UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SAWTEK INC.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction or incorporation or organization)
59-1864440
(I.R.S. Employer Identification Number)
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)
Gary A. Monetti, 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:
WILLIAM A. GRIMM, ESQ. MARK L. HANSON, ESQ.
Gray Harris & Robinson, P.A Jones, Day, Reavis & Pogue
201 East Pine Street 3500 SunTrust Plaza
Suite 1200 303 Peachtree Street, N.E.
Orlando, Florida 32802 Atlanta, Georgia 30308
(407) 843-8880 (404) 521-3939
-----------------------------------------
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. ______
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Proposed Maximum Offering
Title of Each Class of Amount to be Price Per Proposed Maximum Aggregate
Securities to be Registered Registered(1) Share(2) Offering Price(2) Amount of Registration Fee
- --------------------------- -------------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Common Stock 4,600,000 $46.00 $211,600,000 $58,825
<FN>
(1) Includes 600,000 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, based on the
average high and low prices of the Common Stock on the Nasdaq National
Market on December 3, 1999.
</FN>
</TABLE>
<PAGE>
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 Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
PROSPECTUS
- ----------
4,000,000 Shares
[SAWTEK INC. LOGO]
SAWTEK INCORPORATED
Common Stock
This is an offering of 4,000,000 shares of common stock of Sawtek Inc. All
of the 4,000,000 shares offered by this prospectus will be sold by the selling
shareholders named in this prospectus. Sawtek Inc. will not receive any proceeds
from the sale of shares by the selling shareholders.
Our common stock is traded on the Nasdaq National Market under the symbol
"SAWS." The last reported sale price of our common stock on the Nasdaq National
Market on December 9, 1999 was $61.00 per share.
----------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expenses, to the selling shareholders $ $
</TABLE>
The underwriters may also purchase up to an additional 600,000 shares of
common stock from some of the selling shareholders at the public offering price,
less the underwriting discounts and commissions, to cover over-allotments.
The underwriters expect to deliver the shares in New York, New York on
________________, 2000.
----------------------------
Investing in our common stock involves a high degree of risk. These risks
are described under the caption "Risk Factors" beginning on page 7.
----------------------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
----------------------------
HAMBRECHT & QUIST
CIBC WORLD MARKETS
BANC OF AMERICA SECURITIES LLC
___________, 2000
<PAGE>
[The following text will be placed along the left-hand margin cover page of the
prospectus - see previous page].
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Inside cover of prospectus
- --------------------------
Text: "Sawtek's products are used in a variety of applications in the
wireless neighborhood, including:
Base stations;
Handsets;
Digital microwave radios;
Wireless local area networks;
Wireless local loop;
Defense and satellite systems;
Chemical sensors;
Cable television equipment; and
Equipment for cable modems for the Internet.
We even have products that have gone to Mars on the successful Pathfinder
mission."
Sawtek logo
<PAGE>
Inside prospectus gatefold:
- --------------------------
Panoramic picture of a busy downtown area, including buildings, people,
automobiles, trucks, airplanes, a satellite, a wireless phone and other common
items. Text includes:
"Welcome to the wireless neighborhood!", "SAW products for the wireless
neighborhood" and each of the following, with arrows pointing to where each
product would be used:
Base station (micro and pico cell), CDMA and GSM digital wireless
communications;
Commercial avionics - collision avoidance, GPS;
Inventory control - shipping and receiving, wireless data terminal, remote
process monitoring;
Mobile chemical analysis - VaporLab (handheld vapor identification);
Navigation - GPS;
Satellite communication - voice, data, Internet access, broadband access,
military, weather;
Medical - ethylene oxide monitor, wireless data transmission;
Cable - cable TV head-end, cable modem head-end;
Wireless handsets - cellular and PCS digital wireless communications;
Space exploration - Mars Pathfinder, communications;
Wireless data - wireless local area networks;
Military - electronic warfare, radar, navigation, missile guidance,
targeting, communication;
Base station (macro cell), CDMA and GSM digital wireless communications;
Home office - wireless data transfer, high speed Internet access; and
Home environment - WLL, wireless Internet, wireless computing, HDTV,
digital TV, security systems, cordless telephone.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Price Range of Common Stock . . . . . . . . . . . . . . . . . . . . . 17
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 21
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Principal and Selling Shareholders . . . . . . . . . . . . . . . . . . 50
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Information Incorporated by Reference . . . . . . . . . . . . . . . . 56
Where You Can Find More Information . . . . . . . . . . . . . . . . . 57
Index to Consolidated Financial Statements . . . . . . . . . . . . . . F-1
</TABLE>
----------------------------
Information contained in our Web site does not constitute part of this
prospectus.
References in this prospectus to "Sawtek," "we," "our" and "us" refer to
Sawtek Inc., a Florida corporation.
Each trademark, trade name or service mark of any other company appearing
in this prospectus belongs to its holder.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the Consolidated Financial
Statements before making an investment decision.
We are a leading supplier of electronic signal processing components based
on surface acoustic wave, or SAW, technology, primarily for use in the wireless
communications industry. Our main products are custom-designed, high performance
bandpass filters, resonators, delay lines, oscillators and SAW-based subsystems.
These products are used in the following applications:
Base stations for digital wireless communications for both Code Division
Multiple Access, or CDMA, and Global System for Mobile communications, or
GSM, applications;
Handsets for both CDMA and GSM applications;
Digital microwave radios;
Wireless local area networks, or WLAN;
Wireless local loop, or WLL, systems;
Defense and satellite systems;
Chemical sensors;
Cable television equipment; and
Equipment for cable modems for the Internet.
We believe our products offer key advantages such as lower distortion,
reduced size and weight, greater reliability and more 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. Our proprietary computer aided
design and analysis software tools support rapid and precise SAW device design
and simulation, enabling us to achieve timely new product development. Our
customers include major telecommunications equipment producers such as Ericsson,
Hyundai, LGIC, Lucent Technologies, Motorola, Nokia, Qualcomm and Samsung.
The increase in demand for wireless communications, including the growth in
both CDMA and GSM wireless handsets and multi-mode, dual-band handsets, has
accelerated the demand for SAW bandpass filters for both the intermediate
frequency, or IF, and radio frequency, or RF, section of wireless handsets.
According to Dataquest, an independent research firm that tracks the tele-
4
<PAGE>
communications industry, the worldwide shipments of digital wireless handsets
are projected to increase from approximately 210 million units in 1999 to 364
million in 2002.
Our strategy is focused on becoming the leading supplier of SAW devices
used in wireless communications and other applications. The key elements of our
strategy are:
Expand our product offerings for wireless handsets to include SAW RF
filters for CDMA and GSM, SAW IF filters for GSM and SAW duplexer filters.
This will augment our core business consisting of CDMA IF filters for
handsets and IF filters for both CDMA and GSM base stations.
Expand our manufacturing capacity and capability through a capital
investment plan estimated at $32 million for 2000. This plan should
increase our wafer fabrication capacity and capability in Orlando, add new
automated production lines in Orlando and Costa Rica and increase the size
of our Costa Rican facility by approximately 30,000 square feet.
Enhance our relationships with major telecommunications equipment
manufacturers by developing a product-based sales force, working closely
with these customers in the design phase and expanding our production
capacity in advance of their requirements.
Continue to target new or emerging markets for SAW applications, including
filters for head-end equipment for cable modems for the Internet, WLAN,
wireless data, chemical sensors and other applications for bringing voice,
data and video into the home.
This prospectus relates to the offer and sale of 4,000,000 shares of our
common stock by the selling shareholders. We will not receive any proceeds from
the sale of these shares.
We maintain our 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.
----------------------------
Our corporate headquarters is located at 1818 South Highway 441, Apopka,
Florida 32703 and our telephone number is (407) 886-8860. Apopka is located near
Orlando, Florida.
5
<PAGE>
<TABLE>
THE OFFERING
<S> <C>
Common stock Sawtek is offering None
Common stock the selling shareholders are offering 4,000,000 shares
Common stock to be outstanding after this offering 42,384,723 shares
Use of proceeds All proceeds will go to the selling
shareholders. We will not receive
any proceeds from this offering.
Nasdaq National Market symbol SAWS
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding as of November 30, 1999 and exclude shares exercisable under
employee stock options as follows:
2,137,781 shares of common stock issuable upon exercise of options
outstanding under our stock option plans at November 30, 1999 at a
weighted-average exercise price of $13.75 per share; and
3,999,046 shares of common stock reserved for future grants or issuance
under our stock option and employee stock purchase plans.
Unless otherwise specified, all information in this prospectus assumes that
the underwriters' over-allotment option is not exercised.
Summary Consolidated Financial Data
(in thousands, except per share data)
Consolidated Statement of Income Data:
<TABLE>
<CAPTION>
Three Months
Year Ended September 30, Ended September 30,
1999 1998 1997 1996 1995 1999 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $100,276 $97,700 $85,041 $59,173 $32,473 $28,515 $21,522
Gross profit 58,052 52,889 46,672 30,835 18,325 16,814 11,857
Gross profit margin % 57.9% 54.1% 54.6% 52.1% 56.4% 59.0% 55.1%
Operating income 42,469 37,903 31,490 6,005 9,273 12,850 8,491
Net income (loss) 30,684 26,205 20,719 (220) 5,724 9,215 6,080
Net income (loss) per share:
Basic $ 0.73 $ 0.62 $ 0.50 $(0.01) $ 0.21 $ 0.22 $ 0.14
======== ======= ======= ======= ======= ======= =======
Diluted $ 0.72 $ 0.60 $ 0.49 $ (0.01) $ 0.16 $ 0.21 $ 0.14
======== ======= ======= ======= ======= ======= =======
</TABLE>
In 1996, we incurred $12.9 million of ESOP compensation expense.
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, 1999
------------------
<S> <C>
Cash, cash equivalents and short-term investments $115,274
Total assets 191,579
Total shareholders' equity $158,399
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In that event, the trading price of our shares could decline, and you
may lose part or all of your investment.
A decline in either the growth of wireless communications or in the continued
acceptance of CDMA would have an adverse impact on us.
Approximately 74% of our net sales for 1999 and 1998 were derived from
sales of SAW devices for applications in wireless communications systems. Any
economic, technological or other developments resulting in a reduction in demand
for wireless services would have a material adverse effect on our business,
financial condition and results of operations.
Sales of our products for CDMA-based systems, including base stations and
subscriber handsets, accounted for approximately 56% of our net sales in 1999
and 1998. CDMA technology is relatively new to the marketplace and there can be
no assurance that emerging markets will adopt this technology. Our business and
financial results would be adversely impacted if CDMA technology does not
continue to gain acceptance.
If we are unable to successfully develop and bring new products to market, our
operating results will be adversely affected.
Recently, we announced our intent to offer an expanded line of SAW filters
for the wireless handset market, including SAW RF and GSM IF filters. To date,
we have completed some designs for these filters, and we have begun to receive
orders from customers for these products. We have also begun to order and
receive the materials and equipment necessary to enter this market. However, to
date we have produced these new filters only in limited volumes and have just
begun to ship SAW RF filters to customers. Expanding our product line and sales
of these filters is an important part of our growth strategy. There is no
assurance that we will be successful in our efforts to introduce these and other
new types of filters for the wireless telecommunications market.
Sustained growth of our business is dependent on our ability to continue to
develop new or improved SAW devices in a timely fashion. Our product development
resources are limited, requiring us to allocate resources among a limited number
of product development projects. Failure by us to allocate our product
development resources to products that meet market needs could have a material
adverse effect on our 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 these products.
7
<PAGE>
If we are unable to successfully increase our production capacity, we will not
be able to grow our revenue as planned.
We have initiated a capital expenditure program, estimated at $32 million
for 2000, to increase our manufacturing output to enable us to grow our revenue.
This plan includes new wafer fabrication capacity and capability in Orlando, new
assembly capacity in Orlando and Costa Rica and expanding our building in Costa
Rica. Any delay in increasing our capacity will have a material adverse impact
on our ability to meet the anticipated demand for our new products and on our
ability to grow revenue.
Because we rely on a limited number of suppliers, our operating results would be
adversely affected if a few suppliers were unable to meet our needs.
We have a limited number of suppliers for certain critical raw materials,
components, services and equipment. There are only a few ceramic package
manufacturers and wafer producers worldwide who have the expertise and capacity
necessary to satisfy our requirements. Most of these suppliers are based in
Japan. Recently, we have experienced difficulty in obtaining ceramic surface
mount packages used in the production of bandpass filters. A failure by us to
anticipate demand for materials or of our suppliers to provide sufficient
amounts of material could result in raw material shortages. There can be no
assurance that we will be able to secure adequate supplies of materials,
components, services or equipment. If we are unable to satisfy our requirements
for raw materials or to obtain and maintain appropriate equipment, our business,
financial condition and results of operations would be materially adversely
affected.
Risks associated with international sales could adversely affect our operating
results.
Overall, our revenue from international sales accounted for approximately
41%, 37% and 43% of net sales for 1999, 1998 and 1997, respectively. The sale of
products in foreign countries involves a number of risks that can arise from
international trade transactions, local business practices and cultural
considerations, including:
Currency exchange rate fluctuations and restrictions;
Import-export regulations;
Customs requirements;
Ability to secure credit and funding;
Longer payment cycles;
Foreign collection problems;
Political and transportation risks;
and Economic turmoil.
8
<PAGE>
Some of our other major customers are relying on growth in international
markets, including Asia and Latin America, for sales of their products. The
demand for our products will be reduced if the economies in these regions
decline.
We have grown our revenue over the past several years partly from shipments
to South Korean customers. In 1999, our revenue from South Korean customers was
approximately $16.8 million, equal to 17% of total revenue, and in 1998 it was
approximately $14 million, or 14% of revenue. However, revenue from South Korean
customers fluctuates greatly as experienced in the last quarter of 1998 when
revenue from South Korean customers declined to $1.1 million or approximately 5%
of total revenue compared to $4.8 million or approximately 18% of total revenue
in the immediately preceding quarter. The South Korean economy and the economies
of many other countries in Asia and around the world have experienced economic
turmoil and recession during the past 18 months and may continue to face
economic problems which would adversely impact our sales in these regions.
Because we depend on a few large customers, our operating results would be
adversely affected by the loss of one or two customers.
A few large customers have accounted for a significant portion of our net
sales. Sales to our top 10 customers accounted for approximately 70% in 1999 and
76% of net sales in 1998. Motorola, our largest customer, accounted for 23% of
net sales in 1999 and 17% of net sales in 1998 and may account for a higher
percentage of net sales in 2000. We expect that sales of our products to a
limited number of customers will continue to account for a high percentage of
our net sales in the foreseeable future. Our future success depends largely upon
the decisions of our current customers to continue to purchase our products, as
well as the decisions of prospective customers to develop and market systems
that incorporate our products.
9
<PAGE>
A disruption in our Costa Rican operations could have an adverse impact on our
operating results.
During 1999, net sales from our Costa Rican operation accounted for
approximately 47% of our consolidated net sales and 31% of our operating income.
We expect our Costa Rican operations to account for an increasing proportion of
our overall operations in the future. Operating a production facility in Costa
Rica presents potential risks of disruption, including:
Government intervention;
Wars;
Currency fluctuation
Limited supply of labor;
Labor disputes;
Earthquakes;
Volcanic eruptions;
Hurricanes;
Floods; and
Mud slides.
Any such disruptions could have a material adverse effect on our business,
results of operations and financial condition.
A continued decline in selling prices for some of our key products could have an
adverse impact on our operating results.
Selling prices for our products have declined due to competitive pricing
pressures and to the use of newer surface mount package devices that are smaller
and less expensive than previous generation filters. We have experienced
declines in prices for filters for GSM base stations due to the use of surface
mount packages, and we expect this will occur in filters for CDMA base stations.
In addition, we expect prices for handset filters to continue to decline as they
become smaller and as competitive pricing pressure increases. A continued
decline in prices could have a material adverse impact on both our revenues and
margins.
If we experience a decline in our manufacturing yields, our operating results
will be adversely affected.
The manufacture of SAW devices involves complex processes that may result
in reduced yields from time to time, the causes of which are often difficult to
determine. A reduction in yields at any stage of the manufacturing process would
have a material adverse effect on our ability to meet our quoted delivery times
and cost of production, which would have an adverse impact on our operations and
profitability.
10
<PAGE>
If one or more customers cancel or terminate purchase orders or delay deliveries
with short notice, our operating results would be adversely affected.
Purchase orders for our products may be large and intended to satisfy
customers' long-term needs. In addition, our customers' orders are typically
subject to cancellation or modification with very short notice. Accordingly, our
backlog is not necessarily indicative of future product sales, and a delay or
cancellation of a small number of purchase orders may adversely impact our
operations. In addition, our expense levels are based, in part, on our
expectations of future product sales and therefore are relatively fixed in the
short term. If we were unable to reduce our expense levels correspondingly with
a reduction in sales levels, our results of operations would be further harmed.
New competitive products or technologies may be developed which could reduce
demand for our products.
Our business is dependent upon the application of SAW-based technology.
Competing technologies, including digital filtering technology, direct
conversion or any other technology that could be developed, could replace or
reduce the use of SAW filters for certain applications. Direct conversion is a
process that converts an RF signal to baseband without the need for a SAW IF
filter. Any development of a cost-effective technology that replaces SAW
filtering technology or reduces the need for SAW filtering technology could have
a material adverse effect on our business, financial condition and results of
operations.
We expect competition to increase which could result in lower selling prices
which would have an adverse effect on our operating results.
