1


              As filed with the Securities and Exchange Commission on August 11, 1999
                                                      Registration No. 333-____.AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON MARCH 20, 2000
                                                      REGISTRATION NO. 333-32068
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington,WASHINGTON, D.C. 20549

                                 -----------------------------------


                                AMENDMENT NO. 1
                                       TO

                                    FORM S-3
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                                 -----------------------------------

                                    SDL, INC.

             (Exact nameName of registrantRegistrant as specifiedSpecified in its charter)


              Delaware                               3674                           77-0331449
    (State or other jurisdiction          (Primary Standard Industrial           (I.R.S. employer
  of incorporation or organization)        Classification CodeCharter)


               Delaware                              77-0331449
      (State or jurisdiction of                   (I.R.S. Employer
    incorporation or organization              Identification Number)        identification number)
80 Rose Orchard Way San Jose, California 95134ROSE ORCHARD WAY SAN JOSE, CALIFORNIA 95134-1365 (408) 943-9411 (Address including ZIP code, and telephone number including area code, of registrant's principal executive offices) -------------------- Michael--------------- MICHAEL L. Foster Chief Financial OfficerFOSTER VICE PRESIDENT - FINANCE SDL, Inc.INC. 80 Rose Orchard Way San Jose, California 95134ROSE ORCHARD WAY SAN JOSE, CALIFORNIA 95134-1365 (408) 943-9411 (Name, address, including ZIPzip code, and telephone number, including area code, of agent for service) -------------------- Copies To:--------------- COPIES TO: William D. Sherman, Esq. Stephen J. Schrader, Esq. MORRISONMorrison & FOERSTERFoerster LLP 755 Page Mill Road Palo Alto, California 94304 (650) 813-5600 -------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as determined by market conditions. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement of the same offering. [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ____________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2
CALCULATION OF REGISTRATION FEE ================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF REGISTERED(1) REGISTERED(2) PRICE PER UNIT(2)(3) PRICE(2)(3) REGISTRATION FEE ================================================================================================================== Common Stock(4), $0.001 par value per share....... Preferred Stock(5), $0.001 par value per share....... $300,000,000 (2) (3) $300,000,000 $83,400 Depositary Shares(6)...... Warrants(7)............... Debt Securities(8)........ - ------------------------------------------------------------------------------------------------------------------ Total..................... $300,000,000 (2) (3) $300,000,000 $83,400(9) ==================================================================================================================
(1) Subject to footnote (2), this Registration Statement also covers contracts which may be issued by the Registrant under which the counterparty may be required to purchase Common Stock, Preferred Stock, Depositary Shares or Debt Securities. (2) In no event will the aggregate maximum offering price of all securities registered pursuant to this Registration Statement exceed $300,000,000. Any securities registered hereunder may be sold separately or as units with other securities registered hereunder. (3) The proposed maximum offering price per unit (a) has been omitted pursuant to Instruction II.D. of Form S-3 and (b) will be determined, from time to time, by the Registrant in connection with the issuance by the Registrant of the securities registered hereunder. (4) Subject to footnote 2, there is being registered hereunder an indeterminate number of shares of Common Stock as may be sold from time to time by Registrant. Subject to footnote (2), there is also being registered hereunder an indeterminate number of shares of Common Stock that may be issued upon conversion of Preferred Stock, Depositary Shares or Debt Securities registered hereunder or upon exercise of Warrants registered hereunder, as the case may be. (5) Subject to footnote 2, there is being registered hereunder an indeterminate number of shares of Preferred Stock as may be sold from time to time by Registrant or may be issued upon conversion of Debt Securities or exercise of Warrants registered hereunder. (6) To be represented by Depositary Receipts representing an interest in all or a specified portion of a share of Preferred Stock. (7) Subject to footnote 2, there is being registered hereunder an indeterminate number of Warrants representing rights to purchase Preferred Stock or Common Stock registered hereunder. (8) Subject to footnote 2, there is being registered hereunder an indeterminate number of Debt Securities as may be sold from time to time. (9) Calculated pursuant to Rule 457(o) of the rules and regulations under the Securities Act of 1933, as amended. --------------------statement. ------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 3 THE INFORMATION IN THIS2 PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED AUGUST 11, 1999 $300,000,000- -------------------------------------------------------------------------------- SDL, INC. 4,337,961 SHARES OF COMMON STOCK PREFERRED STOCK, DEPOSITARY SHARES, WARRANTS AND DEBT SECURITIES SDL, Inc. may offer, from time- -------------------------------------------------------------------------------- 347,961 shares of our common stock have been issued to time, in one or more series or classesformer stockholders of Queensgate Instruments Limited ("Queensgate") and in amounts, at prices and on terms that it will determine at the time of offering, with an additional aggregate public offering pricemaximum of up to $300,000,000 (or its equivalent in another currency based on the exchange rate at the time of sale): -3,990,000 shares of our common stock $0.001 par value per share; -may be issued in the future, pursuant to an earn out, to former stockholders and former optionholders of Queensgate as payment for the acquisition by us of all of the outstanding equity interests of Queensgate in March, 2000. The shares of preferredour common stock $0.001 par value per share; -which may be issued in the future will, if issued, be in payment of the Company's obligations under an earn-out provision in connection with the acquisition of all of the outstanding equity interests of Queensgate. Some of these holders may wish to sell shares of preferred stock