization, during the period ending on the 91st day
after the date of, such deposit into trust.
"Government Obligations" means securities which are:
- direct obligations of the United States of America, for the payment of
which obligations its full faith and credit is pledged; or
- obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America, the payment of
which is unconditionally guaranteed as a full faith and credit obligation
by the United States of America and which, in either of the above cases,
are not callable or redeemable at the option of the issuer thereof and
also includes a depository receipt issued by a bank or trust company as
custodian with respect to any such Government Obligation held by such
custodian for the account of the holder of a depository receipt, provided
that (except as provided by law) such custodian is not authorized to make
any amount received by the custodian.
SUBORDINATION
The applicable prospectus supplement will set forth the terms and conditions, if
any, upon which the debt securities are subordinated to other indebtedness of
the Company. Such terms will include a description of the indebtedness ranking
senior to the debt securities, the restrictions on payments to the holders of
such debt securities while a default with respect to such senior indebtedness is
continuing, the restrictions, if any, on payments to the holders of such debt
securities following an event of default, and provisions requiring holders of
such debt securities to remit certain payment to holders of senior indebtedness.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and SDL's Restated Certificate of
Incorporation, as amended (the "Certificate") could make more difficult the
acquisition of SDL by means of a tender offer, a proxy contest or otherwise and
the removal of incumbent officers and directors. These provisions are expected
to discourage certain types of coercive takeover practices and inadequate bids
and to encourage persons seeking to acquire control of SDL to negotiate first
with SDL.
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DELAWARE STATUTE
SDL is subject to the provisions of Delaware General Corporation Law section 203
(the "Delaware Statute"). In general, the Delaware Statute prohibits certain
business combinations between a publicly-held Delaware corporation, such as SDL,
and any "interested stockholder" for a period of three years after the date on
which the latter became an interested stockholder unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the interested stockholder. An "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years prior,
did own) 15 percent or more of the corporation's outstanding voting stock.
CLASSIFIED BOARD OF DIRECTORS
The Certificate provides that, so long as the board of directors consists of
more than two directors, the board of directors will be divided into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of SDL's board of directors will be elected each year.
In addition, the Certificate provides for cumulative voting in the election of
directors, allowing the election of a director at each election by holders
representing a large minority of shares.
ADVANCE NOTICE FOR RAISING BUSINESS OR MAKING NOMINATIONS AT MEETINGS
The Certificate establishes an advance notice procedure for bringing business
before an meeting of stockholders and for nominating (other than by or at the
direction of the Board of Directors) candidates for election as directors at an
annual meeting or a special meeting for the purpose of electing directors. To be
timely, notice of nominations or other business to be brought before an annual
meeting must be received by the Secretary of SDL not earlier than 90 nor later
than 60 days prior to the first anniversary of the preceding year's annual
meeting or, if the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary, such notice must be
received not earlier than 90 days prior to such annual meeting and not later
than the later of: (i) the 60th day prior to the annual meeting; or (ii) the
10th day following the date on which notice of the date of the annual meeting
was mailed or public disclosure thereof was made, whichever occurs first.
OTHER CHARTER PROVISIONS
The Certificate provides that in determining whether to take or refrain from
taking corporate action on any matter, the Board of Directors may take into
account the interests of customers, employees and other constituencies of SDL
and its subsidiaries, including the effect upon communities in which SDL and its
subsidiaries do business, and may consider long-term as well as short-term
interests of SDL and its stockholders, in addition to any other considerations
which the Board of Directors may lawfully take into account.
STOCKHOLDER RIGHTS AGREEMENT
On November 6, 1997, the Board of Directors adopted and approved a stockholder
rights agreement, as amended (the "SDL Rights Agreement") and declared a
dividend of one right (each a "Right") for each share of SDL common stock
outstanding on November 17, 1997. On February 11, 1999, SDL amended and restated
the SDL Rights Agreement to eliminate those provisions that require that certain
actions may only be taken by independent directors. The Rights have certain
anti-takeover effects and are intended to discourage coercive or unfair takeover
tactics and to encourage any potential acquirer to negotiate a price fair to all
SDL stockholders. The rights may cause substantial dilution to an acquiring
party that attempts to acquire SDL on terms not approved by the Board of
Directors, but they will not interfere with any negotiated merger or other
business combination. In the event that any person or group (except for a
certain existing stockholder of SDL so long as such stockholder is not required
to report its ownership on Schedule 13(d)) acquires beneficial ownership of
fifteen (15) percent or more of the outstanding shares of SDL's common stock as
defined in the SDL Rights Agreement, each holder of a Right, other than a
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Right beneficially owned by the acquiring person, will thereafter have the right
to receive upon exercise that number of shares of SDL's common stock having a
market value of two times the exercise price of the Right. In addition, if at
any time following such acquisition of fifteen (15) percent or more of the
outstanding common stock, SDL is acquired in a merger or other business
combination or transaction, or fifty (50) percent or more of its consolidated
assets or earning power are sold, each holder of a Right will receive, upon
exercise of that Right, that number of shares of common stock of the acquiring
company which, at the time of such transaction, will have a market value of two
times the exercise price of the Right.
