<PAGE>
Registration No. 333-92527
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 2
to
Form S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
SAWTEK INC.
(Exact name of registrant as specified in its charter)
Florida 59-1864440
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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. [_]
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.
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<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 24, 2000
PROSPECTUS
4,000,000 Shares
[LOGO OF SAWTEK]
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 January 21, 2000 was $81.88 per share.
-------
<TABLE>
<CAPTION>
Per
Share Total
<S> <C> <C>
Public offering price.............................................. $ $
Underwriting discounts and commissions ............................ $ $
Proceeds to the selling shareholders, before expenses ............. $ $
</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.
-------
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.
Chase H&Q
CIBC WORLD MARKETS
BANC OF AMERICA SECURITIES LLC
, 2000
<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;
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 OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Price Range of Common Stock.............................................. 14
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 34
Principal and Selling Shareholders....................................... 37
Underwriting............................................................. 39
Transfer Agent........................................................... 40
Legal Matters............................................................ 40
Experts.................................................................. 41
Information Incorporated by Reference.................................... 41
Where You Can Find More Information...................................... 41
Index to Consolidated Financial Statements............................... F-1
</TABLE>
Information contained on 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 maintain our records on a
fiscal year ending on September 30 of each year and all references to a year
refer to the respective fiscal year ending on that date.
Sawtek
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, sections of wireless handsets.
According to Dataquest, an independent research firm that tracks the
telecommunications industry, 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;
4
<PAGE>
. 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; and
. 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.
----------------
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.
The Offering
<TABLE>
<S> <C>
Common stock Sawtek is offering......... None
Common stock the selling shareholders 4,000,000 shares
are offering...........................
Common stock to be outstanding after 42,384,723 shares
this offering..........................
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 December 31, 1999 and excludes 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 December 31, 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.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
Consolidated Statement of Income Data:
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended September 30, 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 46,472 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>
Recent Developments
For the three months ended December 31, 1999, we expect that our net sales
will be approximately $31.8 million. In addition, we expect our diluted
earnings per share will be approximately $0.23.
Net sales increased approximately 43% compared to the quarter ended December
31, 1998 and increased approximately 12% compared to the quarter ended
September 30, 1999. The increase in net sales was a result of increased
shipments of bandpass filters for CDMA digital wireless phones, including
approximately $2.4 million of shipments of SAW RF filters. Sawtek began
shipments of SAW RF filters in the quarter ended December 31, 1999. Diluted
earnings per share increased from $0.15 per share for the quarter ended
December 31, 1998 due to higher net sales and a higher gross profit margin.
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 technology 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.
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
7
<PAGE>
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 net sales 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.
Some of our 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 net sales over the past several years partly from
shipments to South Korean customers. In 1999, our net sales from South Korean
customers was approximately $16.8 million, equal to 17% of total net sales, and
in 1998 it was approximately $14 million, or 14% of net sales. However, net
sales from South Korean customers fluctuates greatly as experienced in the last
quarter of 1998 when those net sales declined to $1.1 million, or approximately
5% of total net sales, compared to $4.8 million, or approximately 18% of total
net sales, 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% of net
sales in 1999 and 76% 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.
8
<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 total net sales and 40% 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 fluctuations;
. limited supplies 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.
If one or more customers cancel or terminate purchase orders or delay
deliveries with short notice, our operating results would be adversely
affected.
Our customers' orders are typically subject to cancellation or modification
with very short notice. In addition, purchase orders for our products may be
large and intended to satisfy customers' long-term needs. 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.
9
<PAGE>
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
and 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.
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. We recently received a letter from a large Canadian
telephone equipment manufacturer claiming that it believes we are infringing on
a patent it owns that issued in 1987 and offering a license on preferred terms,
without stating the proposed terms of the license. It is our position that this
patent is unenforceable because we sold devices commercially utilizing the
invention claimed in the patent at least two years before the application for
this patent was filed and the patent owner did not attempt to exercise its
rights to enforce this patent for over 12 years. If we are incorrect in our
position in this matter and this patent is found to be enforceable, we could be
required to pay a license fee or pay damages related to sales of devices
utilizing this invention sold for the past six years and an injunction against
further alleged infringement could issue, either of which could have a material
adverse effect on our operating results. 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 could 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.
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<PAGE>
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.
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 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.
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.
11
<PAGE>
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 were
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:
. 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.
12
<PAGE>
In addition, the Sawtek Employee Stock Ownership and 401(k) Plan, or the
ESOP, owns approximately 28% of our outstanding common stock and will own
approximately 23% 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.
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."
13
<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 common stock is 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>
FY 1998
First Quarter................................................. $23.38 $10.50
Second Quarter................................................ 15.63 10.47
Third Quarter ................................................ 16.25 6.19
Fourth Quarter ............................................... 9.63 5.13
FY 1999
First Quarter................................................. $11.94 $ 5.91
Second Quarter................................................ 17.59 8.75
Third Quarter ................................................ 23.63 15.25
Fourth Quarter ............................................... 40.75 22.31
FY 2000
First Quarter................................................. $67.25 $32.50
Second Quarter (through January 21, 2000)..................... $93.50 $57.81
</TABLE>
The last reported sale price of our common stock on the Nasdaq National
Market on January 21, 2000 was $81.88 per share.
As of December 31, 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.
14
<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.
15
<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."
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Income
Data:
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.
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
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 $62,094 $(20,256)
</TABLE>
16
<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.
17
<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>
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. 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
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 sales 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 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.
18
<PAGE>
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 credits 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.
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 net sales in 1997 to 37% of
total net sales in 1998 due to the economic recession in Asia and reduced
revenue from GSM base station filter sales to European customers. Sales to
South Korean customers decreased from 16% of total net sales in 1997 to 14% of
total net sales in 1998. Sales to South Korean customers dropped in the fourth
quarter of 1998 to approximately 5% of total net 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 net sales, 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 net 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.
19
<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 related 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.
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 costs 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 had 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.
20
<PAGE>
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.
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 hardware 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 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 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 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.
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 have
achieved full Year 2000 compliance.
21
<PAGE>
Costs to Address the Year 2000 Issues
The bulk of our costs to address Year 2000 issues were 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.
Our Contingency Plans--Year 2000
In anticipation of the Year 2000 issue, we 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 disruptions 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.
22
<PAGE>
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, higher
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 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.
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
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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.
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. This plan includes
increasing the manufacturing 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 LAN, wireless data, SAW-based chemical
sensors and other applications for bringing voice, data and video into
the home.
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.
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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.
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 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.
We perform classified work for the United States government and certain of
its contractors. In early October 1999, we were informally advised by Defense
Security Services, or DSS, that our 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, we amended our 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 us. On
December 8, 1999, at the suggestion of the DSS representative, our 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 our possession. DSS is
currently reviewing these actions to determine whether or not to validate our
facility security clearance. We will be prohibited from accepting new
classified work until we have a facility security clearance. In 1999, we had
net sales 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.
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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.
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, or STW.
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.
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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.
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.
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.
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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
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.
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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.
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 11 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
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.
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The following is an alphabetical list of some of the customers that
contributed $1.0 million or more to our revenues in 1999:
<TABLE>
<S> <C>
.Alcatel .Motorola
.AVNET .Nokia
.Ericsson .Northrop Grumman
.Hanwha .Qualcomm
.Hyundai .Rockwell
.LGIC .Samsung
.Lucent Technologies .United States Government
</TABLE>
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
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.
