SAWTEK INC \FL\, S-3/A, 1997-06-30

SAWTEK INC \FL\
S-3/A, 1997-06-30
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1997

REGISTRATION NO. 333-26747
================================================================================

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

AMENDMENT NO. 4

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

SAWTEK INC.
(Exact name of registrant as specified in its charter)
------------------

<TABLE>
<C> <C>
FLORIDA 59-1864440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

1818 SOUTH HIGHWAY 441
APOPKA, FLORIDA 32703
(407) 886-8860
(Address including zip code, and telephone number including area code, of
registrant's principal executive offices)

STEVEN P. MILLER
1818 SOUTH HIGHWAY 441
APOPKA, FLORIDA 32703
(407) 886-8860
(Name, address including zip code, and telephone number including area code, of
agent for service)
------------------
COPIES TO:

<TABLE>
<C> <C>
WILLIAM A. GRIMM, ESQ. ANDREI M. MANOLIU, ESQ.
GRAY HARRIS & ROBINSON, P.A. L. KAY CHANDLER, ESQ.
201 EAST PINE STREET COOLEY GODWARD LLP
SUITE 1200 FIVE PALO ALTO SQUARE
ORLANDO, FLORIDA 32801 3000 EL CAMINO REAL
(407) 843-8880 PALO ALTO, CALIFORNIA 94306-2155
(415) 843-5000
</TABLE>

------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. [ ]
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 for 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. [ ]
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock..................... 3,450,000 $28.6875 $98,971,875 $29,991
==================================================================================================================
</TABLE>

(1) Includes 450,000 shares that the Underwriters have the option to purchase
from certain Selling Shareholders to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 (c) under the Securities Act of 1933. Pursuant to
Rule 457 (a), an additional registration fee of $1,949 is to be paid in
connection with this Amendment No. 4. $28,042 has been previously paid by
the Registrant.

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 A FURTHER 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.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JUNE 30, 1997

PROSPECTUS

3,000,000 SHARES

SAWTEK LOGO

COMMON STOCK

Of the 3,000,000 shares of Common Stock offered hereby, 300,000 shares are
being sold by the Company and 2,700,000 shares are being sold by the Selling
Shareholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol SAWS. On June 27, 1997, the last reported price of the Common Stock
was $33.25 per share. See "Price Range of Common Stock."

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

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS (3)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total (4)............. $ $ $ $
==================================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $60,000.

(3) Before deducting expenses payable by the Selling Shareholders estimated at
$540,000.

(4) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 450,000 additional shares of Common Stock solely to
cover over-allotments, if any. If all such shares are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Selling Shareholders
will be $ , $ and $ , respectively. See
"Underwriting."

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

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997 at the office of the agent of Hambrecht
& Quist LLC in New York, New York.

HAMBRECHT & QUIST

OPPENHEIMER & CO., INC.

RAYMOND JAMES & ASSOCIATES, INC.

, 1997
<PAGE> 3

[Color photos of a class 10 clean room, various Sawtek products
and Sawtek's high-volume production facility in Costa Rica]

[Text: The Sawtek Advantage / Class 10 Clean Room / Sawtek Products /
High-Volume Production Facility in Costa Rica]

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
------------------------------

The Sawtek Incorporated logo is a trademark of the Company. All other
trademarks and registered trademarks used in this Prospectus are the property of
their respective owners.

2
<PAGE> 4

[Next page -- Gatefold Color Photos]

Text: Serving a world of wireless applications
Telecommunications
Military and Space
Data Communications
Video Transmissions
Other Sawtek Markets

Color photos of wireless applications that use Sawtek products, including
cellular basestations, wireless PCS telephones, handheld data terminals,
satellite in space, helicopter in-flight, satellite dish, PCMCIA card for
personal computer, toll plaza, video transmission equipment.
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.

THE COMPANY

Sawtek Inc. ("Sawtek" or the "Company") designs, develops, manufactures and
markets a broad range of electronic signal processing components based on
surface acoustic wave ("SAW") technology. The Company's primary products are
custom-designed, high performance bandpass filters, resonators, delay lines,
oscillators and SAW-based subsystems. These products are used in a variety of
microwave and radio frequency ("RF") systems, such as CDMA and GSM-based digital
wireless systems, digital microwave radios, wireless local area networks
("WLAN"), cable television equipment and various defense and satellite systems.
The Company's products offer key advantages such as lower distortion, reduced
size and weight, high reliability and precise frequency control compared to
products based on alternative technologies and address rapidly growing needs in
telecommunications, data communications, video transmission, military and space
systems and other markets. The Company's proprietary computer aided design
("CAD") and analysis software tools support rapid and precise SAW device design
and simulation, enabling Sawtek and its customers to achieve timely new product
development. The Company's commercial customer base accounts for approximately
85% of net sales and includes major telecommunications equipment producers such
as Ericsson, LGIC (Lucky GoldStar), Lucent Technologies, Motorola, Nokia and
Qualcomm.

The wireless communications industry is experiencing significant worldwide
growth. Improvements in wireless communications products such as cellular,
personal communications services ("PCS"), global satellite telephones and
wireless data systems are contributing to this growth. While eliminating the
need for costly and time consuming development of extensive wired
infrastructure, wireless communication systems offer the same functional
advantages as wired systems with the added benefits of reduced installation
costs and increased user convenience. In addition, new digital
telecommunications standards and technology are rapidly emerging to provide the
performance improvements necessary to address the overcrowding of existing
cellular systems. SAW technology is an enabling solution which meets the more
demanding performance, size and reliability requirements of these numerous and
developing wireless voice, data and video applications.

As a leading worldwide supplier of SAW-based components, Sawtek has
designed and manufactured more than 1,500 different SAW products that operate
from 10 MHz to nearly 3 GHz for both commercial and military applications. The
Company's products, comprising one of the broadest SAW product lines in the
industry, are used by diverse original equipment manufacturers in numerous
applications ranging from basestation and handheld telecommunications
applications in digital telephone systems to state-of-the-art, high performance
SAW-based subsystems.

Sawtek intends to leverage its advanced design and manufacturing technology
and strong customer relationships to become a leading worldwide provider of SAW
components for high volume, wireless communications systems applications.
Furthermore, the Company expects to continue to build its leadership position in
the development and production of both custom and standard SAW devices for
industrial and "high end" commercial market applications and to remain the
dominant supplier of custom-designed SAW components and SAW-based subsystems to
the military and space industry. The markets and applications served by the
Company demand a diverse mixture of SAW products requiring a flexible
manufacturing capability. Accordingly, the Company intends to continue expanding
its high volume, automated manufacturing capacity as customer needs dictate.

The Company was incorporated in Florida in 1979. Unless the context
otherwise requires, all references in this Prospectus to the Company refer to
Sawtek Inc. and its wholly-owned subsidiaries. The Company's principal executive
offices are located at 1818 South Highway 441, Apopka, Florida, 32703, and its
telephone number is (407) 886-8860.
3
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................. 300,000 shares
Common Stock offered by the Selling Shareholders.... 2,700,000 shares
Common Stock to be outstanding after the offering... 20,662,566 shares (1)
Use of proceeds..................................... Capital expenditures and general
corporate purposes, including working
capital
Nasdaq National Market symbol....................... SAWS
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $35,714 $45,130
Working capital........................................ 42,702 52,118
Total assets........................................... 89,336 98,752
Long-term debt, less current maturities................ 3,262 3,262
Total shareholders' equity............................. 72,273 81,689
</TABLE>

- ------------------------------
(1) Based on shares outstanding as of March 31, 1997. Does not include 1,246,847
shares of Common Stock issuable upon the exercise of outstanding options,
which have a weighted average exercise price of $6.01 per share. See
"Capitalization" and Notes to Consolidated Financial Statements.

(2) Includes an after tax charge for ESOP compensation expense of $12.3 million
and $10.5 million for the year ended September 30, 1996 and the six months
ended March 31, 1996, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Notes to
Consolidated Financial Statements.

(3) Computed on the basis described in the Notes to Consolidated Financial
Statements.

(4) As adjusted to reflect the sale of 300,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $33.25 per share,
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

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

Except as otherwise noted, all information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option. In addition,
although the Company's first, second and third fiscal quarters end on the Sunday
closest to the last day of the last month of such fiscal quarter, such fiscal
periods are designated by calendar quarter end throughout this Prospectus for
presentation purposes. See "Underwriting" and Notes to Consolidated Financial
Statements.
4
<PAGE> 7

RISK FACTORS

The shares offered hereby involve a high degree of risk. The following risk
factors, in addition to the other information in this Prospectus, should be
considered carefully before purchasing the shares of Common Stock offered
hereby. Except for the historical information contained herein, the discussion
in this Prospectus contains certain forward-looking statements that involve
risks and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere in this Prospectus.

Dependence on Continuing Demand for Wireless Communications Services and
CDMA Technology. Approximately 62% of the Company's net sales for 1996 and
approximately 71% of net sales for the six months ended March 31, 1997 were
derived from sales of SAW devices for applications in wireless communications
systems. Any economic, technological or other force that causes a reduction in
demand for wireless services may cause a reduction in the need for performance
upgrades to existing basestations and in the installation of new basestations,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. Approximately 59% of the Company's net
sales for fiscal 1996 and approximately 55% of net sales for the six months
ended March 31, 1997 were derived from basestation applications. As basestations
are installed and upgraded, domestically and internationally, the market for SAW
devices installed in such basestations may ultimately become saturated. The life
of SAW devices is typically in excess of 20 years, and a market for replacement
devices for basestations may not develop.

Sales of products for CDMA-based systems, including basestations and
subscriber handset phones, accounted for approximately 24% of net sales in
fiscal 1996 and approximately 49% of net sales for the six months ended March
31, 1997. CDMA technology has recently been introduced in the marketplace and
there can be no assurance that unforeseen complications will not arise in the
scale-up and operation of CDMA-based systems that could materially delay or
limit the commercial use or acceptance of CDMA technology. Such delay or
limitation would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Markets and
Applications--Telecommunications."

Dependence on a Limited Number of Customers. Historically, a limited
number of customers have accounted for a significant portion of the Company's
net sales. In fiscal 1996 and fiscal 1995, sales to the Company's top 10
customers accounted for approximately 68% and 60% respectively, of net sales. In
1996, the Company's top three customers accounted for approximately 24%, 11% and
8% of net sales. For the six months ended March 31, 1997, sales to the top 10
customers accounted for 75% of net sales with the top four customers accounting
for approximately 14%, 13%, 12% and 12% of net sales. The Company expects that
sales of its products to a limited number of customers will continue to account
for a high percentage of its net sales in the foreseeable future. In addition, a
substantial portion of the Company's products are designed to address the needs
of individual customers. Accordingly, the Company's future success depends
largely upon the decisions of the Company's current customers to continue to
purchase products from the Company, as well as the decisions of prospective
customers to develop and market systems that incorporate the Company's products.

Adverse developments relating to the wireless communications market
involving one or more of the Company's large customers, including litigation
among such customers, could have an adverse effect on the market price of the
Company's Common Stock even if the actual impact of such developments would be
immaterial to the Company's results of operations and financial condition. See
"Fluctuations in Quarterly Results; Backlog" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Fluctuations in Quarterly Results; Backlog. The Company's quarterly
operating results have fluctuated in the past and are expected to fluctuate in
the future as a result of a variety of factors.

5
<PAGE> 8

There are a number of operating factors that may cause fluctuations in quarterly
results, one of which is product mix, which is determined by different customer
requirements. If the product mix changes, the average selling price and gross
margin may be lower. Other factors that may affect quarterly results are delays
in production caused by the installation of new equipment, the level of orders
that are received and can be shipped in any quarter, price competition,
fluctuations in manufacturing yields, availability of manufacturing capacity,
market acceptance of product, increased direct labor and overhead, delays in
receiving equipment from suppliers, customer over-ordering followed by order
cancellations, and cancellation or rescheduling of orders for any reason.

Purchase orders for the Company's products may be terminated by the
Company's customers with prior notice, typically 60 to 90 days. Such orders may
be large and intended to satisfy customers' long-term needs. Accordingly, the
Company's backlog is not necessarily indicative of future product sales, and the
Company may be materially adversely affected by a delay or cancellation of a
small number of purchase orders. In addition, the Company's expense levels are
based in significant part on the Company's expectations of future product sales
and therefore are relatively fixed in the short term. If net sales are below
expectations, operating results would be materially adversely affected.
Consequently, the Company's results of operations for any quarter are not
necessarily indicative of results for any future period. Furthermore, the
Company's results of operations may be subject to economic downturns in the
electronics industry. Due to the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"--Quarterly Results of Operations" and "Business--Backlog."

Dependence on New Products; Technological Change. Future growth of the
Company's business is dependent on the Company's ability to develop new or
improved SAW devices on a timely basis. The Company's product development
resources are limited, requiring the Company to allocate such resources among a
limited number of product development projects. Failure by the Company to
allocate its product development resources to products that meet market needs
could have a material adverse effect on the Company's future growth. The success
of new products may also depend on timely completion of new product designs,
quality of new products and market acceptance of customer products.

The markets for products offered by the Company are characterized by
rapidly changing technology and evolving industry standards. If technology
supported by the Company's products becomes obsolete or fails to gain widespread
commercial acceptance, the Company's business may be materially adversely
affected. Accordingly, the Company believes that continued significant
expenditures for research and development will be required. In the past, the
Company has depended on customer funded non-recurring engineering charges
("NRE") for a significant portion of its product development expenditures. There
can be no assurance that such customer funding will continue in the future,
which may require the Company either to reduce the scope of its product
development or allocate increased internal resources for such purposes. If the
Company is unable to design, develop and introduce competitive products on a
timely basis, its future financial condition and operating results could be
materially adversely affected. Competing technologies, including digital
filtering technology, could develop which could replace or reduce the use of SAW
technology for certain applications. Any development of a cost effective, new
technology that replaces SAW filtering technology could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Technology--Competition."

Risks Associated with Costa Rica Operations. The Company bears significant
manufacturing risks associated with its operations in San Jose, Costa Rica. For
the six months ended March 31, 1997, shipments from Costa Rica accounted for
approximately 35% of consolidated net sales. The Company is currently expanding
its operations in Costa Rica. Operating a production facility in Costa Rica
carries unknown risks of disruption resulting from government intervention,
wars, currency devaluation, labor disputes, earthquakes and other events. Any
delay in the completion of the Company's expansion or

6
<PAGE> 9

any such disruptions could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Facilities."

Competition. The markets for the Company's products are intensely
competitive and are characterized by price competition, rapid technological
change, product obsolescence and heightened domestic and international
competition. In each of the markets for the Company's products, the Company
competes with large international companies that have substantially greater
financial, technical, sales, marketing, distribution and other resources than
the Company. In addition, the Company may face competition from companies that
currently manufacture SAW devices for their own internal requirements, as well
as from a number of the Company's customers that have the potential to develop
an internal supply capability for SAW devices. The Company expects competition
to increase from both established and emerging competitors, as well as from
internal capabilities developed by certain customers. The Company also believes
that a significant source of competition may come from alternative technological
approaches. See "--Dependence on New Products; Technological Change." The
Company's ability to compete effectively in its target markets depends on a
variety of factors both within and outside of the Company's control, including
timing and success of new product introductions by the Company and its
competitors, availability of manufacturing capacity, the rate at which customers
incorporate the Company's components into their products, the Company's ability
to respond to price decreases, availability of technical personnel, sufficient
supplies of raw materials, the quality, reliability and price of products and
general economic conditions. There can be no assurance that the Company will be
able to compete successfully in the future. See "Business--Competition."

Risks Associated with International Operations. The Company's
international sales have increased over the past three years, accounting for
approximately 40%, 49% and 54% of net sales for fiscal 1994, 1995 and 1996,
respectively, and 42% of net sales for the six months ended March 31, 1997.
Ericsson, based in Sweden, was the Company's largest customer in fiscal 1996,
accounting for approximately 24% of net sales. The sale of products in foreign
countries involves risks associated with currency exchange rate fluctuations and
restrictions, export-import regulations, customs matters, longer payment cycles,
foreign collection problems and political and transportation risks. The
Company's international sales are generally denominated in U.S. dollars.
However, the Company may be required in the future, due to competition, to
denominate sales in the foreign currencies of certain countries. As a result,
fluctuations in currency exchange rates may (in the future) have a significant
effect on the Company's sales, even in the absence of an increase or decrease of
unit sales to foreign customers. A strong U.S. dollar could have a material
adverse effect on the Company's ability to compete internationally. The Company
has not, to date, engaged in hedging a portion of its foreign exchange risk. If,
however, any of the Company's future international sales are denominated in
foreign currencies, the Company may find it necessary to engage in rate hedging
activities with respect to certain exchange rate risks. There can be no
assurance that the Company will engage in such exchange rate hedging or that any
such activities will successfully protect against such risks. In addition,
foreign sales involve uncertainties arising from local business practices and
cultural considerations, and risks associated with international trade
transactions. For a portion of foreign sales, the Company depends upon
independent sales representatives who are not subject to the Company's control
and are generally free to terminate their relationships with the Company on 30
days notice.

Limited Sources of Supply. The Company has a limited number of suppliers
for certain critical raw materials, components and equipment used by the Company
in manufacturing SAW devices. While historically the Company has not experienced
difficulty in obtaining needed supplies and equipment, synthetic crystal
material and wafer fabrication equipment could potentially be difficult to
obtain. The synthetic quartz material used by the Company, and purchased from
third parties, may require up to six months to grow. Currently, few wafer
producers have the expertise and capacity necessary to satisfy the Company's
wafer requirements. A failure by the Company to anticipate its needs for high
quality quartz could result in a shortage of quartz material available to the
Company. If

7
<PAGE> 10

the Company is unable to satisfy its requirements for quartz or other raw
materials or to obtain and maintain appropriate fabrication equipment, the
Company's business, financial condition and results of operations would be
materially adversely affected. There can be no assurance that the Company will
be able to secure adequate supplies of materials. See "Business--Manufacturing."

Manufacturing Risks. The Company's manufacture of SAW devices involves
processes that may have reduced yields from time to time, the causes of which
are often difficult to determine. While reduced yields have not been a
significant factor in limiting production capacity in the past, a material and
continuing reduction in yields at any stage of the manufacturing process would
have a material adverse effect on the Company's ability to meet its quoted
delivery times and cost of production, which would have a material adverse
effect on the operations of the Company. See "Business--Manufacturing."

Dependence on Key Managerial and Technical Personnel. The Company's
success depends to a significant extent on the performance of a number of key
management and technical personnel, the loss of one or more of whom could have a
material adverse effect on the Company. The Company's success will also depend
in part on its ability to attract and retain qualified professional, technical,
production, managerial and marketing personnel. Competition for such personnel
in the SAW industry is intense. There can be no assurance that the Company will
be successful in attracting and retaining the personnel it requires to develop
new and enhanced products and to conduct its operations successfully. See
"Business--Employees."

Intellectual Property and Proprietary Rights. Sawtek relies on a
combination of patents, copyrights and trade secrets to establish and protect
its proprietary rights. There can be no assurance that patents will issue from
any of its pending applications or that any claims allowed from existing or
pending patents will be sufficiently broad to protect the Company's technology.
In addition, there can be no assurance that any patents issued to Sawtek will
not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection to the Company. Litigation may be
necessary to enforce Sawtek's patents, trade secrets and other intellectual
property rights, to determine the validity and scope of the proprietary rights
of others or to defend against claims of infringement. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, results of operations and financial
condition regardless of the final outcome of the litigation. The Company is not
currently engaged in any patent infringement suits nor has it threatened or been
threatened with any such suits in recent years. Despite Sawtek's efforts to
maintain and safeguard its proprietary rights, there can be no assurances that
the Company will be successful in doing so or that the Company's competitors
will not independently develop or patent technologies that are substantially
equivalent or superior to Sawtek's technologies.

The SAW industry is characterized by uncertain and conflicting intellectual
property claims. Sawtek has in the past and may in the future become aware of
the intellectual property rights of others that it may be infringing, although
it does not believe that it is infringing any third party proprietary rights at
this time. To the extent that it deemed necessary, Sawtek has licensed the right
to use certain technology patented by others in certain of its products. There
can be no assurance that Sawtek will not in the future be notified that it is
infringing other patent and/or intellectual property rights of third parties. In
the event of such infringement, there can be no assurance that a license to the
technology in question could be obtained on commercially reasonable terms, if at
all, that litigation will not occur or that the outcome of such litigation will
not be adverse to Sawtek. The failure to obtain necessary licenses or other
rights, the occurrence of litigation arising out of such claims or an adverse
outcome from such litigation could have a material adverse effect on Sawtek's
business. In any event, patent litigation is expensive, and Sawtek's operating
results could be materially adversely affected by any such litigation,
regardless of its outcome. See "Business--Proprietary Rights."

8
<PAGE> 11

Environmental and Other Governmental Regulations. The Company is subject
to a variety of federal, state and local laws, rules and regulations related to
the discharge and disposal of toxic, volatile and other toxic hazardous
chemicals used in its manufacturing processes. The failure to comply with
present or future regulations could result in fines being imposed on the
Company, suspension of production or a cessation of operations. Such regulations
could require the Company to acquire significant equipment or to incur
substantial expenses in order to comply with environmental regulations. Any past
or future failure by the Company to control the use of, or to restrict
adequately the discharge of, toxic hazardous substances could subject the
Company to future liabilities and could have a material adverse effect on the
Company's business, results of operations and financial condition.

In addition, the increasing demand for wireless communications has exerted
pressure on regulatory bodies worldwide to adopt new standards for such products
and services, generally following extensive investigation of and deliberation
over competing technologies. The delays inherent in this governmental approval
process have in the past, and may in the future, cause the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company's customers, which in turn may have a material adverse effect on the
sale of products by the Company to such customers.

Volatility of Stock Price. There has been significant volatility in the
market price of the Company's Common Stock, as well as in the market price of
securities of technology-based companies. Factors such as announcements of new
products by the Company or its competitors, variations in the quarterly
operating results of the Company and its customers and competitors, the gain or
loss of significant contracts, announcements of technological innovations or
acquisitions by the Company or its competitors, changes in analysts' financial
estimates of the Company's performance, governmental regulatory action, other
developments or disputes with respect to proprietary rights, general trends in
the industry, or general economic or stock market conditions unrelated to the
Company's operating performance may have a significant impact on the market
price of the Common Stock. See "Price Range of Common Stock and Dividend
Policy."

Certain Anti-Takeover Provisions. Certain anti-takeover provisions of the
Florida Business Corporation Act could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit or
depress the price that certain investors might be willing to pay in the future
for shares of Common Stock. The Company is also authorized to issue preferred
stock with rights senior to the Common Stock, without the necessity of
shareholder approval and with such rights, preferences and privileges as the
Company's Board of Directors may determine. Although the Company has no present
plans to issue these shares of preferred stock, such issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company.

Shares Eligible for Future Sale. Sales of substantial numbers of shares of
Common Stock in the public market could materially adversely affect the market
price for the Common Stock. Prior to this offering, shareholders holding
approximately 12,720,000 shares of Common Stock executed agreements (the
"Lock-Up Agreements") under which these shareholders, except for the ESOP,
agreed not to sell their shares until September 29, 1997. The ESOP, which will
hold 7,811,259 shares after this offering (assuming no exercise of the
Underwriters' over-allotment option), is subject to a Lock-Up Agreement except
that the ESOP may distribute shares without the lock-up restriction upon the
death, retirement or disability of a participant or, after August 15, 1997, for
"in-service" distributions to participants. The Company estimates that up to
100,000 shares could be issued as in-service distributions during the remainder
of the fiscal year. The Lock-Up Agreements provide that Hambrecht & Quist LLC
may, in its sole discretion and at any time without notice to the Company's
shareholders or the public market, release all or a portion of the shares
subject to the Lock-Up Agreements. Beginning on September 29, 1997, all shares
subject to the Lock-Up Agreements will become eligible for sale in the public
market,

9
<PAGE> 12

subject in certain cases to compliance with Rule 144 under the Securities Act.
As of March 31, 1997, an additional 1,246,847 shares were issuable upon exercise
of outstanding options. Of these shares, 462,598 shares will be vested and
eligible for sale in the public market upon expiration of the Lock-Up
Agreements. See "Underwriting."

Absence of Dividends. The Company has historically not paid dividends on
its Common Stock. Because the Company believes it will require additional
capital in the future, the Company currently intends to retain its earnings and
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future.