represented by depositary shares; - warrants to purchaseour common stock or preferred stock;in the future, and - debt securities.this prospectus allows them to do so. We will providenot receive any of the specific termsproceeds from any sale of shares by these securities in supplementsholders, but we have agreed to bear the expenses of registration of the shares by this prospectus. You should readShare numbers in this prospectus andare included on a post-split basis to reflect our 2-for-1 stock split being effected in the applicable supplement carefully before you invest.form of a 100% stock dividend payable on March 13, 2000 to holders of record of our stock on February 29, 2000. Our common stock is listed on the NASDAQNasdaq National Market System under the symbol "SDLI." On August 9, 1999, theSDLI. The last reported salessale price of our common stock on the NASDAQNasdaq National Market Systemon March 17, 2000 was $63.375$216.875 per share. ------------------------------------------ INVESTING IN THE SECURITIESCOMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THEA HIGH LEVEL OF INVESTMENT RISK. SEE "RISK FACTORS" SECTION BEGINNINGINCORPORATED BY REFERENCE ON PAGE ___5 OF THIS PROSPECTUS. -------------------PROSPECTUS - -------------------------------------------------------------------------------- Neither Thethe Securities Andand 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 datenor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is August ___, 1999.truthful or complete. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- March 20, 2000 43 TABLE OF CONTENTS
PAGEPage ---- About This Prospectus...................................................... 3 Where You Can Find More Information........................................ 3Available Information......................................................3 Incorporation Ofof Certain Documents By Reference............................ 3by Reference............................4 The Company................................................................ 4Company................................................................6 Use Of Proceeds............................................................ 4 Ratios Of Earnings to Fixed Charges........................................ 4 Forward Looking Statements................................................. 5of Proceeds............................................................6 Risk Factors............................................................... 5 Description Of Common Stock................................................ 14 Description Of Preferred Stock............................................. 15 Description Of Depositary Shares........................................... 16 Description Of Warrants.................................................... 19 Description Of Debt Securities............................................. 20 Delaware Law and Certain Charter Provisions................................ 29Factors...............................................................6 Selling Stockholders.......................................................8 Plan of Distribution....................................................... 30Distribution.......................................................9 Experts...................................................................11 Legal Matters.............................................................. 31 Experts.................................................................... 31Matters.............................................................11
5 ABOUT THIS PROSPECTUS ThisNo person has been authorized to give any information or to make any representations not contained or incorporated by reference in this prospectus is part of a registration statement that we filedin connection 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 securitiesoffer described in this prospectus and, if given or made, such information and representations must not be relied upon as having been authorized by the Company or the selling stockholders. Neither the delivery of this prospectus nor any sale made under this prospectus shall under any circumstances create any implication that there has been no change in onethe affairs of SDL, Inc. since the date hereof or more offerings up to a total dollar amountsince the date of $300,000,000.any documents incorporated herein by reference. This prospectus provides you withdoes not constitute an offer to sell or a general descriptionsolicitation of an offer to buy any securities other than the securities to which it relates, or an offer or solicitation in any state to any person to whom it is unlawful to make such offer in such state. AVAILABLE INFORMATION We are subject to the informational requirements of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the termsSecurities Exchange Act 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,1934, as amended (the "Exchange Act"), and as supplemented byin accordance with the Certificate of Designation for the Series B Preferred Stock. WHERE YOU CAN FIND MORE INFORMATION The Company files annual, quarterly and specialAct we file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC""Commission"). You may readThese reports, proxy statements and copy any document we file with the SECother information filed can be inspected and copied at the SEC's public reference rooms at Room 1024, Judiciary Plaza,Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the SEC'sfollowing regional offices atof the Commission: 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 callCopies of such material can be obtained from the SECPublic Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at 1-800-SEC-0330 for further information on the public reference rooms.prescribed rates. The SEC alsoCommission maintains a web site that contains(http://www.sec.gov) containing reports, proxy and information statements and other information regardingof registrants, including ours, that file electronically with the SEC (http://www.sec.gov). YouCommission. In addition, the Common Stock is listed on the Nasdaq National Market and similar information concerning us can inspect reportsbe inspected and other information we filecopied at the offices of the National Association of Securities Dealers, Inc., 1735 K. Street, N.W., Washington, D.C. 20006.9513 Key West Avenue, Rockville, Maryland 20850. We have filed with the Commission a registration statement ofon Form S-3 (of which this prospectus is a part and related exhibits with the SECpart) under the Securities Act of 1933, as amended (the "Securities Act"). The, with respect to the shares being offered by this prospectus. This prospectus does not contain all of the information set forth in this registration statement, contains additionalsome portions of which have been omitted as permitted by the rules and regulations of the Commission. Statements contained in this 2 4 prospectus as to the contents of any contract or other documents are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference and the exhibits and schedules thereto. For further information aboutregarding us and the securities. You may inspectshares being offered by this prospectus, reference is hereby made to the registration statement and such exhibits without chargeand schedules which may be obtained from the Commission at theits principal office in Washington, D.C. upon payment of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and you may obtain copies fromfees prescribed by the SEC at prescribed rates.Commission. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to "incorporatedocuments listed below have been filed by reference" the information we fileCompany under the Exchange Act with the SEC, which means that we can disclose important information to youCommission and are incorporated herein 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: -reference: - SDL's Annual Reports on Form 10-K and Form 10-K/A for the year ended December 31, 1998; -January 1, 1999; - SDL's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, and June 30, 1999 and September 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 Definitive Proxy Statement dated January 21, 2000, filed in connection with SDL's Special Meeting of Stockholders held on February 28, 2000; - SDL's current reportsCurrent Reports on Form 8-K each dated as of May 18, 1999 and filed with the SEC on June 2, 1999 and June 29, 1999; - SDL's Current Report on Form 8-K dated as of September 21, 1999 respectively; 3 6 -and filed with the SEC on September 23, 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"); -Act; and - 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 SECdescription. Each document we file pursuant to Sections 13(a), 13(c), 14 orand 15(d) of the Exchange Act aftersubsequent to the date of this prospectus and prior to the termination of this offering. You should rely only on the informationoffering made hereby shall be deemed to be incorporated by reference or set forth in this prospectus and to be part hereof from the date of filing such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein (or in the applicable prospectus supplement. We havesupplement) or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any 3 5 such statement so modified or superseded shall not authorized anyone elsebe deemed, except as so modified or superseded, to provide you with different information. We may only useconstitute a part of this prospectus. Copies of all documents which are incorporated herein by reference (not including the exhibits to such information, unless such exhibits are specifically incorporated by reference in such information) will be provided without charge to each person, including any beneficial owner, to whom this prospectus is delivered upon written or oral request. Requests should be directed 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.Michael L. Foster, Vice President - Finance, SDL, Inc., 80 Rose Orchard Way, San Jose, California 95134-1365, telephone number: (408) 943-4344. 4 6 THE COMPANY SDL designs, manufactures and markets semiconductor lasers, 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 andSince 1996, 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 200 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. 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 increasinglystrongly focused on providing solutions for optical communications. SDL'sThe Company's optical communications products power the transmission of data, voice and Internet information over fiber optic networks to meet the needs of telecommunications, DWDM,dense wavelength division multiplexing (DWDM), cable television and satellite communications applications. LedThe demand for DWDM solutions accelerated significantly in 1999 due to the technology's unique ability to expand network bandwidth and provide much faster transmission of data, voice and video signals. With the qualification of the Company's new wafer fabrication facility in the first half of 1998 and expansion of yields and assembly and test capacity in 1999, the Company was able to successfully ramp capacity and achieve significant revenue growth. Revenue from fiber optic communications products increased by growth179 percent in shipments of its flagship 980 nm semiconductor laser pump module,1999 compared to 1998. Revenue from SDL products were also able to capture a strong position in the undersea fiber optic communications market, where Company revenue increased from less than 1 percent total 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 7330 percent of total revenue in the first halffourth quarter of 1999. In May 1999,SDL's optical products also serve a wide variety of non-communications applications, including materials processing, printing, medical and scientific instrumentation. We were incorporated in a transaction accounted forCalifornia on March 29,1983 and in Delaware on November 16, 1992. We were known as a pooling-of-interest,Spectra Diode Laboratories, Inc. until we changed our name to SDL, completedInc. in April 1993. References to "SDL" or the acquisition of IOC International plc ("IOC")"Company" refer to SDL, Inc., a United Kingdom-based provider of lithium niobate modulators. SDL believes the merger with IOC will strengthen SDL's positionour subsidiaries and predecessor entities acquired in the transmitter portion of the DWDM telecommunications market.previous acquisitions. Our headquarters are located at 80 Rose Orchard Way, San Jose, California, 95134-1365, and our telephone number is (408) 943-9411. USE OF PROCEEDS Unless otherwise indicatedAll of the shares being offered under this prospectus are offered by the Selling Stockholders, and we will not receive any of the proceeds from the sale of the shares. This registration statement is intended to satisfy certain of our obligations under a Share Purchase Agreement and Registration Rights Agreement with the holders of all of the equity interests in Queensgate. Under that agreement, we have agreed to pay expenses of registration of these shares under United States federal and state securities laws. RISK FACTORS You should carefully consider the risk factors set forth in our reports filed with the SEC which are incorporated by reference herein, in evaluating an investment in the applicablecommon stock. This prospectus supplement,and our documents filed with the Company intends to useSEC and incorporated by reference herein include "forward-looking statements" within the net proceedsmeaning of any sale of securities pursuant to this prospectus for general corporate purposes. 4 7 RATIOS OF EARNINGS TO FIXED CHARGES The following table sets forth SDL's consolidated ratios of earnings to fixed charges for the periods shown.