Intellectual Property Matters
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,
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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.
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.
We recently received a letter from a large, Canadian telephone equipment
manufacturer claiming that it believes we are infringing on a patent which is
owned by that company that issued in 1987 and offering a license on preferred
terms, without stating the proposed terms of a license. We have obtained a
legal opinion from our intellectual property counsel to the effect that this
patent is unenforceable because: (a) we sold devices commercially which
utilized the invention claimed in the patent at least two years before the
patent application was filed and (b) the patent owner failed to bring an action
against us within six years after it had knowledge that we utilized the
invention in our devices. The patent owner has been a customer of ours since
1986 and should have known that devices we sold to it utilized this invention.
We have advised the patent owner about our position on this patent and have not
received a response. The patent owner has not filed suit against us. We
estimate that 10% to 20% of our revenues are derived from the sale of devices
that the patent owner could claim infringe on this patent. If we are incorrect
in our position and the patent is found to be enforceable, we could be required
to pay a license fee or to pay damages related to sales of devices utilizing
this invention sold for the last six years and an injunction against further
alleged infringements could issue, either of which could have a material
adverse effect on our operating results.
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.
32
<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 near 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 year. We also lease a 7,600
square foot facility in Bowling Green, Kentucky for our chemical sensor
development operation, and 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.
33
<PAGE>
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
</TABLE>
- --------
(1)Member of the Audit Committee.
(2)Member of the Compensation Committee.
Steven P. Miller co-founded the Company, has served as a Director since
1979, Chief Executive Officer 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, Chief Operating Officer from July 1995 to
September 30, 1999 and Vice President-Operations from July 1995 to April 1997.
He has served in various positions since 1982 with 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.
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, a SAW component manufacturer, 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-
Finance 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
34
<PAGE>
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, a diversified electronics manufacturer. From
1974 to December 1988, Mr. Bitzer was in various operations and management
positions with the General Electric Company, a diversified electronics
manufacturer. 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 General Electric. Mr. Waseem
has a B.S. and M.S. degree in Electrical Engineering and an M.B.A., all from
the University of Minnesota.
Robert C. Strandberg has been a Director of the Company since October 1995.
Mr. Strandberg has been President and CEO of PSC Inc., a manufacturer of bar
code readers, since June 1997 and served as its 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 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.
35
<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.
36
<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
December 31, 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 December
31, 1999, while those shares are not included for purposes of computing
percentage ownership of any other person. Unless otherwise indicated, the
persons and entities named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially Owned
Owned After Offering
-----------------------Number of Shares ----------------------------
Name Number Percent Being Offered Number Percent
- ---- ------------ -------------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Sawtek Inc. Employee
Stock Ownership and
401(k) Plan(1) (the
"ESOP")............... 11,893,959 28.06% 2,000,000 9,893,959 23.34%
Care of: HSBC USA
140 Broadway, 11th
Floor
New York, NY 10005
Executive Officers and
Directors:
Steven P. Miller(2).... 1,994,692 4.71% 1,000,000 994,692 2.35%
Neal J. Tolar(3)....... 1,979,637 4.67% 1,000,000 979,637 2.31%
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 Exec-
utive Officers as a
Group (11 per-
sons)(10)............. 4,721,675 11.14% 2,000,000 2,721,615 6.42%
</TABLE>
- --------
* 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 9,029,485 shares allocated to participants'
accounts and 3,180,484 shares not yet allocated to participants' accounts.
Each ESOP participant, with respect to certain
37
<PAGE>
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, 795,670 shares held by Via
Capri Investment Limited Partnership, over which Mr. Miller has indirect
voting control and 540,000 shares held by Via Tuscany Investment Limited
Partnership, of which Mr. Miller's wife is the beneficial owner. Excludes
237,892 shares owned by the ESOP but allocated to his account. Mr. Miller
has directed the ESOP Trustee to sell approximately 59,500 shares from
his allocated ESOP account.
(3) Excludes 23,166 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 1,507,609 held by MOPNJ Investment
Limited Partnership, over which Dr. Tolar has indirect voting control.
Dr. Tolar does not have any shares in the ESOP.
(4) Includes options to purchase 159,460 shares of common stock exercisable
within 60 days of December 31, 1999. Excludes 200,583 shares owned by the
ESOP but allocated to his account. Mr. Monetti has directed the ESOP
Trustee to sell approximately 50,200 shares from his allocated ESOP
account.
(5) Includes options to purchase 107,500 shares of common stock exercisable
within 60 days of December 31, 1999. Excludes 59,098 shares owned by the
ESOP but allocated to his account. Mr. Link has directed the ESOP Trustee
to sell approximately 14,800 shares from his allocated ESOP account.
(6) Includes options to purchase 78,334 shares of common stock exercisable
within 60 days of December 31, 1999. Excludes 48,207 shares owned by the
ESOP but allocated to his account. Dr. Anemogiannis has directed the ESOP
Trustee to sell approximately 12,100 shares from his allocated ESOP
account.
(7) Includes options to purchase 13,332 shares of common stock exercisable
within 60 days of December 31, 1999.
(8) Includes options to purchase 40,000 shares of common stock exercisable
within 60 days of December 31, 1999.
(9) Includes options to purchase 14,000 shares of common stock exercisable
within 60 days of December 31, 1999.
(10) Includes options to purchase 449,026 shares of common stock exercisable
within 60 days of December 31, 1999.
38
<PAGE>
UNDERWRITING
Hambrecht & Quist LLC, CIBC World Markets Corp. and Banc 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>
Number of
Name 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 the independent
auditors. The underwriters are committed to purchase all of the shares of
common stock offered by the selling shareholders 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>
Without With
Over- Over-
Allotment 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 $ .
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.
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 an aggregate of 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. These 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.
39
<PAGE>
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
12,635,574 shares after the offering, have executed lock-up agreements under
which these shareholders, except for the ESOP, have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, 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.
The ESOP, which will hold 9,893,959 shares after this offering (assuming no
exercise of the over-allotment option) is subject to a lock-up agreement except
that the ESOP may distribute shares without the lock-up restriction upon the
death, retirement or disability of a participant. The lock-up agreements
provide that Hambrecht & Quist LLC may, in its sole discretion and at any time
without notice to our shareholders or the public market, release all or a
portion of the shares subject to the lock-up agreements. We have agreed that we
will not, without the prior written consent of Hambrecht & Quist LLC, 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 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.
TRANSFER AGENT
Our transfer agent is SunTrust Bank-Atlanta.
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.
40
<PAGE>
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:
. Our annual report on Form 10-K for the year ended September 30, 1999.
. Our proxy materials on Schedule 14A, as filed with the Securities and
Exchange Commission on December 6, 1999.
. Our current report on Form 8-K, as filed with the Securities and
Exchange Commission on January 4, 2000.
. 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.
41
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... 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 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>
Sawtek Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
ASSETS
<TABLE>
<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
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except per share data)
<TABLE>
<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
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Unearned
------------- 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
====== === ======= ======= ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
Sawtek Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<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
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
F-7
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition. Revenues from production contracts are recognized 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.
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.
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,
F-8
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
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.
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
-------- -------
(Dollars 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>
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
------ ------ -----
(Dollars 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>
5. Inventories
Net inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
----------- -----------
(Dollars 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>
F-9
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The allowance for obsolete and slow moving inventory is as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1999 1998 1997
------ ------ ------
(Dollars 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>
6. Property, Plant and Equipment
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
----------- -----------
(Dollars 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.