10
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of 300,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $33.25 per
share are estimated to be $9.4 million after deducting the estimated
underwriting discount and estimated offering expenses payable by the Company.
The Company intends to use a portion of the net proceeds for the purchase of
capital equipment, to complete the 28,000 square foot addition to its primary
facility in Orlando, Florida, and for general corporate purposes including
working capital and increased research and development expenses. The Company may
also use a portion of the net proceeds to acquire businesses, products or
technologies; however, it currently has no commitments or agreements with
respect to any such transactions. Pending such uses, the net proceeds will be
invested in investment grade, interest-bearing securities.

The net proceeds from the sale of the remaining 2,700,000 shares will be
paid directly to the Selling Shareholders of which the Sawtek Employee Stock
Ownership Plan and Trust (the "ESOP") will receive the proceeds from the sale of
2,500,000 shares. The ESOP will use these proceeds to permit investment
diversification of employees' retirement accounts and for liquidity needs. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholders. See "Principal and Selling Shareholders."

PRICE RANGE OF COMMON STOCK

The shares of the Company are quoted on the Nasdaq National Market under
the symbol "SAWS." The Company went public on May 1, 1996 and accordingly, no
public price data is available prior to this date. The following table sets
forth the high and low sales price per share of the Common Stock of the Company
as reported by the Nasdaq National Market for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1996
3rd Quarter............................................... $39.75 $16.50*
4th Quarter............................................... 35.75 21.50
FISCAL YEAR ENDED SEPTEMBER 30, 1997
1st Quarter............................................... 42.75 23.75
2nd Quarter............................................... 46.50 28.00
3rd Quarter (through June 27, 1997)....................... 37.75 24.00
</TABLE>

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

* The Company sold shares in its May 1, 1996 initial public offering at $13.00
per share; however, the first trade was at $16.50 which was the lowest quoted
price of Sawtek shares in fiscal 1996.

The last reported sale price of the Common Stock on the Nasdaq National
Market on June 27, 1997 was $33.25 per share.

As of March 31, 1997 there were 20,362,566 shares of the Company's Common
Stock outstanding held by approximately 94 shareholders of record. Many
shareholders hold their shares in "street name." The Company believes it has
more than 2,000 beneficial owners of its common stock.

DIVIDEND POLICY

Historically, the Company has not paid dividends on its Common Stock.
Because the Company believes it may require additional capital in the future,
the Company currently intends to retain its earnings and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.

11
<PAGE> 14

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1997 as adjusted to reflect the sale by the Company of the 300,000
shares of the Common Stock offered hereby at an assumed public offering price of
$33.25 per share and the application of the estimated net proceeds therefrom.
The financial data in the following table should be read in conjunction with the
Company's unaudited Consolidated Financial Statements and Notes thereto at March
31, 1997 contained in this Prospectus or incorporated by reference herein.

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current maturities of long-term
debt...................................................... $ 1,251 $ 1,251
======= =======
Long-term debt, less current maturities..................... $ 3,262 $ 3,262
------- -------
Shareholders' equity:
Common Stock, $0.0005 par value, 120,000,000 shares
authorized, 20,362,566 shares issued and outstanding,
actual; 20,662,566 shares issued and outstanding, as
adjusted (1).......................................... 10 10
Capital surplus........................................ 54,207 63,623
Unearned ESOP compensation............................. (1,171) (1,171)
Retained earnings...................................... 19,227 19,227
------- -------
Total shareholders' equity........................... 72,273 81,689
------- -------
Total capitalization.............................. $76,786 $86,202
======= =======
</TABLE>

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

(1) Does not include 1,246,847 shares of Common Stock issuable upon the exercise
of outstanding options, which have a weighted average price of $6.01 per
share.

12
<PAGE> 15

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of September 30, 1995
and 1996 and for each of the three years in the period ended September 30, 1996
are derived from the Consolidated Financial Statements of the Company that have
been audited by Ernst & Young LLP, independent auditors, which are included
elsewhere in this Prospectus. The consolidated statement of income (loss) data
for the years ended September 30, 1992 and 1993 and the consolidated balance
sheet data at September 30, 1992, 1993 and 1994 are derived from the Company's
consolidated financial statements which were also audited by Ernst & Young LLP
and which are not included herein. The selected consolidated financial data for
the six months ended March 31, 1996 and 1997 are derived from unaudited
financial statements which, in the opinion of management of the Company, reflect
all adjustments, consisting only of normal recurring accruals, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the six months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997. The selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) DATA:
Net sales............................. $14,710 $14,428 $19,139 $31,317 $57,664 $24,738 $38,511
Cost of sales......................... 7,197 7,174 8,815 13,084 27,262 11,604 16,991
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 7,513 7,254 10,324 18,233 30,402 13,134 21,520
Operating expenses:
Selling expenses................. 2,506 2,600 2,689 3,139 3,947 1,571 2,396
General and administrative
expenses....................... 1,201 1,408 3,283 3,440 5,791 2,649 2,920
ESOP compensation expense........ 434 499 610 782 12,925 11,079 392
Research and development
expenses....................... 1,200 831 1,116 1,669 1,954 904 1,593
------- ------- ------- ------- ------- ------- -------
Total operating expenses..... 5,341 5,338 7,698 9,030 24,617 16,203 7,301
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............... 2,172 1,916 2,626 9,203 5,785 (3,069) 14,219
Interest expense...................... 556 416 302 435 245 225 111
Other income.......................... (80) (51) (55) (291) (634) (20) (808)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes..... 1,696 1,551 2,379 9,059 6,174 (3,274) 14,916
Income taxes.......................... 581 576 894 3,390 6,514 2,355 5,671
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect
of change in accounting principle... 1,115 975 1,485 5,669 (340) (5,629) 9,245
Cumulative effect of change in
accounting principle (1)............ (167) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $ 948 $ 975 $ 1,485 $ 5,669 $ (340) $(5,629) $ 9,245
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share (2)....... $ 0.05 $ 0.05 $ 0.08 $ 0.34 $ (0.02) $ (0.31) $ 0.43
======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculations........................ 19,851 19,248 18,142 16,529 19,246 18,140 21,363
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............. $ 3,185 $ 1,709 $ 2,675 $ 2,819 $27,743 $ 405 $35,714
Working capital....................... 4,168 4,122 5,055 7,100 35,799 6,674 42,702
Total assets.......................... 10,637 10,784 11,250 23,124 74,594 34,488 89,336
Long-term debt, less current
maturities.......................... 4,583 3,787 4,147 6,805 3,786 11,877 3,262
Total shareholders' equity............ (1,105) (1,098) (5,660) (20,605) 61,625 17,769 72,273
</TABLE>

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

(1) Relates to the adoption of Financial Accounting Standards No. 109.

(2) Computed on the basis described in Notes to Consolidated Financial
Statements.

13
<PAGE> 16

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere in this Prospectus.

The Company maintains its records on a fiscal year ending on September 30
of each year and all references to a year refer to the fiscal year ending on
that date.

OVERVIEW

The Company was incorporated in January 1979 to design, develop,
manufacture and market a broad range of electronic components based on SAW
technology and used in telecommunications, data communications, video
transmission, military and space systems and other applications. The Company's
focus has been on the high-end performance spectrum of the market, and its
primary products are SAW bandpass filters, resonators, delay lines, oscillators
and SAW-based subsystems. The Company's products were initially concentrated in
the military and space systems market, with over half of net sales in 1992
attributable to this market segment. Since then, the Company made a strategic
decision to target commercial markets, which accounted for approximately 85% of
its net sales in 1996 and for the six months ended March 31, 1997. The Company
has also witnessed significant growth in its international markets over the last
five years. International sales represented less than 20% of net sales in 1992,
54% of net sales in 1996 and approximately 42% of net sales for the six months
ended March 31, 1997.

The Company derives revenue from high-volume commercial production
components, military/ industrial production components and engineering services
and products. Non-recurring engineering revenue is included in engineering
services and products and relates to the design and development of custom
devices and delivery of one or more prototype parts. In all cases, revenue is
recognized when the parts or services have been completed and units, including
prototypes, have been shipped.

Net sales increased 84% from 1995 to 1996, and 64% from 1994 to 1995. The
growth in net sales is mainly attributable to growth in the wireless
communications market to which the Company supplies SAW bandpass filters for
cellular telephone basestations and, to a lesser extent, for handheld subscriber
telephones. The Company has a broad product line of SAW filters and other
components with average selling prices ranging from $4 to $300. The Company is
committed to substantially increasing its ability to service the wireless
communications market and is presently undergoing an expansion of its operations
in both Florida and in San Jose, Costa Rica. Phase one of the manufacturing
building expansion in Orlando is complete and production in the new wafer
fabrication and assembly areas has begun. The Company began operations in Costa
Rica in 1996 and on June 28, 1996, the Company purchased a 31,690 square-foot
facility for approximately $1.3 million. The facility, which will be used to
increase the Company's production capabilities, is expected to be operational in
late 1997.

For the six months ended March 31, 1997, net sales to the Company's top 10
customers accounted for approximately 75% of net sales with the top four
customers accounting for approximately 51% of net sales. The Company expects
that sales of its products to a limited number of customers will continue to
account for a high percentage of its net sales in the foreseeable future.

14
<PAGE> 17

The Company achieved a 53% gross profit margin in 1996 and for the first
quarter of 1997. In the second quarter of 1997, the gross profit margin
increased to 58% reflecting higher yields and production efficiencies associated
with the Company's new manufacturing facilities. In addition, the Company's
Costa Rican subsidiary accounted for approximately 48% of the total net sales in
the second quarter of 1997. The Costa Rican subsidiary achieved a
higher-than-expected gross profit margin due to a combination of lower cost
labor and new production equipment. The Company believes the product mix will
shift to more high-volume production, and that profit margins will decline as
these components are more susceptible to pricing pressure.

In 1991, the Company established an Employee Stock Ownership Plan ("ESOP").
At that time, the Company borrowed $4.0 million from its commercial bank and
loaned it to the ESOP to finance the purchase of 8,888,880 shares of the
Company's Common Stock. These ESOP shares are accounted for in accordance with
the American Institute of Certified Public Accountants (AICPA) Statement of
Position ("SOP") 76-3, which uses cost as the basis for valuing shares as they
are released and allocated to participants' accounts. In 1994, the Company
borrowed an additional $1.7 million and loaned it to the ESOP to enable it to
purchase 1,610,600 shares of Common Stock. In 1996, the 1994 loan was repaid
resulting in the allocation of the related shares to participants' accounts.
These shares are accounted for in accordance with the AICPA's SOP 93-6, which
uses market value as the basis of valuing shares. The impact of this was a
charge to ESOP compensation expense of $12.9 million reflected in the financial
results for 1996. Of the $12.9 million, $11.3 million was a one-time, non-cash
charge (amounting to $0.59 per share). The Company does not anticipate
contributing additional shares of Common Stock beyond those that already have
been placed in trust for the ESOP. The remaining balance of $1.2 million will be
paid off over the life of the loan.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statements of income to net
sales:

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------------
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- ----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 46.1 41.8 47.3 46.9 44.1
----- ----- ----- ----- -----
Gross margin........................ 53.9 58.2 52.7 53.1 55.9
Operating expenses:
Selling expenses............... 14.0 10.0 6.8 6.3 6.2
General and administrative
expenses..................... 17.2 11.0 10.0 10.7 7.6
ESOP compensation expense...... 3.2 2.5 22.4 44.8 1.0
Research and development
expenses..................... 5.8 5.3 3.4 3.7 4.1
----- ----- ----- ----- -----
Total operating
expenses................ 40.2 28.8 42.6 65.5 18.9
----- ----- ----- ----- -----
Operating income (loss)............. 13.7 29.4 10.1 (12.4) 37.0
Interest expense.................... 1.6 1.4 0.4 0.9 0.3
Other income........................ (0.3) (1.0) (1.0) (0.1) (2.1)
----- ----- ----- ----- -----
Income (loss) before income taxes... 12.4 29.0 10.7 (13.2) 38.8
Income taxes........................ 4.6 10.9 11.3 9.6 14.8
----- ----- ----- ----- -----
Net income (loss)................... 7.8% 18.1% (0.6)% (22.8)% 24.0%
===== ===== ===== ===== =====
</TABLE>

15
<PAGE> 18

COMPARISON OF SIX MONTHS ENDED MARCH 31, 1996 AND 1997

Net Sales. Net sales increased 56% from $24.7 million in the first six
months of 1996 to $38.5 million in the first six months of 1997. The increase
was a result of increased product shipments to the wireless communications
market, specifically sales of high volume filters for basestation applications
and subscriber handsets based on CDMA technology for the telecommunications
industry. International sales increased by $3.2 million in the first six months
of 1997 compared to the first six months of 1996 principally due to increased
product shipments to Korea. Sales for military and space systems decreased from
14% of net sales in the first six months of 1996 to 13% of net sales in the
first six months of 1997 due to the increase in overall net sales. The dollar
volume of military sales, however, actually increased from $3.5 million to $5.0
million from the first six months of 1996 to the corresponding period in 1997.

Gross margin. Gross margin increased from 53.1% in the first six months of
1996 to 55.9% in the first six months of 1997 primarily due to improved yields,
lower manufacturing costs associated with the Costa Rican operation and
economies of scale with the increased volume. As the Company shifts its product
mix to high volume production, it is anticipated that gross margins will decline
as these components are more susceptible to pricing pressure.

Selling expenses. Selling expenses increased 53% from $1.6 million in the
first six months of 1996 to $2.4 million in the first six months of 1997, and
remained relatively constant as a percentage of net sales at 6.2% in the first
six months of 1997 compared to 6.3% in the corresponding period in 1996. The
Company anticipates that selling expenses will increase as new employees are
added to support its sales and marketing effort in 1997 and as commission
expenses are incurred, but are not expected to increase as a percentage of net
sales.

General and administrative expenses. General and administrative expenses
increased 10% from $2.7 million in the first six months of 1996 to $2.9 million
in the first six months of 1997, but decreased as a percentage of net sales from
10.7% to 7.6% for the same periods. The net increase in expenses was primarily
due to additional expenses incurred as a public company, higher wages and
salaries and compensatory stock option expense.

ESOP compensation expense. ESOP compensation expense decreased from $11.1
million in the first six months of 1996 to $392,000 in the first six months of
1997. This decrease of $10.7 million is a result of the release and allocation
of all ESOP shares acquired in 1994 to participants' accounts based on their
compensation earned in the first seven months of 1996. These shares are
accounted for in accordance with SOP 93-6 which uses market value as the basis
of valuing shares as they are committed to be released. The shares were acquired
at a cost of $1.03 per share compared to an average market value of $8.03 for
the first seven months of 1996. The charge for the six months ended March 31,
1997 is based on SOP 76-3 which uses cost as the basis of valuing the shares.
All remaining ESOP shares will be accounted for in accordance with SOP 76-3.

Research and Development Expenses. Research and development expenses
increased 76% from $904,000 in the first six months of 1996 to $1.6 million in
the first six months of 1997. These expenses increased due to additional
personnel and expanded research and development efforts. The Company anticipates
that research and development expenses will continue to increase in total
dollars as personnel and programs are added. A significant portion of the
Company's development activities are conducted in connection with the design and
development of custom devices, which are paid for by customers and are
classified as NRE items. The revenue generated from these items is included in
net sales and the cost is reflected in cost of sales rather than in research and
development expenses.

Interest expense. Interest expense decreased from $225,000 in the first
six months of 1996 to $111,000 in the first six months of 1997 due to repayment
of debt with a portion of the funds from the Company's initial public offering.

16
<PAGE> 19

Other income. Other income represents interest income and non-operating
expenses. Other income increased as the Company recorded increased interest
income earned on its cash balances in the first six months of 1997.

Income tax expense. The provision for income taxes as a percentage of
income before income taxes was 38% for the first six months of 1997. In the
first six months of 1996, the Company incurred a non-deductible charge for ESOP
compensation expense of approximately $9.6 million. Had it not been for this
charge, the tax provision would have been approximately 37% for this period. The
Company expects that its effective tax rate will remain at approximately 36% to
39% for 1997.

COMPARISON OF YEARS ENDED SEPTEMBER 30, 1995 AND 1996

Net sales. Net sales increased 84% from $31.3 million in 1995 to $57.7
million in 1996. The increase was a result of increased product shipments to the
wireless communication market, specifically sales of high volume filters for
basestation applications for the telecommunication industry. Sales of high
volume commercial production components were up over 129% in 1996 compared to
1995. International sales increased from approximately 49% in 1995 to 54% of net
sales for 1996.

Gross margin. Gross margin declined from 58.2% of net sales in 1995 to
52.7% in 1996 primarily due to a shift in the product mix to high volume
production components, which typically have lower unit prices and somewhat lower
gross margins. Throughout 1996, the Company added additional equipment and
increased indirect labor, supplies, depreciation and other fixed overhead
expenses in anticipation of higher sales volume. This additional fixed overhead
cost was not fully absorbed by the sales level in 1996, which further reduced
the gross margin.

Selling expenses. Selling expenses increased in 1996 compared to 1995, but
decreased as a percentage of net sales. The decrease as a percentage of net
sales was a result of the Company's expanding net sales with substantially the
same level of sales and marketing personnel in 1996 as in 1995. As a result,
most of the selling expenses remained relatively constant with commission
expenses paid to outside sales representatives as the only component that
increased significantly with the higher sales level. The Company anticipates
that selling expenses will continue to increase as new employees are added to
support its sales and marketing effort in 1997 and as commissions are incurred.

General and administrative expenses. General and administrative expenses
increased from $3.4 million in 1995 to $5.8 million in 1996 due to start-up
costs for the new Costa Rica operations, one-time executive bonuses granted in
1996 and costs for compensatory stock options.

ESOP compensation expense. ESOP compensation expense increased from
$782,000 in 1995 to $12.9 million in 1996. This increase of $12.1 million is a
result of the allocation of all ESOP shares acquired in 1994 to participants'
accounts. These shares are accounted for in accordance with SOP 93-6 which uses
market value as the basis of valuing shares as they are allocated. The shares
were acquired at a cost of $1.03 per share compared to an average market value
of $8.03 during the period of allocation in 1996. The charge for ESOP shares
allocated in 1995 is based on SOP 76-3 which uses the cost basis of the shares.
All remaining ESOP shares are accounted for in accordance with SOP 76-3.

Research and development expenses. Research and development expenses
increased from $1.7 million in 1995, to $2.0 million in 1996, but decreased as a
percentage of net sales from 5.3% to 3.4% for the same period. These expenses
increased due to additional personnel and expanded research and development
efforts, but increased at a slower rate than the sales increase. The Company
anticipates that research and development expenses will continue to increase in
total dollars as personnel and programs are added. A significant portion of the
Company's development activities is conducted in connection with the design and
development of custom devices, which is paid for by customers and classified as
NRE items. The revenue generated from these items is included in net sales and
the cost is reflected in cost of sales rather than in research and development
expenses.

Interest expense. Interest expense decreased in 1996 compared to 1995 due
to repayment of debt and interest capitalized of approximately $380,000 as part
of the facilities expansion program in 1996.

17
<PAGE> 20

Other income. Other income, primarily interest income, increased in 1996
due to interest earned on the remaining proceeds of the Company's initial public
offering.

Income tax expense. The provision for income taxes as a percentage of
income before income taxes was 37.4% for 1995. In 1996, the Company incurred a
non-deductible charge for ESOP compensation expense of $11.3 million. Had it not
been for this charge, the tax provision would have been approximately 37.3% for
1996. The Company expects that its effective tax rate will remain at
approximately 36% to 39% in the future.

COMPARISON OF YEARS ENDED SEPTEMBER 30, 1994 AND 1995

Net sales. Net sales increased 64% from $19.1 million in 1994 to $31.3
million in 1995 primarily as a result of increased sales of bandpass filters in
the wireless communications markets. Sales to foreign customers increased from
$7.6 million in 1994 to $15.3 million in 1995 and accounted for approximately
49% of net sales in 1995. Sales to customers for the design, development and
production of custom engineering products declined by 11% from $7.4 million in
1994 to $6.6 million in 1995. This was more than offset by the increase in sales
of high volume commercial production components from $3.0 million in 1994 to
$13.4 million in 1995.

The average selling price per device declined from 1994 to 1995 due to the
large increase in high volume commercial production components which generally
have lower average selling prices. Although a large percentage of the Company's
sales are in international markets, the Company does not believe that currency
fluctuations had a material adverse effect on sales. However, the Company
believes that a strengthening of the U.S. dollar may have an adverse impact on
future sales.

Sales to customers for military, space and other U.S. government related
applications decreased from $6.3 million or 33% of net sales in 1994 to $5.3
million or 17% of net sales in 1995. The decline in the dollar value of
government sales has been consistent with reductions in these government
programs in recent years, and the percentage decline is expected to continue as
the Company shifts its emphasis to the high volume commercial production market.

Gross margin. Gross profit increased 77% from $10.3 million in 1994 to
$18.2 million in 1995 while gross margin increased from 53.9% to 58.2% in the
same periods. The increase in gross profit is due to the increase in sales, and
the increase in gross margin is due to greater absorption of overhead costs in
1995 as the Company increased operations to near full capacity in the latter
part of the year. Cost of sales increased from $8.8 million in 1994 to $13.1
million in 1995.

Selling expenses. Selling expenses increased by 17% from $2.7 million in
1994 to $3.1 million in 1995 due primarily to commissions paid to sales
representatives and the cost of expanding the Company's internal sales staff
associated with the increase in net sales.

General and administrative expenses. General and administrative expenses
increased 5.0% from $3.3 million in 1994 to $3.4 million in 1995 but decreased
from 17.2% of net sales in 1994 to 11.0% of net sales in 1995. This percentage
reduction is primarily due to incentive bonuses paid to certain executives in
1994 under a 1991 restructuring agreement to redeem all of the common stock
holdings of certain shareholders. The dollar increase relates to compensatory
stock options granted in 1995.

ESOP compensation expense. ESOP compensation expense increased from
$610,000 in 1994 to $782,000 in 1995 due to the release of additional shares as
part of the scheduled amortization of the ESOP loan.

Research and development expenses. Research and development expenses
increased 50.0% from $1.1 million in 1994 to $1.7 million in 1995 due to an
increase in research and development personnel and programs. These expenses
decreased as a percentage of net sales from 5.8% in 1994 to 5.3% in 1995 due to
the increase in sales volume.

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<PAGE> 21

Interest expense. Interest expense increased from $302,000 in 1994 to
$435,000 in 1995 due to additional long-term debt associated with the Industrial
Revenue Bond financing acquired for the expansion of the Company's Orlando,
Florida facility.

Other income. Other income increased from $55,000 in 1994 to $291,000 in
1995 due to interest income on cash resources.

Income tax expense. The provision for income taxes as a percentage of
income before income taxes decreased from 37.6% in 1994 to 37.4% in 1995.