Six Months Ended June 30, 1999 Year Ended December 31, -------------- -------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Ratio of Earnings to Fixed Charges 10.5x 8.1x N/A 17.2x N/A 4.1x
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 SomeSection 27A of the information includedSecurities Act and Section 21E of the Exchange Act. All statements in or incorporated by reference in this prospectus, containsother than statements of historical fact, are "forward-looking statements" for purposes of these provisions, including any statements of the plans and objectives for future operations and any statement of assumptions underlying any of the foregoing. In some cases, 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 willcan be achieved or will occur. You can identify forward-looking statementsidentified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends,"expects," "plans," "pro forma,"anticipates," "estimates""estimates," "potential," or "anticipates""continue," or the negative of these words and phrasesthereof 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'sother comparable terminology. Our actual results could differ materially from thosethese projected or assumed 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 consultthese forward-looking statements because of 5 7 risks and uncertainties, including risks and uncertainties described in the risk factors listedincorporated by reference in the Company's Reports on Form 10-K and Form 10-K/A for the year ended December 31, 1998, on the Form 10-Q for the quarter ended March 31, 1999, on the Form 10-Q for the quarter ended June 30, 1999 and on other reports filed by SDL from timethis prospectus. We assume no obligation to time under the Exchange Act. 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 processesupdate any such forward-looking statement 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 operatingreason why actual 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, 5might differ. 6 8 - device packaging, - hybrid microelectronic packaging, - printed circuit board testing, and - final assembly and testingSELLING STOCKHOLDERS The following table provides the names 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 halfnumbers 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 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. 6 9 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 Now 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 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 7 10 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 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. 8 11 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 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 9 12 - 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. In addition, we are involved in various legal proceedings arising in the ordinary course of our business. 10 13 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. 11 14 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, 12 15 - tariffs, and - other potential trade barriers. 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: 13 16 - a stoppage or delay of supply, - substitution of more expensive or less reliable parts, - 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. 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, SDLbeneficially owned by each Selling Stockholder, the number of shares of common stock which may be issued 1,130,098to each Selling Stockholder in satisfaction of the Company's obligations under the earn-out provisions of the Share Purchase Agreement between the Company and the Selling Stockholders and the number of shares of common stock beneficially owned by each Selling Stockholder upon completion of the offering or offerings pursuant to this prospectus, assuming each Selling Stockholder offers and sells all of its or his/her respective shares. Selling Stockholders may, however, offer and sell all, or some or none of their shares. Under some circumstances, the respective donees, pledgees and transferees or other successors in interest of the Selling Stockholders may also sell the shares listed below as being held by the Selling Stockholders. No Selling Stockholder beneficially owns one percent or greater of the Company's outstanding common stock. All share numbers set forth in the table are included on a post-split shares in connection with the acquisition of IOC International plc. The Company has also recently effected a two-for-onebasis to reflect our 2-for-1 stock split of its common stockbeing effected in the form of a 100% stock dividend. Tradingdividend payable 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 entitledMarch 13, 2000 to one vote for each share heldstockholders of record on all matters submitted toFebruary 29, 2000.
BENEFICIAL BENEFICIAL OWNERSHIP PRIOR OWNERSHIP TO OFFERING PRIOR TO RESULTING FROM TOTAL OFFERING ISSUANCE OF POTENTIAL RESULTING MAXIMUM NUMBER BENEFICIAL BENEFICIAL FROM ISSUANCE OF SHARES OWNERSHIP OWNERSHIP OF SHARES ON PURSUANT TO THE PRIOR TO AFTER THE MARCH 6, 2000 EARN-OUT OFFERING OFFERING ------------- --------------- ---------- ---------- STOCKHOLDERS: 3i Group plc (1).................... 126,470 857,414 983,884 0 Paul David Atherton................. 64,068 861,334 925,402 0 John Edward Herrin.................. 5,908 79,436 85,344 0 Thomas Rudolph Hicks................ 62,801 844,308 907,109 0 Newrick Kenneth Reay................ 64,068 861,334 925,402 0 James Ring.......................... 11,817 158,872 170,689 0 Phyllis Ring........................ 11,817 158,872 170,689 0 John Whiteley Ward.................. 1,012 13,604 14,616 0 ------- --------- --------- --- Total Stockholders Shares..... 347,961 3,835,174 4,183,135 0 OPTIONHOLDERS: 0 Christopher M. Shannon.............. -- 45,340 45,340 0 Ivor E. Thomas...................... -- 38,530 38,530 0 John H. Spensley.................... -- 9,028 9,028 0 Adrian G. Meldrum................... -- 4,514 4,514 0 David R. Jones...................... -- 6,748 6,748 0 Kent H. Wardley..................... -- 22,630 22,630 0 John E. Herrin...................... -- 3,388 3,388 0 John W. Ward........................ -- 3,388 3,388 0 Terrance C. Dines................... -- 3,388 3,388 0 Sean D. Staines..................... -- 2,234 2,234 0 Colin M. Chambers................... -- 2,234 2,234 0 Samuel Salloum...................... -- 2,234 2,234 0 Malachy McConnell................... -- 2,234 2,234 0
7 9 Phil Rhead.......................... -- 2,234 2,234 0 Jayesh Patel........................ -- 2,234 2,234 0 Krzystof Pietraszewski.............. -- 2,234 2,234 0 Keith Gambles....................... -- 2,234 2,234 0 ------- --------- --------- --- Total Optionholders Shares...... -- 154,826 154,826 0 ------- --------- --------- --- Total of Stockholders and Optionholders Shares.... 347,961 3,990,000 4,337,961 0 ------- --------- --------- ---