Competition in the markets for our products is intense. We compete against
large international companies that have substantially greater financial,
technical, sales, marketing, distribution and other resources than us. In
addition, we may face competition from companies that currently manufacture SAW
devices for their own internal requirements, as well as from a number of our
customers that have the potential to develop an internal supply capability for
SAW devices. We expect competition to increase from both established and
emerging competitors, as well as from internal capabilities developed by certain
customers. Our ability to compete effectively in our target markets depends on a
variety of factors both within and outside of our control, including timing and
success of new product introductions, availability of manufacturing capacity,
the rate at which customers incorporate our components into their products, our
ability to respond to competitive pricing pressures, 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 we will be able to compete successfully in the future.
11
<PAGE>
If we are not able to protect our intellectual property or if we infringe on the
intellectual property of others, our business and operating results could be
adversely affected.
We rely on a combination of patents, copyrights and trade secrets to
establish and protect our intellectual property rights. There can be no
assurance that patents will issue from any of our pending applications or that
any claims allowed from existing or pending patents will be sufficiently broad
to protect our technology. In addition, there can be no assurance that any
patents issued to us will not be challenged, invalidated or circumvented, or
that the rights granted will provide proprietary protection. Litigation may be
necessary to enforce our 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 our business, results of operations and financial condition regardless
of the final outcome of the litigation. We are not currently engaged in any
patent infringement suits nor have we been threatened with any such suits in
recent years. Despite our efforts to maintain and safeguard our proprietary
rights, there can be no assurances that we will be successful in doing so or
that our competitors will not independently develop or patent technologies that
are substantially equivalent or superior to our technologies. If any of the
holders of these patents assert claims that we are infringing such patents, we
would be forced to incur substantial litigation expenses. In addition, if we
were found to infringe, we would be required to pay substantial damages, pay
royalties in the future or be enjoined from infringing on such patents in the
future.
A failure to attract and retain qualified individuals for critical positions
could have an adverse impact on our business, financial condition and results of
operations.
Our success depends, in part, 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 our business. Our success will also depend, in part,
on our ability to attract and retain qualified professional, technical,
production, managerial and marketing personnel, both domestically and
internationally. Competition for such personnel in our industry is very intense.
While we have not yet experienced significant problems in recruiting or
retaining qualified personnel, we cannot be certain that such problems will not
arise in the future.
12
<PAGE>
Our operating results could be adversely affected by fluctuations in the value
of foreign currencies.
Our international sales are generally denominated in U.S. dollars. However,
we may be required in the future, due to competition, to denominate sales in the
foreign currencies of certain countries or in the new euro for some of our
European customers. As a result, fluctuations in currency exchange rates may
have a significant effect on our sales, even in the absence of an increase or
decrease of unit sales to foreign customers. A strong U.S. dollar could make our
products more expensive for foreign customers, which could have a material
adverse effect on our ability to compete internationally. We also purchase a
great deal of our key raw materials and equipment from foreign countries,
primarily Japan. A weak U.S. dollar could make our purchases more expensive.
Over the past two years, the valuations of many foreign currencies have
fluctuated significantly relative to the U.S. dollar. The Korean won and
Japanese yen, in particular, have fluctuated in value due in part to the
economic problems experienced by these countries.
We have not, to date, engaged in substantial hedging transactions for our
foreign exchange risks. If any of our future international sales are denominated
in foreign currencies, we may find it necessary to engage in rate hedging
activities with respect to certain exchange rate risks. There can be no
assurance that we will engage in such exchange rate hedging or that any such
activities will successfully protect against such risks.
We could be subject to fines, suspension of production or cessation of
operations if we fail to comply with the many laws and government regulations
applicable to our business.
We are subject to a variety of federal, state and local laws, rules and
regulations relating to the discharge and disposal of toxic, volatile and other
hazardous chemicals used in our manufacturing processes and to export controls.
The failure to comply with present or future regulations could result in the
imposition of fines, suspension of production or a cessation of operations. Such
regulations could require us to acquire significant equipment or to incur
substantial expense in order to comply with such regulations. Any past or future
failure to control the use of or the discharge of toxic or hazardous substances
or to comply with export regulations could subject us to future liabilities and
could have a material adverse effect on our business, results of operations and
financial condition.
13
<PAGE>
A number of factors affecting our customers may result in the cancellation of
orders or delays in deliveries of our products to these customers.
The increasing demand for wireless communications has exerted pressure on
regulatory bodies worldwide to adopt new standards for wireless communications
products and services. 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 our customers. Any
such delays may have a material adverse effect on the sale of our products to
these customers. In addition, our customers may have difficulty in obtaining
parts from other suppliers, such as flash memory for wireless handsets, causing
these customers to cancel or delay orders for our products.
Our manufacturing facilities are located in areas prone to natural disasters.
Our main facility is located in Orlando, Florida and we also have a
production facility in Costa Rica. Hurricanes, tropical storms, flooding,
tornadoes, and other natural disasters are common events for the southeastern
part of the United States and in Costa Rica. We could suffer disruptions due to
natural disasters that could have an adverse effect on our operations. Our Costa
Rican facility is also prone to these disasters as well as mud slides,
earthquakes and volcanic eruptions. Any disruptions from these or other events
would have a material adverse impact on our operations and financial results.
Year 2000 problems could have an adverse effect on our operations.
We are subject to potential Year 2000 problems affecting our internal
systems, the systems of our suppliers and our customers. If any of these are not
corrected for Year 2000 problems, our operations could be materially impacted.
We have completed an examination of these systems and a summary of our results
is included elsewhere in this prospectus.
Our stock price has been volatile.
There has been significant volatility in the market price of our common
stock, as well as in the market price of securities of technology-based
companies and the U.S. stock markets overall. Some of the factors that could
affect our stock price include:
14
<PAGE>
Variations in our operating results or the operating results of our
customers or competitors;
Announcements of new products by us or by our competitors;
Gain or loss of significant contracts;
Announcements of technological innovations;
Acquisitions by us or our competitors;
Changes in analysts' estimates of our financial performance;
Government regulatory action;
Developments or disputes regarding proprietary rights;
General trends in the industry; and
General economic or stock market conditions.
Additionally, in the past, securities class action litigation often has
been brought against companies following periods of volatility in the market
price of their securities. We may in the future be the target of similar
litigation. Securities litigation could result in substantial costs and damages
and divert management's attention and resources.
Certain considerations could make it more difficult for others to acquire us.
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
us or of discouraging a third party from attempting to acquire us. These
anti-takeover measures could result in a lower value to be received by our
shareholders if an acquisition was not approved by our Board of Directors. Such
provisions could limit or depress the price that certain investors might be
willing to pay in the future for shares of our stock. We are also authorized to
issue preferred stock, with rights senior to our common stock, without the
necessity of shareholder approval. We have no present plans to issue shares of
preferred stock. However, issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
In addition, the Sawtek Employee Stock Ownership and 401(k) Plan, or the
ESOP, owns approximately 29% of our outstanding common stock and will own
approximately 24% of our outstanding common stock after this offering. The ESOP
trustee has the right to vote all of these shares. The ESOP trustee votes the
shares allocated to participants' accounts in accordance with their voting
direction and votes in its sole discretion with respect to the unallocated
shares. If the ESOP trustee votes against or opposes a proposed acquisition of
us, a potential acquirer may be discouraged from acquiring us even though the
holders of a majority of the shares of our common stock are in favor of the
acquisition.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in the prospectus that are not
historical facts. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors."
16
<PAGE>
USE OF PROCEEDS
All of the shares will be sold by the selling shareholders. We will not
receive any proceeds from the sale of these shares. The selling shareholders
will pay for all direct out-of-pocket expenses associated with this offering.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock. We intend to
retain our earnings to finance expansion of our business and do not anticipate
paying cash dividends on our common stock in the foreseeable future.
PRICE RANGE OF COMMON STOCK
Our shares are traded on the Nasdaq National Market under the symbol
"SAWS." The following table sets forth the high and low sales price per share of
our common stock as reported by the Nasdaq National Market for the periods
indicated (all prices are adjusted for the two-for-one stock split in August
1999):
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended September 30, 1998
1st Quarter $23.38 $10.50
2nd Quarter 15.50 10.47
3rd Quarter 16.25 6.19
4th Quarter 9.63 5.13
Fiscal Year Ended September 30, 1999
1st Quarter $11.94 $5.91
2nd Quarter 17.59 8.75
3rd Quarter 23.63 15.25
4th Quarter 40.75 22.31
Fiscal Year Ending September 30, 2000
1st Quarter (through December 9, 1999) $66.00 $32.50
</TABLE>
The last reported sale price of our common stock on the Nasdaq National
Market on December 9, 1999 was $61.00 per share.
As of November 30, 1999, there were 42,384,723 shares of common stock
outstanding (net of 283,471 shares held as treasury stock) held by approximately
120 shareholders of record. Many shareholders hold their shares in "street
name." We believe we have more than 4,000 beneficial owners of our common stock.
17
<PAGE>
CAPITALIZATION
The following table sets forth our audited capitalization as of September
30, 1999. Because we are not selling any shares in this offering, there will not
be a change in capitalization from September 30, 1999 as a result of the selling
shareholders' sale of shares.
<TABLE>
<CAPTION>
Balance at September 30, 1999
-----------------------------
(in thousands, except share data)
<S> <C>
Current maturities of long-term debt $ 379
Long-term debt, less current maturities 1,790
--------
Total debt $ 2,169
Shareholders' Equity:
Common stock; $.0005 par value; 120,000,000
authorized shares; 42,668,194 issued and outstanding shares 11
Capital surplus 74,765
Unearned ESOP compensation (781)
Retained earnings 87,330
Less common stock held in treasury; 437,705 shares, at cost (2,926)
--------
Total shareholders' equity 158,399
--------
Total capitalization $160,568
========
</TABLE>
The above table excludes:
2,293,741 shares of common stock issuable upon exercise of options
outstanding under our option plans at September 30, 1999 at a weighted
average exercise price of $12.98 per share; and
3,999,046 shares of common stock reserved for future grants or issuance
under our stock option plans and employee stock purchase plan.
All shares held by our ESOP, whether allocated to participants' accounts or
not, are included in the common stock outstanding.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with summary historical financial data
of Sawtek Inc. We have prepared this information using the consolidated
financial statements of Sawtek Inc. for the five years ended September 30, 1999,
which have been audited by Ernst & Young LLP, independent auditors. When you
read this summary historical financial data, it is important that you read it
along with the historical financial statements and related notes appearing in
this prospectus, as well as the section of this prospectus titled, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Consolidated Statements of Income Data:
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $100,276 $97,700 $85,041 $59,173 $32,473
Cost of sales 42,224 44,811 38,569 28,338 14,148
-------- ------- ------- ------- -------
Gross profit 58,052 52,889 46,472 30,835 18,325
Operating expenses:
Selling expenses 5,637 6,008 5,384 4,024 3,139
General and administrative
expenses 4,319 4,693 5,842 18,852 4,244
Research and development
expenses 5,627 4,285 3,756 1,954 1,669
-------- ------- ------- ------- -------
Total operating expenses 15,583 14,986 14,982 24,830 9,052
-------- ------- ------- ------- -------
Operating income 42,469 37,903 31,490 6,005 9,273
Other income (expense), net 4,737 3,542 1,785 343 (144)
-------- ------- ------- ------- -------
Income before income taxes 47,206 41,445 33,275 6,348 9,129
Income taxes 16,522 15,240 12,556 6,568 3,405
-------- ------- ------- ------- ------
Net income (loss) $ 30,684 $26,205 $20,719 $ (220) $5,724
======== ======= ======= ======= ======
Net income (loss) per share:
Basic $ 0.73 $ 0.62 $ 0.50 $ (0.01) $0.21
======== ======= ======= ======= =====
Diluted $ 0.72 $ 0.60 $ 0.49 $ (0.01) $0.16
======== ======= ======= ======= =====
Shares used in per share calculations:
Basic 41,946 42,360 41,092 34,734 27,816
======== ======= ======= ======= ======
Diluted 42,815 43,356 42,668 40,486 36,542
======== ======= ======= ======= ======
</TABLE>
General and administrative expenses for 1996 include $12.9 million of ESOP
compensation expense.
19
<PAGE>
Consolidated Balance Sheet Data:
<TABLE>
<CAPTION>
September 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $115,274 $ 84,131 $ 58,073 $27,743 $ 2,821
Working capital 135,200 99,038 68,658 36,307 7,490
Total assets 191,579 148,710 120,506 75,524 23,802
Long-term debt, less
current maturities 1,790 2,169 2,868 3,907 6,916
Total shareholders' equity $158,399 $123,877 $ 98,218 $62,086 $(20,265)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our consolidated financial statements and the notes thereto included in this
prospectus and the Selected Consolidated Financial Data above.
Overview
- --------
We were incorporated in January 1979 to design, develop, manufacture and
market a broad range of electronic components based on SAW technology for use in
telecommunications, data communications, video transmission, military and space
systems and other applications. Our focus has been on the high-end performance
spectrum of the market, and our primary products are SAW bandpass filters,
resonators, delay lines, oscillators, SAW-based subsystems and chemical sensors.
Our 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, we made a strategic decision to target commercial markets, which
accounted for approximately 94% of net sales in 1999 and 92% of net sales in
1998. We have witnessed significant growth in our international markets over the
last five years. International sales accounted for 41% of net sales in 1999.
We derive revenue from high-volume commercial production components,
military/industrial production components and engineering services and products.
Non-recurring engineering revenue is included in net sales and relates to the
design and development of custom devices and delivery of one or more prototype
units. In all cases, revenue is recognized when the parts or services have been
completed and units, including prototypes, have been shipped.
Net sales increased 14.9% from 1997 to 1998, and 2.6% from 1998 to 1999.
The growth in net sales was attributable to growth in the wireless
communications market to which we supply SAW bandpass filters for cellular and
PCS base stations and handsets. We have a broad product line of SAW filters,
components and subsystems with average selling prices ranging from under $1 for
RF filters to over $10,000 for complex sub-systems.
For 1999, net sales to our top 10 customers accounted for approximately 70%
of net sales, compared to 76% in 1998, with the top five customers accounting
for approximately 55% of net sales in 1999, compared to 61% in 1998. We expect
that sales of products to a limited number of customers will continue to account
for a high percentage of our net sales in the foreseeable future.
21
<PAGE>
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from our statements of income to net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 42.1 45.9 45.4
----- ----- -----
Gross margin 57.9 54.1 54.6
Operating expenses:
Selling expenses 5.6 6.1 6.3
General and administrative expenses 4.3 4.8 6.8
Research and development expenses 5.6 4.4 4.4
----- ----- -----
Total operating expenses 15.5 15.3 17.5
----- ----- -----
Operating income 42.4 38.8 37.1
Other income-net 4.7 3.6 2.1
----- ----- -----
Income before income taxes 47.1 42.4 39.2
Income taxes 16.5 15.6 14.8
----- ----- -----
Net income 30.6% 26.8% 24.4%
===== ===== =====
</TABLE>
Comparison of Years Ended September 30, 1998 and 1999
- -----------------------------------------------------
Net Sales. Net sales increased 2.6% from $97.7 million in 1998 to $100.3
million in 1999. The increase was due to an increase in shipments of bandpass
filters for CDMA handsets, which increased from 28% of net sales in 1998 to 31%
of net sales in 1999. Sales of filters for base station applications decreased
3% from 1998 due to lower average selling prices. Sales for military and space
applications also declined from 9% of sales in 1998 to 6% of sales in 1999.
International sales increased from 37% of net sales in 1998 to 41% of net sales
in 1999 due to the recovery of the South Korean market, which accounted for 17%
of net sales in 1999 compared to 14% of net sales in 1998. Sales to all other
international markets also increased slightly in 1999 compared to 1998.
Gross Margin. The gross margin increased from 54.1% of net sales in 1998 to
57.9% of net sales in 1999. The increase was attributable to higher yields,
reduced prices for certain raw materials, a lower labor base for much of 1999
compared to 1998 and a shift of more production to our low-cost, high-volume
Costa Rican operation. Our Costa Rican operation accounted for 37.5% of net
22
<PAGE>
sales in 1998 compared to 46.9% of net sales in 1999. We believe that we will
produce a significantly higher volume of products in 2000 compared to 1999;
however, these newer products will likely have substantially lower average
selling prices compared to products sold in 1999. As a result, we believe that
while revenue may increase in 2000, our gross margin will decline as a percent
of net sales because the newer products will be subject to more competitive
pricing and the cost to manufacture them will be higher as a percent of revenue
compared to products sold in 1999.
Selling Expenses. Selling expenses decreased in absolute dollars and as a
percentage of net sales from 1998 to 1999. The decrease was due to reduced
corporate sales expense and reduced commissions paid to independent sales
representatives due in part to our opening of a Korean sales office which
reduced the cost of selling into the Korean market.
General and Administrative Expenses. General and administrative expenses
decreased in absolute dollars and as a percentage of net sales from 1998 to
1999. The decrease was due to reduced corporate administrative staff in 1999
compared to 1998. In addition, the general and administrative costs for 1998
included various costs associated with the acquisition of Microsensor Systems,
Inc. and costs to transfer certain of its operations to Orlando.
Research and Development Expenses. Research and development expenses
increased 31.3% from $4.3 million in 1998 to $5.6 million in 1999. The increase
was due to more R&D programs undertaken, including costs associated with
developing VaporLab, which is a handheld SAW-based chemical detector, costs
associated with developing SAW-based RF filters and other programs.
Other Income. Other income increased $1.2 million from 1998 to 1999 due to
increased interest income on our cash and investment portfolio, which increased
from $84 million in 1998 to $115 million in 1999.