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited statements of income
(loss) data for each of the eight quarters in the period ended March 31, 1997,
as well as such data expressed as a percentage of the Company's total net sales
for the periods indicated. This data has been derived from unaudited financial
statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of such information when read in conjunction with the Company's annual audited
consolidated statements and notes thereto. The results of operations for the
interim periods are not necessarily indicative of future results.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996 FISCAL 1997
-------------------- ------------------------------------------ -------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1996 1996 1996 1996 1997
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $7,698 $11,550 $10,809 $13,929 $14,926 $18,000 $18,502 $20,009
Cost of sales.......................... 3,014 4,930 5,092 6,512 6,986 8,672 8,678 8,313
------ ------- ------- ------- ------- ------- ------- -------
Gross profit........................... 4,684 6,620 5,717 7,417 7,940 9,328 9,824 11,696
Operating expenses:
Selling expenses..................... 823 851 774 797 1,174 1,202 1,246 1,150
General & administrative expenses.... 551 1,837 1,068 1,581 1,509 1,633 1,134 1,786
ESOP compensation expense............ 196 194 5,540 5,539 1,846 -- 196 196
Research and development expenses.... 559 409 418 486 467 583 681 912
------ ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 2,129 3,291 7,800 8,403 4,996 3,418 3,257 4,044
------ ------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 2,555 3,329 (2,083) (986) 2,944 5,910 6,567 7,652
Interest expense net of capitalized
interest............................. 145 107 138 87 114 (94) 41 70
Other (income) expense................. (90) (122) 6 (26) (240) (374) (355) (453)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes...... 2,500 3,344 (2,227) (1,047) 3,070 6,378 6,881 8,035
Income taxes........................... 975 1,161 954 1,401 1,699 2,460 2,618 3,053
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... $1,525 $ 2,183 $(3,181) $ 2,448) $ 1,371 $ 3,918 $ 4,263 $ 4,982
====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share............ $ 0.10 $ 0.13 $ (0.18) $ (0.14) $ 0.07 $ 0.18 $ 0.20 $ 0.23
====== ======= ======= ======= ======= ======= ======= =======
Shares used in computation of net
income (loss) per share.............. 16,034 16,199 17,272 18,140 20,286 21,286 21,358 21,368
</TABLE>

19
<PAGE> 22

<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................... 39.2 42.7 47.1 46.8 46.8 48.2 46.9 41.6
------ ------- ------- ------- ------- ------- ------- -------
Gross profit........................... 60.8 57.3 52.9 53.2 53.2 51.8 53.1 58.4
Operating expenses:
Selling expenses..................... 10.7 7.4 7.2 5.7 7.9 6.7 6.7 5.7
General & administrative expenses.... 7.2 15.9 9.9 11.4 10.1 9.1 6.1 8.9
ESOP compensation expense.............. 2.5 1.7 51.2 39.7 12.4 0.0 1.1 1.0
Research and development expenses...... 7.3 3.5 3.9 3.5 3.1 3.2 3.7 4.6
------ ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 27.7 28.5 72.2 60.3 33.5 19.0 17.6 20.2
------ ------- ------- ------- ------- ------- ------- -------
Operating income (loss)................ 33.1 28.8 (19.3) (7.1) 19.7 32.8 35.5 38.2
Interest expense....................... 1.9 0.9 1.3 0.6 0.7 (0.5) 0.2 0.3
Other (income) expense................. (1.3) (1.1) 0.0 (0.2) (1.6) (2.1) (1.9) (2.3)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes...... 32.5 29.0 (20.6) (7.5) 20.6 35.4 37.2 40.2
Income taxes........................... 12.7 10.1 8.8 10.1 11.4 13.7 14.2 15.3
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)...................... 19.8% 18.9% (29.4)% (17.6)% 9.2% 21.7% 23.0% 24.9%
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>

The Company's results of operations have in the past fluctuated from
quarter to quarter, and the Company expects such fluctuations to continue as a
result of a variety of factors. Product mix, delays in production caused by the
installation of new equipment, the level of orders that are received and can be
shipped in any quarter, price competition, fluctuations in manufacturing yields,
availability of manufacturing capacity, market acceptance of products, increased
direct labor and overhead costs, delays in receiving equipment from suppliers,
customer over-ordering followed by order cancellations, and cancellation or
rescheduling of orders for any reason may be expected to cause significant
variations in the Company's quarterly operating results. As a result, the
results of operations for any quarter are not necessarily indicative of results
for any future period.

Most of the Company's expenses do not follow seasonal or cyclical patterns
but vary either based on sales or as a function of staffing and other factors
such as research and development and most general and administrative expenses.
General and administrative expenses increased by $652,000 from the first to
second quarters of 1997, primarily due to compensatory stock options. ESOP
compensation expense went from approximately $196,000 per quarter in 1995 to
$5.5 million per quarter in the first two quarters of 1996 due to the change in
accounting for ESOP shares at cost in accordance with SOP 76-3 in 1995 to
accounting for ESOP shares at market in accordance with SOP 96-3 in 1996. ESOP
compensation expense returned to $196,000 for each of the first two quarters of
1997 as all remaining shares were accounted for under SOP 76-3.

The Company's net sales have historically reflected some seasonality in
that sales growth typically tends to flatten or drop slightly in the first
quarter of the year, coincident with fewer business days in the quarter due to
the Thanksgiving and Christmas holidays.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date through cash generated from
operations, bank borrowings, lease financing, the private sale of securities,
and its May 1, 1996 initial public offering. The Company requires capital
principally for equipment, expansion of its primary facility, financing of
growth in accounts receivable and inventory, investment in product development
activities and new technologies and for its new operation in Costa Rica. For
1996, the Company generated net cash from operating activities of $13.6 million
consisting primarily of the net loss of $340,000, adjusted for ESOP compensation
expense of $12.9 million, $2.1 million of depreciation and amortization, $2.4
million of increases in accounts payable and accrued liabilities and a $2.2
million increase in taxes payable, offset by increases in accounts receivable
and inventory of $6.0 million. Cash flow from operations was $6.8 million and
$3.6 million in 1995 and 1994, respectively. For the six months ended March 31,
1997, the Company generated net cash from operations of $16.3 million primarily
from net income, depreciation and deferred taxes.

20
<PAGE> 23

The Company has a credit line agreement totaling $15.0 million from
SunTrust Bank, Central Florida, N.A. renewable annually. There were no balances
outstanding on this credit line at September 30, 1996 or at March 31, 1997.

The Company made capital expenditures of $24.3 million during 1996 compared
to $5.6 million and $1.0 million in 1995 and 1994, respectively. For the six
months ended March 31, 1997, the Company made capital expenditures of $8.4
million. The Company is in the process of expanding its Orlando, Florida
facilities for additional manufacturing, engineering and sales and
administrative space, and intends to make various capital expenditures for
production and test equipment and furniture and fixtures. In addition, the
Company intends to make various capital expenditures for its San Jose, Costa
Rica operation. The Company plans to spend approximately $20.0 million in 1997
on capital equipment and facilities of which approximately $4.6 million was
committed at March 31, 1997.

During 1996 the Company completed its initial public offering and raised
net cash of $35.2 million. After repayment of debt on the credit line, the
balance was invested in high grade, short-term, interest-bearing securities. The
Company's cash and cash equivalents at September 30, 1996 totaled $27.7 million
compared to $2.8 million and $2.7 million at September 30, 1995 and 1994,
respectively. At March 31, 1997, the Company had cash and cash equivalents of
$35.7 million.

The Company believes that its present cash position, together with its
credit facility and funds expected to be generated from operations and with the
net proceeds from this offering, will be sufficient to meet its working capital
and other cash requirements through 1997. Thereafter, the Company may require
additional equity or debt financing to address its working capital needs or to
provide funding for capital expenditures. There can be no assurance that events
in the future will not require the Company to seek additional capital sooner or,
if so required, that it will be available on terms acceptable to the Company, if
at all.

FOREIGN OPERATIONS AND EXPORT SALES

The Company established a subsidiary in Costa Rica in 1996, began
operations in the second quarter and commenced shipments in the third quarter of
1996. As of March 31, 1997, the Company had a net investment of approximately
$3.1 million in this operation and recorded net sales of approximately $13.6
million with an operating profit of approximately $6.5 million for the six
months ended March 31, 1997. The functional currency for the Costa Rican
subsidiary is the U.S. dollar as sales, most material cost and equipment are
U.S. dollar denominated. The effects of currency fluctuations of the local Costa
Rican currency are not considered significant and are not hedged.

In 1996, the Company also established a "foreign sales corporation"
pursuant to the applicable provisions in the Internal Revenue Code to take
advantage of income tax reductions on export sales. For 1996 and for the six
months ended March 31, 1997, the cost to operate this subsidiary was less than
$10,000, and it has less than $10,000 in identifiable assets.

International sales are denominated in U.S. dollars and represented 54%,
49% and 40% of net sales for the years ended September 30, 1996, 1995 and 1994,
respectively and 42% for the six months ended March 31, 1997. Sales to European
markets represent 38%, 36%, 22% and 22% of net sales for these same periods,
respectively. The remaining international sales relate primarily to Asian and
Canadian markets. See Notes to Consolidated Financial Statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. SFAS 123 is effective for fiscal years beginning
after December 15, 1995. The Company

21
<PAGE> 24

intends to adopt the provisions for pro forma disclosure requirements of SFAS
123 in 1997. Such pro forma disclosures do not impact the financial condition or
the operating results of the Company.

In February 1997, the FASB issued SFAS No. 128, Earnings Per Share, which
is effective for financial statements issued for periods ending after December
15, 1997. This pronouncement establishes standards for computing and presenting
earnings per share ("EPS") for entities with publicly-held common stock or
potential common stock. SFAS 128 simplifies the standards for computing EPS and
makes them comparable to international EPS standards. Early application of this
statement is not permitted. The Company intends to adopt the provisions of SFAS
128 in 1998 and does not expect their application to have a material impact on
the financial statements of the Company.

22
<PAGE> 25

BUSINESS

Sawtek designs, develops, manufactures and markets a broad range of
electronic signal processing components based on SAW technology. The Company's
primary products are custom-designed, high performance bandpass filters,
resonators, delay lines, oscillators and SAW-based subsystems. These products
are used in a variety of microwave and RF systems, such as Code Division
Multiple Access ("CDMA") and Global System for Mobile communications
("GSM")-based digital wireless systems, digital microwave radios, WLAN, cable
television equipment and various defense and satellite systems. The Company's
products offer key advantages such as lower distortion, reduced size and weight,
high reliability and precise frequency control compared to products based on
alternative technologies and address rapidly growing needs in
telecommunications, data communications, video transmission, military and space
systems and other markets. The Company's proprietary CAD and analysis software
tools support rapid and precise SAW device design and simulation, enabling
Sawtek and its customers to achieve timely new product development. The
Company's commercial customer base accounts for approximately 85% of net sales
and includes major telecommunications equipment producers such as Ericsson,
LGIC, Lucent Technologies, Motorola, Nokia, and Qualcomm.

INDUSTRY BACKGROUND

Electronic systems which transmit or receive voice, data or video must
contain various signal processing components such as bandpass filters,
resonators, delay lines and oscillators. These components modify and condition
the desired signals while rejecting unwanted signals which cause distortion and
interference. The frequency at which these systems transmit and receive
information is referred to as the microwave or RF frequency. However, before the
information can be used, the signal must generally be converted to a lower
intermediate frequency ("IF") and finally to the lowest system frequency,
commonly referred to as baseband. While the microwave and RF frequencies at
which voice, data and video systems operate are generally dictated by regulatory
bodies such as the FCC, system designers have considerable flexibility in
selecting one or more IF frequencies which suit the requirements of a specific
application and design approach. Consequently, IF components, particularly
filters, are developed specifically for each customer and application, even
though they frequently must be produced in large quantities. The performance
demands placed on these components by increasingly complex systems have changed
dramatically over the past few years, particularly in wireless applications.

The wireless communications industry is experiencing significant worldwide
growth. Cost reductions and technological improvements in such wireless
communications products as cellular, PCS, global satellite telephones and
wireless data systems are contributing to this growth. Wireless communications
systems can offer the functional advantages of wired systems without the costly
and time consuming development of an extensive wired infrastructure, which is of
particular importance in developing parts of the world. Rapidly emerging digital
telecommunications standards and technology will provide the performance
improvements necessary to address overcrowding of existing cellular systems and
to provide increased functionality. Unless carriers adopt the emerging digital
standards, they will be forced to build new cellular basestation sites and
continue to suffer from dropped calls due to the overcrowding problem. These
standards include CDMA, an approach being commercialized by Qualcomm in the
United States and worldwide, and GSM, adopted throughout Europe and many other
countries. These new approaches are being utilized to provide cellular and PCS
services as well as wireless local loop ("WLL") networks. As demands for
wireless communications subscriber services grow, service providers are offering
digital handheld products and expanding the associated infrastructure. These
factors, coupled with regulatory changes in the United States and abroad, as
well as advances in wireless communications technology, are leading to
substantial worldwide growth in existing systems and the emergence of new
markets and applications.

As the wireless telecommunications industry has expanded, previously
allocated frequency bands have become increasingly congested, and the need to
precisely control transmission frequencies and to filter unwanted signals
without distortion has become critically important. In response to this crowding

23
<PAGE> 26

of existing frequency bands, regulatory agencies have allocated new blocks of
spectrum at higher frequencies and more stringently regulated allowable signal
bandwidths. Systems operating at these higher microwave and RF frequencies
require higher frequency IF components to simplify the overall system
architecture, thereby reducing cost, complexity and power consumption. To make
more efficient use of the crowded frequency bands, the spacing between adjacent
signal channels must be reduced, placing the desired signal very close to
unwanted interfering signals. Highly selective IF filters are required to pass
the desired signal without distortion, while rejecting interfering signals from
adjacent channels and other sources.

Telecommunications systems, including cellular and PCS, are rapidly
evolving from traditional analog to more efficient digital modulation techniques
to improve system performance and capacity. These digital approaches call for a
wider range of bandwidths, higher frequencies and more precise bandwidth
control. Furthermore, for highly bandwidth-efficient digital transmission
systems to operate properly, all frequency components of the signal must pass
through the system with essentially the same time delay or severe distortion may
result.

The development of RF integrated circuits, coupled with surface mount
packaging ("SMP") technology, has facilitated a significant reduction in the
size of portable wireless products. These developments have, in turn, driven the
demand for rugged, miniature, surface mount IF signal processing components,
particularly for use in handheld applications such as cellular telephones.

Traditional signal processing technologies include lumped element ("LC"),
ceramic and bulk acoustic wave ("BAW") crystal filters, resonators and
oscillators. While these basic approaches have been improved to address changing
demands, the improvements have been largely incremental and evolutionary, rather
than revolutionary. It is generally difficult to build traditional LC filters
with the high selectivity and precision required by many new systems. In
addition, most LC filters tend to drift in frequency and degrade in performance
with changes in operating temperature. Conventional BAW crystal filters are
difficult to build in the higher IF frequency ranges required for many emerging
communications applications because the crystal elements of these filters must
be made increasingly thinner, resulting in a device that is both delicate and
difficult to manufacture. Many conventional types of filters, including both BAW
crystal and LC, which are suitable for filtering analog signals, may produce
significant distortion when used to filter digital signals. Another inherent
limitation of these traditional filter technologies is the inability to
adequately reduce their physical size to suit many emerging applications.

The SAW solution to signal processing represents a fundamentally different
approach, relying on the propagation and interaction of acoustic waves on the
surface of a piezoelectric crystal. SAW technology offers a number of advantages
over competing technologies, including precise frequency control and
selectivity, reduced size and weight, high reliability, environmental stability
and the ability to pass RF signals without significant distortion. Perhaps the
most significant benefit inherent in SAW technology is the relative ease in
producing large quantities of high precision components that are comparatively
small in size. SAW devices are routinely manufactured for higher IF frequency
ranges required for emerging systems. The range of signal bandwidths that can be
accommodated with SAW technology is quite large, permitting SAW components to
address almost all viable applications.

As the use of wireless communications systems increases and new
applications develop, there is a need for large quantities of IF signal
processing components which can meet demanding performance, size and reliability
requirements. SAW technology is an enabling solution, possessing all of these
attributes, with applications in nearly all wireless communications systems.

THE SAWTEK SOLUTION

Sawtek is a leading worldwide supplier of SAW products that address the
demanding and rapidly growing needs of modern wireless communications equipment
manufacturers. The Company has, over the last 18 years, designed and
manufactured more than 1,500 different SAW products that operate at frequencies
ranging from 10 MHz to nearly 3 GHz for both commercial and military
applications. The

24
<PAGE> 27

Company's products, comprising one of the broadest SAW product lines in the
industry, are used by diverse original equipment manufacturers ("OEMs") in
numerous applications ranging from high volume telecommunications applications
in CDMA and GSM-based digital telephone systems to state-of-the-art, high
performance SAW channelized filter subsystems to be used in the military's F-22
Advanced Tactical Fighter electronic warfare receiver. The Company's products
are sold worldwide to nearly every major company that produces microwave and RF
communications equipment.

The Company believes that its advanced technical capabilities permit it to
offer high performance products that enable its customers to differentiate
themselves competitively in their respective markets. The Company has developed
sophisticated proprietary CAD and analysis software to efficiently implement SAW
solutions that address individual customer needs. The Company's products offer
high levels of technical performance in a reduced package size on a
cost-effective basis. Sawtek has leveraged its experience in developing SAW
products for military applications, where high performance and proven
reliability and ruggedness are demanded, to expand into the commercial wireless
telecommunications, data communications, video transmission and other markets.

In addition to its proprietary design and analysis software and broad
product line, Sawtek's competitive strengths include personnel with extensive
depth and breadth in SAW technology, innovative SAW device structures that
provide high levels of technical performance, a flexible automated production
capability, manufacturing process expertise, rapid custom product development,
an offshore production capability and a "Manufacturing Excellence" program that
enhances the Company's ability to be responsive to its customers' needs. In
addition, Sawtek's research and development organization is continuing to
provide the innovative tools necessary for the Company to advance SAW
technological capabilities and is expanding the Company's product line into a
new market for SAW chemical sensors and subsystems. The Company believes that
these competitive strengths will enable it to benefit from the attractive growth
potential in wireless voice, data, video and other markets.

SAWTEK STRATEGY

Sawtek intends to leverage its advanced design and manufacturing technology
and strong customer relationships to become the leading provider of SAW
components for high volume, wireless communications system applications.
Furthermore, the Company expects to continue to build its leadership position in
the development and production of both custom and standard SAW devices for
industrial and "high end" commercial market applications and to remain the
dominant supplier of custom designed SAW components and SAW-based subsystems to
the military and space industries. The Company's strategy contains the following
elements:

Broaden Penetration of Wireless Markets and Applications. The Company
currently provides custom designed SAW components to suppliers of wireless
communications systems, primarily for digital telecommunications basestations
for CDMA and GSM-based wireless applications. The Company intends to further
penetrate this market by focusing on custom designed, high volume, low cost SAW
devices for use in handheld subscriber units and other applications where SAW
technology offers key advantages. Such applications include: WLL, point-to-point
digital radios, wireless PBX, WLAN and a number of other wireless voice, data
and video communications systems.

Maintain and Enhance SAW Technology and Product Leadership. The Company
has developed a fundamental understanding of SAW design techniques, innovative
SAW device structures and proprietary design and analysis software to aid its
design engineers in meeting stringent technical specifications for
state-of-the-art SAW component requirements. The Company will continue to
advance SAW technology by supporting both internal and customer funded research
and development programs and cooperative research at outside institutions.
Sawtek believes that these activities will significantly enhance its
technological leadership and core competencies as well as expand the Company's
product line into additional business opportunities, such as SAW chemical
sensors and subsystems.

25
<PAGE> 28

Expand Automated Manufacturing Capacity to Meet Diverse Product Demand. In
response to the increased demand for the Company's products, Sawtek has rapidly
increased its production capabilities by expanding its facilities in Orlando,
Florida and establishing an offshore production plant in San Jose, Costa Rica.
The Company intends to further expand its high volume automated manufacturing
capacity as customer needs dictate. The markets and applications served by the
Company demand a diverse mixture of SAW products, requiring a flexible
manufacturing approach. The Company's flexible manufacturing enables it to
simultaneously produce hundreds of different products for numerous commercial
and military customers in widely varying quantities while maintaining
competitive prices and favorable gross margins.

Cultivate Strong Customer Relationships. SAW components are predominantly
customized to specific OEM system applications. Because it is common for
electronic system designers working on the same application at different OEMs to
develop substantially different SAW device specifications, the Company has had
to become highly involved in the product definition phase of a customer's
design. Sawtek offers numerous device structures capable of satisfying the
unique performance specifications of each OEM and system application. The
Company intends to enhance its close working relationship with its extensive
group of current customers and to establish early program involvement with new
and existing customers to better understand next generation product
requirements. The Company also plans to increase its sales and marketing staff,
implement internal programs aimed at maximizing responsiveness to customers,
continue to provide a high level of technical service and support, prioritize
customer focused research and development activities and internally fund product
development.

MARKETS AND APPLICATIONS

SAW devices may be utilized in most applications which transmit or receive
microwave or RF signals. Sawtek markets and sells bandpass filters, resonators,
delay lines, oscillators and SAW-based subsystems to both domestic and
international OEMs that integrate these products into receivers, transmitters
and other equipment for commercial, industrial, military and space applications.
Sawtek provides products to the following markets: telecommunications, data
communications, video transmission, military and space systems and other
markets.

Telecommunications

Telecommunications applications represent a majority of Sawtek's net sales.
The Company's telecommunications product offerings consist primarily of IF
bandpass filters for CDMA and GSM basestation equipment and CDMA subscriber
handsets. Additional applications include basestation repeaters and global
satellite systems. The Company offers over 75 custom SAW components to serve
these market applications.

Cellular. In cellular applications, calls are placed through subscriber
handsets by establishing a connection with a basestation via RF channels in the
900 MHz frequency range. The Company supplies IF bandpass filters for CDMA and
GSM-based cellular basestations and for certain subscriber handset applications.

PCS. PCS systems are enhanced cellular networks which operate in a
frequency band of 1,800 to 2,000 MHz and provide a broad range of
telecommunications services. The Company supplies IF bandpass filters for CDMA
and GSM-based PCS basestation equipment, and bandpass filters for CDMA
subscriber handsets.

Wireless PBX. Wireless PBX, a more sophisticated form of cordless
telephony, is becoming increasingly popular in business environments for
intra-office communications. The Company supplies bandpass filters to both
basestation and subscriber handset manufacturers of wireless PBX systems.

Satellite. A number of satellite telecommunications systems have been
proposed by major communications companies and consortia. The Company supplies
satellite and ground-based SAW

26
<PAGE> 29

components for several of these developing systems. For some time, Sawtek has
been a leading producer of high reliability, space qualified SAW components and
is well positioned for these applications.

Data Communications

The data communications market encompasses a number of applications
involving the transmission and reception of data through wired, wireless or
satellite networks. As the usage of these networks increases, OEMs are pursuing
broader bandwidths, faster data rates and improved data integrity. OEMs
typically specify custom SAW filters based on these requirements and as a
result, the Company designs unique products for each OEM. As international
standards are adopted to meet these requirements, the Company will support both
standard and custom applications.

Digital Radios. Initially digital radios were developed for the military
as a means to transfer secure data. This technology has expanded to both
commercial and industrial data and voice applications, including cellular
basestation radio links. Sawtek offers over 100 designs to support these
applications, including filters from the Company's three standard product
families.

Wireless Local Area Networks. WLANs enable desktop and laptop computer
users to transmit and receive data via wireless microwave and RF links. The SAW
IF filter is typically integrated into a credit-card-sized circuit board modem
that slides into a PCMCIA slot. Sawtek has supported this expanding application
with multiple custom designs.

Handheld Data Terminals. The Company supplies custom SAW products to
customers that build handheld equipment for a variety of data transmission
applications, including point-of-sale and inventory tracking systems.

Global Positioning Systems. Global positioning systems ("GPS") are used in
military, industrial and consumer applications to determine specific geographic
locations. Although GPS began as a military system, applications have expanded
to include location and direction finding systems for recreational use as well
as various industrial applications, including a new generation of electronic
survey equipment. Sawtek currently sells to various OEMs that integrate SAW
components into portable and handheld GPS receivers.

Video Transmission

OEM products utilizing relatively low frequency SAW filter designs for
cable television ("CATV") head-end equipment are purchased worldwide by cable
operating companies. Sawtek manufactures over 30 custom SAW devices to serve the
various standards required by the worldwide video transmission market. Emerging
technologies within the video transmission market include high definition
television ("HDTV") and interactive television. The Company has designed custom
products for both of these applications and is involved in limited production of
devices for interactive television.

Military and Space

Sawtek has been a provider to the military and space systems markets since
the Company's inception in 1979. Sawtek's components can be found in major
applications that include electronic warfare, defense communications, military
and commercial space systems and radar and surveillance.

Electronic Warfare. The Company supplies products for various electronic
warfare applications such as radar, communication jamming and identification
friend or foe systems.

Defense Communications. Defense communications equipment is used to
transmit and receive secure voice or data information. Applications include
handheld battlefield radios, command center communications systems and air, ship
and vehicle communications systems. The Company supplies numerous SAW designs to
customers that support these applications.

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Space. The Company has qualified over 100 high reliability SAW components
for satellite hardware applications. Within the military satellite equipment
market, most SAW devices are installed in classified hardware where the
application is unknown to the Company. Weather satellites, GPS satellites,
satellites with nuclear blast detection capability and various military
communications satellites utilize Sawtek's devices. The Company is also
delivering SAW components for various telecommunications satellite systems that
will expand worldwide commercial wireless communications capabilities.

Radar and Surveillance. Applications for SAW devices in radar equipment
include weather, air traffic control, ground tracking or mapping and airborne
threat detection and targeting systems. The Company also supplies SAW components
for use in military surveillance equipment such as systems for troop movement
detection, communications detection and submarine detection and tracking.