PLAN OF DISTRIBUTION
We may sell securities offered pursuant to any applicable prospectus supplement
directly to one or more purchasers or though agents or underwriters. We may sell
securities offered pursuant to any applicable prospectus supplement in
at-the-market equity offerings or on a negotiated or competitive bid basis
through underwriters or dealers or directly to other purchasers or through
agents. We will name any underwriter or agent involved in the offer and sale of
the securities in the applicable prospectus supplement.
We may distribute the securities from time to time in one or more transactions:
- at a fixed price or prices, which may be changed;
- at market prices prevailing at the time of sale;
- at prices related to prevailing market prices; or
- at negotiated prices.
The Company also may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell securities upon the terms and conditions as
set forth in the applicable prospectus supplement. In connection with the sale
of the securities, underwriters may be deemed to have received compensation from
us in the form of underwriting discounts or commissions and may also receive
commissions from purchasers of securities for whom they may act as agent.
Underwriters may sell the securities to or through dealers, and dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agent.
We will describe in the applicable prospectus supplement any underwriting
compensation we pay to underwriters or agents in connection with the offering of
the securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers. Dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions. We may enter into agreements to indemnify underwriters, dealers and
agents against certain civil liabilities, including liabilities under the
Securities Act, and to reimburse these persons for certain expenses. We will
describe any indemnification agreements in the applicable prospectus supplement.
Unless we specify otherwise in the related prospectus supplement, each series of
securities offered will be a new issue with no established trading market, other
than the common stock which is listed on the NASDAQ National Market System. Any
shares of common stock sold pursuant to a prospectus supplement may be listed on
the NASDAQ National Market System, subject to official notice of issuance. We
may elect to list any series of preferred stock and any series of debt
securities, depository shares or warrants on any exchange, but we are not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of offered securities, but will not be obligated to do so and
may discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the
securities.
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If indicated in the applicable prospectus supplement, we may authorize dealers
acting as our agents to solicit offers by certain institutions to purchase the
securities from us at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in the prospectus supplement. We may make
delayed delivery with various institutions, including commercial and savings
banks, insurance companies, pension funds, investment companies and educational
and charitable institutions. Delayed delivery contracts will not be subject to
any conditions except:
- the purchase by an institution of the securities covered by its delayed
delivery contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which the
institution is subject; and
- if the securities are sold to underwriters, we shall have sold to the
underwriters the total principal amount of the offered securities less
the principal amount covered by the delayed delivery contracts.
To facilitate the offering of the securities, certain persons participating in
the offering may engage in transactions that stabilize, maintain, or otherwise
affect the price of the securities. This may include over-allotments or short
sales of the securities, which involves the sale by persons participating in the
offering of more securities than we sold to them. In these circumstances, these
persons would cover the over-allotments or short positions by making purchases
in the open market or by exercising their over-allotment option. In addition,
these persons may stabilize or maintain the price of the debt securities by
bidding for or purchasing debt securities in the open market or by imposing
penalty bids, whereby selling concessions allowed to dealers participating in
the offering may be reclaimed if securities sold by them are repurchased in
connection with stabilization transactions. The effect of these transactions may
be to stabilize or maintain the market price of the securities at a level above
that which might otherwise prevail in the open market. These transactions may be
discontinued at any time.
Certain of the underwriters and their affiliates may be customers of, engage in
transactions with and perform services for, us in the ordinary course of
business.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements included in our Current Report on Form 8-K dated May 18, 1999, as set
forth in their report, which is incorporated by reference in this prospectus,
which is based in part on the report of Arthur Andersen, independent auditors.
These consolidated financial statements are incorporated by reference in
reliance on such reports given on the authority of such firms as experts in
accounting and auditing.
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- --------------------------------------------------------------------------------
[SDL LOGO]
SDL, INC.
2,950,000 SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
September 21, 1999
CIBC WORLD MARKETS
HAMBRECHT & QUIST
DONALDSON LUFKIN &
JENRETTE
MERRILL LYNCH & CO.
SG COWEN
SOUNDVIEW TECHNOLOGY GROUP
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS. NO DEALER, SALESPERSON OR OTHER PERSON IS
AUTHORIZED TO GIVE INFORMATION THAT IS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS ARE NOT AN OFFER TO SELL NOR ARE THEY SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