Income Tax Expense. The provision for income tax as a percentage of income
before tax was 36.8% in 1998 compared to 35% in 1999. The slightly lower
effective rate for 1999 compared to 1998 relates to increased tax exempt
interest earned, the benefit from our foreign sales corporation, increased R&D
tax credit due to increased R&D expenditures and a lower effective rate for
state income taxes. We believe that our effective tax rate will be between 34%
and 35% for 2000.
23
<PAGE>
Comparison of Years Ended September 30, 1997 and 1998
- -----------------------------------------------------
Net Sales. Net sales increased 14.9% from $85.0 million in 1997 to $97.7
million in 1998. The increase was due to an increase in shipments of CDMA
subscriber handset filters which grew from 16% of net sales in 1997 to 28% of
net sales in 1998. Sales of GSM base station filters declined from $16.1 million
in 1997 to $14.8 million in 1998 due to the conversion to smaller, lower cost,
surface mount package filters in 1998 compared to larger, higher average price,
dual-in-line package filters sold in 1997. Sales of CDMA base station filters
were essentially unchanged from the previous year. International sales decreased
from 43% of total sales in 1997 to 37% of total sales in 1998 due to the
economic recession in Asia and reduced revenue from GSM base station filters to
European customers. Sales to South Korean customers decreased from 16% of total
revenue in 1997 to 14% of total revenue in 1998. Sales to South Korean customers
dropped in the fourth quarter of 1998 to approximately 5% of total sales due to
the economic turmoil experienced in that country and the decline in consumer and
industrial spending. Sales for military and space systems decreased from $9.8
million in 1997 to $8.8 million in 1998.
Gross Margin. Gross margin decreased slightly from 54.6% in 1997 to 54.1%
in 1998 due to lower gross profit margin on filters for subscriber handsets,
which increased as a percentage of overall revenue, lower gross profit margin on
surface mount GSM base station filters and competitive pricing pressure.
Offsetting these factors were improvements in manufacturing automation, improved
yields and higher productivity per worker in 1998 compared to 1997.
Selling Expenses. Selling expenses increased 11.6% from $5.4 million in
1997 to $6.0 million in 1998 due to commissions paid to independent sales
representatives and increased costs for internal sales personnel and related
expenses. Selling expenses decreased as a percentage of overall sales from 6.3%
in 1997 to 6.1% in 1998.
General and Administrative Expenses. General and administrative expenses
decreased 19.7% from $5.8 million in 1997 to $4.7 million in 1998 due to reduced
corporate administrative staff in 1998 compared to 1997, lower bonus payments
and no grants of compensatory stock options in 1998 compared to 1997.
Research and Development Expenses. Research and development expenses
increased 14.1% from $3.8 million in 1997 to $4.3 million in 1998 due to
additional personnel and expanded research and development efforts, particularly
for the development of SAW-based chemical sensors. A significant portion of our
development activities are conducted in connection with the design and
development of devices for specific customer applications, which are paid for by
customers. 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.
24
<PAGE>
Other Income. Other income increased in 1998 due to interest earned on the
higher cash and investment balances in 1998 compared to 1997 and lower interest
expense.
Income Tax Expense. The provision for income taxes as a percentage of
income before tax was 36.8% in 1998 compared to 37.7% in 1997. The slightly
lower effective tax rate for 1998 relates to increased interest earned on
tax-exempt securities, the benefit from our foreign sales corporation and a
lower effective rate for state income taxes.
Liquidity and Capital Resources
- -------------------------------
To date, we have financed our business through cash generated from
operations, bank borrowings, lease financing, the private sale of securities,
our May 1, 1996 initial public offering and the July 1, 1997 follow-on public
offering. We require capital principally for equipment, financing of accounts
receivable and inventory, investment in product development activities and new
technologies, expansion of our operations in Orlando and Costa Rica and
potential acquisitions of new technologies or compatible companies. For the year
ended September 30, 1999, we generated net cash from operating activities of
$42.4 million, consisting primarily of net income of $30.7 million, $7.2 million
of depreciation and amortization and an increase of $6.4 million in deferred
taxes, offset by a $7.1 million increase in accounts receivable.
We have a revolving credit agreement totaling $30.0 million from SunTrust
Bank, Central Florida, N.A. available through March 31, 2000. There were no
balances outstanding on this credit line at September 30, 1999.
We made capital expenditures of approximately $11.4 million during the year
ended September 30, 1999. We intend to spend approximately $32 million in 2000
on capital equipment and facilities to increase capacity.
In the fourth quarter of 1998, the Board of Directors authorized us to
repurchase up to 2,000,000 shares of common stock. To date, 1,129,810 shares
have been repurchased under this program, of which 358,810 shares costing
approximately $2.9 million were purchased in the year ended September 30, 1999.
We expect to continue to repurchase shares of common stock from time to time in
the future. The repurchased shares will be used to satisfy stock option
exercises and issuance of shares under other stock-related benefit programs.
25
<PAGE>
We believe that our present cash position and funds expected to be
generated from operations will be sufficient to meet our projected working
capital and other cash requirements for 2000. Thereafter, we may require
additional equity or debt financing to address our working capital needs or to
provide funding for capital expenditures. There can be no assurance that events
in the future will not require us to seek additional capital sooner or, if so
required, that it will be available on acceptable terms, if at all.
Foreign Operations, Export Sales and Foreign Currency
- -----------------------------------------------------
We 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
September 30, 1999, we had a net investment in fixed assets of approximately
$16.7 million in this operation and recorded net sales of approximately $47.1
million with an operating profit of approximately $16.8 million for 1999. The
functional currency for the Costa Rican subsidiary is the U.S. dollar since
sales, and 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, we established a "foreign sales corporation" pursuant to the
applicable provisions of the Internal Revenue Code to take advantage of income
tax reductions on export sales. For 1999, the cost to operate this subsidiary
was less than $10,000, and it has less than $10,000 in identifiable assets.
In 1999, we opened a sales and service office in Seoul, South Korea to
assist in our Asian sales efforts. The cost to operate this subsidiary in 1999
was less than $200,000.
International sales are denominated in U.S. dollars and represented 41%,
37% and 43% of net sales for the years ended September 30, 1999, 1998 and 1997,
respectively. Sales to the European market accounted for 18%, 18% and 22% for
these same periods, respectively, and sales to the Asian and Pacific Rim
markets, principally to South Korea were 18%, 16% and 17%, respectively for
these same periods. See Notes 11 and 12 to the Consolidated Financial
Statements.
Over the past year, the value of many foreign currencies have fluctuated
relative to the U.S. dollar. The Korean won and Japanese yen, in particular,
have fluctuated in value due in part to the economic events experienced by these
countries over the past year. A stronger U.S. dollar makes it more difficult for
us to sell our products to customers in these countries and makes it more
difficult for us to compete against SAW producers based in these countries. A
weaker U.S. dollar may make it more expensive for us to buy certain raw
materials and equipment from Japanese suppliers.
26
<PAGE>
The new common European currency, the euro, made its debut in January 1999.
Approximately 20% of our sales are to European customers. To date, none of our
customers or suppliers has requested us to transact business in the euro. At
this time, the impact of this new currency is not determinable.
Recently Issued Accounting Standards
- ------------------------------------
Please see Note 1 to the Consolidated Financial Statements for a discussion
of new pronouncements.
Impact of Inflation
- -------------------
We believe that inflation has not had a material impact on operating costs
and earnings.
Year 2000 Readiness
- -------------------
The Year 2000 issue relates to the method used by computer systems and
software for recognizing a year represented by "00" as 1900, instead of 2000.
Computer hardware and software describes traditional information technology
systems such as enterprise resource planning systems, accounting systems, fax
servers, print servers, desktop computers and applications, telephone/PBX
systems, as well as other systems such as manufacturing equipment, facilities
equipment and security systems and imbedded hardware. Some computer hardware and
software may recognize a year represented by "00" as 1900, instead of 2000. This
could result in unexpected behavior in the affected hardware or software. These
systems will need to be able to accept four-digit entries to distinguish years
beginning with 2000 from prior years. As a result, systems that do not accept
four-digit year entries will need to be upgraded or replaced to comply with Year
2000 requirements.
Our State of Readiness - Year 2000
Our Year 2000 inventory, assessment, remediation and testing began in
January 1998. We believe that we have substantially completed the tasks
necessary for a successful Year 2000 transition.
To certify Year 2000 compliance, we employed two methods. Vendor
certification was the primary method utilized. In order for a system from a
vendor to be considered compliant, we required a written statement from that
vendor, as well as a description of the testing methods used. If this
information was not available or was not otherwise considered adequate, we
performed internal tests. These tests included the use of a certified hardware
test program, the examination of the software source code by our Software
Engineering Department or Information Systems Department and advancing the date
past January 1, 2000.
27
<PAGE>
We also surveyed key suppliers. As of November 30, 1999, 100% of those
surveyed had responded. Of those surveyed, all stated that they are compliant.
No suppliers responded that they would fail to be Year 2000 compliant.
We believe, based on surveys of our key customers, that all of them either
have achieved full Year 2000 compliance or will be compliant by December 31,
1999.
Costs to Address the Year 2000 Issues
The bulk of our costs to address Year 2000 issues are internal staff time
estimated at less than $200,000 and the cost to upgrade our main MRP software
which is certified as Year 2000 compliant. The cost of this upgrade, which was
purchased in 1998, was $48,000. The cost to complete the Year 2000 compliance
was funded out of 1998 and 1999 operating cash flow.
The Risks of the Year 2000 Issues
Our products generally are not date sensitive and, therefore, are not
subject to Year 2000 defects or problems. We believe that our primary
manufacturing, engineering, financial and administrative systems are Year 2000
compliant. We believe that the greatest potential risk from Year 2000 issues
relates to the possibility that a major supplier or customer whose systems are
not Year 2000 compliant may be unable to meet delivery requirements for
important raw materials or equipment or may not be able to accept shipment of
our products until they correct their Year 2000 problem.
We believe that the Year 2000 issue will not pose significant operational
problems. However, if all Year 2000 issues are not properly identified, or
assessment, remediation and testing are not effected in a timely fashion, there
can be no assurance that the Year 2000 issue will not materially adversely
impact our results of operations or adversely affect relationships with
customers, vendors or other relevant parties. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on our systems or results of operations.
28
<PAGE>
Our Contingency Plans - Year 2000
- ---------------------------------
We have completed a comprehensive analysis of the operational problems and
costs (including loss of revenues) that could reasonably occur from any failure
by us or third parties to complete efforts necessary to achieve Year 2000
compliance on a timely basis. A contingency plan has been developed for dealing
with the most likely, worst-case scenario. This worst-case scenario includes
difficulties in customer billing, order processing, disruptions in our receipt
of raw material, loss of power and equipment malfunction. If this worst-case
scenario occurred it would harm our business. Depending on the systems affected,
these plans include increased work hours for our personnel or the use of
contract personnel to correct (on an accelerated schedule) any Year 2000
problems that may arise and use of manual workarounds for information systems.
However, because of our large power requirements, it is not practical to
establish emergency power systems should our electrical suppliers encounter
disruption in service.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
We are exposed to minimal market and interest rate risk. We manage the
sensitivity of our results of operations to these risks by maintaining a
conservative investment portfolio, which is comprised solely of highly rated,
short-term investments. We do not hold or issue derivative securities,
derivative commodity instruments or other financial instruments for trading
purposes. We are exposed to currency exchange fluctuations since we sell our
products internationally and we purchase raw materials and equipment from
foreign suppliers. We are also exposed to currency fluctuations associated with
our Costa Rican operation. We manage the sensitivity of our international sales,
purchases of raw materials and equipment and our Costa Rican operation by
denominating most transactions in U.S. dollars. We do engage in limited foreign
currency hedging transactions, principally to lock in the cost of purchase
commitments that are not denominated in U.S. dollars.
We are exposed to minimal interest rate risk on debt instruments as our
outstanding debt is less than $3 million, and we do not plan to use additional
debt-based financing to fund capital expenditures in 2000.
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BUSINESS
Overview
- --------
We design, develop, manufacture and market a broad range of electronic
signal processing components based on surface acoustic wave, or SAW, technology
primarily for use in the wireless communications industry. Our 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 CDMA and GSM digital wireless communications
systems, digital microwave radios, wireless local area networks, cable
television equipment, Internet infrastructure, various defense and satellite
systems and chemical sensors. We believe our 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. Our proprietary
computer aided design and analysis software tools support rapid and precise SAW
device design and simulation, enabling us to achieve timely new product
development. Our customer base includes major telecommunications equipment
producers such as Ericsson, Hyundai, LGIC, Lucent Technologies, Motorola, Nokia,
Qualcomm and Samsung.
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 can be used to modify
and condition the desired signals and reject unwanted signals that cause
distortion and interference. The frequencies at which these systems transmit and
receive information are in the RF or microwave frequency range. However, before
the information can be used, the signal must generally be converted to a lower
IF, or intermediate frequency, and finally to the lowest system frequency,
commonly referred to as baseband. While the RF and microwave 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 the 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.
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The wireless communications industry is experiencing significant worldwide
growth. Cost reductions and technological improvements in such wireless
communications products as cellular, personal communications services, or PCS,
WLL, 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 are providing the performance improvements necessary to address
overcrowding of existing cellular systems as well as increased functionality.
Unless wireless carriers adopt the emerging digital standards, they will suffer
from dropped calls due to the overcrowding problem. These standards include
CDMA, which is predominately utilized in the United States and South Korea as
well as in Japan, China and other countries, and GSM, adopted throughout Europe
and in many other countries worldwide. These new approaches are being utilized
to provide cellular and PCS mobile services as well as fixed WLL networks. As
demands for wireless communications subscriber services grow, service providers
are offering digital handset 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
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 RF and IF filters are required to
pass the desired signal without distortion, while rejecting interfering signals
from adjacent channels or frequency bands and other sources.
Telecommunications systems, including cellular and PCS, are rapidly
evolving from traditional analog to more efficient digital-based systems to
improve system performance and capacity. These digital systems require 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.
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The development of RF integrated circuits, coupled with surface mount
packaging, or 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 RF and IF signal processing
components, particularly for use in handset applications such as cellular
telephones.
Traditional signal processing technologies include lumped element known as
LC filters, ceramic and bulk acoustic wave, or 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 RF and IF frequency ranges and
increasing bandwidths 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
- ----------------
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 and are passive (no
current required). SAW devices are generally manufactured at the higher RF and
IF frequency ranges and broader bandwidths required for emerging systems. The
range of signal bandwidths that can be accommodated with SAW technology ranges
from 10 MHz to 3 GHz, 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 both IF and RF
signal processing components that 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.
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Sawtek Strategy
- ---------------
Our goal is to be the leading supplier of SAW devices used in wireless
communications and other applications. To accomplish this goal, we have a very
focused strategy. The key elements are:
Expand our product offerings for wireless handsets. We have completed
several key designs and have introduced SAW RF filters for CDMA handsets
and SAW IF filters for GSM handsets. In the future we plan to offer SAW RF
filters for GSM and other applications as well as SAW duplexer filters. We
believe this broad product offering will augment our core business
consisting of CDMA IF filters for handsets and IF base station filters for
GSM and CDMA. This broad-based product offering will enable us to offer our
customers a total SAW solution for wireless communications.
Expand our manufacturing capacity. We have started an aggressive capital
expenditure plan for 2000, estimated at $32 million, to increase our
manufacturing capacity. This plan includes increasing the capacity and
capability at our Orlando wafer fabrication facility, adding new automated
production lines to our Orlando and Costa Rican operations and increasing
the size of our Costa Rican facility from approximately 32,000 square feet
to approximately 62,000 square feet. We anticipate completing the bulk of
this program in 2000. Upon completion, our production capacity will be more
than four times greater in units compared to 1999.
Enhance our relationships with major telecommunications equipment
manufacturers. We plan to focus our attention on the major
telecommunication manufacturers and to further strengthen our relationships
with them by developing a product-based sales force, working closely with
them in the design phase and by expanding our production capacity in
advance of their requirements.
Continue to target new or emerging markets for SAW applications. We plan to
continue to develop products to meet the needs of a changing marketplace,
including filters for head-end equipment for cable modems for the Internet,
wireless local area networks, wireless data, SAW-based chemical sensors and
other applications for bringing voice, data and video into the home.
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Markets and Applications
- ------------------------
SAW devices may be utilized in most applications that transmit or receive
microwave or RF signals. We provide products to the following markets:
communications, military and space systems and other markets.
Communications
Applications for the communications market accounted for approximately 82%
of our net sales in 1999 compared to 81% in the previous year. Our
communications product offerings consist primarily of IF bandpass filters for
CDMA and GSM base station equipment and CDMA subscriber handsets. Additional
applications include base station repeaters, global satellite systems, digital
radios and data and video applications. We offer many custom SAW components to
serve these market applications.
As systems evolve from analog to digital, it is important to understand
what role the SAW filter serves. CDMA and GSM are digital technologies because
the final signal processing which occurs to maximize the frequency spectrum
(allowing multiple subscribers to talk at the same time within the FCC allocated
frequency band), is performed digitally. The actual transmission from a phone to
a base station through the air, however, must still be done through analog RF
waves. A SAW filter is a passive analog component that rejects the unwanted RF
signals and passes the desired signals for later digital signal processing.
Cellular. In cellular applications, calls are placed through subscriber
handsets by establishing a connection with a base station through RF channels in
the 800-1,000 MHz frequency range. We supply IF bandpass filters for CDMA and
GSM-based cellular base stations and for CDMA handset applications. We have also
recently introduced SAW RF filters for cellular CDMA handsets and SAW IF filters
for GSM handsets.