Other Markets

The Company designs and produces SAW components for other markets,
including commercial avionics, test equipment and identification and security
systems. Commercial avionics applications include collision avoidance
transponders and radar for line-of-flight weather information. Sawtek's products
are utilized in various test equipment applications for circuit design and
system performance analysis, such as signal generators, spectrum analyzers and
cellular telephone system test equipment. In the identification and security
system industry, the Company's products enable OEMs to provide passive SAW RF
identification labels (or tags) for a variety of applications, such as toll road
vehicle identification and personnel monitoring. The Company also markets three
families of standard SAW filters and offers these products for sale through
distribution networks in North America and Europe.

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CUSTOMERS

The following table identifies, by market, certain customers that purchased
SAW components from the Company in the last 12 months, with customers listed in
alphabetical order.

TELECOMMUNICATIONS
- -----------------------
Alcatel ITS Inc.
LG Information & Communications, Ltd.
LM Ericsson AB
Lucent Technologies
Motorola, Inc.
Nokia Telecommunications Ltd.
Nortel
Omnipoint Corporation
QUALCOMM Incorporated
QUALCOMM Personal Electronics
Stanford Telecommunications, Inc.

VIDEO TRANSMISSION
- ----------------------
ALPS Electric Co., Ltd.
BARCO n.v.
Century Electronics Ltd.
General Instrument Corporation
LARCAN INC.
R.L. Drake Company
Rohde & Schwartz GmbH & Co. KG
Scientific-Atlanta, Inc.
Triple Crown Electronics Inc.

OTHER MARKETS
- ----------------
AlliedSignal, Inc.
BFI-IBEXSA SPA (Distributor -- An
AVNET Co.)
Hewlett-Packard Company
Hughes Network Systems, Inc.
Lucent Technologies
Penstock, Inc. (Distributor -- An AVNET Co.)
Rockwell International Corporation
Silicon Graphics, Inc.

DATA COMMUNICATIONS
- -------------------------
3Com Corporation
CellNet Data Systems, Inc.
Digital Microwave Corporation
Harris Corporation
LM Ericsson AB
Rdc Communications Ltd.
Scientific-Atlanta, Inc.
Trimble Navigation

MILITARY AND SPACE
- ----------------------
Flightline Electronics
ITT Corporation
Hughes Aircraft Company
Lockheed Martin Corporation
Motorola, Inc.
Northrop Grumman Corporation
Rockwell International Corporation
Texas Instruments Incorporated

Sawtek has a diversified customer base with two customers, Ericsson and
Lucent Technologies, that each accounted for more than 10% of net sales in 1996.
For the six months ended March 31, 1997, four customers each accounted for over
10% of net sales. They are in alphabetical order: Ericsson, Lucent, Motorola and
Qualcomm. The Company's top 10 customers accounted for approximately 68% of net
sales in 1996 and 75% of net sales for the six months ended March 31, 1997. The
loss of any of these customers could have a material adverse effect on the
Company's business, operating results and financial condition. There is no
assurance that the Company will obtain future business from these customers.

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PRODUCTS

The Company has produced more than 1,500 unique SAW products at frequencies
ranging from 10 MHz to nearly 3 GHz. Products are organized into six product
categories: bandpass filters, resonators, delay lines, oscillators, SAW-based
subsystems and SAW chemical sensor elements. While some product standardization
exists, the vast majority of the Company's products are custom developed for an
individual application or customer, for which an NRE fee is generally charged.

[CAPTION]
<TABLE>
<CAPTION>
SAWTEK'S MARKETS
DATA VIDEO
SAWTEK'S PRODUCT TELECOM- COMMUN- TRANS- MILITARY OTHER
CATEGORIES PRODUCT TYPES MUNICATIONS ICATIONS MISSION AND SPACE MARKETS
<S> <C> <C> <C> <C> <C> <C> <C>
Bandpass Filters Bi-directional transversal;
Low loss transversal; X X X X X
Coupled resonator
Resonators Surface acoustic wave (SAW);
Surface transverse wave (STW) X X N/A X X
Delay Lines Non-dispersive;
Dispersive; Multi-tap X X N/A X X
Oscillators Fixed frequency;
Voltage controlled N/A N/A N/A X X
SAW-based Channelized filter banks;
Subsystems Switched filter/delay modules;
Pulse expansion/compression N/A N/A N/A X N/A
SAW Chemical Resonators; Delay Lines
Sensor Elements N/A N/A N/A X X
</TABLE>

N/A = Application not applicable or the Company does not supply product to that
market.

Bandpass Filters

Sawtek currently offers three types of SAW bandpass filters: bi-directional
transversal, low loss transversal and coupled resonator filters. Prices for the
Company's filter products vary widely depending upon the product specifications,
production volume and market application. Surface mount filters for subscriber
applications sell for under $10 depending on the application while high
precision filters for military applications may sell for hundreds of dollars
each.

Bi-directional Transversal Filters. This class of filters represents the
most widely used application of SAW technology, and the Company offers over 800
products of this type. Because these filters operate over a fairly wide and
useful frequency range (10 MHz to 2.5 GHz) and a relatively large range of
possible fractional bandwidths (0.1% to 67% of the center frequency), they are
the filter component of choice in many modern communications systems. The
largest emerging market for this product is in support of cellular and PCS
infrastructure and handheld subscriber applications. Numerous bi-directional
filter products, supplied in low profile surface mount packages, have been
produced for high volume subscriber applications such as CDMA-based cellular and
PCS, WLL, WLAN and handheld data terminals.

Low Loss Transversal Filters. Sawtek offers 180 high performance, low loss
transversal filters for those applications where system noise figure, dynamic
range or power consumption cannot accommodate the higher loss that is typically
associated with bi-directional transversal filters. Low loss transversal filters
are used in both infrastructure and subscriber applications in CDMA and
GSM-based digital cellular systems, wireless PBX, wireless handheld data
terminals and WLANs.

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Sawtek has developed a line of standard, low loss filter products at 70 MHz
in surface mount packages. These filters are suitable for commercial microwave
point-to-point radios, very small aperture satellite terminals and other
commercial applications where wideband, low loss SAW filters simplify system
architecture and reduce size and power consumption.

Coupled Resonator Filters. The Company offers over 70 products in this
broad class of SAW filters which includes in-line coupled, waveguide coupled and
combined mode resonator filters. Coupled resonator filters can be built over a
wide range of frequencies (50 MHz to 1.5 GHz), but are limited to narrow
fractional bandwidths (0.02% to 0.3% of the center frequency). They are ideally
suited to such narrowband applications as pre-selector filters, oscillator
spurious suppression filters, timing recovery filters and cellular telephone
filters. The Company currently supplies filters of this type for use in GSM, PCS
and numerous other commercial and military telecommunications systems.

Resonators

The Company currently offers two types of resonators: SAW and surface
transverse wave ("STW"). More than 100 resonator products, operating from 100
MHz to 1.5 GHz, are available and are generally used as stable, high-Q frequency
control elements that determine the operating frequencies of oscillators. SAW
resonators can operate fundamentally at much higher frequencies than BAW
resonators, a feature that significantly reduces system complexity and enhances
system performance. The Company generally chooses to offer these products for
use in high performance commercial, military and space applications, where the
demand for more stringent electrical requirements is not served by high volume
SAW resonator manufacturers. In addition to offering these products as
individual components, Sawtek's resonators are also used by the Company in the
manufacture of its high performance oscillator products.

Delay Lines

Sawtek currently offers more than 190 SAW delay line products, consisting
of non-dispersive, dispersive and multi-tap delay line configurations. Sawtek's
delay line products are primarily used in military communications and electronic
warfare applications, such as pulse expansion and compression radar. However,
they also find uses in commercial applications, such as commercial avionics
collision avoidance transponders, RF identification tag systems and wireless
handheld data terminal products. All SAW delay lines make use of the fact that a
surface acoustic wave travels 100,000 times more slowly than an electromagnetic
wave. This permits SAW delay lines to be much smaller for a given signal delay
than those of most competing technologies. The useful ranges of center
frequencies and fractional bandwidths, as well as typical unit prices, for this
product type are similar to the Company's bi-directional filter products.

Oscillators

Sawtek currently offers over 100 fixed frequency and voltage controlled
oscillators based on both SAW and STW resonator technologies. Oscillators are
used to generate a pure RF tone or signal. This signal often determines,
directly or through frequency multiplication, the final operating frequency of
the system in which it is used. Oscillators, in conjunction with additional
circuitry, are also used in converting or mixing RF signals from one frequency
to another. SAW oscillators utilize the inherent benefits of SAW resonators,
with additional hybrid or discrete circuitry, to yield products that operate
over a range of 100 MHz to 1.5 GHz. The Company's oscillators are used in high
performance commercial and military applications such as instrumentation,
avionics and electronic warfare.

SAW-based Subsystems

The Company's most complex and highly integrated products are SAW-based
subsystems. In general, these subsystems consist of key SAW components,
surrounded by additional circuitry, that provide a higher level of system
functionality than that provided by the SAW devices alone. These

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<PAGE> 34

products are highly specialized and are custom developed for specific
applications. Sawtek's subsystem products are largely used in military and space
applications and include channelized filter banks, switched filter and delay
line modules and pulse expansion and compression subsystems.

SAW Chemical Sensor Elements

SAW chemical vapor sensors have been under development at research
institutions for many years, and have been successfully demonstrated by
government, university and industrial laboratories in the United States and
overseas. Sawtek has been a leading supplier of SAW resonators and delay lines
used in these sensor development programs for over 12 years, with more than 20
products available.

NEW PRODUCT DEVELOPMENT

Sawtek has identified SAW chemical sensors and subsystems as a
strategically promising technology for new product development. Substantial
market opportunities exist in applications that include in-situ groundwater
contamination analysis, process control, incipient fire detection, electronic
noses, soil gas analysis, dry cleaning monitors, fugitive emission monitors,
analysis of gases in bulk chemical storage containers, OSHA workplace health and
safety monitoring and respirator alarm systems, and chemical warfare agent
detection. The Company believes there is currently no widely available
technology which meets all of the cost, performance and applications
requirements for most of these areas. Thus, there is a need for a cost-effective
technology that can be customized for specific applications. SAW chemical sensor
systems have the potential for costing a fraction of currently available
transportable analytical vapor testing equipment, while providing a suitable
level of chemical selectivity and sensitivity, in an instrument that is
handheld. These sensor systems could also be fitted with sampling attachments
for sensing volatile organic compounds ("VOCs") in soil and water.

A majority of Sawtek's sensor development work is being conducted as part
of a Technology Reinvestment Program ("TRP") project which received a
cost-shared financial award (DE-FC07-95ID13343) in the 1994 TRP competition.
Sawtek is the lead company in this project, and is working cooperatively with
Sandia National Laboratories, Battelle Pacific Northwest Laboratories and
consortium members, General Atomics and Perkin-Elmer. To date, Sawtek scientists
have made fundamental improvements over prior art in three major technical areas
necessary for product development, namely temperature compensation, polymer
development and metrology.

Sawtek's initial goal in developing SAW sensing technology is to
manufacture and market to instrument manufacturers a module that contains the
core elements necessary for proper VOC sensing: the SAW sensor array,
measurement electronics, temperature control, pre-concentration (if required),
communication capability and sufficient memory and processing power to
adequately provide the required calibration and pattern recognition functions.
This sensor module could be incorporated into any number of end-user systems,
based on the individual instrument manufacturer's market needs and preferences.
This product development strategy allows Sawtek to receive the maximum benefit
from its core competencies by allowing a wide range of instrument manufacturers
to utilize a common Sawtek sensing module, and by utilizing the existing sales,
marketing and distribution infrastructure in place at these firms, alleviating
the need for an extensive Sawtek sensor sales force. There can be no assurance,
however, that Sawtek will be successful in developing sensing products for
commercial or defense applications. No commercial sales of SAW chemical sensor
systems have been made by the Company to date.

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<PAGE> 35

TECHNOLOGY

[Illustration of a SAW device and an acoustic wave. Words include:
electromagnetic wave, acoustic energy, electromagnetic energy, input, output,
input transducer, output transducer, piezoelectric materials.]

SAW Technology. A simple SAW filter (see illustration) has two transducers
which consist of interdigital arrays of thin metal electrodes
photolithographically defined on a highly polished piezoelectric wafer. A
piezoelectric material is one in which there exists a reciprocal, linear
relationship between the electric field in the material and the strain in the
material. When a signal of the proper frequency is applied across the
interdigital transducers ("IDTs"), the alternating electrode voltages cause the
surface of the device to expand and contract due to the varying electric fields
induced in the piezoelectric material. This causes the generation of a
mechanical (or acoustic) wave propagating at the surface of the device.
Reciprocally, the acoustic wave generates an electrostatic wave with potentials
at the surface of the device which can be detected by an IDT. The operating
frequency of the device is determined by the electrode spacing and the
material's surface acoustic wave velocity. This relationship places physical
limitations on the frequency of operation of practical SAW devices due to
limitations in photolithographic resolution. The configuration of the IDTs and
properties of the substrate material determine the signal processing function
and response characteristics of the device.

The appeal of SAW devices as preferred signal processing components is
based on the inherent advantages of the technology. SAW devices can provide
complex signal processing functions in a single, compact device. One example of
this is the outstanding bandpass filter characteristics which can routinely be
achieved using SAW technology. Comparable performance utilizing LC filter
technology would require numerous components and could occupy many square inches
of PC board space. Because surface acoustic waves propagate 100,000 times slower
than electromagnetic waves, the realization of relatively long electrical delays
on devices of limited dimensions is possible. Additional performance advantages
of SAW technology, which vary based on the application, include small size,
linear phase, high selectivity, excellent rejection and temperature stability.
The ruggedness and reliability of SAW devices are characteristic of the physical
device structure. Because device operating frequencies are determined by
photolithographic processes, SAW devices do not require complicated

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<PAGE> 36

tuning procedures, nor do they become detuned in the field. The semiconductor
microfabrication techniques used in manufacturing SAW components allow for the
volume production of economical and reproducible devices. The outstanding
reproducibility of these devices makes them ideal for military electronic
warfare applications such as channelized filter banks for spectral analysis.
Small size and ruggedness make SAW devices useful for cellular communications
and related applications. Finally, the relative radiation hardness of SAW
devices makes them ideal for space-based applications.

Computer Aided Design and Analysis Software. Sawtek's versatile and
user-friendly proprietary software fully supports the design and simulation of a
broad range of SAW device structures, allowing Sawtek's design engineers to
select the optimum SAW device type for a particular application with respect to
performance, size and cost.

MANUFACTURING

The manufacturing techniques utilized by the Company to produce its
products are very similar to those used by the integrated circuit industry. In
general, SAW devices are more straightforward to manufacture than most
integrated circuits but involve certain highly complex and precise processes
that are unique. While the Company controls a substantial portion of the
manufacturing process, some activities are outsourced. The primary raw materials
used to manufacture Sawtek's products include piezoelectric wafers and metal or
ceramic packages used to house and protect the SAW die. Manufacturing scheduling
and control is achieved through the use of a computer based manufacturing
resource planning ("MRP II") system. The Company segregates the manufacturing
process into two functional areas: wafer fabrication and assembly.

Wafer Fabrication. The wafer fabrication process involves the deposition
of a very thin, uniform coating of aluminum onto piezoelectric wafers. These
metallized wafers are coated with a light sensitive material known as
photoresist. The wafer is exposed to light through a master glass plate, or
photomask, which contains multiple images of the SAW devices to be produced. The
image from the photomask is replicated on the wafer through a photolithographic
develop and etch process. Each device on the wafer is referred to as a SAW die
and each wafer may contain from two to 600 or more die, depending upon the
design and performance of the final product. All of the Company's fabrication
processes are conducted at the Company's principal facility in Orlando, Florida.

Assembly. In assembly, the wafer is cut into the individual SAW die with
high precision, diamond wheel dicing saws and placed in metal or ceramic
packages. The SAW die and associated components, if any, are attached to the
base of the package using specialized adhesives. Electrical connections are made
between the SAW die and the pins, pads or leads of the package using either
manual or automatic wirebonding equipment. The packages are hermetically sealed
using specialized welding equipment in a dry nitrogen atmosphere to ensure the
long term reliability of the device. After sealing, the units are tested for
hermeticity and labeled with a laser marking system. Finally, the units are
tested with automated network analyzers to ensure that the devices conform to
the desired electrical specifications.

In 1996, the Company established a subsidiary in Costa Rica for the
production of SAW components. In the first six months of fiscal 1997, the Costa
Rican subsidiary accounted for approximately 35% of net sales.

The Company has built a new SMP production facility in Orlando, Florida to
automate, in large part, the assembly process of SMP products. Utilizing robotic
assembly equipment, the Company has automated the functions of SAW die attach,
wire bond, package seal, hermetic leak test, electrical test and package
marking.

Manufacturing Control. In 1992, the Company instituted a "Manufacturing
Excellence" program which focuses on 12 key areas of performance throughout the
Company. These areas are measured and monitored on a daily, weekly or monthly
basis for continuous improvement. The Company began a statistical process
control program in 1994 in which critical process parameters throughout
manufacturing were identified and placed under continuous process control and
improvement. In addition, the Company is currently pursuing ISO 9001
registration.

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SALES AND MARKETING

Due to OEM requirements for custom devices, the Company uses a team-based
sales approach to develop relationships at multiple levels of the customer's
organization, including management, engineering and purchasing. The Company
utilizes 15 domestic and 10 international independent sales representatives to
identify opportunities which are then managed by the Company's internal sales
force. Direct sales are handled by the Company's sales and marketing personnel
and management. The Company also utilizes two distributors to generate
additional sales for the Company's standard product families. Once an
opportunity is identified, members of the Company's engineering design team and
sales team coordinate close technical collaboration with the customer during the
design and qualification phase of their program. The Company's executive
officers are actively involved in all aspects of the sales and marketing process
working closely with the senior management of its customers.

FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

The Company established a subsidiary in Costa Rica in 1996, began
operations in the second quarter and commenced shipments in the third quarter of
1996. As of March 31, 1997, the Company had a net investment of approximately
$3.1 million in this operation and recorded net sales of approximately $13.6
million and an operating profit of approximately $6.5 million for the six months
ended March 31, 1997. The functional currency for the Costa Rican subsidiary is
the U.S. dollar as sales, most raw materials and equipment are U.S. dollar
denominated. The effects of currency fluctuations of the local Costa Rican
currency are not considered significant and are not hedged.

In 1996, the Company also established a "foreign sales corporation"
pursuant to the applicable provisions in the Internal Revenue Code to take
advantage of income tax reductions on export sales. For fiscal 1996 and the six
months ended March 31, 1997, the cost to operate this subsidiary was less than
$10,000, and it has less than $10,000 in identifiable assets.

COMPETITION

The markets for Sawtek's products are characterized by price competition,
rapid technological change, product obsolescence and heightened domestic and
international competition. Historically, the NRE investment required to produce
a SAW design and technical incompatibility issues between various SAW suppliers
has led many SAW customers to single source their requirements. In each of the
markets for Sawtek's products, the Company competes with large international
firms that have substantially greater financial, technical, sales, marketing,
distribution and other resources than the Company. In addition, the Company may
face competition from companies that currently produce SAW devices for their
internal requirements, as well as from a number of the Company's customers that
have the potential to develop an internal supply capability for SAW devices. The
following North American companies compete with the Company to a greater or
lesser degree depending on the strengths and product focuses of each company:
Andersen Laboratories, Phonon and RF Monolithics. Competition from European
companies principally includes Siemens Matsushita Components and Thomson. The
Company anticipates that it will experience increasing competition from Pacific
Rim companies as it expands into handheld and other high volume subscriber
applications. The Company expects competition to increase from both established
and emerging competitors as well as from internal capabilities developed by
certain customers. Additional competition could have a material adverse effect
on the Company's business, results of operations and financial condition through
price reductions, loss of market share and delays in the timing of customers'
orders.

The Company's ability to compete effectively in its target markets depends
on a variety of factors both within and outside of the Company's control,
including timing and success of new product introductions by the Company and its
competitors, availability of manufacturing capacity, the rate at

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<PAGE> 38

which customers incorporate the Company's components into their products, the
Company's ability to respond to price competition, availability of technical
personnel, sufficient supplies of raw materials, the quality, reliability and
price of products and general economic conditions. There can be no assurance
that the Company will be able to compete successfully in the future.

Several alternative technologies which are potentially capable of providing
signal processing functions currently realized by SAW devices exist and may
compete with the Company's products. Traditional piezoelectric BAW crystal
devices, LC devices, dielectric resonators and filters and digital circuits each
have the capability to provide specific functions. For many applications,
however, these alternative technologies have substantial disadvantages when
compared to SAW implementation.

Traditional piezoelectric BAW crystal devices have resonant frequencies
determined primarily by the crystal thickness, with thinner crystals producing
higher operating frequencies. Precise polishing and thickness control is
required for accurate adjustment of the resonant frequency, and the crystals
become quite thin and fragile when designed for high frequency operation (above
200 MHz). Additionally, BAW crystal resonators are inherently narrowband and are
unsuitable for many of the current digital modulation equipment approaches.

LC resonators and filters, consisting of combinations of capacitors and
inductors, are often substantially larger than a SAW device providing equivalent
performance. In some instances, it may not be practical to obtain acceptable
frequency selectivity using LC devices. Also, careful design procedures and
shielding may be required with LC assemblies to avoid degraded performance due
to parasitics. Such assemblies often require considerable labor to assemble and
manually tune, and may be subject to de-tuning in the field.

Dielectric resonators and filters are precisely sized and shaped components
that take advantage of the high dielectric constants of certain ceramic
materials to achieve the desired performance. Dielectric filters are used for RF
filtering applications, but are generally not suitable for precision IF
filtering of digitally modulated waveforms. Dielectric resonators and filters
are not as temperature stable as quartz BAW crystals or quartz SAW devices, and
can be larger and more costly for the high volume applications in which SAW
devices are used.

Digital filter technology is currently used for very narrowband
applications without stringent power restrictions. SAW filters are generally
preferred for extremely low power applications such as pagers, due to their
passive operation. For wider bandwidth applications, digital filtering requires
substantial computation and signal conversion circuitry, and high speed
operation, leading to high power consumption, circuit complexity and large size.
A digital filter equivalent to a typical SAW IF filter for wireless
communications applications would require roughly four watts of power and
several boards of circuits to implement using currently available digital
technology. While high-speed digital filtering technology continues to evolve
rapidly, the Company believes it is unlikely that this technology will impact
wireless communications infrastructure and handheld subscriber applications in
the near future.

RESEARCH AND DEVELOPMENT

Sawtek's research and development efforts are primarily aimed at
discovering new and innovative SAW device structures and SAW-based technologies
that uniquely address market needs in those areas selected as strategic by the
Company. The goal of the Company's research and development group is to develop
the technological tools necessary to meet emerging market requirements.

Sawtek currently employs 20 scientists, technicians and consultants in its
research and development efforts. In addition to its staff and consultants,
Sawtek is actively involved in cooperative research with outside organizations,
including individuals, research groups, universities, institutes and national
laboratories. This approach allows Sawtek's research and development group to
benefit from the ideas and talents of a group of scientists more than twice as
large as Sawtek's internal staff, and to maintain a highly creative, stimulating
intellectual environment for its scientists.

Research and development expenses were $2.0 million in 1996 and $1.6
million for the six months ended March 31, 1997. The Company anticipates that
research and development expenses will

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<PAGE> 39

continue to increase in total dollars as personnel and programs are added. A
significant portion of the Company's development activities is conducted in
connection with the design and development of custom devices, which is paid for
by customers and classified as NRE items. The revenue generated from these items
is included in net sales and the cost is reflected in cost of sales rather than
in research and development expenses.

PROPRIETARY RIGHTS

Sawtek relies on a combination of patents, copyrights and trade secrets to
establish and protect its proprietary rights. Sawtek owns eight U.S. patents
(which expire from 2003 to 2013), relating to SAW device, oscillator and
packaging technologies. Sawtek also owns a substantial body of proprietary
techniques and trade secrets. Sawtek recognizes the benefits associated with
developing a portfolio of corporate intellectual property, particularly during
the new product development process, and is aggressively pursuing patents on
several technologies. Over the past 18 months, 10 patent applications were
filed. There can be no assurance that patents will issue from any of the pending
applications, or that any claims allowed from existing or pending patents will
be sufficiently broad to protect the Company's technology.

Sawtek also seeks to protect its trade secrets and proprietary technology,
in part, through confidentiality agreements with employees, consultants and
other parties. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known to or independently
developed by others. In addition, the laws of some foreign countries do not
offer protection of the Company's proprietary rights to the same extent as the
laws of the United States.