(1) The Selling Stockholder is a votepublic company. None of the stockholders. HoldersSelling Stockholders has had any material relationship with us or our affiliates within the past three years. All 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 14 17 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,set forth above were "restricted securities" under the Securities Act prior to this registration. We agreed with the Selling Stockholders to file the registration statement to register the resale of the shares. We agreed to prepare and file all sharesnecessary amendments and supplements to the registration statement to keep it effective until such time as all of common stock tothe securities covered by this registration statement may be outstanding upon completion of any offeringfreely sold by the Selling Stockholders without registration 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 sharesRule 144(k) 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 sharesSecurities Act assuming none of the Preferred Stock as Series B Preferred Stock, par value $0.001 per share upon exerciseSelling Stockholders is an affiliate 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, seniorSDL. PLAN OF DISTRIBUTION This prospectus relates 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 stockoffer 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 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; 15 18 - 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 shares pursuant to a separate deposit agreement among the Company, the preferred stock depositary and the holderssale from time to time by the holders of up to an aggregate maximum of 4,337,961 shares (adjusted for the 2-for-1 stock split payable on March 13, 2000) of our common stock. These shares have been issued or may be issued in the future pursuant to an earn-out in connection with the Share Purchase Agreement between SDL and the holders of all of the depositary receipts issuedequity interests in Queensgate. This prospectus has been prepared in connection with registering these shares to allow for sales of these shares by the preferred stock depositary which will evidenceapplicable Selling Stockholders to the depositarypublic as required by the terms of the Share Purchase Agreement and a related Registration Rights Agreement. We have registered the shares ("depositary receipts"). Subjectfor sale pursuant to the terms of the deposit agreement, each ownerShare Purchase Agreement and the Registration Rights Agreement, but registration of a depositary receipt will be entitled, in proportion to the fractional interestthese shares does not necessarily mean that any 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 depositarythese shares will be evidencedoffered and sold by depositary receipts issuedthe holders thereof pursuant to this prospectus. We will not receive any proceeds from this offering. The shares may be sold from time to time to purchasers directly by any of the applicable deposit agreement. Immediately after we issueSelling Stockholders, or under some circumstances, donees, pledgees, transferees or other successors in interest ("Transferees") thereof. Alternatively, the Selling Stockholders, or Transferees thereof, may from time to time offer the shares through dealers or agents, who may receive compensation in the form of commissions from the Selling Stockholders, or Transferees thereof, and/or the purchasers of the shares for whom they may act as agent. The Selling Stockholders, or Transferees thereof, and deliverany dealers or agents that participate in the preferreddistribution of the shares may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of the shares by them and any commissions received by any such dealers or agents might be deemed to be underwriting commissions under the Securities Act of 1933. 8 10 The Selling Stockholders are subject to the provisions of the Exchange Act and the rules under it relating to stock manipulation, particularly Regulation M. They are not to engage in any transaction in violation of these provisions. The Selling Stockholders may sell their shares directly to purchasers or may use broker-dealers or agents to sell their shares. Broker-dealers or agents who sell the shares may receive compensation in the form of commissions from the Selling Stockholders or they may receive compensation from purchasers of the shares for whom they acted as agents or to whom they sold the shares as principal, or both. The compensation as to a preferred stock depositary, weparticular broker-dealer or agent will cause 16 19 the preferred stock depositary to issue the depositary receipts on our behalf. You may obtain copiesnot be in excess of eight percent (8%) of the applicable formselling price of deposit agreementthe shares sold by the particular broker-dealer or agent. The Selling Stockholders and depositary receipt from us upon request. The statements madeany broker-dealers or agents that participate in this section relatingthe sale of their common stock may be deemed to be "underwriters" within the meaning of the Securities Act. Any commissions or profits received by these broker-dealers or agents on any resale of the shares may be underwriting discounts and commissions under the Securities Act of 1933, as amended. Selling Stockholders who are "underwriters" within the meaning of the Securities Act, will be subject to the deposit agreementprospectus delivery requirements of the Securities Act. We will pay all fees and expenses incurred in connection with preparing and filing this prospectus and any prospectus supplement and the depositary receipt are summariesregistration statement and any amendments thereto. The Selling Stockholders will pay any brokerage commissions and similar selling expenses, if any, attributable in connection with the sale of certain anticipated provisions. These summaries are not complete and may be modified by the applicable prospectus supplement. For more detail you should refershares of common stock. We have agreed to the deposit agreement itself, which will be filed as an exhibit tokeep the registration statement, of which this prospectus isand any subsequent prospectus supplements constitute a part, or incorporatedeffective until all of the securities covered by reference in this registration statement may be freely sold 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 stockthe Selling Stockholders without registration pursuant 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 surrenderRule 144(k) of the depositary receipts at the corporate trust officeSecurities Act, assuming none of the preferred stock depositary,Selling Stockholders is an affiliate of SDL. There can be no assurance that the holdersSelling Stockholders will be entitled to delivery at the corporate trust office,sell all 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 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. 