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.
F-10
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Long-Term Debt and Lease Obligations
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
----------- -----------
(Dollars 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.
Required future payments for long-term debt and operating leases are as
follows:
<TABLE>
<CAPTION>
Debt Leases
------------ ------------
(Dollars 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.
F-11
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Year Ended September
30,
-----------------------
1999 1998 1997
------- ------- -------
(Dollars 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:
<TABLE>
<CAPTION>
September 30,
------------------
1999 1998
-------- --------
(Dollars 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
======== ========
Noncurrent:
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
------- ------- -------
(Dollars 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>
F-12
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
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 net sales 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% *
</TABLE>
--------
* Less than 10%
F-13
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(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 net sales as noted above, and a
significant percentage of which are foreign. 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 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.
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.
F-14
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Net sales by markets (as defined by the Company), as a percentage of total
revenues for years ended September 30, 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.
<TABLE>
<CAPTION>
Net Sales Operating Income Assets
-------------------------- ----------------------- -----------------
1999 1998 1997 1999 1998 1997 1999 1998
-------- ------- ------- ------- ------- ------- -------- --------
(Dollars 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.
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.
F-15
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
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.
F-16
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information concerning options under these plans is as follows:
<TABLE>
<CAPTION>
Shares Under Price Range Weighted-Average
Option 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>
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- Number Weighted-
Range of Number Remaining Avg. Exercise Exercisable Avg. Exercise
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
--------------- --------------- ---------------
(Dollars 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.
F-17
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 issuances 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-18
<PAGE>
SAWTEK INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. Quarterly Financial Information (unaudited)
Selected quarterly financial data is summarized below:
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
(Dollars in thousands, except per share data)
Fiscal 1999 Fiscal 1998
------------------------------- -------------------------------
Sept. June Mar. Dec. Sept. June Mar. Dec.
30, 30, 31, 31, 30, 30, 31, 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
</TABLE>
- --------
(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.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 Shares
[LOGO OF SAWTEK]
Common Stock
------------
PROSPECTUS
------------
Chase H&Q
CIBC World Markets
Banc of America Securities LLC
------------
, 2000
------------
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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is a statement of estimated expenses of the 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.................................................. 21,660
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.......................................... 330,000
Advisory fees for ESOP Trustee................................... 50,000
Miscellaneous expense............................................ 53,500
---------
Total.......................................................... $ 634,160
=========
</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 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
II-1
<PAGE>
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.
Item 16. Exhibits
The following exhibits are filed as part of this registration statement:
<TABLE>
<C> <S>
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 (incorporated by reference to Registration
Statement on Form S-1, File No. 333-1860).
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).
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 (incorporated by reference to Registration
Statement on Form S-1, File No. 333-1860).
10.5 Fourth Amendment to Installment Sales and Security Agreement, dated
January 8, 1991, by and between the Company, OCIDA, and Sun Bank
(incorporated by reference to Registration Statement on Form S-1, File
No. 333-1860).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.6 Amended and Restated Loan and Security Agreement, dated November 15,
1995, between the Company and SunTrust Bank, Central Florida, National
Association ("SunTrust") (incorporated by reference to Registration
Statement on Form S-1, File No. 333-1860).
10.7 Increase Promissory Note dated November 10, 1995 (incorporated by
reference to Registration Statement on Form S-1, File No. 333-1860).
10.8 Renewal, Increase and Consolidation Promissory Note, dated November 10,
1995 (incorporated by reference to Registration Statement on Form S-1,
File No. 333-1860).
10.9 Promissory Demand Note, dated November 10, 1995 (incorporated by
reference to Registration Statement on Form S-1, File No. 333-1860).
10.10 Fifth Amendment to Installment Sale and Security Agreement, dated as of
March 1, 1995, between the Company, Sun Bank and OCIDA (incorporated by
reference to Registration Statement on Form S-1, File No. 333-1860).
10.11 Fourth Supplemental Trust Indenture, dated as of March 1, 1995, between
the Company, Sun Bank and OCIDA (incorporated by reference to
Registration Statement on Form S-1, File No. 333-1860).
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
(incorporated by reference to Registration Statement on Form S-1, File
No. 333-1860).
10.13 Bond Purchase Agreement dated as of December 1, 1981, between OCIDA and
the Company (incorporated by reference to Registration Statement on Form
S-1, File No. 333-1860).
10.14 Installment Sale and Security Agreement, dated as of December 1, 1981,
between OCIDA and the Company and accepted by the Guarantors
(incorporated by reference to Registration Statement on Form S-1, File
No. 333-1860).
10.15 Guaranty Agreement dated as of December 1, 1981, among the Guarantors
and OCIDA (incorporated by reference to Registration Statement on Form
S-1, File No. 333-1860).
10.16 Trust Indenture dated as of December 1, 1981, between OCIDA and the
Trustee and accepted by the Company and the Guarantors (incorporated by
reference to Registration Statement on Form S-1, File No. 333-1860).
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 (incorporated by reference to Form 10-K
for 1999 filed on November 5, 1999).
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 (incorporated by reference
to Form 10-K for 1997 filed on November 12, 1997).
10.21 Modification of ESOP Pledge Agreement dated as of September 26, 1997
between the Company and Marine Midland Bank (incorporated by reference
to Form 10-K for 1997 filed on November 12, 1997).
10.22 Renewal ESOP Note dated as of September 26, 1997 (incorporated by
reference to Form 10-K for 1997 filed on November 12, 1997).
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 (incorporated by reference to
Form 10-K for 1997 filed on November 12, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
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 (incorporated by reference to
Form 10-K for 1999 filed on November 5, 1999).
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Gray, Harris & Robinson (included in Exhibit 5.1).
24.1* Power of attorney.
</TABLE>
- --------
* Previously filed
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.
II-4
<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 amendment to its
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Apopka, State of Florida, on the 24th day of
January, 2000.
SAWTEK INC.
/s/ GARY A. MONETTI
By: _________________________________
Gary A. Monetti
Chief Executive Officer
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons on
behalf of the registration in the capacities indicated on the 24th day of
January, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* Director
______________________________________
Neal J. Tolar
* Director
______________________________________
Robert C. Strandberg
* Director
______________________________________
Bruce S. White
* Chairman of the Board of
______________________________________ Directors
Steven P. Miller
* Director
______________________________________
Willis C. Young
/s/ Gary A. Monetti Chief Executive Officer
______________________________________ and Director (Principal
Gary A. Monetti Executive Officer)
* Senior Vice President-
______________________________________ Finance, Chief Financial
Raymond A. Link Officer and Chief
Accounting Officer
(Principal Financial
Officer and Principal
Accounting Officer)
</TABLE>
/s/ Gary A. Monetti
*By: ________________________________
Gary A. Monetti
As Attorney-in-Fact
*By: ________________________________
Raymond A. Link
As Attorney-in-Fact
II-6
<PAGE>
EXHIBIT 1.1
SAWTEK INC.
4,000,000 Shares/1/
Common Stock
FORM OF UNDERWRITING AGREEMENT
------------------------------
January __, 2000
HAMBRECHT & QUIST LLC
CIBC World Markets Corp.