PCS. PCS systems are enhanced cellular networks that operate in a frequency
band of 1,800 to 2,000 MHz and provide a broad range of telecommunications
services. We supply IF bandpass filters for CDMA and GSM-based PCS base station
equipment, and bandpass filters for CDMA subscriber handsets.
WLL. WLL systems eliminate the need for a wire (loop) connecting users to
the public switched telephone network by transmitting voice messages over radio
waves for the "last mile" connection between the location of the customers'
telephone and a base station connected to the network equipment. We supply
bandpass filters to both base station and subscriber applications for WLL.
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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,
original equipment manufacturers, or 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, we frequently design unique
products for each OEM. As international standards have been adopted to meet
these requirements, we have developed standard products to meet these needs.
Applications include digital radios, wireless local area networks, handset data
terminals, global positioning systems and filters for head-end equipment to
clean up signals, which will speed up Internet access for cable modems.
Video Transmission. OEM products utilizing relatively low frequency SAW
filter designs for cable television head-end equipment are purchased worldwide
by cable operating companies. We manufacture a variety of SAW filters to serve
the various standards required by the worldwide video transmission market.
Emerging technologies within the video transmission market include digital high
definition television and interactive television. We have designed custom
products for both of these applications.
Military and Space
We have been a provider to the military and space systems markets since our
inception. Our components and subsystems can be found in major applications that
include electronic warfare, defense communications, missile guidance, military
and commercial space systems, radar and surveillance.
The Company performs classified work for the United States government and
certain of its contractors. In early October, 1999, the Company was informally
advised by Defense Security Services, or DSS, that the Company's facility
security clearance had been invalidated based on foreign ownership, control or
influence. The reason given by DSS for this action was that Dr. Anemogiannis,
our President and Chief Operating Officer, is a Greek citizen, not a United
States citizen. Dr. Anemogiannis has permanent residence status in the United
States. Based on meetings with a representative of DSS, the Company amended its
bylaws and adopted certain resolutions on November 2, 1999, to exclude Dr.
Anemogiannis and all other officers or directors not having the necessary
security clearance from having any influence or control over classified work
performed by the Company. On December 8, 1999, at the suggestion of the DSS
representative, the Company's Board of Directors adopted another resolution to
create a committee consisting of persons who have security clearances and gave
this committee full executive authority to exercise management control and
supervision over all matters involving the security of classified information in
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the possession of the Company. DSS is currently reviewing these actions by the
Company to determine whether or not to validate the Company's facility security
clearance. The Company will be prohibited from accepting new classified work
until it has a facility security clearance. In 1999, the Company had revenues of
approximately $2,300,000 from classified work.
Other Markets
We custom design products that are utilized in other markets such as
commercial avionics and test equipment applications for circuit design and
system performance analysis including signal generators, spectrum analyzers and
cellular telephone system test equipment. In addition, we market three families
of standard SAW filters and offer these products for sale through distribution
networks in North America and Europe.
We have been developing SAW-based chemical sensors for several years, and
we are a leading supplier of SAW resonators and delay lines used in sensor
development programs. In February 1998, we acquired Microsensor Systems, Inc. of
Bowling Green, Kentucky, a supplier in the developing SAW-based chemical sensor
instrument market.
Products
- --------
We produce 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-based
chemical sensor products.
Bandpass Filters
Although the basic functions of SAW bandpass filters are similar for
various applications, the actual specifications for each of these products are
very different depending upon their usage as an RF front-end filter, an image
reject filter or an IF filter. For example, while rejection is more important in
a base station filter, insertion loss is more important in a handset RF filter,
and group delay variation and passband flatness are critical in wireless data
filters. Our sales and engineering personnel work closely with our customers to
define not only the specifications needed, but also the importance of each
specification. We then select a general SAW structure that best matches each
customer's application and design a specific filter to meet their unique
requirements. Typical filter structures and their corresponding applications are
described below.
Bi-directional Transversal Filters. This traditional SAW filter structure
is characterized by very steep shape factors and relatively high insertion loss.
These types of filters operate over a wide range of frequencies and fractional
bandwidths. They are commonly used in applications such as military
communications, cable television or CDMA base stations that require very steep
rejection, but that can accept more insertion loss and a larger package size.
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Low-loss Transversal Filters. We have improved upon the bi-directional
filter structure by utilizing techniques to lower the insertion loss while
maintaining good selectivity. We offer low loss structures for both moderate and
wide fractional bandwidth filters. Applications for these low loss, surface
mount devices include CDMA handsets, digital radios, WLL, 3G base stations, WLAN
and GPS.
Reflective Low-loss Filters. To suit the narrower fractional bandwidth of
GSM-based systems, Sawtek utilizes a reflective low loss design approach. Sawtek
has utilized this design approach to drive GSM base station filters from larger
leaded packages to smaller surface mount packages, thereby offering continuous
price reductions to our customers. Recent development of the reflective low-loss
technology has made a significant impact in the CDMA handset market as well.
This approach has enabled us to produce these complex devices at a fraction of
the size of the older, low-loss transversal filters, while offering the same or
better performance.
Resonator Filters. As we enter the handset market for RF filters and GSM IF
filters, we have expanded our resonator-based filter technology to include
combined mode, in-line coupled, waveguide coupled and ladder structures. This
filter technology features very low insertion loss that is critical in these
applications. These filters are ideally suited for pre-selector and image reject
functions in mobile handset or home wireless applications.
Resonators
We offer two types of resonators: SAW and surface transverse wave. Products
operating from 100 MHz to 2.5 GHz are available and are generally used as
stable, high-Q frequency control elements that determine the operating
frequencies of oscillators. We offer these products for use in high performance
commercial, military and space applications, where the demand for more stringent
electrical performance is not served by high volume SAW resonator manufacturers.
In addition to offering these products as individual components, we use our
resonators in the manufacture of high performance oscillator products.
Delay Lines
We currently offer SAW delay line products, consisting of non-dispersive,
dispersive and multi-tap delay line configurations. 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. Our 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 handset data
terminal products.
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Oscillators
We offer 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. Our oscillators
are used in high performance commercial and military applications such as
instrumentation, avionics and electronic warfare.
SAW-based Subsystems
SAW-based subsystems are among our most complex and highly integrated
products. 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 products are highly
specialized and are custom developed for specific applications. Our 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-Based Chemical Sensor Products
We offer a line of SAW-based chemical sensor instruments for the chemical
agent detection market through our wholly owned subsidiary, Microsensor Systems,
Inc. The customer base for chemical agent detectors includes the U.S. military,
various Federal agencies and state and local municipalities. We also offer an
ethylene oxide detector that is commonly used in the hospital sterilization
market and a fuel dilution meter for the oil analysis market. In 1999, we
introduced a new product, VaporLab, which is a handheld, battery operated device
that can be programmed to detect a variety of chemical compounds for use in
commercial applications. In addition, we continue to be a leading supplier of
SAW resonators and delay lines used in sensor development programs throughout
the world.
New Product Development
- -----------------------
Our research and development and engineering teams are developing new
SAW-based products to serve the needs of our current and potential customers.
Much of the effort is involved in reducing the size and increasing the
performance of our devices. Examples of recent development efforts that are
generating new revenue include filters for WLAN and WLL applications,
significantly smaller surface mount IF filters for GSM and CDMA applications and
the introduction of SAW RF filters.
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We have identified SAW-based chemical sensors and subsystems as a promising
technology for new product development. A majority of our sensor development
work is being conducted through our subsidiary, Microsensor Systems, Inc. To
date, our scientists have made fundamental improvements in three major technical
areas necessary for product development, namely, temperature compensation,
polymer development and metrology. The market for SAW-based chemical sensors is
in the early stages of development. For 1999, sales of chemical sensor products
accounted for less than 3% of our consolidated revenue.
Technology
- ----------
SAW Technology. A simple SAW filter has two transducers that consist of
inter-digital 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 mechanical strain in the material. When a signal of the proper
frequency is applied across the interdigital transducers, or 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
that can be detected by an IDT. The electrode spacing and the material's surface
acoustic wave velocity determine the operating frequency of the device. This
relationship places physical limitations on the frequency of operation of
practical SAW devices due to limitations in photolithographic resolution. The
configuration of the IDT and properties of the substrate material determine the
signal processing function and response characteristics of the device.
SAW devices provide complex signal processing functions in a single,
compact device. One example is the outstanding bandpass filter characteristics
that can be achieved using SAW technology. Comparable performance utilizing LC
filter technology would require numerous components and could occupy more space
on a PC board. Because surface acoustic waves propagate 100,000 times more
slowly 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 photolithographic processes determine
device operating frequencies, SAW devices do not require complicated tuning
procedures, nor do they become detuned in the field. The semiconductor
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microfabrication techniques used in manufacturing SAW components allow for high
volume production of economical and reproducible devices. 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. Our versatile and
user-friendly proprietary software supports the design and simulation of a broad
range of SAW device structures, allowing our design engineers to optimize the
SAW design for a particular application with respect to performance, size and
cost.
Manufacturing
- -------------
The manufacturing techniques used to produce our 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 we control a
substantial portion of the manufacturing process, some activities are
outsourced. The primary raw materials used to manufacture our products are
purchased from outside sources and 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 system. We segregate 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 then 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 between several and 3,000 die, depending upon the
design and performance requirements of the final product. All of our fabrication
processes are conducted at our main 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 any associated components 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 generally
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.
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In 1996, we established a subsidiary in Costa Rica for the production of
SAW components. In 1999, our Costa Rican subsidiary accounted for approximately
47% of net sales, compared to 38% of net sales in 1998, and 36% of consolidated
net fixed assets at September 30, 1999, compared to 30% at September 30, 1998.
We have recently initiated a significant capital expansion program for both
the Orlando and Costa Rican operations, estimated at $32 million for 2000. The
expansion program will increase the capacity and capability of the Orlando wafer
fabrication facility and will add new automated production lines in Orlando and
Costa Rica. This expansion will provide the necessary capacity to pursue the
high-volume SAW RF filter market as well as other opportunities.
Raw Materials and Sources of Supply
- -----------------------------------
We generally maintain alternative sources for our principal raw materials
to reduce the risk of supply interruptions or price increases. We purchase these
materials on a purchase order basis against annual supply agreements, and we do
not normally carry significant inventories of raw material.
We use several raw materials in manufacturing SAW components, including
wafers made from quartz, lithium niobate or lithium tantalate and ceramic or
metal packages used in final assembly. Relatively few companies produce these
piezoelectric wafers and metal and ceramic packages. Recently, we have
experienced difficulties in obtaining ceramic packages used in the production of
bandpass filters. Our most significant suppliers of ceramic surface mount
packages are three companies based in Japan. This reliance on a limited number
of suppliers involves several risks, including reduced control over the price,
foreign currency exposure, timely delivery, reliability and quality of the
material. In an attempt to minimize this problem, we have alternate sources of
supply, negotiated long-term agreements, and have planned to increase our raw
material inventories.
Sales and Marketing
- -------------------
We use a team-based sales approach to develop relationships at multiple
levels within each customer's organization, including management, engineering
and purchasing. We have 15 domestic and 12 international, independent sales
representatives to identify opportunities that are then managed by our internal
sales force. Our sales and marketing personnel and management handle direct
sales. We also utilize distributors to generate additional sales for our
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standard product families and we have a sales and service office in Seoul, Korea
to assist with our Asian sales effort. Once an opportunity is identified,
members of our engineering design team and sales team coordinate close technical
collaboration with the customer during the design and qualification phase of
their program. Our executive officers are actively involved in all aspects of
the sales and marketing process, working closely with the senior management of
our customers.
Customers
- ---------
We have a concentrated customer base with five customers that each
accounted for over 5% of net sales in 1999. They are, in alphabetical order,
Lucent Technologies, Motorola, Nokia, Qualcomm and Samsung. Our top 10 customers
accounted for approximately 70% of net sales in 1999 and 76% of net sales in
1998. The loss of any of these customers could have a material adverse effect on
our business, operating results and financial condition. There is no assurance
that we will obtain future business from these customers.
The following is an alphabetical list of our customers that contributed
$1.0 million or more to our revenues in 1999:
Alcatel;
AVNET;
Cisco;
Ericsson;
Hanwha;
Hyundai;
LGIC;
Lucent Technologies;
Motorola;
Nokia;
Northrop Grumman;
Qualcomm;
Rockwell;
Samsung; and
United States Government.
Competition
- -----------
The markets for our products are characterized by price competition, rapid
technological change, product obsolescence and heightened global competition. We
compete against large international firms that have substantially greater
financial, technical, sales, marketing, distribution and other resources than us
in each of our product markets. In addition, we face competition from companies
that currently produce SAW devices for their internal requirements, as well as
from a number of our customers who have the potential to develop an internal
capability to produce SAW devices. The following North American companies
compete with us to a greater or lesser degree: Andersen Laboratories, CTS
Wireless Components, Phonon, RF Monolithics and Vectron. Competition from
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European companies principally includes EPCOS AG, formerly Siemens Matsushita
Components and Thomson Microsonics. We are experiencing increasing competition
from Pacific Rim companies as we further expand into handsets and other high
volume subscriber applications. Major Asian suppliers of SAW-based products
include Fujitsu, Murada, NDK and several other Japanese and Korean
manufacturers. We expect competition to increase from both established and
emerging competitors as well as from internal capabilities developed by certain
customers. Competition could also come from alternative technologies including
digital filtering, direct conversion or other approaches that could potentially
reduce or eliminate the need for certain SAW filters in wireless handsets.
Research and Development
- ------------------------
Our research and development efforts are directed towards developing new
and innovative SAW device structures and SAW-based technologies to address
demand in selected markets. The goal of our research and development group is to
develop the technological tools and techniques necessary to meet emerging market
requirements.
We engage 28 scientists, technicians and consultants in our research and
development efforts. In addition to our staff and consultants, we are involved
in cooperative research programs with outside organizations, including
individuals, research groups, universities, institutes and national
laboratories. This approach allows our research and development group to benefit
from the ideas and talents of a group of scientists larger than our internal
staff, and helps to maintain a highly creative, stimulating and intellectual
environment for our scientists.
Research and development expenses were $5.6 million in 1999, $4.3 million
in 1998 and $3.8 million in 1997. We anticipate that research and development
expenses will continue to increase in total dollars as personnel and programs
are added. A portion of our development activities is conducted in connection
with the design and development of custom devices, which is paid for by
customers.
Proprietary Rights
- ------------------
We rely on a combination of patents, copyrights and trade secrets to
establish and protect our intellectual property rights. We hold 22 patents
(which expire between 2005 and 2018), relating to SAW devices, oscillators,
packaging technologies and chemical sensors; and, we have 18 patents pending. We
also own a substantial body of proprietary techniques and trade secrets. We
recognize the benefits associated with developing a portfolio of corporate
intellectual property, particularly during the new product development process,
and we are aggressively pursuing patents on several technologies. Over the past
two years, 19 patent applications were filed and 12 patents have been issued.
There can be no assurance that patents will issue from any of the pending
applications, that any claims allowed from existing or pending patents will be
sufficiently broad to protect our technology or that the patents will withstand
challenges to their validity.
43
<PAGE>
We also seek to protect our 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 we will have adequate remedies for any breach or that our 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 our
proprietary rights to the same extent as the laws of the United States.
Backlog
- -------
Our backlog as of September 30, 1999 was approximately $29 million compared
to the backlog at September 30, 1998 of $16 million. We include in backlog only
customer orders and certain purchase agreements with firmly scheduled deliveries
within the subsequent 12 months. We expect to ship substantially our entire
backlog by September 30, 2000. The backlog is not necessarily indicative of
future product sales, and a delay or cancellation of a small number of purchase
orders may materially adversely affect us. Backlog cancellations are negotiated
with each customer in writing and generally form a part of the contract with the
customer.
Most of the orders from our largest customers allow the customer to cancel
the order with a certain amount of required notice; and, from time to time, we
have experienced cancellations of orders in backlog. This notice is negotiated
with each customer and is generally related to the manufacturing cycle time of
the product that 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
renegotiations as a result of the lower quantity of units taken.
Employees
- ---------
At September 30, 1999, we had 603 employees (compared to 549 at September
30, 1998), including 423 in manufacturing and operations; 107 in research,
development and engineering; 22 in quality assurance; 23 in sales and marketing
and 28 in administration. There were 212 employees located in San Jose, Costa
Rica, 8 in Bowling Green, Kentucky, 3 in Seoul, South Korea and 380 employees in
Orlando, Florida. None of our employees is represented by a labor union, and we
have not experienced any work stoppages. We consider employee relations to be
excellent.
44
<PAGE>
Facilities
- ----------
Our principal administrative, engineering and manufacturing facilities are
located in one owned building of approximately 93,000 square feet and one leased
building of approximately 1,400 square feet, both located in Orlando, Florida.
We also own a production facility located in San Jose, Costa Rica of
approximately 32,000 square feet. We are in the process of adding approximately
30,000 square feet to this facility over the next 10 months. We also lease a
7,600 square foot facility in Bowling Green, Kentucky for our chemical sensor
development operation, and we also lease a small sales office in Seoul, South
Korea. We believe our facilities, along with the planned expansion, are adequate
to meet our current needs and that suitable additional or alternative space will
be available, as needed, on commercially reasonable terms. Our 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 our competitive position.
Legal Proceedings
- -----------------
There are no material legal proceedings pending either by us or against us
as of the date of this prospectus.