BACKLOG

Sawtek's backlog as of March 31, 1997 was approximately $24.7 million
compared to the backlog at September 30, 1996 of $27.8 million. The Company has
reduced customer delivery times from over 30 weeks one year ago to approximately
eight to 12 weeks through its capacity expansion efforts. Customers are now
placing orders based on this reduced lead time resulting in a slightly lower
backlog compared to six months ago. The Company includes in its backlog only
customer orders and certain purchase agreements with firmly scheduled deliveries
within the subsequent 12 months. Of the $24.7 million backlog at March 31, 1997,
the Company could potentially ship all of this backlog by the end of 1997. The
Company's backlog is used in the MRP II scheduling system to plan and schedule
all work orders. The Company's backlog is not necessarily indicative of future
product sales, and the Company may be materially adversely affected by a delay
or cancellation of a small number of purchase orders. Backlog cancellations are
negotiated with each customer in writing and form a part of the contract with
the customer.

Most of the orders from the Company's largest customers allow the customer
to cancel the order with a certain amount of required notice; and, from time to
time, the Company has experienced cancellations of orders in backlog. This
notice is negotiated with each customer and is generally

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<PAGE> 40

related to the manufacturing cycle time of the product which the customer
ordered, typically 60 to 90 days. If there is any work in process at the time of
cancellation, the customer may be required to pay customary termination charges.
If customers over-order to secure delivery dates and eventually cancel orders
the customer may be subject to price renegotiation as a result of the lower
quantity of units taken.

EMPLOYEES

As of March 31, 1997, the Company had a total of 549 employees, including
401 in manufacturing and operations; 75 in research, development and
engineering; 24 in quality assurance; 17 in sales and marketing; and 32 in
administration. With the exception of 98 employees located in San Jose, Costa
Rica, all of the employees of the Company are based at the Company's
headquarters and two other sites in Orlando, Florida. The Company believes its
future performance will depend in a large part on its ability to attract and
retain highly skilled employees. None of the Company's employees is represented
by a labor union, and the Company has not experienced any work stoppages. The
Company considers its employee relations to be good.

FACILITIES AND ENVIRONMENTAL MATTERS

The Company's principal administrative, engineering and manufacturing
facilities are located in three buildings aggregating approximately 86,000
square feet in Orlando, Florida, consisting of one 65,000 square foot facility
owned by the Company and two leased facilities, pursuant to leases which are
renewable over one and five years. The Company also has a production facility in
San Jose, Costa Rica located in an 11,800 square foot leased facility. The
Company plans to vacate this facility and move into a 31,690 square foot
Company-owned facility in San Jose, Costa Rica in late 1997. The Company will
spend approximately $3.0 million to upgrade this building. The Company is
building a 28,000 square foot expansion to its Orlando facility to be used
primarily for research and development, sales and administrative purposes. Upon
completion of these facilities, the Company believes its facilities will be
adequate to meet its current needs and that suitable additional or alternative
space will be available, as needed, on commercially reasonable terms. The
Company's Orlando facility is encumbered by an Industrial Development Revenue
Bond maturing in 2010.

Federal, state and local laws and regulations pertaining to the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, have not had and are not expected to have a material effect on
capital expenditures, earnings or the competitive position of the Company.

38
<PAGE> 41

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
April 30, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven P. Miller..................... 49 Chairman, Chief Executive Officer and Director
Gary A. Monetti...................... 37 President and Chief Operating Officer
Neal J. Tolar (1).................... 55 Senior Vice President, Chief Technical Officer and
Director
Thomas L. Shoquist................... 50 Vice President, Quality
Raymond A. Link...................... 43 Vice President, Finance and Chief Financial Officer
Robert C. Strandberg (1)(2).......... 39 Director
Bruce S. White (2)................... 64 Director
Willis C. Young (1)(2)............... 56 Director
</TABLE>

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

(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

Steven P. Miller co-founded the Company, has served as a Director since
1979, Chief Executive Officer since 1986, Chairman since February 1996 and
served as President from 1979 to April 1997. Prior to joining the Company, he
was manager of the SAW Device Engineering and Development Laboratory at Texas
Instruments Incorporated ("TI"), an electronics manufacturer. He joined TI in
1969. Mr. Miller has a B.S. degree in Electrical Engineering from the South
Dakota School of Mines and Technology.

Gary A. Monetti joined the Company in 1982, has served as President since
April 1997 and Chief Operating Officer since July 1995 and served as Vice
President-Operations from July 1995 to April 1997. He has served in various
positions, since 1982, at the Company, including Filter Design Engineer, Manager
of Filter Technology, Vice President-Sales and Marketing and Vice
President-Engineering. Mr. Monetti has an M.B.A. degree from Rollins College and
a B.S. degree in Electrical Engineering from the University of Illinois.

Neal J. Tolar co-founded the Company and has served as Senior Vice
President and Chief Technical Officer since June 1995 and a Director since 1979.
He served as Vice President-Operations and Engineering from 1979 to June 1995.
Prior to joining the Company, he was a member of the technical staff in the RF
Technology Group of the Corporate Research Laboratory at TI. He joined TI in
1967. Dr. Tolar has a Ph.D. in Ceramic Engineering from the University of Utah
and a B.S. degree in Ceramic Engineering from Mississippi State University.

Thomas L. Shoquist joined the Company in 1979 and has served as Vice
President-Quality, since October 1993 and a Director from 1989 to March 1996.
From 1987 to October 1993, he was Vice President-Operations Support and
Manufacturing. Prior to that he held various positions at Sawtek, including Vice
President-Operations Support, Production Manager, Director of Engineering and
Vice President-Program Management. Prior to joining Sawtek, Mr. Shoquist was
with TI from 1972 to 1979 in various design and research capacities involving
surface acoustic wave applications. Mr. Shoquist has a B.A. degree (Physics)
from the University of Texas at Dallas. Mr. Shoquist has announced he is
retiring from Sawtek and will be leaving in late 1997.

Raymond A. Link joined the Company in September 1995 as Vice
President-Finance and Chief Financial Officer. From 1987 to September 1995, Mr.
Link was Vice President-Finance and Chief Financial Officer of Hubbard
Construction Company, a heavy/highway construction company. Prior to joining
Hubbard Construction Company, Mr. Link was with Harris Corporation, an
electronics manufacturer, in various financial capacities from 1980 to 1987. Mr.
Link has an M.B.A. degree from the

39
<PAGE> 42

Wharton School at the University of Pennsylvania and a B.S. degree in Accounting
from the State University of New York at Buffalo. He is a Certified Public
Accountant.

Robert C. Strandberg has been a Director of the Company since October 1995.
Mr. Strandberg is Executive Vice President of PSC Inc., a manufacturer of bar
code readers since November 1996. From May 1996 to October 1996, he was
self-employed as a business consultant. From September 1991 to April 1996, Mr.
Strandberg was the Chairman of the Board of Directors, President and Chief
Executive Officer of Datamax International Corporation, a manufacturer of bar
code printers. From 1988 to 1991, he was Vice President-Finance of Datamax. From
1986 to 1988, he worked for GTECH, a lottery management company, in the areas of
finance and strategic planning. Mr. Strandberg has an M.B.A. degree from Harvard
Graduate School of Business Administration and a B.S. degree in Operations
Research and Industrial Engineering from Cornell University.

Bruce S. White has been a Director of the Company since April 1996. Mr.
White has been a Corporate Vice President of AVNET Inc., a distributor of
electronic components, since January 1996 and the President of the Penstock
Division of AVNET Inc. since July 1994. From 1974 to July 1994, Mr. White was
the President and Chief Executive Officer of Penstock Inc., a company he founded
to distribute RF and microwave components. Penstock is a distributor of certain
products manufactured by Sawtek. In fiscal 1996, sales from Sawtek to Penstock
were approximately $1.9 million. Mr. White has a B.A. degree in Mathematics from
Colgate University and B.S. and M.S. degrees in Electrical Engineering from
Michigan State University.

Willis C. Young has been a Director of the Company since February 1996. He
has been a Senior Partner of the Atlanta office of BDO Seidman, LLP, an
international accounting and consulting firm, since January 1996. From April
1995 to December 1995, Mr. Young was the Chief Financial Officer for Hayes
Microcomputer Products, Inc., a manufacturer of modems and communication
equipment, where he was engaged to assist in the implementation of Hayes'
restructuring in bankruptcy. From 1965 to March 1995, Mr. Young held various
positions with BDO Seidman, LLP, and from 1988 to March 1995 he was a Vice
Chairman and a member of the Executive Committee. Mr. Young has a B.S. degree in
Accounting from Ferris State University. He is a Certified Public Accountant.

Members of the Company's Board of Directors are each elected for one year
terms at the annual shareholders meeting. Officers are elected at the first
Board of Directors meeting following the shareholders meeting at which directors
are elected and serve at the discretion of the Board of Directors.

There are no family relationships between any of the Company's executive
officers or directors.

40
<PAGE> 43

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth the number and percentage of outstanding
shares of Common Stock beneficially owned (as defined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934) as of March 31, 1997 and after
completion of this offering by (i) all persons known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each Director of
the Company, (iii) each Executive Officer of the Company and (iv) all Directors
and Executive Officers as a group. Unless otherwise indicated, all persons
listed hold sole voting and investment power with respect to the shares listed
opposite their respective names.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERING SHARES TO OFFERING(1)
------------------- BE SOLD IN -------------------
NUMBER PERCENT THE OFFERING(1) NUMBER PERCENT
--------- ------- --------------- --------- -------
<S> <C> <C> <C> <C> <C>
5% SHAREHOLDERS:
Employee Stock Ownership Plan and Trust for
Employees of Sawtek Inc. (2).............. 9,811,259 48.18% 2,500,000 7,311,259 35.38%
Pilgrim Baxter & Associates, Ltd. (3)....... 1,139,700 5.60% -- 1,139,700 5.52%
1255 Drummers Lane, Suite 300
Wayne, PA 14087-1590
Nicholas Applegate Capital Management (3)... 1,113,800 5.47% -- 1,113,800 5.39%
600 W. Broadway, 29th Floor
San Diego, CA 92101
EXECUTIVE OFFICERS AND DIRECTORS:
Steven P. Miller (4)........................ 1,321,346 6.49% 100,000 1,221,346 5.91%
Neal J. Tolar (5)........................... 1,201,386 5.90% 100,000 1,101,386 5.33%
Gary A. Monetti (6)......................... 200,980 1.00% -- 200,980 *
Thomas L. Shoquist (7)...................... 80,340 * -- 80,340 *
Raymond A. Link (8)......................... 21,648 * -- 21,648 *
Robert C. Strandberg (9).................... 3,467 * -- 3,467 *
Bruce S. White (10)......................... 16,667 * -- 16,667 *
Willis C. Young (10)........................ 6,667 * -- 6,667 *
All directors and executive officers as a
group (8 persons) (See footnotes 4-10).... 2,852,501 14.01% 200,000 2,652,501 12.84%
</TABLE>

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

* Less than 1% of the outstanding Common Stock.

(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 450,000 shares of Common Stock from the selling
shareholders. Messrs. Miller, Tolar and Reece Porter, an employee of
Sawtek Inc. who owns less than 1% of the outstanding shares, have granted
the Underwriters an option for 30 days to purchase 450,000 shares of
Common Stock. The Trustee of the ESOP, pursuant to the direction of the
ESOP participants, may elect to sell ESOP shares in place of these
individuals. If the ESOP Trustee elects to take their place and if the
option is exercised in full, the total number of shares held by the ESOP
after the offering will be reduced to 6,876,259 (33.28%). If the ESOP
Trustee does not elect to take their place and if the option is exercised
in full, the total number of shares held by Messrs. Miller and Tolar after
the offering will be reduced to 1,003,846 (4.86%) and 883,886 (4.28%),
respectively. Mr. Porter has agreed to sell up to 15,000 shares if the
over-allotment option is exercised in full. Mr. Porter owns 100 shares
with an option to purchase 15,000 shares.

(2) Marine Midland Bank is the Trustee of the ESOP. These shares are held by
the ESOP as record owner. Includes 6,774,828 shares allocated to
participants' accounts and 3,036,431 shares not yet allocated to
participants' accounts. Subject to the Trustee's fiduciary obligations to
the ESOP participants, each ESOP participant controls the voting of shares
allocated to his or her account

41
<PAGE> 44

by instructing the Trustee how such shares shall be voted. The Trustee
controls the voting of all unallocated shares and shares not voted by the
ESOP participants. The plan governing the ESOP permits the Company to
elect, from time to time, to permit ESOP participants to direct the
Trustee to sell a portion of the shares of the Company's Common Stock
allocated to each ESOP participant.

(3) The Company has relied on information supplied by these entities on their
Schedules 13G filed with the Securities and Exchange Commission.

(4) Includes 406,323 shares held by Sawmill Investment Limited Partnership and
891,835 shares held by Via Capri Investment Limited Partnership of which
Mr. Miller has indirect voting control, and 23,188 shares held in trust
for his children. Excludes 206,400 shares owned by the ESOP but allocated
to his account.

(5) Includes 59,559 shares owned by his majority age children. Excludes
202,703 shares owned by the ESOP but allocated to his account. Includes
331,201 shares held by MOP Investment Limited Partnership and 810,626 held
by MOPNJ Investment Limited Partnership of which Dr. Tolar has indirect
voting control.

(6) Includes options to purchase 164,730 shares of Common Stock exercisable
within 60 days of March 31, 1997. Excludes 184,142 shares owned by the
ESOP but allocated to his account.

(7) Includes 80,340 shares held in the Thomas L. Shoquist Family Trust of
which Mr. Shoquist is a co-trustee. Excludes 202,047 shares owned by the
ESOP but allocated to his account.

(8) Includes options to purchase 15,000 shares of Common Stock exercisable
within 60 days of March 31, 1997. Excludes 15,842 shares owned by the ESOP
but allocated to his account.

(9) Includes options to purchase 2,667 shares of Common Stock exercisable
within 60 days of March 31, 1997.

(10) Includes options to purchase 6,667 shares of Common Stock exercisable
within 60 days of March 31, 1997.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is SunTrust Bank,
Central Florida, N.A.

42
<PAGE> 45

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters") through their Representatives,
Hambrecht & Quist LLC, Oppenheimer & Co., Inc. and Raymond James & Associates,
Inc. have severally agreed to purchase from the Company and the Selling
Shareholders the following respective number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
Oppenheimer & Co., Inc......................................
Raymond James & Associates, Inc.............................
---------
Total............................................. 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow
a concession not in excess of $ per share to certain other dealers.
After the public offering of the shares, the offering price and other selling
terms may be changed by the Representatives.

Certain Selling Shareholders have granted to the Underwriters an option,
exercisable no later than 30 days after the date of this Prospectus, to purchase
up to an aggregate of 450,000 additional shares of Common Stock at the public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise this option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total number of shares of
Common Stock offered hereby. The Selling Shareholders will be obligated,
pursuant to the option, to sell shares to the Underwriters to the extent the
option is exercised. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of shares of Common Stock
offered hereby.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company and certain Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.

Certain beneficial owners of shares of the Company, including the executive
officers, Directors and the Selling Shareholders, who will own in the aggregate
approximately 12,720,000 shares of Common Stock after the offering, have
executed Lock-Up Agreements under which these shareholders, except for the ESOP,
have agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock owned by them during the 90-day
period following the date of this Prospectus. The ESOP, which will hold
7,811,259 shares after this offering (assuming no exercise of the Underwriters'
over-allotment option), is subject to a Lock-Up Agreement except that the ESOP
may distribute shares

43
<PAGE> 46

without the lock-up restriction upon the death, retirement or disability of a
participant or, after August 15, 1997, for "in-service" distributions to
participants. The Company estimates that up to 100,000 shares could be issued as
in-service distributions during the remainder of the fiscal year. The Lock-Up
Agreements provide that Hambrecht & Quist LLC may, in its sole discretion and at
any time without notice to the Company's shareholders or the public market,
release all or a portion of the shares subject to the Lock-Up Agreements. The
Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities exchangeable for or
convertible into Common Stock during the 90-day period following the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its stock option and employee stock
purchase plans and under currently outstanding options. Sales of such shares in
the future could adversely affect the market price of the Common Stock.

In general, the rules of the Securities and Exchange Commission (the
"Commission") will prohibit the Underwriters from making a market in the
Company's Common Stock during the "cooling-off" period immediately preceding the
commencement of sales in this offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. These rules permit an Underwriter to continue to make a market
subject to the conditions, among others, that its bid not exceed the highest bid
by a market maker not connected with this offering and that its net purchases on
any one trading day not exceed prescribed limits. Pursuant to these exemptions,
certain Underwriters, selling group members (if any) or their respective
affiliates intend to engage in passive market making in the Common Stock during
the "cooling-off" period.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company by Gray,
Harris & Robinson, P.A., Orlando, Florida. William A. Grimm, a shareholder in
Gray, Harris & Robinson, P.A. and Secretary of the Company has an option to
purchase 30,000 shares of Common Stock at $11.05 per share. Certain legal
matters will be passed upon for the Underwriters by Cooley Godward LLP, Palo
Alto, California. Cooley Godward LLP may rely upon Gray, Harris & Robinson, P.A.
with respect to the laws of Florida.

EXPERTS

The consolidated financial statements of Sawtek at September 30, 1996 and
1995, and for each of the three years in the period ended September 30, 1996,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. The
report of Ernst & Young LLP on Sawtek's September 30, 1996 consolidated
financial statements refers to a change in accounting for ESOP shares.

44
<PAGE> 47

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at
prescribed rates. In addition, the Commission maintains a World Wide Web site
that contains reports, proxy statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov. The Company's Common Stock is
quoted for trading on the Nasdaq National Market and reports, proxy statements
and other information concerning the Company may also be inspected at the
offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Common Stock offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to 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 such
statement being qualified in all respects by such reference. The Registration
Statement, together with exhibits and schedules thereto, may be inspected at the
public reference facilities of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, without charge and copies of the material
contained therein may be obtained at prescribed rates from the Commission's
public reference facilities in Washington, D.C.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents or portions of documents filed by the Company with
the Commission (File No. 0-28276) are incorporated herein by reference: (1) the
Company's Annual Report on Form 10-K for the year ended September 30, 1996,
including information from the Company's Proxy Statement for 1997 incorporated
therein, (2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1996 and March 31, 1997, (3) the description of the Company's
Common Stock contained in the Company's Registration Statement on Form 8-A,
effective as of April 29, 1996, including any amendment or report filed for the
purpose of updating such description, and (4) the Company's Form 8-K filed on
March 24, 1997.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents.

Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in this Prospectus modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.

45
<PAGE> 48

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference, other than
exhibits to such documents (unless such exhibits are specifically incorporated
by reference into the document). Requests for copies should be directed to
Raymond A. Link, Vice President and Chief Financial Officer, Sawtek Inc., 1818
South Highway 441, Apopka, Florida 32703, telephone (407) 886-8860.

46
<PAGE> 49

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income (Loss).................... F-4
Consolidated Statements of Non-Redeemable Shareholders'
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 50

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Shareholders
Sawtek Inc. and subsidiaries

We have audited the accompanying consolidated balance sheets of Sawtek Inc.
and subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements of income (loss), non-redeemable shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Sawtek Inc. and subsidiaries at September 30, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.

As discussed in Note 2 to the financial statements, effective October 1,
1994, the Company adopted the provisions of Statement of Position 93-6,
Employers' Accounting for Employee Stock Ownership Plans.

ERNST & YOUNG LLP

Orlando, Florida
October 25, 1996

F-2
<PAGE> 51

SAWTEK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ MARCH 31,
1995 1996 1997
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,819 $27,743 $35,714
Accounts receivable net of allowance for doubtful accounts
and returns of $277 at September 30, 1995, $654 at
September 30, 1996 and $875 at March 31, 1997.......... 5,253 7,938 7,653
Inventories............................................... 3,242 6,509 7,094
Deferred income taxes..................................... 460 1,266 1,237
Other current assets...................................... 129 528 716
-------- ------- -------
Total current assets.............................. 11,903 43,984 52,414
Other assets................................................ 273 186 142
Deferred income taxes....................................... 210
Property, plant and equipment, net.......................... 10,738 30,424 36,780
-------- ------- -------
Total assets...................................... $ 23,124 $74,594 $89,336
======== ======= =======

LIABILITIES AND NON-REDEEMABLE SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 778 $ 1,801 $ 1,874
Accrued wages and benefits................................ 2,434 3,109 2,286
Other accrued liabilities................................. 334 1,068 1,670
Current maturities of long-term debt...................... 543 1,363 1,251
Income taxes payable...................................... 714 844 2,631
-------- ------- -------
Total current liabilities......................... 4,803 8,185 9,712
Long-term debt, less current maturities..................... 6,805 3,786 3,262
Deferred income taxes....................................... 998 4,089
Redeemable ESOP common stock................................ 35,144
Unearned ESOP compensation.................................. (3,023)
-------- ------- -------
Total redeemable ESOP common stock................ 32,121
Non-redeemable shareholders' equity:
6% cumulative preferred stock, $2 stated value; 150,000
shares authorized, issued and outstanding at September
30, 1995............................................... 300
Common stock; $.0005 par value; 120,000,000 authorized
shares; issued and outstanding shares 5,245,000 at
September 30, 1995; 19,854,102 at September 30, 1996;
and 20,362,566 at March 31, 1997....................... 3 10 10
Capital surplus............................................. 1,885 53,000 54,207
Unearned ESOP compensation.................................. (1,367) (1,171)
Retained earnings (deficit)................................. (22,793) 9,982 19,227
-------- ------- -------
Total non-redeemable shareholders' equity......... (20,605) 61,625 72,273
-------- ------- -------
Total liabilities and non-redeemable shareholders'
equity.......................................... $ 23,124 $74,594 $89,336
======== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 52

SAWTEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $19,139 $31,317 $57,664 $24,738 $38,511
Cost of sales.................................... 8,815 13,084 27,262 11,604 16,991
------- ------- ------- ------- -------
Gross profit..................................... 10,324 18,233 30,402 13,134 21,520
Operating expenses:
Selling expenses............................... 2,689 3,139 3,947 1,571 2,396
General and administrative expenses............ 3,283 3,440 5,791 2,649 2,920
ESOP compensation expense...................... 610 782 12,925 11,079 392
Research and development expenses.............. 1,116 1,669 1,954 904 1,593
------- ------- ------- ------- -------
Total operating expenses............... 7,698 9,030 24,617 16,203 7,301
------- ------- ------- ------- -------
Operating income (loss).......................... 2,626 9,203 5,785 (3,069) 14,219
Interest expense................................. 302 435 245 225 111
Other income..................................... (55) (291) (634) (20) (808)
------- ------- ------- ------- -------
Income (loss) before taxes....................... 2,379 9,059 6,174 (3,274) 14,916
Income taxes..................................... 894 3,390 6,514 2,355 5,671
------- ------- ------- ------- -------
Net income (loss)................................ $ 1,485 $ 5,669 $ (340) $(5,629) $ 9,245
======= ======= ======= ======= =======
Net income (loss) per share...................... $ 0.08 $ 0.34 $ (0.02) $ (0.31) $ 0.43
======= ======= ======= ======= =======
Shares used in per share calculations............ 18,142 16,529 19,246 18,140 21,363
======= ======= ======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 53

SAWTEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NON-REDEEMABLE SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
6% CUMULATIVE
PREFERRED STOCK COMMON STOCK UNEARNED RETAINED
--------------- --------------- CAPITAL ESOP EARNINGS
SHARES AMOUNT SHARES AMOUNT SURPLUS COMPENSATION (DEFICIT)
------ ------ ------ ------ ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1993.................. 150 $ 300 7,927 $ 4 $ 332 $ (1,734)
Net income................................ 1,485
Sale of common stock...................... 201 22
Purchase of common stock.................. (2,786) (1) (659) (1,095)
Market value adjustment to redeemable ESOP
common stock............................ (5,306)
Stock option compensation................. 1,010
Preferred stock dividends................. (18)
---- ----- ------ --- ------- ------- --------
Balance at September 30, 1994............... 150 300 5,342 3 705 (6,668)
Net income................................ 5,669
Sale of common stock...................... 330 52
Purchase of common stock.................. (427) (101) (478)
Market value adjustment to redeemable ESOP
common stock............................ (21,298)
Stock option compensation................. 1,229
Preferred stock dividends................. (18)
---- ----- ------ --- ------- ------- --------
Balance at September 30, 1995............... 150 300 5,245 3 1,885 (22,793)
Net loss.................................. (340)
Reclassification of redeemable ESOP common
stock in connection with initial public
offering................................ 9,843 5 1,851 (3,023) 33,287
ESOP allocation........................... 11,269 1,656
Sale of common stock in the initial public
offering................................ 3,000 2 35,218
Sale of common stock other than in the
initial public offering................. 1,813 382
Purchase of common stock.................. (56) (21) (145)
Compensatory stock option tax benefit..... 2,021
Stock option compensation................. 195
Preferred stock dividends................. (27)
Redemption of preferred stock............. (150) (300) 9 200
---- ----- ------ --- ------- ------- --------
Balance at September 30, 1996............... -- -- 19,854 10 53,000 (1,367) 9,982
Net income................................ 9,245
Sale of common stock...................... 509 654
Compensatory stock options granted........ 553
ESOP allocation........................... 196
---- ----- ------ --- ------- ------- --------
Balance at March 31, 1997 (unaudited)....... -- $ -- 20,363 $10 $54,207 $(1,171) $ 19,227
==== ===== ====== === ======= ======= ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 54