Banc of America Securities LLC
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Certain shareholders of Sawtek Inc., a Florida corporation (herein called
the Company), named in Schedule II hereto (herein collectively called the
Selling Securityholders) propose to sell an aggregate of 4,000,000 shares of
Common Stock, par value $0.0005 per share (herein called the Common Stock), of
the Company (said shares of Common Stock being herein called the Underwritten
Stock). Certain Selling Securityholders, also as set forth on Schedule II,
propose to grant to the Underwriters (as hereinafter defined) an option to
purchase up to 600,000 additional shares of Common Stock (herein called the
Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent
and warrant that you have been authorized by each of the other Underwriters to
enter into this Agreement on its behalf and to act for it in the manner herein
provided.
1. Registration Statement. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-3 (No. 333-92527), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all documents incorporated by reference
therein, all exhibits and financial statements, all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred to
below, in the form in which it became effective, and any registration statement
filed pursuant to Rule 462(b) of the rules and regulations of the Commission
with respect to the Stock (herein called a Rule 462(b) registration statement),
and, in the event of any
- ----------
/1/ Plus an option to purchase from certain Selling Securityholders up to
600,000 additional shares to cover over-allotments.
<PAGE>
amendment thereto after the effective date of such registration statement
(herein called the Effective Date), shall also mean (from and after the
effectiveness of such amendment) such registration statement as so amended
(including any Rule 462(b) registration statement). The term Prospectus as used
in this Agreement shall mean the prospectus, including the documents
incorporated by reference therein, relating to the Stock first filed with the
Commission pursuant to Rule 424(b) and Rule 430A (or if no such filing is
required, as included in the Registration Statement) and, in the event of any
supplement or amendment to such prospectus after the Effective Date, shall also
mean (from and after the filing with the Commission of such supplement or the
effectiveness of such amendment) such prospectus as so supplemented or amended.
The term Preliminary Prospectus as used in this Agreement shall mean each
preliminary prospectus, including the documents incorporated by reference
therein, included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company and the Selling
Securityholders.
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole).
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition
or results of operations of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement and
the Prospectus.
(iii) The Registration Statement and the Prospectus comply, and on
the Closing Date (as hereinafter defined) and any later date on which
Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the
Securities Exchange Act of 1934, as amended (herein called the Exchange
Act), and the rules and regulations of the Commission thereunder; on the
Effective Date, the Registration Statement did not contain any untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; and, on the Effective Date the Prospectus did not
and, on the Closing Date and any later date on which Option Stock is to be
purchased, will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that none of the representations and
warranties in this subparagraph (iii) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for
use in the Registration Statement or the Prospectus.
(iv) The Company has filed all required tax returns and has paid all
taxes shown thereon as due, and there is no tax deficiency that has been
asserted against the Company that will have a material adverse effect on
the Company and its subsidiaries taken as a whole, and all tax liabilities
are adequately provided for on the books of the Company.
2
<PAGE>
(v) The Company's authorized, issued and outstanding
capitalization as of September 30, 1999 is as set forth under the caption
"Capitalization" in the Prospectus, and all of the outstanding shares of
such capital stock have been duly authorized and validly issued and are
fully paid and nonassessable. The Stock is duly and validly authorized, is
duly and validly issued, fully paid and nonassessable and conforms to the
description thereof in the Prospectus. No further approval or authority of
the shareholders or the Board of Directors of the Company will be required
for the transfer and sale of the Stock to be sold by the Selling
Securityholders as contemplated herein. The holders of outstanding shares
of capital stock of the Company are not entitled to preemptive or other
similar rights in connection with the purchase and sale of Stock
contemplated by this Agreement, and there are no restrictions upon the
voting or transfer of any of the capital stock of the Company pursuant to
the Company's Articles of Incorporation or Bylaws or any agreement or other
outstanding instrument to which the Company is a party or by which it is
bound. All of the issued and outstanding capital stock of each of the
subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and nonassessable and is owned by the Company free and clear
of all liens, encumbrances and security interests.
(vi) The Stock to be sold by the Selling Securityholders is listed
and duly admitted to trading on the Nasdaq National Market.
(vii) Except as set forth in the Prospectus, there are no
outstanding securities convertible into or exchangeable for, or warrants,
rights or options to purchase from the Company, or obligations of the
Company or any of its subsidiaries to issue, shares of capital stock of the
Company or any of its subsidiaries.
(viii) The Company is not, nor with the giving of notice or lapse of
time or both will be, in violation of or in default (A) under its Articles
of Incorporation or Bylaws, or (B) under any indenture or other agreement
or instrument to which the Company or any of its subsidiaries is a party,
or by which they, or any of their properties, are bound, and which would
have a material adverse effect on the condition, results of operations or
business of the Company and its subsidiaries, taken as a whole. Neither (A)
the sale of the Stock or (B) the consummation by the Company of any other
of the transactions contemplated herein, will conflict with or result in a
breach or violation of or constitute a default under or result in the
creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any of its subsidiaries pursuant to
the organization documents of the Company or its subsidiaries, the terms of
any indenture or other agreement or instrument to which the Company or any
of its subsidiaries is a party, or any order or regulation applicable to
the Company or any of its subsidiaries of any court, regulatory body,
administrative agency, governmental body or arbitration body having
jurisdiction over the Company or any of its subsidiaries, except where such
conflicts, breaches, violations, defaults, liens, charges or encumbrances
would not have a material adverse effect on the business, properties or
consolidated financial condition or results of operations of the Company
and its subsidiaries taken as a whole.
(ix) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and is a legal, valid and binding obligation of the Company
enforceable in accordance with its terms.
(x) The Company has all necessary consents, authorizations,
approvals, orders, certificates and permits of and from, and has made all
declarations and filings with, all governmental authorities, to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file such would not have a material adverse effect on
the Company.
(xi) No consent, approval, authorization or order of any court or
governmental agency, person or body, the Company's shareholders, or
pursuant to applicable law is required for the consummation of the
transactions contemplated herein, except such as have been obtained or may
be required under the blue sky laws of any jurisdiction or by the National
Association of Securities Dealers, Inc. (herein called NASD) in
3
<PAGE>
connection with the purchase of Stock and distribution of the Stock by the
Underwriters and such other approvals as have been obtained and which are
in full force and effect.
(xii) Ernst & Young LLP, which has audited the consolidated
financial statements of the Company included in the Registration Statement,
are independent public accountants within the meaning of the Securities Act
and the applicable rules and regulations thereunder; the historical
financial statements, together with the related financial notes and
schedules, included in the Registration Statement and the Prospectus
(herein called the Financial Information) comply in all material respects
with the requirements of the Securities Act and fairly present in all
material respects the financial position, results of operations and cash
flows of the Company and its subsidiaries at the respective dates and for
the respective periods indicated. The Financial Information has been
prepared in accordance with generally accepted accounting principles
(herein called GAAP), applied on a consistent basis throughout all periods
specified and as presented in the Prospectus and as required by the
Securities Act or the rules and regulations thereunder to be included in
the Registration Statement and the Prospectus. No other financial
statements or schedules are required to be included in the Registration
Statement. The financial information and financial data set forth in the
Prospectus under the captions "Summary Consolidated Financial Data,"
"Capitalization" and "Selected Consolidated Financial Data" are derived
from the accounting records of the Company and its subsidiaries, and are a
fair representation in all material respects of the data purported to be
shown in accordance with GAAP. Since the respective dates as of which the
information is given in the Registration Statement and the Prospectus,
there has not been a material adverse change in the business, properties,
financial condition or results of operations of the Company and its
subsidiaries taken as a whole.