17 20 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 offered hereby. Under the securities laws of certain states, the securities may be sold in such states only through registered or any other securitieslicensed brokers or property. Nevertheless, if stated in the applicable prospectus supplement relating to an offering of depositary shares, holdersdealers. Selling Stockholders 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 classalso resell all 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 stocktheir securities in open market transactions in reliance 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. 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. 18 21 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 dutiesRule 144 under the deposit agreement.Securities Act. 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, they must meet the criteria and we may atconform to the requirements of that Rule. In addition, any time remove the preferred stock depositary, any such resignation or removalsecurities covered by this prospectus which qualify for sale pursuant to take effect upon the appointment of a successor preferred stock depositary. A successor preferred stock depositary must be appointed within 60 days after deliveryRule 144A of the notice of resignation or removal and mustSecurities Act, as amended, may 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 forwardsold under Rule 144A rather than pursuant to holders of depositary receiptsthis prospectus. A Selling Stockholder may not sell 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. 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; 19 22 - 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 chosencovered 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. 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 securitiesmeans other than as described in this prospectus. Accordingly, forWe have entered into 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 20 23 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; - 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 21 24 - 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 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 22 25 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. 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: 23 26 - 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 24 27 - 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 25 28 - an opinion of counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with. 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 CompanyRegistration Rights Agreement 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; 26 29 - 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. 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: 27 30 - to be discharged from any and all obligations in respect of the debt securities of any series (except for certain obligationsSelling Stockholders 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 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 incommon stock under applicable United States federal income tax law occurring afterand state securities laws under various circumstances and at various times. Pursuant to this Registration Rights Agreement, we have agreed to indemnify 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. 28 31 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 otherwiseSelling Stockholders, 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. 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 RightsSelling Stockholders 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 29 32 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 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 agreementsagreed to indemnify underwriters, dealers and agents againstus, for 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 inExchange Act. 9 11 If required, at a time a particular offer of the relatedshares is made, a prospectus supplement, each series of securities offered will be distributed that will set forth the name and names of any dealers or agents and any commissions and other terms constituting compensation from the Selling Stockholders, or transferees thereof, and any other required information. The shares may be sold from time to time at varying prices determined at the time of sale or at negotiated prices. In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in such state or an exemption from such registration or qualification requirement is available and is complied with. The shares may also be sold in one or more of the following transactions: (a) block transactions (which may involve crosses) in which a new issue with no established trading market, other thanbroker-dealer may sell all or a portion of such stock as agent but may position and resell all or a portion of the common stock which is listed onblock as principal to facilitate the NASDAQ National Market System. Any shares of common stock soldtransaction; (b) purchases by any such broker-dealer as principal and resale by such broker-dealer for its own account pursuant to a prospectus supplement may be listed onsupplement; (c) ordinary brokerage transactions and transactions in which any such broker-dealer solicits purchasers; (d) sales "at the NASDAQ National Market System, subjectmarket" 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 makethrough a market in a series of offered securities, 30 33 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 themaker or into an existing trading market, on an exchange or otherwise, for the securities. If indicatedsuch shares; and (e) sales in the applicable prospectus supplement, we may authorize dealers acting as our agentsother ways not involving market makers or established trading markets, including direct sales 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 coveredpurchasers. In effecting sales, broker-dealers engaged by the delayed delivery contracts. To facilitate the offering of the securities, certain persons participating in the offeringSelling Stockholders 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 soldarrange for other broker-dealers 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.participate. EXPERTS The consolidated financial statements of SDL, Inc. incorporated by reference in SDL, Inc.'s Annual Report (Form 10-K/A) for the year ended December 31, 1998,January 1, 1999, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated by reference therein and incorporated herein by reference. The supplemental consolidated financial statements of SDL, Inc. appearing in SDL, Inc.'s Current Report on Form 8-K dated May 18, 1999 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included therein and incorporated by reference elsewhere herein, which is based in part on the report of Arthur Andersen, independent auditors. Such consolidated financial statements and supplemental consolidated financial statements referred to above are incorporated herein by reference in reliance upon such reports given on the authority of such firms as experts in accounting and auditing. 31LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered pursuant to this prospectus is being passed upon for the Company by Morrison & Foerster LLP, Palo Alto, California. 10 3412 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated fees and expenses other than underwriting discounts and commissions,payable by the Company in connection with the offeringissuance and distribution of the securities being registered.Common Stock registered hereby. All the amounts shownof such fees and expenses are estimates, except for the Securities Act registration fee. Securities Act Registration Fee................. $ 249,819 Printing and Exchange Commission Registration Fee............... $83,400.00 Printing Fees..................................................... $50,000.00duplicating fees................... 5,000 Legal Feesfees and Expenses........................................... $100,000.00expenses......................... 50,000 Accounting Feesfees and Expenses...................................... $75,000.00 Miscellaneous..................................................... $6,600.00expenses.................... 15,000 Miscellaneous expenses.......................... 5,181 ----------- Total........................................................ $315,000.00 ===========*Total.................................. $ 325,000 -----------
*None of the expenses listed above will be borne by the selling stockholders. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under sectionSection 145 of the General CorporationCorporate Law of the State of Delaware, the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Amended and Restated Bylaws also provide for mandatory indemnification of its directors and executive officers, and permissive indemnification of its employees and agents, to the fullest extent permissible under Delaware law. The Registrant's Amended and Restated Certificate of Incorporation provides that the liability of its directors for monetary damages shall be eliminated to the fullest extent permissible under Delaware law. Pursuant to Delaware law, this includes elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant and its stockholders.Stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetarynon monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Registrant has entered into agreements with its directors and certain of its executive officers that require the Registrant to indemnify such persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of the Registrant or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Registrant and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. The Registrant has obtainedmaintains a policy of directors' and officers' liability insurance that insures the Registrant'sCompany's directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances. 32Pursuant to written agreement between the respective Selling stockholders and the Company, the directors and officers of the Company are indemnified by such Selling II-1 3513 Stockholders against certain civil liabilities that they may incur under the Securities Act in connection with this registration statement and the related prospectus. ITEM 16. EXHIBITS [TO BE REVISED]
Number Document ------ -------- 1.1* Form of Underwriting Agreement between the Company and the Representatives. 3.1 Form of Registrant's Restated Certificate of Incorporation.(1) 3.1.1 Form of Registrant's Certificate of Designation of the Series B Preferred Stock.(4) 3.1.2 Form of Registrant's Certificate of Correction of Restated Certificate of Incorporation.(4) 3.1.3 Form of Amendment to Registrant's Restated Certificate of Incorporation.(5) 3.2 Form of Registrant's Amended and Restated Bylaws.(1) 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2 Specimen Common Stock certificate.(1) 4.3.1 Rights Agreement, dated November 6, 1997, between SDL and Chase Mellon Shareholder Services, L.L.C., together with; Exhibit A, Form of Rights Certificate; Exhibit B, of Summary of Rights to Purchase Preferred Stock; and Exhibit C Form of Certificate of Designation of the Series B Preferred Stock.(2) 4.3.2 First Amended and Restated Rights Agreement, dated February 11, 1999, between SDL and Chase Mellon Shareholders Services, L.L.C., a New Jersey limited liability company.(3) 4.4 Form of Indenture. 4.5* Form of Preferred Stock Certificate. 4.6* Form of Warrant Agreement. 4.7* Form of Deposit Agreement. 5.1 Opinion of Morrison & Foerster LLP as to the validity of the issuance of the securities. 12.1 Calculation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of Arthur Andersen, Independent Auditors. 23.3 Consent of Morrison & Foerster LLP (included in Exhibit 5.1). 24.1 Power of attorney of certain signatories (included on the Signature Page). 25.1* Statement of Eligibility of Trustee on Form T-1.
Notes regarding exhibits incorporated by reference (1) Incorporated3.1 - Restated Certificate of Incorporation of the Registrant including all amendments thereto(1) 3.2 - Bylaws of the Registrant (incorporated by reference to the identically numbered exhibitExhibit 3.2 to SDL'sRegistrant's Registration Statement on Form S-1 (File No. 33-87752)) 4.1 - Reference is made to Exhibits 3.1 and 3.2 4.3.1 - Rights Agreement, dated November 6, 1997, between SDL and Chase Mellon Shareholder Services, L.L.C., which became effective on March 15, 1995. (2) Incorporatedtogether with; Exhibit A, Form of Rights Certificate; Exhibit B, of Summary of Rights to Purchase Preferred Stock; and Exhibit C Form of Certificate of Designation of the Series B Preferred Stock (incorporated by reference to Exhibit 1 to SDL'sRegistrant's Registration Statement on Form 8-A (File No. 000-25688), filed with the SEC on November 7, 1997. (3) Incorporated1977) 4.3.2 - First Amended and Restated Rights Agreement, dated February 11, 1999, between SDL and Chase Mellon Shareholders Services, L.L.C., a New Jersey limited liability company (incorporated by reference to Exhibit 1 to SDL'sRegistrant's Registration Statement on Form 8-A/A8-A (File No. 000-25688) filed with the SEC on March 19, 1999. (4) Incorporated by reference to the identically numbered exhibit to SDL's Annual Report1999) 5.1 - Opinion of Morrison & Foerster LLP(1) 23.1 - Consent of Ernst & Young LLP, Independent Auditors(1) 23.2 - Consent of Arthur Andersen, Chartered Accountants(1) 23.3 - Consent of Morrison & Foerster LLP (included in Exhibit 5.1)(1) 24.1 - Power of Attorney (included on Form 10-K/A for the fiscal year ended December 31, 1998. 