SAWTEK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)........................... $ 1,485 $ 5,669 $ (340) $ (5,629) $ 9,245
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............. 601 790 2,141 732 1,800
Deferred income taxes..................... (284) (415) 402 34 3,120
ESOP allocation........................... 610 782 12,925 11,079 196
Stock option compensation................. 1,010 1,229 195 553
Loss on sale of fixed assets.............. 269
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable....................... 782 (2,434) (2,685) 518 285
Inventories............................... 184 (1,494) (3,267) (2,025) (585)
Other current assets...................... 11 (17) (399) (390) (187)
Increase (decrease) in liabilities:
Accounts payable.......................... (178) 435 1,023 1,422 73
Accrued liabilities....................... (483) 1,522 1,409 (635) (221)
Income taxes payable...................... (126) 709 2,151 16 1,787
------- ------- -------- -------- -------
Net cash provided by operating activities... 3,612 6,776 13,555 5,122 16,335
Investing activities:
Purchase of property, plant and
equipment.............................. (1,003) (5,551) (24,347) (15,254) (8,436)
Increase in Industrial Revenue Bond
assets................................. (3,574) (48)
Reduction in Industrial Revenue Bond
assets................................. 968 2,654 2,606
Industrial Revenue Bond acquisition
costs.................................. (87)
ESOP acquisition costs.................... (85)
Proceeds from sales of fixed assets....... 54
------- ------- -------- -------- -------
Net cash used in investing activities....... (1,088) (8,244) (21,741) (12,648) (8,382)
Financing activities:
Proceeds from long-term debt.............. 2,405 3,500 8,200 8,200
Principal payments on long-term debt...... (1,720) (1,409) (10,399) (3,128) (636)
Sale of common stock...................... 1,678 52 35,602 358 654
Increase in unearned ESOP compensation
expense................................ (1,656)
Purchase of common stock.................. (2,247) (513) (166) (191)
Redemption of preferred stock............. (100) (100)
Preferred stock dividends paid............ (18) (18) (27) (27)
------- ------- -------- -------- -------
Net cash provided by (used in) financing
activities................................ (1,558) 1,612 33,110 5,112 18
------- ------- -------- -------- -------
Increase (decrease) in cash and cash
equivalents............................... 966 144 24,924 (2,414) 7,971
Cash and cash equivalents at beginning of
period.................................... 1,709 2,675 2,819 2,819 27,743
------- ------- -------- -------- -------
Cash and cash equivalents at end of
period.................................... $ 2,675 $ 2,819 $ 27,743 $ 405 $35,714
======= ======= ======== ======== =======
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 55

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of March 31, 1997 and for the six months ended
March 31, 1996 and 1997 is unaudited)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business. Sawtek Inc. and subsidiaries (the "Company")
produces surface acoustic wave devices for both low and high volume programs in
communications, cellular telephones, modems, wireless data transmission, radar,
electronic warfare, cable television, security systems, and other signal
processing applications. In addition to providing technical assistance for new
design and production requirements, the Company offers many custom and standard
bandpass filters, voltage controlled oscillators and other products.

Initial Public Offering. The Company completed an initial public offering
("IPO") in May 1996, whereby 3,000,000 shares of common stock, par value $.0005
per share were issued and sold at $13 per share. The Company raised a net amount
of $35,220,000 which was used for debt repayment, capital expenditures, working
capital and other general corporate purposes.

Prior to the IPO, the Company effected a twenty-for-one stock split of
issued and outstanding common shares and changed the authorized number of shares
to 40,000,000 shares of common stock. All share, per share, ESOP, and stock
option information in the accompanying financial statements has been restated to
reflect the split and change in authorized shares. Also, prior to the IPO the
Company redeemed the 6% cumulative preferred stock for $100,000 and 9,087 shares
of common stock.

Basis of Presentation. The consolidated financial statements include the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated. The Company's fiscal year ends on
September 30 of each year, but its fiscal quarters end on the Sunday nearest the
close of a quarter. For convenience, the accompanying financial statements
reflect the end of the fiscal quarter as the last day of that fiscal quarter.

Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Interim Financial Information. The consolidated financial statements as of
March 31, 1997 and for the six months ended March 31, 1996 and 1997 are
unaudited but reflect all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of management, necessary for a fair
presentation of financial position and results of operations. Operating results
for the six months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1997.

Cash Equivalents. The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents. The
Company's cash and cash equivalents are primarily cash equivalents carried at
cost and consist of repurchase agreements, high grade commercial paper, and U.S.
government agency securities.

Accounts Receivable. Potential credit losses are recognized as they are
identified and are reported as an increase to sales expenses. Concentrations of
credit risk with respect to the receivables are limited due to the large number
of customers, generally short payment terms and their dispersion across
geographic areas and markets.

Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market. Cost includes materials, direct labor and
manufacturing overhead. Market is defined principally as net realizable value.

F-7
<PAGE> 56

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Property, Plant and Equipment. Property, plant and equipment is valued at
cost less accumulated depreciation computed using the straight line method.

The estimated useful lives used in computing depreciation expense are as
follows:

<TABLE>
<S> <C>
Building and Improvements................................... 10 - 30 years
Production and Test Equipment............................... 4 - 8 years
Computer Equipment.......................................... 4 - 8 years
Furniture and Fixtures...................................... 5 - 10 years
</TABLE>

Expenditures for maintenance, repairs and renewals of minor items are
expensed as incurred. Major renewals and improvements are capitalized. Upon
disposition, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is reflected in operations for the
period.

Unexpended funds from the Industrial Revenue Bond include restricted cash
balances and cash equivalents which represent the unexpended proceeds from
industrial revenue bond obligations which were committed to purchase additional
plant and equipment.

Intangibles. Various fees incurred in the acquisition of two Industrial
Revenue Bonds and a line of credit were capitalized and are being amortized
using the interest method over the lives of the agreements. Various fees
incurred in the establishment of an Employee Stock Ownership Plan were also
capitalized and are being amortized using the interest method over the lives of
the related debt.

Earnings per Share. Earnings per share ("EPS") is computed based on the
weighted average number of common shares, common stock options (using the
treasury stock method) and all ESOP shares outstanding. Certain shares
considered outstanding for EPS purposes in 1994 were no longer considered
outstanding in 1995 due to the implementation of SOP 93-6. See Notes 2 and 10.
The weighted average number of those shares was 603,975 for 1994 and 1,610,100
for 1995. These shares were considered outstanding for EPS purposes for 1996 and
for the six months ended March 31, 1996 since they were committed to be released
in 1996. In accordance with Securities and Exchange Commission staff accounting
bulletins, common and common equivalent shares issued by the Company at prices
below the public offering price during the period beginning one year prior to
the filing date of the initial public offering have been included in the
calculation as if they were outstanding for all periods prior to the offering
(using the treasury stock method and the initial public offering price).

Revenue Recognition. Revenues from production contracts are recorded when
the product is completed and shipped. Revenues from non-recurring engineering
("NRE") are recognized when the parts or services have been completed and units,
including prototypes, have been shipped. Revenues from NRE are less than 10% of
total net sales for the periods reported.

Income Taxes. The provision for income taxes includes Federal and State
taxes currently payable and deferred taxes arising from temporary differences
between income for financial and tax reporting purposes. These temporary
differences result principally from the use of accelerated methods of
depreciation for tax purposes, the provisions for losses on inventories and
accounts receivable, and the accounting for stock compensation. Research and
development tax credits are applied as a reduction to the provision for income
taxes in the year in which they are utilized.

Stock-Based Compensation. The Company accounts for compensation cost
related to employee stock options and other forms of employee stock-based
compensation plans other than the ESOP in accordance with the requirements of
Accounting Principles Board Opinion 25 ("APB 25"). APB 25 requires compensation
cost for stock-based compensation plans to be recognized based on the
difference, if any, between the fair market value of the stock on the date of
grant and the option exercise price. In October 1995, the Financial Accounting
Standards Board ("FASB") issued Statement

F-8
<PAGE> 57

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 established a fair value-based method of
accounting for compensation cost related to stock options and other forms of
stock-based compensation plans. However, SFAS 123 allows an entity to continue
to measure compensation costs using the principles of APB 25 if certain pro
forma disclosures are made. SFAS 123 is effective for fiscal years beginning
after December 15, 1995. The Company intends to adopt the provisions for pro
forma disclosure requirements of SFAS 123 in fiscal 1997. Such pro forma
disclosures do not impact the financial condition or the operating results of
the Company.

SFAS No. 128, "Earnings per Share." In February 1997, the FASB issued SFAS
No. 128, "Earnings Per Share," which is effective for financial statements
issued for periods ending after December 15, 1997. This pronouncement
establishes standards for computing and presenting earnings per share (EPS) for
entities with publicly-held common stock or potential common stock. SFAS 128
simplifies the standards for computing EPS and makes them comparable to
international EPS standards. Early application of this statement is not
permitted. The Company intends to adopt the provisions of SFAS 128 in 1998 and
does not expect their application to have a material impact on the financial
statements of the Company.

Reclassifications. Certain amounts in prior years have been reclassified
to conform to current year presentation.

NOTE 2 -- ACCOUNTING CHANGE

Effective October 1, 1994, the Company adopted, as required, Statement of
Position (SOP) 93-6 of the Accounting Standards Division of the American
Institute of Certified Public Accountants in accounting for ESOP shares acquired
after December 31, 1992. This change requires that compensation expense be
measured using the fair market value rather than the cost of the shares when the
shares are committed to be released to the employees. The Company elected to
continue accounting for ESOP shares acquired prior to January 1, 1993, in
accordance with Statement of Position 76-3. Since no shares accounted for under
SOP 93-6 were committed to be released during fiscal 1995, there was no effect
on net income for the year for this accounting change. The effect of the
adoption was to reduce net income by $11,269,000 ($0.59 per share) for fiscal
1996.

NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS

The allowance for doubtful accounts and sales returns is composed of the
following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- MARCH 31,
1994 1995 1996 1997
----- ----- ----- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period......................... $ 103 $ 88 $ 277 $ 654
Provision for doubtful accounts and sales returns.... 326 364 820 718
Sales returns and uncollectible accounts written
off................................................ (341) (175) (443) (497)
----- ----- ----- -----
Balance, end of period............................... $ 88 $ 277 $ 654 $ 875
===== ===== ===== =====
</TABLE>

F-9
<PAGE> 58

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- INVENTORIES

Inventories are composed of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1995 1996 1997
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw Material............................................ $1,454 $1,976 $2,401
Work in Progress........................................ 1,359 2,341 2,058
Finished Goods.......................................... 429 2,192 2,635
------ ------ ------
Total......................................... $3,242 $6,509 $7,094
====== ====== ======
</TABLE>

The allowance for obsolete and slow moving inventory is composed of the
following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- MARCH 31,
1994 1995 1996 1997
----- ---- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance, beginning of period.................... $ 796 $680 $ 887 $1,705
Charged to cost of sales........................ 52 245 931 251
Disposal of inventory........................... (168) (38) (113) (25)
----- ---- ------ ------
Balance, end of period.......................... $ 680 $887 $1,705 $1,931
===== ==== ====== ======
</TABLE>

NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are composed of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ MARCH 31,
1995 1996 1997
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and Improvements................................ $ 523 $ 671 $ 671
Buildings............................................ 1,959 9,829 9,566
Production and Test Equipment........................ 9,291 21,459 26,478
Computer Equipment................................... 2,140 2,734 2,803
Furniture and Fixtures............................... 877 1,533 1,569
Construction in Progress............................. 1,879 4,774 7,505
------- ------- -------
16,669 41,000 48,592
Less Accumulated Depreciation........................ 8,537 10,576 11,812
------- ------- -------
8,132 30,424 36,780
Unexpended Funds from Industrial Revenue Bond........ 2,606 -- --
------- ------- -------
Total...................................... $10,738 $30,424 $36,780
======= ======= =======
</TABLE>

Approximately $18,000, $82,000 and $380,000 of interest costs were
capitalized as part of property, plant and equipment in 1994, 1995 and 1996,
respectively.

NOTE 6 -- LINE OF CREDIT

The Company has a line of credit with a bank for working capital, equipment
purchases, plant expansion and other general business purposes of $15,000,000
with interest at LIBOR plus 125 basis points. The line of credit is unsecured
and renewable annually. Covenants in connection with the line of credit and with
long-term debt agreements impose restrictions with respect to, among other
things,

F-10
<PAGE> 59

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the maintenance of certain financial ratios, additional indebtedness and
disposition of assets. The Company was in compliance with the covenants as of
September 30, 1996 and March 31, 1997.

There were no borrowings against the line of credit at September 30, 1995.
In 1996, the Company borrowed $7,000,000 and repaid all of this with a portion
of the proceeds from the IPO.

NOTE 7 -- LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1995 1996 1997
------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Industrial Revenue Bond (a)............................ $ 658 $ 593 $ 549
ESOP Note (b).......................................... 1,367 1,367 1,171
Industrial Revenue Bond (c)............................ 3,323 2,970 2,793
ESOP Note (d).......................................... 1,656 -- --
Term Loan (e).......................................... 344 219 --
------ ------ ------
7,348 5,149 4,513
Less Current Maturities................................ 543 1,363 1,251
------ ------ ------
$6,805 $3,786 $3,262
====== ====== ======
</TABLE>

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

(a) In 1982, the Company obtained $1,800,000 in financing through the Orange
County Industrial Development Authority. The obligation is secured by land
and land improvements, the building and related equipment with a carrying
value of approximately $865,000 at September 30, 1995 and $823,000 at
September 30, 1996, and $802,000 at March 31, 1997. The obligation is
payable in varying quarterly installments through 2001 plus interest at 68%
of the prime rate.

(b) In 1991, the Company established an Employee Stock Ownership Plan (ESOP).
The Company borrowed $4,000,000 from a bank and loaned it to the ESOP. The
remaining obligation is payable in quarterly installments of $195,521 plus
interest at the prime rate through June 1998. The Company will service the
debt through contributions to the Plan.

(c) In 1995, the Company obtained $3,500,000 in financing through the Orange
County Industrial Development Authority. The obligation is secured by a
building expansion and related equipment with a carrying value of
approximately $2,914,000 at September 30, 1995 and $7,939,000 at September
30, 1996 and $7,772,000 at March 31, 1997. In addition, there were
approximately $2,606,000 in unexpended funds at September 30, 1995. The
obligation is payable in quarterly installments of $88,334 through March
2000, then in quarterly installments of $43,334 through March 2010, both
plus interest at LIBOR plus 150 basis points.

(d) In 1994, the Company borrowed $1,656,000 from a bank and loaned it to the
ESOP which used the proceeds to purchase Common Stock from the Company. The
Company repaid this loan in early 1996 through a draw on the line of
credit.

(e) The term loan is payable in quarterly installments of $31,250 with interest
at the prime rate. It was repaid in 1997.

The Company leases equipment under a noncancelable agreement that expires
in 1998. Rental expense was approximately $10,000, $168,000 and $481,000 in
1994, 1995 and 1996, respectively, and $214,000 and $232,000 for the six months
ended March 31, 1996 and 1997, respectively.

F-11
<PAGE> 60

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Required future payments for long-term debt and operating leases are as
follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 MARCH 31, 1997
---------------- ----------------
DEBT LEASES DEBT LEASES
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997........................................... $1,363 $389 $ 625 $195
1998........................................... 1,147 317 1,249 317
1999........................................... 469 33 469 33
2000........................................... 379 7 379 7
2001........................................... 288 -- 288 --
Thereafter..................................... 1,503 -- 1,503 --
------ ---- ------ ----
$5,149 $746 $4,513 $552
====== ==== ====== ====
</TABLE>

The Company made interest payments of approximately $394,000, $456,000 and
$550,000 on long-term debt in 1994, 1995 and 1996, respectively, and
approximately $289,000 and $169,000 for the six months ended March 31, 1996 and
1997, respectively.

The fair value of the Company's long-term debt approximates the carrying
amount.

NOTE 8 -- COMMON STOCK

The ESOP owns an aggregate of 9,896,540 and 9,824,634 shares of the
Company's Common Stock at September 30, 1995 and 1996, respectively. At
September 30, 1995, these shares were redeemable under certain circumstances by
former employees at the fair market value of the Common Stock and were
classified apart from non-redeemable shareholders' equity. After completion of
the IPO, these shares were no longer redeemable. Accordingly, at September 30,
1996 these shares are classified as part of non-redeemable shareholders' equity.

Increase in authorized shares. In March 1997 the shareholders approved an
amendment to the Company's Articles of Incorporation to increase the authorized
shares of Common Stock from 40,000,000 shares to 120,000,000 shares. The
accompanying financial statements have been restated to reflect the change in
authorized shares.

NOTE 9 -- INCOME TAXES

The income tax provision is composed of the following:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal..................................... $1,002 $3,263 $5,176 $1,982 $2,182
State....................................... 176 542 936 339 369
------ ------ ------ ------ ------
1,178 3,805 6,112 2,321 2,551
Deferred:
Federal..................................... (242) (354) 343 20 2,668
State....................................... (42) (61) 59 5 452
------ ------ ------ ------ ------
(284) (415) 402 34 3,120
------ ------ ------ ------ ------
Total Income Tax Provision.......... $ 894 $3,390 $6,514 $2,355 $5,671
====== ====== ====== ====== ======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax

F-12
<PAGE> 61

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purposes. The tax effects of significant temporary differences giving rise to
year-end deferred tax balances were as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- MARCH 31,
1995 1996 1997
----- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Accruals not currently deductible.................. $ 94 $ 475 $ 317
Inventory costs capitalized for tax purposes....... 64 210 209
Inventory loss provision........................... 302 581 711
----- ------- -------
Deferred Tax Asset......................... $ 460 $ 1,266 $ 1,237
===== ======= =======
Non-Current:
Stock option compensation not currently
deductible...................................... $ 805 $ 568 $ 712
Earnings of subsidiary not currently taxed......... -- (328) (3,017)
Excess tax over book depreciation.................. (595) (1,238) (1,784)
----- ------- -------
Deferred Tax Asset (Liability)............. $ 210 $ (998) $(4,089)
===== ======= =======
</TABLE>

A reconciliation of statutory Federal income taxes to reported income taxes
is as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
---------------------- ----------------
1994 1995 1996 1996 1997
---- ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income taxes computed at the Federal statutory
rate of 34% (35% in 1996 and 1997)........... $809 $3,080 $2,161 $(1,113) $5,220
State income taxes, net of Federal benefit..... 86 329 646 (119) 533
Non-deductible ESOP compensation expense....... -- -- 3,944 3,635 --
Foreign Sales Corporation tax benefit.......... -- -- (200) -- (100)
Other.......................................... (1) (19) (37) (48) 18
---- ------ ------ ------- ------
Total Income Tax Provision........... $894 $3,390 $6,514 $ 2,355 $5,671
==== ====== ====== ======= ======
</TABLE>

In 1996, the Company's tax liability was reduced and its capital surplus
was increased by $2,021,000 as a result of the exercise of non-qualified stock
options.

The Company made income tax payments of approximately $1,300,000,
$3,105,000 and $3,959,000 in 1994, 1995 and 1996, respectively, and $2,660,000
and $765,000 for the six months ended March 31, 1996 and 1997, respectively.

The Company provides for deferred taxes on the non-repatriated earnings of
its subsidiary in Costa Rica. The subsidiary benefits from a complete exemption
from Costa Rican income taxes through 2003 and a 50% exemption thereafter
through 2007.

NOTE 10 -- EMPLOYEE BENEFIT PLANS

Profit Sharing Plan. In 1981, the Company established a profit sharing
plan covering substantially all employees who work 500 hours or more per year. A
401(k) feature was added to the plan in 1991. There were no contributions by the
Company to the plan in 1994, 1995 or 1996.

Employee Stock Ownership Plan. In 1991, the Company established an
Employee Stock Ownership Plan covering substantially all employees. The ESOP
purchased 3,376,640 shares of Common Stock

F-13
<PAGE> 62

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

from substantially all of the common shareholders and 5,512,240 shares of Common
Stock from the Company in 1991. The transaction was financed from the proceeds
of a $4,000,000 loan from a bank. The Company accounts for these ESOP shares in
accordance with Statement of Position 76-3. As of September 30, 1996, 3,036,431
of these shares remain unallocated. In 1994, the ESOP purchased an additional
1,610,600 shares of Common Stock from the Company. The transaction was financed
from the proceeds of a $1,656,000 loan from a bank. The Company accounts for
these ESOP shares in accordance with Statement of Position 93-6. In accordance
with the terms described in Note 7, the Company makes contributions to service
the related ESOP debt. The ESOP shares pledged as collateral for the debt are
reported as unearned ESOP compensation in the balance sheet. As the debt is
repaid, shares are released from collateral and allocated (earned) to active
employees, based on the proportion of debt service paid during the year. As
those shares accounted for in accordance with Statement of Position 93-6 are
committed to be released to participants, the Company reports compensation
expense equal to the current estimated value of the shares, and the shares
become outstanding for earnings-per-share (EPS) computation.

In April 1996, the Company amended the ESOP and allocated the ESOP's
1,610,600 shares of Common Stock of the Company acquired in 1994 to participants
in the period October 1, 1995 to April 28, 1996. As these shares are accounted
for in accordance with SOP 93-6, the Company recorded a charge to operating
income of approximately $12,925,000 for 1996. For the six months ended March 31,
1996, this charge equalled $11,079,000. The charge for the six months ended
March 31, 1997 was $392,000 as these shares are accounted for in accordance with
SOP 76-3, which uses cost as the basis of valuing the shares.

The Company made payments of approximately $556,000, $836,000 and
$1,656,000 in principal and $210,000, $259,000 and $127,000 in interest for the
ESOP in 1994, 1995 and 1996, respectively. The Company made payments of
approximately $1,656,000 and $196,000 in principal and $78,000 and $47,000 in
interest for the ESOP for the six months ended March 31, 1996 and 1997,
respectively. Allocations to participants' accounts were 1,354,540; 1,737,960
and 1,610,600 shares in 1994, 1995 and 1996, respectively.

Employee Stock Purchase Plan. In February 1996, the Board of Directors
approved an employee stock purchase plan and allotted 500,000 shares of common
stock to the plan. The plan enables eligible employees who have completed a
service requirement to purchase shares of common stock at a 15% discount from
the fair market value of the stock, up to a maximum of 10% of their
compensation. The plan commenced with the IPO.

F-14
<PAGE> 63

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- SIGNIFICANT CUSTOMERS

Sales to the United States government (both as a prime contractor and on a
subcontract basis), to foreign markets and to significant customers as a percent
of the Company's total revenues were as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------------- ------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Government (Inclusive of Significant
Customers).................................. 33% 17% 15% 13% 12%
Foreign Markets (Inclusive of Significant
Customers and European Market).............. 40% 49% 54% 53% 42%
European Market............................... 22% 36% 38% 43% 22%
Significant Customer A........................ 8% 23% 24% 33% 13%
Significant Customer B........................ 2% 10% 11% 18% 14%
</TABLE>

NOTE 12 -- GEOGRAPHIC SEGMENTS

Sales are reported in the geographic area where they originate. Transfers
from the U.S. to Costa Rica are made on a basis intended to reflect the market
of the products. Prior to 1996, all sales, operating profit and assets were
attributable to the United States operation.