(xiii) There are no contracts, agreements or understandings between
the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to file
a registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(xiv) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its
business and the value of its properties and as is customary for companies
engaged in similar businesses in similar industries.
(xv) The Company and its subsidiaries own or possess adequate
rights to use all material patents (or foreign equivalents), patent
applications, trademarks, trademark registrations, service marks, service
mark registrations, trade names, licenses, copyrights and proprietary or
other confidential information necessary for the conduct of their
respective businesses except such as the failure to so own or possess would
not have a material adverse effect on the Company and its subsidiaries
taken as a whole. To the Company's knowledge, the conduct of business of
the Company and its subsidiaries will not conflict with, and neither the
Company nor any of its subsidiaries has received any notice of any claim of
infringement or conflict with, the rights of others in respect thereof.
(xvi) The Company has good and marketable title to all of the
properties and assets as described in the Prospectus or as reflected in the
financial statements filed with the Commission as part of the Registration
Statement, free and clear of any lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements
or as described in the Prospectus. All leases to which the Company is a
party are valid and binding obligations of the Company and no default by
the Company has occurred or is continuing thereunder, and the Company
enjoys peaceful and undisturbed possession under all such leases to which
it is a party as lessee.
(xvii) There is no legal or governmental proceeding pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that is required to be described in the Registration Statement or
the Prospectus and is not so described or that could reasonably be expected
to prevent the consummation of the transactions contemplated hereby; or any
statute, regulation, contract or other document that is required to be
described
4
<PAGE>
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described or filed.
(xviii) No labor disturbance by the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company, is imminent
which might be expected to have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and
its subsidiaries taken as a whole.
(xix) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each pension plan for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(xx) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the Property now or
previously owned or leased by the Company or any of its subsidiaries in
violation of any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit or which would require remedial action under any
applicable law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or remedial action which would not have,
or could not be reasonably likely to have, singularly or in the aggregate
with all such violations and remedial actions, a material adverse effect on
the business, properties, financial condition or results of operations of
the Company and its subsidiaries taken as a whole; there has been no
material spill, discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment surrounding
such property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or with
respect to which the Company has knowledge, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release which
would not have or would not be reasonably likely to have, singularly or in
the aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings and releases, a material adverse effect on
the business, properties, financial condition or results of operations of
the Company and its subsidiaries taken as a whole; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(xxi) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
the laws of the United States or any jurisdiction thereof, or (iii)
violated the Foreign Corrupt Practices Act of 1977, as amended.
(xxii) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Stock, nor, to the best knowledge of the Company, instituted
proceedings for that purpose.
(xxiii) The Company has not taken, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Stock.
5
<PAGE>
(xxiv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxv) There are no issues related to the Company's preparedness for
the Year 2000 that (i) are of a character required to be described or
referred to in the Registration Statement or Prospectus by the Securities
Act or the rules and regulations of the Commission thereunder which have
not been accurately described in the Registration Statement or Prospectus
or (ii) might reasonably be expected to result in any material adverse
effect on the condition, results of operations or business of the Company
and its subsidiaries, taken as a whole. Except as set forth in the
Registration Statement, all internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related
products, and each Constituent Component of those products of the Company,
fully comply with the Year 2000 Qualification Requirements. "Year 2000
Qualification Requirements" means that the internal computer systems and
each Constituent Component of those systems and all computer-related
products and each Constituent Component of those products of the Company
(i) have been reviewed to confirm that they store, process (including
sorting and performing mathematical operations, calculations and
computations), input and output data containing date and information
correctly regardless of whether the date contains dates and times before,
on or after January 1, 2000, (ii) have been designated to ensure date and
time entry recognition, calculations that accommodate same century and
multi-century formulas and date values, leap year recognition and
calculations, and date data interface values that reflect the century,
(iii) accurately manage and manipulate data involving dates and times,
including single century formulas and multi-century formulas, and will not
cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates, (iv) accurately
process any date rollover and (v) accept and respond to two-digit year date
input in a manner that resolves any ambiguities as to the century.
"Constituent Component" means all software (including operating systems,
programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration.
(xxvi) The Company has not distributed and will not distribute,
prior to the later of (A) the Closing Date, or any later date on which
Option Stock is to be purchased, as the case may be, and (B) completion of
the distribution of the Stock, any offering material in connection with the
offering and sale of the Stock other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and such other materials, if any,
permitted by the Securities Act.
(xxvii) The Company has not taken and will not take any actions in
connection with the sale of Stock to be sold hereunder that violate any
provision of the Securities Act or the Exchange Act, the rules and
regulations of the Commission thereunder, or any applicable state
securities laws.
(b) Each of the Selling Securityholders hereby represents and warrants as
follows:
(i) Such Selling Securityholder has good and marketable title to
all the shares of Stock to be sold by such Selling Securityholder
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver
the same hereunder, subject, in the case of each Selling Securityholder, to
the rights of SunTrust Bank, Central Florida, N.A., as Custodian (herein
called the Custodian), and that upon the delivery of and payment for such
shares of the Stock hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(ii) Certificates in negotiable form for the shares of the Stock
to be sold by such Selling Securityholder have been placed in custody under
a Custody Agreement for delivery under this Agreement with the Custodian;
such Selling Securityholder specifically agrees that the shares of the
Stock represented by the certificates so held in custody for such Selling
Securityholder are subject to the interests of the
6
<PAGE>
several Underwriters and the Company, that the arrangements made by such
Selling Securityholder for such custody, including (except with respect to
the Sawtek Inc. Employee Stock Ownership Plan and 401(k) Plan) (herein
called the ESOP) the Power of Attorney provided for in such Custody
Agreement, are to that extent irrevocable, and that the obligations of such
Selling Securityholder shall not be terminated by any act of such Selling
Securityholder or by operation of law, whether by the death or incapacity
of such Selling Securityholder (or, in the case of a Selling Securityholder
that is not an individual, the dissolution or liquidation of such Selling
Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur
before the delivery of such shares of the Stock hereunder, certificates for
such shares of the Stock shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
death, incapacity, dissolution, liquidation or other event.
(iii) Each Selling Securityholder identified on Schedule II as a
Major Selling Securityholder represents and warrants that the Registration
Statement and the Prospectus comply, and on the Closing Date and any later
date on which Option Stock is to be purchased, the Prospectus will comply,
in all material respects, with the provisions of the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder;
on the Effective Date, the Registration Statement did not contain any
untrue statement of a material fact and did not omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which
Option Stock is to be purchased, will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information herein
or otherwise furnished in writing to the Company by or on behalf of the
Underwriters for use in the Registration Statement or the Prospectus.
(iv) All information furnished in writing by or on behalf of such
Selling Securityholder for use in the Registration Statement and Prospectus
is, and on the Closing Date and any later date on which Option Stock is to
be purchased will be, true, correct and complete, and does not, and on the
Closing Date and any later date on which Option Stock is to be purchased
will not, contain any untrue statement of a material fact or omit to state
any material fact necessary to make such information not misleading.