33signature page hereto)(1) - -------------- (1) previously filed. II-2 36 (5) Incorporated by reference to the identically numbered exhibit to SDL's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. - ------------------ * To be filed by amendment or incorporated by reference in connection with the offering of the applicable securities.14 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) any deviation from the low or high and of the estimated maximum offering price may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement; Provided,provided, however, that subparagraphs (i) and (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in the periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of thethese securities being registered which remain unsold at the termination of the offering. The undersigned Registrant hereby further undertakes that, for the purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual reports pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, wherewhen applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference into this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby further undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.II-3 15 The undersigned Registrant hereby further undertakes that: 34 37 (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance under Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby further undertakes to file an application for the purpose of determining the eligibility of the Trustee to act under subsection (a) of Section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above,of this registration statement, or otherwise (other than insurance), the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securitiessuch Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securitiessuch Act and will be governed by the final adjudication of such issue. 35II-4 3816 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrantCompany certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California on August __, 1999.March 20, 2000. SDL, INC. By: /s/ DONALD R. SCIFRES ------------------------------------ Donald R. Scifres --------------------------------- Chairman of the Board, and Chief Executive Officer and President II-5 17 Pursuant to the requirements of the Securities Act of 1933, this amendment to registration statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes Donald R. Scifres and Michael L. Foster and each of them, as Attorney-in-fact, to sign on his behalf individually and In each capacity stated below, and to file, any amendments, including post-effective amendments, to this registration statement.indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ DONALDDonald R. SCIFRESScifres Chairman of the Board, and August 11, 1999 - ------------------------------------- Chief Executive March 20, 2000 - ------------------------------ Officer and President (Principal Executive Donald R. Scifres (Principal Executive Officer) /s/ MICHAEL L. FOSTER Chief Financial Officer August 11, 1999 - ------------------------------------- and Treasurer (Principal Michael L. Foster Vice President, Finance and Chief March 20, 2000 - ------------------------------ Financial Officer (Principal Financial and Michael L. Foster Accounting Officer) /s/ KEITHMark B. GEESLINMyers Director August 11, 1999March 20, 2000 - ------------------------------------- Keith B. Geeslin /s/ ANTHONY B. HOLBROOK Director August 11, 1999 - ------------------------------------- Anthony B. Holbrook /s/ MARK B. MYERS Director August 11, 1999 - ------------------------------------------------------------------- Mark B. Myers /s/ FREDERICKeith B. Geeslin Director March 20, 2000 - ------------------------------ Keith B. Geeslin /s/Frederic N. SCHWETTMANNSchwettmann Director August 11, 1999March 20, 2000 - ------------------------------------------------------------------- Frederic N. Schwettmann /s/ Anthony B. Holbrook Director March 20, 2000 - ------------------------------ Anthony B. Holbrook
36II-6 39 EXHIBIT INDEX Number Document 1.1* Form of Underwriting Agreement between the Company and the Representatives.18 Exhibit Index 3.1 Form of Registrant's- Restated Certificate of Incorporation.(1) 3.1.1 Form of Registrant's Certificate of DesignationIncorporation of the Series B Preferred Stock.(4) 3.1.2 FormRegistrant including all amendments thereto(1) 3.2 - Bylaws of Registrant's Certificate of Correction of Restated Certificate of Incorporation.(4) 3.1.3 Form of Amendmentthe Registrant (incorporated by reference to Exhibit 3.2 to Registrant's Restated Certificate of Incorporation.(5) 3.2Registration Statement on Form of Registrant's Amended and Restated Bylaws.(1)S-1 (File No. 33-87752)) 4.1 - Reference is made to Exhibits 3.1 and 3.2. 4.2 Specimen Common Stock certificate.(1)3.2 4.3.1 - Rights Agreement, dated November 6, 1997, between SDL and Chase Mellon Shareholder Services, L.L.C., together with; Exhibit A, Form of Rights Certificate; Exhibit B, of Summary of Rights to Purchase Preferred Stock; and Exhibit C Form of Certificate of Designation of the Series B Preferred Stock.(2)Stock (incorporated by reference to Exhibit 1 to Registrant's Registration Statement on Form 8-A (File No. 000-25688) filed with the SEC on November 7, 1977) 4.3.2 - First Amended and Restated Rights Agreement, dated February 11, 1999, between SDL and Chase Mellon Shareholders Services, L.L.C., a New Jersey limited liability company.(3) 4.4company (incorporated by reference to Exhibit 1 to Registrant's Registration Statement on Form of Indenture. 4.5* Form of Preferred Stock Certificate. 4.6* Form of Warrant Agreement. 4.7* Form of Deposit Agreement.8-A (File No. 000-25688) filed with the SEC on March 19, 1999) 5.1 - Opinion of Morrison & Foerster LLP as to the validity of the issuance of the securities. 12.1 Calculation of Ratio of Earnings to Fixed Charges.LLP(1) 23.1 - Consent of Ernst & Young LLP, Independent Auditors.Auditors(1) 23.2 - Consent of Arthur Andersen, Independent Auditors.Chartered Accountants(1) 23.3 - Consent of Morrison & Foerster LLP (included in Exhibit 5.1).(1) 24.1 - Power of attorney of certain signatoriesAttorney (included on the Signature Page). 25.1* Statement of Eligibility of Trustee on Form T-1. Notes regarding exhibits incorporated by reference signature page hereto)(1) Incorporated by reference to the identically numbered exhibit to SDL's Registration Statement on Form S-1 (File No. 33-87752), which became effective on March 15, 1995. (2) Incorporated by reference to Exhibit 1 to SDL's Registration Statement on Form 8-A (File No. 000-25688), filed with the SEC on November 7, 1997. 40 (3) Incorporated by reference to Exhibit 1 to SDL's Registration Statement on Form 8-A/A filed with the SEC on March 19, 1999. (4) Incorporated by reference to the identically numbered exhibit to SDL's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998. (5) Incorporated by reference to the identically numbered exhibit to SDL's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. - -------------- * To be filed by amendment or incorporated by reference in connection with the offering of the applicable securities.----------- (1) previously filed.