<TABLE>
<CAPTION>
YEAR ENDED BALANCE AT SIX MONTHS ENDED BALANCE AT
SEPTEMBER 30, 1996 SEPTEMBER 30, MARCH 31, 1997 MARCH 31,
------------------- 1996 ------------------- 1997
NET OPERATING ------------- NET OPERATING ----------
SALES INCOME ASSETS SALES INCOME ASSETS
------- --------- ------------- ------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United States............. $54,203 $4,680 $72,697 $28,947 $ 7,719 $80,521
Costa Rica................ 4,793 1,105 8,222 13,570 6,500 11,948
Eliminations.............. (1,332) -- (6,325) (4,006) -- (3,133)
------- ------ ------- ------- ------- -------
Consolidated Results...... $57,664 $5,785 $74,594 $38,511 $14,219 $89,336
======= ====== ======= ======= ======= =======
</TABLE>

All sales are denominated in U.S. dollars. The functional currency for the
Costa Rican operation is the U.S. dollar as sales, most material cost, and
equipment are U.S. dollar denominated. The currency fluctuations of the local
Costa Rican currency are not considered significant and are not hedged.

NOTE 13 -- STOCK OPTIONS

The Company has granted incentive stock options and non-qualified stock
options under the 1983 Stock Option Plan and the Second Stock Option Plan. The
Second Stock Option Plan was approved by the shareholders in 1996 with up to
2,000,000 shares of Common Stock available for options. Incentive options
granted are exercisable over a ten year period, generally in four equal annual
installments commencing one year after the date of grant. A majority of the
nonqualified options granted are exercisable from the date of grant over a ten
year period, while the remainder become exercisable in three or four equal
annual installments.

F-15
<PAGE> 64

SAWTEK INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information concerning options under this plan is as follows:

<TABLE>
<CAPTION>
SHARES UNDER OPTION OPTION PRICE
------------------- ---------------
<S> <C> <C>
Balance at October 1, 1993............................. 1,454,860 $ 0.13 - $ 0.74
Granted.............................................. 1,263,440 $ 0.13 - $ 0.79
Exercised............................................ (160,700) $ 0.13
----------
Balance at September 30, 1994.......................... 2,557,600 $ 0.13 - $ 0.79
Granted.............................................. 1,012,980 $ 0.13 - $ 1.34
Terminated........................................... (107,250) $ 0.51 - $ 0.74
Exercised............................................ (330,230) $ 0.13 - $ 0.79
----------
Balance at September 30, 1995.......................... 3,133,100 $ 0.13 - $ 1.34
Granted.............................................. 175,000 $ 3.55 - $24.75
Terminated........................................... (8,140) $ 0.74 - $ 1.34
Exercised............................................ (1,754,500) $ 0.13 - $ 1.34
----------
Balance at September 30, 1996.......................... 1,545,460 $ 0.13 - $24.75
Granted.............................................. 178,000 $11.05 - $30.63
Terminated........................................... (10,330) $ 0.74 - $24.75
Exercised............................................ (477,140) $ 0.13 - $ 3.55
----------
Balance at March 31, 1997.............................. 1,235,990 $ 0.13 - $30.63
==========
Exercisable at September 30, 1996...................... 564,960 $ 0.13 - $ 1.34
==========
Exercisable at March 31, 1997.......................... 297,991 $ 0.13 - $13.00
==========
</TABLE>

F-16
<PAGE> 65

[INSIDE BACK COVER]

[BLANK]
<PAGE> 66

============================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 11
Price Range of Common Stock............. 11
Dividend Policy......................... 11
Capitalization.......................... 12
Selected Consolidated Financial Data.... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 14
Business................................ 23
Management.............................. 39
Principal and Selling Shareholders...... 41
Transfer Agent and Registrar............ 42
Underwriting............................ 43
Legal Matters........................... 44
Experts................................. 44
Available Information................... 45
Incorporation of Certain Documents by
Reference............................. 45
Index to Consolidated Financial
Statements............................ F-1
</TABLE>

============================================================
============================================================

3,000,000 SHARES

SAWTEK LOGO
COMMON STOCK

-----------------------
PROSPECTUS
-----------------------

HAMBRECHT & QUIST

OPPENHEIMER & CO., INC.

RAYMOND JAMES & ASSOCIATES, INC.

, 1997

============================================================
<PAGE> 67

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:

<TABLE>
<CAPTION>
ESTIMATED
---------
<S> <C>
Securities and Exchange Commission Registration............. $ 27,000
NASD Filing Fee............................................. 15,000
Blue Sky Fee and Expenses (including attorney's fees and
expenses)................................................. 15,000
Printing and Engraving Expenses............................. 100,000
Transfer agent Fees and Expenses............................ 5,000
Accounting Fees and Expenses................................ 35,000
Legal Fees and Expenses..................................... 325,000
Miscellaneous Expense....................................... 78,000
--------
Total............................................. $600,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant, a Florida corporation, is empowered by Section 607.0850 of
the Florida Business Corporation Act, subject to the procedures and limitations
stated therein, to indemnify any person who was or is a party to any proceeding
(other than an action by, or in the right of, the corporation), by reason of the
fact that he is or was a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.

Section 607.0850 also empowers a Florida corporation to indemnify any
person who was or is a party to any proceeding by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses and amounts paid in settlement not exceeding, in
the judgment of the board of directors, the estimated expense of litigating the
proceeding to conclusion, actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof, if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudicated to be liable unless, and only to the
extent that, the court in which such proceeding was brought, or any other court
of competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. To the extent that a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any proceeding referred to above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.

The indemnification and advancement of expenses provided pursuant to
Section 607.0850 are not exclusive, and a corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, a director, officer, employee or agent is

II-1
<PAGE> 68

not entitled to indemnification or advancement of expenses if a judgment or
other final adjudication establishes that his action or omissions to act were
material to the cause of action so adjudicated and constitute (a) a violation of
the criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (b) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (c) in the case of a
director, a circumstance under which the liability provisions of Section
607.0834 of the Business Corporation Act, relating to a director's liability for
voting in favor of or asserting to an unlawful distribution, are applicable; or
(d) willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.

The Registrant's Articles of Incorporation provides that the Company shall
indemnify its officers and directors to the extent permitted by Section
607.0850.

Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act of 1933, as amended.

The Registrant maintains an insurance policy covering directors and
officers of the Registrant for the wrongful act for which they become legally
obligated to pay or for which the Registrant is required to indemnify its
directors or officers.

ITEM 16. EXHIBITS.

<TABLE>
<S> <C> <S>
1.1 -- Underwriting agreement.

3.1 -- Amended and Restated Articles of Incorporation of Sawtek
Inc. (incorporated by reference to Registration Statement on
Form S-8, File No. 333-10579).

3.11 -- Amendment to Articles of Incorporation of Sawtek Inc.
(incorporated by reference to Form 8-K, File No. 000-28276).

3.2 -- 1996 Bylaws of Sawtek Inc. (incorporated by reference to
Registration Statement on Form S-8, File No. 333-11523).

4.1* -- Specimen stock certificate.

5.1 -- Opinion regarding legality (previously filed).

11.1 -- Statement regarding computation of per share earnings
(previously filed).

21.1* -- List of subsidiaries of the Registrant.

23.1 -- Consent of Ernst & Young LLP.

24.1 -- Power of attorney (previously filed).

99.1 -- Amendment to Employee Stock Ownership Plan and Trust
Agreement for Employees of Sawtek Inc (previously filed).
</TABLE>

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

* Incorporated by reference to Registration Statement on Form S-1, File No.
333-1860.

ITEM 17. UNDERTAKINGS.

The Company hereby undertakes:

(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 upon Rule 430A and contained in
a form of Prospectus filed by the Registrant pursuant to

II-2
<PAGE> 69

Rule 424(b)(1) or (4) or 497(h) under the Securities Act 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 the
time shall be deemed to be the initial bona fide offering thereof.

The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 15 or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceedings) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company 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 and as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

II-3
<PAGE> 70

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Apopka, State of Florida, on the 30th
day of June, 1997.

SAWTEK INC.

By: /s/ STEVEN P. MILLER
------------------------------------
Steven P. Miller
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 30th day of June, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ NEAL J. TOLAR* Senior Vice President
- ----------------------------------------------------- and Director
Neal J. Tolar

/s/ ROBERT C. STRANDBERG* Director
- -----------------------------------------------------
Robert C. Strandberg

/s/ BRUCE S. WHITE* Director
- -----------------------------------------------------
Bruce S. White

/s/ STEVEN P. MILLER* Chairman, CEO
- ----------------------------------------------------- and Director
Steven P. Miller

/s/ WILLIS C. YOUNG* Director
- -----------------------------------------------------
Willis C. Young

By: /s/ RAYMOND A. LINK
------------------------------------------------
Raymond A. Link
Vice President -- Finance and
Chief Financial Officer

By: /s/ RONALD A. STRIBLING
------------------------------------------------
Ronald A. Stribling
Controller and Chief Accounting Officer

*By: /s/ RAYMOND A. LINK
-----------------------------------------------
Raymond A. Link
Attorney-in-fact
</TABLE>

II-4

<PAGE> 1
EXHIBIT 1.1

SAWTEK INC.

3,000,000 SHARES(1)

COMMON STOCK

UNDERWRITING AGREEMENT

June ___, 1997

HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
RAYMOND JAMES & ASSOCIATES, INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104

Ladies and Gentlemen:

Sawtek Inc., a Florida corporation (herein called the Company),
proposes to issue and sell 300,000 shares of its authorized but unissued Common
Stock, $.0005 par value (herein called the Common Stock), and the shareholders
of the Company named in Schedule II hereto (herein collectively called the
Selling Securityholders) propose to sell an aggregate of 2,700,000 shares of
Common Stock of the Company (said 3,000,000 shares of Common Stock being herein
called the Underwritten Stock). Certain of the Selling Securityholders, as set
forth on Schedule II, propose to grant to the Underwriters (as hereinafter
defined) an option to purchase up to 450,000 additional shares of Common Stock
(herein called the Option Stock and with the Underwritten Stock herein
collectively called the Stock). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.

The Company and the Selling Securityholders severally hereby confirm
the agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.

1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (herein called the Commission) a registration statement
on Form S-3 (No. 333-26747), including the related preliminary prospectus, for
the registration under the Securities Act of 1933, as amended (herein called
the Securities Act) of the Stock. Copies of such registration statement and of
each amendment thereto, if any, including the related preliminary prospectus
(meeting the requirements of Rule 430A of the rules and regulations of the
Commission) heretofore filed by the Company with the Commission have been
delivered to you.

- --------

(1) Plus an option to purchase from certain Selling Securityholders up to
450,000 additional shares to cover over-allotments.

<PAGE> 2

The term Registration Statement as used in this agreement shall mean
such registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred
to below, in the form in which it became effective, and any registration
statement filed pursuant to Rule 462(b) of the rules and regulations of the
Commission with respect to the Stock (herein called a Rule 462(b) registration
statement), and, in the event of any amendment thereto after the effective date
of such registration statement (herein called the Effective Date), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus, including
the documents incorporated by reference therein, relating to the Stock first
filed with the Commission pursuant to Rule 424(b) and Rule 430A (or if no such
filing is required, as included in the Registration Statement) and, in the
event of any supplement or amendment to such prospectus after the Effective
Date, shall also mean (from and after the filing with the Commission of such
supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus, including the documents
incorporated by reference therein, included in such registration statement
prior to the time it becomes effective.

The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SECURITYHOLDERS.

(a) The Company hereby represents and warrants as follows:

(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and
the Prospectus and as being conducted, and is duly qualified as a
foreign corporation and in good standing in all jurisdictions in which
the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where
the failure to be so qualified would not have a material adverse
effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole).

(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any materially adverse change in the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, other than as set
forth in the Registration Statement and the Prospectus, and since such
dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction
not referred to in the Registration Statement and the Prospectus.

(iii) The Registration Statement and the Prospectus comply,
and on the Closing Date (as hereinafter defined) and any later date on
which Option Stock is to be purchased, the Prospectus will comply, in
all material respects, with the provisions of the Securities Act and
the Securities Exchange Act of 1934, as amended (herein called the
Exchange Act), and the rules and regulations of the Commission
thereunder; on the Effective Date, the Registration Statement did not
contain any untrue statement of a material fact and did not omit to
state any material fact required to be stated

<PAGE> 3

therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on
the Closing Date and any later date on which Option Stock is to be
purchased, will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (iii) shall apply
to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
herein or otherwise furnished in writing to the Company by or on
behalf of the Underwriters for use in the Registration Statement or
the Prospectus.

(iv) The Company has filed all required tax returns and has
paid all taxes shown thereon as due, and there is no tax deficiency
that has been asserted against the Company that will have a material
adverse effect on the Company and its subsidiaries taken as a whole,
and all tax liabilities are adequately provided for on the books of
the Company.

(v) The Company's authorized, issued and outstanding
capitalization as of March 31, 1997 is as set forth under the caption
"Capitalization" in the Prospectus, and all of the outstanding shares
of such capital stock have been duly authorized and validly issued and
are fully paid and nonassessable. The Stock is duly and validly
authorized, is (or, in the case of shares of the Stock to be sold by
the Company, will be, when issued and sold to the Underwriters as
provided herein) duly and validly issued, fully paid and nonassessable
and conforms to the description thereof in the Prospectus. No further
approval or authority of the shareholders or the Board of Directors of
the Company will be required for the transfer and sale of the Stock to
be sold by the Selling Securityholders or the issuance and sale of the
Stock as contemplated herein. The holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
similar rights in connection with the purchase and sale of Stock
contemplated by this Agreement, and there are no restrictions upon the
voting or transfer of any of the capital stock of the Company pursuant
to the Company's Articles of Incorporation or Bylaws or any agreement
or other outstanding instrument to which the Company is a party or by
which it is bound. All of the issued and outstanding capital stock of
each of the subsidiaries of the Company has been duly authorized and
validly issued and is fully paid and nonassessable and is owned by the
Company free and clear of all liens, encumbrances and security
interests.

(vi) The Stock to be sold by the Selling Securityholders is
listed and duly admitted to trading on the Nasdaq National Market, and
prior to the Closing Date, the Stock to be issued and sold by the
Company will be authorized for listing by the Nasdaq National Market
upon official notice of issuance.

(vii) Except as set forth in the Prospectus, there are no
outstanding securities convertible into or exchangeable for, or
warrants, rights or options to purchase from the Company, or
obligations of the Company or any of its subsidiaries to issue, shares
of the Company's capital stock of the Company or any of its
subsidiaries.

(viii) None of (A) the issuance of the Stock, (B) the sale of
the Stock or (C) the consummation by the Company of any other of the
transactions contemplated herein, will conflict with or result in a
breach or violation of or constitute a default under or result in the
creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any of its subsidiaries
pursuant to the organization documents of the Company or its
subsidiaries, the terms of any indenture or other agreement or
instrument to which the Company or any of its subsidiaries is a party,
or any order or regulation applicable to the Company or any of its

<PAGE> 4

subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitration body having jurisdiction over the
Company or any of its subsidiaries, except where such conflicts,
breaches, violations, defaults, liens, charges or encumbrances would
not have a material adverse effect on the business, properties, or
consolidated financial condition or results of operations of the
Company and its subsidiaries taken as a whole.

(ix) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding obligation
of the Company enforceable in accordance with its terms.

(x) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made
all declarations and filings with, all governmental authorities, to
own, lease, license and use its properties and assets and to conduct
its business in the manner described in the Prospectus, except to the
extent that the failure to obtain or file such would not have a
material adverse effect on the Company.

(xi) No consent, approval, authorization or order of any
court or governmental agency, person or body, the Company's
shareholders, or pursuant to applicable law is required for the
consummation by the Company of the transactions contemplated herein,
except such as have been obtained or may be required under the blue
sky laws of any jurisdiction or by the National Association of
Securities Dealers, Inc. (herein called NASD) in connection with the
purchase of Stock and distribution of the Stock by the Underwriters
and such other approvals as have been obtained and which are in full
force and effect.

(xii) Ernst & Young LLP, which has audited the consolidated
financial statements of the Company included in the Registration
Statement, are independent public accountants within the meaning of
the Securities Act and the applicable rules and regulations
thereunder; the historical financial statements, together with the
related financial notes and schedules, included in the Registration
Statement and the Prospectus (herein call the Financial Information)
comply in all material respects with the requirements of the
Securities Act and fairly present in all material respects the
financial position, results of operations and cash flows of the
Company and its subsidiaries at the respective dates and for the
respective periods indicated. The Financial Information has been
prepared in accordance with generally accepted accounting principles
(herein call GAAP), applied on a consistent basis throughout all
periods specified and as presented in the Prospectus and as required
by the Securities Act or the rules and regulations thereunder to be
included in the Registration Statement and the Prospectus. No other
financial statements or schedules are required to be included in the
Registration Statement. The financial information and financial data
set forth in the Prospectus under the captions "Summary Consolidated
Financial Data," "Capitalization" and "Selected Consolidated Financial
Data" are derived from the accounting records of the Company and its
subsidiaries, and are a fair representation in all material respects
of the data purported to be shown in accordance with GAAP. Since the
respective dates as of which the information is given in the
Registration Statement and the Prospectus, there has not been a
material adverse change in the business, properties, financial
condition or results of operations of the Company and its subsidiaries
taken as a whole.

(xiii) There are no contracts, agreements or understandings
between the Company and person granting such person the right (other
than rights which have been waived or satisfied) to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to

<PAGE> 5

include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the
Securities Act.

(xiv) The Company carries, or is covered by, insurance in
such amounts and covering such risks as is adequate for the conduct of
it business and the value of its properties and as is customary for
companies engaged in similar businesses in similar industries.

(xv) The Company and its subsidiaries own or possess adequate
rights to use all material patents (or foreign equivalents), patent
applications, trademarks, trademark registrations, service marks,
service mark registrations, trade names, licenses, copyrights and
proprietary or other confidential information necessary for the
conduct of their respective businesses except such as the failure to
so own or possess would not have a material adverse effect on the
Company and its subsidiaries taken as a whole. To the Company's
knowledge, the conduct of business of the Company and its subsidiaries
will not conflict with, and neither the Company nor any of its
subsidiaries has received any notice of any claim of infringement or
conflict with, the rights of others in respect thereof.

(xvi) There is no legal or governmental proceeding pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that is required to be described in the
Registration Statement or the Prospectus and is not so described; or
any statute, regulation, contract or other document that is required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not
described or filed.

(xvii) No labor disturbance by the employees of the Company
or any of its subsidiaries exists or, to the knowledge of the Company,
is imminent which might be expected to have a material adverse effect
on the business, properties, financial condition or results of
operations of the Company and its subsidiaries taken as a whole.

(xviii) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.

(xix) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company or any of its subsidiaries (or, to the knowledge of the
Company, any of their predecessors in interest) at, upon or from any
of the property now or previously owned or leased by the Company or
any of its subsidiaries in violation of any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit, except for any
violation or remedial action which would not have, or could not be
reasonably likely to have,

<PAGE> 6

singularly or in the aggregate with all such violations and remedial
actions, a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or cause by the Company or with
respect to which the Company has knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not have or would not be reasonably likely to have, singularly
or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a material
adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries taken as a
whole; and the terms "hazardous wastes", toxic wastes", "hazardous
substances" and "medical wastes" shall have the meanings specified in
any applicable local, state, federal and foreign laws or regulations
with respect to environmental protection.

(xx) Neither the Company nor any of its subsidiaries has at
any time during the last five years (i) made any unlawful contribution
to any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, (ii) made any payment to any federal
or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof, or (iii) violated the Foreign Corrupt Practices
Act of 1977, as amended.

(b) Each Of The Selling Securityholders hereby represents and
warrants as follows:

(i) Such Selling Securityholder has good and marketable title
to all the shares of Stock to be sold by such Selling Securityholder
hereunder, except for Reece Porter with respect to shares to be sold
by him as Option Stock, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever, with full right
and authority to deliver the same hereunder, subject, in the case of
each Selling Securityholder, to the rights of SunTrust Bank, Central
Florida, N.A., as Custodian (herein called the Custodian), and that
upon the delivery of and payment for such shares of the Stock
hereunder, the several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances, equities,
security interests and claims whatsoever. With respect to shares to be
sold as Option Stock by Reece Porter, upon the Company's receipt of
notice pursuant to Section 3(c) hereof Reece Porter will exercise
options, granted on July 1, 1995 and ratified on May 3, 1996 (the
"Porter Options") to purchase that number of shares of Option Stock
equal to the lesser of (A) the total number of shares of Options Stock
to be purchased by the Underwriters hereunder or (B) 15,000 shares.
Reece Porter represents and warrants that, upon exercise of the Porter
Options, he will have good and marketable title to all the shares of
Options Stock to be sold by him, free and clear of all liens,
encumbrances, equities, security interests and claims whatsoever, with
full right and authority to deliver the same hereunder, subject to the
rights of the Custodian, and upon the delivery of and payment for such
shares of the Stock hereunder, the several Underwriters will receive
good and marketable title thereto, free and clear of all liens,
encumbrances, equities, security interests, and claims whatsoever.

(ii) Certificates in negotiable form for the shares of the
Stock to be sold by such Selling Securityholder have been placed in
custody under a Custody Agreement for delivery under this Agreement
with the Custodian; such Selling Securityholder specifically agrees
that the shares of the Stock represented by the certificates so held
in custody for such Selling Securityholder are subject to the
interests of the several Underwriters and the Company, that the
arrangements made by such Selling Securityholder for such custody,
including (except with respect to the Employee Stock Ownership Plan
and Trust for Employees of Sawtek Inc. (the "ESOP")) the Power of
Attorney provided for in such Custody Agreement, are to that extent
irrevocable, and that the obligations of such Selling

<PAGE> 7

Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or
incapacity of such Selling Securityholder (or, in the case of a
Selling Securityholder that is not an individual, the dissolution or
liquidation of such Selling Securityholder) or the occurrence of any
other event; if any such death, incapacity, dissolution, liquidation
or other such event should occur before the delivery of such shares of
the Stock hereunder, certificates for such shares of the Stock shall
be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless
of whether the Custodian shall have received notice of such death,
incapacity, dissolution, liquidation or other event.

(iii) Each Selling Securityholder identified on Schedule II
as a Major Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has
not independently verified the accuracy or completeness of all the
information contained therein, nothing has come to the attention of
such Major Selling Securityholder that would lead such Major Selling
Securityholder to believe that on the Effective Date, the Registration
Statement contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus contained and, on the Closing Date and
any later date on which Option Stock is to be purchased, contains any
untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.

(iv) All information furnished in writing by or on behalf of
such Selling Securityholder for use in the Registration Statement and
Prospectus is, and on the Closing Date and any later date on which
Option Stock is to be purchased will be, true, correct and complete,
and does not, and on the Closing Date and any later date on which
Option Stock is to be purchased will not, contain any untrue statement
of a material fact or omit to state any material fact necessary to
make such information not misleading.

(v) Neither the sale of the Stock to be sold by such Selling
Securityholder to the Underwriters nor the consummation of any other
of the transactions herein contemplated by such Selling Securityholder
will conflict with or result in a breach or violation of or constitute
a default under or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of such Selling
Securityholder pursuant to the organization documents of such Selling
Securityholder (if applicable), the terms of any indenture or other
agreement or instrument to which such Selling Securityholder is a
party, or any order or regulation applicable to such Selling
Securityholder of any court, regulatory body, administrative agency,
governmental body or arbitration body having jurisdiction over such
Selling Securityholder, except where such conflicts, breaches,
violations, defaults, liens, charges or encumbrances would not have a
material adverse effect on such Selling Securityholder.

(vi) With respect to the ESOP, the sale of the Stock
to be sold by such Selling Securityholder to the Underwriters will
not, in whole or in part, constitute a prohibited transaction pursuant
to Section 4975(c) of the Code or a party-in-interest transaction
pursuant to Section 406 of ERISA, and none of the Underwriters or any
person or entity affiliated with them is a "fiduciary" (as such term
is defined in Section 3(21) of ERISA) of such Selling Securityholder
or a "named fiduciary" (as such term is defined in Section 402(a)(2)
of ERISA) of such Selling Securityholder.

<PAGE> 8

(vii) Such Selling Securityholder has full legal right, power
and authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Securityholder and is a legal, valid and binding obligation of such
Selling Securityholder enforceable in accordance with its terms.