45
<PAGE>
MANAGEMENT
Management - Executive Officers and Directors
- ---------------------------------------------
The executive officers and directors of the Company and their ages as of
October 1, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Steven P. Miller 51 Chairman of the Board of Directors
Gary A. Monetti 40 Chief Executive Officer and Director
Kimon Anemogiannis 37 President and Chief Operating Officer
Raymond A. Link 45 Senior Vice President-Finance, Treasurer
and Chief Financial Officer
Brian P. Balut 34 Vice President-Sales and Marketing
John K. Bitzer 49 Vice President-Operations Support
Azhar Waseem 46 Vice President-Operations
Robert C. Strandberg(1) (2) 42 Director
Neal J. Tolar (1) 58 Director
Bruce S. White (2) 66 Director
Willis C. Young (1) (2) 58 Director
<FN>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</FN>
</TABLE>
Steven P. Miller co-founded the Company, has served as a Director since
1979, Chief Executive Officer from 1986 to September 30, 1999, Chairman since
February 1996 and President from 1979 to April 1997. He stepped down from
day-to-day operations on September 30, 1999. 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 and was appointed Chief
Executive Officer effective October 1, 1999. He served as President from April
1997 to September 30, 1999 and Chief Operating Officer from July 1995 to
September 30, 1999 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 a
B.S. degree in Electrical Engineering from the University of Illinois and an
M.B.A. degree from Rollins College. Mr. Monetti was appointed to the Board of
Directors in April 1998.
46
<PAGE>
Kimon Anemogiannis joined Sawtek in July 1995 as Director of Engineering
and was promoted to Vice President-Engineering in April 1998, Vice
President-Operations in 1999 and President and Chief Operating Officer,
effective October 1, 1999. Prior to joining Sawtek, Dr. Anemogiannis was in
various engineering positions for the surface acoustic wave (SAW) group at
Siemens Matsushita based in Munich, Germany from August 1986 to July 1995. Dr.
Anemogiannis has an M.S. degree and a Ph.D. degree in Electrical Engineering
from the Technical University of Munich.
Raymond A. Link joined the Company in September 1995 as Vice
President-Finance and Chief Financial Officer and was promoted to Senior Vice
President and Chief Financial Officer, effective October 1, 1999. From 1987 to
September 1995, Mr. Link was Vice President-Finance and Chief Financial Officer
of Hubbard Construction Company, a heavy/highway construction company. From 1980
to 1987, he was with Harris Corporation, a manufacturer of electronic
communication equipment, in various financial capacities. Mr. Link has a B.S.
degree from the State University of New York at Buffalo and an M.B.A. degree
from the Wharton School at the University of Pennsylvania. He is a Certified
Public Accountant.
Brian P. Balut joined Sawtek in October 1994 as a Sales Manager, was
promoted to Director of Sales and Marketing in November 1996 and promoted to
Vice President Sales and Marketing in September 1998. From 1987 to 1994, Mr.
Balut was in various sales, marketing and engineering positions with REMEC, a
manufacturer of electronic components. Mr. Balut has a B.S. degree in Electrical
Engineering from the Massachusetts Institute of Technology and an M.B.A. degree
from Rollins College.
John K. Bitzer joined Sawtek in August 1991 as Director of Operations
Support and was promoted to Vice President-Operations Support in April 1998.
From December 1988 to July 1991, Mr. Bitzer was the Director of Operations for
the ESCO unit of Emerson Electric. From 1974 to December 1988, Mr. Bitzer was in
various operations and management positions with the General Electric Company.
Mr. Bitzer has a B.S. degree in Mechanical Engineering from West Virginia
University.
Azhar Waseem joined Sawtek in March 1995 as Director of Wafer Fabrication
and was promoted to Vice President-Manufacturing in April 1998 and to Vice
President-Operations, effective October 1, 1999. From 1989-1994, Mr. Waseem was
in various operation and engineering positions of Siliconix, Inc., a
microelectronics manufacturer, based in Santa Clara, California and from
1986-1989 he was in various engineering positions with the General Electric
Company. Mr. Waseem has a B.S. and M.S. degree in Electrical Engineering and an
M.B.A., all from the University of Minnesota.
47
<PAGE>
Robert C. Strandberg has been a Director of the Company since October 1995.
Mr. Strandberg is President and CEO of PSC Inc., a manufacturer of bar code
readers, since June 1997 and served as Executive Vice President from November
1996 to June 1997. Mr. Strandberg is also a Director of Merix Corporation. 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 a B.S. degree in Operations Research and Industrial Engineering
from Cornell University and an M.B.A. degree from Harvard Graduate School of
Business Administration.
Neal J. Tolar co-founded the Company and served as Senior Vice President
and Chief Technical Officer from June 1995 to September 30, 1999 and a Director
since 1979. He stepped down from the day-to-day operations on September 30,
1999. 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 B.S. degree in Ceramic Engineering from Mississippi
State University and a Ph.D. in Ceramic Engineering from the University of Utah.
Bruce S. White has been a Director of the Company since April 1996. Mr.
White was a Corporate Vice President of AVNET Inc., a distributor of electronic
components from January 1996 to January 1998 and the President of the Penstock
Division of AVNET Inc. from July 1994 to January 1998. 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. Mr. White is now
retired from both AVNET and Penstock. AVNET is a distributor of certain products
manufactured by Sawtek. In 1999, sales from Sawtek to AVNET were approximately
$3.8 million. Mr. White has a B.A. degree in Mathematics from Colgate University
and a B.S. and M.S. degree 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.
48
<PAGE>
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.
49
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock by the following persons as of November
30, 1999, and as adjusted to reflect the sale of common stock offered by the
selling shareholders:
Each shareholder known by us to own beneficially more than five percent of
our common stock;
Each of the executive officers named in the Summary Compensation Table set
forth in our proxy materials on Schedule 14A incorporated by reference in
this prospectus;
Each of our directors; and
All directors and executive officers as a group.
Except as otherwise noted below, the address of each person listed on the
table is 1818 South Highway 441, Apopka, Florida 32703.
The table below assumes the underwriters do not exercise their
over-allotment option. If the over-allotment option is exercised in full, the
selling shareholders will sell a total of 4,600,000 shares of common stock.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person, we
include shares of common stock subject to options held by that person that are
currently exercisable or will become exercisable within 60 days after November
30, 1999, while those shares are not included for purposes of computing
percentage ownership of any other person. Unless otherwise indicated, the
persons and entities names in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
50
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Number of Shares Shares Beneficially Owned
Being Offered After Offering
------------------------- ---------------- -------------------------
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Sawtek Inc. Employee Stock Ownership
and 401(K) Plan(1) ("The ESOP");
Care of: HSBC USA, 140 Broadway,
11th Floor, New York, NY 10005 12,209,942 28.81% 2,000,000 10,209,942 24.09%
Executive Officers and Directors:
Steven P. Miller(2) 2,014,692 4.75% 1,000,000 1,014,692 2.39%
Neal J. Tolar(3) 1,673,654 3.95% 1,000,000 673,654 1.59%
Gary A. Monetti(4) 328,564 * - 328,569 *
Raymond A. Link(5) 171,356 * - 171,356 *
Kimon Anemogiannis(6) 87,162 * - 87,162 *
Robert C. Strandberg(7) 23,600 * - 23,600 *
Bruce S. White(8) 40,000 * - 40,000 *
Willis C. Young(9) 14,000 * - 14,000 *
All Directors and Executive Officers
as a Group (11 persons)(10) 4,435,632 10.47% 2,000,000 2,435,632 5.75%
<FN>
* Less than 1% of the outstanding common stock.
(1) HSBC Bank USA (formerly known as Marine Midland Bank) is the Trustee of the
ESOP. The ESOP, through the Trustee, exercises sole dispositive and voting
control over these shares, all of which are held by the ESOP as record
owner. Includes 9,029,458 shares allocated to participants' accounts and
3,180,484 shares not yet allocated to participant's account. Each ESOP
participant, with respect to certain matters, controls the voting of shares
allocated to his or her account by instructing the Trustee how such shares
shall be voted. The Trustee controls the voting of all unallocated shares.
(2) Includes 659,022 shares held by Sawmill Investment Limited Partnership of
which Mr. Miller is the general partner and 1,355,670 shares held by Via
Capri Investment Limited Partnership, which Mr. Miller has indirect voting
control. Excludes 237,892 shares owned by the ESOP but allocated to his
account. Mr. Miller has directed the ESOP Trustee to sell _____________
shares from his allocated ESOP account.
(3) Excludes shares owned by his majority age children for which he disclaims
any beneficial interest. Includes 472,028 shares held by MOP Investment
Limited Partnership and 1,201,626 held by MOPNJ Investment Limited
Partnership of which Dr. Tolar has indirect voting control. Excludes
315,983 shares owned by the ESOP but allocated to his account. No shares in
Dr. Tolar's ESOP account will be sold in this offering.
(4) Includes options to purchase 159,460 shares of common stock exercisable
within 60 days of November 30, 1999. Excludes 200,583 shares owned by the
ESOP but allocated to his account. Mr. Monetti has directed the ESOP
Trustee to sell ___________ shares from his allocated ESOP account.
(5) Includes options to purchase 107,500 shares of common stock exercisable
within 60 days of November 30, 1999. Excludes 59,098 shares owned by the
ESOP but allocated to his account. Mr. Link has directed the ESOP Trustee
to sell ____________ shares from his allocated ESOP account.
51
<PAGE>
(6) Includes options to purchase 78,334 shares of common stock exercisable
within 60 days of November 30, 1999. Excludes 48,207 shares owned by the
ESOP but allocated to his account. Mr. Anemogiannis has directed the ESOP
Trustee to sell ___________ shares from the ESOP account.
(7) Includes options to purchase 13,332 shares of common stock exercisable
within 60 days of November 30, 1999.
(8) Includes options to purchase 40,000 shares of common stock exercisable
within 60 days of November 30, 1999.
(9) Includes options to purchase 14,000 shares of common stock exercisable
within 60 days of November 30, 1999.
(10) Includes options to purchase 449,026 shares of common stock exercisable
within 60 days of November 30, 1999.
</FN>
</TABLE>
52
<PAGE>
UNDERWRITING
Hambrecht & Quist LLC, CIBC World Markets Corp. and Bank of America
Securities LLC are the representatives of the underwriters. Subject to the terms
and conditions of the Underwriting Agreement, the underwriters named below,
through their representatives, have severally agreed to purchase from the
selling shareholders the following number of shares of common stock:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Hambrecht & Quist LLC
CIBC World Markets Corp.
Banc of America Securities LLC _________
Total 4,000,000
</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 our business and the receipt of certain
certificates, opinions and letters from us, our counsel and independent
auditors. The underwriters are committed to purchase all of the shares of common
stock offered by us if they purchase any shares.
The following table shows the per share and total underwriting discounts
and commissions the selling shareholders will pay to the underwriters. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' over-allotment option to purchase additional shares.
<TABLE>
<CAPTION>
Underwriting Discounts and Commissions
Without With
Over-Allotment Over-Allotment
Exercise Exercise
-------------------------------------- --------------
<S> <C> <C>
Per Share $ $
Total $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $________________
million.
The underwriters propose to offer the shares directly to the public at the
public offering price set forth on the cover page of this prospectus and to
certain dealers at that 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 this offering
of the shares, the offering price and other selling terms may be changed by the
underwriters.
53
<PAGE>
Certain of the 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 600,000 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. 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 this option only to cover over-allotments made in
connection with the sale of shares of common stock in this offering.
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.
We 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 of these liabilities.
Certain beneficial owners of shares, including the executive officers,
directors and the selling shareholders, who will own in the aggregate 12,645,574
shares after the offering, have agreed that they will not, without the prior
written consent of Hambrecht & Quist, sell or otherwise dispose of any shares of
common stock or options 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. We have agreed that we
will not, without the prior written consent of Hambrecht & Quist, offer, sell,
grant any option to purchase or otherwise dispose of any shares or any
securities exchangeable for or convertible into shares during the 90-day period
following the date of this prospectus, except that we may issue, and grant
options to purchase, shares under our 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.
Certain persons participating in this offering may over-allot 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, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
54
<PAGE>
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. A penalty bid means an arrangement that permits the underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of common stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq National Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
In connection with this offering, certain underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended. In general, a passive market maker
must display its bid at a price not in excess of the highest independent bid of
such security; if all independent bids are lowered below the passive market
maker's bid, however, such bid must then be lowered when certain purchase limits
are exceeded.
55
<PAGE>
TRANSFER AGENT
Our transfer agent is SunTrust Bank, Central Florida, N.A.
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. is the secretary of Sawtek Inc. Certain legal
matters will be passed upon for the underwriters by Jones, Day, Reavis & Pogue,
Atlanta, Georgia. Jones, Day, Reavis & Pogue may rely upon Gray, Harris &
Robinson, P.A. with respect to the laws of Florida.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at September 30, 1999 and 1998, and for each of the three
years in the period ended September 30, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
INFORMATION INCORPORATED BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents that we have
previously filed with the Commission or documents that we will file with the
Commission in the future. The information incorporated by reference is
considered to be part of this prospectus, except as modified or superseded by
this prospectus, and later information documents that we file with the
Securities and Exchange Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below, and any
future filings made with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, until we close this
offering, and the over-allotment option expires or is exercised. The documents
we incorporate by reference are:
1. Our annual report on Form 10-K for the year ended September 30, 1999.
2. Our proxy materials on Schedule 14A as filed with the Securities and
Exchange Commission on December 6, 1999.
56
<PAGE>
3. The description of our common stock contained in our registration
statement on Form 8-A as filed with the Securities and Exchange
Commission on April 29, 1996.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and number: Raymond A. Link, Senior Vice
President and Chief Financial Officer, Sawtek Inc., 1818 South Highway 441,
Apopka, Florida 32703; telephone number (407) 886-8860.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials we file with the Securities and Exchange Commission at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information on its public reference rooms. The Securities and Exchange
Commission also maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Securities and Exchange Commission.
We have filed with the Securities and Exchange Commission a registration
statement (which contains this prospectus) on Form S-3 under the Securities Act
of 1933. The registration statement relates to the common stock offered by the
selling shareholders. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement. Please refer to the registration statement and its
exhibits and schedules for further information with respect to us and our common
stock. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
we refer you to the copy of that contract or document filed as an exhibit to the
registration statement. You may read and obtain a copy of the registration
statement and its exhibits and schedules from the Securities and Exchange
Commission, as described in the preceding paragraph.
57
<PAGE>
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income .......................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
FINANCIAL STATEMENT SCHEDULES
All required information is included in the Notes to Consolidated Financial
Statements.
F-1
<PAGE>
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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1999. 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 financial position of Sawtek Inc.
and subsidiaries at September 30, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Orlando, Florida
October 22, 1999
F-2
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share data)
ASSETS
<CAPTION>
September 30,
1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash, cash equivalents and short-term investments $115,274 $ 84,131
Accounts receivable, net 18,641 11,569
Inventories 8,052 8,453
Deferred income taxes 1,063 1,179
Other current assets 2,107 1,184
-------- --------
Total current assets 145,137 106,516
Property, plant and equipment, net 46,442 42,194
-------- --------
Total assets $191,579 $148,710
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,055 $ 1,830
Accrued wages and benefits 3,638 3,198
Other accrued liabilities 1,674 1,912
Current maturities of long-term debt 379 469
Income taxes payable 191 69
-------- --------
Total current liabilities 9,937 7,478
Long-term debt, less current maturities 1,790 2,169
Deferred income taxes 21,453 15,186
Shareholders' Equity:
Common stock; $.0005 par value; 120,000,000 authorized shares; 42,668,194
issued and outstanding shares 11 11
Capital surplus 74,765 72,816
Unearned ESOP compensation (781) (975)
Retained earnings 87,330 56,646
Less common stock held in treasury, at cost; 437,705 shares in 1999 and 771,000
shares in 1998 (2,926) (4,621)
-------- --------
Total shareholders' equity 158,399 123,877
-------- --------
Total liabilities and shareholders' equity $191,579 $148,710
======== ========
See notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share data)
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $100,276 $97,700 $85,041
Cost of sales 42,224 44,811 38,569
-------- ------- -------
Gross profit 58,052 52,889 46,472
Operating expenses:
Selling expenses 5,637 6,008 5,384
General and administrative expenses 4,319 4,693 5,842
Research and development expenses 5,627 4,285 3,756
-------- ------- -------
Total operating expenses 15,583 14,986 14,982
-------- ------- -------
Operating income 42,469 37,903 31,490
Other income, net 4,737 3,542 1,785
-------- ------- -------
Income before income taxes 47,206 41,445 33,275
Income taxes 16,522 15,240 12,556
-------- ------- -------
Net income $ 30,684 $26,205 $20,719
======== ======= =======
Net income per share:
Basic $ 0.73 $ 0.62 $ 0.50
======== ======= =======
Diluted $ 0.72 $ 0.60 $ 0.49
======== ======= =======
Shares used in per share calculation:
Basic 41,946 42,360 41,092
======== ======= =======
Diluted 42,815 43,356 42,668
======== ======= =======
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(in thousands)
<CAPTION>
Unearned
Common Stock Capital ESOP Retained Treasury
Shares Amount Surplus Compensation Earnings Stock Total
------ ------ ------- ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Oct. 1, 1996 40,048 $11 $53,057 $(1,367) $10,393 $ 62,094
Net income 20,719 20,719
Sale and issuance of
common stock 1,816 10,627 10,627
Compensatory stock
option tax benefit 4,700 4,700
Stock option
compensation 553 553
ESOP allocation 196 196
Net loss of MSI for the
three months ended
Sept. 30, 1997 (671) (671)
------ ------ ------- ------- ------- --------
Balance at Sept. 30, 1997 41,864 11 68,937 (1,171) 30,441 98,218
Net income 26,205 26,205
Issuance of common stock 804 1,171 1,171
Compensatory stock
option tax benefit 2,708 2,708
Purchase of treasury
stock $(4,621) (4,621)
ESOP allocation 196 196
------ ------ ------- ------- ------- ------- --------
Balance at Sept. 30, 1998 42,668 11 72,816 (975) 56,646 (4,621) 123,877
Net income 30,684 30,684
Issuance of common stock (1,054) 4,627 3,573
Compensatory stock
option tax benefit 3,003 3,003
Purchase of treasury
stock (2,932) (2,932)
ESOP allocation 194 194
------ ------ ------- ------- ------- ------- --------
Balance at Sept. 30, 1999 42,668 $11 $74,765 $ (781) $87,330 $(2,926) $158,399
====== ====== ======= ======= ======= ======= ========
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 30,684 $26,205 $20,719
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,244 6,036 3,995
Deferred income taxes 6,383 6,670 7,646
ESOP allocation 194 196 196
Stock option compensation 553
Loss on disposal of fixed assets 616 87
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (7,072) 758 (3,656)
Inventories 401 (1,333) (464)
Other current assets (649) (404) (155)
Increase (decrease) in liabilities:
Accounts payable 2,225 (1,057) 764
Accrued liabilities 202 (953) 1,701
Income taxes payable 2,787 2,709 3,923
------- ------- -------
Net cash provided by operating activities 42,399 39,443 35,309
Investing activities:
Purchase of property, plant and equipment (11,428) (7,915) (14,624)
Short-term investments (22,635) (26,235) (15,764)
-------- -------- --------
Net cash used in investing activities (34,063) (34,150) (30,388)
Financing activities:
Proceeds from long-term debt 146 309
Principal payments on long-term debt (469) (2,166) (1,279)
Issuance of common stock 3,573 1,171 10,627
Purchase of common stock for treasury (2,932) (4,621)
------- ------- -------
Net cash provided by (used in) financing activities 172 (5,470) 9,657
------- ------- -------
Increase (decrease) in cash and cash equivalents 8,508 (177) 14,578
Cash and cash equivalents at beginning of period 42,132 42,309 27,731
------- ------- -------
Cash and cash equivalents at end of period 50,640 42,132 42,309
Short-term investments 64,634 41,999 15,764
------- ------- -------
Cash, cash equivalents and short-term investments $115,274 $84,131 $58,073
======== ======= =======
See notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Description of Business. Sawtek Inc. and subsidiaries (the "Company")
design, develop, manufacture and market 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, SAW-based subsystems and chemical
sensors. These products are used in a variety of microwave and RF systems, such
as Code Division Multiple Access and Global System for Mobile
communications-based digital wireless systems, digital microwave radios, WLAN,
cable television equipment and various defense and satellite systems. In fiscal
1998, the Company acquired Microsensor Systems, Inc. ("MSI"), a manufacturer of
SAW-based chemical sensors, in a transaction accounted for as a
pooling-of-interests. The Company's consolidated financial statements for all
periods prior to this acquisition have been restated to include MSI's financial
position, results of operations and cash flows.