(v) Neither the sale of the Stock to be sold by such Selling
Securityholder to the Underwriters nor the consummation of any other of the
transactions herein contemplated by such Selling Securityholder will
conflict with or result in a breach or violation of or constitute a default
under or result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of such Selling Securityholder
pursuant to the organization documents of such Selling Securityholder (if
applicable), the terms of any indenture or other agreement or instrument to
which such Selling Securityholder is a party, or any order or regulation
applicable to such Selling Securityholder of any court, regulatory body,
administrative agency, governmental body or arbitration body having
jurisdiction over such Selling Securityholder, except where such conflicts,
breaches, violations, defaults, liens, charges or encumbrances would not
have a material adverse effect on such Selling Securityholder.
(vi) With respect to the ESOP, the sale of the Stock to be sold by
such Selling Securityholder to the Underwriters will not, in whole or in
part, constitute a prohibited transaction pursuant to Section 4975(c) of
the Code or a party-in-interest transaction pursuant to Section 406 of
ERISA, and none of the Underwriters or any person or entity affiliated with
them is a "fiduciary" (as such term is defined in Section 3(21) of ERISA)
of such Selling Securityholder or a "named fiduciary" (as such term is
defined in Section 402(a)(2) of ERISA) of such Selling Securityholder.
(vii) Such Selling Securityholder has full legal right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized,
7
<PAGE>
executed and delivered by or on behalf of such Selling Securityholder and
is a legal, valid and binding obligation of such Selling Securityholder
enforceable in accordance with its terms.
(viii) Such Selling Securityholder has not distributed and will not
distribute, prior to the later of (A) the Closing Date, or any later date
on which Option Stock is to be purchased, as the case may be, and (B)
completion of the distribution of the Stock, any offering material in
connection with the offering and sale of the Stock other than any
Preliminary Prospectus, the Prospectus, the Registration Statement and such
other materials, if any, permitted by the Securities Act .
(ix) Such Selling Securityholder has not taken and will not take
any actions in connection with the sale of Stock to be sold by such Selling
Securityholder that violate any provision of the Securities Act or the
Exchange Act, the rules and regulations of the Commission thereunder, or
any applicable state securities laws.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, each Selling Securityholder agrees to
sell to the several Underwriters the number of shares of the Underwritten Stock
set forth in Schedule II opposite the name of such Selling Securityholder, and
each of the Underwriters agrees to purchase from the Company and the Selling
Securityholders the respective aggregate number of shares of Underwritten Stock
set forth opposite its name in Schedule I. The price at which such shares of
Underwritten Stock shall be sold by the Company and the Selling Securityholders
and purchased by the several Underwriters shall be $___ per share. The
obligation of each Underwriter to each of the Selling Securityholders shall be
to purchase from the Selling Securityholders that number of shares of the
Underwritten Stock which represents the same proportion of the total number of
shares of the Underwritten Stock to be sold by each of the Company and the
Selling Securityholders pursuant to this Agreement as the number of shares of
the Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto represents of the total number of shares of the Underwritten
Stock to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Selling Securityholders shall have the right, within 24 hours next succeeding
the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to you for purchase of such shares and
portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Securityholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
neither the non-defaulting Underwriters nor the Selling Securityholders shall
make arrangements within the 24-hour
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periods stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company or the Selling Securityholders to any non-
defaulting Underwriter and without any liability on the part of any non-
defaulting Underwriter to the Company or the Selling Securityholders. Nothing in
this paragraph (b), and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Selling
Securityholders indicated on Schedule II as those selling Option Stock grant an
option to the several Underwriters to purchase, severally and not jointly, up to
600,000 shares in the aggregate of the Option Stock from those Selling
Securityholders at the same price per share as the Underwriters shall pay for
the Underwritten Stock. Said option may be exercised only to cover over-
allotments in the sale of the Underwritten Stock by the Underwriters and may be
exercised in whole or in part at any time (but not more than once) on or before
the thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the fourth paragraph on the front cover
page and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 a.m., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
offices of Jones, Day, Reavis & Pogue, 3500 SunTrust Plaza, 303 Peachtree
Street, N.E., Atlanta, Georgia 30308-3242, at 7:00 a.m., San Francisco time, on
the fourth business day after the date of this Agreement, or at such time on
such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the offices of Jones, Day, Reavis & Pogue,
3500 SunTrust Plaza, 303 Peachtree Street, N.E., Atlanta, Georgia 30308-3242, at
7:00 a.m., San Francisco time, on the third business day after the exercise of
such option.
(c) Payment for the Stock purchased from the Selling Securityholders
shall be made to the Custodian, for the account of the Selling Securityholders,
in each case by one or more certified or official bank check or checks in next
day funds (and the Selling Securityholders agree not to deposit any such check
in the bank on which drawn until the day following the date of its delivery to
the Custodian). Such payment shall be made upon delivery of
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certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Selling
Securityholders for shares to be purchased by any Underwriter whose check shall
not have been received by you on the Closing Date or any later date on which
Option Stock is purchased for the account of such Underwriter. Any such payment
by you shall not relieve such Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company and the Selling Securityholders.
The ESOP covenants and agrees as set forth in Section 6(i), (j), (k) and (l),
and each of the Company and the Major Selling Securityholders covenants and
agrees as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A and (ii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy or to which you shall have
reasonably objected in writing or which is not in compliance with the
Securities Act or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, (iii) the
institution or notice of intended institution of any action or proceeding
for that purpose, (iv) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Stock for sale in any
jurisdiction, or (v) the receipt by it of notice of the initiation or
threatening of any proceeding for such purpose. The Company and the Major
Selling Securityholders will make every reasonable effort to prevent the
issuance of such a stop order and, if such an order shall at any time be
issued, to obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of
each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time during the period in which
a prospectus is required by law to be delivered by an Underwriter or
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of
any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for the
Underwriters, to supplement or amend the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser of the Stock, the Company will
forthwith prepare and file with the Commission a supplement to
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the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time
such Prospectus is delivered to such purchaser, not misleading. If, after
the initial public offering of the Stock by the Underwriters and during
such period, the Underwriters shall propose to vary the terms of offering
thereof by reason of changes in general market conditions or otherwise, you
will advise the Company in writing of the proposed variation, and, if in
the opinion either of counsel for the Company or of counsel for the
Underwriters such proposed variation requires that the Prospectus be
supplemented or amended, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus
setting forth such variation. The Company authorizes the Underwriters and
all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with
the applicable provisions of the Securities Act and the applicable rules
and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the
Prospectus or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the Stock for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, in keeping such qualifications in good standing
under said securities or blue sky laws; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation in any jurisdiction in which it is not
so qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request
in writing, copies of all periodic and special reports furnished to
shareholders of the Company and of all information, documents and reports
filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date,
the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act
and Rule 158 thereunder.
(i) The Company and the Major Selling Securityholders jointly and
severally, and the ESOP, only as to its pro rata share, agree to pay all
costs and expenses incident to the performance of their obligations under
this Agreement, including all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and
of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in paragraph
(d) of this Section 6, (v) the furnishing to you and the Underwriters of
the reports and information referred to in paragraph (g) of this Section 6
and (vi) the printing and issuance of stock certificates, including the
transfer agent's fees. Each of the Selling Securityholders will pay any
transfer taxes incident to the transfer to the Underwriters of the shares
of Stock being sold by such Selling Securityholder.
(j) The Company and the Selling Securityholders jointly and
severally agree to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their
counsel in qualifying the Stock under state securities or blue sky laws and
in the review of the offering by the NASD.
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(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling Securityholders hereby agree to pay
and shall not affect any agreement which the Company and the Selling
Securityholders may make, or may have made, for the sharing of any such
expenses and costs.