3. Purchase of the Stock by the Underwriters.

(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
300,000 shares of the Underwritten Stock to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
shares of the Underwritten Stock set forth in Schedule II opposite the name of
such Selling Securityholder, and each of the Underwriters agrees to purchase
from the Company and the Selling Securityholders the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and the Selling Securityholders and purchased by the several
Underwriters shall be $______ per share. The obligation of each Underwriter to
the Company and each of the Selling Securityholders shall be to purchase from
the Company and the Selling Securityholders that number of shares of the
Underwritten Stock which represents the same proportion of the total number of
shares of the Underwritten Stock to be sold by each of the Company and the
Selling Securityholders pursuant to this Agreement as the number of shares of
the Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the Underwritten
Stock to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional
shares. In making this Agreement, each Underwriter is contracting severally and
not jointly; except as provided in paragraphs (b) and (c) of this Section 3,
the agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.

(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter
or Underwriters and upon the terms herein set forth, all or any part of the
shares of the Stock which such defaulting Underwriter or Underwriters agreed to
purchase. If the non-defaulting Underwriters fail so to make such arrangements
with respect to all such shares and portion, the number of shares of the Stock
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such shares of the Stock exceeds 10% of the total number of shares of
the Stock which all Underwriters agreed to purchase hereunder. If the total
number of shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with the
two preceding sentences, the Company and the Selling Securityholders shall have
the right, within 24 hours next succeeding the 24-hour period above referred
to, to make arrangements with other underwriters or purchasers satisfactory to
you for purchase of such shares and portion on the terms herein set forth. In
any such case, either you or the Company and the Selling Securityholders shall
have the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-

<PAGE> 9

defaulting Underwriters nor the Company and the Selling Securityholders shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without
further act or deed and without any liability on the part of the Company or the
Selling Securityholders to any non-defaulting Underwriter and without any
liability on the part of any non-defaulting Underwriter to the Company or the
Selling Securityholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.

(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth,
those Selling Securityholders identified on Schedule II as Option Sellers grant
an option to the several Underwriters to purchase, severally and not jointly,
up to 450,000 shares in the aggregate of the Option Stock from the Option
Sellers at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company and the Custodian setting forth the aggregate
number of shares of the Option Stock as to which the several Underwriters are
exercising the option. Delivery of certificates for the shares of Option Stock,
and payment therefor, shall be made as provided in Section 5 hereof. The number
of shares of the Option Stock to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Stock to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Stock, as adjusted by you in such manner as you deem advisable to
avoid fractional shares.

4. Offering by Underwriters.

(a) The terms of the initial public offering by the Underwriters of
the Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.

(b) The information set forth in the last paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.

5. Delivery of and Payment for the Stock.

(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 a.m., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Gray, Harris & Robinson, P.A., 201 East Pine Street, Suite
1200, Orlando, Florida 32801 at 7:00 a.m., San Francisco time, on the fourth
business day after the date of this Agreement, or at such time on such other
day, not later than seven full business days after such fourth business day, as
shall be agreed upon in writing by the Company, the Selling Securityholders and
you. The date and hour of such delivery and payment (which may be postponed as
provided in Section 3(b) hereof) are herein called the Closing Date.

<PAGE> 10

(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Gray, Harris & Robinson, P.A.,
201 East Pine Street, Suite 1200, Orlando, Florida 32801 at 7:00 a.m., San
Francisco time, on the third business day after the exercise of such option.

(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order, and payment for the Stock purchased from the Selling
Securityholders shall be made to the Custodian, for the account of the Selling
Securityholders, in each case by one or more certified or official bank check
or checks in next day funds (and the Company and the Selling Securityholders
agree not to deposit any such check in the bank on which drawn until the day
following the date of its delivery to the Company or the Custodian, as the case
may be). Such payment shall be made upon delivery of certificates for the Stock
to you for the respective accounts of the several Underwriters against receipt
therefor signed by you. Certificates for the Stock to be delivered to you shall
be registered in such name or names and shall be in such denominations as you
may request at least one business day before the Closing Date, in the case of
Underwritten Stock, and at least one business day prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York 10004
on the business day prior to the Closing Date or, in the case of the Option
Stock, by 3:00 p.m., New York time, on the business day preceding the date of
purchase.

It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any
later date on which Option Stock is purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from
any of its obligations hereunder.

6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders covenants and agrees as
follows:

(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A
and (ii) not file any amendment to the Registration Statement or supplement to
the Prospectus of which you shall not previously have been advised and
furnished with a copy or to which you shall have reasonably objected in writing
or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.

(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement, (iii) the institution or notice of intended
institution of any action or proceeding for that purpose, (iv) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Stock for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.

(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-

10.

<PAGE> 11

effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus
as you may reasonably request, and (iii) thereafter from time to time during
the period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.

(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the
light of the circumstances existing at the time it is delivered to a purchaser
of the Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the
initial public offering of the Stock by the Underwriters and during such
period, the Underwriters shall propose to vary the terms of offering thereof by
reason of changes in general market conditions or otherwise, you will advise
the Company in writing of the proposed variation, and, if in the opinion either
of counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be
sold by the several Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the Stock in accordance
with the applicable provisions of the Securities Act and the applicable rules
and regulations thereunder for such period.

(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.

(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Stock.

(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to shareholders
of the Company and of all information, documents and reports filed with the
Commission.

11.

<PAGE> 12

(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.

(i) The Company and the Selling Securityholders jointly and severally
agree to pay all costs and expenses incident to the performance of their
obligations under this Agreement, including all costs and expenses incident to
(i) the preparation, printing and filing with the Commission and the NASD of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters of copies of any Preliminary Prospectus and
of the several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees. The Selling Securityholders will pay any transfer taxes incident to the
transfer to the Underwriters of the shares the Stock being sold by the Selling
Securityholders.

(j) The Company and the Selling Securityholders jointly and severally
agree to reimburse you, for the account of the several Underwriters, for blue
sky fees and related disbursements (including counsel fees and disbursements
and cost of printing memoranda for the Underwriters) paid by or for the account
of the Underwriters or their counsel in qualifying the Stock under state
securities or blue sky laws and in the review of the offering by the NASD.

(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company and the Selling Securityholders hereby agree to pay and shall
not affect any agreement which the Company and the Selling Securityholders may
make, or may have made, for the sharing of any such expenses and costs.

(l) The Company and each of the Selling Securityholders except for the
ESOP hereby agrees that, without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, the Company or such Selling Securityholder,
as the case may be, will not, for a period of 90 days following the
commencement of the public offering of the Stock by the Underwriters, directly
or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences or ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The ESOP hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the ESOP will not, for a
period of 90 days following the commencement of the public offering of the
Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to
sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; provided, however, that this agreement shall
not apply to the following transactions: (x) in-service distributions limited
to five percent (5%) of a fully vested employee's ESOP allocated account
balance occuring on or after the 45th day after the date hereof and (y)
distributions from the ESOP to employees,

12.

<PAGE> 13

their heirs or beneficiaries on account of death, disability or retirement from
the Company. The foregoing sentences shall not apply to (A) the Stock to be
sold to the Underwriters pursuant to this Agreement, (B) shares of Common Stock
issued by the Company upon the exercise of options granted under the stock
option plans of the Company (the "Option Plans"), all as described in footnote
1 to the table under the caption "Capitalization" in the Preliminary
Prospectus, and (C) options to purchase Common Stock granted under the Option
Plans.

7. INDEMNIFICATION AND CONTRIBUTION.

(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act, or
the common law or otherwise, and the Company and the Selling Securityholders
jointly and severally agree to reimburse each such Underwriter and controlling
person for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding which may be brought against,
the respective indemnified parties, in each case arising out of or based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that (1) the indemnity agreements of the Company and the
Selling Securityholders contained in this paragraph (a) shall not apply to any
such losses, claims, damages, liabilities or expenses if such statement or
omission was made in reliance upon and in conformity with information furnished
as herein stated or otherwise furnished in writing to the Company by or on
behalf of any Underwriter for use in any Preliminary Prospectus or the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto, (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or to the benefit of any person controlling such Underwriter) if at or
prior to the written confirmation of the sale of such Stock a copy of the
Prospectus (or the Prospectus as amended or supplemented) was not sent or
delivered to such person (excluding the documents incorporated therein by
reference) and the untrue statement or omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented) unless the failure is the result of noncompliance
by the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder (other than the Major Selling Securityholders) shall only be
liable under this paragraph with respect to (A) information pertaining to such
Selling Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto or (B)
facts that would constitute a breach of any representation or warranty of such
Selling Securityholder set forth in Section 2(b) hereof. The indemnity
agreements of the Company and the Selling Securityholders contained in this
paragraph (a) and the representations and warranties of the Company and the
Selling Securityholders contained in Section 2 hereof shall remain operative
and in full

13.

<PAGE> 14

force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.

(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each
other Underwriter and each person (including each partner or officer thereof)
who controls the Company or any such other Underwriter within the meaning of
Section 15 of the Securities Act, and the Selling Securityholders from and
against any and all losses, claims, damages or liabilities, joint or several,
to which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or the common law or otherwise and to
reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The indemnity
agreement of each Underwriter contained in this paragraph (b) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.

(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (herein called the Notice) of
such service or notification to the party or parties from whom indemnification
may be sought hereunder. No indemnification provided for in such paragraphs
shall be available to any party who shall fail so to give the Notice if the
party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall
not relieve such indemnifying party or parties from any liability which it or
they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled
at its own expense to participate in the defense of any action, suit or
proceeding against, or investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of the Notice by giving written notice (herein called the Notice
of Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire defense of such action,
suit, investigation, inquiry or proceeding, in which event such defense shall
be conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or

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<PAGE> 15

parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear
such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.

(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Stock received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by each indemnifying
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission.

The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this
paragraph (d). The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities, or actions in respect thereof, referred
to in the first sentence of this paragraph (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation, preparing to defend or defending against any
action or claim which is the subject of this paragraph (d). Notwithstanding the
provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Stock purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was

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<PAGE> 16

not guilty of such fraudulent misrepresentation. The Underwriters' obligations
in this paragraph (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.

Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 7).

(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought hereunder
(whether or not such Underwriter or any person who controls such Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.

(f) The liability of each Selling Securityholder under the indemnity
and reimbursement agreements contained in the provisions of this Section 7 and
Section 11 hereof shall be limited to an amount equal to the price to the
Underwriters of the stock sold by such Selling Securityholder to the
Underwriters. The Company and the Selling Securityholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.

8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States
on or after the date hereof, (ii) any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change in
economic or political conditions in the financial markets of the United States
would, in the Underwriters' reasonable judgment, make the offering or delivery
of the Stock impracticable, (iii) suspension of trading in securities generally
or a material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, or The Nasdaq Stock Market, or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or
investigation by, any court, legislative body, agency or other governmental
authority which in the Underwriters' reasonable opinion materially and
adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company or the Selling Securityholders to the Underwriters and
no liability of the Underwriters to the Company or the Selling Securityholders;
provided, however, that in the event of any such termination the Company and
the Selling Securityholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the

16.

<PAGE> 17

obligations of the Company and the Selling Securityholders under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j) of Section 6 hereof.

9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing
Date or any later date on which Option Stock is to be purchased, as the case
may be, and to the following further conditions:

(a) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.

(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as to
the financial statements contained therein), shall have been approved at or
prior to the Closing Date by Cooley Godward LLP, counsel for the Underwriters.

(c) You shall have received from Gray, Harris & Robinson, P.A.,
counsel for the Company and the Selling Securityholders and from Allen, Dyer,
Doppelt, Franjola & Milbrath, patent counsel for the Company, opinions,
addressed to the Underwriters and dated the Closing Date, covering the matters
set forth in Annex A and Annex B hereto, respectively, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from each
such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
opinions remain valid as of such later date.

(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such
a supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein, (iv)
neither the Company nor any of its subsidiaries has any material contingent
obligations which are not disclosed in the Registration Statement and the
Prospectus, (v) there are not any pending or known threatened legal proceedings
to which the Company or any of its subsidiaries is a party or of which property
of the Company or any of its subsidiaries is the subject which are material and
which are not disclosed in the Registration Statement and the Prospectus, (vi)
there are not any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement which have not
been filed as required, (vii) the representations and warranties of the Company
herein are true and correct in all material respects as of the Closing Date or
any later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for securities
in general or in political, financial or economic conditions from those
reasonably foreseeable as to render it impracticable

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<PAGE> 18

in your reasonable judgment to make a public offering of the Stock, or a
material adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render it
inadvisable to proceed.

(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing Date
or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein
and any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.

(f) You shall have received from Ernst & Young LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth
in the Original Letter are accurate as of the Closing Date or such later date,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries which, in your
sole judgment, makes it impractical or inadvisable to proceed with the public
offering of the Stock or the purchase of the Option Stock as contemplated by
the Prospectus.

(g) You shall have received from Ernst & Young LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at September 30,
1996, did not disclose any weakness in internal controls that they considered
to be material weaknesses.

(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.

(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.

(j) On or prior to the Closing Date, you shall have received
from all directors and officers agreements, in form reasonably satisfactory to
Hambrecht & Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such person or entity will
not, for a period of 90 days following the commencement of the public offering
of the Stock by the Underwriters, directly or indirectly, (i) sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise; provided, however, that
the

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<PAGE> 19

agreement provided by the ESOP need not apply to the following transactions by
the ESOP: (x) in-service distributions limited to five percent (5%) of a fully
vested employee's ESOP allocated account balance occuring on or after the 45th
day after the date hereof and (y) distributions from the ESOP to employees,
their heirs or beneficiaries on account of death, disability or retirement from
the Company.

All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if Cooley Godward LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.

In case any of the conditions specified in this Section 9 shall
not be fulfilled, this Agreement may be terminated by you by giving notice to
the Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company or the Selling Securityholders to perform any agreement herein, to
fulfill any of the conditions herein, or to comply with any provision hereof
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the transactions contemplated hereby.

10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.

In case either of the conditions specified in this Section 10
shall not be fulfilled, this Agreement may be terminated by the Company and the
Selling Securityholders by giving notice to you. Any such termination shall be
without liability of the Company and the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that in the event of any such
termination the Company and the Selling Securityholders jointly and severally
agree to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company and the
Selling Securityholders under this Agreement, including all costs and expenses
referred to in paragraphs (i) and (j) of Section 6 hereof.

11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 7 of this Agreement (and subject, in the case
of a Selling Securityholder, to the provisions of paragraph (f) of Section 7),
the Company and the Selling Securityholders hereby jointly and severally agree
to reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission,
described in paragraph (a) of Section 7 of this Agreement, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the obligations under this Section 11 and the possibility that such payments
might later be held to be improper; provided, however, that (i) to the extent
any such payment is ultimately held to be improper, the persons receiving such
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.

19.

<PAGE> 20

12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders
and the several Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any
other person, firm or corporation any legal or equitable remedy or claim under
or in respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.

13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Hambrecht & Quist
LLC, One Bush Street, San Francisco, California 94104; and if to the Company,
shall be mailed, telegraphed or delivered to it at its office, Sawtek Inc.,
1818 South Highway 441, Apopka, Florida 32703, Attention: Stephen P. Miller;
and if to the Selling Securityholders, shall be mailed, telegraphed or
delivered to the Selling Securityholders in care of William A. Grimm, Esq.,
Gray, Harris & Robinson, P.A., 201 East Pine Street, Suite 1200, Orlando,
Florida 32801. All notices given by telegraph shall be promptly confirmed by
letter.

14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and
effect regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or the Selling Securityholders or
their respective directors or officers, and (c) delivery and payment for the
Stock under this Agreement; provided, however, that if this Agreement is
terminated prior to the Closing Date, the provisions of paragraphs (l) and (m)
of Section 6 hereof shall be of no further force or effect.

This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California.

20.

<PAGE> 21

Please sign and return to the Company and to the Selling
Securityholders in care of the Company the enclosed duplicates of this letter,
whereupon this letter will become a binding agreement among the Company, the
Selling Securityholders and the several Underwriters in accordance with its
terms.

Very truly yours,

SAWTEK INC.

By:
-------------------------------------
Steven P. Miller
Chairman and Chief Executive Officer

EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
FOR EMPLOYEES OF SAWTEK INC.

By: Marine Midland Bank,
not in its individual or corporate
capacity, but solely as Trustee

By:
----------------------------------
Stephen J. Hartman, Jr.
Senior Vice President

SELLING SECURITYHOLDERS:

Via Capri Investment Limited Partnership

BY: VIA CAPRI, INC., its General Partner

By:
----------------------------------
Steven P. Miller
President

MOPNJ Investment Limited Partnership

BY: MOPNJT, INC., its General Partner

By:
----------------------------------
Neal J. Tolar
President

REECE PORTER

By:
-------------------------------------
Reece Porter

21.

<PAGE> 22

The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.

HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
RAYMOND JAMES & ASSOCIATES, INC.
By Hambrecht & Quist LLC

By:
----------------------------------------
Managing Director

Acting on behalf of the several Underwriters, including themselves, named in
Schedule I hereto.

22.

<PAGE> 23

SCHEDULE I

UNDERWRITERS

<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------ ---------
<S> <C>

Hambrecht & Quist LLC.........................................................
Oppenheimer & Co., Inc........................................................
Raymond James & Associates, Inc............................................... ------

Total...................................................................3,000,000
=========
</TABLE>

<PAGE> 24

SCHEDULE II

SELLING SECURITYHOLDERS

NUMBER OF
SHARES
NAME OF SELLING SECURITYHOLDERS BE SOLD
- ------------------------------- -------
<S> <C>

MAJOR SELLING SECURITYHOLDERS
Via Capri Investment Limited Partnership 100,000
MOPNJ Investment Limited Partnership 100,000

OTHER SELLING SECURITYHOLDERS
Employee Stock Ownership Plan and Trust
for Employees of Sawtek Inc. 2,500,000
Reece Porter

Total......................................................2,700,000
=========
</TABLE>

<PAGE> 25

OPTION SELLERS

NUMBER OF
SHARES
NAME OF OPTION SELLERS TO BE SOLD
- ---------------------- ----------
<S> <C>
Via Capri Investment Limited Partnership 217,500
MOPNJ Investment Limited Partnership 217,500
Reece Porter 15,000
Employee Stock Ownership Plan and Trust for Employees of Sawtek Inc. *

Total............................................................450,000
=======
</TABLE>

*The Employee Stock Ownership Plan and Trust for Employees of Sawtek Inc. will
have the right, but not the obligation, to become an Option Seller with respect
to up to 435,000 shares of the Option Stock, pursuant to an agreement among the
Option Sellers.

<PAGE> 26

ANNEX A

MATTERS TO BE COVERED IN THE OPINION OF
GRAY, HARRIS & ROBINSON, P.A., COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS

(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, is duly
qualified as a foreign corporation and in good standing in each state of
the United States of America in which its ownership or leasing of
property requires such qualification, and has full corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement; all the issued and outstanding
capital stock of each of the subsidiaries of the Company has been duly
authorized and validly issued and is fully paid and nonassessable, and is
owned by the Company free and clear of all liens, encumbrances and
security interests, and to the best of such counsel's knowledge, no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in such subsidiaries are
outstanding;

(ii) the authorized capital stock of the Company consists of
_________ shares of Common Stock, $____ par value, of which there are
outstanding ____________ shares (including the Underwritten Stock plus
the number of shares of Option Stock issued on the date hereof); proper
corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the outstanding shares of such capital
stock (including the Underwritten Stock and the shares of Option Stock
issued, if any) have been duly and validly issued and are fully paid and
nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in
the Underwriting Agreement, will have been duly and validly issued and be
fully paid and nonassessable; and no preemptive rights of, or rights of
refusal in favor of, shareholders exist with respect to the Stock, or the
issue and sale thereof, pursuant to the Articles of Incorporation or
Bylaws of the Company and, to the knowledge of such counsel, there are no
contractual preemptive rights that have not been waived, rights of first
refusal or rights of co-sale which exist with respect to the Stock being
sold by the Selling Securityholders or the issue and sale of the Stock;

(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission;

(iv) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities
Act, the Exchange Act and with the rules and regulations of the
Commission thereunder;

(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial data contained or incorporated by reference therein, as to
which such counsel need not express any opinion or belief) at the
Effective Date contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial data contained or incorporated by reference

<PAGE> 27

therein, as to which such counsel need not express any opinion or belief)
as of its date or at the Closing Date (or any later date on which Option
Stock is purchased), contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading;

(vi) the information required to be set forth in the
Registration Statement in answer to Items 9 and 10 (insofar as it relates
to such counsel) of Form S-3 is to the best of such counsel's knowledge
accurately and adequately set forth or incorporated by reference therein
in all material respects or no response is required with respect to such
Items, and the description of the Company's 1983 Incentive Stock Option
Plan, the Sawtek Inc. Second Stock Option Plan, the Employee Stock
Purchase Plan, the Employee Stock Ownership Plan and Trust for Employees
of Sawtek Inc. and the options and stock awards granted and which may be
granted thereunder and the options granted otherwise than under such
plans set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to said plans, grants and
options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;

(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in
the opinion of such counsel are of a character required to be described
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described and filed
as required;

(viii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company;

(ix) (A) the Underwriting Agreement has been duly executed and
delivered by or on behalf of each of the Selling Securityholders; (B) the
Custody Agreement between the Selling Securityholders and SunTrust Bank
Central Florida, N.A., as Custodian, and the Power of Attorney referred
to in such Custody Agreement have been duly executed and delivered by
such Selling Securityholder; (C) the Custody Agreement entered into by,
and the Power of Attorney given by, such Selling Securityholder is valid
and binding on such Selling Securityholder; and (D) each Selling
Securityholder has full legal right and authority to enter into the
Underwriting Agreement and to sell, transfer and deliver in the manner
provided in the Underwriting Agreement the shares of Stock sold by such
Selling Securityholder hereunder;

(x) the issue and sale by the Company of the shares of Stock
sold by the Company as contemplated by the Underwriting Agreement will
not conflict with, or result in a breach of, the Articles of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or instrument known to such counsel to which the Company or any
of its subsidiaries is a party or any applicable law or regulation, or so
far as is known to such counsel, any order, writ, injunction or decree,
of any jurisdiction, court or governmental instrumentality;

(xi) to the best of such counsel's knowledge, all holders of
securities of the Company having rights to the registration of shares of
Common Stock, or other securities, because of the filing of the
Registration Statement by the Company have waived such rights or such
rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;

(xii) good and marketable title to the shares of Stock sold by
the Selling Securityholders under the Underwriting Agreement, free and
clear of all liens, encumbrances, equities, security interests and
claims, has been transferred to the Underwriters who have severally
purchased such shares of Stock

<PAGE> 28

under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without
notice of any adverse claims;

(xiii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase
and distribution of the Stock by the Underwriters; and

(xiv) the Stock sold by the Selling Securityholders is listed
and duly admitted to trading on the Nasdaq National Market and the Stock
issued and sold by the Company has been duly authorized for listing by
the Nasdaq National Market System upon official notice of issuance.

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

Counsel rendering the foregoing opinion may rely as to questions
of law not involving the laws of the United States or of the State of Florida,
upon opinions of local counsel satisfactory in form and scope to counsel for
the Underwriters. Copies of any opinions so relied upon shall be delivered to
the Representatives and to counsel for the Underwriters and the foregoing
opinion shall also state that counsel knows of no reason the Underwriters are
not entitled to rely upon the opinions of such local counsel.

<PAGE> 29

ANNEX B

MATTERS TO BE COVERED IN THE OPINION OF ALLEN, DYER, DOPPELT, FRANJOLA &
MILBRATH PATENT COUNSEL FOR THE COMPANY

Such counsel are familiar with the technology used by the
Company in its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the portions
of the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or
materials, and such counsel have no reason to believe that the Registration
Statement or the Prospectus (i) contains any untrue statement of a material
fact with respect to patents, trade secrets, trademarks, service marks or other
proprietary information or materials owned or used by the Company, or the
manner of its use thereof, or any allegation on the part of any person that the
Company is infringing any patent rights, trade secrets, trademarks, service
marks or other proprietary information or materials of any such person or (ii)
omits to state any material fact relating to patents, trade secrets,
trademarks, service marks or other proprietary information or materials owned
or used by the Company, or the manner of its use thereof, or any allegation of
which such counsel have knowledge, that is required to be stated in the
Registration Statement or the Prospectus or is necessary to make the statements
therein not misleading.

B-1

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
October 25, 1996 in Amendment No. 4 to the Registration Statement (Form S-3 No.
333-26747) and related Prospectus of Sawtek Inc. for the registration of
3,000,000 shares of its common stock.

ERNST & YOUNG LLP

Orlando, Florida

June 27, 1997