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 generally 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
calendar 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.
Financial Instruments. The Company considers all liquid interest-earning
investments with a maturity of three months or less at the date of purchase to
be cash equivalents. Short-term investments generally mature between three
months and 18 months from the purchase date. All cash equivalents and short-term
investments are classified as held to maturity and are recorded at cost, which
approximates market.
Accounts Receivable. Potential credit losses are recognized as they are
identified and are reported as an increase to selling expenses. See Note 11 for
a discussion of concentration of risk.
F-7
<PAGE>
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.
Property, Plant and Equipment. Property, plant and equipment are 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.
Earnings Per Share. The Company follows Statement of Financial Accounting
Standard (SFAS) No. 128, Earnings per Share to calculate basic and diluted
earnings per share. All earnings per share amounts have been adjusted for the
two-for-one stock split in August 1999.
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, earnings of the Costa Rican subsidiary not
currently subject to tax, 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.
ESOP Compensation Expense. The Company accounts for ESOP shares acquired
prior to January 1, 1993 in accordance with SOP 76-3, which requires
compensation expense be measured using the cost basis of the shares when the
shares are committed to be released to employees.
F-8
<PAGE>
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") and related interpretations.
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. The Company provides
additional pro forma disclosures as required under SFAS No. 123, "Accounting for
Stock-Based Compensation."
Impairment of Long Lived Assets. In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation were required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
Comprehensive Income. Effective October 1, 1998, the Company adopted the
provisions of SFAS No. 130, Reporting Comprehensive Income. The objective of
SFAS No. 130 is to report all changes in equity that result from transactions
and economic events other than transactions with owners. There is no difference
between net income and comprehensive income for any of the periods presented.
Impact of Recently Issued Accounting Standard. In June 1998, the FASB
issued Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities. The Company expects to adopt the new Statement effective October 1,
2000. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. The Company does not anticipate that the adoption
of this Statement will have a significant effect on its results of operations or
financial position.
Reclassifications. Certain amounts in prior years have been reclassified to
conform to current year presentation.
Note 2 - Acquisition of MSI
- ---------------------------
On February 25, 1998, the Company acquired all of the outstanding shares of
MSI, a manufacturer of chemical sensors, in exchange for 339,622 shares of the
Company's Common Stock plus assumption of approximately $900,000 of debt. The
business combination was recorded as a pooling-of-interests. Prior to the
combination, MSI's fiscal year ended on June 30 of each year. In recording the
business combination, MSI's financial statements for the year ended June 30,
1997 were combined with Sawtek's for the year ended September 30, 1997. MSI's
unaudited net sales and net loss for the three-month period ended September 30,
1997 were approximately $423,000 and ($671,000), respectively. In accordance
with APB 16, MSI's results of operations and cash flows for the three-month
F-9
<PAGE>
period ended September 30, 1997 have been added to the retained earnings and
cash flows of the Company and excluded from reported fiscal 1998 results of
operations and cash flows. MSI's revenue and net loss for the period from
October 1, 1997 through the date of acquisition were approximately $792,000 and
($438,000), respectively.
Note 3 - Cash, Cash Equivalents and Short-Term Investments
- ----------------------------------------------------------
Cash, cash equivalents and short-term investments consist of the following:
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Cash and equivalents:
Cash and overnight investments $ 9,943 $ 2,390
Commercial paper, banker's acceptances and money market
preferreds under 90 days 40,697 39,742
-------- -------
Cash and equivalents 50,640 42,132
Short-term investments:
Banker's acceptances and money market preferreds over 90 days 18,618 8,761
Municipal securities 3,011 7,775
Certificates of deposit 12,005 11,401
Government agency securities 31,000 14,062
-------- -------
Short-term investments 64,634 41,999
-------- -------
Cash, cash equivalents and short-term investments $115,274 $84,131
======== =======
</TABLE>
Note 4 - Allowance for Doubtful Accounts and Sales Returns
- ----------------------------------------------------------
The allowance for doubtful accounts and sales returns is as follows:
<TABLE>
<CAPTION>
September 30,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period $1,399 $ 684 $654
Provision for doubtful accounts and sales returns 174 1,396 821
Sales returns and uncollectible accounts written off (438) (681) (791)
------ ------ ----
Balance, end of period $1,135 $1,399 $684
====== ====== ====
</TABLE>
F-10
<PAGE>
Note 5 - Inventories
- --------------------
Net inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Raw material $2,984 $3,809
Work in process 1,993 1,969
Finished goods 3,075 2,675
------ ------
Total $8,052 $8,453
====== ======
</TABLE>
The allowance for obsolete and slow moving inventory is as follows:
<TABLE>
<CAPTION>
September 30,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period $2,118 $1,935 $1,705
Charged to cost of sales 130 345 270
Disposal of inventory (139) (162) (40)
------ ------ ------
Balance, end of period $2,109 $2,118 $1,935
====== ====== ======
</TABLE>
Note 6 - Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Land and improvements $ 830 $ 830
Buildings 16,500 16,500
Production and test equipment 39,797 37,235
Computer equipment 3,455 3,239
Furniture and fixtures 2,865 2,666
Construction in progress 9,589 1,138
------- -------
73,036 61,608
Less accumulated depreciation 26,594 19,414
------- -------
Total $46,442 $42,194
======= =======
</TABLE>
Approximately $36,000, $98,000 and $159,000 of interest costs were
capitalized as part of property, plant and equipment in 1999, 1998 and 1997,
respectively.
F-11
<PAGE>
Note 7 - 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 $30,000,000
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, the maintenance of certain financial ratios, additional indebtedness and
disposition of assets. The Company was in compliance with the covenants as of
September 30, 1999 and 1998. There were no borrowings against the line of credit
at September 30, 1999 and 1998.
Note 8 - Long-Term Debt and Lease Obligations
- ---------------------------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Industrial Revenue Bond (a) $ 259 $ 375
Industrial Revenue Bond (b) 1,910 2,263
------ ------
2,169 2,638
Less Current Maturities 379 469
------ ------
$1,790 $2,169
====== ======
</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 $696,000 at September 30, 1999. The obligation is
payable in varying quarterly installments through 2001 plus interest at 68%
of the prime rate.
(b) 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 $6,637,000 at September 30, 1999. The obligation is payable
in quarterly installments of $88,334 through March 2000, thereafter in
quarterly installments of $43,334 through March 2010, both plus interest at
LIBOR plus 150 basis points.
The Company has two non-cancelable lease agreements for facilities and, in
the past, leased certain equipment. Rental expense was approximately $394,000,
$843,000 and $461,000 in 1999, 1998 and 1997, respectively.
F-12
<PAGE>
Required future payments for long-term debt and operating leases are as
follows:
<TABLE>
<CAPTION>
Debt Leases
---- ------
(in thousands)
<S> <C> <C>
2000 $ 379 $ 52
2001 288 52
2002 202 17
2003 173
2004 173
Thereafter 954
------ ----
$2,169 $121
====== ====
</TABLE>
The Company made interest payments of approximately $152,000, $228,000 and
$313,000 on long-term debt in 1999, 1998 and 1997, respectively. The fair value
of the Company's long-term debt approximates the carrying amount.
Note 9 - Income Taxes
- ---------------------
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current:
Federal $ 9,414 $ 7,908 $ 4,537
State 725 662 373
------- ------- -------
10,139 8,570 4,910
Deferred:
Federal 6,068 6,024 6,554
State 315 646 1,092
------- ------- -------
6,383 6,670 7,646
------- ------- -------
Total Income Tax Provision $16,522 $15,240 $12,556
======= ======= =======
</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 purposes. The tax effects of
significant temporary differences giving rise to year-end deferred tax balances
were as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Current:
Accruals not currently deductible $ 389 $ 481
Inventory costs capitalized for tax purposes 71 120
Inventory loss provision 603 578
-------- --------
Deferred Tax Asset $ 1,063 $ 1,179
======== ========
Non-Current:
Stock option compensation not currently deductible $ 159 $ 245
Earnings of subsidiary not currently taxed (18,706) (12,630)
Excess tax over book depreciation (2,906) (2,801)
-------- --------
Deferred Tax Liability $(21,453) $(15,186)
======== ========
</TABLE>
A reconciliation of statutory Federal income taxes to reported income taxes is
as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income taxes computed at the Federal
statutory rate of 35% $16,522 $14,506 $11,652
State income taxes, net of Federal benefit 676 850 952
Other-tax credits, tax-exempt interest (676) (116) (48)
------- ------- -------
Total Income Tax Provision $16,522 $15,240 $12,556
======= ======= =======
</TABLE>
In 1999 and 1998, the Company's tax liability was reduced and its capital
surplus was increased by approximately $3,003,000 and $2,708,000, respectively,
as a result of transactions involving stock options.
The Company made income tax payments of approximately $7,765,000,
$6,276,000 and $1,007,000 in 1999, 1998 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.
F-14
<PAGE>
Note 10 - Earnings Per Share (in thousands, except per share data)
- -----------------------------------------------------------------
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income $30,684 $26,205 $20,719
======= ======= =======
Weighted-average common stock outstanding
for basic earnings per share 41,946 42,360 41,092
Dilutive effect of employee stock options 869 996 1,576
------- ------- -------
Weighted-average common stock outstanding
for diluted earnings per share 42,815 43,356 42,668
======= ======= =======
Basic earnings per share $ 0.73 $ 0.62 $ 0.50
Diluted earnings per share $ 0.72 $ 0.60 $ 0.49
</TABLE>
The weighted-average common stock outstanding includes all ESOP shares
outstanding.
Note 11 - Concentration of Risk
- -------------------------------
(a) Significant customers and sales to foreign markets. 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>
Year Ended September 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. Government (Inclusive of Significant Customers) * * 11%
Foreign Markets (Inclusive of Significant Customers
and European Market) 41% 37% 43%
European Market (Inclusive of Significant Customers) 18% 18% 22%
Asian and Pacific Rim Market (principally to S. Korea) 18% 16% 17%
Significant Customer A 23% 17% 14%
Significant Customer B * * 12%
Significant Customer C * * 11%
Significant Customer D 13% 15% 11%
Significant Customer E * 15% *
<FN>
*Less than 10%
</FN>
</TABLE>
F-15
<PAGE>
(b) Concentrations or risk
(1) Suppliers
The Company currently procures certain key raw materials for its
products from a limited number of vendors, most of whom are based in
Japan. The Company purchases this material on a purchase order basis
and does not carry significant inventories of these components. The
Company's reliance on a limited number of vendors involves several
risks, including reduced control over the price, foreign currency
exposure, timely delivery, reliability and quality of the components.
Any inability of the Company to obtain timely deliveries of material of
acceptable quality in required quantities or any increases in the
prices of components for which the Company does not have alternative
sources could materially adversely affect the Company's business,
financial condition and results of operations.
(2) Credit Risk
The Company generally sells its products to customers engaged in the
design and/or manufacture of high technology products either recently
introduced or not yet introduced to the marketplace. The Company's
customers are concentrated into a small group of which several account
for more than 10% of sales as noted above and a significant percentage
are foreign customers. Substantially all of the Company's trade
accounts receivable are due from such sources.
The Company performs continuing credit evaluations of its customers and
generally does not require collateral; however, in certain
circumstances, the Company may require letters of credit from its
customers or the Company may secure credit insurance.
(3) Foreign Currency Exchange Risk
At times the Company engages in foreign exchange forward contracts to
lock in the cost of certain foreign currency exposures for the purchase
of equipment or raw materials denominated in foreign currencies. At
September 30, 1999, the Company is committed to purchase 4,835,200
Dutch guilders (approximately $2.4 million) under forward foreign
currency contracts that mature in October 1999 for the purchase of
equipment. While these forward contracts are subject to fluctuations in
value from movement in the foreign currency exchange rates, such
fluctuations are offset by the change in value of the underlying
exposures being hedged. The Company is not a party to leveraged
F-16
<PAGE>
derivatives and does not hold or issue financial instruments for
trading purposes. Foreign currency contracts are entered into with
major financial institutions with investment grade credit ratings,
thereby decreasing the risk of credit loss. Gains and losses on
instruments that hedge firm commitments are deferred and are included
in the basis of the underlying hedged item. At September 30, 1999, any
deferred hedging gains or losses are immaterial.
Note 12 - Segment Information
- -----------------------------
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
reporting by public business enterprises of information about operating
segments, products and services, geographic areas and major customers. The
method for determining what information to report is based on the way that
management organizes the segments within the Company for making operating
decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The Company's CEO evaluates both consolidated and
disaggregated financial information in deciding how to allocate resources and
assess performance. The CEO uses certain disaggregated financial information for
the Company's primary markets: communications, military and space, and other
markets. The communications market includes the sale of bandpass filters for
wireless phones, base stations, video and data communication applications.
The Company has aggregated its three markets into a single reportable
segment as allowed under SFAS No. 131 because these product lines have similar
long-term economic characteristics, such as average gross margin, and the
product lines are similar in regards to (a) nature of products and production
processes, (b) type of customers, and (c) method used to distribute products.
Accordingly, the Company describes its reportable segment as the
manufacture and sale of SAW-based products as described in Note 1. All of the
Company's revenue results from sales in these markets. The Company does not
allocate operating expense or assets by market.
Revenues by markets (as defined by the Company), as a percentage of total
revenues for years ended December 31, 1999, 1998 and 1997, were as follows:
Communications, 82%, 81%, and 78%, respectively; military and space, 6%, 9%, and
12%, respectively; and other markets, 12%, 10%, and 10%, respectively.
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
price of the products.
F-17
<PAGE>
<TABLE>
<CAPTION>
Net Sales Operating Income Assets
1999 1998 1997 1999 1998 1997 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States $ 66,373 $70,960 $63,795 $25,416 $23,181 $18,096 $142,114 $117,973
Costa Rica 47,053 36,612 28,438 16,783 14,722 13,424 49,137 30,737
Transfers/
Eliminations (13,150) (9,872) (7,192) 270 - (30) 328 -
-------- ------- ------- ------- ------- ------- -------- -------
Consolidated
Results $100,276 $97,700 $85,041 $42,469 $37,903 $31,490 $191,579 $148,710
======== ======= ======= ======= ======= ======= ======== ========
</TABLE>
Transfers from the U.S. to Costa Rica are accounted for at amounts that are
above cost and are consistent with rules and regulations of taxing authorities.
Such transfers are eliminated in the consolidated financial statements.
To date, substantially all sales have been 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 impact of
fluctuations of the local Costa Rican currency is not considered significant and
is not hedged.