(l) The Company and each of the Selling Securityholders, except for
the ESOP, hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company or such
Selling Securityholder, as the case may be, will not, for a period of 90
days following the commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The ESOP
hereby agrees that, without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, the ESOP will not, for a period of 90
days following the commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise; provided,
however, that this agreement shall not apply to distributions from the ESOP
to employees, their heirs or beneficiaries on account of death, disability
or retirement from the Company. The foregoing sentence shall not apply to
(A) the Stock to be sold to the Underwriters pursuant to this Agreement,
(B) shares of Common Stock issued by the Company upon the exercise of
options granted under the stock option plans of the Company (the "Option
Plans"), all as described in the paragraph containing bullet points
immediately following the table under the caption "Capitalization" in the
Preliminary Prospectus, and (C) options to purchase Common Stock granted
under the Option Plans.
7. Indemnification and Contribution.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act or the common law
or otherwise, and the Company and the Selling Securityholders jointly and
severally agree to reimburse each such Underwriter and controlling person for
any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company and the Selling Securityholders
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for
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use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by reference) and the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented) unless the failure is the result of noncompliance by the Company
with paragraph (c) of Section 6 hereof, and (3) each Selling Securityholder
(other than the Major Selling Securityholders) shall only be liable under this
paragraph with respect to (A) information pertaining to such Selling
Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements of the
Company and the Selling Securityholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholders
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (herein called the Notice) of such service or
notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding
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against, or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of Defense) to
the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Securityholders on the one hand and the Underwriters on the other shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Stock received by the Company and the Selling
Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Stock. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
14
<PAGE>
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under the indemnity and
reimbursement agreements contained in the provisions of this Section 7 and
Section 11 hereof shall be limited to an amount equal to the initial public
offering price of the stock sold by such Selling Securityholder to the
Underwriters. The Company and the Selling Securityholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States would, in the
Underwriters' reasonable judgment, make the offering or delivery of the Stock
impracticable, (iii) suspension of trading in securities generally or a material
adverse decline in value of securities generally on the New York Stock Exchange,
the American Stock Exchange, or The Nasdaq Stock Market, or limitations on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Securityholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Securityholders; provided, however, that in the event of
any such termination the Company and the Selling Securityholders agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the
15
<PAGE>
foregoing, and the form of the Registration Statement and of the Prospectus
(except as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Jones, Day, Reavis & Pogue,
counsel for the Underwriters.
(c) You shall have received from Gray, Harris & Robinson, P.A.,
counsel for the Company and the Selling Securityholders, and from Allen,
Dyer, Doppelt, Franjola & Milbrath, patent counsel for the Company,
opinions, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A and Annex B hereto, respectively,
and if Option Stock is purchased at any date after the Closing Date,
additional opinions from each such counsel, addressed to the Underwriters
and dated such later date, confirming that the statements expressed as of
the Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, and,
since such dates, except in the ordinary course of business, neither the
Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) neither the Company nor any of its subsidiaries has any material
contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not any pending or known
threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions
from those reasonably foreseeable as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, stating that the respective
signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein and any supplements or amendments thereto, and
that the statements included in clauses (i) through (vii) of paragraph (d)
of this Section 9 are true and correct.
(f) You shall have received from Ernst & Young, LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described
16
<PAGE>
in the Original Letter since the date of the Original Letter or to reflect
the availability of more recent financial statements, data or information.
The letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business or properties of the
Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Stock
or the purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have received from Ernst & Young, LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at September 30,
1999, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(i) On or prior to the Closing Date, you shall have received from
all directors and officers of the Company agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior
written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
such person or entity will not, for a period of 90 days following the
commencement of the public offering of the Stock by the Underwriters,
directly or indirectly, (i) sell, offer, contract to sell, make any short
sale, pledge, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Jones, Day, Reavis & Pogue, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company and the Selling
Securityholders. The obligation of the Company and the Selling Securityholders
to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the
17
<PAGE>
Selling Securityholders under this Agreement, including all costs and expenses
referred to in paragraphs (i) and (j) of Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 7 of this Agreement (and subject, in the case of a
Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company, the Selling Securityholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Securityholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, Sawtek Inc., 1818 South Highway
441, Apopka, Florida 32703, Attention: Chief Executive Officer, and if to the
Selling Securityholders, shall be mailed, telegraphed or delivered to the
Selling Securityholders in care of William A. Grimm, Esq., at Gray, Harris &
Robinson, P.A., 201 East Pine Street, Suite 1200, Orlando, Florida 32801. All
notices given by telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or the Selling Securityholders or their respective directors or
officers, and (c) delivery and payment for the Stock under this Agreement;
provided, however, that if this Agreement is terminated prior to the Closing
Date, the provisions of paragraphs (l) and (m) of Section 6 hereof shall be of
no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
18
<PAGE>
Please sign and return to the Company and to the Selling Securityholders in
care of the Company the enclosed duplicates of this letter, whereupon this
letter will become a binding agreement among the Company, the Selling
Securityholders and the several Underwriters in accordance with its terms.
Very truly yours,
SAWTEK INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
SELLING SECURITYHOLDERS:
SAWTEK INC. EMPLOYEE STOCK OWNERSHIP AND 401(K)
PLAN
By: HSBC Bank USA, not in its individual or
corporate capacity, but solely as Trustee
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
VIA TUSCANY INVESTMENT LIMITED PARTNERSHIP
By:
----------------------------------------
Todd C. Miller
General Partner
SAWMILL INVESTMENT LIMITED PARTNERSHIP
By: Sawmill (1996) Inc., its General Partner
By:
----------------------------------------
Steven P. Miller
President
VIA CAPRI INVESTMENT LIMITED PARTNERSHIP
By: Via Capri Inc., its General Partner
By:
----------------------------------------
Steven P. Miller
President
[Signatures continued on following page]
19
<PAGE>
MOPNJ INVESTMENT LIMITED PARTNERSHIP
By: MOPNJT Inc., its General Partner
By:
----------------------------------------
Neal Jay Tolar
President
MOP INVESTMENT LIMITED PARTNERSHIP
By: MOP Inc., its General Partner
By:
----------------------------------------
Neal Jay Tolar
President
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
CIBC WORLD MARKETS CORP.
BANC OF AMERICA SECURITIES LLC
By: Hambrecht & Quist LLC
By:
--------------------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
20
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
------------ ---------
<S> <C>
Hambrecht & Quist LLC ...............................
CIBC World Markets Corp. ............................
Banc of America Securities LLC ......................
---------
Total........................................... 4,000,000
</TABLE>
21
<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Sold
---------
<S> <C>
Name of Selling Securityholders
- -------------------------------
Major Selling Securityholders
-----------------------------
Via Capri Investment Limited Partnership 130,459
Via Tuscany Investment Limited Partnership 539,541
Sawmill Investment Limited Partnership 330,000
MOPNJ Investment Limited Partnership 700,000
MOP Investment Limited Partnership 300,000
Other Selling Securityholders
-----------------------------
Sawtek Inc. Employee Stock Ownership and 401(k) Plan..... 2,000,000
---------
Total.................................................... 4,000,000
Name of Shareholders Selling Option Stock
- -----------------------------------------
[------------------]..................................... [--------]
[------------------]..................................... [--------]
Total.................................................... 600,000
</TABLE>
22
<PAGE>
ANNEX A
Matters to be Covered in the Opinion of Gray, Harris & Robinson, P.A.