Note 13 - Employee Benefit Plans
- --------------------------------
In 1997, the Company merged the Sawtek Inc. Code Section 401(k) Profit
Sharing Plan into the Employee Stock Ownership Plan for Employees of Sawtek Inc.
and renamed the combined plan the Sawtek Inc. Employee Stock Ownership and
401(k) Plan. The merged plan has two principal elements: i) a profit sharing and
401(k) element and ii) an employee stock ownership ("ESOP") element.
Profit Sharing and 401(k) Element. In 1981, the Company established a
profit sharing plan covering substantially all U.S. employees who work 500 hours
or more per year. A 401(k) feature was added to the plan in 1991 and a Company
matching feature was added effective October 1, 1997. There have been no profit
sharing contributions by the Company to the plan since 1990. The 401(k)
contribution expense was approximately $299,000 and $368,000 in 1999 and 1998,
respectively.
Employee Stock Ownership Element. In 1991, the Company established an
Employee Stock Ownership Plan covering substantially all U.S. employees. The
ESOP purchased 6,753,280 shares of common stock from substantially all of the
common shareholders and 11,024,480 shares of common stock from the Company in
1991. The transaction was financed from the proceeds of a $4,000,000 loan from
the Company. The Company accounts for these ESOP shares in accordance with
Statement of Position 76-3. As of September 30, 1999, 3,180,484 of these shares
remain unallocated. These shares will be allocated through fiscal year 2003.
The Company made contributions of approximately $265,000, $279,000 and
$293,000 to the ESOP in 1999, 1998 and 1997, respectively. Allocations to
participants' accounts were 915,838 shares, 964,126 shares and 1,012,414 shares
in 1999, 1998 and 1997, respectively.
F-18
<PAGE>
Employee Stock Purchase Plan. In February 1996, the Board of Directors
approved an Employee Stock Purchase Plan and allotted 1,000,000 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.
Costa Rica Profit Sharing Plan. Effective October 1, 1997, the Company
adopted a Profit Sharing Plan for its Costa Rica subsidiary covering
substantially all employees of this subsidiary. The Company contributed
approximately $101,000 and $70,000 to this plan in 1999 and 1998, respectively.
Note 14 - Stock Options
- -----------------------
The Company has granted incentive stock options and non-qualified stock
options under the 1983 Stock Option Plan, the Second Stock Option Plan and the
Stock Option Plan for Acquired Companies. The Second Stock Option Plan was
approved by the shareholders in 1996 with up to 4,000,000 shares of Common Stock
available for options and the Stock Option Plan for Acquired Companies was
approved by shareholders in 1998 with up to 2,000,000 shares of Common Stock
available for options. Incentive options generally become exercisable in four
equal annual installments commencing one year after the date of grant and expire
within ten years. A majority of the non-qualified 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.
Information concerning options under these plans is as follows:
<TABLE>
<CAPTION>
Shares Under Weighted-Average
Option Price Range of Options Exercise Price
------------ ---------------------- ----------------
<S> <C> <C> <C>
Balance at October 1, 1996 3,090,920 $0.06-$12.38 $ 1.07
Granted 499,000 $5.53-$16.63 $12.74
Terminated (23,160) $0.37-$12.38 $ 5.63
Exercised (1,136,500) $0.06-$5.53 $ 0.49
----------
Balance at September 30, 1997 2,430,260 $0.06-$16.63 $ 3.69
Granted 516,000 $6.64-$17.50 $10.97
Terminated (143,500) $0.06-$14.38 $ 5.67
Exercised (747,468) $0.06-$13.44 $ 0.95
----------
Balance at September 30, 1998 2,055,292 $0.06-$17.50 $ 6.37
Granted 937,000 $10.94-$35.13 $22.00
Terminated (76,400) $6.64-$17.50 $11.01
Exercised (622,151) $0.06-$17.50 $ 4.98
----------
Balance at September 30, 1999 2,293,741 $0.06-$35.13 $12.98
==========
Exercisable at September 30, 1999 788,791
==========
</TABLE>
F-19
<PAGE>
The weighted-average contractual life of stock options outstanding as of
September 30, 1999 was 5.25 years.
The following table summarizes information about fixed stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Weighted-Avg. Weighted-Avg. Weighted-Avg.
Range of Exercise Number Remaining Exercise Number Exercisable Exercise
Prices Outstanding Contractual Life Price at Sept. 30, 1999 Price
- ----------------- ----------- ---------------- ------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
$0.06-$1.00 539,128 5.43 $ 0.33 539,128 $ 0.33
$1.01-$12.50 1,014,388 4.58 $ 5.57 160,844 $ 7.27
$12.51-$35.13 740,225 6.03 $26.07 88,819 $14.24
--------- -------
2,293,741 788,791
========= =======
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost was recognized to the extent that the exercise
price of the stock options equaled the fair value. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and income per share would
be the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended September 30,
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net income as reported $30,684 $26,205 $20,719
Pro forma net income $27,615 $24,376 $19,657
Pro forma basic earnings per share $ 0.66 $ 0.58 $ 0.48
Pro forma diluted earnings per share $ 0.66 $ 0.57 $ 0.46
</TABLE>
The weighted-average fair value of options granted during the year ended
September 30, 1999, 1998 and 1997 was $18.79, $6.96 and $9.81, respectively,
using the Black-Scholes option-pricing model with the following weighted-average
assumptions: 1999 --- expected volatility of 77%, risk-free interest rate of
5.75%, no expected dividends and an expected life of 4.94 years; 1998 ---
expected volatility of 78%, risk-free interest rate of 5.71%, no expected
dividends and an expected life of 4.79 years; 1997 --- expected volatility of
74%, risk-free interest rate of 6.45%, no expected dividends and an expected
life of 4.5 years.
The pro forma net income reflects only options granted since 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the option vesting
periods of up to four years and compensation cost for options granted prior to
October 1, 1995 is not considered.
F-20
<PAGE>
Note 15 - Capital Structure
- ---------------------------
Common Stock. The Company is authorized to issue up to 120,000,000 shares
of Common Stock. Holders of Common Stock i) are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available to pay dividends, ii) are entitled to one
vote per share on all matters that are subject to shareholder voting and do not
have any cumulative voting rights, iii) have no preemptive, conversion,
redemption or sinking fund rights and iv) in the event of a liquidation,
dissolution or winding up of the Company, are entitled to share equally and
ratably in the assets of the Company, if any, remaining after payment of all
debts and liabilities of the Company and the liquidation preference of any
outstanding class or series of preferred stock.
Share Repurchase. On August 31, 1998, the Board of Directors approved a
Common Stock repurchase program for up to 2,000,000 shares of Common Stock in
open market transactions. The repurchased shares will be used to satisfy stock
option exercises and issuance of shares under other stock related benefit
programs. To date, 1,129,810 shares have been repurchased under this program.
Stock Split Effected in the Form of a Stock Dividend. On July 27, 1999, the
Board of Directors approved a two-for-one stock split of the outstanding common
shares to be effected in the form of a stock dividend on August 24, 1999 to
stockholders of record as of August 9, 1999. Common share and per share data for
all periods presented in the accompanying financial statements have been
adjusted to give effect to the stock split.
Preferred Stock. The Board of Directors is authorized to issue up to
1,000,000 shares of preferred stock, par value $0.01 per share, in one or more
series and to fix the number of shares constituting any such series, and the
voting powers, designations, preferences, and relative participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
prices, conversion and voting rights, and liquidation preferences, without any
further vote or action by the holders of Common Stock. To date, no shares of the
preferred stock have been issued.
F-21
<PAGE>
Note 16 - Quarterly Financial Information (unaudited)
- -----------------------------------------------------
Selected quarterly financial data is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
(in thousands, except per share data)
Fiscal 1999 Fiscal 1998
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
1999 1999 1999 1998 1998 1998 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $28,515 $26,045 $23,497 $22,219 $21,522 $26,301 $25,183 $24,694
Cost of sales 11,701 10,737 9,828 9,958 9,665 12,585 11,190 11,371
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 16,814 15,308 13,669 12,261 11,857 13,716 13,993 13,323
Operating expenses:
Selling expenses 1,395 1,517 1,340 1,385 1,295 1,436 1,508 1,769
General and
Administrative expenses 1,089 1,114 1,037 1,079 527 1,226 1,509 1,431
Research and Development
expenses 1,480 1,334 1,616 1,197 1,544 923 950 868
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses 3,964 3,965 3,993 3,661 3,366 3,585 3,967 4,068
------- ------- ------- ------- ------- ------- ------- -------
Operating income 12,850 11,343 9,676 8,600 8,491 10,131 10,026 9,255
Other income, net 1,328 1,174 1,116 1,119 1,009 921 794 818
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 14,178 12,517 10,792 9,719 9,500 11,052 10,820 10,073
Income taxes 4,963 4,380 3,777 3,402 3,420 4,089 4,004 3,727
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 9,215 $ 8,137 $ 7,015 $ 6,317 $ 6,080 $ 6,963 $ 6,816 $ 6,346
======= ======= ======= ======= ======= ======= ======= =======
Net income per share:
Basic(1) $ 0.22 $ 0.19 $ 0.17 $ 0.15 $ 0.14 $ 0.16 $ 0.16 $ 0.15
======= ======= ======= ======= ======= ======= ======= =======
Diluted(1) $ 0.21 $ 0.19 $ 0.17 $ 0.15 $ 0.14 $ 0.16 $ 0.16 $ 0.15
======= ======= ======= ======= ======= ======= ======= =======
Shares used in per share
calculations:
Basic 42,193 42,004 41,824 41,764 42,502 42,542 42,354 42,046
Diluted 43,236 43,066 42,494 42,462 43,132 43,524 43,302 43,466
<FN>
(1) Earnings per share for each quarter are calculated as a discrete period;
the sum of the four quarters may not equal the calculated full year amount.
All earnings per share data are restated to reflect the two-for-one stock
split in August 1999.
</FN>
</TABLE>
F-22
<PAGE>
4,000,000 Shares
SAWTEK INCORPORATED
Common Stock
------------
PROSPECTUS
------------
Hambrecht & Quist
CIBC World Markets
Banc of America Securities LLC
_________________, 1999
- --------------------------------------------------------------------------------
SAWTEK INC.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
- --------------------------------------------------------------------------------
<PAGE>
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, all of which will be paid by the selling shareholders.
<TABLE>
<CAPTION>
Estimated
---------
<S> <C>
Securities and Exchange Commission registration $ 59,000
NASD filing fee 17,500
Blue Sky fee and expenses (including attorney's fees and expenses) 5,000
Printing and engraving expenses 75,000
Transfer agent fees and expenses 5,000
Accounting fees and expenses 35,000
Legal fees and expenses 200,000
Advisory fees for ESOP Trustee 50,000
Miscellaneous expense 53,500
--------
Total $500,000
========
</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, ("Section 607.0850"), 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
58
<PAGE>
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 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 Florida 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.
59
<PAGE>
Item 16. Exhibits
- -----------------
(A) The following documents are filed as part of this report:
1. Financial statements - see index to Consolidated Financial
Statements on page F-1 hereof.
2. Financial statement schedules: All schedules have been omitted
because they are inapplicable or not material, or the information
called for thereby is included in the Consolidated Financial
Statements and notes thereto.
3. Exhibits required by Item 601 of Regulation S-K:
(a) See Exhibit Index in (c) below.
(b) Reports on Form 8K: None.
(c) Exhibits:
1.1** Form of 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).
3.2 1999 Bylaws of Sawtek Inc.
4.1* Specimen stock certificate.
5.1** Legal opinion of Gray, Harris & Robinson, P.A.
10.1 Sawtek Inc. 1983 Incentive Stock Option Plan
(incorporated by reference to Registration Statement on
Form S-8, File No. 333-10579).
10.2 Sawtek Inc. Second Stock Option Plan (incorporated by
reference to Registration Statement on Form S-8, File No.
333-11523).
60
<PAGE>
10.3 Sawtek Inc. Employee Stock Purchase Plan (incorporated by
reference to Registration Statement on Form S-8, File No.
333-11701 and amendment incorporated by reference to Form
10-Q for the period ended June 30, 1999, filed on July
19, 1999.
10.4* Mortgage and Security Agreement, dated January 9, 1991,
by and between the Company, the Orange County Industrial
Development Authority ("OCIDA"), and Sun Bank.
10.5* Fourth Amendment to Installment Sales and Security
Agreement, dated January 8, 1991, by and between the
Company, OCIDA, and Sun Bank.
10.6* Amended and Restated Loan and Security Agreement, dated
November 15, 1995, between the Company and SunTrust Bank,
Central Florida, National Association ("SunTrust").
10.7* Increase Promissory Note dated November 10, 1995.
10.8* Renewal, Increase and Consolidation Promissory Note,
dated November 10, 1995.
10.9* Promissory Demand Note, dated November 10, 1995.
10.10* Fifth Amendment to Installment Sale and Security
Agreement, dated as of March 1, 1995, between the
Company, Sun Bank and OCIDA.
10.11* Fourth Supplemental Trust Indenture, dated as of March 1,
1995, between the Company, Sun Bank and OCIDA.
10.12* Eighth Amendment to Loan and Security Agreement, Fourth
Amendment to Company Loan Agreement and First Amendment
to Second Company Loan Agreement, dated as of March 11,
1995, between the Company and Sun Bank.
61
<PAGE>
10.13* Bond Purchase Agreement dated as of December 1, 1981,
between OCIDA and the Company.
10.14* Installment Sale and Security Agreement, dated as of
December 1, 1981, between OCIDA and the Company and
accepted by the Guarantors.
10.15* Guaranty Agreement dated as of December 1, 1981, among
the Guarantors and OCIDA.
10.16* Trust Indenture dated as of December 1, 1981, between
OCIDA and the Trustee and accepted by the Company and the
Guarantors.
10.17 Letter from SunTrust Bank, Central Florida, N.A. for
renewal and increase in credit to $30,000,000 of
unsecured line of credit for Sawtek Inc. dated September
22, 1999.(2)
10.18 First Amendment to Amended and Restated Loan and Security
Agreement dated December 9, 1996 between the Company and
SunTrust Bank, Central Florida, N.A. (incorporated by
reference to Form 10-Q filed January 21, 1997).
10.19 First Amendment to Fourth Supplemental Trust Indenture
dated November 19, 1996 by and among the Company,
SunTrust Bank, Central Florida, N.A., and the Orange
County Industrial Development Authority (incorporated by
reference to Form 10-Q filed April 21, 1997).
10.20 Modification of ESOP Loan Agreement dated as of September
26, 1997 between the Company and Marine Midland Bank. (1)
10.21 Modification of ESOP Pledge Agreement dated as of
September 26, 1997 between the Company and Marine Midland
Bank. (1)
62
<PAGE>
10.22 Renewal ESOP Note dated as of September 26, 1997.(1)
10.23 Implementation Agreement dated September 26, 1997 between
the Company and Marine Midland Bank that forms a part of
the Sawtek Inc. Employee Stock Ownership and 401(k) Plan
and Trust. (1)
10.24 Sawtek Inc. Employee Stock Ownership and 401(k) Trust
Agreement dated July 16, 1997 between the Company and
HSBC (formerly Marine Midland Bank) updated for all
amendments through May 1, 1999 (incorporated by reference
to Form 10-Q for the period ended June 30, 1999, filed on
July 19, 1999).
10.25 Sawtek Inc. Stock Option Plan for Acquired Companies
(incorporated by reference to proxy filed for 1998
shareholders meeting filed on Form 14A filed on December
3, 1997).
21.1 List of subsidiaries of the registrant.(2)
23.1 Consent of Ernst & Young LLP.
23.2** Consent of Gray, Harris & Robinson.
24.1 Power of attorney. Reference is made to the signature
page on page 65.
* Incorporated by reference to Registration Statement on Form S-1, File No.
333-1860.
** To be filed by amendment.
(1) Incorporated by reference to Form 10-K for 1997 filed on November 12, 1997.
(2) Incorporated by reference to Form 10-K for 1999 filed on November 5, 1999.
63
<PAGE>
Item 17. Undertakings
- ---------------------
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Apopka, State of Florida, on the 10th day of
December, 1999.
SAWTEK INC.
By:/s/ Gary A. Monetti
Gary A. Monetti
Chief Executive Officer
By:/s/ Raymond A. Link
Raymond A. Link
Senior Vice President-Finance and
Chief Financial Officer and Chief Accounting Officer
POWER OF ATTORNEY
We, the undersigned, officers and directors of SAWTEK INC., hereby
severally constitute Gary A. Monetti and/or Raymond A. Link, and each of them
singly, our true and lawful attorneys with full power to any of them, and to
each of them singly, to sign for us and in our names in the capacities indicated
below the registration statement on Form S-3 filed herewith and any and all
amendments to said registration statement and generally to do all such things in
our name and behalf in our capacities as officers and directors to enable SAWTEK
INC. to comply with the provisions of the Securities Act and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
registration statement and any and all amendments thereto.
65
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1933, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 10th day of December, 1999.
/s/Neal J. Tolar /s/Steven P. Miller
Neal J. Tolar Steven P. Miller
Director Chairman of the Board of Directors
/s/Robert C. Strandberg /s/Willis C. Young
Robert C. Strandberg Willis C. Young
Director Director
/s/Bruce S. White /s/Gary A. Monetti
Bruce S. White Gary A. Monetti
Director Chief Executive Officer and Director
66
<PAGE>
Exhibit 3.2
Bylaws of Sawtek Inc.
1999
AMENDED AND RESTATED BYLAWS
OF
SAWTEK INC.
ARTICLE I
Shareholders
1. Shareholder Meetings. The annual meeting shall be held on the date fixed
from time to time by the directors. A special meeting shall be held on the date
fixed from time to time by the directors except when the Florida Business
Corporation Act ("Business Corporation Act") confers the right to call a special
meeting upon the shareholders.
2. Place and Call of Shareholder Meetings. Annual meetings and special
meetings shall be held at such place within or without the State of Florida as
shall be stated in the notice of any such meeting. Annual meetings may be called
by the directors or the Chief Executive Officer or the Secretary or by any
officer instructed by the directors or the Chief Executive Officer to call the
meeting. Special meetings may be called in like manner or by the holders of at
least one-tenth of the shares issued and outstanding and entitled to vote
thereat.
3. Notice. Written notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered to each shareholder not less than ten days (or as
prescribed by the Business Corporation Act) nor more than sixty days before the
date of the meeting, either personally or by first class mail, by or at the
direction of the Chief Executive Officer, the Secretary, or the officer or
persons calling the meeting. The notice of any annual or special meeting shall
also include, or be accompanied by, any additional statements, information, or
documents prescribed by the Business Corporation Act. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears on the stock transfer
books of the Corporation, with postage thereon prepaid. When a meeting is
adjourned to another time or place, it shall not be necessary to give any notice
of the adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken; and at the
adjourned meeting any business may be transacted that might have been transacted
on the original date of the meeting. If, however, the Board of Directors shall
fix a new record date for the adjourned meeting, notice of the adjourned meeting
1
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shall be given each shareholder of record on the new record date. Whenever any
notice is required to be given to any shareholder, a waiver thereof in writing
signed by him, whether before or after the time stated therein, shall be
equivalent to the giving of such notice. Attendance of a shareholder at a
meeting shall constitute a waiver of notice of the meeting, except where the
shareholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
4. Voting List. The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number and
class and series, if any, of shares held by each. Such list, for a period of ten
days prior to such meeting, shall be kept on file at the registered office of
the corporation in the State of Florida, at the principal place of business of
the corporation, or at the office of the transfer agent or registrar of the
corporation, and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder at any time during the meeting. The original stock transfer books
shall be prima facie evidence as to who are the shareholders entitled to examine
such list or transfer books or to vote at any meeting of shareholders.
5. Record Date for Shareholders. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other purpose, the Board
of Directors of the corporation may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, sixty days. If the
stock transfer books shall be closed for the purpose of determining the
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty days and, in case of a meeting
of shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for the determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, the determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date under this section for the adjourned meeting.
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6. Meaning of Certain Terms. As used herein in respect of the right to
notice of a meeting of shareholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "shareholder" or "shareholders"
refers to an outstanding share or shares and to a holder or holders of record of
outstanding shares when the corporation is authorized to issue only one class of
shares, and said reference is also intended to include any outstanding share or
shares and any holder or holders of record of outstanding shares of any class
upon which or upon whom the Articles of Incorporation confer such rights where
there are two or more classes or series of shares or upon whom the Business
Corporation Act confers such rights notwithstanding that the Articles of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
7. Conduct of Meeting. Meetings of shareholders shall be presided over by
one of the following officers in the order of seniority and if present and
acting: the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the Chief Executive Officer, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the shareholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the Chairman of the meeting shall appoint a
secretary of the meeting.
8. Proxy Representation. Every shareholder or his duly authorized
attorney-in-fact may authorize another person or persons to act for him by proxy
in all matters in which a shareholder is entitled to participate, whether for
the purposes of determining his presence at a meeting, or whether by waiving
notice of any meeting, voting or participating at a meeting, or expressing
consent or dissent without a meeting or otherwise. Every proxy shall be signed
by the shareholder or by his duly authorized attorney-in-fact and filed with the
Secretary of the corporation. No proxy shall be valid after eleven months from
the date thereof, unless otherwise provided in the proxy. Except as may
otherwise be provided by the Business Corporation Act, any proxy may be revoked.
9. Quorum and Voting. A majority of the shares entitled to vote shall
constitute a quorum. Except as the Business Corporation Act, the Articles of
Incorporation, or these Bylaws shall otherwise provide, the affirmative vote of
the majority of the shares represented at the meeting, a quorum being present,
shall be the act of the shareholders. After a quorum has been established at a
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shareholders at the meeting below the number required for a
quorum, shall not affect the validity of any action taken at the meeting or any
adjournment thereof.
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10. Written Action. Any action required to be taken or which may be taken
at a meeting of the shareholders may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders and shall be filed with the
Secretary of the corporation. Less than all shareholders may act in like manner
upon compliance with the provisions of Section 607.0704 of the Business
Corporation Act.
11. Share Certificates. The shares of the corporation shall be represented
by certificates which shall set forth thereon the statements prescribed by
Section 607.0625 of the Business Corporation Act and by any other applicable
provision of law, and which shall be signed by the Chief Executive Officer or a
Vice President and the Secretary or an Assistant Secretary of the corporation
and may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of the Chief Executive Officer or a Vice President and the Secretary
or an Assistant Secretary upon a certificate may be facsimiles if the
certificate is manually signed on his behalf by a transfer agent or a registrar,
other than the corporation itself or an employee of the corporation. In case any
officer who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issuance.
12. Fractional Share Interests or Scrip. The corporation may, when
necessary or desirable in order to effect share transfers, share distributions
or reclassifications, mergers, consolidations, or reorganizations, issue a
fraction of a share, make arrangements or provide reasonable opportunity for any
person entitled to a fractional interest in a share to sell such fractional
interest or to purchase such additional fractional interests as may be necessary
to acquire a full share, pay in cash the fair value of fractions of a share as
of the time when those entitled to receive such fractions are determined, or
issue scrip in registered or bearer form, over the manual or facsimile signature
of an officer of the corporation or its agent, which shall entitle the holder to
receive a certificate for a full share upon the surrender of such scrip
aggregating a full share. A certificate for a fractional share shall, but scrip
shall not unless otherwise provided therein, entitle the holder to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the corporation in the event of liquidation.
The Board of Directors may cause scrip to be issued subject to the
condition that it shall become void if not exchanged for certificates
representing full shares before a specified date, or subject to the condition
that the shares for which scrip is exchangeable may be sold by the corporation
and the proceeds thereof distributed to the holders of scrip, or subject to any
other conditions which the Board of Directors may deem advisable. Such
conditions shall be stated or fairly summarized on the face of the certificate.
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13. Lost, Stolen or Destroyed Certificates. The Board of Directors may
direct that a new share certificate or certificates be issued in place of any
certificate or certificates theretofore issued by the corporation which have
been mutilated or which are alleged to have been lost, stolen, or destroyed,
upon presentation of each such mutilated certificate or the making by the person
claiming any such certificate to have been lost, stolen, or destroyed of an
affidavit as to the fact and circumstances of the loss, theft, or destruction
thereof. The Board of Directors, in its discretion and as a condition precedent
to the issuance of any new certificate, may require the owner of any certificate
alleged to have been lost, stolen, or destroyed, or his legal representative, to
furnish the corporation with a bond, in such sum and with such surety or
sureties as it may direct, as indemnity against any claim that may be made
against the corporation in respect of such lost, stolen, or destroyed
certificate.
14. Share Transfers. Upon compliance with any provisions restricting the
transferability of shares that may be set forth in the Articles of
Incorporation, these Bylaws, or any written agreement in respect thereof,
transfers of shares of the corporation shall be made only on the books of the
corporation by the registered holder thereof, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation or with a transfer agent or a registrar and on surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon, if any. Except as may be otherwise provided by law, the
person in whose name shares stand on the books of the corporation shall be
deemed the owner thereof for all purposes as regards the corporation; provided
that whenever any transfer of shares shall be made for collateral security, and
not absolutely, such fact, if known to the Secretary of the corporation, shall
be so expressed in the entry of transfer.
ARTICLE II
Board of Directors
1. Functions Generally - Compensation. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, its Board of Directors. The
Board may fix the compensation of directors.
2. Qualifications and Number. Each director shall be a natural person of
not less than 18 years of age. A director need not be a shareholder, or a
resident of the State of Florida, but directors must be citizens of the United
States and shall be required to execute and deliver a trade secrets agreement in
form satisfactory to counsel for the corporation. The Board of Directors shall
consist of not less than five (5) nor more than ten (10) persons. The number of
directors may be increased or decreased by an amendment of these Bylaws or by
resolution of the Board of Directors, but no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director.
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3. Election and Term. Each member of the Board of Directors shall hold
office until the next annual meeting of shareholders following his election and
until his successor has been elected and qualified or until his earlier
resignation, removal from office, or death. Thereafter, each director who is
elected at an annual meeting of shareholders, and any director who is elected in
the interim to fill a vacancy or a newly-created directorship, shall hold office
until the next succeeding annual meeting of shareholders and until his successor
has been elected and qualified or until his earlier resignation, removal from
office, or death. In the interim between annual meetings of shareholders or of
special meetings of shareholders called for the election of directors, any
vacancies in the Board of Directors, including vacancies created by reason of an
increase in the number of directors, and including vacancies resulting from the
removal of directors by the shareholders which have not been filled by said
shareholders, may be filled by the affirmative vote of a majority of the
remaining directors, although less than a quorum exists.
4. Meetings. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble. Meetings shall be
held at such place within or without the State of Florida as shall be fixed by
the Board. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by the Chairman of the
Board, if any, the Vice Chairman of the Board, if any, or the Chief Executive
Officer, or by any two directors.
5. Notice. No notice shall be required for regular meetings for which the
time and place have been fixed. Written, oral, or any other mode of notice of
the time and place shall be given for special meetings in sufficient time for
the convenient assembly of the directors thereat. The notice or waiver of notice
of any meeting need not specify the business to be transacted or the purpose of
the meeting. Any requirement of furnishing a notice shall be waived by any
director who signs a waiver of notice before or after the meeting. Attendance of
a director at a meeting shall constitute a waiver of notice of such meeting and
a waiver of any and all objections to the place of a meeting, the time of the
meeting, or the manner in which it has been called or convened, except when a
director states, at the beginning of the meeting, any objection to the
transaction of business because the meeting is not lawfully called or convened.
6. Quorum and Action. A majority of the full Board of Directors shall
constitute a quorum, except as may be otherwise provided in the Articles of
Incorporation. Except as herein otherwise provided, and except as may be
otherwise provided by the Business Corporation Act or the Articles of
Incorporation, the act of the Board shall be the act of a majority of the
directors present at a meeting at which a quorum is present. Members of the
Board of Directors may participate in a meeting of said Board by means of a
conference telephone or similar communications equipment by means of which all
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persons participating in the meeting can hear each other at the same time, and
participation by such means shall be deemed to constitute presence in person at
a meeting. A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
(a) Quorum and Action/Classified Information. A majority of the members of
the Board of Directors possessing security clearance to the level of the
Corporation, shall constitute a quorum for any action to be considered at a
meeting of the Board of Directors relating to the security of classified
information in possession of the Corporation. Classified information shall mean
information released to the Corporation by the Department of Defense, or any
classified contracts or programs for the Department of Defense and other User
Agencies.
7. Chairman of the Meeting. Meetings of the Board of Directors shall be
presided over by the following directors in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the Chief Executive Officer, or any other person chosen by the
Board.
8. Removal of Directors. At a meeting of shareholders called expressly for
that purpose, the entire Board of Directors or any individual director may be
removed from office with or without cause by the vote of the shareholders
holding at least a majority of the shares of Common Stock. In case the entire
Board or any one or more directors is so removed, new directors may be elected
at the same meeting.
9. Committees. Whenever the number of directors shall consist of three or
more, the Board of Directors may, by resolution adopted by a unanimous vote of
the full Board, designate from among its members an Executive Committee and one
or more other committees, each of which, to the extent provided in the
resolution, shall have and may exercise all of the authority of the Board of
Directors except such authority as may not be delegated under the Business
Corporation Act.
10. Written Action. Any action required to be taken at a meeting of
directors, or any action which may be taken at a meeting of directors or of a
committee thereof, if any, may be taken without a meeting if a consent in
writing, setting forth the action to be taken, shall be signed by all of the
directors or all of the members of the committee, as the case may be.
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ARTICLE III
Officers
The Corporation shall have a Chairman of the Board of Directors, a Chief
Executive Officer, a President, a Chief Operating Officer, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Director from
time-to-time. The Corporation may have a Vice Chairman and one or more vice
presidents with designations determined by the Board of Directors such as Senior
or Executive and such other officers and assistant officers and agents as may be
deemed necessary by the Board of Directors, each of whom shall be elected or
appointed by the Board of Directors. Any two or more offices may be held by the
same person.
The Chief Executive Officer shall have overall supervisory authority over
the business and affairs of the Corporation. Except for the Chairman of the
Board of Directors and Vice Chairman of the Board of Directors all other
officers of the Corporation shall report to the Chief Executive Officer and the
Chief Executive Officer shall have the authority to determine the duties and
authority of each of such officers.
The Secretary of the Corporation shall be responsible for preparing minutes
of the Directors' and Shareholders' meetings and for authenticating records of
the Corporation.
Unless otherwise provided in the resolution of election or appointment,
each officer shall hold office until the meeting of the Board of Directors
following the next annual meeting of shareholders and until his successor has
been elected and qualified.
The Board of Directors may remove any officer or agent whenever, in its
judgement, the best interest of the Corporation will be served thereby.
The Board of Directors may authorize employment contracts or consulting
agreements with officers and other employees of this Corporation for periods of
more than one year.
An officer who does not hold the necessary security clearance shall not
have any duties or authority over any classified work being performed by the
Corporation. Any officer not having the required security clearance for
classified work shall automatically be excluded from all discussions, decision
making, receipt of classified information or other activities prohibited under
applicable laws and regulations governing classified work and shall not have the
power to hire or terminate employees who will be or who are involved in
classified work. The Chief Executive Officer is the most senior officer in the
Corporation. The President and Chief Operating Officer shall be excluded from
all classified work unless such person(s) has all security clearances required
by law and applicable regulations to work on or have supervisory authority over
classified work.
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ARTICLE IV
Registered Office and Agent - Shareholders Record
The address of the registered office of the corporation is 300 East Park
Avenue, c/o The Prentice Hall Corporation System, Inc., City of Tallahassee
32301, County of Leon; and the name of the registered agent of the corporation
is The Prentice-Hall Corporation System, Inc., whose address is the same as that
of the registered office.
The corporation shall keep at its registered office in the State of Florida
or at its principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number, class, and series, if any, of the shares held by
each shareholder, and shall keep on file at said registered office the voting
list of shareholders for a period of at least ten days prior to any meeting of
shareholders.
ARTICLE V
Corporate Seal
The corporate seal shall have inscribed thereon the name of the corporation
and shall be in such form and contain such other words and/or figures as the
Board of Directors shall determine or the law require.
ARTICLE VI
Fiscal Year
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
Control Over Bylaws
The Board of Directors shall have power to adopt, alter, amend, or repeal
the Bylaws.
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ARTICLE VIII
Director Deadlocks; Arbitration
If the Board of Directors shall be equally divided respecting the
management of the property, business, and affairs of the corporation, or any
aspect thereof or any transaction involved therein, or shall be equally divided
on any question, dispute, or controversy, and such equal division concerns a
proper subject for action by the Board, no shareholder or director shall have
the right to have the corporation dissolved or shall have any other legal right
in a suit at law or in equity because of such deadlock. Any such equal division
shall be submitted to arbitration in the following manner:
(1) Upon written request by any director submitted at a duly organized
meeting of the Board of Directors, the Board shall select two arbitrators, each
director having in such selection the right to two (2) votes under a system of
cumulative voting, whereupon such two arbitrators shall select a third
arbitrator; but if they shall be unable to agree within 15 days upon the third
arbitrator, he shall be appointed by them from the Panel of Arbitrators of the
American Arbitration Association in accordance with its rules then in effect.
(2) The arbitrators shall decide, resolve, and determine the matters
respecting which the Board may be equally divided, including (but not limited
to) all collateral matters such as whether such matter is a proper subject for
action by the Board of Directors, whether such matters have been properly
submitted to them for decision, whether the Board is actually equally divided,
and whether this section and the provisions for arbitration hereunder are
properly invoked and applicable, to the end that all questions, disputes and
controversies be resolved, determined and adjudged by the arbitrators; and the
decision of such arbitrators on all matters submitted to them hereunder shall be
conclusive and binding upon the Board of Directors, the corporation, and the
parties.
(3) The arbitrators shall conduct the arbitration proceedings in accordance
with the rules of the American Arbitration Association, as then in effect,
insofar as such rules are not in conflict with this section.
(4) The decision of the arbitrators shall be final and conclusive, shall be
the equivalent of a resolution unanimously passed by the full Board at a meeting
duly convened, and shall not be revoked or amended or overruled, except by
unanimous action of the Board of Directors or the shareholders of the
corporation. Such decision shall be forthwith filed with the Secretary of the
corporation; and judgment on such decision may be entered in the highest court
of the forum having jurisdiction.
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The denial in this section of the Bylaws of the right to have the
corporation dissolved, and of other legal rights, shall be inoperative in the
event that any shareholder of the corporation shall have given written notice to
the members of the Board of Directors that he intends to seek dissolution of the
corporation or other legal remedy because of deadlock among the Board of
Directors, and such notice remains unrevoked for two years from the date it was
given. If such notice is given and (a) no such proceedings are commenced within
three years thereafter, or (b) such notice is revoked, or (c) proceedings are
commenced and are determined adversely to the party seeking dissolution or other
legal remedy because of such deadlock, the said denial of rights in this section
shall again become fully operative as before.
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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 22, 1999, in the Registration Statement (Form S-3 No. _________________)
and related Prospectus of Sawtek Inc. for the registration of 4,600,000 shares
of its common stock.
/s/Ernst & Young LLP
Orlando, Florida
December 10, 1999