Counsel for the Company
and the Selling Securityholders
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, is duly qualified
as a foreign corporation and in good standing in each state of the United
States of America in which its ownership or leasing of property requires
such qualification, and has full corporate power and authority to own or
lease its properties and conduct its business as described in the
Registration Statement; all the issued and outstanding capital stock of
each of the subsidiaries of the Company has been duly authorized and
validly issued and is fully paid and nonassessable, and is owned by the
Company free and clear of all liens, encumbrances and security interests,
and to the best of our knowledge, no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to
convert any obligations into shares of capital stock or ownership interests
in such subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
120,000,000 shares of Common Stock, $0.0005 par value, of which there are
outstanding [----------] shares (including the Underwritten Stock plus the
number of shares of Option Stock issued on the date hereof); all of the
outstanding shares of such capital stock (including the Underwritten Stock
and the shares of Option Stock issued, if any) have been duly and validly
issued and are fully paid and nonassessable; any Option Stock purchased
after the Closing Date, when issued and delivered to and paid for by the
Underwriters as provided in the Underwriting Agreement, will have been duly
and validly issued and be fully paid and nonassessable; and no preemptive
rights of, or rights of refusal in favor of, shareholders exist with
respect to the Stock, or the issue and sale thereof, pursuant to the
Articles of Incorporation or Bylaws of the Company and, to the knowledge of
such counsel, there are no contractual preemptive rights that have not been
waived, rights of first refusal or rights of co-sale which exist with
respect to the Stock being sold by the Selling Securityholders or the issue
and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for
that purpose have been instituted or are pending or contemplated by the
Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities Act,
the Exchange Act and with the rules and regulations of the Commission
thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data derived therefrom, contained or incorporated
by reference therein, as to which such counsel need express no opinion or
belief) at the Effective Date contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial and statistical data derived therefrom, contained or incorporated
by reference therein, as to which such counsel need not express any opinion
or belief) as of its date or at the Closing Date (or any later date on
which Option Stock is purchased), contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9 and 10 (insofar as it relates to such
counsel) of Form S-3 is to the best of such counsel's knowledge, accurately
and adequately set forth therein in all material respects or no response is
required with respect to
23
<PAGE>
such Items, and the description of the Company's 1983 Incentive Stock
Option Plan, the Sawtek Inc. Second Stock Option Plan, the Sawtek Inc.
Employee Stock Purchase Plan, the Sawtek Inc. Stock Option Plan for
Acquired Companies, the Sawtek Inc. Employee Stock Ownership and 401(k)
Trust Agreement and the options and stock awards granted and which may be
granted thereunder and the options granted otherwise than under such plans
set forth or incorporated by reference in the Prospectus accurately and
fairly presents the information required to be shown with respect to said
plans, grants and options to the extent required by the Securities Act and
the rules and regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which, in
their opinion, are of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and
delivered by or on behalf of each of the Selling Securityholders; (B) the
Custody Agreement between the Selling Securityholders and SunTrust Bank
Central Florida, N.A., as Custodian, and the Power of Attorney referred to
in such Custody Agreement have been duly executed and delivered by such
Selling Securityholder; (C) the Custody Agreement entered into by, and the
Power of Attorney given by, (except for the Custody Agreement executed by
the ESOP) such Selling Securityholder is valid and binding on such Selling
Securityholder; and (D) each Selling Securityholder has full legal right
and authority to enter into the Underwriting Agreement and to sell,
transfer and deliver in the manner provided in the Underwriting Agreement
the shares of Stock sold by such Selling Securityholder thereunder;
(x) Such counsel do not know of any consents, authorizations,
approvals, orders, certificates and permits of and from, or declarations
and filings to be made with governmental authorities necessary to own,
lease, license and use the Company's properties and assets and to conduct
its business in the manner described in the Prospectus, which have not been
obtained or filed or where the failure to obtain or file such would not
have a material adverse effect on the Company.
(xi) to the best of such counsel's knowledge, all holders of
securities of the Company having rights to the registration of shares of
Common Stock, or other securities, because of the filing of the
Registration Statement by the Company have waived such rights or such
rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) good and marketable title to the shares of Stock sold by the
Selling Securityholders under the Underwriting Agreement, free and clear of
all liens, encumbrances, equities, security interests and claims, has been
transferred to the Underwriters who have severally purchased such shares of
Stock under the Underwriting Agreement, assuming for the purpose of this
opinion that the Underwriters purchased the same in good faith without
notice of any adverse claims;
(xiii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase and
distribution of the Stock by the Underwriters; and
(xiv) the Stock sold by the Selling Securityholders is listed and
duly admitted to trading on the Nasdaq National Market.
24
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of Allen, Dyer, Doppelt, Milbrath, &
Gilchrist, P.A.,
Patent Counsel for the Company
We are familiar with the Surface Acoustic Wave ("SAW") technology used by
the Company in its business and the manner of its use thereof and have read the
Registration Statement and the Prospectus, including particularly the portions
of the Registration Statement and the Prospectus referring to patents, trade
secrets, trademarks, service marks or other proprietary information or materials
and:
(i) We have no reason to believe that the Registration Statement or
the Prospectus contain any untrue statement of a material fact with respect
to, as applicable, patent rights, copyrights, trade secrets, trademarks,
service marks or other proprietary information or materials owned or used
by the Company or any allegation on the part of any person that the Company
is infringing any patent rights, trade secrets, trademarks, service marks
or other proprietary information or materials of any such person or omits
to state any material fact relating to patent rights, copyrights, trade
secrets, trademarks, service marks or other proprietary information or
materials of any such person;
(ii) We have no reason to believe that the Registration Statement or
the Prospectus omit any material fact relating to, as applicable, patent
rights, copyrights, trade secrets, trademarks, service marks or other
proprietary information or materials owned by or used by the Company, or
the manner of the Company's use thereof, necessary to make the statements
therein not misleading; and
(iii) We are not aware that there is any allegation by another person
of which we have knowledge that is required to be stated in the
Registration Statement or the Prospectus or is necessary to make the
statements therein not misleading.
25
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GRAY, HARRIS & ROBINSON, P.A.]
January 24, 2000
Sawtek, Inc.
1818 South Highway 441
Apopka, Florida 32703
Re: Registration Statement on Form S-3, as amended
Dear Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3, as amended, filed
by you with the Securities and Exchange Commission on January 24, 2000, File No.
333-92527 (the "Registration Statement") in connection with the registration
under the Securities Act of 1933, as amended, of 4,600,000 shares of Common
Stock of Sawtek Inc. (the "Shares"), assuming the underwriters' overallotment
option is exercised, by certain selling shareholders. As your counsel in
connection with this transaction, we have examined the proceedings proposed to
be taken in connection with the sale of the Shares.
It is our opinion that the Shares will, when sold, be legally issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting part thereof, and
any amendment thereto and any registration statement for the same offering
covered by the Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) and all post-effective amendments thereto.
Very truly yours,
Gray, Harris & Robinson, P.A.
By: /s/ William A. Grimm
--------------------
William A. Grimm
<PAGE>
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 Amendment No. 2 to the Registration Statement (Form S-3
No. 333-92527) and related Prospectus of Sawtek Inc. for the registration of
4,600,000 shares of its common stock.
/s/ Ernst & Young LLP
Orlando, Florida
January 24, 2000
